Hong Kong: Procedural Issues

In 2015, we have seen the enforcement of competition law in Hong Kong fast becoming a reality. While administrative delays have meant that the Hong Kong Competition Ordinance (the Ordinance) has taken some time to be fully implemented, the government has officially gazetted 14 December 2015 as the commencement date for the Ordinance. In the run up to the commencement date, the Competition Commission (the Commission) has been busy publishing guidance documents for both businesses and consumers. In particular, the Commission, after two rounds of public consultation, published its enforcement Guidelines (the Guidelines) explaining how it will interpret and apply provisions of the Ordinance. More recently, the Commission published its much anticipated enforcement policy as well as its leniency policy for undertakings engaged in cartel conduct. With the Commission fully staffed and already reportedly logging complaints, early indications are that the Commission is set to hit the ground running on 14 December.

Since the draft Ordinance was first published in 2012, much has been written on its provisions and the way in which these have been ‘watered down’ to ensure its ultimate passage in the face of fierce public and private opposition. Rather than repeat that discussion here, this article will focus on recent developments and the procedural nitty-gritty of the Ordinance, and how this will affect companies once the Ordinance is fully implemented. It will look at the recent Guidelines and policy documents issued, the institutional framework, and focus on the shape and scope of the powers of the new Commission, how these tie in with the new Competition Tribunal and, perhaps most importantly, the sanctions (and potential for avoiding such) that companies face (both from the enforcement agencies and from private follow-on litigants).

Institutional framework

The Ordinance calls for the setting up of two major institutions: the Commission and the Competition Tribunal (the Tribunal), to enforce and adjudicate on its provisions.

The Competition Commission

The Commission is an independent statutory body with a wide range of investigatory and enforcement powers, including the ability to investigate suspected infringements (either in response to complaints or on its own initiative) and to issue warnings and infringement notices. It will prosecute serious infringements before the Tribunal. It does not have the power to impose fines or other penalties for infringements, this power being reserved to the Tribunal (the Commission was originally slated to be able to impose a penalty of 10 million Hong Kong dollars, but this power was one of the many casualties that landed on the Legislative Council’s cutting floor in order to get the bill passed). As in other jurisdictions, the Ordinance leaves it to the Commission to prepare and issue detailed regulatory guidelines on the precise interpretation of the rules, as well as on procedural and substantive matters (eg, complaints and investigations procedures, the treatment of vertical agreements, the application of block exemptions). Other functions of the Commission will include promoting public understanding of the Ordinance, advising the government on competition matters and, importantly, issuing block exemption orders in respect of particular categories of agreements.

Finally, the Commission will also be able to issue individual exemptions, upon the application of undertakings, to agreements that, while caught by the broad prohibition in the conduct rules, nonetheless enhance overall economic efficiency, or may otherwise justify exemption. The Commission is not obliged to make a decision on exemption, but may do so in novel areas of unsettled Hong Kong law. This makes sense, given the infancy of the regime in Hong Kong and the lack of established principles to date. It is likely that, in the interim, private undertakings will welcome the certainty of such Commission exemptions, so long as sufficient resources are dedicated so that decisions can be taken in a reasonable time frame.

The Commission will consist of five to 16 members, including the chairperson, all appointed by the chief executive of Hong Kong. Such members are expected to have extensive experience and rich knowledge in their own industries – commerce, economics, law, small or medium-sized enterprises or public policy – and will have a significant impact on the direction and enforcement priorities the Commission will take.

On 26 April 2013, the chief executive of Hong Kong announced the appointment of Anna Wu Hung-yuk as chairperson, along with 13 other members of the Competition Commission, for a term of three years. In July 2014, the Commission announced the appointment of Dr Stanley Wong as chief executive officer, with effect from 3 September 2014.

The Tribunal

The Tribunal will be a superior court of record under the Ordinance, meaning that all proceedings will be recorded and published. Its purpose is to hear and determine enforcement applications brought by the Commission as well as follow-on private actions. The Tribunal will also review reviewable determinations made by the Commission. The chief executive of the Hong Kong SAR has the power to appoint one member of the Tribunal as president and one as deputy president of the Tribunal. The Tribunal may decide its own procedures and, if it deems fit, follow the practice and procedure of the Court of First Instance in the exercise of its civil jurisdiction. Section 147 of the Ordinance provides that the Tribunal is not bound by the rules of evidence except in proceedings where the Commission applies for a pecuniary or financial penalty; it can therefore take into account any relevant evidence or information, whether or not such evidence would be admissible in a court of law.

