A BRIEF OUTLINE OF THE COMPETITION ORDINANCE

The Competition Ordinance, Cap.619 ("the Ordinance") comes into effect on 14 December 2015.  The Ordinance is based primarily on Articles 101 and 102 Treaty on the Functioning of the European Union Regulation 1/2002 and UK Competition Act 1998 and the Enterprise Act 2002.

It is believed that consumers will benefit from competition in the market place and anti-competition behavior will not only reduce choice but also efficiency.

The Ordinance introduces 3 sets of rules to govern the conducts of the market participants.

First Conduct Rule

Section 6(1) of the Ordinance set out the "First Conduct Rule", which provides that an undertaking must not (a) make or give effect to an agreement; (b) engage in a concerted practice; or (c) as a member of an association of undertakings, make or give effect to a decision of the association, if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong.

The First Conduct Rule applies to any entity including a natural person engaged in economic activity with a turnover of more than HK$200m.  It applies not only to agreements and arrangements involving business which compete with one another, but also to undertakings which are not competitors, so long as the agreements or arrangements have the objective or effect of harming competition in Hong Kong.   The First Conduct Rule applies also where there is an agreement or concerted practice.  Members of trade associations are prohibited from making or giving effect to trade association decisions which harm competition.  It is also worth noting that this rule applies even though the impugned conduct takes place or the parties involved are located outside Hong Kong.

Second Conduct Rule

Section 21 of the Ordinance sets out the "Second Conduct Rule" which provides that an undertaking which has a substantial degree of market power in a market must not abuse the power by engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong.  The Second Conduct Rule does not apply to undertakings with an annual turnover of HK$40m or less.  So it applies where the undertaking concerned has a substantial degree of market share/power in a market.

Both the First and Second Conduct Rules apply to all sectors of the Hong Kong economy.

The Merger Rule

The Merger Rule prohibits anti-competition mergers and acquisition.  At present, it applies only to mergers involving holders within the meaning of the Telecommunication Ordinance (Cap.106).

Exclusions and exemptions

The Ordinance provides a wide range of exclusions and exemptions.

The Commission

The Competition Commission is the principal competition authority responsible for enforcing the Ordinance.  The Commission has wide investigative powers to service notices for interview and demand production of documents and information.  The Commission can also apply to the High Court for search warrants.

The Commission also has power to enter into leniency agreements and to encourage "whistleblowers" making complaints and to give evidence which would otherwise be difficult to detect.

The Competition Tribunal can prosecute and hear complaints.  The Tribunal will be presided by judges of the High Court and has the same power, rights and privileges of the Court of First Instance.

Albert Lam

August 2018