THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
[COMMERCIAL COURT)
MISC APPL. NO.601 OF 2010
(ARISING FROM H.C.C.S NO. 377 OF 2010)
VICTOR CONSTRUCTION WORKS LTD::::::::::::::::::::::APPLICANT/PLAINTIFF
VERSUS
UGANDA NATIONAL ROADS AUTHORITY::::::::::::: RESPONDENT/DEFENDANT
BEFORE HON. LADY JUSTICE HELLEN OBURA
RULING
This is an application brought by the applicant under Order 41 rules 2 (1) (2) and 3 of the Civil Procedure Rules for orders that;
1.
a temporary injunction be issued to restrain the respondent, its agent or any other person/persons claiming through it from demanding an advanced payment sums so far made to the applicant company through its account in Eco Bank and further prohibiting the respondent from causing the cancellation or withdrawal of advance payment guarantee security Ref; No. EUG/PP/0230/09, of Contract No. UNRA/RMM/08/09/071 in favour of the applicant.
2.
The costs of the application be provided for.
The application is supported by an affidavit sworn by Mr. Lukenge Joseph in his capacity as director of the applicant company on 20th October 2010. A supplementary affidavit was also sworn by him on 15th November with basically the same content as the affidavit in support save for some documents that were alluded to and annexed.
Grounds of application
The brief grounds of this application as contained in both affidavits are that on the 28th August 2009 the applicant and the respondent signed a commercial transaction contract agreement No. UNRA/RMM/08/09/071 whereby the applicant was to execute Road Marking of 76 Km under package 2: Nebbi –Arua Road. That the contract agreement was based on Advance Payment Guarantee (Ref No. EUG/PP/0230/09) free from cancellation and withdrawal
That the guarantee was accepted by the respondent who then deposited Shs. 121,780,000 (One hundred twenty one million, seven hundred eighty thousand shillings only) on the applicant’s account in Eco Bank to offset the sums the bank had released to the applicant to do work as per the contract. That the applicant has already accomplished reasonable amount of work for the sum advanced.
That as the applicant was performing the contract the respondent instructed it to change from the road marking of 100mm agreed to in the contract to 150mm width which changes necessitated procurement of new road marking machine a process that took more time beyond the contractual period. That upon getting the new machine for 150mm width, the respondent reverted back to 100mm which changes made it difficult to execute the contract in the agreed contract period. A copy of unsigned minutes of a meeting held by the parties was annexed to the affidavit as “VC2”.
That clauses S.5 (47) (47.1) (47.2) and S.5 (28.1) of the contract agreement provided for price adjustments during performance of the contract to cater for monthly index preference and further to cater for all changes in costs due to fluctuation in costs, and extension of the contract period which the respondent has persistently refused to implement leading to breach of contract by the respondent.
That the respondent is in advanced stages of recalling/withdrawing the advance payment guarantee and it is demanding all sums earlier deposited as advance payment on the applicant’s account in Eco Bank. That if the cancellation and demand is not prohibited by grant of a temporary injunction it would adversely affect the applicant’s hope and intention to complete its obligation under the contract agreement. A copy of the respondent’s letter demanding the withdrawal of the advance payment guarantee and the advance payment back was annexed as “VC3”.
That owing to the respondent’s persistent demands to Eco Bank recalling the advance payment guarantee, Eco Bank has already made it clear to the applicant that if the advance payment guarantee is cancelled or recalled it would sell off all property in collateral securities in its custody. A copy of a letter from Eco Bank to that effect was annexed as “VC4”.
Affidavit in reply
An affidavit in reply was sworn by Mr. Marvin Baryaruha in his capacity as legal counsel for the respondent on the 1st of December, 2010. He admitted that a contract agreement was signed between the applicant and the respondent as stated. That performance of the contract was to commence within 14 days from the date of signing the contract and was to be completed within four months, that is, from 12th September 2009 to 11th January 2010.
That the contract agreement was procured on standard documentation issued by the Public Procurement and Disposal of Public Assets Authority (PPDA) pursuant to the Public Procurement and Disposal of Public Assets Act No. 1 of 2003 and the Public Procurement and Disposal of Public Assets Regulations S.I. No. 70 of 2003.
That clause 5 of the agreement provided that, “The documents forming part of the contract shall be as stated in clause 2.5 of the General Conditions of Contract (GCC).”
Further that clause 2.5 of GCC provided that the documents forming the contract shall be interpreted in the following order of priority; (i) agreement, (ii) any letter of acceptance, (iii) Contractor’s bids, (iv) Special Conditions of Contract (SCC) and; General Conditions of Contract.
