Wakilii

v Hydro Uganda Limited & 3 Others v UAP Old Mutual Insurance Uganda Limited (Miscellaneous Application 2493 of 2023)

High Court · [2024] UGCOMMC 39 · 2024 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for unconditional leave to appear and defend summary suit for recovery under counter indemnities
Decision
Applicants denied leave to defend. Judgment entered for the respondent on the counter indemnities.

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Held: Counter indemnities are autonomous agreements independent of the underlying principal guarantees and the original contracts. The guarantor is entitled to payment on demand where the demand complies with the counter indemnity's terms, regardless of whether the guarantor has paid the beneficiary or whether the underlying bond remains valid. The applicants failed to disclose a bona fide defence raising triable issues; their proposed defences lacked an arguable basis in law and fact. Application dismissed and judgment entered for the respondent.

Outcome

Applicants denied leave to defend. Judgment entered for the respondent on the counter indemnities.

Facts

The 1st and 2nd applicants entered into Engineering, Procurement and Construction Turnkey Contracts for hydropower projects requiring advance payment and performance guarantees. The respondent issued three advance payment bonds and two performance bonds secured by general counter indemnities from the 1st and 2nd applicants and personal counter indemnities from the 3rd and 4th applicants. The beneficiaries called on the bonds in December 2021 and February 2022. The respondent paid out under a prior court order and filed a summary suit to recover from the applicants under the counter indemnities. The applicants sought leave to defend, arguing that the bonds had expired when called, that the counter indemnities were void due to misrepresentation regarding renewal, and that calls were made during an interim injunction.

Issues

  1. Whether the applicants have disclosed a bona fide defence that raises triable issues entitling them to unconditional leave to appear and defend the summary suit.
  2. Whether counter indemnities given to secure advance payment and performance bonds are enforceable notwithstanding alleged defects in the underlying bonds.
  3. Whether the respondent was entitled to call on the counter indemnities when the underlying bonds had allegedly expired.
  4. Whether alleged misrepresentation regarding renewal of bonds renders the counter indemnities void and unenforceable.

Orders

  • Application for leave to appear and defend dismissed with costs to the respondent.
  • Judgment entered for the respondent in accordance with the prayers contained in the plaint.
  • Costs of the suit awarded to the respondent.

Rules and key headnotes

Civil Procedure — Summary Procedure — Leave to Appear and Defend — Test for Grant of Unconditional Leave
Under Order 36 rule 4 of the Civil Procedure Rules, unconditional leave to appear and defend will be granted where the applicant shows a good defence on the merits, or that a difficult point of law is involved, or that there is a dispute which ought to be tried, or a real dispute as to the amount claimed, or any other circumstances showing reasonable grounds of a bona fide defence. The court considers whether the facts alleged constitute a good defence in law and whether that defence appears to be bona fide.
Civil Procedure — Summary Procedure — Disclosure Requirements — Sufficiency of Averments
The applicant in his affidavit in support must fully disclose the nature and grounds of the defence and the material facts on which it is based with sufficient particularity and completeness to enable the court to hold that if the statements of fact are found correct at trial, judgment should be given for the defendant. A defence averred in a vague, bald or sketchy manner may be taken into account when determining whether the applicant has a bona fide defence.
Civil Procedure — Summary Procedure — Frivolous Defence — Definition
A frivolous defence is one whose intention is to stall and wrongfully delay settlements of a legitimate claim. A defence is frivolous where it lacks an arguable basis either in law or fact. It is frivolous when either the factual contentions are clearly baseless or the defence is based on an indisputably meritless legal theory.
Contract Law — Indemnities — Counter Indemnities — Nature and Effect
A counter indemnity creates an obligation to make a reimbursement in relation to a primary indemnity, guarantee, bond or any similar arrangement. Where a counter indemnity is given to an insurance company in return for the insurance company issuing an advance payment or performance guarantee, the indemnity may be enforced by the insurance company notwithstanding the fact that the advance payment or performance guarantee and the underlying contract to which they relate are invalid and unenforceable.
Contract Law — Indemnities — Counter Indemnities — Principle of Autonomy and Independence
The principle of independence or autonomy applies to counter indemnities rendering them independent of the principal guarantee. The counter guarantee possesses the same independence from the demand guarantee as the latter possesses from the underlying contract between the principal and the beneficiary. As long as the guarantor's demand under the counter indemnity complies with the requirements of its terms, the guarantor is entitled to payment in the absence of established fraud, whether or not the guarantor has paid the beneficiary or has received a demand for payment or is legally liable to pay a demand received.
Contract Law — Indemnities — Counter Indemnities — Fraud Exception
Established fraud on the part of the insurer as beneficiary under the counter indemnity is an exception to the principle that the demand counter indemnity is payable on the presentation of a demand regardless of whether the obligations in the underlying contract or the principal guarantee have been performed. For the fraud exception to apply, the fraud must have been committed by the beneficiary or his agent with the beneficiary's knowledge, not by a third party.
Contract Law — Indemnities — Counter Indemnities — Validity Independent of Underlying Bonds
Being autonomous agreements, it does not matter whether the claim against the principal guarantee was made outside the time limit; what matters is whether or not the counter indemnities were claimed within the agreed period of time. Counter indemnities are viewed by the Courts as absolute undertakings to pay if the conditions of payment are satisfied.

Legislation cited (8)

  • Civil Procedure Act s.98
  • Judicature Act s.33
  • Civil Procedure Rules O.36 r.3
  • Civil Procedure Rules O.36 r.4
  • Civil Procedure Rules O.36 r.5
  • Civil Procedure Rules O.52 r.1
  • Civil Procedure Rules O.52 r.3
  • Civil Procedure Rules O.6 r.30(1)

Cases cited (8)

  • S. M Ssebowa Family Ltd v Manna Harvesters International Ltd (Civil Appeal No. 161 of 2017)
  • 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
  • Jamil Senyonjo v Jonathan Bunjo (Civil Suit No. 180 of 2012)
  • Denel Soc Limited v Absa Bank Limited and others [2013] 3 All SA 81
  • Balfour v Balfour [1919] 2 KB 571
  • Merritt v Merritt [1970] 2 ALL ER 760

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

VS Hydro Uganda Limited & 3 Others v UAP Old Mutual Insurance Uganda Limited (Miscellaneous Application 2493 of 2023) [2024] UGCommC 39 (20 March 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.