Recent developments in antitrust enforcement in Hong Kong

September 2022 | EXPERT BRIEFING | COMPETITION & ANTITRUST

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Hong Kong has seen its Competition Commission mature rapidly as it continues a streak of robust antitrust enforcement in the city. While early efforts have understandably focused on relatively easy cartel wins, the Commission has since been pushing boundaries across all fronts, by driving enforcement actions through litigious and non-litigious means. A summary of the key recent antitrust developments in Hong Kong demonstrates how the Commission is emerging as a sophisticated antitrust enforcer.

First abuse of substantial market power case and first enforcement proceedings against a foreign parent

The Commission lodged its first Second Conduct Rule case in December 2020. The case concerns a medical gas supplier that allegedly engaged in a series of exclusionary acts against the only other potential service provider in the downstream medical gas pipeline systems maintenance market for public hospitals. The Commission is also pursuing the general manager of the relevant business division of the medical gas supplier for his active involvement in the conduct concerned.

The case already saw some interlocutory skirmishes in the Competition Tribunal last year. For example, the Commission’s attempt to seek discovery from the respondents was rejected in October 2021. However, there may still be some time before we see a trial date. Nonetheless, this case should be followed with interest in coming years, as it is expected to become the landmark authority for future Second Conduct Rule cases, as well as extending the highly-contested issue of parental liability beyond Hong Kong, i.e., liability of an overseas parent for anti-competitive acts carried out by a Hong Kong entity.

First enforcement against facilitators of a cartel

In January 2022, the Commission commenced enforcement proceedings against members of the Tourist Attraction Tickets cartel. This was the follow-up to the Commission’s announcement in February 2021 that it had resolved its case against six hotel groups and a tour counter operator through infringement notices, in which recipients of the infringement notices admitted their role in facilitating the cartel and exchanging price information between two travel services providers, in exchange for a settlement without a fine.

The enforcement proceedings partially concluded in July 2022, as the Tribunal imposed discounted fines and a director disqualification order on three respondents pursuant to their joint application with the Commission to settle the cases against them. The enforcement proceedings against the two remaining hotel group respondents will continue.

This case against the Tourist Attraction Tickets cartel will be notable in several respects. First, it will be the first Tribunal decision concerning the liability of facilitators to a cartel, particularly if the Tribunal concludes that the fines for facilitator liability are the same as those for a direct cartel member. Second, it is the first truly hybrid case involving both settling and non-settling parties, and it will be interesting to note what bearing the admissions of liability already obtained by the Commission and the consent proceedings will have on the Tribunal’s consideration of the substantive issues.

First appeal on cartel fines reduction

In June 2022, the Court of Appeal allowed the Commission’s appeal on the reduced pecuniary penalties in two of the first decorator cartel cases. In those cases, the Tribunal reduced fines imposed on contractors that lent their Housing Authority licences to subcontractors, partly to account for the fact that the contractors had no direct participation in cartels in question.

In overturning this ‘subcontractor discount’, the Court of Appeal reasoned that the contractors and subcontractors constituted the same economic unit, and it follows that both should be jointly and severally liable for the competition law contravention of that economic unit. As a result, the fines against the contractors in question almost doubled.

The significance of this appellate decision is that subcontracting is not a shield or mitigating factor to competition law liability. It also paves the way, by extension of the concept of the same economic unit, for the Commission to bring enforcement proceedings against parent companies as a result of anti-competitive activities carried out by their subsidiaries.

First full cartel settlement before enforcement proceedings

In November 2021, the Commission lodged its first consent proceedings in which all cartel members cooperated with the Commission and agreed to fully settle the case before the commencement of Tribunal proceedings. The case concerned a cartel on inserters (machines for inserting letters into envelopes for mass mailing). Fines are expected to be imposed by the Tribunal in line with recommended pecuniary penalties as agreed by parties.

This case builds on the increasing trend of respondents resolving the Commission’s investigations expeditiously and economically via settlements. It also shows the benefits of quicker enforcement outcomes through settlements. That said, investigated parties should bear in mind that every case is different, and it would be advisable to seek timely advice from competition law specialists that can help determine the best strategy in specific circumstances.