That regulation 130 (1) (c) of the PPDA Regulations also provides that, “Changes in the general condition of contract shall be effected only by an entry to the special conditions of contract”.
That in the contract agreement GCC 47 relating to price adjustment was amended by an entry in the SCC to the effect that, “Prices SHALL NOT be adjusted for fluctuations in the cost of inputs”. That contrary to what was stated in the affidavit in support, the contract as procured and signed prohibited price adjustments.
That in view of that, the application and the affidavit in support did not raise any serious triable issues or a prima-facie case with prospect of success in the main suit. Further that the application and the affidavit in support had also not demonstrated that the applicant would suffer irreparable injury that would not be compensated by damages if the temporary injunction was not granted.
That the applicant abandoned the site and the contract work since 14th May 2010 when it had just done 43 Km of white paint on road edges and 23 Km of the yellow paint on the road centre which is only approximately 25% of the contract works. That the applicant filed a suit under which this application was brought upon learning that the respondent had demanded payment under the advance payment guarantee. A letter from the respondent’s Contract Manager to the applicant about the stoppage of work was annexed as “A”.
He admitted that the respondent made advance payment to the applicant as stated in the affidavit in support against provision by the applicant of an on demand bank security.
He further stated that the change from 100mm to 150mm was requested by the applicant and the instruction issued by the respondent was in response to that request. A letter from the applicant dated 26th October 2009 and a copy of site instruction no. 2 were annexed as “B” and “C” respectively. That any damage, delay or difficulty experienced by the applicant as a result of the change was caused by the applicant and it is totally answerable for the request it made.
He concluded that the applicants/plaintiff’s suit is a dilatory tactic intended to delay the inevitable and (in the absence of fraud) incontestable collection of payment on the demand type advance payment guarantee and that the same is an abuse of court process and should be dismissed with costs.
Submission by counsel for the applicant
When this application came before me for hearing on 6th December 2010, the applicant was represented by Mr. Tiishekwa Ambrose Rukundo while the respondent was represented by Mr. Mubiru Kalenge Steven. Both counsels agreed to file written submissions which were done over a period of time and the matter fixed for ruling.
Counsel for the applicant based his submission on the affidavit in support and the supplementary affidavit the summary of which has already been made above. However, I wish to point out from the outset that the written submission of counsel for the applicant and the rejoinder were so repetitive and jumbled up that I had to sort out what made sense and paraphrase in order to get the gist of his arguments.
He submitted that Order 41 r 2 (1) bestows upon the plaintiff a right to apply for a temporary injunction at any time after commencement of the suit, before or after judgment to restrain the defendant from committing a breach of contract or any injury as complained.
He submitted that before court grants a temporary injunction there are conditions to be satisfied first. That these conditions were properly enumerated by the Court of Appeal of Kenya at Nairobi in the case of Nureithi v City Council Of Nairobi [1976-1985] EA 331 where held inter-alia that:
“The Law is that where damages would be an adequate remedy, a breach of contract, even if uncontroverted is not normally a ground for the grant of an injunction; the conditions for the grant of an interlocutory injunction are (1) the probability of success (2) irreparable harm which would not be adequately compensated for by damages; and (3) if in doubt, then on a balance of convenience”.
That the above 3 conditions were re-iterated with the same emphasis in the cases of Kiyimba Kaggwa v Haji Abdul Nasser Katende [1985] HCB 43 As Per Odoki J (as he then was) and Geilla v Cassman Brown and Co. Ltd [1973] EA 358
i)
Probability of success and preservation of the suit property
Counsel submitted that the applicant has a high probability of succeeding in the main suit because the contract agreement provide for price adjustment and extension of the contract period under S.5 (47)(47.2) and S.5(28.1) of the agreement.
He contended that it was the respondent who changed the nature of work from 100mm that was agreed upon in the contract to 150mm width and accordingly issued instructions to the applicant only to again change that the applicant revert back to 100mm. He argued that because these changes required a complete change of model of machines at site from those originally used for 100mm which needed more time beyond the four months agreed to in the contract agreement, this led to time running out before the applicant could complete the work.
That the cost of road marking materials shot up and consequently, this required invoking price adjustment clause for the sudden increase in the cost of materials and extension of the contract period as provided for in the contract agreement. Further that although this was contained in the agreement signed by the parties, the respondent refused to invoke the said clauses amidst repeated demands by applicant.
He submitted that the applicant was desirous of completing the work as contracted but that could not be achieved unless the Advance Payment Guarantee was stable and secure. He further submitted that the interest of justice required that the status quo be maintained to allow this court look into and investigate the dispute between the parties in the main suit. Further that if this application was not granted it would render the applicant’s prayer for specific performance of the contract agreement in the main suit nugatory.
