Six years after the Competition Policy Review Committee first recommended the introduction of a new cross-sector competition law, the Competition Bill was finally passed on June 14, 2012. The legislation is intended to be implemented in phases with a transitional period of at least a year.
The Competition Ordinance (the Ordinance), which is modeled on overseas legislation in the European Union, the United Kingdom and Singapore, introduces a cross-sector competition law regime which is new in Hong Kong.
Who Will Be Subject to the Ordinance?
The law will apply to "undertakings," which is broadly defined to mean any entity (including a natural person), regardless of its legal status or the way in which it is financed, that engages in economic activity. Sole proprietors, trade associations and partnerships are all "undertakings" so long as they are involved in economic activities.
However, except for those statutory bodies specified in separate regulations which will be adopted by the Chief Executive in Council (including Ocean Park Corporation, the Federation of Hong Kong Industries and Kadoorie Farm and Botanic Garden Corporation), all statutory bodies are excluded from the competition rules under the Ordinance.
The Conduct Rules
The First Conduct Rule prohibits undertakings from engaging in agreements, decisions or concerted practices that have the object or effect to prevent, restrict or distort competition in Hong Kong. "Agreements" include arrangements, understandings and promises whether express or implied, written or oral. "Object" refers to the objective purpose of an agreement.
The legislation distinguishes "hardcore anti-competitive activities," namely price-fixing, bid-rigging, output control and market allocation, from other "non-hardcore activities," such as restrictions on advertising, collective refusal to supply and the development of standardization agreements. The Competition Commission (the Commission) may bring proceedings against "hardcore violation" without any prior warning, or issue an infringement notice allowing the undertaking to enter into commitments. No prosecution can be made for "non-hardcore violation" without a warning notice.
The Second Conduct Rule prohibits undertakings from abusing their substantial degree of market power in a market by engaging in anti-competitive conduct. A non-exhaustive list of conduct which may count as abuse includes engaging in predatory behavior towards competitors or limiting production, markets or technical development to the prejudice of consumers. An undertaking with market share below 25 percent would be considered unlikely to possess a substantial degree of market power.
The First Conduct Rule and the Second Conduct Rule are together referred to as "the Conduct Rules."
The Conduct Rules apply regardless of the location of the conduct or of any party to the agreement. Vertical agreements (agreements made by two or more undertakings, each operating at a different level of the production or distribution chain) are not exempted although the Government has indicated its intention for the Commission to issue block exemption order(s) to exempt certain types of vertical agreements. De minimis arrangements are set out in the Ordinance to exclude small and medium-sized enterprises from the Conduct Rules:
- First Conduct Rule: where the combined turnover of the subject undertakings does not exceed HK$200 million
- Second Conduct Rule: where the undertaking's annual turnover does not exceed HK$40 million
Agreements made for complying with a legal requirement and undertakings that are entrusted by the Government with the operation of services of general economic interest are both excluded from the Conduct Rules. Agreements enhancing economic efficiency which also satisfy certain conditions are exempted.
The Merger Rule
The rule (currently limited to telecommunications carrier licenses) prohibits certain mergers which have or are likely to have the effect of substantially lessening competition in Hong Kong. To give effect to the Government's stated intention of not introducing a cross-sector merger regulation at this stage, merger activities are carved out from the application of the Conduct Rules.
Institutional Framework—Competition Commission and Competition Tribunal
The Commission will be established as an independent statutory body to investigate and prosecute violation before the Competition Tribunal (the Tribunal). It is also responsible for adopting guidelines, issuing block exemptions and promoting public understanding of competition law. The Communications Authority has concurrent jurisdiction with the Commission to investigate cases in the telecommunications and broadcasting sectors.
To assist the Commission with its investigatory role, the Ordinance confers on the Commission a wide range of investigation and enforcement powers, such as:
- Powers to require production of documents and information
- Powers to hear any person
- Powers to apply for a search warrant
- Powers to enter into leniency agreements in exchange for a person's cooperation in investigation or proceedings
Non-compliance with the Commission's investigation power in absence of reasonable excuse is an offence.
Judges of the Court of First Instance will sit on the Tribunal to hear and adjudicate competition cases brought by the Commission, private actions and reviews of reviewable determinations of the Commission. Certain determinations of the Tribunal, including decisions as to the amount of any pecuniary penalty, are reviewable by the Court of Appeal. Court leave is required for appeal against interlocutory decisions. A broad range of remedies can be imposed by the Tribunal, including:
- Powers to order a pecuniary penalty of up to 10 percent of annual turnover obtained in Hong Kong for each year of contravention with the maximum of three years if contravention occurs in more than three years
- Powers to restrain a person from proceeding with a merger and other injunctive relief
- Powers to make a disqualification order against a person from acting as a director or being involved in the management of a company for a period of time not exceeding five years
- Powers to declare an agreement to be void or voidable or award damages
A person who has suffered loss or damage as a result of a contravention of one of the Conduct Rules has a right to bring a "follow-on action" against the infringer. The Ordinance excludes all standalone private actions, whether under the common law or any enactment, if a contravention of a Conduct Rule is pleaded as a cause of action.