The Competition Ordinance (Cap. 619) (CO) was enacted on 14 June 2012, and on 9 October 2014, draft implementation Guidelines to the CO were published for consultation until 10 December 2014. Once the consultation period closes, the Commission expects to revise the draft and consult the Legislative Council for feedback on the revised draft. The Guidelines will then have to be translated before they are adopted and come into operation, likely in mid 2015.
The CO aims to prohibit conduct that prevents, restricts or distorts competition in Hong Kong, and mergers amongst carrier licensees under the Telecommunications Ordinance (Cap. 106) that substantially lessen competition in the telecommunications sector.
The Commission and the Tribunal
The CO will be enforced by the Competition Commission (the "Commission") and Competition Tribunal (the "Tribunal").
The Commission will assume the dual functions of a promoter of competition and an investigatory body. In May 2013 the Chief Executive appointed the chairperson and 13 members of the Commission, and further key appointments have since been made.
The Tribunal is the superior court of record established under the CO having primary jurisdiction to hear and adjudicate competition-related cases. Cases may be brought before the Tribunal by the Commission as well as by private parties based upon a decision of the Tribunal or a higher court. On 9 May 2014 a Competition (Amendment) Bill was gazetted and introduced into the Legislative Council. It is proposed to give the Tribunal all the powers, rights and privileges of the Court of First Instance.
The key prohibitions take the form of two "Conduct Rules" of cross-sector application:
- The "First Conduct Rule" prohibits agreements and concerted practices that restrict competition.
- The "Second Conduct Rule" prohibits a business with substantial market power from abusing that power by engaging in conduct that restricts competition.
First Conduct Rule
The First Conduct Rule prohibits agreements and concerted practices (that is, cooperation arrangements between parties falling short of an ‘agreement’ as such) that have the object or effect of restricting competition in Hong Kong.
The enforcement focus is expected to be serious cartel activity amongst competitors (horizontal conduct), which includes:
- Price-fixing: agreeing on customer prices or price-elements such as discounts or price ranges;
- Market-sharing: allocating segments of the market amongst competitors such as by territory or customer type;
- Bid-rigging: subverting the normal competitive nature of tender processes by agreeing with competitors who will make what bids; and
- Out-put restriction: agreeing with competitors to limit production or sales output to drive up prices or otherwise maximise market positions.
Infringements of this nature will be dealt with most seriously. Other infringements, which may potentially include restrictive agreements or practices between vertical trading partners such as suppliers and customers, or manufacturers and retailers (vertical conduct), may only be dealt with by issue of a ‘warning notice’ to the infringing parties, unless the conduct is repeated or continued.
Second Conduct Rule
The Second Conduct Rule prohibits a business with substantial market power from abusing that power by engaging in conduct that has the object or effect of restricting competition in Hong Kong. The Commission has indicated that the Second Conduct Rule will only apply to a single entity with substantial market power, but not collective dominance. Guidance will be published regarding how it will assess and quantify market power, and the conduct that may be considered to constitute "abuse" of such power.
The Merger Rule
The Ordinance also includes provisions prohibiting mergers or acquisitions that have the effect (or likely effect) of substantially lessening competition in Hong Kong; however this "merger rule" will only apply where there is a change of control concerning a telecommunications licensee in Hong Kong. Until such time as the government may determine that it is appropriate to broaden the scope of application of the rule, the Merger Rule applies only in the telecommunications sector.
Exclusions and exemptions
Various exclusions and exemptions are provided for in the CO. For example, immunity from the Conduct Rules can be granted to an agreement or conduct that:
- enhances economic efficiency (subject to satisfaction of prescribed criteria);
- is performed by an undertaking entrusted with the operation of services of general economic interest; or
- is made in compliance with a legal requirement.
For businesses with a turnover of less than HKD 40m in the preceding calendar or financial year, an additional de minimis defence applies in relation to the Second Conduct Rule.
The key prohibitions of the CO do not apply to statutory bodies, unless the Chief Executive in Council determines otherwise. It is proposed that the exemption should not be applied six statutory bodies engaged in economic activity of a private nature, namely the Federation of Hong Kong Industries, Federation of Hong Kong Industries, Ocean Park and Matilda and War Hospitals.
The Chief Executive in Council can also grant exemptions where there are exceptional and compelling reasons of public policy to do so.
Penalties and remedies
A business found to have infringed a Conduct rule can be fined up to 10% of its Hong Kong turnover. The Tribunal also has other broad powers to disqualify directors and impose penalties on individuals, award damages to aggrieved parties, make interim injunction orders, and terminate or vary an agreement.
If the Competition (Amendment) Bill is passed into law, the Tribunal will have all the powers enjoyed by the Court of First Instance, including the power to award interest on debts and damages and judgment debts, enforce pecuniary penalties, financial penalties and fines, to make a prohibition order, to order the reimbursement of witnesses, and to make rules for suiters' funds rules.
This website includes a link to all of Mayer Brown JSM's legal update publications in relation to the new law, and an outline of the firm's capabilities and experience. The Mayer Brown JSM Antitrust & Competition Team in Hong Kong welcomes any questions from businesses in (or selling into) Hong Kong about the impact of the new law, or the content of the linked publications.