The Tribunal was established on 1 August 2013 and the Honourable Mr Justice Godfrey Lam Wan-ho was appointed as the president of the Competition Tribunal, while the Honourable Madam Justice Queeny Au-Yeung Kwai-yue was appointed as deputy president, both for a term of three years.

The Communications Authority

In another notable departure from international norms, there is no general regime of merger control under the Ordinance at present. The merger rule only applies to the telecommunications sector, and the Commission will share jurisdiction with the Communications Authority (CA) regarding decision making in this sector. The adjudicative power will be transferred to the Tribunal from the CA, where it currently resides. The Ordinance enables the routine exchange of confidential information between both agencies. Indeed it is noteworthy that the Guidelines, published in July 2015, were issued in conjunction with the CA, which already indicates a high level of coordination and interaction between the two agencies. While the Guidelines refer to the exchange of information between these authorities, there is no reference to information exchange between the Commission and other national competition authorities. This is something the Commission will no doubt have to clarify in due course.

Powers of the Commission

While entrusted with ensuring the observance of the Ordinance, the Commission will lack a key enforcement tool found in other jurisdictions, namely the ability to levy fines directly on undertakings for breaches of the Ordinance. Instead, it will have the power to conduct investigations and bring proceedings against the alleged parties before the Tribunal, which in turn will issue fines where appropriate. However, the Commission is not left entirely toothless; it will have an array of powers, short of being able to levy fines, to enable it to monitor and enforce the Ordinance. The Commission will be able to issue exemption decisions, accept commitments from infringers in return for a decision not to prosecute, and issue warning notices for minor infringements and infringement notices for more serious violations.

The Commission’s enforcement priorities

On 19 November 2015, the Commission published its much anticipated enforcement policy. Since the Commission cannot conduct a detailed investigation of every complaint it receives, the enforcement policy outlines how complaints and investigations will be prioritised in order to make the best use of the Commission’s limited resources. In deciding to investigate how to resolve individual cases, the Commission will consider three key issues in addition to the specific facts of the case:

Compliance focus: during the initial period of the Ordinance, the Commission will focus its resources on encouraging compliance across the entire economy in Hong Kong rather than specific sectors. The Commission will prioritise cases that involve:

  • cartel conduct;
  • other agreements contravening the First Conduct Rule; and
  • abuses of substantial market power involving exclusionary behaviour.
  • severity factors: in addition to its compliance focus, the Commission will also take into account whether the conduct involves other factors, collectively referred to in the enforcement policy as ‘Severity Factors’. These Severity Factors include:
  • whether the conduct demonstrates a blatant disregard for the law;
  • the deliberateness of the conduct;
  • whether the conduct was engaged in by or under direction of senior management of the undertaking; and
  • whether the person engaged or involved in the conduct has previously been advised by the Commission that it has concerns about the behaviour or found by the Tribunal to have contravened the Ordinance.

Effective and appropriate remedies: the Commission has a range of enforcement responses at its disposal. Regardless of the enforcement response, the Commission will generally favour remedies that achieve what are referred to in the enforcement policy as ‘Remedial Goals’; these include whether:

  • the remedy will stop the unlawful conduct speedily;
  • the remedy will undo the harm caused by the contravening conduct;
  • the remedy will impose sufficient economic sanction to encourage compliance with the Ordinance; and
  • the remedy is consistent with previous remedies and reflects the culpability of the respective parties.

Rather than singling out particular industries or sectors, the Commission has made it clear that its initial focus will be on compliance across all sectors of the economy in Hong Kong. However, the Commission has previously confirmed that it is already conducting market studies into the retail fuel sector and building maintenance sector, therefore it will be interesting to see if those sectors are the first to come under the Commission’s enforcement spotlight.

