By Michael-James Currie
In a potential first, Malawi’s Competition and Fair Trade Commission’s (CFTC) Chief Executive Officer, Ms Charlotte Malonda, recently announced that the CFTC is investigating a UK-based supplier of textbooks, Mallory International, for alleged cartel conduct. Mallory had partnered up with a local company, Maneno Books Investments, as part of a joint venture, called “Mallory International JV Maneno Enterprise”. In addition, other companies also being investigated include Jhango Publishers, South African based Pearson Education Africa, Dzuka Publishing Company and UK based Trade Wings International.
The investigation follows complaints received by the Human Rights Consultative Committee as well as a number of its constituent civil society organisations and NGOs.
The allegations include price fixing and collusive tendering vis-à-vis tenders issued by the Malawian government for the supply of pupils’ text books.
Section 33 of the Competition and Fair Trade Act prohibits collusive tendering and bid rigging per se. Furthermore, a contravention of section 33 is an offence in terms of the Act carries with it not only the imposition of an administrative penalty, which is the greater of the financial gain generated from the collusive conduct or K500 000, but also criminal sanctions, the maximum being a prison sentence of five years, notes Andreas Stargard, a competition attorney:
“The Malawian competition enforcer, under Ms. Malonda’s leadership, has shown significant growth both in terms of bench strength and actual enforcement activity since her involvement began in 2012.”
“The present price-fixing investigation began as a result of complaints brought by HRCC, a human-rights network of 90 civil-society organisations. Together with several NGOs, they evidently felt that the CFTC was the most competent domestic enforcer with long-arm jurisdiction and potential criminal sanctions at their disposal; and in Ms. Malonda — whose personal C.V. notably also includes prior human-rights law experience — they have found an effective champion of their cause. Based on some of the complainant’s testimony, the alleged conduct goes back over a decade and included collusion with Ministry of Education staffers and even direct intimidation of potential competitors not to bid on the government’s tenders…”
The Nyasa Times quoted the CFTC head as confirming that the agency had “received a few complaints about allegations of a cartel and other procurement malpractices, hence our commencement of the investigations to get the bottom of the matter.”
Based on the language of Section 50 of the Act suggests that the sanctions for committing an offence in terms of the Act requires the imposition of both a penalty and a five year prison sentence. Although not aware of any case law which has previously interpreted this provision, the wording of the Act is particularly onerous, particularly in light of the per se nature of cartel conduct.
The Act is not clear what “financial gain” means in this instance and whether the penalty is based on the entire revenue generated by the firm for the specific tender (allegedly tainted by collusion) or whether it applies only to the profit generated from the project. Furthermore, it is unclear how this would apply to a co-cartelist who did not win the tender. The Act may be interpreted that the “losing bidder” is fined the minimum amount of K500 000 which equates to appox. USD 700 (a nominal amount) while the “winner” is penalised the value of the entire tender value (which would be overly prejudicial, particularly if turnover and not profit is used as the basis for financial gain).
Although the investigation has only recently commenced and no respondent has admitted to wrong doing nor has there been a finding of wrongdoing, this will be an important case to monitor to the extent that there is an adverse finding made by the CFTC. Unless the Malawian authorities adopt a pragmatic approach to sentencing offending parties, section 50 of the Act may significantly undermine foreign investment as a literal interpretation of the Act would render Malawi one of the most high risk jurisdictions in terms of potential sanctions from a competition law perspective.
It may also result in fewer firms wishing to partner up with local firms by way of joint ventures as JV’s are a particularly high risk form of collaboration between competitors if there is no clear guidance form the authorities as to how JV’s are likely to be treated from a competition law perspective.
[Michael-James Currie is a competition lawyer practicing competition law across Sub-Saharan Africa. To get in touch with Michael-James, please contact the editors of AfricanAntitrust]