On 6 September 2018, the Hong Kong Competition Commission announced that it had brought its third case before the Competition Tribunal since the competition law came into effect in December 2015. But this time, with a big difference. The Commission is, for the first time, asking the Tribunal to impose penalties against two directors allegedly involved and issue a director disqualification order against one of them.*
The Commission is alleging that three construction companies allocated customers and coordinated pricing in the provision of renovation services at a public housing estate. It has not specified the level of penalty that it is asking the Tribunal to impose on the companies or the directors. The maximum penalty the Tribunal can impose on a company is 10% of annual Hong Kong turnover for the duration of the infringement (subject to a cap of three years). The maximum penalty the Tribunal can impose on an individual is unclear under the Competition Ordinance, and there has been no guidance from the Commission or the Tribunal to date on this issue. The Commission also has not specified the period for which it is asking the Tribunal to disqualify the directors: the maximum under the Competition Ordinance is five years.
In a clear signal that individuals will continue to be targeted in future cases, the Commission stated in the Q&A document of its media release:
Companies cannot act on their own. Every corporate contravention involves individual wrongdoing. For that reason, to deter a company from engaging in cartel conduct, it is also necessary to deter the individuals through which the company acts. Individual pecuniary penalties and disqualification are necessary deterrents.
The Commission also stressed the importance of every company having a commitment to compliance “from the very top to the bottom of an organization.”
The message is clear. The stakes for non-compliance with the Hong Kong competition law have been raised, and it is even more important that every business has in place an effective competition law compliance programme.
It is notable that all of the cases that have been brought to the Tribunal to date by the Commission involve one or more small- or medium-sized business (SMEs), despite the government’s assurances when the draft law was being introduced that they would not be the focus of enforcement action.
These prosecutions are also being initiated in circumstances where the Commission has not used any of the other enforcement powers it has, including the power to issue infringement notices, warning notices and informal warnings or to ask for commitments to resolve perceived competition law breaches, save for a warning that was issued to the Hong Kong Newspaper Hawker Association in May 2016 for issuing a recommendation to its members on cigarette pricing. When the draft law was being debated by Hong Kong’s Legislative Council, concern had been expressed by legislators that the law was unclear, that more guidance was required, including block exemptions to clarify what kinds of restraints were appropriate in distribution channel arrangements, and that the new law should not be used to target SMEs. To date, other than the block exemption for vessel-sharing agreements, the Commission has refused to issue block exemptions or further guidance.
But the message in Hong Kong now appears to be clear: Regardless of the level of guidance that has been provided, the slightest infraction will be prosecuted, and it will be prosecuted regardless of who you are, and to the full extent of the powers available to the Commission.
* Under the Hong Kong Competition Ordinance, only the Tribunal can decide whether there is an infringement, and if, so what sanctions to impose.