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UAP Old Mutual Insurance Uganda Limited v Rwenzori Hydro (PVT) Limited & Another (Miscellaneous Application 446 of 2024)

High Court · [2024] UGCOMMC 230 · 2024 Application Dismissed — Judgment Entered for Respondents AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for leave to appear and defend arising from Civil Suit No. 233 of 2024 seeking payment under demand performance bonds
Decision
Application dismissed; judgment entered for respondents for the full amounts claimed under the two performance bonds plus interest at 4% per annum and costs

Observed later treatment

Cited — treatment unverified cited in 2 (treatment unverified) Sequitur — Uganda’s citator · Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

Citator coverage is limited to judgments in the Wakilii corpus and source-matched treatment records. Absence of a signal is not an assertion that the case remains good law.

No adverse treatment recorded Cited 2 times with no adverse treatment recorded; not yet tested on the merits. Citations fading — 8 citing cases on record, 8 in the most recent three data years. Derived from citing cases in the Wakilii corpus — a deterministic signal, not legal advice.

AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions—always read the source judgment before relying on it.

Holding

Court refused leave to appear and defend and entered judgment for the respondents. Held that performance bonds issued by the applicant as guarantor were demand guarantees governed by the principle of autonomy — the guarantor must pay on complying demand irrespective of disputes in the underlying contract. The applicant's letter requesting further documentation did not constitute a valid rejection under URDG 758. Unconscionability may restrain a beneficiary from calling a bond in interlocutory injunction proceedings, but does not afford a guarantor a defence in an action for payment where the demand complies with the bond terms and no fraud is shown.

Outcome

Application dismissed; judgment entered for respondents for the full amounts claimed under the two performance bonds plus interest at 4% per annum and costs

Facts

The applicant insurance company issued two performance bonds securing the obligations of VS Hydro Uganda Limited and VS Hydro (Pvt) Limited as contractors under EPC contracts for the construction of two hydropower projects. The bonds required extension if the contractors' obligations had not been completed 28 days before expiry. On 30 November 2021, the respondent employers requested extension of the bonds. The applicant undertook to extend them on 2 December 2021 subject to regulatory approval. On 5 December 2021 — two days later — the respondents called on both bonds for failure to extend within 28 days of expiry. The applicant's letter of 9 December 2021 did not unequivocally reject the demand but requested further documentation. The respondents filed suit for payment. The applicant sought leave to defend, arguing the calls were unconscionable because the projects had reached commercial operations, the respondents had delayed in requesting extension, and underlying disputes should be resolved by arbitration.

Issues

  1. Whether the applicant has a good and plausible defence to the respondents' claim for payment under two performance bonds.
  2. Whether the calls on the performance bonds were unconscionable and made in bad faith.
  3. Whether the demands on the performance bonds were duly rejected by the applicant.
  4. Whether unconscionability in the underlying transaction provides a defence or raises triable issues from a guarantor's perspective.
  5. Whether the circumstances surrounding the attaining of commercial operations of the projects and failure to issue a take-over certificate affords the applicant a defence or raises triable issues.

Orders

  • Application for leave to appear and defend dismissed with costs to the respondents.
  • Judgment entered for the 1st respondent in the sum of US $2,577,020 owed on Performance Bond No. 010/132/1/001055/2017 dated 29 July 2021.
  • Judgment entered for the 2nd respondent in the sum of US $1,322,150 owed on Performance Bond No. 010/132/1/001054/2017 dated 25 May 2021.
  • Interest awarded at 4% per annum on each sum from date of judgment until payment in full.
  • Costs of the suit awarded to the respondents.

