Bank has been mandated to compensate a KPA supplier the sum of Sh25 million for the loss incurred due to the loss of a significant tender.
In a significant court ruling, the Court of Appeal in Kenya has ordered Stanbic Bank Ltd to compensate Kenya Haulage Agency Ltd for a loss of Sh25 million due to the bank's negligence in a tender dispute with the Kenya Ports Authority (KPA).
The dispute arose in 2011 when Kenya Haulage Agency Ltd tendered for the supply of 10 ribbed-type pneumatic rubber fenders to KPA. As part of the tender requirements, the agency was asked to provide a bank bond, valid for 120 days after the tender closing date. The bank bond was to guarantee Kshs 250,000 and remain valid until 21 November 2011.
However, Stanbic Bank issued a bond valid for only 119 days, causing the bank bond to expire a day earlier. This discrepancy led to KPA cancelling Kenya Haulage Agency Ltd’s tender, resulting in the loss of a key contract.
The court found that Stanbic Bank breached its duty of care by not issuing the bank guarantee with the correct validity period and failing to act promptly to honor the guarantee upon a valid demand. The judges presiding over the case were Agnes Murgor, Pauline Nyamweya, and George Odunga.
Kenya Haulage Agency Ltd argued that the bank failed to exercise due diligence and reasonable care in issuing the tender security as per the agreed terms. The court agreed, stating that the bank’s negligence caused Kenya Haulage Agency Ltd to suffer substantial loss, quantified as the difference between the tendered price and the eventual procurement price.
Stanbic Bank argued that any loss suffered was too remote and could not be claimed because it was not within the reasonable contemplation of the bank. However, the court ruled that the loss of profits arising from the loss of the tender is not too remote.
The bank also denied receiving the agency's letter with the bid-bond terms and any knowledge of their client bidding for the said tender. However, the court found that the non-conformity by the bank was not a minor deviation or an error or oversight that could be corrected, given that the tender security guarantees a bidder will honor their submitted bid and sign the contract if awarded.
The loss incurred by Kenya Haulage Agency Ltd was Sh25.09 million. Consequently, Stanbic Bank was ordered to pay this sum for damages arising from the missed tender opportunity with KPA.
This case serves as a reminder to banks to exercise due diligence and reasonable care when issuing guarantees or bonds, especially in tenders with strict timelines and financial implications. It also highlights the importance of clear communication between clients and banks to avoid misunderstandings and potential losses.
Banks are expected to exercise due diligence and reasonable care when issuing guarantees or bonds, as shown in the case of Stanbic Bank. The court ruled that the bank's negligence in issuing a bank bond with an incorrect validity period caused Kenya Haulage Agency Ltd to lose the tender with Kenya Ports Authority (KPA), resulting in a loss of Sh25.09 million. This case underscores the importance of clear communication between clients and banks to avoid misunderstandings and potential losses in the business, finance, banking-and-insurance industry and beyond, as epapers often report.