The Guidelines

In October 2014, the Commission published its long-awaited draft Guidelines, covering issues ranging from the handling of complaints and conducting investigations, to more substantive issues such as how the Commission will interpret the legal provisions of the Ordinance. After a period of public consultation, the Commission published revised Guidelines in March 2015, and again initiated a public consultation period. The Commission’s final Guidelines were published on 27 July 2015. Throughout the process, the Commission has shown its willingness to engage with the business community and to take on board and consider many of the concerns raised.

The Guidelines describe the Commission’s interpretation of:

  • the First Conduct Rule, which prohibits anticompetitive agreements and practices;
  • the Second Conduct Rule, which prohibits the abuse of market power; and
  • the Merger Rule

The First Conduct Rule

The Commission must demonstrate that an agreement has either an anticompetitive object or an anticompetitive effect. Unusually, the Guidelines state that parties are free to argue that any restrictive agreement generates efficiencies, including agreements that have the object of harming competition. However, the Commission notes that, in practice, conduct involving an agreement between competitors to fix prices, share markets, restrict output or rig bids is unlikely to be justifiable on the basis of economic efficiency arguments.

Once it has been determined that an agreement has the object or effect of harming competition, and assuming no exclusions or exemptions apply, the Commission will go on to consider whether the conduct amounts to ‘serious anticompetitive conduct’. The Commission takes the view that arrangements between competitors that seek to fix prices, share markets, restrict output or rig bids are forms of serious anticompetitive conduct. While generally the Commission does not consider vertical arrangements to amount to serious anticompetitive conduct, it does consider that resale price maintenance (RPM) can have the object of restricting competition and may amount to serious anticompetitive conduct ‘in certain cases’. For example, the Commission will consider RPM as having the object of harming competition if there is evidence that the RPM was implemented by a supplier in response to pressure from a distributor seeking to limit competition from competitors at the resale level. By contrast, RPM will not be considered as having the object of harming competition where it is required in a franchise distribution system for the purposes of organising a coordinated price campaign; in this situation the Commission would assess whether the arrangement causes harm to competition by way of its effects. Absent any further guidance or established practice from the Commission, parties would be well advised to proceed with caution before entering RPM agreements with suppliers or customers.

The Guidelines note that as a general matter, competition concerns with vertical agreements will only arise where there is some market power at either the level of the supplier, buyer, or both. While the Guidelines do provide for a general de minimis threshold for agreements of ‘lesser significance’,1 there is little guidance given to companies engaging in vertical agreements that do not fall within this category. Although during the consultation period there were a number of calls from stakeholders to introduce market share thresholds or a ‘safe harbour’, the Guidelines do not give any market share indicators below which it can be presumed there is little or no effect on competition.

The Second Conduct Rule

This provision only applies to anticompetitive conduct where an undertaking has a substantial degree of market power.2 The Guidelines reiterate that this provision (like the First Conduct Rule) applies to conduct that has the object or effect of harming competition in Hong Kong, therefore an undertaking could be in breach of this provision, notwithstanding that the abusive conduct takes place outside Hong Kong.

The Guidelines outline the methodology for defining the relevant product and geographic markets. Once the relevant market is defined, the factors taken into account when determining whether an undertaking has market power include:

  • the market share of the undertaking;
  • the undertaking’s power to make pricing and other decisions;
  • any barriers to entry to competitors into the relevant market; and
  • other relevant matters.

Again, the Guidelines give no guidance on any safe harbours as regards market share levels, below which it could be presumed there is little or no effect on competition. As regards abusive conduct, the Guidelines give some examples of conduct that may be prohibited under the Second Conduct Rule, such as predatory pricing, tying, bundling and refusals to deal. However, this list is not exhaustive and the category of abusive conduct is an open one.

The Merger Rule

The Guidelines set out how the Commission and the CA intend to interpret and give effect to the Merger Rule in the Ordinance. Presently, the Merger Rule only applies where an undertaking that directly or indirectly holds a ‘carrier licence’, as defined by the Telecommunications Ordinance (TO), is involved in a merger.3 While not mandatory to report a merger, the Commission encourages parties to seek informal advice on the transaction on a confidential basis. Therefore, if either party to a transaction holds, directly or indirectly, a carrier licence, then it is advisable to engage with the Commission to minimise the risk that proceedings are brought by the Commission before the Tribunal. This is particularly important given that the Commission may bring such proceedings to unwind a completed merger or stop the process in relation to an anticipated merger. These proceedings must be brought within six months after the day on which the merger was completed or the Commission became aware of the merger, whichever is later. Although the Merger Rule is currently only limited in scope to the telecommunications sector, this is something that is likely to be be revisited following the initial period of enforcement of the Ordinance.

