RESTRICTIVE TRADE PRACTICES UNDER KENYAN LAW

By Joyce Karanja-Ng'ang'a Friday, January 10, 2014
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The Act defines restrictive trade practices as agreements, decisions or concerted practices by undertakings which have as their object and effect, the prevention, distortion or lessening of competition in trade in any goods or services in Kenya, or a part of Kenya. Such practices are prohibited, unless they have been exempted pursuant to the provisions of the Act.

The type of agreements, decisions or concerted practices contemplated by the Act include agreements:

  • between parties trading in competition (undertakings in a horizontal relationship);
  • between an undertaking and its suppliers or customers or both (parties in a vertical relationship);
  • which:
    • directly or indirectly fix purchaser or selling prices, or any other trading condition;
    • divide markets by allocation of customers, suppliers, areas or specific types of goods or services;
    • involve collusive tendering;
    • involve a practice of minimum resale price  maintenance (although this shall not operate to prevent a supplier or producer of goods or services from recommending a resale price to a reseller of the goods or provider of the services if it is expressly stipulated by the supplier or producer that the  recommended price is not binding, and any product, document or thing relating to any such product or service bears a price affixed or applied by the  suppliers or producer, and the words “recommended price” appear next to that price);
    • limit or control production, market outlets or aces, technical development or investment;
    • apply dissimilar conditions to equivalent trans-actions with other trading parties, as a result of which they are placed at a competitive disadvantage;
    • make the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject of the contracts; or
    • amount to the use of an intellectual property right in a manner that goes beyond the limits of legal protection.

The above list is not conclusive and any combination of undertakings that engage in any other practice which prevents, distorts or restricts competition in any other way is deemed to be engaging in a restrictive trade practice that is prohibited under the Act.

In addition, there is a presumption that a prohibited agreement or concerted practice exists between two parties if one of the parties owns a significant interest in the other or has at least one director or one substantial shareholder in common. However, this presumption may be rebutted if a party, director or shareholder concerned establishes that a reasonable basis exists to conclude that any practice in which the parties engaged was a normal commercial response to conditions prevailing in the market. For the purposes of this presumption, the term director is defined broadly and includes:

  • a director of a company within the meaning of the Kenyan Companies Act (Cap 486);
  • a trustee of a trust;

in relation to:

  • an undertaking conducted by a society, or a person responsible jointly with others for its management;
  • an undertaking conducted by an individual or partnership, the owner of the undertaking or a partner of the partnership;
  • any other undertaking, and a person responsible either individually or jointly with others for its management.

However, agreements entered into between or practices engaged in by:

  • a company and its wholly owned subsidiary or a wholly owned subsidiary of that subsidiary; or
  • undertakings other than companies, each of which is owned or controlled by the same person(s);
  • are not deemed to be restrictive trade practices within the meaning of the Act.

The Act also contains specific provisions relating to restrictive trade practices applicable to trade associations, which include:

  • unjustifiably excluding any person from a trade association if that person is carrying on or intending to carry on in good faith the trade in relation to which the association was formed;
  • the making of a recommendation by a trade  association, whether directly or indirectly, to its  members (irrespective of whether or not the members comply with such a statement) which relates to:
    • the prices charged or to be charged by such members or to the margins include in the prices, or the pricing formula used in the calculation of those prices;
    • the terms of sale (including discount, credit,  delivery, product and service guarantee terms) of such members and which directly affects prices, profit margins included in the prices or the pricing formula used in the calculation of prices.

It is possible for a member of an association to  disassociate itself entirely from the recommendations of the trade association by expressly notifying the trade association in writing of that fact, stating that it will not take action or will refrain from action of a kind referred to in an express or implied recommendation made by that trade association.

Any person who is found guilty of contravening the restrictive trade practice provisions of the Act shall be liable on conviction to imprisonment for a term not exceeding five years or to a fine not exceeding ten  million Kenya shillings , or both.

The Act permits undertakings to apply to the Competition Authority (the “Authority”) to be exempted from the above provisions in respect of any agreement,  decision or concerted practice or any category of agreement, decision or concerted practice. The application for  exemption is required to be made in a prescribed form (yet to be prescribed) and must be accompanied by any information that the Authority may reasonably require. The Authority is required to notify the public, by notice in the Kenya gazette, of the nature of the exemption sought and calling upon interested parties to submit any written representations to the Authority within 30 days of the notice. After considering the application for exemption and any representations submitted by interested parties, the Authority may either:

  • grant the exemption if it is satisfied that there are exceptional and compelling reasons of public policy as to why the agreement, decision or concerted practice ought to be excluded from the prohibitions under the Act relating to restrictive trade practices;
  • refuse to grant the exemption, notify the applicant accordingly with a statement of the reasons for the refusal; or
  • issue a certificate of clearance, stating that in its view, and on the basis of the facts, the agreement, decision or concerted practice or the category of agreement, decision or concerted practice does not constitute an infringement of the restrictive trade practice provisions of the Act.

Other factors the Authority will take into account in determining whether or not to grant the exemption include whether or not the agreement, decision or concerted practice or the category thereof contributes to or results in, or is likely to contribute to or result in:

  • maintaining or promoting exports;
  • improving or preventing a decline in the production or distribution of goods or the provision of services;
  • promoting technical or economic progress or stability in any industry;
  • obtaining a benefit for the public, which outweighs the lessening of competition that would result, or that is likely to result from the agreement, decision or concerted practice or category thereof.

The Authority is entitled to grant an exemption subject to any conditions and for such period as it may deem fit. In addition, the Authority can revoke or amend any  exemption it has granted if it is satisfied that it was granted on materially incorrect or misleading information,  there has been a material change of circumstances since the exemption was granted, or a condition of the exemption has not been complied with.

Note: The information included in this article was correct at the time it was written and uploaded to this website.