Hong Kong: Competition law fact sheet

Main features of the law

• Prohibitions on restrictive agreements, concerted practices and abuse of market power
• Merger control in the telecommunications sector
• Judicial enforcement model
• Extraterritorial effect
• Wide-ranging investigation powers
  
   

Enforcement trends

• Focus on cartels and bid-rigging
• Increased use of alternative enforcement tools

Substantive provisions

(a) Main rules

The main source of competition law in Hong Kong is the Competition Ordinance (Cap 619).  The Competition Ordinance provides for three main prohibitions:

• A prohibition on restrictive agreements and concerted practices;
• A prohibition on the abuse of a substantial degree of market power;  and
• A prohibition on mergers and acquisitions that substantially lessen competition in Hong Kong (limited to the telecommunications sector).

Restrictive agreements and concerted practices.  The First Conduct Rule of the Competition Ordinance prohibits an undertaking (this includes any entity, including natural persons, engaged in economic activity) from making or giving effect to an agreement, engaging in a concerted practice, or as a member of an association of undertakings, making or giving effect to a decision of the association, if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong.  The prohibition in the Ordinance does not make a distinction between “horizontal” restrictive arrangements (that means, between competitors) and “vertical” restrictive arrangements (that means, between a supplier and a customer or a supplier and a distributor).  However the Ordinance lists as “serious anticompetitive conduct” price fixing, market sharing, output restriction and bid-rigging, each of which typically involve horizontal arrangements between competitors.  This stricter approach towards horizontal restrictive arrangements is also reflected in the Competition Commission’s Guideline on the First conduct rule, whose main focus is on horizontal arrangements, with the law as interpreted by the Commission being less strict regarding vertical restrictions, except for conduct amounting to resale price maintenance (which involves the supplier fixing, maintaining or controlling the resale price of its products).

(b) Sanctions

The competition law regime in Hong Kong adopts a judicial enforcement model, where sanctions and remedies can only be imposed by the Competition Tribunal.  The Tribunal may impose a wide range of sanctions on undertakings (including individuals) found to have contravened the First or Second Conduct Rule or for their involvement in such contraventions.  These include pecuniary penalties of up to 10 per cent of the total turnover obtained in Hong Kong for each year of infringement, up to a maximum of three years.  Disqualification orders can also be imposed on directors for a period of up to five years.

(c) Extraterritorial effect

The Competition Ordinance has extraterritorial reach in that it applies to activities conducted outside Hong Kong if they have the object or effect of preventing, restricting or distorting competition in Hong Kong.

Enforcement regime

(a) Public and private enforcement

Under the Competition Ordinance, the Competition Commission and the Communications Authority have the power to investigate.  Adjudicative powers are conferred on the courts, principally the Competition Tribunal.

The Competition Commission

It is the principal competition authority responsible for enforcing the Competition Ordinance through enforcement proceedings before the Competition Tribunal.  It comprises five to 16 members appointed by the Chief Executive in Council.  The Commission has the power to investigate, as well as powers to issue block exemption orders and decisions confirming individual exemption or exclusion status, issue implementation guidelines, and accept commitments and issue infringement notices.

The Communications Authority

It is the competition authority responsible for enforcing the Competition Ordinance in the telecommunications and broadcasting sectors.  It has the same powers as the Commission under the Ordinance.

The Competition Tribunal

It is a specialised court within the Court of First Instance with the power to impose sanctions and order redress in cases brought before it by the Commission or the Communications Authority.  The Tribunal also hears appeals against both competition authorities’ decisions and hears follow-on private damages actions concerning contraventions of the conduct rules.

In Hong Kong, private litigants can only bring “follow-on” actions for damages suffered as a result of conduct in breach of the Competition Ordinance after the conduct has been ruled as a contravention of the competition rules by the Competition Tribunal.

(b) Leniency

The Commission has adopted policies encouraging parties to cooperate with its investigations in return for a reduction of sanctions.  These policies are mainly available to parties participating in cartel conduct, such as price-fixing, market sharing or bid-rigging.  They differ depending on whether a party is the first to assist the Commission.

Immunity from prosecution. The Commission’s Leniency policy for undertakings engaged in cartel conduct and Leniency policy for individuals involved in cartel conduct establishes a regime where undertakings and individuals, in exchange for their co-operation in a cartel investigation, can earn immunity from prosecution by the Commission, and thus avoid the risk of pecuniary penalties.  The first leniency applicant to report a cartel before and after the Commission opens an initial assessment or investigation is referred to as a “Type 1” and “Type 2” applicant respectively.  A Type 1 applicant will be protected from potential follow-on actions while a Type 2 applicant will be required to admit to a contravention of the First Conduct Rule when the victims of the cartel bring follow-on actions (a Type 2 applicant who is an individual and provides substantial assistance to the Commission’s investigation and enforcement action will however not be required to admit to a contravention).

Reduction in proposed sanctions. The Commission’s Cooperation and settlement policy for undertakings engaged in cartel conduct provides benefits to undertakings that do not meet the conditions for application of the leniency policy and that cooperate with the Commission’s investigation.  These benefits principally take the form of a reduction in the amount of fines the Commission proposes to seek from the Competition Tribunal, as well as immunity from prosecution for individual employees and company officers.  Successful applicants must cooperate with the Commission’s investigation and apply jointly with the Commission to the Competition Tribunal for an order made by consent that the undertaking has contravened or been involved in a contravention of the First Conduct Rule.

