Competition Appeal Tribunal upholds MyCC’s finding of infringement by Langkawi Ro-Ro Vessel Operators

On 17 December 2021, the Malaysia Competition Commission (“MyCC”) issued a decision against three major Langkawi roll-on, roll-off (“ro-ro”) vessel operators, namely Langkawi Ro-Ro Ferry Services Sdn Bhd (“LRRFS”), Langkawi Auto Express Sdn Bhd (“LAE”) and Dibuk Cargo Services Sdn Bhd (“DCS”), and two related enterprises, namely Langkawi Ferry Services Sdn Bhd (“LFS”) and Dibuk Sdn Bhd (“DSB”) (collectively “the Parties”) for infringement against section 4 of the Competition Act (“CA 2010”).
 
In accordance with the finding of an infringement, the MyCC imposed financial penalties ranging from RM250,172.25 to RM1,130,876.87 against the Parties.
 
In its decision the MyCC found that the Parties had participated in agreements through two memoranda of understanding that had the object of significantly preventing, restricting, or distorting competition in relation to the market for the provision of vehicle transportation via ro-ro vessels in Langkawi (the “Infringing Agreements”) between 31 December 2017 and 14 September 2020 (the “Infringement Period”).
 
The Parties appealed against the decision of the MyCC to the Competition Appeal Tribunal (“CAT”).
 
Decision of the CAT
 
On 17 November 2022, the CAT issued its decision dismissing the appeal and confirmed the final decision of the MyCC on the finding of liability against the Parties for infringement of section 4(1) of the CA 2010 read together with sections 4(2) and 4(3) of the CA 2010.
 
The CAT upheld the financial penalty imposed by the MyCC on LRRFS but directed the financial penalties imposed on LAE and LFS to be reassessed by the MyCC. The issue of financial penalty was not raised by DCS and DSB in their appeal.
 
Findings of the CAT
 
Section 4 of the CA 2010
 
In deciding whether the requirements under section 4 of the CA 2010 were met, the CAT referred to the case of Malaysia Airline System Bhd v Competition Commission & Another Appeal [2022] 1 CLJ 856 wherein the Court of Appeal stated that for a “deemed” clause to be triggered, the conditions set for it to operate must be strictly complied with because of its inherent bias in producing a certain set of results.
 
In the present case, the CAT elucidated that there are three requirements or conditions to invoke the deeming provision under section 4 of the CA 2010 which are as follows: 
  1. there must be a horizontal agreement;
  2. the horizontal agreement is entered into between enterprises; and
  3. the horizontal agreement has the object of fixing, directly or indirectly, a purchase or selling price or any other trading conditions. 
The CAT agreed with the finding of the MyCC in invoking the deeming provision under section 4 of the CA 2010, on the grounds that all three conditions under that provision were satisfied. These findings are summarised as follows: 
  1. first condition: the Parties are all business entities carrying on commercial activities relating to the ro-ro vessel services. Hence, they fall within the meaning of “enterprise” under section 2 of the CA 2010; 

  2. second condition: LRRFS, LAE, DCS and DSB were operating at the same level in providing the ro-ro vessel services. Hence, the Infringing Agreements entered into by the aforesaid parties fall within the meaning of “horizontal agreement” under section 2 of the CA 2010; and 

  3. third condition: the Infringing Agreements had the intention to standardise ticket fares. Hence, they had the clear object to directly fix the purchase and selling price of ticket fares. 
By reason of the foregoing, the Infringing Agreements triggered the application of the deeming provision under section 4(2) of the CA 2010.
 
The Market
 
The CAT held that the “market” in the present case is confined only to the ro-ro vessel services for the sea route between the Dermaga Tanjung Lembung, Langkawi and Kuala Perlis Jetty and as such no quantitative analysis of the market was required. The CAT stated that the relevant market concerned was easily identified from its specific geographical involvement, the size and the parties involved.
 
Appeal by LRRFS
 
The three main grounds of appeal raised by LRRFS are as follows: 
  1. first ground: section 3(4) of the CA 2010 was applicable. The said section sets out a list of exclusions from the definition of “commercial activity” under section 2 of the CA 2010 and includes, among others, “any activity, directly or indirectly in the exercise of government authority”;  

    LRRFS submitted that following from a meeting held by the Marine Department and Ministry of Transport to standardise the charge for fares of ro-ro vessel services, LRRFS had entered into the Infringing Agreements, as an activity, directly or indirectly in the exercise of government authority and therefore sought to rely on the doctrine of legitimate expectation; 

  2. second ground: the MyCC erred in deciding that there was a single continuous infringement by LRRFS during the Infringement Period; and 

  3. third ground: the MyCC had committed a breach of procedural fairness. 
The CAT held, among others, that the “activity” referred to in section 3(4)(a) of the CA 2010 is an “activity” which is excluded from the term “commercial activity” within the definition of “enterprise” under section 2 of the CA 2010. In the context of the case, the activity is the provision of the ro-ro vessels services. In the opinion of the CAT, this activity is not an activity, directly or indirectly, in the exercise of government authority, but is a private activity of a commercial nature carried out by private entities with a view to profit-making. The CAT added that LRRFS’s contention that the act of standardising the charges for the fares for the ro-ro vessel services was an activity within the meaning of section 3(4)(a) of the CA 2010 is misconceived. Further, the CAT noted that there was no evidence of a direct or indirect approval or consent by the relevant governmental authority for LRRFS to enter into the Infringing Agreements.
 
