The Supreme Court has upheld a decision convicting retailer Majid Al Futtaim Hypermarkets Limited, operating under the name Carrefour, of abuse of buyer power.
Judge Anne Onjejo ruled that the retail chain's conduct against its supplier Orchards Ltd, a yoghurt producer (which has since gone out of business), was exploitative.
Buyer power means the ability of the buyer to extract more favorable terms from the supplier who can also impose significant opportunity costs on it, for example, delaying payments.
Orchards has filed a complaint with the competition watchdog accusing Carrefour of requiring it to pay listing fees and at least three different types of discounts in exchange for putting its products on shelves, in addition to agreed-upon list price margins.
Orchards also alleged that in January 2019, the company's contract was unilaterally terminated while the parties were in the middle of negotiations.
“The court therefore finds that the Competition Authority (Competition Authority) was right to refuse to annul the authority’s decision regarding the appellant’s abuse of buyer power,” the judge said.
The Competition Authority Tribunal in its decision, which largely confirmed previous decisions by CAK, ordered the retailer to return rebates worth Sh289,482 deducted from Orchard invoices and pay a fine of Sh124,768 to the regulator.
Evidence presented to the court showed that Orchards and Carrefour were in a commercial arrangement between buyer and supplier from 2015 to 2018 to supply Cool Fresh Yoghurt branded probiotic yogurt.
The supermarket chain is demanding various rebates, including Sh50,000 for listing fees, 10 percent on every second supplies are delivered to new branches and 1.25 percent on all annual sales, the supplier said. Furthermore, the supermarket offered incremental discounts calculated based on annual sales from the supplier.
The yoghurt producer also accused the retailer of demanding preferential treatment by demanding free goods, which they later sold, and requiring them to deploy their staff to man the shelves at the expense of the supplier.
In a decision issued in February 2020, the competition watchdog agreed that Carrefour had breached competition law by abusing its superior negotiating power over the yoghurt company and 699 other suppliers subject to standard contract terms.
The court upheld the decision in 2021. It ordered the retail chain to review all its agreements with suppliers, forcing it to appeal to the Supreme Court.
Carrefour wins
In a win for the supermarket, the court accused the court of directing Carrefour to amend contracts with the other 699 suppliers, without joining them in the case.
“In conclusion, this court upholds the decision of the arbitral tribunal except that the decision to amend all supplier agreements between the appellant and its other suppliers is set aside because there were no parties to the case and there were no pleadings affecting them before the tribunal. “It requires a decision to be made in relation to their contracts,” Justice Ongejo said. .
Following the issuance of the ruling, Majid Al Futtaim said that it adheres to the highest standards of global best practices and unified commercial terms with its local partners, and expressed its gratitude that the court overturned the decision to amend its supplier agreements.
“We thank the High Court and consider that this fundamentally upholds the validity of Majid Al Futtaim’s existing supplier agreements. We remain committed to running our business with fairness and integrity, and working collaboratively with our partners to ensure a business environment that is sustainable, equitable, mutually beneficial and in accordance with the Retail Law of Kenya, which we are honored to play It has an established role,” the retailer said.
In a statement, CAK Chairman, Mr. Shaka Kariuki, welcomed the court’s outcome, saying it is a recognition of the crucial role the regulator plays in the economy including facilitating harmonious coexistence between buyers and suppliers in various sectors.
“Our message to businesses is that they must play by the rules, regardless of their status. By ensuring our markets operate efficiently and on a level playing field, the country will attract more investment and give consumers a wider range of goods and services at competitive prices.”
Acting Director-General Dr. Adano Wario said commercially oppressive contracts ultimately force suppliers, most of whom are small and micro enterprises, out of the market due to unfair trade practices.
“The authority respects the legal requirements that require accused parties to be given a fair trial while ensuring that investigations strictly adhere to the stipulated processes and procedures. The professionalism and objectivity demonstrated by our employees during the investigations led to a positive outcome in this case,” he added.
Majid Al Futtaim entered Kenya in 2016 when it opened its first Carrefour store. Last year, the retailer added three outlets, bringing its number of branches to 22.
Carrefour has gained popularity due to discounts on its goods, but this has come under intense focus, with many suppliers reporting this to the competition watchdog.
Last year, CAK fined Carrefour Sh1.1 billion over the structuring of its contracts with suppliers, a decision it said it would appeal.
