Jurisdiction - Singapore
Reports and Analysis
Singapore – Competition Law in 2014 And Trends For 2015.

22 January, 2015

 

 
Introduction

 

Happy New Year all! We start the year with a coverage of key developments in competition law in Singapore over the past year, and discuss the likely trends looking forward to 2015. We also touch on the upcoming ASEAN Economic Community (“AEC”), which is expected to come into force this year.

 

In summary, the Competition Commission of Singapore (“CCS”) has taken a highly pro-active stance in ensuring compliance with competition law in Singapore. It has cracked down on international cartel cases affecting competition in Singapore, and it has stepped up its enforcement activity in relation to merger control. It has established itself as a serious regulator not to be ignored; and we see this trend carrying on into 2015. This, coupled with the AEC in 2015, will clearly see greater activity with ASEAN as a whole.

 

Increased Enforcement Against International Cartels By CCS

 

Under Section 34 of the Competition Act (“Act”), agreements between undertakings which have the object or effect of preventing, restricting or distorting competition in Singapore are generally prohibited. In 2014, the CCS emphasised its hard-line approach by clamping down on two international cartels with an adverse effect on competition in Singapore.

 

On 27 May 2014, the CCS issued an infringement decision against four Japanese ball bearings manufacturers and their Singapore subsidiaries for their infringement of section 34 of the Act (the “Ball Bearings Case”), and imposed financial penalties totalling SGD 9.3m. In the Ball Bearings Case, the CCS found that the ball bearings manufacturers had engaged in anti-competitive agreements and the unlawful exchange of information in respect of the price and sale of ball and roller bearings to aftermarket customers in Singapore.

 

On 11 December 2014, the CCS fined 10 freight forwarding companies a total of SGD 7.2m for their infringement of section 34 of the Act (the “Freight Forwarding Case”). According to the CCS’ investigations, the offending freight forwarding companies had engaged in cartel behaviour. They had collectively fixed certain fees and surcharges, and exchanged price and customer information, relating to the provision of freight forwarding services from Japan to Singapore.

 

These cases represent the first time that the CCS has exercised the extraterritorial reach of its enforcement powers. They signal the CCS’ growing readiness to enforce the Act against foreign companies insofar as their conduct affects or restricts competition in Singapore. It is also evident that there will be more such international cartels which will be subjected to investigations in Singapore.

 

In the Ball Bearings Case, the CCS found that the Japan parent companies agreed amongst themselves on the overall strategies for their Singapore subsidiary companies to implement, amongst others, a market share and profit protection initiative. In Singapore, the respective Singapore subsidiary companies discussed the overall strategies decided by the Japan parent companies, and the methods to give effect to the initiative. The CCS held that their conduct had the overall common object of restricting competition in the market for the sale of bearings to aftermarket customers in Singapore. In this case, the CCS also assessed that the liability for the conduct carried out by the Singapore companies could be imputed to their parent companies as they formed a single economic entity (“SEE”). As such, each of the Japanese companies and their Singapore subsidiaries were found to be jointly and severally liable for the infringement.

 

In the Freight Forwarding Case, although the offending discussions on price fixing and information exchange largely took place between the Japanese freight forwarding companies in Japan, as the target of their agreements was shipments from Japan to destinations overseas including Singapore, the CCS regarded their conduct as having as object or effect the restriction of competition within Singapore for the provision of air freight forwarding services from Japan to Singapore. The CCS found that the conduct was carried out by both the Japan and related Singapore companies, acting as a single economic entity; as such, each Japanese company and their Singapore subsidiary was found to be jointly and severally liable for the infringement. It is noteworthy that the CCS did not find any evidence suggesting that the Singapore subsidiaries knew of the anti-competitive arrangements reached by the parent companies. The CCS nevertheless imposed a financial penalty on both the parents and their respective subsidiaries on the basis that they were part of a SEE. Whilst the concept of SEE has been used in a number of jurisdictions to impute to a parent company the acts of its subsidiary over which it has control, the reverse is rather unusual. It is also a clear signal that the CCS will not hesitate to take to task a company in Singapore for the illegal acts of its parent(s) if such acts may have an effect on competition in Singapore.

