The Competition Ordinance was passed on 14 June 2012 by the Legislative Council, and on 9 October 2014, draft implementation Guidelines to the CO were published for consultation until 10 December 2014. Once the consultation period closes, the Commission expects to revise the draft and consult the Legislative Council for feedback on the revised draft. The Guidelines will then have to be translated before they are adopted and come into operation, likely in mid 2015.
The Ordinance prohibits and deters undertakings in all sectors from adopting anti-competitive conduct which has the object or effect of preventing, restricting or distorting competition in Hong Kong. It provides for general prohibitions in three major areas of anti-competitive conduct described as the first conduct rule, the second conduct rule and the merger rule which are collectively known as the "competition rules”.
The First Conduct Rule prohibits undertakings from making or giving effect to agreements or decisions or engaging in concerted practices that have as their object or effect the prevention, restriction or distortion of competition in Hong Kong.
The enforcement focus is expected to be serious cartel activity amongst competitors (horizontal conduct), which includes:
• Price-fixing : agreeing on customer prices or price-elements such as discounts or price ranges;
• Market-sharing : allocating segments of the market amongst competitors such as by territory or customer type;
• Bid-rigging : subverting the normal competitive nature of tender processes by agreeing with competitors who will make what bids; and
• Out-put restriction : agreeing with competitors to limit production or sales output to drive up prices or otherwise maximise market positions.
Infringements of this nature will be dealt with most seriously. Other infringements, which may potentially include restrictive agreements or practices between vertical trading partners such as suppliers and customers, or manufacturers and retailers (vertical conduct), may only be dealt with by issue of a ‘warning notice’ to the infringing parties, unless the conduct is repeated or continued.
The Second Conduct Rule prohibits a business with substantial market power from abusing that power by engaging in conduct that has the object or effect of restricting competition in Hong Kong. The Commission has indicated that the Second Conduct Rule will only apply to a single entity with substantial market power, but not collective dominance. Guidance will be published regarding how it will assess and quantify market power, and the conduct that may be considered to constitute "abuse" of such power.
The merger rule prohibits mergers that have or are likely to have the effect of substantially lessening competition in Hong Kong. The scope of application of the merger rule is limited to carrier licences issued under the Telecommunications Ordinance (Cap. 106).
The Ordinance provides for a judicial enforcement model through the establishment of the Commission and the Competition Tribunal (the Tribunal).
The Commission is tasked with the functions to investigate into competition-related complaints, and to bring enforcement action before the Tribunal in respect of anti-competitive conduct either on receipt of complaints, on its own initiative, or on referral from the Government or a court.
The Tribunal is set up within the Judiciary as a superior court of record to hear and adjudicate on competition cases brought by the Commission, private actions as well as reviews of determination of the Commission.
Penalties and remedies
A business found to have infringed a Conduct rule can be fined up to 10% of its Hong Kong turnover. The Tribunal also has other broad powers to disqualify directors and impose penalties on individuals, award damages to aggrieved parties, make interim injunction orders, and terminate or vary an agreement.
If the Competition (Amendment) Bill is passed into law, the Tribunal will have all the powers enjoyed by the Court of First Instance, including the power to award interest on debts and damages and judgment debts, enforce pecuniary penalties, financial penalties and fines, to make a prohibition order, to order the reimbursement of witnesses, and to make rules for suiters' funds rules.
This website includes a link to all of Chak & Associates legal update publications in relation to the new law, and an outline of the firm's capabilities and experience. Chak & Associates Corporate Commercial Team in Hong Kong welcomes any questions from businesses in Hong Kong about the impact of the new law, or the content of the linked publications.
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