This article is written by Nikhil Shinde pursuing Certificate Course in Competition Law, Practice And Enforcement from LawSikho.

Introduction

For any company or person desiring to do business in Singapore, it is important to beware of the Competition Law that rules all non-states businesses and economic activities in the nation. The Competition Law in Singapore is known as Competition Act 2004, the law has been effective since 1st July 2007. It promotes efficient markets at home.

The main purpose of the Act

This Act prohibits anti-competitive agreements, abuses of a dominant position, and control mergers and acquisitions which create an appreciable adverse effect to the market.

Voluntary merger control regime where there is no strict legal obligation in Singapore for merging parties to notify their merger CCCS. It should be noted that it is not the lack of a notification, but rather the implementation of a merger that contravenes the Section 54 Prohibition, that CCCS is concerned with. On this, a contravention occurs if the merger leads to an SLC. An SLC is indicated when indicative thresholds are crossed.

Exemption of vertical agreements means any agreement entered into between 2 or more undertakings each of which operates, for the purposes of the agreement, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services and includes provisions contained in such agreements which relate to the assignment to the buyer or use by the buyer of intellectual property rights, provided that those provisions do not constitute the primary object of the agreement and are directly related to the use, sale or resale of goods or services by the buyer or its customers.

Sector-Specific competition rules, i.e., sector working for specific activity e.g., the supply of rail services by any person licensed and regulated under the Rapid Transit Systems Act.

Competition and Consumer Commission of Singapore (CCCS) administers and enforces the competition law. It’s a statutory body that investigates and adjudicates instances of violations of the Act done by participants in the market. CCCS also has powers to impose sanctions that include;

1. Pecuniary financial penalties,
2. Enforcing misbehaving companies to make structural changes,
3. Demanding the termination of any agreement or conduct that CCCS thinks will harm competition.

Applicability of the Act

The Competition Act 2004, is applicable to the;

• Private businesses of the market,
• Broadly identified as commencing that involves self-employed professionals,
• Corporate bodies,
• Unincorporated body of persons or
• Any other entity capable of holding commercial or economic activities in any of the markets of the nation.

Key provisions of the Act

The Competition Act is the primary statute that governs competition law in Singapore and aims to protect consumers and businesses from anti-competitive practices in Singapore. It prohibits three types of anti-competitive conduct:

1. Agreements, decisions, and practices which are anti-competitive.
2. A dominant position that is abusive; and
3. Mergers and acquisitions considerably reduce competition.

Schedule III (Exclusion from S. 34 Prohibition & S. 47 Prohibition) of the Act, does not apply to certain specific sectors, where the exercise of competition law is governed by sectoral regulations. These include areas such as;

• Broadcasting and media,
• The telecom sector,
• Electricity and gas sectors,
• The auxiliary police,
• The supply of wastewater management services,
• The provision of public transport,
• The provision of cargo terminal operations,
• The operation of clearinghouses and the postal service.

Section 34 Prohibition : anti-competitive agreements

The Competition Act, Section 34 forbids agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within Singapore. Examples of such prohibited behaviour include but are not limited to;

• Price fixing directly or indirectly,
• Bid-rigging (collusive tendering),
• Sharing markets,
• Controlling or limiting production or investment,
• Exchanging price information,
• Advertisement restriction,
• Design standards or setting technical, etc.

The Competition and Consumer Commission of Singapore (“CCCS”) in its guidance explains that the first four types of agreements are considered serious infringements of the Competition Act and are, by their very nature, regarded as restrictive of competition to an appreciable extent.

Other types of agreements will be examined on their facts and if found to be restrictive of competition by object, will similarly be regarded as restrictive of competition to an appreciable extent. However, vertical agreements, which are agreements between undertakings at different levels of the production or distribution chain, are excluded from the Section 34 prohibition.

Market share is a central factor in considering whether the Competition Act has been breached and the CCCS has issued guidance that an agreement is unlikely to have an appreciable adverse effect on competition if:

• The comprehensive market share of the parties to the agreement does not surpass 20% in any of the markets affected (where the agreement is between competitors);
• The market share of each of the parties does not surpass 25% in any of the markets affected (where the agreement is between non-competitors);
• Or each undertaking is a small or medium-sized enterprise (“SME”).

Section 47 Prohibition : abuses of dominance

The Competition Act prohibits conduct that constitutes an abuse of a dominant position in a market, including conduct that protects, enhances, or perpetuates the dominant position of an undertaking in ways unrelated to competitive merit. Examples of such conduct include, but are not limited to;

• Predatory pricing (such as selling below cost),
• Limiting markets, production or technical development to the prejudice of consumers,
• Vertical restraints between companies at different levels of the distribution or production chain,
• Refusals to supply or make essential facilities available to competitors,
• Price discrimination or applying unlike conditions to parallel to transactions with other trading parties,
• Thereby placing them at a competitive disadvantage,
• Making the wrap-up of contracts subject to acceptance by the other parties of ancillary obligations, which by their nature or according to commercial usage, have no connection with the subject of the contracts, etc.

