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Asia Pacific – Quarterly Updates: Anti-Competitive Agreements.

11 February, 2015


CCS Gives Conditional Clearance To Proposed Acquisition Of JobStreet Singapore By SEEK Asia Investments Pte. Ltd.

 

On 13 November 2014, the Competition Commission of Singapore (“CCS”) published its grounds of decision for the proposed acquisition by SEEK Asia Investments Pte. Ltd. (“SEEK Asia”) of 100% of the online recruitment business owned by JobStreet Corporation Berhad (“JobStreet”).

 

SEEK Asia and its parent company SEEK Ltd. (collectively, “SEEK”) offer online recruitment advertising services through JobsDB Singapore Pte. Ltd., operating under the portal JobsDB.com.sg (“JobsDB”), whilst the Singapore JobStreet entity provides nearly identical services through JobStreet.com Pte. Ltd. (“JobStreet Singapore”). The parties overlap in the provision of online recruitment advertising services, specifically the posting of recruitment advertisements on centralised platforms and resumé database search services.

 

In its decision, CCS found that although there might be a substantial lessening of competition in the market for online recruitment advertising services in Singapore, in consideration of the implementation of and compliance with behavioural and structural commitments offered by SEEK, the proposed acquisition will not infringe section 54 of the Competition Act (Cap. 50B).

 

The acquisition had proceeded to a Phase 2 review as CCS was initially unable to conclude that the merger would not raise competition concerns. Subsequently, two market consultations were carried out regarding the behavioural and divestiture commitments proposed by SEEK in August and October 2014 respectively. As a behavioural commitment, SEEK has agreed not to enter into exclusive agreements with recruitment customers looking to advertise on its JobsDB website. This will give employers, recruiters and jobseekers the choice of using other online recruitment advertising platforms. It will help to keep barriers to entry and expansion low and preserve competition in the market.

 

In addition, SEEK also committed to maintain the current pricing of its services capped at present day rate, allowing for inflation. This is to address fears that the merged entity may be able to increase its prices post-merger in the absence of close competition between the merger parties. The term of these commitments will be three years from the date of completion of the proposed acquisition.

 

For the structural commitment, SEEK agreed to divest, as a going concern, its ownership of the online recruitment aggregator site, jobs.com.sg, including the domain name “http://www.jobs.com.sg”. As part of the divestiture commitment, SEEK consented to find a purchaser for the sale of jobs.com.sg within six calendar months, failing which it will appoint one or more independent persons to sell jobs.com.sg at no minimum price. The divestiture was designed to preserve the competitive environment post-merger by allowing smaller job portals to compete more effectively with larger portals.

 

Following conclusion of the two market consultations and taking into consideration the feedback received, CCS was of the view that the behavioural and divestiture commitments would sufficiently address the competition concerns.

 

CCS Fines Ten Freight Forwarders For Price-Fixing

 

On 11 December 2014, the Competition Commission of Singapore (“CCS”) issued an infringement decision against 11 freight forwarding companies and their Singapore subsidiaries/ affiliates for infringing section 34 of the Singapore Competition Act (Cap. 50B) (“Competition Act”) by collectively fixing certain fees and surcharges, and exchanging price and customer information in relation to the provision of air freight forwarding services for shipments from Japan to Singapore.

 

The 11 parties are:

 

(a) Deutsche Post A.G.; DHL Global Forwarding Japan K.K.; DHL Global Forwarding Management (Asia Pacific) Pte. Ltd. and its subsidiary, DHL Global Forwarding (Singapore) Pte. Ltd.

 

(b) Hankyu Hanshin Express Co., Ltd. and its subsidiary, Hankyu Hanshin Express (Singapore) Pte. Ltd.

 

(c) “K” Line Logistics, Ltd. and its subsidiary, “K” Line Logistics (Singapore) Pte. Ltd.

 

(d) Kintetsu World Express, Inc. and its subsidiary, KWE-Kintetsu World Express (S) Pte. Ltd.

 

(e) MOL Logistics (Japan) Co., Ltd. and its subsidiary, MOL Logistics (Singapore) Pte. Ltd.

 

(f) Nippon Express Co., Ltd. and its subsidiary, Nippon Express (Singapore) Pte. Ltd.

 

(g) Nishi-Nippon Railroad Co., Ltd. and its subsidiary, NNR Global Logistics (S) Pte. Ltd.

 

(h) Nissin Corporation and its subsidiary, Nissin Transport (S) Pte. Ltd.

