Malaysia: Overview

In summary

This chapter explains the main developments in Malaysian competition law from 2020 to 2021.

Discussion points

• The status of amendments to the Competition Act 2010 for merger control;
• the Malaysia Competition Commission’s (MyCC) enforcement actions and legal threshold to discharge in making out an infringement under the deeming provision for cartel infringements;
• the unprecedented public disagreement between a sectoral regulator and the MyCC;
• the highest proposed financial penalty imposed against a single company to date in an abuse of dominance case;
• the judicial review of the MyCC’s proposed decision being held premature by courts and pending appeal;
• the new collaboration announcement by the MyCC and the communications and multimedia regulator; and
• block exemptions granted in the aviation services sector.

Referenced in this article

• The Competition Act 2010;
• the Competition Appeal Tribunal;
• finding of infringement against MAS, AirAsia Berhad and AirAsia X Sdn Bhd;
• finding of infringement against PIAM and its 22 members;
• grounds of decision by the High Court of Malaya in relation to the application for judicial review;
• judgment in the High Court of Malaya at Kuala Lumpur in relation to the application for judicial review; and
• the proposed decision against Grab.

Introduction

The Malaysia Competition Commission (MyCC) is the cross-sectoral enforcement agency for competition law in Malaysia charged with enforcing the Competition Act 2010 (CA). The CA, which came into effect on 1 January 2012, applies to all commercial activities undertaken within Malaysia as well as outside of Malaysia (if it has an effect on competition in the Malaysian market), with the exception of certain commercial activities that have been carved out (eg, commercial activities regulated under the Communications and Multimedia Act 1998, the Energy Commission Act 2001 and the Malaysian Aviation Commission Act 2015 (MACA)).

The main prohibitions under the CA relate to anticompetitive agreements (horizontal agreements, including cartels and vertical agreements) ^[1] and abuses of dominant position. ^[2]

Status of amendments to the CA for merger control

One of the most anticipated events in 2020 was the possible introduction of merger control – it was previously reported that the CA would be amended to empower the MyCC to clear mergers by 2020. ^[3] Based on news reports in September 2020, it would appear that the amendments have been delayed to mid-2021. ^[4]

As the CA presently only sets out prohibitions on anticompetitive agreements and abuses of dominant position, the absence of merger control powers deprives the MyCC and the government of a more direct influence over changes in market structures that may be adverse to competition.

There are sector-specific laws and guidelines that regulate the antitrust aspects of mergers; namely, aviation services and the communications and multimedia sectors, enforced by the Malaysian Aviation Commission (MAVCOM) and the Malaysian Communications and Multimedia Commission (MCMC), respectively. These sectoral regulators also enforce competition rules for their sector through prohibitions on anticompetitive agreements and conduct, as well as abuse of dominance.

Price-fixing cartels dominate the MyCC’s enforcement actions

The MyCC continued to focus on tackling domestic cartels in 2019 and 2020. Since the CA came into effect, the bulk of the cases taken up by the MyCC have related to price-fixing cartels – from the 27 cases reported to have been investigated up by the MyCC on its website (consisting of actions taken by the MyCC at various stages, including issuance of proposed decisions, findings of infringement or non-infringement and undertakings required to be given by enterprises), 16 of the cases relate to price-fixing cartels and with a case each for market sharing, limiting or controlling production, and bid-rigging. ^[5]

In 2020, MyCC issued a proposed decision to seven warehouse operators for allegedly engaging in price-fixing, in particular, price-fixing of surcharges on long-length handling and heavy-lift handling services for all import and export cargo in the Northport and Westport areas of Port Klang. ^[6] The chief executive officer of MyCC, Mr Iskandar Ismail, expressed the MyCC’s focus to continue its effort to combat price-fixing cartels, for the benefit of consumers who are now grappling with cost of living. ^[7] Mr Iskandar further stressed that the MyCC will not stop its hunt for price-fixing cartels, whose actions he said is tantamount to ‘daylight robbery’ and a supreme evil that is against competition laws and must be stopped for consumer protection. ^[8]

Also in 2020, the MyCC issued a finding of infringement against the General Insurance Association of Malaysia (PIAM) and its 22 members, being insurance companies, for engaging and participating in an anticompetitive horizontal agreement under Section 4(2)(a) of the CA for the fixing of parts trade discounts and labour rates by the parties of PIAM Approved Repairers Scheme workshops. ^[9] The finding of infringement was issued after representations were made by the parties following a proposed decision that was issued to PIAM and its 22 members in February 2017.

