JUDGEMENT
1. This judgment relates to the Plaintiffs’ claim as set out in the Plaint dated 2nd July 2024, wherein they seek the following reliefs from this Honourable Court:
a) A Permanent Injunction restraining the Defendant, their agents and/or their servants from offering for sale, advertising for sale and/or selling by way of public auction or private treaty the Plaintiffs properties being LR. NO KIAMBU/KILIMAMBOGO/666, LR. NO 4953/1923 THIKA MUNICIPALITY and THIKA MUNICIPALITY BLOCK 11/480.
b) An order for joint valuation of the suit properties.
c) An order be made (as provided for under Section 104 (2)(b) of the Land Act, 2012) for extension of time to comply with the Statutory Notice served by the Defendant under Section 90 of the Land Act.
d) Spent.
e) An order for the recalculation of the loan accounts by an Independent Body.
f) Costs of the suit.
g) Any other order that this Honorable Court may deem fit to grant.
2. This matter came up for RRI, and pursuant to the directions issued by the Court, the Court has duly considered the written submissions filed on behalf of both parties. The Court commends Counsel for their diligence. Notably, the Plaintiffs’/Applicants’ submissions dated the 26th November 2024, while the Defendant’s/Respondent’s submissions dated the 18th November 2024. The Court sincerely apologises for the delay in delivery of this Judgement and any inconveniences it may have caused the parties. The delay is attributed to unforeseen personal events that befell the Court as well as pressure of work and exigencies of time.
Background Facts
3. By a Plaint dated 2nd July 2024, the Plaintiffs—Westbuild General Contractors Ltd (1st Plaintiff) and Njowambu (K) Limited (2nd Plaintiff)—filed suit against NCBA Bank (the Defendant), arising from a long-standing credit relationship dating back to August 2015. The 1st Plaintiff, a contractor engaged in public infrastructure projects, had approached the Bank for a line of credit to support performance on road construction contracts awarded by the Principal Secretary, Ministry of Transport and Infrastructure. The Bank granted various facilities—overdrafts, invoice discounting, performance and advance payment guarantees, and hire purchase arrangements—amounting to approximately Kshs. 889,841,000. These were secured by several instruments, including debentures over the 1st Plaintiff’s assets, corporate and personal guarantees from the 2nd Plaintiff and its directors, legal charges over land, and assignment of rental income.
4. The Plaintiffs assert that the facilities were properly serviced until around January 2021, when the Principal Secretary, Ministry of Transport and Infrastructure, acting unlawfully and in breach of a subsisting Court order, terminated the 1st Plaintiff’s construction contracts and recalled the guarantees. Despite being aware of the High Court’s injunctive order issued in West Build General Contractors Limited v Principal Secretary, State Department of Infrastructure & 2 Others (Commercial Civil Case No. E058 of 2020) [2021] KEHC 398 (KLR) (Commercial and Tax) (Ruling delivered on 22 December 2021), NCBA Bank honoured the recalled guarantees and paid KShs. 139 million to KeRRA, debiting the 1st Plaintiff’s overdrawn account. This action, the Plaintiffs claim, unjustifiably escalated their indebtedness, causing monthly liabilities exceeding Kshs. 5 million and plunging the 1st Plaintiff into financial distress.
5. The dispute with the Principal Secretary, Ministry of Transport and Infrastructure was referred to arbitration. That by a final Award dated 29th July 2022, the Arbitral Tribunal found the termination of the contracts and the guarantee recalls to be unlawful and awarded the 1st Plaintiff compensation, including damages, interest, and penalties. The Plaintiffs have since filed (Milimani) HCCOMMARB/E054/2022 seeking recognition and adoption of the arbitral Award as a decree of the Court. The Ruling on that application is pending.
6. Despite full knowledge of the Tribunal’s findings and the pending Court proceedings, NCBA Bank, through Philips International Auctioneers, advertised for sale the Plaintiffs’ properties on 10th June 2024. These include LR No. KIAMBU/KILIMAMBOGO/666, LR No. 4953/1923, and THIKA MUNICIPALITY BLOCK 11/480—the last two of which are solely owned by the 2nd Plaintiff and were provided purely as security. The Plaintiffs contend that NCBA’s actions are based on a grossly inflated and inaccurate claim of Kshs. 826,707,547.90 as of 12th April 2024, whereas their actual indebtedness is Kshs. 167,164,717.65, comprising an overdraft and one active guarantee.
7. The Plaintiffs challenge the inclusion of Kshs. 55,815,000 as a purported performance guarantee, claiming they have no knowledge of this amount. They also point out inconsistencies in NCBA’s debt figures, noting that while the Bank’s claim as at 31st August 2023 was Kshs. 877 million, the figure dropped to Kshs. 826 million by April 2024, despite no payments having been made—suggesting flawed or manipulated accounting. Moreover, the Plaintiffs argue that NCBA failed to first exhaust remedies against the 1st Plaintiff, the principal debtor, before targeting the 2nd Plaintiff’s charged assets, contrary to established principles of guarantee law and fair commercial practice.
8. Further, the Plaintiffs allege that the Bank has deliberately undervalued the charged properties in a bid to facilitate a forced sale at below-market prices, and has acted in bad faith by disregarding lawful court and arbitral processes. They argue that these enforcement measures are premature, oppressive, and unlawful, and that NCBA’s conduct seeks to unfairly extinguish their equity of redemption by demanding exaggerated and unrecoverable sums.
9. The Plaintiffs maintain that they made genuine attempts to restructure or settle the debt and that the 1st Plaintiff remains willing to meet its obligations, subject to the outcome of the arbitral enforcement proceedings. They therefore urge the Court to restrain the Defendant from proceeding with the auction and seek declaratory and injunctive relief to protect their rights and prevent irreparable loss.
10. In opposition to the Plaintiffs’ application, NCBA Bank filed a Replying Affidavit sworn on 25th July 2024 by Christine T. Wahome, the Bank’s Senior Legal Counsel. Ms. Wahome deposed that the Plaintiffs had, at their own request, been granted various banking facilities by the Defendant under multiple Facility Letters dated 26th August 2015, 30th August 2018, 24th July 2019, and 28th August 2019. These facilities, which included commercial loans and performance guarantees, were secured by numerous legal charges over the Plaintiffs’ properties, including LR No. 4953/1923, THIKA MUNICIPALITY BLOCK 11/480, and KIAMBU/KILIMAMBOGO/666.
