Consolidated Bank has lost a $1.5 million (Sh203 million) software upgrade dispute against office technology firm MFI Technology Solutions Limited.
The High Court ruled that the bank’s failure to pay licence fees derailed a core banking system upgrade and unlawfully triggered a call on a performance guarantee.
The court found that the government-owned lender was in breach of a 2022 technology contract and could not blame its software vendors for delays caused by non-payment.
The dispute stemmed from a tender to upgrade and maintain the bank’s core banking system, a critical platform for daily transactions and regulatory reporting.
The licence fee was $1.334 million, secured by a $243,600 performance guarantee.
However, the bank failed to honour revised payment terms and unlawfully invoked the guarantee, sparking a commercial dispute.
The project was contracted through MFI Technology Solutions Limited, working with Indian software developer Intellect Design Arena Limited, which had supplied the bank’s core system for years.
Under the original agreement, half of the licence fee was payable upon execution, with the balance due within 60 days.
Weeks later, the bank sought to restructure payments, proposing four monthly instalments of $333,500 from August to November 2022. The vendors accepted the change, but the bank did not fulfil its obligations.
By April 2023, only $213,375 had been remitted. Despite the shortfall, the bank terminated the contract in June 2023 and invoked the performance guarantee, accusing the vendors of misrepresentation and failure to deliver a functional upgrade.
This led to legal action, and the court rejected the bank’s claims, ruling that the revised payment plan was binding and that the bank openly admitted defaulting.
“The first defendant (Consolidated Bank) admits that it did not pay the instalments as revised,” the court stated, citing internal correspondence blaming cash-flow constraints.
The court determined that licence fee payment was a prerequisite for continued implementation. It ruled that the suspension of deployment resulted directly from non-payment and could not justify allegations of non-performance.
“A party in default cannot rely on its own breach to allege non-performance by the counterparty,” the court declared.
The bank’s attempt to void the contract over the identity of the software licensor also failed. It argued that an Indian company had replaced a Dubai-based entity named in earlier agreements, rendering the 2022 variations void.
However, the court found that the bank had signed and sealed the variation agreements, engaged the Indian firm throughout the project, and participated in product demonstrations without objection.
“A party executing a document is bound by it, absent proof of fraud or misrepresentation,” the court ruled, adding that the bank was barred from denying obligations it had knowingly undertaken.
Regarding the performance guarantee, the court acknowledged that on-demand guarantees are autonomous instruments but found that the bank’s call was based on alleged non-performance caused by its own failure to pay.
“A beneficiary cannot rely on the consequences of its own breach to justify a call on a guarantee,” the court stated.
The court ordered the bank to pay the $1.334 million licence fee, minus amounts already paid, and refund the $243,600 guarantee, totalling $1.5 million. It was also ordered to pay interest from the lawsuit’s filing date in June 2023.
The bank’s counterclaim for damages, training costs and restitution was dismissed due to lack of evidence.
The court noted the absence of expert testimony, technical audits or procurement findings supporting the bank’s claims.
