Wakilii

AC Yafeng Construction Limited v Registered Trustees of Living word assembly Church and Another (Miscellaneous Civil Application No. 1 of 2021)

High Court · [2021] UGCOMMC 125 · 2021 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for interim measures of protection pending arbitral proceedings, seeking injunction to restrain enforcement of performance guarantee
Decision
Application dismissed; interim injunction vacated; costs to 1st respondent

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Court held that the applicant's misnomer (omission of 'Company' from its name) was curable by amendment. On the substantive application, court found the performance guarantee was unconditional and autonomous from the underlying construction contract, requiring only a written demand declaring default. Applying the autonomy principle for on-demand guarantees, court held that interim injunctions restraining enforcement should only issue in cases of fraud, unconscionability, or express contractual prohibition—none of which were established. Application dismissed; interim injunction vacated.

Outcome

Application dismissed; interim injunction vacated; costs to 1st respondent

Facts

The 1st respondent contracted the applicant on 10 September 2019 for construction of a church complex at Kajjansi for US$11,372,367, to be completed by October 2022. The applicant obtained a performance guarantee with the 2nd respondent in the 1st respondent's favour. After the 1st respondent advanced payment and works commenced, differences emerged by December 2020. The 1st respondent terminated the contract on 23 December 2020, then demanded payment under the performance guarantee. On 29 December 2020, the 2nd respondent demanded payment from the applicant. The applicant sought appointment of an arbitrator and applied for interim measures to restrain enforcement of the guarantee pending arbitration.

Issues

  1. Whether the applicant's name contained a misnomer capable of correction by amendment.
  2. Whether the court should grant an interim injunction restraining the respondents from enforcing an unconditional performance guarantee pending arbitration.
  3. Whether the performance guarantee in issue was conditional or unconditional in nature.
  4. Whether the applicant established a prima facie case for the grant of interim measures of protection under section 6(1) of the Arbitration and Conciliation Act.

Orders

  • Name of applicant corrected by amendment from 'AC Yafeng Construction Limited' to 'AC Yafeng Construction Company Limited'.
  • Interim injunction order issued on 5 January 2021 restraining the 2nd respondent from honouring the 1st respondent's demand under the performance guarantee is hereby vacated.
  • Miscellaneous Civil Application No. 1 of 2021 is dismissed.
  • Costs of this application and those of the application for interim injunction awarded to the 1st respondent.

Rules and key headnotes

Civil Procedure — Parties — Misnomer — Distinction from Misidentification
Misnomer occurs when the identity of the person is certain but he or she is given an incorrect name, and is curable by amendment. In contrast, misidentification occurs when an entirely wrong person is named, different from the one intended, and is not curable by amendment. For misnomer to apply, the author must have intended to name the subject to whom the name is now being attributed, and a reasonable person would attribute the name to the person to whom it is now intended to be attributed.
Commercial Law — Performance Guarantees — Conditional v Unconditional Guarantees — Distinction
A conditional performance guarantee is characterised by the requirement for the beneficiary to establish default in the underlying contract together with loss suffered as a consequence before calling the guarantee. An unconditional or on-demand performance guarantee constitutes a primary independent obligation on the guarantor to pay upon written demand without proof of breach of the underlying contract. The guarantee's wording determines its classification.
Commercial Law — Performance Guarantees — Autonomy Principle
On-demand performance guarantees are autonomous and independent of the underlying construction contract. Where a guarantee requires only a written demand declaring the contractor to be in default, without requiring proof of breach, presentation of judgment or arbitral award, or certification by an engineer, the guarantor assumes a primary and independent obligation to pay rather than a guarantee of the contractor's due performance. The guarantor is not concerned with disputes between the parties to the underlying contract.
Arbitration & ADR — Interim Measures — Injunctions Restraining Performance Guarantees — Grounds
Under section 6(1) of the Arbitration and Conciliation Act, a court may grant interim measures of protection pending arbitration to maintain status quo, prevent harm to the arbitral process, or preserve assets from which an award may be satisfied. However, to justify an injunction restraining enforcement of a performance guarantee, the applicant must show that: (i) the guarantee is conditional; or (ii) the employer is calling beyond circumstances permitted under the underlying contract; or (iii) the employer's call is founded on a claim that is specious, fanciful or untenable.
Banking & Finance — On-Demand Guarantees — Exceptions to Enforcement — Fraud and Unconscionability
Courts will only prevent a party from calling upon an unconditional performance guarantee where: (i) the party is acting fraudulently; (ii) the party is acting unconscionably; or (iii) the party has made a contract not to call upon the guarantee. Clear words are required to support a construction which inhibits a beneficiary from calling on an unconditional guarantee where a breach is alleged in good faith. The intended purpose of such guarantees includes allocating risk between parties as to who will be out of pocket during a dispute.
Commercial Law — Performance Guarantees — URDG Rules — Independence Principle
Under Article 5(a) of the Uniform Rules of Demand Guarantee (URDG) ICC Publication No. 758, the obligations of a guarantor are independent of the underlying relationship and the application. A reference in the guarantee to the underlying relationship for the purpose of identifying it does not change the independent nature of the guarantee. The undertaking to pay is not subject to claims or defences arising from the underlying relationship.

Legislation cited (3)

Cases cited (22)

  • The Fort Hall Bakery Supply Co. v Fredrick Muigai Wangoe [1959] EA 474
  • Trustees of Rubaga Miracle Centre v Mulangira Ssimbwa (Miscellaneous Application No. 576 of 2006)
  • J. B. Kohli and others v Bachulal Popatlal [1964] EA 219
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
  • RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146
  • Kiyimba Kaggwa v Katende Haji Abdu Nasser [1985] HCB 44
  • Davies v Elsby Brothers Ltd [1960] 3 All ER 672
  • Ward Petroleum Corp. v Federal Deposit Insurance Corp (1990) 903 F 2d 1299
  • Kirames Sdn Bhd v Federal Land Development Authority [1991] 2 MLJ 198
  • Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 MLJ 149
  • IE Contractors Ltd v Lloyd's Bank Plc and Rafidain Bank [1990] 2 Lloyd's Rep 296
  • Teknik Cekap Sdn Bhd v Public Bank Berhad [1995] 3 MLJ 449
  • Meritz Fire and Marine Insurance Co. Ltd v Jan De Nul NV and another [2011] 2 Lloyd's Rep 379
  • Fasda Heights Sdn Bhd v Soon Ee Sing Construction Sdn Bhd and another [1999] 4 MLJ 199
  • Kiyimba-Kagwa E.L.T. v Haji Abdu Nasser Katende [1985] HCB 43
  • Mugenyi Yesero v Wandera Philemon K. [1987] HCB 78
  • Uganda Moslem Supreme Council v Kagimu Mulumba and Four others [1980] HCB 110
  • AES-3C Maritza East 1 EOOD v Credit Agricole Corporate and Investment Bank and Alstom Power Systems GmbH [2011] EWHC 123
  • Clough Engineering Limited v Oil & Natural Gas Corporation Limited [2008] FCAFC 136
  • Sirius International Insurance Co v FAI General Insurance Ltd [2003] 1 WLR 2214
  • Kawasaki Heavy Industries Ltd v Laing O'Rourke Australia Construction Pty Ltd [2017] NSWCA 291
  • Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657

Full judgment

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AC Yafeng Construction Limited v Registered Trustees of Living word assembly Church and Another (Miscellaneous Civil Application No. 1 of 2021) [2021] UGCommC 125 (9 March 2021)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.