11. Despite the financial arrangements, the Plaintiffs allegedly defaulted on their repayment obligations. Ms. Christine Wahome stated that the Bank issued and served all the requisite statutory notices in accordance with the Land Act. These included a 30-day notice (dated 28th May 2021), a 90-day notice (dated 30th June 2021), and a 40-day redemption notice (dated 4th October 2021). The Plaintiffs did not dispute service of these notices and, in fact, acknowledged the debt in a letter dated 8th November 2021, wherein the 1st Plaintiff proposed a restructuring of the then-outstanding sum of approximately Kshs. 650 million.
12. In April 2024, the Bank instructed Philips International Auctioneers to issue a 45-day redemption notice and a Notification of Sale, which the Plaintiffs also did not contest receiving. A professional valuation of the charged properties was conducted by Centenary Valuers Limited, which reported forced sale values of Kshs. 265 million (for LR 4953/1923), Kshs. 56.5 million (THIKA BLOCK 11/480), and Kshs. 45 million (KIAMBU/KILIMAMBOGO/666). Based on these valuations, the properties were advertised for public auction on 30th June 2024, with the auction scheduled for 5th July 2024.
13. Ms. Christine Wahome further confirmed that the Bank had issued performance guarantees at the Plaintiffs’ request, and that these were irrevocable commitments to pay the Ministry on demand. On 20th February 2020, the Principal Secretary, Ministry of Transport and Infrastructure, called up four such guarantees, totaling Kshs. 124,319,846.70. That the Defendant honoured the demands on 13th March 2020, in accordance with the terms of the guarantees. She emphasized that the Bank was not a party to the arbitral proceedings between the Plaintiffs and the Ministry and could not be bound by those findings.
14. She also noted that the 1st Plaintiff had previously acknowledged and proposed separation of the outstanding debt into loan and guarantee components, but the Bank declined such proposals. Ms. Christine Wahome stated that the Defendant had extended multiple indulgences and accommodations to the Plaintiffs, including the renewal of guarantees, but the Plaintiffs had persistently failed to meet their obligations.
15. The Affidavit provided detailed loan balances as at 17th July 2024, showing total arrears of Kshs. 772,939,591.55, spread across six credit facilities, including three commercial loans, two overdraft accounts, an asset finance facility, and one performance bond. All facilities were said to be in default and accruing interest.
16. Ms. Christine Wahome concluded that the Plaintiffs’ application was an abuse of the Court process intended to delay enforcement. She argued that the 1st Defendant had complied fully with statutory requirements under the Land Act and that the Plaintiffs had failed to justify the grant of equitable relief. The Defendant, she contended, was entitled to exercise its statutory power of sale, and should not be estopped from doing so due to a dispute in which it was not involved.
17. The Defendant’s Senior Legal Counsel, Kenneth Mawira Murithi, deponed in the Further Affidavit dated 9th October 2024 that in a Ruling delivered on 22nd December 2021 in West Build General Contractors Limited v Principal Secretary, State Department of Infrastructure & 2 Others (Commercial Civil Case No. E058 of 2020) [2021] KEHC 398 (KLR) (Commercial and Tax) (Ruling delivered on 22 December 2021), the Honourable Mr. Justice David Majanja (now deceased) dismissed the 1st Plaintiff’s Application which sought contempt of Court orders against the 1st Defendant for honouring guarantees called up by the Principal Secretary, State Department of Infrastructure.
18. In dismissing the Application, the Court found that there was no evidence to support the 1st Plaintiff’s claim that the recall letters had been backdated. The Court further observed that the 1st Plaintiff had, in its own Application dated 25th February 2020, confirmed that the recall had been initiated on 20th February 2020, a date on which no Court order existed prohibiting the Principal Secretary from making such a recall. Consequently, the Court held that the Defendant could not be faulted for honouring the guarantees as no injunctive relief had been issued restraining it from doing so.
19. John Mburu Mwaura, the Managing Director of both Plaintiffs, filed a Supplementary Affidavit disputing the assertions made in the Replying Affidavit sworn by Christine T. Wahome on behalf of NCBA Bank. He maintained, upon legal advice, that the application was meritorious as it raised substantive legal and factual issues requiring resolution before the Bank could lawfully exercise its statutory power of sale. The Plaintiffs expressed apprehension that the Bank might proceed to sell or receive deposits for the charged properties through public auction or private treaty, thereby necessitating the current application to preserve the suit properties pending the main suit’s determination.
20. Mr. Mwaura disputed the Bank’s demand for Kshs. 826,707,547.90 as at 24th April 2024, which the Plaintiffs claimed was exaggerated. According to their position, the correct outstanding debt was only Kshs. 167,164,717, thus creating a material dispute as to the amount owed. He also stated that the Bank’s list of facilities and securities was incomplete. In addition to those acknowledged, the Plaintiffs had offered numerous other forms of security, including an asset debenture for Kshs. 280 million, a corporate guarantee from the 2nd Plaintiff for Kshs. 205.8 million, and a deed of assignment over rental income from a seven-storey development known as “Marafique”.
21. Further, the Plaintiffs had availed a fixed and floating debenture over all present and future assets worth Kshs. 789 million, another corporate guarantee of Kshs. 822 million, and personal guarantees from their directors. They also maintained a cash margin account funded by 30% of the advance payments from performance guarantees. Mr. Mwaura contended that the Bank had failed to disclose or consider these securities and recovery avenues before initiating foreclosure on the charged properties, contrary to reasonable banking practice.
22. The Plaintiffs asserted that their default began around January 2021 and was directly linked to the Bank’s decision to pay out the performance guarantees following what they deemed an unjustified and premature recall by their employer, the Ministry of Transport and Infrastructure. This, they argued, destabilized their operations and precipitated financial difficulties. The Bank, they said, was aware of the ongoing arbitral proceedings and the pending application to adopt the arbitral award, which was expected to settle the debt. Despite this, the Bank moved ahead with foreclosure through its agents, Phillips International Auctioneers, reinforcing the urgency for injunctive relief.
