ARTICLE
18 May 2023

Malaysia Competition Law Case Update: No Safe Harbour For Port Klang Warehouse Operators

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On 26 July 2021, the Malaysia Competition Commission ("MyCC") issued an infringement decision against 7 warehouse operators in Northport and Westport areas in Port Klang for price fixing conduct.
Malaysia Antitrust/Competition Law

Background Facts

  • On 26 July 2021, the Malaysia Competition Commission ("MyCC") issued an infringement decision against 7 warehouse operators in Northport and Westport areas in Port Klang for price fixing conduct.
  • MyCC invoked Sections 4(1) and the deeming provision under Section 4(2) both of the Competition Act 2010 ("CA") and found that the 7 warehouse operators infringed Section 4 of the CA by engaging in an agreement / concerted practice to fix the rates of handling surcharges for long length handling and heavy left handling services for import and export cargo ("Infringing Agreement"). Financial penalties totalling RM 1.045 million were imposed on the 7 warehouse operators.
  • MyCC, tipped off by an informant, found, among others, a WhatsApp group chat between them discussing and attempting to standardise surcharge for handling services for long length and heavy lift cargoes. A Surcharge Memorandum was signed by them to implement the agreed surcharge and parties agreed to circulate the same to their respective customers. Efforts were also made to reach out to the Port Klang Authority ("PKA") to agree to the surcharges, though approval was never obtained.
  • 5 of the 7 warehouse operators ("Appellants") appealed to the Competition Appeal Tribunal ("Tribunal").
  • On 24 February 2023, the Tribunal affirmed MyCC's infringement decision.

Key Takeaways

The recent decision of the Tribunal is an interesting development to Malaysian competition law as it attempts to reconcile a safe harbour agreement deemed not significant by the MyCC in its own Guideline on Chapter 1 Prohibition ("Guideline"), with an agreement where its impact is deemed significant under Section 4(2) of the CA.

It also elucidates the scope of exclusion under Section 3(4)(a) of the CA - even if an activity is regulated by a governmental authority, this does not mean it will be excluded from the application of the CA as activities that are directly or indirectly in the exercise of governmental authority.

Notable Legal Points in the Tribunal's Decision

This update does not attempt to provide a comprehensive summary of the Tribunal's decision. It seeks to discuss selected legal aspects of the Tribunal's decision which are significant to the development of competition law in Malaysia.

Conditions for Deeming Provision under Section 4(2)(a)

Under Section 4(1) of the CA, "a horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services."

Section 4(2)(a) of the CA further provides that, "Without prejudice to the generality of subsection (1), a horizontal agreement between enterprises which has the object to: fix, directly or indirectly, a purchase or selling price or any other trading conditions is deemed to have the object of significantly preventing, restricting, or distorting competition in any market for goods or services.

The Tribunal followed the landmark Court of Appeal's decision1 in the case of Malaysia Airline System Bhd v Competition Commission & Another Appeal on its application of the deeming provision under Section 4(2). In that case, the Court of Appeal decided that the conditions for the application of Section 4(2) must be strictly complied with before an agreement can be deemed to have the "object of significantly preventing, restricting or distorting competition in a relevant market". The Tribunal summarised the conditions as follows:

  1. There must be a horizontal agreement;
  2. The horizontal agreement is made between enterprises; and
  3. The agreement has the object to fix, directly or indirectly, a purchase or selling price or any other trading conditions.

On the facts of the case, the Tribunal found that the conditions are satisfied:

  1. the Appellants carry out commercial activities relating to the provision of long length and heavy lift handling service for import/export cargoes;
  2. they all operate at the same level in the production chain; and
  3. there is evidence of their discussions to implement the handling surcharge.

Deeming Fact of "Object of Significantly Preventing, Restricting or Distorting Competition" Not Rebuttable

Following the Court of Appeal's decision in the case of Malaysia Airline System Bhd v Competition Commission & Another Appeal, the Tribunal held that once the conditions under Section 4(2) have been satisfied, the deemed provision would be operative by law, meaning, the object of "significantly" preventing, restricting, or distorting competition in the relevant market would be regarded as a factual reality in law.

The Appellants argued that the deeming provision in Section 4(2) should not apply because it contradicts MyCC's own Guideline, which states that combined market shares of competitors of less than 20% will not be considered "significant". They further argued that the Appellants' combined market shares could be less than 20% as the main player in the relevant market was not involved in the Infringing Agreement and the services targeted by the price-fixing agreement were not the core business of the Appellants. The Infringing Agreement should fall outside the prohibition of Section 4 since it only has an insignificant effect on the market.

