Cartel leniency in Hong Kong: overview

A Q&A guide to cartel leniency law in Hong Kong.

The Q&A gives a succinct overview of leniency and immunity, the applicable procedure and the regulatory authorities. In particular, it covers the conditions to be satisfied, the method of making an application, availability of immunity from civil fines to individuals, the scope of leniency, circumstances when leniency may be withdrawn, leniency plus, confidentiality and disclosure, and proposals for reform.

To compare answers across multiple jurisdictions visit the Cartel leniency Country Q&A tool.

This Q&A is part of the global guide to competition and cartel leniency. For a full list of jurisdictional Cartel Leniency Q&As visit www.practicallaw.com/leniency-guide.

For a full list of jurisdictional Competition Q&As, which provide a high level overview of merger control, restrictive agreements and practices, monopolies and abuse of market power, and joint ventures in multiple jurisdictions, visit www.practicallaw.com/mergercontrol-guide and www.practicallaw.com/restraintsoftrade-guide.

Contents

Regulation

1. What laws provide for a leniency programme and which regulatory authority administers it? Is there any published guidance?

Applicable laws and guidance

The Competition Ordinance implements a cross-sector anti-trust regime in Hong Kong and was fully implemented on 14 December 2015.

The Hong Kong Competition Commission can enter into a leniency agreement with any person that has co-operated with the Commission in its investigation or proceedings (section 80, Competition Ordinance). However, the current leniency regime only applies to cartel conduct. Cartel conduct is prohibited by the First Conduct Rule (FCR), which is set out in section 6 of the Ordinance. The Commission is responsible for investigating any alleged or potential cartel involvement.

Through a leniency agreement, the Commission will undertake not to commence proceedings for a pecuniary penalty against the successful applicant, or to bring any other proceedings before the Competition Tribunal, save for an order declaring that the successful applicant has contravened the FCR. A leniency agreement does not preclude follow-on actions for damages.

Absent exceptional circumstances, leniency is only available for the first undertaking that reports cartel conduct to the Competition Commission and meets all the requirements for leniency. In relation to subsequent applicants, the Commission has stated that it will exercise its "enforcement discretion" vis-a-vis co-operating undertakings.

The Commission's Leniency Policy for Undertakings Engaged in Cartel Conduct contains additional guidance.

Regulatory authority

While the Competition Commission has power under the Competition Ordinance to grant leniency, the Competition Tribunal (comprising judges of the Hong Kong's Court of First Instance), will act as the adjudicative body for proceedings brought by the Commission alleging an infringement of the FCR.

Regarding the exercise of the Commission's enforcement discretion (see above, Applicable laws and guidance), the Competition Tribunal and other courts are the ultimate arbiters of the level of penalty and the appropriateness of any order.

The Communications Authority (CA) has concurrent jurisdiction with the Competition Commission in relation to potential competition law infringements in the telecommunications and broadcasting sectors and, in relation to these sectors, references to the Commission in the Competition Ordinance must be read as including the CA. However, unlike the Commission, the CA currently does not have a leniency policy. Instead, it has stated that it will consider entering into leniency agreements with telecommunications and broadcasting licensees on a case-by-case basis.

 

Scope of application

2. What infringements of competition law does the leniency programme cover?

The current Commission's Leniency Policy for Undertakings Engaged in Cartel Conduct only covers cartel conduct. The Competition Ordinance provides for the granting of leniency in relation to a contravention of either the First Conduct Rule or the Second Conduct Rule (which prohibits the abuse of substantial market power), but to date, the Commission has only enacted a policy dealing with cartel conduct.

 

Recent cases

3. What notable recent cases have applied the leniency programme?

To date, there have been no cases involving the application of the Leniency Policy for Undertakings Engaged in Cartel Conduct.

 

Availability of leniency

Administrative liability

4. Is full immunity from administrative penalties available? What conditions must be met for immunity to be granted?

Full immunity from administrative fines is available for the first successful applicant under the leniency programme. Through a leniency agreement, the Competition Commission will undertake not to commence proceedings for a pecuniary penalty against the successful applicant, or to bring any other proceedings before the Competition Tribunal, save for an order declaring that the successful applicant has contravened the First Conduct Rule.