Flagging concerns on trade associations and professional bodies

In July 2021, the Commission published an advisory bulletin warning that trade associations and professional bodies should not use their admission criteria or admission procedures to arbitrarily exclude competition in the market. Specifically, it elaborates on the Commission’s requirements in the ‘Guideline on the First Conduct Rule’, requiring such rules to be: (i) transparent; (ii) proportionate; (iii) non-discriminatory; (iv) based on objective standards; and (v) subject to appeal in the event of a refusal to admit a party to membership.

Shortly after the publication of the advisory bulletin, the Commission followed up with a rare public statement in September, indicating that it is “looking into” concerns raised by the media regarding the decision of the Volleyball Association of Hong Kong, China to exclude the “full membership” status of certain sports clubs and associations. While the outcome of that inquiry remains to be seen, this shows the Commission’s flexibility in utilising softer, non-litigious means to achieve enforcement outcomes where appropriate.

No collusion found in the first standalone action

The first privately litigated antitrust case in Hong Kong concluded in October 2021, in which the Tribunal held that Shell and industrial diesel reseller Taching did not fix prices for the supply of industrial diesel to Meyer Aluminium, which “failed to show even a prima facie case of agreement or concertation”. Meyer’s sole illegality defence in the civil claim for non-payment of goods accordingly fell apart. A High Court judgment was entered into on the same day, and Meyer was ordered to pay the petrol suppliers for diesel delivered in 2017, with interest and costs.

While the antitrust regime in Hong Kong is known for its lack of private antitrust actions, this case demonstrates how part of a civil action involving allegations of competition law contraventions can still be transferred to the Tribunal through the clever use of litigation procedures. However, this case also shows that the party invoking the procedure may ultimately find it difficult to substantiate its claim.

First referral to the Police for criminal obstruction of search in the Cleaners’ Cartel case

In conjunction with the Commission’s sixth enforcement anniversary in December 2021, the Commission lodged proceedings against two cleaning companies and three directors for alleged cartel conduct in the procurement of cleaning services for public housing estates. The Commission also highlighted its referral to the Police regarding an allegation that, during the course of the Commission’s execution of a search warrant at one of the cleaning companies’ offices, someone tried to delete electronic documents and information potentially relevant to the case.

While the Commission is known to have carried out a number of dawn raids over the years, this was the first instance of obstruction encountered during a raid. Obstruction is a criminal offence under the city’s competition law, carrying a maximum fine of HK$1m (approximately US$130,000) and imprisonment for two years. The referral sends a clear message that the Commission takes the criminal provisions of the Competition Ordinance seriously.

Commission announcement on future enforcement focus areas

Upon celebrating its sixth anniversary of antitrust enforcement, the Commission announced that its enforcement focus would prioritise the following areas: (i) anti-competitive conduct that affects people’s livelihood; (ii) cartels that take advantage of public funding; and (iii) cases and market studies involving digital markets (including online retail).

These priorities were reiterated in the Commission’s report to the city’s legislature in July 2022.

In the past, the Commission had been criticised for taking on cases that did not relate to the common Hong Kong consumer and focusing enforcement on small local businesses instead of tackling big businesses such as Big Tech and Big Oil.

The Commission’s latest investigation and enforcement efforts suggest that it is steering its enforcement focus away from this perception. Earlier in 2022, the Commission openly invited the public to provide information for two ongoing investigations concerning online food delivery platforms and passenger car warranty terms and conditions. It also brought enforcement proceedings against a bid-rigging cartel for air-conditioning works for the public sector, commercial buildings and residential homes.

Making its mark on the map

The Commission has proven itself to be a respectable and maturing antitrust enforcer in the region. Looking ahead, we expect the Commission to bring cases that are consistent with its announced enforcement priorities. It will be interesting to see how many of these cases will be contested or settled, as the Commission will likely be continuing its current practice of balancing enforcement via litigious and non-litigious means.

Natalie Yeung is a partner, Alexander Lee is a counsel and Michele Ho is an associate at Slaughter and May. Ms Yeung can be contacted on +852 2901 7275 or by email: natalie.yeung@slaughterandmay.com. Mr Lee can be contacted on +852 2901 7202 or by email: alexander-pc.lee@slaughterandmay.com. Ms Ho can be contacted on +852 2901 7370 or by email: michele.ho@slaughterandmay.com.

Natalie Yeung, Alexander Lee and Michele Ho

Slaughter and May