 

(i) Vantec Corporation and its former subsidiary, Vantec World Transport (S) Pte. Ltd.

 

(j) Yamato Holdings Co., Ltd. and its subsidiaries, Yamato Global Logistics Japan Co., Ltd. and Yamato Asia Pte. Ltd.

 

(k) Yusen Logistics Co., Ltd. and its subsidiary, Yusen Logistics (Singapore) Pte. Ltd. DHL Global Forwarding escaped financial penalties as it had made a leniency application to CCS.

 

The anti-competitive agreements involved certain surcharges applied to shipments between Japan and Singapore. CCS found that discussions of these fees and surcharges among the parties took place in meetings of the Japan Aircargo Forwarders Association (“JAFA”).

 

CCS found that the parties had exchanged their views on surcharges; decided collectively what action they would take; fixed the prices they would charge customers; and discussed the implementation of the charges, including how successful they were in collecting these fees and surcharges from customers.

 

The infringing conduct was carried out by both the Japan and related Singapore companies, acting as a single economic entity. As a result, both the Japan and related Singapore companies were found to be jointly and severally liable for the infringement.

 

Financial penalties amounting to a total of SGD 7,150,852 were imposed on ten out of the 11 freight forwarding companies, with DHL Global Forwarding qualifying for full immunity under CCS’s leniency programme. Four others, namely Hankyu Hanshin, Kintetsu World Express, NNR and Vantec, received a discount for leniency.

 

In mitigation, several parties argued that they should receive a further reduction of the penalty on the account of their compliance programmes. However, CCS noted that their compliance programmes were only implemented after the investigation by the Japan Fair Trade Commission and, as such, did not qualify as a mitigating factor.

 

While the JAFA meetings took place over the period of November 2002 to November 2007, financial penalties were calculated from 1 January 2006 onwards, being the date that the section 34 prohibition took effect in Singapore.

 

This is the second infringement decision issued by CCS with an international dimension and arising from a leniency application, the first being the infringement decision against four Japanese bearings manufacturers and their Singapore subsidiaries for engaging in anti-competitive agreements and unlawful exchange of information in respect of the price and sale of ball and roller bearings sold to aftermarket customers in Singapore. Please click here for more details.

 

Global Shipping Alliance Blocked By China’s MOFCOM

 

In June 2014, the Chinese Ministry of Commerce (“MOFCOM”) announced its decision to block the P3 alliance – a global shipping alliance between the three largest global shipping lines: Maersk Line, Mediterranean Shipping Company and CMA CGM. Amongst other things, the alliance would have authorised the parties to share vessels with one another and to enter into cooperative working arrangements on key shipping routes.

 

MOFCOM noted that the P3 alliance would have significantly enhanced the parties’ market power by giving them a substantial 46.7% market share of the Asia to Europe container liner shipping route. Further, MOFCOM noted that the competitive environment on the Asia-Europe route would become highly concentrated and undergo a significant change in market structure. It also observed that the alliance would increase barriers to entry in the international container liner shipping service market. Ultimately, MOFCOM blocked the alliance on the basis that it had the effect of eliminating or restricting competition in the AsiaEurope container liner shipping service.

 

During the review period, MOFCOM entered into negotiations with the parties and considered several remedy proposals. However, MOFCOM ultimately found that these remedies were insufficient to address the anti-competitive concerns raised by the alliance.

 

MOFCOM’s decision comes after the European Commission decided not to investigate the P3 alliance in early June 2014. The US Federal Maritime Commission (“US FMC”) had also previously approved the alliance in March 2014.

 

Notably, this is only the second time that MOFCOM has prohibited a merger, the first being the proposed Coca-Cola/Huiyuan merger that was blocked in 2009. Shortly after MOFCOM’s rejection of the P3 alliance, Maersk Line and Mediterranean Shipping Company announced in July 2014 that it would be cooperating on a 10-year vessel sharing agreement on the Asia-Europe, transatlantic and transpacific routes.

 

In Singapore:

 

Liner shipping agreements in Singapore fall under a block exemption issued by the Competition Commission of Singapore (“CCS”) in 2006 (the effect of which was extended in 2010 until 31 December 2015). Subject to certain notification requirements, such agreements will generally not fall for consideration under the substantive provisions of the Singapore Competition Act (Cap. 50B). The continued application of the Block Exemption Order after 31 December 2015 is subject to an on-going study conducted by CCS.

