- Eligibility conditions for leniency missing
- Exposure to follow-on action may deter applicants from coming forward
- Commission’s offer to runners-up requires clarification
Hong Kong’s proposed leniency policy, issued last month, has raised a number of concerns over the degree of protection afforded to leniency applicants, competition lawyers have told PaRR.
The city’s Competition Commission released a nine-page draft leniency policy adopting a “winner takes all” approach, due to particularities of the local rules and court system. The policy essentially gives assurance of full immunity to the first participant but promises only “favourable treatment” to other cartel participants if they come forward and co-operate.
Deciding whether to file for leniency under the current proposed policy would involve high stakes for companies, said Clara Ingen-Housz, a partner at Linklaters in Hong Kong. She said the policy was a double-edged sword, because much depended on how certain a company felt about its ability to lodge a successful application, based primarily on the evidence it has, and at the same time, its confidence that it could be the first in line.
Companies would have to balance the risk of being caught out and receiving penalties against the risk of coming forward but not being granted immunity because leniency conditions were not met. As a result, they may end up facing possible action upon revealing the existence of cartels, Ingen-Housz explained.
Lawyers said that raised a second major concern over the conditions companies would need to satisfy to avail themselves of leniency and the quality of evidence that needed to be submitted.
A spokesperson for the Competition Commission previously told PaRR that the draft policy stipulated that callers must "provide sufficient details to identify the conduct for which leniency is sought". The commission did not therefore expect parties seeking a marker to provide the same level of detail that would be needed at the proffer stage, but merely enough information to allow the commission to determine with certainty whether a marker had already been made for the same conduct, or whether it could offer a marker to that caller, the spokesperson explained.
A third major issue, in the event that companies were in fact granted immunity, was whether they would then find themselves exposed to potential follow-on action by third parties, lawyers pointed out.
This was because every leniency agreement required a company to admit to having participated in cartel conduct, which then exposed it to lawsuits initiated by private parties.
Some companies, trade associations and interest groups would doubtless seek damages after cartel conduct had been established, Ingen-Housz said.
Jill Wong, a partner at Howse Williams Bowers, agreed and said that since leniency arrangements did not preclude third-party litigation, a company would have to balance the prospective advantages and disadvantages of filing for leniency. However, Hong Kong was not seen as a litigious society and there may not be a lot of follow-on litigation, both Wong and Ingen-Housz said. However, Wong was quick to add: “It is early days.”
Some lawyers toldPaRR that it would be wise for companies to decide now what their stand would be once competition law came into effect, which is expected to be 14 December.
Ingen-Housz said businesses should audit their practices, and analyse their contracts, arrangements and dealings to get a full and accurate picture of enforcement risks.
Companies could prevent problems by immediately stopping any anticompetitive behavior. Wong said that if they persisted with such conduct then they may face antitrust investigations should another member of a cartel in which they were involved report to the competition commission.
The Competition Commission wants to start enforcement immediately when the law takes effect in December, armed with a leniency policy drafted to encourage companies to come forward at an early stage.
Adam Ferguson, head of competition Asia at Eversheds, said the binary nature of immunity was the key issue with the leniency policy. Having adopted a winner-takes-all approach meant that nothing would be left for a second applicant.
The commission’s hands were to an extent tied by Hong Kong’s Competition Ordinance because the Competition Tribunal sets fines, Ferguson explained. However, as competition authorities typically required corroborative evidence that they may not get from the first immunity applicant or via their statutory information-gathering powers, that may limit their ability to build cartel cases, he told PaRR.
Wong said there was therefore a greater need for clarity on what the commission was prepared to offer runners-up. Companies would be more prepared to come forward if there were clear advantages in doing so, since other cartel members may have useful information that the first applicant may not have shared with the regulator, she explained.
Even if the commission chose to further clarify what runners-up may gain in exchange for information, since Hong Kong operated under the principles of judicial independence, it would be up to the Competition Tribunal whether or not it wished to take into account the recommendations of the Competition Commission, Ingen-Housz said.
She said the competition agency could only recommend that a party received better treatment by the tribunal when it came to second or third leniency applicants willing to co-operate in investigations. Practice would show how much weight the tribunal would give to those recommendations, Ingen-Housz said. She added that the tribunal and the commission, despite being independent of one another, shared the common interest and objective of ensuring that the rules were applied, and that if the participation of a party to a leniency program helped the judicial process, the tribunal should in principle be incentivized to recognize that participation and follow the recommendations of the commission – although there could be no guarantee.
Some additional loopholes in Hong Kong’s proposed leniency policy needed to be addressed during the consultation period, lawyers told PaRR. The agency needed to clarify its stance on what it meant by an undertaking having “coerced” other parties to engage in cartel conduct. It was not clear whether a company with a large market share could be considered coercive and hence ineligible to apply for leniency.
Another major cause for concern was that the Hong Kong authority had the right to share information with other antitrust authorities around the globe. The draft policy states that the commission may, as a condition of entering a leniency agreement, require the applicant to authorize it to exchange confidential information with authorities in other jurisdictions.
That would raise alarm bells among cartelists as they may find themselves at the receiving end of potential prosecutions in other jurisdictions. This lack of protection, with information able to be used against them by other antitrust regulators, could reduce the incentives for companies to come forth and co-operate with the Hong Kong agency, lawyers said.