It's no fun to dummy bid the YWCA

A number of IT solutions providers and ten residential renovation contractors guilty of anti-competitive practices.

In the first ruling under Hong Kong’s competition law, the tribunal found that IT solutions provider BT Hong Kong rigged a bid to supply and install a hyper- onverged IT server system for the Young Women’s Christian Association (YWCA). The YWCA required five bids for the system, so BT arranged for four other companies to submit dummy bids to comply with bid terms. The Hong Kong Competition Commission (HKCC) filed a complaint against five IT firms, Nutanix, BT Hong Kong, SiS International, Innovix and Tech-2, alleging that only BT was interested in bidding and that Nutanix conspired with BT to obtain dummy bids from other Nutanix channel partners. The Tribunal ruled that Nutanix, BT, Innovix and Tech-21 engaged in bid-rigging although HKCC was unsuccessful in its case against SiS after concluding that the employee’s rogue actions had no authority to bind the whole company.

Fresh from success in the YWCA case, the HKCC won its case against 10 residential renovation contractors which participated in a scheme where they would only work on the renovation of designated floors in each of the three buildings in On Tat Estate, Kwun Tong and even agreed on the package prices for certain renovation items. Hong Kong Business reached out to prominent legal players for their take on the landmark ruling and what it means for the legal industry moving forward.

Q. How does the new bill define competition? What practices can be interpreted as anti-competitive?

Counsel Christopher Short and senior associate Stephanie Lau at Clyde & Co. noted that the definition of competition under the competition ordinance is not straightforward, and is linked to contravention (or alleged contravention) of a “competition rule” or a “decision relating to a competition rule.” In essence there are three rules, the first conduct rule seeks to prohibit arrangements between market participants such as price collusion, market sharing, bid-rigging activities. The second conduct rule targets undertakings who have a substantial degree of market power in abusing that power with a view to protecting or increasing their position of power and profits whilst the merger rule is limited to mergers relating to undertakings directly or indirectly holding licences issued under the Telecommunications Ordinance.

The Commission so far has received complaints dealing with both the first and second conduct rules, said Adelaide Luke, a partner at Herbert Smith Freehills. She added that cartel conduct such as bid-rigging, which falls under the First Conduct Rule, is a common issue in many sectors whilst second conduct cases have yet to be raised to the Tribunal. However, Ben Bury, partner at Holman Fenwick Willan, explained that the first two decisions handed down by the Competition Tribunal concern an infringement of the first conduct rule which is concerned with preventing cartel conduct, or “making or giving effect to an agreement, engaging a concerted practice, or making or giving effect to a decision of an association, if the object or effect is to harm competition in Hong Kong.”

Q. What are the implications for undertakings that violated the competition rules?

Giovanna Kwong, a partner at Stephenson Harwood, mentioned that the Competition Tribunal is empowered to make various orders against an undertaking. For example, an order for a declaration that the undertaking has contravened a competition rule, an order restraining it from engaging in any conduct that constitutes the contravention. Financially, undertakings may be ordered to pecuniary penalty of up to 10% of its annual turnover in Hong Kong. Directors of the undertaking may also be found liable for the anti-competitive conduct, including a director disqualification order.

Q. The Ordinance proved its merit in curbing anticompetitive practices in the telco and building sector. What other industries would benefit from it?

The Commission has once said that the most complained against sectors are the construction and information technology sectors, Kwong noted.

Furthermore, senior associate at Clyde & Co., Alastair Long, explained that the transportation industry and supply chain industries are susceptible to the impact of the competition ordinance, particularly where business consider that the consolidation of their resources/ capabilities is necessary to survive more challenging economic headwinds. The financial services industry is also an area where the effects of the competition ordinance will require to be considered with care.