On August 29, 2022, Jumra Limited, a Nairobi company that distributes fast-moving consumer goods, entered into a Sh667 million contract with a foreign shipping firm, Mare Maritime Holdings Limited, for the supply of sunflower cooking oil.
In the deal, Jumra was to purchase 7690 tonnes of sunflower cooking oil for $4,998,500 (Sh666,799,900). The payment was to be effected through a Letter of Credit — a bank guarantee that the amount would be paid.
Jumra requested its banker, Victoria Bank, to issue the Letter of Credit in favour of Mare for the said amount of money. The letter was issued and it was to mature in 180 days -March 6, 2023.
Victoria Bank was designated as the issuing bank on behalf of Jumra while UBA Bank was designated as the receiving bank on behalf of Mare, the beneficiary.
Sunflower cooking oil
To enable Mare, a company based in Singapore, to execute the contract, on September 23, 2022, the UBA Bank gave Mare a sum of $3,498,950 or 70 per cent of the Letter of Credit value.
The money was deposited into Mare’s account and the same was duly utilised by the shipping firm.
But the supply contract did not end well and was cancelled midway by Jumra upon delivery of the Sunflower cooking oil at its warehouse. Jumra discovered that the goods were not per the contract specifications.
It claimed that the samples provided for inspection had been manipulated by Mare. The company notified the supplier and terminated the contract.
Jumra also asked Mare to instruct UBA Bank to cancel the Letter of Credit and to inform Victoria Bank of the cancellation.
However, a communication breakdown and confusion ensued and Jumra is on the verge of paying the Sh666 million for the alleged aborted oil supply deal with Mare.
According to Jumra, though UBA Bank cancelled the Letter of Credit at the request of Mare, it failed to notify Victoria Bank of the cancellation meaning the letter was still in force, and binding and Victoria had an obligation of releasing the money upon maturity of the letter.
But Mare denied that it authored any emails informing UBA that the Letter of Credit was cancelled.
This prompted Jumra to be concerned and sought the court’s intervention. Last month on March 6, 2023, Jumra rushed to court because the letter had already matured and was afraid that Victoria Bank will release the funds to Mare.
It alleged that there was fraud in email communication between it, Mare and UBA. Its advocates have since reported the issue to the Directorate of Criminal Investigations to investigate and determine genuine and fraudulent emails.
Through its director, Raju Prabhulal Shah, Jumra sought orders stopping UBA Bank from calling on the Credit Letter or demanding payment from Victoria Bank.
Mr Shah was apprehensive that his company would suffer loss if his banker (Victoria Bank) releases the funds to UBA Bank.
Jumra and Victoria Bank
But UBA Bank through its regional trade lead — East and Southern Africa, Cyprian Rono, opposed the prayer, saying the case was a scheme hatched between Jumra and Victoria Bank to avoid honouring the Letter of Credit.
The bank also denied a contestation by Jumra that it declined to cancel the Letter of Credit despite express instructions by Mare to do so.
UBA claimed that Mare informed it that it never issued such instructions and that it accused Jumra of hacking its emails and sending the said unauthorised instructions to UBA Bank.
The bank’s case was that it had discounted the Letter of Credit at Mare’s request and that Mare has never issued instructions cancelling the letter.
It accused Jumra of fraud in doctoring the correspondence and instructions and making them appear as if they had originated from Mare.
For its part, Mare supported UBA’s position that the communication purporting to cancel the Letter of Credit did not originate from it.
The parties traded accusations of fraud against each other in respect of these instructions to cancel the Letter of Credit.
UBA reiterated that it discounted the Letter of Credit based on Victoria Bank’s confirmation and assurance that it would remit the proceeds of the Letter on the maturity date.
Letter of Credit
Further that on November 23, 2022, Victoria notified UBA that Jumra and Mare had reached an agreement to settle the Letter of Credit outside the agreed terms and conditions set out in the letter.
But Mare informed UBA that there was no such agreement reached between itself and Jumra to have the Credit Letter settled outside the terms and conditions set out in the document.
The message also emphasised Victoria Bank’s obligation under the Letter of Credit to settle the amount of $4,998,500 on March 6, 2023, to the account advised.
Justice David Majanja has declined Jumra’s request to stop the release of the money to Mare saying that an injunction cannot be issued restraining a bank from honouring a letter of credit unless fraud is demonstrated.
“Jumra has not alleged fraud on the part of UBA Bank or set out particulars of fraud. Fraud is not merely the failure to do or not do something. Such failure must be accompanied by a dishonest state of mind,” said Justice Majanja.
He added that Jumra did not have any relationship with UBA and cannot issue instructions to it to cancel a Letter of Credit. BY DAILY NATION