See Question 9 regarding the requirements for granting leniency.

 
5. Is there a sliding scale of available leniency from administrative penalties?

Hong Kong has adopted a "winner takes all" approach, meaning that only the first undertaking that reports cartel conduct (and that meets all the requirements for leniency) can benefit from full immunity from pecuniary penalty.

The position in relation to subsequent applicants is less clear, but the Commission has stated in its Leniency Policy for Undertakings Engaged in Cartel Conduct that it will rely on its "enforcement discretion". The Competition Tribunal and other courts are the ultimate arbiters of the level of penalty and the appropriateness of any order.

In assessing the extent and value of the co-operation provided by a subsequent applicant, the Competition Commission will consider the following:

  • The timing of any approach to the Commission.

  • The significance of the evidence offered.

  • Whether the undertaking provided full and truthful disclosure, and full and expeditious co-operation on a continuous basis.

  • The undertaking's role in the cartel.

 
6. Is immunity or leniency for administrative penalties available to individuals? If so, what conditions apply?

The Leniency Policy for Undertakings Engaged in Cartel Conduct applies to leniency agreements between the Competition Commission and undertakings or any individual engaged in an economic activity (for example, a sole trader).

If an undertaking enters into a leniency agreement, the leniency ordinarily extends to any current officer or employee, specifically-named former officers or employees, and current and former agents of the undertaking, subject to the provision of adequate co-operation.

 

Criminal liability

7. Is immunity or leniency available for companies and/or its employees in relation to criminal prosecution? What are the implications for employees when an undertaking has been granted immunity or leniency?

Circumstances

There are no criminal sanctions in respect of cartel infringements or other breaches of the conduct rules.

However, offences can be committed by an individual or undertaking during investigations undertaken by the Commission (for example, for obstruction) (sections 52 to 55, Competition Ordinance).

Proceedings against employees

A director, manager, company secretary or other person concerned in the management of the body corporate is deemed to have committed the same offence as the body corporate if the offence either (section 175, Competition Ordinance):

  • Was committed with the consent or connivance of that person.

  • Is attributable to any neglect or omission on the part of that person.

Directors or persons involved in the management of infringing companies can be disqualified from (section 101, Competition Ordinance):

  • Serving (in Hong Kong) as a director, liquidator, receiver or manager of a company's property.

  • Being involved in the promotion, formation or management of a company for up to five years.

Part 6 of the Competition Ordinance appears to provide for the imposition of a pecuniary penalty on natural persons for a contravention of the competition rules, but the position is unclear, and some academics and practitioners have argued that this would be unconstitutional.

If an undertaking enters into a leniency agreement, the leniency ordinarily extends to any current officers or employees, specifically-named former officers or employees, and current and former agents of the undertaking, subject to the provision of adequate co-operation.

However, other ancillary criminal offences that can be committed by employees during investigations undertaken by the Commission are unlikely to be covered by the leniency agreement (see above, Circumstances).

Employees' interests

See above, Proceedings against employees.

 

Application proceedings

8. When should an application for leniency be made?

There is no application deadline. However, as leniency is only available for the first successful applicant, the Competition Commission encourages approaches from undertakings at the earliest opportunity.

 
9. What are the procedural rules for leniency applications?

Relevant authority

Undertakings must make a leniency application to the Competition Commission. The Communications Authority (CA) currently does not have a leniency policy and will instead address applications for leniency on a case-by-case basis. The CA recommends that licensees intending to apply for leniency under the Competition Ordinance should approach the CA.

Applicant

Only undertakings can apply for leniency under the Leniency Policy for Undertakings Engaged in Cartel Conduct.

Informal/confidential guidance

A potential leniency applicant, or its legal representatives, can contact the Competition Commission on an anonymous basis to ascertain if a marker is available for particular cartel conduct (see below, Markers). However, a marker will not be granted on the basis of anonymous enquiries.

Form of application

There is no prescribed form of application. An application can be made orally or in writing.

Markers

The Competition Commission uses a marker system to establish a queue in order of the date and time the Commission is contacted with respect to the cartel conduct.

Where the Commission has confirmed the availability of a marker, an undertaking can secure a marker and preserve its position if it provides sufficient information, which must include, at a minimum, the:

  • Identity and contact details of the applicant.

