Competition law enforcement worldwide is increasingly responsive and intrusive, and businesses can expect much of the same from the Hong Kong Competition Commission (HKCC). Since 14 December 2015, all companies with business interests in Hong Kong must operate in compliance with the new local competition rules (set out in the Competition Ordinance (CO)), or face exposure to potentially significant costs.
Business, especially those that participate in local tender processes, should now be on high alert. The HKCC recently sent a clear warning that it intends to use its full enforcement powers to stop bid rigging cartels as a key priority. The HKCC’s twin announcements in late May 2016 of a bid rigging campaign and findings of suggestive bidding patterns in its residential building and maintenance market study reinforce the likelihood that initial investigations will focus on cartel agreements in consumer-facing industries.
The risk of an investigation for a suspected breach of competition law is sometimes underestimated and potentially poses more immediate business costs. A business, and even their minority shareholders, may be ultimately liable for potential pecuniary penalties, court orders and follow-on third party claims, however these outcomes require the HKCC to first successfully prove its case in a specialist court of law (the Competition Tribunal).
In addition to approaching parties under investigation (or other market participants) on a voluntary basis, the CO confers wide powers on the HKCC to obtain information, documents and other evidence when investigating possible contraventions.
Businesses caught up in an investigation or even an initial assessment by the HKCC can lose precious senior management and employee time managing these requests. These may be made through voluntary means, or as a mandatory request under the HKCC’s statutory powers (sections 41 and 42 of the CO).
An inquiry by the HKCC may trigger the need for an internal investigation, particularly where the business was not previously aware of the risk.
For some corporations, competition lawyers and other experts (such as economists) can add significant value by strategically managing a company’s overall competition law risks including all interactions with relevant agencies.
Most companies will likely require specialist advice and significant outside counsel time to assist in responding to information and document requests. Document production costs can often easily escalate, particularly where a vast number of relevant documents may be potentially captured and require careful review and/or new responsive documents are to be created. Businesses may also seek the presence of an experienced competition lawyer during a surprise search under warrant (section 48 of the CO) and their further advice following the dawn raid.
Transactional and operational costs
A company may wish to resolve the HKCC’s concerns on an informal basis before the matter reaches the Competition Tribunal, or perhaps even before the HKCC exercises its investigation powers. This may mean changing longstanding and/or key business practices in a relatively short period of time, which at that stage may incur higher transactional and other operational costs.
Reputation and disclosure risks
Companies will need to carefully consider and manage any reputational and disclosure risks especially where the HKCC is approaching customers or suppliers of the parties under investigation for information. If you are the subject of a cartel investigation, you are essentially being accused of cheating your customers.
Importantly, information provided voluntarily to the HKCC can be used by it in another matter. The HKCC is unlikely to accept any such information or documents on a ‘without prejudice’ or limited waiver basis.
The price of immunity
Successful leniency applicants should not be worse off than non-cooperating parties, however the costs of applying and cooperating throughout a cartel investigation and ensuing proceedings will likely tie up significant company resources for an indeterminate time. This may include some unexpected costs such as flying in witnesses (which may include former employees) for interviews and court hearings and any translation costs.
Anti-competitive practices are no longer profitable in Hong Kong
The CO introduces a set of rules that fundamentally affects longstanding local business practices, exposing firms to new and significant risks. As every company will have a different risk profile and appetite, a tailored plan would help ensure practices and operations are optimised under the competition law.
Ideally, you need not worry about crossing paths with a competition agency – because you have already implemented a commercial strategy which incorporates rigorous competition law policies and protocols to mitigate your risks.