 

Competition Compliance And Early Detection

 

The CCS’ enforcement against cartel activity will continue actively, we believe, into 2015. Given the CCS’ increased enforcement efforts, businesses must take steps to ensure compliance with the law (including educating its sales and marketing staff of what they can and cannot do), and to allow for early detection in the event of an infringement. In particular, businesses must be mindful of the CCS’ strict position in relation to cartels – the CCS has warned that the fixing of only an element of a rate, or the receipt of commercially sensitive information by a business from a competitor without actively distancing itself from the conduct, may be sufficient to constitute an infringement of the section 34 prohibition.

 

In addition, Singaporean subsidiaries of foreign-registered companies should be aware that any cartel activity being engaged in by their parent companies outside of Singapore may still be caught by the CCS, if the CCS determines that they form a single economic entity and if an anti-competitive impact is felt in Singapore.

 

In light of this, if a company discovers that it or its parent company is engaging in cartel activity which may potentially have an anti-competitive effect in Singapore, what are the options available to it?

 

Thorough Review, Audit And Legal Advice

 

Whilst the immediate thinking might be that there is indeed a cartel, we would call for a careful audit and review of the facts and the business practices, as well as all relevant documents, to ascertain if indeed there have been anti-competitive agreements in place. This is a review that must be carefully undertaken, preferably with legal privilege attached. In doing this review, more than just Singapore should be considered. For example, within ASEAN, countries such as Malaysia, Indonesia and Vietnam, which all increasingly have very active competition regulators, must be considered.

 

Applications For Leniency

 

Where a real issue has been identified, then leniency becomes an option. The CCS offers a leniency programme to encourage businesses to come forward to whistleblow on cartel activities in Singapore. Under this leniency programme, whistleblowing cartel members may receive immunity from, or a reduction in the amount of, financial penalties that may be imposed on them by the CCS. An important aspect of the leniency programme is the “First-to-the-Door” policy, which provides the first whistleblowing cartel member the benefit of full leniency from financial penalties.

 

An applicant for leniency must furnish sufficient evidence to support its claim of cartel activity. However, the marker system under the CCS’ leniency programme allows an applicant to first notify the CCS of its involvement in a cartel, without necessarily gathering the full evidence regarding such cartel activity. In essence, the system preserves the position of the applicant in the queue, pending its ability to furnish sufficient evidence to support its application within a specified period of time.

 

Application For Leniency Plus

 

Cartel members may also consider providing information to the CCS under the leniency plus programme. This was introduced in January 2009 to encourage cartel members under investigation to report their involvement in another cartel activity, in order to secure reduced financial penalties for the first cartel activity.

 

On Balance

 

The leniency programme has been crucial to the CCS in its investigation of cartel activities, with both the Ball Bearings Case and the Freight Forwarding Case being brought to the CCS’ attention because of whistleblowing cartel members making disclosure to the CCS under the leniency programme. In both cases, the first leniency applicant enjoyed full immunity from penalties.

 

Businesses that become aware of any involvement in a cartel, but only after a careful audit and review have been undertaken, are encouraged to actively consider notifying the CCS and applying for leniency. In particular, cartel members should be aware that only the first leniency applicant would qualify for full immunity from financial penalties – this means that where there has been an earlier leniency applicant, the benefits from applying for leniency are markedly reduced. As such, it is important for businesses to put in place measures to facilitate early detection of anti-competitive activity (e.g., through reporting requirements within the company) to increase the chances that it will be the first in queue for any leniency application.

 

On balance, whilst there is merit in doing a leniency application, there is risk of admission of liability. This could have an impact on follow on third party action.

 

Increased Merger Scrutiny By CCS

 

Section 54 of the Act prohibits mergers which may result in a substantial lessening of competition in any market for goods or services in Singapore. In this regard, Singapore operates a voluntary merger notification regime, whereby parties to a merger are required to self-assess and then decide to notify potentially problematic mergers to the CCS for its decision. The risk of not notifying a potentially objectionable merger is that the CCS has the power to investigate mergers on its own initiative, and to take enforcement action if it deems that a non-notified merger leads to a substantial lessening of competition.