Undertakings in lieu of a fine continue to be an available option exercised by the MyCC in price-fixing cases. The MyCC accepted an undertaking by the executive council on behalf of the Sabah Tourist Guides Association (STGA) to, among other things, withdraw and repeal all prior decisions or proposals made in relation to the agreed or revised rates for tourist guide services (eg, 2009 Minimum Tourist Guidelines Professional Fees) and not hold any form of discussion in relation to the issue of tourist guides’ fees applicable to STGA members, or take any steps towards the implementation of the proposed 2017 STGA Sabah Professional Guiding Fee Rates, or all of the above. ^[10]

Legal threshold for the MyCC to discharge in making out an infringement under the deeming provision for cartel infringements

The scope of the prerequisite required to be discharged by the MyCC when relying on the deeming provision for purposes of establishing cartel cases continues to be challenged.

By way of background, the MyCC’s case for market-sharing against Malaysian Airline System Berhad (the national carrier) (MAS) and AirAsia Berhad (a low-cost carrier) (AirAsia) was built largely around the collaboration agreement between MAS and AirAsia. The MyCC had contended that the deeming provision in Section 4(2) of the CA can be triggered by the mere entry into the collaboration agreement. ^[11] This contention was rejected by the Competition Appeal Tribunal (CAT). ^[12] Instead, the CAT held that the MyCC is required to establish that the object of the collaboration agreement was to share markets to succeed under the aforesaid provision. ^[13]

The CAT held that a plain reading of the terms of the collaboration agreement did not warrant a finding of restriction by object within the meaning of Section 4(2)(b) of the CA. ^[14] It further faulted the MyCC for not giving any reason or analysis for its decision that the purported object of the collaboration agreement was one of market-sharing. ^[15]

The CAT decision appears to suggest that a simplistic use of the deeming provision in Section 4(2) of the CA on airlines businesses is not appropriate.

The CAT’s decision was, however, reversed on appeal to the High Court where the learned judge held that Section 4(2) of the CA is an express statutory provision and is a presumption of law enacted by parliament to assist the MyCC in carrying out its duty to prove an infringement of Section 4(1) of the CA. ^[16] It is obligatory to invoke the deeming provision if the prerequisite fact has been established. ^[17] The judge found that the prerequisite fact is that the agreement has the object to share markets. It found that several clauses in the agreement when viewed either together or on its own with several background facts demonstrated that the agreement had the object to share markets. ^[18]

The decision is currently subject to appeal before the Court of Appeal. ^[19]

Unprecedented public disagreement between a sectoral regulator and the MyCC raises issues of jurisdiction

One of the most noteworthy developments in the finding of infringement against PIAM and the 22 insurers is the fact that the decision received strong opposition from the Central Bank of Malaysia (BNM).

BNM has issued press releases on the PIAM case on two separate occasions expressing its disagreement over the decision – the first was in 2017 after the MyCC issued its proposed decision against PIAM and its 22 members and the second time was more recently in 2020 when the finding of infringement was made against PIAM and its 22 members.

Based on BNM’s press release in 2017, it is understood that BNM had issued a directive to general insurance companies in 2011 to address disputes between workshops and insurance companies over insurance payments for motor repairs. ^[20] In compliance with the directive, PIAM and its 22 members entered into an agreement with the Federation of Automobile Workshop Owners’ Association of Malaysia to fix the parts trade discount for six vehicle makes and the hourly labour rate. The directive issued by BNM in 2011 was in response to disputes between repairers and insurers over the payment of claims for motor repairs causing protracted delays and inconvenience to consumers. The press statement by BNM also highlighted the fact that the arrangement was necessary to reflect the reasonable cost of repairs in an environment where motor insurance premiums are regulated by a tariff.