23. Mr. Mwaura emphasized that unless restrained, the Bank's actions would result in the unlawful deprivation of the Plaintiffs’ equity of redemption. The Plaintiffs also claimed that the valuation by the Bank’s appointed valuer, Centenary Valuers, grossly undervalued the suit properties. Their independent valuation by Gimco Limited, detailed in an earlier affidavit, presented higher figures, and they called for a Court-ordered joint valuation.
24. They challenged the procedural propriety of the Bank’s actions, citing material inconsistencies between the sums demanded at different times. Notably, a demand for Kshs. 877,255,003 had been made on 21st August 2023, yet no payments had been made between then and the April 2024 demand. This discrepancy, they argued, justified injunctive relief and highlighted the need for judicial intervention to ascertain the true debt position.
25. The Plaintiffs also faulted the Bank for acting against the 2nd Plaintiff (the guarantor) before exhausting remedies against the 1st Plaintiff (the principal debtor), despite holding extensive securities over the 1st Plaintiff’s assets. They reiterated that while the Bank was not a party to the arbitration, it had been kept fully informed, and the award had been annexed to the pleadings.
26. The Affidavit further argued that only one performance guarantee—relating to the Chiakariga–Marimanti Project—remained active, and it was due to expire in November 2024. The Plaintiffs thus rejected the 1st Defendant’s claims that more sums were due under the guarantees. They also rebutted the suggestion that the current application was mischievous, stating instead that it was properly grounded on facts and evidence, including annexures.
27. Mr. Mwaura clarified that although a previous application had been dismissed by the late Hon. Justice Majanja, the dismissal was procedural and based on the finding that the matter had been overtaken by events, not a dismissal on the merits. Therefore, the current application still presented live and justiciable issues.
28. He concluded that the Bank failed to act diligently despite receiving multiple requests not to act on the guarantees and moved prematurely, even before the contract was lawfully terminated. He argued that it remained illogical that the recall of the performance guarantees occurred more than a year before the termination of the contract between the 1st Plaintiff/Applicant and its employer, and therefore before any lawful basis for such recall had arisen. The recall and subsequent payment of the guarantees was unlawful, as the dispute had already been referred to arbitration. A preliminary meeting had been held on 25th October 2019, and the terms of reference had been signed between the 1st Plaintiff/Applicant and its employer by 14th December 2020.
Issues For Determination
29. The Court has carefully considered the pleadings and submissions by both parties. In the Court’s view, the following issues arise for determination:
(a) Whether the issue of the Defendant's invocation of the performance guarantees is res judicata;
(b) Whether the Defendant's statutory power of sale has validly crystallized in the circumstances of this case;
(c) Whether an order should issue directing a joint valuation of the suit properties prior to any sale being conducted.
Analysis
30. The Court proceeds to consider the three issues arising in seriatim.
(a) Whether The Issue of The Defendant's Invocation of The Performance Guarantees Is Res Judicata.
31. Section 7 of the Civil Procedure Act codifies the doctrine of res judicata. The Court of Appeal in John Florence Maritime Services Limited & another v Cabinet Secretary for Transport and Infrastructure & 3 others [2015] KECA 472 (KLR) comprehensively considered the doctrine and observed as follows:
"Res judicata ensures the economic use of the court’s limited resources and timely termination of cases. Courts are already clogged and overwhelmed. They can hardly spare time to repeat themselves on issues already decided upon. It promotes stability of judgments by reducing the possibility of inconsistency in judgments of concurrent courts. It promotes confidence in the courts and predictability, which is one of the essential ingredients in maintaining respect for justice and the rule of law.... Without res judicata, the very essence of the rule of law would be in danger of unraveling uncontrollably. In a nutshell, res judicata being a fundamental principle of law may be raised as a valid defence. It is a doctrine of general application... The doctrine of res judicata has two main dimensions: cause of action res judicata and issue res judicata... Cause of action res judicata extends to a point which might have been made but was not raised and decided in the earlier proceedings. In such a case, the bar is absolute unless fraud or collusion is alleged."
32. Without unnecessary repetition, this Court finds that the earlier suit—West Build General Contractors Limited v Principal Secretary, State Department of Infrastructure & 2 Others (Commercial Civil Case No. E058 of 2020) [2021] KEHC 398 (KLR) (Commercial and Tax) (Ruling delivered on 22 December 2021)—was limited in scope to injunctive relief, specifically aimed at restraining the Principal Secretary from recalling the performance guarantees. It is important to underscore the clear and material distinction between the recall (or demand) stage and the payment stage under a performance guarantee. A careful, line-by-line analysis of that decision reveals that the present suit is materially different. The primary issue is the legality of the recall by the Principal Secretary and, consequently, the justification for the Bank’s subsequent payment made on 13th March 2020, notwithstanding the pendency of earlier proceedings and the Plaintiff’s express objections. Ultimately, it also concerns the 1st Plaintiff’s indebtedness in these circumstances. These are not the same causes of action. While both suits may arise from the same factual background, the legal issues raised, the nature of the relief sought, and the timing of the events giving rise to the claims are materially different. Accordingly, the doctrine of res judicata is inapplicable.
33. Upon review of the pleadings before this Court, it emerges that the Plaintiffs’ objections disclose a prima facie case of fraud—namely, that the demand by the Principal Secretary was made fraudulently and, in the circumstances, the Bank’s act of honouring that demand was wrongful. Nonetheless, it is apparent that fraud was not specifically pleaded by either party. The Court aligns itself with the holding of the Court of Appeal in Habib Bank A.G. Zurich v Rajnikant Khetshi Shah [2018] KECA 774 (KLR), which reaffirmed that in civil litigation, a case must be determined based on the issues as pleaded. Nonetheless, there are exceptional circumstances where issues, though not expressly pleaded, arise from the pleadings and evidence and become central to the dispute. In such instances, and in the interest of justice, the Court is duty-bound to address them.
