The Supreme Court, on Friday, January 27, resolved to invalidate the Rwf 600 million fine slapped on Banque Populaire du Rwanda (BPR) in a legal battle with Nyamasheke district.
Since 2019, BPR and Nyamasheke district have faced off in various lawsuits resulting from a contractor who failed to deliver on a project for the district, yet he had a performance guarantee from the bank.
The saga started in 2008 when BPR gave a performance guarantee worth Rwf 19,935,235 and an advance payment of Rwf 39,870,470 to Hategeka Consult & TP, a company contracted to construct school facilities in Nyamasheke district.
However, it turned out that the company failed to honour the contract and abandoned the project.
In reaction, the district terminated the contract in 2010 and asked BPR to refund all the money given to the Hategeka Consult & TP, but the bank was allegedly not responsive.
Consequently, the district filed a suit against the bank in 2019 demanding a refund and compensation worth Rwf 639,923,932
As per the 2007 Public Procurement Law, in the event that such a contract is not fully or well executed, a bank or any authorized financial institution in charge of the contractual work is obliged to refund the full amount of the performance security upon claim by the procuring entity. This has to be done within ten working days from the receipt of such a claim.
In case of delays, the financial institution is obliged to pay an additional interest of one per cent for every day of payment delay.
Due to this, a lower court that heard the case on first instance ordered BPR to pay an additional interest charge of 1 percent accumulated over a period of 3,330 days of delay. This meant that BPR had to pay up to Rwf 600 million to Nyamasheke district.
After the ruling, BPR appealed to the Court of Appeals, but the verdict was maintained.
In September 2022, the bank filed a complaint to the Supreme Court, claiming that the public procurement law on which the lower courts based to impose the fines, was applied in a way that contradicted other provisions of laws.
The bank’s Legal and Collateral Manager, Joseph Mugire, particularly argued that the ruling by lower courts disputed article 146 of the law governing contracts.
The article stipulates that, "Damages for breach of contract may be provided for in the contract but at a reasonable amount based on the actual or potential loss in case of breach of contract or in case of difficulty in providing evidence of the loss.”
With similar arguments, he asked the court to look into the case, and the relevant laws in this regard.
After listening to both parties, the Supreme Court ordered for an expert analysis into the case in October 2022, and tasked Rene Munyamahoro, an International Investment law and Human Rights expert from the University of Rwanda to do the job.
He was required to submit a report to the Supreme Court explaining among other things, the proper application of additional interest (fines) that arise from delays to fulfil contracts.
Delivering the Supreme Court’s decision on Friday, January 27, the judges resolved that BPR is still guilty of mismanaging the contract, but the fines that were slapped against it due to delays by the lower courts were not proper.
Thus, the Supreme Court reduced the fines from Rwf 600 million to Rwf 19,935,235.