Majid Al Futtaim Hypermarkets Limited v Competition Authority of Kenya & another [2021] eKLR

Key Facts

Transaction Type

Issues

• The Tribunal examined whether the 1st Respondent's investigation and decision-making process adhered to legal procedures, including providing the Appellant with evidence, ensuring a fair hearing, and complying with the Fair Administrative Action Act.
• The Tribunal evaluated whether the 1st Respondent's reliance on non-statutory Buyer Power Guidelines was permissible, concluding they are non-binding policy documents and not subject to the Statutory Instruments Act.
• The Tribunal determined whether the 1st Respondent had the legal power to investigate the Appellant's abuse of buyer power prior to 31 December 2019, considering the Competition Act's amendments and the principle of legality.
• The Tribunal assessed whether the 1st Respondent's use of documents predating the 2016 buyer power provisions in the Competition Act was lawful, finding the analysis focused on 2017–2019 and did not contravene the Act.
• The Tribunal analyzed the Appellant's conduct, including rebates, delisting, and transferring commercial risk, to determine if it constituted abuse of buyer power under the Competition Act.
• The Tribunal considered if using international best practices from other jurisdictions was lawful, noting they are persuasive in the absence of local precedents and the Appellant's inconsistent use of foreign decisions.
• The Tribunal reviewed the 1st Respondent's orders for reasonableness, modifying requirements for prior approvals while upholding obligations to amend contracts and refund rebates.
• The Tribunal ruled that each party would bear their own costs for the appeal, dismissing claims of procedural bias and upholding the Appellant's right to self-representation.

Holdings

• The Tribunal found that the 1st Respondent had power and authority to investigate abuses of buyer power prior to 31st December 2019, as the legal framework existed under the Competition Act, 2010, and the 1st Respondent's mandate included enforcing compliance with the Act.
• The 1st Respondent did not err in relying on Buyer Power Guidelines and international best practice, as these were consistent with the Act's objectives and provided interpretive guidance.
• The Appellant was determined to have buyer power in relation to the 2nd Respondent, which was abused through the application of rebates, refusal to accept deliveries per LPO specifications, and transfer of commercial risk. However, there was no proof of unilateral termination of the 2019 supply agreement or influencing the 2nd Respondent's procurement costs.
• The blanket amendment of supply agreements was upheld as necessary to align with the Act's requirements, particularly Section 24A (5). However, the requirement for prior approval to reject deliveries was set aside, as it would be cumbersome and governed by contract law.
• The 1st Respondent's decision to require prior approval for merchandiser deployment was set aside, as it was deemed unreasonable and not necessary under the law. The Appellant was not found to have abused buyer power in this regard.
• The 1st Respondent's process was found to comply with due process, as the Appellant was provided evidence, given opportunities to respond, and the proceedings adhered to the Act and FAA Act. The Appellant's claims of bias and procedural unfairness were rejected.
• The financial penalty of Kshs 124,768 and rebate refund of Kshs 289,482 were upheld, while the damages claim for unilateral termination (Kshs 130,856) was set aside due to insufficient evidence linking costs to the 2019 contract.

Remedies

• Each Party shall bear its own costs.
• The Order for the refund of rebates deducted from invoices of the 2nd Respondent for the years 2017, 2018 and 2019 amounting to Kenya Shillings Two Hundred and Eighty-Nine Thousand, Four Hundred and Eighty-Two (K.Shs. 289,482) is hereby upheld and the same is to be paid within the next 30 days hereof.
• The requirement for the 1st Respondent's prior approval before rejecting delivery of goods by the Appellant from suppliers is hereby set aside.
• The Order for the payment of financial penalty of ten percent (10%) of the Appellant's gross annual turnover in Kenya from its Carrefour Franchise from the sale of Cool Fresh Yoghurts for the year 2018 in the sum of Kenya Shillings One Hundred and Twenty-Four Thousand, Seven Hundred and Sixty-Eight (K.Shs. 124,768) is upheld the same to be paid within the next 30 days hereof.
• The Order to pay to the 2nd Respondent the sum of Kenya Shillings One Hundred and Thirty Thousand, Eight Hundred and Fifty-Six (K.Shs. 130,856) for loss arising from unilateral termination of the supply agreement for the year 2019, being cost of procurement of material for exclusive use for the Appellant's orders is hereby set aside.
• The Appellant shall amend all current supply agreements relating to its Carrefour Hypermarkets in Kenya within the next thirty (30) days hereof with a view to expunging all offending provisions, specifically clauses that provide for, lead to or otherwise facilitate abuse of buyer power, including but not limited to the: (a) application of listing fees, (b) application of rebates, (c) transfer of commercial risk to the supplier, and (d) unilateral delisting of suppliers.
• The requirement for the 1st Respondent's prior approval before deployment of merchandisers to the Appellant's stores is hereby set aside.

