Introduction

The Competition Ordinance (Cap 619) has come into effect since 14 December 2015, but there have been concerns as to whether the regulator, the Competition Commission (the “Commission”), would go after the “tigers” or would rather focus on encouraging the general public to comply than enforcing the law due to its limited resources. Nevertheless, the Commission, by bringing the recent cases to the Competition Tribunal (the “Tribunal”) and adopting the first block exemption order, has proven itself a serious anti-trust regulator.

Enforcement Priority

In November 2015, the Commission published an enforcement policy, which reveals that it will prioritise enforcement against cartel conduct. In the policy statement, the Commission expressly notes that cartel activities violate the First Conduct Rule, which prohibits any agreements or concerted practices between two or more undertakings having its object or effect to prevent, restrict or distort competition in Hong Kong. By bringing the first two hardcore cartel cases to the Tribunal, the Commission has demonstrated that it has zero tolerance in fighting cartel activities.

The very first legal action that the Commission initiated in March this year was about a series of alleged bid-rigging activities by five IT companies. The Commission’s case is that those companies had entered into various bilateral communications before submitting their bids to the Hong Kong Young Women’s Christian Association, whereby they were able to pre-arrange some “dummy bids” from “friends” and, more importantly, to pre-determine one of them could secure the contract with the lowest bid. The evidence that the Commission relies on in its submission is some unusual features of the bids such as a high degree of consistency in the substance and format of the bids tendered by the companies including common errors and omission of certain key information. The case also reveals that the Commission had used its extensive search and evidence collection powers by referring to emails and WhatsApp message exchanges amongst the alleged bid-riggers.

While the first case is yet to be heard and argued in the Tribunal, the Commission has commenced its second criminal proceeding in August this year against ten domestic construction companies involving in a building renovation project in the public housing estate in Kwun Tong. Those companies were alleged to have engaged in anti-competitive conduct such as price fixing and market sharing from around June 2016 to November 2016. In particular, they had agreed among themselves that each of them would only take up certain pre-allocated floors and to adopt the jointly-produced promotional flyers where the same pre-determined price packages were used.

The conduct involved in the said two cases, i.e. bid-rigging, price fixing and market sharing are specifically recognised as serious anti-competitive conducts in the Commission’s enforcement policy. In line with the European Union’s practice, Ms. Anna Wu Hung-yuk, the chairperson of the Commission, expressly stressed that price fixing and market sharing are serious anti-competitive practices as they have the very object of eliminating competition and lead to reduction of consumer choices and distort the price level which would in turn adversely affect the economy as a whole. She also considered that the Commission would prioritise its enforcement against conducts that directly affect low income groups.

Block Exemption Order

Alongside the two enforcement actions, the Commission has issued the first block exemption order for vessel sharing agreements (“VSA”) in August this year after considering the submissions of the Hong Kong Liner Shipping Association and other interested parties since late 2015. The Commission is satisfied that potential improvements in production or distribution or the promotion of technical or economic progress can be achieved through a VSA. Accordingly, any agreements between liner services companies that fall within the scope of the said block exemption order would not be caught by the First Conduct Rule.

Nevertheless, the Commission rejected to incorporate voluntary discussion agreements (“VDA”) in the block exemption order. VDA are agreements through which companies would “discuss” sensitive commercial strategic decisions with each other such as the shipping routes. Such information sharing has failed to empirically convince the Commission that economic efficiency could be generated. While the Hong Kong Liner Shipping Association was highly disappointed with such decision, the Hong Kong Shippers’ Council entirely agrees with the Commission that VDA could indeed give rise to anti-competitive concern due to the highly concentrated feature of the industry. Though the refusal to include VDA in the block exemption order has sparked controversy among the industry players, it stands as a useful guideline for other potential block exemption order applicants. Applicants are reminded that the adequacy of supporting evidence is a very important consideration and that the Commission will scrutinise any efficiency claim. Applicants should also demonstrate why the same efficiency cannot be achieved by a less anti-competitive means.

In light of the development of the said block exemption order, the Commission has adopted a 6-month transitional arrangement, whereby parties to any VSA falling outside the scope of the said block exemption order and to any VDA should ensure necessary amendments would be made to their business arrangements before 8 February 2018.

The Future

Since the implementation of the Competition Ordinance, the Commission has received over 2,000 complaints and enquiries from various industries. According to the Commission’s Annual Report, the major sectors that appear to be of particular concern are the “professional and technical services”, “transport, logistics and storage”, “food and groceries”, “real estate & property management”, “construction & infrastructure” and “banking, financial & insurance products & services” sectors. Despite the fact that two of them have been already caught by the Commission this year, over 100 complaints are currently subject to “in-depth investigation phase”. The Commission’s efficiency of conducting investigation seems to be unquestionable.

There is a recent change in senior personnel in the Commission. In September 2017, Mr. Brent Snyder, a former Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division of the Department of Justice in the US, was appointed as the new Chief Executive Officer of the Commission. He has the experiences of handling complex and high-profile cartel cases such as manipulation of interest rate and foreign exchange rate by various leading international banks (the “LIBOR” and the “forex” scandals). In addition, Mr. Jindrich Kloub, a leading cartel handler of the European Commission, will also join the Commission later this year as the new Executive Director (Operations). With various global anti-trust experts joining the Commission, together with the Commission’s target of bringing two to three cases before the Tribunal each year, the public could expect the city watchdog to be more vigorous and the consumers in Hong Kong would benefit from the experiences of other jurisdictions.

Companies are reminded that the Commission do offer a cartel leniency agreement policy. Similar to the European counterpart, the first cartel member who reports the cartel conduct will “enjoy” a 100% immunity from pecuniary penalties. A leniency agreement applicant is expected to fully cooperate with the Commission in its investigation and other subsequent proceedings. Nevertheless, Mr. Snyder mentioned in an interview that the best way to make a leniency policy to be attractive is to prove that cartelists can still be detected even without a whistle blower. With this in mind, companies should bear in mind that they should implement effective and robust compliance programmes for their staff and seek legal advice if they found any suspicious activities of the employees.

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: competition@onc.hk
T: (852) 2810 1212
F: (852) 2804 6311
W: www.onc.hk

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.