A business that is subject to a Competition Commission enquiry or investigation in Hong Kong faces the ultimate threat of being subject to proceedings before, and possible sanctions imposed by, the Competition Tribunal.
However, there are a number of ways in which these outcomes can be avoided, both before and after any investigation is commenced. The Competition Ordinance provides various mechanisms for resolving cases more informally, and without the imposition of financial penalties or other sanctions.
It is important that businesses are aware of these mechanisms, and take expert legal advice on how they can be used to protect their commercial interests if they are the subject of a Commission enquiry or investigation. This article gives a brief overview of the main ones, and of how they have been used in cases since the Ordinance entered into force in December 2015.
It is useful to distinguish between three categories of conduct in this respect: cartel arrangements between competitors, non-cartel arrangements, and abuse of substantial market power.
The Ordinance classifies certain arrangements between competitors as “serious anti-competitive conduct” – otherwise known as cartels – namely price-fixing, market (or customer) sharing, output-restriction and bid-rigging. If such conduct has taken place within your organization, you may be able to avoid prosecution before the Tribunal if you are the first party to report it proactively to the Commission and cooperate in its subsequent investigation. You can do this even before there is any Commission enquiry or investigation.
If you think that such conduct may have taken place, you should consult your legal advisers on whether an application for leniency may be appropriate, under the Commission’s “leniency policy.”
While the Commission took its first cases against cartel conduct directly to the Tribunal, the Commission has, in two more recent cases, used the option of issuing infringement notices instead. In an infringement notice, the Commission invites each party to commit to terminating the alleged contravention within a certain period, in return for which the Commission will not bring proceedings in the Tribunal. The company will be required to admit the contravention.
In the first of these cases, in January 2020, the Commission alleged that an IT service provider (Company 1), and a competitor (Company 2), had exchanged competitively sensitive price information, to coordinate which of them would win the bid for an IT contract. The Commission issued infringement notices against both companies.
Company 1 did not accept the Commission’s invitation to give “commitments,” and proceedings were brought against the company and its director. However, Company 2 did give the commitments – essentially to take steps to improve its competition law compliance programme – and no proceedings were brought against it.
In the second case, in February this year, the Commission issued infringement notices to six hotel groups and a tour operator for passing on pricing information between two competing travel service providers. All recipients of the notices gave the commitments, designed to enhance effective compliance within their businesses.
It is not entirely clear how the Commission will assess whether to take proceedings in the Tribunal, or to issue infringement notices instead, but the seriousness and scale of the conduct are likely to be important relevant factors.
For arrangements between businesses that are not cartels, if the Commission expresses concern that the arrangement may contravene the Ordinance, you may consider offering the Commission commitments to address those concerns, and thereby avoid any further investigation or proceedings.
If the Commission accepts your commitments, it cannot thereafter initiate proceedings in the Tribunal regarding the conduct in question, except in limited circumstances. Unlike with infringement notices (see above), an admission of contravention is not required for a commitment to be accepted.
The Commission accepted commitments for the first time in May 2020. Three online travel agents (OTAs) agreed with the Commission to remove certain clauses in their contracts with hotels and other accommodation providers, which the Commission believed harmed competition between OTAs to the detriment of consumers.
It accepted commitments again in October 2020, to address its concerns about a joint venture between container terminal operators in Hong Kong. The Commission was concerned (among other things) that the joint venture would increase charges and reduce service levels to shipping lines for cargo transported between Hong Kong and the Mainland. The commitments in this case included capping the operators’ charges and maintaining their service levels for such cargo.
The Commission can also deal with non-cartel agreements by issuing a warning notice to the parties involved. If the Commission has reasonable cause to believe that such an agreement contravenes the Ordinance, it cannot bring proceedings directly before the Tribunal (even if the case has not been resolved through commitments). It must first issue a warning notice, requiring the parties to terminate the alleged contravention within a certain period. Only if it is not terminated during this period (or if having been terminated, it is repeated), can the Commission take the case to the Tribunal.
So far, no warning notices appear to have been issued, according to the Commission’s register. The reason may be that, for non-cartel agreements, whether they contravene the Ordinance usually involves a complex economic assessment. It may be more appropriate to resolve such cases by mutual consensus between the Commission and the parties through commitments, rather than the more confrontational step of the Commission issuing a warning notice to terminate the contravention, failing which it may initiate proceedings before the Tribunal.
Moreover, the threshold for issuing a warning notice is higher than for commitments. For a warning notice, the Commission must have a reasonable cause to believe that the arrangement contravenes the Ordinance. For commitments, on the other hand, the Commission need only have “concerns about a possible contravention.”
Abuse of substantial market power
As with non-cartel arrangements, the issues of whether a business has a position of substantial market power, and if so whether it has abused that position, often involve complex economic assessments. While the Commission has the option of accepting commitments to address any competition concerns it has about such conduct, no case of such conduct has so far been addressed by commitments.
On the contrary, in December 2020 the Commission brought its first case on abuse of substantial market power to the Tribunal. It is alleging that a medical gas supplier abused such a position by ceasing or limiting the supply of medical gases to a provider of maintenance services for medical gas pipeline systems.
The Commission alleges that, by doing so, the medical gas supplier was able to ensure that only it could provide such maintenance services, and to exclude any competition for them.
Decisions such as whether to apply for leniency, offer commitments to address the Commission’s concerns, or accept the Commission’s invitation to give commitments in an infringement notice, are very important strategic ones on which expert legal advice should be sought. Having in place an effective competition compliance programme minimizes the risks of being involved in a contravention or a Commission investigation in the first place, and of being faced with such decisions.