A NEW DAWN FOR THE BUYER-SUPPLIER RELATIONSHIP IN KENYA
Pursuant to its mandate under section 24A of the Competition Act, No. 12 of 2012 (Act), on 11 June 2021, the Competition Authority of Kenya (Authority) published the Retail Trade Code of Practice (2021 Retail Code) in the Kenya Gazette to govern the relationship between buyers and suppliers.
This is not the first industry attempt to publish such a code. In 2018, the Ministry of Industry, Trade and Cooperatives together with other stakeholders being the Retail Trade Association of Kenya (RETRAK), the Association of Kenya Suppliers (AKS) and the Kenya Association of Manufacturers (KAM), published a similar code (2018 Code). However, compliance with the 2018 Code was voluntary. We therefore consider that it may not have fundamentally impacted the buyer-supplier relationship in Kenya.
The 2021 Retail Code is substantively similar to the 2018 Code and is aimed at governing specifically the relationship between retailers and suppliers, establishing the key considerations that should be factored in when retailers and suppliers are negotiating their contracts and the process of appeal from decisions of the Retail Trade Dispute Settlement Committee (discussed further below). It also establishes the Retail Trade Committee (Prompt Payment Committee), which was not featured in the 2018 Code.
The 2021 Retail Code defines a retailer as any person carrying on a business in Kenya for actual retail of goods for the retail market as a supermarket, hypermarket or self-selection store and a supplier as any person carrying on (or actively seeking to carry on) a business in the direct supply to any retailer of goods for resale in the Kenyan market, and includes any such person established anywhere in the world.
When it comes to buyer-supplier contracts, the 2021 Retail Code provides that recorded supplier agreements or Joint Business Plans must contain the following terms:
- the terms of payment;
- the payment date;
- the interest rate payable on late payment;
- the conditions for termination and variation of the contract with reasonable notice; and
- the mechanism for the resolution of disputes.
Noting that pricing and payment terms are crucial issues in buyer-supplier contracts, the 2021 Retail Code provides key guidance on late payments, disputed invoices, supplier obligations on promotional activities and other marketing costs, the treatment of damaged goods, payments for better positioning of goods, treatment of consumer complaints and duties in relation to de-listing. The overarching theme is that these price and payment terms should be agreed among the parties and specifically provided for in the buyer-supplier contract. In this regard, the Authority has published a sample buyer-supplier agreement for both the provision of goods and services on its website to serve as a guide to buyers and suppliers.
The 2021 Retail Code also establishes two bodies to govern its implementation namely: the Retail Trade Committee (Trade Committee also referred to as the Prompt Payment Committee) and the Retail Trade Dispute Settlement Committee (Dispute Committee).
The Trade Committee will consist of the Chairpersons and the Chief Executive Officers of RETRAK, KAM and AKS. The Trade Committee’s primary mandate is to assess the implementation of the 2021 Retail Code. It will meet on a quarterly basis and will report any issue that is not resolved to the Dispute Committee.
The Dispute Committee will serve as the dispute resolution body for all disputes arising under the 2021 Retail Code. The Dispute Committee shall consist of seven (7) persons; two (2) persons nominated by RETRAK, two (2) persons nominated by KAM, one (1) person nominated by AKS, one (1) person nominated by the Council of Governors and one (1) person nominated by the Ministry of Trade. The quorum for the Dispute Committee will be any five (5) members and its decisions will be made by consensus. The Dispute Committee’s decisions shall be binding on all parties and appeals to the decisions of the Dispute Committee shall lie with the Authority. It is important to note that while the Dispute Committee is the initial forum for redress for all disputes arising under the 2021 Retail Code, parties are not precluded from seeking redress from the judiciary.
While it is still in its early days of implementation, the publication of the 2021 Retail Code is a clear sign that the Authority is keen on enforcing the abuse of buyer power provisions of the Act. We recommend that buyers and suppliers carry out audits of their contracts to ensure that they are in compliance.