High Court Clarifies Principles for Interim Measures in Arbitration and Enforcement of Performance Bonds

Waboga David
Oct 12
5 min read

Facts

Adler Construction Company Ltd (the Applicant) applied under Section 6 of the Arbitration and Conciliation Act, Cap. 4 and Regulation 13 of the Arbitration Rules for interim measures of protection. Specifically, the Applicant sought a temporary injunction restraining:

Zenitaka Corporation (1st Respondent) from demanding payment under the Advance Payment Bond and Performance Bond;
Jubilee Allianz General Insurance Ltd (2nd Respondent) from paying the called sums;
The 1st Respondent from evicting the Applicant from the construction site or subcontracting others pending arbitration in the United Kingdom.

The dispute arose from a subcontract executed on 26 November 2024, where Adler was to construct part of an irrigation system in the Atari Basin area. To secure performance, Adler procured two bonds from Jubilee Allianz:

Advance Payment Bond — UGX 726,000,000/=
Performance Bond — UGX 242,000,000/=

The bonds were to remain valid until completion of works or 9 January 2026, whichever came first.

Adler alleged that Zenitaka had threatened to cash the bonds despite delays being caused by its own conduct (failure to issue a commencement notice, inconsistent supervision, and severe weather).

Zenitaka, however, contended that Adler executed only 62.8% of the works by August 2025 and was in breach of the subcontract, justifying a call on the unconditional Advance Payment Guarantee to recover unrepaid advance sums amounting to UGX 438,036,529.

Issues

Whether the application disclosed sufficient grounds for the grant of interim measures of protection.
What remedies were available to the parties.

Legal Representation

For the Applicant, Counsel Rodney Jordan Kinyera (M/s Adalci Advocates)
For the 1st Respondent, Counsel Michael Agaba (M/s ABNO Advocates)
The 2nd Respondent (Jubilee Allianz) was represented by Ms. Clara Namara, Legal Officer, but filed no affidavit in reply.

Submissions

Applicant’s Arguments

Cited Section 6(1) of the Arbitration and Conciliation Act and the principles in E.L.T. Kiyimba Kaggwa v Hajji Katende (1984) for grant of injunctions.

Asserted a prima facie case existed due to a genuine dispute over the cause of project delays, now subject to arbitration in the UK.

Claimed the 1st Respondent’s call on the guarantees was unconscionable and in bad faith, as delays were due to its own defaults and force majeure (heavy rains).

Irreparable injury would result from cashing the bonds, leading to loss of security property (LRV 3492 Folio 18, Plot 46, Nile Gardens Road, Jinja) and reputational harm in the construction industry.

The balance of convenience favoured maintaining the status quo to prevent unjust enrichment and reputational damage.

1st Respondent’s Arguments

Argued that the Applicant had failed to meet progress targets and admitted delays.

Relied on AC Yafeng Construction Ltd v Registered Trustees of Living Word Assembly Church & UBA (2021), which held that a contractor in breach cannot restrain an unconditional guarantee.

Submitted that the Advance Payment Guarantee was unconditional and irrevocable, governed by ICC Uniform Rules for Demand Guarantees (URDG 758), thus independent of the underlying contract.

Contended that Government irrigation works affected national food security and public welfare , thus, injunctions should not stall such critical infrastructure (UNBS v REN Publishers Ltd, HCMA No. 635 of 2019).

Asserted that the Applicant’s remedy lay in damages after arbitration if it succeeded.

Applicant’s Rejoinder

Emphasized that the autonomy of on-demand guarantees is not absolute, citing Roko Construction Ltd v Pearl Engineering Co. Ltd, HCMC No. 09 of 2021.

Asserted that the 1st Respondent was using the guarantees as a coercive tool to pressure settlement and bypass arbitration.

Distinguished the UNBS v REN Publishers case, arguing that granting the injunction would not halt the Government project, only preserve the financial status quo.

Court’s Findings

On the Preliminary Objection

The 1st Respondent argued that the application should be dismissed for failure to file a rejoinder and submissions on time.

