Malaysia: From Floriculturists And Barbers To Airlines And Insurers

Last Updated: 6 November 2018
Article by Tan Shi Wen and Karyn Khor

Shi Wen and Karyn examine the developments since the inception of the Competition Act 2010.

This year marks the 6th anniversary of the Malaysian Competition Act 2010 ("Act"), which came into force on 1 January 2012. The past few years have shown a growing trend of enforcement by the Malaysia Competition Commission ("MyCC"), particularly those relating to cartels.

We observed that the MyCC has, based mainly on third party complaints and even ex-officio, conducted investigations into various industries, associations and companies both international and local. In tandem with those investigations, the MyCC has been active in developing guidelines and carrying out studies of several market sectors.

This update provides an overview of the MyCC's investigative trends, policy and enforcement positions, as well as the developments which have occurred in the application of the Act itself.

THE FIRST STEP

When the Act was passed in 2010, companies were given one and a half years to bring their business and internal processes into compliance with the Act. The rationale at the time was that businesses and associations would need time to learn about the Act and adjust their practices accordingly, since there had never been any similar law in Malaysia to address competition issues (apart from the Communications and Multimedia Act 1998). The MyCC went on roadshows and focused on giving talks in an attempt to educate companies – as well as the general public – about the Act and how it was meant to protect consumers in Malaysia. It also issued various guidelines on the application of the Act and the basic concepts of market share.

After the Act came into force, public reaction to the Act and talk of its enforcement remained rather relaxed, and for a brief time it remained to be seen whether and how the MyCC would tackle potential non-compliance.

However, the lull was short-lived; on 23 July 2012, The Star newspaper reported that the MyCC was investigating the Cameron Highlands Floriculturist Association ("CHFA") for allegedly fixing prices of flowers sold to distributors and wholesalers. The initial reaction of the CHFA was one of denial, insisting that the rules of the free market meant that the CHFA and its members were entitled to raise flower prices by 10% across the board. However, the tune quickly changed when the MyCC issued its proposed decision in October that same year. On 6 December 2012, the MyCC published on its website that it had issued a decision finding that the members of the CHFA had infringed Section 4(2) of the Act by fixing the purchase price of their products.

This being the first case in which the MyCC issued a decision on infringement, there was no financial penalty imposed. The CHFA was instead instructed to cease and desist the act of fixing prices and to give an undertaking to the MyCC that its members would refrain from any anti-competitive practices in the relevant market. The CHFA was also required to issue a public statement in local newspapers that it had implemented the above. The president of the CHFA publicly apologised on behalf of the association and admitted that neither the CHFA nor any of its members had been aware that their association's decision to fix prices contravened the Act.

GAINING TRACTION

The CHFA's price-fixing behaviour was brought to the attention of the MyCC by the CHFA's own newspaper announcement regarding the decision to raise prices of flowers. One might say it was a case of low-hanging fruit, but it certainly paid off; the media attention which the CHFA case garnered sent a clear signal that the MyCC was ready and willing to investigate and prosecute any party – even small, local associations – who violated the provisions of the Act.

In late 2013, the MyCC investigated the Malaysia India Hairdressing Saloon Owners Association ("MIHSOA") for a similar offence, on nearly the same facts. The association had published in local newspapers that its members were going to raise prices of haircuts by RM2.00. No formal decision was issued, but MIHSOA was required to give the MyCC an undertaking that its members would cease such price-fixing behaviour.

TAKING OFF

CHFA and MIHSOA were far from the only associations to be investigated by the MyCC, which was, by 2014, conducting various investigations parallel to one another. In March 2014, the MyCC issued its first ever decision requiring the offending parties to pay a financial penalty. Malaysia Airline System Berhad ("MAS") and AirAsia Berhad ("AirAsia") were found to be in contravention of Section 4(2) of the Act, by agreeing that MAS, AirAsia and AirAsiaX would each focus on their individual market areas and not enter into or continue to compete in their competitor's allocated market. MAS and AirAsia were fined RM10,000,000 each, bringing the enforcement of competition law in Malaysia to its next major milestone – the imposition of financial penalties.

A string of investigations and decisions quickly followed the MAS/AirAsia finding of infringement. In October 2014, Giga Shipping Sdn Bhd gave an undertaking to the MyCC to cease the imposition of certain exclusivity clauses which would have raised competition issues under Section 4 of the Act. Interestingly, the undertaking was given before the MyCC issued its final decision, and in exchange for the undertaking, the MyCC agreed to "refrain from instituting or taking proceedings against the relevant enterprises involved".

Shortly thereafter, in January 2015, the MyCC issued a decision finding 24 manufacturers of ice to have infringed the Act by fixing the prices of tube ice and block ice in Kuala Lumpur, Selangor and Putrajaya. The ice manufacturers were collectively fined RM251,950, with individual fines ranging from RM1,080 to RM106,000. Two weeks later, the MyCC issued a decision against 15 members of the Sibu Confectionary and Bakery Association for price-fixing, fining them a total of RM247,730 with individual fines ranging from RM480 to RM102,600.

Other cases investigated during this time included the Pan- Malaysia Lorry Owners Association, and the Malaysia Heavy Construction Equipment Owners' Association. In both cases the MyCC was satisfied with undertakings and did not impose a financial penalty.