  • Nature of the cartel.

  • Main participants in the cartel conduct.

Information/evidence

Leniency applicants must provide:

  • A detailed description of the cartel.

  • Details of the entities involved.

  • Information on the role of the applicant.

  • A timeline of the conduct.

  • Evidence in respect of the cartel conduct.

This is commonly referred to as a "proffer". The proffer can be made in hypothetical terms on a "without prejudice" basis. The proffer must:

  • Include an explanation of how the cartel conduct affects or relates to competition in Hong Kong, in order to establish a jurisdictional nexus.

  • Provide an estimate of the value/volume of sales affected by the cartel in Hong Kong.

Oral statements

The entire application process can be oral. However, the Competition Commission will maintain its own records of the marker process and of any information submitted in a proffer or concerning any related matters.

Short-form applications

Not applicable.

 
10. What are the applicable procedures and timetable?

There is no prescribed timetable. The leniency process will generally involve the following steps:

  • An undertaking or its legal representative will contact the Competition Commission, to confirm the availability of a marker, and, if available, to apply for a marker by providing sufficient information.

  • The Commission will notify the applicant with the highest ranking marker that it can make an application for leniency, if the Commission determines that cartel conduct exists and that leniency is available. A non-disclosure agreement will then be entered into between the Commission and the potential applicant.

  • The applicant will make a leniency application through a proffer.

  • Provided the conditions for leniency have been met, the Commission and the applicant will sign a leniency agreement in the form of the template attached to the Commission's Leniency Policy for Undertakings Engaged in Cartel Conduct.

 

Withdrawal of leniency

11. In what circumstances and at what stage of the proceedings can leniency be withdrawn? What implications does the withdrawal of leniency from one company have for other applicants?

Withdrawal

If an undertaking fails to complete its proffer within the time frame set by the Competition Commission, its marker will automatically lapse. Leniency can also be withdrawn if the applicant breaches its confidentiality and non-disclosure commitments.

In these circumstances, the next undertaking in the marker queue will be invited by the Commission to make an application for leniency.

Termination

The Competition Commission can terminate a leniency agreement if (section 81, Competition Ordinance):

  • The other party to the agreement consents.

  • It has reasonable grounds to suspect that the information on which it based its decision to make the agreement was incomplete, false or misleading.

  • It is satisfied that the undertaking involved has failed to comply with the terms of the leniency agreement.

  • The undertaking involved has been convicted of an offence under Part 3 of the Competition Ordinance.

 

Scope of protection

12. What is the scope of leniency protection after it has been granted?

Under a leniency agreement, and in exchange for the successful applicant's co-operation, the Competition Commission will undertake not to commence proceedings for a pecuniary penalty against the successful applicant in the Competition Tribunal, or to bring any other proceedings before the Tribunal, save for an order under Section 94 of the Competition Ordinance declaring that the successful applicant has contravened the First Conduct Rule. A leniency agreement does not preclude the possibility of follow-on damages actions.

Ordinarily, leniency will be extended to current officers and employees of the successful applicant, specifically-named former officers or employees, and current and former agents of the successful applicant who co-operate with the Commission.

 
13. Does the competition authority offer any further reduction in fines for an undertaking's activities in one market if it is the first to disclose restrictive agreements and practices in another market (leniency plus)?

There is no leniency plus policy available in Hong Kong.

 
14. Does the grant of leniency affect a third party's ability to bring a follow-on damages action against a leniency applicant?

A party to a leniency agreement is only protected from fines or proceedings brought by the Competition Commission, and not from follow-on actions for damages brought by third parties.

Third parties can bring private enforcement follow-on actions deriving from (section 110, Competition Ordinance):

  • A determination by the Competition Tribunal, Court of First Instance or the higher courts that a conduct rule has been contravened.

  • An admission of a contravention in a commitment.

 

Confidentiality and disclosure

15. What are the rules relating to confidentiality during a leniency application?

Identity disclosure

The Competition Ordinance imposes a general obligation on the Competition Commission to preserve the confidentiality of any confidential information provided to it, which includes the identity of any person that has given information to the Commission (section 123, Competition Ordinance).

Save in exceptional circumstances (see below, Information disclosure), the leniency applicant's identity will not be disclosed.

