Competition Authority Ready to Snap the Whip on Abuse of Buyer Power

The Competition Authority of Kenya (CAK) has in the recent past increased its efforts in ensuring the provisions of the Competition Act are adhered to. This is evidenced by a statement issued by the CAK on 28^th November, 2018 informing the public of the establishment of a buyer power department (BPD) within its premises to exclusively handle concerns about businesses abusing their influence over suppliers.

The Competition Act No 12 of 2010 (the Competition Act) defines “buyer power” as the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose a long-term opportunity cost including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long-term cost to the undertaking or group of undertakings. Buyer power is not prohibited. It is the abuse of buyer power in a market in Kenya or a substantial part of Kenya that is specifically prohibited under the Competition Act. This is intended to protect parties with a weaker bargaining power like suppliers to supermarkets.

Examples of conduct that constitutes abuse of Buyer Power includes:

1. Delayed payment by a buyer of goods or services without justifiable reasons in breach of contractual terms;
2. unilateral termination (or threat of termination) of a commercial agreement without notice;
3. a buyers refusal to receive or return goods without justifiable reasons and in breach of contractual terms; and
4. a buyer demanding preferential terms that are unfavorable to suppliers or demanding suppliers limit products sold to competitors.

In determining buyer power, the BPD will look at:

1. The nature and determination of contract terms;
2. the payment requested for access infrastructure; and
3. the price paid to suppliers.

Industry-specific investigations

The CAK has indicated that the BPD will begin to undertake investigations in the retail sector following complaints of abuse of buyer power within the retail value chain. The implication of this is that some businesses in the retail sector may begin to receive requests for information from the BPD or worse off the BPD may raid the premises in a bid to collect the information and/or documentaion. It is therefore imperative that these businesses handle these requests carefully and seek legal advice at the earliest opportunity.

Penalties

The penalty for abuse of buyer power is a 5-year prison sentence or a fine of Kenya Shillings ten million (Kshs. 10,000,000), or to both.

The CAK may also impose an administrative penalty of up to ten percent (10%) of the undertaking’s preceding year’s turnover, or issue cease and desist orders to remedy the infringement.