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Competition

& Regulatory

March THE NEW COMPETITION ORDINANCE


2013
IN HONG KONG - ISSUES FOR THE
TRANSPORT & COMMODITIES INDUSTRIES

After many years of negotiation and much


deliberation, the Hong Kong Competition We invite you to hear how the HK
Ordinance has been enacted. Parts of the Competition Ordinance will affect
Ordinance with respect to the establishment of businesses in the transport and
the new Competition Commission commenced commodities sectors, at a seminar
operation on 18 January 2013. The key operative we will be holding in May 2013 in
provisions of the legislation are expected to Hong Kong.
come into effect some time in the next 12-18
months. Industry participants will be
able to ask questions of our
Businesses operating in Hong Kong need to act competition law experts from HK
now in order to ensure that they comply with and Europe concerning the effect
the new rules when they come into force. An of the Ordinance and learn from
important feature of the legislation is that there the experience drawn from the
will be no grandfathering of existing contracts application of similar competition
or arrangements contracts entered into before rules in other jurisdictions.
the commencement of the legislation will not be
protected from the full effects of the Ordinance. If you are interested in attending
Early action should be taken to mitigate the this seminar, please email
risks involved in operating in the new regulatory events@hfw.com
environment.

In this Briefing, we explain the key provisions


of the Ordinance. We also explain how the
Ordinance may affect the transport and
commodities industries, by reference penalties, evidencing the legislatures efficiency or technical progress
to experience in other jurisdictions. intent to capture so called hard core (subject to compliance with other
cartel conduct. statutory conditions).
Overview
Second Conduct Rule The Ordinance will not apply to
The Ordinance prohibits government or statutory bodies
undertakings (entities that engage The Second Conduct Rule provides (unless otherwise specified).
in economic activity) from engaging in that an undertaking that has a
two types of anti-competitive behavior substantial degree of market power Block exemption orders may
- anti-competitive agreements and must not abuse that power by be granted in respect of the
abuse of market power. Unlike other engaging in conduct that has as First Conduct Rule, whereby
jurisdictions, there is no general its object or effect the prevention, the Competition Commission
merger control regime (with the restriction or distortion of competition confirms that a particular
exception of telecommunications- in Hong Kong. The Ordinance category of agreements meets
related merger provisions to replace prohibits the abuse of a substantial the conditions for a general
the existing regime). The main rules degree of market power, but does not exemption.
which businesses need to be aware prohibit undertakings from having a
of are the First Conduct Rule and the substantial degree of market power or There will also be exemptions in
Second Conduct Rule. striving to achieve it through legitimate respect of both the First Conduct
means. Rule and the Second Conduct
First Conduct Rule Rule where the Chief Executive
Conduct which may constitute such considers there are exceptional or
The First Conduct Rule prohibits an abuse of market power will include: compelling public policy grounds.
agreements, decisions and
concerted practices if the object Predatory behaviour towards There will also be a de minimis
or effect is to prevent, restrict or competitors. rule exempting small and medium
distort competition in Hong Kong. undertakings from certain
Co-operation arrangements and Limiting production, markets or provisions of the legislation who
gentlemens agreements falling technical development to the would otherwise be in breach.
short of contractual agreements that prejudice of consumers.
have the object or effect of restricting Advice should be sought to assess
competition will be caught under the Making the purchase of one whether there are any exclusions or
new provisions. product or service conditional on exemptions that could benefit your
the purchase of another product Hong Kong operations.
A distinction is made between two or service.
different kinds of conduct: Investigative powers and penalties
Requirements that a buyer only
1. Serious anti-competitive conduct purchase goods or services from Regulators will have extensive powers
price-fixing, market sharing, the seller. to investigate suspected breaches
output controls and bid rigging. of the legislation. This will include
Exemptions and exclusions the power to require production
2. Other agreements for example, of documents and information, to
restrictions on advertising, Various exemptions will be available, require individuals to attend interviews
collective refusal to supply, including: and, potentially, to enter and search
standardisation of agreements. premises in unannounced dawn raids.
An exemption from the First The legislation provides for significant
Multi-party arrangements falling under Conduct Rule may be granted penalties for breach including, in
the serious anti-competitive conduct for an agreement or conduct that serious cases, pecuniary penalties
category will attract more serious enhances or promotes economic of up to ten percent of Hong Kong

