15 December, 2015
Exactly three and a half years after its approval on 14 June 2012 by the Hong Kong Legislative Council (“LegCo”), the Hong Kong Competition Ordinance (“Ordinance”) has finally come into full force today, 14 December 2015. The Hong Kong Competition Commission (“HKCC”), in conjunction with the Communications Authority (“CA”), has, in the intervening period, undertaken an active programme of administrative and legislative work and a prominent campaign of public engagement in order to gear up for full implementation. Therefore, and notwithstanding its prolonged gestation, all the signs are that the HKCC is preparing for active enforcement of the Ordinance.
1. Overview of key developments towards implementation
The HKCC has been readying itself for full implementation of the Ordinance in a number of ways:
It has installed a very experienced staff, including Chairperson Anna Wu, Chief Executive Stanley Wong, and Commission members drawn from various backgrounds including law, economics, consumer protection, financial services, commerce and industry.
It has engaged in an active campaign of public engagement through a series of outreach and advocacy programmes, with the aim of educating businesses and the general public about competition law, and canvassing views on existing trade practices.
It has also issued guidance documents for SMEs and trade associations to enable businesses to understand how the Ordinance may apply to their day-to-day activities.
Following the establishment of the necessary administrative structures, the primary obstacle to implementation of the Ordinance remained the need for the HKCC to draft and obtain LegCo approval for guidelines on the implementation of the Ordinance (“Guidelines”). Under the Ordinance, the HKCC was required to produce the Guidelines which set out the general approach that the HKCC intends to apply to the provisions of the Ordinance. Following two rounds of consultation, the final version of the Guidelines was adopted on 27 July 2015 covering, first, three substantive issues: (i) the First Conduct Rule; (ii) the Second Conduct Rule; and (iii) the Merger Rule; and, second, three procedural issues: (i) Complaints; (ii) Investigations; and (iii) Applications for exclusions and exemptions and block exemption orders (for further information, see our e-bulletin of 31 July 2015 here).
Finally, on 19 November 2015, the HKCC adopted the final version of its Leniency Policy (which was also subject to public consultation). The Leniency Policy confirms the adoption of a “winner takes all” approach in Hong Kong and applies only to cartel conduct. Interestingly, the CA has elected not to adopt a leniency policy at this stage (either independently or jointly with the HKCC) and will instead address applications for leniency on a case-by-case basis. The HKCC also adopted, on 19 November 2015, its Enforcement Policy setting out the principal factors that the HKCC will take into account when exercising its discretion in deciding whether to investigate an individual case, and how to resolve that case.
2. What should we expect from the HKCC from 14 December 2015?
The HKCC seems keen to encourage compliance throughout the economy during its initial years of operation. Prior to commencing full operations, the HKCC has been monitoring actively a number of areas, including commencing initial market studies into the retail fuel sector and the building maintenance sector. This activity is consistent with a recent statement by HKCC Chief Executive Stanley Wong that the HKCC intends to pursue cases that have a broad impact in Hong Kong. The HKCC has also confirmed that it has received a significant volume of enquiries or complaints regarding potential anti-competitive practices, indicating that it will have a wide selection of potential infringements to choose from.
As regards the type of conduct that the HKCC may pursue, the HKCC’s Enforcement Policy confirms that cartel conduct represents a key element of its Compliance Focus. This is unsurprising, given that cartel conduct will also amount to Serious Anti-Competitive Conduct under the Ordinance (for further information, see our e-bulletin of 7 December 2015 here) and that cartel conduct is the focus of the HKCC’s Leniency Policy.
The second limb of the HKCC’s Compliance Focus is First Conduct Rule contraventions that cause significant harm to competition in Hong Kong. This appears likely to capture resale price maintenance (“RPM”), which has been highlighted by the HKCC as a type of vertical agreement that can constitute Serious Anti-Competitive Conduct under the Ordinance (for further information on RPM, see our e-bulletin of 30 September 2015 here), while other types of conduct potentially falling within this category may include information exchange and collective boycott.
Predictably, in light of the fact that a number of sectors in Hong Kong appear to be characterised by a high degree of market concentration, the third type of conduct featured in the HKCC’s Compliance Focus is exclusionary conduct under the Second Conduct Rule. This covers conduct such as predatory pricing, tying and bundling, margin squeeze, refusals to deal and exclusive dealing.
3. Further guidance expected
Disputes regarding claims to legal professional privilege
One document which has not yet been published by the HKCC relates to its anticipated procedure for dealing with disputes on claims to legal professional privilege in the context of the HKCC's exercise of its dawn raid and other investigative powers. In Europe, where a dispute arises regarding the existence of privilege over a document, the document can be placed in a sealed envelope for review at a later date by lawyers of the business and the regulatory authority, meaning that the inspection continues during the intervening period and disputes are dealt with at a later point in time. It remains to be seen whether the HKCC's pending procedure will mirror this approach.
Memorandum of Understanding between HKCC and CA
As required by the Ordinance, the HKCC and the CA will enter into a Memorandum of Understanding (“MoU”) today, 14 December 2015, to coordinate the performance of their functions on which they have concurrent jurisdiction. A recent circular letter published by the CA on 19 November 2015 confirms that, in accordance with the principles agreed under the MoU, the CA will ordinarily take the role of the Lead Authority for cases involving the telecommunications or broadcasting sectors and falling within the concurrent jurisdiction.
4. Implications for business
Until the implementation of the Ordinance, Hong Kong had stood out as possibly the most developed economy in the world yet to have implemented a comprehensive cross-sector competition law. This has now changed with the coming into force of the substantive provisions of the Ordinance.
While it remains to be seen what the HKCC's first case will be, all indications are that the HKCC intends to enforce the Ordinance actively. In light of the potentially significant penalties that apply for breaches of the Ordinance, businesses should ensure that all employees are aware of the key prohibitions under the Ordinance and that they have a comprehensive compliance policy in place.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills
mark.jephcott@hsf.com
