The Hong Kong Competition Ordinance - 14 December 2015, the D Day
15 December 2015
On 14 June 2012, the Hong Kong Legislative Council passed the first cross-sector competition law in Hong Kong, the Competition Ordinance (Ordinance). The Ordinance created the Competition Commission (the Commission), which investigates and enforces the Ordinance; and the Competition Tribunal (the Tribunal), which hears actions in respect of the Ordinance. Today, 14 December 2015, three and a half years after its enactment, the Ordinance enters fully into effect. Both the Commission and the Tribunal made clear that they are ready for action.
The sectors and behaviours in the line of fire
The Ordinance has parallels with other jurisdictions such as Australia, the European Union, Singapore and the United Kingdom. As is the case in other jurisdictions, the aim of the Ordinance is to prohibit and deter anti-competitive conducts that have the object or effect of preventing, restricting or distorting competition in Hong Kong. The Commission has made clear in its enforcement policy document of 19 November 2015 that anticompetitive arrangements between competitors on pricing, market or customer allocation, bid rigging or output restrictions, also called “cartels”, would be a priority in its enforcement. “Resale price maintenance” misconducts (RPM), by which suppliers of goods require or induce their independent intermediaries (such as distributors or retailers) to resell their products at a given or minimum resale price, will also be under scrutiny. Abuses of substantial market power by incumbent operators that would involve exclusionary behaviour seem to be a third priority for the Commission. These are usual suspects in other jurisdictions too.
See our alert of 1 December 2015 on the subject.
The Commission and its activities since 2014
So as to enable it to perform its duties, the Ordinance gives it a range of powers to investigate. Many of these powers have parallels to the powers given to other law enforcement agencies, with notable similarities to the investigative powers of the SFC.
- Statutory notices may be issued by the Commission to request information or answers to any questions relevant to the investigation.
- Interviews may be organised by the Commission to question any person in respect of the investigation.
- The Commission may search any premises without prior notice if it is relevant to the investigation. Searches, often called dawn raids, are conducted pursuant to warrants issued by the High Court of Hong Kong. During these dawn raids, subjects of an investigation must answer all questions from and submit all documents required by the Commission. Whilst conduct found to contravene the Ordinance does not constitute a criminal offence, failure to answer or submit documents required by the Commission does constitute a criminal offence punishable by significant fines and/or terms of imprisonment.
- Legal professional privilege is maintained under the Ordinance. The Commission is issuing a new policy on the way it will handle documents for which companies or individuals claim legal professional privilege status in particular during dawn raids. This policy is likely to play a key role considering that in Hong Kong communication with an in-house lawyer is protected.
- Self-incrimination: Persons are not allowed to refuse answering the Commission on the grounds that their answer would expose them to criminal or other penalties. The Tribunal will, however, not be able to use them as a basis for inflicting pecuniary sanctions.
- Guideline on the First Conduct Rule (i.e. on anticompetitive arrangements, including cartels and RPM);
- Guideline on the Second Conduct Rule (i.e. on abuses of substantial market power);
- Guideline on the Merger Rule;
- Guideline on Complaints;
- Guideline on Investigations; and
- Guideline on Applications (Applications) for a Decision under Sections 9 and 24 (Exclusions and Exemptions) and Section 15 (Block Exemption Orders).
The Competition Tribunal
- Pecuniary Penalties that can reach up to 10% of turnover of the undertaking.
- Disqualification Orders against persons, disqualifying them from acting as a director and other roles in respect of companies, for a period not exceeding 5 years.
- Other Orders listed in Schedule 3 of the Ordinance, including restraining dealing with property, appointing a person to administer the property, requiring the termination or modification of an agreement, declaring an agreement to be void or voidable, and payment on damages. These orders may be granted on an interim basis before proceedings in the Tribunal have concluded.
The proceedings in the Tribunal are quasi-judicial. The Tribunal consists of the judges of the Court of First Instance; Mr Justice Godfrey Lam was appointed the first President of the Tribunal.
The procedure to be followed in the Tribunal is set out in the Ordinance and the Competition Tribunal Rules. Practice Directions No. 1 and 2 relating to proceedings under the Ordinance has also been published. The Tribunal may decide its own procedures, generally following the procedure in the civil courts. The overriding principle is that the Tribunal will conduct its proceedings with as much informality as is consistent with attaining justice. This means that the Tribunal is likely to reject defences that appear to it to be purely technical arguments.
Two key specific Tribunal procedures are:
Tribunal is not bound by rules of evidence except when imposing pecuniary penalties. However, it is not entirely clear what standard of proof is to be applied in imposing these penalties.
- Discovery is more limited than civil proceedings. Automatic discovery does not apply. The Tribunal has a wide discretion to make or refuse an order having regard to all the circumstances of the case, including: (a) the need to secure the furtherance of the purposes of the Ordinance; (b) whether the information in the document is confidential; (c) balance between the interests of the parties and other persons; and (d) the extent to which the document is necessary for the fair disposal of the proceedings.