In BNM’s 2020 press release, BNM expressed regret over the MyCC’s decision in finding a case of infringement against PIAM and its 22 members. ^[21] Again, it was stated that the arrangement was put in place through the facilitation and direction of BNM to the general insurers to address disputes between workshops and general insurance companies that had adversely impacted consumers. As a result of BNM’s regulatory intervention, delays in settlement of claims arising from motor repairs had reduced significantly and policyholders were better served by a more efficient claims settlement process. For example, the average turnaround time from date of notification of an accident to the completion of repair works had reduced by 55 per cent since 2010. BNM also indicated that the decision by the MyCC may unravel the positive outcomes from past and ongoing initiatives by BNM and the industry to curb fraud and improve efficiency in the motor claims process. This, in turn, will have wider ramifications for access to and the cost of motor insurance for Malaysian consumers. Section 13 of the CA exempts any agreement or conduct with the aim comply with a legislative requirement; however, the MyCC takes the position that the direction by BNM does not meet the elements under Section 13.

The decision is presently the subject of appeal before the CAT. This decision is awaited with much interest for the MyCC has the most overlap with regulators governing key sectors (except those clearly exempted) that usually have the mandate to create, promote and protect competition in their industries. Sectoral regulators intervene where the possibility of market failure is high or where there are natural monopolies. The idea is to regulate firms in these industries in such a way that even when a competitive market cannot be ensured, the outcome in terms of prices and output will be nearly the same as if the market had been competitive.

Highest proposed financial penalty imposed against a single company to date in an abuse of dominance case

On the abuse of dominance front, the MyCC recently issued a proposed decision against Grab Inc, GrabCar Sdn Bhd and MyTeksi Sdn Bhd (collectively, Grab) for allegedly abusing its dominant position. ^[22] The proposed decision followed Grab’s merger with Uber in Southeast Asia in March 2018, following which the MyCC announced that it would look into the merger. Notwithstanding the foregoing, the proposed decision was built on the basis that Grab has abused its dominant position by preventing its driver-partners from promoting and providing advertising services for Grab competitors to Grab passengers in the e-hailing and transit media advertising markets. The MyCC proposed to impose a financial penalty of 86.8 million ringgit against Grab as well as a daily penalty of 15,000 ringgit from the date of service of the proposed decision should it fail to take remedial actions as directed by the MyCC. ^[23] If a finding of infringement is eventually made against Grab, the proposed financial penalty would be the highest financial penalty imposed against a single company to date for an abuse of dominance case in Malaysia.

The MyCC’s first infringement finding in an abuse of dominance case was its case against My EG Services Berhad (MyEG), an e-government services provider for the renewal of insurance for foreign and domestic workers, where the MyEG was found to have abused its dominant position by imposing different conditions in equivalent transactions in the purchase of mandatory insurance for the renewal of temporary work permits for foreign workers. ^[24] Renewals of insurance policies purchased from other insurers were not approved as fast as renewal policies purchased from MyEG via its subsidiary. The MyCC found that, as a dominant concessionaire, MyEG is obliged to grant equal access of its facilities and promote competition in the downstream market. In issuing a finding of infringement against MyEG, the MyCC imposed a financial penalty of 2.27 million ringgit and a directive for MyEG to cease and desist its infringing conduct. On appeal by the MyEG, the CAT upheld the MyCC’s decision. ^[25] On 22 January 2019, the High Court also dismissed MyEG’s judicial review application, upholding both the MyCC and the CAT’s findings of infringement. ^[26] It is reported that the MyEG has filed for an appeal to the Court of Appeal against the MyCC and the CAT’s findings and against the penalty of 9.34 million ringgit imposed by the MyCC. ^[27] This increase in penalty is largely attributed to the daily penalties incurred by MyEG from 7 October 2015 to 22 January 2019 amounting to 9.03 million ringgit for not complying with directives imposed by the MyCC. ^[28] Although MyEG’s substantive appeal against the 9.34 million ringgit penalty was reported to be set for a hearing in August 2020, there have not been any reported developments with this matter since July 2020. ^[29]

The other abuse of dominance case worth noting relates to the proposed decision issued against Dagang Net Technologies Sdn Bhd (Dagang Net), which was provisionally found to have abused its position as a monopoly provider of trade facilitation services under the national single window by refusing to supply electronic mailboxes to end users of the customs operating system. ^[30] Dagang Net was also provisionally found to have imposed an exclusivity clause on its business partners that would have had the effect of distorting competition in the provision of trade facilitation services under the national single window, thereby creating a barrier to entry. The MyCC imposed a proposed financial penalty of 17.4 million ringgit, as well as a directive on Dagang Net to cease and desist its infringing conduct and any future conduct that may disrupt competition.

