Hong Kong Competition Tribunal orders penalties in the government subsidies cartel case

Further, it is interesting to see that the Tribunal agreed with the Commission’s recommendation to extend a 20% cooperation discount to Tang (R8), a shareholder and director of KWEK, even though individuals are not explicitly eligible under the Cooperation Policy for a cooperation discount which only applies to undertakings engaged in cartel conduct. The Tribunal’s approach in this case shows that both the Commission and the Tribunal are likely to consider relevant the cooperation afforded by an individual under the “lump sum” approach.

3. Penalty uplifts recognised by the Tribunal

The Tribunal’s decision sheds additional light on the aggravating factors which may lead the Tribunal to increase the pecuniary penalty to be paid. Previously, in Competition Commission v Nutanix Hong Kong Limited and Others [2020] HKCT11 (“Nutanix”), the Tribunal took into consideration Nutanix’s role as the leader or instigator of the contravention and applied an uplift of 40% to the base amount of the pecuniary penalty, to reflect the severity of Nutanix’s conduct in formulating the bid-rigging scheme, and taking part to coordinate dummy bids from the other respondents.

In this case, an uplift was imposed based on the following factors:

4. No penalty for the parent company of Multisoft (R1)

Although the Commission filed proceedings against MTT Group Holdings Limited (“MTT (R2)”) and MTT accepted liability for the contravention committed by its wholly owned subsidiary, Multisoft (R1), the Tribunal took a pragmatic approach and did not order a separate fine against MTT (R2). This is likely to have been because MTT (R2) was not involved or had no knowledge of the contravention that had taken place.

Instead, the Tribunal accepted the suggestion by the Commission and MTT (R2) that the Tribunal should enter judgment on liability and consequential orders in favour of the Commission against Multisoft (R1) alone, and to stay the portion of the proceedings against MTT (R2) upon, among other things, MTT guaranteeing the payment of Multisoft (R1)’s monetary liabilities.

5. Sole proprietors – an undertaking or an individual?

In this case, the Commission pursued Au Yeung Kit-yee trading as Yat Ying (R6) under section 6 of the Ordinance (i.e. in her capacity as an undertaking), and in her personal capacity under section 91 of the Ordinance (i.e. as an individual involved in a contravention of a competition rule). 

Despite having done so, for the purposes of determining the appropriate penalty, the Tribunal’s treated Yat Ying (R6) as an undertaking and did not impose a separate fine against her as an individual. An order was also made against Yat Ying (R6) requiring her to implement a compliance programme, even though Yat Ying (R6), a sole proprietorship, was a “small business” and did not appear to have been a sizeable company.

6. Director disqualification order against Tang (R8)

As mentioned above, in addition to imposing a pecuniary penalty against Tang (R8) for his part in the contravention, the Tribunal further imposed a director disqualification order against him. It was not disputed that Tang (R8) agreed to provide cover bids, and personally accepted money from Fan (R7) for doing so. Based on this, the Tribunal found that Tang (R8) was unfit to be concerned in the management of a company, and ordered that he be prohibited from being a director of a company, or be concerned or take part in the promotion, formation, or management of a company (whether directly or indirectly) for a period of two years.  

This is not the first occasion where the Tribunal has imposed a director disqualification order against a person involved in the contravention. For example, the Tribunal previously imposed disqualification orders in Fungs E & M Engineering Company and Others [2020] HKCT 9 (“Fungs E&M”), Kam Kwong Engineering Company Limited and Others [2022] HKCT 1 (“Kam Kwong”) and Gray Line Tours of Hong Kong Limited and Others [2023] HKCT 2. Such orders are becoming increasingly common, with the Commission pursuing disqualification orders in the majority of cases it has initiated to date.

 7. Investigation and litigation costs may be substantial

This case once again serves as a reminder that, apart from a fine, there are additional costs stemming from a finding of contravention that businesses may have to bear. In most cases, the Commission will seek an order from the Tribunal that the undertaking(s) liable for a contravention be required to pay the Commission’s investigation and litigation costs.    

In the current case, the Commission sought:

• Investigation costs incurred by the Commission in equal shares. This amounted to each of the undertakings being liable to pay an additional HKD 155,000, being 25% each for the total investigation costs of HKD 621,730). This amount exceeds the pecuniary penalty ordered against BP/Noble (R3 and R4) and Tang (R8); and
• Litigation costs incurred by the Commission. A total sum of HKD 405,000 was agreed to be paid by KWEK (R5) and Tang (R8) on joint and several basis, and a sum to be assessed by the remaining respondents (except MTT (R2)). Again, this amount exceeds the pecuniary penalty ordered against Tang (R8).

As in any court proceedings, parties should be aware that the Tribunal has a wide discretion to make cost orders. In a lengthy and complex investigation, these cost orders could be hefty and may even be higher than the pecuniary penalties imposed.

Conclusion

This judgment in this case establishes a useful precedent for the various ways the Tribunal may resolve a case, particularly against those who fail to respond to the Commission’s case. It also illustrates the Tribunal’s consistent application of the four-step approach outlined in W Hing, which has now been applied in a number of cases including Nutanix, Fungs E&M, Kam Kwong etc.