34. It is this foundational issue—whether fraud tainted the demand and consequent payment—that this Court must first determine. Only thereafter can the Court properly address the question whether the Plaintiffs may lawfully be compelled to satisfy the amounts paid under the guarantees. The resolution of that question is central to determining the Plaintiffs’ liability, if any, to the 1st Defendant in order to resolve the underlying dispute and bring finality to the contentious issues between the parties in a manner that meets the ends of justice.
35. While the autonomy of demand guarantees is jealously guarded, it is subject to a narrow exception—fraud. Courts have consistently held that fraud of an egregious nature, known to the guarantor or bank at the time of invocation, may justify non-payment. This principle is firmly reiterated in Geminia Insurance Company Limited v Gulf African Bank Limited & another [2021] KEHC 4824 (KLR) held as follows
“…This Court cannot rewrite terms of contract by parties in the absence of proof of fraud, illegality and misrepresentation that vitiate a valid contract…. Fraud would amount to presentation of an invalid claim as the basis of freezing accounts or misrepresentation that the bank invoked the Guarantee when the 2nd Defendant paid the facility or the 1st Defendant’s action is illegal as it is contrary to law….”
36. Courts, also, have consistently resisted attempts to injunct enforcement of bank or performance guarantees, except where there is clear fraud. As noted in Similarly, In Sinohydro Corporation Ltd vs GC Retail Ltd & Anor [2016] eKLR again held:
“It is important to state that courts will not enjoin payment of a demand bond or bank guarantee unless the party seeking the injunction can show that the demand on the bond or guarantee is fraudulent and that the bank knew it to be fraudulent. So what then, constitutes fraud when a beneficiary calls for a performance bond? In my opinion, ‘Fraud’ essentially means presenting a claim which the beneficiary or in this case the 1st Defendant, knows to be an invalid claim.”
37. Fraud, in order to constitute a valid exception to the enforcement of a demand guarantee, must be clearly established and must be of such gravity as to vitiate the underlying transaction. It encompasses scenarios where the beneficiary knowingly makes a demand for payment without any lawful entitlement thereto.
38. In Paramount Bank Limited v First National Bank Limited & 2 others (Civil Appeal 468 of 2018) [2023] KECA 1424 (KLR) (24 November 2023), the Court of Appeal addressed the application of the fraud exception in the context of bank guarantees, reaffirming the principle that the bank's obligation to honour a demand is only displaced where clear evidence of fraud, known to the bank at the time of the demand, is established. It held as follows:
“39. In Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 Q.B. 159, Lord Denning, M.R. laid the foundations for virtually all performance bond law. Called the "locus classicus" of performance bond law, Edward Owen established the strict application of the fraud rule to performance bond cases, a rule which has been followed with little variance to date. Lord Denning, M.R., called the performance bond "a new creature" and compared it to the irrevocable letter of credit, citing the United States letter of credit case, Sztejn v J. Henry Schroder Banking Corporation, 177 Misc. 719, 31 N.Y.S.2d 631 (N.Y. Sup. Ct. 1941) for the proposition that "the bank ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances where there is no right to payment. Lord Denning, M.R., stated that:“A bank which gives a performance guarantee must honour 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; nor 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.”
40.In Loomcraft Fabrics CC v Nedbank Ltd and Another (Loomcraft) [1996] 1 All SA 51 (A); 1996 (1) SA 812 (A) at 815GJ, the Supreme Court of Appeal of South Africa held that demand guarantee is akin to an irrevocable letter of credit, which establishes a contractual obligation on the part of the bank to pay the beneficiary on the occurrence of a specified event, and is wholly independent of the underlying contract of sale between the buyer and the seller. The bank will escape liability only upon proof of fraud on the part of the beneficiary.
41.[…]
42.The Supreme Court of India in a catena of judgements has held that a bank guarantee is an independent and distinct contract between the bank and beneficiary and does not depend on the results of the decision in the dispute between the parties in case of breach. In Ansal Energy Projects Limited v Tehri Hydro Development Corporation Limited and Anor [1996] 5 SCC 450], the Supreme Court of India observed as under:“4…..Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof....”
43.[…]
44.The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable Bank Guarantee. The liability of the bank is absolute and unequivocal. The bank has to only verify whether the amount claimed is within the terms of the Bank guarantee or letter of credit. The courts should not interfere with invocation and encashment of bank guarantee unless there is fraud of egregious nature of which the beneficiary seeks to take advantage and which vitiates the entire underlying transaction or a case where irretrievable injustice is likely to be caused to either of the parties. Since in most cases payment of money under a Bank Guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee. There has to be glaring circumstances of deception or fraud warranting interference.”
39. Apart from fraud, the second recognized exception to enforcement of demand guarantees is special equities—where allowing the guarantee to be called would result in irretrievable injustice. This exception is strictly limited to cases involving exceptional and irreparable harm.
40. In the case of Geonet Communications Limited v Safaricom Plc [2021] KEHC 4174 (KLR), it was held that:
“23. …., I am alive to the fact that in light of the stringent law governing Bank Gurantees, there are only two narrow exceptions where a gurantee can be challenged. One is in the event of fraud of an egregious nature as to vitiate the entire underlying transaction, of which the bank has notice. The only exception to the rule that the guarantor is bound to pay without demur, is where fraud on the part of the beneficiary has been established. The party alleging fraud has to establish it clearly on a balance of probabilities.[13] Lord Denning MR in Edward Owen Engineering Ltd v Barclays Bank International Ltd[14] where he said: -
“A bank which gives a performance guarantee must honour 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; nor 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.”
24. The second exception relates to special equities in the form of preventing irretrievable injustice between the parties. This second exception relates to the cases where in allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. The harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature that it would override the terms of the guarantee and the adverse effect of declining to accept such a guarantee.”
41. As a matter of commercial prudence and legal duty, a beneficiary must call in the guarantee promptly upon default, unless the default is disputed. Calling in a guarantee absent an actual default could amount to fraudulent invocation. This is particularly important when courts assess whether the demand itself is legitimate or tainted.
