Wakilii

v Hydro Uganda Limited and 3 Others v RwenzoriHydro (PVT) Limited and 3 Others (Miscellaneous Application 3 of 2023)

High Court · [2023] UGCOMMC 39 · 2023 Application Partly Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for temporary injunction arising from Civil Suit No. 22 of 2022
Decision
Temporary injunction granted restraining payment on two performance bonds pending final determination of the main suit; application dismissed as regards three advance payment bonds

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 payment on two performance bonds, finding a strong prima facie case of unconscionable conduct by the respondents who called the bonds after the projects had reached commercial operation and the respondents had failed to issue taking-over certificates. The court dismissed the application regarding three advance payment bonds, finding no fraud or unconscionability established.

Outcome

Temporary injunction granted restraining payment on two performance bonds pending final determination of the main suit; application dismissed as regards three advance payment bonds

Facts

The applicants entered into three Engineering, Procurement and Construction Turnkey Contracts with the respondents for hydropower projects in Kasese District. To secure advance payments and performance obligations, the 1st applicant obtained five bonds from the 4th respondent (an insurance company): two performance bonds and three advance payment bonds. The respondents made calls on all five bonds on 5 December 2021, citing the applicants' failure to extend the bonds 28 days before expiry and alleged non-repayment of advances. The applicants contended that the projects had reached commercial operation, the bonds had been amortised through interim payment certificates, and the respondents' failure to issue taking-over certificates was a breach of contract that enabled the unconscionable calls on the bonds.

Issues

  1. Whether the applicants have a prima facie case with a probability of success.
  2. Whether the applicants will suffer irreparable injury which would not adequately be compensated by an award of damages.
  3. Whether the balance of convenience favours granting the temporary injunction.
  4. Whether the calls on the performance bonds and advance payment bonds were fraudulent or unconscionable.
  5. Whether the 1st to 3rd respondents could honestly have believed in the validity of their demands under the guarantees.
  6. Whether the 4th respondent knew of any fraud at the time the 1st to 3rd respondents sought payment under the guarantees.

Orders

  • Temporary injunction granted restraining the 4th respondent from effecting payment on Performance Bond No. 010/132/1/001055/2017 for US $ 2,577,020 until final determination of the main suit.
  • Temporary injunction granted restraining the 4th respondent from effecting payment on Performance Bond No. 010/132/1/001054/2017 for US $ 1,322,150 until final determination of the main suit.
  • Application dismissed as regards Advance Payment Bond No. 010/133/1/000716/2020 for US $ 3,000,000.
  • Application dismissed as regards Advance Payment Bond No. 010/133/1/000717/2021 for US $ 1,500,000.
  • Application dismissed as regards Advance Payment Bond No. 010/133/1/000711/2019 for US $ 800,000.
  • Costs of the application to abide the result of the suit.

Rules and key headnotes

Demand Guarantees — Autonomy Principle — Independence from Underlying Contract
A demand guarantee is independent of the underlying contract between the applicant and the beneficiary. The guarantor must pay if proper complying documents are presented, even if there is a dispute under the underlying contract, subject only to narrow exceptions including fraud and unconscionability.
Performance Bonds — Distinction Between Demand Guarantees and Suretyship Guarantees
A demand guarantee is payable on presentation of a complying demand without proof of breach of the underlying contract, whereas a suretyship guarantee is secondary and requires the beneficiary to first establish the main obligor's liability and default. Performance bonds may be structured as either type or as hybrid instruments containing elements of both.
Demand Guarantees — Fraud Exception — Test for Establishing Fraud
To establish fraud sufficient to restrain payment under a demand guarantee, the applicant must show strong or compelling evidence that the documents presented contain express material misrepresentations or forgeries, or that the beneficiary could not honestly have believed in the validity of its demand. Mere breach or non-compliance with the underlying contract does not constitute fraud.
Demand Guarantees — Unconscionability Exception — Recognition in Ugandan Law
In addition to the fraud exception, Ugandan courts recognise unconscionability as a separate and independent ground to restrain payment under a demand guarantee. Unconscionability involves elements of unfairness, abusive conduct, or acts lacking in good faith, and requires manifest or strong evidence of conduct that would prick the conscience of a reasonable and sensible person.
Performance Bonds — Unconscionable Calling — Beneficiary's Own Breach Creating Conditions for Call
It is unconscionable for a beneficiary to call a performance bond when the work secured by the bond has been substantially and properly performed, and the continuing validity of the bond results solely from the beneficiary's own breach of contract in failing to issue a taking-over certificate. A party cannot take advantage of its own wrong to derive a benefit.
Temporary Injunctions — Test for Grant — Prima Facie Case, Irreparable Harm, Balance of Convenience
To obtain a temporary injunction, an applicant must show: (i) a prima facie case with a probability of success; (ii) that the applicant might otherwise suffer irreparable injury which would not adequately be compensated by damages; and (iii) if the court is in doubt, that the balance of convenience favours granting the injunction.
Performance Bonds — Irreparable Damage to Commercial Reputation — Adequacy of Damages
Calling of a performance bond 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 competitive disadvantage, all of which are difficult to quantify and may constitute irreparable harm.

