By Jasper Lubeto
This article explores the competition authorities’ jurisdictional overlap in Kenya in light of Kenya’s membership to the East African Community (“EAC”) and COMESA. The author traces the place of the Competition Authority of Kenya (“CAK”), the EAC Competition Authority (“EACCA”) and the COMESA Competition Commission (“CCC”) in the regulation of economic activities within Kenya. The author argues that the subsisting legal framework occasions challenges to competition law practitioners and concludes by proffering a way forward toaddressing the competition authorities’ jurisdictional overlap in the Kenyan context. The author’s aim is to encourage debate on the competition law generally leading to useful policy interventions in the long run.
Prevailing competition law in Kenya under the Competition Act, No. 12 of 2010
Competition law in Kenya traces its constitutional anchorage under Article 46 of the Constitution which donates consumer rights. The actualization of these rights is the subject of the Competition Act, No. 12 of 2010 (“Competition Act”) whose objects are to enhance the welfare of the people of Kenya by promoting and protecting effective competition in the markets and preventing unfair and misleading conduct throughout Kenya. The jurisdiction of the Competition Act and its subsidiary legislation is articulated in section 6 of the Competition Act observing that the Competition Act shall find application to conduct within and outside Kenya by: (i) citizens of Kenya and persons ordinarily resident in Kenya; (ii) juristic bodies incorporated in Kenya or carrying on business within Kenya; (iii) any person whose conduct is in relation to the supply or acquisition of goods or services into or within Kenya; and (iv) any person whose conduct is in relation to the acquisition of shares or other assets within or outside Kenya resulting in the change of control of a business, part of a business or an asset in Kenya. The significant implication of section 6 is that Kenya adopts the effects principle whereby a conduct falls within the province of the Competition Act as long as its effects are felt within Kenya despite such conduct having occurred outside Kenya. In other words, the Competition Act effectively has extra-territorial operation to the extent of the limitations stipulated under section 6.
It is noteworthy that competition law, in Kenya and globally, is largely two pronged. The first limb looks at agreements by undertakings and concerted practices which have as their object or effect the prevention, distortion or lessening of competition in trade in any goods or services. The restrictive practices are not prohibited in toto but are the subject of an exemption regime discussed under Part III Section D of the Competition Act. The second limb looks at the abuse of dominance whereby any conduct which amounts to the abuse of a dominant position in a market or a substantial part of the market is prohibited. The question of abuse of dominance is looked at from two major perspectives, namely the restriction to attaining dominance; and regulation of undertakings that have inevitably attained dominance. The former is governed primarily through the regulation of proposed mergers. Ordinarily, businesses are expected to grow organically into dominance. However, a substantial number of businesses attain dominance through mergers and acquisitions. Part IV of the Competition Act addresses itself sufficiently on questions of mergers. By dint of section 42(3) of the Competition Act, all proposed mergers occurring in Kenya or whose effects occur in Kenya must receive a merger authority or an exemption thereof from the CAK. Post the fact of dominance, an abuse of the said dominance is evaluated primarily under the control of unwarranted concentration of economic power being the subject of Part V of the Competition Act. Section 50(1) of the Competition Act obliges CAK to continuously review the structure of production and distribution of goods and services to determine where concentrations of economic power exist and whose detrimental impact on the economy out-weighs the efficiency advantages. The CAK is further vested with investigative powers on the existence of such concentrations of economic power; and may order affected persons to dispose part or all of their interests in a way to address the unwarranted concentration.
A quick perusal of the Competition Act as discussed in the foregoing paragraphs paints a neat picture of the competition law in Kenya. However, the legal terrain becomes murky in practice where one is called to factor in the jurisdictional bases of the EACCAand the CCC. A number of legal challenges arise worth examination.
The jurisdictional challenge brought forth with the legal operationalization of the East Africa Community Competition Authority and the COMESA Competition Commission
The EACCA is established under the East African Community Competition Act, 2006 (“EAC Competition Act”). As at August 2018 evidence available show that the EACCA is yet to fully open its doors to the public although some internal operations and studies are underway. However, five inaugural commissioners were appointed and approved by the 33rd Meeting of the Council of Ministers held on 29 February 2016; and the commissioners have since been sworn into office. Preliminary arrangements for the full operationalization of the EACCA are still on to date. Interestingly, the EACCA was initially established on a transitional and ad hoc basis for a period of not more than five years.The objectives of the EAC Competition Act, 2006 mirror those of the Kenyan Competition Act to the extent that the former aims to enhance the welfare of the people of the Community. The EACCA similarly addresses competition law questions such as agreements and concerted practices aimed at fettering fair competition and abuse of dominance in turn applying similar regulative tools such as approval of proposed mergers and control of unwarranted concentration of economic power.The jurisdictional question is addressed under section 4(1) of the EAC Competition Act which render the application of the EAC Competition Act to all economic activities and sectors having a cross-border effect.The wording of the EAC Competition Act embraces the effect principle in turn creating a question of concurrence of jurisdiction with the CAK. In other words, the EACCA and the CAK share a concurrence ofjurisdiction to the extent where a conduct has an effect on the Kenyan market and a cross-border effect within the EAC. It is this jurisdictional overlap that may introduce complications and unnecessary delays for the ordinary legal practitioner processing a relevant transaction as one would have to deal concurrently with two regulative authorities. However, this is currently nota major hindrance as the EACCA is still a pipe dream as it were having not been legally operationalized.
