The CEO of the Hong Kong Competition Commission (“Commission”), Brent Snyder, who joined the Commission last fall, said at a recent LegCo meeting that the Commission is pursuing a number of “promising” investigations, and more enforcement actions are expected in the near future.
The Competition Ordinance (“Ordinance”) came into full effect on 14 December 2015. To date, the Commission has taken two cases to the Competition Tribunal (“Tribunal”). The Commission’s first enforcement action was brought against five information technology firms in July 2017 alleging that the firms participated in a bid rigging scheme, in violation of competition law in connection with a tender conducted by the Young Women’s Christian Association (“YWCA”) for the supply and installation of a “hyper-converged” IT server system.
The second legal action the Commission took to the Tribunal concerns ten residential renovation service providers in August 2017. It was alleged that the service providers violated competition law by participating in a market sharing agreement involving the provision of renovation work for the tenants of three new buildings that were part of a public housing estate in Kwun Tong, and by fixing the prices they offered to the tenants for the renovation work.
Since the Ordinance became fully effective, the Commission has consistently made it clear in its public statements that its enforcement priority would be hard core, “Serious Anti-Competitive Conduct”, i.e., bid rigging, price fixing, customer allocation, and output restriction. As such, it should be no surprise that the first two legal actions the Commission took to the Tribunal involved hard core conduct.
Furthermore, Mr. Snyder has publicly stated that the Commission is also actively investigating potential abuses by large firms of their market power that can be in violation of competition law. A large firm can be found to have abused its market power if it engages in conduct that raises entry barriers or attempts to squeeze out competitors. Such conduct can ultimately cause harm to Hong Kong consumers.
The Government is expected to launch a review of the Ordinance before the end of this year. In preparation for the review, the Commission will revisit three particular areas of the Ordinance:
- Statutory body exemptions. The competition rules of the Ordinance currently do not apply to statutory bodies (with the exception of six specified statutory bodies). Although the majority of the exempted statutory bodies do not participate, or have minimal involvement in economic activities, there remain 160 statutory bodies that are actively engaged in economic activities. These statutory bodies often compete with private sector entities in offering products and services to the same consumers in Hong Kong. The Commission has indicated that it will assess whether statutory bodies involved in economic activities should continue to be shielded from the reach of competition law.
- Private actions. Currently, private actions under the Ordinance are limited to “follow-on” actions; that is, a party who has suffered losses or damage as a result of a contravention of the competition rules may bring a private action against the infringing party (or parties) only after a decision by the courts (the Competition Tribunal, Court of First Instance or Court of Final Appeal) has been made, or through an admission in a commitment accepted by the Commission. In its review, the Commission will consider the introduction of “stand-alone” actions, which would allow private parties to bring legal actions independently from the Commission.
- Merger rule. The Ordinance prohibits mergers that substantially lessen competition in Hong Kong. However, the merger rule only applies to transactions in the telecommunications sector. In its review, the Commission will assess whether the merger rule should be expanded to all sectors of the economy. This would bring Hong Kong closer in line with the merger control regimes of the major jurisdictions in the world. By expanding the scope of the merger rule, the Commission would have jurisdiction to review and impose conditions or block any transactions that may substantially lessen competition in Hong Kong.
The Commission will also review the six guidelines issued under the Ordinance and the Enforcement and Leniency policy documents adopted by the Commission.
With two cases in the Tribunal, several ongoing in-depth investigations, an increased budget, including a new designated fund for litigation proceedings in the Tribunal, and a new senior leadership of the Commission in place, competition law enforcement in Hong Kong is expected to be stepped up.
Businesses are advised to carefully review their business practices and agreements to ensure full compliance with the Ordinance. They should also be familiar with the Commission’s broad investigatory powers, including search-and-seizure operations (so called “dawn raids”) and the wide-ranging enforcement actions available to the Commission.