The Legal 500

On 22 April 2010, Dewan Rakyat, Malaysia’s House of Representatives, passed the Competition Bill 2010 and the Competition Commission Bill 2010. Broadly, the Competition Bill 2010 provides for laws prohibiting anti-competitive agreements and abuse of dominance. Whereas the Competition Commission Bill 2010 deals with the establishment of a competition commission to administer and enforce the approved Competition Act 2010 (“Act”). This article provides an overview of the key provisions of the Competition Act.

The Act covers commercial activities including those transacted outside Malaysia which has an effect on competition in Malaysia but excludes:

1. commercial activities governed by the Communications and Multimedia Act 1998 and Energy Commission Act 2001 as these two legislations already have competition provisions within them and arguably the regulation of these two sectors are better left managed within their respective industry; and

2.  

3. any activity in exercise of governmental authority or conducted based on the principle of solidarity, or where goods or services purchased are not part of an economic activity.

PROHIBITIONS

The Act prohibits any entity carrying on commercial activities relating to goods or services to :

1. have any horizontal or vertical agreements that have the object or effect of significantly preventing, restricting or distorting competition; and

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3. engage, whether independently or collectively in any conduct which amounts to an abuse of a dominant position i.e. a situation where an enterprise possesses significant power in a market which enables it to adjust prices or outputs or trading terms without effective constraints from competitors.

The use of the word ‘significantly' should be noted as this suggests that there must be substantial impact in the market before a violation will be found. The Act will regard a subsidiary and its parent company as a single enterprise, if the subsidiary does not enjoy real autonomy in determining its actions on the market.

EXCLUSIONS AND RELIEFS

An enterprise may seek individual exemption for a particular agreement or block exemption for particular categories of agreement and be relieved of its liability for anti-competitive agreement if it can establish that: (i) there are significant technological, efficiency or social benefits; (ii) the benefits could not reasonably have been provided without the agreement having the anti-competitive effect; (iii) the detrimental effect on competition is proportionate to the benefits provided; and (iv) competition would not be eliminated completely.

ABUSE OF DOMINANT POSITION

The Competition Act contains an illustrative list of conducts which may constitute an abuse of dominant position including:

1. directly or indirectly imposing unfair purchase or selling price or other unfair trading conditions on any supplier or customer;

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3. limiting or controlling production, market outlets or market access, technical or technological development, or investment to the prejudice of consumers;

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5. refusing to supply to a particular enterprise or group or category of enterprises;

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7. applying different conditions to equivalent transactions with other trading parties to an extent that may:

8.  

1. making the conclusion of contract subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject matter of the contract;

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3. any predatory behaviour towards competitors;

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5. buying up scarce supply of intermediate gods or resources required by a competitor, in circumstances where the enterprise in a dominant position does not have a reasonable commercial justification for buying up the intermediate goods or resources to meet it w own needs.

6.  

The fact that the market share of an enterprise is above or below any particular level shall not in itself be regarded as conclusive evidence as to whether that enterprise occupies or does not occupy a dominant position in that market.

PENALTIES, INFRINGEMENT AND OFFENCES

The Competition Act draws a distinction between an infringement and an offence.

The potential fines for infringement that can be imposed is set at an amount not more than 10% of the worldwide turnover for the enterprise over the period during which the infringement occurred. As there is no cap on the application of fines to a time period, (unlike for instance, in Singapore, where it is limited to a three year period) or restriction of fines to activities in the relevant markets, the fines can potentially be very large.

A corporation may be fine not more than RM5 million for the first offence and not more than RM10 million for the second and subsequent offences in the case of corporation and an individual may be fined not more than RM1 million or jailed for not more than five years, or both for the first offence and not more than RM2 million or jailed for not more than five years, or both for the second and subsequent offences. In addition, where a corporation commits an offence, the officers assisting in or responsible for the management of the corporation shall be deemed to have committed the offence unless he proves that the offence was committed without his knowledge or consent and he had taken all reasonable precautions and exercised due diligence to prevent the commission of the offence.

To encourage whistle blowing, the Competition Act provides for a leniency regime, much like most other competition legislation. Essentially a maximum of 100% of any penalties which would be imposed will be reduced if an enterprise admits to an infringement and provides information that significantly aids in the investigations and finding of an infringement by another enterprise.

COMPETITION COMMISSION

The Competition Commission shall comprise a Chairman, four government representatives, one of whom shall be a representative of the Minister of Domestic Trade, Cooperative and Consumerism and between three to five other members who have experience and knowledge in business, industry and consumer protection. This constitution of the Competition Commission suggests that the Government will have considerable influence in determining whether an activity is anti-competitive or whether there is abusive conduct.

As with most commissions, in other countries, the Competition Commission has extensive powers to conduct investigations, request for information, conduct searches and seizures, issue interim measures whilst investigating. The Competition Commission must give written notice to each enterprise that may be directly affected by the decision of its investigations.

IMPACT ON BUSINESS

The Competition Act is expected to be gazetted and implemented in 2011. Regardless of the exact date when the competition laws will come into force, businesses operating in Malaysia should begin to take steps to ensure that their business contracts and dealings comply with the provisions of the Act. They should start instituting practices and procedures to ensure compliance with the provisions of the Act when structuring their business ventures, using information acquired from competitors and dealing with upstream and downstream partners. In addition, although the Act does not include a merger control regime, when undertaking mergers, businesses have to ensure that post-merger, the merged company will not breach the provisions of the Act.

by Raslan Loong – rexlex@raslanloong.com

www.raslanloong.com