By The Weekly Vision Reporter
Directline Assurance Company Limited, owned by media magnate S.K. Macharia, has been penalised a total of KSh 85,019,847.32 by the Competition Authority of Kenya (CAK) for abusing its superior bargaining position over two Nairobi-based automobile repair centres.
Directline has also been ordered to settle outstanding delayed payments amounting to KSh 6,063,235 owed to the two companies. The two garage businesses, Kilele Motors Limited (Kilele) and Midland Autocare Limited (Midland), are small enterprises providing services such as panel beating, spray painting and mechanical repairs on motor vehicles.
Directline is a general insurance provider with 24 branches nationwide, offering a range of services including motor vehicle insurance, as licensed under the Insurance Act.
According to CAK, when an insured motor vehicle is damaged, the insurer commissions an assessment and subsequently engages a garage to repair it to the client’s satisfaction.
“Typically, insurance firms maintain a panel of assessors and garage owners on a contractual basis. In 2023 and 2024, Kilele and Midland were contracted by Directline as motor vehicle repairers. In May 2024, Kilele and Midland lodged separate complaints with the Authority, alleging that the insurer had failed to honour its invoices despite satisfactorily undertaking several repair assignments, without justifiable reasons and in breach of agreed payment terms.”
The two firms supplied CAK with evidence supporting their claims, including authorisation letters, re-inspection reports, invoices, release letters, customer satisfaction notes and correspondence between the parties regarding the pending payments.
Kilele and Midland alleged that Directline’s conduct left them in a precarious financial position, rendering them unable to meet obligations to suppliers, employees and landlords, or to invest in the growth and expansion of their businesses.
During its buyer power (ABP) investigations, CAK reviewed the commercial relationship between the buyer (Directline) and the suppliers (Kilele and Midland) to determine the existence of skewed bargaining power favouring the purchaser. The second step involved establishing whether the buyer had abused this superior position.
Guided by Sections 2 and 24A(4) of the Competition Act and its Buyer Power Guidelines, 2022, CAK confirmed both issues, noting that the determination was made after Directline was given several opportunities to respond to the allegations in line with the Fair Administrative Action Act.
Specifically, Directline owed Midland and Kilele KSh 7,616,456 and KSh 5,038,094, respectively, at the time they lodged their complaints.
Following CAK’s intervention during the investigation, the insurer partly settled the outstanding invoices, leaving a balance of KSh 1,433,331 owed to Kilele and KSh 4,719,904 to Midland.
Directline justified its conduct by claiming that delays in processing the payments were caused by the temporary inaccessibility of its bank accounts. The insurer said it understood the importance of timely payments, adding that it had made progress in settling the outstanding amounts and remained committed to clearing them.
However, the insurer repeatedly failed to respond to CAK’s communication regarding the delayed payments or to provide updates on any challenges it was facing. At least 19 formal reminders, including letters, emails and phone calls, were ignored, further aggravating Directline’s exposure to sanctions.
Based on the foregoing, and in line with CAK’s mandate to sanction abuse of buyer power in the economy, the insurance firm has been fined KSh 42,509,923.66 for each count and ordered to settle the outstanding invoices.
Additionally, CAK has directed Directline to amend its supply contracts to comply with Section 24A(7) of the Competition Act, specifically by including provisions for interest payable on late payments. The Authority has also ordered Directline to desist from conduct that violates the Competition Act.
CAK Director-General David Komei stated that the administrative action will serve as a deterrent to businesses that abuse their influential positions to disadvantage their suppliers, most of whom are SMEs.
“The penalties levied are commensurate with the gravity of the offence, as well as the conduct of the accused party during the investigation. Supply contracts between parties to a commercial relationship should be equitable and the product of candid engagements,” said Komei.
“Abuse of buyer power, which cripples suppliers, defeats the country’s aspiration of promoting inclusive economic development. SMEs are liquidity-constrained enterprises. Therefore, failure to honour payments for work done can destroy a business and render thousands jobless.”