42. In con
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1. This judgment relates to the Plaintiffs’ claim as set out in the Plaint dated 2nd July 2024, wherein they seek the following reliefs from this Honourable Court:
a) A Permanent Injunction restraining the Defendant, their agents and/or their servants from offering for sale, advertising for sale and/or selling by way of public auction or private treaty the Plaintiffs properties being LR. NO KIAMBU/KILIMAMBOGO/666, LR. NO 4953/1923 THIKA MUNICIPALITY and THIKA MUNICIPALITY BLOCK 11/480.
b) An order for joint valuation of the suit properties.
c) An order be made (as provided for under Section 104 (2)(b) of the Land Act, 2012) for extension of time to comply with the Statutory Notice served by the Defendant under Section 90 of the Land Act.
d) Spent.
e) An order for the recalculation of the loan accounts by an Independent Body.
f) Costs of the suit.
g) Any other order that this Honorable Court may deem fit to grant.
2. This matter came up for RRI, and pursuant to the directions issued by the Court, the Court has duly considered the written submissions filed on behalf of both parties. The Court commends Counsel for their diligence. Notably, the Plaintiffs’/Applicants’ submissions dated the 26th November 2024, while the Defendant’s/Respondent’s submissions dated the 18th November 2024. The Court sincerely apologises for the delay in delivery of this Judgement and any inconveniences it may have caused the parties. The delay is attributed to unforeseen personal events that befell the Court as well as pressure of work and exigencies of time.
Background Facts
3. By a Plaint dated 2nd July 2024, the Plaintiffs—Westbuild General Contractors Ltd (1st Plaintiff) and Njowambu (K) Limited (2nd Plaintiff)—filed suit against NCBA Bank (the Defendant), arising from a long-standing credit relationship dating back to August 2015. The 1st Plaintiff, a contractor engaged in public infrastructure projects, had approached the Bank for a line of credit to support performance on road construction contracts awarded by the Principal Secretary, Ministry of Transport and Infrastructure. The Bank granted various facilities—overdrafts, invoice discounting, performance and advance payment guarantees, and hire purchase arrangements—amounting to approximately Kshs. 889,841,000. These were secured by several instruments, including debentures over the 1st Plaintiff’s assets, corporate and personal guarantees from the 2nd Plaintiff and its directors, legal charges over land, and assignment of rental income.
4. The Plaintiffs assert that the facilities were properly serviced until around January 2021, when the Principal Secretary, Ministry of Transport and Infrastructure, acting unlawfully and in breach of a subsisting Court order, terminated the 1st Plaintiff’s construction contracts and recalled the guarantees. Despite being aware of the High Court’s injunctive order issued in West Build General Contractors Limited v Principal Secretary, State Department of Infrastructure & 2 Others (Commercial Civil Case No. E058 of 2020) [2021] KEHC 398 (KLR) (Commercial and Tax) (Ruling delivered on 22 December 2021), NCBA Bank honoured the recalled guarantees and paid KShs. 139 million to KeRRA, debiting the 1st Plaintiff’s overdrawn account. This action, the Plaintiffs claim, unjustifiably escalated their indebtedness, causing monthly liabilities exceeding Kshs. 5 million and plunging the 1st Plaintiff into financial distress.
5. The dispute with the Principal Secretary, Ministry of Transport and Infrastructure was referred to arbitration. That by a final Award dated 29th July 2022, the Arbitral Tribunal found the termination of the contracts and the guarantee recalls to be unlawful and awarded the 1st Plaintiff compensation, including damages, interest, and penalties. The Plaintiffs have since filed (Milimani) HCCOMMARB/E054/2022 seeking recognition and adoption of the arbitral Award as a decree of the Court. The Ruling on that application is pending.
6. Despite full knowledge of the Tribunal’s findings and the pending Court proceedings, NCBA Bank, through Philips International Auctioneers, advertised for sale the Plaintiffs’ properties on 10th June 2024. These include LR No. KIAMBU/KILIMAMBOGO/666, LR No. 4953/1923, and THIKA MUNICIPALITY BLOCK 11/480—the last two of which are solely owned by the 2nd Plaintiff and were provided purely as security. The Plaintiffs contend that NCBA’s actions are based on a grossly inflated and inaccurate claim of Kshs. 826,707,547.90 as of 12th April 2024, whereas their actual indebtedness is Kshs. 167,164,717.65, comprising an overdraft and one active guarantee.
7. The Plaintiffs challenge the inclusion of Kshs. 55,815,000 as a purported performance guarantee, claiming they have no knowledge of this amount. They also point out inconsistencies in NCBA’s debt figures, noting that while the Bank’s claim as at 31st August 2023 was Kshs. 877 million, the figure dropped to Kshs. 826 million by April 2024, despite no payments having been made—suggesting flawed or manipulated accounting. Moreover, the Plaintiffs argue that NCBA failed to first exhaust remedies against the 1st Plaintiff, the principal debtor, before targeting the 2nd Plaintiff’s charged assets, contrary to established principles of guarantee law and fair commercial practice.
8. Further, the Plaintiffs allege that the Bank has deliberately undervalued the charged properties in a bid to facilitate a forced sale at below-market prices, and has acted in bad faith by disregarding lawful court and arbitral processes. They argue that these enforcement measures are premature, oppressive, and unlawful, and that NCBA’s conduct seeks to unfairly extinguish their equity of redemption by demanding exaggerated and unrecoverable sums.
9. The Plaintiffs maintain that they made genuine attempts to restructure or settle the debt and that the 1st Plaintiff remains willing to meet its obligations, subject to the outcome of the arbitral enforcement proceedings. They therefore urge the Court to restrain the Defendant from proceeding with the auction and seek declaratory and injunctive relief to protect their rights and prevent irreparable loss.
10. In opposition to the Plaintiffs’ application, NCBA Bank filed a Replying Affidavit sworn on 25th July 2024 by Christine T. Wahome, the Bank’s Senior Legal Counsel. Ms. Wahome deposed that the Plaintiffs had, at their own request, been granted various banking facilities by the Defendant under multiple Facility Letters dated 26th August 2015, 30th August 2018, 24th July 2019, and 28th August 2019. These facilities, which included commercial loans and performance guarantees, were secured by numerous legal charges over the Plaintiffs’ properties, including LR No. 4953/1923, THIKA MUNICIPALITY BLOCK 11/480, and KIAMBU/KILIMAMBOGO/666.