 

China’s MOFCOM Reviews 80 Industries For Potential Anti-Competitive Practices

 

In June 2014, China’s Ministry of Commerce (“MOFCOM”) launched an industry-wide review of potential anti-competitive practices across 80 industries, including automobiles, pharmaceuticals and alcoholic beverages. According to a statement from the China Automobile Dealers Association, MOFCOM sent requests for information to several major trade associations in an anti-monopoly survey.

 

The enforcement of anti-monopoly law in China is shared by three regulators, namely, the National Development & Reform Commission (“NDRC”), the State Administration for Industry and Commerce (“SAIC”) and MOFCOM, with NDRC responsible for enforcing the rules against price related infringements, SAIC responsible for non price related infringements and MOFCOM responsible for merger control.

 

As MOFCOM generally concerns itself with mergers and acquisitions and the regulation of concentrations of undertakings, the present industry-wide review is being led by MOFCOM’s Market Order Department via MOFCOM’s general powers of inquiry, rather than its Anti-Monopoly Bureau.

 

This review is part of a campaign that was initiated in December 2013 aimed at tackling practices which hinder free market competition, for example, the setting up of protectionist policies against companies from other Chinese cities and provinces and the granting of unfair subsidies. However, an official spokesperson from MOFCOM’s Market Order Department has clarified that the anti-monopoly survey is not targeted at any specific industry in particular but is intended to crackdown on anti-competitive behaviour in all sectors.

 

In Singapore:

 

The Competition Commission of Singapore (“CCS”) may issue formal notices to businesses and other organisations to provide specified documents or information to CCS. Section 61A notices are issued if CCS has reasonable grounds for suspecting that a feature, or combination of features, of a market in Singapore prevents, restricts or distorts competition, whilst section 63 notices are issued if CCS has reasonable grounds for suspecting an infringement of the Competition Act (Cap. 50B) by the undertaking(s).

 

Goldman Sachs appeals single economic entity finding by the European Commission

 

In April this year, the European Commission (“EC”) handed down fines totalling €302m (SGD 495m) on 11 producers of underground and submarine high voltage power cables used to connect generation capacity to the electricity grid or to interconnect power grids in different countries.

 

According to the EC, the cable producers infringed Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) by operating a cartel for almost a decade from 1999, in which the cartelparticipants shared markets and allocated customers amongst themselves on an almost worldwide scale. The cable producers included most of the world´s largest high voltage power cable producers, namely ABB, Nexans, Prysmian (previously Pirelli), J-Power Systems (previously Sumitomo Electric and Hitachi Metals), VISCAS (previously Furukawa Electric and Fujikura), EXSYM (previously SWCC Showa and Mitsubishi Cable), Brugg, NKT, Silec (previously Safran), LS Cable and Taihan.

 

What is most significant in this case is the EC’s finding that the investment company Goldman Sachs, the former owner of Prysmian, was also liable for Prysmian’s competition law infringements as a parent company which exercised decisive influence over its subsidiary (Prysmian). The EC found Goldman Sachs jointly and severally liable for a €37.3m (SGD 62m) portion of the fine imposed on Prysmian. Former owner Pirelli was held jointly and severally liable with Prysmian for a further penalty of €67.3m (SGD 110m). According to reports, Goldman Sachs bought Prysmian from Pirelli in 2005 and floated the company in 2007, leaving Goldman Sachs with a minority holding in Prysmian. By 2010, Goldman Sachs had sold out its stake in Prysmian.

 

Where a parent owns 100% of the capital of the subsidiary, there is a rebuttable presumption of decisive influence. This rebuttable presumption under European competition law forms the basis of the EC’s finding of joint liability on Goldman Sachs’ part for Prysmian’s competition law infringements.

 

The appeal by Goldman Sachs will be closely watched as it will examine the issue of whether a financial investor parent can be made jointly liable for competition law infringements by companies in their asset portfolio or whether and how financial investors may rebut the presumption of decisive influence in cases where the investor holds 100% of the capital of the subsidiary.

 

In Singapore:

 

In Singapore, liability may also be attributed to a parent company exercising decisive influence over its subsidiary which infringes the provision prohibiting anti-competitive agreements in the Competition Act (Cap. 50B). See, for example, CCS case number 700/002/11 Infringement of the Section 34 Prohibition in relation to the Supply of Ball and Roller Bearings.

 

Similarly, in CCS case number 400/002/12 Decision on the Notification by Qantas Airways and Jetstar Airways, CCS stated that there is a presumption that a parent company would have total control of, and, consequently, decisive influence over the affairs of a wholly-owned subsidiary. However, whether a private equity firm may be held liable for the competition law infringements of a company in its asset portfolio in Singapore is yet to be tested.

