IMSML Website Article 7/2024: Langkawi Ro-Ro Ferry Services Sdn Bhd & Ors v Competition Commission [2022] MLJU 2900, Anti-Competitive Practices in Ro-Ro Ferry Services
This case was decided by the Competition Appeal Tribunal (CAT) at Putrajaya. The tribunal consisted of Dato' Dr Choo Kah Sing C, Ybhg Datuk Mohd Gazali bin Abas and Ybhg Datin Paduka Ang Nai Har.
The case is a hearing of three appeals. The first appeal concerns Langkawi Ro-Ro Ferry Services Sdn Bhd (LRRFS). The second appeal concerns Langkawi Auto Express Sdn Bhd (LAE) and Langkawi Ferry Services Sdn Bhd (LFS). The third appeal concerns Dibuk Cargo Services Sdn Bhd (DCS) and Dibuk Sdn Bhd (DIBUK). All these companies were involved in the business of oerating ferry services for the transportation of motor vehicles and/or passengers at a well known jetty at Kuala Lumpur, Langkawi, called Dermaga Tanjung Lembung. This facility is one of the four major enty points into the island of Langkawi via the sea route. It is the only jetty that has the equipment to load and unload wheeled cargo or transportation vegicles to the island in Kuala Perlis (ie Ro-Ro vessel facilities). For the infringement period from 31 December 2017 to 14 September 2020 as decided by the Malaysian Competition Commission (MyCC), LRRFS, LAE and DCS were providing the RO-RO services at Dermaga Tanjung Lembung.
The DIBUK and DCS Relationships
There were common shareholders in both DIBUK and DCS. En Marzuki B Othman owned 90% and 78% of DCS and DIBUK respectively. En Ezreen Muhaizie bin Marzuk (ie Marzuki's son) 10% and 4% respectively. Julianna binti Yaakob owned 18% of only DIBUK. As a result of this shareholding, Marzuki B Othman was a director of both DCand DIBUK. Ezreen Muhaize B Marzuki was only a director of DCS. Julianna binti Yaakob was only a director of DIBUK.
The LFS, DIBUK and LAE Relationships.
LAE was the joint venture platform between three persons: LFS, DIBUK and Mohd Azrul. The shareholding of these three persons in LAE was as follows: LFS (49%), DIBUK (40%) and Mohd Azrul (11%).
For the majority shareholder of LAE, LFS had eight shareholders:
[1] Mohd Azrul (30%) [ie this was separate and distinct from his personal shareholding in LAE of 11%];
[2] Ooi Cheng Choon (20%);
[3] Loke Gim San, Ooi Siew Eng, Ooi Lay Hoon and Ooi Chin Huat (each with 10%);
[4] Loke Chee Beng and Loke Chee Hoay (5%).
The Board of Directors of LFS consisted of:
[1] Mohd Azrul;
[2] Ooi Cheng Choon;
[3] Loke Chee Beng;
[4] Loke Gim San, and
[5] Ooi Kooi Bee @Kooi Bee.
The Board of Directors of the LAE joint venture consisted of:
[1] Ooi Cheng Hoon;
[2] Loke Chee Beng;
[3] Loke Gim San;
[4] Ooi Kooi Bee @ Kooi Bee;
Note:
(I) Directors [1]-[4] are also Directors of LFS;
(II) Director [4] is the only non-shareholder holding rector of LFS.
[5] Marzuki b Othman;
[6] Ezreen Muhaize.
Note:
(I) Both [5] and 6] are representation of DIBUK;
(II) Mohd Azrul is NOT a director of LAE.
The Infringements
On 11 February 2024, the practices of RO-RO ferries at Langkawi became known when the Ministry of Domestic Trade and Consumer Affairs prepared a report titled 'Laporan Isu Harga Barangan di Langkawi Kedah'. MyCC was directed by the Ministry to exercise its statutory power to investigate whether there was any infringement of the Competition Act 2010, in particular fares and pricing imposed by service providers of RO-RO services via sea to the island of Langkawi, from the States of Kedah and Perlis.
On 28 February 2024, MyCC commenced a formal investigation under the Competition Act 2010, Section 14(1). During the course of its investigations, MyCC found two 'Infringing Agreements', one Memorandum of Understanding (MOU) dated 31 December 2017, and another undated MOU.