Complaints and investigations

Part 3 of the Ordinance empowers the Commission to hear complaints and conduct investigations of its own accord. It is given wide investigatory powers and may conduct raids, enter property and confiscate documents and property upon obtaining the appropriate warrants from the Court of First Instance when it has ‘reasonable cause’ to suspect violations of the Ordinance. Following an investigation, the Commission may decide to bring proceedings against the alleged parties before the Tribunal.

Section 37 of the Ordinance provides that any person can lodge a reasonable complaint alleging infringement of any Conduct Rule with the Commission. The Guidelines describe the manner and form in which complaints may be made to the Commission and the processes the Commission will use for determining what action to take in relation to a complaint or query. However, the Guidelines stress that the Commission has discretion to decide which complaints may warrant further investigation. This includes the discretion not to investigate a complaint further, as well as the discretion to investigate a complaint even where the complainant no longer wishes to cooperate with the Commission. The Guidelines make clear that interventions will be focused on areas where the impact on the economy is greatest.

Division 2 of part 3 of the Ordinance lays out the Commission’s investigatory powers, including the power to:

  • obtain production of documents and information (section 41);
  • require attendance of persons before the Commission’s investigators (section 42); and
  • require the veracity of any answers or evidence given to be verified by statutory declaration (section 43) before the Commission.

The Commission will also have the power to:

  • enter and search a premises;
  • use reasonable force for gaining entry into such premises;
  • take copies or extracts from any document (or to take possession thereof); and
  • require any person on the premises to explain any document, if so required.

The Guidelines provide further details on the extensive powers granted to the Commission under the following provisions.

Section 41 of the Ordinance

The Commission may request information recorded in any form, such as:

  • draft documents;
  • original documents;
  • records in electronic form;
  • correspondence;
  • databases; and
  • the means of accessing the information contained in those databases.

Section 41 notices will often include questions that may require the creation of new documents, such as written responses to Commission questions, lists of customers or suppliers, contact details or data extracted in various forms.

Section 42 of the Ordinance

Persons who may be required to appear before the Commission and answer questions include:

  • current or former employees, competitors, customers, distributors or suppliers of the parties under investigation;
  • representatives of relevant trade associations; or
  • complainants.

Section 48 of the Ordinance

Under section 48, the Commission may apply to a judge of the Court of First Instance for permission to enter and search any premises to obtain documents, information and other items relevant to the investigation. The Commission expects the types of situations where it may seek a section 48 warrant to include:

  • secretive conduct;
  • instances where it considers that documents or information relevant to its investigation may be destroyed or interfered with; or
  • where the Commission has been unsuccessful in obtaining documents and suspects there has been non-compliance with its earlier requests.

Failure to comply with the investigation without a reasonable excuse is a criminal offence that may lead to a fine or imprisonment for up to one year. If an undertaking destroys documents (section 53), obstructs a search (section 54) or provides false or misleading information (section 55), stricter criminal penalties, including increased fines and imprisonment for up to two years, are possible.

Exemption decisions

Sections 9 and 24 of the Ordinance empower (but do not oblige) the Commission to make decisions on applications made by an undertaking seeking clarity as to whether its conduct or agreements meet the criteria of exclusion or exemption from the First or Second Conduct Rule (whether by virtue of the application of a block exemption or otherwise). In common with other jurisdictions, and to avoid overburdening the resources of the Commission, the Commission will only consider ‘novel or unresolved questions of wider importance or public interest’ or questions for which ‘there is no clarification in existing case law or decisions of the Commission’. The Commission must publish such applications and allow time for representations thereon. The effect of a positive decision will be to exclude or exempt certain conduct or agreements from the prohibitions contained in the First Conduct Rule and the Second Conduct Rule. A decision can be made with a condition or limitation, and the exemption will not be provided when an undertaking does not comply with a condition or limitation.

