This client alert is the second of a two-part series on the Hong Kong leniency program.
Background
Leniency policies are an important and effective investigative tool used by authorities in a number of jurisdictions to combat cartel behaviour. In Hong Kong, entering into an agreement or practice, or being a member of an association which makes or gives effect to decisions of the association, in either case with the object of preventing, restricting or distorting competition (cartel conduct) contravenes the First Conduct Rule of part 2 of the Competition Ordinance (the Ordinance). Notwithstanding any contravention, section 80 of the Ordinance provides that the Commission may, in exchange for a person’s (which includes any public body and any body of persons, corporate or unincorporated) cooperation in an investigation or in proceedings under the Ordinance, make an agreement, referred to as a ‘leniency agreement’, with the person on terms it considers appropriate. While the leniency agreement is in place, the Commission cannot bring or continue proceedings in the Hong Kong Competition Tribunal with a view to imposing a fine as this would be in breach of that leniency agreement.
In November 2015, the Commission released its first Leniency Policy for Undertakings Engaged in Cartel Conduct. It has been four years since the Ordinance and the first Leniency Policy for Undertakings came into effect. With the passage of time and experience following the introduction of the Ordinance, the Commission has now reviewed and revised its leniency framework “with a view to strengthening its efficacy and comprehensiveness, providing stronger and clearer incentives for a cartel member to stop the cartel conduct and report it to the Commission, thereby strengthening enforcement and furthering victim recovery”.
Key changes to Leniency Policy for Undertakings
The Commission has introduced a number of major revisions to its Leniency Policy for Undertakings. These revisions include:
Introduction of Type 1 and Type 2 leniency applications
The Commission has created a distinction between applications for leniency based on the timing of the application. Leniency is available to the first cartel member that either (i) discloses its participation in a cartel of which the Commission has not yet opened an initial assessment or investigation (Type 1); or (ii) provides substantial assistance to the Commission’s investigation of and subsequent enforcement actions against a cartel which the Commission is already assessing or investigating (Type 2). Both applications must satisfy all the requirements in order to be eligible for leniency.
Power to issue infringement notice to parties to Type 2 leniency agreements
In the event that victims initiate follow-on litigation against a party under section 110(3)(e) of the Ordinance for damages arising from the cartel conduct covered by a Type 2 leniency agreement, the Commission may issue an infringement notice to the party to the Type 2 leniency agreement requiring it to admit a contravention of the First Conduct Rule. Should a party to a Type 2 leniency agreement not make the relevant commitment described in the infringement notice, the Commission may treat the party as failing to comply with the leniency agreement and take appropriate action, including making an application to the Competition Tribunal for an order that the party has contravened the Ordinance, so as to permit follow-on proceedings to be commenced against the party. No infringement notice will be issued to parties to a Type 1 leniency agreement.
Agreement not to commence proceedings
In the past, the Commission would only agree not to commence proceedings against a successful leniency applicant for a fine or any other proceedings except those for a declaration that the leniency applicant has contravened the Ordinance. Under the revised programme, the exception has been removed and the Commission’s agreement not to commence proceedings has been extended to include any proceedings against a successful leniency applicant (both Type 1 and Type 2) in relation to the cartel conduct covered by the leniency agreement.
Leniency not available to ringleaders
An undertaking that is clearly the sole ringleader of the cartel conduct is disqualified from obtaining leniency. However, in its revised Leniency Policy for Undertakings, the Commission has indicated that it will construe or interpret the ringleader ground in favour of accepting a leniency application in order to encourage companies to report their cartel conduct.
Removal of requirement for statement of agreed facts
Under the revised Leniency Policy for Undertakings, it is no longer a requirement that the undertaking applying for leniency agree to and sign a statement of agreed facts admitting its participation in the cartel, on the basis of which the Competition Tribunal might otherwise be asked jointly by the Commission and the applicant to make an order declaring that the applicant had contravened the First Conduct Rule by engaging in cartel conduct.
New Leniency Policy for Individuals
A new Leniency Policy for Individuals has been introduced, allowing individuals such as employees of a company to seek leniency.
An important limitation is that leniency can only be granted to the first individual involved in the cartel conduct who reports the cartel to the Commission, before the granting of a marker to an undertaking under the Leniency Policy for Undertakings. A leniency marker holds a leniency applicant’s place for a period of time (ordinarily at least 30 calendar days) to allow the leniency applicant to gather the necessary information to perfect his application. Where such marker has already been taken by an undertaking, it will not be available to individuals, although the Commission may in its discretion offer not to initiate proceedings against an individual in return for that individual cooperating with the Commission’s investigation. Where the marker relating to the cartel has been granted to an individual, the Commission may still grant an additional marker to the first undertaking to apply for leniency.
Similar to the Leniency Policy for Undertakings, leniency is not available to an individual who is the ringleader of the cartel or who has coerced other parties to participate in the cartel. Again, the Commission has indicated that it will construe or interpret the ringleader ground in favour of accepting a leniency applicant to encourage reporting by individuals.
If a leniency application by an individual is accepted, the Commission will enter into a leniency agreement with that individual and agree not to commence any proceedings against him in relation to the reported conduct.
Postscript
In January 2020, the Commission commenced the first enforcement proceedings resulting from a successful leniency application (Competition Commission v. Quantr Limited and Cheung Man Kit CTEA 1/2020). The cartel involved a bidding exercise for the procurement of IT services and was brought to the Commission’s attention by one of the bidders, who made a leniency application under the Leniency Policy for Undertakings. This case, which is ongoing at the Competition Tribunal, is regarded by Brent Snyder, chief executive officer of the Commission, as “a solid testimony to the importance of leniency in detecting and combating cartels”.
As at the end of December 2019, the Commission had received about 4,000 complaints and enquiries, nearly 30 per cent of which were concerned with alleged cartel conduct, including price fixing and the exchange of competitively sensitive information. It is expected that the revised leniency framework, together with the Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct4 introduced by the Commission in April 2019, will incentivise more companies and individuals to report cartel conduct and cooperate with the Commission.
- PDF - Leniency Policy for Undertakings Engaged in Cartel Conduct
- PDF - Leniency Policy for Individuals Involved in Cartel Conduct
- Reed Smith Client Alert Part I
- Under the Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct (available at www.compcomm.hk/), undertakings engaged in cartel conduct which do not benefit from the leniency policy may choose to admit their wrongdoing and cooperate with the Commission in its investigations in return for the Commission’s offer of a reduction of the fine by up to 50 per cent it would otherwise recommend to the Competition Tribunal. The Cooperation and Settlement Policy also provides for a ‘leniency plus’ programme, under which undertakings that cooperate with the Commission in a cartel investigation and are first to disclose the existence of another cartel can receive an additional reduction of the recommended fine by up to 10 per cent for the first cartel.
Client Alert 2020-295