The same cannot be said of the CCC. Competition law at COMESA level traces its anchorage in Article 55 of the COMESA Treaty where member states undertake to prohibit any practice negating the objectives of free and liberalized trade including agreements and concerted practices by undertakings whose objective or effect lead to the prevention, restriction or distortion of competition within the Common Market.The law is further fleshed in the COMESA Competition Regulations (“Regulations”) as read together with its rules and guidelines. The Regulations’ purpose under Article 2 paragraph 1 thereof is to promote and encourage competition by preventing restrictive business practices and other restrictions that deter the efficient operation of markets.Article 3 paragraph 2 thereof addresses the jurisdiction question of the CCC observing that the Regulations apply to conduct which have an appreciable effect on trade between Member States and which restrict competition in the Common Market.Article 6 establishes theCCC giving it international legal personality; with its functions including to monitor and investigate anti-competitive practices of undertakings within the Common Market, helping Member States promote national competition laws and institutions with the objective of harmonizing national laws with the regional Regulations, and cooperating with competition authorities in Member States.
The CCC employs the same approach as does the CAK and the EACCA in regulating activities within the Common Market. The upshot is that CCChas jurisdiction only where a conduct has an appreciable effect on trade between Member States and potentially limits competition in the Common Market. The Regulations as so couched give the CCCdiscretion to determine what conduct would have an appreciable effect on trade. Taking the example of merger notifications, the question of whether a merger would have an appreciable effect on trade between Member States has been settled through the established thresholds. Under Rule 4, a notifiable merger shall be one where both the acquiring firm and the target firm, or either of them operate in two or more Member States – and the combined annual turnover or combined value of assets, in the Common Market of all parties to the proposed merger equals or exceeds COMESA Dollars 50 million.Article 24(8) of the Regulations is imperative in that it allows a Member State to request the CCC to refer a proposed merger filed before the CCC for consideration under the Member State’s national competition law if the Member State is satisfied that the merger is likely to disproportionately reduce competition to a material extent in the Member State or any part of the Member State. The CCCshall then consider the request and inform the concerned Member State whether it shall deal with the proposed merger itself and address the raised concerns or refer the entire or a portion of the proposed merger to the Member State’s competition authority for consideration.
In the premises, the COMESA competition law presupposes that the CAK and the EACCA should cede jurisdiction to the CCC in cases where relevant thresholds have been met. This appears to be the case in practice as seen from a number of cases including the recently approved notification filed by Bayer on its proposed acquisition of Monsanto.Further, in appreciation of the concurrence of jurisdiction and the need for collaboration and cooperation, the CCC entered into a Cooperation Framework Agreement with the CAK with the stated objective being the cooperation in the application and enforcement of the COMESA Competition Regulations.
Conclusion and recommendations
Despite the rather soft law approach discussed in the foregoing paragraph, it is imperative to note that, as it stands, the competition legislative framework in Kenya gives triple jurisdiction on matters competition law to the three authorities discussed in this article. For good order and avoidance of any reasonable doubt, it remains essential for the Kenyan legislator to tinker with the law by way of amendments in the following manner. One, an express amendment of the Competition Actobliging the CAK to cede jurisdiction to the CCC and the EACCA as appropriate where the conduct falls within the competence of the latter two institutions. Two, an amendment to the Competition Act embracing the referral principle whereby conduct within the Common Market but with a significant effect on the Kenyan market are specifically referred to the jurisdiction of the CAK. Lastly, a clarity on the question of thresholds ensuring that the automatic attainment of a higher threshold removes the CAK’s jurisdiction yielding ground to the CCC and the EACCA respectively assuming jurisdiction. Before such express provisions are entertained in the law, competition law practitioners will continue effecting transactions with the highlighted redundancies and their attendant legal and economic challenges.
Jasper Lubeto Advocate, is the Managing Partner – TLO Law Associates. LL.M (UZH-Distinction), LL.B (UoN-Hons), CPA Finalist, CS Part III (Cand.).