 

Over the past few years, the CCS has taken a more pro-active approach towards looking into non-notified mergers. It has stepped up its market surveillance and issued letters to merger parties to request for more information in relation to non-notified mergers.

 

This has led to a significant amount of mergers being notified to the CCS in 2014 – 10 in total, with six of these being cleared to date. The notified mergers in 2014 span a variety of industries from the cement industry to the airline industry.

 

Of the 10 mergers notified in 2014, two had proceeded to a Phase 2 Review: Parkway Holdings’ proposed acquisition of Radlink-Asia in December 2014, and Seek Asia Investment’s proposed acquisition of JobStreet Singapore in May 2014. A Phase 2 Review of a merger is conducted by the CCS if it is unable to conclude that a merger situation does not raise competition concerns, and is of the view that a more detailed examination of the merger is required.

 

The fact that two mergers had proceeded to Phase 2 Review in 2014 is significant when one considers that there had only been six mergers which have proceeded to a Phase 2 Review in the six years from 2007 to 2013. This is possibly indicative of a stricter approach being adopted by the CCS when assessing a merger’s potential competition effect in Singapore.

 

Seeking Confidential Advice

 

Together, the CCS’ increased scrutiny of non-notified mergers and possibly stricter approach during merger assessment, suggest that businesses may need to be more conservative in their self-assessment of the need to notify a proposed transaction to the CCS.

 

When in doubt, under the revised merger procedures which came into effect in July 2012, businesses may choose to seek the CCS’ confidential advice as to whether or not a proposed merger is likely to raise competition concerns in Singapore and therefore whether a notification is advisable. To qualify for confidential advice, the merger parties must show a good faith intention to proceed with the transaction, the merger must not be in the public domain and there must be some doubt as to whether or not the merger situation raises concerns such that notification may be appropriate.

 

We would highlight that the information to be submitted to the CCS for confidential advice is almost equivalent to that required for a formal merger notification. However, for merger parties who are still in the early stages of negotiations and are genuinely uncertain as to whether their proposed transaction may raise competition concerns, this process offers significant benefits – it allows the parties to obtain guidance from the CCS within a relatively short period of 14 working days while preserving the confidentiality of the transaction.

 

Provision of Behavioural and Structural Commitments

 

Where a proposed merger is likely to be deemed as substantially lessening competition in Singapore or where it has been moved by the CCS into a Phase 2 Review, parties may wish to provide commitments to mitigate any competition concerns.

 

On 20 February 2014, Seek Asia Investments (“Seek Asia”) notified the CCS of its intention to acquire JobStreet Singapore (“JobStreet”). The notification proceeded to a Phase 2 Review on 14 May 2014, as the CCS decided that the proposed acquisition might raise competition concerns in Singapore. In particular, the CCS found that the proposed acquisition would substantially lessen competition in the market for online recruitment advertising services in Singapore, as it would bring together the two main online recruitment advertising service providers in Singapore.

 

To mitigate the CCS’ concerns, Seek Asia first offered certain behavioural commitments, including the commitment to maintain the current pricing of its services, capped at certain levels, for three years after the completion of the transaction. Whilst the CCS was consulting about the behavioural commitments, it surfaced that additional competition concerns could result from the recent acquisition by Seek Asia of Job Seeker Pty Ltd, an online recruitment aggregator based in Australia which owned jobs.com.sg. This acquisition had not been disclosed to the CCS in the notification process. To alleviate this additional concern, Seek Asia offered to divest the complete assets of its other business, http://www.jobs.com.sg. Following market consultations, the CCS considered that the likely adverse effects of the merger would be mitigated by these commitments and granted its conditional approval for the transaction in October 2014.

 

This case is significant as it marks the first time that the CCS has accepted behavioural commitments from merger parties in order to address the competition concerns arising from a merger. It also illustrates the importance of disclosing all relevant facts to the CCS when filing a notification.

 

Practically, this suggests that where businesses recognise the competition concerns that may arise from their proposed transaction, they should take the initiative to consider the possible commitments which they may be prepared to offer, from a commercial standpoint, to allow the merger to be cleared. In short, businesses should assess the importance of the proposed merger, and balance it against any commitments which they may be willing to offer to alleviate any potential competition concerns.

