Wakilii

Omega Construction Limited v Attorney General and Another (Miscellaneous Application 1613 of 2022)

High Court · [2023] UGCOMMC 31 · 2023 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for temporary injunction arising from pending civil suit
Decision
Application dismissed with interim injunction set aside; bank not restrained from honouring performance guarantee

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Application for temporary injunction restraining payment of a performance guarantee dismissed. Held that performance guarantees operate autonomously from underlying contracts and must be paid on complying demand unless fraud, illegality, or unconscionability is established. The applicant failed to demonstrate clear fraud or unconscionable conduct by the beneficiary in calling the guarantee. The autonomy principle prevents courts from interfering with payment obligations based on disputes in the underlying construction contract.

Outcome

Application dismissed with interim injunction set aside; bank not restrained from honouring performance guarantee

Facts

Omega Construction Limited contracted with the Ministry of Works and Transport to construct the Ssezibwa crossing for approximately UGX 12.2 billion. After substantial completion, the applicant raised payment certificates which the Ministry refused to pay, alleging the contractor failed to deploy key personnel, maintain valid securities, and complete certain works. The Ministry terminated the contract on 7 November 2022 and called on a performance guarantee of UGX 1,220,705,528 issued by Centenary Rural Development Bank. The applicant had previously terminated the contract on the same date citing non-payment of interim certificates and referred the dispute to adjudication. The applicant sought a temporary injunction restraining the bank from honouring the guarantee, arguing fraud and unconscionability.

Issues

  1. Whether the applicant has shown a prima facie case with a probability of success
  2. Whether the applicant will suffer irreparable injury which would not be adequately compensated by award of damages
  3. Where the balance of convenience lies between granting or refusing the temporary injunction
  4. Whether there is fraud or unconscionability in the 1st respondent's call on the performance guarantee
  5. Whether the 2nd respondent bank was on notice of fraud when the 1st respondent sought payment under the guarantee

Orders

  • Application dismissed.
  • Interim injunction order issued on 28th November 2022 set aside.
  • 2nd respondent not restrained from honouring the demand made by the 1st respondent in respect of performance guarantee Ref. No. CRDB/MAPEERA PLATINUM/TF/21.01/05/2019.
  • Costs of the application to abide the result of the suit.

Rules and key headnotes

Demand Guarantees — Autonomy Principle — Independence from Underlying Contract
A demand performance guarantee is autonomous from and independent of the underlying contract between the beneficiary and the principal, meaning the guarantor must pay if proper complying documents are presented, even if the beneficiary has not proven default under the original underlying contract.
Demand Guarantees — Exceptions to Payment Obligation — Fraud
Courts will restrain payment under a demand guarantee only in exceptional circumstances including fraud, illegality, or unconscionability. To establish fraud, the applicant must show that the beneficiary made the call knowing it to be incorrect or without honest belief in the validity of its demand, and that the bank had notice of the fraud at the time of the call.
Demand Guarantees — Test for Fraud — Strong Prima Facie Case Required
To obtain an injunction restraining payment under a demand guarantee on grounds of fraud, evidence of fraud must be clearly established to a standard almost beyond doubt, both as to the fact of fraud and as to the guarantor's knowledge. Mere breach of the underlying contract by the beneficiary does not constitute fraud.
Performance Guarantees — Effect of Termination of Underlying Contract
The validity of a demand performance guarantee continues after the termination of the underlying contract because it was established to secure due performance under the contract. A guarantor cannot rely on the suspension or termination of the underlying obligations to object to payment.
Interlocutory Injunctions — Three-Part Test — Prima Facie Case, Irreparable Harm, Balance of Convenience
The conditions for grant of a temporary injunction are that the applicant must show a prima facie case with probability of success, that the applicant will suffer irreparable injury not adequately compensable by damages, and if the court is in doubt, the application will be decided on the balance of convenience.
Demand Guarantees — Unconscionability Exception — High Threshold
Unconscionability as an exception to payment of a demand guarantee involves unfairness distinct from dishonesty or fraud, or conduct so reprehensible or lacking in good faith that a court of conscience would restrain the party. The test requires egregious conduct that would vitiate the very foundation of the bank guarantee and involves a lack of good faith resulting in distinct unfairness.

Legislation cited (10)

Cases cited (20)

  • E.A. Industries v Trufoods [1972] EA 420
  • American Cyanamid Co v Ethicon Limited [1975] AC 396
  • Geilla v Cassman Brown Co Ltd [1973] EA 358
  • GAPCO Uganda Limited v Kaweesa and Another (Miscellaneous Application No. 259 of 2013)
  • Fellowes and Son v Fisher [1976] 1 QB 122
  • Leonardo SpA v Doha Bank Assurance Company LLC [2019] QIC (F) 6
  • Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 3
  • IE Contractors v Lloyd's Bank [1990] 2 Lloyd's Rep 496
  • Sea-Cargo Skips v State Bank of India [2013] EWHC 177 (Comm)
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 QB 159
  • Intraworld Industries, Inc. v. Girard Trust Bank, 336 A.2d 316 (Pa. S.C. 1975)
  • Sztejn v. J. Henry Schroder Banking Corp. - 177 Misc. 719, 31 N.Y.S.2d 631 (Sup. Ct. 1941)
  • Enka Insaat Ve Sanayi v Banca Popolare Dell'Alto Adige [2009] EWHC 2410
  • United Trading Corp v Allied Arab Bank [1985] 2 Lloyd's Rep 554
  • Barclay Mowlem Construction Ltd v. Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451
  • Wood Hall Ltd v. Pipeline Authority (1979) 141 CLR 443
  • Derry v Peek [1889] 14 App Cas 337
  • City Council of Kampala v Donozio Musisi Sekyaya (Civil Application No. 3 of 2000)
  • Godfrey Sekitoleko and Four Others v Seezi Peter Mutabazi and Two Others [2001-2005] HCB 80
  • Nsubuga and Another v Mutawe [1974] EA 487

Full judgment

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Omega Construction Limited v Attorney General and Another (Miscellaneous Application 1613 of 2022) [2023] UGCommC 31 (10 July 2023)
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.