Legislation cited (4)

Cases cited (49)

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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
  • 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
  • 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
  • Reed Construction Services Pty Ltd v. Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158
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  • Austrak Pty Ltd v. John Holland Pty Ltd [2006] QSC 103
  • Structural Systems (Constructions) v. Hansen Yuncken Pty Ltd [2010] FCA 1358
  • Abigroup Contractors Pty Ltd v. Peninsula Balmain Pty Ltd 2003] HCA Trans 688
  • Barclay Mowlem v. Simon Engineering (Australia) Pty Ltd (1991) 23. NSWLR 451
  • Godfrey Sekitoleko and four others v Seezi Peter Mutabazi and two others [2001-2005] HCB 80
  • Nsubuga and another v Mutawe [1974] EA 487
  • G&S Engineering Services v. MACH Energy Australia Pty Ltd [2019] NSWSC 407
  • Leonardo S.p.A v. Doha Bank Assurance Company LLC [2019] QIC (F) 6; [2020] QIC (A) 1
  • 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)
  • Intraworld Industries, Inc. v. Girard Trust Bank, 336 A.2d 316 (Pa. S.C. 1975)
  • Sztejn v. J. Henry Schroder Banking Corp. - 177 Misc. 719, 31 N.Y.S.2d 631 (Sup. Ct. 1941)
  • Asbury Park & Ocean Grove Bank v. National City Bank of New York 35 N.Y.S.2d 985 (N.Y. Sup. Ct. 1942)
  • 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
  • Samwoh Asphalt Premix Pte Ltd v. Sum Cheong Piling Private Limited and Another [2001] SGCA 79
  • NMC Enterprises v. Columbia Broadcasting System, Inc14 U.C.C. REP . SERV. 1427 (N.Y. Sup. Ct. 1974)
  • Enka Insaat Ve Sanayi v Banca Popolare Dell'Alto Adige [2009] EWHC 2410
  • Bank of Nova Scotia v Angelica-Whitewear Ltd [1987] 1 SCR 59
  • 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)
  • Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA [2013] EWCA Civ 1679
  • Comdel Commodities Ltd v Siporex Trade SA [1997] 1 Lloyd's Rep 424
  • Uzinterimpex JSC v Standard Bank plc [2008] EWCA Civ 819
  • Cargill SA v Bangladesh Sugar Corporation [1998] 1 WLR 461
  • Shapoorji Pallonji & Co Pvt Ltd v Yumn Ltd and Standard Charter Bank [2021] EWHC 862 (Comm)
  • Doosan Babcock Ltd v Comercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3010 (TCC)
  • Alghussein Establishment v Eton College [1988] 1 WLR 587
  • Potton Homes Ltd v Coleman Contractors Ltd (1984) 28 BLR 19
  • Derry v Peek [1889] 14 App Cas 337
  • United Trading v Allied Arab Bank [1981] 2 Lloyd's Rep 256

Full judgment

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VS Hydro Uganda Limited and 3 Others v RwenzoriHydro (PVT) Limited and 3 Others (Miscellaneous Application 3 of 2023) [2023] UGCommC 39 (13 March 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.