CAT overturned MyCC’s market sharing object decision
The first
decision by the Malaysian Competition Appeal Tribunal since its inception more
than 4 years ago caught the media and public attention. Tay & Partners
represented AirAsia one of the successful appellants, the other party being MAS
whom MyCC alleged colluded with AirAsia to share the market.
Brief facts
The case involves the country’s two major carriers, MAS and AirAsia, who
entered into a Collaboration Agreement together with AirAsia X Bhd in
conjunction with a short lived share swap deal involving their major
shareholders, Khazanah Nasional Bhd and Tune Air in 2011. The share swap was
later unwound in 2012. On 31 March 2014, Malaysia Competition Commission
(“MyCC”) ruled that MAS and AirAsia had violated the prohibition against
market-sharing agreement by virtue of the Collaboration Agreement under section
4(2)(b) of the Competition Act 2010 (“CA 2010”) and imposed financial penalties
of RM10 million each. On 4 February 2016, the 5 members of the Competition
Appeal Tribunal (“CAT”), unanimously decided that the MyCC misinterpreted the
Collaboration Agreement and failed to show there was a market sharing object.
Grounds of decision
The CAT summarised and discussed 7 grounds of
appeal in its grounds of decision, some of which will be discussed in this
article.
• The Malaysia Competition Commission (MyCC) misinterpreted
Collaboration Agreement
MyCC’s case of market sharing was built largely
around the Collaboration Agreement between MAS and AirAsia. The CAT however
agreed with AirAsia and MAS that the Collaboration Agreement is a framework
conditional agreement subject to detailed anti-trust analysis and subsequent
approval. 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 2010. Furthermore, the MyCC did not give any reason or analysis for
its decision that the purported object of the Collaboration Agreement was one of
market sharing.
• MyCC cannot rely totally on the deeming provision
Section 4(2)(b) reads
“Without prejudice to the generality of
subsection (1), a horizontal agreement between enterprises which has the object
to share market or sources of supply is deemed to have the object of
significantly preventing, restricting or distorting competition in any market
for goods or services”.
MyCC contended that section 4(2)(b) can be
triggered by the mere entry into the Collaboration Agreement. This was rejected
by the CAT. Instead, the CAT held that MyCC is required to establish the object
of the Collaboration Agreement was to share market in order to succeed under the
aforesaid provision. MyCC’s attempt to rely totally on the deeming provision
does not absolve itself from the duty to prove restriction by object under
section 4(2)(b).
• No ceding of routes by MAS
MyCC also relied on
the withdrawal of Firefly from East Malaysian routes arguing that this ceded
those routes to AirAsia. The CAT agreed with the Appellants that the route
withdrawals were made by MAS as parent company of Firefly independently and
outside the scope of the Collaboration Agreement. MyCC failed to establish the
causal link between the Collaboration Agreement and the route withdrawal.
It also observed there was never any ceding of the East Malaysian routes to
AirAsia as Appellants have also argued that those routes were taken back by MAS
from Firefly.
Significance of the landmark decision
The decision
is significant on a number of levels –
• Deeming provision is not a short
cut
CAT’s decision will force the competition authority to address the
cardinal issue whether there is an object to share market before attempting to
rely on section 4 (2)’s deeming provision. In other words, MyCC must establish
an agreement restricts competition by object before it invokes the deeming
provision. This is in line with AirAsia’s counsel’s submission on the 2 limbs
approach under section 4(2) –
Limb 1:
“(2) Without prejudice to
the generality of subsection (1), a horizontal agreement between enterprises
which has the object to – …
(b) share market or source of supply;
…”
Limb 2:
“… is deemed to have the object of significantly preventing,
restricting, or distorting competition in any market for goods or services.”
A careful reading of section 4(2)(b) (read together with section 4(1)) would
clearly show that the deeming proviso is only applicable to the 2nd Limb. In
other words, it is only when the object to share market in the 1st limb has been
proven by the MyCC that the agreement could be deemed to significantly prevent,
restrict or distort competition.
• Restriction by object test
The
CAT appears to have laid down the test in deciding whether an agreement is
restricted by object - “…in order to decide whether an agreement is restricted
by object – “[ r]egard must be had inter alia to the content of its provisions,
the objectives it seeks to attain and the economic and legal context of which it
forms part”. Based on the aforementioned test, MyCC has the onus to prove an
alleged anti-competitive object based on interpretation of the agreement in
question. Words and expressions used by the parties will be construed and given
effect accordingly in order to ascertain the intention of the parties. We
however note that the CAT did not take the opportunity to discuss the meaning of
“economic and legal context” as submitted by AirAsia’s counsel.
•
Definition of relevant market
With regards to market sharing, the CAT
pointed out that the MyCC did not or failed to define the relevant market. The
CAT observed that definition of relevant market is integral in any competition
inquiry. This observation of the CAT puts us in line with the approach taken by
other jurisdictions which also recognise definition of the relevant market is
the key aspect of any competition inquiry. It is only after having defined the
relevant market that the MyCC can assess whether a particular conduct is
anti-competitive in nature. Objective analysis on airline collaboration and
merger.
The CAT also cautioned that a simplistic use of the deeming
provision of section 4(2) of the CA 2010 on airlines business may not be proper.
This decision acknowledges that alliances between airlines could enhance
efficiency and service quality, and it would be wrong to assume that
collaboration between two airliners is per se illegal.
This will provide
some guidance to Malaysian Aviation Commission which was recently established by
the Malaysian Aviation Commission Act 2015. This new Commission has taken over
regulation of the competition and economic issues relating to the aviation
industry. It is also noteworthy that the new Act introduced merger control over
aviation service markets in Malaysia.
Closing observation
This
landmark decision of the CAT has provided some much sought after clarity on the
interpretation of section 4(2) of the CA 2010 and is a welcome decision.
Tay & Partners Competition Law Practice
Our competition law practice
group combines the synergies of lawyers with advisory, dispute resolutions
backgrounds and experiences together with intellectual property specialisations,
in order to provide a full range of competition law services to clients. We
regularly advise clients on transactional issues and compliance practice across
sectors such as transport and logistic, insurance, industrial, fast-moving
consumer goods and financial services. In many of these assignments, we have
worked with international counsels and competition economists in providing a
robust and global approach to competition law issues. We also play an active
role in providing our feedbacks in response to the public consultations launched
by the Malaysia Competition Commission and hope to help shape Malaysia’s
developing competition law framework.
Should you have any queries on the
above or for more information on Tay & Partners Competition Law Practice, please
do not hesitate to get in touch with the following:
Tay Beng Chai
Managing Partner & Head of Competition Law Practice
+603 2050 1881
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Nicole Leong
Senior Associate
+603 2050 1918
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