24 September 2021

The First Appeal Case from the Competition Tribunal

This article was written by Edmund Wan, Stephanie Hung and Valerie Pui.

On 18 June 2021, the Honourable Mr Justice Lam VP handed down the reasons for judgment for Competition Commission v W Hing Construction Company & Others [2021] HKCA 877[1].  This article discusses the Competition Commission’s first ever appeal case heard in the Hong Kong Court of Appeal (Court).  This appeal was initiated by the two individual partners (Appellants) named in the title of the proceedings as the partners of the firm Tai Dou Building Contractor (Tai Dou) against the Hong Kong Competition Tribunal (Tribunal)’s judgment made on 17 May 2019[2].  The Appellants, in their capacity as partners of Tai Dou, were found by the Tribunal to have contravened the First Conduct Rule[3] in their market sharing and price fixing arrangements while providing decoration services to tenants at a public housing estate.  In gist, the Court considered issues on the nature on the contravention of the First Conduct Rule, the standard of proof and the identity of the 4th Respondent (R4).

 

Nature of contravention of the First Conduct Rule

The Appellants contended that the proceedings were criminal in nature hence mens rea of each of the respective Appellants were required in order to prove contravention of the First Conduct Rule.  In other words, individual partners should be treated as separate entities from the partnership in the criminal context.

This contention was rejected by the Court.  Although allegations of contravention are to be classified as criminal charges for the purpose of Article 11 of the Hong Kong Bill of Rights, it does not follow that the contravention of the First Conduct Rule is to be regarded as a criminal offence incorporating the requirement of mens rea.  It was held that whether the current proceedings are to be characterised as criminal in nature is wholly a question of statutory construction.  Hence, the safeguards under Article 11 (which guarantee the procedural fairness of a trial on a criminal charge by way of human rights protection) is a separate question from determining if the Ordinance has created the contravention of the First Conduct Rule to be a criminal offence. The requirement of mens rea is not one of the safeguards prescribed by Article 11 and the First Conduct Rule contravention did not fall into the ambit of criminal offences specified in the Ordinance (sections 52 to 55 and sections 172 to 175).

Further, section 171(1) of the Ordinance stipulates that proceedings for criminal offences may not be brought in the Tribunal. Since proceedings for the contravention of the First Conduct Rule and the corresponding enforcement actions are brought in the Tribunal through civil proceedings, the Court concluded the offence in question cannot be regarded as criminal in nature. Considering the construction of the Ordinance as a whole, there is no basis for the counsel of the Appellants to import the requirement to prove mens rea on the part of the individual partners for purposes of the current proceedings.

The Court therefore rejected the Appellants’ submission regarding Mr Cheung and Mr Wong’s apparent lack of mens rea on the fundamental ground that contravening the First Conduct Rule does not bring about criminal proceedings.

 

Standard of proof

G Lam J had decided at first instance[4] that because allegations of contravention of the First Conduct Rule is classified as a criminal charge pursuant to Article 11 of the Hong Kong Bill of Rights, the standard of proof required to establish liability should be the higher standard of beyond reasonable doubt.  In the appeal, the Commission asked the Court to lower the standard of proof to the civil standard of balance of probabilities with cogent evidence being required commensurably with the seriousness of the allegations. 

While the Court did recognise the Commission’s concerns with regard to the real possibility of frustrating effective enforcement of competition law with the heightened criminal standard of proof, the Court declined to make a decision because R4 had already been found to be liable beyond reasonable doubt[5].  The Court took the view that it would be better if the Tribunal could test this issue in a future case where the application of the standard of proof on specific facts and evidence would have a real (instead of conceptual) impact.   


Identity of R4

The Appellants also contended that the two of them (i.e. Mr Cheung and Mr Wong), being the only two partners of Tai Dou named in the Originating Notice of Application dated 14 August 2017 [6], should not have been so named and that they should not be held liable in light of the absence of any personal involvement by them in the acts constituting the breach of the First Conduct Rule.

The Court rejected the Appellants’ contention on the basis that it was clear the enforcement proceedings were brought against Tai Dou the firm and not the two individuals Mr Cheung and Mr Wong.  Since Tai Dou was appointed by the Housing Authority for the decorative works[7], the Appellants’ liability arose from their capacity as partners of Tai Dou[8].

 

Conclusion

It is important that the Court confirmed that contravention of the First Conduct Rule is not a criminal offence and enforcement proceedings in the Competition Tribunal are not criminal proceedings.  While the Court declined to decide on the issue of standard of proof, this would no doubt be challenged in a future case. This is an issue of great public importance to the development of competition law in Hong Kong, and we look forward to any future decision on this issue. 


King & Wood Mallesons acted for the Competition Commission in CACV 257 of 2019.

 

[1] King & Wood Mallesons acted for the Competition Commission.

[2] [2019] HKCT 3

[3] The First Conduct Rule prohibits “agreements and concerted practices having the object or effect of preventing, restricting or harming competition” as laid out in the Competition Ordinance (Cap. 619) (Ordinance). 

[4] Competition Commission v Nutanix Hong Kong Limited [2019] HKCT 2 (Nutanix) paragraph 553; Competition Commission v W Hing Construction Company & Others [2019] HKCT 3 paragraphs 38 and 39.

[5] According to paragraph 75 of the appeal judgment, the Tribunal’s judgment adopted the ruling in Nutanix where the standard of proof is proof beyond reasonable doubt.

[6] R4 was named as “Cheung Yiu Fai Danny and Wong Tung Hoi (in partnership trading as [Tai Dou]” in the title of the proceedings.

[7] For example, at paragraphs 22 to 24 of the Originating Notice of Application, it was pleaded the Respondents (including R4) were the Appointed Contractors appointed by the Housing Authority and each of them had received letter from it and executed a Licence.  Tai Dou was the appointed contractor, not the Appellants.  Paragraph 33(1) referred to the allocation of floors to Tai Dou, not to the Appellants.

[8] This was consistent with section 11 of the Partnership Ordinance (Cap. 38) where every partner in a firm is jointly liable with the other partners for all debts and obligations of the firm incurred while he is a partner. 

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