Section 4 of the Competition Act 2010 — the Chapter 1 prohibition — makes it unlawful for businesses to enter agreements that have the object or effect of significantly preventing, restricting or distorting competition in a market in Malaysia. It covers both agreements between competitors and agreements along the supply chain, and the most serious forms are prohibited automatically.

This article explains what counts as an “agreement”, the difference between horizontal and vertical agreements, how the object-or-effect test works, which agreements are caught regardless of market share, and how exemptions can apply.

Key takeaways •The rule. Section 4 prohibits agreements between enterprises that significantly prevent, restrict or distort competition. •“Agreement” is broad. It includes informal understandings, association decisions and concerted practices — written form is not required. •Two types. Horizontal (between competitors) and vertical (between different levels of the supply chain) are both covered. •Hardcore restrictions. Price-fixing, market sharing, output limitation and bid rigging (section 4(2)) are prohibited by their object, regardless of market share. •Exemptions exist. Sections 5, 6 and 8 allow relief, individual exemptions and block exemptions for agreements with genuine net economic benefits.

What is an “anti-competitive agreement” under Malaysian law?

The word “agreement” in section 4 is deliberately wide. It is not limited to formal, signed contracts. It captures any meeting of minds between enterprises — including informal understandings, “gentlemen’s agreements”, decisions or recommendations by a trade association, and concerted practices (coordinated conduct that falls short of a firm agreement). What matters is the substance of the coordination, not its label or form. A nod across a boardroom table can be as much an “agreement” as a written memorandum of understanding.

This breadth is important for compliance: businesses sometimes assume that because nothing was signed, nothing was agreed. That is wrong. MyCC can infer an arrangement from conduct and surrounding evidence such as parallel pricing combined with contact between competitors.

Horizontal and vertical agreements: what is the difference?

Section 4 covers two categories. A horizontal agreement is between enterprises operating at the same level of the production or distribution chain — typically competitors, such as two manufacturers of the same product. A vertical agreement is between enterprises at different levels, such as a manufacturer and its distributor, or a franchisor and franchisee.

The distinction matters because horizontal agreements between competitors are generally viewed as more dangerous, and the hardcore horizontal restrictions are prohibited by their object. Vertical agreements are usually assessed by their effect, and many are benign or pro-competitive.

The “object or effect” test

An agreement is caught if it has the object or the effect of significantly harming competition — the two limbs are alternatives.

• By object. Some agreements are so likely to harm competition that they are treated as anti-competitive by their very nature, without MyCC having to prove actual effects. The hardcore restrictions below fall here.
• By effect. Where an agreement is not anti-competitive by object, MyCC examines its actual or likely effects on the market — looking at market power, market structure and the real-world impact on prices, output, choice and innovation.

The harm must also be “significant”, which introduces the de minimis concept discussed below.

Which agreements are automatically prohibited?

Section 4(2) lists horizontal agreements between competitors that are deemed to have the object of significantly preventing, restricting or distorting competition. These are agreements that:

• fix prices — directly or indirectly fixing purchase or selling prices, or any trading condition (section 4(2)(a));
• share markets — sharing markets or sources of supply, including by territory or customer (section 4(2)(b));
• limit output — limiting or controlling production, market outlets or access, technical development or investment (section 4(2)(c)); or
• rig bids — engaging in bid rigging (section 4(2)(d)).

These are the classic “cartel” conduct, and once an agreement falls within section 4(2) the parties are treated as being party to an anti-competitive agreement. MyCC’s enforcement record bears this out, with findings ranging from a market-sharing case involving major airlines to price-fixing by feed millers and bid rigging in public procurement. For the detail, see our guide to cartels in Malaysia.

What does “significant” mean? The de minimis safe harbour

Because section 4 only catches agreements that significantly affect competition, MyCC’s guidance recognises a practical safe harbour for agreements between parties with small combined market shares, which may not be treated as having a significant effect. The crucial limit is that this does not apply to the hardcore restrictions in section 4(2): price-fixing, market sharing, output limitation and bid rigging are caught no matter how small the businesses are. So a small distributor’s ordinary supply arrangement may sit outside the prohibition, while two small rivals who fix prices will not escape it.

Are there exceptions? Relief and exemptions

Yes. Even an agreement that restricts competition may be permitted if it delivers genuine benefits. Under section 5, an enterprise can relieve its liability where four conditions are cumulatively met: there are significant identifiable technological, efficiency or social benefits; those benefits could not be achieved without the restriction; the restriction is proportionate; and it does not allow the parties to eliminate competition in a substantial part of the market. Beyond that, an enterprise can apply for an individual exemption (section 6), and MyCC can grant a block exemption for a whole category of agreements (section 8). See block and individual exemptions under Malaysian competition law.

What happens if you breach Chapter 1?

If MyCC finds an infringement of section 4, it can impose a financial penalty of up to 10% of the enterprise’s worldwide turnover over the period of the infringement (section 40) and direct the enterprise to stop the conduct. Cartel participants may reduce their exposure by self-reporting under the leniency regime (section 41), and parties harmed by the agreement can bring private damages claims (section 64).

How do you stay on the right side of Chapter 1?

Practical safeguards include auditing agreements with competitors, distributors and suppliers; never discussing prices, customers, territories or bids with competitors; taking care with trade-association meetings and information exchange; and training staff to recognise the warning signs. When an arrangement with a competitor is unavoidable (for example a genuine joint venture), take advice first.

See building a competition law compliance programme and competition law for trade associations and information exchange.

Frequently asked questions

What is an anti-competitive agreement?

Under section 4 of the Competition Act 2010, it is any agreement between enterprises that has the object or effect of significantly preventing, restricting or distorting competition in a market in Malaysia. “Agreement” is read broadly and includes informal understandings, decisions of trade associations and concerted practices — it need not be written or signed.

Does the agreement have to be in writing?

No. The prohibition catches any form of agreement or arrangement, including verbal understandings, “gentlemen’s agreements” and coordinated behaviour. Lack of a signed document is no defence.

What is the difference between a horizontal and a vertical agreement?

A horizontal agreement is between competitors at the same level of the supply chain, such as two manufacturers. A vertical agreement is between businesses at different levels, such as a supplier and its distributor. Both can fall under section 4.

Are all restrictive agreements illegal?

No. The agreement must significantly affect competition. Agreements between parties with small market shares may fall within a de minimis safe harbour — except for the hardcore restrictions (price-fixing, market sharing, output limitation and bid rigging), which are prohibited regardless of market share.

How can an agreement be exempted?

An enterprise can rely on relief under section 5 where the agreement produces net economic benefits and meets four cumulative conditions, apply for an individual exemption under section 6, or fall within a block exemption under section 8.

Speak to NZSK’s competition law team If you have received a notice from MyCC, are reviewing an agreement or a contemplated deal, or want to put a compliance programme in place, our competition law team can help. Ng, Zainurul, Seke & Khoo (NZSK) Offices: Mont Kiara and Puchong Phone / WhatsApp: 016-557 4789 Email: [email protected] Web: nzsklegal.com