Date: 24/08/2009

Applicant: National Ethiopian Insurance Company (NEIC)

Respondents: Amhara National Regional State et al /8 Respondents/

The case was presented to the Cassation Bench to review the validity of the arbitration panel's decision. The panel had ruled against the applicant's argument, which asserted that the plaintiffs/respondents had unilaterally extended the delivery time of the goods without the applicant's consent, thereby absolving him of responsibility. Additionally, the Cassation Bench was asked to examine the applicant's contention that he is not liable for the 0.07 penalty until the debt has been paid.

The second defendant (the current applicant) appealed to the Regional Supreme Court, arguing that the arbitrators' decision was flawed due to their failure to properly serve him with the court summons. After considering the arguments presented by both parties, the Regional Supreme Court reversed the arbitrators' decision in Case No. 01-82566, dated July 11, 2004, and remanded the case to the arbitrators for further proceedings.

The basis of this dispute is the decision of the Arbitration Panel, which, after the case was referred to the arbitrators, examined the arguments and evidence presented by the first defendant (the seventh respondent) and the second defendant (the applicant) and issued a decision on July 7, 2007.

The dispute arises from the claim filed by the plaintiffs. According to the plaintiffs, the first defendant (seventh respondent) was awarded the tender to supply various office equipment, and a contract was signed on September 12, 1991, for goods valued at Birr 468,540 (four hundred sixty-eight thousand five hundred forty birr). The plaintiffs assert that the full contract amount of Birr 468,540 was paid to the first defendant as an advance. Additionally, the applicant (second defendant) provided an advance payment guarantee on October 19, 1994, to ensure repayment of the advance in case the first defendant failed to supply the goods.

The plaintiffs claim that the first defendant only delivered goods worth Birr 73,800 (seventy-three thousand eight hundred birr) and failed to supply the remaining goods valued at Birr 394,740 (three hundred ninety-four thousand seven hundred forty birr). The plaintiffs further assert that this amount should be paid along with penalties as stipulated in the contract. They requested the arbitration panel to hold the defendants jointly and severally liable for the unpaid amount, including interest.

The first defendant (seventh respondent) contended that the plaintiffs were responsible for the non-performance of the contract because they improperly rejected the goods delivered on time, alleging that the goods did not meet the required quality standards. The first defendant further argued that it was not liable to pay the penalty.

The second defendant (applicant) also asserted that the plaintiffs failed to provide prior notice regarding the first defendant's non-delivery of goods. The applicant claimed that if informed, it would have fulfilled the contract obligations personally or assigned someone else to perform on its behalf. Additionally, the applicant argued that the plaintiffs themselves hindered the performance of the contract by improperly rejecting the delivered goods. The applicant further contended that the plaintiffs, without obtaining consent from the second defendant, extended the delivery period for the first defendant and, as a result, the applicant should not be held liable.

After reviewing the arguments and evidence presented, the arbitrators rejected the defenses of both the first defendant (seventh respondent) and the second defendant (applicant). The arbitrators ordered the defendants to pay Birr 394,740 (three hundred ninety-four thousand seven hundred forty birr) to the plaintiffs. Furthermore, the arbitrators imposed a penalty of 0.007 per day, as stipulated in the contract, from the date the case was filed until full payment was made. Additionally, the arbitrators ruled that the defendants must pay nine percent interest on the principal amount from the filing date of the case until the Birr 394,740 is fully paid.

Dissatisfied with this decision, the applicant filed an appeal with the Regional Supreme Court. However, the Regional Supreme Court dismissed the appeal pursuant to Article 337 of the Civil Procedure Code.

In the Cassation petition filed on November 18, 2007, the applicant argued that the plaintiffs failed to provide notice to the defendant, and as such, there is no legal basis for liability under the guarantee provided. Additionally, the applicant contended that the arbitrators' decision to impose interest and a penalty of 0.007 per day from the date the case was filed in the regular court until the debt is paid constitutes a fundamental legal error, warranting review and correction by the Cassation Bench.