To strengthen his argument on the need to preserve the status quo in this case, he cited the case of Muljibhai Madhivan &Anor v Teurani Naraindas T/A Paradise Novel Ties [1988-1990] HCB 152 at 153 where Tabaro Ag. J (as he then was) held inter-alia that the purpose of a temporary injunction is to preserve the status quo.
ii)
Irreparable harm which would not be adequately compensated for by damages.
On this condition, counsel contended that due to the respondent /defendant’s flagrant conduct of refusing to invoke price adjustment and extension of contractual period clauses in the contract agreement, the applicant/plaintiff had lost business and would lose more unless an order of specific performance was granted in the main suit. He argued that the applicant’s primary work is to perform civil engineering works including construction and road marking and the loss in its line would affect its corporate commercial contractual reputation which would eliminate it out of business. That the modern contractual businesses thrive entirely on good corporate commercial reputation derived from contracts successfully completed. That if the applicant lost its quest for specific performance of the contract, it would suffer irreparable damage/injury specifically diminishing its reputation which could not be adequately compensated for by any award of damages.
That even if the respondent had capacity to pay damages as stated in paragraphs 9 and 19 of the affidavit in reply, this did not mean that its capacity overrides the mandatory provisions of the law especially where the respondent acts flagrantly as illustrated above. He relied on the Kenyan case of Simiyu v Housing Finance Co. of Kenya [2001]2 EA 540 at 542 and contended that it is no longer mandatory that an injunction be only granted in irreparable injury circumstances because the grant of injunction is purely discretional to Court. That where the respondent shows outrageous conduct, then court has discretion to stop this outrageousness by a temporary injunction depending on the circumstances of each and every case. That in this application the respondent has gone a step ahead in abusing contractual rights of the applicant/plaintiff as indicated in the supplementary affidavit hence the grant of a temporary injunction is of necessity.
(iii) Balance of convenience
On this condition, counsel submitted that the applicant/plaintiff’s collaterals (land titles) were already mortgaged by Eco Bank for the sum of Shs. 121,780,000= (One Hundred Twenty One Million Seven Hundred Eighty Thousand) given to applicant as advance payment to commence the road marking exercise as contracted. That annexure VC4 to the supplementary affidavit clearly showed that Eco Bank wanted this sum from the applicant failure of which it would sell by action the said collaterals to generate the funds advanced to the applicant.
He concluded that from the foregoing, it was clear that the balance of convenience favored the applicant/plaintiff who stood to lose more if the Advance Payment Guarantee which was the foundation of the suit contract agreement was not protected by grant of a temporary injunction.
He referred to the case of J.K. Sentongo v Shell (U) Ltd [1995] 111K.L.R.1 where Lugayizi J, observed that if the applicant fails to establish a prima-facie case with likelihood of success, irreparable injury and need to preserve the status quo, then he/she must show that the balance of convenience was in his favour.
Counsel concluded his submission by stating that all the conditions for grant of a temporary injunction were resolved in favour of the applicant and invited this court to find so, and grant the application as prayed with costs to the applicant.
Response by counsel for the respondent
Counsel for the respondent contended that counsel for the applicant was deliberately distorting the facts in pages 1 & 2 of his submissions. He submitted that the facts were simple and quite clear as set out in Paragraphs 3, 4, 10, 11 and 16 of Marvin Baryaruha’s affidavit in reply.
That in effect the applicant was in total breach of the contract in addition to failing to repay the advance payment as required by Regulation 249 (3) of The Public Procurement and Disposal of Public Assets Regulations, S.I. No. 70. Of 2003 which entitled the respondent to call in the on-demand Bank Security.
He reiterated what was stated in paragraph 16 of the affidavit in reply and contended that the changes from 100mm to 150mm were requested for by the applicant and the respondent acceded to that request by issuing Site Instruction No. 2 dated 11/01/2010.
He submitted that the other factual situation on which the applicant’s counsel was misleading court and distorting the facts was the one of Price Adjustment which as stated in paragraph 7 of the affidavit in reply was prohibited.
He however, agreed with counsel for the applicant’s submissions in respect of the requirements for grant of a temporary injunction, that is, the three conditions, but hastened to add that it was the traditional approach. He argued that the situation in the instant application was not the traditional sort of injunctive relief but one under “Advance Payment Guarantees” which is quite different from ordinary injunctions.
Counsel contended that this is a special type of injunction which under the principles and usage relating to an On-Demand Bank Security, the on-demand bank security is autonomous from the underlying contract and is a separate undertaking from the underlying contract. That such a guarantee must be honored according to its terms unless the guarantor had notice of clear fraud or lack of good faith and the guarantor (Eco Bank) may not avail itself of contractual defences that the applicant may raise under the Contract. He submitted that the respondent is entitled to be paid irrespective of any dispute about the underlying transaction except where the above fraud exception applies.
