Introduction

In Hong Kong, cartel conduct, generally referring to agreements or concerted practices amongst competitors to fix price, share markets, restrict output or rig bids, contravenes the First Conduct Rule under the Competition Ordinance (Cap 619) (the “Ordinance”), which prohibits arrangements between market participants that prevent, restrict or distort competition. Leniency programmes aim at incentivising cartel participants to report and aid competition authorities to uncover and combat cartel activities. In exchange for cooperation, the Competition Commission (the “Commission”) may make a leniency agreement with the person or undertaking, against whom the Commission will commit not to commence any proceedings in the Competition Tribunal (the “Tribunal”) in relation to the reported conduct.

In April 2020, the Commission published a revised Leniency Policy for Undertakings Engaged in Cartel Conduct (the “Leniency Policy for Undertakings”) and a new Leniency Policy for Individuals Involved in Cartel Conduct (the “Leniency Policy for Individuals”), with a view to providing stronger incentive for a cartel member to report cartel conduct.   

Revised Leniency Policy for Undertakings

The Leniency Policy for Undertakings is only applicable to undertakings, which is defined in the Ordinance as any entity (including a natural person), regardless of its legal status or the way it is financed, which is engaged in an economic activity.

Enhanced protection against damage claims for leniency applicants

Under the old Leniency Policy for Undertakings, leniency was only available to the first undertaking that reports the cartel to the Commission. Moreover, the Commission would only agree not to commence proceedings against the successful leniency application for a pecuniary penalty, but could still initiate proceedings before the Tribunal against the leniency applicant for an order declaring that the party has contravened the Ordinance, based on which the applicant might become exposed to private follow-on actions for damages initiated by victims of the cartel conduct.

In order to encourage a cartel member to report cartel conduct without having the concern that it could expose itself to private follow-on actions for damages, the revised Leniency Policy for Undertakings creates two types of leniency applicants. Leniency is now available to the first cartel member that either (i) discloses its participation in a cartel of which the Commission has not yet opened an initial assessment or investigation (“Type 1 Leniency Applicant”); or (ii) provides substantial assistance to investigations and enforcement against a cartel which the Commission is already assessing or investigating (“Type 2 Leniency Applicant”).

Under the revised policy, the Commission will agree not to commence any proceedings before the Tribunal against both Type 1 and Type 2 Leniency Applicants, which will include the seeking of an order declaring that the applicant has contravened the Ordinance.

However, in the event of a private follow-on litigation being initiated by victims of the cartel conduct for damages arising from the conduct covered by a Type 2 leniency agreement, the Commission may issue an infringement notice requiring a Type 2 Leniency Applicant to admit to a contravention of the First Conduct Rule. Such an infringement notice will not be issued to a Type 1 Leniency Applicant. In other words, more protection from private actions is afforded to leniency applicants who report their cartel before the Commission has started looking into the case.

Removal of requirement for statement of agreed facts

Consistent with the Commission’s new stance under the revised policy, the condition under the old Leniency Policy for Undertakings that required the undertaking receiving leniency to agree to and sign a statement of agreed facts admitting its participation in the cartel, on the basis of which the Tribunal may be asked to make an order declaring that the applicant has contravened the First Conduct Rule, is removed.

Leniency not available to ringleaders

Under the old Leniency Policy for Undertakings, an undertaking that has coerced others to participate in the cartel will not enjoy leniency. The revised policy further disqualifies an undertaking that is clearly the single ringleader of a cartel from obtaining leniency.  However, the Commission has also indicated that it will construe or interpret the ringleader ground in favour of accepting a leniency application in order to encourage companies to report their cartel conduct.

New Leniency Policy for individuals

In addition to the changes to the Leniency Policy for Undertakings, the Commission has also introduced a new Leniency Policy for Individuals so as to allow individuals such as directors or employees of a company to seek leniency directly.

The new Leniency Policy for Individuals makes leniency available only to the first individual involved in cartel conduct who reports the cartel to the Commission. Similar to the revised Leniency Policy for Undertakings, leniency is not available to individuals whose involvement in the cartel conduct was clearly as the single ringleader of the cartel conduct, or who have coerced other parties to participate in the cartel conduct. In exchange for the reporting individual’s full cooperation, the Commission will not initiate any proceedings against the leniency applicant in relation to the reported conduct.

Leniency applicants under the Leniency Policy for Individuals should also take note that leniency is only available to individuals who report before the Commission has granted a leniency marker^[1] to an individual or an undertaking. By contrast, the Commission may still grant an additional marker to the first undertaking to apply for leniency even where the Commission has already granted leniency to an individual involved in the same cartel.

Takeaway

The revised leniency framework for cartel conduct intends to offer more incentives for companies and individuals to come forward and cooperate with the Commission. In particular, the new Leniency Policy for Individuals encourages individuals such as directors and employees to unilaterally report cartel activity of their companies to the Commission and companies engaged in cartel activity are in turn exposed to the risk of employees coming forward to the Commission without their prior knowledge. As such, the changes are likely to make it easier for the Commission to detect cartel conduct and enhance the deterrence against involving in such conduct.