By Andre Gan, Brian Chia, Lydia Kong, Serene Kan Ming Choi and Cindy Sek (Baker McKenzie Kuala Lumpur) Malaysia has introduced competition legislation of general application which is similar to competition legislation in Singapore and the United Kingdom. The Competition Act 2010 (Competition Act) and the Competition Commission Act 2010 (Competition Commission Act) were passed by the Malaysian Parliament in May 2010, and received Royal Assent on 2 June 2010. The Competition Commission Act came into force on 1 January 2011 while the Competition Act came into force on 1 January 2012. Sector-specific guidelines prohibiting anti-competitive behavior also exist, notably in the telecommunications, media, energy and franchise sectors. A specific prohibition on restraint of trade is also contained in the Malaysian Contracts Act 1950.
The Competition Act prohibits the following:
- agreements which have the object or effect of significantly preventing, restricting or distorting competition in Malaysia; and
- conduct which amounts to the abuse of a dominant position in a market in Malaysia.
The Competition Act is enforced by the Malaysian Competition Commission (MyCC), an authority established on 1 April 2011 pursuant to the Competition Commission Act. The MyCC has a broad range of powers and duties under the Competition Commission Act, which range from the role of advising the Minister or any public or regulatory authority on competition matters, to educating and raising awareness regarding the benefits of competition law among members of the public.
The Competition Act prohibits agreements between enterprises that have either the object or effect of significantly preventing, restricting or distorting competition in Malaysia. This is sometimes referred to as the “Chapter One Prohibition,” and covers both agreements between competitors (horizontal agreements) and agreements between enterprises operating at different levels of the supply chain (vertical agreements). Under the Competition Act, certain horizontal agreements are illegal per se, i.e., they are deemed to have the object of significantly preventing, restricting or distorting competition in the market (without the need to assess if the agreement has an anti-competitive effect on the market). These include horizontal agreements which have the object of:
- fixing, directly or indirectly, purchase or sale prices or other trading conditions;
- sharing markets or sources of supply;
- limiting or controlling: (i) production; (ii) market outlets; (iii) market access; (iv) technical or technological development; or (v) investment; and
- bid rigging.
Less serious types of restrictions may either fall outside the Chapter One Prohibition entirely (because they do not significantly impact on competition in Malaysia) or are exempt from the Chapter One Prohibition (discussed in further detail below). The MyCC has indicated in its “Guidelines on Chapter 1 Prohibition” (Chapter One Guidelines) that in general, anti-competitive agreements will not be considered “significant” if:
- the parties to the agreement are competitors who are in the same market and their combined market share of the relevant market does not exceed 20 percent; or
- the parties to the agreement are not competitors and each of the parties individually has less than 25 percent share in any relevant market.
On this note, we should highlight that although price fixing in a horizontal agreement is illegal per se, there is no corresponding prohibition for vertical agreements. This means that resale price maintenance (e.g., fixing resale prices or setting a minimum resale price) in a vertical agreement is not illegal per se. Having said that, certain practices in respect of vertical agreements may still be viewed negatively by the MyCC. In particular, the MyCC has indicated that:
- it will take a strong stance against minimum resale price maintenance; and
- it will deem other forms of resale price maintenance (including maximum pricing or recommended retail pricing), which serve as a focal point for downstream collusion, to be anti-competitive.