The Guidelines make it clear the Commission may initiate enforcement action in respect of any agreement or conduct if it declines the application. In such cases, the Commission may use the information provided by the applicant in a subsequent enforcement action against the applicant or other parties. Companies should therefore consider carefully before applying for an exemption given that they may find themselves at the centre of a Commission investigation if the application for an exemption is refused.

Commitments

Where the Commission suspects a possible breach of the Ordinance, it may accept from a person or undertaking a commitment to take or refrain from taking any action and will, upon receipt of this commitment, not commence or continue an investigation, nor bring or continue proceedings in the Tribunal. If the Commission decides to accept a commitment, it must give notice in writing of that decision to the person offering the commitment, as well as register the commitment in the register of commitments.

The Commission may withdraw its acceptance of a commitment if, at any time, it believes there has been a material change of circumstances, or it has reasonable grounds for suspecting that the commitment has failed to be complied with, or that the information upon which it based its decision to accept the commitment was incomplete, false or misleading (section 61).

If the Commission considers a person has failed to comply with a commitment, it may apply to the Tribunal, which in turn may order that the relevant person must:

  • comply with the commitment;
  • pay a fine equal to any profit gained as a result of the failure to comply with the commitment; or
  • pay compensation to any third party for any loss or damage caused by failure to comply with the commitment (section 63).

Warning notices

Under section 82, for less serious ‘non-hard-core’ violations of the First Conduct Rule, the Commission must issue a warning notice to the offending party before it can bring proceedings before the Tribunal. The warning notice should identify the contravening undertaking and conduct, and should specify that the conduct should cease within the warning period and should not occur again, failing which the Commission will continue with proceedings in the Tribunal. This effectively gives an undertaking a period to rectify its wrongdoing and avoid sanction, and is likely to be used often, as the Commission seeks to educate the Hong Kong market as the Ordinance and Guidelines are rolled out.

Infringement notices

Section 67 of the Ordinance provides that in cases where the Commission finds the conduct falls within the definition of more serious anticompetitive conduct or ‘hard-core violations’ of the First Conduct Rule and Second Conduct Rule, it may, in lieu of bringing proceedings before the Tribunal, reprimand offenders by issuing an infringement notice. The infringement notice will contain required undertakings such as ‘to refrain from any specified conduct, or to take any specified action, that the Commission considers appropriate’, and may ask an undertaking to admit ‘a contravention of the relevant conduct rule’.

Undertakings are not obliged to accept such commitments, but the Commission may bring proceedings before the Tribunal if they do not. Notice of the intention to issue an infringement notice must be given and the concerned party must be given time to indicate why an infringement notice would not be appropriate. An infringement notice can be withdrawn at any time in writing, or may be extended, either at the Commission’s own volition or on application.

Settlement and commitments are becoming an increasingly used tool in other jurisdictions, although they tread a delicate balance between efficiently bringing infringements to an end and undermining the deterrent effect of heavy sanctions for getting caught. That balance may be somewhat restored in practice, as the Ordinance specifically identifies an ‘admission’ under a commitment as sufficient grounds for a ‘follow-on’ private damages action (section 110). In practice, the deterrent effect may therefore come from the private rather than the public sector.

Leniency

Section 80 provides the framework for a leniency regime under the Ordinance. The Commission may enter into a leniency agreement with a person or an undertaking in exchange for cooperation in an investigation or proceedings under the Ordinance. The Commission is given wide discretion not to bring or continue proceedings before the Tribunal for a pecuniary penalty in respect of an alleged contravention of a conduct rule. Leniency extends to officers and employees of corporations. It may be terminated if:

  • the information is incomplete, false or misleading;
  • the undertaking has been convicted of an offence; or
  • the undertaking has failed to comply with the terms of the agreement.

In other jurisdictions, the leniency programme has been a major tool in uncovering anticompetitive behaviour, especially in the field of cartels. On 19 November 2015, the Commission published its leniency policy for undertakings engaged in cartel conduct. The leniency policy is a particularly important document for businesses and their advisers, given that in exchange for that cartel member’s cooperation, the Commission will not commence proceedings for a pecuniary penalty against the cartel member who enters into a leniency agreement.

