September 17, 2021

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Competition law regime in Hongkong

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This article has been written by Nikhil Shinde, pursuing the Certificate Course in Competition Law, Practice And Enforcement from LawSikho.

Table of Contents

  • In a free-market economy, businesses compete with each other to offer the best range of products at the best price. A competitive market leads to better prices, products, and choices for everyone.
  • The competition also drives efficiency and innovation and directs businesses to meet consumer demands by providing the right products at the right price and quality.
  • Competition Law in Hongkong called The Competition Ordinance (Ordinance) was passed by the Legislative Council in June 2012 and was set to commence full operation on 14 December 2015.
  • In the ordinance, there are three rules which prohibit restriction on competition. they are: –
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  • The first conduct rule and the second conduct rule apply to all sectors of the Hong Kong economy. 
  • At present, the Merger Rule only applies to mergers involving carrier licence holders within the meaning of the Telecommunications Ordinance (Cap 106).

1. The first conduct : agreements and concerted practices

  • The first conduct rule of the competition ordinance prohibits an undertaking (this includes any entity, including natural persons, engaged in economic activity).
  • From making or giving effect to an agreement. 
  • Engaging in a concerted practice. 
  • As a member of an association of undertakings. 
  • Making or giving 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. 
  • Price fixing, market sharing, output restriction, and bid-rigging are categorised as serious anticompetitive conduct.

2. The second conduct : abuses of market power

  • The second conduct rule of the competition ordinance prohibits an undertaking that has a substantial degree of market power in a market from abusing that power by engaging in conduct that has as its object to effect the prevention, restriction, or distortion of competition in Hong Kong such as 
  • predatory pricing, 
  • tying, 
  • bundling, 
  • refusal to deal,
  • margin squeeze practices, and 
  • exclusive dealing.

3. The merger rule : mergers and acquisitions in the telecommunications sector

  • The merger rule of the competition ordinance prohibits mergers and acquisitions that have, or are likely to have, the effect of substantially lessening competition in Hong Kong.
  • The merger rule only applies to mergers involving telecommunications carrier licensees.

4. Sanctions

  • The competition law regime in Hong Kong adopts a judicial enforcement model, where sanctions and remedies can only be imposed by the Competition Tribunal. 
  • The Tribunal may impose a wide range of sanctions on undertakings (including individuals) found to have contravened the first or second conduct rule or for their involvement in such contraventions. 
  • These include pecuniary penalties of up to 10% of the total turnover obtained in Hong Kong for each year of infringement, up to a maximum of three years.
  • Disqualification orders can also be imposed on directors for a period of up to 5 years.

  • The competition ordinance has extraterritorial reach, such that it applies to activities conducted outside Hong Kong if they have the object or effect of preventing, restricting, or distorting competition in Hong Kong.

1. Public and private enforcement

  • Under the competition ordinance, the competition commission and the communications authority have the power to investigate. 
  • Adjudicative powers are conferred on the courts, principally the Competition Tribunal.
  • The competition commission is the principal competition authority responsible for enforcing the competition ordinance through enforcement proceedings before the Competition Tribunal. 
  • It comprises 5 to 16 members appointed by the Chief Executive in Council. The Commission has the power to investigate, issue block exemption orders and decisions confirming individual exemption/exclusion status, issue implementation guidelines and accept commitments, and issue infringement notices.
  • The communications authority is the competition authority responsible for enforcing the competition ordinance in the telecommunications and broadcasting sectors. It has the same powers as the commission under the ordinance.
  • The Competition Tribunal is a specialised court within the court of the first instance with the power to impose sanctions and order redress in cases brought before it by the commission or the communications authority. 
  • The Tribunal also hears appeals against both competition authorities’ decisions and hears follow-on private damages actions concerning contraventions of the conduct rules.
  • In Hong Kong, private litigants can only bring “follow-on” actions for damages suffered as a result of the conduct in breach of the competition ordinance after the conduct has been ruled as a contravention of the competition rules by the Competition Tribunal.

2. Leniency

  • The commission has adopted a leniency regime where undertakings and individuals, in exchange for their cooperation in a cartel investigation, can earn immunity from prosecution by the commission, and thus avoid the risk of pecuniary penalties. 
  • The first leniency applicant to report a cartel before and after the commission opens an initial assessment or investigation is referred to as a “Type 1” and “Type 2” applicant respectively.
  • Type 1 applicants will be protected from potential follow-on actions.
  • Type 2 applicants will be required to admit to a contravention of the first conduct Rule when the victims of the cartel bring follow-on actions. 
  • So far, the communications authority has not adopted a leniency policy.

3. Investigation powers

  • The commission and the communications authority have wide-ranging investigation powers, including :
  • the power to request the production of information and documents, 
  • the power to require the attendance of relevant persons at hearings before it and after obtaining a warrant from a judge of the Court of First Instance, 
  • the power to enter and search premises.

