Court slaps 1.1 mil. br. liability on Global Insurance

By Dawit Ketema

Global Insurance S. C. has lost a 1.1 million birr court battle against Commercial Bank of Ethiopia (CBE). The litigation was over a Financial Guarantee Bond (FGB) that the insurance company had issued to a borrower of CBE for a maximum surety value of one million birr.
The FGB was given for one Tsegaye Zergaw who had initially borrowed one million birr from CBE, an equivalent amount of the FGB. Reportedly Tsegaye took out additional loans from CBE reaching an amount of 3.1 million birr and then allegedly defaulted, according to CBE.
The later contacted Global and demanded a refund for the surety value of one million birr in November 2000. Global agreed to cover the guaranteed money but it took the position that it will only do so if the claim pertained to the one million birr loan it guaranteed but not to subsequent loans given to Tsegaye that are now in default.
Moreover the debtor, Tsegaye had paid off a portion of the guaranteed loan, it was stated. Accordingly, Global offered to pay the surety in proportion to the arrears Tsegaye owed to the bank on the one million birr that he had originally borrowed and which was the subject of the FGB.
The FGB document issued by Global stipulated that disputes between parties of the contract are to be settled through arbitration. But Global turned down CBE’s request that the guarantor appoint an arbitrator from its side, in a letter addressed to CBE. Whereupon, the later took the matter to the Federal High Court asking the court to force Global to pay the guaranteed money and other expenses.
Global’s first line of defense was technical and contended that the statute of limitation has run out since the FGB agreement was for two years and the suit was filed after two years, in March 2003. “Furthermore, even if we refused to appoint an arbitrator, CBE should have only asked the court for appointment of an arbitrator and could not file a lawsuit asking for a ruling on the guaranteed amount from the court,” Global added.
The court reasoned that Global had turned down CBE’s request for the appointment of an arbitrator in writing. Because Global refused arbitration, CBE cannot be denied justice for lack of an arbitrator.
The court made reference to the Ethiopian Civil Code which states that statute of limitation period in civil litigations cannot be limited or increased by agreement of parties to a contract and that the Civil Code overrides the provisions of the FGB pertaining to limitations of time, the court ruled.
The High Court therefore, found Global liable for the FGB value of one million birr as well as 9 % interest rate along with litigation expenses.
Masresha Gebre Meskel, General Manager of Global Insurance, told Capital that the court ruling was unexpected for him. “There is a general legal principle that says the specific overrides the general, which means the FGB contract overrides the Civil Code,” Masresha says, “The statue of limitation should have been two years instead of the 10 years decided by the court.”
He stated, however, that his company is not planning on lodging an appeal against the court’s ruling. He said his company is planning on negotiating with CBE to end the dispute by proportionately accounting Global’s liability against the amount of loan serviced by the borrower.