Malaysia: Overview

In 2012, Malaysia joined over 100 other countries worldwide and became the fifth ASEAN nation (after Indonesia, Singapore, Thailand and Vietnam) to establish a competition law regime. The Malaysian Competition Act 2010 (the Act), which came into effect on 1 January 2012, aims to promote economic development by promoting and protecting the process of competition, thereby protecting the interests of consumers. These objectives reflect the government’s goal of doubling Malaysia’s per capita income by the year 2020 and transforming the country into a more competitive, market-driven and investor-friendly country.

Similar to competition laws adopted in the European Union, the Act contains prohibitions on anticompetitive agreements (Chapter 1 of the Act) and abuse of dominance (Chapter 2 of the Act), although it does not provide for competition law regulation on merger control.

The Act is enforced by the Malaysia Competition Commission (MyCC), a corporate body established under the Competition Commission Act 2010, whose members are appointed by the prime minister on the advice of the minister charged with the responsibility for domestic trade and consumer affairs. The MyCC is comprised of representatives from both the public and private sectors who have experience in business, law, economics, public administration, competition law and consumer protection.

 Since the Act came into force, the MyCC’s enforcement activities have focused on cartel conduct; particularly price fixing by trade associations. Despite the emphasis on cartels, the MyCC has also probed anticompetitive vertical agreements and abuse of dominance in the steel and the online foreign workers permit renewal sectors.

The MyCC is empowered to work with other competition authorities and has benefited from cooperation and capacity-building exchanges with other competition authorities, which are also expected to lead to cooperation in cartel investigations. Enterprises are therefore advised not to delay compliance, as a penalty for infringement can apply to turnover of the enterprise over the entire duration of the infringement, and relates as far back as 1 January 2012, when the Act came into force.

Scope

The Act applies to commercial activities within Malaysia, as well as commercial activities undertaken outside Malaysia that have an effect on competition in any market in the country. Commercial activity does not, however, include:

• any activity, directly or indirectly carried out in the exercise of governmental authority;
• any activity conducted based on the principle of solidarity; or
• any purchase of goods or services done not for the purposes of offering goods and services as part of an economic activity.

There are several sectors or industries that are carved out from the application of the Act. Competition matters relating to communications and energy are enforced by sector regulators, namely the Malaysian Communications and Multimedia Commission in relation to communications and multimedia industries (Communications and Multimedia Act 1998) and the Energy Commission in relation to the energy sector (Energy Commission Act 2001). Commercial activities regulated under the Petroleum Development Act 1974 and the Petroleum Regulations 1974 (directly in connection with upstream operations comprising the activities of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia) are also excluded from the application of the Act. In addition, the Postal Services Act 2012 introduced general competition law applicable to the postal market, which is also under the purview of the Malaysian Communications and Multimedia Commission. In 2015, the Malaysian parliament passed the Malaysian Aviation Commission Act 2015 that seeks to regulate competition law in the aviation services market. The Malaysian Aviation Commission Act 2015 is the first legislation in Malaysia that introduces a merger control regime in addition to prohibiting anticompetitive agreements and abuse of dominance in the Malaysian aviation services market.

In December 2013, the MyCC granted its first conditional block exemption order, which was published in the Gazette on 4 July 2014. This block exemption was granted to liner shipping agreements in respect of voluntary discussion agreements and vessel sharing agreements made within Malaysia or which have an effect on the liner shipping services in Malaysia, and took effect on 7 July 2014. It will be valid for three years and reviewed after two years.

Application

The Act applies to enterprises. ‘Enterprise’ is defined as any entity carrying on commercial activities relating to goods or services. This definition is wide and would include, for example, companies, partnerships, trade associations, individuals operating as sole traders, state-owned corporations and non-profit-making bodies. In support of the objective to promote the process of competition, rather than any specific players in the market, the MyCC clearly sent a message that even government-linked companies are not immune when it imposed a financial penalty of 10 million ringgit each on Malaysia Airlines (MAS) and AirAsia for market allocation (MAS–AirAsia case).

There is no merger control regime under the Act and there is presently no procedure to notify the MyCC of a merger. Where there are concerns that a merger or acquisition may have the effect of significantly preventing, restricting or distorting competition, the parties to the transaction can either conduct self-assessment that the benefits to competition outweigh the detriments or apply for an individual exemption. The Malaysian Aviation Commission Act 2015 has built-in procedures for voluntary notification regime for mergers in the aviation services market.

Liability within a single economic unit

Where an employee engages in conduct that would infringe the Act, liability for such infringement may be imputed to the employers. Similarly, a parent company may be liable because a parent and subsidiary company shall be regarded as a single enterprise if, despite their separate legal entity, they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market. The MyCC first applied the principle of a single economic unit in the MAS–AirAsia case, where it attributed liability to AirAsia for its wholly owned subsidiary, AirAsia X (which serves the medium to long-haul sector).

Chapter 1 of the Competition Act: prohibition on anticompetitive agreements

Similar to the provisions of article 101 of the Treaty on the Functioning of the European Union, Chapter 1 of the Act prohibits horizontal and vertical agreements between enterprises that have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services. Provisions in agreements that infringe the Act will be unenforceable, as such provisions are considered illegal pursuant to the Contracts Act 1950.

