Since the Competition Ordinance came into force in December 2015, the Competition Commission has launched three prosecutions in the Competition Tribunal and undertaken dawn raids and other enforcement actions on numerous occasions. This article examines practical considerations, highlighting practices that may diverge from, or are not immediately apparent in, the Commission’s investigation guidelines.
Companies may think that it will be obvious when they are under investigation for potential breach of the Ordinance. However, the practices that have emerged do not always alert companies to the situation they are facing.
The Commission has various investigative powers. It can seek voluntary cooperation or use the compulsive powers in the Ordinance.
The voluntary engagement steps we have seen the Commission take include: making contact by phone, email or letter (even direct calls to employees), requests for meetings and interviews, or undertaking surveys or market studies.
If inviting voluntary responses, companies and individuals are free to agree or to decline to respond. It should be borne in mind that if information is volunteered to the Commission, there may be no ability to claim privilege against self-incrimination if the Commission subsequently seeks to use that information in a prosecution.
To use its compulsive powers, the Commission must have reasonable cause to suspect a contravention of the Ordinance. The Commission’s compulsive powers include:
a. section 41 notices – to require a company or an individual to provide documents and information;
b. section 42 notices – to appear before the Commission to answer questions; and
c. dawn raids.
Businesses should beware of any less formal contacts or fact-finding exercises emanating from the Commission, which should be treated just as seriously as dawn raids. The Commission has not always been willing to reveal whether a company or individual they are approaching is a target under investigation or “a person of interest.” Until you are sure you are not a suspect, it is safest to assume that you may be.
It is important when facing an investigation to take immediate steps to secure and preserve relevant evidence. Destruction of evidence in a dawn raid or when a section 41 notice has been issued could lead to serious criminal penalties.
Any routine document destruction processes should immediately be stopped. At this stage, a parallel internal investigation is usually necessary, to assess the merits of the Commission’s case, with a view to formulate strategies on how best to manage possible legal consequences.
It is worth noting that the Commission has, in some cases, refused to recognize law firms that state they act for a party under investigation, unless the party under investigation has provided a written confirmation from the individual or, in the case of a company, a “proper officer” of the company, confirming the lawyer’s representation. There is no other regulator or law enforcement agency in Hong Kong that has adopted such a practice.
It appears that the Commission may require this authorisation when dealing with section 41 and section 42 notices, but not when executing dawn raids. It is not clear whether it would apply in situations where a party is seeking leniency. The practice does raise concerns including its consistency with Article 35 of the Basic Law (which guarantees timely and effective access to legal representation) and the maintenance of legal professional privilege.
Dawn raids and section 41 and 42 notices
The Commission must obtain a court warrant before undertaking a dawn raid. When faced with a dawn raid, businesses should verify the details presented on the court warrant, such as the address of the premises, the alleged contravention and the scope of the search operation. With a court warrant, the Commission has a broad power to search both office and private premises, including those which are not related to the party under investigation, without prior notice.
The Commission may, either alongside or as an alternative to a dawn raid, issue notices pursuant to sections 41 and 42 of the Ordinance to provide documents and information or conduct interviews. In practice, the Commission typically provides limited information regarding the alleged conduct and scope of the investigation in such notices.
Hence, there can be, in comparison to a dawn raid, less transparency as to whether you are the target of investigation. In addition, the documents and information required can be very extensive with limited time for response. Businesses faced with section 41 and 42 notices should consider discussing with the Commission to clarify the target of investigation and the scope of request, as well as to negotiate for a time extension if necessary.
To cooperate or not
When faced with an investigation, it is important for businesses to consider as early as practicable whether or not to seek leniency or otherwise cooperate with the Commission. Leniency and cooperation are two distinct processes.
Businesses applying to the Commission for leniency may be relieved from potential penalties, provided that the applicant is the first cartel member who reports the cartel conduct and meets all the requirements for leniency. If leniency is not granted, cooperation may still potentially reduce the penalty by up to 50%.
However, as part of the leniency/cooperation agreement, the company must undertake searches to identify all potentially relevant evidence, make employees available for interviews and, if enforcement action is taken, make employees available to give evidence in trial. Ultimately, the company must sign up to a statement of agreed facts regarding the alleged conduct.
If leniency is not available, companies may still choose to cooperate with the Commission. In return, the Commission will agree to seek a discount to the pecuniary penalty it would otherwise recommend to the Tribunal. However, there is no guarantee of penalty reduction given that it is ultimately subject to the Tribunal’s discretion. Parties considering cooperation need to tread carefully in this area until the Tribunal clarifies the way in which it will approach cooperation agreements.
In any event, conducting an internal investigation can help to assess the merits of the Commission’s case and the company’s potential exposure to liability. In turn, this helps the company to reach an informed decision on whether or not to apply for leniency or cooperation.
The Commission will often want to interview employees as part of its investigation. It has the power to require any individual to attend an interview on pain of criminal prosecution. Interviews are usually held at the Commission’s offices, with legal representatives permitted to attend. The Commission will record interviews, and produce a verbatim transcript.
In a recent decision – Competition Commission v Nutanix Hong Kong Limited & Or – the Tribunal determined that in such interviews, the employee’s answers will be personal to him and not made on his employer’s behalf. Hence, an employer cannot rely on the privilege against self-incrimination in relation to the information provided by its employees.
Once it completes its investigation, the enforcement outcomes open to the Commission will depend on what it has found. If it has identified an anticompetitive agreement that falls short of “serious anticompetitive conduct,” it must first issue a warning notice to the companies involved. In all other cases, the Commission may issue an infringement notice or commence Competition Tribunal proceedings.
Brent Snyder, CEO of the Commission, has recently indicated that neither warning nor infringement notices will often be used. In practice, even a one-off instance of conduct that can be characterised within the statutory definition of “serious anticompetitive conduct” is likely to result in enforcement proceedings in the Tribunal seeking financial penalties and other relief, including potential director disqualification.
The Commission has demonstrated an appetite to prosecute regardless of the size of the company or transaction involved, with a view to laying down early court precedents on the scope of the law. Companies and individuals therefore need to treat any investigation or contact from the Commission with the utmost care.