Rules and key headnotes

Civil Procedure — Summary Procedure — Leave to Appear and Defend — Test
To merit a grant of leave to appear and defend under summary procedure, the applicant must show a state of facts which lead to the inference that at trial he may be able to establish a defence to the plaintiff's claim. The court merely considers whether the facts alleged constitute a good defence in law and whether that defence appears to be bona fide. While the applicant need not formulate the defence with the precision required in evidence, he must do so with sufficient clarity to enable the court to ascertain whether the facts deposed to would, if proved at trial, constitute a good defence. The defence must amount to more than mere assertion — there must be substance to the proposed defence.
Banking & Finance — Demand Guarantees — Autonomy Principle — Obligation to Pay on Complying Demand
Demand guarantees are autonomous contracts independent of the underlying transaction. A guarantor must pay on presentation of a demand complying with the terms of the guarantee, irrespective of whether the principal has in fact breached the underlying contract and irrespective of the loss actually suffered by the beneficiary. Any demand within the maximum amount stipulated in the demand guarantee must in principle be paid by the guarantor. The guarantor is concerned only with the terms of the demand, not with whether it is justified. The conditions giving rise to the obligation to pay are found exclusively in the demand guarantee and the terms of the underlying contract are of no relevance.
Banking & Finance — Demand Guarantees — URDG 758 — Rejection of Non-Complying Demand
Under Article 24 of the Uniform Rules for Demand Guarantees (URDG 758), when a guarantor determines that a demand is not complying, it may reject that demand. The rejection must be given by a single notice stating that the guarantor is rejecting the demand and specifying each discrepancy for which the demand is rejected. A letter that requests further documentation rather than unequivocally rejecting the demand does not constitute a valid rejection under URDG 758.
Banking & Finance — Demand Guarantees — Unconscionability — Not a Defence Available to Guarantor
Unconscionability may justify the grant of an interlocutory injunction restraining a beneficiary from calling on a performance bond where the call would be unfair pending resolution of the substantive dispute. However, unconscionability is not a defence available to a guarantor in an action by the beneficiary for payment under the bond. The guarantor's contract with the beneficiary is autonomous and independent of the underlying contract. In the absence of fraud in the documents presented, considerations of unconscionability in the underlying transaction do not afford the guarantor a defence or raise triable issues in a suit between the beneficiary and the guarantor.
Contract Law — Performance Bonds — Fraud Exception — Scope
The fraud exception to a guarantor's obligation to pay under a demand guarantee applies when the issuer knows that a document, although correct in form, is in point of fact false or illegal, or where the documents or underlying transaction are tainted with intentional fraud. Fraud is not limited to dishonesty or fraudulent intent but extends to an absence of objective good faith, as where no reasonable person would have considered the demand to be justified. The exception requires that the guarantor have notice of the fraud at the time of the demand.
Banking & Finance — Demand Guarantees — Disputes in Underlying Contract — Irrelevant to Guarantor's Obligation
Where there is a genuine dispute between the parties to the underlying contract as to performance or entitlement, such dispute does not vitiate the beneficiary's right to call on a demand guarantee or afford the guarantor a defence to payment. The unique value of demand guarantees is that the beneficiary can be completely satisfied that whatever disputes may arise in relation to the underlying contract, the guarantor is undertaking to pay provided the specified conditions are met. If the beneficiary makes an honest demand, it matters not whether as between the beneficiary and the principal the beneficiary is entitled to payment. Any dispute must be resolved in separate proceedings to which the guarantor is not a party.

Legislation cited (8)

Cases cited (15)

  • M.M.K Engineering v Mantrust Uganda Ltd (Miscellaneous Application No. 128 of 2012)
  • Bhaker Kotecha v Adam Muhammed [2002] 1 EA 112
  • Makula Inter global Trade Agency v Bank of Uganda [1985] HCB 65
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 QB 159
  • R D Harbottle (Mercantile) Ltd v National Westminister Bank Ltd [1978] 1 QB 146
  • Group Josi Re v Walbrook Insurance Co Ltd [1996] 1 WLR 1152
  • Deutsche Ruckversicherung AG v Walbrook Insurance Co Ltd [1994] 4 All ER 181
  • NMC Enterprises v. Columbia Broadcasting System, Inc14 U.C.C. REP. SERV. 1427 (N.Y. Sup. Ct. 1974)
  • 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)
  • Babcon Uganda Ltd v Mbale Resort Hotel Ltd (Civil Appeal No. 87 of 2011)
  • Sulzer Pumps Spain SA v Hyflux Membrane Manufacturing (S) Pte Ltd [2020] SGHC 122
  • Jamil Senyonjo v Jonathan Bunjo (Civil Suit No. 180 of 2012)

Cases citing this judgment (2)

How later Ugandan judgments in the Wakilii corpus have cited this case. Treatment labels come from Sequitur — Uganda’s citator — each backed by a verbatim span from the citing judgment, and are not an assertion that this case is, or is not, good law.

Full judgment

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UAP Old Mutual Insurance Uganda Limited v Rwenzori Hydro (PVT) Limited & Another (Miscellaneous Application 446 of 2024) [2024] UGCommC 230 (26 June 2024)
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.