The term ‘agreement’ is deliberately defined in a broad manner and includes any form of contract (written and oral), arrangement or understanding between enterprises, whether legally enforceable or not, and includes a decision by an association (such as trade and industry associations) and concerted practice. The concept of ‘concerted practice’ is adopted from European case law and has been defined to mean any form of coordination between enterprises that knowingly substitute practical cooperation between them for the risks of competition. This usually involves some form of informal cooperation or collusion where parties enter into an informal arrangement or understanding, and would include situations where enterprises mirror or follow the price that is set by another competitor without being unilateral and independent.

The MyCC is likely to follow European cases on exchange of commercially sensitive information, including cases on the hub-and-spoke cartel where the parties to a cartel use a third party (eg, in a vertical agreement) as a conduit for exchanging such information. Parties to vertical agreements should thus approach the exchange of information with caution, lest they be found to facilitate collusive conduct.

Agreements are prohibited only if they have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services in Malaysia. The MyCC has interpreted the term ‘significant’ to mean that the agreements must have more than a trivial impact. The impact would be assessed in relation to the identified relevant market. When defining the relevant market, the MyCC will identify close substitutes for the product under investigation in the relevant product market as well as the geographic market.

As a starting point, the MyCC’s Guidelines on Chapter 1 Prohibition (in relation to anticompetitive agreements) provide that the MyCC will generally not consider agreements between competitors in the same market, whose combined market share does not exceed 20 per cent of the relevant market, to have a ‘significant’ effect on competition, provided that such agreements are not hard-core cartels. Under certain circumstances, an agreement between competitors below the threshold may nonetheless have a significant anticompetitive effect and the MyCC reserves the ability to take enforcement action against the parties to such agreement.

When assessing whether an agreement has the object of significantly preventing, restricting or distorting competition, the MyCC will not only examine the actual common intention of the parties, but will assess the aims of the agreement taking into consideration the surrounding economic context. If the object of any agreement is highly likely to have a significant anticompetitive effect, then the MyCC may find the agreement to have an anticompetitive object. Once an anticompetitive object is shown, the MyCC does not need to examine the anticompetitive effect of the agreement. However, if the anticompetitive object is not found, the agreement may still infringe the Act if there is an anticompetitive effect.

Since the Act came into force, the MyCC has targeted cartel practices, mainly by trade associations such as the Cameron Highlands Floriculturists Association, Pan-Malaysia Lorry Owners Association, Sibu Confectionery and Bakery Association, as well as the ice manufacturers that were found to have fixed selling prices. In June 2015, MyCC issued a proposed decision against an information technology service provider to the shipping and logistics industry and four container depot operators for price fixing. MyCC alleged that Containerchain (M) Sdn Bhd, the information technology service provider, had engaged in concerted practices with the container depot operators, resulting in the operators increasing the depot gate charges from five ringgit to 25 ringgit. MyCC also alleged that the concerted practice resulted in the container depot operators offering a rebate of five ringgit to hauliers on the agreed depot gate charges. There has only been one market-sharing case thus far, namely the MAS–AirAsia case, that involved a collaboration agreement entered into by Malaysia Airlines and AirAsia, which the MyCC found to have the object of market sharing, resulting in the withdrawal of some routes on which both airlines competed. The case is pending the decision of the Competition Appeal Tribunal (CAT).

Prohibition on anticompetitive horizontal agreements

The prohibition on anticompetitive horizontal agreements applies to enterprises operating at the same level in the production or distribution chain. Even though the term ‘object’ is not defined in the Act, there are certain horizontal agreements between enterprises that are deemed as having the object of significantly preventing, restricting or distorting competition and the MyCC does not need to examine or prove any anticompetitive effects of such agreements. Agreements that are deemed to be anticompetitive under subsection 4(2) of the Act include those that:

• fix, directly or indirectly, a purchase or selling price or any other trading conditions;
• share markets or sources of supply;
• limit or control production, market outlets or market access, technical or technological development or investment; or
• perform an act of bid rigging.

For example, in the MAS-AirAsia case, the MyCC found that the collaboration agreement entered into by the parties in 2011 expressly sets out the object or intention of the parties to share the market in relation to sectors in the aviation services, particularly the clause that states that the airlines agreed that MAS was to only be a full-service premium carrier, while AirAsia and AirAsia X would be a regional low-cost carrier and a regional medium-to-long haul low-cost carrier respectively. It is interesting to note that the MyCC then went on to consider the effects of the collaboration agreement and found that the agreement resulted in an outcome whereby Firefly (a wholly-owned subsidiary of MAS) withdrew from four East Malaysian routes leaving AirAsia to be the sole low-cost carrier.

Section 5 of the Act (discussed below) provides relief from liability, provided all of the criteria prescribed are satisfied.

