CAK Statement on Penalizing Directline Assurance for Abuse of Buyer Power

In enforcing this mandate, the Authority has penalized Directline Assurance Company Limited (Directline) a total of KES 85,019,847.32 for abusing its superior bargaining position over two Nairobi-based automobile repair centers. Directline has also been ordered to settle the outstanding delayed payments totaling KES 6,063,235 to the two companies.

The two garage businesses -- Kilele Motors Limited (Kilele) and Midland Autocare Limited (Midland) -- are small enterprises that provide services such as panel beating, spray-painting and mechanical repairs on motor vehicles.

Directline is a general insurance provider with twenty-four (24) branches countrywide, offering a range of services, including motor vehicle insurance, as licensed under the Insurance Act Cap. 487 Laws of Kenya.

When an insured motor vehicle is damaged, the insurer commissions an assessment and, thereafter, 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 honor its invoices despite satisfactory undertaking several repair assignments, without justifiable reasons and in breach of agreed payment terms.

The two firms supplied the Authority with evidentiary information to support their allegations, including authorization 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 honour their obligations to suppliers, employees, landlords, or to invest in the growth and expansion of their businesses.

During ABP investigations, the Authority reviews the commercial relationship between the buyer (Directline) and the supplier (Kilele and Midland) to determine existence of the skewed bargaining power in favour of the powerful purchaser. The second step is determining if the buyer abused their superior position.

Guided by Sections 2 and 24A(4) of the Competition Act, and the Authority’s Buyer Power Guidelines, 2022, the Authority confirmed both issues. This determination was arrived at after Directline was granted several opportunities to respond to the allegations in line with the provisions of the Fair Administrative Action Act.

Specifically, Directline owed Midland and Kilele KES 7,616,456 and KES 5,038,094, respectively, at the time their lodged complaints. Following the Authority’s intervention in the course of investigations, the insurer partly settled the outstanding invoices, leaving a balance of KES 1,433,331.00 owed to Kilele and KES 4,719,904 to Midland.

Directline justified its conduct claiming the delay in processing the payments was occasioned by temporary inaccessibility of its bank accounts. The insurer stated it understood the importance of making timely payments, adding that it had made progress in settling the outstanding amount and committed to clearing it.

However, the insurer repeatedly failed to respond to the Authority’s communication to settle the outstanding delayed payment, or provide an update about challenges it may be facing. At least nineteen (19) formal reminders – letters, emails and phone calls -- by the Authority to the insurer were ignored, further aggravating Directline’s exposure to sanctions.

Based on the foregoing, and in line with the Authority’s mandate of sanctioning ABP in the economy, the insurance firm has been penalized KES 42,509,923.66 for each count, and ordered to honour the outstanding invoices.

In addition, the Authority has directed Directline to amend its supply contracts to comply with the provisions of section 24A (7) of the Competition Act, specifically, by providing for interest payable on late payments. The Authority has also ordered Directline desist from engaging in conduct that violates the Competition Act.

Mr. David Komei, the Authority’s Director-General, stated that the administrative action will serve as a deterrent to businesses that abuse their influential positions to disenfranchise 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 Mr. 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 honor payments for work done can destroy a business and render thousands jobless.”