https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12254

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **MILIMANI LAW COURTS** **COMMERCIAL AND TAX DIVISION** **COMM CASE NO. E280 OF 2019** **BETWEEN** **KALPATARU POWER TRANSMISSION LIMITED....................................PLAINTIFF** **AND** **I&M BANK KENYA LIMITED................................................................DEFENDANT** **AND** **ENERGY DEVELOPMENT** **CORPORATION LIMITED…………………...……………..1ST INTERESTED PARTY** **RWANDA ENERGY GROUP LIMITED………………..…2ND INTERESTED PARTY** **I&M BANK RWANDA……………………………………..3RD INTERESTED PARTY** **JUDGMENT** **Introduction and Background** 1. By a Plaint dated 9th September 2019 and amended on 9th July 2014, the Plaintiff(“Kalpataru”) filed the present suit stating that it is a power transmission company undertaking projects in India and internationally, with a Kenyan regional office. That sometime in the year 2013, Rwanda’s Energy, Water and Sanitation Authority (EWSA), whose successor is the 1st Interested Party (EDC), a subsidiary of the 2nd Interested Party(REG), planned a regional 220kV transmission project spanning Kibuye–Gisenyi–Goma–Kigali(“the Project”). Kalpataru and EDC then entered into a contract dated 19th November 2013 at a contract price of USD 26, 386,234.89 and RWF 5,292,307,425.91 inclusive of VAT to design, manufacture, deliver, install and commission the Project, including 501 towers on mountainous terrain(“the Contract”). 2. Kalpataru contends that the contract's price-adjustment clause and a 1-year defect liability period required it to post a performance bank guarantee equal to 10% of the contract price. On 8th January 2014, the Defendant (“the Bank”) issued two performance bank guarantees: Bank Guarantee No. 999/HO/LG/012/14 for the sum of RWF 529,230,743 and No. 999/HO/LG/013/14 for the sum of USD 2,638,623.49 (“the Guarantees). Kalpataru claims that the Guarantees were initially valid until 4th May 2018, that is, one year after operational acceptance but they were subsequently extended three times to 4th August 2018, then 5th August 2019 and then 9th September 2019, each time purportedly pursuant to a Minutes of Meeting dated 29th March 2018. 3. Kalpataru pleads that a Dispute Adjudication Board (DAB) decision of 1st September 2019 ruled that the 29th March 2018 Minutes of Meeting were procured under duress and were void meaning the Guarantee extensions built on that document are also void and any invocation of the Guarantees is legally invalid, abusive and fraudulent. Kalpataru cites Article 8.2.3 of the Contract's General Conditions, which makes a DAB decision binding on the parties unless and until revised by an amicable settlement or an arbitral award. It claims that a Notice of Dissatisfaction filed by the Interested Parties on 3rd September 2019 does not affect the decision's binding force and it also explains that the DAB was convened via the International Federation of Consulting Engineers, Geneva (FDIC) President-list adjudicator appointment process. 4. Kalpataru claims that it had notified EDC of its price adjustment calculation on 23rd February 2016 and invoiced accordingly, but EDC allegedly refused to honour the contractual price adjustment formula. Kalpataru avers that between 27th and 29th March 2018, three of its representatives were summoned to a police station, had passports impounded and were threatened until a representative, Mr. Subrahmaniam Mahadevan, signed a “settlement agreement” surrendering the price adjustment claim and that after which, the passports were released. 5. That Kalpataru then triggered DAB proceedings commencing September 2018 on two key issues; whether the price adjustment claim was time-barred, and whether the settlement agreement was void for duress under Rwandan contract law. The DAB also examined allegations about concrete and workmanship quality. Kalpataru quotes extracts of the decision stating that the DAB found no evidence the foundations were substandard or that Kalpataru engaged in corruption or bribery and that EDC failed to discharge its burden of proof. Further, the DAB found that Kalpataru’s price adjustment claim was not time-barred, that EDC failed to prove Kalpataru was “guilty” and thus fearful for that reason, that police conduct in seizing passports was improper and the settlement agreement and the Minutes of Meeting were ruled null and void for duress. 