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Hong Kong Competition Tribunal Diverges from the Australian Approach in Determining Penalties

29 Apr 2020

Find out more in the first ever decision on penalties for breach of the First Conduct Rule, which was handed down today – featuring DVC’s Connie Lee and Tommy Cheung.

In Competition Commission v Wing Hing Construction Company Limited & Ors [2020] HKCT 1, the Competition Tribunal had to decide for the first time:-

(1) whether the Australian “instinctive synthesis” approach or the EU/UK multi-step approach should be adopted in determining the penalty for contravention of the first conduct rule in respect of price fixing and market sharing; and

(2) whether the civil or the criminal approach on costs should be applied.

In the Judgment handed down on 17 May 2019: [2019] 3 HKLRD 46, the Tribunal had found all 10 Respondents who were contractors approved by the Hong Kong Housing Authority liable for contravening the First Conduct Rule by engaging in market sharing and price fixing. They were found to have allocated the floors they would work on and used a joint flyer setting out basic packaged prices in providing decoration works in Phase 1 of On Tat Estate between June and November 2016.

In January 2020, the Tribunal heard arguments on whether the Australian “instinctive synthesis” approach (by the 2nd, 3rd and 9th respondents) or the EU/UK multi-step approach should be adopted in determining the appropriate penalty.

After a 3-day hearing, the Tribunal handed down a very comprehensive judgment today [2020] HKCT 1 and held that:-

(1) The similarities in the legislative provisions with those in Australia do not necessarily indicate a legislative intention that the Australian approach should be followed. Since the Ordinance modeled the conduct rules and the efficiency defence on the EU equivalents, and given that the statutory cap in section 93(3) of the Ordinance is closer to Singaporean legislation (which adopted a model similar to that in the EU and the UK), there are grounds upon which to follow the EU/UK Multi-step approach.

(2) In particular, where competition law is still a nascent subject, a structured methodological approach is necessary to provide the desirable level of certainty, clarity and transparency in the assessment of the pecuniary penalty.

(3) The determination of the pecuniary penalty under the Competition Ordinance in Hong Kong should be approached by way of reference to the 4 main steps:-

Step 1 determining the Base Amount

Step 2 making adjustments for aggravating, mitigating and other factors

Step 3 applying the statutory cap

Step 4 applying cooperation reduction and considering plea of inability to pay, if any.

(4) Applying the aforesaid approach, the Tribunal imposed a pecuniary penalty ranging from around HK$130,000 to HK$740,000 on the respective respondents.

(5) In reaching the final amount of pecuniary penalty and recognizing that the penalty is sought against the 1st and 9th respondents without joining their sub-contractors, the Tribunal reduced the Base Amount by one-third for these two respondents to reflect their role as only part of the undertaking in question. In particular, the Tribunal took into account the fact that the association of the respondents and their sub-contractors was an ad-hoc, temporary one; they were not companies in a group or individuals in partnership and it would be unsafe to assume they would be able to recoup what they had to pay from the subcontractors.

(6) Insofar as costs is concerned, the mere fact that the proceedings involve the determination of a criminal charge does not necessarily suggest that for all purposes and in all contexts, contravention of the conduct rules is to be regarded as a criminal offence or that the proceedings are to be regarded as a criminal trial and sentencing. Accordingly the civil approach on costs should be applied.

(7) Given that this is one of the first cases in the Tribunal, and that more costs would have been incurred because of the novelty of the law than otherwise, the Tribunal further reduced the costs payable by the respondents to the Commission by 20%.

(8) The Tribunal also declined to grant a certificate for three counsel and to award any sum in respect of the Commission’s costs of investigation on the basis that the Commission had not provided any evidential basis to justify the same.

Key Takeaways

This Judgement is a significant landmark decision in that it laid down for the first time the proper approach the Tribunal should adopt in determining the pecuniary penalty involving a breach of the First Conduct Rule and costs in these enforcement actions brought by the Commission.

However, it also left unanswered some questions which could only be addressed on another occasion. For example, whether the Duration Multiplier can be less than 1 to reflect the duration upon which the contravention had taken place (i.e. less than 1 year) in future cases; and whether in calculating the turnover of the undertaking that comprised each of the 1st and 9th respondents and their respective sub-contractors, one should include the turnover of these sub-contractors as well.

Connie Lee and Tommy Cheung acted for the 9th Respondent.