Wakilii

Uganda Electricity Transmission Company Limited v Citi Bank Uganda Limited and Others (Miscellaneous Application 1397 of 2022)

High Court · [2022] UGCOMMC 102 · 2022 Application Granted — Injunction Issued AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Interlocutory application for temporary injunction arising from Civil Suit No. 0858 of 2022
Decision
Temporary injunction granted 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 court granted a temporary injunction restraining the respondents from cashing performance guarantee Ref. No. 5680600348 dated 28 December 2021. The court held that the applicant established a strong prima facie case of fraudulent calling of the guarantee, as the guarantee referenced a non-existent power purchase agreement between the applicant and 3rd respondent, and the invoices supporting the call related to fuel supply rather than electricity purchase. The court found that the 3rd respondent could not honestly have believed in the validity of its demand, and the 1st respondent had notice of the fraud before payment. The balance of convenience favoured the applicant.

Outcome

Temporary injunction granted pending final determination of the main suit

Facts

The applicant and 2nd respondent executed a Power Purchase Agreement in April 2018 under which the applicant purchased electricity from the 2nd respondent. A performance guarantee for US $1,802,089 was issued by the 1st respondent on 19 October 2021 to secure the applicant's payment obligations. The 2nd respondent entered into a fuel supply agreement with the 3rd respondent. On 28 December 2021, the 1st respondent issued a second performance guarantee for US $1,094,479 to the 3rd respondent, referencing a purported novation of the Power Purchase Agreement. On 3 October 2022, the 3rd respondent called on the guarantee based on alleged default by the applicant under a Power Purchase Agreement novated in its favour, attaching four invoices for fuel supply to the 2nd respondent. The applicant denied any default, denied knowledge of any novation, and contended the invoices related to fuel supplied to the 2nd respondent, not electricity purchased from the 2nd respondent.

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 established a prima facie case with a probability of success.
  3. Whether the applicant will suffer irreparable damage if the injunction is not granted.
  4. Whether the balance of convenience favours granting the injunction.
  5. Whether the 3rd respondent's call on the performance guarantee is fraudulent or unconscionable.
  6. Whether there was a valid novation of the Power Purchase Agreement from the 2nd respondent to the 3rd respondent.
  7. Whether the 1st respondent had notice of the alleged fraud before effecting payment.

Orders

  • Application allowed.
  • Temporary injunction granted restraining the respondents, their agents, employees or persons claiming under them from cashing performance guarantee Ref. No. 5680600348 dated 28 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 this Court.
  • Costs of this application to abide the result of the suit.

Rules and key headnotes

Performance Guarantees — Independence Principle — Fraud Exception
A demand performance guarantee is independent of the underlying contract, and the guarantor must pay on receipt of compliant documents irrespective of disputes regarding the underlying transaction. However, courts may grant an injunction restraining payment where the beneficiary's fraud has been brought to the bank's attention before payment, and the only realistic inference is that the beneficiary could not honestly have believed in the validity of its demand.
Privity of Contract — Exception for Collateral Contracts — Performance Guarantees
A performance guarantee is a tripartite collateral contract. Under the collateral contract exception to the doctrine of privity, a principal may sue for enforcement of rights created under the guarantee despite not being a party to it, where the principal has furnished consideration to the beneficiary by causing the guarantor to issue the performance guarantee.
Performance Guarantees — Fraudulent Calling — Material Misrepresentation
A call on a performance guarantee is fraudulent where the beneficiary makes material misrepresentations in the demand documents, knowing them to be false or without honest belief in their truth. Strong or compelling evidence must be led to show that documents presented contain express material misrepresentations or that the guarantee is called upon with absolutely no basis in fact.
Novation — Requirements — Tripartite Agreement and Consent
For a novation to be effective, there must be a tripartite agreement between all parties to the original contract and the new party introduced. Consent of all parties is essential. A novation cannot be deemed to have occurred in the absence of such an agreement and the consent of the party whose obligations are purportedly transferred.
Interlocutory Injunctions — Three-Part Test
An applicant for an interlocutory injunction must show: (1) a serious question to be tried (not a frivolous or vexatious claim); (2) that the applicant will suffer irreparable harm that cannot be adequately compensated by damages if the injunction is refused; and (3) that the balance of convenience favours granting the injunction. In cases involving demand performance guarantees, courts apply a more stringent test and will generally refuse an injunction unless fraud, unconscionability, or breach of a negative stipulation in the underlying contract is established.
Performance Guarantees — Bank's Knowledge of Fraud — Timing
For the fraud exception to apply, the bank must have been made aware of the fraud before payment is effected. The fact of notice and its evidence must be averred in the application for an injunction. A bank should not pay where fraud by the beneficiary has been sufficiently brought to its knowledge before payment.
Performance Guarantees — Reputational Damage — Irreparable Harm
Calls upon performance guarantees may cause significant damage to a contractor's commercial reputation and financial standing that is not readily curable by an award of damages. Such damage includes erosion of confidence by banks and clients, diminished prospects of future successful tenders, and competitors taking advantage of the call. The assessment of whether reputational damage constitutes irreparable harm depends on the specific circumstances, including the nature of the contractor's business and market position.