Accordingly, it is possible that the MyCC may disregard the safe harbour in resale price maintenance cases and review them as if they are per se violations of the Competition Act. In addition, the Competition Act contains a schedule listing a small number of activities that will be excluded entirely from the Chapter One Prohibition, including acts necessary to comply with other laws, and collective bargaining agreements between an employer and their workers. The MyCC has, to date, undertaken investigations into, among others:
- the comprehensive collaboration agreement dated 9 August 2011 among Malaysian Airline System Berhad (MAS), AirAsia Berhad (AA) and AirAsia X Sdn. Bhd. (AAX) (Collaboration Agreement) pursuant to which the parties had agreed to carve out and divide the domestic routes among themselves (i.e., MAS would focus on being a full-service premium carrier, AA at being a regional low-cost carrier and AAX would focus on being a medium to long-haul low-cost carrier). The MyCC had, pursuant to its decision dated 31 March 2014, found that the Collaboration Agreement amounted to an agreement that has, as its object, the sharing of markets within the air transport services sector and is therefore an infringement of the Chapter One Prohibition. The MyCC therefore imposed a financial penalty of RM10 million on each of AA and MAS;
- members of the Cameron Highlands Floriculturist Association (CHFA) entered into an agreement to increase the price of flowers by 10 percent, which was found to amount to an infringement of the Chapter One Prohibition. The MyCC had, pursuant to its decision dated 6 December 2012, instructed the CHFA to cease the price-fixing behavior, to give an undertaking that its members would not engage in anti-competitive practice and issue a statement to that effect in the mainstream newspapers;
- the Pan-Malaysia Lorry Owners Association (PMLOA), the MyCC found that the agreement by members of the PMLOA to increase transportation charges by 15 percent amounted to an infringement of the Chapter One Prohibition. The PMLOA subsequently undertook (via a letter of undertaking dated 7 May 2014) to, among others, issue and publish a joint statement in four mainstream newspapers to apologize for its anti-competitive behavior;
- agreements entered into by two providers of logistic and shipment services, namely Giga Shipping Sdn. Bhd. and Nexus Mega Carriers Sdn. Bhd. (collectively, Enterprises), concerning the exclusivity clauses in the contracts between the Enterprises and their customers. Pursuant to the investigation, each of the Enterprises had undertaken (via letters of undertaking dated 1 October 2014) to remove the inclusion of exclusivity clauses within their contracts, which may be anti-competitive. The MyCC had, pursuant to its press release dated 7 October 2014, accepted the undertakings and has closed the investigation with no finding of infringement; and
- the Malaysia Indian Hairdressing Saloon Owners Association (MIHSOA), the MyCC found that the agreement by members of MIHSOA to increase the price of their haircut services by RM2 amounted to an infringement of the Chapter One Prohibition. Pursuant to the investigation, the MIHSOA undertook (via a letter of undertaking dated 30 January 2014) to, among others, refrain from further engaging in such anti-competitive behavior in the future.
The Competition Act also prohibits enterprises from abusing their “dominant position” in a market. This is referred to as the “Chapter Two Prohibition”. The term “dominant position” refers to one or more enterprises possessing such significant power in a market that they are able to adjust prices, outputs, or trading terms without effective constraint from competitors or potential competitors. The MyCC had issued a guideline on the Chapter Two Prohibition, which provides that generally, a market share of above 60 percent would indicate that an enterprise is dominant. However, market share, on its own, is not conclusive and the MyCC has indicated that it will also take into account other factors to assess whether an enterprise is dominant. Under the Competition Act, an abuse of a dominant position may include:
- directly or indirectly imposing an unfair purchase or selling price or other unfair trading conditions;
- limiting or controlling (i) production; (ii) market outlets; (iii) market access; (iv) technical or technological development; or (v) investment, to the detriment of consumers;
- refusing to supply to a particular enterprise or group/category of enterprises;
- applying different trading conditions to equivalent transactions to an extent that may harm competition;
- making the conclusion of a contract subject to acceptance by the other parties of supplementary conditions which, by their nature or according to commercial usage, have no connection with the subject matter of the contract (for example, tying the sale of one product to the sale of another);
- any predatory behavior toward competitors; or
- buying up a scarce supply of intermediate goods or resources required by a competitor, where the dominant enterprise does not have a reasonable commercial justification for buying up the intermediate goods or resources to meet its own needs.