Section 47 prohibition only prohibits abuses of a dominant position but does not prohibit dominance itself. Business undertakings will not be penalized solely because they have a dominant position or attempt to achieve it. A dominating position retained via conduct arising from efficiencies, such as through successful innovation or economies of scale, will not be regarded as an abuse of dominance. Note, however, that mergers or acquisitions that substantially reduce competition may be subject to Section 54 of the Competition Act.

This may in some circumstances prevent a merger which leads to the creation of a dominant undertaking. The CCCS applies a two-step test to levy whether the section 47 prohibition has been breached;

1. Whether an undertaking is dominant and,
2. Whether it is abusing its dominant position in the Singapore market.

Under the CCCS’s guidance, what amounts to a “dominant position” is determined by a number of factors, including;

• Whether the entity can profitably sustain prices above competitive levels or,
• Restrict output or,
• Duality below competitive levels.

While market share is not a reliable guide, a market share greater than 60% will generally be considered dominant in that market. Section 47 prohibition also extends to the conduct of two or more undertakings, where there is an abuse of a joint dominant position.

A joint dominant position may arise when two or more legally free undertakings present themselves or act together on a particular market as a joint entity.

Section 54 Prohibition (Merger Control)

Section 54 prohibits mergers that would result, or are expected to result, in a substantial reduction of competition within any market in Singapore for goods and services.

In determining whether a merger is anti-competitive, the CCCS will assess whether the merger leads to a substantial lessening of competition. For example,

• If the merger results in an increase in prices above the prevailing level,
• Lower quality, and/or less choice of products and services for consumers – will be considered an anticompetitive merger and infringing upon the Competition Act.

While there are no mandatory merger control requirements in Singapore, it is advisable to notify the CCCS if either:

• The merged entity will have a market share of 40% or more; or
• The merged entity will have a market share of between 20% and 40% and the post-merger combined market share of the three largest firms is 70% or more.

The above thresholds are only indicators of potential competition concerns and do not automatically give rise to a presumption that such a merger will lessen competition substantially. Merger parties must conduct a self-assessment to establish if their merger may give rise to a substantial reduction of competition within any market affecting Singapore, in which case the CCCS should be notified of the merger.

A party to an anticipated merger can notify the CCCS of the merger and apply for the CCCS to make a decision as to whether the proposed merger would be in breach of the Competition Act.

Similarly, a party to a completed merger can also notify the CCCS of the merger and apply for a decision to be made as to whether any infringement under the Competition Act has occurred.

The above indicative thresholds do not differentiate between transactions with and without horizontal increments.

In addition, the CCCS is unlikely to investigate a merger involving small companies, i.e., where:

• The turnover in Singapore of each of the parties is below S$5 million (approx. US$3.73 million); and
• The combined worldwide turnover of the parties is less than S$50 million (approx. US$37.33 million).

Sanctions

The CCCS has the power to issue directions to bring infringements of the Competition Act to an end. It may also impose financial penalties on undertakings for infringing the Competition Act. CCCS may impose a penalty of up to 10% of the turnover of the business commencing in Singapore for each year of infringement, up to a maximum of 3 years.

Factors consider while imposing financial penalties are:

• The nature, duration, and seriousness of the infringement,
• The turnover of the business of the undertaking in Singapore for the relevant product and geographic markets affected by the infringement,
• Condition of markets,
• Aggravating factors including the existence of any prior anti-competitive practices and behaviour of the infringing party, and
• Mitigating factors, which contain the existence of any compliance programme and the extent to which the infringing party has co-operated with CCCS.

Directions are issued in writing by the CCCS and will typically require the person concerned, individuals and undertakings, to modify or cease the agreement or conduct in question.

Extraterritorial effect

The Competition Act applies to anticompetitive conduct outside Singapore if they have the effect of restricting or eliminating competition in Singapore. Section 54 prohibition on merger control also applies to foreign mergers if such mergers result in a substantial lessening of competition in Singapore.

Enforcement regime

The Competition and Consumer Commission Singapore (“CCCS”) enforces the Competition Act. The parties may appeal to the Competition Appeal Board if the CCCS has made an infringement. This board is an independent body, where members are appointed by the Minister for Trade and Industry.

Competition Appeal Board, the decision may be appealed further to the High Court, and thereafter to the Court of Appeal, but only for the financial penalty and points of law.

In appropriate cases, parties under investigation for infringing the Competition Act may also offer commitments to reduce or eliminate competition concerns relating to their conduct. Where the CCCS accepts such commitments, it will cease its investigation on the condition that parties agree to abide by the commitments.

