Financial and non-financial consequences of breaching the Ordinance
A person, company or trade association that breaches one of the competition rules in the Competition Ordinance (Ordinance) is exposed to serious consequences including pecuniary penalties, third party claims for damages, disqualification from managing a corporation and costs (own costs as well as those of the other party or parties).
The Competition Tribunal (Tribunal) also has the power to make a range of other orders that can have serious commercial consequences for you including an order which voids an agreement, which requires you to do a certain act, or which requires you to do business with a person in a particular way.
The maximum pecuniary penalty the Tribunal can impose for each contravention is 10 per cent of the gross revenue of an undertaking obtained in Hong Kong, for each year in which the contravention occurred. This is in-line with the maximum fine that can be imposed in most other jurisdictions and can amount to fines of multiple millions of dollars. Only the Tribunal, and not the Competition Commission (Commission), has the power to impose pecuniary penalties.
Third party damages and follow-on actions
A person that has breached the Ordinance is also exposed to claims for third party damages as the Tribunal has the power to order a person to pay damages to anyone that has suffered loss or damage as a result of a contravention. If the Tribunal has not made an order for damages, but has declared that a person breached the Ordinance, those that have suffered loss or damage may bring follow-on actions before the Tribunal. Similarly, a follow-on action may be brought before the Tribunal if the Commission has accepted an admission by a person as part of a commitment (more on commitments in our next alert).
Adverse costs orders
The Tribunal may order the party who has contravened the Ordinance to pay the costs of the Commission's investigation. This will be in addition to your own costs of defending the proceedings and investigation. These could be particularly onerous if the persons involved do not live in Hong Kong and you need to pay associated travel costs and other disbursements on top of legal advice.
Disqualification from managing a company and fines for non-compliance
The Tribunal has the power to disqualify a person from being (or continuing to be) a director, manager, liquidator or receiver of a company. The Tribunal must be satisfied that the person was, or is, a director the company which has contravened a competition rule and the Tribunal considers that that person's conduct makes the person unfit to manage the company. A company faced with such an order could be faced with another great expense if it is forced to replace key management where one or more of its employees have been slapped with a disqualification order. These orders can be for a period of up to five years.
Failure to comply with a disqualification order may result in a fine of up to HKD 1 million or a level six fine and imprisonment of up to six months.
The Tribunal has very broad powers to remedy any harm caused, or that will be caused, by the contravention, including the power to:
- declare that a person has contravened a competition rule (exposing that party to third party claims)
- order a person to restrain from or to prohibit a person from engaging in certain conduct or to otherwise act in a certain way or do a certain thing;
- declare an agreement is void or voidable to the extent specified, prevent a person from making or giving effect to an agreement, or requiring the parties to amend or terminate an agreement; and
- pay an amount to the Government that does not exceed the profits gained or loss avoided as a result of the contravention
Fines and imprisonment for non-cooperation
The Commission has the power to investigate suspected breaches of the Ordinance, including the power to obtain documents and information and require that persons attend before the Commission to answer questions, even where the information may be self-incriminating. The Commission may also enter and search premises subject to obtaining a warrant empowering it to do so.
Failure to cooperate with the Commission in the exercise of such powers is an offence and may result in a fine of up to HKD 200,000 and imprisonment of up to one year or a level five fine and imprisonment up to six months.
Further, it is an offence to:
- destroy or falsify documents;
- obstruct a search under a search warrant; or
- provide false or misleading documents or information.
All of which may result in a fine of up to HKD 1 million and imprisonment of up to two years or a level six fine and imprisonment up to six months.
Next week we will take a look at the role and use of commitments. Commitments are one of the tools available to the Commission to enforce the Ordinance. You may also wish to read our 'Are you ready for the Hong Kong Competition Ordinance check list' to see how prepared you are for the new law.