Having played a major role in the Antitrust & Competition sector in the industry for more than a decade in Hong Kong, we are recognised for our continuing dialogue with the government and Hong Kong Competition Commission in relation to competition law matters. China and Hong Kong, where our bilingual Antitrust & Competition team is based, are our major areas of focus given the significance of these markets for our clients, and the broad scope of the antitrust and competition legislation which governs activities within and beyond these markets. Our prospective thinking brings us at the forefront of developments in the law. We were proud to be the first law firm in Hong Kong to issue and update to our clients following the publication of the long-awaited draft implementation guidelines by Commission in October 2014 with our legal update "At Long Last: Draft Hong Kong Competition Law Guidelines Published".
Competition Ordinance: Commencing 14 December 2015
The Commencement Notice for the Competition Ordinance (Cap. 619) (the "CO") was gazetted on 17 July 2015, appointing 14 December 2015 as the date for full enforcement of the Ordinance. According to a press release issued by the Competition Commission (the "Commission"), the Commission is "ready to be an effective enforcer of the competition law which will support Hong Kong's open economy by ensuring fair and free markets for all".
The commencement of the CO comes exactly three and a half years after it was first enacted on 14 June 2012. 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.
In the run up to the commencement date, the Commission has indicated it will, in appropriate cases, contact businesses and other relevant parties directly if the Commission considers that their conduct or practice may be considered anti-competitive and likely to contravene the CO.
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 investigative body. In May 2013 the Chief Executive appointed Ms. Anna Wu Hung Yuk as the chairperson of the Commission, as well as 13 other members representing various sectors and stakeholders. Senior executives of the Commission have since been appointed, and the Commission is now fully staffed and resourced to enforce the CO once it comes into force.
The Tribunal is the superior court of record established under the CO and has primary jurisdiction to hear and adjudicate competition-related cases as well as reviews of certain determinations of the Commission. Cases may be brought before the Tribunal by the Commission as well as by private parties based upon an admission of liability, a decision of the Tribunal or a higher court. The procedural rules of the Tribunal were gazetted in June 2015. The Tribunal, to be chaired by the Honourable Mr. Justice Godfrey Lam, will be constituted by Court of First Instance judges, and will have all the powers, rights and privileges of the Court of First Instance, whilst retaining procedural flexibility with the character of an arbitral tribunal.
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.
The Commission's interpretation and application of the Conduct Rules will largely be guided by six implementation guidelines issued jointly by the Commission and the Communications Authority, which address the First Conduct Rule (restrictive agreements), Second Conduct Rule (abuse of substantial market power), Merger Rule and procedural matters including complaints, investigations and block exemption applications.
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 CO 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, save for 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 injunction orders, and terminate or vary an agreement. Once the Competition Tribunal Rules are passed into law, the Tribunal will have all the powers enjoyed by the Court of First Instance, including the power to enforce pecuniary penalties, financial penalties and fines, to make a prohibition order and to order the reimbursement of witnesses.
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.