The Competition Tribunal Rules are an essential pillar of the enforcement architecture under the Competition Ordinance. The rules passed into final form yesterday following the expiration of the Legislative Council’s “negative vetting” period and will govern proceedings before the Competition Tribunal including, Hong Kong Competition Commission enforcement actions and follow-on damage claims. This briefing sets out some of the key points to note for companies operating in Hong Kong.
What are the Competition Tribunal Rules and where do they sit in the enforcement architecture?
The Competition Tribunal Rules (the Rules) set out the procedures that will apply before the Competition Tribunal (the Tribunal), the specialised court set up to adjudicate proceedings initiated by the Hong Kong Competition Commission (the HKCC) in relation to alleged infringements of the Competition Ordinance (the Ordinance). The practical impact of these rules is best understood by reference to the overall enforcement regime.
Brief overview of the enforcement regime under the Competition Ordinance
The Ordinance introduces a two-tier enforcement system:
- Tier 1: HKCC investigation phase: The HKCC has been granted a wide range of tools to investigate potential contraventions of the Ordinance. These tools include the power: (i) to issue requests for any documents or information; (ii) to conduct interviews; and (iii) to conduct dawn raids. Whilst the HKCC can enter into non-pecuniary settlements, it must bring proceedings before the Tribunal to enforce the provisions of the Ordinance and impose sanctions; and
- Tier 2: Competition Tribunal prosecution phase: If the HKCC has reason to believe that an infringement of the Ordinance has taken place, it can initiate proceedings before the Tribunal which has the power to adjudicate infringements of the Ordinance and to impose sanctions (including fines). The Rules set out the procedures that apply during this adversarial process.
In addition, once an infringement of the Ordinance has been determined, any person who has suffered loss or damage as a result of that infringement has a right of action against any person involved in the infringement (i.e. follow-on damages).
No automatic discovery in competition proceedings: concern for rights of defence
Under the Rules, unlike in most civil cases, there is no automatic discovery of documents. This may present challenges to a defendant seeking to rebut the allegations of the HKCC.
In order to access documents in the HKCC’s possession or control (i.e. on its case file), the defendant will have to apply to the Tribunal for an order for discovery and production of documents. However, the Tribunal has the power to refuse an order for discovery and production of a document having regard to all the circumstances of the case. It is also worth noting that, during the investigation phase, the HKCC is under no obligation to share any of the relevant underlying evidence with the parties. This gives rise to two key points:'
- First, the defendant may be faced with having to prepare its defence in the lead-up to trial without having access to the HKCC’s file and the alleged evidence against it (including exculpatory evidence). It is unclear how a defendant can be expected to mount a robust defence if it is unable to review all of the evidence against it.
- Second, the lack of access to the underlying evidence during the investigation phase and the absence of automatic discovery in the prosecution phase may result in an imbalance in terms of access to the evidence between the HKCC and the defendant – there is a risk of an inequality of arms. In particular, the HKCC will have access to potentially voluminous evidence from each of the defendants following the requests for information during the investigation phase.
These points give rise to concerns as to the fairness of judicial proceedings in antitrust cases in Hong Kong. Indeed, when contrasted with established antitrust regimes, the absence of access to file during the investigation phase and / or automatic discovery appears to be an unusual approach. In litigation-based antitrust regimes such as Australia and the US, automatic discovery is the norm. Moreover, even in non-litigation based antitrust regimes such as the European Union, the defendants will have access to the authority’s file in order to prepare their case.
A missed opportunity in relation to the leniency regime?
The Rules are silent on the approach to leniency, thereby creating uncertainty as to the nature of the leniency regime in Hong Kong, which possibly serves to disincentivise companies from cooperating with the HKCC.
There has been concern for some time as to how leniency will work in Hong Kong given the two tier competition enforcement regime. Although the HKCC is the authority agreeing to any reduction in fines in return for a company’s cooperation during an investigation, it is not the authority that has the power to impose fines. It is the Tribunal that is responsible for determining and imposing the fines.
The Ordinance foresees the possibility for the HKCC to offer protection from prosecution to the first party to notify the HKCC of anti-competitive behaviour, but the position is much less clear for second / third / etc. leniency applicants. The Ordinance does not contemplate fine reductions for such leniency applicants. However, there have been signals from the HKCC that it would be prepared to adopt a leniency regime similar to that adopted by the Australian Competition and Consumer Commission (the ACCC). This is an approach which is currently in a state of flux.
Under the historic ACCC approach, the first leniency applicant (the whistleblower) benefits from a non-prosecution agreement and a de facto 100% reduction in any fine. Subsequent leniency applicants that cooperate with the ACCC can receive a reduction in the fine imposed by the Court following a recommendation to that effect from the ACCC. However, recent case law in Australia states that the setting of fines in relation to antitrust infringements is the sole responsibility of the Courts. This appears to have removed the possibility for the ACCC to recommend fine levels to the Courts and creates uncertainty for leniency applicants.
The shifting sands in Australia
- In Australia (as in Hong Kong), penalties for breaches of competition law are imposed by a court, and not by the ACCC.
- The ACCC's ability to submit agreed penalty recommendations (which the court would be highly likely to accept) in exchange for cooperation has been fundamental to the credibility of the ACCC's leniency programmes and the efficient resolution of enforcement proceedings.
- In May 2015 the Full Federal Court of Australia (in CFMEU) addressed the recommendations of the ACCC as to financial penalties in antitrust proceedings, and considered that given there was a public interest in imposing sanctions, it was the Court’s sole responsibility to set the amount of such penalties.
Although the approach of the Australian Courts may not be followed by the Tribunal, the Australian developments further increase the uncertainty as to how the leniency regime will play out in Hong Kong. It would have been possible to reduce this uncertainty by providing some guidance in the Rules on the mitigating effects that cooperation with the HKCC could have on the level of any fine. This opportunity was not taken up.
The HKCC may decide to adopt the “one and done” approach of the US, whereby only the first applicant obtains the benefit. Alternatively, if the HKCC wishes to follow the EU model, it will need to devise a process whereby second / third / etc. leniency applicants will have adequate comfort on the outcome of any cooperation with the authorities. The HKCC has yet to announce its leniency guidance.
Publicity: risk of reputational harm
As with most established antitrust regimes, companies will also need to be mindful of the likelihood that there will be considerable levels of publicity throughout the investigative and judicial process. During the investigation phase, there will be publicity if and when the HKCC issues a “warning notice” or an “infringement notice” setting out some of the details of the alleged infringing conduct.
Moreover, regardless of whether the proceedings ever reach the hearing stage, the Rules specify that particulars of any Tribunal proceedings will be made public once the initiating application has been filed. Under the Rules, the Tribunal will publish the notice of application to commence proceedings. The notice will contain the names of the parties, the remedies being sought and the particulars of the claim ‘in a summary form’. The HKCC guidance states that in addition to the publication of the notice of application by the Tribunal, the HKCC will also issue an accompanying press release. Moreover, all hearings before the Tribunal will be held in public unless the Tribunal directs otherwise (there has been no guidance to date as to when a private hearing would be permissible).
Reporting obligations and reputational damage may arise at this time. Additionally, any potential claimants in follow-on damages claims will have ample opportunity to begin preparing their own claims using the information disclosed at the preliminary stage of proceedings and during the open hearing. This is not necessarily different to the approach in the majority of antitrust regimes around the world but it is something that companies should be aware of.
Next steps: entry into force
The Rules represent another milestone in the run-up to entry into force of the Ordinance. While further guidance is expected from the HKCC, notably in relation to leniency, the Ordinance is still expected to come into force before the end of 2015.