Hong Kong’s much-anticipated cross-sector antitrust legislation came into operation on December 14, 2015. In anticipation, the Competition Commission of Hong Kong (the Commission) published a policy on November 19, 2015 to encourage undertakings (i.e., entities involved in economic activities) that may have engaged in cartel conduct to report it to the Commission in exchange for leniency (the Leniency Policy). We outline below the main highlights of the Leniency Policy and discuss various issues it raises.
Scope and Mechanisms
Scope. The Leniency Policy applies only to undertakings engaged in cartel conduct in breach of the First Conduct Rule under the Competition Ordinance (the Ordinance). Cartel conduct refers to agreements and concerted practices between undertakings that involve fixing prices, restricting output, sharing markets or rigging bids and has the object or effect of preventing, restricting or distorting competition in Hong Kong. If leniency is granted, the protection will extend to the current directors, officers and employees of the undertaking, provided that they cooperate with the Commission during the leniency process. Leniency will also be extended to any current and former agents, and any former officers or employees of the undertaking specifically named in the leniency agreement under the same conditions. The Commission has indicated that other parties who report cartel conduct to the Commission will be granted confidentiality.
Leniency agreement. Under the Leniency Policy, the Commission may enter into a leniency agreement with the first undertaking that reports the cartel conduct. By entering into a leniency agreement, the Commission will undertake not to commence proceedings against the undertaking in exchange for cooperation in the investigation of the reported cartel conduct. This “winner takes all” approach, where only the first successful applicant receives leniency, provides strong economic incentives for cartel participants to report at an early stage.
Procedure and obligations for leniency applicants. Under the leniency agreement, the undertaking will be required to preserve confidentiality and to sign a statement of agreed facts admitting to its participation in the cartel. Throughout the investigation, the undertaking must also provide the Commission with continuous cooperation and full disclosure. The Commission may terminate a leniency agreement if, for instance, the applicant breaches the terms of the agreement. If the agreement is terminated, the undertaking will lose its immunity.
Subsequent leniency applicants. If the second and subsequent applicants cooperate, the Commission has the discretion to consider a “lower level of enforcement action,” such as making recommendations or joint submissions with the subsequent applicant(s) to the Competition Tribunal (the Tribunal). However, while the Commission retains the discretion on whether to seek a pecuniary penalty against an undertaking, the ultimate power to fix the penalties or to make an order rests with the Tribunal. It is therefore uncertain how subsequent leniency applicants will be treated in practice.
No Immunity from Private Follow-on Actions
As follow-on actions may be brought only against an undertaking that has contravened a competition rule, a successful leniency application may expose the undertaking to subsequent third-party civil actions. This is because the Tribunal may make an order of declaration against the undertaking for contravention of the First Conduct Rule based on the undertaking’s signed statement of facts.
Disclosure of an Applicant’s Leniency Materials
The Commission will decline requests for disclosure, including requests related to civil proceedings in Hong Kong or from antitrust regulators in other jurisdictions, unless one of the following circumstances applies: (a) the Commission is compelled by an order of the Tribunal, by the court or by law, (b) the applicant has given consent for disclosure, (c) the relevant information is already in the public domain, or (d) the leniency agreement has been terminated. An undertaking will not be required to authorize disclosure of leniency materials to overseas regulators as a condition for entering into a leniency agreement with the Commission.
Overall, the Leniency Policy broadly aligns with leniency priorities in other jurisdictions. Experience from other jurisdictions has shown that the vast majority of cartels investigated by authorities came to light as a result of whistleblowers making a report to the authorities under similar leniency programs. Therefore, the risk and cost of noncompliance with the Ordinance should not be underestimated.