UNCONSCIONABLE CONDUCT AND REGULATORY ENFORCEMENT IN KENYA

(Consumer Protection: series 1)

Unconscionable conduct refers to business dealings that go beyond a mere “hard bargain” and instead amount to exploitation, oppression, or deception that offends principles of fairness and good conscience. It is understood as an abuse of power, where a stronger party leverages its position to take unfair advantage of a weaker party. Kenyan courts and regulators view such conduct as undermining the integrity of contractual and commercial dealings, particularly where one party is vulnerable due to economic, informational, or bargaining disparities.

The law governing unconscionable conduct in Kenya flows from two distinct sources. FIRST, there is the primary Act the Competition Act, 2010 (Cap 504). Under this Act, The Competition Authority (CAK) is mandated under Section 9 of the Act to promote and safeguard competition and protect consumers from unfair market conduct. CAK’s role in handling unconscionable conduct involves conducting investigation upon receiving a complaint or on its own motion. The CAK investigates suspected violations by requesting data, conducting raids or holding hearing conferences. The Authority then has the power to make determination on whether the Act has been breached. It can issue cease and desist orders, mandate the refund of overcharged fees, and require the offending party to implement compliance programs.

Under the Act the following trade practices are considered unhealthy and may warrant intevention by the CAK:

1. Restrictive trade practices that is agreements between undertakings, decisions by associations of undertakings, decisions by undertakings or concerted practices by undertakings which have as their object or effect the prevention, distortion or lessening of competition in trade in any goods or services in Kenya, or a part of Kenya.
2. Abuse of Dominant Position i.e directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions, limiting or restricting production, market outlets or market access, investment, distribution, technical development or technological progress through predatory or other practices, applying dissimilar conditions to equivalent transactions with other trading parties,  making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts etc.
3. False or misleading representations which covers falsely representing that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use when they are not; services are of a particular standard, quality, value or grade when they are not; goods are new when they are not; a particular person has agreed to acquire goods or services when they have not; goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have; the product has a sponsorship, approval or affiliation it does not have; or makes a false or misleading representation with respect to the price of goods or services, concerning the availability of facilities for the repair of goods or of spare parts for goods, concerning the place of origin of goods,  concerning the need for any goods or services; or concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.

1. Abuse of buyer power i.e delaying payment of suppliers without justifiable reason in breach of agreed terms of payment, unilateral termination or threats of termination of a commercial relationship without notice or on an unreasonably short notice period, and without an objectively justifiable reason, refusal to receive or return any goods or part thereof without justifiable reason in breach of the agreed contractual terms, transfer of costs or risks to suppliers of goods or services by imposing a requirement for the suppliers to fund the cost of a promotion of the goods or services, transfer of commercial risks meant to be borne by the buyer to the suppliers, demands for preferential terms unfavourable to the suppliers or demanding limitations on supplies to other buyers, reducing prices by a small but significant amount where there is difficulty in substitutability of alternative buyers or reducing prices below competitive levels, or bidding up prices of inputs by a buyer undertaking with the aim of excluding competitors from the market.
2. Unconscionable conduct among others.

Section 56 prohibits unconscionable conduct in consumer transactions, ensuring that consumers are protected from oppressive or deceptive practices. Section 57 extends this protection to business-to-business transactions, specifically addressing abuses of buyer power where large corporations exploit smaller businesses. This statutory framework reflects Kenya’s modern regulatory approach to market fairness and consumer protection. Section 55 often read alongside unconscionable conduct, prohibits false or misleading representations regarding the nature, price, or terms of goods and services. Section 24A, while distinct, this section often overlaps with unconscionability when a powerful buyer (like a supermarket or large bank) imposes unfair terms on a weaker supplier or client.

SECOND, there is the equitable doctrine of unconscionable dealing, rooted in contract law and equity. Before the enactment of the Competition Act, Kenyan courts relied on English common law principles, applied through the Judicature Act and the Law of Contract Act. Courts of equity would intervene to set aside contracts that “shock the conscience of the court,” even in the absence of statutory violation. This equitable jurisdiction continues to play a role, particularly in cases where statutory provisions do not directly apply but fairness demands judicial intervention.

Together, these two streams statutory regulation and equitable principles form a comprehensive framework for addressing unconscionable conduct in Kenya. They ensure that both consumers and businesses are shielded from exploitative practices, while also preserving the courts’ ability to uphold fairness and justice in contractual dealings.

In the Kenyan legal landscape, unconscionable conduct refers to business practices that are so harsh, oppressive, or one-sided that they offend the principles of equity and good conscience. Unlike simple breach of contract, unconscionability typically involves a significant imbalance of bargaining power where the stronger party exploits the vulnerability, illiteracy, or financial distress of the weaker party to secure terms that no fair-minded person would accept.

