Credit Bank has been ordered to pay advertising firm Magnate Ventures more than Sh125 million for a performance guarantee it granted a Chinese firm in a botched deal.
High Court judge Alfred Mabeya said the lender has to honour the guarantee of Sh62.2 million and $474,634 (63.9 million at current exchange rates) on behalf of Hebei Tuofa Telecommunication & Electric Manufacturing Ltd.
Magnate Ventures entered the contract with the Chinese firm for the supply and installation of lines and transformers. Part of the deal required the supplier to get an ‘on demand performance bond’.
A row later arose between the Chinese firm and Magnate forcing the latter to seek payment of the amount.
“In this regard, a bank which issues a performance bond has to honour that guarantee in accordance to its terms. The obligation arises immediately upon demand,” the judge said.
The judge noted that on demand performance bonds are instruments which have been developed in the banking industry for ease of commercial transactions.
He said banks are required to immediately settle the amount they have bound themselves in such an instrument on demand, unless there is proof of fraud.
Through senior counsel Wilfred Nderitu, Magnate Ventures said the bank must honour the deal.