The First Infringing MOU by LRRFS, LAE and DIBUK
This first MOU contained an agreement for the standardisation of ticket fares, and insurance premium coverage for RO-RO Ferry Business Operations Between Langkawi and Kuala Perlis or motorcycles, cars, buses and lorry. Only passengers and bicycles remain unchanged. The new ticket fares were to take effect from 1 January 2018. The parties also agreed that in the event regulatory authorities withdraw respective licences, they would abide by the said decision jointly and unilaterally, as well as share legal costs and submit appeals jointly.
The Second Infringing MOU by LRRFS, LAE and DCS (ie not DIBUK)
The second MOU contained an agreement for standardisation of ticket fares for the Year 2019, for RO-RO Ferry Business Operations Between Langkawi and Kuala Perlis. There was a 10% increase in fares for motorcycles as well as bicycles, cars, buses as well as coaches and lorries. This time, there was no change for passengers only. The new fares were to be effective from 1 January 2024. Just like before, the parties agreed to act jointly and unilaterally, as well as bear any costs together with respect to any regulatory action.
The Final Decision of the MyCC
On 17 December 2021, MyCC decided that the group companies infringed the Competition Act 2010, Section 4(1), taking into account the combined effect of Section 4(2) and 4(3). The evidence of infringements were provided by the MOUs for the Year 2018 and 2019 where the parties agreed to standardise charges for the fares for various types of vehicles using the RO-RO Ferry Services. This Final Decision of the MyCC was in response to its earlier 'Proposed Decision' dated 14 September 2020, after responding to the oral and written representations by the Appellants' Representatives.
The interesting point of the MyCC's Final Decision is that LFS, the majority shareholder of LAE, was also found liable for the infringement. The basis for this liability was that LFS was a part of a single economic unit or the doctrine of single economic entity was applicable here.
The Findings of the Competition Appeals Tribunal (CAT)
In general, the CAT was of the view that liability was established on a breach of the Competition Act, Section 4. In this case, using the language of Section4, there appears to be fixing of trading conditions (ie by standardising fare prices) in order to significantly prevent, restrict or distort competition in a market for services (ie the RO-RO Ferry Services).
According to the CAT, all the companies involved in the two MOUs were an ‘enterprise’ under the Competition Act 2010, Section 2, in particular, ‘any entity carrying commercial activities relating to good or services’. The MOUs were a ‘horizontal agreement’ under Section 4, which had the clear objective of fixing the purchase and selling price of tickets. Due to its nature and purpose, this had the effect of triggering the ‘deeming provision’ of Section 4(2), ie that the MOUs were deemed by law to have the object of significantly preventing, restricting or distorting competition in that market. The three strict requirements have to be satisfied for the deeming provision to work: First, there was a horizontal agreement; Second, the agreement was entered into by enterprises; and Third, the object was to fix (directly or indirectly) a purchase or selling price or any other trading condition, see Para [28]. The Court of Appeal in Malaysia Airline System Bhd v Competition Commission and Another Appeal [2022] 1 CLJ 856 stressed that the three requirements must be strictly complied with because of its inherent bias in producing a certain set result.
The CAT rejected the suggestion that there was a need to define what a ‘market’ is so as not to be fixated over what is ‘de minimis’. It was obvious what the ‘market’ was in this case, ie it was the market for the provision of vehicle transportation via RO-RO vessel in Langkawi, see Para [29]. This was a case where ‘quantitative analysis’ was not required to show what the market could entail before determining whether the Competition Act 2010, Section 4(1) had been infringed, see Para [30]. It was case where the market was confined to RO-RO vessel services for the sea route between Dermaga Tanjung Lembung, Langkawi and Kuala Perlis Jetty, see Para [30]. In reality, the market is easily identified in terms of its specific geography, size and parties involved. It was a confined market that was easily identified and could be easily be assessed to be significantly preventing, restricting or distorting competition in the market for the said services, see Para [31].
The Relevance of the Meeting with the Marine Department (MARDEP) and the Ministry of Transport (MOT)
LRRFS argued that it had to enter the MOUs because of a meeting it had with MARDEP and MOT on 17 January 2013 at its offices in Kuala Perlis. LRRFS pointed that that it was agreed with the regulators at that meeting that fares for RO-RO ferry services ought to be standardised, see Para [35]. LRRFS contended that what it was doing was not a ‘commercial activity’ as defined under the Competition Act 2010, section 3(4) as it was an activity that was directly or indirectly in the exercise of governmental activity, see Para [37].
