The Significance Of The Hong Kong Competition Commission’s First Case.

 

29 June, 2017

 

 

This article sets out our views on a hearing that took place on Friday 26 May 2017. This was no ordinary hearing; it was the first milestone date (namely a case management conference (CMC)) in the first case brought under the Hong Kong Competition Ordinance (the ordinance) by the Competition Commission (the commission). The case is Competition Commission -v- Nutanix Hong Kong Limited & Ors CTEA 1/2017 and the CMC took place before Mr Justice Godfrey Lam at the Competition Tribunal (which sits within the High Court of Hong Kong). In Hong Kong, unlike in the EU, there is a division between the commission which investigates and prosecutes cases, and the Competition Tribunal which decides them.

 

Phony first cases

 

Since the ordinance came into full effect on 14 December 2015, there has been considerable speculation on which would be the ‘first case’ brought by the commission under the ordinance and several cases were fallaciously identified as such in the popular press (e.g. Television Broadcasts Ltd -v- Communications Authority [2016] 2 HKLRD 41; HKSAR -v- Yau Siu Tin DCCC 552/2015 (the ‘Garden Vista’ case); and Loyal Profit International Development Ltd -v- Travel Industry Council of Hong Kong [2017] HKEC 836). As a new regulator, with an annual budget of approximately HK$80 million, it was predicted that the commission would choose a first case it could easily win. 

 

The actual first case

 

The commission’s actual first case – Competition Commission -v- Nutanix Hong Kong Limited & Ors (see above) – concerns allegations of bid rigging. As per the originating notice of application, the commission alleges that five information technology companies, namely Nutanix Hong Kong Limited, BT Hong Kong Limited, SiS International Limited, Innovix Distribution Limited and Tech-21 Systems Limited (collectively, the respondents), contravened the first conduct rule under the ordinance by engaging in bid-rigging in a tender conducted by the Hong Kong Young Women’s Christian Association in July 2016 for the supply and installation of an information technology server system. The anti-competitive conduct alleged involved the submission of ‘cover bids’ by which certain bidders submit less attractive terms or higher prices in order to facilitate another bidder winning the tender, and ‘hub and spoke arrangements’ whereby parties exchange sensitive information via a middleman (the hub) (both being a form of ‘atypical cartels’ not specifically catered for in the ordinance). As bid-rigging is classified under the ordinance as ‘serious anti-competitive conduct’, the commission was not required to issue a warning notice to the respondents and was entitled immediately to bring proceedings against them. The commission also appears to have exercised its investigatory powers under section 42 of the ordinance in interrogating several witnesses.

 

Why is the CMC relevant?

 

First cases brought under new legislation often serve to clarify that legislation. No matter how clear laws are intended to be, there are always unintentional gaps, but also matters deliberately left to be decided by case law. We therefore attended the CMC, which lasted approximately 2.5 hours, and make the following preliminary observations on the case:

 

1. Mr Justice Godfrey Lam observed that it was ‘highly inefficient to have five teams of lawyers’ in the proceedings (i.e. each of the five respondents had their own legal representatives), citing a risk of disproportionate costs. It remains to be seen whether the respondents decide to consolidate their defences and, if not, whether they will suffer cost consequences for failing to do so (if they are successful at trial). Given that most cases brought by the commission are likely to relate to cartels, this issue will almost certainly continue to arise.
2. There were concerns about the confidentiality status of redacted and unredacted documents disclosed by way of compulsion during these proceedings, and whether both are covered by the implied undertaking of confidentiality and therefore cannot be used for collateral purposes and/or other legal proceedings unrelated to the current proceedings. In particular, there was debate over the use of unredacted documents, which were seized by the commission, in other legal proceedings. The tribunal ruled that the court must protect and maintain the confidentiality of all documents regardless of whether they are redacted or not. This is especially true in circumstances where the documents come into parties’ possession purely because of legal proceedings; otherwise there may be excessive redaction by the parties. However, such confidentiality may be waived by parties or by the direction of the court. Mr Justice Godfrey Lam noted that the tribunal needed to clarify this area of law.
3. Another notable issue discussed was applications made by parties for public interest immunity so as to prevent sensitive information from being disclosed in court. Given such orders are not typically granted, it is worth noting that the commission stated it may be seeking public interest immunity. It was confirmed by the tribunal that, where a party is claiming public interest immunity, an affidavit must be filed with the court so that all parties in the action are made fully aware of the application and the class of documents to which it applies.
4. The standard of proof (i.e. balance of probabilities as in civil cases or beyond reasonable doubt as in criminal cases) to be applied in these proceedings will, interestingly, only be decided at the trial. Mr Justice Godfrey Lam stated that this could not be determined yet because he has not heard parties’ submissions on this matter. The standard of proof undoubtedly will be an area of much contention. It may well be that an important precedent on this issue will be set shortly.  

 

Thus the first case is indeed already proving useful in clarifying the law under the ordinance and ascertaining how the Competition Tribunal will approach key issues. The trial is fixed to take place in May–June 2018.

 

For further information, please contact:  

 

Caroline Thomas, Partner, Hill Dickinson Hong Kong

caroline.thomas@hilldickinson.com