The implementation of the new Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the Competition Ordinance) on 14 December 2015 will mark the first time that Hong Kong has a general and cross-sector competition law.
The Competition Ordinance was enacted on 14 June 2012 as a general and cross-sector competition law to curb anti-competitive conduct, and will come into full effect on 14 December 2015. In this issue, we will discuss the investigation and enforcement powers of the competition authorities in Hong Kong.
Who is in charge?
The Competition Ordinance provides for judicial enforcement through the Competition Commission and the Competition Tribunal. The Competition Commission and the Communications Authority1 are the investigation authorities responsible for and tasked with, inter alia, investigating competition-related complaints and bringing enforcement actions before the Competition Tribunal in respect of anti-competitive conduct, whereas the Competition Tribunal is responsible for adjudicating competition cases brought by the Competition Commission, private actions, as well as reviews of determinations of the Competition Commission. Any appeals in relation to decisions of the Competition Tribunal on competition matters will be referred to the Court of Appeal and/or the Court of Final Appeal.
Typical phases of investigation
The Competition Commission may launch an investigation on an alleged infringement of the Competition Rules (i.e., the First Conduct Rule, the Second Conduct Rule and/or the Merger Rule) either: (i) on its own initiative; or (ii) where information about a possible infringement is provided to the Competition Commission by another party. The sources of such information may include:
- complaints or queries made by the public;
- the Competition Commission's own research and market intelligence gathering;
- referrals by the Government, the courts or other statutory bodies or authorities; and
- whistle-blowing by a cartel member or a former employee.
The Competition Commission will generally carry out the investigation in two phases:
- initial assessment phase; and
- investigation phase.
Phase 1 – Initial Assessment Phase
During this phase, the Competition Commission does not start with a fixed view on whether a contravention of the Competition Rules has taken place. In determining whether there is reasonable cause to suspect an infringement and whether the matter warrants further investigation, it may seek information on a voluntary basis, for example by contacting parties by telephone or in writing, and meeting and interviewing persons who may have knowledge of the conduct.
The Competition Commission will then determine whether or not to further investigate the matter by taking into account the following factors2:
- the specific facts of the relevant case
- availability of evidence suggesting an infringement of the Competition Ordinance
- the potential impact of the alleged conduct on competition and consumers
- the Competition Commission's enforcement strategy, priorities and objectives, and other matters currently under its and the courts' consideration
- the likelihood of a successful outcome resulting from further investigation
- whether the resources that would be used for further investigation would be proportionate to the expected public benefit
Possible outcomes of the Initial Assessment Phase
There are four possible outcomes of the Initial Assessment Phase – the Competition Commission may:
- take no further action;
- commence an investigation (see Phase 2 – Investigation Phase below);
- address the issue through alternative
means, such as:
- referring the matter to another agency; or
- conducting a market study;
- accept a voluntary resolution of the matter, i.e., a commitment under section 60 of the Competition Ordinance (see below).
Phase 2 – Investigation Phase
If the Competition Commission proceeds to the Investigation Phase, it will have formed a view that there is reasonable cause to suspect an infringement of the Competition Rules.
The table below summarises the Competition Commission's investigation powers.
|Power to obtain documents and information||
|Power to obtain search warrants (i.e. dawn raids)||
Criminal consequences for non-compliance with the Competition Commission's investigation powers
The Hong Kong courts have powers to impose criminal sanctions on undertakings and individuals for non-compliance with the investigation powers of the Competition Commission:
- Failure to comply with a requirement or prohibition imposed under the Competition Commission's investigation powers3- the maximum penalty for a conviction on indictment is a fine of HK$200,000 and imprisonment for up to 1 year.
- Destruction/falsification/concealing of documents4, obstruction of search5, provision of false or misleading documents/information6 and disclosure of confidential information received from the Competition Commission7 – the maximum penalty for a conviction on indictment is a fine of HK$1 million and imprisonment for up to 2 years.
Possible outcomes of the Investigation Phase
Where the Competition Commission determines that contravention of a Competition Rule has occurred, it has a range of options at its disposal. These include:
- No further action – however, this does not prevent the Competition Commission from revisiting the matter at a later date;
- Voluntary resolution under section 60 of the Competition Ordinance (Section 60 Commitment) – the Competition Commission may accept a commitment from a person to take such action (or refrain from taking such action) as it considers appropriate to address its concerns about a possible contravention of a competition rule, and agree to terminate its investigation and not bring proceedings in the Competition Tribunal (or terminate such proceedings where already brought);
- Issue a warning notice – a warning notice will be issued where the Competition Commission has reasonable cause to believe that the First Conduct Rule has been breached, but the infringement does not involve "Serious Anti-Competitive Conduct"8. The warning notice will stipulate that contravening undertakings should cease the anti-competitive conduct within a specified period of time;
- Issue of infringement notice – an infringement notice will be issued when the Competition Commission has reasonable cause to believe that an infringement of (a) the First Conduct Rule involving "Serious Anti-Competitive Conduct"; and/or (b) the Second Conduct Rule9 has occurred. Whilst not bound to do so, the Competition Commission will generally offer the relevant undertaking an opportunity to comply with requirements of the notice within a specified period as a condition for not bringing proceedings in the Competition Tribunal; and
- Commencement of proceedings before the Competition Tribunal – the Competition Commission may initiate proceedings before the Competition Tribunal under sections 92, 94, 99 and/or 101 of the Competition Ordinance.
Other possible actions that may be taken by the Competition Commission include an application for a consent order from the Competition Tribunal, referral to a Government agency and further market studies.
Follow-on right of action
The Competition Ordinance allows a person who has suffered loss or damage as a result of any act that has been determined to be an infringement of a conduct rule to bring an action against (a) any person who has contravened or is contravening the rule; and (b) any person who is, or has been, involved in that contravention. In this regard, a "contravention of a conduct rule" includes an admission made in a section 60 Commitment that a person has contravened a conduct rule.
Currently, the Competition Ordinance does not provide for private "stand-alone" actions to be brought by persons for relief and remedies arising from particular conduct. The Hong Kong government will review the need for stand-alone rights of private action after the business community acquires more experience with the new competition regime.
This imminent implementation of the Competition Ordinance marks a significant step in the evolution of Hong Kong's fledgling antitrust regime. Multinational enterprises doing business in Hong Kong can no longer afford to dismiss the Special Administrative Region as a jurisdiction that has no competition regime or antitrust enforcement.
Understanding and complying with competition law principles is therefore more important than ever.
1. Under the Competition Ordinance, competition matters can be transferred between regulators with concurrent jurisdictions. In this regard, pursuant to Part 11 of the Competition Ordinance, the Communications Authority has been given concurrent jurisdiction with the Competition Commission to enforce the Competition Ordinance in respect of the telecommunications and broadcasting sectors, including merger and acquisition activities involving carrier licensees.
2. See Guideline on Investigations, paragraph 3.6
3. Section 52 of the Competition Ordinance
4. Section 53 of the Competition Ordinance
5. Section 54 of the Competition Ordinance
6. Section 55 of the Competition Ordinance
7. Section 128(3) of the Competition Ordinance
8. See What you need to know about Hong Kong Competition Law (Part 2): The First Conduct Rule ( http://www.cadwalader.com/uploads/cfmemos/694850f9f651213e78fe0d6443bd3593.pdf)
9. See What you need to know about Hong Kong Competition Law (Part 3): The Second Conduct Rule ( http://www.cadwalader.com/uploads/cfmemos/beb7bfc2b4e997b39c94f711b62ebfbc.pdf)