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18 July, 2019
Earlier this month, the Competition Commission of Hong Kong (the “Commission”) initiated proceedings against yet another group of decoration contractors for alleged cartel conduct in contravention of the First Conduct Rule of the Competition Ordinance (the “Ordinance”). This is the third set of proceedings in the construction sector, and also against cartel conduct, that the Commission has taken to the Competition Tribunal (the “Tribunal”) – the first being the landmark case of Competition Commission v W. Hing Construction Company Limited & Ors., judgement of which was handed down on 17 May 20191, and the second was initiated in September 2018 and is now in intermediate steps pending to be set down for trial.
Efficiency defence
Based on the Commission’s press release, it seems that the facts and background of the case are similar to those of the W. Hing case – alleged cartel conduct in allocating customers and coordinating pricing when participating at the Housing Authority’s Decoration Contractor System. In the W. Hing case, seven of the respondents attempted to run the efficiency defence to justify their conduct, which was, however, rejected by the Tribunal as (i) grounds of the efficiency defence were not satisfied, and (ii) the way the respondents’ case was pleaded did not assist with establishing the defence.
If the alleged cartel conduct did in fact take place, we await to see whether the efficiency defence would be run by the respondents in this proceeding – not only on whether the four conditions to rely on the defence as set out by the Tribunal in W. Hing can be satisfied, but also on how the respondents’ case would be pleaded overall.
Lesson learnt?
Amongst the six contractors that the proceedings are initiated against is Luen Hop Decoration Engineering Co Ltd, who is one of the respondents in the W. Hing case found to have contravened the
First Conduct Rule. Its director is also one of the three individuals named as respondents, against whom the Commission is seeking a director disqualification order.
The Commission is alleging that the contractors engaged in cartel conduct in around June to November 2017. This was the time when the Commission initiated its first proceedings against W. Hing and others.
Even still, it seems that the respondents neglected, or were not aware that their dealings could amount to cartel. Whilst the Commission acknowledges that such kind of conduct have been prevalent in the sector, it is inevitable to lead to the question of whether there has been sufficient education in sectors known to engage in such kind of cartel conduct.
Aside from relying on the Commission, businesses and corporates can also take the initiative to provide know-how sessions to their employees. In particular, when such kind of conduct has already become part of the custom, education should not only focus on merely raising the awareness of the existence of the Ordinance, but also on what conduct amounts to cartel or would otherwise contravene the Ordinance.
1 A summary and an analysis of the decision are mentioned in our article published on 28 May 2019
For further information, please contact:
Giovanna Kwong, Partner, Stephenson Harwood
giovanna.kwong@shlegal.com