Prohibition on anticompetitive vertical agreements

Vertical agreements refer to agreements by enterprises operating at a different level in the production or distribution chain. Generally, the MyCC considers vertical agreements to be less harmful to competition compared to horizontal agreements. This is because parties to a vertical agreement usually have a joint interest in ensuring that the final product or service is competitive, as opposed to horizontal agreements, which are between competitors operating at the same level in the production or distribution chain.

The MyCC has expressly indicated that it considers resale price maintenance, including other similar schemes that achieve this, such as maximum or recommended retail pricing that serves as a focal point for downstream collusion, as highly anticompetitive. This may apply even where the market shares of the parties are less than the 25 per cent de minimis threshold.

For example, where a manufacturer sets a price that is to be followed by its wholesaler, distributor and retailer, these distribution channels do not compete on price, thus hurting competition. Agreements that established fixed prices and margins prior to the Act will need to be amended to remove such pricing structures. Generally, maximum prices and genuine recommended prices would be permissible provided that they are not guises for fixed resale prices.

It is possible, although as yet untested, that the MyCC will follow the European position and consider true agency structures as falling outside of the ambit of Chapter 1 of the Act. In a true agency structure, the principal bears all commercial risks and is thus able to dictate the prices at which the agent enters into a sale on its behalf. This would not be applicable where the ‘agent’ assumes commercial risk for the sale or collections.

Anticompetitive non-price restraints are generally not considered significant where the market shares of the seller or buyer do not exceed 25 per cent of their relevant market. Examples of such restraints include the following:

• exclusivity or single branding, where the competitors are foreclosed from the market – this could include loyalty and other rebates or cumulative discounts that incentivise a buyer to buy exclusively or nearly all of its needs from a single supplier;
• exclusive territorial allocation, where a distributor is given exclusivity over a demarcated area within Malaysia, thereby limiting inter-brand competition;
• exclusive customer allocation, which similarly raises competition issues where there is no significant inter-brand competition;
• tied sales, where a customer who purchases a product is forced to also purchase another product (the tied product) – such tying could restrict access to the tied product market by competitors, particularly if the first product is a ‘must have’; and
• upfront access payments, which suppliers pay to distributors to get exclusive access to distribution (eg, the best shelf space in a retail outlet).

Similar to anticompetitive horizontal agreements, vertical restraints that raise competition issues can nevertheless be relieved from liability where the criteria in section 5 are proven.

Following a complaint from a competitor, the MyCC had, in October 2014, completed its investigation on exclusive agreements entered into by two major providers of logistic and shipment services by sea, Giga Shipping Sdn Bhd and Nexus Mega Carriers Sdn Bhd, with their vehicle manufacturers, distributors and retailers. The MyCC was concerned that these agreements may have the effect of foreclosing customers to competitors of the enterprises, which if established, would have the effect of significantly preventing, restricting or distorting competition in the provision of the services. The MyCC closed investigations with a finding of no infringement after accepting undertakings from the respective parties.

Section 5 of the Competition Act: relief from liability for Chapter 1 prohibition

In principle, no activity is precluded from the application of section 5, which allows parties to an agreement that significantly prevents, restricts or distorts competition to defend the restriction based on pro-competitive grounds. However, in practice, extremely convincing evidence is needed to satisfy the MyCC that the benefits to competition outweigh the detriments.

Section 5 of the Act provides that an anticompetitive agreement prohibited under Chapter 1 of the Act may be relieved from liability where all of the following criteria are proven by the parties to the agreement:

• there are significant identifiable technological, efficiency or social benefits directly arising from the agreement;
• the benefits could not reasonably have been provided without the agreement having the anticompetitive effect;
• the detriment to competition is proportionate to the benefits provided; and
• the agreement does not eliminate competition in respect of a substantial part of the goods or services.

All four criteria must be met and the parties claiming this relief have the onus of proving that the benefits gained are passed on to the consumers.

Parties to an agreement should conduct a self-assessment and determine whether it is able to justify its conduct under section 5. If it is able to make a case, and desires certainty before proceeding with a course of action, it can apply for an exemption under the Act, which provides for individual exemptions granted to specific applicants and block exemptions granted to a class of enterprises (eg, the block exemption granted by the MyCC in 2013 on liner shipping agreements entered into between ocean common carriers).

As filing for an exemption is not a precondition to raising a section 5 defence, some enterprises may choose not to apply for an exemption and instead raise their defence arguments when the MyCC investigates the conduct or issues a notice of a proposed finding of infringement.

Leniency regime

The Act empowers the MyCC to establish a leniency regime that provides for a reduction of up to a maximum of 100 per cent of any penalties that would otherwise have been imposed (ie, full immunity). The leniency regime is only applicable for the admission of an infringement of a prohibition under subsection 4(2) of the Act, whereby parties:

• fix, directly or indirectly, a purchase or selling price, or any other trading conditions;
• share market or sources of supply;
• limit or control production, market outlets or market access, technical or technological development or investment; or
• perform an act of bid rigging.

The leniency regime does not apply to cases of abuse of dominance. Leniency granted under the Act would also not protect the successful applicant from other legal consequences, such as private actions by aggrieved persons who have suffered loss or damage directly caused by an infringement.

