4 Notable Trends in 2023/24 –Antitrust & Competition Enforcement
2024 marks the 9th anniversary of the full implementation of the Competition Ordinance (Cap 619) in Hong Kong.
2023/24 has been an action-packed year for Hong Kong antitrust and competition enforcement – from robust investigations undertaken by the Competition Commission (the “Commission”) to a judicial review challenging the Commission’s implementation of its leniency policy. Following our last article of “Five Major Trends in Competition Law 2020/21”, we have reviewed the recent enforcement actions and Competition Tribunal proceedings in 2023/24 and identified four notable trends:
1. Joint Operations with criminal investigation authorities
Joint operations with criminal investigation authorities (e.g. ICAC, Hong Kong Police Force etc) appear to be an attractive enforcement tool for the Commission recently. The reasons are twofold – Firstly, cartel conduct is often closely intertwined with criminal conduct such as fraud, corruption and using false instruments. Secondly, the Commission may take advantage of criminal authorities’ arrest, detention and other compulsory powers for swift actions in multifaceted investigations.
(i) Joint Operation with ICAC – Building Maintenance Cartel
In April 2024, the Commission and ICAC conducted their first joint operation against a building maintenance syndicate allegedly involved in corruption and tender-rigging, in contravention of the First Conduct Rule of the Competition Ordinance and section 9 of the Prevention of Bribery Ordinance (Cap 201). 20 project contractors, consultants and property management members were arrested and over 40 premises were searched during the joint operation.
(ii) Joint operation with Police – Funeral Service Cartel
The Commission and the police conducted a “surprise visit” to a mortuary in Shatin for suspected market sharing practice amongst funeral service practitioners by coordinating their solicitation of customers.
5 months later, the Commission proceeded to execute search warrants with the police at three offices of a trade association and various funeral homes in January 2024. The Commission has now escalated the matter to investigation phase with price-fixing allegation in addition to market sharing.
(iii) Joint Operation with Police & Immigration – Fish Market Cartel
In June 2023, the Commission conducted a second dawn raid together with the police and the Immigration Department at the Aberdeen Wholesale Fish Market, which was a sequel to the joint operation codenamed “White Whale” back in November 2022 for suspected price-fixing, output limitation and group boycott among wholesalers for fisheries product transactions.
The Commission executed search warrants at multiple fish stalls and trade associations and seized various documents, ledgers and electronic devices. The escalation of the Commission’s investigation to an anti-crime joint operation suggested that there could be wider criminal ramifications of the alleged conduct.
2. Leniency Policy under scrutiny
The Commission has increasingly relied on its Leniency Policy for Undertakings and Leniency Policy for Individuals to detect and prosecute cartel activities in recent cases. Leniency policy is a key investigative tool adopted by competition authorities around the world to combat cartel conduct, particularly because cartels are often organised and implemented in secret settings.
That said, the Commission’s recent interpretation and implementation of the Leniency Policy are subject to judicial challenges.
(i) Competition Tribunal Proceedings (CTEA 3/2023) – Real Estate Agencies Cartel
On 14 November 2023, the Commission filed Competition Tribunal proceedings (CTEA 3/2023) against two major real estate agencies in Hong Kong and their senior management for alleged involvement in a price-fixing cartel together with two other competitors. The Commission alleges that between December 2022 and March 2023, the four agencies agreed to set the minimum net commission rate for the sale of first-hand residential properties in Hong Kong at 2%, which effectively restricted the maximum level of rebate that their frontline agents could offer to property purchasers.
The Commission therefore takes the view that the above amounts to serious anti-competitive conduct in the form of price fixing and/or exchange of competitively sensitive information, in contravention of the First Conduct Rule of the Ordinance.
Two of the estate agencies have been granted Type 2 leniency under the Commission’s Leniency Policy and are immune from prosecution in the CTEA proceedings.
The Tribunal proceedings are still ongoing and the trial is tentatively scheduled to commence in August 2025 (15 days reserved). It is considered one of the most high-profile prosecutions initiated by the Commission since the promulgation of the Competition Ordinance.
(ii) Judicial Review against Leniency Policy implementation (HCAL 490/2024)
On 18 March 2024, while the Competition Tribunal proceedings (CTEA 3/2023) were still ongoing, the Respondents commenced the very first judicial review application against the Commission for its irregularities in implementing the Leniency Policy, which had deprived them of the opportunity to render full co-operation and denied them procedural fairness.