 

UK’s Lloyds Banking Group Agrees To Pay USD 83m Criminal Penalty For LIBOR

 

On 28 July 2014, Lloyds Banking Group plc (“Lloyds”) reached a deferred prosecution agreement with the Department of Justice (“DoJ”) to pay a US$83m (SGD 108m) penalty for the manipulation of submissions for the London Interbank Offered Rate (“LIBOR”) between May 2006 and June 2009.

 

The LIBOR is an average interest rate, calculated based upon submissions from contributing banks and reflecting the rates those banks believe they would be charged if borrowing from other banks. LIBOR serves as the primary benchmark for shortterm interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.

 

Lloyds was charged with wire fraud for the manipulation of the Dollar LIBOR, Yen LIBOR and Pound Sterling LIBOR. It was alleged that Lloyd’s traders submitted LIBOR contributions intended to benefit their own trading positions or the trading positions of others. It was further alleged that this manipulation, along with that of other banks, allowed Lloyds’ traders to increase their profits.

 

In addition to this fine by the DoJ, Lloyds also has to pay USD 105m (SGD 136m) to the Commodity Futures Trading Commission and USD 178m (SGD 231m) to the UK Financial Conduct Authority for criminal and regulatory penalties arising out of the same conduct. This brings the total amount of fines to be paid by Lloyds to approximately USD 370m (SGD 480m).

 

Lloyds is the fifth major financial institution that has admitted to LIBOR manipulation and paid a criminal penalty. On a wider scale, the LIBOR investigations involve a multi-jurisdictional probeby competition authorities in the EU, Canada, Brazil, Japan and Switzerland into several major international banks which have been allegedly involved in the rigging of the LIBOR.

 

In Singapore:

 

An infringement of sections 34 (anti-competitive agreements), 47 (abuse of dominance) or 54 (anticompetitive mergers) prohibitions in the Competition Act (Cap. 50B) (“Act”) gives rise to civil penalties payable to the Competition Commission of Singapore (“CCS”) but does not give rise to any criminal offences on its own. Criminal offences only arise under the Act in respect of obstruction offences, committed during the course of an investigation carried out by CCS.

 

On 29 July 2014, the Monetary Authority of Singapore (“MAS”) proposed a new regulatory framework to deter and penalise attempts to manipulate any financial benchmark. Under the proposed framework, the manipulation of any financial benchmarks in Singapore will be made liable to criminal and civil sanctions under the Securities and Futures Act. In addition, administrators and submitters of key financial benchmarks designated by MAS, eg the Singapore Interbank Offered Rate (“SIBOR”) and Swap Offered Rates (“SOR”), will be subject to regulation, including licensing requirements. The public consultation for comments on these changes closed on 29 August 2014.

 

These amendments follow the conclusion of MAS’s investigations in June 2013 into the alleged rigging of the SIBOR, SOR and Forex spot benchmarks for non-deliverable forwards, where 20 banks were found to have deficiencies in the governance, risk management, internal controls and surveillance systems for their involvement in benchmark submissions and 133 traders were found to have engaged in several attempts to inappropriately influence the benchmarks from 2007 to 2011. MAS ultimately concluded that no criminal offence under Singapore law appeared to have been committed, but censured those banks and directed them to adopt measures to address their deficiencies and set aside additional statutory reserves with MAS at zero interest for a period of one year. As of November 2014, MAS has since returned the statutory reserves, totalling SGD 10bn, to the banks.

 

CMA Clears Medical Equipment Manufacturing Assets Acquisition On Failing Firm Argument

 

In August 2014, the UK’s Competition and Markets Authority (“CMA”) published its final report, clearing Alliance Medical Group Limited’s (“Alliance”) acquisition of IBA Molecular UK Limited’s (“IBA Molecular”) assets in the UK that were used to produce 18F-Fluorodeoxyglucose (“FDG-18”), a radioactive tracer used in PET-CT scans (“IBA’s PET Business”). The acquisition was completed earlier between the parties on 16 September 2013.

 

In determining if the acquisition would lead to a substantial lessening of competition, CMA considered the exiting firm scenario as its counterfactual. As part of this inquiry, CMA considered whether the firm would have exited (through failure or otherwise), and, if so:

 

(a) whether there would have been an alternative purchaser for the firm or its assets to the acquirer under consideration; and

 

(b) what would have happened to the sales of the firm in the event of its exit.

