10 April 2017

Hong Kong Competition Commission makes milestone decision

Hong Kong: Competition Commission makes key decision

The Hong Kong Competition Commission has made its first decision to commence infringement proceedings in the Competition Tribunal. Conor Quigley QC of Serle Court discusses the move.

In recent days, the Hong Kong Competition Commission has exercised for the first time the powers granted to it under the Competition Ordinance 2012 to bring infringement proceedings before the Competition Tribunal.  Proceedings were commenced on 23 March 2017 against five information technology companies, namely Nutanix Hong Kong Limited (Nutanix), BT Hong Kong Limited (BT), SiS International Limited (SiS), Innovix Distribution Limited (Innovix) and Tech-21 Systems Limited (Tech-21).

Bid-rigging alleged

 The infringement proceedings concern a tender issued by the Hong Kong Young Women’s Christian Association (YWCA), a social services organisation, in July 2016, relating to the supply and installation of a new IT server system based on Nutanix technology.  Each of BT, SiS, Innovix and Tech-21 submitted bids in response to the tender.  The Competition Commission alleges that the parties contravened the First Conduct Rule of the Competition Ordinance by engaging in bid-rigging arrangements that involved the submission of “dummy” bids by certain parties.  The Commission is seeking remedies including pecuniary penalties and a declaration that each party has contravened the First Conduct Rule.

Substantive liability

The Hong Kong Competition Ordinance only came into full effect in December 2015, since when the Commission has been able to exercise its various investigatory powers.  Substantive liability under the Ordinance is in many ways similar to that of EU and UK competition law, with a First Conduct Rule and a Second Conduct Rule prohibiting anti-competitive agreements and abuse of substantial market power, respectively.  Merger regulation, however, is essentially limited to the telecommunications sector.

Greatest likelihood

 In the period since the Ordinance came into effect, the Commission has already received over 2000 complaints or queries relating to alleged anti-competitive arrangements.  Obviously, it does not have the resources to investigate all of these, so it may be presumed that the Commission has concentrated on those files that show the greatest likelihood of establishing infringement.  It is believed that the Commission will commence at least three more proceedings before the Competition Tribunal in the coming months.  Serious anti-competitive conduct, which is likely to be of most interest to the Commission, is defined as price-fixing, market allocation, output restriction and bid-rigging.  Horizontal cartel arrangements related to these issues will be targeted.

Commission acts as investigator

Unlike in EU and UK procedures, the Competition Commission does not have the power to make a finding of infringement.  Rather, it acts as an investigator which, once sufficient evidence has been collected for the Commission to conclude that it has reasonable cause to suspect a contravention of a competition rule has taken place or is about to take place, may bring infringement proceedings before the Competition Tribunal.  The Tribunal is a superior court of record, presently presided over by Justice Godfrey Lam.  

Leniency agreements

Prior to commencing proceedings in the Tribunal , the Commission may seek to obtain commitments from the parties. Leniency agreements may be offered in order to encourage parties to cartel agreements to come forward with information. In these circumstances, proceedings will not be commenced in the Tribunal against the parties concerned. Where the Commission decides to pursue infringement proceedings, it must apply to the Competition Tribunal for a fine or other order to be imposed on the undertakings concerned.  Where an infringement of a Conduct Rule has been found to have taken place, any person who has suffered loss or damage as a result of the infringement may bring follow-on proceedings in the Tribunal for damages.  Appeals from decisions of the Competition Tribunal may lie to the Court of Appeal.

Significant milestone

Ms Anna Wu, Chairperson of the Competition Commission, said in a statement that bringing these proceedings before the Tribunal was a significant milestone for the enforcement of competition law in Hong Kong.  'Bid-rigging can occur in any market where tender processes are used.  It is one of the most blatant and harmful forms of anti-competitive conduct.  The Commission takes this type of conduct very seriously because of its potential to cause significant harm to consumers and the economy as a whole.  These proceedings drive home the message that market participants in all sectors should steer clear of bid manipulation practices, while those already involved in rigging bids should consider approaching the Commission for leniency.  Members of the public should also be alert and we encourage them to report suspected bid-rigging to the Commission.  The Commission will use the full extent of its powers to combat bid-rigging.'

Conor Quigley QC, Serle Court, Lincoln’s Inn is co-author (with Suzanne Rab) of Hong Kong Competition Law (Hart/Bloomsbury).