Hagbes defeats party owned enterprise in lawsuit

By Dawit Ketema

Hagbes Plc. has won a 2.6 million birr lawsuit against one of the party owned enterprises, Zeleke Agricultural Mechanization Service.
Owned by EFFORT (Organization for Amhara Rehabilitation & Development) the economic wing of the ruling Amhara Democratic Movement (ADM) in the Amhara Regional State, Zeleke Agricultural Mechanization Service was found liable for the stated amount of money by the Federal High Court.
The litigation was over a credit sale of 10 tractors, one disc plough, spare parts, and servicing by Hagbes to Zeleke in May 1998, for a total value of two million birr. Zeleke agreed to effect the payment in two installments where EFFORT signed to be the guarantor, if Zeleke defaults in its financial commitment.
The later had also agreed to pay a penalty of 0.5 % per week on the arrear amount after the deadline of the last installment.
Zeleke paid 1.1 million birr payment to Hagbes but only after the second installment deadline, which entailed a 0.5 % penalty per week.
Hagbes says it made repeated demands for Zeleke to settle its arrears in vain. Hagbes filed charges at the Federal High Court claiming 2.6 million birr against Zeleke and Effort, the guarantor for the credit sale. The sum included the 0.5 % per week penalty for the delay in payment as agreed.
Zeleke’s defense was that the tractors had mechanical problems while they were deployed on the field. It accused Hagbes of falling short of its commitment to service the tractors on a timely basis, though it was asked for immediate help repeatedly. As a result, the defendant argued, the tractors had missed the rainy season and were stranded due to mechanical problems.
Moreover, defense lawyers said Zeleke had been deceived into agreeing to the 0.5 % per week penalty clause “due to lack of commercial experience.” Therefore, the defense begged the court to rule the penalty rate as “immoral” and absolve it from liability.
The High Court dismissed the defense argument saying it had not presented any evidence to support its assertion that the plaintiff did not service the tractors as agreed. It added that an agreement is as good as a law for both parties of the contract. Zeleke should have thought harder before biding itself to a 0.5 % per week penalty, and therfore owes Hagbes the stated penalty.
On the other hand, EFFORT was saved from the brunt of the debt, in an apparently inefficient contract. According to the Ethiopian Civil Code of article 1922 (3), a surety contract shall state the limit of the guaranteed value; otherwise the contact shall have no legal force.
Since the contract between Hagbes and Effort did not state the limit of surety amount EFFORT escaped liability on technical grounds.
Effort is an endowment company, which owns Dashen Beer Factory, Ambasel Trading, and Tikur Abay Transport.
Capital made unsuccessful attempts to reach Zeleke Agricultural Mechanization Service due to communication failures at its operation base in the border town of Metema.