Competition Law in Hong Kong: An Overview of the Competition Ordinance

Introduction

Hong Kong's Competition Ordinance (Cap. 619) came into full force on 14 December 2015, marking a significant development in Hong Kong's legal landscape. For the first time, Hong Kong businesses were subject to a comprehensive competition law regime that prohibits anti-competitive agreements, abuses of market power, and (in the telecommunications sector) anti-competitive mergers.

The Ordinance is administered and enforced by the Competition Commission, an independent statutory body, and disputes are adjudicated by the Competition Tribunal, a specialist court within the Hong Kong judiciary. Since its commencement, the Commission has brought a number of enforcement actions and developed a growing body of guidance on its interpretation of the law.

This guide provides an overview of Hong Kong's competition law framework, the key prohibitions, enforcement mechanisms, and practical compliance guidance for businesses operating in Hong Kong.

The Three Core Rules

The Competition Ordinance contains three primary rules that prohibit different types of anti-competitive conduct.

The First Conduct Rule

The First Conduct Rule prohibits undertakings from making or giving effect to agreements, engaging in concerted practices, or decisions by associations of undertakings that have the object or effect of preventing, restricting, or distorting competition in Hong Kong.

The most serious category of anti-competitive agreements under the First Conduct Rule are "serious anti-competitive conduct" (SACC), which includes:

• Price fixing: Agreements between competitors to fix, control, or maintain prices
• Market sharing: Agreements to allocate customers, suppliers, territories, or markets between competitors
• Bid rigging: Agreements to manipulate tendering processes, including cover pricing and bid suppression
• Output restrictions: Agreements to limit or control production, market outlets, technical development, or investment

SACC is treated as a per se infringement under the Ordinance — the Competition Commission does not need to demonstrate that the conduct has an anti-competitive effect, only that it has an anti-competitive object. This reflects the approach taken in many other jurisdictions to hard-core cartel conduct.

Agreements that do not constitute SACC may still infringe the First Conduct Rule if they have an appreciable anti-competitive effect in Hong Kong, taking into account the nature and extent of the restriction, the market position of the parties, the structure of the market, and other economic factors.

The Second Conduct Rule

The Second Conduct Rule prohibits undertakings with a substantial degree of market power from abusing that power by engaging in conduct that has the object or effect of preventing, restricting, or distorting competition in Hong Kong.

Conduct that may constitute an abuse of substantial market power includes predatory pricing, tying and bundling, exclusive dealing, margin squeeze, and refusal to deal. The Ordinance does not define "substantial degree of market power" precisely; the Commission's guidance indicates that market share is one indicator but not determinative.

Importantly, the Second Conduct Rule does not prohibit the mere possession of market power or the ability to set prices above competitive levels — it is the abuse of that power that is prohibited.

The Merger Rule

The Merger Rule applies only to mergers involving telecommunications licensees and prohibits mergers that have, or are likely to have, the effect of substantially lessening competition in Hong Kong. The Merger Rule does not apply to mergers in other sectors, which is a significant difference from the merger control regimes in many other jurisdictions (such as the European Union, the US, and mainland China, which all have general merger review requirements).

This is a notable gap in Hong Kong's competition framework, and there has been ongoing debate about whether general merger control should be introduced in Hong Kong.

Exclusions and Exemptions

The Competition Ordinance contains a number of exclusions and exemptions that limit the scope of the First and Second Conduct Rules. Key exclusions include:

• Statutory bodies: Government departments and statutory bodies are generally excluded from the Ordinance (subject to certain exceptions)
• Agreements of lesser significance: Agreements between undertakings whose combined turnover does not exceed HK$200 million in the relevant year are excluded from the First Conduct Rule (but not from the SACC provisions)
• Conduct of lesser significance: Undertakings whose turnover does not exceed HK$40 million are excluded from the Second Conduct Rule
• Agreements enhancing overall economic efficiency: Agreements that would otherwise infringe the First Conduct Rule may be excluded if they contribute to improving production or distribution, or promoting technical or economic progress, in ways that benefit consumers and that do not go beyond what is necessary

Enforcement

The Competition Commission

The Competition Commission is the primary enforcement authority under the Ordinance. It has broad investigative powers, including the power to require the production of documents and information, conduct searches of premises, and interview individuals. The Commission may investigate complaints or commence investigations on its own initiative.

When the Commission concludes that an infringement has occurred, it may:

• Apply to the Competition Tribunal for orders, including pecuniary penalties, injunctions, declarations of infringement, and director disqualification orders
• Accept commitments from the undertaking to address the competition concern
• Issue a warning notice or infringement notice in cases of lesser significance

Pecuniary penalties under the Ordinance may be imposed on undertakings of up to 10% of the turnover of the undertaking in Hong Kong for each year of infringement (up to a maximum of three years).

The Competition Tribunal

The Competition Tribunal is a specialist court that hears cases brought by the Commission and private actions by persons who have suffered loss as a result of a contravention. The Tribunal has the power to impose pecuniary penalties, grant injunctions, award damages, and make director disqualification orders.

Leniency Programme

The Commission operates a leniency programme that may provide immunity from pecuniary penalties or a reduction in penalty for undertakings that report cartel conduct and cooperate with the Commission's investigation. The programme is designed to encourage cartel members to come forward and assist the Commission in building its case.

First-in leniency (providing full immunity from penalty) is available to the first cartel member that reports the conduct and meets the conditions for leniency. Subsequent applicants may be eligible for a reduction in penalty, depending on the value of their cooperation.

Private Actions

In addition to enforcement by the Commission, the Ordinance permits private parties who have suffered loss as a result of a contravention to bring a follow-on action in the Competition Tribunal to seek damages. Private actions may only be brought after the Tribunal has made a determination of infringement (or certain other specified decisions); standalone private actions are not available.

Compliance Considerations for Businesses

Hong Kong businesses should take competition law compliance seriously. Key practical steps include:

• Implementing a competition law compliance programme: This should include written policies, staff training, and internal reporting procedures. Senior management buy-in is essential
• Reviewing information exchange arrangements: Sharing price, cost, customer, or market information with competitors carries significant competition risk, even if there is no explicit agreement to fix prices
• Reviewing distribution and supply arrangements: Exclusive distribution agreements, resale price maintenance, and territorial restrictions may infringe the First Conduct Rule if they appreciably restrict competition
• Assessing market power: Businesses with significant market share should review their commercial practices for potential abuse of market power issues, particularly with respect to pricing, bundling, and dealings with competitors
• Seeking legal advice before entering into joint ventures or collaborations: Commercial arrangements with competitors carry particular competition law risk and should be reviewed by legal counsel before implementation

How Alan Wong LLP Can Help

Alan Wong LLP advises businesses on all aspects of Hong Kong competition law compliance and enforcement. Our services include:

• Advising on the competition law implications of commercial agreements, distribution arrangements, and joint ventures
• Assessing the risk of conduct under the First and Second Conduct Rules
• Designing and implementing competition compliance programmes
• Advising on the leniency programme and cooperation with Competition Commission investigations
• Representing clients in Competition Tribunal proceedings and private actions
• Advising on merger transactions in the telecommunications sector

Conclusion

Hong Kong's Competition Ordinance has established a comprehensive framework for preventing anti-competitive conduct and protecting the integrity of Hong Kong's markets. With an active Competition Commission and a growing body of enforcement decisions and precedent, compliance with the Ordinance is an increasingly important consideration for businesses operating in Hong Kong. Early legal advice can help businesses assess their risk exposure and implement effective compliance measures.

This article is for general information purposes only and does not constitute legal advice. For advice on specific competition law matters, please contact Alan Wong LLP.