Hong Kong Competition Tribunal’s first infringement decisions a reminder to businesses of the importance of complying with new competition laws

May 23, 2019

Summary

On 17 May 2019, the Hong Kong Competition Tribunal (“the Tribunal”) passed an important milestone when it issued its first two findings of infringement of the city’s competition law regime.

The judgments serve as a reminder to the Hong Kong business community that the Hong Kong Competition Ordinance (“the Ordinance”) has teeth, and that the Hong Kong Competition Commission (“Commission”) will actively prosecute anticompetitive conduct before the Tribunal.

Competition Law in Hong Kong

The Ordinance, which came into force in December 2015, is the city’s first comprehensive competition law regime. To a large extent, the Ordinance is based on EU competition law.

As with EU law, the Ordinance prohibits agreements or concerted practices between market participants, the object or effect of which is to prevent, restrict or distort competition in Hong Kong (“the First Conduct Rule”). It is the First Conduct Rule that was at issue in the judgments of 17 May 2019.

The Ordinance also contains a prohibition on abuses of a dominant position, the so-called Second Conduct Rule.

The Commission investigates potential breaches of the Ordinance, and enforces the Ordinance by bringing proceedings before the Competition Tribunal.

The IT Tender Case

In March 2017, the Commission announced that it was commencing proceedings in the Tribunal against five IT companies. The allegations related to a tender issued by the Hong Kong Young Women’s Christian Association in July 2016 to replace the IT servers at its headquarters. The Commission alleged that the IT companies who bid for the work in 2016 had entered into bilateral and trilateral agreements in order to ensure that one company won the tender (usually referred to as “bid rigging”).

On 17 May 2019, the Tribunal found that four of the five companies involved in the tender had infringed the First Conduct Rule by engaging in bid rigging – conduct which the Tribunal considered had as its object the prevention, distortion or restriction of competition. Drawing on EU case law, the judgment in the IT Tender Case confirms that if an agreement is a restriction “by object”, it is not necessary to consider its actual effects on competition.

The application against one of the IT service providers was dismissed because the Tribunal found that the conduct of the junior employee who agreed to submit the tender document was not attributable to the company in question.

The Renovation Cartel

In a separate judgment, the Tribunal found that ten Hong Kong decorating contractors had violated the Ordinance by fixing prices and allocating markets and customers between them. The decorators had been appointed by the Hong Kong Housing Authority to renovate three buildings in a public rental housing estate in Kwun Tong (“the Estate”).

The Tribunal found that the decorators had allocated between themselves designated floors in each of the three buildings in the Estate to carry out decoration work for individual tenants.

The decorators agreed not to actively seek business from tenants on floors allocated to the other respondents and, if approached by those tenants, would decline the business (unless the tenants insisted otherwise) and direct them to the respondents who had been allocated the relevant floors. It was also found that the respondents jointly produced a promotional flyer to be distributed to tenants which set out package prices agreed by the decorators. As with the IT Tender Case, the Commission contended and that Tribunal agreed that these arrangements contravened the First Conduct Rule.

The Tribunal’s Approach – Global Competition Law and Hong Kong Peculiarities

Over the years, it can be expected that Hong Kong will build up its own body of legal precedents and interpretations of the Ordinance. However, while the law remains in its infancy, the Tribunal has no local precedent to rely on. Accordingly, both judgments referred extensively to EU law throughout, and make clear that the Tribunal considers EU law to be a valuable resource in interpreting the Ordinance. In addition, both judgments refer to academic writing and practitioner texts from the EU and further afield.

This highlights that, while Hong Kong’s competition law remains in its infancy, those advising on the law, enforcing the law and also those subject to the law will need to continue to look internationally for guidance.

While global precedents will play an important role in interpreting the Ordinance in the coming years, the Hong Kong competition law regime still has its own special features and the IT Tender Case indicates that the Tribunal will diverge from other jurisdictions’ approach when appropriate.

For example, the Ordinance requires the Commission to issue a warning notice to a company under investigation before enforcement proceedings are issued, unless the alleged breach amounts to serious anti-competitive conduct. This regime is not commonly found in other jurisdictions.

In the IT Tender Case, the Commission did not issue such a warning notice, on the basis that the case involved serious anti-competitive conduct. The Tribunal found that there was no need for such a notice to be issued in the case. Given the Commission’s initial focus on cartel conduct in Hong Kong, which will almost always constitute serious anti-competitive conduct, businesses should therefore be aware that proceedings may often be launched without the issue of a warning notice first.

Furthermore, the IT Tender Case indicates that there are areas where the Tribunal will strike out on its own – in this particular case in relation to the standard of proof that the Commission must satisfy before the Tribunal. While noting that the civil standard of proof of “balance of probabilities” is adopted in many other jurisdictions (including Australia, Canada, New Zealand, Singapore and the UK), the Tribunal came to the conclusion that, in the absence of express provision or necessary implication by statute and based on previous precedent, the Tribunal was obliged to apply a standard of proof “beyond reasonable doubt”. This shows that the Commission will face a significant burden when bringing cases before the Tribunal. However, the fact that the Commission’s first two prosecutions were successful clearly shows that this standard is not insurmountable.

Next Steps

The question of penalties in both cases will be dealt with at a further hearing. The Commission is likely to push for significant financial penalties to show to the Hong Kong business community that a breach of competition law will not be taken lightly. Whether the Tribunal will follow the approach to penalties used in the EU and other jurisdictions remains to be seen. What is clear, however, is that the Ordinance is now well and truly in force and these judgments serve as a reminder to the business community to ensure they are in full compliance with competition law.

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