Information disclosure

A leniency applicant must keep confidential the fact that an investigation is taking place, its leniency application and the terms of any leniency agreement, unless the Competition Commission has given prior consent or disclosure is required by law. This confidentiality and non-disclosure commitment is ongoing throughout an investigation and in any subsequent proceedings before the Competition Tribunal or other court.

The Competition Commission notes that it will use its best endeavours to appropriately protect "leniency material", that is:

  • Any confidential information provided to the Commission by a leniency applicant for the purpose of making a leniency application and/or pursuant to a leniency agreement.

  • The Commission's records of the leniency application process, including the leniency agreement.

The Competition Commission will not release leniency material and will firmly resist requests for leniency material unless one of the following applies:

  • It is compelled to make a disclosure by an order of the Competition Tribunal or any other court, by law or any requirement made under a law.

  • It has the consent of the leniency applicant to disclose the material.

  • The relevant information or document is already in the public domain.

  • After entering a leniency agreement, it has terminated this leniency agreement.

If a third party makes an application seeking to compel the Commission to disclose leniency material, the Commission must advise the leniency applicant of that application as soon as practicable.

Under the terms of the non-disclosure agreement with the Commission, the leniency applicant will also be required to advise the Commission as soon as practicable where a third party makes an application seeking to compel the leniency applicant to disclose leniency material, or if such disclosure is otherwise required by law.

Confidentiality requests

See above, Information disclosure.

 
16. What are the rules concerning disclosure of statements made in support of a leniency application?

Domestic submissions and domestic discovery

See Question 15.

Domestic submissions and foreign discovery

The same principles apply as for domestic proceedings (see Question 15).

Foreign submissions and domestic discovery

This issue is governed by the laws and disclosure rules of the relevant foreign jurisdiction.

 

Inter-agency co-operation

17. Does the regulatory authority in your jurisdiction co-operate with regulatory authorities from other jurisdictions in relation to leniency? If so, what is the legal basis for and extent of co-operation?

The Competition Ordinance does not contain express provisions on co-operation with regulatory authorities in other jurisdictions. The Chairperson of the Commission commented in a conference in December 2013 that greater collaboration among regional competition authorities is necessary, as international conglomerates are present in multiple jurisdictions and the Commission may, for example, need to address how regional export cartels affect the territory. The Commission is a member of the International Competition Network.

However, the Commission can ask co-operating undertakings to provide details of the other jurisdictions where they have sought leniency and an indication of the ongoing status of their application in those jurisdictions. In appropriate cases, and where permitted by law, the Competition Commission has stated that it may require a leniency applicant to authorise the Commission to exchange confidential information with authorities in these jurisdictions.

 

Proposals for reform

18. Are there any proposals for reform?

According to the 2012 Bills Committee report on the Competition Bill, the government will conduct a review of the operational experience and effectiveness of the Competition Ordinance within a few years of implementation. The exact timing of the review is currently unknown.

The possibility of bringing stand-alone private enforcement actions was removed to alleviate concerns that larger companies with more resources could resort to or threaten litigation in order to drive out or affect the business of smaller competitors. The government has noted that, as this has not been the case in other jurisdictions (large companies are usually the defendants in privately instigated competition litigation), a stand-alone right of action may be introduced in due course, as the business community acquires more experience of the new competition regime.

 

Online resources

Department of Justice Bilingual Laws Information System

W www.legislation.gov.hk

Description. This is an electronic database containing English and Chinese versions of all current ordinances, subsidiary legislation, constitutional documents, treaties and agreements in force in Hong Kong. Legislation is up-to-date unless otherwise indicated, and the English and Chinese versions of legislation have equal force. Historical versions of ordinances from 30 June 1997 onwards are also available.



The regulatory authority

Competition Commission

Head Ms Anna Wu Hung Yuk, GBS, JP (Chairperson)
Contact Details Room 3601, 3607-3610
36/F, Wu Chung House
197-213 Queen's Road East
Wanchai, Hong Kong
T +852 3462 2118
F +852 2522 4997
E enquiry@compcomm.hk
W http://compcomm.hk/en

Outline structure. The Competition Commission consists of the Chairperson, Commission members and the members of various committees, and various executive officers and directors. The Commission is an independent statutory body established under the Competition Ordinance.

