Introduction

On 17 May 2018, the Court of First Instance (the “CFI”) in Taching Petroleum Co Ltd v Meyer Aluminium Ltd [2018] 2 HKLRD 1284, [2018] HKCFI 1047 allowed a transfer of the case by the CFI to the Competition Tribunal (“Tribunal”) as to an alleged contravention of section 6(1) of the Competition Ordinance (Cap. 619) (the “CO”).

Section 6(1) of the CO states that an undertaking must not (a) make or give effect to an agreement; (b) engage in a concerted practice; or (c) as a member of an association of undertakings, make or give effect to a decision of the association, if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong (the “First Conduct Rule” or “FCR”).

Background

This case was the Plaintiff’s application for summary judgment. The Plaintiff’s claim was for the price of goods sold and delivered by the Plaintiff to the Defendant. There was no dispute about the sale or delivery or quantity or quality of the goods (being diesel oil).   

The Defendant argued that the Plaintiff had been colluding with Shell Hong Kong Ltd, the Defendant’s other supplier of diesel, to move their prices together, and such collusion constituted a breach of the FCR. Furthermore, the Defendant alleged that there had been massive over-pricing by the Plaintiff in the sale of diesel to the Defendant especially since 2008.   

The Defendant contended that (i) the contracts pursuant to which the Plaintiff supplied diesel oil to the Defendant were tainted by illegality and unenforceable and sought to recover the price therefor; and (ii) the Plaintiff was liable to the Defendant for damages being the amount overcharged by the Plaintiff as a result of the collusion estimated, on which the Defendant relied by way of set-off to extinguish its liability to the Plaintiff for the outstanding price.   

The Defendant contended that it should be given leave to defend, and its defence should be transferred to the Tribunal, and that the proceedings should be stayed pending investigation by the Competition Commission (the “Commission”).

 

CFI’s decision

Transfer of proceedings

Sections 113(3) and 142(1)(d) of the CO provide that if, in any proceedings before the CFI, a contravention, or involvement in a contravention, of a conduct rule is alleged as a defence, the Court must, in respect of the allegation, transfer to the Tribunal so much of those proceedings that are within the jurisdiction of the Tribunal.

Even though section 113(3) used the word “must”, the CFI considered that a transfer was not mandatory. It can examine the quality of any competition law defence raised in an application for summary judgment and if that defence can be struck out under general principles, no competition law defence would remain that called for a transfer.      

The CFI cited Intel Corp v Via Technologies Inc [2003] FSR 12, [2002] EWHC 1159 (Ch), and emphasised a need for careful scrutiny of competition law defence, because of the ease with which a competition law defence might be generated on the basis of vague or imprecise allegations. The defence might convert a straightforward debt claim into litigation of much greater complexity.     

Triable issues

In determining the quality of a competition law defence, the parties did not dispute, and the CFI agreed, that the general principles regarding summary judgment applications shall apply and the question was not whether the Defendant’s assertions were to be believed but whether they were believable.      

The CFI noted that while parallel conduct cannot be equated with a concerted practice, it may be evidence of such a practice. It was commonplace for collusion to take place clandestinely and the law did not insist on direct evidence to show the collusion (Imperial Chemical Industries Ltd v EC Commission [1972] ECR 619). This would be particularly the case if the parallel conduct leaded to conditions of competition which did not correspond to the normal conditions of the market, having regard to the nature of the products, the size and the number of the undertakings and the volume of the market.  

Further, the CFI found that it did not need to examine and analyse the precise extent of the parallel conduct in detail. The CFI granted leave to defend in the light of:-

1.        the prima facie evidence of parallel pricing over a prolonged period at levels which substantially exceeded the prices charged by the rest of the market;

2.        the uncontradicted evidence that the list price and discount were both confidential information; and 

3.        the absence of any evidence from the Plaintiff to show that the Defendant’s assertions of fact were beyond belief, the Defendant’s case could not be summarily dismissed.

Set-off

The Plaintiff accepted that if they breached the FCR, then the Defendant would arguably have a defence on the grounds of illegality (the “Concession”). The Defendant argued that they would be entitled to damages which could be set-off against the price claimed by the Plaintiff. In reply, the Plaintiff submitted that the Defendant could only claim damages in a follow-on action if and when the Tribunal had determined that the Plaintiff contravened the FCR.    

While the CFI expressed some doubt that the Defendant had a cause of action for damages under the CO other than by way of a follow-on action, he commented that “a follow-on action can be issued after a judicial finding of contravention has been made not only in the context of an enforcement action brought by the Commission, but also in the context of a defence in an action raising a contravention of a conduct rule”. 

Stay of proceedings

Section 118(2) of the CO empowers the CFI and the Tribunal to stay the proceedings before it pending the Commission’s investigation where an alleged contravention has been referred to the Commission for investigation. The CFI in this case considered that it was not necessary to make the reference for investigation as the Defendant has already made a complaint and there was no evidence on the views of the Commission or the steps that it was likely to take. Therefore, a stay of proceedings was decided unnecessary.     

Conclusion

The CFI’s judgment is an important step forward for the availability of the remedies provided under the CO. The use of competition law as a defence to contractual claims will be a powerful tool to remedy the harm caused by infringements of the conduct rules. However, we should bear in mind the scope of this case, especially the Concession made by the Plaintiff. As a result of the Concession, the CFI did not need to address the Defendant’s alternative argument that a right to claim damages by way of set-off arose as a result of a breach of the FCR. Also, it remains unclear whether a plaintiff can bring a private action for breach of the conduct rules under the CO, not limited in the context of a defence.

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: competition@onc.hk                                                    T: (852) 2810 1212 W: www.onc.hk                                                                F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2018