The High Court of Malawi Commercial Division in Lilongwe has fined China State Construction Engineering Corporation Limited $2 million (about K1.7 billion) for breach of contractual agreements on two projects in the country.
Court records show that the company breached two contractual agreements with local firm Fisd Company Limited in two projects at Mzuzu University library and Karonga Water Project.
In his ruling, High Court Judge Ken Manda observed that the Chinese company brought Fisd Company Limited on board as a figurehead and solely for the purpose of winning government contracts in the country.
The two firms, according to an agreement we have seen and as confirmed by the court ruling, agreed that the Chinese company would—between September 11 2020 and June 2021—subcontract Fisd work equivalent to no less than three percent of main contract value.
But after getting the two contracts, the records show, the Chinese company sidelined the local firm.
Fisd sued China State Construction Engineering Corporation Limited and sought redress from the court.
In a judgement dated September 15 2021, Manda noted that the parties had a valid strategic co-operation that for all construction works awarded to the Chinese company, Fisd would be offered subcontracts.
The judge said: “Rather, what seems to come out from the facts before me is that the defendant brought the claimant on board as a figurehead and solely for the purpose of winning government contracts in this country.
“I say this in view of the fact that while the defendant has made assertions that they have been willing to amicably discuss with the claimant, they are at the same time saying that the contract between the parties was illegal and that it had an invalid penalty clause.”
Manda admonished the Chinese firm for stating that the agreement did not have a time-frame when the contract started on September 11 2020 to June 2021.
He said: “In view of this, and also considering the fact that there is clearly frustration such that seemingly the parties cannot work together, the best option would be for the defendant to pay off the claimant the sums equivalent of Malawi kwacha of one million dollars [$1 million] for each of the two projects.
“I would, thus, declare that the defendant should pay the claimant the sum the equivalent in Malawi kwacha terms of two million dollars [$2 million], plus the costs of this action.”
In an interview on Wednesday, Fisd lawyer Gift Nankhuni said they will push relevant authorities to take further action against the company.
He said: “We are happy for our client. And we hope to push NCIC [National Construction Industry Council] and the courts to de-register them for operating in Malawi without following the laws of the country.
“It is our hope that NCIC will properly act within its mandate given the facts of the case.”
But speaking for China State Construction Engineering Corporation Limited on Wednesday, Brad Chen said they have appealed the matter in the Malawi Supreme Court of Appeal.
He said the company has since obtained an order putting aside implementation of the High Court ruling.
Dated September 30, the stay order reads: “Upon hearing counsel for the applicant, and upon reading the affidavit filed herein, it is hereby ordered and directed that execution of the ruling of the High Court [Commercial Division] dated 15th September 2021, be stayed and it is hereby stayed on following conditions:
“That the applicant does file inter-partes summons for stay of execution within 14 days from the date of this order; the costs of the application be in the cause.”
The NCIC register of firms shows that 95 percent of civil, building and electrical contracting firms registered by April 2014 are small and medium enterprises (SMEs) whose value is between K5 million and K500 million while the remaining five percent is in the K1 billion and unlimited categories.
The court noted that despite the heavy presence of local firms, participation in the construction industry is dominated by foreign firms which only constitute 2.8 percent of the registered firms as they take 85 percent of the construction business by value. On the other hand, the local firms share the remaining 15 percent.
Section 10 of the NCIC Subcontracting and Joint Ventures by Foreign and Malawian Firms Order of 2014 stipulates that a member practice, whether in a joint enture or subcontract arrangement, shall be responsible for 30 percent of works by volume and value.