On the Nature and Extent of State Compensation for Unlawful Administrative Action in Malawi

 A Common-Law and Comparative Analysis

 1. Introduction and framing of the issue

I write this opinion from the standpoint of our law in Malawi, which is grounded in English common law and shaped by constitutional principles of legality, accountability, and the protection of public resources. The immediate context is the recent decision of the Malawi Supreme Court of Appeal in Finance Bank of Malawi Limited (in Voluntary Liquidation) v Reserve Bank of Malawi & Another (MSCA Civil Appeal No. 21 of 2016), delivered on 3 February 2026.

The issue addressed here is not whether unlawful administrative action should attract judicial scrutiny. That proposition has now been conclusively settled by the Supreme Court. The issue is whether, and to what extent, a finding of unlawfulness justifies monetary compensation, particularly where the sums claimed are large, speculative, and potentially destabilising to the public fiscus.

In my view, and consistent with common-law authority, a careful distinction must be maintained between a finding of illegality and an entitlement to damages. Failure to maintain that distinction risks converting public law into a mechanism for private extraction rather than a system of accountability. That risk is neither theoretical nor remote, particularly in claims arising from regulatory decisions in the financial sector.

 2. The constitutional and statutory context in Malawi

In our law in Malawi, administrative action is subject to constitutional control. Sections 43 and 44 of the Constitution guarantee lawful and procedurally fair administrative action and empower courts to grant appropriate relief where those guarantees are breached. The Supreme Court of Appeal has now affirmed, in the Finance Bank case, that regulatory decisions affecting a banking licence constitute administrative action attracting constitutional protection.

However, neither section 43 nor section 44 creates an automatic right to monetary compensation. The Constitution speaks of “appropriate relief”, a formulation that necessarily requires courts to exercise judgment, proportionality, and restraint, particularly where public resources are implicated.

At the statutory level, regulatory powers in the financial sector are exercised under legislation such as the Banking Act and the Reserve Bank of Malawi Act. As the Supreme Court recognised, section 10 of the Banking Act establishes a two-stage process involving a recommendation by the Reserve Bank of Malawi and a decision by the Minister responsible for finance. The purpose of this framework is not to protect the commercial success of individual banks, but to safeguard depositor interests, prudential stability, and confidence in the financial system.

Any award of compensation arising from unlawful regulatory action must therefore be interpreted in light of that statutory purpose. Remedies that undermine systemic stability or expose the State to indeterminate liability are, in my view, inconsistent with legislative intent and with orthodox principles of statutory interpretation.

 3. English common law: illegality does not itself sound in damages

Our law in Malawi inherits the English common-law position that unlawful administrative action does not, by itself, create a cause of action for damages. This principle was firmly established in O’Reilly v Mackman [1983] 2 AC 237 (HL), where the House of Lords made clear that public law remedies exist to control the exercise of power, not to compensate private loss unless a recognised cause of action exists.

That position was reinforced in X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL), where the House of Lords warned against expanding State liability in a manner that would divert public resources, encourage defensive administration, and impair effective governance. The Court emphasised that not every failure of public administration should attract a private law remedy.

This restraint is particularly evident in cases involving financial regulation. In Three Rivers District Council v Bank of England (No 3) [2001] UKHL 16, the House of Lords held that regulators do not owe duties to protect individual commercial interests and that liability for economic loss requires proof of bad faith or targeted misconduct. Mere unlawfulness or regulatory error is insufficient.

In my view, these principles form part of our law in Malawi and remain fully applicable at the damages-assessment stage following the Finance Bank judgment.

 4. South African jurisprudence: policy limits on compensation

South African law, which shares deep roots with English common law and operates within a constitutional framework comparable to Malawi’s, offers particularly instructive guidance.

In Telematrix (Pty) Ltd v Advertising Standards Authority SA 2006 (1) SA 461 (SCA), the Supreme Court of Appeal held that even negligent and unlawful conduct by a public body does not automatically attract liability. The Court explained that “wrongfulness” is a normative inquiry informed by public policy, including the need to avoid indeterminate liability and to preserve the effective functioning of public institutions.

The Constitutional Court’s decision in Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC) is even more directly relevant. The Court held that breach of administrative justice does not entail compensation for loss of profits or lost opportunities, warning expressly against transforming public-law review into a mechanism for private enrichment at public expense.