In their written submission dated January 29, 2007, the respondents argued that the applicant’s claims lacked merit as they were not grounded in the relevant legal provisions. Furthermore, the seventh respondent, who had been summoned via the Addis Zemen newspaper, failed to appear and was deemed to have waived the right to respond. The applicant subsequently submitted a written counter-reply on March 4, 2007.

The background of the dispute and the written submissions of both parties have been outlined above, and the matter has been thoroughly examined.

Upon review, it is undisputed that the seventh respondent, as the first defendant, was awarded the tender to supply various office equipment. A contract was entered into, specifying the supply of goods valued at Birr 468,540 (four hundred sixty-eight thousand five hundred forty birr), in accordance with the quality criteria and specifications set out in the tender documents.

The Arbitration Panel confirmed that the seventh respondent, acting as the supplier, received the full contract amount of Birr 468,540 as advance payment. Additionally, the applicant provided an advance payment guarantee to secure this amount.

The Arbitration Panel further found that the seventh respondent delivered office equipment worth Birr 73,800 (seventy-three thousand eight hundred birr) that met the required quality standards. However, the remaining goods, valued at Birr 394,740 (three hundred ninety-four thousand seven hundred forty birr), failed to meet the specified quality standards. Consequently, the seventh respondent was held liable for non-performance of the contract, having failed to deliver the remaining goods and fulfill the contractual obligations. These findings reflect the conclusions reached by the Arbitration Panel after considering the arguments and evidence presented by both parties.

The Cassation Bench has reviewed the applicant's arguments and the decisions of the Arbitration Panel and the Regional Supreme Court. Based on this review, the following determinations are made:

Liability of the Applicant

It has been established that the seventh respondent, who issued the advance payment guarantee to the applicant, is not exempt from liability for non-performance of the contract and termination due to such non-performance. The applicant's argument that they should not be held liable for the supplier's (seventh respondent's) failure to fulfill contractual obligations lacks legal merit, as it disregards the legal consequences of the guarantee document issued.

The applicant's claim that the respondents (first to sixth) are liable due to their extension of the delivery period until July 25, 1993, is also unfounded. The applicant renewed the guarantee on October 19, 1994, knowing the delivery period in the original contract had been extended. Therefore, the Arbitration Panel’s finding that the applicant is jointly and severally liable for the contractual obligations under the guarantee is legally sound.

Joint Liability and Payment

The dispute pertains to the amount the applicant is required to pay jointly and severally with the supplier (seventh respondent). The Arbitration Panel determined that the supplier failed to deliver goods worth Birr 394,740 out of the advance payment received. The applicant’s liability for this amount under the guarantee is upheld as consistent with legal principles.

Interest

Regarding interest, it is confirmed that the plaintiffs had the right to initiate the lawsuit and bring the matter before the Arbitration Panel. However, the Regional Supreme Court reversed the March 13, 2003, Arbitration Panel decision on July 11, 2004, in Appeal File No. 01-82566. Consequently, the decision to impose interest at nine percent from the date the case was filed in regular court is flawed. Instead, the applicant is liable for interest from the date of the Regional Supreme Court's decision on July 11, 2004.

Penalty

Under Article 6 of the contract signed on July 12, 1991, the penalty for non-performance was limited to 0.07% per day for a maximum of seventy days. The Arbitration Panel's decision to impose a penalty beyond seventy days, calculated from the date of filing the case until full payment, contravenes the contract terms and provisions of the Civil Code. Thus, the penalty is restricted to seventy days at the agreed rate of 0.07%.

Modifications to the Arbitration Panel’s Decision

Based on the above findings, the Cassation Bench partially modifies the Arbitration Panel’s decision as follows:

(a) The applicant is liable to pay Birr 394,740 to the plaintiffs for failing to deliver goods as per the contract.
(b) The applicant is liable to pay interest at nine percent on Birr 394,740 from July 11, 2004.
(c) The penalty of 0.07% per day is limited to seventy days, as stipulated in the contract.

 Orders

The decision of the Arbitration Panel dated July 7, 2007, and the Regional Supreme Court's decision in File No. 01-38894, dated October 25, 2007, are modified in accordance with the above findings.

The applicant, jointly and severally with the principal debtor (seventh respondent), is ordered to pay the amounts specified under paragraphs 6(a) to 6(c).