Key Prohibitions

The Bill seeks to prohibit anti-competitive conduct in the following three areas:

1) First conduct rule:

The first conduct rule covers agreements, decisions and practices that have the object or effect of preventing, restricting or distorting competition in Hong Kong.

The first conduct rule has extraterritorial application. It will apply to agreements, decisions and practices that impact on competition in Hong Kong, even if such are made or engaged in, outside Hong Kong. It will also apply to parties who are outside Hong Kong.

2) Second conduct rule

The second conduct rule seeks to prevent undertakings with a substantial degree of market power, from abusing that power through conduct that has the object or effect of preventing, restricting or distorting competition in Hong Kong.

The second conduct rule also has extraterritorial application. It will apply to undertakings even if they are outside Hong Kong or engaging in conduct outside Hong Kong.

3) Merger rule

The merger rule is of more limited scope. It will apply only to mergers relating to licensees under the Telecommunications Ordinance. This rule prohibits such mergers and acquisitions that have or are likely to have the effect of substantially lessening competition in Hong Kong.

Exclusion and Exemptions

Certain conduct or agreements may be excluded from the application of the above three rules.

The Bill provides an exemption to the first conduct rule where an agreement enhances overall economic efficiency.

The Bill also provides an exemption to the first and second conduct rules where an agreement is made to comply with a legal requirement or is performed by an undertaking entrusted with the operation of services of general economic interest.

The Chief Executive can make exceptions if there are exceptional and compelling reasons of public policy, or if there is conflict with international obligations.

There is only one exclusion ground in relation to the merger rule. The merger rule does not apply to a merger if the economic efficiencies that arise or that may arise from the merger outweigh the adverse effects caused by any lessening of competition in Hong Kong.

The Bill will not apply to the Hong Kong Government and/or to any statutory bodies in Hong Kong, unless the Chief Executive determines otherwise. The determinations will be made having regard to a number of criteria which will be addressed through regulations made by the Chief Executive.

Enforcement Process

The Bill provides for judicial enforcement.

1) Role of Competition Commission

First, an independent statutory Competition Commission (the Commission) will be established to investigate and bring proceedings before a Competition Tribunal in respect of anti-competitive conduct either on receipt of complaints, or on its own initiative, or on referral from the Government or a court.

The Commission will have the powers to require the production of documents and information, to require a person to attend before the Commission to give evidence, and to enter and search premises and to seize and retain evidence and property under a court warrant. Non-compliance with the Commission's powers, in the absence of a reasonable excuse, would be subject to criminal penalties.

The Commission will also be vested with power to accept a commitment from, or issue an infringement notice, (requiring in default a payment up to HK$10 million) to a person to take or refrain from taking certain actions to address the Commission's concerns about possible contraventions of the first and/or second conduct rules, in exchange for termination of investigation and or proceedings against the person.

In addition, the Commission may enter into leniency agreements with persons who have allegedly contravened the conduct rules, in exchange for their cooperation in the Commission's investigation and bringing enforcement proceedings before the Tribunal in respect of other parties involved in the same contravention. However, the Commission cannot bring proceedings against a party who is the beneficiary of a leniency agreement.

2) Role of Competition Tribunal

Further, a Competition Tribunal (the Tribunal) will be established within the Court system as a superior court of record to hear and adjudicate competition cases brought by the Commission, private actions, as well as reviews of determination of the Commission.

The Tribunal will be vested with the power to apply a full range of remedies. These include pecuniary penalties not exceeding 10% of the turnover for the year in which the contravention occurs; award of damages to aggrieved parties; interim injunctions during investigations or proceedings; termination or variation of an agreement or merger; and disqualification orders against directors.

3) Rights of private action

In addition to the Commission's public enforcement, the Bill also provides for private action. Any person who considers they have suffered loss or damage as a result of a contravention of the first and/or second conduct rules could either bring a follow-up action from a court determination or a standalone action seeking a judgment on particular conduct and remedies.

Conclusion

The Bill was submitted to the Hong Kong Legislative Council for its first reading on 14th July 2010. It is expected to be subject to great debate since the introduction of the Bill represents a possible threat to Hong Kong's existing "laissez faire" commercial environment.

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We are happy to discuss how the Bill may impact on your business, as required.

This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.