Introduction

The Competition Commission (the “Commission”) plays a crucial role in fostering a fair and competitive marketplace. One of the cornerstone provisions of the Competition Ordinance (Cap. 619) is the First Conduct Rule, which aims to prohibit anti-competitive agreements and concerted practices in Hong Kong. This newsletter will explore the First Conduct Rule, the powers of the Commission to investigate and monitor compliance, and discuss a recent case involving BYD Company Limited which highlights the Commission's role in ensuring fair competition in the automotive sector and a recent circular from the Law Society of Hong Kong (the “Law Society”) which fosters flexibility in fee arrangements with barristers in the legal industry.

The Competition Ordinance (Cap. 619)

The First Conduct Rule

The First Conduct Rule, as outlined in Part 2 of the Competition Ordinance (Cap. 619), is designed to maintain a level playing field, ensuring that consumers benefit from lower prices, better quality products, and more choices. It prohibits agreements between businesses that prevent, restrict, or distort competition in Hong Kong, which include horizontal agreements between competitors, such as price-fixing or market-sharing, and vertical agreements between suppliers and distributors that may impose unfair conditions on resale. By prohibiting these practices, the Commission seeks to prevent market manipulation and promote healthy competition.

The Competition Commission – enforcement

The Commission is empowered to investigate potential breaches of the First Conduct Rule and other provisions of the Competition Ordinance. Once the Commission identifies a potential violation, it can conduct inquiries and gather evidence, and engage with the involved parties to discuss their practices and the implications for competition. Businesses may be required to provide undertakings, being formal promises to change their behaviour in a way that aligns with the competition law. Subsequently, the Commission has the authority to review and approve the undertakings, and monitor the implementation of the undertakings, ensuring that businesses adhere to their promises and that competition remains robust.

Case studies

The amendments to the vehicle warranty manual of BYD Company Limited

A noteworthy example of the Commission’s proactive approach is its recent engagement with BYD Company Limited (“BYD”), a motor vehicle manufacturer and seller, concerning its car warranty manual. On October 3, 2024, the Commission welcomed amendments made by BYD to clarify terminology in its warranty manual. Previously, ambiguous terms concerning the Lifetime Battery Warranty might have misled consumers into believing they had to use authorized service providers for maintenance and repairs, potentially voiding their warranties if they sought services from non-authorized service providers. The amendments made by BYD addressed these ambiguities, explicitly stating that car owners could use non-authorized service providers without risking the validity of their warranties unless damage is directly caused by such services. This change is significant as it encourages competition among maintenance and repair service providers.

The Commission's intervention allows consumers to choose service options without risking warranty loss in the automotive sector. The Commission has been working with car distributors to eliminate restrictive warranty terms, demonstrating its commitment to fair practices. By urging all car manufacturers and distributors in Hong Kong to review their warranty policies, the Commission promotes a competitive environment that benefits both consumers and businesses.

Fees arrangement with barristers

Another example is the fee arrangements with barristers. On 7 November 2024, the Law Society of Hong Kong (the “Law Society”) released a circular addressing disputes between solicitors and barristers over fees. The circular emphasizes that solicitors are entitled to negotiate barristers’ fees with on an independent and case-by-case basis without any expectation that any particular fee structure needs to be adopted.

There has been a common fee arrangement with the barristers when a barrister is retained by a solicitor for a legal case, namely the Vine Formula. It refers to the exclusive arrangement that, regardless of whether a legal action goes to trial (for example, the case might be settled even though it was set down for trial and all the preparation work has been done), the barrister retained for the legal action will receive his brief fee and half of unused refreshers in any event. Although this approach provides clients with predicable legal costs, it limits their options and discourage them from seeking alternative barristers, which may hinder the competition among barristers. By reminding solicitors to negotiate the fee arrangements regarding the barristers’ unused refreshers without being required to adopt any particular fee structure, the spirit of the First Conduct Rule is respected to promote fair competition in the legal industry.

 Conclusion

The Competition Commission plays a pivotal role in maintaining a fair and competitive marketplace through the enforcement of the First Conduct Rule. This rule is essential in preventing anti-competitive agreements that can harm consumer welfare and distort market dynamics. In the BYD case, the Commission's intervention removed the warranty restrictions in the automotive sector. Similarly, the Law Society’s guidance on negotiating barristers’ fees emphasized the need for flexibility and fairness in legal fee arrangements, counteracting the restrictive nature of the Vine Formula. Together, these efforts reflect a commitment to upholding competition law, ensuring that consumers benefit from diverse options and fair pricing.