The leniency regime is thus only available in cases where the enterprise has:

• admitted its involvement in an infringement of subsection 4(2)of the Act; and
• provided information or other form of cooperation to the MyCC that significantly assisted, or is likely to significantly assist, in the identification or investigation of any finding of the infringement against any other enterprises.

What would be considered as ‘significant assistance’ will be determined by the MyCC on the specific circumstance of the case under consideration.

The leniency regime permits different percentages of reductions to be made available to an enterprise. This would depend on whether the enterprise was the first person to bring the suspected infringement to the attention of the MyCC, as well as the stage in the investigation at which it admits its involvement in the infringement. Given the illicit nature of cartels, the leniency regime is designed to encourage cartelists to race to be the ‘first in’ to supply as much information as possible, to expedite the MyCC’s investigation.

An infringing enterprise that is second in line may still benefit from the leniency regime. However, the percentage of reduction would largely depend on the stage of the investigation at which it admits its involvement in the infringement and the value of the incremental information or other cooperation it is able to provide. Such percentage of reduction is expected to commensurate with the additional information and assistance the enterprise is able to provide to the MyCC.

On 14 October 2014, the MyCC issued its Guidelines on the Leniency Regime that provide guidance on the reduction of financial penalties, the procedure for making a leniency application and the grant of leniency. The MyCC may 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 other form of cooperation to be provided; and
• the information already in possession of the MyCC.

An entity will not qualify for a 100 per cent reduction in financial penalties if the enterprise initiates the cartel or has taken any steps to coerce another enterprise to take part in the cartel activity.

In relation to the methods of contacting the MyCC for leniency matters, the guidelines state that the MyCC had appointed an official to serve as the leniency officer to facilitate the handling of inquiries about the availability of leniency. Any person or enterprise wishing to apply for leniency should call the leniency hotline telephone number on the MyCC’s website. No other person at the MyCC should be contacted unless the MyCC directs otherwise.

If, upon request, the leniency officer advises that leniency is available in respect of a situation, the potential applicant may ask for a marker in order to preserve its priority in receiving leniency while an application is being prepared. A marker is valid for 30 days from the date on which it is granted. If the recipient of a marker fails to complete its applications by the end of the specified period, the enterprise will lose its priority position.

An applicant for leniency is required to provide information and offer other forms of cooperation with respect to an alleged infringement of a prohibition under the Act. The completed leniency application should be submitted in writing, unless otherwise authorised by the MyCC, and signed by an authorised senior officer of the applicant.

Information that should be provided to the MyCC in the application includes:

• detailed description of the suspected cartel conduct under subsection 4(2) of the Act;
• details of the parties involved;
• copies of documents (eg, minutes of meetings, conversations, meeting agendas and price lists);
• names of competition authorities to which the applicant has or is contemplating making a leniency application; and
• any other information that may assist the MyCC in reviewing the leniency application.

Parties would in practice consider:

• whether the MyCC is already investigating the cartel, which may affect its position in the leniency queue;
• the possibility that another cartelist has blown the whistle;
• the competition law implications in other jurisdictions, as the MyCC is able to disclose the information to competition authorities in other jurisdictions, some of which may have criminal sanctions;
• whether concurrent leniency applications should be made in multiple jurisdictions; and
• whether the enterprise can offer an undertaking on acceptable terms to the MyCC.

Chapter 2 of the Competition Act: prohibition on abuse of dominance

Chapter 2 of the Act prohibits an enterprise, whether independently or collectively, from engaging in any conduct that amounts to an abuse of a dominant position in any market for goods or services in Malaysia. This prohibition is substantially similar to article 102 of the Treaty on the Functioning of the European Union, and the concept of joint dominance from case law in other jurisdictions is expressly included within the Act. It should be noted that where there is collusion between enterprises, this may also be caught by Chapter 1 of the Act, which prohibits horizontal and vertical agreements that significantly prevent, restrict or distort competition. As there is no need to establish dominance in a Chapter 1 infringement, collective dominance cases are expected to be rare.

Establishing an infringement under Chapter 2 of the Act is a two-step process: first, the MyCC will assess whether the enterprise that is being complained about is dominant in the relevant market in Malaysia; if so, the MyCC will assess whether the enterprise is abusing its dominant position.

By implication, Chapter 2 of the Act does not apply to non-dominant enterprises. While the Act prohibits a dominant enterprise from engaging in certain conduct that non-dominant enterprises can do, a dominant enterprise is not restricted from engaging in conduct that has a reasonable commercial justification, or is a reasonable commercial response to a market entry or conduct by a competitor.

Dominance

A dominant position is defined as a situation in which one or more enterprises possess such significant power in a market to adjust prices or outputs or trading terms without effective constraint from competitors or potential competitors. An enterprise, whether it is a supplier or a buyer, is considered to be dominant if it has significant market power in a relevant market in Malaysia.

As a starting point, the MyCC will define the relevant market to assess whether the enterprise has significant market power. This involves the identification of close substitutes for the product under investigation in the relevant product market as well as the geographic market applying the hypothetical monopolist test (ie, the smallest group of products in a geographic area that a hypothetical monopolist can profitably sustain a price above the competitive price). The MyCC will typically apply a small but significant non-transitory increase in price of 5 to 10 per cent above the competitive price.

