Malawi’s Prison Service has found itself in the dock after a supplier claimed payment of overdue funds. And, the supplier demanded, those funds were overdue and now had to be paid at interest of 10% above the bank’s rate.
The prison service denied that it owed the money claimed by the company, however, and also disputed the interest rate. Judge President of Malawi’s commercial court, John Katsala, heard the dispute which concerned the ironically named Reliance Trading Company. Reliance claimed K5,388,125 (more than R105 000) from the government for several tyres and nine tubes that it had supplied to the prison service. According to Reliance, the two sides made an agreement in February 2018 in terms of which the prison service bought the tyres and tubes on credit.
Reliance duly delivered the goods and they were accepted by the prison service. A fortnight later Reliance invoiced the authorities for the amount it claimed for the goods provided. The company also said it had been clearly indicated to the prison service that interest on all outstanding money would be charged at 10% above the bank’s base rate. Despite these agreements, however, no payment had been made.
The court heard that the value of the goods supplied could not have amounted to the sum claimed by Reliance. In fact, according to the Attorney-General, appearing for the prison service, the two sides had not agreed on the prices to be paid in the first place. Having delivered the tyres and tubes, Reliance had ‘inflated the prices of the goods with the intention of defrauding the Malawi Government’. The AG said the delay in payment was because the two sides were still trying to reach an agreement over the price due for the goods. Further, Reliance was not entitled to interest since the delay in payment resulted because the company had charged such inflated prices, that even two years later, the prices were still ‘way above’ current market rates for the goods.
As far as Judge Katsala was concerned, the main issue to resolve was whether there had been prior agreement on the price that would be paid for the goods. Evidence showed that the two sides had had dealings before, and in this case, the request for the goods was made orally. Further, it seemed the parties did not agree before delivery on the price that would be paid. While Reliance claimed there was agreement and that it had provided a written quotation to the prison service, the judge said he did not find this evidence ‘plausible’.
Where was a copy of the quotation Reliance had allegedly submitted to the government, asked the judge. Copies had been produced of the delivery note and of the invoice, ‘but not the quotation’. Nor had any reason been given for the failure to produce the quotation. ‘In my judgment, the reason is simple. It does not exist. I am sure if such quotation existed, it would have been produced.’
Further, the conduct of the parties suggested that no prices had been agreed on in advance. If there had been agreement, said the judge, the goods would have been delivered with a delivery note and an invoice. But there had been no invoice provided with delivery of the goods; it only arrived 15 days later. If the prices had been agreed in advance as Reliance claimed, why did it take more than two weeks to produce an invoice?
The judge therefore found the goods were delivered before the parties had agreed on the prices. It was only after the invoice arrived that the prison service discovered what it was being charged. Once it saw the invoice, the prison service formed the view that the charges were ‘inflated, and way above the prevailing prices’ for tubes and tyres of this type.
The AG gave the court quotations for tyres like those delivered by Reliance. The quotes were obtained a year after Reliance delivered the goods. While Reliance invoiced the tyres at K590 000 each in 2018, their 2019 price was between K275 000 and K295 000 each. In other words, the price claimed by Reliance was twice as much as the highest quoted price a year later.
Legally, if, as happened here, the parties failed to agree on a price, this on its own would not make the agreement unenforceable. In such a case, a reasonable price had to be paid. This should be the approach in the case of the claim by Reliance, said the judge.
'More than double'
‘I do not find the prices charged … to be reasonable. It is clear that (Reliance) is trying to make the most of the parties’ failure to agree on the prices in advance. ‘I do not find that to be commendable commercial behaviour. This court cannot sanction that kind of business conduct.’
Allowing for currency depreciation, it would be fair to fix the tyres at the price quoted a year after delivery. Since the tyres had been invoiced at more than double the highest quoted price a year later, it was reasonable to assume that the tubes were also charged at double their value. In total, said Judge Katsala, Reliance should be paid K2 530 962.50 instead of the K5 3881.25 originally claimed.
As to the interest rate claimed, Reliance was due no interest on the invoiced amount for the period before the judgment of the court. This was because the court had found the claimed amounts were grossly inflated and then resolved the dispute between the two parties by deciding what Reliance should actually be paid.
‘My view is that it is not open to a party to just wake up one morning and say that he is entitled to compound interest at 10% above the commercial bank lending rate.’ He therefore found that Reliance was owed K2 530 962.50 and that interest at the ruling commercial bank lending rate would accrue if the full amount was not paid within 14 days.
Apart from scuttling an attempted fraud, the dispute also showcased the efficiency and speed of the commercial court. Thanks to timely support by the World Bank, Malawi's commercial court has seen a considerable decrease in the backlog of its cases, and 2017 Judge Katsala boasted that the average time taken to resolve commercial matters had decreased from 350 days to 97 days.
* 'A matter of justice', published by Legalbrief, 28 January 2020