Leniency agreements are commonly offered by competition authorities to encourage entities engaging in anti-competitive conduct to come forward with information to assist with investigations; leniency is indeed generally regarded as one of the most successful tools for uncovering cartels, many of which are secret in nature.
Draft leniency policy
Under the Competition Ordinance ("Ordinance"), which is due to come into force on 14 December 2015, the Hong Kong Competition Commission ("HKCC") may, in exchange for a person's co-operation in an investigation, make a leniency agreement not to bring or continue proceedings for a pecuniary penalty for a breach of the conduct rules. On 23 September 2015, HKCC published a draftLeniency Policy for Undertakings Engaged in Cartel Conduct ("Draft Policy") for comment by 23 October 2015. A draft leniency agreement is also included with the Draft Policy, as well as a Guide to the Draft Leniency Policy for Undertakings Engaged in Cartel Conduct summarizing the Commission's approach (see here).
Scope of Draft Policy
Although leniency agreements may be entered into in relation to suspected breaches of any of the conduct rules, the focus of the Draft Policy is anti-competitive behaviour under the First Conduct Rule, namely arrangements between competitors to fix prices, restrict output, share markets and rig bids which have the object of preventing, restricting or distorting competition. The Draft Policy does not, however, preclude leniency agreements being made in relation to other suspected contraventions.
The Draft Policy extends only to the first entity (which must be an "undertaking" as defined by the Ordinance) reporting anti-competitive conduct to HKCC and meeting all the requirements, including fully cooperating with HKCC’s investigation. Thus, there is a strong incentive to be the first entity to apply for leniency. Given Hong Kong's judicial approach to competition enforcement, the ability of HKCC to offer leniency is limited once proceedings are underway; it may, however, consider providing favourable treatment to other cooperating entities by joining in a consent application to the Tribunal for a lesser penalty or other sanction.
The immunity for the first leniency applicant will usually extend to present and past employees, partners and officers of the reporting entity, unless they are acting in their personal capacity – it will be important for such persons to obtain legal advice (the draft suggests they may approach HKCC on a "without prejudice" basis but this could be a risky strategy for the lay person).
The immunity, if given, is limited to financial penalties and not to any other sanctions under the Ordinance; nor does it extend to any follow-on private actions for damages. Private actions may only be brought if the Tribunal determines that there has been a breach of a conduct rule or a person has made an admission to that effect in a commitment accepted by HKCC. HKCC therefore proposes that successful leniency applicants must sign a statement of agreed facts admitting their participation in the cartel and cooperate in consent proceedings under which the Tribunal may make a determination that a breach of the First Conduct Rule has taken place.
HKCC may terminate a leniency agreement if the applicant fails to comply with its terms or HKCC has reasonable grounds to suspect that the information on which it based its decision to make the agreement was incomplete, false or misleading in a "material particular", a term which is ambiguous and not easy to define. If terminated, the applicant no longer enjoys immunity and HKCC is free to commence proceedings for a pecuniary penalty.
The Draft Policy explains that, as in other jurisdictions such as the European Union, HKCC proposes to use a marker system to establish the priority and substance of applications for leniency. Applicants (or their legal representatives) will be required to call a specific leniency hotline (answered only between 9am to 6pm Monday to Friday) and to provide sufficient details to identify the conduct for which leniency is sought. The caller may then be given a marker which identifies the time and date of the call and establish a queue for leniency applicants. HKCC will consider whether leniency is available for the reported conduct: it will not for example be available if an infringement notice has been issued or proceedings before the Tribunal have already been commenced. If satisfied that the conduct qualifies, the applicant with the highest ranking marker may apply for leniency within a 28 day time limit. If it fails to do so, the next ranking marker may apply and so on.
The applicant must sign a non-disclosure agreement undertaking not to disclose (except as required by law) either the fact that it is submitting an application for leniency or the information provided. Under the Ordinance, HKCC must preserve the confidentiality of any confidential information provided to it. The Draft Policy further indicates HKCC's policy not to disclose material provided under a leniency application whether or not it is strictly confidential information (as defined by the Ordinance) unless the applicant consents or disclosure is compelled by a court order or otherwise by law. In addition, HKCC may require a leniency applicant to authorise HKCC to exchange confidential information with competition authorities in other jurisdictions.
Form of application
The form of the application is by way of a "proffer", orally or in writing, setting out in detail the role of the applicant, the entities involved, the conduct and the evidence of the cartel conduct. This may be made directly or through a lawyer (which would be highly advisable in view of the possibility of otherwise revealing privileged information) and may be on a 'without prejudice' basis (the meaning and extent of which is not entirely clear in the context of a leniency application). HKCC will only decide whether or not to offer a leniency agreement after considering the proffer and any additional information provided.
According to the Draft Policy, the leniency agreement will require the applicant to confirm it:
- has provided and will continue to provide full and true disclosure
- has not coerced other parties to engage in the relevant conduct
- has terminated its involvement in the conduct
- will keep confidential all aspects of the leniency application and the leniency process
- will provide continuing cooperation to HKCC including in proceedings against other businesses or persons involved in the conduct
- will sign a statement of agreed facts admitting its participation in the cartel by reference to which the Tribunal may be asked to make an order declaring that the applicant has contravened the First Conduct Rule.
Whilst the Draft Proposal may be amended following consultation, the overall policy is not too surprising. For businesses it means continuing to screen for anything to report from Monday 14 December. Experience in other jurisdictions suggests that the "race for immunity" could start as soon as the law comes into force – and since only calls to the HKCC's leniency hotline will be accepted it is likely to be ringing busy from 9:00am on the commencement date. Since the sufficiency of a leniency application will both determine its priority and acceptance, an important issue will be how much information an applicant needs to provide, both at the marker and proffer stages, to be accepted for leniency. The continuing and extensive obligations of disclosure and cooperation and the lack of immunity from any follow-on civil actions are also factors an applicant will need to take into account before deciding to seek leniency.