If it’s unclear whether a borrower has actually defaulted on a loan agreement, where key terms like repayment timing are disputed, a lender cannot hold the guarantor liable at the summary stage.
- Kiiza John Paul
- Apr 1
- 6 min read
If it’s unclear whether a borrower has actually broken a loan agreement, especially where key terms like repayment timing are disputed, a lender cannot hold the guarantor liable at the summary stage. Court Rules.
FACTS
The 1st Applicant (Inyasti Construction Limited) entered into a construction contract with the Ministry of Water and Environment (MOWE) for the Kabuyanda Earth Dam project. The contract required the 1st Applicant to furnish various bank guarantees, including an Advance Payment Guarantee (APG No. 096 of 2023) valued at UGX 5,017,158,210/=.
Pursuant to a Multi-Option Facility Agreement dated 27 January 2023 between the 1st Applicant and Absa Bank Uganda Limited (the Respondent), the Bank issued the APG (categorised as BGI Facility 2) with a stated maximum tenor of each obligation of 900 days. The 2nd Applicant (Inyasti Group Holdings (Pty) Limited) issued a Corporate Guarantee in support of the facility.
MOWE repeatedly failed to honour Interim Payment Certificates (IPCs 2, 3 & 4). The 1st Applicant lawfully terminated the construction contract. The Dispute Adjudication/Avoidance Board (DAAB) upheld the 1st Applicant’s termination and nullified MOWE’s attempted counter-termination (December 2024 decisions). At termination, MOWE owed the 1st Applicant approximately UGX 36.1 billion.
MOWE nevertheless demanded encashment of APG 096 of 2023. The 1st Applicant promptly notified the Bank of the illegality and unconscionability of the demand (outstanding payments, pending High Court Civil Suit No. 535 of 2024 challenging the encashment) and requested the Bank not to pay. Despite these notices and the pendency of Suit 535/2024, the Bank honoured the demand, paid MOWE UGX 4,403,722,357.63, and debited the 1st Applicant’s account, leaving an outstanding debit balance of UGX 2,979,337,173.
The Bank then instituted Civil Suit No. 1120 of 2025 under Order 36 (summary procedure) seeking recovery of the debit balance. The Applicants filed this Miscellaneous Application for unconditional leave to appear and defend.
ISSUES
Whether the Applicants disclosed triable issues of fact and law warranting unconditional leave to defend the summary suit.
Whether the suit was premature (900-day tenor of BGI Facility 2 not yet expired).
Whether the sum claimed was a liquidated/ascertainable sum capable of summary judgment.
Whether a cause of action existed against the 2nd Applicant (guarantor/co-principal debtor).
Whether the encashment was unconscionable/illegal given the pendency of Civil Suit 535/2024 and the underlying construction dispute.
Whether summary procedure under Order 36 CPR was appropriate or whether the matter required a full trial.
SUBMISSIONS
Applicants (Alba Advocates)
The applicants submitted that the suit was premature as the 900-day maximum tenor under BGI Facility 2 had not elapsed, meaning there was no breach by the 1st Applicant and therefore no cause of action against either applicant.
They further submitted that the sum of UGX 2,979,337,173 was not an ascertainable liquidated amount determinable from the face of the relevant documents (lien deed, facility agreement, guarantee deed, and APG); oral and documentary evidence at a full trial was required.
The applicants also submitted that ABSA's encashment was unconscionable and illegal given MOWE's outstanding debt of UGX 36,139,297,482.56 to Inyasti, and Inyasti's written warnings to ABSA not to encash the APG.
They further submitted that the independence of the APG could not be invoked where the guarantor bank was placed on notice of exceptional and unconscionable circumstances surrounding the call.
The applicants referenced the selective conduct of ABSA and submitted that ABSA chose to honour APG 096 of 2023 while declining to pay other APGs; the basis for this selective payment required full evidential inquiry at trial.
They further submitted that granting summary judgment would render Civil Suit No. 535 of 2024 and ongoing DAAB proceedings nugatory.
The applicants also stated that the 2nd Applicant's liability as guarantor could not crystallise without a proven breach by the 1st Applicant as principal debtor.
Finally, they submitted that there were multiple triable issues of fact and law warranting a full trial and that the applicants intended to file a counterclaim against ABSA and MOWE.
Respondent ABSA (MMAKS Advocates)
The respondent submitted that the APG was independent of the underlying construction agreement per Article 5 of the ICC Uniform Rules for Demand Guarantees (URDG 758, 2010 Revision); ABSA's obligation to pay MOWE was not subject to claims arising under the construction contract.