The CAT also held that at the time of inception of the infringement against the CA 2010, LRRFS was part of the pact agreeing to the Infringing Agreements and this is sufficient to find that there was a single and continuous infringement.
 
Further, the CAT was not satisfied that the MyCC had committed any breach of procedural fairness by not conducting a market review by reason that it was within MyCC’s prerogative to define the market and decide if it was necessary to conduct a market review prior to issuance of its decision.
 
Appeal by LAE and LFS
 
The three main grounds of appeal raised by LAE and LFS are as follows: 
  1. first ground: the MyCC had committed a breach of natural justice by failing to state the charge against LAE and LFS when they were being investigated; 

  2. second ground: the MyCC had erroneously invoked the deeming provision of section 4(2) of the CA 2010; and 

  3. third ground: the MyCC had erroneously computed the financial penalties by failing to take into consideration certain facts. 
With respect to the first ground, the CAT held that it is sufficient that the notice issued by the MyCC during the investigation sets out the MyCC’s powers under section 18 of the CA 2010 and there is no requirement for the MyCC to set out the relevant provisions of the CA 2010 which a party is suspected to have infringed. The CAT found no procedural impropriety which amounted to a breach of natural justice.
 
In relation to the second ground of appeal by LAE and LFS, the CAT reiterated and adopted its earlier finding that the deeming provision under section 4 of the CA 2010 was correctly invoked.
 
Based on the evidence provided, the CAT was satisfied that vehicle and passenger ticket refunds should have been included in assessing the financial penalties imposed on LAE and LFS. Hence, the CAT remitted the matter to the MyCC for re-assessment of the supporting documents to be provided by LAE and LFS in relation to the refunds.
 
Appeal by DCS and DSB
 
The nine grounds of appeal raised by DCS and DSB are as follows: 
  1. first ground: that as a preliminary point of law, the whole decision should be reviewed and revisited due to the breach of natural justice by the MyCC; 

  2. second ground: the MyCC had acted as investigator, judge and jury; 

  3. third ground: the MyCC had failed to conduct a market review before considering whether there was an infringement of section 4 of the CA 2010; 

  4. fourth ground: the MyCC had failed to consider the relief of liability under section 5 of the CA 2010; 

  5. fifth ground: the finding of fact and investigation by the MyCC were illegal; 

  6. sixth ground: the MyCC had failed to consider the implication if the ro-ro services industry in Kuala Perlis and Langkawi was penalised; 

  7. seventh ground: the MyCC had failed to consider that the ro-ro services are an infant industry; 

  8. eighth ground: DCS and DSB did not form a single economic entity; and 

  9. ninth ground: DSB was not a party to the concerted practice. 
With respect to the first and second grounds, the CAT held that there was no breach of natural justice as DCS and DSB had been given the right to be heard as they had been notified of the proposed decision and were invited to submit written or oral representations thereon to the MyCC. Further, the powers of the MyCC to act are laid down in the CA 2010 and the CAT had no jurisdiction to decide on the legality or lawfulness of the CA 2010 in granting the MyCC powers to investigate, prosecute and judge whether an entity is in breach of anti-competition law.
 
In response to the third ground, the CAT reiterated its earlier position that a market review is not a pre-requisite for the MyCC to issue a proposed or final decision.
 
In deciding whether the relief of liability under section 5 of the CA 2010 was applicable, the CAT held, among others, that the burden of proof lies on the party who relies on such relief and if raised in the representation stage, it is incumbent upon the MyCC to consider it. However, in the present case this was not raised at the representation stage. In any event, the CAT held that DCS and DSB had failed to satisfy all the requirements under section 5 of the CA 2010. Hence, the fourth ground of appeal was rejected by the CAT.
 
As for the fifth ground, the CAT held that the CA 2010 is a civil investigation against a civil wrong as opposed to a criminal investigation against a criminal wrong under the Penal Code. As such, the Criminal Procedure Code was inapplicable to the MyCC’s investigation process, save for its powers to seize and search which are granted to the MyCC under sections 25 and 26 of the CA 2010. As such there was no illegality in the investigation by the MyCC officers.
 
With respect to the sixth and seventh grounds, the CAT held that these grounds could not vitiate the MyCC’s findings of liability against DCS and DSB and any exemption, defence or protection against violations of the prohibitions in the CA 2010 can only be found within the CA 2010 itself. Hence, the CAT found the basis for these grounds of appeal to be irrelevant, inappropriate and baseless.
 
As for the eighth and ninth grounds, the CAT held, among others, that the idea of a single economic unit is a concept within the doctrine of single economic entity under section 2 of the CA 2010 which includes, but also goes beyond, the relationship between a parent and subsidiary company.
 
The CAT upheld the finding of the MyCC that there was sufficient evidence in terms of control, relationship and nexus between DCS and DSB even though they did not have a parent-subsidiary relationship. Such evidence includes the fact that two individuals were common shareholders and one was a common director of DCS and DSB. These individuals had the authority to sign agreements, power to make decisions and held managerial and administrative roles in DCS and DSB. Further, the MyCC was satisfied based on evidence that DSB had exercised decisive influence over DCS with regard to the latter’s conduct in the market.
 
Finally, in response to the submission that DSB was not a party to the concerted practice, the CAT accepted the submission and evidence which revealed that DSB had participated and was involved in the Infringing Agreements but did not elaborate on the same in its decision.
 
Our write-up on the MYCC’s decision and the grounds of decision by the CAT in this appeal can be accessed here and here.
 
Case note by Tan Shi Wen (Partner) and Angela Hii (Associate) of the Competition Law Practice of Skrine.
 
 

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.