6. Kalpataru contends that the day after the DAB decision, REG invoked the USD 2,638,623.49 Guarantee through letters to the Bank dated 2nd and 4th September 2019, allegedly suppressing material facts that the Contract was fully performed with an operational acceptance certificate issued through a letter dated 24th May 2017, that the Project was operational and taken over; that the underlying Minutes of Meeting were void, that the DAB decision was binding and that the Guarantees had in any event expired by effluxion of time. Kalpataru characterizes the invocation as fraudulent, illegal, unconscionable and claims irreparable and injury that cannot be compensated if the Guarantees are enchased. As such, Kalpataru prays for a declaration that the Guarantees are unenforceable, expired, null and void; a permanent injunction restraining the Bank and its subsidiaries from paying the Interested Parties under either Guarantee and in the alternative, damages of USD 2,638,623.49 and RWF 529,230,743 plus interest at 21% and costs of the suit. 7. The Bank and the 3rd Interested Party, its subsidiary, responded to the suit through the Statement of Defence dated 27th April 2020. The Banks aver that they were neither parties to, nor privy to, the Contract between Kalpataru and EDC and their only involvement was issuing the Guarantees originally effective until 28th November 2016, payable on first written demand accompanied by a statement that the contractor is in breach without needing to prove or show grounds for the demand. That the Guarantees are governed by the ***International Chamber of Commerce (ICC) Uniform Rules for Demand Guarantees, Publication No. 458 (URDG 458***), except that **sub-article 20(A)(II)** was expressly excluded and that their validity was extended several times at Kalpataru’s own request. 8. The Banks claim they were unaware of and not party to the disputes between the Kalpataru and EDC and REG including the DAB proceedings and duress allegations. They confirm that on 2nd September 2019, REG called up the Guarantee for USD 2,638,623.49 and on 4th September 2019, it called up the Guarantee for RWF 529,230,743 and they were about to honour these demands but were served with a injunctive order on 13th September 2019 restraining payment. The Banks rely on the independence principle, citing **Article 2(B)** of the ***URDG*** that guarantees are separate transactions from the underlying contract and guarantors are not concerned with or bound by it, **Article 5** that guarantees are irrevocable unless otherwise stated and **Article 20(A)(II)** that a demand need only be in writing and supported by a statement of breach. 9. They further contend that ***URDG 458*** was designed to give certainty to demand guarantees that the Banks are not concerned with the underlying contractual relationship or its performance, they cannot rely on disputes between Kalpataru and the Interested Parties as a basis to withhold payment, that they have no duty to verify performance of the underlying contract and that established banking law requires payment once documents are in order and terms satisfied. They add that any dispute between Kalpataru and the Interested Parties must be resolved between themselves, with the Banks obliged to honour the Guarantees regardless. The Banks contend they had no knowledge of the alleged fraud and material non-disclosure, and only learned of these allegations after the suit was filed and pleadings served. For the aforementioned reasons, the Banks urge that Kalpataru’s suit be dismissed with costs on a full indemnity basis. 10. EDC and REG also responded to the suit through their Statement and Defence and Counterclaim dated 4th April 2023. REG states that it is a Rwandan state-owned company and successor in title to EWSA, which was the original contracting authority by virtue of Rwanda's Prime Minister's *Order No. 87/03* of 16th August 2014 and is responsible for Rwanda's energy infrastructure. On the other hand, EDC avers that it is REG's wholly-owned subsidiary, involved only through its employees in executing the Project. They admit the Contract between Kalpataru and EWSA and aver that Kalpataru had an obligation to furnish a 10% performance security in the form of an unconditional bank guarantee not reducible on operational acceptance and REG was entitled to claim under it for "*amounts to which REG is entitled under the Contract*," subject to an indemnity obligation if the claim proved unjustified. 11. They agree that the Bank duly issued the two Guarantees on 8th January 2014 and which by their express terms were payable on REG's first written demand stating breach, without needing to prove or show grounds. Thy also state that the Guarantes were voluntarily extended by Kalpataru itself three times and it also unconditionally extending the Defects Liability Period. REG does not deny that it called up the Guarantees on 2nd and 4th September 2019, strictly in the Guarantees’ required form and that the call up was valid. They claim that the Bank’s failure to pay is as a breach of the Guarantees which are separate and autonomous contracts from the underlying Contract and the Bank was not entitled to rely on the underlying contractual relationship to withhold payment. 12. They state that by the doctrine of privity of contract, Kalpataru had no standing to interfere with or frustrate payment based on disputes under the Contract and that its remedy for any unjustified call was an indemnity claim against REG under Clause 3.3.6 of the Contract and not obstruction of the Guarantees. REG maintains the Bank was in breach from on or about 2nd September 2019, that is, after 7 days from the first invocation letter. 