Once the relevant market has been defined, the MyCC will determine whether an enterprise has a dominant position. While the MyCC considers that a market share above 60 per cent is indicative of dominance, the Act expressly specifies that market share is not by itself conclusive of dominance, which is to be assessed in terms of the enterprise’s ability to act without regard to its competitors’ response or to dictate the terms of competition in a market in Malaysia. Thus, even if an enterprise has a high market share, it would not be considered dominant if it was not in a position to increase price above the current level due to the possibility of new entrants or imports.

Although market share is a starting point for the assessment of dominance, the MyCC will also consider constraints on the enterprise including existing competitors (as indicated by market shares), potential competitors, barriers to entry and other constraints imposed by significant buyer power or economic regulation imposed by the government such as price regulation, degree of product differentiation and the degree to which innovation drives competition. The MyCC’s Guidelines on Chapter 2 Prohibition (in relation to abuse of dominance) indicate that a new product with patented features may be considered dominant, even though its market share is only 20 to 30 per cent of the market, if there is a rapid growth of consumers who switch to this product.

Abuse of dominance

The concept of abuse is not defined in the Act. Chapter 2 of the Act generally provides for two main types of abuse of dominant position:

• exploitative conduct, such as excessive pricing that may result from structural conditions in the market whereby the dominant enterprise is able to set a high price to exploit consumers where there is no or low likelihood of new entrants in the relevant market. In determining whether the prices are excessive, the MyCC will, in principle, consider the actual price set in relation to the costs of supply and other factors such as the dominant enterprise’s profitability; and
• exclusionary conduct, which refers to the ability of an enterprise to dictate the level of competition in a market by preventing efficient new competitors from entering or significantly harming existing equally efficient competitors either by driving them out of the market or preventing them from effectively competing.

The MyCC will apply an effects-based approach in assessing whether an exclusionary conduct amounts to abuse, and apply two key tests: does the conduct adversely affect consumers, and does the conduct exclude a competitor that is just as efficient as the dominant enterprise? Exclusionary conduct includes predatory pricing, price discrimination, exclusive dealing, bundling up and tying.

Subsection 10(2) of the Act provides a non-exhaustive list of conduct that may constitute an abuse of dominant position:

• directly or indirectly imposing an unfair purchase or selling price or other unfair trading condition on a supplier or customer;
• limiting or controlling production, market outlets or market access, technical or technological development or investment to the prejudice of consumers;
• refusing to supply to particular enterprises or group or category of enterprises;
• discriminating by applying different conditions to equivalent transactions that discourage new market entry or market expansion or investment by an existing competitor, seriously damage or force a competitor that is just as efficient from the market or harms competition in the market in which the dominant enterprise operates or in any upstream or downstream market;
• forcing conditions in a contract that have no connection with the subject matter of the contract (eg, making the contract conditional on buying an unrelated product);
• any predatory behaviour towards competitors; and
• buying up scarce supply of inputs (either goods or services) where there is no reasonable commercial justification.

The MyCC’s Guidelines on Chapter 2 Prohibition indicate that an enterprise that is dominant in one market can abuse that dominance in a separate market. For example, where a dominant company that sells an essential input to downstream enterprises sets up a subsidiary in the downstream market and then refuses to sell the input to the other buyers in the downstream market or initiates a margin squeeze.

The MyCC’s first abuse of dominance case involves an alleged margin squeeze in the steel sector. In November 2013, the MyCC issued its first proposed decision for abuse of a dominant position where the MyCC proposed a 4.5 million ringgit financial penalty on a producer of long steel, Megasteel Steel Sdn Bhd (Megasteel) for a margin squeeze following a complaint from a competitor of Megasteel. Based on the investigations carried out by the MyCC, Megasteel is the only domestic manufacturer of hot rolled coil in Malaysia and is also involved in the production of cold rolled coil for the downstream cold rolled coil market. The MyCC alleged that Megasteel’s conduct of charging or imposing a price for its hot rolled coil is disproportionate to the artificially low selling price of its cold rolled coil and amounts to a margin squeeze that has the effect of preventing competition in the downstream market, making it a serious breach of competition law.

In determining the basic amount of the proposed financial penalty, the MyCC said that it took into account the nature of the product, the structure of the market, the market share of the enterprise, entry barriers and the effects of Megasteel’s margin squeeze on its downstream competitors, as well as the seriousness of the infringement. Based on the factors cited above, the MyCC considered Megasteel to be dominant in the hot rolled coil market, which is an essential input for the downstream manufacturers of cold rolled coil, and observed that the entry barriers and restrictions into the hot rolled coil market are high. The MyCC alleged that Megasteel, using its very special position over the other cold rolled coil producers, imposed prices for cold rolled coils that were artificially lower that those charged by its competitors in the downstream cold rolled coil market. The MyCC also alleged that the monthly margins (between cold rolled coil and hot rolled coil prices) earned by Megasteel were all insufficient for the recovery of its monthly costs of transforming hot rolled coil into cold rolled coils. There have been no developments on this case since the proposed decision was last issued.

