Two lenders, Sterling Bank Plc and Unity Bank Plc, are at loggerheads over N2 billion facility, despite of the intervention of the Bankers’ Committee.
At the end of last month’s meeting of the committee in Abuja, both banks were accused of not showing sincerity in the way they have handled the matter.
The investigating panel that listened to the lenders, directed both banks to “go back and discuss amongst themselves as they had not shown sincerity on the matter.”
The Nation gathered that at the last June meeting of its Ethics and Professionalism sub-Committee, the Bankers’ Committee went also ruled that Unity Bank was under obligation to honour its Advanced Payment Guarantee (APG) to Sterling Bank and that Unity Bank should provide certificate of work done during the life of the APG by its customers to be able to ascertain the amount outstanding on the APG which could be legitimately claimed within the validity period of the APG.
The banks’ customers were admonished by the Investigating Panel “to act in an ethical manner” and frowned at one of the customers Loh & Or Construction for failing “to do what was expected of it and also failed to honour the invitation of the arbitrators that were appointed in line with the contract.”
While aligning with the decision of the panel on the case, the Sub-Committee on Ethics and Professionalism of the Bankers’ Committee wondered why Unity Bank “would refuse to honour its guarantee, as guarantees are payable on demand.” The sub-committee also concurred with the investigating panel that the case in court had nothing to do with the APG.
The sub-Committee also ruled that “the amount covered by the Guarantee shall, however, be progressively decreased in terms of the value of work executed by the contractor within the life of the Guarantee” implying that the claims made by Sterling Bank needed to be reviewed.
Sterling Bank Plc had petitioned Unity Bank Plc for the failure of Unity Bank Plc to settle obligations arising from Guarantee Nos UB/APG/338/Makurdi/6978/06/2013 and UB/PB/338/Makurdi/6977106/2013 issued in favour of Quintec Ltd/Sterling Bank Plc on behalf of LOH & OR (NIG) LTD. Both guarantees were each for the sum of N1,038,463, 521.66.
Sterling bank had told the Investigating Panel that “Quintec Ltd (contractor), a customer of Sterling Bank Plc was awarded a contract by the Central a Bank of Nigeria for the development of a Branch building at Lafia, Nasarawa State with the original completion date of 25 April, 2014 was later extended to 27 March, 2015 by the CBN vide letter dated 31 March, 2014.”
Sterling bank stated that a major portion of the project was sub-contacted by the contractor to Messrs LOH & OR Construction (Nig) Ltd, a customer of Unity Bank Plc and as “per the work schedule, the sub-contractor was expected to have completed procurement and installation of the materials by January 2014, a time line which was not achieved”.
Due to the delay and the threat by the CBN in its letter dated April 22, last year to enforce contractual sanctions culminating in the determination of Quintec’s services, the contractor was constrained to request a call on the Guarantees and on May 5, 2014, Sterling Bank issued a Notice of Default to Unity Bank advising a seven day period for LOH & OR Construction to remedy the breach failing which the guarantees would be called in.
The sub-contractor’s (LOH & OR Construction (Nig) Ltd) bank (Unity Bank) responded vide letter dated 14 May last year requesting 21 days to enable its customer resolve the issues but in a subsequent letter dated 20 May last year, Quintec Limited advised Sterling Bank of the termination of the sub-contract with LOR & OR Construction Nig. Ltd and reiterated its earlier position that the Guarantees should be called.
Based the insistence of Quintec, Sterling Bank Plc in a letter dated 23 May last year demanded the liquidation of the guaranteed sum within the 14 days. “However, Unity Bank in acknowledgement letter dated 2 June, 2014 requested an extension of the APG and Performance Bond for 120 days from July 2014 on behalf of its customer – LOH & OR Construction, who promised to resolve issues with Quintec Ltd.”
Unity Bank was advised of Sterling Bank’s inability to accede to the request in a letter dated 5 June, 2014 on account of the Contractors’s position, stating that the demand notice dated May 23, 2014 would lapse on June 6, 2014 and that Unity Bank was expected to make good its obligation. Follow up letters dated 17 June 2014 and 25 June 2014 were subsequently sent to Unity Bank stating Sterling Bank’s intention to refer the matter to the sub-committee on Ethics & Professionalism for redress.
12. It was on the basis of this that Sterling Bank approached the Sub-committee for redress, stating that: Unity Bank’s liability under the APG and PB was N841,402,974.73 as at 6 June, 2014; that Unity bank’s failure to meet the said obligation after the 14-day notice period gave rise to the interest obligation which accrued at the commercial rate of 23 per cent per annum.
Sterling bank added that the materials delivered in respect of the sub-contract financed by it “was N197,060,547.27 based on the sub-contractor’s pricing. The Client paid N285,620,232.67 in respect of the work of which N270,000,000.00 was deposited at Sterling Bank” and as a result, “Unity bank was liable for sum of N841,402,974.73 plus accrued interest at 23 per cent per annum from 6 June, 2014.”
