Hong Kong Competition Commission Releases 2017/2018 Annual Report

The Hong Kong Competition Commission (Commission) recently published its 2017/2018 Annual Report (available here) detailing its objectives, mission, and activities for the year ending 31 March 2018. Although the report is not (strictly speaking) a legal document, it offers insight into potential enforcement and policy initiatives going forward, including a focus on hardcore cartels, abuses of market power, new leniency initiatives, and the creation of a culture of competition in Hong Kong.

Enforcement

Commission Chairperson Anna Wu emphasized that the Commission will continue to focus on hardcore cartels, which have been the primary focus of its enforcement efforts over the last year. Indeed, the first case before the Competition Tribunal—Nutanix—which relates to alleged bid rigging by IT companies (see our coverage of the case here)—recently went to trial. Other cartel cases—including a case involving charges against individuals (see our coverage here)—are progressing apace and relate to market sharing and price fixing in the construction sector. Chairperson Wu says these contraventions are cardinal sins amounting to serious anti-competitive conduct under the Competition Ordinance (CO). They will continue to result in Competition Tribunal proceedings (without requiring the Commission to issue a Warning Notice). Although it is not cited in the Annual Report, we have seen a first example of a defendant raising a competition defence in a recent High Court case. This led to the transfer of the case to the Competition Tribunal (see our co-coverage here). 

Chairperson Wu also indicated that the Commission will not shy away from pursuing abuse of substantial market power cases. In fact, abuses involving exclusionary behaviour are part of the Commission’s official Enforcement Policy (available here).

These early enforcement actions will soon provide precedent detailing how the Tribunal interprets Hong Kong’s Competition Ordinance. 

CEO Brent Snyder announced promising investigations following both public complaints to the Commission and the use of the Commission’s powers to gather information and conduct dawn raids. At a recent Competition Exchange event organised by the Commission, Chairperson Wu said the Commission received 3,200 complaints and queries to date (798 over the period covered by the Annual Report). 

Compared to past years, however, there has been a decrease in enforcement contacts it would seem—i.e. complaints and queries—from 1,185 to 789 (the Commission’s prior annual report is available here). The number of both initial assessments—the process whereby the Commission assesses whether it is reasonable to conduct an investigation or use its powers—and investigations have fallen from 69 to 36. The main sector involved in initial assessments and investigations remains real estate and property management (both the second and third cases before the Tribunal relate to these sectors). The IT sector is a distant second. Machinery, equipment, and transport, as well as logistics and storage, are new entrants in the Top 5. 

Interestingly, the Commission mentions that it transferred 32 complaints to the Communications Authority, which has concurrent jurisdiction over competition matters in the broadcasting and telecommunications sectors. Although the Annual Report does not provide further information, the latest decision issued by the Communications Authority under the Telecommunications Ordinance was 30 June 2014, while the last decision under the Broadcasting Ordinance was 19 September 2013. 

Finally, it appears that the Commission is ramping up with enforcement efforts as its financial expenses nearly tripled, it received a 25 percent increase in annual funding, it established a dedicated fund to support litigation, and it established a plan to house IT systems at the Commission (essential to conduct investigations efficiently). 

Policy

Chairperson Wu indicated that the Commission will seek to establish a settlement procedure and cooperation mechanism rewarding undertakings and individuals who report or help root out anticompetitive behaviour. The Commission has already consulted with stakeholders on these new policy developments, which will include a revised Leniency Policy (including for individuals) and the introduction of a Recommended Pecuniary Penalty Policy (applicable also to individuals). It remains to be seen how specifically these policy developments will be applied. 

The Annual Report also notes the Commission’s market study into auto-fuel (see here). That study had limited impact considering the circumscribed information-gathering powers of the Commission and the fact that the government decided to disregard the recommendations made. 

The Annual Report further describes two applications for exemption from the competition conduct rules relating to (i) the shipping industry (the Commission decided to exclude only vessel sharing agreements—VSAs—and not voluntary discussion agreements—VDAs) and (ii) the code of banking practices (which remains subject to conduct rules pursuant to the Commission’s decision in that case, see our coverage here). Because the report covers the Commission’s activities until 31 March 2018, it does not mention the Commission’s warning regarding wage fixing and no-poaching agreements (see our coverage of their Advisory Bulletin on anti-competitive practices in the employment marketplace here).

Finally, it appears that the Commission is increasingly involved in competition policy discussions with the government and other public entities. This emphasis on cross-agency engagement may increase the Commission’s enforcement activities, for example, if contraventions of the conduct rules are uncovered by other departments and referred to the Commission (e.g. the police or the Independent Commission Against Corruption—ICAC). It is also worth noting the Commission joined the RenoSafe scheme, an interdepartmental working group making recommendations and formulating tactics on matters relating to renovation of ageing buildings, which may explain in part the large number of initial assessments and investigations in the real estate and property management sector. 

Advocacy

Both Chairperson Wu and CEO Snyder emphasized the Commission’s advocacy efforts, which included their first major conference (the “Competition Exchange” after which they launched a new dedicated website—see here), engagement and education initiatives, media and publicity outreach, and co-chairing the advocacy working group of the International Competition Network (ICN—regrouping all national competition authorities across the globe). The Commission’s primary objectives in these advocacy efforts is to instil a culture of competition in Hong Kong. The Commission’s future caseload will indicate whether these efforts bear fruit. 

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Philip Monaghan, an O'Melveny partner licensed to practice law in England & Wales, Ireland, and Hong Kong, Scott Schaeffer, an O'Melveny counsel licensed to practice law in California and the District of Columbia, and Charles Paillard, an O'Melveny associate licensed to practice law in France and a registered foreign lawyer in Hong Kong, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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