Competition Ordinance/Schedule 7

Layout 2

Mergers

PART 1
Preliminary

1. Interpretation

In this Schedule—

“carrier licence” (傳送者牌照) means a carrier licence within the meaning of the Telecommunications Ordinance (Cap. 106).

2. Territorial application

This Schedule applies to a merger even if—

(a) the arrangements for the creation of the merger take place outside Hong Kong;

(b) the merger takes place outside Hong Kong; or

(c) any party to the arrangements for the creation of the merger, or any party involved in the merger is outside Hong Kong.

PART 2
The Merger Rule

3. Mergers substantially lessening competition prohibited

(1) An undertaking must not, directly or indirectly, carry out a merger that has, or is likely to have, the effect of substantially lessening competition in Hong Kong.

(2) For the purpose of this section, a merger takes place if—

(a) 2 or more undertakings previously independent of each other cease to be independent of each other;

(b) one or more persons or other undertakings acquire direct or indirect control of the whole or part of one or more other undertakings; or

(c) an acquisition by one undertaking (the “acquiring undertaking”) of the whole or part of the assets (including goodwill) of another undertaking (the “acquired undertaking”) has the result set out in subsection (3).

(3) The result referred to in subsection (2)(c) is that the acquiring undertaking is in a position to replace the acquired undertaking, or to substantially replace the acquired undertaking, in the business or in part of the business concerned (as the case requires) in which the acquired undertaking was engaged immediately before the acquisition.

(4) The creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity also constitutes a merger within the meaning of subsection (2)(b).

(5) The prohibition imposed by subsection (1) is referred to in this Ordinance as the “merger rule”.

4. Application of merger rule

The merger rule applies only in the following cases—

(a) in the case referred to in section 3(2)(a) of this Schedule, one or more of the undertakings participating in the merger holds a carrier licence or, directly or indirectly, controls an undertaking that holds a carrier licence;

(b) in the case referred to in section 3(2)(b) of this Schedule, the undertaking or the person or persons acquiring control or the undertaking in which control is acquired holds a carrier licence or, directly or indirectly, controls an undertaking that holds a carrier licence; and

(c) in the case referred to in section 3(2)(c) of this Schedule—

(i) the acquiring undertaking or the acquired undertaking holds a carrier licence or, directly or indirectly, controls an undertaking that holds a carrier licence; and

(ii) the relevant business conducted by the acquired undertaking immediately before the acquisition was conducted under a carrier licence.

5. Control

(1) For the purposes of this Schedule, control, in relation to an undertaking, is to be regarded as existing if, by reason of rights, contracts or any other means, or any combination of rights, contracts or other means, decisive influence is capable of being exercised with regard to the activities of the undertaking and, in particular, by—

(a) ownership of, or the right to use all or part of, the assets of an undertaking; or

(b) rights or contracts which enable decisive influence to be exercised with regard to the composition, voting or decisions of any governing body of an undertaking.

(2) For the purposes of this Schedule, control is acquired by any person or other undertaking if the person or undertaking—

(a) becomes a holder of the rights or contracts, or entitled to use the other means, referred to in subsection (1); or

(b) although not becoming such a holder or entitled to use those other means, acquires the power to exercise the rights derived from them.

(3) In determining whether influence of the kind referred to in subsection (1) is capable of being exercised, regard must be had to all the circumstances of the matter and not solely to the legal effect of any instrument, deed, transfer, assignment or other act done or made.

6. Matters that may be considered in determining whether competition substantially lessened

Without limiting the matters that may be taken into account in determining whether a merger has, or is likely to have, the effect of substantially lessening competition in Hong Kong, the following matters may be taken into consideration in any such determination—

(a) the extent of competition from competitors outside Hong Kong;

(b) whether the acquired undertaking, or part of the acquired undertaking, has failed or is likely to fail in the near future;

(c) the extent to which substitutes are available or are likely to be available in the market;

(d) the existence and height of any barriers to entry into the market;

(e) whether the merger would result in the removal of an effective and vigorous competitor;

(f) the degree of countervailing power in the market; and

(g) the nature and extent of change and innovation in the market.

PART 3
Investigations

7. Time limit for commencement of investigation of merger

(1) Despite section 39 (Power to conduct investigations), the Commission may only commence an investigation of a merger within 30 days after the day on which the Commission first became aware, or ought to have become aware, that the merger has taken place.

(2) The Commission is to be taken to have become aware that a merger has taken place if it has been notified, in accordance with guidelines issued under this Schedule, of that fact by one of the parties to the merger.

(3) If the Commission—

(a) has made a decision under section 13 of this Schedule that a merger or proposed merger is or would be excluded from the application of the merger rule or this Schedule; and

(b) has rescinded that decision,

the date on which the Commission became aware that the merger has taken place is to be taken to be the date of the rescission of its decision.

