Why you need to take competition law more seriously

It is now clear that the Competition Authority of Kenya (CAK) is a watchdog with a real bite and not just a bark. The competition regulator, approaching its 10th birthday, has been keen to clamp down on market activity that falls foul of the Competition Act.

When the Act came into force in 2012, the mandate of the Authority was largely understood to be the regulation of mergers ans acquisitions. At the time, the language in the legislation on merger control was so broad that the sale of a kiosk could be construed as a transaction requiring the Authority’s approval. While useful thresholds have since been introduced, certain players ignored the provisions of the Act with grave implications.

The first reported case was the acquisition of Synovate by Ipsos. On investigation, the Authority issued divestiture orders and engaged the Director of Public Prosecutions to prosecute the offenders as a result of the parties effecting the transaction without the requisite approvals.

This was closely followed by a planned acquisition of Ukwala Supermarket by Tuskys. The parties had already taken steps to implement the transaction without approval and by the time the Authority was getting wind of the deal, Ukwala and Tuskys had trampled on even more restricted trade aspects of the Act. For their transgressions, both supermarkets were subjected to substantial fines.

Ignorance of the regulatory mandate of the Authority continues to persist with Bluejay (trading as Betway) being fined Sh15 million in 2018 for implementing a series of transactions without approval.

Shortly after the Authority was established, complaints also started being filed inviting the regulator to investigate unfair competitor activity contrary to the provisions of the Act.

Further, the Authority started carrying out investigations on its own motion. The most prominent of these complaints and subsequent investigations was filed by Airtel and others against Safaricom.

The complaint related to Safaricom’s M-Pesa agent agreements which restricted the agents from offering money transfer services for competing brands. After hearings with the Authority and applications for judicial review at the High Court, the matter was settled by Safaricom agreeing to expunge all restrictive covenants in its M-Pesa agent agreements notwithstanding that the leading operator had made considerable investment to develop its agent network which its competitors would piggyback on.

A watershed moment in the enforcement mandate of the Authority was the conduct of its first dawn raid. On March 7, 2016, without any prior notice the Authority’s officials together with armed police officers searched the premises of Mea Limited as part of an investigation into alleged collusion between Mea and Yara East Africa which were reported to jointly control approximately 60 percent of the Kenya’s fertiliser market.

An application by Mea to the High Court for the investigation to be stopped on the basis that its constitutional right to fair administration had been breached by the Authority’s failure to give prior notice of the raid was dismissed. In short, the court confirmed that where a raid is justified, it is rational that such a raid is only effective where it has the element of surprise and as a result prior notice need not be given.

A leniency programme has since been introduced by the authority to cushion market players from the severe fines in the Act where they voluntarily disclose a prohibited practice in the conduct of an investigation.

In April, the authority was again in the limelight when its decision to penalise Majid Al Futtaim Hypermarkets Limited (trading as Carrefour) and order the retail chain to revise about 700 supplier agreements was upheld by the Competition Tribunal. The tribunal agreed with the authority that Carrefour had buyer power and had indeed abused it when it applied listing fees, rebates, transferred commercial risks and unilaterally delisted its supplier Orchards Limited, a probiotic yoghurt seller under the name ‘cool fresh’.

The decision has put sourcing companies on alert as it narrows the principle of freedom of contract and necessitates a review of commercial agreements to bring them in conformity with the Carrefour case. Carrefour has indicated that it will proceed to the High Court to challenge the decision of the authority and the tribunal. Given the jurisprudence from our courts on competition law however, a more pragmatic approach for Carrefour might be to negotiate a process of regularising its supplier contracts in a manner that is less disruptive to its business operations while being consistent with the Tribunal’s decision.

So, are you prancing on a compliance landmine field oblivious of the risks your business faces for non-compliance with competition law? How conversant are you with what conduct amounts to restrictive trade practices, such as abuse of dominance, abuse of buyer power, collusion, price-fixing and the like? Is the CAK (together with enforcement authorities) planning to be uninvited guests at your premises tomorrow morning? An assessment of your organisation’s compliance with competition law is important to clear any latent risks.

Mr Macharia is a manager at PwC Kenya’s Regulatory Compliance and Advisory practice