The Hong Kong Competition Ordinance

New Year Resolutions

14 December 2015 will see Hong Kong finally catch up with other free market economies when the much delayed Competition Ordinance comes into operation.

The Competition Commission, the child of the Ordinance, has an informative website where it notes:

“Hong Kong has long been one of the freest and most competitive economies in the world. But that does not mean there are no attempts or behaviour that reduce competition. Anti-competitive conduct such as price fixing or bid-rigging could lead to reduced consumer choice and uncompetitive high prices, and such conduct is not absent from Hong Kong. We have to work continuously to maintain competition in our markets.”

“In case of contravention of competition rules, the Competition Tribunal has a broad‐range of sanctions available to levy against a contravening party. These include pecuniary penalty, director disqualifications, and prohibition, damage and other orders. For pecuniary penalty, the Tribunal may award a penalty up to 10% of the turnover of the undertakings involved for up to three years in which the contravention occurs.”

Established in May 2013, the Commission has been preparing itself for this important date, with six Guidances already published on its website.  The first of the Guidances relates to the Complaints procedure – a charter for grievances?  Ominously, it has also just released its Draft Leniency Policy where an undertaking engaging in cartel conduct can report and co-operate with the Commission in exchange for leniency.  Time will tell how sharp the teeth of the Commission are.

The second development is the introduction of the Contracts (Rights of Third Parties) Ordinance which will come into force on 1 January 2016.  This changes the old rule that only the original parties to a contract have rights under that contract.  Many forms of contracts made after its commencement may give rights to third parties to enforce, for their benefit, terms of that contract. Examples of types of contracts where this could be important are: technology agreements, construction contracts, confidentiality agreements and employment contracts (as against employers).  There are excluded classes of contracts such as Deeds of Mutual Covenant.

Third parties can acquires these rights where they are expressly named in the contract or the contract purports to confer the benefits of the rights.

The Hong Kong version is substantially based on the United Kingdom version which came into force in 2000.  The practical experience there is that the majority of contracts expressly exclude the incorporation of third party rights.  As a probable consequence of that, there has been little case law to provide guidance on its application.  However, a recent case suggested that there may be unforeseen limitations in applying the new law unless the agreement contains the correct drafting. Contract law has been developed over hundreds years whilst third party rights, by comparison, are in their infancy so well crafted drafting is vital if the intention is to use or limit the provisions of this Ordinance.

The default reaction is to presume these important pieces of legislation will not affect your business.  Do not assume that and get proper advice! Your New Year’s resolution should be made a little earlier than normal, to ensure that 2016 doesn’t bring you some unfortunate surprises with the monkey of the Competition Commission on your back.


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