8 March 2021
On 5 January 2021, the Hong Kong Competition Tribunal ("Tribunal") issued fines totalling approximately HKD 3.26 million against six decoration contractors and two individuals for engaging in cartel conduct in contravention of section 6 of the Competition Ordinance ("Ordinance"), which prohibits anticompetitive agreements.
What you need to know – key takeaways
The Hong Kong Competition Commission ("HKCC") has identified cartel conduct in the construction sector as a priority area for enforcement action. In line with this position, the Tribunal noted that anti-competitive behaviour in the renovation industry is a long-standing and widespread practice. As such, penalties for similar cases will not be strictly bound by the penalties imposed to date, but are likely to be increased.
In its determination of penalties, the Tribunal will take into account aggravating and mitigating factors, and apply discounts where there is evidence of cooperation with the HKCC. This is an important consideration for parties under investigation by the HKCC.
The conduct involved allocating customers and coordinating pricing in relation to the provision of renovation services for a public housing estate between June and November 2017. This is the fourth cartel case brought since the Ordinance came into force on 14 December 2015, and the third to involve renovation services.
Penalty decision
The Tribunal followed a four step method to calculate the pecuniary penalty to be imposed upon the parties found to have breached competition law:
a) Determine the "base amount"
The base amount of the fine reflects the nature and extent of the anti-competitive conduct. The starting point for the calculation of the base amount is the value gained (directly or indirectly) from the contravention of competition law. The base amount then is multiplied by the number of years over which the contravention took place.
In this case, the value gained by each defendant was calculated from the work orders and invoices that had been issued in relation to the renovation services that were the subject of the HKCC's investigation. The HKCC recommended a severity percentage increase of 24% be applied, reflecting the seriousness of the infringement; however the Tribunal reduced this to 20% on the basis that the number of entities involved, their market share, and sales values were less than in the Hing Construction case. The Tribunal then applied a duration multiplier of 1, despite the conduct only lasting five months.
b) Adjust the base amount according to aggravating and mitigating factors
A 30% discount was awarded to one contractor on the basis that it did not intend to contravene the Ordinance, but did so as a result of inaction and a failure to investigate when it learned that another company was being prosecuted for cartel conduct. A 50% discount was applied to the four other contractors on the basis that they shared their profit equally with their subcontractors.
c) Consider the statutory maximum
The maximum penalty for cartel conduct under the Ordinance is 10% of a company's annual turnover in Hong Kong for the duration of the contravention (capped at three years). The Tribunal calculated this amount for each respondent to ensure that the final penalty imposed did not exceed the maximum.
d) Discount for cooperation with the HKCC
The defendants each received discounts of between 5 to 10% for cooperation with the HKCC during its investigation.
With thanks to Adelle Elhosni, Associate (Abu Dhabi) and Karen Zhong, Associate (sydney) for their contributions.
For further information, please contact:
Angie Ng, Partner, Ashurst
Angie.Ng@Ashurst.com
