On 23 March 2017, the Hong Kong Competition Commission reached a significant milestone in its short history, bringing its much-awaited first case before the Competition Tribunal. It is not surprising bid-rigging was first off the rank, with cartel conduct firmly in the HKCC's sights since the Ordinance came into force less than 18 months ago. Companies are now put on notice that bid-rigging, which might have once been common practice in Hong Kong, will experience the full force of Hong Kong's new competition law regime.
What is the case about?
The HKCC alleges that Nutanix Hong Kong Limited, BT Hong Kong Limited, SiS International Limited, Innovix Distribution Limited and Tech-21 Systems Limited contravened the 'first conduct rule' by engaging in bid-rigging. The HKCC is seeking pecuniary penalties, a declaration of the contravention, costs and any other relief the Tribunal considers appropriate. The maximum penalty that can be ordered for a single contravention is 10% of the company's turnover for each year the contravention occurred. The case concerns alleged collusion between the parties in their responses to a tender for IT systems issued by the Hong Kong Young Women's Christian Association (YWCA) in July 2016.
The YWCA tender concerned the supply and installation of an information technology server system based on Nutanix's technology. The HKCC alleges that a number of the parties submitted 'dummy bids', otherwise known as 'cover bids', to ensure that the YWCA received the minimum number of bids required by its Procurement Policy & Procedure, and so that the most likely outcome would be the award of a contract to BT which specified the use of Nutanix's product.
YWCA received 4 bids from BT, SiS, Innovix and Tech-21. Its suspicions were raised when it noticed that the bids contained a number of unusual features including a high degree of consistency in the substance and format of the bids, including common mistakes, typographical errors, common alterations and the omission of key information. The information uncovered by the HKCC to support the allegations of bid-rigging includes email correspondence between Nutanix and each of BT, SiS, Innovix and Tech-21 respectively, WhatsApp messages, statements and interviews of various employees.
How did the case reach the Competition Tribunal?
The speed at which the HKCC was able to bring the case before the Tribunal is impressive, taking just a touch over 9 months. It received the YWCA's complaint on 21 July 2016, opened an investigation shortly after, used its investigative powers to issue information requests sometime in September 2016, conducted interviews of employees of the respective companies between December 2016 and March 2017, and then filed its case before the Tribunal. This process can take more than a year, sometimes two, in other established jurisdictions. The HKCC was no doubt helped in this case by the straightforward allegations that were made in this case and by the fact that Nutanix and BT, to their credit, cooperated with the HKCC.
Why did the HKCC bring this case?
The HKCC's decision to bring this as its first matter before the Tribunal, despite the cooperation of Nutanix and BT, illustrates the power of the HKCC to bring cases involving allegations of 'serious anti-competitive conduct' directly to the Tribunal, without the need to first give a 'warning notice'.
While not used in this case, it is worth mentioning that the HKCC has a cartel leniency policy, where it will offer immunity from pecuniary penalties to the first cartel member who reports the cartel conduct (provided that the applicant also meets the requirements in the policy). A company may want to consider this option if it has identified employees who may have engaged in cartel conduct since the Ordinance has come into force.
Compliance training will go a long way to keeping you out of the HKCC's sights
In an interview with the HKCC, an employee is recorded as stating that the submission of dummy bids was a common practice in the IT Industry in Hong Kong. This case drives home the importance of compliance training to put employees on notice that 'common practice' is not a defence to an allegation of breach of the Ordinance. Bid rigging is one of the most serious forms of anticompetitive conduct and is a criminal offence in some jurisdictions, where those convicted can face not only significant fines but also be sentenced to jail.