It all started with a letter authored by Maxol Uganda Limited dated 03 October 2022 to CitiBank Uganda Limited seeking for enforcement of the performance guarantee Ref. No. 5680600384 in the respect to payment of USD 1,802,089 on behalf of Uganda Electricity Transmission Company Limited(UETCL).
In their letter, filed in the High Court Commercial Division as an exhibit, Maxol accused UETCL of defaulting on the payment as agreed in the Power Purchasing Agreement between UETCL and Electromaxx.
Maxol further requested the bank to deposit their money on their bank account in Housing Finance Bank totalling USD 1,094,479,45.
Maxol based their request on a transfer of rights from Patrick Bitature and Charlse Muhumuza on behalf of Electromaxx, who transfered the rights and conditions their company signed with UETCL to Maxol including the performance guarantee Ref. No. 5680600348 in 2018.
“We agree that any future communication and any amendments to the original performance guarantee will not require our consent before being advised to the transferee,” part of the agreement signed between Maxol and Electromaxx on 16th December, 2021 reads.
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UETCL protested the move and filed a suit in the Commercial Division of the High Court against CitiBank, Electromaxx Uganda Limited and Maxol Uganda Limited.
Court documents indicate that UETCL executed a power purchasing agreement with Electromaxx in April 2018 where UETCL undertook to purchase 50 MW of electricity generated by Electromaxx’s thermal power generation complex at Tororo for a period of six years, twenty four hours a day through CitiBank.
However, in his affidavit filed in Court, Martin Erone, the legal manager UETCL contested the Maxol request and explained to Court that his company paid all the invoices raised by Elecromaxx.
Erone further told court that Elecromaxx was paid as per the contract and UETCL did not default on its payment obligations under the power purchasing agreement.
“Maxol Uganda Limited has claimed enforcement of the guarantee dated 28th of December 2021 allegedly on account of default by UECTL to effect payment as agreed in the power purchasing agreement between UETCL and Electromaxx Uganda novated in favour of Maxol Uganda Limited.
UETCL was prior to this and is still not aware of any such novation of the power purchasing agreement as is being alleged and was not also aware of the existence of the performance guarantee dated 28th December 2021 and had never received any notice of the novation or the 28th December 2021 performance guarantee from either the bank, Electromaxx or Maxol,” he stated.
He added that UETCL never instructed the bank to issue the performance guarantee dated 28th December, 2021 in favour of Maxol and there has been no novation or changes in their power purchase agreement with Electromax to warrant the issuance of said performance guarantee to maxol.
He noted that the said performance guarantee was illegally and irregularly procured by CitiBank, Elecromaxx and Maxol without the knowledge and authorization of his company and is not subject to any payments being demanded by Maxol.
He further denied knowledge of the invoices numbers; Ref. AGO,MAY,0522, AG.JULY,0722, AGO,JUNE,0622 and AGO,APR, 0422-02 IL.
He explained that they were all addressed to Electromaxx as a payer and his company cannot default on the payment of invoices that are not addressed to them as a payer and which they are not obliged to pay.
“If the respondent cashes the performance guarantee to Maxol, UETCL will suffer irreparable damage as it will be considered and depicted as a defaulter and shall lose the ability to use any other financial institutions to provide financial services as it provides service delivery as a transmission company.
The reputation shall also be severely damaged amongst donors, financial institutions and other stakeholders whose reputation cannot be atoned for damages,” he stated.
David Sekirebeka, the CitiBank head of operations and technology swore an affidavit in defense insisting that a performance guarantee number 5680600348 dated 19th October, 2021 for the sum of USD 1,802,089,00 was issued to Electromaxx which resulted into the power purchasing agreement signed between UETCL and Electromaxx and the first guarantee has to expire after one year from the date of the signing of the agreement.
He explained that on 16th December 2021, CitiBank received a letter from Electromaxx informing them that they had transferred their first guarantee to Maxol which resulted into the bank issuing another performance guarantee to Maxol on 28th December, 2021 amounting to USD.1,802,089.00 and it was valid until 19th of October 2022.
He said that before depositing the money to Maxol, who Electromaxx introduced as their replacement in the power purchasing agreement they signed with UETCL, on 06th October, 2022, they received a letter from K&K Advocates preventing them from honouring the obligations under the second guarantee.
He told Court that they were willing to release the money to Maxol following the letter they received from Electromaxx asking them to transfer their rights and obligations but they were stopped by an interim court order from the High Court Commercial Division that was served to the bank on October 2022.
“CitiBank is a financial institution of a repute in Uganda which fully understands and appreciates its obligations under the Second Guarantee and is ready and willing to honour its undertakings and obligations to the right beneficiary albeit in a such manner that will avert any possibility or the occurrence of a multiplicity of suits,” Sekirembeka stated.
He was supported by his lawyers led by Fred Mpanga of AF Mpanga Advocates who submitted to Court that for a fraud exception to apply or be effective as a basis for non-payment, the fraud must be brought to the attention and knowledge of the bank before it pays which means that the bank must become aware and therefore know about the existence of the fraud before the bank effects payment under the letter or the guarantee.
He explained that the second guarantee arose following the letter from Electromaxx dated 16th December 2021 to his clients which contained a position to the effect that there had been a novation of the contract.
He told the Court that Electromax informed his client that there had been a transfer of the first guarantee in its entirety upon the same terms and conditions as the original first guarantee to Maxol and took over the obligations of Electromaxx.
He added that his clients leanrt from Court that there has never been a novation of the contract, all invoices for the supply and purchase of energy under the contract which Electromaxx issued to UETCL were settled by UETCL and there is no money that is due owed to Electromaxx.
Justice Stephen Mubiru the head of the High Court Civil Division issued a temporary injunction restraining CitiBank, Electromaxx, Maxol, their agents, employees or persons from cashing performance guarantee Ref. No. 5680600348 dated 28 of December 2021 in the sum of USD 1,094,479 until the determination of the main suit file by UETCL against the respondents.
In his ruling the judge explained that UETCL has made out a strong prima facie case of an unfair or fraudulent calling of the guarantee.
UETCL filed a suit after citing fraud.
Citibank however claim that they are willing to pay Maxol if court rules that their invoices under investigations were rightfully issued.