He supported the above statement by referring to the case of Banque Saudi France v Lear Segler Service Inc. Lloyds Law Reports 2006 Vol. at Page 273. (Attached as authority no. 1).
He also referred to the case of Edward Owen Engineering Ltd v Barclays Bank of International Ltd [1978] 1 All E. R. 976 (Attached as authority no. 2) where he quoted paragraph 5 at page 8 of the extract in the following words;
“All this leads to the conclusion that a performance guarantee stands on a similar footing to a letter of credit. A bank which gives a performance guarantee must honor that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer ; nor with the question whether the supplier has performed his contracted obligation or not; or with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice”.
He submitted that courts do not interfere with irrevocable obligations assumed by Banks in cases such as the instant one. He referred to an article by Karen Gough in Making Demand On Advance Payment Guarantees And Performance Bonds – The Fraud Exception (Construction Industry, Contract Administration Feb. 07, 2010) (attached as authority no. 3) where she stated as follows;
It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life blood of international commerce… Except possibly in clear cases of fraud of which the banks have notice, the courts will leave merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take”.
He argued that even under the ambit of ordinary everyday injunctions the applicant would not qualify to be granted such relief because of the following reasons;
1. Prima facie case with probability of success
He submitted that the main suit and consequently this application were premised on two allegations, that is, alleged failure to allow price adjustments, and changes in specifications under the contact.
i)
Price Adjustments
On Price Adjustments, he referred to the details of paragraphs 5, 6, 7, & 8 of the affidavit in reply, and contended that clause 47.1 of the GCC which was part of the contract documents prohibited price adjustment as already quoted above in the summary of the affidavit in reply.
He argued that since the contract prohibited price adjustments the main suit and this application could not succeed under that claim. That it is un-maintainable and therefore the applicant did not have a prima facie case with a probability of success.
He argued that there was no serious question to be investigated and tried by this court in the main suit and for that reason alone this application must fail. He referred to the case of Shumuk Spring Developments Ltd & 3 Others v Bonny Mwebesa Katatumba And 6 Others, Miscellaneous Application No. 529 Of 2009 in which an application for a Temporary Injunction was dismissed by Justice Lameck- Mukasa because of failure to disclose a prima facie case.
ii)
Change from 100mm to 150mm markings.
He contended that paragraph 5 of the supplementary affidavit in support and paragraphs 4(d) and 4(e) of the plaint contain false allegations that the respondent changed the specifications of the contract from 100mm to 150mm road marking and yet it was the applicant who complained about the specification and requested for the change. That this was clearly shown in Annexture “B” to affidavit in reply being a letter from the applicant dated 20th October, 2010.
He submitted that the respondent acceded to the request for change by issuing Site Instruction No. 2 as shown in annexture “C” to the affidavit in reply. He then argued that in the circumstances, the causation for the change was by the direct request of the applicant which the applicant was answerable for and any damage, or delay experienced by the applicant in that regard could not be blamed on the respondent.
He argued that the applicant’s request was the ‘operative and substantial’ cause of the consequence and as such the applicant could not profit from its own wrong. That on that basis, there is no prima facie case under that allegation and no serious question to be investigated and tried in the main suit.
2) Irreparable injury which cannot be atoned by an award of damages.
On irreparable injury, counsel reiterated the background of this application as contained in the affidavit in reply and contended that it was the applicant who did not follow the timelines given in the contract thereby breaching the terms of the Contract and abandoning the site on 14th May, 2010 after completing only 25% of the contractual works and also failed to repay the advance payment.
He submitted that consequently, the respondent, being a public authority, using public funds, demanded payment of the on-Demand Bank Security as it was entitled to do under the contract and under the law, to enforce repayment of funds paid to the applicant for which no value was obtained. Further that the applicant reacted by filing a frivolous suit and obtained an interim injunction to prevent the respondent from enforcing the on-Demand Bank Guarantee. That the applicant was seeking a substantive temporary injunction to cheat public funds until determination of its frivolous unmeritorious suit.
He argued that although, in its supplementary affidavit, the applicant annexed a facility letter from Eco Bank (titled ‘Application for Credit Facilities’) but this is only a Facility Letter not a Mortgage or Credit Instrument. That even if it were a Credit Instrument (which it is not), the said ‘Application For Credit Facilities’ had never been a part of the Contract since at all material times and to win the tender, the Applicant/Contractor held out itself as financially able and competent. He submitted that it was therefore irrelevant to the question of irreparable injury that could be occasioned to the applicant.
