Restrictive Practices

The Competition Authority of Kenya (CAK) recently announced that it had entered into a settlement agreement with local beer producer Kenya Breweries Limited (KBL), a subsidiary of UK Diageo’s East African Breweries Ltd (EABL).

The settlement follows from an investigation by the CAK in terms of section 21 of the Competition Act (12 of 2010) wherein the CAK had found that KBL’s distribution agreements with its downstream distributors – which provides for inter alia, territorial exclusivity  – is anti-competitive and may lead to the lessening of intra-brand competition.

The settlement was reached in terms of section 38 of the Competition Act and requires that KBL establish an internal compliance policy and review and amend the problematic and restrictive clauses in its agreements with distributors.

Michael-James Currie, an African focused competition lawyer, says that the decision is particularly important for companies which use third parties to execute their distribution strategies as the majority of distribution agreements contain restrictions of some kind (often transported from international distribution agreements) which will need to be assessed against the standards of the Competition Act in Kenya as the CAK is actively focusing on these types of restrictive verticals arrangements.

Abuse of Dominance

Styles Industries (Darling Kenya)

Braids supplier, Styles Industries Ltd (Styles) has been found guilty by the CAK for abuse of dominance in contravention of Section 24 of the Competition Act.

The CAK launched an investigation into Styles on the basis of a complaint received by a competitor in the market, Solpia Kenya, claiming that Styles had abused its dominance by imposing unfair selling prices and conditions on suppliers who sell its products.

The CAK’s investigation found that Styles had abused its dominance by imposing unfair trading conditions on its downstream suppliers which it sought to enforce through threatening its downstream suppliers with account closure, removal of discounts and refusal to supply products.

The CAK is currently in negotiations with the parties and have indicated that its finding could result in Styles paying the complainant an amount in damages and/or a fine Sh10 million. In terms of Section 54(3) of the Competition Act, the relevant individuals within Styles could further face imprisonment for a period of up to 5 years.

Kaluworks

The CAK dismissed an abuse of dominance case against cookware manufacturer, Kaluworks Limited (Kaluworks).

The case emanated from a complaint by rival company, Sufuria World (Sufuria) in which it was alleged that Kaluworks had refused to sell to them certain aluminum circles which it required for purposes of manufacturing its aluminum cooking ports. This, Sufuria claimed, amounted to an abuse of dominance in terms of section 23 and 24 of the Competition Act.

The CAK, however, found that the conduct did not amount to abuse of dominance under the Competition Act as Sufuria had other options available to it in that it had the ability to replicate the technologies used by Kaluworks to produce the aluminum circles (as other manufacturers have done) or it could increase its order volumes in order to make it economically feasible for Kaluworks to supply it with the aluminum circles.

This finding was based on the representations made by Kaluworks that:

• it primarily produces aluminum circles for in-house production for a variety of its own cookware products intended for local and export markets; and
• it could only manufacture the aluminum circles to third parties where such third parties placed an order which met certain minimum quantities that would guarantee optimal scale of production

In supporting its findings, the CAK stated that in assessing the conduct of a dominant firm and whether it amounts to a ‘refusal to deal’, “is necessary to prove indispensability of the facility to the operation of the complainant or other third parties as arbitrary intervention may hurt innovation.”

Market Inquiries

Transport Inquiry

The CAK has recently announced that it has initiated a ‘regional study’ in the Shipping, Trucking and Haulage industry in Kenya, Uganda, Rwanda and Burundi.

According to the announcement, the objective of the inquiry is to identify and remedy features of the market and trade practices which are anti-competitive and which impedes the national and intra-regional trade which in terms slows the potential growth of the manufacturing sector in Kenya.

Leasing Sector

The CAK has further announced a market study into the leasing sector which it will be conducting in conjunction with the Financial Sector Deepening (FSD) Kenya.

The objective of the market study is to assess the level of competition in the sector and to identify areas of concern in order to enhance competition in the market by facilitating SME entrants into the market.

John Oxenham, director at African antitrust advisory firm Primerio, says that market inquiries can be used very effectively, however, they are resource intensive and in order to achieve there objectives must be concluded expeditiously. The CAK should be cognizant of the challenges and experiences of the South African Competition Commission (SACC) where the market inquiries are not being concluded timeously.

[The editor wishes to thank Charl van der Merwe for his contribution to this update]