Wakilii

Uganda Electricity Distribution Company Limited v Citi Bank Uganda Limited and 2 Others (Miscellaneous Application No. 1397 of 2022)

High Court · [2022] UGCOMMC 98 · 2022 Application Granted AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for temporary injunction arising from Civil Suit No. 0858 of 2022
Decision
Temporary injunction granted restraining encashment of performance guarantee pending final determination of the main suit

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The High Court granted a temporary injunction restraining the respondents from cashing Performance Guarantee Ref. No. 5680600348 dated 28th December 2021. The court found that the applicant established a strong prima facie case of fraud where the guarantee referenced a non-existent Power Purchase Agreement between the applicant and the 3rd respondent, and invoices for automotive gas oil supply were fraudulently presented as proof of default under a power purchase agreement.

Outcome

Temporary injunction granted restraining encashment of performance guarantee pending final determination of the main suit

Facts

The applicant (UETCL) executed a Power Purchase Agreement with the 2nd respondent (Electromaxx) on 20th April 2018 for supply of 50 MW of electricity. A performance guarantee was issued by the 1st respondent (Citibank) on 19th October 2021 in favour of the 2nd respondent for US $1,802,089. Subsequently, the 2nd respondent entered into a fuel supply agreement with the 3rd respondent (Maxol) on 1st July 2020. On 28th December 2021, Citibank issued a second performance guarantee for US $1,094,479 referencing a purported novated Power Purchase Agreement between UETCL and Maxol. On 3rd October 2022, Maxol called on the guarantee claiming UETCL had defaulted, attaching invoices for automotive gas oil supplied to Electromaxx. UETCL denied knowledge of any novation, denied any payment default under the Power Purchase Agreement, and contended the invoices were not addressed to it and related to fuel supply, not power purchase.

Issues

  1. Whether the applicant has locus standi to make this application for an injunction restraining payment under a performance guarantee.
  2. Whether the applicant has a prima facie case with a likelihood of success.
  3. Whether the applicant will suffer irreparable harm if the injunction is not granted.
  4. Whether the balance of convenience favours granting the injunction.
  5. Whether there was fraud in the documents presented for calling the performance guarantee.
  6. Whether the 3rd respondent honestly believed in the validity of its demand under the guarantee.
  7. Whether the 1st respondent knew of the fraud at the time the 3rd respondent sought payment.

Orders

  • Application allowed.
  • Temporary injunction issued restraining the respondents, their agents, employees or persons claiming under them from cashing performance guarantee Ref. No. 5680600348 dated 28th December 2021 in the sum of US $ 1,094,479 until the final disposal of High Court Civil Suit No. 0858 of 2022 or further orders of Court.
  • Costs of the application to abide the result of the suit.

Rules and key headnotes

Demand Guarantees — Fraud Exception — Requirements for Injunction
An interlocutory injunction restraining payment under a demand guarantee will be granted only where there is strong or compelling evidence of fraud affecting the documents presented, illegality, unconscionability, or breach of a negative stipulation in the underlying contract. The fraud exception requires that the beneficiary could not honestly have believed in the validity of the demand and that the bank knew of the fraud before payment.
Demand Guarantees — Autonomy Principle — Documentary Nature
Demand guarantees are autonomous contracts independent of the underlying transaction. Under the independence principle, the guarantor must pay on receipt of compliant documents irrespective of disputes concerning the underlying transaction. The guarantor is concerned only with documents, not with the performance of the underlying contract, and conditions giving rise to the obligation to pay are found exclusively in the guarantee itself.
Privity of Contract — Collateral Contract Exception — Performance Guarantees
A performance guarantee is a tripartite collateral contract accompanying the main contract. Where consideration for the collateral contract is the entering into of the main contract, terms of the collateral contract may be enforced by a third party who is not privy to the guarantee. A principal who furnished consideration by causing a bank to issue a performance guarantee has locus standi to sue for enforcement or restraint of rights created under the guarantee despite not being a party to it.
Demand Guarantees — Fraud in Documents — Material Misrepresentation
Fraud affecting documents presented for payment under a demand guarantee occurs where the beneficiary makes material misrepresentations in the demand or supporting documents, knowing them to be false or without honest belief in their truth. The fraud exception is engaged where the guarantee and demand reference a non-existent underlying contract or where invoices presented as proof of default do not relate to obligations secured by the guarantee.
Temporary Injunctions — Three-Stage Test — Prima Facie Case
For the grant of a temporary injunction, an applicant must show a prima facie case with probability of success, that damages would not be an adequate remedy and irreparable harm would result without the injunction, and that the balance of convenience favours granting the injunction. A serious triable issue is established if the claim is not frivolous or vexatious; proof of likelihood of ultimate success is not required at the interlocutory stage.
Novation — Requirements — Consent of All Parties
Novation requires a tripartite agreement between all parties to the old contract and the new party introduced to take on obligations of a previous party. Consent of all parties is essential. Without evidence of such consent and a tripartite agreement, no novation occurs. This is the fundamental difference between novation and assignment.

Legislation cited (8)

Cases cited (56)

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  • New York Life Insurance Co. v. Hartford National Bank & Trust Co., 378 A.2d 562 (Conn. S.C. 1977)
  • Joint Venture between Aveng (Africa) (Pty) Ltd and Strabag International GmbH v. South African National Roads Agency Soc Ltd and Another [2020] ZASCA 146
  • NMC Enterprises v. Columbia Broadcasting System, Inc14 U.C.C. REP . SERV. 1427 (N.Y. Sup. Ct. 1974)
  • Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2020] VSC 596
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  • Doosan Babcock Ltd v Commercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3010 (TCC)
  • Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31
  • Bocotra Construction Pte Ltd v. Attorney General (No. 2) [1995] 2 SLR 523
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  • Sumatec Engineering & Construction Sdn Bhd v. Malaysian Refining Company Sdn Bhd [2012] 3 CLJ 401
  • Kiso (S) Pte Ltd v. Lum Chang Building Contractors Pte Ltd [2013] SGHC 86
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  • Derry v Peek [1889] 14 App Cas 337
  • Enka Insaat Ve Sanayi v Banca Popolare Dell'Alto Adige [2009] EWHC 2410
  • United Trading v Allied Arab Bank [1981] 2 Lloyd's Rep 256
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  • United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1 AC 168
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  • National Infrastructure Development Co Ltd v Banco Santander SA [2016] EWHC 2990 (Comm)
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  • Nsubuga and another v Mutawe [1974] EA 487

Full judgment

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Uganda Electricity Distribution Company Limited v Citi Bank Uganda Limited and 2 Others (Miscellaneous Application No. 1397 of 2022) [2022] UGCommC 98 (22 December 2022)
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