In October 2015, the MyCC issued a proposed decision against MyEG Services Bhd for abuse of its dominant position in the provision and management of online ‘Foreign Workers Permit Renewal’ applications by applying different conditions to equivalent transactions with other trading parties, to the extent that may harm competition. The MyCC proposed a financial penalty of 307,200 ringgit and an additional penalty of 15,000 ringgit for each day MyEG Services Bhd fails to comply with certain remedial actions stipulated by the MyCC, which include termination of its existing agency agreements relating to the mandatory insurances, and an agreement not to enter into similar agency agreements in the future.

Defence for abuse of dominance

Dominant enterprises are not precluded from engaging in conduct that has reasonable commercial justification or represents a reasonable commercial response to the market entry or market conduct of a competitor, the so-called ‘meeting the competition defence’.

Examples given by the MyCC include:

• refusal to sell to a buyer who did not pay for past purchases;
• refusal to grant access to a dominant enterprise’s infrastructure that is already being used to capacity;
• offering a loyalty rebate that is related to the reduced costs of supplying that particular customer; and
• meeting a competitor’s price even though the price may be below cost in the short term.

In contrast to an infringement under Chapter 1 of the Act (where an enterprise can get confirmation that an agreement that is at risk of being anticompetitive can nevertheless be justified based on pro-competitive benefits), there is no exemption process for a Chapter 2 infringement. The defence will have to be raised in response to the MyCC’s allegations of an abuse of a dominant position. The onus of proof of the reasonable commercial justification or response lies on the dominant enterprise.

Investigations by the MyCC

The MyCC may conduct any investigation on its own accord as it thinks expedient, where it has reason to suspect that any enterprise has infringed or is infringing any prohibition under the Act. The minister charged with the responsibility for domestic trade and consumer affairs also has powers to direct the MyCC to investigate any suspected infringement. The MyCC may also conduct an investigation when it receives a complaint from a person or information from a participant in a cartel seeking benefits under the leniency regime. If the MyCC decides not to investigate a complaint, it must inform the complainant of the decision and the reasons for the decision.

The MyCC has wide discretion on how it collects evidence and may direct a person to give the MyCC access to his books, records, accounts and computerised data. However, these powers are subject to lawyer–client privilege and may, at the request of the person disclosing, be protected by confidentiality. As anticompetitive conduct is not a crime, there is no privilege against self-incrimination.

The MyCC may, by written notice, require any person (not only those suspected of being in a cartel but also third parties) whom the MyCC believes to be acquainted with the facts and circumstances of the case to produce relevant information or documents. The MyCC may also require the person to provide a written explanation of such information or document. Where the person is not in custody of the document, he must, to the best of his knowledge and belief, identify the last person who had custody of the document and state where the document may be found. A person required to provide information has a responsibility to ensure that the information is true, accurate and complete, and such person must provide a declaration that he or she is not aware of any other information that would make the information untrue or misleading.

The MyCC may search premises with a warrant issued by a magistrate, where there is reasonable cause to believe that the premises have been used for infringing the Act or there is relevant evidence of such infringement on the premises. The warrant may authorise the MyCC officer named on the warrant to enter the premises at any time by day or night, and by force, if necessary. During such searches, the MyCC officers may seize any record, book, account, document, computerised data or other evidence of infringement.

The powers extend to the search of persons on the premises and there is no distinction in the powers for business or residential premises. Where it is impractical to seize the evidence, the MyCC may seal the evidence to safeguard it. Attempts to break or tamper with the seal constitute an offence.

Where the MyCC officer has reasonable cause to believe that any delay in obtaining a warrant would adversely affect the investigation or the evidence will be damaged or destroyed, he or she may enter the premises and exercise the above powers without a warrant.

In addition to the powers under the Act, the MyCC investigating officers have the powers of a police officer as provided for under the Criminal Procedure Code.

Penalties

On finding an infringement under the Act, the MyCC may impose a financial penalty of up to 10 per cent of the enterprise’s worldwide turnover over the period during which the infringement occurred. Liability may be imputed on the parent company if its subsidiaries do not have autonomy to determine their actions on the market.

To date, the financial penalties that have been proposed or imposed by the MyCC have ranged from 247,730 to 20 million ringgit. Although not all infringing enterprises have been fined with financial penalties, it appears from recent trends that the MyCC is taking a stricter stance on deterrence. The table below is a summary of the decisions or proposed decisions issued by the MyCC to date, and the total financial penalties imposed.

The financial penalty is potentially higher in Malaysia than in other jurisdictions where the penalty is limited to a specified number of years, because the penalty imposed may be for the entire duration of an infringement. Even though the magnitude of this may not be felt for a while, as the Act does not have retrospective effect and hence relates back only to 1 January 2012 (the date on which the Act came into force), parties to agreements that infringe the Act remain at risk for the continuing anticompetitive conduct. This situation occurred in the MAS–AirAsia case where the MyCC investigated the collaboration agreement, despite it being entered into by the parties in 2011. The MyCC traced back to the collaboration agreement to see if there is a continuing anticompetitive conduct in determining whether the agreement resulted in an outcome whereby Firefly (a wholly owned subsidiary of MAS) withdrew from four East Malaysian routes, leaving AirAsia to be the sole low-cost carrier.

