This article first appeared in Forum, The Edge Malaysia Weekly on October 31, 2022 - November 6, 2022

The Competition Appeal Tribunal’s recent decision in the PIAM (General Insurance Association of Malaysia) case was a double-edged sword for the Malaysia Competition Commission (MyCC).

The elephant in the room was effectively a dispute over jurisdiction between Bank Negara Malaysia and the MyCC, over the latter’s investigation of PIAM and its members. PIAM and the Federation of Automobile Workshop Owners’ Association had come to an agreement on applicable parts trade discount and labour rates between insurers and car repair workshops. This agreement resulted in a 2011 circular issued by PIAM to its members (Circular 132) on such agreed rates. The meetings between PIAM and the Workshop Association were said to be facilitated by Bank Negara.

After investigation, MyCC issued a proposed decision on Feb 22, 2017, on the basis that the Competition Act had been infringed. Bank Negara in response issued a statement on March 1, 2017, describing MyCC’s proposed decision as “most unfortunate”, as the arrangement was put in place by virtue of a “clear directive” by Bank Negara.

The salient points argued by PIAM and its members before MyCC were that PIAM was merely acting on Bank Negara’s directive to resolve ongoing disputes between insurers and workshops (and, therefore, in exercise of governmental authority to which the Competition Act did not apply), and that Circular 132 was not an agreement but merely a notice from PIAM to its members, which was not binding.

These arguments were rejected by MyCC, which found that, regardless of whether it was a directive or recommendation, Circular 132 reflected PIAM members’ joint intention to conduct themselves in the market in a specific way.

As for the Bank Negara directive argument, MyCC determined that Bank Negara merely urged PIAM to “resolve” the issues with the Workshop Association — there was no directive to fix rates. Crucially, MyCC interpreted the Insurance Act to conclude that Bank Negara had no power to give such direction in any event, as its powers were limited to merely matters of an association’s constitution and its membership.

On Sept 14, 2020, MyCC issued its final decision. PIAM and its 22 members were found to have infringed Section 4 of the Competition Act by engaging in an agreement to fix applicable trade discount and labour rates, and the fine was an aggregate of RM173 million against the 22 members. There was no fine against PIAM itself, a crucial distinction to be appreciated later.

MyCC’s decision did not sit well with Bank Negara, which two weeks later issued a statement that it “regretted” the decision, reiterated that PIAM’s arrangement was a result of Bank Negara’s regulatory intervention, and described its sister regulator’s decision as potentially unravelling the benefits achieved.

Bank Negara, as a regulator whose interests were affected, was allowed to join in the appeal by PIAM and its members before the CAT (Competition Appeal Tribunal), an appeal procedure provided for under the Act against MyCC decisions.

Before CAT, Bank Negara took the stance that a directive was given, and argued that MyCC as a regulator of equal standing had no jurisdiction to decide what Bank Negara’s powers were.

In its decision, CAT held that MyCC by its nature and function was empowered to interpret any provision of law surrounding other regulatory bodies’ powers, although it disagreed with MyCC’s interpretation of the Insurance Act. Nevertheless, contrary to Bank Negara’s earlier assertions, CAT found that Bank Negara had not issued a directive leading to the 2011 agreement. CAT found that Bank Negara’s “directive” position was only taken a mere month before MyCC’s proposed decision in 2017, and that Bank Negara had informed MyCC in 2017 that “if a finding of infringement is made by MyCC and contested by PIAM and the insurers, the bank will be compelled to affirm that the insurers acted in compliance with a directive”; hence CAT’s rejection of Bank Negara’s position.

CAT’s decision regarding Bank Negara will no doubt boost MyCC’s confidence when enforcing competition law in industries where other regulators may assert exclusive powers.

