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Hong Kong court upholds bar on stand-alone private actions under the Competition Ordinance?

15 May 2017

The Hong Kong Competition Ordinance ("Ordinance") does not currently provide for the right to bring stand-alone private actions for contraventions of competition rules. In a decision handed down on 27 April 2017, the High Court for the first time confirmed that private litigants could not subvert the scheme of the Ordinance by relying on an act said to infringe a competition conduct rule to make good a separate cause of action.

Loyal Profit's reliance on the Ordinance

As reported before in February 2016, Loyal Profit sought injunctions against certain directives issued by the Travel Industry Council ("TIC"), one of which required travel agencies to bring Mainland Chinese tourists only to shops that registered under a Refund Protection Scheme. Loyal Profit – a Hong Kong travel agency, and itself a member of the TIC – alleged that the Scheme was anti-competitive.

Loyal Profit's cause of action was based on a contravention of the Companies Ordinance, pursuant to which a company’s exercise of powers is limited by its articles of association. According to the TIC's articles, one of the objects for which the TIC was established was to discourage unfair competition. The travel agency submitted that if the Scheme contravened the "first conduct rule" in the Ordinance (which prohibits anti-competitive agreements), it must also be in breach of the TIC's articles. It was in this context that Loyal Profit sought to rely on a contravention of the first conduct rule.


The Court's decision

The Court firmly rejected Loyal Profit's approach, and held that it was not possible to rely on an act said to contravene the first conduct rule "to make good a cause of action for breach of agreement and requiring the Court to embark on the exercise reserved by the [Ordinance] to the Competition Tribunal."

The Court went on to hold that even if this were wrong, Loyal Profit's evidence had failed to demonstrate any harmful effect on competition. Importantly, citing a UK case and Hong Kong's first antitrust judgment in the TVB case (see our post here), the Court endorsed the following approach for considering this issue in the context of a private action: 

    1. identify the market in which the effect of the allegedly infringing agreement or provision is to be gauged.
    2. articulate a theory of harm.
    3. assess the allegedly harmful effect by reference to what the position would have been in the absence of the allegedly infringing agreement or provision.  

Finally, the Court refused to refer the matter to the Competition Tribunal under section 113 of the Ordinance. The Court was not satisfied that there was a matter to be investigated by the Competition Tribunal on the basis of the evidence before the Court.

Other grounds relied by Loyal Profit against the directives were also dismissed by the Court.

Notably, the Court ordered costs to be assessed on an indemnity basis (i.e. a basis higher than the usual party-and-party costs) in relation to the competition arguments on the basis that this part of Loyal Profit's case "should not have been advanced."


Conclusion

The Loyal Profit case is an important case for private litigants wishing to test the limits of the bar on stand-alone actions under the Ordinance. The key takeaway from the decision is that litigants should think carefully before advancing arguments based on contraventions of the Ordinance even if the cause of action is not based on the Ordinance. Such advances are likely to be rejected by the courts much earlier on in the proceedings in the future.

Unfortunately, the Court in the Loyal Profit case did not delve into the issue of whether it was mandated by section 113 of the Ordinance to refer the matter to the Competition Tribunal. The approach of the courts to section 113 remains to be seen in future cases.

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