He concluded that there was no irreparable injury that would be occasioned to the applicant that could not be atoned for by an award of damages in the circumstances. He also argued that the circumstances of this case were such that the balance of convenience was in favor of a refusal to grant the injunction because granting it would be a complete abuse of Court process.
Rejoinder by counsel for the applicant
Counsel for the applicant in rejoinder re-iterated all the earlier submissions and asserted that the respondent’s submissions were totally devoid of any legal merit since they were based on wrong interpretation and wrong application of the law regarding Advance Payment Guarantee/Letters of Credit. That the said wrong interpretation was used to over shadow the law regarding grant of a temporary injunction. He contended that the affidavit in reply by Mr. Marvin Baryaruha contained deliberate falsehoods. That contrary to what was stated in paragraph 16 (d) of that affidavit, the applicant did not request for the change of the size of road marking but it was the respondent who on its own volition issued site instruction No. 2 dated 11/01/2010.
He contended that the applicant’s letter dated 26th October 2009 which counsel relied upon to contend that it was the applicant who requested for the change simply called upon the respondent for urgent decision on the cost implication resulting from a would be change from 100mm to 150mm and did not request for a change from 100mm to 150mm.
He referred to the case of Nakkiride V Hotel International Ltd [1978] HCB 85, where it was held that affidavit which contains falsehood is incompetent, oppressive and an abuse of court process and ought to be struck out with costs.
He also referred to the case Col. (Rtd) Dr. Kizza Besigye V. Museveni Yoweri & Electoral Commission Election Petition No. 1 of 2001 which had more or less similar holding. He prayed that the said affidavit be struck off the record for containing falsehood and the application for a temporary injunction be granted pending disposal of the main suit.
Findings and ruling of court
I have read the chamber summons and all the affidavits with their annextures, the written submissions and the rejoinder whose contents I have summarized above. The main issue that arises from the submissions of counsels is whether the injunction sought should be granted. In dealing with this issue, I will take into account the fact that this application is in respect of a bank payment guarantee. I will therefore first look at the principles applicable in such cases before dealing with the three main conditions for grant of a temporary injunction which both counsels discussed at length in their respective submissions.
But before I do that, I wish to summarily deal with the contention by counsel for the applicant that the affidavit in reply contain falsehood and therefore should be struck out with costs. With all due respect to counsel’s submission, I do not seem to see any falsehood as alleged. The statement in the affidavit that the applicant requested for the changes was based on the deponent’s interpretation of the two letters which I will later reproduce in this ruling. Even if there was some falsehood in the said affidavit, courts have now adopted a more liberal approach to dealing with defective affidavits. Courts have held that the offending paragraphs could be safely severed/ignored and the rest admitted. See Col. (Rtd) Besigye Kizza v Museveni Yoweri Kagutta & Electoral Commission (Election Petition No. 1 of 2001) [2001] UGSC 3, Reamation Ltd. v UGANDA Corporation Creameries Ltd. and Another Civil Application No. 7 of 2001, Motor Mart (U) Ltd. v Yona Kanyomozi Civil Appeal No. 6 of 1999 and Yona Kanyomozi v Motor Mart (U) Ltd. No. 8 of 98. I therefore find no basis for that prayer and I accordingly decline to grant it.
Principle Applicable in Injunctive Relief in On-Demand Bank Securities.
Counsel for the respondent submitted that to convince this court to issue an injunction under the autonomy principle the applicant had to satisfy court of only one thing – that the beneficiary (the respondent in this case) was guilty of fraud in making the demand.
He submitted that in other jurisdictions, there are other exceptions but under the common law of England which is the one applicable in Uganda, there is only one exception – fraud. That this has been clearly stated in a Research Dissertation on the topic The Fraud Exception In Bank Guarantee by Grace Longwa Kayembe at page 31 (attached as authority no. 4) and Interlocutory Relief and The Ambit Of The Autonomy Principle at page 11 (attached as authority No. 5).
He submitted that in actual fact the only two (2) reported cases where an injunction in this type of case had been granted were Themehelp Ltd-Vs- West [1995] 4 All E. R 215 AND Kvaerner John Brown Limited -Vs- Midland Bank P1C [1998] CLC 446 (Attached as authority No. 6).
He concluded that in the circumstances of the instant case where the fraud exception could not be proved this court could not issue an injunction under the autonomy principle and he prayed that this application be dismissed with costs to the Plaintiff.
Counsel for the applicant in response, challenged the authorities cited on the grounds that the article by Karen Gough (supra) and the Research Dissertation by Ms. Grace Longwa Kayembe (supra) were mere academic views and research dissertation respectively devoid of any ratio decidendi and could not be relied upon by this court.
