Haidco Limited v Kipeto Energy Limited & Jamii Bora Bank (Interested Party)
The bottom line
#Performance bonds are independent contracts; courts will not stop their enforcement unless fraud is proven.
What this practically means
#Executive summary
#Key legal issues
#Nature of the application under Section 7 of the Arbitration Act
The application must be construed as presented by Haidco itself, i.e. under Section 7 for interim measures of protection, since both sides agreed the main breach-of-contract dispute belongs to arbitration.
Haidco admitted in the plaint that the contract provides for arbitration in the UK and sought only interim relief before the High Court. Kipeto's defence conceded that save for the bond issue, the disputes were for arbitration. The court therefore applied the Safaricom criteria for interim measures: existence of arbitration agreement, threat to subject matter, appropriate measure, and duration.
Whether the performance bond could be restrained
The bond is an unconditional on-demand instrument, separate from the underlying contract, payable notwithstanding disputes and without proof of breach; it must be honoured absent fraud or patent unconscionability/oppression.
Drawing on Civicon, Edward Owen, Mea Limited and Power Curber, the court held that banks and sureties are not concerned with the underlying transaction. Haidco pleaded no fraud, and its unjust-enrichment arguments turned on disputed valuations and certificate amounts that belong to the arbitral tribunal.
Whether Kipeto's retention of USD 385,185.57 as liquidated damages and its demand on the bond were wrongful
Under the Agreement of 8th May 2018, Kipeto was entitled to retain the retention amount as liquidated damages where Haidco failed to procure an acceptable performance bond; whether clauses (c) and (d) precluded invocation of the default clause is for the Arbitral Tribunal.
It was common ground that Haidco did not provide the contemplated replacement bond. The contract expressly allowed Kipeto to deem that failure a material breach, retain the retention amount, and draw on the Jamii Bora bonds. The competing construction of those clauses is a matter for arbitration.
Legal principles established
#- Courts will only intervene to stop enforcement of a performance bond where the demand is fraudulent or patently oppressive; a performance bond is separate, distinct and independent of the underlying contract.
- Fraud must be specifically pleaded to found an exception to the autonomy of a performance bond.
- Where a dispute is referable to arbitration, an application under Section 7 of the Arbitration Act is construed as an interim measure of protection and assessed on the Safaricom criteria.
Court orders
#- 1.Dismissal of the Notice of Motion dated 14th May 2018 with costs
- 2.Allowance of prayer 4 of the Notice of Motion dated 21st May 2019 with no orders as to costs
- Jurisdiction invoked
- Section 7 of the Arbitration Act (interim measures of protection) and the High Court's original civil jurisdiction
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Haidco Limited v Kipeto Energy Limited & Jamii Bora Bank (Interested Party)", Case Analysis (2020). Not stated in the judgment text provided. Source:
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.