On 17 July, the Hong Kong Government published a Notice appointing 14 December 2015 as the date for the Competition Ordinance to be fully implemented. On 21 July, Hong Kong’s primary competition enforcement agency, the Competition Commission, set out its position on handling of competition matters ahead of full implementation. In this issue we explore these developments, what they mean for businesses in Hong Kong and what businesses need to do to prepare for implementation.
On 17 July, the Hong Kong Government gazetted the Competition Ordinance (Commencement) (No.2) Notice 2015 (“the Notice”). The Notice appoints 14 December 2015 as the day upon which the provisions of the Hong Kong Competition Ordinance (“the Ordinance”) will come into force. The Notice will be tabled at the Legislative Council for negative vetting on 14 October 2015. Therefore, in the absence of significant filibustering, the Competition Ordinance (“the Ordinance”) is expected to come into force on the day appointed in the Notice.
As regular readers of our briefings will know, the Ordinance introduces cross-sector competition law rules, prohibiting:
- agreements between businesses which have the object or effect of preventing, restricting or distorting competition in Hong Kong (“the First Conduct Rule”); and
- companies with market power, including monopolists, abusing their power (“the Second Conduct Rule”).
There are very severe penalties for breach of either conduct rule, including financial penalties of up to 10% of Hong Kong annual revenues for each year of infringement - up to a maximum of three years.
The Hong Kong Government has also published the Competition (Fees) Regulation 2015. The Regulation, which is also tabled for negative vetting on 14 October, sets out the fees payable for applications for various types of decision by the Competition Commission (“the Commission”) or the Communications Authority, as follows:
- an application for a decision as to whether an agreement is excluded from the First Conduct Rule because it enhances overall economic efficiency - HK$100,000;
- all other types of application for a decision as to whether a particular agreement is excluded from the First Conduct Rule, or as to whether an agreement is excluded from the Second Conduct Rule – HK$50,000;
an application for the issue of a block exemption order or an application for clearance of a merger – HK$500,000.
Handling of competition matters in the interim
With many businesses having already commenced compliance reviews and the Commission’s guidelines offering only very general guidance, companies are looking to the Commission for more specific guidance in advance of full commencement. Accordingly, the Commission made an announcement, shortly after publication of the proposed commencement date, setting out how it would handle competition matters prior to the Ordinance coming into force.
Applications for decisions
Sections 9 and 24 of the Ordinance, once in operation, will allow parties to apply to the Commission for a decision as to whether or not an agreement or conduct in question is excluded from the application of Conduct Rules. Section 15 will further empower the Commission to grant block exemption orders.
Prior to commencement, the Commission has no power to make such decisions. Therefore, the Commission will not accept formal applications for a decision, or for a block exemption order, before the date of full commencement. However, the Commission has indicated that it is prepared, subject to available resources, to enter into preliminary discussions with parties in advance of full commencement, if such work would assist the Commission to deal with the application more expeditiously when the Commission receives a formal application following full commencement of the Ordinance.
Compliance with the Conduct Rules
With the full commencement date now in sight, the Commission has reminded the business community to review their agreements and practices to ensure that they do not contravene the Ordinance. The Commission has also indicated that, in the period leading up to the full commencement, it will, in appropriate cases, contact businesses and relevant parties directly if it considers that their conduct or practices may be considered anti-competitive.
The Government’s announcement provides business operating in Hong Kong with long-awaited clarity on the timing of implementation. The Government and Commission’s expectation is that this announcement will raise awareness of the requirements of the Ordinance in the five months leading up to implementation.
The Ordinance contains no transitional provisions, affording businesses time after implementation to get their agreements and practice in order and, while the Commission’s announcement that it will engage with parties in preliminary discussions in relation to applications for decisions in advance of full implementation is welcome, it is clear that the Government and the Commission expects businesses to have put their houses in order prior to full implementation. Therefore, with less than five months to likely implementation, it is crucial businesses consider the compliance of their agreements and practices with the conduct rules, the likely risk of enforcement and, where necessary, bring them into compliance.