 

Under this assessment, CMA noted that IBA’s PET Business “had been consistently loss-making since it started producing FDG-18 in 2007 and that its financial losses would have significantly worsened in 2013 as a result of the loss of a substantial contract.” Accordingly, CMA was of the view that IBA Molecular’s majority shareholder since early 2012, SK Capital, would have directed IBA’s PET Business to exit the market. Further, CMA noted that it was unlikely that an alternative purchaser would have purchased IBA’s PET Business assets due to challenges involved in improving business performance, amongst others. Finally, CMA noted that while the majority of IBA’s PET Business assets would have been redistributed between two alternative suppliers in the event of its exit, CMA could not conclude who the majority of the assets would have gone to.

 

Comparing the competitive process following the transaction with the competitive process under the counterfactual, CMA concluded that the transaction was not expected to have an adverse effect on the competitive process. On this basis, CMA cleared Alliance’s acquisition of IBA’s PET Business assets.

 

The transaction leaves two commercial suppliers of FDG-18 in the UK – Alliance and PETNET Solutions Inc. Several hospitals and research institutions in the UK also have the capacity to produce FDG-18 for their own use.

 

In Singapore:

 

In Singapore, mergers and acquisitions that lead to a substantial lessening of competition within any market in Singapore for goods or services are an infringement of section 54 of Singapore’s Competition Act (Cap. 50B). However, the failing firm argument may be used as a defence against a possible finding of substantial lessening of competition. To qualify for the failing firm defence, a party has to show that (a) the firm is in such a dire situation that without the merger/acquisition, the firm and its assets would exit the market in the near future; (b) the firm must be unable to meet its financial obligations in the near future and there must be no serious prospect of re-organising the business; and (c) there is no less anti-competitive alternative to the merger/acquisition (eg there is no possibility that a realistic buyer would acquire the failing firm and use its assets to produce a more competitive outcome). The Competition Commission of Singapore (“CCS”) considered the failing firm defence in its assessment of Singapore Airlines Limited’s proposed acquisition of Tiger Airways Holdings Limited (“Tigerair Holdings”). CCS, in clearing the acquisition, determined that “on balance …the Proposed Transaction would be less detrimental to competition in Singapore as compared to the scenario where Tigerair Holdings exits its operations”.

 

MyCC Accepts Undertakings From Shipping Companies

 

On 1 October 2014, the Malaysian Competition Commission (“MyCC”) accepted undertakings offered by Giga Shipping Sdn Bhd (“Giga”) and Nexus Mega Carriers Sdn Bhd (“Nexus”) to address MyCC’s competition concerns in respect of their alleged infringement of sections 4 and 10 (which prohibit anti-competitive agreements and abuses of dominance, respectively) of the Malaysian Competition Act 2010 (“CA”). This is the first time MyCC has accepted commitments in an abuse of dominance investigation.

 

Both companies are major providers of logistic and shipment services by sea for motor vehicles from ports in the Malaysian Peninsular to ports in Sabah, Sarawak and Labuan. Since 2010, Giga and Nexus entered into agreements with vehicle manufacturers, distributors and retailers containing clauses appointing them as exclusive service providers for up to three years, in consideration for lower prices based on the volume of business generated by such agreements.

 

While maintaining that these agreements did not infringe the CA, both companies have undertaken to cease to include any such exclusivity clause(s) in their agreements with existing or prospective customers. In addition, both companies have committed to the continued implementation of their respective competition law compliance programmes for as long as the undertakings are in effect.

 

In exchange for the undertakings given by both companies, MyCC has agreed to conclude its investigations on the matter and refrain from commencing proceedings against both companies.

 

In Singapore:

 

The Competition Commission of Singapore (“CCS”) does not currently have a formalised procedure in place for parties under investigation for section 34 and section 47 infringements to offer commitments in lieu of a decision.

 

Notwithstanding, CCS has previously demonstrated its willingness to consider commitments offered by investigated parties. In 2013, CCS ceased investigations into Coca-Cola Singapore Beverages Pte. Ltd.’s (“CCSB”) supply agreements with its on-premise retailers, following CCSB’s voluntary amendment of its supply agreements to remove potentially anti-competitive provisions and its undertaking to refrain from imposing exclusivity restrictions or conditions on its on-premise retailers.

 

Drew & Napier 

For further information, please contact:

 

Cavinder Bull, Director, Drew & Napier

cavinder.bull@drewnapier.com

 

Chong Kin Lim, Director, Drew & Napier

chongkin.lim@drewnapier.com

 

Scott Clements, Drew & Napier

scott.clements@drewnapier.com

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