Consistent with the landmark decision of Malaysia Airline System Bhd v Competition Commission & Another Appeal, the Tribunal held that such a statutory "deeming" provision is not rebuttable and it is not open for the Appellants to adduce evidence to contradict the deemed conclusive fact that the conduct in question had the "object of significantly" preventing, restricting, or distorting competition.

Our comments

Curiously, the Tribunal in its decision went on further to hold that once the deeming provision is operative, it means that the services in question provided by the Appellants exceeded 20% of the relevant market share when considered together with MyCC's Guideline. This legal fiction, which overstretches the reach of the deeming provision to deem the relevant market share of the Appellants, appears to be a novel one which is unfound under the EU jurisprudence.

It should be noted that MyCC's Guideline states that agreements are prohibited under Section 4(1) only if they significantly prevent, restrict or distort competition in any market for goods or services in Malaysia. The Guideline sets out how the MyCC will interpret "significantly preventing, restricting or distorting competition":

  1. MyCC considers in general that the agreements must have more than a trivial impact - impact would be assessed in relation to the identified relevant market. MyCC therefore considers the combined market shares of the relevant parties would be a good guide to the trivial impact of the agreement;
  2. MyCC also explained in the Guideline that the following anti-competitive agreements will not be considered "significant" if:
    1. 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%;
    2. the parties to the agreement are not competitors and all of the parties individually has less than 25% in any relevant market.

In short, in setting out how MyCC determines which agreements will not be considered "significant" based on market shares, the Guideline provides a "safe harbour" for minor agreements below the stipulated market share thresholds. However, it does not mean that agreements exceeding the market share thresholds set out in the Guideline will automatically be considered "significant". It also does not mean that the parties' market shares can be deemed to be above the threshold set out in the Guideline when their agreement is deemed to have a significant effect under Section 4(2).

This must be contrasted with the legal position in the EU. In the EU, the European Commission adopts a similar safe harbour approach based on market shares in their Guidelines on the Effect on Trade Concept contained in Articles 101 and 102 TFEU (De Minimis Notice). The European Commission states explicitly in paragraph 13 of their De Minimis Notice that the safe harbour provided does not apply to object restrictions. This is because the European Commission considers a restriction by object affecting trade between member states constitute by its nature and independently of any concrete effects that it may have, an appreciable restriction of competition.

To enhance clarity and certainty regarding the application of the safe harbour approach to the by-object prohibitions under Section 4(2) of the CA, it may be beneficial to explicitly state that the safe harbour approach does not apply to the by-object prohibitions under Section 4(2) of the CA. This could provide greater confidence to stakeholders and improve understanding of the Guideline.

Non-application of the CA to "any activity, directly or indirectly in the exercise of governmental authority" under Section 3(4)(a) of CA

Section 3(4)(a) of the CA states that any activity, directly or indirectly, in the exercise of governmental authority is excluded from the meaning of "commercial activity".

The Appellants argued that their services are under the purview and control of the PKA, a government body created by statute and hence they are carrying out activities directly or indirectly in the exercise of governmental authority and ought to be excluded from the application of the CA under Section 3(4)(a) of the CA.

The Tribunal held that despite the fact that the PKA is a governmental entity and the long length handling and heavy left handling services are within its control, the Appellants carry out those activities at their own free will, which were purely commercial in pursuit of profit. Hence, Section 3(4)(a) of the CA will not apply.

The Appellants also argued that they had the blessing and approval of PKA to enter into the Infringing Agreement.

Nonetheless, the Tribunal found no clear evidence that PKA approved the price-fixing of the surcharges and affirmed the finding that the PKA has changed its stance from initially allowing the Appellants to impose the surcharge to disallowing the same due to customer's complaints. In any event, even if PKA agreed to the same, the infringement was committed prior to PKA's agreement.

Our comments

This finding clarifies the scope of exclusion under Section 3(4)(a) of the CA. Notwithstanding an activity may be under the purview of a governmental authority, this does not mean it will be excluded from the application of the CA. Purely commercial activities carried out in pursuit of profit will still be subject to the CA.

Footnote 

1 At the time of writing, MyCC filed an application to invite the Federal Court (apex court in Malaysia) to review its own decision in rejecting MyCC's leave to appeal against the Court of Appeal decision in the case of Malaysia Airline System Bhd v Competition Commission & Another Appeal. The review application is pending hearing before the Federal Court.

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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