The grounds of the judicial review application are broadly that (a) the Commission had breached its own Leniency Policy; and/or (b) its refusal to grant leniency to the Respondents (who lodged a leniency application earlier in time) was irrational, as a result of which the Commission’s decision in granting leniency to other two estate agencies should be quashed.
(iii) Stay Application of CTEA 3/2023
On the same date, the Respondents filed a parallel application to permanently stay the CTEA 3/2023 Tribunal proceedings. The broad basis of the stay application is that as the Respondents have been wrongly denied leniency, it would be an abuse of process for the CTEA proceedings against them to be continued.
Significance:
- On 20 March 2024, Mr. Justice Coleman of the High Court granted leave to hear the judicial review application. Both the judicial review and stay applications are scheduled to be heard in the High Court in August 2024.
- It is the very first time that the Commission’s interpretation and implementation of its own Leniency Policy are being put to the test, and the outcome of these applications would have wider ramifications on the future operation of the Commission’s leniency and cooperation regime.
3. Section 60 Commitments for less serious anti-competitive behaviours
Section 60 Commitments – Online Food Delivery Platforms
In late 2021, the Commission launched an investigation into the city’s two biggest online food delivery platforms, namely, Foodpanda and Deliveroo, for suspicions that certain clauses in their service agreements with their partner restaurants could potentially harm competition, in contravention of the First Conduct Rule.
In late 2023, the Commission accepted the commitments offered by Foodpanda and Deliveroo under Section 60 of the Competition Ordinance to rectify the potential anti-competitive conduct and to improve competition and consumer welfare in the food delivery market:-
- amending exclusive terms: partnering restaurants can partner with new entrants and small platforms without losing commercial incentives (e.g. lower commission rates);
- amending breach of exclusivity provisions: partnering restaurants can work with multiple platforms, instead of partnering with Foodpanda or Deliveroo only;
- removing restriction provisions: partnering restaurants can offer lower menu prices to consumers on their direct channels, as well as on competing online platforms;
- removing typing provisions price (Foodpanda only): partnering restaurants are not obligated to use Foodpanda’s order-to-pickup services alongside the food delivery services; and
- amending the agreements and notifying the changes to partnering restaurants within 90 days after the commitments entered into force.
Significance:
- This is the second major case where the Commission accepted Section 60 Commitments in lieu of litigation measures.
- The first case took place in October 2022 when the Commission accepted Section 60 Commitments offered by seven car distributors to remove warranty restrictions that allegedly compelled customers to carry out maintenance and repair services at authorised centres.
- While both cases concern anti-competitive conduct which may restrict customers’ freedom of choice, the allegations are of lesser gravity and there is no suggestion of any cartel conduct.
4. Cartel Enforcement – Bid-rigging in Government Subsidy Scheme (CTEA 1/2023)
In March 2023, the Commission took the first cartel case related to a government funding scheme to the Competition Tribunal. Upon referral by the Hong Kong Productivity Council, The Commission found that four companies and three individuals had engaged in anti-competitive practices such as cover bidding while providing quotations for IT solutions in their applications for government funding under the Distance Business (D-Biz) Programme.
The Commission believes these behaviours constitute serious violations of the First Conduct Rule of the Competition Ordinance, including price-fixing, market-sharing, bid-rigging, and/or sharing of competitively sensitive information. The total number of affected D-Biz applications in this case is 189 and the total amount of government funding approved amounts to over HK$13 million.
Significance:
The Commission’s above enforcement actions appear to be in line with its announcement made on the 6th anniversary of the Ordinance in 2021, with its enforcement focus on three key areas:
- competition-related matters that affect people’s livelihood;
- cartels that aim to take advantage of government or public funding; and
- matters concerning digital economy.
Enforcement Outlook for 2024 onwards
In view of the above 4 notable trends in antitrust and competition law enforcement, our predictions for the coming years are that:
- The Commission will conduct more joint operations with criminal investigation authorities, particularly in investigating large-scale and complex cartel activities;
- The outcome of the judicial review proceedings (HCAL 490/2024) will bring much-needed clarity to the proper interpretation and operations of the Commission’s Leniency Policy for Undertakings and Leniency Policy for Individuals;
- Section 60 Commitments in lieu of litigation will be employed by the Commission in resolving cases involving anti-competitive conduct of lesser gravity; and
- It is anticipated that other government departments will proactively refer suspected anti-competitive cases to the Commission.
Disclaimer: This article is provided for information purposes only and does not constitute legal advice. Specialist advice should be sought about your specific circumstances.
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