On 24 January 2019, news surfaced that MY E.G. Services Berhad (MyEG) had lost their judicial review case at the High Court, and the court upheld the fine of a whopping RM9.34 million by Malaysia Competition Commission (MyCC). We Malaysians generally know that certain companies in Malaysia enjoy business conditions not unlike monopolies, but we rarely hear of them getting punished out of nowhere. What happened here?
They were fined for anti-competition business practices
MyEG was penalized by MyCC back in 24 June 2016 for abusing its dominant position in the market. They actually appealed the case to the Competition Appeal Tribunal, where they also lost, before sending an application for judicial review to the High Court - which they lost as well.
But when does a company have a dominant position in the market? Our Competition Act defines a dominant position as:
Basically, it’s when they have enough influence that they can manipulate prices and business dealings, which their competitors have little power to stop. The law also notes in Section 10(4) that the amount of market share a company commands does not decide whether it has a dominant position or not. For example, a conglomerate company with a flour mill division that has only 20% market share might still be dominant because it has a lot of cash and influence from its other businesses.
Which still leaves the question: what did MyEG do that was considered an abuse of their dominant position?
They made it harder to renew PLKS insurance with their competitors
MyEG’s subsidiary company, MyEG Commerce, had a contract with RHB Insurance to act as their insurance agent. One of the products they sold was insurance policies mandatory for the renewal of Pas Lawatan (Kerja Sementara) required by foreign workers (PLKS).
Nothing wrong at this point. Thing is, MyEG provided automatic verification only for policies bought from RHB Insurance on their platform, making renewal much faster for them. If customers bought insurance from companies other than RHB Insurance - MyEG required additional verification, which of course made renewal more troublesome.
As a consumer, you’d go for the RHB option almost every time. Why take more trouble than you need to, right? This is exactly the pressure placed on consumers to choose RHB Insurance over all others, helping MyEG profit over everyone else.
This is an abuse of dominant position under Section 10(2)(d)(iii) of the Competition Act 2010, which makes it an offence to:
There are plenty of other situations that are considered like controlling the input and output of resources in an industry, price predation, and many more, but we’ll cover them another time as we can’t get into all of them here.
You can find some details about the case in MyCC’s press release from MyEG’s first appeal over here.
But how did MyCC calculate RM9.34 million as a penalty?
While it’s great and all that we’re preserving a competitive business environment in Malaysia, where did MyCC pull that number out from for the financial penalty to MyEG?
How MyCC came up with that number is not exactly declared. What MyCC is declared by law in Section 40 of the Competition Act, but it gives them quite wide powers to decide on how much to fine anti-competitive practices.
For example, they are given the powers to:
Require that the offending practices are stopped immediately
Specify steps that must be taken by the offending company to stop the offending practices
Impose a financial penalty
Give out any other direction as deemed appropriate
As you can see, they have a wide area of discretion in what decisions they can make, which helps them stay flexible to the kind of situation they’re handling, but can be potentially abused. One mechanism that keeps MyCC accountable is the requirement in Section 40(3) that they have to publish the reasons for each decision they take against anti-competitive practices.
Their power to impose a financial penalty is only limited in that it cannot exceed 10% of the global revenue of a company over the period of their wrongdoing. So, if an offending company made RM5 billion over a period of time, MyCC can fine them for an absolute maximum of RM500 million.
Of course, MyCC can’t slap the maximum fine just because it wants to, and has guidelines for how it determines the total financial penalty. According to The Edge Markets, MyEG’s fine contained a RM307,200 financial penalty, and daily penalties of RM7,500 per day running from 7 October 2015 to 22 January 2019 (RM9.03 million). The daily penalty will continue to run until MyEG rectifies the situation with their PLKS renewal platform.