02 Competition & Regulatory


total turnover for each year (up to The Hong Kong government will need Our Competition & Regulatory team
a maximum of three years) during to decide whether to follow the EU
which the contravention occurred. law practice in this regard, or whether HFWs Competition & Regulatory
Other sanctions include damages to adopt the more lenient practices of practice covers a broad spectrum
awards, interim injunction orders, competition authorities in jurisdictions of competition law and our lawyers
disqualification orders, confiscation such as Singapore, Japan, Korea, have extensive experience in
of illegal profits, and the declared Australia, the United States and advising on breaches of competition
termination or variation of agreements. Canada. laws. The team is recommended
in both Chambers and Legal 500
Private rights of action are also Similarly, in air transport, whereas for competition advice. The team
contemplated by the Ordinance, the European Union previously had is able to assist the transport and
whereby a person who has suffered in place various block exemptions commodities industries to comply
loss or damage as a result of conduct permitting co-operation between with the new regime, drawing from
found to be in breach of the First airlines, no such block exemptions considerable experience from the
Conduct Rule or Second Conduct remain in place. Again, the Hong Kong application of competition rules
Rule may take action against those government will need to decide what in other jurisdictions worldwide,
involved in the contravention. stance to adopt. including preparing for and
However, such private actions may responding to dawn raids by
only follow on from actions by the Regarding commodities, there competition authorities. The teams
Competition Commission against that have been many EU law cases leading reputation will provide you
person. regarding membership of commodity with the necessary platform to serve
exchanges, and related exclusive your needs and comply with the new
Implications for the transport and dealing arrangements, where these rules.
commodities industries control access to an economic
activity. Thus, membership criteria For more information, please contact
In the transport industry, competitors must be objective, reasonable and Nick Luxton, Senior Associate, on
have often argued that co-operation non-discriminatory, and there must be +852 3983 7774 or
agreements are justified by the need an independent right of appeal against nick.luxton@hfw.com, or
to ensure security of supply and refusals to admit to membership or to Anthony Woolich, Partner, on
stability of prices when demand is suspend or terminate membership. +44 (0)20 7264 8033 or
fluctuating. However, competition Similarly, members must not be anthony.woolich@hfw.com, or
authorities in different jurisdictions prevented from leaving. A recent Eliza Petritsi, Partner, on +44 (0)20
have adopted varying attitudes to the case focused on load out rates for 7264 8772 or eliza.petritsi@hfw.com,
competition law treatment of such co- regulated warehouses. or Elizabeth Sloane, Associate, on
operative arrangements. +852 3983 7773 or
In summary, the new Competition elizabeth.sloane@hfw.com, or your
In the European Union, liner Ordinance may have a significant usual contact at HFW.
conferences involving price fixing impact on the transport and
between competing shipping lines commodities industries. It is
have not been permitted since particularly important for companies
October 2008. However, co-operative in these industries to ensure that their
arrangements which do not involve practices are fully compliant with the
price fixing, but (for example) which Competition Ordinance when it comes
permit capacity sharing, pooling of into force.
vessels and joint scheduling, are
automatically exempted from the
competition rules within strict market
share limits and provided other
conditions are satisfied.

Competition & Regulatory 03


Lawyers for international commerce

HOLMAN FENWICK WILLAN


15th Floor, Tower One
Lippo Centre
89 Queensway
Admiralty
Hong Kong
T: +852 3983 7788
F: +852 3983 7766

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