Ethiopia: United Bank wins 10.2 million birr lawsuit

by Mehret Tesfaye

Addis Ababa — United Bank has won an over 10.2 million birr case against Simachew Demissie Investment Plc, a local company engaged in coffee exports.

The Ninth Civil Bench of the Federal High Court gave the verdict in favor of the private bank on July 1, 2009.

The case was brought to the attention of the court with the application by United Bank S.C. that claimed more than 10.2 million Br from the coffee exporter; the Bank claimed it had advanced the over 10.2 million Br to Simachew Demissie Investment and the latter defaulted on the loan.

United Bank, which began operation in 1998, argued that it advanced the loan based on the pre-shipment loan agreement signed between the two parties on October 28, 2004 and February 7, 2005. Based on the agreement, Simachew Demissie Investment was entitled to borrow as much as 12 million Br from the Bank. The lender had started to disburse the loan in rounds in accordance with the agreement.

The arrangement under the pre-shipment loan agreement was the coffee exporter takes the amount of money it wants for a single round to buy coffee from suppliers. When the coffee is exported, the borrowers service the loan from the foreign currency earned from the export. Accordingly, the arrangement had gone well for the first rounds with both sides observing their obligations.

Nevertheless, after the Bank had disbursed the slightly more than 10.2 million Br in about five rounds, the borrower defaulted to service these last rounds and then came the legal battle.

Lawyers of the private bank stated that the company failed to constantly service consecutive payments of the loans in the last rounds, despite successive notices from the lender. They annexed five receipts with indicating that 10,219,739.50 Br had been transferred to the coffee exporter’s account.

The Bank also accused Simachew Demise, general manager of the company by the same name, of making the bank’s efforts to recover the loan onerous by transferring ownership of company properties to his own. The Bank had, therefore, alleged that the coffee exporting company and its General Manager were jointly and severally liable for the loss the bank incurred.

The lawyers of the defendants submitted their statement of defence to the court on which they pleaded their clients did not owe the said amount to the Bank, rather it is less than that, and they are not jointly and severally liable.

But the court was convinced that they failed to expressly deny the allegation of the Bank which is proven by the five receipts annexed by the Bank. They just said the paperworks (documents) are fiction.

This point led the judge at the Ninth Civil Bench of the Federal High Court, Dereje Eticha, to conclude that the money listed on the receipts was added to the account of the coffee exporter. The court absolved the second defendant, Simachew Demisie, because the Bank failed to prove whether his actions had caused actual harm to the Bank. The Bank had accused him of transferring the ownership of 10 trucks of the coffee exporting company to his own and issued them as guarantee bonds; the claimant had argued this act complicated the banks effort to recover the loan.

The court has, thus, ordered Simanchew Demisie investment plc to pay the said 10.2 million Br with nine per cent legal interest and three per cent penalty for failing to honour the agreement; this based on the very agreement breached by the borrower. The legal interest and the penalty are to be calculated from August 7, 2009, the day the case was instituted, to the day the loan is totally recovered.

One of the lawyers of the defendants said he is obviously not happy with the ruling. But he is unsure of whether to file an appeal.

The lawyers of United Bank were not available for comment.