Wakilii

Roko Construction Limited v Aga Khan University and Another (Misc Cause No. 15 of 2022)

High Court · [2022] UGCOMMC 99 · 2022 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for interim measure of protection pending arbitration
Decision
Interim injunction set aside; respondent at liberty to call on the performance guarantee

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Court declined to restrain encashment of an unconditional on-demand performance guarantee pending arbitration. An unconditional guarantee requires only written demand by the beneficiary stating breach; the guarantor is duty-bound to pay without proof of default. The applicant failed to prove fraud to the requisite standard. Lack of bank confirmation of signature authenticity does not constitute fraud but at most a contractual breach remediable in arbitration. The applicant's alleged losses were speculative and compensable in damages. Balance of convenience favoured the beneficiary who had already extended the guarantee beyond the completion date.

Outcome

Interim injunction set aside; respondent at liberty to call on the performance guarantee

Facts

Roko Construction Ltd entered a contract dated 28 May 2019 with Aga Khan University to construct a mockup building. Absa Bank issued an unconditional performance guarantee of USD 88,637.90 for the applicant's benefit. The contract contained an arbitration clause requiring disputes to be referred to ICC arbitration after issuance of a taking over certificate. By addendums dated September 2020 and December 2021, the first respondent took over direct payment of suppliers and subcontractors. The performance guarantee was extended from February 2021 to 30 July 2022. On 25 April 2022 the first respondent made written demand on the bank stating the contractor failed to complete works by the stipulated date despite extensions. The applicant obtained an interim order restraining encashment and applied for a permanent interim measure pending arbitration, alleging fraud and irreparable harm.

Issues

  1. Whether the court should grant an interim measure of protection restraining encashment of an unconditional performance guarantee pending arbitration.
  2. Whether the applicant established fraud sufficient to prevent encashment of the performance guarantee.
  3. Whether the applicant would suffer irreparable injury if the performance guarantee was cashed.

Orders

  • Application dismissed with costs.
  • Interim measure of protection issued on 13th May 2022 set aside.

Rules and key headnotes

Interim Measures of Protection — Unconditional Performance Guarantees
Under Section 6 of the Arbitration and Conciliation Act, a court may grant interim measures of protection before or during arbitral proceedings. An unconditional on-demand performance guarantee requires only a written demand by the beneficiary stating breach; the guarantor is duty-bound to pay irrespective of disputes raised by the contractor in court or arbitration. An injunction restraining encashment will not issue unless the applicant proves fraud or that the guarantee is conditional.
Performance Guarantees — On-Demand Bonds — Nature and Enforcement
An unconditional or on-demand performance guarantee constitutes a primary independent obligation placed on the guarantor to pay upon written demand without requiring proof of breach or default under the underlying contract. The guarantee is independent of disputes between employer and contractor, and the guarantor is not concerned with whether parties fulfilled their obligations under the underlying transaction. The only condition precedent for calling on such a guarantee is written notice to the guarantor stating default.
Performance Guarantees — Fraud Exception — Standard of Proof
Fraud is the only exception where payment under a performance bond may be refused. Fraud must be proved strictly, with a burden of proof higher than the balance of probabilities generally applied in civil matters. Fraud requires intentional perversion of truth to induce another to part with something valuable or surrender a legal right. Absence of bank confirmation of signature authenticity as stipulated in the guarantee does not constitute fraud but at most a breach of contract remediable in arbitration.
Interim Injunctions — Irreparable Injury — Adequacy of Damages
Irreparable injury means substantial or material injury that cannot adequately be compensated in damages. Speculative losses such as alleged risk of multiple suits, reputational damage, or difficulty recovering from a non-resident party do not constitute irreparable injury where breach of contract claims are compensable in damages and established procedures exist for recovering from non-residents. Where the underlying dispute is contractual, damages are ordinarily an adequate remedy.

Legislation cited (4)

Cases cited (6)

  • Pan-Afric Impex (U) Ltd v Barclays Bank PLC and Absa Bank Ltd (MA No. 804/2007)
  • AC Yafeng Construction Limited v Registered Trustees of Living Word Assembly Church (MA No. 01/2021)
  • National Housing & Construction Co Ltd v Lion Assurance Co Ltd (CS No. 239/2013)
  • Fredrick Zaabwe v Orient Bank and Others (SCCA No. 04 of 2006)
  • Kampala Bottlers Ltd v Damanico (U) Ltd (Civil Appeal No. 22/1992)
  • E.L.T Kiyimba-Kaggwa v Hajji Katende Abdu Nasser [1985] HCB 43

Full judgment

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Roko Construction Limited v Aga Khan University and Another (Misc Cause No. 15 of 2022) [2022] UGCommC 99 (28 July 2022)
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.