On 18 February 2015, regulations relating to the application of the Competition Ordinance ("Ordinance") to certain statutory bodies and methods for determining the turnover of undertakings were published in the Hong Kong Gazette. In particular, three regulations which come into force on 17 April 2015 were published:
- Competition (Application of Provisions) Regulation
- Competition (Disapplication of Provisions) Regulation
- Competition (Turnover) Regulation
Competition (Application of Provisions) Regulation
The provisions of the Ordinance do not apply to statutory bodies, which are bodies (corporate or otherwise) constituted or appointed under a Hong Kong Ordinance. However, the Chief Executive in Council may by regulation apply the provisions of the Ordinance to specific statutory bodies.
Now, over two and a half years after its enactment, the Competition (Application of Provisions) Regulation applies the provisions of the Ordinance to six statutory bodies: Ocean Park Corporation, Matilda and War Memorial Hospital, Kadoorie Farm and Botanic Garden Corporation, The Helena May, Federation of Hong Kong Industries and The general committee of the Federation of Hong Kong Industries.
Competition (Disapplication of Provisions) Regulation
The Chief Executive in Council may by regulation disapply the provisions of the Ordinance to specific entities. The Competition (Disapplication of Provisions) Regulation disapplies the provisions of the Ordinance to a number of entities related to stock exchanges and clearinghouses: The Stock Exchange of Hong Kong Limited, Hong Kong Futures Exchange Limited, Hong Kong Securities Clearing Company Limited, HKFE Clearing Corporation Limited, The SEHK Options Clearing House Limited, OTC Clearing Hong Kong Limited and Hong Kong Exchanges and Clearing Limited.
The exemption of these stock exchanges and clearinghouses from the Hong Kong competition regime is being justified by the administration on the basis of their perceived importance to Hong Kong's financial infrastructure and the necessity for their stability. The administration also considered that the existing regime for setting fees for the exchanges for their services, which takes into account the existing level of competition, is sufficient to protect the general investing public.
Competition (Turnover) Regulation
This regulation sets out the method for determining the turnover of an undertaking for the purpose of pecuniary penalties pursuant to enforcement actions, which are capped at 10% of an undertaking's annual turnover, and for determining whether the statutory exclusions for agreements and conduct of lesser significance apply.
In both cases, turnover will be calculated as the amounts derived by the undertaking's ordinary activities after deduction of sales rebates and taxes related to the revenues. Importantly, only the undertaking's ordinary activities in Hong Kong will be taken into account for the purpose of determining the cap on pecuniary penalties, but the ordinary activities outside of Hong Kong will also be taken into account in determining an undertaking's turnover for the purpose of the statutory exclusions.
The regulation further states that, where the undertaking consists of 2 or more undertakings each preparing accounts, the turnover will be calculated by adding together each of the respective turnovers, but the turnover arising from intra-group transactions will be excluded. The somewhat illogical phrase that "an undertaking consists of 2 or more undertakings" follows from the wide definition of an undertaking as "any entity regardless of its legal status." It further demonstrates the difficulty arising from the importation of the concept of "undertaking" from European Union competition law, especially when seeking to determine the involvement of parent and subsidiary companies in anti-competitive activity.
These regulations provide further light on the regulatory environment for the Competition Ordinance, expected to come fully into force later this year.