Competition law is now a key feature of doing business in or with companies in Hong Kong. The Hong Kong Competition Commission is actively investigating cases to enforce compliance with the Ordinance and has already brought its first case before the Competition Tribunal. Are you mindful of these new rules in your business dealings?
Competition Ordinance commenced on 14 December 2015
The Hong Kong Competition Ordinance came into force on 14 December 2015. The Hong Kong Competition Commission is now actively working to ensure compliance with the new laws and has already brought its first case before the Competition Tribunal. Penalties for non-compliance are significant. These include company fines of up to 10% of turnover. Individuals can also be fined and directors can face a disqualification order for a period of up to five years.
Our competition law experts are well placed to assist you in navigating the new laws and to defend you if you are the subject of a complaint or legal action. We have published a series of fact sheets and alerts that provide practical guidance on the framework and application of Hong Kong's competition law regime. You will also find information on this page to keep you up to date on key developments.
The Competition Commission, Competition Tribunal and private actions
The Ordinance is enforced by the Competition Commission, the Competition Tribunal and higher courts in Hong Kong. The Ordinance does not currently provide for private 'stand-alone' actions allowing individuals to seek relief and remedies.
The role of the Commission is to educate and promote compliance with the Ordinance as well as to investigate contraventions and bring matters before the Tribunal for determination.
The Tribunal has primary jurisdiction to hear and adjudicate competition cases. Private parties that have suffered loss and damage can only bring an action before the Tribunal where a party has admitted to a contravention by way of a Commitment or the Tribunal or a higher court has determined a contravention has occurred.
While the Competition Commission is the principal authority responsible for enforcing the Ordinance it has concurrent jurisdiction with the Communications Authority in respect of anti-competitive conduct in the telecommunications and broadcasting sectors.
Key Prohibitions in the Ordinance
The Ordinance contains three 'Competition Rules' which prohibit three major areas of anti-competitive conduct. These are the two Conduct Rules and the Merger Rule:
- The First Conduct Rule – this prohibits agreements and concerted practices that have the object or effect of restricting competition in Hong Kong. This typically relates to price-fixing, market sharing, bid rigging, output restrictions, resale price maintenance, restrictions in vertical agreements or other anti-competitive conduct.
- The Second Conduct Rule – this prohibits a business with a substantial degree of market power from abusing that power by engaging in conduct that has the object or effect of restricting competition in Hong Kong. This typically relates to exclusionary conduct such as predatory pricing, tying and bundling of products, margin squeeze, refusal to deal and types of exclusive dealing. Notably, the 'substantial' requirement sets a lower threshold than that of a test of 'dominance' which is used in many other jurisdictions. The Commission has purposefully refrained from setting a presumptive threshold in its guidelines noting that market shares are not necessarily indicative of market power as other factors are equally relevant.
- The Merger Rule – this prohibits a merger involving a carrier licensee under the Telecommunications Ordinance that has the effect of substantially lessening competition in Hong Kong. A merger between two competitors that have a combined market share of 40 per cent or more is likely to raise competition concerns. This merger rule may be expanded in the future so that it is of general application, like the Conduct Rules above, or at least to additional sectors in Hong Kong.
The Commission has published implementation guidelines on each of these three Competition Rules (as well as on complaints, investigations and applications for exclusions and exemptions, all discussed below).
Exclusions and exemptions
There are a number of exclusions and exemptions that apply to the Conduct Rules which seek to limit the application of the Ordinance to anticompetitive conduct that will cause the most harm. For example, where the matter relates to compliance with a legal requirement, concerns services of general economic interest or relates to a merger, it will not breach the Conduct Rule in question.
The First Conduct Rule will also not be breached if the agreement enhances overall efficiency or if it is an agreement of 'lesser significance', that is, an agreement involving parties who's combined turnover does not exceed HK$200 million. Similarly, the Second Conduct Rule will not be breached if it amounts to 'conduct of lesser significance', that is, if the undertaking concerned has a turnover that does not exceed HK$40 million.
The Ordinance also provides for block exemption orders and exemptions based on public policy and international obligations. Statutory bodies also enjoy exemptions from the Competition Rules, the Commission's enforcement powers and the enforcement of a matter before the Tribunal. Similarly, the Chief Executive in Council may also specify certain persons or activities that may benefit from the same exclusions enjoyed by statutory bodies.
You do not need to apply to the Commission to secure the benefit of an exclusion or exemption. You may rely on an exclusion or exemption as a defence before the Tribunal or other court.
Complaints and investigations
The Commission relies on complaints from the public as an important means to identify possible contraventions of the Ordinance. You can make the complaint directly, anonymously or through a third party such as a legal adviser. The Commission will consider the complaint but will not necessarily pursue all complaints. After having reviewed a complaint, the Commission may take no further action, refer the complaint to another agency or conduct an initial assessment of the matter.
The Commission has discretion to investigate potential contraventions of the Ordinance of its own accord but may only conduct an investigation using its compulsory powers to obtain information where it has 'reasonable cause' to suspect that a contravention has, is or will occur. An investigation could involve a voluntary request for information, the use of its compulsory information gathering powers, or result in a dawn raid, where it has obtained a warrant to enter and search premises to obtain documents and information relevant to the investigation. There are criminal consequences for non-compliance with the Commission's investigation powers. If you are ever contacted by the Commission to provide information, even if on a voluntary basis, you should always seek legal advice.
The Commission has published a leniency policy which applies to cartel conduct only. The Commission may enter into a leniency agreement with a person whereby it will agree not to bring or continue proceedings in the Competition Tribunal for a pecuniary penalty in exchange for the person’s cooperation in an investigation or proceedings under the Ordinance. The only way to apply for leniency under the Cartel Leniency Policy is to call the Leniency Hotline.
Penalties and remedies
If the Commission determines that a contravention of a Competition Rule has occurred there are a range of possible steps it can then take. It may take no further action (reserving the right to revisit the matter at a later date), seek a voluntary resolution by obtaining a Commitment, issue a warning notice or notice of infringement (depending on the Conduct Rule that has been contravened and the seriousness of the contravention) or commence proceedings before the Tribunal.
When a Competition Rule has been contravened, the Competition Tribunal has broad powers to impose penalties and remedies, including costs orders against the contravening party or parties. A Tribunal can impose the following fines:
- For companies – fines of up to 10 per cent of gross Hong Kong turnover of the company/group for up to three years in which the contravention occurred; behavioural or structural remedies such as an injunction or restoration order.
- For individuals – fines, and where a director is involved, disqualification for a period or up to five years.
A company or person that has contravened a Conduct Rule as a result of a Tribunal determination, or where the company or person has admitted the contravention in a Commitment accepted by the Commission, are also exposed to a claim, or multiple claims, for damages by those that have suffered loss or damage as a result of the contravention.
The Commission's areas of focus
The Commission's Enforcement Policy sets out where it will focus its resources in the Ordinance's initial years of operation. It will prioritise cartel conduct, agreements contravening the First Conduct Rule that cause significant harm to competition in Hong Kong (this could include resale price maintenance) and the abuse of substantial market power involving exclusionary behaviour of incumbents. The Commission will also prioritise taking action against associations of undertakings, officers (including directors) that participated in the cartel conduct, and whether there has been a blatant disregard for the law.
Disclaimer: This is general information, specialist advice should be sought about your specific circumstances.