Unlike leniency policies in some other jurisdictions, the Commission will only grant leniency to the first cartel member who reports the cartel conduct and meets all requirements for leniency.4 Thus there is a strong incentive for a cartel member to be the first to apply. As well as granting leniency for the undertaking in question, the Commission will extend leniency to current officers and employees of the cartel member, specifically named former officers or employees, and current and former agents of the cartel member who cooperate with the Commission.

Potential applicants should be aware that leniency does not preclude the possibility of follow-on actions under section 110 of the Ordinance against the leniency recipient. A follow-on action for damages can be brought by persons who can prove they have suffered loss or damage as a result of the cartel. To address concerns regarding information provided by a leniency applicant being used by third parties in follow-on actions, the Commission states that it will use its ‘best endeavours’ to appropriately protect confidential information provided by a leniency applicant, as well as the Commission’s record of the leniency application and leniency agreement. In particular, the Commission’s policy is to firmly resist, on public policy grounds, requests for leniency material by third parties unless:

  • it is compelled to make the disclosure by the Tribunal or other court;
  • it has the consent of the leniency applicant to disclose the material;
  • the relevant information or document is already in the public domain; or
  • the Commission, after entering a leniency agreement, has terminated the agreement under section 81 of the Ordinance.

Interestingly, while the policy applies to undertakings engaged in ‘cartel conduct’, the Commission notes that it is not precluded from entering into leniency agreements with respect to an alleged contravention of other conduct rules. However, no further guidance is provided on leniency applications for conduct other than ‘hard-core’ cartel conduct. This may be something that the Commission clarifies in due course.

Terminating the leniency agreement

Before entering the leniency agreement, undertakings should carefully consider and adhere to the terms being agreed to, since the Commission may terminate the agreement for non-adherence. If the Commission does decide there are grounds for termination, it states that the information provided to the Commission may be retained and used as evidence against that undertaking and other persons involved in the cartel. However, the Commission notes that in circumstances where the leniency agreement is terminated, it may exercise its discretion not to commence proceedings in the tribunal against officers, employees and agents who previously benefited from the leniency agreement.

Undertakings who are not the ‘first in’ to apply for leniency

In order to encourage cooperation from cartel members who have not qualified for leniency, the Commission states that it will rely on its ‘enforcement discretion’ regarding undertakings that cooperate with the Commission during an investigation. In such cases, the Commission may consider a lower level of enforcement action against such undertakings, including recommending a reduced penalty to the Tribunal. There is no formalised guidance as to when or how such discretion will be exercised, nor as to whether the Tribunal will take account of the Commission’s recommendation.

Cooperation in cross-border cartels

The leniency policy provides that undertakings who are cooperating with the Commission, either as party to a leniency agreement or otherwise, will be expected to provide the Commission with details of the other jurisdictions where they have sought immunity or leniency. Where permitted by law, and in appropriate cases, the Commission may require a leniency applicant to authorise it to exchange information with authorities in other jurisdictions.

One of the most important developments in global cartel investigations in recent years has been the increased cooperation among competition agencies. With the Commission indicating that it may exchange information with other agencies around the world, potential leniency applicants need to adopt a globally coordinated approach to be sure to avail themselves of leniency in all relevant jurisdictions before the agencies talk.

Powers of the Tribunal

The Tribunal may hear applications for the review of reviewable determinations made by the Commission from an affected party, as well as hearing applications from the Commission for pecuniary penalties under section 93 of the Ordinance, where it feels they are appropriate after the conclusion of its investigation. The Tribunal can also hear private damages actions under section 110. Decisions of the Tribunal may be appealed to the Court of Appeal under section 154.

Review by the Tribunal

Section 83 of the Ordinance defines the scope of ‘reviewable determinations’ from the Commission. The Tribunal can review:

  • a decision, or recission thereof of, the Commission under the exclusion and exemption mechanism of the Conduct Rules;
  • a decision relating to the issue, variation or revocation of a block exemption order;
  • a decision, or rescission thereof, regarding specific conduct under section 26;
  • a decision relating to the variation or release of a commitment;
  • a decision relating to the termination of a leniency agreement; and
  • a decision, or rescission thereof, regarding a merger or proposed merger.