PART 4
Exclusions and Exemptions

Division 1—Exclusions from Merger Rule

8. Exclusions

(1) The merger rule does not apply to a merger if the economic efficiencies that arise or may arise from the merger outweigh the adverse effects caused by any lessening of competition in Hong Kong.

(2) In any proceedings in which it is alleged that the merger rule has been contravened by a merger, any undertaking claiming the benefit of subsection (1) has the burden of proving that the conditions of that subsection are satisfied.

Division 2—Exemption from Merger Rule

9. Exemption of merger on public policy grounds

(1) The Chief Executive in Council may, by order published in the Gazette, exempt a specified merger or proposed merger from the application of the merger rule if he or she is satisfied that there are exceptional and compelling reasons of public policy for doing so.

(2) An order under subsection (1) may be made subject to any conditions or limitations that the Chief Executive in Council considers appropriate.

10. Orders to be published and placed before Legislative Council

(1) The Chief Executive is to arrange for every order made under section 9 of this Schedule to be—

(a) published in the Gazette; and

(b) laid on the table of the Legislative Council at the next sitting of the Council after its publication in the Gazette.

(2) The Legislative Council may, by resolution passed at a sitting of the Legislative Council held not later than 28 days after the sitting at which an order is laid on the table of the Council (the “relevant period”), amend the order in any manner consistent with the power of the Chief Executive in Council to make the order in question.

(3) If the relevant period would but for this section expire after the end of a session or a dissolution of the Legislative Council, but on or before the day of its second sitting in the next session, the period for amending the order is deemed to be extended and to expire on the day after that second sitting.

(4) The Legislative Council may, before the expiry of the relevant period, by resolution extend the period for amending the order to the first sitting of the Council held not earlier than the twenty-first day after the day of that expiry.

(5) If the relevant period is extended under subsection (3), the Legislative Council may, before the expiry of the extended period, by resolution extend that extended period to the first sitting of the Council held not earlier than the twenty-first day after the day of the second sitting in the next session referred to in that subsection.

(6) A resolution passed by the Legislative Council in accordance with this section must be published in the Gazette not later than 14 days after the passing of the resolution or within such further period as the Chief Executive may allow in any particular case.

(7) An order made by the Chief Executive in Council under section 9 of this Schedule comes into operation—

(a) if on the expiry of the relevant period or that period as extended under subsection (3), (4) or (5), the Legislative Council has not passed a resolution amending the order, on the expiry of the relevant period or that period as so extended (as the case may be); and

(b) if the Legislative Council passes a resolution amending the order, at the beginning of the day on which the resolution is published in the Gazette.

(8) If an order is not laid on the table of the Legislative Council in accordance with this section, it is of no effect.

(9) In this section—

“sitting” (會議), when used to calculate time, means the day on which the sitting commences and only includes a sitting at which subsidiary legislation is included on the order paper.

PART 5
Decisions

11. Application for decision

(1) If an undertaking—

(a) has carried out a merger; or

(b) is carrying out, or is proposing to carry out a merger,

it may apply to the Commission for a decision under subsection (2).

(2) The decision referred to in subsection (1) is a decision as to whether or not the merger is, or the proposed merger would if completed be—

(a) excluded from the application of the merger rule by or as a result of section 8 (Exclusions) of this Schedule; or

(b) excluded from the application of this Schedule by virtue of—

(i) section 3 (Application to statutory bodies); or

(ii) section 4 (Application to specified persons and persons engaged in specified activities).

(3) The Commission is only required to consider an application under this section if—

(a) the application poses novel or unresolved questions of wider importance or public interest in relation to the application of exclusions under this Ordinance;

(b) the application raises a question of an exclusion under this Ordinance for which there is no clarification in existing case law or decisions of the Commission; and

(c) it is possible to make a decision on the basis of the information provided.

(4) The Commission is not required to consider an application for a decision if the application concerns hypothetical questions or conduct.

12. Consideration of application

(1) Before making a decision on an application made under section 11 of this Schedule, the Commission must—

(a) in order to bring the application to the attention of those the Commission considers likely to be affected by the decision, publish notice of the application—

(i) through the Internet or a similar electronic network; and

(ii) in any other manner the Commission considers appropriate; and

(b) consider any representations about the application that are made to the Commission.

(2) A notice under subsection (1) must specify the period within which representations may be made to the Commission about the application.

(3) The period specified for the purpose of subsection (2) must be a period of at least 30 days beginning after the day on which the notice is first published.