Following up on that meeting with MARDEP and MOT, LRRFS wrote to the regulators and sought to get written consent and approval for the new fee structure. LRRFS also argued Section 3(4) was silent as to whether only a government body must be either directly or indirectly be the entity be involved in the activity, see Para [41] and [42]. This contention was rejected by the CAT. The group of companies were not involved in an activity directly or indirectly in the exercise of government activity. More accurately, it was a private activity of a private nature that is carried out by a group of private entities with a view to making profits, see Para [43].
The CAT pointed out that there was no evidence of direct or indirect approval or consent given by MOT or MARDEP to the Appellants to enter into the MOUs and to fix the fares. There was also no written approval by the authorities approving the standardised charges of the fares. This fact was conceded by Counsel for the Appellant, although there was an attempt to clarify that the MOUs were an attempt to implement suggestions raised at the earlier meeting, and was not intended to be a violation of the Competition Act 2010, see Para [44].
The Appellants pointed out that the intent was to resolve a long standing tangible and practical issue. Five years had lapsed since the meeting with MARDEP and MOT. The group of companies were placed in a limbo by the inaction of the authorities to quickly approve the proposed fare rates. The MOUs were a last ditch attempt to remain afloat, see Para [44]. The CAT took note that the Appellant was fully aware that it needed express approval from the regulatory authorities to fix or standardise the fares for the RO-RO services at all material times when the MOUs were signed, see Para [45].
The Appellants raised the issue that the meeting with the regulators in 2013, raised the possibility of the application of the doctrine of legitimate expectation that the authorities would act on the outcome of that meeting. The CAT rejected this contention because even if there was an agreement, intention or decision made by MARDEP or MOT for the fares to be standardised, that could not be carte blanche for actions that would violate provisions of statutory law on competition, see Para [47]. The CAT held that the correct mechanism for standardising fares was the Merchant Shipping Ordinance 1952, Section 65D(d). This provision empowers the Domestic Shipping Licensing Board to make regulations that prescribed the rates which may be charged for the carriage of passengers by any ship in domestic shipping.
The CAT held that the facts were far from supporting the case put forward by the Appellants for the application of the doctrine of legitimate expectations. Three reasons were given for this by the CAT. First, there was no promise made either by MARDEP or MOT to the Appellants. Second, no promise was made to approve the fare charges in the Infringing Agreements in both MOUs. Third, the Appellants were fully aware that proper approval was required to be obtained from either MARDEP or MOT before implementing the standardised fare charges, see Para [50].
The Lack of a Need for a Market Survey
Although not pleaded as one of the ground for appeal, Counsel for the Appellant argued that the case was procedurally defective as MyCC did not conduct a market survey before reaching its Final Decision. Counsel argued that if a market survey had been done, the outcome would have been favourable to the Appellants as there was no public complaint with regard to the standardised fares. Without such a market survey, it was contended that a finding that the Appellants had breached the Competition Act 2010 was premature, see Para [56]. The CAT rejected this as whether a market review is conducted is entirely at the discretion of MyCC as it thinks fit, or upon requested by the Minister under the Competition Act 2010, Section 11(1), see Para [57]. As the MOUs were between a few service providers and were limited to RO-RO services between Dermaga Tanjung Lembung, Langkawi and Kuala Perlis (ie in a concentrated geographical area), there who need to determine any feature or combination of features that could prevent, restrict or distort competition, see Para [59].
Transplantation of Guidelines and Procedural Manuals from Foreign Jurisdictions
This issue arose because the Competition Act 2010, Part III (Investigation and Enforcement) does not make mention of the word ‘charge’. It was argued by Counsel for the Appellant that MyCC is required to frame a charge or provide a charge sheet against the Appellants companies before proceeding to investigate the Appellants. This argument was based on guidelines and procedural manuals found in foreign jurisdictions in relation to the investigation of anti-competition behaviour. The CAT described this as ‘misconceived’, see Para [67] and [68]. The relevant provision of the Competition Act, Section 14, does not require this procedural step. The CAT warned that anti-competition law in Malaysia has its own regime which is crafted out in the Competition Act 2010 by legislature. Therefore one should not incorporate foreign procedure into the Competition Act 2010, see Para [74]. Further, practices which are alien to Malaysia’s statutory regime is the disclosure of transcripts and recordings to facilitate the formulation of the Appellant’s defence, see Para [74].