In June 2016, the MyCC issued its first decision relating to a Section 10 offence (abuse of dominance). The investigation involved My E.G. Services Berhad ("MyEG"), which was allegedly abusing its dominant position by imposing different conditions on equivalent transactions in the processing of mandatory insurance for online foreign worker permit renewal applications. The MyCC found MyEG guilty of abusing its dominant position and imposed a financial penalty of RM2.27 million.

Around the same time, another decision was issued against four container depot operator companies and an information technology service provider, Containerchain (Malaysia) Sdn Bhd, for operating a cartel in the shipping and logistics industry in Penang – a total fine of RM645,774 was imposed on all enterprises.

RECENT DEVELOPMENTS

MyCC continues to conduct investigations consistently to this day. At the time of writing, there are six (6) findings of an infringement and two (2) proposed decisions issued by the MyCC which have yet to be finalised – one against the Persatuan Insurans Am Malaysia ("PIAM") and its members in late 2017, and another against seven tuition and day care centres operating in the SS19 area in Subang Jaya in February this year.

Of all the cases which the MyCC has investigated to date, three have been challenged: the Competition Appeal Tribunal ("CAT") overturned the MyCC's decision in the MAS/AirAsia case in February 2016, and the case is currently pending judicial review. Both Prompt Dynamics Sdn Bhd (one of the container depot operators) and MyEG appealed their respective cases to the CAT, but were unsuccessful. MyEG has announced that it intended to apply for judicial review as well, but as at the time of writing there have been no developments on that front.

DISCERNING THE TRENDS

Investigations

The MyCC's first few investigations appeared to have arose from publications and news articles by the offending parties themselves, who were not aware that their behaviour was illegal. Since then, the MyCC has had plenty on its plate without relying on enterprises to 'self-report'. Competitors, consumers and even enterprises in the upstream or downstream industries have complained to the MyCC of potentially anti-competitive conduct. In fact, based on statistics published by the MyCC in late 2017, the MyCC had received a total number of 339 third party complaints of which 311 of those complaints were closed. There were only 45 cases initiated by the MyCC of which 41 were closed. There is also the possibility that an enterprise may inform the MyCC of its own anti-competitive behaviour by making an application under the "leniency regime". However, based on the cases reported to date, this has yet to occur.

Target Enterprises

From 2014 onwards, the MyCC's investigations appeared to have moved away from small businesses and associations involving everyday goods and services, such as flowers, haircuts and ice, to 'bigger fish', like MAS, AirAsia, MyEG and PIAM. The MyCC's latest proposed decision against the seven tuition and day care centres in Subang Jaya however came as a surprise. It is speculated to be initiated based on a third party complaint and if true, will reaffirm the MyCC's enforcement practice that it will continue to focus and investigate into third party complaints.

From Undertakings to Penalties

When the Act first came into force, the MyCC's decisions imposed relatively little or no financial penalties. This was likely due to a combination of the fact that the infringers were small businesses with relatively small turnover, and also that the Act was in its infancy at the time and these businesses would not have had the resources to ensure that their company and staff underwent competition compliance training. This changed with the MyCC's imposition of a collective fine of RM 20 million in the MAS/AirAsia case, which sent a clear signal to the Malaysian market that the MyCC would enforce the Act strictly and that ignorance should no longer be pleaded as a mitigation point or in defence of a contravention.

The PIAM proposed decision, if finalised and issued as presently proposed, would result in the largest financial penalty ever imposed by the MyCC in the history of the Act's enforcement, at roughly RM213.5 million. The penalties generally appear to be on an upward trend, and where MyCC accepted undertakings in the past, the more recent decisions see these replaced with orders or instructions attached to the fines.

INTO THE FUTURE

Since the Act came into force, one of the more notable changes is the disapplication of the same to certain industries – new laws have been drawn up and old ones amended so as to bring competition issues in certain industries out of the scope of the Act and within the powers of the regulatory authority under the relevant legislation (for example, the Petroleum Development Act 1974 and the Malaysian Aviation Commission Act 2015).

The MyCC had also conducted market studies on particular industries to examine how potentially anti-competitive behaviour should be analysed given the particular market characteristics – these include, among others, the two recent studies on the pharmaceutical and building construction industries.

The MyCC's political will is clear and unambiguous – despite having been active for less than a decade, the investigative and enforcement arm of the MyCC has been hard at work, as can be seen from the increasing complexity of the cases being tried and the thought being given to the decisions issued.

During a public consultation relating to its latest proposed Guidelines on Intellectual Property Rights and Competition Law ("IPR Guidelines"), the MyCC reiterated that it would take a strong stance against anti-competitive behaviour, particularly where there was an object to prevent, restrict or distort competition.

Considering the latest draft IPR Guidelines, and with at least one case up for judicial review and two proposed decisions in the pipeline, it is definitely an exciting time for competition in Malaysia. If the MyCC's track record is indicative of any sort of trend or movement, that movement is forwards and upwards, and the enforcement of competition legislation is definitely growing in Malaysia. Against this backdrop, companies operating, or considering to carry out business, in Malaysia, should ensure that they are familiar and comply with the competition legislation to avoid the risk of falling foul of the legislation and consequently bearing the brunt of enforcement action by the MyCC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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