South African courts have consistently refused to award damages that would encourage opportunistic litigation, strategic delay, or speculative claims against the State. That reasoning is, in my view, entirely consistent with our law in Malawi and should be regarded as persuasive authority in the assessment of damages following the Finance Bank decision.

 5. United States law: illustration of common-law restraint

While Malawi is not a United States jurisdiction, American doctrine illustrates the outer boundary of common-law caution in this area. Under the Federal Tort Claims Act, claims arising from discretionary regulatory functions and pure economic loss are generally excluded.

In FDIC v Meyer 510 U.S. 471 (1994), the United States Supreme Court emphasised that government liability must be tightly confined, warning that broader liability would paralyse regulation. American courts almost never award long-term lost profits or business-failure damages against regulators. The underlying principle is straightforward. Business risk remains with business, not with the taxpayer.

 6. Common-law constraints on compensation applicable in Malawi

Drawing these authorities together, several constraints emerge clearly and should, in my view, govern any award of compensation under Malawian law.

First, compensation must be strictly limited to loss that is directly caused by the unlawful act, reasonably foreseeable at the time, and proven by reliable and contemporaneous evidence. The Supreme Court entered judgment on liability only. It did not endorse any particular theory of loss. Counterfactual narratives about what might have occurred over many years do not meet the required legal standard.

Second, there is no basis in common law for compensating speculative or future profits. The loss of a banking licence removes a permission to operate. It does not confer a right to guaranteed success or continued profitability. Claims based on projected growth, comparisons with other institutions, or hypothetical survival through future economic cycles are legally unsustainable.

Third, the duty to mitigate loss is decisive. Our law, consistent with English and South African authority, is clear that losses which could reasonably have been avoided are not recoverable. Where claimants redeployed capital elsewhere, such gains must be taken into account. Where they chose not to act, prolonged inactivity cannot be laid at the door of the State.

Fourth, courts are entitled, and in public-law cases obliged, to impose temporal and monetary limits. Compensation should be confined to a defined and provable transitional period and strictly limited to loss that is established on reliable evidence. Where proof does not support substantial loss, compensation must be correspondingly modest or nil. Such limits do not contradict the Supreme Court’s finding of unlawfulness. They give proper effect to it.

 7. Abuse of legal process and the role of the courts

In our law in Malawi, as in English and South African law, courts possess an inherent power to prevent abuse of legal process. This power does not depend on allegations of impropriety. It is concerned with outcomes and systemic effects.

In Hunter v Chief Constable of the West Midlands Police [1982] AC 529 (HL), the House of Lords held that courts must prevent proceedings that would bring the administration of justice into disrepute. Similarly, in Beinash v Ernst & Young 1999 (2) SA 116 (CC), the South African Constitutional Court affirmed that abuse of process exists where litigation is objectively inconsistent with the proper purpose of judicial proceedings.

In my view, these principles apply squarely in the Malawian context at the damages-assessment stage. Where claims against the State seek compensation far beyond provable loss, the risk is not merely fiscal. It is institutional. The integrity of the courts depends on disciplined remedies that uphold legality without enabling strategic or opportunistic exploitation of public-law processes.

 8. Conclusion

For these reasons, I am of the considered view that a principled Malawian approach, consistent with English common law and supported by South African and American authority, is to affirm illegality where it is established, while confining compensation to strictly provable loss. Speculative claims, future profits, and open-ended liability must be excluded. Rigorous application of causation, mitigation, and proportionality is not hostility to the rule of law. It is essential to its preservation.

Such an approach respects the Supreme Court of Appeal’s judgment, safeguards public finance, and ensures that the law remains a tool of justice rather than extraction.

 Greenwell Matchaya, PhD, LLB

Economist and Legal Analyst
Common-law systems, public finance, and regulatory governance

Disclaimer

This opinion is expressed solely in my personal capacity. The views set out herein are my own and do not represent, and should not be attributed to, the views of any institution or organisation with which I may be associated, directly or indirectly.

It is offered as a contribution to legal and policy discourse on the development of Malawian law and the strengthening of public institutions. Nothing in this opinion is intended as legal advice to any party or as advocacy for any litigant.

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