11. Despite the financial arrangements, the Plaintiffs allegedly defaulted on their repayment obligations. Ms. Christine Wahome stated that the Bank issued and served all the requisite statutory notices in accordance with the Land Act. These included a 30-day notice (dated 28th May 2021), a 90-day notice (dated 30th June 2021), and a 40-day redemption notice (dated 4th October 2021). The Plaintiffs did not dispute service of these notices and, in fact, acknowledged the debt in a letter dated 8th November 2021, wherein the 1st Plaintiff proposed a restructuring of the then-outstanding sum of approximately Kshs. 650 million.
12. In April 2024, the Bank instructed Philips International Auctioneers to issue a 45-day redemption notice and a Notification of Sale, which the Plaintiffs also did not contest receiving. A professional valuation of the charged properties was conducted by Centenary Valuers Limited, which reported forced sale values of Kshs. 265 million (for LR 4953/1923), Kshs. 56.5 million (THIKA BLOCK 11/480), and Kshs. 45 million (KIAMBU/KILIMAMBOGO/666). Based on these valuations, the properties were advertised for public auction on 30th June 2024, with the auction scheduled for 5th July 2024.
13. Ms. Christine Wahome further confirmed that the Bank had issued performance guarantees at the Plaintiffs’ request, and that these were irrevocable commitments to pay the Ministry on demand. On 20th February 2020, the Principal Secretary, Ministry of Transport and Infrastructure, called up four such guarantees, totaling Kshs. 124,319,846.70. That the Defendant honoured the demands on 13th March 2020, in accordance with the terms of the guarantees. She emphasized that the Bank was not a party to the arbitral proceedings between the Plaintiffs and the Ministry and could not be bound by those findings.
14. She also noted that the 1st Plaintiff had previously acknowledged and proposed separation of the outstanding debt into loan and guarantee components, but the Bank declined such proposals. Ms. Christine Wahome stated that the Defendant had extended multiple indulgences and accommodations to the Plaintiffs, including the renewal of guarantees, but the Plaintiffs had persistently failed to meet their obligations.
15. The Affidavit provided detailed loan balances as at 17th July 2024, showing total arrears of Kshs. 772,939,591.55, spread across six credit facilities, including three commercial loans, two overdraft accounts, an asset finance facility, and one performance bond. All facilities were said to be in default and accruing interest.
16. Ms. Christine Wahome concluded that the Plaintiffs’ application was an abuse of the Court process intended to delay enforcement. She argued that the 1st Defendant had complied fully with statutory requirements under the Land Act and that the Plaintiffs had failed to justify the grant of equitable relief. The Defendant, she contended, was entitled to exercise its statutory power of sale, and should not be estopped from doing so due to a dispute in which it was not involved.
17. The Defendant’s Senior Legal Counsel, Kenneth Mawira Murithi, deponed in the Further Affidavit dated 9th October 2024 that in a Ruling delivered on 22nd December 2021 in West Build General Contractors Limited v Principal Secretary, State Department of Infrastructure & 2 Others (Commercial Civil Case No. E058 of 2020) [2021] KEHC 398 (KLR) (Commercial and Tax) (Ruling delivered on 22 December 2021), the Honourable Mr. Justice David Majanja (now deceased) dismissed the 1st Plaintiff’s Application which sought contempt of Court orders against the 1st Defendant for honouring guarantees called up by the Principal Secretary, State Department of Infrastructure.
18. In dismissing the Application, the Court found that there was no evidence to support the 1st Plaintiff’s claim that the recall letters had been backdated. The Court further observed that the 1st Plaintiff had, in its own Application dated 25th February 2020, confirmed that the recall had been initiated on 20th February 2020, a date on which no Court order existed prohibiting the Principal Secretary from making such a recall. Consequently, the Court held that the Defendant could not be faulted for honouring the guarantees as no injunctive relief had been issued restraining it from doing so.
19. John Mburu Mwaura, the Managing Director of both Plaintiffs, filed a Supplementary Affidavit disputing the assertions made in the Replying Affidavit sworn by Christine T. Wahome on behalf of NCBA Bank. He maintained, upon legal advice, that the application was meritorious as it raised substantive legal and factual issues requiring resolution before the Bank could lawfully exercise its statutory power of sale. The Plaintiffs expressed apprehension that the Bank might proceed to sell or receive deposits for the charged properties through public auction or private treaty, thereby necessitating the current application to preserve the suit properties pending the main suit’s determination.
20. Mr. Mwaura disputed the Bank’s demand for Kshs. 826,707,547.90 as at 24th April 2024, which the Plaintiffs claimed was exaggerated. According to their position, the correct outstanding debt was only Kshs. 167,164,717, thus creating a material dispute as to the amount owed. He also stated that the Bank’s list of facilities and securities was incomplete. In addition to those acknowledged, the Plaintiffs had offered numerous other forms of security, including an asset debenture for Kshs. 280 million, a corporate guarantee from the 2nd Plaintiff for Kshs. 205.8 million, and a deed of assignment over rental income from a seven-storey development known as “Marafique”.
21. Further, the Plaintiffs had availed a fixed and floating debenture over all present and future assets worth Kshs. 789 million, another corporate guarantee of Kshs. 822 million, and personal guarantees from their directors. They also maintained a cash margin account funded by 30% of the advance payments from performance guarantees. Mr. Mwaura contended that the Bank had failed to disclose or consider these securities and recovery avenues before initiating foreclosure on the charged properties, contrary to reasonable banking practice.
22. The Plaintiffs asserted that their default began around January 2021 and was directly linked to the Bank’s decision to pay out the performance guarantees following what they deemed an unjustified and premature recall by their employer, the Ministry of Transport and Infrastructure. This, they argued, destabilized their operations and precipitated financial difficulties. The Bank, they said, was aware of the ongoing arbitral proceedings and the pending application to adopt the arbitral award, which was expected to settle the debt. Despite this, the Bank moved ahead with foreclosure through its agents, Phillips International Auctioneers, reinforcing the urgency for injunctive relief.
