On 23 September, Hong Kong’s primary competition enforcement agency, the Competition Commission (the “Commission”), published a draft leniency policy for undertakings engaged in cartel conduct (“Draft Leniency Policy”).

On the same day, the Commission also published a Guide to the Draft Leniency Policy summarising its approach in preparing the Draft Leniency Policy (the “Guide”).

In this issue we explore the extent of immunity offered under the Draft Leniency Policy and the implications for the enforcement of the Competition Ordinance.

What is cartel conduct?

Cartels are arrangements between competitors to fix prices, restrict output, share markets and rig bids which have the object of preventing, restricting or distorting competition.

The Commission has indicated in its Draft Guideline on the First Conduct Rule that it considers cartel conduct to be inherently harmful to competition and such conduct is regarded as a form of “serious anti-competitive conduct” under the Competition Ordinance (the “Ordinance”). This has various implications in terms of how the Commission will approach cartel conduct. For instance:

  • The Commission may institute proceedings against an undertaking engaged in cartel conduct before the Competition Tribunal (the “Tribunal”) without following the warning notice procedure set out in the Ordinance; and
  • The general exclusion for agreements of lesser significance, which is otherwise available for conduct that is not “serious anti-competitive conduct”, will not apply.

Scope of the Draft Policy

Section 80 of the Ordinance provides that the Commission may make a leniency agreement with a person that it will not bring or continue proceedings in the Tribunal for a pecuniary penalty in exchange for the person’s cooperation in an investigation or in proceedings under the Ordinance.

The Draft Leniency Policy outlines the Commission’s proposed approach to leniency for undertakings engaged in cartel conduct. In summary, leniency will be available only:

  • in relation to cartel conduct contravening the First Conduct Rule;
  • to undertakings (i.e. companies and not individuals);
  • to the first undertaking to report the cartel conduct to the Commission;
  • on the basis that the applicant maintains continuous and complete cooperation with the Commission and will prepare a statement of agreed facts admitting its participation in the cartel.

The Commission has indicated in the Guide that it will consider case by case whether it is appropriate to provide lenient treatment to the specific applicant.

Comment

The Draft Leniency Policy results in a “winner takes all” approach that the Commission will adopt to incentivise cartel members to come first and report the cartel conduct to the Commission. The Commission will be hoping that this will incentivise parties to cartels to report them for fear that if they are not first in, they could be exposed to very significant fines. However, the experience of competition authorities elsewhere is that the evidence of a single leniency application is not always sufficient to prove infringement. The assistance of further applicants is frequently needed in order to corroborate the evidence of the first leniency applicant. Accordingly, the “winner takes all” approach risks creating challenges to the successful prosecution of cartels.

The Commission’s consultation will be open until 23 October.