What you need to know

Hong Kong’s cross-sector competition law regime comes into full effect on 14 December 2015. In line with competition law across other common law jurisdictions, the Competition Ordinance (passed back on 14 June 2012) regulates conduct (whether in Hong Kong or overseas) that prevents, restricts or distorts local market competition. Businesses should do all they can to ensure they are compliant with the new regime. In particular, it is important to note that the Competition Ordinance applies to ongoing agreements entered into, and practices carried out, both before and after 14 December 2015.

The Competition Commission and the Competition Tribunal

The Competition Commission (the Commission) is an independent statutory body established under the Competition Ordinance. The role of the Commission is to investigate conduct which may contravene the competition rules. The Commission has an extensive range of investigative powers to facilitate its scrutiny of potentially unlawful conduct.

Although the Commission’s disciplinary power over suspected breaches of the competition rules is limited to the issuance of Warning Notice and Infringement Notice, it may bring proceedings before the Competition Tribunal (the Tribunal) for adjudication and the imposition of penalties. The Tribunal has jurisdiction to consider cases arising from alleged infringements of competition rules, as well as private follow-on actions and applications for review of certain decisions rendered by the Commission.

The Prohibitions

The key prohibitions take the form of two “Conduct Rules” and the “Merger Rule”:

  • the “First Conduct Rule” (FCR) prohibits agreements and cooperation arrangements (whether in Hong Kong or overseas) that restrict competition in Hong Kong. In this respect, the FCR applies to both horizontal arrangements (involving businesses which compete with one another) and vertical arrangements (involving businesses which operate at different levels of the production or distribution chain). Given the broad applicability of the FCR, companies are advised to review their business activities for potentially infringing practices such as price fixing, market sharing, output limitation, bid rigging and exchange of price sensitive information
  •  the “Second Conduct Rule” (SCR) prohibits a business with substantial market power from abusing that power to restrict competition in Hong Kong. Whilst the SCR does not prevent companies from gaining market power or exercising it to increase their profits for a time, these companies should be cautious when exercising market power if the effect is the prevention of entry or expansion of competing companies
  • the “Merger Rule” prohibits mergers between businesses (whether in Hong Kong or overseas) which substantially lessen competition in Hong Kong. However, at this juncture, the scope of application of the Merger Rule is limited to the telecommunications industry.

Exclusions and exemptions

The Competition Ordinance contains various exclusions and exemptions from the abovementioned prohibitions, including:

Exclusions from the First Conduct Rule

  • Agreements enhancing overall economic efficiency
  • Compliance with legal requirements
  • Services of general economic interest
  • Mergers
  • Agreements of lesser significance
  • Public Policy Exemption
  • International Obligations Exemption

Exclusions from the Second Conduct Rule

  • Compliance with legal requirements
  • Services of general economic interest
  • Mergers
  • Agreements of lesser significance
  • Public Policy Exemption
  • International Obligations Exemption

From time to time, the Commission may also issue a Block Exemption Order in respect of any category of agreement which it deems appropriate to exclude from the application of the First Conduct Rule.

Businesses may apply to the Commission for a decision as to whether or not a specified conduct is excluded or exempt from the Conduct Rules or the Merger Rule.

Sanctions

When competition rules are contravened, the Tribunal may fine infringing businesses up to 10% of its gross Hong Kong turnover (for up to three years). The Tribunal also has other sanctioning powers at its disposal, including:

  • ordering disqualification of directors
  • awarding injunctions
  • imposing financial penalties on individuals
  • awarding damages to aggrieved parties
  • voiding or varying infringing agreements.

Once the infringement of a conduct rule has been determined, aggrieved parties may commence follow-on actions against the contravening business for civil damages.

Implementation

Early indications suggest that the Commission is keen to make an early statement of intent and exercise its powers proactively when the regime comes into full force on 14 December 2015. Companies should therefore carefully consider their existing business activities and tailor their internal controls and compliance programs to avoid a potential breach of the Competition  Ordinance.