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Hong Kong Competition Tribunal Approves First Cartel Settlement8월 13, 2020
In its recent judgment in the case of the Competition Commission v Kam Kwong Engineering Company Ltd & Ors  HKCT 3, the Hong Kong Competition Tribunal (the “Tribunal”) has approved a consensual application by the Hong Kong Competition Commission (the “Commission”) and the 1st, 2nd and 4th respondents in the case to dispose of the proceedings following a settlement between the parties. The Tribunal’s judgment provides helpful guidance on the procedure that will need to be followed in order for the Tribunal to conclude cases after a settlement has been reached with the Commission.
This is one of a handful of cartel cases that has been prosecuted by the Commission to date. It represents the first time that the Tribunal has resolved such a case by way of a consensual application following a settlement.
The Tribunal adopted the Carecraft procedure for the purposes of its assessment of the relevant parties’ application.1 This procedure has also been used by the Hong Kong Courts to dispose of applications made by the Hong Kong Securities and Futures Commission for the disqualification of directors under the Companies Ordinance.2
The Carecraft procedure allows the parties to submit a statement of agreed facts and proposed orders. This dispenses with the need for a trial to determine the facts and allows the judge to make orders to conclude the case without delay. Importantly, the judge does not need to consent to the statement of agreed facts and is confined to those facts when making orders.3 While the judge is not bound by the parties’ proposed orders, the Tribunal will typically make such orders unless they are inconsistent with or do not adequately reflect the statement of agreed facts.4
We set out below a summary of the background to the case, the settlement reached, and the Tribunal’s judgment.
Background to the Case
As summarised in our previous alert, the Commission commenced proceedings in the Tribunal against certain construction and renovation firms, as well as two individuals, alleging that they had contravened (or were involved in a contravention of) the First Conduct Rule (“FCR”) in the Competition Ordinance (“CO”) (which prohibits anti-competitive agreements) in relation to renovation services for a public housing project.
The Commission’s allegations focused on two issues: (1) the allocation of units/floors between firms (i.e. market sharing); and (2) the exchange of commercially sensitive information and the coordination of the pricing of the standard decoration package for units (i.e. price fixing). Notably, this was also the first time that the Commission prosecuted individuals under the CO.
On 6 August 2019, the Commission and 1st, 2nd and 4th respondents applied to the Tribunal (by Consent Summonses) for “approval to dispose of the proceedings between them by consent under r. 39 of the Tribunal’s Rules” (i.e. settle). Rule 39 of the Tribunal’s Rules allows parties who agree on the proposed terms of an order to submit such terms to the Tribunal for approval.
The relevant parties submitted a statement of agreed facts and the terms of the proposed orders to be made against the 1st, 2nd and 4th respondents. The agreed statement of facts effectively included admission by the three respondents to a breach of the FCR.
The Tribunal’s Judgment
In his judgment dated 7 July 2020, Mr Justice Harris confirmed that the Tribunal was able to dispose of the action against the 1st, 2nd and 4th respondents following their settlement with the Commission. He held that the Tribunal would follow the Carecraft procedure when dealing with applications to conclude proceedings after a settlement. As noted, this procedure requires the parties to prepare and submit a statement of agreed facts, which will be relied upon by the Tribunal when making orders.
Mr Justice Harris justified his decision on several grounds, including:
- There is no requirement for the Tribunal (or any court) to conduct a full trial regardless of any agreement or admission of material facts. As such, the Tribunal was permitted to dispense with a trial and rely upon the statement of agreed facts.
- The Carecraft procedure was developed in a context that is comparable to the enforcement of the CO. Indeed, the English Court in Carecraft relied upon a competition law case, which had been decided based on an affidavit setting out the undisputed facts (i.e. which the parties had agreed in advance and was not challenged).
- Paragraph  of the Tribunal’s Practice Direction No. 1 provides: “one of the underlying objectives of the procedure of the Tribunal is to facilitate the settlement of disputes.”
- It was in the public interest for a regulator to reach settlements in competition law cases (citing UK,5 European,6 and Australian7 jurisprudence).
- Settlements allow for the expeditious disposal of proceedings, and avoid the substantial costs of trials.
On this basis, Mr Justice Harris noted that “the benefits of providing a mechanism, which facilitates agreements between the Commission and respondents (who concede that they have contravened the Ordinance), are overwhelming.” He also concluded that the Carecraft procedure provided a “readymade blueprint” for disposing of proceedings under the CO.