13. REG contends that the autonomy principle makes the validity of the 29th March 2018 settlement agreement irrelevant to enforcement of the Guarantees, that Kalpataru has misconstrued and misrepresented the DAB's 1st September 2019 decision as that decision addressed only the price-adjustment dispute and did not rule on, or invalidate, the Guarantees or their extensions. That the Guarantee extensions were a separate, distinct matter from the settlement agreement and were never before the DAB. REG relies on a subsequent Final Arbitral Award dated 20th September 2021, which it says superseded the DAB decision and which, after full evidence, expressly held that while the settlement agreement itself was procured by duress and void, the subsequent Guarantee extensions to 4th August 2019 and 9th September 2019 were not procured by duress and the Tribunal concluded the Guarantees were validly extended and in force when REG made its calls. 1. EDC and REG accuse Kalpataru of concealing this binding arbitral award from the court despite knowing of it since September 2021 and they further aver that the existence of an Operational Acceptance Certificate does not excuse the Bank’s payment obligations under the Guarantees. On the counterclaim, they aver that Kalpataru, without lawful cause, procured and/or induced breach of the Guarantees by obtaining an injunction based on deliberate misrepresentation and non-disclosure to the court. That the Bank independently breached the Guarantees by failing to pay within their terms, ignoring the invocation letters and considering extraneous matters. 2. For the above reasons, EDC and REG claim against both Kalpataru and the Bank, jointly and severally, for RWF 529,230,743 and USD 2,638,623.49 plus interest at commercial rates from the demand dates. REG and EDC thus pray for dismissal of Kalpataru’s suit with costs and interest, a declaration that the Bank breached the Guarantees by failing to make prompt payment, a declaration that Kalpataru induced that breach through misrepresentation and/or non-disclosure, judgment on the counterclaim against Kalpataru and the Bank jointly and severally for the guaranteed sums plus commercial interest from 2nd and/or 4th September 2019, an order directing the Bank to honour the Guarantees forthwith and costs of the counterclaim with interest. 3. At the hearing, Kalpataru presented its Senior Manager-Legal, **Shyamoleena Sarkar** (PW 1) who relied on his witness statement dated 3rd May 2024 and produced the Kalpataru’s List and Bundle of Documents of dated 9th September 2019 (PExhibit 1-6). On their part, the Banks called their Manager in the Trade and Guarantees Department, **Jackson Maithya Kinyungu** (DW 1) who relied on his witness statement dated 27th April 2020 and he produced their List and Bundle of Documents of the same date (DExhibit 1-4). EDC and REG called their Managing Director, **Felix Gakuba** who adopted his witness statement dated 3rd April 2023 as his evidence and he produced the List and Bundle of Documents of the same date (DExhibit 5-18). 4. After the hearing, the parties were directed to file written submissions which are on record and they were orally highlighted by the parties’ counsel. Since they reflect the parties’ positions I have summarized above, I will not rehash the same but I will make relevant references in my analysis and determination below. **Analysis and Determination** 1. In these proceedings,the legal burden of proof lies upon the party who invokes the aid of the law and substantially asserts the affirmative of the issue. That is the purport of **section 107(1)** of the ***Evidence Act(Chapter 80 Laws of Kenya***. Furthermore, the evidential burden is cast upon any party, the burden of proving any particular fact which he desires the court to believe in its existence. That is captured in **section 109 and 112** of the ***Evidence Act*** that proof of that fact shall lie on any particular person. 2. This court (Kimaru J., as he was then) in **William Kabogo Gitau v George Thuo & 2 Others [2010] KEHC 4124 (KLR)**held as follows as regards the standard of proof in civil cases: ***In ordinary civil cases, a case may be determined in favour of a party who persuades the court that the allegations he has pleaded in his case are more likely than not to be what took place. In percentage terms, a party who is able to establish his case to a percentage of 51% as opposed to 49% of the opposing party is said to have established his case on a balance of probabilities. He has established that it is probable than not that the allegations that he made occurred****.”* 1. With the above principles in mind, I now proceed to determine this matter and from the parties’ submissions, I find that these are the abridged issues for determination: 2. *What was the agreed forum for the determination of disputes arising from the Guarantees or the Contract?* 3. *Whether a third party, not being privy to the Guarantees has the legal standing to invoke the jurisdiction of this court in respect of any dispute arising therefrom* 4. *Whether Performance Guarantees, Letters of Credit and Performance Bonds all apply the same principles* 5. *Whether under the terms of the Performance Bond Guarantee, REG could invoke the Guarantees and whether when they invoked the Guarantees, they acted fraudulently.