Computation of the Financial Penalties
Counsel for the Appellant submitted that MyCC failed to take into account relevant deductibles when computing LAE’s turnover in the relevant market when computing the amount for the financial penalty. This was important as the Competition Act 2010, Section 40(4) provided that ‘a financial penalty shall not exceed ten percent of the worldwide turnover of an enterprise over the period during which an infringement period occurred’, see Paras [80] and [81].
The starting point for the calculation of the sum is therefore the ‘turnover’. According to the dictionary meaning of the word (see Oxford Dictionary of Business and Management, sixth Ed, Oxford University Press, 2016), ‘turnover’ mean ‘the total sales figure of an organisation for a stated period’. According to the CAT, there are several observations that can be made. First, ‘turnover’ refers to the total revenue of an organisation derived from sales of goods or services before deduction of expenses, see Para [82]. Second, ‘turnover’ is in effect ‘gross income’ or ‘gross revenue’. Third, all discounts, rebates, refunds or taxes have to be excluded as part of the gross income or gross revenue, see Para [82].
According to the Appellant, first deductible which should have been taken into account are vehicle ticket refunds (RM278, 684). The CAT agreed that this item is a deductible for the computation of the turnover. However, the Appellants did not provide sufficient documentation to establish the refund amount. Merely because MyCC was unable to identify the exact amount of refunds, does not mean that it could ignore it. The CAT decided that the matter be remitted back to MyCC for re-assessment, with additional supporting documents to be provided by the Appellants, see Para [85] and [86].
The second deductible raised by the Appellants was the vehicle levy (RM1,884,3090.12). This was not tax per se, but rather wharf charges handling fees imposed by Langkawi Port Sdn Bhd (LPSB). LPSB is not a port authority or governmental agency authorised to collect taxes, but rather a private limited company providing port handling services, see Para [84]. Therefore CAT concluded that the sum was for service charges at Dermaga Tanjung Lembung, Langkawia, and not in the nature of taxes. Therefore, it was not a deductible item that ought to be discounted when calculating the turnover, see Para [84].
The Single Economic Entity Argument
The Appellant’s Counsel argued that DCS and DIBUK did not form a single economic entity (SEE), in particular, because DIBUK was not a party to the concerted action.
The Competition Act 2010, Section 2, states that a parent and subsidiary company shall be regarded as a single enterprise if, despite their separation legal entity, both from a single economic unit within which the subsidiaries do not enjoy real autonomy in determining the actions of the subsidiaries in the market. Case law interpretation has however shown that this definition is wider than the parent company-subsidiary relationship. HFB Holding v Commission of the European Communities, Case T-9/99 has stated that SEE is not limited only to the parent and subsidiary company but goes beyond that, see Para [115].
The CAT adopted the test propounded by Richard Whish and Bailey in their seminal work, Competition Law, 7th Edition, Oxford University Press, 2012, p 94, see Para [116]. Whish and Bailey suggest the test is 'whether parties to an agreement are independent in their decision-making , OR whether one is able to exercise decisive influence over the other with the result that the latter does not enjoy 'real autonomy' in determining its commercial policy on the market'. Expanding on this Whish and Bailey expalined that 'it is necessary to examine factors such as shareholding that a parent company has in its subsidiary, the composition of the Board of Directors, the extent to which the parent influences the policy of, or issues instructions to the subsidiary and similar matters'.
The CAT agreed with MyCC's finding that DIBUK had the ability and had indeed exercised decisive influence over Dibuk Cargo's conduct in the market. The CAT agreed with MyCC that Dibuk Cargo had no real autonomy to determine its course of action in the market, see Para [118]. The CAT highlighted MyCC's finding in Paragraph 83 of its Final Decision that 'the shareholding, directorship, authority to sign agreements, decision making power, managerial and administrative roles of Marzukhi and Ezreen in Dibuk Sdn Bhd and Dibuk Cargo are clear indications of economic, organisational, personal and legal links between the two legal entities', see Para [117].
Thank you for reading IMSML Website Article 7/2024
Stay tuned for the next IMSML Website Article 8/2024: Sabah Shell Petroleum Company Limited v Gumusut-Kakap Semi-Floating Production System (Labuan) Limited and another case [2022] MLJU 3504
Signing-off for today,
Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT
Professor of Maritime and Transport Law
Head of the Centre for Advocacy and Dispute Resolution
Faculty of Law
Universiti Teknologi MARA Shah Alam
Selangor, Malaysia
Tuesday, 23 January 2024
Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my