Hydro Uganda Limited and 3 Others v Rwenzori Hydro (pty) Limited and Others (Civil Appeal 155 of 2023 Civil Application 30 of 2023) 2023 UGCA 155
The court of appeal dismissed an application of injunction that wanted to stop UAP Old Mutual from effecting the payment of bonds worth a total of USD 3,899,170 against an energy company.
In a groundbreaking ruling, the Court of Appeal of Uganda, sitting in Kampala, issued a decision that sheds light on the legal intricacies surrounding bond payments and injunctions. The case, Civil Application No. 155 of 2023, involved several parties and centered around the issuance and potential payment of Advance Payment Bonds. The ruling, delivered by Justice Irene Mulyagonja, has significant implications for the interpretation and application of bond-related matters in Uganda.
The applicants in the case, comprising Hydro Uganda Ltd, Hydro (Pvt) Ltd, Benthottage Nishan Chandana Mahanama, and Prabodha Keshana Sumanasekera, sought an interim order for an injunction to prevent the 4th respondent, UAP Old Mutual Insurance, from effecting payment on three Advance Payment Bonds. The applicants argued that payment should be withheld until the final determination of the main application for a temporary injunction.
The Court’s ruling, which was based on the Judicature (Court of Appeal Rules) Directions, clarified several key aspects. Firstly, the Court emphasized that the payment of demand guarantees, such as the Advance Payment Bonds in question, can only be restrained in cases where fraud or unconscionability is established. The trial judge had previously dismissed the application for an injunction as the applicants failed to demonstrate these elements.
Furthermore, the Court addressed the issue of serving the Notice of Appeal to all relevant parties within the required timeframe. The respondents raised a preliminary objection, arguing that there was no valid appeal before the Court as the Notice of Appeal was not properly served. However, the applicants were able to provide an affidavit of service to prove that the Notice of Appeal had been served on the respondents. This evidence countered the objection, affirming the validity of the appeal.
The Court’s ruling clarified that a valid appeal was pending, allowing the Court to proceed with examining the merits of the case. The Court recognized the significant issues raised by the applicants, particularly the interpretation of legal principles regarding the variation of terms in an advance payment bond and the application of demand guarantees. It determined that the main application for a temporary injunction had a high chance of success and should be allowed to proceed.
Importantly, the Court noted that the pending civil suit between the respondents sought payment of sums due on the Advance Payment Bonds. The Court acknowledged the suit as the appropriate forum for determining the merits or otherwise of the demands for payment on the bonds. As such, it concluded that an injunction from the Court of Appeal would be unnecessary and potentially an abuse of the judicial process.
This ruling provides valuable guidance on the interpretation and application of bond-related matters in Uganda. It establishes the necessity of demonstrating fraud or unconscionability to restrain payment on demand guarantees, while also highlighting the importance of proper service of notices and appeals. The Court’s decision reaffirms the role of the civil suit in adjudicating payment disputes related to bonds and emphasizes the need for a fair and comprehensive examination of the merits in the appropriate forum.