* 6. *Whether the Banks were aware of the alleged fraud by EDC and REG.* 7. *Whether, in any event, the invocation letters conformed with the requirements of the Guarantees and whether the Banks were obligated to honour the Guarantees despite the disputes between Kalpataru, EDC and REG.* 8. *Whether the prayers sought in the suit should be granted.* 9. *Whether EDC and REG can counterclaim against Kalpataru pursuant to the Guarantees and whether the prayers in the counterclaim should be granted.* 10. *Who is liable to pay costs of the suit and counterclaim.* **Jurisdiction of the court and standing of Kalpataru** 1. EDC and REG submitted that that the correct forum for this dispute is not this court in that the Guarantees are separate from the underlying contract and that any dispute between the Guarantor, that is the Bank and the Beneficiary, REG is governed by **Article 28** of ***URDG 458***. They averred that Kalpataru is a stranger to the Guarantees and therefore lacks standing to bring this suit and they further submitted that the dispute falls under the exclusive jurisdiction of the DAB and the Arbitral Tribunal as per the Contract. 1. On its part, Kalpataru took the position that the court has jurisdiction because the Guarantees were issued by the Bank in Kenya making it the place of business of the Guarantor as per **Article 27** of ***URDG 458*** and that the court has jurisdiction to grant injunctive relief against a party domiciled in Kenya. The Banks submit that they are ready and willing to honor a conforming demand but were restrained by the court's own injunction but they are not disputing jurisdiction. 2. I am inclined to agree with Kalpataru that while it is not a party to the Guarantees, it is the principal who procured them and stands to suffer the direct financial loss if they are wrongfully encashed. I am persuaded by the decision cited by Kalpataru, that is, **Sinohydro Corporation Limited v GC Retail Limited & another [2016] KEHC 5169 (KLR)** where the court (Kariuki J.,) held that a principal can challenge an alleged fraudulent invocation of a guarantee. In that case, the court held that “*In such a situation, the law applies the maxim****“ex turpicausa non oritur action****”, or ‘fraud unravels all’ and enables the ‘fraud’ rule to function as an exception to the privity rule. I therefore find that given the circumstances of the instant case, the Plaintiff can sue under subject the performance bond.”* 3. The aforementioned position was buttressed by the Court of Appeal in **Karuri** **Civil Engineering (K) Limited v Equity Bank Limited [2019] KECA 866 (KLR)** where it held as follows: *25. At the outset, the respondent Bank contend the appellant has no locus standi to file suit against it as it is not a party to the performance bond; that a performance bond is an independent contract and no third party can derive a right or benefit therefrom. This is the doctrine of privity of contract. The appellant countered asserting it has a right to sue the respondent Bank as the third party beneficiary to the bond. The trial judge in dismissing the defence of privity of contract cited the case of Gakombe vs. Automobile Association of Kenya & another (2006) eKLR where in finding that privity of contract did not prevent a beneficiary of the contract from filing suit this Court expressed:* *“The agreement dated 20th August 1997 between Savings & Loan (S&L) and Automobile Association (AA) provided for financing the purchase or construction of homes for members of AA. The prospective buyers were required to save 20% of the purchase price over 36 months by equal monthly instalments. Dr. Gakombe’s claim is founded on refinancing of existing loans, which prima facie appears to be based on different terms from those set out in the agreement between S&L and AA. The terms of the refinancing, unlike those set out in the agreement between S&L and AA involved saving 20% of the outstanding loan over a period of 24 months.* *In these circumstances, can Dr. Gakombe’s suit be described as one, which discloses no reasonable cause of action because of the doctrine of privity of contract, or a suit which is scandalous, frivolous and vexatious? In our view, the learned judge was justified in concluding that Dr. Gakombe’s contention that there was a collateral agreement between him and S&L on refinancing was not idle and that his suit did raise triable issues, which deserved to be interrogated and determined only after a full hearing of the suit.”* *26. We are minded that the general rule on privity of contract is well captured in Dunlop Pneumatic Tyre Co Ltd vs. Selfridge & Co Ltd [1915] AC 847, where Lord Haldane, LC rendered the principle thus:* *“My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.”