Upon finding an infringement, the MyCC must require that the infringement be ceased immediately, and may specify steps to be taken to achieve this, or give any other appropriate direction. The MyCC may bring proceedings before the High Court against any person who fails to comply with its directions, and the High Court shall make an order requiring the person to comply with the direction or decision. If there is a failure to pay a penalty within the specified period, the High Court shall, apart from ordering the person to pay the penalty, order the person to pay interest at the normal judgment rate running from the day following that on which the payment was due.

On 14 October 2014, the MyCC issued its Guidelines on Financial Penalties, which explain how the MyCC determines the appropriate fine and the factors that it may take into account in doing so. In imposing financial penalty, the MyCC aims to reflect the seriousness of the infringement and deter future anticompetitive practices. In determining the amount of any financial penalty in a specific case, the MyCC may take into account some or all of the following factors:

• the seriousness (gravity) of the infringement;
• the turnover of the market involved, whereby ‘turnover’ refers to the turnover of the enterprise during the period of infringement or, if figures are not available for that business year, the one immediately preceding it;
• the duration of the infringement, whereby a period of infringement is less than six months, such a period will be counted as half a year and for a period longer than six months but shorter than a year, such a period will be counted as a full year. In the event that the duration of the infringement is more than a year, the MyCC may take into account a maximum of 10 per cent of the enterprise’s worldwide turnover and multiply that with the number of years of infringement;
• the impact of the infringement;
• the degree of fault (negligence or intention);
• the role of the enterprise in the infringement;
• recidivism (repeat infringement);
• the existence of a compliance programme; or
• the level of financial penalties imposed in similar cases.

The MyCC takes into account the following aggravating factors in determining the amount of any financial penalty in a specific case:

• the role of the enterprise as an instigator or leader, or having engaged in coercive behaviour with others;
• obstruction of or lack of cooperation in the investigation;
• whether the enterprise has a record of committing similar infringements or other infringements involving anticompetitive agreements or abuse of dominance (recidivism);
• continuance of the infringement after the start of investigation; or
• involvement of board members or senior management in the infringement.

Meanwhile, the following non-exhaustive list of mitigating factors may also be taken into consideration:

• low degree of fault;
• relatively minor role in the infringement, especially if involvement is secured by threats or coercion;
• cooperation by the enterprise in the investigation;
• existence of a corporate compliance programme that is appropriate with regard to the nature and size of the business of the enterprise; or
• any compensation made to victims of the infringements.

Financial penalties imposed by the MyCC may be higher post issuance of the Guidelines on Financial Penalties, as the guidelines indicate that the MyCC may round up the infringement duration, whereby a period of infringement of less than six months will be counted as half a year and a period longer than six months but shorter than a year will be counted as a full year. In the MAS–AirAsia case, the MyCC imposed a financial penalty of 10 million ringgit each on MAS and AirAsia for the four months commencing when the Act came into effect, up to the time that the two airlines terminated the collaboration agreement. In future, the MyCC may round the infringement period up to six months, resulting in higher financial penalties. Similarly, the 24 ice manufacturers that received financial penalties totalling 252,250 ringgit for price fixing may have faced a higher penalty if the case was decided today, as their worldwide turnover of six months may have been taken into account despite them infringing the Act for approximately one week.

Based on all of the cases, it is observed that the factors taken into account by the MyCC include the seriousness of the infringement, implementation of compliance programmes and the parties’ cooperativeness in providing data and information to the MyCC. For example, the financial penalties imposed on MAS and AirAsia were adjusted based on factors taken into account by the MyCC, such as the voluntary action taken by MAS and AirAsia to remove the anticompetitive clauses stated in the collaboration agreement, implementation of competition compliance programmes, as well as the parties’ cooperativeness in providing data and information and the voluntary action taken by the parties to amend the agreement to remove offending clauses. In determining the financial penalty imposed on the ice manufacturers, the MyCC stated that it took into account the seriousness of the infringement, the duration of the infringement and mitigating factors, such as being cooperative during investigation.

Appeal process

A person aggrieved by the decision of the MyCC may appeal to the CAT, which has exclusive jurisdiction to review any findings of infringement or non-infringement made by the MyCC. The president of the CAT is a judge of the High Court and the CAT is composed of between seven and 20 other members appointed by the prime minister on the recommendation of the minister charged with the responsibility for domestic trade and consumer affairs.

An appeal is commenced by the filing of a notice of appeal to the CAT within 30 days of the decision, which states in summary form the substance of the decision of the MyCC appealed against, and an address for service of notices related to the appeal.

The CAT has the power to confirm or set aside the MyCC’s decision from being appealed, or any part of it, and may:

• remit the matter to the MyCC;
• impose or revoke, or vary the amount of, a financial penalty; and
• exercise the MyCC’s powers to make decisions, give directions, or take such other appropriate actions.

