On 23 November 2012, the Hong Kong government announced the timeframe in which parts of Hong Kong's first cross-sector competition law, the Competition Ordinance ("CO"), will be implemented. Provisions concerning the establishment of the Competition Commission ("Commission") will be implemented on 18 January 2013 and provisions for the establishment of the Competition Tribunal ("Tribunal") will be implemented on 1 August 2013. This client advisory briefly summarises some of these key provisions.
As set out in our previous client advisory, the CO contains broadly framed prohibitions against agreements and abuse of market power that prevents, restricts or distorts competition. The CO provides for the establishment of two new institutions, the Commission and the Tribunal.
The provisions for establishing and operating the Commission will be put into operation on 18 January 2013 and include the following sections:
- Part 9 details the establishment of the Commission as an entity, its functions, powers and relationship to the government. Schedule 5 contains the constitutional, administrative and financial provisions pertaining to the running of the Commission.
- Sections 35, 38, 40 and 58 outline the Commission's role in governing competitive conduct, including its power to (i) issue guidelines to interpret and give effect to the conduct rules and exemption orders, (ii) indicate the manner and forms for complaints, and (iii) specify the procedures to be followed in deciding whether or not to investigate breaches and the procedure to be followed during such investigation. These provisions are very broadly framed therefore, guidelines issued by the Commission under these sections will provide clarity on the scope of the legislation and its impact on businesses and their market behaviour.
- Part 8 outlines the protection given to confidential information which may come into the possession of the Commission and how and when disclosure is to take place. This part not only protects confidential information disclosed to the Commission but it also protects confidential information disclosed by the Commission to third parties. Unauthorised disclosure and failure to prevent the unauthorised disclosure of confidential information is an offence under the CO.
- Under Part 6 of Schedule 7, the Commission is empowered to issue guidelines as to how it will interpret and give effect to the provisions of Schedule 7 that sets out the Merger Rule. The Merger Rule prohibits a merger if it has or is likely to have the effect of substantially lessening competition in Hong Kong. Currently, the Merger Rule only applies to mergers involving a holder of a carrier license granted by the Telecommunications Authority. However, the merged entities, with an increased market share, would be subject to regulation under the Second Conduct Rule if the merger results in a substantial degree of market power. This Merger Rule may also be expanded to cover other industries in the future.
Part 10 of the CO will be put into operation on 1 August 2013. This part covers the establishment of the Tribunal which will adjudicate claims, hear appeals of Commission decisions and try follow-on actions by private claimants.
Penalty for a breach of CO prohibitions is 10% of the infringer's annual Hong Kong turnover for each year of infringement for up to three years. If infringement lasts more than 3 years, then the three years with the highest Hong Kong turnover would be used in calculating penalties. The CO has extra-territorial reach. Even if the wrongful conduct takes place outside Hong Kong, if its impact is on the marketplace within Hong Kong, the Commission will have authority over the actors.
Although the CO was passed by Hong Kong's Legislative Council in June, the November notice provides a time line for the effective implementation of the new law. After the Commission develops guidelines and the Competition Tribunal is established in August 2013, the government will have in place the necessary structure for enforcing the new competition law. In the interim, companies with activities affecting Hong Kong should keep watch for the publication of the new guidelines to ensure compliance.