To date the Communications Authority has not adopted formal leniency or cooperation policies.

(c) Investigation powers

The Commission and the Communications Authority each have wide-ranging investigation powers, including the power to request the production of information and documents, the power to require the attendance of relevant persons at hearings before it and, after obtaining a warrant from a judge of the Court of First Instance, the power to enter and search premises.

Recent enforcement trends

(a) Public and private enforcement

Cartel and bid-rigging. Since the entry into force of the Competition Ordinance, the enforcement actions brought by the Competition Commission before the Competition Tribunal have focused predominantly on cartel and bid-rigging activities.  The Commission has also increasingly sought to take enforcement actions and impose individual liability against representatives of companies, and facilitators of anti-competitive activities in recent proceedings.

Alternative enforcement tools. The Commission has increasingly used non-judicial enforcement tools to resolve investigations that do not involve hard-core cartel conduct.  The Commission has agreed to close three investigations in return for commitments made by the companies involved to address the competition concerns raised by the Commission.  Online travel agents have committed to remove “most favoured nation” clauses in their agreements with hotels in Hong Kong.  The terminal operators who formed the Hong Kong Seaport Alliance have committed to keep prices and services at pre-alliance levels.  Car distributors have committed to remove warranty restrictions requiring maintenance and repair services to be carried out at authorised repair centres.  The Commission also makes increasing use of processes under the Competition Ordinance alleviating the need for heavy court procedures, such as infringement notices or consent orders before the Competition Tribunal.

Private enforcement. In Hong Kong, private claims for damages suffered as a result of breach of the competition rules are only allowed if the Competition Tribunal has determined that there has been a contravention of the conduct rules.  Competition law breaches can also be used as a defence in civil litigation.  For instance Meyer, a wholesaler of diesel oil that was sued for non-payment of supplies by its supplier, alleged that its supplier was involved in a price-fixing cartel for the supply of industrial diesel oil as a reason for refusing to pay.

(b) Main enforcement actions taken by the Competition Commission since the entry into force of the Competition Ordinance

(c) Main enforcement actions by the Communications Authority

The Communications Authority is conferred concurrent jurisdiction to enforce the Competition Ordinance in respect of the conduct of undertakings operating in the telecommunications and broadcasting sectors, including mergers and acquisitions involving carrier licensees.  In agreement with the Competition Commission, the Authority will take the lead on matters which fall within its concurrent jurisdiction with the Competition Commission.  Since the coming into force of the Competition Ordinance, the Authority has so far not commenced any formal investigation concerning merger activities, but instead relied on informal engagement with the transaction parties and other third parties in conducting its inquiry.  In the transaction concerning the acquisition by HKBN Limited of WTT Holding Corp. in 2018 where the Authority identified competition issues, the Authority decided not to commence an investigation or bring proceedings in relation to the transaction on account of the commitments offered by the parties.

Key information

1 Relevant legislation

The Competition Ordinance (Cap 619)

2 Competition authorities

(a) Name of authorities and basic contact details

Competition Commission

19th Floor, South Island Place, No. 8 Wong Chuk Hang Road, Wong Chuk Hang, Hong Kong
General line:   3462 2118
Leniency hotline:  3996 8010
Email:  enquiry@compcomm.hk
Website:  https://www.compcomm.hk/en/about/contact_us/contact_us.html

Communications Authority

20th, 25th, 26th, and 29th floors, Wu Chung House, 213 Queen's Road East, Wan Chai, Hong Kong
General line:  2961 6333
Email:  webmaster@ofca.gov.hk 
Website:  https://www.coms-auth.hk/en/home/index.html

(b) Relevant officials and contacts

Competition Commission

Members of the Commission:

Mr Samuel Chan Ka-yan (Chairman), Professor K. C. Chan, Ms Jennifer Chan Pui-kwan, Professor Fong Yuk-fai, Ms Sabrina Ho Shuk-ying, Ms Rachel Lam Yan-kay SC, Professor Vincent Lau Kin-nang, Mr Patrick Law Fu-yuen, Mr Alan Lui Siu-lun, Mr Roy Ng Chun-tat, The Hon Jimmy Ng Wing-ka, Ms Sandy Wong Hang-yee, Professor Anna Wong Wai-kwan, Mr Eric Xin Yue-sheng and Mr Tony Yung Kam-fai.

Executives of the Commission:

Mr Rasul Butt (Chief Executive Officer), Mr Mark Mills (Executive Director (Legal Services)) and Mr Billy Woo (Executive Director (Policy and Advocacy).

Communications Authority

Members of the Authority:

Ms Winnie Tam Wan-chi (Chair), Ms Eliza Lee Man-ching (Vice-chair), Dr. Hubert Chan Chung-yee, Mr Nicolas Chan Hiu-fung, Professor Karen Chan Ka-yin, Ms Amy Fung Dun-mi, Mr Michael Hui Wah-kit, Professor Vincent Lau Kin-nang, Mr Patrick Law Fu-yuen, Professor Leung Siu-fai, Mr Simon Wong Kwong-yeung and Mr Chaucer Leung Chung-yin.

Executives of the Authority:

Mr Chaucer Leung (Director-General of Communications), Mr Esmond Chiu (Deputy Director-General (Telecommunications)) and Mr Tony Li (Deputy Director-General (Broadcasting)).