Wakilii

AC Yafeng Construction Limited v Registered Trustees of Living Word Assembly Church and Anor (Civil Miscellaneous Application No. 1 of 2021)

High Court · [2021] UGCOMMC 49 · 2021 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for interim injunction pending arbitration arising from a construction contract dispute
Decision
Application dismissed and interim injunction vacated

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court held that the applicant's name was a misnomer curable by amendment. However, the application for an interim injunction was dismissed. The performance guarantee was unconditional and independent of the underlying construction contract. The guarantee required only a written demand declaring the contractor in default, without proof of breach. Granting an injunction would defeat the commercial purpose of unconditional guarantees, which allocate risk by giving the beneficiary access to funds during disputes.

Outcome

Application dismissed and interim injunction vacated

Facts

The 1st respondent contracted the applicant on 10 September 2019 to construct church facilities at Kajjansi for USD 11,372,367, with completion due by 24 October 2022. The applicant obtained a performance guarantee from the 2nd respondent bank for UGX 4,169,772,511 in the 1st respondent's favour. The 1st respondent made an advance payment of UGX 5,569,772,512. By December 2020, disputes arose regarding the applicant's performance. The 1st respondent terminated the contract on 23 December 2020, notified the bank on 28 December 2020, and demanded payment under the guarantee. The bank demanded payment from the applicant on 29 December 2020. The applicant sought appointment of an arbitrator on 30 December 2020 and applied for an interim injunction to restrain the bank from honouring the guarantee and the 1st respondent from making further demands pending arbitration.

Issues

  1. Whether the applicant's incorrect name in the pleadings constitutes a case of misidentification or misnomer curable by amendment.
  2. Whether the court should grant an interim injunction restraining the bank from honouring a performance guarantee and the beneficiary from making a call on it pending arbitration.
  3. Whether the performance guarantee in question is conditional or unconditional.
  4. Whether the applicant has demonstrated a prima facie case likely to succeed in arbitration.
  5. Whether the applicant would suffer irreparable harm if the injunction is not granted.
  6. Whether the balance of convenience favours granting the injunction.

Orders

  • Applicant's name corrected by amendment from AC Yafeng Construction Limited to AC Yafeng Construction Company Limited.
  • Interim injunction order issued on 5 January 2021 vacated.
  • Application dismissed.
  • Costs of the application and of the interim injunction awarded to the 1st respondent.

Rules and key headnotes

Civil Procedure — Parties — Misnomer — Distinction from Misidentification — Amendment
Misnomer occurs when the identity of the person is certain but he or she is given an incorrect name. It differs from misidentification, where an entirely wrong person is named. A misnomer is curable by amendment where a reasonable person would attribute the incorrect name to the intended party. The test is whether a reasonable person reading the name in all the circumstances would say 'of course it must mean so and so, but they have got his name wrong.'
Banking & Finance — Performance Guarantees — Conditional versus Unconditional Guarantees — Characteristics
An unconditional performance guarantee constitutes a primary independent obligation to pay upon written demand, independent of the underlying contract. It is characterised by the absence of conditions beyond making the call itself. A conditional guarantee requires proof of breach and loss under the underlying contract before payment becomes due. The distinction depends on the wording of the guarantee and the intention of the parties as ascertained from that wording.
Banking & Finance — Performance Guarantees — Unconditional Guarantees — Autonomy Principle
Unconditional performance guarantees are autonomous and independent of the underlying contract. A bank issuing such a guarantee is not concerned with the relations between contractor and employer nor with whether the contractor has performed contractual obligations. The guarantor must pay if documents are in order and a proper demand is made, regardless of disputes under the underlying contract. These guarantees are the lifeblood of international commerce and courts will rarely interfere with them except in clear cases of fraud.
Arbitration & ADR — Interim Measures of Protection — Injunction Restraining Call on Performance Guarantee — Conditions for Grant
To justify an injunction restraining a call on a performance guarantee pending arbitration, the contractor must show that the guarantee is conditional; or that the employer is calling beyond the permitted circumstances under the underlying contract; or that the employer's call is founded on a claim that is specious, fanciful, or untenable. A weak claim of breach is insufficient. Where the guarantee is unconditional, courts will not normally interfere absent fraud or unconscionability.
Banking & Finance — Performance Guarantees — Unconditional Guarantees — Purpose and Risk Allocation
Unconditional performance guarantees serve a dual purpose: securing the contractor's performance and allocating risk by giving the employer access to funds during disputes. They embody the principle 'pay first and argue later.' Granting an injunction to restrain a call would defeat the commercial purpose of such guarantees by reversing the risk allocation agreed by the parties and placing the beneficiary in the position it sought to avoid.
Commercial Law — Uniform Rules for Demand Guarantees — Independence of Guarantor's Obligations
Under the Uniform Rules for Demand Guarantees (URDG) ICC Publication No. 758, Article 5(a), the obligations of a guarantor are independent of any issues in the underlying contract. The guarantor is not concerned with or bound by the underlying relationship. The undertaking to pay is not subject to claims or defences arising from relationships other than that between guarantor and beneficiary.

Legislation cited (3)

Cases cited (21)

  • 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
  • Kiyimba Kaggwa v Katende Haji Abdu Nasser [1985] HCB 44
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
  • RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146
  • 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
  • Davies v Elsby Brothers Ltd [1960] 3 All ER 672
  • 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 & another [1999] 4 MLJ 199
  • Kiyimba-Kagwa ELT 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 Anor (Civil Miscellaneous Application No. 1 of 2021) [2021] UGCommC 49 (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.