* *27. Adopting the same line of reasoning Hancox, JA, in Agricultural Finance vs. Lengetia Ltd [1985] KLR 765 stated:* *“As a general rule a contract affects only the parties to it, it cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. The fact that a person who is a stranger to the consideration of a contract stands in such near relationship to the party from whom the consideration proceeds that he may be considered a party to the consideration does not entitle him to sue upon the contract.”* *28. In Shanklin Pier Ltd vs. Detel Products Ltd [1951] 2 KB 854, the United Kingdom Bench Division used the principle of collateral contracts as an exception to the rule of privity of contract. McNair J expressed:* *“If, as is elementary, the consideration for the warranty in the usual case is the entering into of the main contract in relation to which the warranty is given, I see no reason why there may not be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some other act for the benefit of A.”* *29. The trial court in its judgment appreciated the foregoing exception to privity of contract as enunciated in Shanklin Pier Ltd (supra) and affirmed by this Court in Gakombe vs. Automobile Association of Kenya & another (2006) eKLR. We re-affirm this exception.* 1. It is clear that the Court of Appeal squarely addressed and rejected the argument that a principal, that is, the party who requests a performance bond lacks locus standi to sue the issuing bank. The court recognized that the doctrine of privity is not absolute and the reasoning is that the bank's guarantee is a collateral contract entered into at the principal's request and for the principal's benefit. The consideration for the bank issuing the guarantee is the premium paid by the principal and the principal's entry into the underlying contract. Therefore, the principal has a direct interest and a right to enforce the guarantee. An issuing bank owes a duty to a beneficiary to honour the performance bond and this duty is not merely to the beneficiary but also to the principal who procured the guarantee. The bank's obligation is to act in accordance with the terms of the guarantee and to exercise reasonable care in honoring or refusing demands. 2. I therefore find that Kalpataru, as the principal who procured the Guarantees from the Bank, can sue the Bank on those Guarantees and this directly defeats EDC and REG’s argument that Kalpataru is a stranger to the Guarantees. Kalpataru is the intended beneficiary of the Guarantees which were issued to secure its performance of the underlying Contract. 3. On jurisdiction, the parties agree that the Guarantees are governed by ***URDG 458*** where **Article 28** designates the competent court of the place of business of the Guarantor, that is the Bank, for disputes between the Guarantor and the Beneficiary, REG. **Article 27** also designates the law of that place as the governing law for the guarantee. Since Kalpataru is seeking to restrain the Kenyan Guarantor bank from paying, this court is the proper and logical forum for the dispute between the parties. Further, since EDC and REG did not challenge the court’s jurisdiction in their defence and counterclaim and since they have also sued Kalpataru and the Banks in the said counterclaim, I take it that they have acquiesced to the court’s jurisdiction, having participated fully in the proceedings herein and they are therefore estopped from denying it. 4. I therefore dispose of the first two issues for determination by holding that the agreed forum for the determination of disputes arising from the Guarantees and the Contract is this court and that Kalpataru, even though not being privy to the Guarantees but having alleged fraudulent invocation of the same, has a standing to invoke the jurisdiction of this court in respect of any dispute arising therefrom and sue under the Guarantees. **Performance Guarantees, Letters of Credit and Performance Bonds and principles applicable** 1. The Banks submitted that that the aforementioned financial instruments are fundamentally similar in nature and are governed by the exact same legal principles and that all three facilities serve to indemnify a beneficiary against losses from a principal's non-performance and payment is strictly triggered by the beneficiary's written demand and therefore, legal authorities regarding any of these three instruments can be applied interchangeably. 2. The Court of Appeal, in **Karuri Civil Engineering (K) Limited(supra)**settled the law on guarantees as follows: ***24. At the risk of over-simplification, guarantees fall into two broad categories. The traditional guarantee or surety on one hand, and “on demand” guarantee on the other. “On demand” guarantees are also known as performance guarantees, performance bonds or demand bonds. (See Vossloh AG v Alpha Trains (UK) Limited [2011] 2 All ER (Comm) 307 at [24]– [28]). “On demand” guarantee is distinguishable from the traditional guarantee as liability is primary not secondary and payment by the guarantor is to be made in response to demand and is not dependent whether there has been a default under the principal contract. In the instant appeal, the performance bond in issue is a demand guarantee bond in which the respondent Bank’s liability is primary and independent of any liability for non-performance of the contract by the appellant.