23. Mr. Mwaura emphasized that unless restrained, the Bank's actions would result in the unlawful deprivation of the Plaintiffs’ equity of redemption. The Plaintiffs also claimed that the valuation by the Bank’s appointed valuer, Centenary Valuers, grossly undervalued the suit properties. Their independent valuation by Gimco Limited, detailed in an earlier affidavit, presented higher figures, and they called for a Court-ordered joint valuation.
24. They challenged the procedural propriety of the Bank’s actions, citing material inconsistencies between the sums demanded at different times. Notably, a demand for Kshs. 877,255,003 had been made on 21st August 2023, yet no payments had been made between then and the April 2024 demand. This discrepancy, they argued, justified injunctive relief and highlighted the need for judicial intervention to ascertain the true debt position.
25. The Plaintiffs also faulted the Bank for acting against the 2nd Plaintiff (the guarantor) before exhausting remedies against the 1st Plaintiff (the principal debtor), despite holding extensive securities over the 1st Plaintiff’s assets. They reiterated that while the Bank was not a party to the arbitration, it had been kept fully informed, and the award had been annexed to the pleadings.
26. The Affidavit further argued that only one performance guarantee—relating to the Chiakariga–Marimanti Project—remained active, and it was due to expire in November 2024. The Plaintiffs thus rejected the 1st Defendant’s claims that more sums were due under the guarantees. They also rebutted the suggestion that the current application was mischievous, stating instead that it was properly grounded on facts and evidence, including annexures.
27. Mr. Mwaura clarified that although a previous application had been dismissed by the late Hon. Justice Majanja, the dismissal was procedural and based on the finding that the matter had been overtaken by events, not a dismissal on the merits. Therefore, the current application still presented live and justiciable issues.
28. He concluded that the Bank failed to act diligently despite receiving multiple requests not to act on the guarantees and moved prematurely, even before the contract was lawfully terminated. He argued that it remained illogical that the recall of the performance guarantees occurred more than a year before the termination of the contract between the 1st Plaintiff/Applicant and its employer, and therefore before any lawful basis for such recall had arisen. The recall and subsequent payment of the guarantees was unlawful, as the dispute had already been referred to arbitration. A preliminary meeting had been held on 25th October 2019, and the terms of reference had been signed between the 1st Plaintiff/Applicant and its employer by 14th December 2020.
Issues For Determination
29. The Court has carefully considered the pleadings and submissions by both parties. In the Court’s view, the following issues arise for determination:
(a) Whether the issue of the Defendant's invocation of the performance guarantees is res judicata;
(b) Whether the Defendant's statutory power of sale has validly crystallized in the circumstances of this case;
(c) Whether an order should issue directing a joint valuation of the suit properties prior to any sale being conducted.
Analysis
30. The Court proceeds to consider the three issues arising in seriatim.
(a) Whether The Issue of The Defendant's Invocation of The Performance Guarantees Is Res Judicata.
31. Section 7 of the Civil Procedure Act codifies the doctrine of res judicata. The Court of Appeal in John Florence Maritime Services Limited & another v Cabinet Secretary for Transport and Infrastructure & 3 others [2015] KECA 472 (KLR) comprehensively considered the doctrine and observed as follows:
"Res judicata ensures the economic use of the court’s limited resources and timely termination of cases. Courts are already clogged and overwhelmed. They can hardly spare time to repeat themselves on issues already decided upon. It promotes stability of judgments by reducing the possibility of inconsistency in judgments of concurrent courts. It promotes confidence in the courts and predictability, which is one of the essential ingredients in maintaining respect for justice and the rule of law.... Without res judicata, the very essence of the rule of law would be in danger of unraveling uncontrollably. In a nutshell, res judicata being a fundamental principle of law may be raised as a valid defence. It is a doctrine of general application... The doctrine of res judicata has two main dimensions: cause of action res judicata and issue res judicata... Cause of action res judicata extends to a point which might have been made but was not raised and decided in the earlier proceedings. In such a case, the bar is absolute unless fraud or collusion is alleged."
32. Without unnecessary repetition, this Court finds that the earlier suit—West Build General Contractors Limited v Principal Secretary, State Department of Infrastructure & 2 Others (Commercial Civil Case No. E058 of 2020) [2021] KEHC 398 (KLR) (Commercial and Tax) (Ruling delivered on 22 December 2021)—was limited in scope to injunctive relief, specifically aimed at restraining the Principal Secretary from recalling the performance guarantees. It is important to underscore the clear and material distinction between the recall (or demand) stage and the payment stage under a performance guarantee. A careful, line-by-line analysis of that decision reveals that the present suit is materially different. The primary issue is the legality of the recall by the Principal Secretary and, consequently, the justification for the Bank’s subsequent payment made on 13th March 2020, notwithstanding the pendency of earlier proceedings and the Plaintiff’s express objections. Ultimately, it also concerns the 1st Plaintiff’s indebtedness in these circumstances. These are not the same causes of action. While both suits may arise from the same factual background, the legal issues raised, the nature of the relief sought, and the timing of the events giving rise to the claims are materially different. Accordingly, the doctrine of res judicata is inapplicable.
33. Upon review of the pleadings before this Court, it emerges that the Plaintiffs’ objections disclose a prima facie case of fraud—namely, that the demand by the Principal Secretary was made fraudulently and, in the circumstances, the Bank’s act of honouring that demand was wrongful. Nonetheless, it is apparent that fraud was not specifically pleaded by either party. The Court aligns itself with the holding of the Court of Appeal in Habib Bank A.G. Zurich v Rajnikant Khetshi Shah [2018] KECA 774 (KLR), which reaffirmed that in civil litigation, a case must be determined based on the issues as pleaded. Nonetheless, there are exceptional circumstances where issues, though not expressly pleaded, arise from the pleadings and evidence and become central to the dispute. In such instances, and in the interest of justice, the Court is duty-bound to address them.
