Competition Ordinance basics: what Hong Kong businesses must know about Cap. 619

Competition Ordinance Basics for Hong Kong Businesses

The Hong Kong Competition Ordinance (Cap. 619) came into full effect on 14 December 2015. It introduced Hong Kong's first cross-sector competition law regime. The ordinance prohibits anti-competitive conduct, addresses abuses of market power, and regulates mergers that substantially lessen competition in Hong Kong.

The Three Conduct Rules

The Competition Ordinance establishes three core prohibitions. The Hong Kong Competition Commission enforces them. The Competition Tribunal adjudicates them.

First Conduct Rule: Anti-Competitive Agreements

The First Conduct Rule prohibits agreements, concerted practices, and decisions by associations of undertakings that prevent, restrict, or distort competition in Hong Kong. This rule catches formal written contracts and informal understandings, including verbal arrangements and the knowing exchange of commercially sensitive information.

Cartel conduct is a serious breach. It includes price fixing, market sharing, bid-rigging, and output restrictions. These are presumed to harm competition and attract the highest penalties. The Competition Commission may impose financial penalties of up to 10% of the group's Hong Kong turnover for each year of infringement, capped at three years.

Second Conduct Rule: Abuse of Substantial Market Power

The Second Conduct Rule prohibits an undertaking with substantial market power in a relevant market from abusing that power. The conduct must have the object or effect of preventing, restricting, or distorting competition in Hong Kong.

Abuse includes predatory pricing, refusing to supply essential inputs, anti-competitive product tying or bundling, and exclusive dealing that forecloses competition. The Competition Commission must prove two things: the undertaking has substantial market power, and its conduct is an abuse. Possessing substantial market power is not illegal. The rule targets only exclusionary conduct.

Merger Rule

The Merger Rule applies only to mergers that directly or indirectly involve a telecommunications carrier licensee. Mergers in all other sectors are not subject to the Competition Ordinance's merger control provisions. Where the Merger Rule applies, the Competition Commission may investigate and the Competition Tribunal may prohibit or unwind a merger that substantially lessens competition in Hong Kong.

Competition Ordinance Cap. 619: Scope and Exemptions

The Competition Ordinance Cap. 619 applies to all sectors of the Hong Kong economy, including services, manufacturing, retail, and professional activities. Certain entities and conduct are exempt.

Statutory exemptions cover conduct required by legislation, conduct that complies with a block exemption order, and conduct that meets the de minimis threshold. For the First Conduct Rule, the threshold is combined turnover in Hong Kong not exceeding HK$200 million. For the Second Conduct Rule, the undertaking's turnover must not exceed HK$40 million.

Block exemptions cover specific agreement categories where economic benefits outweigh anti-competitive effects. The Competition Commission may issue block exemption orders for research and development agreements, specialisation agreements, or vertical agreements. Individual exemptions may be granted on application to the Competition Commission for a particular agreement or conduct that meets the exemption criteria.

Hong Kong Competition Law Compliance: Building a Programme

A robust Hong Kong competition law compliance programme reduces infringement risk. It can also be a mitigating factor if the Competition Commission investigates. The Commission has published a compliance guidance note outlining an effective programme's key elements.

Start with a risk assessment. Identify business areas where competition law risks arise, such as trade association participation, pricing information exchanges, and competitor dealings. Adopt written policies that prohibit cartel conduct, set rules for competitor contact, and establish a process for seeking legal advice before entering into concerning arrangements.

Deliver regular, role-specific training to employees who interact with competitors, attend industry meetings, or handle pricing or sales. Conduct periodic monitoring and auditing, including reviewing communications and attending trade association meetings. Provide a confidential channel for employees to report suspected breaches. Management must respond promptly. If a breach is identified, take corrective steps, including self-reporting to the Competition Commission under its leniency policy.

Hong Kong Competition Commission: Role and Powers

The Hong Kong Competition Commission is the independent statutory body that enforces the Competition Ordinance. Its powers include conducting investigations, requiring documents and information, entering premises under a warrant to search and seize evidence, issuing infringement or warning notices, commencing proceedings before the Competition Tribunal, accepting commitments from undertakings, and issuing guidelines and block exemption orders.

The Commission operates a leniency policy. It grants immunity or reduced penalties to the first cartel member that reports the cartel and cooperates fully with the investigation. This policy applies only to cartel conduct under the First Conduct Rule.

Hong Kong Anti-Competitive Agreements: What to Avoid

The most common compliance risk for Hong Kong businesses is entering into anti-competitive agreements, often inadvertently through trade association activities or informal competitor discussions.

Do not discuss pricing, discounts, costs, or trading terms with competitors. Leave any meeting where competitors discuss commercially sensitive information. Keep minutes of trade association meetings and record any objections to anti-competitive discussions. Do not exchange information on future pricing, capacity, or strategy. Ensure legal advisers review joint ventures, distribution agreements, and franchise agreements for competition law compliance.

Competition Tribunal: Enforcement and Remedies

The Competition Tribunal is a specialist court that hears competition cases. It can declare conduct contravenes the Competition Ordinance, impose financial penalties of up to 10% of the group's Hong Kong turnover for each year of infringement capped at three years, grant injunctions, order disgorgement of profits, award damages to parties who suffered loss, and make costs orders.

Directors and employees face disqualification orders. The Tribunal may prohibit an individual from being a director of any Hong Kong company for up to 15 years if their conduct contributed to a competition law infringement.

Practical Summary for Directors and In-House Counsel

The Competition Ordinance applies to all businesses operating in Hong Kong. Directors and senior management are personally responsible for ensuring their company does not engage in anti-competitive conduct. A written compliance programme, regular training, and careful monitoring of competitor interactions are essential risk management tools.

If a potential infringement is identified, seek legal advice promptly. Consider whether to self-report to the Competition Commission under the leniency policy. Early cooperation can significantly reduce penalties and avoid disqualification orders against directors.