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1. Pitfalls under Hong Kong's new Competition Ordinance.............................................................................. 1
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of market power. Conversely, this could be seen as a risk that undertakings with market shares as low as 25%
could be considered as having a substantial degree of market power, and would therefore have to adapt their
conduct to ensure they do not breach the Second Conduct Rule. It is expected that the Competition
Commission, once established, will issue guidelines (similar to the Competition Guidelines issued by the
Communications Authority) to offer a clearer indication on what will constitute "substantial degree of market
power".
The Second Conduct Rule does not apply to conduct to the extent that it is engaged in for the purpose of
complying with a legal requirement, nor does it apply to an undertaking entrusted by the Hong Kong
government to operate services of general economic interest. In addition, it does not apply to conduct engaged
in by an undertaking with a combined worldwide annual turnover which does not exceed HK$40 million. Again,
turnover is to be determined in accordance with regulations to be promulgated under the Ordinance.
Exemptions
In addition to the exclusions mentioned above, the Ordinance provides for exemptions for most statutory bodies
in Hong Kong, as well as the possibility of exemptions being granted on public policy grounds or to avoid conflict
with Hong Kong's international obligations.
Merger Rule
The Merger Rule prohibits an undertaking from, directly or indirectly, carrying out a merger that has, or is likely
to have, the effect of substantially lessening competition in Hong Kong. For the time being, the Merger Rule will
only be applicable to holders of carrier licences under the Telecommunications Ordinance. The Merger Rule
applies to a merger even if the merger occurs outside Hong Kong or the parties are located outside Hong Kong.
The Merger Rule does not apply to a merger if the economic efficiencies that arise or may arise from the merger
outweigh the adverse effects caused by any lessening of competition in Hong Kong. A specified merger may
also be exempted on public policy grounds.
Enforcement
A new body, the Competition Commission will be established to conduct investigations into any anti-competitive
conduct.
The Commission has power to investigate complaints and to conduct investigations into any conduct that
contravenes or may contravene a competition rule of its own volition, where it has received a complaint, where
the Court of First Instance or the Tribunal has referred any conduct to it, or where the Government has referred
any conduct to it for investigation.
The Commission's investigative powers include powers to obtain documents and information, require any
person to attend before the Commission to answer questions, enter and search premises, and take possession
of any relevant document and computers upon a warrant issued by the court.
It is an offence, punishable by fine or imprisonment, to fail to comply with a requirement or prohibition imposed
by the Commission in the exercise of its powers of investigation, to destroy or falsify documents, to obstruct the
Commission in the exercise of its powers of search and seizure, or to provide false or misleading documents or
information. However, legal professional privilege is protected.
Parties subject to an investigation by the Commission can offer a commitment to take any action, or refrain from
taking any action, that the Commission considers appropriate to address its concerns about a possible
contravention of a competition rule. If the Commission accepts a commitment it may agree not to commence an
investigation or terminate an investigation which as commenced.
When the alleged anti-competitive conduct involves agreements qualifying as serious anti-competitive conduct
under the First Conduct Rule or abuses of a substantial degree of market power under the Second Conduct
Rule, the Commission may, instead of bringing proceedings in the Tribunal in the first instance, issue an
infringement notice setting out the commitments that the alleged violator must enter into if it wants to avoid a
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procedure before the Tribunal. The Commission may also enter into a leniency agreement with a person in
exchange for that person's co-operation in an investigation or proceedings. The Commission must not bring or
continue proceedings for a pecuniary penalty in breach of a leniency agreement.
If the Commission has reasonable cause to believe that a contravention of the First Conduct Rule has occurred
that does not involve serious anti-competitive conduct, it must, before bringing any proceedings in the Tribunal
against the alleged violator, issue a warning notice to the relevant undertaking requesting that the undertaking
cease its anti-competitive behavior within a specified period of time. Only if the undertaking fails to comply with
the warning notice may the Commission pursue the case before the Tribunal.
The Commission will have concurrent jurisdiction with the Communications Authority in matters relating to
telecommunications and broadcasting, subject to the two authorities agreeing on arrangements to handle
matters in which they both have jurisdiction.
Competition Tribunal
The Competition Tribunal to be established under the Ordinance is a superior court of record and will consist of
the judges of the High Court of Hong Kong. One of the members will be appointed as President of the Tribunal.
The Tribunal has jurisdiction to hear and determine, amongst others, applications made by the Commission with
regard to alleged contraventions of the conduct rules, private actions concerning contravention of the conduct
rules, and applications for review of determinations of the Commission. The Tribunal has all the powers, rights
and privileges of a superior court of record including the power to require attendance of witnesses, production
and inspection of documents and enforcement of its orders. A decision, determination or order of the Tribunal is
subject to appeal, as of right, to the Court of Appeal, with limited exceptions.
Decisions and guidelines
The Competition Ordinance provides procedures for applications to be made to the Commission as to whether
an agreement or conduct is excluded or exempt from the First or Second Conduct Rules or the Merger Rule.
Undertakings may apply to the Commission for a formal decision as to whether conduct complies with the
Ordinance. However, the Commission will only be required to issue a decision if the application pertains to
novel or unresolved questions of wider importance or public interest in relation to the application of the
Ordinance, or to a question for which there is no clarification in existing case law or decisions of the
Commission.
The Commission is also required to issue guidelines as to how certain provisions of the Ordinance will be
applied.
Penalties
Upon finding anti-competitive conduct, the Tribunal may impose a fine on a person who has contravened or
been involved in a contravention of a conduct rule. Such fine will be payable to the government and in an
amount considered appropriate by the Tribunal, but such fine may not exceed 10% of the total gross revenue in
Hong Kong for each year of contravention, up to a maximum of three years. There is a five-year limitation period
for imposition of pecuniary penalties for contravention of the conduct rules, and 6 months for contravention of
the Merger Rule.
