By Tekin Saeko*

Competition law is a field of law that is pertinent to the economy of any country and the growth of its industries in a fair and efficient environment. The tenets of competition law are not vastly known and often issues may go unnoticed by the layman. The relationship between companies, both big and small, is regulated which in turn protects the consumers and other companies. As a consumer, my interests when it comes to price increase are sparked but do we really know the rationale behind those changes? Are they legitimate business undertakings or a result of shadowy deals made by companies to control the market? Well, these are the questions I seek to answer in this blog by focusing on the aspect of price fixing and its criminality in Kenya.

This field of law has been described to be concerned with limiting cartels and ensuring the welfare of the consumers.[i] In Kenya, the Competition Act (No. 12 of 2010) is the primary legislation on competition law in Kenya. The Act establishes the Competition Authority of Kenya which is the regulatory body for competition law matters.[ii] Recently, the Authority charged nine companies in the steel industry a total of 338.8 million shillings in fines for engaging in cartel-like behaviour.[iii] This fine was the largest ever charged by the Authority which drew the public's attention and sparked debates on its mandates.

The word that is often used publicly and brandished by politicians and even the media is 'cartel' conduct. The legal term to replace the word 'cartel' is restricted trade practice and it encompasses a number of acts. These restricted trade practices[iv] include: fixing prices directly or indirectly, dividing markets, collusive tendering, and minimum resale price maintenance, predatory conducts, tying and applying dissimilar conditions to equivalent transactions among others.

The weight of criminal sanctions and the high standard of proof makes it inappropriate for anticompetitive practice to be as sanctioned as a criminal offence.[v] Therefore, pursuant to section 9(a) and section 18(1)(a) of the Act, the Competition Authority designed the Special Compliance Process (SCP) to encourage compliance in trade associations but not through a criminal process. The SCP as a hybrid of compliance system has the options of investigation, market inquiry and voluntary compliance. The SCP is tasked with the mandate of identifying any potential anti-competitive conduct, rectifying such conduct and preventing future anti-competitive conduct. It covers trade associations and their members in the Agricultural and Agro Processing Sector and in Financial Services Sector. This move was informed by the many complaints raised to the CAK regarding existing rules within trade associations that contravene the Act.

What amounts to practice of price fixing? It has been described as one of the most abhorrent anti-trust or cartel practices affecting consumers and economic development.[vi] Section 21 (3) of the Kenyan Act succinctly provides that it is 'directly or indirectly fixing of purchase or selling prices or any other trading conditions'. This is the same language used both in the European Community and in South Africa.[vii] The Act has not defined exactly what price fixing means and the threshold for what amounts to it. This gives the Competition Authority some sort of discretionary powers on determining conducts. Price fixing is an agreement, whether verbal or inferred from conduct, among competitors regarding the raising, lowering, maintaining or stabilizing prices.[viii] This includes concerted conducts to issue maximum and minimum prices for products.

The acts of collusion or agreement between two competitors to take actions to raise, lower, maintain or stabilise the price of a product or service amounts to price fixing. This rule covers direct competitors who produce the same products within the same market. It is however extended to unlike products or services that are substitutable. These substitutable products are products that perform or are used for the same reasons yet, they are different. For instance, soda and juice. Agreeing to set minimum or maximum prices for a product also falls under the spectrum of price fixing. This practice is done by companies to be in control of supply and demand and often affect small companies thus affecting competition.

The nature of the relationship of the parties in question on whether they are in a horizontal or vertical relation is crucial. The agreement is rendered irrelevant in determining price fixing in the event that they are not actual competitors in any relevant market.[ix] A vertical relationship can be between a supplier and a retailer or a mother company and a subsidiary company. The horizontal relationship can be between suppliers or between companies involved in production or sale of same products. The Kenyan courts have pronounced itself and provided that the proper construction of section 21 (1) of the Act, includes restriction having both object and the effect principle.[x] This means that proving the intention aspect of an act is not a must, as long as there was a negative effect on competition then an act is considered a restricted trade practice. The object and effect principle from legislative texts are linked and therefore speaks to the constitutionality of the legislation.[xi]

The Competition Authority was within its constitutional mandate in fining the nine steel companies in Kenya because the Authority is empowered to investigate restrictive trade practices.[xii] Whilst there have been outcries from owners of various companies regarding the fines, the Authority is merely enforcing established laws. The ignorance in relation to price fixing from the public is evident as such instances are hard to establish and may pass as normal market trends. It is prudent to note that the Act is not very exhaustive in terms of describing the nature of the specific restrictive trade practices and may be a factor relating to its compliance. In my opinion, the Competition Act should be amended to give a proper definition of each of the restricted trade practices. Each of the practices should also include affixed thresholds so that companies and trade associations are more informed in their conduct.