The CAT’s decision is final and binding on the parties to the appeal. Nonetheless, its decision, and any other administrative decision of the MyCC, may be subject to judicial review by the High Court.

The first case that will be tried by the CAT is the MAS–AirAsia case.

Undertaking

The MyCC may accept an undertaking from an enterprise to do, or refrain from doing, anything the MyCC considers appropriate. Where the MyCC believes that it has a strong case, it is unlikely to accept an undertaking. Conversely, where an undertaking enables the MyCC to bring about a quick and effective remedy without lengthy legal proceedings, this may be seen as a more effective use of the MyCC’s resources, which can then be channelled into other infringement cases.

Where the MyCC accepts an undertaking, it shall close the investigation without any finding of infringement and it shall not impose a penalty on the enterprise. Any undertaking accepted by the MyCC will be made publicly available for inspection and can be enforced in the High Court. Offering a suitable undertaking is particularly useful to avoid a finding of infringement, which can trigger follow-on civil actions.

In October 2014, the MyCC accepted undertakings from Giga Shipping Sdn Bhd and Nexus Mega Carriers Sdn Bhd, which are major providers of logistic and shipment services by sea for motor vehicles from ports in Peninsular Malaysia to ports in Sabah, Sarawak and Labuan, in relation to exclusive agreements between the two enterprises with vehicle manufacturers, distributors and retailers. Following a complaint from a competitor, the MyCC had been investigating the said exclusive agreements and was concerned that these agreements may have the effect of foreclosing customers to competitors of the enterprises, that if established, would have the effect of significantly preventing, restricting or distorting competition in the provision of the services.

In a price-fixing case involving the Pan-Malaysia Lorry Owners Association, the MyCC did not propose financial penalties, but instead issued proposed interim measures and accepted undertakings from the association and related lorry enterprises that they will not engage in any future anticompetitive conduct such as price fixing, and shall cease and desist from increasing the transportation charges of up to 15 per cent after the MyCC stated that this action constitutes price fixing.

In October 2015, the MyCC accepted undertakings from the Malaysia Heavy Construction Equipment Owner’s Association (MHCEOA), in relation to machinery leasing charges. The MHCEOA made an announcement, which was reported in a Chinese daily newspaper, that the costs for leasing of machinery will be increased. In addition, the constitution of the MHCEOA contained a clause that states that the MHCEOA will draw up guidelines for hiring fees and tender of contracts by members. The MyCC found that the announcement by the MHCEOA of its decision to increase the machinery rental charges may infringe Chapter 1 of the Act. Further, the MyCC found that the drawing up of guidelines to set hiring fees may similarly infringe Chapter 1 of the Act. The MyCC did not impose financial penalties, but instead accepted undertakings from MHCEOA that include refraining from making similar press announcements and removing the impugned clause from its constitution.

Private action

The Act specifically allows persons who have suffered loss or damage directly as a result of an infringement under the Act a right of action in civil proceedings in a court. This right is not contingent on a finding of infringement by the MyCC, although such a finding would greatly aid the claimant in proving that the Act has been infringed. A plaintiff may also claim damages even if the plaintiff has not dealt directly with the enterprise that infringed the Act.

Enforcement trends

In the years since the Act came into force, the MyCC has targeted cartel practices, mainly by trade associations such as the Cameron Highlands Floriculturists Association, Pan-Malaysia Lorry Owners Association, Sibu Confectionery and Bakery Association, as well as the ice manufacturers that were found to have fixed selling prices. In 2014, the MyCC took on a more active role in enforcing the Act, having granted its first block exemption, carved out another sector from the application of the Act and investigated vertical agreements, as well as issuing new guidelines on its leniency regime and financial penalties.

In March 2015, the MyCC imposed fines totalling 247,730 ringgit on 14 members of the Sibu Confectionery and Bakery Association for their involvement in price fixing in December 2013, by increasing the prices of confectionery and bakery products between 10 per cent and 15 per cent in Sibu, Sarawak.

In June 2015, MyCC issued a proposed decision against an information technology service provider to the shipping and logistics industry and four container depot operators for price fixing. MyCC alleged that Containerchain (M) Sdn Bhd, the information technology service provider, had engaged in concerted practices with the container depot operators, resulting in the operators increasing the depot gate charges from five ringgit to 25 ringgit. MyCC also alleged that the concerted practice resulted in the container depot operators offering a rebate of five ringgit to hauliers on the agreed depot gate charges.

In October 2015, MyCC issued a proposed decision against MyEG Services Bhd, stating that the company had abused its dominant position in the provision and management of online foreign workers’ permit renewal applications by applying different conditions to equivalent transactions with other trading parties to the extent that this may harm competition.

Moving forward, the MyCC is likely to continue its enforcement actions against hard-core cartelists whose actions have significant impact on competition in Malaysia. It is anticipated that the MyCC will be imposing higher financial penalties on enterprises in light of the Guidelines on Financial Penalties. The MyCC has also indicated that it will investigate and take appropriate enforcement action against enterprises taking advantage of the introduction of the Goods and Services Tax in April 2015.