13. Decision by Commission

(1) After considering the representations, if any, made within the period referred to in section 12 of this Schedule, the Commission may make a decision as to whether or not the merger is, or the proposed merger would if completed be, excluded from the application of the merger rule or this Schedule.

(2) A decision by the Commission may include conditions or limitations subject to which it is to have effect including, in the case of a proposed merger, specifying a date by which the proposed merger must be completed.

(3) After the Commission has made its decision, it must inform the applicant in writing of the decision, the date of the decision and the reasons for it.

14. Effect of decision

If the Commission makes a decision that—

(a) a merger is excluded from the application of the merger rule or this Schedule; or

(b) a proposed merger would if completed be excluded from the application of the merger rule or this Schedule,

then the Commission may not take any action under this Ordinance with respect to the merger or proposed merger unless it rescinds its decision under section 15 of this Schedule or the merger as implemented is materially different from the proposed merger to which the decision relates.

15. Rescission of decision

(1) The Commission may rescind a decision made under section 13 of this Schedule if it has reason to believe—

(a) if the merger has not been carried into effect, that there has been a material change of circumstances since the decision was made; or

(b) whether or not the merger has been carried into effect—

(i) that the information provided by a person involved in the merger, on which it based its decision was incomplete, false or misleading in a material particular; or

(ii) that an undertaking has failed to observe any condition or limitation subject to which the decision has effect.

(2) Before rescinding a decision under this section, the Commission must—

(a) in order to bring the proposed rescission to the attention of those persons the Commission considers likely to be affected by it, publish notice of the proposed rescission—

(i) stating that the Commission is considering rescinding the decision and the reasons why it is considering the rescission; and

(ii) inviting the persons to make representations about the proposed rescission within the period specified in the notice; and

(b) consider any representations received within the period specified in the notice.

(3) The notice referred to in subsection (2) must be published—

(a) through the Internet or a similar electronic network; and

(b) in any other manner the Commission considers appropriate.

(4) The period specified in a notice under subsection (2) must be a period of at least 30 days beginning after the day on which the notice is given.

(5) If, after—

(a) the expiry of the period specified in the notice given under subsection (2); and

(b) considering any representations received within that period,

the Commission is of the view that the decision should be rescinded, it may, by notice in writing given to each undertaking specified in the decision, rescind that decision.

(6) A notice of rescission given under subsection (5) must inform the undertakings of—

(a) the rescission and the reasons for the rescission;

(b) the date on which the determination to rescind the decision was made; and

(c) the date from which the rescission takes effect.

(7) If a decision is rescinded under this section, each undertaking specified in the notice of rescission loses its immunity from action under this Ordinance, as from the date the rescission takes effect, with regard to anything done after that date.

16. Register of merger decisions

(1) The Commission must establish and maintain a register of—

(a) all decisions made in respect of applications made under section 11 of this Schedule; and

(b) all notices of rescissions of such decisions, made under section 15 of this Schedule.

(2) The Commission may omit confidential information from any entry made in the register under this section; and where confidential information has been omitted, that fact must be disclosed on the register.

(3) The Commission must make the register available for inspection by any person—

(a) at the offices of the Commission during ordinary business hours;

(b) through the Internet or a similar electronic network; and

(c) in any other manner the Commission considers appropriate.

PART 6
Guidelines

17. Guidelines

(1) The Commission must issue guidelines indicating the manner in which it expects to interpret and give effect to the provisions of this Schedule including, in particular—

(a) the manner in which it will determine whether or not a merger has, or would be likely to have, the effect of substantially lessening competition in Hong Kong;

(b) the manner in which it will determine whether or not a merger would fall within the exclusion referred to in section 8(1) of this Schedule; and

(c) the manner and form in which it should be notified of any merger.

(2) The Commission may amend any guidelines it issues under this section.

(3) Guidelines issued under this section, and any amendments made to them, may be published in any manner the Commission considers appropriate.

(4) Before issuing any guidelines or amendments to them under this section, the Commission must consult the Legislative Council and any persons it considers appropriate.

(5) The Commission must make available copies of all guidelines issued under this section and of all amendments made to them—

(a) at the offices of the Commission during ordinary business hours;

(b) through the Internet or a similar electronic network; and

(c) in any other manner the Commission considers appropriate.

(6) A person does not incur any civil or criminal liability only because the person has contravened any guidelines issued under this section or any amendments made to them.

(7) If, in any legal proceedings, the Tribunal or any other court is satisfied that a guideline is relevant to determining a matter that is in issue—

(a) the guideline is admissible in evidence in the proceedings; and

(b) proof that a person contravened or did not contravene the guideline may be relied on by any party to the proceedings as tending to establish or negate the matter.

(8) Guidelines issued under this section and all amendments made to them are not subsidiary legislation.