Fourteenth December 2015 heralded the coming into force of what is arguably the most significant piece of legislation for many years affecting businesses in Hong Kong: the Competition Ordinance (CO). As we approach the fifth anniversary of the CO, what are the main lessons from the enforcement experience so far, and what can we expect in the future? 

Strict enforcement against “serious anti-competitive conduct”

Where businesses engage with each other in “serious anti-competitive conduct” (price-fixing, bid-rigging, market-sharing or output restriction) – which usually has the aim or effect of increasing business profits at the customer’s expense – this will almost certainly be held illegal, and subject to severe penalties. The Tribunal has held that collusion between businesses on bids for contracts at a single public housing estate, and even for a single IT contract, were illegal. Whether the conduct reduced market competition in Hong Kong as a whole was deemed irrelevant. The mere fact that the businesses engaged in the offending conduct was sufficient for illegality.

In its first penalty decision so far, the Tribunal imposed fines totalling nearly HK$4 million on 10 construction companies for bid-rigging. For seven of the companies involved, this constituted the maximum level under the Ordinance, namely 10% of their Hong Kong turnover. Substantial penalties are also likely to be imposed in the five other cases that the Commission has so far brought before the Tribunal. 

Wide definition of “serious anti-competitive conduct”

In April 2018, the Commission announced in an Advisory Bulletin that agreements between businesses not to poach each other’s employees, and collusion between them on terms or conditions of employment (such as salaries, bonuses or other benefits) could amount to “serious anti-competitive conduct” – even if the businesses do not compete with each other for customers. 

While the Tribunal has not yet ruled on this issue, businesses (and particularly their human resources departments) should take note of the Commission’s views, and be very cautious about any discussions with other businesses on employment-related issues.

Individuals can break the law, not just companies

There is an increasing trend for the Commission to target not only the businesses engaging in anti-competitive conduct, but also the individuals involved in such conduct. In the four latest cases before the Competition Tribunal – out of the six brought by the Commission so far – the Commission has sought not just financial penalties against the companies, but also financial penalties and disqualification orders against the individuals involved.

“Be careful what you wish for”: the perils of applying for a clearance decision from Commission

In very limited circumstances, the CO excludes agreements and conduct from the prohibitions against anti-competitive agreements and abuse of substantial market power, if they satisfy certain criteria. If businesses think that their agreements or conduct (if anti-competitive) may qualify for one of the exclusions, they may apply to the Commission for a decision on this, to give them certainty.

So far, the Commission has issued only three exclusion decisions (the applications in each case were by trade or professional associations). In two of the cases the Commission rejected the applications completely, and in the third it rejected the application in part.

An application can be made without conceding that the agreement or conduct is anti-competitive in the first place. However, in each of the cases so far, the Commission has not just ruled on the availability of the exclusion, but expressed concerns as to the anti-competitive effects of the arrangements in question. 

Clearly the decision whether to apply for an exclusion, or to rely on the business’s own self-assessment, will often be a careful strategic one, on which legal advice should be sought.

A proper compliance programme can reduce penalties

Since the CO was introduced, there has been cautious optimism that if a business puts in place a proper compliance programme, this will provide some protection from penalties if something slips through the net and a breach is committed. Such a breach could happen, for example, if an errant employee fails to follow the company’s internal compliance guidelines.

In its “Policy on Recommended Pecuniary Penalties” published in June this year, the Commission has now confirmed that it will regard the existence of a proper compliance programme as a mitigating factor in setting the level of penalty that it will ask the Tribunal to impose. This will be the case “where the undertaking demonstrates a clear and unambiguous commitment to law competition compliance throughout the organization and steps [are] taken, appropriate to the size of the business, to achieve this.”

Clearly, it is in every business’s interests to have a proper compliance system in place, and to seek legal assistance where appropriate to achieve this. 

So these are five key takeaways from the first five years. What does the future hold? We can expect to see the following, at least:

ν    Increasingly stringent treatment of serious anti-competitive conduct, in the form of higher financial penalties

ν     Increasing enforcement against individuals including financial penalties on, and disqualification of, directors or other senior managers

ν    New cases against other types of agreements and conduct, such as vertical (distribution/purchasing) agreements and abuse of substantial market power (the Commission has indicated that such cases are in the pipeline)

ν    Further down the line, the strengthening of the CO itself, including possible “standalone” actions for damages, criminal sanctions for serious anti-competitive conduct, and extension of merger control across all sectors. The Government has already indicated that it is considering these issues.

Businesses will no doubt wish to keep a close watch on these developments.