As regards the cases cited he attempted to distinguish them from the instant application and contended that the Edward Owen Engineering Ltd (supra) concerned goods and not services as in the instant case and involved a performance bond as opposed to the Advance Payment Guarantee in this application. He however, contradicted himself when he relied on Themehelp Ltd (supra) which dealt with sale of goods (share capital) and performance bond and submitted that in the case of Advance Payment Guarantee, an injunction could be properly granted to restrain withdrawal of the same even where there is no proof of fraud.
With all due respect to counsel for the applicant, the basis for granting an interlocutory injunction in Themehelp Ltd (supra) case was because of the finding that there was a prima facie case of fraud. This is contained in holding number one quoted by counsel in his submission but more specifically in holding number two that counsel conveniently left out. In both holdings it was stated that;
1.
“A performance guarantee was in principle an autonomous contract which was entitled to freedom from interference by the court on grounds extraneous to the guarantee itself. However, where fraud is raised as between the parties to the main transaction, at an early stage, before any question of the enforcement of the guarantee as between the beneficiary and the guarantor (who was not a party to the action) had arisen, the court had jurisdiction to grant an injunction to restrain the beneficiary from taking steps to enforce the guarantee…………
2.
On the facts, and having regard to the evidence available to him, the judge was fully entitled to conclude that the plaintiffs had satisfied the onus of showing, for the purpose of interlocutory relief, that they had an arguable case that the only inference to be drawn from the circumstances was that the defendant had been fraudulent.” (Emphasis supplied)
Waite LJ, while discussing the legal background against which this principle was developed stated that;
1.
“Letters of credit, performance bonds, and guarantees are all subject to the general principle that they must be treated as autonomous contracts, whose operation is not to be interfered with by court on grounds extraneous to the credit or guarantee itself.
2. The sole exception allowed to this principle is for instances of fraud, although even in such instances the law recognizes the prima facie right of the guarantor to be the sole arbiter on the question whether payment under the guarantee should be refused on the ground of fraud”. (Emphasis supplied)
In view of the above holding, counsel’s contention that an interlocutory injunction in the case of Advance Payment Guarantee could be properly granted to restrain withdrawal of the same even where there is no proof of fraud is unsubstantiated and contrary the above principle. Counsel in his response did not address the real issue that was raised about the autonomy principle in on demand bank security.
I believe the case law authorities cited by counsel for the respondent would be persuasive in Uganda as was stated by this court in William Sebuliba Kayongo and Another v Barclays Bank of Uganda HCMA No. 263 of 2008 arising from HCCS No. 111 of 2008 (unreported). Although the facts of that case was different in that it concerned an application for leave to appear and defend a summary suit, the effect of an on demand guarantee was considered when counsel for the respondent contended that because of the on demand guarantee signed by the first applicant by its very nature it was not open to him to raise any defence at all. The trial judge then stated that;
“I have not found local authorities on the subject of on demand guarantees or bonds. I do not see however, how the case of Edward Owens Engineering Ltd (supra) would not be a persuasive authority in Uganda for on demand bonds/guarantees”.
The Advance Payment Guarantee the subject matter of this application was clearly an on demand bank guarantee independent of the contract between the parties herein to which I am convinced that the above principle would apply. Paragraph 2 thereof reads as follows;
“We, the undersigned Eco Bank Uganda Limited,…………………, as instructed by the contractor agree unconditionally and irrevocably to guarantee as primary obligator and not as surety merely, the payment to its employer on its first demand without whatsoever right of objection on our part and without its first claim to the contractor, in the amount not exceeding UGX 121,780,000- (Uganda Shillings One Hundred Twenty One Million Seven Hundred Eighty Only)”. (Emphasis supplied).
The respondent demanded payment in accordance with the above terms but the applicant has run to court to seek among other remedies a permanent injunction prohibiting the defendant from withdrawing the Advance Payment Guarantee. By this application, it is seeking a temporary injunction to restrain the respondent from withdrawing/recalling the Advance Payment Guarantee pending determination of the main suit. Surely, should this court go ahead and grant an interlocutory injunction in view of the unconditional and irrevocable undertaking made by the Bank in the above words? My answer would be no. I am fully persuaded by the above principle and the logic behind it as stated in the Themehelp Ltd case.
In the circumstances, I agree with the submission of counsel for the respondent that this application is governed by the above principle as opposed to the ordinary conditions that apply to interlocutory injunctions. Since the applicant has not alleged any fraud on the part of the respondent to qualify under the exceptions, I do not think it qualifies to get the injunctive relief sought. In the result, I would decline to grant this application and dismiss it with cost.
However, in case I am wrong on my finding on this point, I will go ahead and consider the conditions for grant of an interlocutory injunction to determine whether the applicant has met them.