The MyCC had also investigated several pharmaceutical companies on whether the discriminatory conduct of the pharmaceutical companies in favour of the general practitioners as compared with the pharmacists in terms of price of drugs amounted to an abuse of dominance. On 23 July 2020, the MyCC issued its decision to close the investigation due to insufficient evidence. ^[31]

Judicial review of the MyCC’s proposed decision held premature by courts and is pending appeal

Judicial reviews can typically be initiated by any person who is adversely affected by a decision, action or omission of any public authority. Judicial reviews are concerned with reviewing the decision-making process itself (as opposed to the merits of a particular decision).

In 2019, two separate applications for judicial reviews were made by enterprises in respect of the notices issued by MyCC to require the provision of information and documents from these enterprises. The MyCC investigated these enterprises for price-fixing. In holding that both the applications did not carry any merit, the High Court stated that the MyCC’s investigations had not been completed and that the applicants were not entitled to obstruct the MyCC’s investigations with frivolous excuses. ^[32]

In the first half of 2020, a judicial review application was filed by Grab to challenge the MyCC’s proposed decision to fine Grab a total of 86.77 million ringgit for purported abusive transit media practices. ^[33] Grab argued that the investigation conducted by the MyCC was procedurally improper and invalid and, therefore, the proposed decision is void. Grab further asserted that the MyCC did not have the power to impose a daily financial penalty that commenced from the date of the proposed decision or to publish the quantum of fines prior to the final decision. In this regard, Grab sought to ask the High Court to determine whether the issuance of the proposed decision is legal and in accordance with law.

The High Court ruled that the proposed decision is not to be considered as a final decision for a judicial review and therefore such application was dismissed on the ground that the move to file the application was premature. ^[34] Grab has since appealed the dismissal of its judicial review application highlighting that this is an issue of significant public importance not only for Grab, but also for the wider business community as it concerns critical questions over whether the MyCC’s approach and investigation process in issuing or making the proposed decision is in accordance with the law. ^[35]

New collaboration announcement by the MyCC and the MCMC

In a media statement issued by the MyCC dated 17 August 2020, it was reported that the MyCC collaborated with the MCMC to address exclusivity arrangements between telecommunications service providers (telco providers) and property developers or building management companies in high-rise buildings, including residential complexes. ^[36] The collaboration is necessary as the MCMC is the regulator for the communications and multimedia licensees, which would have jurisdiction over telco providers while the MyCC as the cross-sectoral enforcer would have jurisdiction over property developers.

In this regard, the MCMC published the Communications Infrastructure Planning Guidelines to facilitate the planning and development of communications infrastructure in new property developments, which prohibits exclusive arrangements between telco providers and property developers or building management companies.

The collaboration was due to several complaints from the public over the issue of exclusivity in high-rise buildings, which prevented end consumers from accessing their preferred telco provider – a telco provider was able to monopolise an entire building by ensuring that the property developer or building management company allows the operation by a single telco provider only.

Block exemptions granted in the aviation services sector

The MACA regulates economic matters relating to the civil aviation industry. Part VII of the MACA governs anticompetitive practices in the aviation service market in Malaysia. It largely mirrors the CA in its competition provisions by prohibiting anticompetitive agreements and abuse of dominance in the aviation service market. There have been no infringement investigations or actions taken pursuant to the competition provisions in the MACA, nor have there been merger applications made based on publicly available information. ^[37]

As with the CA, enterprises in the aviation service sector can make an individual or block exemption application to MAVCOM. To date, three applications for individual exemption have been approved and gazetted. They are as follows:

• individual exemption by All Nippon Airways Co Ltd and United Airlines Ltd, in relation to a joint venture agreement, which will expire on 10 May 2022; ^[38]
• individual exemption by Singapore Airlines Limited and Deutsche Lufthansa AG in relation to a joint venture agreement for parties to cooperate in schedule coordination and capacity management, pricing and inventory management, sales, marketing and revenue sharing, which will expire on 2 September 2022; ^[39] and
• individual exemption by Malaysia Airlines Berhad and Japan Airlines Co Ltd in relation to a metal neutral partnership for scheduled air passenger services between Malaysia and Japan, which will expire on 8 December 2022. ^[40]

* Shanthi Kandiah was assisted by Thong Xin Lin, Nimraat Kaur and Karisma in preparing this article.

Notes