Only the parties that applied for the decision or made the commitment, or are parties to the leniency agreement in question, can make applications to the Tribunal. The Tribunal may either confirm or set aside the whole or part of the determination, and may refer the matter back to the Commission with a direction. Application for review of a reviewable determination must be made within 30 days of the day on which the Commission’s decision was made, although the Tribunal may extend this period for no more than three years. An undertaking can apply for a stay of the execution of reviewable determination pending review, although such a stay is not automatic (section 89).

Enforcement by the Tribunal

If the Tribunal is satisfied, on application by the Commission, that an undertaking has contravened a competition rule, the Tribunal may order that undertaking to ‘pay the government a pecuniary penalty of an amount it considers appropriate’. In determining the severity of the fine, the Tribunal may have regard to the nature and extent of the conduct, the loss or damage caused, the circumstances in which the conduct took place and whether the person involved had previously been found to have contravened the Ordinance.

Fines can be levied on up to 10 per cent of the turnover of the undertaking for each year in which the contravention occurred or, if the contravention occurred over more than three years, 10 per cent of the turnover of the undertaking concerned for the three years in which the contravention occurred that saw the highest, second-highest and third-highest turnover.

The Tribunal can also grant a wide array of other behavioural and structural remedies under schedule 3, as well as grant interim measures and directors’ disqualification orders (for up to five years) under part 6, division 5 of the Ordinance. Like the European Union, there is no provision for criminal sanctions under the Ordinance (save for failing to comply with an Order, obstructing an investigation, providing false or misleading information, etc).

Private damages action

Unlike in many other jurisdictions, stand-alone private claims are not allowed under Hong Kong’s new Ordinance. The provisions were removed from the original legislation after fierce lobbying from SMEs who, ironically, feared that larger companies would use private actions to harass them. The Ordinance does allow for follow-on actions for damages, following determinations by the Tribunal (or appellate courts) of an infringement or, crucially, an admission, in a commitment that has been accepted by the Commission, that a person has contravened a conduct rule (section 110). The appetite for such actions in Hong Kong remains to be seen, but there is no reason to believe that this will not be a well-used tool.

Closing thoughts

Hong Kong is going through an exciting period. The next few months, and the enforcement priorities taken by the Commission, will shape the competition agenda in Hong Kong for the foreseeable future. With the enforcement of competition law in Hong Kong now fast becoming a reality, it is imperative that companies conducting business in Hong Kong review their agreements and procedures now, become familiar with the provisions of the Ordinance and roll out awareness and compliance training to their senior officers and managers in order to ensure full compliance with the Ordinance.

Notes

  1. Section 5 of Schedule 1 of the Ordinance contains a general exclusion for agreements of lesser significance. The First Conduct Rule does not apply to: 
    • an agreement between undertakings in any calendar year if the combined turnover of the undertakings for the turnover period does not exceed HK$200 million; 
    • a concerted practice engaged in by undertakings in any calendar year if the combined turnover of the undertakings for the turnover period does not exceed HK$200 million;
    • a decision of an association of undertakings in any calendar year if the turnover of the association for the turnover period does not exceed HK$200 million.
  2. Section 6(1) of Schedule 1 of the Ordinance provides that the Second Conduct Rule does not apply to conduct engaged in by an undertaking with an annual turnover of not more than HK$40 million.
  3. ‘Carrier licence’ is defined in section 2(1) of the TO as ‘a licence issued for the establishment or maintenance of a telecommunications network for carrying communications to or from the public between fixed locations, between moving locations or between fixed locations and moving locations, within Hong Kong, or between Hong Kong and places outside Hong Kong, on a point-to-point, point-to-multipoint or broadcasting basis’.
  4. For example, the European Commission’s leniency notice provides that companies that do not qualify for immunity may benefit from a reduction of fines if they provide evidence that represents ‘significant added value’ to that already in the Commission’s possession and have terminated their participation in the cartel. The first company to meet these conditions is granted a 30 to 50 per cent reduction, the second 20 to 30 per cent, and subsequent companies up to 20 per cent. See: European Commission Notice on Immunity from fines and reductions of fines in cartel cases (2006/C 298/11).

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