The Competition Ordinance (Cap. 619) came into force in Hong Kong on 14 December 2015. The Competition Ordinance aims to prohibit conduct that prevents, restricts, or distorts competition in Hong Kong and prohibits mergers that substantially lessen competition in Hong Kong.
On 23 March 2017, the Competition Commission (the “Commission”), an independent statutory body established under the Competition Ordinance, commenced enforcement proceedings in the Competition Tribunal for the first time since the Competition Ordinance came into force. The proceedings are brought against five information technology companies in relation to a tender issued by a social services organization (YWCA) in July 2016. The contract in question was for the supply and installation of a new IT server system. Relying on the email messages and WhatsApp messages exchanges between the parties, the Commission alleges that the information technology companies colluded by engaging in bid-rigging, which involved the submission of “dummy” bids by certain parties, contravening the First Conduct Rule of the Competition Ordinance.
The First Conduct Rule prohibits anticompetitive agreements and concerted practices and decisions. Pursuant to the First Conduct Rule, an undertaking must not: (a) make or give effect to an agreement; (b) engage in a concerted practice; or (c) as a member of an association of undertakings, make or give effect to a decision of the association, if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong. Bid-rigging is a conduct that contravenes the First Conduct Rule. Bidrigging occurs when, without the knowledge of the person calling for bids or requesting a tender, two or more competitors enter into an agreement whereby one or more of the competitors agrees not to submit a bid or tender (i.e. not to compete), allowing one of the cartel members to win the bid or tender. Bid-rigging can take a number of forms, including, bid suppression (i.e. competitors agree not to bid or withdraw their bids), cover bidding (submit a bid with less attractive terms than the bid of the designated winner), or bid rotation (competitors agree to take turns at being the winning bidder on a series of contracts).
Generally, if the Commission has reasonable cause to believe that (a) a contravention of the First Conduct Rule has occurred; and (b) the contravention does not involve “serious anti-competition conduct”, the Commission must first issue a warning notice, which gives the parties an opportunity to cease the anti- APRIL 2017 - 5 - competitive practice, before commencing proceedings in the Competition Tribunal. “Serious anti-competition conduct” means any conduct that consists of any of the following or any combination of the following: (i) fixing, maintaining, increasing, or controlling the price for the supply of goods or services; (ii) allocating sales, territories, customers or markets for the production or supply of goods and services; (iii) fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services, and (iv) bid-rigging practices. Since bid-rigging is considered to be a form of “serious anti-competitive conduct” under the Competition Ordinance, the Commission may commence proceedings in the Competition Tribunal directly without first issuing a warning notice.
If the Competition Tribunal finds that there is a contravention of a competition rule stipulated under the Competition Ordinance, it may make orders including: (a) imposing a pecuniary penalty; (b) disqualifying a person from acting as a director of a company or taking part in the management of a company; (c) prohibiting an entity from making or giving effect to an agreement; (d) terminating or modifying an agreement; and (e) requiring the person to compensate any person who has suffered loss or damage.
During the first year after the Competition Ordinance came into force, the Commission received around 1,900 complaints and inquiries. Over 50% were relating to the violation of the First Conduct Rule with cartel conduct and bid-rigging being the major concern. The Commission considers bidrigging to be a matter of grave public concern because of its potential to cause significant harm to consumers and the economy as a whole. The Chairperson of the Commission, Ms. Anna Wu, has commented that combatting bid-rigging is a major enforcement priority of the Commission. The Commission launched the “Fighting BidRigging Cartels” Campaign in May 2016 to raise awareness of bid-rigging as well as to educate on how to detect and prevent bidrigging. The Commission is committed to using the full extent of its powers to combat bid-rigging and to work closely with other law enforcement agencies and public bodies to ensure a coordinated and effective approach to tackling bid-rigging cartels in Hong Kong.