Members of the Commission are appointed by the Chief Executive of Hong Kong. The current appointments were made on 1 May 2016 for a period of two years.

Responsibilities. The Commission's responsibilities are to enforce the provisions of the Competition Ordinance, promote the public understanding of the value of competition and how the Ordinance promotes competition, and advise the Hong Kong Government on competition matters.

The Commission will actively monitor the market for mergers falling under the merger rule and other anti-competitive conduct and will initiate investigations on its own initiative. The Commission will also accept complaints from the public.

Procedure for obtaining documents. Information on the Commission is available on its website.



Contributor profiles

Mark Jephcott, Head of Competition – Asia

Herbert Smith Freehills

T +852 2101 4027
F +852 2845 9099
E mark.jephcott@hsf.com
W www.herbertsmithfreehills.com

Professional qualifications. Solicitor, England and Wales; Solicitor, Hong Kong

Areas of practice. Competition.

Non-professional qualifications. LLB, Cambridge University (Trinity College) (highest First Class in the European Community law paper); Masters Degree in European Community Law, Université Libre de Bruxelles; worked for both the UK Competition Appeal Tribunal (the dedicated appeal court for decisions taken by the UK's competition authorities) and the European Commission's Directorate-General for Competition; appointed in 2015 by the Competition Commission of Hong Kong to become one of its non-governmental advisers to the International Competition Network, the global body representing the world's competition authorities.

Recent transactions

  • Advising two multinational companies on cartel investigations before the Competition Commission of Singapore.
  • Advising a multinational company on an abuse of dominance investigation before the Competition Commission of Singapore.
  • Advising several Asian sovereign wealth funds on the EU and Asian merger control aspects of multiple transactions.
  • Advising a major global chemical company on a China MOFCOM filing.
  • Advising a leading Australian telecommunications company on transaction structure.
  • Advising a major international household name conglomerate in the hospitality industry on internal pan-Asia-Pacific competition law audits for identifying potential breach of anti-trust laws in multiple jurisdictions and preparing in-house practical guidance and training materials.
  • Advising Cable & Wireless Worldwide on the Singapore merger control aspects of its proposed merger with Vodafone.
  • Advising Nalco on obtaining EU merger clearance of its US$5.4 billion acquisition by Ecolab.

Languages. English (native), French (fluent), German (fluent), Mandarin (basic)

Publications

  • Hong Kong Chapter of Global Legal Insights on Cartels, 1st Edition (Hong Kong Chapter) 2012.
  • Law of Cartels, 2011 (2nd Edition) and 2003 (1st Edition).
  • Horizontal Agreements and EU Competition Law, 2004.
  • Asia-Pacific Multi-jurisdictional Competition Law Guide and several articles on the Asian competition regimes and Chinese merger control and anti-trust regimes, and the extra-territorial application of the EU Merger Regulation in relation to Chinese companies.
  • Practical Law Competition Law Global Guide: Hong Kong Competition and Cartel Leniency, 2013.

Adelaide Luke, Registered Foreign Lawyer (England and Wales)

Herbert Smith Freehills

T +852 2101 4135
F +852 2845 9099
E adelaide.luke@hsf.com
W www.herbertsmithfreehills.com

Professional qualifications. Solicitor, New South Wales, Australia; Solicitor, England and Wales

Areas of practice. Competition.

Non-professional qualifications. BSc/LLB, University of Queensland; Masters of Arts in Competition Law, King's College London

Recent transactions

  • Advising a Japanese conglomerate in relation to joint venture arrangements in the nuclear sector.
  • Representing a major Chinese state-owned oil and gas enterprise before the European Commission in relation to its acquisition of business and infrastructure in the North Sea, and providing subsequent advice regarding joint marketing.
  • Advising a confidential client in relation to a potential Article 102 TFEU complaint to the European Commission and a national competition authority of a member state alleging abuse of a dominant position.
  • Advising two multinational corporations in relation to the European Commission's cartel investigations into automotive parts (bearings) and power cables.
  • Advising an Asian sovereign wealth fund on the EU and Asian merger control aspects of various transactions.

Languages. English (native)


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