1. Public and private enforcement

 Cartel and bid-rigging

  • Since the entry into force of the competition ordinance, the enforcement actions brought by the Competition Commission before the Competition Tribunal have focused predominantly on cartel and bid-rigging activities. 
  • The Commission has also increasingly sought to take enforcement actions and impose individual liability against representatives of companies, and facilitators of anti-competitive activities in recent proceedings.

Alternative enforcement tools

  • The Commission has increasingly used non-judicial enforcement tools to resolve investigations that do not involve hard-core cartel conduct.
  • The Commission accepted to close two investigations in return for commitments made by the companies to address the antitrust concerns raised by the Commission. 
  • For example, online travel agents have committed to removing “most favoured nation” clauses in their agreements with hotels in Hong Kong, the terminal operators who formed the Hong Kong Seaport Alliance have committed to keeping prices and services at pre-alliance levels. 
  • The Commission also makes increasing use of processes under the competition ordinance alleviating the need for heavy court procedures, such as infringement notices or agreed to statements of facts.

2. Private enforcement

  • In Hong Kong, private claims for damages suffered as a result of the breach of the competition rules are only allowed if the Competition Tribunal has determined that there has been a contravention of the conduct rules. Competition law breaches can also be used as a defence in civil litigation.
  • For instance, Meyer, a wholesaler of diesel oil that was sued for non-payment of supplies by its supplier, alleged that its supplier was involved in a price-fixing cartel for the supply of industrial diesel oil as a reason for refusing to pay.

Year

Type

Nature

Details

2017

Block Exemption

Liner Shipping

A block exemption order for vessel sharing agreements (VSAs) between liner shipping companies to be excluded from the application of the first conduct rule was granted for a duration of five years.

2018

Decision

Banking Code

Application for an individual exemption from the application of the first conduct rule made by fourteen banking institutions in respect of the code of banking practice was denied.

2019

Decision

Pharmaceutical

Application for an individual exemption from the application of the first conduct rule made by the Hong Kong Association of the pharmaceutical industry in relation to a proposed pharmaceutical sales survey was denied.

2017

Court Enforcement

IT Sector Bid-Rigging

Defendants entered into bid-rigging agreements in a tender for the IT project.

Four out of five defendants were found to have contravened and were liable to pecuniary penalties ranging from HK$187,740 to HK$2,730,000.

2017

Court Enforcement

Housing Decorators Cartel

Housing decorators allocated customers and coordinated prices for public housing projects.

All ten defendants were found to have contravened, with fines ranging from HK$132,000 to HK$740,000.

2018

Court Enforcement

Housing Decorators Cartel

Three out of five defendants have settled their case by disposal of proceedings by consent, sanctions yet to be decided.

2019

Court Enforcement

Housing Decorators Cartel

Six respondent companies and three individuals admitted liability.

The six respondent companies were sanctioned with fines ranging from HK$330,000 to HK$598,000, while the two individuals were fined HK$200,000 and HK$600,000.

The remaining individual was disqualified as a director for 22 months.

2020

Commitment

Online Booking MFN Clauses

Online travel agents committed to removing “most favoured nation” clauses in their agreements with hotels in Hong Kong.

2020

Commitment

Port Terminal Operators Alliance

The port terminal operators forming the Hong Kong Seaport Alliance committed to keeping prices and services at pre-alliance levels.

2020

Court Enforcement

IT Sector Price-Fixing

Two defendants exchanged future price-sensitive information and coordinated their return bids.

Both defendants settled the case by summary procedure.

Remedies include a fine of around HK$37,000, the requirement to implement a competition compliance policy, and the requirement to provide compulsory competition training to employees.

2020

Court Enforcement

Textbook Cartel

The Commission alleges that three companies and one individual engaged in price-fixing, market sharing, or bid-rigging in relation to sales of textbooks to students attending primary and secondary schools in Hong Kong.

The proceedings are ongoing.

2020

Court Enforcement

Medical Gas Supplies

The Commission alleges that the defendant company, a supplier of medical gases to hospitals, holds a substantial degree of market power and abuses such power by ceasing or limiting supplies to a downstream competitor on the related market for maintenance of medical gas pipeline systems. 

The proceedings are ongoing.

2021

 

Tourist Attractions & Transportation Tickets Cartel

The Commission issues infringement notices and alleges that six hotel groups and a tour counter operator for facilitating a cartel arrangement between two competing travel service providers. 

The case is settled through commitments by the parties admitting the contravention of the First Conduct Rule, and committing to cease the anti-competitive conduct and to appoint an independent competition law compliance advisor.

Despite being in the midst of a global pandemic, the latest policies and judgments laid down by the commission and the tribunal in the past two years show that Hong Kong’s Competition law regime is potent and progressive. It is hoped that continuing development and enforcement action will promote a competitive business landscape in Hong Kong, as well as deter anti-competitive behaviour more effectively and efficiently to protect consumers from predatory business practices. 


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