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11 August, 2018
December 2018 marks the third anniversary of the Hong Kong Competition Ordinance, which is set to be reviewed in terms of its effectiveness. In this article, we look at some recent developments that might be considered in the upcoming review.
Private action for damages
The Competition Ordinance does not set out a right for private claimants to bring stand-alone actions for damages. It only provides the right to bring follow-on actions before the Hong Kong Competition Tribunal (the “Competition Tribunal”), meaning that currently, an infringement decision issued by the Hong Kong Competition Commission (the “HKCC”) is required before private enforcement action can be taken.
However, the transfer of a case in late July 2018 from the Hong Kong High Court to the Competition Tribunal has raised a question of whether private actions in Hong Kong could be brought in the absence of an HKCC decision. The case involves a contractual claim by Taching Petroleum alleging that Meyer Aluminium failed to pay for a supply of industrial diesel. Meyer’s sole defence is that Taching Petroleum colluded and fixed prices with its competitor, Shell.
At this stage, the order by the Court merely gives Meyer the right to defend itself on competition law grounds; it does not set out a right to found a cause of action. It remains to be seen whether this development will pave the way for wider changes to the Competition Ordinance through the upcoming Government review – private enforcement is a key feature of other developed competition law systems.
Greater penalties for competition law infringements
On 15 July 2018, HKCC Chairwoman Anna Wu stated in a television interview with local broadcaster TVB that the HKCC is considering strengthening deterrence against anticompetitive conduct. Wu commented that some companies are unwilling to cooperate because: (1) they don’t want to make enemies by reporting other businesses; and (2) penalties are not very heavy. Under the current system, companies can be fined up to 10% of Hong Kong turnover for each year in which the infringement occurred (for up to three years) and directors can face disqualification orders for up to five years.
Chairwoman Wu suggested that stronger deterrence is required, including individual penalties against the heads of companies and/or those involved in an infringement. According to public sources, Wu repeated this view at a conference in Beijing in August 2018 which was held to mark the 10th Anniversary of the Anti-Monopoly Law in China (the “Beijing Conference”). Wu’s sentiment is in line with previous statements made by HKCC CEO Brent Snyder who appears keen to pursue individual sanctions. We watch with interest to see whether the upcoming review of the Ordinance touches on this issue.
Auto-fuel market
On 18 July 2018, Hong Kong’s Environment Bureau rejected most of the HKCC’s recommendations to increase competition in the auto-fuel market, which the HKCC studied in May 2017. Some of the rejected recommendations include: re-introducing 95 RON gasoline (currently only 98 Ron gasoline is available); considering non-price factors in awarding tenders for gas station sites; and long term structural reform of the market (such as various interventions at the terminal storage and alternative source of auto-fuel supply). However, in order to improve competition, the Bureau has stated that it will split some of the larger gas station sites into smaller ones, and introduce measures to facilitate the conversion of private land to be used as sites for additional gas stations.
When it published the May 2017 auto-fuel market report, the HKCC commented that future market studies would be improved if the HKCC had the power to compel companies to produce documents and information. Market studies are now an increasingly common feature of other major competition law systems – it remains to be seen whether the HKCC will be granted such powers.
First case in Competition Tribunal
In June 2018, the HKCC brought its first case to trial before the Competition Tribunal. The case relates to a lawsuit filed by the HKCC against BT Hong Kong, Nutanix Hong Kong, SiS International, Innovix Distribution and Tech-21 Systems. The HKCC alleges that the companies rigged bids in relation to a tender to install a new computer server held in 2016 by the Young Women’s Christian Association (YWCA).
A key argument advanced in the trial is that the YWCA knew that the bidders had colluded during the bidding stage. The impact of this argument is that, if successful, the conduct would not be classified as “Serious Anti-Competitive Conduct”, and so the HKCC should have issued a warning notice asking for the conduct to be remedied before taking the case to the Tribunal.
Another key argument is that some of the bidders had a supplier-distributor relationship (e.g. Nutanix and its distributors, BT and Innovix). The argument is that such vertical agreements are incapable of amounting to bid rigging restrictions by object (i.e. restrictions that do not require the HKCC to prove any effects).
Innovix and Tech 21 have also argued that their bids were genuine, while SiS has argued that the bid rigging was undertaken by an unauthorised employee. The trial is adjourned until 17 September 2018.
The HKCC is also prosecuting a second case involving allegations of market sharing and price fixing by 10 decorating companies in relation to a block of flats in the Kwun Tong district.
General developments
According to public sources, the HKCC will hold two seminars in September aimed at policymakers – one targeting agencies such as the Securities and Futures Commission and Hong Kong Monetary Authority, and the other targeting high level policymakers in the Government and public bodies. The aim of both is to encourage these policymakers to take more account of competition issues when undertaking their work.
CEO Snyder recently spoke at the Beijing Conference, where he indicated that the HKCC has been more involved in the early stages of the Government’s policy making process in recent months. He also indicated that the HKCC was becoming more efficient as a result of investigations it had undertaken.
According to public sources, the HKCC is also reviewing its leniency policy in cartel cases. Each of these developments could enhance the HKCC’s enforcement efforts, which could be further bolstered by a successful first prosecution.
Conclusion
The HKCC is becoming an increasingly active regulator, and the upcoming review of the Competition Ordinance provides an opportunity to give the HKCC sharper teeth. Such changes would likely result in greater enforcement action, but given the Herculean effort required to pass and implement the Ordinance in 2012 and 2015 respectively, it remains to be seen whether the Government’s review will result in concrete changes to the HKCC’s powers.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills
mark.jephcott@hsf.com