34. It is this foundational issue—whether fraud tainted the demand and consequent payment—that this Court must first determine. Only thereafter can the Court properly address the question whether the Plaintiffs may lawfully be compelled to satisfy the amounts paid under the guarantees. The resolution of that question is central to determining the Plaintiffs’ liability, if any, to the 1st Defendant in order to resolve the underlying dispute and bring finality to the contentious issues between the parties in a manner that meets the ends of justice.
35. While the autonomy of demand guarantees is jealously guarded, it is subject to a narrow exception—fraud. Courts have consistently held that fraud of an egregious nature, known to the guarantor or bank at the time of invocation, may justify non-payment. This principle is firmly reiterated in Geminia Insurance Company Limited v Gulf African Bank Limited & another [2021] KEHC 4824 (KLR) held as follows
“…This Court cannot rewrite terms of contract by parties in the absence of proof of fraud, illegality and misrepresentation that vitiate a valid contract…. Fraud would amount to presentation of an invalid claim as the basis of freezing accounts or misrepresentation that the bank invoked the Guarantee when the 2nd Defendant paid the facility or the 1st Defendant’s action is illegal as it is contrary to law….”
36. Courts, also, have consistently resisted attempts to injunct enforcement of bank or performance guarantees, except where there is clear fraud. As noted in Similarly, In Sinohydro Corporation Ltd vs GC Retail Ltd & Anor [2016] eKLR again held:
“It is important to state that courts will not enjoin payment of a demand bond or bank guarantee unless the party seeking the injunction can show that the demand on the bond or guarantee is fraudulent and that the bank knew it to be fraudulent. So what then, constitutes fraud when a beneficiary calls for a performance bond? In my opinion, ‘Fraud’ essentially means presenting a claim which the beneficiary or in this case the 1st Defendant, knows to be an invalid claim.”
37. Fraud, in order to constitute a valid exception to the enforcement of a demand guarantee, must be clearly established and must be of such gravity as to vitiate the underlying transaction. It encompasses scenarios where the beneficiary knowingly makes a demand for payment without any lawful entitlement thereto.
38. In Paramount Bank Limited v First National Bank Limited & 2 others (Civil Appeal 468 of 2018) [2023] KECA 1424 (KLR) (24 November 2023), the Court of Appeal addressed the application of the fraud exception in the context of bank guarantees, reaffirming the principle that the bank's obligation to honour a demand is only displaced where clear evidence of fraud, known to the bank at the time of the demand, is established. It held as follows:
“39. In Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 Q.B. 159, Lord Denning, M.R. laid the foundations for virtually all performance bond law. Called the "locus classicus" of performance bond law, Edward Owen established the strict application of the fraud rule to performance bond cases, a rule which has been followed with little variance to date. Lord Denning, M.R., called the performance bond "a new creature" and compared it to the irrevocable letter of credit, citing the United States letter of credit case, Sztejn v J. Henry Schroder Banking Corporation, 177 Misc. 719, 31 N.Y.S.2d 631 (N.Y. Sup. Ct. 1941) for the proposition that "the bank ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances where there is no right to payment. Lord Denning, M.R., stated that:“A bank which gives a performance guarantee must honour 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; nor 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.”
40.In Loomcraft Fabrics CC v Nedbank Ltd and Another (Loomcraft) [1996] 1 All SA 51 (A); 1996 (1) SA 812 (A) at 815GJ, the Supreme Court of Appeal of South Africa held that demand guarantee is akin to an irrevocable letter of credit, which establishes a contractual obligation on the part of the bank to pay the beneficiary on the occurrence of a specified event, and is wholly independent of the underlying contract of sale between the buyer and the seller. The bank will escape liability only upon proof of fraud on the part of the beneficiary.
41.[…]
42.The Supreme Court of India in a catena of judgements has held that a bank guarantee is an independent and distinct contract between the bank and beneficiary and does not depend on the results of the decision in the dispute between the parties in case of breach. In Ansal Energy Projects Limited v Tehri Hydro Development Corporation Limited and Anor [1996] 5 SCC 450], the Supreme Court of India observed as under:“4…..Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof....”
43.[…]
44.The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable Bank Guarantee. The liability of the bank is absolute and unequivocal. The bank has to only verify whether the amount claimed is within the terms of the Bank guarantee or letter of credit. The courts should not interfere with invocation and encashment of bank guarantee unless there is fraud of egregious nature of which the beneficiary seeks to take advantage and which vitiates the entire underlying transaction or a case where irretrievable injustice is likely to be caused to either of the parties. Since in most cases payment of money under a Bank Guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee. There has to be glaring circumstances of deception or fraud warranting interference.”
39. Apart from fraud, the second recognized exception to enforcement of demand guarantees is special equities—where allowing the guarantee to be called would result in irretrievable injustice. This exception is strictly limited to cases involving exceptional and irreparable harm.
40. In the case of Geonet Communications Limited v Safaricom Plc [2021] KEHC 4174 (KLR), it was held that:
“23. …., I am alive to the fact that in light of the stringent law governing Bank Gurantees, there are only two narrow exceptions where a gurantee can be challenged. One is in the event of fraud of an egregious nature as to vitiate the entire underlying transaction, of which the bank has notice. The only exception to the rule that the guarantor is bound to pay without demur, is where fraud on the part of the beneficiary has been established. The party alleging fraud has to establish it clearly on a balance of probabilities.[13] Lord Denning MR in Edward Owen Engineering Ltd v Barclays Bank International Ltd[14] where he said: -
“A bank which gives a performance guarantee must honour 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; nor 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.”
24. The second exception relates to special equities in the form of preventing irretrievable injustice between the parties. This second exception relates to the cases where in allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. The harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature that it would override the terms of the guarantee and the adverse effect of declining to accept such a guarantee.”
41. As a matter of commercial prudence and legal duty, a beneficiary must call in the guarantee promptly upon default, unless the default is disputed. Calling in a guarantee absent an actual default could amount to fraudulent invocation. This is particularly important when courts assess whether the demand itself is legitimate or tainted.
42. In con
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