It further submitted that the 900-day tenor related only to the period within which new BGI facilities could be requested; it had no bearing on whether an already-issued guarantee could be the subject of a demand. The respondent added that the tenor had in any event lapsed by 27 July 2025.
The respondent also submitted that the debit balance of UGX 2,979,337,173 on the 1st Applicant's account was a debt and a liquidated sum properly recoverable under Order 36 Rule 2(a) CPR.
It further submitted that the 2nd Applicant was liable both as Co-Principal Debtor and as Guarantor; the cause of action against it was properly disclosed in the plaint.
Finally, the respondent submitted that the applicants had no defence to the claim and that no triable issues had been disclosed.
COURT’S FINDINGS
The Court identified the central question as whether triable issues existed sufficient to warrant a full hearing rather than summary determination.
The Court clarified that the main issue for determination was whether the applicants should be granted unconditional leave to appear and defend Civil Suit No. 1120 of 2025 on its merits.
Relying on two foundational authorities, the Court held that summary procedure is only resorted to in clear and straightforward cases where the demand is liquidated and there are no issues for determination by the Court except for the grant of the claim (Twentsche Overseas Trading Co. Ltd v Bombay Garage [1958] EA 741).
The Court further established that the defendant must show by affidavit or otherwise that there is a bona fide triable issue of fact or law. When there is a reasonable ground of defence to the claim, the plaintiff is not entitled to summary judgment. The defendant is not bound to show a good defence on the merits but should satisfy the court that there was an issue or question in dispute which ought to be tried and the court shall not enter upon trial of issues disclosed at this stage (Maluku Inter global Trade Agency Ltd v Bank of Uganda [1985] HCB 65).
Applying these principles, the Court found that the parties’ pleadings raised several triable issues including prematurity of the suit under the terms of the facility agreement, unascertainability of the liquidated sum, and the existence of a cause of action against the 2nd Applicant.
The Court further observed that by summarily determining Civil Suit 1120 of 2025, it was likely to preempt the outcome of Civil Suit 535 of 2024 and render it nugatory as stated by the applicants. The Court clarified that if the Civil Division found that the encashment was illegal or wrongful, that finding would directly affect (and likely defeat) the claim in the suit before it. In other words, the suit before this Court was dependent on and intertwined with the issue before the Civil Division.
The Court emphasised that the length and complexity of both the affidavits and submissions before it were themselves indicative of a matter that could not be resolved summarily. The Court noted that the suit was evidently not one that could be determined summarily.
In light of the above, the Court found that in the interest of justice and in consonance with the principles of according parties a fair hearing, the issues raised by the parties could not be determined summarily and required a full trial to fully investigate the same, during which each party would be required to adduce their evidence, articulate and prove their claims exhaustively.
HOLDING
The Court granted unconditional leave to the Applicants to appear and defend Civil Suit No. 1120 of 2025 on its merits.
Orders Issued
The Applicants shall file their Written Statements of Defence within 14 days from the date of delivery of the Ruling.
The main suit shall thereafter be referred for mediation proceedings before a Commercial Court-annexed mediator.
Costs of the application shall be in the cause.
Read the full case below
COMPILED BY;
KIZZA JOHN PAUL
EMAIL; johnpaulkizza499@gmail.com
LEGAL SCHOLAR AT UGANDA CHRISTIAN UNIVERSITY, MUKONO CAMPUS.
EDITORS KEY TAKEAWAYS
Summary suits under Order 36 CPR will be denied where any bona fide triable issue (prematurity, liquidated sum, unconscionability, interdependence with another suit) exists, even if the Bank relies on the independence principle of demand guarantees.
Facility tenor clauses (e.g., “maximum tenor of each obligation – 900 days”) can create a triable issue on whether a cause of action has crystallised.
Banks must exercise caution when honouring demands on guarantees once the customer has expressly notified the Bank of fraud, unconscionability, or pending litigation. The independence principle (URDG 758 Art. 5) is not absolute in the face of exceptional circumstances brought to the Bank’s attention.
Parallel proceedings (construction arbitration/DAAB + High Court suits) can render summary judgment inappropriate where the outcome of one directly affects the other.
Mediation emphasis
The Commercial Division of the High Court continues its strong policy of referring intertwined commercial disputes to mediation after granting leave to defend.
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