Date: 20/11/2009
Applicant: Nile Insurance S.C.
Respondent: Tigray Regional State Construction and Road Transport Office
Background: This case, originating in the Tigray Regional Court and heard by the Federal High Court, concerned a construction contract for the West Zone High Court building, valued at Birr 3,752,572.84. The contractor, Ato Mengesha Kinfu, received advance payments and guarantees from Nile Insurance.
Key Events & Dispute: The contractor received an advance payment of Birr 636,088.40 and a performance bond of Birr 374,169.96 from Nile Insurance. Due to significant delays and failure to meet deadlines, the respondent (Tigray Regional State) terminated the contract. The respondent then sought to recover additional costs of Birr 895,294.44 incurred due to the termination from both the contractor and Nile Insurance.
The lower court ruled in favor of the respondent, leading Nile Insurance to appeal to the Federal Supreme Court, which subsequently ordered an expert evaluation of the remaining construction work.
Expert Findings: The expert determined that the contractor had completed work valued at Birr 984,253.27. This amount fully utilized the advance payment of Birr 980,551.24, with an additional Birr 3,722.03 contributed from the contractor’s personal funds.
Court Rulings & Final Decision: The Cassation Bench made several key clarifications and rulings:
- Nile Insurance was held liable for Birr 140,813.72 in additional construction costs.
- A shared liability of Birr 486,949.85 in damages was apportioned between Nile Insurance and the contractor.
- The Cassation Bench clarified that Nile Insurance’s guarantee was strictly for the contractor’s performance, not for VAT or other unrelated liabilities.
- Since the advance payment was fully utilized by the contractor for the construction work, Nile Insurance was not liable for its repayment under the advance payment bond. The applicant’s responsibility for the advance payment guarantee was limited to ensuring its use solely for construction, with joint liability for any misuse.
- Ultimately, Nile Insurance’s total liability was capped at the amount of the performance bond: Birr 374,269.59 (issued under number P.O.B. /151/ 0708).
The Cassation Bench concluded that while the contractor’s completion of work beyond the initial payments did not prevent the respondent from seeking compensation for damages due to contract termination, Nile Insurance’s liability was strictly limited to the performance bond amount. The termination was due to the contractor’s fault, entitling the respondent to compensation as per Civil Code Articles 1790, 1791, and 3292.