On its part, Unity bank told the Investigating Panel that Messrs LOH & OR Construction Limited is its customer and that in the course of the relationship, “the bank availed the customer several facilities amongst which are the Advanced Payment Guarantee (APG) and Performance Bond (PB) in the sum of N1,038,463,521.66 each- the subject of this petition.”
The issuance of the APG and PB Unity bank said was as a result of a contract awarded to a company called Quintec Limited by the Central Bank of Nigeria to develop a branch builnding in Lafia, Nassarawa State. Quintec (contractor) sub-contracted the Electrical, Mechanical as well as the supply and installation of Finishing Materials to LOH & OR Construction Nigeria Ltd.
Subsequently, LOH & OR Construction Nigeria Ltd approached Unity Bank for the issuance of the APG and PB in favour of Quintec and their Bankers – Sterling Bank Plc, which was issued on June 26, 2013. On the strength of the APG and PB, the beneficiaries (Sterling Bank/Quintec Ltd) released the sum of N1,038,463,521.66 to the bank (Unity Bank) for onward disbursement to the customers.
Unity Bank stated that “it was agreed between the customers and Quintec that payments arising from valuations done by the CBN consultants will be made directly into Sterling Bank Plc in full to reduce Unity Bank’s liability under the APG and PB.”
Consequently, the customers were mobilised to site and they commenced work, “rendering qualitative works to the extent that site was adjudged the best and most progressed of all similar projects awarded by the CBN.” Unity bank said it was therefore, “surprised to receive Sterling Bank Plc’s letter dated 5 May last year informing Unity Bank of the customers’ default in the execution of the sub-contract. The beneficiaries further contended that all efforts to make the customers meet their obligation failed, hence they had to call in the APG and PB.”
Unity bank admitted that “in a letter dated 17 June 2014, Sterling Bank demanded for the payment of the guaranteed sum balance and interest accrued at commercial rate from 6 June, 2014 and that “consequent upon the above Unity Bank immediately caused an investigation into the matter in order to ascertain what actually happened and the level of work executed by the customers.”
Their investigations they said “revealed that there were disputes, accusations and counter-accusations between the customers and Quintec which resulted in the frustration of the contract.” This informed Unity Bank’s request on the customer’s behalf for an extension of the APG and PB to allow some time to sort out these issues while the customers continued with their obligations.”
Unity Bank insisted that its “obligation under the APG and PB was for the payment of the sum outstanding not defrayed from the sum advanced to the customers as a result of the customer’s default. According to paragraphs 6 and 7 of APG and PB respectively where it was made explicit that “The amount covered by the Guarantee shall, however, be progressively decreased in terms of the value of work executed by the contractor to the employers under the contract”.
Unity bank expected that before any call was made on it for the payment under the APG and PB, all works carried out by the customers ought to have been ascertained and valued. “This was not done by Sterling Bank Plc rather Unity Bank was called upon to pay an undisclosed “amount outstanding under the APG and accrued interest at 23 per cent per annum from 6th June, 2014”.
In conclusion, Unity Bank stated that: much as it remained fully committed to its obligation under the APG and PB, the bank could not make payment of an undisclosed and unverified sum, which Beneficiaries had never stated in their demand; there was no understanding and/or commitment between the bank and the beneficiaries in respect of any interest element in the transaction. The bank never consented to same and such term was never in the APG and PB it issued; Quintec failed to remit funds paid by the CBN into Sterling Bank Plc to reduce the value of the APG as initially agreed by the parties. “This was what actually frustrated the contract between them; that Unity bank is only liable to the beneficiaries in the sum of N282,324,118.92, representing the outstanding sum on the sum advanced to the customers under the APG and that in the spirit of fairness, the bank recommended that an all parties meeting be convened in order to reconcile the obligations of relevant parties.
The investigating Panel meeting of march 24, 2015, identified as areas of contention:
1. How was the value of N282 million due to sterling Bank determined?
2. Why did Sterling Bank demand an APG/PB from Unity Bank and why did Unity Bank refuse to honour its guarantee?
3. What led to the determination of Loh&Or Construction’s contract? It was reported that the goods were still in China because Quintec had stated it would not take delivery of goods since the contract had been terminated.
However when contacted, a staff of Unity Bank who pleaded to remain anonymous because he was not permitted to speak to the press on the matter told The Nation that “Unity Bank has taken advantage of the opportunity given by the Sub-Committee for us to bring up fresh facts that could lead to the change or retraction of the decision. Accordingly, the decision of the Sub-Committee will not yet be binding on the bank, since the Sub-Committee still has to review the fresh facts provided by the bank. We are confident that the outcome of the review will be favorable to the bank.”
The Unity Bank official added that “the issues relating to the settlement of obligations under the Guarantee is already subjudice, in view of existing litigations and Arbitration known to all the parties. Therefore all parties should refrain from actions and making statements that could be contemptuous.” He noted “as soon as the Bankers Committee gets our letter revealing fresh facts of another suit, we are confident that the Sub-Committee will rescind its decision and allow for the Legal process to take its natural course. “