 

Raising Of The Failing Firm Defence

 

On 28 November 2014, the CCS cleared the proposed acquisition of Tiger Airways Holdings Limited (“Tiger Airways”) by Singapore Airlines Limited (“SIA”). This case is important as it is the first time that the CCS has cleared a merger on the basis of the failing firm defence.

Essentially, the failing firm defence allows financially distressed firms to be rescued via mergers, which would otherwise be considered as substantially lessening competition. In order for a merger to qualify for the failing firm defence in Singapore, the following three criteria must be satisfied: (i) the firm must be in such a dire situation that without the merger, the firm and its assets would exit the market in the near future; (ii) the firm must be unable to satisfy its financial obligations with no serious prospects of re- organising financially; and (iii) there should be an absence of other purchasers presenting a less anti- competitive option.

 

In this case, the CCS cleared the proposed acquisition on the basis of the failing firm defence, as it found that Tiger Airways was likely to exit its operations in the absence of the proposed acquisition. While SIA and Tiger Airways competed in the markets for the supply of international air passenger transport services on certain routes, the CCS accepted that the proposed transaction would be less detrimental to competition in Singapore as compared to the scenario where Tiger Airways were to exit its operations in the market. In particular, without the proposed acquisition of Tiger Airways by SIA, the consequent exit of Tiger Airways would cause disruptions to passengers and to the connectivity of the Singapore air hub.

 

While the proposed acquisition in this case did not proceed to a Phase 2 Review, any competition concerns were mitigated in view that the entity being acquired would have otherwise exited the market. The failing firm defence may hence be helpful to businesses looking to merge with financially distressed competitors, as they should consider whether it may apply to alleviate any substantial lessening of competition if a merger were to go through.

 

ASEAN Economic Community

 

An important development on the regional front for 2015 is the establishment of the AEC. The AEC envisages the transformation of ASEAN into a single market and production base, with free movement of goods, services and capital in the region. One of the key pillars of the AEC is the development of competition policy and law in the region. Competition policies and laws are considered necessary to ensure that the regional markets are kept open, and to prevent anti-competitive behaviour from distorting competition in ASEAN.

 

In line with this, the ASEAN member states have committed in the ASEAN Economic Blueprint to the introduction of national competition policies and laws by 2015. Currently, only five member states have generic competition law legislation in place – Malaysia, Thailand, Vietnam, Indonesia, and Singapore, with the remaining countries at various stages of drafting.

 

Although the impending establishment of the AEC has been anticipated by businesses in this region for some time now, it is finally time for these developments to be unveiled. Businesses that are active in ASEAN and have adopted an ASEAN strategy in their business plans must therefore pay close attention to any new competition legislation that is being introduced in the region and how it would affect their business. In particular, businesses must recognise that the different ASEAN countries may adopt different approaches and thresholds under their respective competition laws – a conduct that is acceptable in one jurisdiction may be per se prohibited in another jurisdiction; a proposed merger that need not be notified in one jurisdiction may need to be notified in another jurisdiction. As such, businesses must familiarise themselves with the legislation in each country and recognise that there is no one-size-fits-all approach.

 

This will call for compliance programmes and training to be tweaked somewhat to suit local jurisdictions and culture. It will also call for local language training to ensure awareness is well-driven home. In so far as business activities and transactions are concerned, businesses must also ensure that competition is listed as a critical check item in a review of whether to proceed or otherwise.

 

Concluding Words

 

We have highlighted above what businesses should consider and be aware of, given the developments in competition law here over the last year and the likely trends moving into 2015.

 

Rajah & Tann

 

For further information, please contact:

 

Kala Anandarajah, Partner, Rajah & Tann 

kala.anandarajah@rajahtann.com

 

Dominique Lombardi, Partner, Rajah & Tann

dominique.lombardi@rajahtann.com


Tanya Tang, Rajah & Tann
tanya.tang@rajahtann.com

 

Shuhei Otsuka, Rajah & Tann
shuhei.otsuka@rajahtann.com


Kimberly Tan, Rajah & Tann
kimberly.tan@rajahtann.com


Marcus Teo, Rajah & Tann
marcus.teo@rajahtann.com

 

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