Leniency

The Competition Act does not cover express provisions in respect of a leniency policy. However, Section 61 of the Competition Act provides that the CCCS can publish guidelines indicating the manners in which the CCCS will give effect to the provisions of the Competition Act.

The CCCS leniency programme is only available for certain infringements of the section 34 prohibition, such as for hard-core cartels (i.e., cartels involving price-fixing, output limitation, bid-rigging, and market sharing) and the sharing of forward-looking price information.

As of January 2021, the leniency programme has led to the issuance of infringement decisions and the impositions of financial penalties in nine out of 16 of the CCCS’s cartel infringement decisions. This amounts to more than 50% of cartel infringement decisions.

Investigation powers

The CCCS has broad and extensive powers of investigation and enforcement. Powers include;

• The power to enter into premises for inspection (with or without a warrant),
• Undertake dawn raids,
• Require to produce precise documents and information (including emails) and,
• Demand explanations of documents from directors, employees, or parent company managers.

The CCCS can make copies and extracts from documents on-premises that are entered without a warrant. If the CCCS enters premises with a court warrant, they can also seize original documents. Failure to cooperate with a CCCS investigation is a Criminal Offence.

Recent enforcement trends

Cartels

Between January 1, 2006, when the Section 34 prohibition came into effect, and January 31, 2021, 16 cartel and bid-rigging infringement decisions have been issued by the CCCS. Of the 16 cartel and bid-rigging infringement decisions issued by the CCCS to date, three involved international cartels.

Penalties imposed by the CCCS, (from January 1, 2006 to January 2021);

Abuses of dominance

As of January 2021, abuse of a dominant position by SISTIC is the only case issued on infringement decision (in June 2010) in respect of a violation of the section 47 prohibition since the provision took effect on January 1, 2006. The SISTIC case related to explicit restrictions requiring two venues and 17 event promoters to use SISTIC, Singapore’s largest ticketing agency, as the sole ticketing service provider for all their events.

The financial penalty imposed was approximately S$1 million (approx. US$0.75 million). Following an appeal by SISTIC, the Competition Appeal Board upheld the CCCS’s decision on liability in 2012 but varied the quantum of SISTIC’s financial penalty to S$769,000 (approx. US$574,000).

The CCCS has also issued media releases on several investigations relating to abuses of dominance. Notably, the CCCS has closed its investigations in six cases following voluntary commitments to remove exclusive arrangements and/or commitments to supply, including by Cord Life Group, Asia Pacific Breweries, E M Services, BNF Engineering, C&W Services Operations, Coca-Cola Singapore Beverages, Chevalier Singapore Holdings, and Fujitec Singapore.

Mergers and acquisitions

Since the start of the merger control regime in 2007, the CCCS has received 83 merger notifications as of February 2021, of which six progressed to a Phase 2 review for complex mergers.

Four were granted conditional clearance subject to commitments while six were withdrawn by the merger parties, and the remainder were cleared in CCCS’s Phase 1 review.

The most notable merger decision issued by the CCCS is the infringement decision in relation to the sale of Uber’s Southeast Asian business to Grab, which was not notified to the CCCS and which resulted in remedies and fines of S$6.5 million (approx. US$4.85 million) imposed on Uber and of an equivalent amount imposed on Grab.  To date, this is the first and only CCCS decision relating to a failure to notify a merger.

• Following the completion of the transaction, the CCCS commenced an investigation on the basis that the transaction may have infringed the Competition Act as an anticompetitive merger.
• The CCCS found that Uber would not have left Singapore in absence of the transaction and observed that Grab increased its prices post-transaction.
• Further, the CCCS found that potential competitors were hampered by strong network effects and exclusivities between Grab and taxi companies, car rental partners, and some of its drivers which prevented competitors from competing effectively against Grab.

In January 2021, the Competition Appeal Board upheld the CCCS decision, noting that the country’s voluntary merger control regime does not mean that there are no risks to proceeding with a merger without notifying the CCCS.

Conclusion

Competition policy of Singapore with its mix of the invisible hand of the markets and the visible hand of good governance which has served Singapore well in past decades of economic development and growth. It was possible due to careful management of government’s intervention in markets, the mixing of competition considerations in other public policies, and thoughtful recognition of the limits of competition.

The difficulties in many markets cannot be settled without government involvement or supervision, and government policies must take into account market principles and competition-changing aspects.

Non-legal consequences of unfavourable decisions of CCCS may have similarly damaging effects on a business, including negative publicity, change of management time in dealing with an investigation, costs of employing industry consultants, and an increased risk of ongoing observation by authorities. CCCS is progressively proactive, businesses should be aware of the Act’s provisions and take sufficient steps to safeguard compliance.

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