Although this list of conduct is wide and will cover most examples of abuse, it is non-exhaustive. A significant point to note is that notwithstanding the above list of prohibited conduct, an enterprise in a dominant position is allowed to take steps which have reasonable commercial justification or which represent a reasonable commercial response to the market entry or market conduct of a competitor. This is likely to mean that if an enterprise can justify its conduct on reasonable commercial grounds, then that conduct is unlikely to be considered an abuse of a dominant position. It remains to be seen how strictly this provision will be interpreted. The MyCC has, to date, undertaken an investigation into Megasteel Sdn. Bhd. (Megasteel), the country’s sole producer of hot rolled coils. Hot rolled coils are needed for production of cold rolled coils and Megasteel, who is also competing in the downstream cold rolled coils market, was alleged to have been involved in unfair pricing of hot rolled coils in the upstream market, in order to disadvantage its cold rolled coils competitors (though price discrimination and margin squeezing). The MyCC, in its proposed decision, found that such practice amounted to an infringement of the Chapter Two Prohibition and proposed a financial penalty of RM4,500,000 on Megasteel. We are not aware of the current status of the case but as at today, the MyCC has yet to issue its final decision.
The Competition Act provides that an enterprise which is a party to an anti-competitive agreement which infringes the Chapter One Prohibition may be exempt if:
- there are significant identifiable technological, efficiency or social benefits directly arising from the agreement;
- the benefits could not reasonably have been provided by the parties to the agreement without the agreement having the effect of preventing, restricting or distorting competition;
- the detrimental effect of the agreement on competition is proportionate to the benefits provided; and
- the agreement does not allow the enterprise concerned to eliminate competition completely in respect of a substantial part of the goods and services.
The Competition Act provides for individual exemptions, block exemptions (where a particular category of agreements is exempted) and permits relevant provisions to be used as a defence (in the event of an investigation or litigation). While as at December 2014, the MyCC had not yet granted any individual exemptions, it is anticipated that individual exemptions will be granted only for agreements that are particularly novel or carry a high degree of importance to the wider economy. The MyCC, in line with the position taken by other jurisdictions with an individual exemption system (such as the European Union), has stated that individual notification of exemptions will not be accepted for routine cases, in order to preserve resources for agreements and practices of wider significance. Most companies seeking an exemption for their agreements are likely to look to fit within a “block exemption”. The MyCC had, on 19 December 2013, granted a conditional block exemption order (BEO) for liner shipping agreements in respect of vessel sharing agreement (i.e., agreements on operational matters relating to the provision of liner shipping services, including the coordination or joint operation of vessel services, and the exchange of charter of vessel space) and voluntary discussion agreements (i.e., agreements in which the liner operator members may exchange and review market data, supply and demand forecasts, international trade flows and industry trends) made within Malaysia, or which have an effect on liner shipping services in Malaysia. The BEO applies only to transport services provided by liner operators in respect of ocean transport, and is subject to certain conditions. It came into operation on 7 July 2014, and will continue for 3 years. Both an individual and a block exemption may be subject to certain conditions and/or be granted for a limited duration.
5.1 Self-assessment of anti-competitive agreements
Parties will, in practice, be expected to “self-assess” whether a restriction under an agreement will qualify for an individual exemption, and in the event of an investigation or litigation, will need to be able to demonstrate that the agreement had been assessed and cleared in this way. While the Competition Act sets out the basic criteria for assessing when a restriction may be exempt, the MyCC has not provided more detailed guidance on how it will apply these criteria. The Competition Act does empower the MyCC to issue such guidance in due course but pending the issuance of such guidelines by the MyCC, existing guidance issued by jurisdictions such as Singapore and the European Union offer a helpful starting point.
The Competition Act does not contain any requirement or option for enterprises to seek advance clearance of a planned merger, acquisition or joint venture.
7.1 Contracts Act
The Contracts Act 1950 (Contracts Act) contains a provision which prohibits restraints of trade. Under the Contracts Act, an agreement that restrains a party from exercising a lawful profession, trade or business of any kind, is void (this is subject to three limited exceptions).
7.2 Communications and Multimedia Act
The Communications and Multimedia Act 1998 (CMA) prohibits anti-competitive behavior in the communication, computing, multimedia and broadcasting industries. Types of anti-competitive conduct which are prohibited include:
- conduct which has the purpose of substantially lessening competition in a communications market;
- price fixing, market sharing or boycotting of a competitor or supplier; and
- tying sales of products or services to the sale of other products or services.
The Competition Act will not apply to commercial activities regulated under the CMA.