Monetary Damages

Legal Principles

• The Tribunal evaluated the 1st Respondent's compliance with natural justice principles, determining that the Appellant was provided with sufficient documents and procedural opportunities to respond, despite claims of procedural impropriety and inadequate timelines.
• The Tribunal emphasized the Rule of Law, requiring that the Competition Authority of Kenya's investigative actions be grounded in statutory authority. It found the Authority had legal power to investigate buyer power abuse in 2019, pre-dating the 2019 amendment, based on existing provisions in the Competition Act and the Interpretation and General Provisions Act.

Precedent Name

• Baker v. Canada (Minister of Citizenship & Immigration)
• Evans -Vs- Bartlam
• Republic v Cabinet Secretary, Ministry of Agriculture, Livestock & Fisheries; Cabinet Secretary, Ministry of Industry, Trade & Co-operatives (Interested Party) Tanners Association of Kenya (Suing through its Chairman Robert Njoka Ex Parte Applicant
• Michelin v Commission
• Republic v National Environmental Management Authority
• Kenya Revenue Authority vs. Menginya Salim Murgani
• Republic v Anti-Counterfeit Agency Exparte Caroline Mangala t/a Hair Works Saloon
• Republic v Fazul Mahamed & 3 others Ex-Parte Okiya Omtatah Okoiti
• Russel vs. Duke of Norfork
• Republic v National Police Service Commission Exparte Daniel Chacha Chacha

Key Disputed Contract Clauses

• The Appellant's practice of returning near-expiry merchandise to suppliers, transferring commercial risk without contractual justification, was identified as abusive.
• Rebates, including progressive rebates tied to annual sales and additional penalties for non-compliance, were found to impose disproportionate burdens on suppliers.
• The Appellant's unilateral delisting of the 2nd Respondent without objective justification or adequate notice was a key disputed clause.
• The application of listing fees (support fees) in the supply agreements between the Appellant and the 2nd Respondent was deemed abusive, requiring removal.
• Clauses requiring suppliers to fund and deploy merchandisers to Appellant's stores were contested but not found abusive by the Tribunal.
• The Appellant's refusal to accept goods delivered per LPO specifications, absent supplier fault, was deemed an abuse of buyer power.

Cited Statute

• Competition Act No 12 of Kenya
• Interpretation and General Provisions Act
• Statutory Instruments Act (SIA) of 2013
• Fair Administrative Action Act (FAAA) of 2015

Judge Name

• Destaings Nyongesa
• Valentine Mwende
• Daniel Ogola
• Rebecca Mogire

Passage Text

• 211. With respect to requiring approval from the 1st Respondent before rejecting deliveries, we find this is not necessary and would be cumbersome. The conduct of the parties should be guided by the law of contract in this regard.
• 204. In the end, this Tribunal finds that the 1st Respondent had power and authority to investigate into abuses of Buyer power prior to 31st December 2019.
• 207. The Appellant had buyer power in relation to the 2nd Respondent. The Appellant abused that power through the application of rebates, the refusal to accept delivery of goods delivered in accordance with LPO specifications and in transfer of Commercial risk.

Damages / Relief Type

• Refund rebates deducted from the 2nd Respondent's invoices for 2017, 2018, and 2019 totaling Kshs 289,482.
• Set aside the order for payment of Kshs 130,856 for loss arising from unilateral termination of the 2019 supply agreement due to insufficient evidence.
• Financial penalty of 10% of the Appellant's 2018 turnover from Carrefour's sale of Cool Fresh Yoghurts, Kshs 124,768, upheld as a valid penalty.