The Carrefour Case
A French supermarket in Kenya was found to have abused its buyer power
Housekeeping
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Majid Al Futtaim Hypermarkets Limited v Orchards Limited (the Carrefour case)
A few months ago, the Competition Authority of Kenya (CAK) Tribunal made its first ruling on abuse of buyer power, and well, the decision has raised more questions than answers regarding the regime.
Orchards Limited alleged that Majid Al Futtaim Hypermarkets Limited (trading as Carrefour) abused its buyer power when purchasing their branded probiotic yogurts. Among the allegations of abuse included: the unilateral termination of their contract, refusal to take delivery of the yoghurts, transfer of commercial risks and costs; such as deploying Orchard staff to sell the products at Carrefour stores, and a requirement to pay rebates. They also argued that Carrefour was gaining preferential treatment by requesting free samples. To add fuel to the fire, Carrefour would later sell these free samples at their stores. Naughty right? The CAK and after an appeal, the Tribunal, agreed and ruled against Carrefour. They held there was an abuse of buyer power in contravention of the Competition Act 2010 and the relevant guidelines.
The Tribunal upheld some remedies, pretty much agreeing that Orchards were not crying over spilt milk (cheesy, I know, but excuse me as the theme here is dairy). They ordered for amendments to the offending terms in the contract, a refrain from including such terms in future contracts and Carrefour to refund on the rebates and any loss incurred as a result of their actions. Importantly, Carrefour has appealed this case to the High Court and so the remedies ordered by the Tribunal have been stayed. Nonetheless, this decision by the Tribunal has raised several questions regarding the operation of abuse of buyer power in Kenya.
Firstly, the decision of the Tribunal is curious in that it fails to set a proper standard as to how buyer power is established. It is notable that in Kenya, abuse of buyer power as a cause of action was separated from abuse of dominance in 2016. This effectively means that dominance is no longer required, and as such, no assessment of market share is necessary as is the case in other jurisdictions.1 Nonetheless, the guidelines require the Tribunal to first find a relevant market.
This ruling, from the face of it, draws its conclusion of buyer power simply by an allegation of dependence on Carrefour as a stock point of its niche products. It was argued that given Orchards previously sold 40% of its probiotic yoghurt to Nakumatt, which eventually collapsed and Carrefour took over majority of their stores, there was a level of dependence. Not only was this premised on an assumption in which evidence was not furnished to Carrefour, but more importantly, the relevant market was not identified. This leaves the question open as to which market such a case touches on, how narrowly a market can be defined, and what assessment would lead to the conclusion that buyer power is held in a relevant market. This was neither assessed holistically, nor a solid standard or guidance on the same provided.
Secondly, it is quite alarming that very little was addressed regarding the applicable thresholds for the abuse of the said buyer power. In its decision, the Tribunal did not indicate whether the very fact of an abuse is enough to contravene the law, or whether there had to be a level of severity. The reason such an analysis is vital is that it advises buyers, and sellers equally, on the limits of negotiations and their rights when reaching contractual agreements. Some terms may be common business practice in particular industries and may also be adopted in contracts, not through an abuse of any power, but merely by a supplier getting into a bad bargain.
The analysis of thresholds would also have presented an opportunity to discuss issues regarding potential for foreclosure and any resultant harm to consumers, which would help us have a clearer understanding of the essential purpose of the regime in Kenya and the decisions reached.
It is worth pointing out that this decision was hailed by suppliers in the retail sector, particularly in the face of previous collapses of supermarkets in Kenya leading to unresolved or delayed payments to creditors.2 In view of the focus to prevent abuse by buyers in the retail sector, following consultation with key stakeholders, the CAK have gazetted the Retail Trade Code of Practice (the Retail Code/the Code).
According to this Code, an abuse can be proved by showing that a retailer required the supplier to take an action which the supplier did not agree to, as opposed to through the use of ordinary commercial pressures. The Code requires that a Buyer-Supplier Agreement be in writing and must contain terms of payment, payment dates, interest rates payable on late payment, conditions for termination and the dispute resolution mechanism. In a similar vein, it guides relations between the buyer and supplier in regards to consumer complaints, in-store damage, listings and delisting’s, promotions; among other issues likely to arise in the retail sector. In addressing issues that may arise in this space, the Code has taken a further step by creating the Retail Trade Dispute Settlement Committee, where aggrieved parties can turn to as an alternative or as a first resort before taking the court route.
Whilst the recent Retail Code is a welcomed move by the Authority, this can only be said when guiding the relations between buyers and suppliers in the retail sector. Nonetheless, guidance regarding the handling of similar cases in other sectors may not be resolved without the High Court revisiting the key issues discussed in this case. This ought to be in the form of a clarification by the Tribunal on the standards and threshold required for the abuse of buyer power. Otherwise, lack of proper parameters shall have the effect of disrupting commercial arrangements, as there remains to be wide uncertainty in the market.
It would therefore be prudent for the High Court to pay keen attention to this sticky situation and use the yoghurt case to clarify the regime.
Before you go…
…here are some recent developments in the world of competition law:
Gun-jumping: The Common Market for Eastern and Southern Africa Competition Commission (CCC) has issued its first fine for a failure to notify a merger, otherwise known as gun-jumping. Helios Towers failed to notify its acquisition of Madagascar Towers and Malawi Towers. And this attracted a fine of 0.05% of their combined 2020 turnover, which was just over US$100,000. The CCC awarded such a small fine because, inter alia, the breach was unintentional, the parties cooperated with the CCC, and they were first time offenders. Still, an important signal has been sent to the market: the next offenders might not be so lucky.
Safaricom & Vodafone: The European Commission (EC) has cleared a joint venture between Safaricom, its parent, Vodafone, and Sumitomo (a Japanese company), to enter Ethiopia. The EC concluded that the joint venture did not pose any competitive concerns, and now, Kenya’s largest telco can start operations in Ethiopia. But we have to ask: why did the EC play a role in determining whether an African company can expand into an African country? Well, the EC was notified under its simplified procedure which was created for mergers that do not raise competition concerns in Europe but the entities involved (in this case Vodafone and Sumitomo) have some presence in Europe. And ever since Altice—a Dutch cable and telecoms company—was fined €124.5 million by the EC for gun-jumping, no one is messing around.
App Stores: Recent bills from South Korea and the United States are attempting to regulate App Stores. Among other things, the bills aim to prevent App Store owners (such as, Apple and Google) from forcing apps to use their in-app payments system. Apps will now be able to re-route users to third party payment systems. Why? Well, previously, Apple demanded a 30% commission for all in-app purchases and payments, and when Epic Games (the creator of Fortnite) attempted to use its own payments system to bypass this commission, it was kicked off the Apple App Store. Elon Musk even criticized this anticompetitive act. Legislators have now tuned in, and a District Judge in the US also recently ruled against Apple’s practice.
An example of a jurisdiction where dominance is a requirement is South Africa.
For instance, Nakumatt collapsed last year and owed Ksh 2 billion to its suppliers.