But MyCC’s triumph over Bank Negara was a Pyrrhic victory. As for whether PIAM and its members had breached the Competition Act, CAT found (among other reasons) that the Competition Act did not apply to PIAM, as Section 4 of the Act prohibited agreements between “enterprises”, which are further defined as entities engaged in commercial activity. CAT found that PIAM, as an association, was not a “profit-oriented” entity engaged in commercial activity.

CAT found that there was no “agreement” between the members of PIAM to fix rates, where Circular 132 was an announcement of an agreement between PIAM and the Workshop Association and the result of a survey of members.

CAT’s decision that the Competition Act did not apply to PIAM has severe ramifications curtailing MyCC’s powers against trade associations and their members.

Trade associations are a coming-together of competitors in the same industry and, by their very nature, risky endeavours from a competition law perspective. Whatever their constitutionally stated purpose, trade associations inevitably invite members into circumstances encouraging “shop-talk”: market prospects, supply rates and prices. These members often tread a fine line between association activities and cartel-like conduct.

Mature competition regimes are well aware of this. Trade associations in the European Union are kept under a watchful eye. In a speech given in 2021, the Commissioner for Competition, Margrethe Vestager, cautioned against focusing on cartels in their familiar form, where the Commission had dealt with cartels manipulating industry-practice discounts.

The US Federal Trade Commission’s guidance similarly warns that trade associations may be used by members to control or suggest prices for members.

An “agreement” under competition law is not a contract. Unlike the law of contract, established competition principles around the world dictate that an “agreement” may be reached by a mere understanding or through “signalling” to coordinate market conduct. Circulars issued by trade associations similarly facilitate such signals across the industry.

Competition law is necessarily flexible in finding “agreements” because sophisticated cartels will always seek a variety of indirect means to act in concert. University students are taught from the outset to imagine a smoke-filled backroom of a pub, where deals are orally made between industry titans.

Notably, our Competition Act reflects this flexibility. The Act defines an agreement as any form of contract, arrangement or understanding, and includes a decision by an association. A decision by an association could therefore be an agreement between enterprises. CAT, it would seem, did not appreciate this flexibility.

MyCC is no stranger to trade associations. Decisions and fines have been imposed previously, where members of the Sibu Confectionery Bakery Association agreed at an annual general meeting to increase prices to meet increased costs, or when the president of the Cameron Highlands Floriculturist Association issued a statement that prices would be increased.

Neither of these associations would have as their functions the setting of prices in the market. They are not industry regulators, and would only be able to enforce membership rules. They are therefore not engaged in “commercial activity” per se. Nevertheless, the “shop-talk” within such associations becomes irresistible and, when acted upon, can become anti-competitive conduct.

The publicly available decisions of MyCC and CAT reveal that the “agreement” between PIAM and the Workshop Association was made through PIAM’s Claims Management Sub-committee, which would have comprised personnel from PIAM’s member companies. All PIAM members were then surveyed, who showed overwhelming support for the agreed rates. This resulted in PIAM issuing Circular 132.

CAT’s reasoning thus potentially opens a loophole for competitors to coordinate their activity through trade associations, a loophole that would have been immediately rejected in more mature competition regimes.

It is unlikely that this case would be brought before the courts for further judicial guidance. The current statutory regime, as interpreted by the Court of Appeal in the MAS-AirAsia case, disallows MyCC from challenging a decision of CAT. Earlier this year, the Federal Court dismissed MyCC’s application for leave to appeal against that decision, putting an end to the matter. I have discussed this in my previous article in The Edge titled “A missed opportunity of a judicial review for Malaysia Competition Commission”.

The current statutory regime as judicially interpreted thus prevents development of this area of law before the courts every time CAT rules against MyCC.

It is therefore critical that the currently proposed amendment of Section 58A to the Competition Act, which allows for a right of appeal to the High Court from CAT’s decision by either MyCC or an aggrieved party, be passed by parliament, allowing competition law to be developed by our superior courts.

Mervyn Lai (LLM [Dist] Competition Law, University of Glasgow) is a partner at law firm Tommy Thomas Advocates & Solicitors

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