In addition to imposing pecuniary penalties, the Tribunal may make any other order it considers appropriate,
including declaring any agreement to be void, ordering defendants to pay damages or disgorge profits, ordering
undertakings to refrain from engaging in the relevant anti-competitive conduct, as well as making a
disqualification order prohibiting a person from being a company director.
In relation to an anticipated merger that, if carried into effect, would result in a merger that is likely to contravene
the Merger Rule, the Tribunal may issue orders ordering the relevant parties not to proceed.
Private actions
One of the concerns raised during the legislative process was that the Competition Ordinance would lead to a
flood of litigation. As a result, the Ordinance includes a significant limitation on the ability to bring private
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lawsuits for alleged anti-competitive conduct and a private action (called a follow-on action) can only be brought
by a person who has suffered loss or damage as a result of any act that has been determined to be a
contravention of a conduct rule after the Competition Tribunal has ruled that there has been anti-competitive
conduct. The limitation period for follow-on actions is three years.
The Government has stated that it will reconsider the need for the introduction of stand-alone rights of private
action a few years after the implementation of the Ordinance.
The Ordinance will come into effect on a day to be appointed by the Hong Kong Secretary for Commerce and
Economic Development by notice published in the Hong Kong Government Gazette.
Getting ready
In preparation for the time when the new Ordinance comes into effect, businesses should do the following:
Determine whether their annual turnover is below the applicable thresholds for exemption under the First
Conduct Rule and the Second Conduct Rule Determine whether their market share is below 25% If their
turnover is above the relevant thresholds, undertake a review of all their existing activities and dealings,
especially with competitors, including: contracts and spot purchases/sales agreements, concerted practices or
decisions with competitors; direct or indirect exchanges of information with competitors; participation in trade
associations and other situations where their directors, officers or employees may come into contact with
competitors; adopt and implement compliance programs, policies and procedures to ensure compliance with the
Ordinance or consider applying for block exemptions
The authors would like to thank Emily Lam, Nick Taylor and Peter Wang for their assistance with this article.
Don Hess
Jones Day
29th Floor, Edinburgh Tower
The Landmark
15 Queen's Road Central
Hong Kong
T: +852.3189.7211
F: +852.2868.5871
E: dhess@jonesday.com
W: www.jonesday.comDon Hess focuses on cross-border M&A, joint ventures, private equity and venture
capital, corporate governance, commercial contracts, and telecommunications. He has a wealth of experience
in corporate strategic and operational decision-making in various industries. Based in Hong Kong since 1994,
Don has practised as a lawyer in Australia, the US and Hong Kong, and has more than 20 years experience
advising clients doing business in Asia. He has acted for global clients such as All Nippon Airways, Amcor,
DuPont, Kraft Foods, Macquarie Bank Group, Schneider Electric, Sinopec and Thomson. His experience
includes several years as director of legal affairs and company secretary of publicly listed telecommunications
company Cable &Wireless HKT (formerly called Hong Kong Telecommunications or Hongkong Telecom) and,
following its acquisition of Hong Kong Telecom in August 2000, as general counsel and company secretary of
PCCW. Don is admitted as a solicitor in Hong Kong, and he is a member of the bars of Victoria (Australia), New
York, and California.
Sebastien Evrard
Jones Day
32nd Floor, China World Office 1
No.1 Jianguomenwai Ave
Beijing 100004
T: +86.10.5866.1112
F: +86.10.5866.1122
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E: sjevrard@jonesday.com
W: www.jonesday.comSebastien Evrard handles complex antitrust matters in China and the EU, including
merger control, non-merger investigations, and litigation. His practice also focuses on the antitrust aspects of
intellectual property rights. Sebastien's experience spans a wide range of industries including aviation, mining
&energy, media &entertainment, software &hardware, telecommunications, pharmaceuticals, transport, and fast
moving consumer goods. He has represented clients before the EC, various European national competition
authorities, telecom regulators, and the Consumer Ombudsmen in Belgium, the Netherlands, the Nordic
countries, and the UK. He has represented clients before courts in Belgium, France, and Germany. His
representative clients include Abbott, Adobe, American Airlines, Apple, Dell, Entreprise des Postes et
Telecommunications, ICANN, KPN Group, Procter &Gamble, SanDisk, SES ASTRA, and Viacom/MTV.
Sebastien practiced in Brussels and New York before joining Jones Day in 2003. He is a coauthor of AntiMonopoly Law and Practice (Oxford University Press, 2011), a treatise on competition law in China.
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Publication title: International Financial Law Review
Publication year: 2012
Publication date: Oct 2012
Publisher: Euromoney Institutional Investor PLC
Place of publication: London
Country of publication: United Kingdom
Publication subject: Business And Economics--Banking And Finance, Law--International Law
ISSN: 02626969
Source type: Scholarly Journals
Language of publication: English
Document type: News
ProQuest document ID: 1284604753
Document URL: http://search.proquest.com/docview/1284604753?accountid=14229
Copyright: ( (c) Euromoney Institutional Investor PLC Oct 2012)
Last updated: 2014-02-22
Database: ABI/INFORM Complete,Accounting & Tax,Banking Information Source
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Bibliography
Citation style: APA 6th - American Psychological Association, 6th Edition
Pitfalls under hong kong's new competition ordinance. (2012). International Financial Law Review, Retrieved
from http://search.proquest.com/docview/1284604753?accountid=14229
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