For emphasis purpose, the law in our jurisdiction is now settled on the conditions for grant of interim injunction. The principles laid down in the case of Giella (supra) was followed in the case of Robert Kavuma v Hotel International Ltd Supreme Court Civil Appeal No. 8 Of 1990 Reported In (1993) II KALR 73 where Wambuzi CJ (as he then was) held at page 85 as follows;
1.
That the applicant must show a prima facie case with a probability of success.
2. That the applicant might otherwise suffer irreparable damage which would not be adequately compensated in damages.
3. When the court is in doubt it would decide the application on a balance of convenience (Emphasis added).
Prima facie case with probability of success
As I considered this condition, I was mindful of the holding of Lord Diplock in the case of American Cynamide Co. v Ethicon [1975] 1 ALL E.R. 504 that for purposes of grant of a temporary injunction it is sufficient for the applicant to prove that triable issues have arisen that merit judicial consideration. There is no requirement for the plaintiff to establish a strong prima facie case. All the Plaintiff needs to show by his action is that there are serious questions to be tried and the action is not frivolous or vexatious.
Under paragraph 3 of the plaint in the main suit, that is, HCCS No. 377 of 2010 filed on 21st October 2010, it was stated as follows:
“The plaintiff brings up this suit against the defendant for an order of specific performance of price adjustment clause (S.5 (47) (47.1) of the contract and compensation event clause (S.5 (44) (44.1-44.4) of the contract, an order that the defendant grants an extension of contract’s intended period of completion (S.5 (28.1), UGX 23,500,000= (Twenty Three Million Five Hundred Thousand Shillings Only) as value of damaged equipment due to defendant’s breach of work conditions under the agreement, general damages, compensatory damages, interest and costs of the suit.” (Emphasis supplied).
In the last paragraph of the plaint the plaintiff prayed that judgment be entered against the defendant for breach of contract, an order for specific performance, compensation for a specific value of damaged equipment, permanent injunction, general damages for breach of contract agreement, general damages for inconvenience, compensatory damages, interest and costs of the suit.
From the foregoing, the main claim of the applicant in the main suit is for specific performance of the contract by invoking the clause on price adjustment and extension of time which the applicant contended is allowed under the contract. The applicant also seeks a declaration that the respondent breached the contract by changing the specification of the size of road marking as well as compensation for the damaged equipment as a result of that change.
As regards specific performance, I have perused all the contract documents as provided under clause 2.5 of GCC and I agree with the submission of counsel for the respondent that price adjustment was prohibited. Clause 47 of the GCC on Price Adjustment which the applicant is relying upon provides under clause 47.1 that “Prices shall be adjusted for fluctuation in the costs of inputs only if provided for in the SCC. If so provided……..”
Under the SCC that relates to GCC 47 on price adjustment there is an entry to the effect that, “Prices SHALL NOT be adjusted for fluctuations in the cost of inputs”.
Reading these documents together as indicated above, I do not see the basis of the applicant’s contention that the contract agreement allowed price adjustment. In the circumstances, I agree with the respondent’s submission that the applicant has not shown a prima-facie case of specific performance at least on price adjustment with a probability of success or even raised any triable issues in that regard.
As regards provision for extension of time, this was not addressed in both the affidavit in reply and the submission of counsel for the respondent despite it being raised by the applicant in its affidavits and submission. I have read clause 28.1 of the GCC which provides that;
“The Project Manager shall extend the Intended Completion Date if a Compensation Event Occurs or a Variation is issued which makes it impossible for Completion to be achieved by the Intended Completion date without the contractor taking steps to accelerate the remaining work, which would cause the Contractor to incur additional cost”.
Under the interpretation clause in the GCC, it is provided that ““Compensation” Events are those defined in clause 44 hereunder.” A number of scenarios are then listed in clause 44 from (a)-(i) which for fear of making this ruling too long I will not list.
However, under the SCC the provision on extension of time which corresponds to clause 28.1 of GCC is to the effect that “Project Manager shall seek approval of the employer before extending the contract’s completion date”.
It was contended for the applicant that the respondent caused a variation on the specification on the size of road marking which necessitated procuring new road marking machine and modifying the existing one hence leading to the delay in completing the work within the agreed time. If this contention was true, then the Project Manager would be entitled to seek approval of extension of time by the employer under the second option provided in clause 28.1 of the SCC.
