The case of Persatuan Insurans Am Malaysia (PIAM) & Ors v Competition Commission [2022] 9 CLJ 268 is an interesting decision that, amongst others, sheds light on the definition of “enterprises” under the Competition Act 2010 (‘CA’), and specifically, who can be regarded as participating in anti-competitive agreements.
Material Facts:
In Malaysia, when a motor vehicle is damaged in an accident, the motor vehicle owner is required to send the damaged motor vehicle to an approved automobile repairer workshop under the PIAM approved repairers’ scheme (“PARS workshops”) if he/she intends to claim against his/her insurance policy. The costs of repair (parts, labour charges and other charges), if approved, will be borne by his/her insurance company.
PARS workshops are members of the Federation Automobile Workshops Owners’ Association (“FAWOAM”), while the insurers are all members of PIAM.
However, disputes arose when the PARS workshops were discontented with the imposition by some of the insurance companies of unreasonable trade discount, in their view, on spare parts prices to repair the damaged motor vehicle.
Thus, upon several meetings and negotiations between PIAM and FAWOAM, including with intervention by Bank Negara Malaysia, PIAM and FAWOAM eventually came to a consensus on the rate for parts trade discounts (being a maximum 25%) and on labour rates (being RM30 per hour).
This resulted in a 2011 circular issued by PIAM to its members (“Circular 132”) on the “consensus” on the trade discount and labour rates.
However, in 2015, the then President of FAWOAM lodged a complaint to the NYCC against PIAM and its members pertaining to Circular 132 for being an agreement of ‘fixing discount rate and labour rate’.
As a result, MyCC began its investigations under s. 15(1) of the CA and in 2020, MyCC found that PIAM and its members (the insurers) had, by having entered an infringing agreement (as per Circular 132), breached s. 4(1) read together with s. 4(2) and (3) of the CA; MyCC ruled that Circular 132 showed that the members were indirectly monopolising the market by fixing an agreed price, and thus constituted an anti-competitive agreement.
MyCC then directed that the insurers: (i) cease and desist from implementing the agreed parts trade discount and the hourly labour rate with immediate effect; and (ii) future parts trade discount rate and the hourly labour rate for PARS workshops are to be determined independently by the 22 enterprises. MyCC also imposed on each of the insurers hefty financial penalties.
Dissatisfied with the decision, BNM, PIAM, and its 22 members filed an appeal to the Competition Appeal Tribunal (CAT), which led to this decision.
Findings:
In coming to its decision, the CAT addressed many things, but one that was interesting was the definition of “enterprises.”
S.4 of the CA prohibits enterprises from forming any anti-competition decision or agreement.
However, CAT held that an enterprise only refers to an entity that was engaged in commercial activities relating to goods and services, as per s. 2 of CA.
CAT held that as PIAM is an association, is not a profit-oriented entity, and is not involved in any commercial activity, PIAM does not fall within the meaning of enterprise.
Secondly, CAT ruled that Circular No. 132 was actually a survey result conducted by PIAM with its members. Although the survey revealed the “consensus” of all its members on the reasonable trade discount and labour hourly rate, it could not be said to be an agreement.
Moreover, to apply the deeming clause under s.4(2)(a) of the CA, one of the conditions is that there must be a horizontal agreement. In this case, CAT disagreed that Circular 132 was an agreement concluded between the insurers alone, instead, there was the involvement of FAWOAM and BNM. Additionally, CAT also found no evidence that satisfied the second requirement of section 4(2)(a) CA which is that the object of the agreement must be to fix, directly or indirectly, a purchase or selling price or any other trading condition. CAT found that although the insurers have come to a consensus on the 25 % maximum discount rate for the spare parts and RM30 minimum labour rate, such rates were variable and adjustable, and not fixed.
For these reasons, amongst others, the CAT allowed the appeal and set aside the decision of MyCC.
Application to the Legal Industry:
This case brings into attention the potential application of the CA in the legal industry.
In the legal industry, the Malaysian Bar is the professional body which regulates the profession of lawyers in Peninsular Malaysia and the management of the affairs of the Bar is undertaken by the Bar Council.
In Peninsular Malaysia, solicitors’ remuneration for non-contentious business is governed by the Solicitors Remuneration Order, which the Solicitors Cost Committee under the Bar Council legislates with the power given to it under s. 113(3) of the Legal Profession Act 1976 (“LPA”).
Clearly, the Solicitors Cost Committee comprises of lawyers, and in fact, any amendment to the SRO is “guided” through a majority vote by the Malaysian Bar during its annual general meeting. For example, this was seen at the 70th Annual General Meeting of the Malaysian Bar where the “Resolution to Amend Order 6, First Schedule and Third Schedule of the Solicitors’ Remuneration Order 2005” which included the following, was passed:
“(1) The Bar Council shall take all necessary steps to cause the Solicitors Costs Committee to be convened pursuant to Section 113(2) of the Legal Profession Act 1976, to make the following orders pertaining to remuneration of solicitors:
(a) Order 6 of the SRO 2005 is amended as follows (amendments as marked):
- No discountDiscount
(1) A solicitor may give a discount of up to 25% on fees specified in the First and Third Schedules, except for any transaction governed by the Housing Development (Control and Licensing) Act 1966 [Act 118] or any subsidiary legislation made under that Act.
(2) There shall be no discount on fees specified in this Order the Second, Fourth, Fifth and Sixth Schedules
…”
Now clearly, the Malaysian Bar, the Bar Council, Solicitors Cost Committee are not enterprises, and in fact, law firms hardly regard themselves as enterprises although they render services for profit. As such, as per this decision, they do not attract the application of the CA.
However honest and holistic conversations need to be had to evaluate whether, at the end of the day, having the Solicitors Remuneration Order may amount to a form of “price-fixing”, and thus against the spirit of the free competition that the CA aims to promote and protect in Malaysia? Would clients be served better without any restriction over fees on non-contentious businesses?
These issues definitely provoke further thought, and warrants further examination by both the Judiciary and the Parliament. Perhaps the CA has to be further refined to eliminate any loopholes that may be open to abuse.
Written by: Louis Liaw ([email protected]), Senior Associate with Messrs Chong + Kheng Hoe. Any views on the SRO is Louis’ personal opinion.