Stanbic Bank ordered to pay Sh32 million over tender security bond error
The appellate court dismissed Stanbic Bank's appeal, ruling that the lender had indeed breached the standard of care expected of it in issuing the bond.
The Court of Appeal has upheld a decision requiring Stanbic Bank to compensate a logistics firm, Kenya Haulage Agency Ltd, to the tune of Sh32 million for an error in a tender security bond that cost the firm a lucrative Kenya Ports Authority (KPA) contract.
A three-judge bench comprising Justices Agnes Murgor, Pauline Nyamweya, and George Odunga found the bank negligent in the manner it handled the bond, thereby breaching its duty of care to the haulage firm, which was both a customer and a guarantee beneficiary.
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The appellate court dismissed Stanbic Bank's appeal, ruling that the lender had indeed breached the standard of care expected of it in issuing the bond.
"We are of the view that the loss of profits Kenya Haulage Agency Ltd would have earned from the subject tender was recoverable, as Stanbic Bank was responsible for denying the firm the opportunity to proceed with the tender due to its negligent statement," read the judgment.
"Kenya Haulage Agency Ltd provided sufficient evidence to prove the profits it expected to earn from the tender."
The court also affirmed the High Court’s decision in favour of the haulage firm, noting that the bank, possessing specialised skills, owed a heightened duty of care in exercising those skills.
In 2018, the haulage company applied for a tender to supply ribbed-type pneumatic rubber fenders to the KPA and obtained a security bond of Sh250,000 through Stanbic Bank.
However, the bond issued by the bank covered only 119 days, falling short of the required 120-day validity. This discrepancy led to the firm's disqualification from the tendering process.
Stanbic Bank denied any wrongdoing, maintaining that the firm did not lose the tender as a result of its actions and that any losses incurred were too remote to be compensable.
The judges, however, disagreed, holding that the loss of the tender was foreseeable and directly linked to the bank’s actions, especially given its awareness of the bond's purpose and the legal implications of non-compliance.
"In light of the purpose of a tender security, which serves as a guarantee that a bidder will honour their submitted bid and sign the contract if awarded, it cannot be argued that the non-conformity by the appellant was a minor deviation or a correctable oversight," the court noted.
The bench further held that the loss of profits arising from the tender disqualification could not be dismissed as too remote.
Stanbic Bank had contended that there was no certainty the firm would have won the tender, even if the bond had been correctly issued. However, the court found this line of defence insufficient.
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