Professional Associations in Kenya not Making Use of Exemption Provisions a Major Concern for Competition Authority
Price-fixing in Kenya is prohibited under the Competition Act No. 12 of 2010 under Section 21 (3) (a) which provides that any agreements, decisions or concerted practices which directly or indirectly fix purchase or selling prices or any other trading condition is prohibited under the Act, unless they are exempt in accordance with the provisions of Section D of Part III.
Part III B further prohibits price-fixing by trade associations under Section 22 (b) (i) which provides that the making, indirectly or directly, of a recommendation by a trade association to its members or to any class of its members which relates to the prices charged, or to be charged by such members, or to any class of members, or to the margins included in the prices, or to the pricing formula used in the calculation of those prices, constitutes a restrictive trade practice under the Act.
Section 29 (1) of the Act further outlines the rules for exemptions in respect of professional associations. It provides that a professional association whose rules contain a restriction that has the effect of preventing, distorting or lessening competition in a market must apply in writing or in the prescribed manner to the Competition Authority for an exemption. Sub-section (2) goes on to explain what factors the Authority considers in order to grant an exemption for a specified period. These include:
- Maintenance of professional standards
- Maintenance of the ordinary functioning of the profession
- Internationally applied norms
Section 29 (5) further gives discretion to the Authority to revoke an exemption in respect of such rules or the relevant part of the rules, at any time, if the Authority considers that any rules, either wholly or in part, should no longer be exempt under this section. For instance, if they no longer promote consumer welfare or do not enhance standards in the profession.
Price setting concerns by Law Society of Kenya, LSK
Professional fees for advocates in Kenya are set by the Chief Justice under the Advocates Act Chapter 16 of the Laws of Kenya. Part IX Section 44 provides that the Chief Justice may by order prescribe and regulate in such manner as he/she thinks fit the remuneration of advocates in respect of all professional business, whether contentious or non-contentious. Sub-section (2) also provides that the Chief Justice may prescribe a scale of rates of commission or percentage in respect of non-contentious business.
However, Section 45 provides that agreements in respect of remuneration may be made between the advocate and the client subject to permissible professional rules under section 46 of the Act. Therefore, as much as the Chief Justice may set professional fees under the Act, there is an opportunity for the advocate and the client to agree on professional fees subject to the Act. Moreover, a client has redress to apply to the courts under Section 45 (2) to set aside or vary such an agreement on grounds that it is harsh, unconscionable, exorbitant or unreasonable according to professional practice. The decision of the court on this matter is final.
The Chief Justice periodically revises the Advocates Remuneration Order which sets out the scale of professional legal fees. In doing so the Chief Justice considers factors such as inflation and the costs of providing legal fees. The Kenyan Advocates Remuneration Order was last revised upwards in 2014, increasing professional fees by 50%. The Order was last revised in 1997. Advocates had petitioned the Chief Justice to do so in order to enable them cope with tough economic conditions. Recently there was a public discourse on whether advocates should have set fees. Stakeholders argue that the Chief Justice’s decision to adjust fees may not be entirely objective because since he or she has qualifications in law, and could revert to the profession upon retirement from office.
LSK on the other had contends that the minimum fees help protect consumers from poor services, and it reduces the price wars that would occur without the scale of fees. Under the Advocates Act, charging below the set scale of fees amounts to undercutting. This is a professional offense that could result in the concerned advocate being suspended or struck off the roll. Moreover, any agreements or instruments prepared by the concerned advocate are liable to be invalidated by the courts.
The question arose among legal stakeholders as to whether the Authority could intervene in relation to the scale of professional fees under the provisions on price-fixing. The LSK chairperson recently commented that it is beyond the jurisdiction of the Authority, as the Remuneration Order seeks to set minimum fees and not a fixed rate. However, it is clear from the provisions of Section 29 that any professional body whose rules, having regard to internationally applied standards, contain any restrictions which have the effect of preventing or substantially lessening competition in a market, must apply to the Competition Authority for an exemption of the said rules.
Price Setting Concerns by Association of Kenya Reinsurers, AKR
The Association of Kenya Reinsurers is regulated by the Kenya Reinsurance Corporation Limited Act, Cap 487A of the Laws of Kenya. The Association consists of the following companies: Kenya Reinsurance Corporation Limited, Africa Reinsurance Corporation Limited, East Africa Reinsurance Company, Zep – Re and Continental Reinsurance Limited. The Authority recently investigated this association for price fixing following a complaint lodged from the National Intelligence Service (NIS). The association, through a circular dated 2, October 2013, had advised its members on the minimum applicable premiums upon renewal of NIS Group Life Scheme for 2013/2014. Insurance companies are required by their regulator Insurance Regulatory Authority (IRA) to use an independent actuary to come up with their own individual premium rates, which they file with the IRA for approval.
The association is required under the Competition Act Section 29 (1) to apply in the prescribed manner to the Authority for an exemption in relation to any anti-competitive rules. Section 22 (2) (b) also prohibits the making, directly or indirectly, of a recommendation by a trade association to its members, or to any class of its members which relates to the prices charged, or to be charged by such members, or any such class of members, or to the margins included in the prices, or to the prices, or to the pricing formula used in the calculation of those prices. Therefore, the Association is legally bound to seek the approval of the Authority in order to set a minimum fee for any particular group of consumers. Moreover, the association may be in violation of Section 21 (f) of the Competition Act which prohibits any decisions by associations of undertakings which applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, unless they are exempt in accordance with the provisions of Section D of Part III.
In conclusion, professional associations in Kenya should take advantage of the provisions of Section 29 of the Competition Act which allow professional associations to apply rules whose effect is the lessening of competition in the market, provided they are applied to enhance professional standards, the ordinary functioning of the profession or internationally applied norms for the benefit of consumers.