The High Court has upheld a decision that found retailer Majid Al Futtaim Hypermarkets Limited, which operates as Carrefour, guilty of abuse of buyer power.
Justice Anne Ong’ijo ruled that the conduct of the retail chain against its supplier Orchards Ltd, a producer of yoghurt (which has since folded), was exploitative.
Buyer power means the ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.
Orchards filed a complaint with the competition watchdog accusing Carrefour of demanding it pay listing fees and at least three different types of rebates in exchange for having its products on shelves, over and above agreed price list margins.
Orchards further claimed that in January 2019 the company’s contract was terminated unilaterally whilst the parties were in the middle of negotiations.
“The court, therefore, finds that the [Competition Authority] tribunal was correct in declining to set aside the Authority’s decision on the appellant’s abuse of buyer power,” the judge said.
Competition Authority Tribunal had in its decision, which largely affirmed earlier decisions taken by the CAK, directed the retailer to refund rebates amounting to Sh289,482 deducted from Orchard’s invoices and pay a penalty of Sh124,768 to the regulator.
Evidence tabled in court showed that Orchards and Carrefour were in a buyer-supplier commercial arrangement from 2015 to 2018 for the supply of probiotic yoghurt branded Cool Fresh Yoghurt.
The supplier said the supermarket chain required various rebates, including Sh50,000 for listing fee, 10 percent on every second delivery of supplies to new branches and 1.25 percent on all annual sales. Further, the supermarket introduced progressive rebates calculated from annual sales from the supplier.
The yoghurt producer also accused the retailer of demanding preferential treatment through demands for free merchandise, which they later sold, and being required to deploy their own staff to man the shelves at the expense of the supplier.
In a determination in February 2020, the competition watchdog agreed that Carrefour contravened the Competition Act by abusing its superior bargaining power over the yoghurt firm and other 699 suppliers who are subject to standard contract terms.
The decision was upheld by the tribunal in 2021. The retail chain was ordered to revise all its agreements with the suppliers, forcing it to appeal at the High Court.
Carrefour win
In a win for the supermarket, the court faulted the tribunal for directing Carrefour to amend contracts with the 699 other suppliers, without joining them in the case.
“In conclusion, this court upholds the decision of the tribunal save that the decision to amend all supplier agreements between the appellant and its other suppliers is set aside as there were no parties to the cause and there were no pleadings affecting them before the Authority to warrant a decision being made in relation to their contracts,” said Justice Ong’ijo.
Following the ruling, Majid Al Futtaim said that it upholds the highest standards of global best practice and standardised commercial terms with its local partners, and was grateful that the court overturned the decision to amend its supplier agreements.
“We thank the High Court and consider that this essentially upholds the validity of Majid Al Futtaim’s existing suppliers’ agreements. We remain committed to conducting our business with fairness and integrity, working collaboratively with our partners to ensure a sustainable, equitable, and mutually beneficial business environment and in accordance with Kenya’s Code of Retail, in which we were honoured to play a founding role,” the retailer said.
In a statement, the CAK’s board chairman Mr Shaka Kariuki welcomed the outcome of the court, saying it was an acknowledgement of the regulator’s critical role in the economy including facilitating a harmonious co-existence between buyers and suppliers in various sectors.
“Our message to businesses is that they should play by the rules, irrespective of status. By ensuring that our markets work efficiently, and within a level playing field, the country shall attract more investments and grant consumers a wider variety of goods and services at competitive prices,” said Mr Kariuki.
The acting director-general Dr Adano Wario said commercially oppressive contracts ultimately force suppliers, most of who are small and micro-enterprises to exit the market due to unfair business practices.
“The Authority respects the legal requirement to accord accused parties a fair hearing while ensuring that investigations strictly adhere to laid down processes and procedures. The professionalism and objectivity by our staff members during the investigations has occasioned the positive outcome in this case,” he added.
Majid Al Futtaim entered Kenya in 2016 when it opened the first Carrefour store. The retailer last year added three outlets to bring its branch count to 22.
Carrefour has gained popularity over discounts on its goods but this has come under sharp focus, with several suppliers reporting it to the competition watchdog.
Last year, CAK hit Carrefour with a Sh1.1 billion fine over the structuring of its contracts with suppliers, a decision it said it would appeal.