Determining whether conduct is unconscionable in Kenya requires a rigorous application of both statutory and equitable tests to distinguish between legitimate commercial pressure and illegal exploitation. Under the Statutory Test, the Competition Authority of Kenya (CAK) usually adopts an “all the circumstances” approach as guided by Section 56(2) of the Competition Act. Rather than searching for a single smoking gun, the Authority weighs several factors, including the relative bargaining power of the parties and whether the weaker party was forced to comply with conditions that were not reasonably necessary to protect the legitimate interests of the stronger business, whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services. The CAK also scrutinises the clarity of the documentation, assessing whether the customer could truly understand the language and complexity of the deal, and investigates if any form of undue influence or high-pressure tactics were exerted during the transaction.

Parallel to these statutory provisions is the Equitable Test, which remains a vital tool for the Kenyan courts in broader contract law disputes. As reaffirmed in recent jurisprudence such as in Kanwal Sarjit Singh Dhiman v Keshavji Jivraj Shah [2025] KECA 126, The parties had entered into a loan agreement in which the appellant used the title to the suit property as security. The respondent was to advance Kshs. 13,000,000 but only released Kshs. 7,000,000. The appellant defaulted on repayment, leading to an ex parte judgment, sale of the property, and transfer to the respondent. The judgment was later set aside, and the matter retried. The appellant alleged that the agreement and sale were unconscionable. The court held that while parties were bound by their contracts, courts could intervene where terms were oppressive or unjust. The loan terms charging 36% annual interest compounded quarterly would have inflated a Kshs. 4,000,000 balance to over Kshs. 69 billion, which was deemed oppressive and unconscionable. The agreement was declared void for unconscionability, and the vesting order was set aside. The appellant was ordered to repay the Kshs. 4,000,000 balance with interest at court rates to avoid unjust enrichment. The appeal was partly allowed.

These legal principles manifest in various practical scenarios that can devastate small businesses. For instance, pressure tactics occur when a dominant supplier threatens to cut off a retailer’s essential stock unless they immediately sign an unfavorable, high-interest agreement without time for legal review. Similarly, exploiting financial distress is seen when a bank, aware that a business is facing a temporary liquidity crisis, demands renewal fees that are astronomically higher than market rates because they know the client cannot easily switch lenders. Unconscionability also takes the form of hidden terms, such as burying unilateral price hike clauses in unreadable fine print on the final pages of a massive contract, or using clauses as weapons, where a default is triggered simply because a business exercised its right to audit its accounts. Finally, one-sided liability clauses, which insulate a large corporation from its own negligence while shifting all risk to the small business, serve as classic examples of deals that fail the test of fairness and commercial integrity

Case scenarios

GT Bank Kenya Ltd vs. ASL Limited (2026)

One of the most significant recent cases handled by the CAK involves a dispute between Guaranty Trust (GT) Bank Kenya and its long-term client, ASL Limited.   ASL Limited had banked with GT Bank since 2001. In 2021, it secured credit facilities that were due for renewal in 2022. Despite ASL applying for renewal on time, the bank delayed its decision for over a year. In June 2023, the bank granted a mere three-month extension while simultaneously demanding additional security and slashing credit limits by millions of dollars. When ASL attempted to move its business to another bank (I&M Bank), GT Bank issued a default notice and backdated “default interest” totaling KSh 13.21 million without prior notice. In February 2026, the CAK determined that GT Bank’s actions constituted unconscionable conduct under Section 57 and false representation under Section 55. The Authority found that the bank had abused its superior bargaining power by making unilateral changes and charging fees on unapproved facilities. The CAK fined GT Bank KSh 33.18 million (2% of its annual turnover) and ordered a full refund of the KSh 13.21 million to ASL Limited.

On the Family Bank Case, the bank promised a 20% waiver on a loan but later claimed it had expired (a term never disclosed). They also unilaterally debited Ksh. 399,800 from her account to pay for potential legal fees. The bank was ordered to refund a total of Ksh. 1,415,604. The CAK ruled that overdrawing an account without consent for “legal fees” was an abuse of a superior bargaining position. The CAK ruled this was unconscionable because the bank abused its higher bargaining position and reneged on clear promises.

Unilever was also flagged for unilaterally revising payment terms for SME suppliers, essentially forcing them to accept longer payment cycles or face removal from the supplier list.

Consequences of Engaging in Unconscionable Conduct

The Competition Act provides for severe penalties to deter such behavior. The Authority can impose a fine of up to 10% of the undertaking’s gross annual turnover in Kenya for the preceding year. Offending parties are often ordered to refund the exact amounts unlawfully gained from the victim. For certain violations, individuals involved can face fines of up to KSh 10 million and imprisonment for a term not exceeding five years. The CAK frequently mandates that the organization’s staff undergo mandatory training on competition law to prevent recurrence.

Conclusion

The shift toward active enforcement by the CAK signals the end of “absolute freedom of contract” in Kenya. Businesses, particularly in the banking and retail sectors, are now held to a standard of fairness and transparency. As seen in the GT Bank Kenya Ltd vs. ASL Limited case, the regulator will intervene in private commercial negotiations where there is evidence of oppression or exploitation of a weaker party’s position.

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