7 December, 2015
Having spent more than three years on the Hong Kong statute books, there is now just one week to go until the Hong Kong Competition Ordinance ("Ordinance") comes into full force on 14 December 2015. Hong Kong businesses therefore have a very narrow remaining window in which to make any necessary amendments to their agreements and conduct to ensure that they are in compliance with the cross-sector competition law.
One type of conduct that has received significant coverage in recent public statements by Hong Kong Competition Commission ("HKCC") officials is Serious Anti-Competitive Conduct ("SACC"). SACC represents the key 'cardinal sins' that Hong Kong businesses should avoid under the Ordinance. In its Guidelines accompanying the Ordinance, the HKCC has interpreted SACC to include, in particular, cartel arrangements that seek to fix prices, share markets, restrict output or rig bids. In addition, the HKCC has specified that, in certain circumstances, resale price maintenance may amount to SACC and has provided other hypothetical examples of conduct that may amount to SACC (such as collective boycotts and information exchanges between competitors).
Two particular consequences flow from a categorisation of conduct as SACC: (i) the HKCC can institute proceedings before the Competition Tribunal without first issuing a Warning Notice to the company; and (ii) the general exclusion under the Ordinance for agreements of lesser significance does not apply. As such, a classification of conduct as SACC has significant procedural and practical implications.
Therefore, during this final countdown to full implementation of the Ordinance, Hong Kong businesses should avail of the remaining opportunity to ensure that their employees are familiar with the concept of SACC under the Ordinance and, if necessary, to amend their current agreements and practices accordingly.
1. Serious Anti-Competitive Conduct – Ordinance
Under the Ordinance, SACC is considered to consist of any of (or a combination of) price fixing, market allocation, output limitation or bid-rigging conduct. Pursuant to the Ordinance, SACC corresponds broadly to the traditional definition of hard-core cartel conduct in other jurisdictions. However, as discussed in further detail below, the HKCC has in its Guideline on the First Conduct Rule ("FCR Guideline"), interpreted the definition of SACC expansively to encompass other types of conduct.
As noted above, the Ordinance provides that where conduct amounts to SACC two significant consequences will follow: (i) the HKCC may institute proceedings before the Competition Tribunal without first issuing a Warning Notice to the company; and (ii) the general exclusion under the Ordinance for agreements of lesser significance will not apply in respect of the conduct.
2. Serious Anti-Competitive Conduct – HKCC Guidelines
The HKCC issued the final version of the Guidelines accompanying the Ordinance, including the FCR Guideline, on 27 July 2015. While the Competition Tribunal and other courts will be the ultimate arbiters of the Ordinance, the FCR Guideline sets out how the HKCC intends to interpret and enforce the First Conduct Rule, thus providing invaluable guidance for Hong Kong businesses on how to assess their conduct and the types of behaviour which the HKCC considers to contravene the Ordinance.
Unsurprisingly, hard-core cartels (i.e. price fixing, market sharing, bid rigging and output limitation arrangements) feature heavily in the HKCC's coverage of SACC in the FCR Guideline. Indeed, the HKCC's Enforcement Policy which was published on 19 November 2015 also identifies cartel conduct as a key enforcement priority for the HKCC and the HKCC's Leniency Policy (published on the same day) applies only to cartel conduct, indicating that the break-up of cartel conduct in Hong Kong represents a key policy objective for the HKCC. Therefore, businesses should take particular care to avoid engaging in any type of cartel conduct with competitors.
Other examples of horizontal arrangements which have been specifically identified in the FCR Guideline as potentially amounting to SACC under the Ordinance include: collective boycotts, information exchange arrangements between competitors, discriminatory certification schemes and certain joint selling arrangements (in particular those arrangements pursuant to which a joint venture serves as a vehicle for price fixing, output limitation or market allocation by the parties). As such, the FCR Guideline is arguably broader in scope than the Ordinance.
Indeed, the classification of conduct as SACC is not limited solely to horizontal agreements. While the HKCC considers that, generally speaking, vertical arrangements are unlikely to be considered as SACC, it has mentioned specifically in the FCR Guideline Resale Price Maintenance ("RPM") as one example of a vertical agreement which may amount to SACC in certain circumstances. As previously noted (see our previous e-bulletin here), the HKCC appears to have considered carefully how it intends to police RPM during its preparation of the FCR Guideline before concluding that, in certain circumstances, RPM can constitute SACC. In so doing, the HKCC has interpreted the concept of 'price fixing' under the Ordinance in a broad manner and confirmed that the ambit of SACC can extend to vertical arrangements. In light of this classification of RPM under the FCR Guideline, Hong Kong businesses should scrutinise very carefully their distribution and supply arrangements to ensure that they do not contravene the Ordinance.
The consideration of whether conduct amounts to SACC does not form part of the determination of whether that conduct infringes the First Conduct Rule. Therefore, the HKCC will first consider whether conduct contravenes the First Conduct Rule and will then proceed to assess whether the infringing conduct amounts to SACC. As such, where conduct is classified as SACC it will be categorised as an even more egregious breach of the Ordinance, with the attendant procedural and practical consequences outlined above.
3. Implications for business
As noted above, SACC represents the key 'cardinal sins' that Hong Kong businesses should avoid under the First Conduct Rule.
During this final countdown to full implementation of the Ordinance, businesses should take advantage of their last opportunity to familiarise themselves with the concept of SACC under the Ordinance and, where necessary, to amend their current agreements and/or practices.
Training on the concept of SACC should also form a key element of competition law compliance programmes.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills
mark.jephcott@hsf.com