7.3 Energy Commission Act
The Energy Commission Act 2001 (ECA) contains provisions which govern competition in the energy sector. It also establishes the Energy Commission (Commission), which has a range of functions, including promoting and safeguarding competition and fair and efficient market conduct. In the absence of a competitive market, it is the Commission’s role to prevent the misuse of monopoly or market power in respect of the generation, production, transmission, distribution or supply of electricity and the supply of gas through pipelines. The Competition Act will not apply to commercial activities regulated under the ECA.
7.4 Petroleum Development Act
The Petroleum Development Act 1974 (PDA) provides for the exploration and exploitation of petroleum whether onshore or offshore by Petroliam Nasional Berhad (being the entity in which the entire ownership in and exclusive rights in respect of the said petroleum are vested) and to control the carrying on of downstream activities. Note that the Competition Act will not apply to commercial activities regulated under the PDA, insofar as they relate to upstream operations comprising the activities of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia.
Where there is an infringement of the Chapter One and/or Chapter Two Prohibition, the Competition Act confers powers on the MyCC to impose a financial penalty of up to 10 percent of the worldwide turnover of an enterprise over the period during which the infringement occurred. This penalty is likely to be assessed based on the turnover achieved by the entire corporate group concerned. In its guidelines on financial penalties (Guidelines on Financial Penalties), the MyCC indicated that in determining the amount of any financial penalty in a specific case, it may take into account the gravity, duration and impact of the infringement, turnover of the market involved, degree of fault (whether negligence or intentional), role of the enterprise in the infringement, recidivism, existence of a compliance program and level of financial penalties imposed in similar cases. The Guidelines on Financial Penalties also recognizes that there can be aggravating factors as well as mitigation factors which may have an impact on the financial penalty imposed. It is noteworthy that an infringement of the Chapter One Prohibition or Chapter Two Prohibition is currently not a criminal offence. In other words, while anti-competitive activity could lead to the imposition of a financial penalty on the infringer, it would not lead to criminal prosecution of the infringer or its officers. That said, the Competition Act provides that it will be a criminal offence for individuals or bodies corporate to obstruct the MyCC’s investigations, tip off third parties about an imminent investigation or the MyCC’s visit, or make threats or reprisals against companies or individuals either making complaints to the MyCC or helping a MyCC investigation. A body corporate which commits an offence under the Competition Act will attract a fine of up to Malaysian Ringgit (RM) 5 million, while a second or subsequent offence will result in the imposition of a fine not exceeding RM 10 million. Conversely, first time non-compliance by individuals will result in the imposition of a fine not exceeding RM1 million or imprisonment for a term not exceeding five years or both. A second or subsequent offence will result in the imposition of a fine not exceeding RM2 million or a term of imprisonment not exceeding five years or both.
The Competition Act provides for the implementation of a leniency regime. Under the leniency regime, the enterprise may obtain immunity or a reduction of up to 100 percent of any penalties which would have otherwise been imposed, if it admits to an infringement of the prohibition against the horizontal agreements which are illegal per se. Under the MyCC’s guidelines on the leniency regime (Leniency Guidelines), the MyCC may, in exercising its discretion to grant 100 percent leniency or differing percentages of reductions of financial penalties, take into consideration any circumstances including the fact that the enterprise was the first enterprise to come forward to the MyCC about an infringement, the stage in the investigation (if any), the information or co-operation to be provided and information already in possession of the MyCC. Note that a 100 percent reduction in financial penalties would not be available to the enterprise which initiates the cartel or has taken steps to coerce another enterprise to take part in the cartel activity. Any leniency granted would not protect the successful applicant from other legal consequences, such as civil proceedings commenced by an aggrieved third party who has suffered loss or damage directly caused by an infringement. Under the Leniency Guidelines, any person wishing to apply for leniency can request for a “marker” to establish priority over other potential applications. A marker is only valid for 30 days from the date it is granted, during which time the applicant should complete its leniency application, or risk losing its priority position.
The Competition Act expressly applies to commercial activity taking place within Malaysia. Activity taking place outside Malaysia is also covered where there is a significant adverse effect on competition on any market in Malaysia. [wpdm_package id=’4258′]