Case Commentary

Competition Commission v W. Hing Construction Co Ltd [2019] HKCT 3

This second-ever trial before the Hong Kong Competition Tribunal (“Tribunal”) concerned decoration works undertaken for the tenants of Phase 1 of On Tat Estate, Kwun Tong.  The Competition Commission (“Commission”)’s allegation was that in June – November 2016, the 10 Respondents made or gave effect to an agreement or engaged in a concerted practice among themselves, whereby:

(1) Each of them was allocated designated floors in each of the three buildings in the Estate to carry out decoration work for individual tenants (“Floor Allocation Arrangement”); and

(2) They jointly produced a promotional flyer distributed to tenants setting out certain package prices used or offered by the respondents for the basic packages in the first instance (“Package Price Arrangement”).

The Commission contended that these arrangements contravened the first conduct rule in the Competition Ordinance (Cap 619) (“Ordinance”) in that they had the “object” of restricting competition and that, furthermore, they amounted to “serious anti‑competitive conduct” in the form of market sharing and price‑fixing respectively.  The Commission seeks a declaration accordingly and an order for pecuniary penalty against each respondent.

The Respondents were decoration contractors approved by the Hong Kong Housing Authority for Phase 1 of the Estate under its decoration contractors registration system, although tenants who wished to engage decoration contractors were not confined to the respondents.  Their relevant stance may be summarised as follows:

(1) All of them (except R1 and R9) deny, while R1 and R9 do not admit, the existence of the alleged agreements.

(2) All of them (except R1, R4 and R9) contend that even if there were the alleged agreements, by reason of the efficiencies they generated they are excluded from the first conduct rule pursuant to s 1 of Schedule 1 to the Ordinance (“efficiency defence”).

In the course of its detailed Judgment, the Tribunal pronounced on (inter alia) the following important principles of competition law:

• The first conduct rule prohibited any agreement having an anti‑competitive “object” or “effect” – these two elements were (it was common ground) disjunctive (§33).

• The first conduct rule might be enforced by the Commission by bringing proceedings in the Tribunal: s 93(1) of the Ordinance. The maximum penalty was 10% of the turnover of the undertaking concerned for each year in which the contravention occurred or, where the contravention occurred in more than 3 years, 10% of the turnover of the highest 3 years: s 93(3) (§37).

• Since the Commission sought pecuniary penalties (under s 93) against the Respondents, it accepted that they involved determining a criminal charge under Art 11 of the Hong Kong Bill of Rights (s 8 of the Hong Kong Bill of Rights Ordinance (Cap 383)). On that basis, the Respondents submitted, and the Tribunal accepted, that the Commission had to prove its case beyond reasonable doubt.  In this respect, the Tribunal considered itself bound by Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170 (CFA) to proceed on the basis that, once the proceedings were properly regarded as involving the determination of a criminal charge under Art 11, proof beyond reasonable doubt was applicable unless modified by proportionate legislation by express provision or necessary implication.  Since the Ordinance neither expressly nor implicitly mandated a different standard, the standard of proof beyond reasonable doubt should be applied (§§38 – 39).

• The language in Art 101(1) TFEU (essentially equivalent to Hong Kong’s first conduct rule), particularly the phrase “object or effect”, had since the earliest days of EU competition law been held to mean that there is no need to examine the effects of an agreement if it is found to have the object of harming competition (§99).

• Restriction of competition by object was to be interpreted and applied thus (§§105 – 121):

• Certain types of coordination between undertakings could be regarded, by their very nature, as being harmful to the proper functioning of normal competition. As such they revealed a sufficient degree of harm to competition that it might be found that there was no need to examine their effects.

• Consequently, certain collusive behaviour, such as that leading to horizontal price‑fixing by cartels, might be considered so likely to have negative effects, in particular on the price, quantity or quality of the goods and services, that it might be considered redundant to prove that they had actual effects on the market.

• To determine whether an agreement constituted an “object” restriction, regard had to be had to the content of its provisions, its objectives and the economic and legal context of which it formed a part.

• When determining that context, it was also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question.

• Although the parties’ intention was not a necessary factor in determining whether an agreement between undertakings was restrictive, nothing prevented that factor from being taken into account.

• As undertakings could potentially be sanctioned for infringing competition law without examination or proof of the agreement’s concrete effects, the concept of infringement by object needed be interpreted restrictively. Having said that, paying regard to the agreement’s legal and economic context was to be distinguished from an effects analysis, for to conflate the two would undermine the benefits and defeat the purpose of proscribing restriction of competition by object in the first place.  What was required was simply an examination of the agreement in its proper context to ascertain if it constituted an “object” restriction, which did not involve a full examination of market effects or any balancing of pro‑ or anti‑competitive effects (such balancing being reserved for the analysis under the efficiency defence).

• The Ordinance was to be construed as imposing a persuasive burden on the undertakings-respondents in question to bring themselves within the efficiency defence (§180). As such, this reverse onus of proof engaged the constitutionally protected presumption of innocence, but it fulfilled the requirements of the 4‑stage proportionality assessment, so that it was for the relevant Respondents to establish the efficiency defence on the balance of probabilities (§§188 – 204).

On the particular facts of this case and state of the evidence before it, the Tribunal ultimately concluded that the Floor Allocation Arrangement and the Package Price Arrangement each were an “object” restriction and constituted “serious anti-competitive conduct”, neither of which could be justified by the efficiency defence.

Mr Hectar Pun SC, Mr Anson YY Wong and Ms Allison Wong of Chambers appeared for R5; Mr Richard Yip and Ms Tara Liao of Chambers appeared for R6, R7, R8 and R10; whilst Mr Carter Chim and Mr Thomas WK Wong of Chambers appeared for R2 and R3.

The full judgment of the case can be found here.