Summary: December 2017 marked two years since the Hong Kong Competition Ordinance (the “Ordinance”) came into force. During 2017, the Hong Kong Competition Commission (the “Commission”) continued to propel the development of Competition Law in Hong Kong. This blog reviews some highlights of 2017 and explores some key trends to watch for in 2018 and beyond.
PART A – LOOKING BACK AT 2017 – FOUR KEY DEVELOPMENTS 1. Commission takes first cases in the Competition Tribunal
On 23 March 2017, the Commission brought the first ever proceedings to the Hong Kong Competition Tribunal (the “Tribunal”). The case was against five technology companies in relation to alleged bid-rigging activities on a tender for the supply and installation of a new IT server system and solution. The substantive hearing has been scheduled for fifteen days starting in late June 2018.
Five months later, the Commission took ten construction and engineering companies to the Tribunal for allegedly making and giving effect to a market sharing agreement in relation to the provision of renovation services in a public rental housing estate in Hong Kong.
The fact that both cases involve alleged contravention of the First Conduct Rule is no surprise. The majority of complaints the Commission has received since its implementation relate to alleged cartel conduct under the First Conduct Rule, and the fact that the Commission has brought these cases highlighted its efforts to clamp down on serious anti-competitive conduct in Hong Kong.
2. Competition Tribunal decision on privilege against self-incrimination
In October 2017, during pre-trial arguments in the technology case noted above, the Tribunal decided that statements made by employees during compulsory interviews conducted by the Commission under Section 42 of the Ordinance are admissible in proceedings against their employers.
The Tribunal held that only the person subject to the section 42 notice can rely on the privilege against self-incrimination. Therefore, when a section 42 notice is directed at an employee, the privilege will be of no assistance to their employer. That said, the Tribunal confirmed that a “person” can be a company. Therefore, if a section 42 notice is addressed to a company rather than an individual, then the company will be able to enjoy the benefits of the protection against self-incrimination.
3. Commission issues first block-exemption order
In August 2017, the Commission issued its first block-exemption order (the “Order”) under the Ordinance. The Order relates to vessel sharing agreements (“VSAs”) and arises from an application made by the Hong Kong Liner Shipping Association (“HKLSA”) shortly after the Ordinance came into force in December 2015. After consultation with the public and experts, as well as formal requests for further information, the Commission decided to exempt VSAs for a five-year period from 8 August 2017, with a review of the Order to be commenced no later than a year before it expires.
The Order applies if the parties’ combined market share is 40% or below, the VSAs do not involve an element of cartel conduct and the VSAs allow operators to withdraw without penalty.
The Commission opted not to exempt voluntary discussion agreements (“VDAs”) as the HKLSA had also requested. This was on the basis that the HKLSA could not demonstrate the required level of efficiencies for exemption. This is in contrast to the exemptions given in this respect by other jurisdictions such as the United States, Canada, Malaysia and Singapore, where the exemptions cover both VSAs and VDAs
4. Commission’s study into the auto-fuel market in Hong Kong
The Commission continued its examination of high-impact markets, using its market study powers. In May 2017, the Commission published its report on Hong Kong’s retail auto-fuel market. This followed earlier studies into aspects of the residential building renovation and maintenance market, which had also attracted significant criticism about the nature competition in that sector.
The price of auto-fuel in Hong Kong is one of the highest in the world. The retail fuel prices across different competitors are frequently the same. However, the Commission found no evidence of anti-competitive conduct between competitors in its studies, attributing the high and almost-identical price to the unique structural and behavioural characteristics of the auto-fuel market in Hong Kong.
To this end, the Commission put forward a number of recommendations to improve competition. This includes limited Government intervention in the shape of facilitating the introduction of more – and different – fuel options, providing and converting more sites for petrol filling stations, and exploring all structural reform options to the auto-fuel market.
PART B – WHAT SHOULD WE EXPECT IN 2018 AND BEYOND?
1. More actions to be taken to the Tribunal
Two years into the competition regime, we expect to see enforcement further accelerating. With the experiences of taking two cases to the Tribunal last year, it is widely expected that the Commission will be commencing more cases this year. We expect that new actions will continue to focus on serious cartel conduct under the First Conduct Rule.
In the meantime, we expect to see the Commission extending its effort in tackling suspected anti-competitive conduct in the construction and engineering, real estate and property management industries, which accounted for more than one-quarter of Commission cases in the previous year.
2. Increasing number of exemption applications and compliance initiatives
The issuance of the first block-exemption order by the Commission in 2017 is encouraging news for industries which have inherent concerns that their practices might contravene the Ordinance. An application was made in December 2017 by a number of financial institutions that are required to comply with the Code of Banking Practice (Code). The applicants seek confirmation on whether the First Conduct Rule applies to them giving effect to the Code.
Additionally, the Commission has been engaging with and educating various trade and professional associations to review their respective practices in Hong Kong since the passing of the Hong Kong Competition Law. To date, more than 20 trade and professional associations have removed their price restrictions or fee scales.
In 2018, as the competition law environment continues to mature, more exemption applications from different trade and professional associations can be expected. These organisations are also expected to make changes in compliance with the Ordinance, particularly those organisations whose public practices are placing them at high risk of breaching the Ordinance as the Commission is switching its light-touched approach to a harder one.
3. Commission to be given new information gathering powers?
While the Commission is aiming to conduct more studies into different markets in the coming years, in its report on the auto-fuel market, it raised concerns about the lack of power to compel parties to produce information when it is conducting such studies. The knock-on effect is that the Commission has to rely on the willingness of the relevant parties to participate.
At present, the Commission is one of the very few competition authorities which carry out market studies and which does not have any power to compel information to be provided by relevant parties. From its point of view, the Commission wants compulsory information gathering powers for conducting future market studies.
Granting such power to the Commission will allow it to undertake deeper analyses to the target markets and draw robust inferences from the information gathered, thus leading to positive changes to the target markets.
4. A move towards rights of private action?
A significant criticism of the Hong Kong competition law regime is the lack of private action rights. Currently, individual victims of anti-competitive conduct are barred from seeking damages unless the Commission first makes a contravention finding. That is, only so-called “follow on” actions are possible. This is evidenced in a recent decision of the Court of First Instance in Loyal Profit International Development Ltd v Travel Industry Council of Hong Kong where the judge decided that he had no jurisdiction to determine any infringement of the First Conduct Rule. This was an exclusive power for the Competition Tribunal under the current Competition Law regime.
The decision further confirms that victims may never be able to obtain remedies if the Commission does not begin investigation or find the alleged contravening conduct constitutes a breach of the Ordinance. As the CEO of the Commission, Brent Snyder, commented in the 2018 Manila Forum on Competition in Developing Countries recently, the lack of private action could potentially hinder the development of Hong Kong’s competition law landscape.
The circumstance could however change in the next few years. Both lawmakers and the Commission continue to explore the possibility of introducing a standalone private competition law regime so that individual victims do not need to rely on “follow-on” actions. This is certainly welcome and will enable the Hong Kong Competition Law regime to be on par with its international counterparts.