However, this contention was hotly contested in the affidavits and the submissions. It was argued for the respondent that it was the applicant who made that request and the respondent just responded by issuing Site Instruction No. 2. My understanding of the applicant’s letter of 26th October 2009 is that some anomaly was observed in the course of road pre-marking exercise regarding the width of the portion of the road to be marked and the specifications in the Bills of Quantities. The applicant as the contractor with technical knowledge in that work then sought to bring it to the attention of the employer vide that letter. He actually stated that if the work continued like that the result would be poor but decried the fact that the Bills of Quantities did not indicate any other method like sand blasting, black painting or use of paint remover for removing visible existing wider marked lines.
The letter was concluded with the following words:
“Our experience shows that such work involving sand blasting, of 152 Km (76Rhs and Lhs) is both a major and costly item which cannot be handled without considering for its payment. We thus call for your urgent decision on this matter to enable us continue work as per our proposed schedule”.
It appears the respondent first responded to that letter verbally and later followed it up with a letter dated 14th November, 2009 with the following content:
“14th November, 2009
Road Name: Nebbi-Arua (76 Km)
Contractor: Victor Construction Works Ltd
Site Instruction No. 2 Dated 11/01/2010
Attn: Mr. Mbowa Charles
Referring to your letter dated 26th October, 2009 regarding billed 100mm width of white edge marking and our subsequent verbal agreement. You are hereby instructed to carry out 150 mm width road marking at the edge of the road from Nebbi-Arua
Carriageway works
|
From |
To |
Description |
Length/Area |
Contract Amount |
|
|
Nebbi
|
Arua |
White road marking lines
150 mm |
149,000 m |
372,500,000 |
|
This instruction supercedes Site Instruction No. 1 for white paint road marking lines only.
Signed by: Project Manager Received by: Site Agent
Date: 14/11/2009 Date: 11/01/2010”.
I have reproduced the content of that letter so that the intention of the author could be seen in context visa-vis the letter that was being responded to.
Looking at both letters as reproduced above, it is not quite obvious as to which of the parties caused the actual changes in the specifications to be made but it is also quite clear that the applicant by writing the letter set the process in motion. I am of the considered opinion that if the applicant had been mindful of the time frame for completing the work particularly in view of the fact that price adjustment was specifically prohibited under the SCC, it would have concentrated on the work as per the specifications in the contract and completed it in time. The current situation would have then been avoided. Consequently, I also find that the applicant has not raised a triable issue on this leg of the applicant’s claim for specific performance that would warrant grant of a temporary injunction.
Irreparable injury
It was contended for the applicant that it would suffer irreparable injury if an injunction is not granted to restrain the respondent from withdrawing/recalling the Advance Payment Guarantee. On the other hand, it was contended for the respondent that the applicant would not suffer irreparable damage that could not be compensated by damages.
I am more inclined to agree with counsel for the respondent that the applicant will not suffer irreparable damage that cannot be compensated by damages if an injunction to preserve the status quo is not granted. The prayers in the applicant’s plaint in the main suit as indicated above include general damages for breach of contract as well as what it called compensatory damages. I believe this court would be in a position to evaluate all the heads of damages and award what would be adequate to compensate the applicant in the event that it becomes the successful party. Given the status of the respondent as a statutory body, I believe it would be in a position to pay the damages so awarded.
In view of the above findings on the two conditions, this court is not in doubt but in case I am also wrong on my findings on these two conditions, I will proceed to consider the balance of convenience being the third condition. It was contended for the applicant that the balance of convenience is in its favor because it stands to lose more when the Advance Payment Guarantee is withdrawn/recalled thereby automatically terminating the contract. That the applicant would have no chance of completing the contract and this would impact negatively on its reputation. Further that the collaterals given as security would be sold by Eco Bank which has already issued a notice to that effect.
On the other hand, it was argued for the respondent that the circumstances of this case make the balance of convenience favor refusal to grant an injunction because granting it would be an abuse of the Court process.
I have carefully evaluated the circumstances of this case taking into account the fact that the agreement the parties entered into was for a period of four months and price adjustment was specifically prohibited under the SCC as already indicated above. I am of the firm view that it favors refusal to grant an interlocutory injunction. Any damages suffered by the applicant arising from the alleged breach of the contract if proven could be adequately compensated by an award of damages as stated earlier.
All in all, the applicant has not met the conditions for grant of a temporary injunction whether under the autonomy principle or ordinary conditions. In the final result, I decline to grant the application and dismiss it with costs. The interim injunction granted by consent of parties on 5th November 2010 is accordingly vacated.
I so order.
Hellen Obura
JUDGE
Ruling read in draft in open court in the presence of Mr. Tiishekwa Ambrose Rukundo Counsel for the applicant and Mr. Joseph Lukenge one of the directors of the applicant company. The respondent and its counsel were absent despite being served with notice for the ruling.
Ms. Ruth Naisamula- Court Clerk
Hellen Obura
JUDGE
14/06/11