*** 1. The independence of performance guarantees and like agreements is explained in **Halsbury’s Laws of England, 4th Ed., Volume 41 at Page 819** on *Performance Guarantees and Bonds* as follows: ***960.Nature and effect. Some commercial contracts include provision*** ***for one party, often the seller, to procure a so-called performance guarantee or bond from a bank or an insurance or other company in favour of the other contracting party. A performance guarantee or bond commonly provides for payments to be made on the demand of the beneficiary. The contractual obligations arising under such guarantees or bonds are separate from and not dependent upon those existing under the sale contract between the seller and the buyer****.* 1. In ***Edward Owen Engineering Limited v Barclays Bank International Limited* [1978] 1 All ER 976,** Lord Denning MR made the following observations which were cited with approval by the Court of Appeal in **Kenindia Assurance Company Limied v First National Finance Bank Limited [2008] KECA 91 (KLR)** that: ***A performance bond is a new creature so far as we are concerned. It has many similarities to a letter of credit, with which of course we are very familiar. It has been long established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honor the credit. It is well established that a letter of credit is independent of the primary contract of sale between the buyer and the seller. The issuing bank agrees to pay upon presentation of documents, not goods. This rule is necessary to preserve the efficiency of the letter of credit as an instrument for the financing of trade*** ***The bank must pay according to its guarantee, on demand if so*** ***stipulated, without proof or conditions. The only exception is when*** ***there is clear fraud of which the bank has notice.”*** 1. From the above definitions by the appellate court, I am in agreement with the Banks’ submission that that Performance Guarantees, Letters of Credit and Performance Bonds apply the same legal principles. They are independent of the underlying contract and the bank pays upon presentation of conforming documents and demands, regardless of disputes under the sale or underlying contract. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions and the only exception is when there is clear fraud of which the bank has notice*.* **Invocation of the Guarantees and whether REG acted fraudulently** 1. Kalpataru submitted that the named beneficiary in the Guarantees was EWSA and that under **Articles 4 and 16** of ***URDG 458***, a beneficiary's right to demand payment is not assignable unless expressly amended in the guarantee. That no such amendment was made to substitute REG or EDC as beneficiaries and therefore, they had no lawful right to invoke the guarantees. It restates that while demand guarantees are autonomous, they are subject to the fraud exception when a beneficiary presents a claim they know to be invalid or untruthful. Kalpataru positions the invocation as fraudulent, illegal and malicious due to deliberate concealment and misrepresentation by EDC and REG. That they concealed that the DAB had already delivered a preliminary decision on 1st September 2019, dismissing their claims for damages and finding no default by Kalpataru, that they falsely declared the contractor to be in breach despite knowing the DAB found otherwise and that a subsequent UNCITRAL Arbitral Tribunal Award dated 28th August 28, 2021 confirmed that REG's call on the Guarantees was a breach of Clause 3.3.6 of the General Conditions. 2. On their part, the Banks submitted and repeated that the only recognized exception to the autonomy of a demand guarantee is established fraud of which the bank has explicit notice. They asserted that they had absolutely no knowledge of any alleged fraud or contract disputes prior to being served with summons of this suit and the related arbitration filings. They highlight that the testimony of their witness, DW1 confirmed this lack of awareness and this testimony went completely uncontroverted during cross-examination. The Banks maintain a neutral stance on whether actual fraud took place, stating it is the court's duty to analyze that evidence and they will abide by whatever the court determines. 3. EDC and REG highlighted that Kalpataru did not plead any challenges regarding their standing as a beneficiary in its Amended Plaint and that PW 1 introduced it as an afterthought during cross-examination and that because courts cannot grant relief on unpleaded facts, this line of argument is procedurally barred. They stated that the Guarantees were completely valid when called and to make a proper call, REG only needed to issue a written demand stating that Kalpataru was in breach of its obligations under the Contract. That because the Contract explicitly excluded **Article 20a(ii)** of ***URDG 458***, REG was under no obligation to provide grounds or evidence of the breach and the call up letters sent on 2nd and 4th September 2019, fully complied with these terms and that the second letter did not invalidate the first, it simply corrected the local bank's name to clarify payment logistics. 