In light of the statement of agreed facts, Mr Justice Harris held that: (1) the 1st and 2nd respondents (i.e. construction and renovation firms) had committed clear contraventions of the FCR by making and giving effect to an agreement and/or engaging in a concerted practice with the object of preventing, restricting or distorting competition in Hong Kong in contravention of the FCR; and (2) the 4th respondent (a director of the 1st respondent) was “involved” in such contravention for the purposes of s93 of the CO in that he had aided, abetted, counseled, procured, and been knowingly concerned in the contravention. In keeping with these findings, he ordered judgment for liability against the relevant respondents and made declarations confirming their contravention of the CO.
While liability and penalties are typically resolved in the same hearing under the Carecraft procedure, Mr Justice Harris adjourned the proceedings for the determination of the penalties to be imposed on the 1st, 2nd and 4th respondents. This adjournment reflects “practical reasons.” In particular, the determination of penalties under s93 and s94 of the CO is still in the “embryonic” stages of development and the parties required time to consider a recent judgment where penalties were imposed for a breach of the CO.
At a recent further hearing held after the judgment in question, the Commission proposed pecuniary penalties against the 1st and 2nd respondents, but requested that no penalty be imposed on the 4th respondent (i.e. the individual). During the hearing, one of the respondents argued for a reduction in the pecuniary penalty on the basis that it was liable only because of the actions of one of its subcontractors. Mr Justice Harris has reserved his ruling, but did not seem convinced by this argument.
Partial Settlement of Cases
The proceedings were due to continue against the 3rd and the 5th respondent, (who had not reached settlements with the Commission). However, they have recently also now agreed to settlements following the publication of the judgment against the other respondents.
If they had chosen not to settle, this would have presented a number of difficulties. In particular, it would likely have required the Tribunal to hold a trial in relation to the same facts that were set out in the statement of agreed facts. This could have given rise to a situation where the Tribunal’s rulings in the same proceedings were based on different factual findings (i.e. as the statement of agreed facts arising from the 1st, 2nd and 4th respondents’ settlements may have been inconsistent with the facts determined at trial between the Commission and the 3rd and 5th respondents.
This issue has been addressed and much debated in the European Union, where approximately half of all cartel cases have resulted in settlements. The European Commission has dealt with several cases where only some of the respondents have reached settlements and the others have continued to contest the investigation. As a result, the EU Courts have had to resolve the procedural issues that follow from partial settlements.
In the Icap case, the General Court of the European Union ruled that:
“the implementation of such a ‘hybrid’ settlement procedure must be carried out in compliance with the presumption of innocence of the undertaking which has decided not to enter into a settlement. Accordingly, in circumstances where the Commission considers that it is not in a position to determine the liability of the undertakings participating in the settlement without also taking a view on the participation in the infringement of the undertaking which has decided not to enter into a settlement, it is for the Commission to take the necessary measures — including possible adoption on the same date of the decisions relating to all the undertakings concerned by the cartel, as it did in the case which gave rise to the judgment of 20 May 2015, Timab Industries and CFPR v Commission (T‑456/10, EU:T:2015:296) — enabling that presumption of innocence to be safeguarded.”8
This commentary highlights the need for cases involving partial settlements to be resolved in a manner that preserves the active respondent’s right to a fair trial. It also suggests that such cases may need to be resolved on a case-by-case basis.
The Tribunal’s judgment in Competition Commission v Kam Kwong Engineering Company Ltd & Ors  HKCT 3 is a landmark ruling and clarifies the procedure that will need to be adopted by the Commission when reaching settlements in the future. Importantly, the judgment confirms that particular care should be taken when drafting the statement of agreed facts to ensure that it is consistent with the parties’ proposed orders and supports any proposed penalties that are sought by the Commission. This reflects the fact that the Tribunal is not bound by the terms of any proposed orders / penalties and will exercise its discretion in light of the agreed facts.
1 As established by Re Carecraft Construction Co Ltd  1 WLR 172 and affirmed in various Hong Kong cases.
2 See, for example, SFC v Wong Kam Leong & Ors  HKCFI 606.
3 Secretary of State for Trade and Industry v Rogers  1 WLR 1569 at 1574H–1575A per Scott VC.
4 The judgment confirms that the Tribunal must exercise its discretion when making declarations as to the liability of a party charged with contravening the CO.
5 R (Gallaher Group Ltd) v Competition and Markets Authority  AC 96 at .
6 Timab Industries and CFPR v Commission, EU:T:2015:296.
7 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd,  FCA 1405 at –.
8 T-180/15 - Icap and Others v Commission, EU:T:2017:795, paragraph 268. Also discussed more recently in T-433/16 - Pometon v Commission, EU:T:2019:201, although in this case the General Court rejected Pometon’s claim (the only non-settling party in the cartel case) that the European Commission infringed its rights of defense because it mentioned Pometon in the settlement decision.
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