Not every agreement that restricts competition is unlawful in Malaysia. The Competition Act 2010 allows agreements that produce genuine net benefits to escape the Chapter 1 prohibition — through relief of liability (section 5), an individual exemption (section 6), or a block exemption (section 8).

This article explains each route, the four conditions at the heart of all of them, when to self-assess versus apply to MyCC, and how exemptions differ from the sectoral exclusions that take whole industries out of the Act.

Key takeaways •Three routes. Relief under section 5 (self-assessed), individual exemptions under section 6 (on application), and block exemptions under section 8 (for whole categories). •One test at the core. All turn on four cumulative net-economic-benefit conditions. •No mandatory pre-clearance. Ordinary agreements can be self-assessed; applying to MyCC is optional. •Block exemptions cover categories. For example, MyCC has considered one for liner shipping agreements. •Exemptions are not exclusions. Exclusions (First and Second Schedules) remove whole sectors or activities; exemptions relieve specific agreements.

Why do exemptions exist?

Competition law recognises that some agreements which restrict competition also create real value — sharing the cost of research, achieving efficiencies of scale, improving distribution, or delivering social or environmental benefits. The exemption framework is the mechanism that lets those beneficial agreements proceed while still prohibiting agreements whose only effect is to harm competition. The burden, however, is on the business to show that the benefits are genuine.

Relief of liability under section 5: the four conditions

Section 5 provides that, despite section 4, an enterprise may relieve its liability for an agreement if four conditions are cumulatively satisfied:

• Significant benefits. There are significant identifiable technological, efficiency or social benefits directly arising from the agreement.
• Indispensability. Those benefits could not reasonably have been achieved without the restriction on competition.
• Proportionality. The detrimental effect on competition is proportionate to the benefits.
• No elimination of competition. The agreement does not allow the parties to eliminate competition in a substantial part of the goods or services.

All four must be met — failing any one defeats the relief — and the burden of proving them lies on the parties to the agreement. A practical implication is that benefits should be evidenced, not merely asserted, and the parties should be able to show that gains are passed on rather than simply captured by them.

Self-assessment or application?

A key feature of the Malaysian regime is that there is no mandatory pre-clearance for ordinary commercial agreements. A business can rely on section 5 by self-assessing its agreement against the four conditions — ideally with legal advice and a documented analysis. Where a business wants greater certainty, it can apply to MyCC for an individual exemption. The trade-off is certainty and a formal decision versus the time and disclosure involved in an application.

Individual exemptions (section 6)

Under section 6, an enterprise can apply to MyCC for an individual exemption for a particular agreement from the Chapter 1 prohibition. If granted, the exemption may be subject to conditions and obligations and limited in duration. Under section 7, MyCC can cancel or vary an individual exemption if there is a material change of circumstances or a breach of an imposed condition. Individual exemptions have been rare in practice — the early example of a multinational exploring an application to continue resale price maintenance illustrates both the availability of the route and its limits.

Block exemptions (section 8)

Where many similar agreements raise the same issues, MyCC can grant a block exemption under section 8 to a whole category of agreements, following the procedure in section 9. The advantage is efficiency: businesses with agreements that fall squarely within the block exemption do not each need an individual decision. The clearest Malaysian illustration is the liner shipping sector, where MyCC has considered a block exemption covering arrangements such as vessel sharing and voluntary discussion agreements, with a defined duration and review.

Exemptions are not the same as exclusions

It is easy to confuse two different mechanisms. Exemptions (sections 5, 6 and 8) relieve specific agreements that would otherwise breach Chapter 1, on the basis of net benefits. Exclusions (the First and Second Schedules of the Act) take whole sectors or activities out of the Act altogether — for example communications and multimedia, energy and petroleum upstream activities (First Schedule), and activities such as compliance with a legislative requirement and services of general economic interest (Second Schedule). If your activity is excluded, you never reach the question of exemption.

How should you approach an exemption?

If an agreement may restrict competition but you believe it delivers real benefits, work through the four section 5 conditions in writing, gather the evidence for each (the benefits, why the restriction is necessary, why it is proportionate, and the competition that remains), and take advice on whether to rely on self-assessment or apply for an individual exemption. Where your agreement may fit an existing block exemption, check its precise scope and conditions. Keep the analysis on file so you can defend the agreement if MyCC ever asks.

See anti-competitive agreements under the Competition Act 2010, vertical agreements and resale price maintenance, and building a competition law compliance programme.

Frequently asked questions

What is the difference between relief, an individual exemption and a block exemption?

Relief under section 5 is a self-assessed defence: an agreement that meets four net-benefit conditions is relieved of liability. An individual exemption under section 6 is granted by MyCC for a specific agreement on application. A block exemption under section 8 is granted by MyCC for an entire category of agreements.

What are the four conditions for relief under section 5?

There must be significant identifiable technological, efficiency or social benefits directly arising from the agreement; the benefits could not reasonably have been achieved without the restriction; the restriction is proportionate to the benefits; and the agreement does not allow the parties to eliminate competition in a substantial part of the goods or services. All four must be met, and the burden is on the parties.

Do I need to apply to MyCC before entering an agreement?

Generally no. There is no mandatory pre-clearance for ordinary agreements — a business can self-assess against the section 5 conditions. An application for an individual exemption under section 6 is optional and used where greater certainty is wanted.

What is an example of a block exemption?

MyCC has considered a block exemption for liner shipping agreements — covering arrangements such as vessel sharing and voluntary discussion agreements — allowing similar agreements in the sector to be treated together rather than case by case.

Is an exemption the same as an exclusion?

No. Exemptions (sections 5, 6 and 8) relieve specific agreements that would otherwise breach Chapter 1. Exclusions (the First and Second Schedules) take whole sectors or activities out of the Act altogether. They are different mechanisms.

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