Justice Rubagumya rejected this argument, citing Article 126(2)(e) of the Constitution and Section 98 of the Civil Procedure Act, emphasizing that courts must focus on substantive justice over technicalities.

“I do not find that the Applicant’s failure to file an affidavit in rejoinder disadvantages its application; hence, the application cannot be dismissed on that basis.”

On Whether Grounds Existed for Interim Measures

The Court reiterated the principles from Great Lakes Energy Company NV v MSS Xsabo Power Ltd (HCMA No. 1041 of 2023), Polat Yol Yapi Sanvetic SA v UNRA (HCMC No. 03 of 2022), and Great Lakes Petroleum (U) Ltd v Vivo Energy Uganda Ltd (HCMC No. 133 of 2023).

The Court identified three key considerations:

Whether there is a serious question to be arbitrated;
Whether there is a risk of irreparable loss;
The balance of convenience.

On the facts, the Court found that, there was indeed a substantial question to be arbitrated, particularly over who was responsible for the delay in completion.

The 1st Respondent had conceded that the Performance Bond should not be enforced until arbitration determined breach.

The Advance Payment Guarantee, however, was clearly unconditional, allowing the 1st Respondent to call it independent of the underlying dispute.

“It is established that there is a significant issue to be arbitrated regarding who is responsible for the delay in completing the project works.”

Holding

The preliminary objection was overruled.
The Court held that the Performance Bond should not be paid pending arbitration, as its enforcement was conditional upon proof of breach.
However, the Advance Payment Guarantee, being unconditional and independent, could not be restrained by court order.
The Court therefore partially granted the interim measure of protection in respect of the Performance Bond only.

The Court defined irreparable injury per Proline Soccer Academy v. Commissioner Land Registration (HCMA No. 494 of 2018):

"By irreparable injury, it does not mean that there must not be physical possibility of repairing the injury, but it means that the injury or damage must be substantial or material one, that is one that cannot be adequately atoned for by way of damages."

The court found that the Advance Payment Bond was unconditional; it was not unconscionable as Applicant admitted delays: "… a call on unconditional performance guarantees is premised upon documents stating a bona fide claim of a breach of contract…" (citing AC Yafeng, supra).

No special circumstances shown as the Applicant assumed risk: "… by agreeing that the Applicant will provide the demand performance guarantee on the terms set out in the contract, the parties have also agreed to allocate the financial risk of any dispute to the Applicant until it is finally resolved."

The court further held that the balance of convenience was in favor of the 1st Respondent. Defining it as per Great Lakes Petroleum (U) Limited v. Vivo Energy Uganda Limited (HCMC No. 133 of 2023): "…comparative mischief or inconvenience that may be caused to either party in the event of refusal or grant of restraining order."

Public interest in government project prevails: "Courts should be slow in granting injunctions against Government projects that are meant for the public interest, as against private proprietary interest or otherwise for individuals." (citing Uganda National Bureau of Standards, supra).

The Injunction would defeat bond's purpose: "Therefore, to allow an injunction, as an interim measure of protection, in order to restrain a call on a guarantee that is intended to act as a risk allocation device would defeat the purpose of that security…" (citing AC Yafeng, supra).

The court noted the 1st Respondent's concession that the Performance Bond is conditional and requires arbitral proof of breach.

Key Takeaways

Autonomy of On-Demand Guarantees
The Court reaffirmed that an unconditional guarantee (such as an Advance Payment Bond) is independent of the underlying contract and cannot be restrained except in cases of clear fraud or unconscionability.
Conditional vs. Unconditional Instruments
Where the bond requires proof of breach or default, it is conditional, and courts may restrain its enforcement pending arbitration.
Arbitration and Interim Measures
Ugandan courts may issue interim measures of protection under Section 6(1) of the Arbitration Act to preserve the status quo and prevent frustration of arbitration, provided sufficient grounds are shown.
Substantive Justice Prevails Over Technicalities
The Court reaffirmed Article 126(2)(e) of the Constitution, emphasizing that procedural lapses (e.g., delayed submissions) should not override merits.
Public Interest vs. Private Rights
Courts remain cautious in restraining government infrastructure projects, especially those implicating public welfare and food security.