4. EDCL and REG dismiss Kalpataru’s argument that the Guarantees needed a formal assignment from EWSA and that under **Article 5 and 11** of the Rwandan Prime Minister's Order, the restructuring was an act of universal succession by operation of law, meaning REG automatically stepped into EWSA's shoes as the Employer and rightful beneficiary. Relying on settled law in ***Kenindia Assurance*(*supra)***, they submitted that a bank must honor a demand guarantee strictly on its face value without looking into underlying performance disputes and the Banks admit the demands were conforming and they are willing to pay. They restate that fraud is the only exception to autonomous bank guarantees and it must be strictly proved and that Kalpataru has failed to prove fraud as calling a guarantee just before its imminent expiry to protect security is standard and prudent international practice and that disagreements over invocation strategies or parallel arbitration paths are contractual choices and not fraud. 5. I have gone through the pleadings, evidence and submissions of the parties on this issue. On EDC’s and REG’s status as the beneficiary of the Guarantees, Kalpataru admitted in its pleadings that EDC is the successor in title of EWSA and a subsidiary of REG. Rwanda’s Prime Minister's *Order No. 87/03* of 16th August 2014 transferred all assets, rights, and obligations of EWSA to REG by operation of law. This is not an assignment but a statutory succession. I am persuaded by EDC’s and REG’s submission that the principle of universal succession is a matter of public law and international comity and as the successor in title, REG inherited EWSA's rights and obligations, including the right to the Guarantees. Kalpataru’s submission that the Guarantees needed to be formally amended is a technicality that is overridden by the legal reality of the succession, as established in foreign decisions cited by REG and EDC such as **Metliss vs National Bank of Greece and Athens S.A [1957]QB** and **Maziya General Services Versus Veolia Water Solutions & Technologies South Africa (Pty) Ltd 2022/009190.** 6. I therefore agree with EDC’s and REG’s submission that the universal succession of EWSA is not a unique legal phenomenon but a widely applied legal principle. The very idea of universality means that once succession occurs the effect universally applies to the rights and obligations of the entity wherever and howsoever they occur. Kalpataru’s argument that it was not a party to the Prime Minister’s order and cannot therefore be bound by it is irrelevant under the universal succession principle. As stated, REG’s standing was never challenged and EDC explained these changes to Kalpataru in its letter of 23rd September 2014(see pg. 199 of PExhibit 1). Kalpataru Kalpataru also never challenged REG's standing in the DAB proceedings, the Arbitration proceedings, or in its pleadings until the cross-examination of PW1 which is a clear indication that the objection is an afterthought. Therefore, in so far as the Guarantees required the Bank to pay at the request of the Employer, which employer was by operation of law universally succeeded by REG, then REG was entitled to call the Guarantees as it did. 7. On notice of fraud, I find that DW1 gave uncontroverted testimony that the Banks were not aware of any alleged fraud or underlying disputes between Kalpataru and REG and EDC prior to being served with this suit. The Banks were ready and willing to honor the demands but were prevented by an injunction order and their only obligation under ***URDG 458*** was to verify that the demand appeared on its face to be a conforming demand and they were not required to investigate underlying contractual disputes. On its part, PW1 confirmed that the Bank is not concerned with the underlying contract matter, it is not for the Bank to verify if the call is being properly made or if the amount is correct and the Bank does not need to get into a dispute between the parties. These admissions align with the autonomy principle established in ***Edward Owen Engineering Ltd (supra)***and ***Kenindia Assurance Company Ltd(supra)*** 8. The call-up letters dated 2nd and 4th September 2019 clearly stated: *"We hereby demand payment... declaring the Contractor to be in default under the Contract, without cavil or argument, or you needing us to prove or to show grounds or reasons for our demand."* The Guarantees specifically and expressly excluded **Article 20(a)(ii)** of ***URDG 458***, meaning the beneficiary was not required to specify the nature of the breach and the Banks were therefore not obligated to investigate whether the statement of breach was true. Indeed, the second letter did not invalidate the first as it merely corrected the local bank's name but the substance of the demand remained identical. 