In this update, we discuss two recent developments in the Hong Kong competition regime: first, the third cartel case prosecuted by the Hong Kong Competition Commission (Commission) since the coming into force of the Competition Ordinance (Ordinance) in December 2015; and second the transfer of two contractual claims from the High Court to the Hong Kong Competition Tribunal (Tribunal), which raises the possibility of private enforcement actions.
Third case prosecuted by the Commission
On 6 September 2018, the Commission started prosecuting its third case in the Tribunal, alleging infringement of the First Conduct Rule (which prohibits anticompetitive agreements between competitors). The Commission is alleging that three construction companies and two individuals allocated customers and coordinated pricing, from June to November 2017, in relation to the provision of interior renovation services at the King Tai Court housing estate, in Kowloon. The case reportedly arose from a complaint by a member of the public to the Commission, following the widespread reporting of the Commission’s second case which alleges similar practices by different companies at a different housing estate.
Importantly, this is the first time the Commission has brought direct enforcement action against individuals. Under the Ordinance, the Commission can apply for director disqualification orders (DDOs) for up to 5 years. In explaining its decision to apply for DDOs, the Commission commented that “to deter a company from engaging in cartel conduct, it is also necessary to deter the individuals through which the company acts”. It remains to be seen whether the Commission will more readily pursue directors and senior management in the future. The third case brought by the Commission also highlights its continued focus on cartel conduct.
The Ordinance does not set out a right for private claimants to bring stand-alone antitrust actions. Currently, only so-called follow-on actions can be brought by private parties. This means that private enforcement action can only be taken where there has been a prior determination of a contravention of a conduct rule set out in the Ordinance (such as in an action brought by the Commission in the Tribunal).
However, the recent transfer of two related cases from the High Court to the Tribunal has raised the question of whether the Competition Ordinance may be used in private actions in Hong Kong. The cases involve contractual claims by Taching Petroleum and Shell, which both allege that Meyer Aluminium failed to pay for a supply of industrial diesel. Meyer’s defence in both actions is that Taching Petroleum and Shell have engaged in price fixing in breach of the First Conduct Rule under the Ordinance. The competition law defence aspects of the two cases were transferred by the High Court to the Tribunal in July and September 2018 respectively. On 12 September 2018, it was decided by the Tribunal that the cases should be listed and heard together for directions until further order.
Note that the transfer of these cases merely gives Meyer the right to defend itself by raising competition law grounds: it does not set out a right to found a cause of action. According to public sources, the CEO of the Commission said in September 2018 that the lack of standalone actions for damages in the current regime may mean the Commission has to bring more cases to the Tribunal in order to ensure that victims have a means of recovery.
If you have any questions regarding this update, please contact one of the following members of the Herbert Smith Freehills competition team for more information:
Ajit KainthRegistered foreign lawyer (England& Wales), Hong Kong
+852 2101 4263
Howard ChanAssociate, Hong Kong
+852 2101 4265