Legislation cited (4)

Cases cited (52)

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  • RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1977] 2 All ER 862
  • Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 All ER 976
  • Intraco Ltd v Notis Shipping Corporation (The Bhoja Trader) [1981] 2 Lloyd's Rep 256
  • Dunlop Pneumatic Tyre Company v Selfridge & Co [1915] AC 847
  • Guangdong Hao He Engineering & Construction Company (U) Ltd v Britam Insurance Co (U) Ltd and Another (Miscellaneous Cause No. 37 of 2020)
  • Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854
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  • Nsubuga and Another v Mutawe [1974] EA 487
  • G&S Engineering Services v MACH Energy Australia Pty Ltd [2019] NSWSC 407
  • City Council of Kampala v Donozio Musisi Sekyaya (Civil Application No. 3 of 2000)
  • Itek Corp v First Nat Bank of Boston 566 F Supp 1210 (D Mass 1983)
  • Barclay Mowlem Construction Ltd v Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451
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  • Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283
  • Austrak Pty Ltd v John Holland Pty Ltd [2006] QSC 103
  • Structural Systems (Constructions) v Hansen Yuncken Pty Ltd [2010] FCA 1358
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  • PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd and Another [2007] VSC 74
  • Leonardo SpA v Doha Bank Assurance Company LLC [2019] QIC (F) 6
  • Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 3
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  • Sea-Cargo Skips v State Bank of India [2013] EWHC 177 (Comm)
  • Intraworld Industries Inc v Girard Trust Bank 336 A 2d 316 (Pa SC 1975)
  • Sztejn v J Henry Schroder Banking Corp 177 Misc 719, 31 NYS 2d 631 (Sup Ct 1941)
  • Asbury Park & Ocean Grove Bank v National City Bank of New York 35 NYS 2d 985 (NY Sup Ct 1942)
  • New York Life Insurance Co v Hartford National Bank & Trust Co 378 A 2d 562 (Conn SC 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 Inc 14 UCC Rep Serv 1427 (NY Sup Ct 1974)
  • Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2020] VSC 596
  • 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)
  • Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31
  • Bocotra Construction Pte Ltd v Attorney General (No 2) [1995] 2 SLR 523
  • GHL Pte Ltd v Unitrack Building Construction Pte Ltd [1999] 4 SLR 604
  • Dauphin Offshore Engineering & Trading Pte Ltd v HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] SGCA 4
  • Shanghai Electric Group Co Ltd v PT Merak Energi Indonesia [2010] SGHC 2
  • 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
  • Tactic Engineering Pte Ltd (in liq) v Sato Kogyo (S) Pte Ltd [2017] SGHC 103
  • 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
  • United Trading Corporation SA v Allied Arab Bank Ltd [1985] 2 Lloyd's Rep 554
  • United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1 AC 168
  • Uzinterimpex JSC v Standard Bank plc [2007] 2 Lloyd's Rep 187
  • National Infrastructure Development Co Ltd v Banco Santander SA [2016] EWHC 2990 (Comm)
  • Bank of Nova Scotia v Angelica-Whitewear Ltd [1987] 1 SCR 59

Full judgment

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Uganda Electricity Transmission Company Limited v Citi Bank Uganda Limited and Others (Miscellaneous Application 1397 of 2022) [2022] UGCommC 102 (22 December 2022)
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