9. As stated, the fraud exception requires clear evidence that the beneficiary made a claim it knew to be invalid and the Bank had notice of that fraud. It is also clear that the DAB decision of 1st September 2019 was not final as REG issued a Notice of Dissatisfaction on 3rd September 2019, within the 28-day window provided under Clause 8.2.3 of the Contract and the DAB decision was therefore not binding at the time of the call. I find that REG had a genuine contractual right to challenge the DAB decision and to call the Guarantees before they expired and I agree that the call was a commercial decision to protect its security interest. 10. Further, I have already found that DW 1 testified without being controverted that the Banks had no knowledge of any alleged fraud or underlying disputes until after the suit was filed. The Banks were also not parties to the DAB or arbitration proceedings and they cannot be held liable for not knowing about matters they were never informed of. The law requires actual notice of fraud, not constructive or speculative notice. I also find that Kalpataru’s reliance on the Arbitral Award of 28th August 2021 is misplaced. The Award found that REG's call was a breach of Clause 3.3.6 however, I note that it was issued two years after the call-up, it has never been enforced or recognized by any competent court and any case confirms that the Guarantees were validly extended. The Award does not change the legal position that, at the time of the call, the Banks had no notice of any fraud. 11. Kalpataru's particulars of fraud, that is concealment of the DAB decision and non-disclosure of the Operational Acceptance Certificate are all pleaded as concealment from the Banks by REG/EDC, which, if true, is an argument that cuts against the Banks having notice, not for it. One cannot simultaneously argue the beneficiary hid the truth from the bank and that the bank had notice of the truth. 12. I am in agreement with EDC and REG’s submissions that the Contract provides a clear indemnity mechanism at Clause 3.3.6 that "…..*The Employer shall indemnify and hold the Contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a claim under the Performance Security to the extent to which the Employer was not entitled to make the claim."* If Kalpataru believes REG's call was wrongful, its remedy is to seek indemnity through the Contract's dispute resolution mechanism and not to restrain the Bank from honoring a facially conforming demand. 13. My findings above dispose of the remaining issues for determination that under the terms of the Guarantees, REG could invoke them and that when they invoked the Guarantees, they did not act fraudulently. The Banks were not aware of the alleged fraud by EDC and REG, the invocation letters conformed with the requirements of the Guarantees and the Banks were obligated to honour the Guarantees despite the disputes between Kalpataru, EDC and REG. It is for these reasons that I find that the prayers sought in Kalpataru’s Amended Plaint cannot be granted and it is hereby dismissed. I therefore find merit in the counterclaim by EDC and REG in that they validly called the Guarantees, the Banks were contractually obligated to pay and the Plaintiff's allegations of fraud are unsupported by the evidence. Kalpataru failed to disclose the existence of parallel proceedings in India and the full terms of the Contract including the indemnity clause. It represented that the DAB decision rendered the Guarantees void, when in fact the DAB decision was not final and had been challenged. It obtained injunctive orders through deliberate non-disclosure and has kept EDC and REG from their lawful payments for nearly six years. 14. In addition, I find that the Banks were neutral stakeholders who were prevented by a court order from paying the Guarantees and they have consistently stated they are ready and willing to pay. This dispute is fundamentally between Kalpataru and REG/EDC and not the Banks. **Conclusion and Disposition** 1. In the foregoing, I now make the following dispositive orders: 2. **The Plaintiff’s(Kalpataru) suit is dismissed.** 3. **The 1st and 2nd Interested Parties’(EDC and REG) Counterclaim is allowed.** 4. **A declaration be and is hereby issued that the Defendant (I&M Kenya) breached the terms of the Performance Bank Guarantee number 999/HO/LG/013/14 for USD 2,638,623.49 and 999/HO/LG/012/14 for RWF 529,230,743 by failing to make immediate/prompt payments demanded of it on 2nd September, 2019 by REG.** 5. **An order be and is hereby issued directing the Banks to honor the Guarantees and pay the sums of USD 2,638,623.49 and RWF 529,230,743 to REG/EDC forthwith and upon payment, the Banks will be discharged from any further liability in respect of the Guarantees.** 6. **REG/EDC are awarded costs of the suit and counterclaim.** **DATED SIGNED AND DELIVERED virtually at NAIROBI this 17TH DAY OF JULY 2026** **............................................................................** **J.W.W. MONGARE** **JUDGE** **IN THE PRESENCE OF** 1. Mr. Chacha Odera and Mr. Wilfred Lusi for the Plaintiff. 2. Mr. Preston Wawire for the Defendant and 3rd Interested Party. 3. Mr. Awele and Mr. Oseko for the 1st and 2nd Interested Parties. 4. Amos - Court Assistant