Fourteenth December, 2015 heralded the introduction of, arguably, the most significant and far-reaching piece of legislation Hong Kong has seen in many years, namely the Competition Ordinance. Conversations between competitors which had previously been legally innocuous were suddenly now – at least according to the Commission’s guidelines – potentially illegal and subject to severe penalties, to take just one example.

As we approach the third anniversary of the Ordinance, what lessons can be learnt from the experience so far? This article highlights what, in our view, are the top five.

Lesson 1: It’s not just a company problem – individuals can suffer consequences
In many jurisdictions which have competition laws, only the company is liable for a breach of the law. By contrast, the Hong Kong law expressly gives the Competition Tribunal the power not only to impose financial penalties on the company. It can also impose them on the individuals who were involved in the breach, and even disqualify directors from managing a company for up to five years.

These are not just “paper” powers. The Commission has shown its teeth in the third and latest case that it has brought before the Competition Tribunal, on 6 September this year. The Commission is alleging that three construction companies broke the law by sharing customers and coordinating pricing. Significantly, it is asking the Tribunal not just to impose penalties on the companies, but also on two directors who were allegedly involved. It is also asking the Tribunal to disqualify one of them from management.

Lesson 2: The Commission seems to prefer litigation to informal settlement
In the early years of a new competition law, competition authorities often show forbearance in enforcing the law and imposing penalties, because the law is new and businesses need time to understand and adapt to it. If there was ever such a “honeymoon period” in Hong Kong, it seems that it is well and truly over. 

The Commission’s current management has made clear its view that litigation is important, because only the Competition Tribunal can ultimately decide whether the law has been breached, and Tribunal judgments in individual cases are necessary to provide business and the public with guidance.

Lesson 3: Markets can be defined narrowly
The so-called “First Conduct Rule” in the Ordinance prohibits agreements between businesses which have as their “object or effect” to “prevent, restrict or distort competition in Hong Kong.” Competition is normally understood to be competition in a market. 

The first case that the Commission brought before the Tribunal concerns alleged bid-rigging for a single contract, namely the provision of IT services to the YWCA. The second and third cases concern the provision of renovation services, in each case to a single public housing estate. It seems therefore that either the Commission interprets single contracts or housing estates as markets, or it believes that competition means something different from competition in a market.

Lesson 4: The Commission takes a wide view of prohibited conduct 
The wide view that the Commission has taken on prohibited conduct is not just shown by its apparent willingness to define markets narrowly, or dispense with market definition completely, in certain cases (as seen in Lesson 3). It is also shown by its apparently expansive interpretation of the type of conduct that the Competition Ordinance prohibits. 

For example, many people in the Hong Kong business community were taken by surprise when, in April this year, the Commission announced in an Advisory Bulletin that certain contacts between businesses, even non-competing businesses, on human resources matters would be treated as an infringement of the Ordinance. Not only that, they could be treated as “serious anti-competitive conduct.” This means that the Commission might treat such contacts as an enforcement priority, and could take the case straight to the Tribunal, without giving the parties an opportunity to agree to change their conduct. 

Specifically, the Commission singled out agreements between businesses on employee salaries, or other components of employee benefits, and warned businesses not to solicit or “poach” each other’s employees. According to the Commission, the former is a type of price-fixing while the latter is a type of market-sharing, each of which is classified as serious anti-competitive conduct under the Ordinance. 

But (as our article in the June issue of The Bulletin pointed out) this interpretation is surprising, given that price-fixing and market-sharing are commonly understood to refer to the supply of products or services by competitors, not the purchase of labour by businesses. This also extends to businesses that are non-competitors. 

Moreover, the Government stated that the objective of the Ordinance was to promote economic efficiency and consumer welfare. Restraining the level of employee benefits, and thereby keeping costs down, would seem consistent with these objectives. Although there may be a valid public policy reason for prohibiting such agreements, it would seem more logical for this to be done through employee protection legislation rather than the Competition Ordinance.

Lesson 5: Expect Surprises
Another reason for surprise about the Advisory Bulletin on employment practices is that there was no advance public consultation on it before it was issued. Arguably, the Advisory Bulletin is effectively a guideline, and, under the Ordinance, guidelines require prior public consultation before being finalized. 

Similarly, in December last year, the Commission issued recommended “anti-collusion” clauses for procurement organizations without prior consultation. The Chamber wrote to the Commission expressing its concerns about the wording of some of the clauses, which seemed to discourage the formation of bona fide bidding consortia. And more recently, the Commission has introduced – again without prior consultation – new processes in investigating competition cases, which the Chamber believes are problematic in practice. The Chamber’s LegCo Representative Jeffrey Lam has taken this matter up with the Government.

It is hoped that the Commission will be more transparent in future when introducing such changes, so that any public concerns can be taken into account before they are finalised, for the benefit of Hong Kong as a whole. In the meantime, businesses should be vigilant and monitor closely the Commission’s activities.

Conclusion
In the relatively short period of just under three years that the Competition Ordinance has been in force, there have been many significant developments. More can be expected. Businesses would be well advised to keep a close watch on these developments.