Rundown on the first year of competition law enforcement in Hong Kong

Key trends and developments are summarised below.

Complaints and enquiries

By mid-2016, the HKCC had received some 1250 cases for potential enforcement and begun 10 in-depth probes.

The majority of cases related to resale price maintenance, cartel conduct and abuses of substantial market power.

The HKCC escalated 119 cases to the initial assessment phase to identify whether it was reasonable to conduct investigations and whether there was sufficient evidence. Most of these escalated cases related to cartel conduct.

The major sectors involved were:

In late October, the Hong Kong Competition Commission ("HKCC") published its 2015/2016 annual report, the first since the Competition Ordinance ("Ordinance") came into full force on 14 December 2015. No case has yet been brought in the Competition Tribunal but Hong Kong's enforcement authority, the HKCC, has already taken a number of enforcement actions and concrete changes in business practices have been reported. 

Barely a year into the cross-sector competition regime, Hong Kong has already seen:

  • public consultation and market studies on the electricity market, building renovation and auto fuel industries
  • first publicised enforcement action against recommended pricing by a trade association
  • first dawn raids targeting bid-rigging in the technology sector
  • first proposed block exemption for certain liner shipping agreements, and
  • first case involving competition elements in the High Court.  
  • professional & technical services;
  • transport, logistics & storage;
  • food & groceries;
  • real estate & property management;
  • construction & infrastructure; and
  • banking, financial & insurance products & services.

Public consultations and market studies

The government conducted a public consultation on the electricity market and in response the HKCC recommended setting up an independent advisory board to consider, amongst other things, granting network access for new entrants and setting up a wholesale electricity market.

The HKCC has conducted market studies into:

  • residential building renovation and maintenance. The study into 500 past project tender records confirmed public views that bid manipulation had occurred in this sector.
  • auto fuel in response to public concerns over price uniformity.  It expects to publish the results by year end.  

Trade associations

The HKCC initiated a compliance project and reviewed published practices of over 350 associations. It identified over 20 associations whose practices placed them at risk of contravening the Ordinance. The key risk areas identified included:

  • price recommendations or fee scales, and
  • codes of conduct or rules restricting price competition.

Many of these trade associations have voluntarily stopped publishing price restrictions and fee scales for members.

The HKCC publicised its first sector-specific enforcement action on 31 May 2016. This was against the price recommendation by the Hong Kong Newspaper Hawker Association for branded cigarettes. The association withdrew its price recommendation following meetings with the HKCC.

Bid-rigging and dawn raids

There has been significant media coverage in relation to bid-rigging in the building renovation and maintenance sector, and more cases are coming to light.

In relation to a recent bribery case involving subcontractors conspiring to manipulate tender outcomes, the HKCC noted that bid-rigging is a complex issue and may sometimes involve elements that contravene different areas of law. Had the conduct taken place after 14 December 2015, it would have been bid-rigging under the Ordinance.   
 
Building renovation and maintenance is not the only sector facing bid-rigging. The HKCC is reported to have conducted dawn raids targeting the technology sector for suspected bid-rigging. In particular, the HKCC is reported to have conducted a dawn raid of a software company, and summoned its executives for questioning in a cartel probe. The HKCC has not yet announced details of the probe, but has reportedly conducted six dawn raids since the commencement of the Ordinance.
 
Block exemptions

On 17 December 2015, three days after the Ordinance came into full force, the Hong Kong Liner Shipping Association ("HKLSA") made the first application for a block exemption order in respect of vessel sharing agreements ("VSAs") and voluntary discussion agreements ("VDAs").

According to the HKLSA, VSAs and VDAs are complementary and necessary for the proper functioning of the liner shipping industry which is characterised by unusually high fixed and operating costs. In its non-confidential summary of the application, the HKLSA stated that:

  • VSAs brought about increased service quality, cost and port capacity efficiencies, decreased costs of entry and expansion, and environmental benefits. 
  • VDAs brought about rate stability, service stability, and rate and surcharge transparency, enabling better planning and budgeting of long-term shipping costs.  

On 14 September 2016, the HKCC published a proposed block exemption order exempting VSAs subject to certain conditions (including a 40% market share cap) for a period of five years. VDAs on the other hand were not considered to fall within the scope of exclusion for agreements enhancing overall economic efficiency.

The HKCC is now inviting representations from interested parties by 14 December 2016.

First lawsuit involving competition law

In February 2016, Loyal Profit International Development, a travel agency, applied to the High Court for injunctions against directives issued by the Travel Industry Council ("TIC"), which were described as "outright anti-competitive."

In a move circumventing the Ordinance's bar on standalone actions, Loyal Profit is not claiming contravention of a conduct rule but instead claims contravention of the Companies Ordinance, pursuant to which the TIC has acted in excess of its powers as limited by its articles. 

The case will be heard in February 2017. 

Conclusions

Although it has taken nearly two decades to adopt a cross-sector competition law, Hong Kong has had a relatively active first year of competition enforcement.
 
The HKCC acknowledges in its 2015/2016 annual report that its resources are limited. This inevitably means that the HKCC will have to prioritize which cases it chooses to investigate, and which cases it will bring to the Competition Tribunal. For now at least, it appears that the HKCC's focus will continue to be on cartels, particularly where bid-rigging is suspected to be involved.



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