Wakilii

Polat Yol Yapi Sanvetic SA v Uganda National Roads Authourity (Miscellaneous Application 3 of 2022)

High Court · [2023] UGCOMMC 43 · 2023 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for interim measure of protection under the Arbitration and Conciliation Act restraining termination of contract and enforcement of bank guarantees pending arbitration
Decision
Application for interim measure of protection dismissed

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The court dismissed the application for an interim measure restraining termination of a road construction contract and enforcement of bank guarantees pending arbitration. While the applicant satisfied the threshold of demonstrating a serious question to be arbitrated, it failed to establish manifest fraud, unconscionable conduct, or that the beneficiary could not honestly believe in the validity of its demand. The balance of convenience favoured the respondent: demand guarantees embody an agreed allocation of risk, and restraining orders are rarely granted to prevent termination of construction contracts between sophisticated commercial parties.

Outcome

Application for interim measure of protection dismissed

Facts

On 7 November 2019, the respondent contracted the applicant to upgrade the Muyembe-Nakapiripirit Road. The contract commencement date was 30 March 2020. The respondent became dissatisfied with delayed commencement and on 18 January 2022 called on the advance payment guarantee (UGX 14,259,362,014 and USD 12,413,382) issued by DFCU Bank. On 25 January 2022 the respondent issued a termination notice. The applicant contended that COVID-19 pandemic disruptions in the supply chain caused the delay and that by 25 January 2022 all required equipment had been mobilised. The applicant sought to prevent enforcement of the guarantees pending arbitration. The respondent argued the dispute should be resolved through the contract's adjudication and arbitration clauses and that the contract had since been allowed to continue following ministerial intervention.

Issues

  1. Whether the applicant has a prima facie case or a serious question to be arbitrated with a probability of success.
  2. Whether the applicant will suffer irreparable harm if the restraining order does not issue.
  3. Whether the balance of convenience favours granting the restraining order.
  4. Whether the applicant established a strong prima facie case of fraud in the documents presented.
  5. Whether the respondent could not honestly have believed in the validity of its demand under the guarantee.
  6. Whether the guarantor knew of the fraud at the time the respondent sought payment under the guarantee.

Orders

  • Application dismissed.
  • Costs awarded to the respondent.

Rules and key headnotes

Arbitration & ADR — Interim Measures of Protection — Ancillary Jurisdiction of Court
Under section 6 of the Arbitration and Conciliation Act, the court's jurisdiction is ancillary to the arbitration process and may be invoked to grant interim protective measures including injunctive relief for: procuring or preserving evidence; facilitating proceedings; restraining assertion of doubtful rights; providing for safety of property; or protecting the efficacy or integrity of arbitral proceedings.
Arbitration & ADR — Interim Restraining Orders — Conditions for Grant
When court is called upon to grant injunctive relief as an interim measure pending arbitration, the court will have regard to: (a) whether there is a serious question to be arbitrated in respect of which the applicant demonstrates sufficient likelihood of success; (b) whether there is imminent risk of irreparable loss by considering whether damages are an adequate remedy; and (c) the balance of convenience, i.e. the course of action that results in the lower risk of injustice if the decision is incorrect.
Banking & Finance — Demand Guarantees — Independence Principle and Exceptions
The independence of a demand guarantee from the underlying contract means that in principle the guarantor must pay a demand presented in compliance with the guarantee's terms, irrespective of whether the principal has breached the underlying contract. Courts will very rarely restrain payment under demand guarantees. The exceptions are: (i) fraud affecting the documents; (ii) illegality; (iii) infringement of international obligations; (iv) total failure of the basis of the contract; and (v) express contractual derogation from the autonomy principle.
Banking & Finance — Demand Guarantees — Fraud Exception — Standard of Proof
To obtain a restraining order against payment under a demand guarantee on grounds of fraud, strong or compelling evidence must be led showing that the documents presented to the bank are forgeries or contain express material misrepresentations. The fraud must be manifest — obvious and easily demonstrable without extensive investigation. It must be conduct so egregious as to vitiate the very foundation of the guarantee, such as where the guarantee is called with absolutely no basis in fact. Mere breach, non-compliance, error, misunderstanding or oversight does not amount to fraud.
Banking & Finance — Demand Guarantees — Test for Fraud Exception
It must be seriously arguable on the material available that the only realistic inference is that the beneficiary could not honestly have believed in the validity of its demand under the guarantee and that the bank was aware of that fact. A false representation made without actual knowledge that it is false but with no honest belief in its truth can constitute fraud under the fraud exception, because fraud connotes the absence of honest belief in either the entitlement to claim under the guarantee or in the amount claimed.
Contract Law — Restraining Orders Against Termination — Balance of Convenience
Courts will grant restraining orders against termination of contracts in very exceptional cases because such an order effectively requires parties who have fallen out and one of whom has lost confidence in the other to continue working together. Where sophisticated commercial parties have freely negotiated a contract providing commercial solutions and remedies for lawful or unlawful termination, courts do not consider it unjust to confine a party to contractual remedies in damages rather than grant restraining orders preventing termination.
Banking & Finance — Demand Guarantees — Risk Allocation and Balance of Convenience
By agreeing that a contractor will provide a demand performance guarantee on the contractual terms, the parties have agreed to allocate the financial risk of any dispute to the contractor until it is finally resolved. This agreed risk allocation is a significant factor in the balance of convenience. Performance guarantees serve as risk management tools and embody an agreed allocation as to which party is to be out of pocket pending resolution of disputes about breach of the underlying contract.

Legislation cited (2)

Cases cited (10)

  • E.A. Industries v Trufoods [1972] E.A. 420
  • American Cyanamid Co v Ethicon Limited [1975] AC 396
  • Geilla v Cassman Brown Co Ltd [1973] E.A. 358
  • GAPCO Uganda Limited v Kaweesa and another (Miscellaneous Application No. 259 of 2013)
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 All ER 976
  • Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 3
  • Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC)
  • Doosan Babcock Ltd v Commercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3010 (TCC)
  • Barclay Mowlem Construction Ltd v Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451
  • United Trading Corporation S.A. v Allied Arab Bank Ltd [1985] 2 Lloyd's Rep 554

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

Polat Yol Yapi Sanvetic SA v Uganda National Roads Authourity (Miscellaneous Application 3 of 2022) [2023] UGCommC 43 (1 February 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.