Introduction

The first appeal case from the Competition Tribunal, Competition Commission v W. Hing Construction Company Ltd and Others [2021] HKCA 877 was heard on 18 June 2021. The appellants (the “Appellants”) appealed against the judgment of 17 May 2019 [2019] HKCT 3 handed down by the Honourable Mr Justice Godfrey Lam sitting as the President (as he then was) of the Competition Tribunal (the “Tribunal”), which has been discussed in our previous article here.

Background

The Appellants, both partners of a partnership Tai Dou Building Contractor, were found guilty of the first conduct rule under the Competition Ordinance (Cap. 619) (the “Ordinance”). As decoration contractors appointed by the Housing Authority, the Appellants, among other contractors:

• engaged themselves in an anti-competition arrangements by allocating floors in each public housing estate building for taking up decoration business and undertaking not to actively seek business from tenants on floors allocated to the other contractors. 
• entered into a “Package Price Arrangement”, in which they and other contractors agreed on a uniform price of a service package to be printed on flyers for promotional purposes.

Both conducts were held by the Tribunal to have constituted “serious anti-competitive conduct” as they consisted of the allocation of market and fixing price for supply of services, in breach of the first conduct rule.

The Appellants disputed that the Tribunal failed to consider the criminal nature of the proceedings in holding the Appellants liable. In the criminal context, partnership is a separate entity and hence the Appellants (as partners, not the partnership entity) shall not be liable to the offence merely because of their capacity as partners of the partnership. The Appellants, on the premise that the offence is criminal in nature, further asserted that the prosecution failed to prove (based on the criminal standard of proof) the requisite mens rea (mental) element of the Appellants, who shall not be responsible for decisions made by the other partners.

Decision

The Court of Appeal (the “Court”) therefore has to consider if the Competition Commission (the “Commission”) (as prosecutor) needs to prove the mental element in a contravention of the first conduct rule (the “Contravention”) like in a criminal case. The Court refuted the arguments of the Appellants and clarified the nature of the Contravention.

Criminal nature of the Contravention

The Tribunal has dealt with the nature of the Contravention in Competition Commission v Nutanix Hong Kong Ltd and Others [2018] HKCT 1 that was handed down on the same date as this judgment. The Tribunal took note on the special features of enforcement actions for pecuniary penalty in competition proceedings, which are distinct from ordinary civil actions between private parties. The Commission conceded before the Tribunal that the proceedings would involve determination of a criminal charge within the meaning of Article 11 of the Hong Kong Bill of Rights Ordinance (the “HKBORO”), under which the rights of persons charged with a criminal offence are protected. The Tribunal however, highlighted that the contraction of Article 11 under HKBORO does not necessarily mean criminal jurisprudence and procedures apply in the same way in all respects, especially so when competition proceedings do not concern the prosecution of a traditional hardcore criminal offence.

The Court, upholding the Tribunal decision, held that although the defendants contravening the first conduct rule are under protection of Article 11 of the HKBORO, the Contravention may not be regarded as a criminal offence for the purpose of substantive criminal law.

The Court, in view of the certain feature of the first conduct rule, concluded the Contravention does not amount to a criminal offence in substantive law context. As the Contravention is not regarded as a criminal offence, there is no requisite requirement on mens rea for pecuniary penalty. The fact that it falls under protection of Article 11 of HKBORO does not necessitate the proof of mens rea elements, as it is not one of the prescribed safeguards thereunder. Even if the Court considered the mens rea of the Appellants, their claim still appeared meritless pursuant to the findings of the Tribunal.

Neither was the challenge against the Appellants’ liabilities by being partners of the partnership endorsed by the Court. The Court noted the principle that every partner in a firm is jointly liable with the other partners, and the non-joinder of the other two partners of Tai Dou Building Contractor in the proceedings would not vitiate the cause of action.

Standard of proof for competition proceedings

The Tribunal took the view that the standard of proof is proof beyond reasonable doubt, in accordance with the decision of the Court of Final Appeal (the “CFA”) in Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170. The CFA held that for proceedings properly regarded as involving the determination of a criminal charge for the purposes of Article 11 of the HKBORO, proof beyond reasonable doubt is applicable unless modified by proportionate legislation by express provision or necessary implication. The Tribunal is bound by this decision and as the Ordinance does not explicitly mandate a civil standard of proof, the criminal standard of proof shall apply.

The Commission urged the Court to reverse the decision of the Tribunal and redefine the standard of proof to the civil standard of balance of probabilities. In view of the inherent complexity and technicality in the issues of competition proceedings, the Commission pleaded that there is a real difficulty to meet the criminal standard of proof, deterring effective enforcement of the Ordinance. It was alleged that the Ordinance also bears resemblance to overseas regimes which apply the civil standard of proof.

The Court however refused to embark on detailed discussion in current case. On a preliminary view, the Court held that the criminal standard of proof will apply pursuant to the principle of legality, unless the civil standard can be construed to apply in the Ordinance through statutory interpretation. Further, there are unique features of the Ordinance that are not commensurate with overseas regimes so it cannot be compared against the latter directly.

While the Court recognized the possibility that different standards of proof could make a difference in some cases, the Court refrained from exercising its discretion to hear the appeal, in that this “highly controversial but important point” shall not be determined without underlying materials to assess the competing arguments. In this case as the appeal had been dismissed on other grounds, and that is not a circumstance where the application of different standard of proof would make a real impact, the Court left the dispute open until actual evidential assessment can be conducted.

Conclusion

The Court’s decision sheds light on the nature of the contravention of the first conduct rule, which is not criminal in the context of substantive criminal law. As mens rea is not requisite for proving contravention, companies should pay particular attention to avoid entering into any anti-competitive arrangements unwittingly.

There remains uncertainty as to whether the criminal standard of proof can be relaxed in competition proceedings for pecuniary penalty. As the Court admitted that the standard of proof does play a role on the outcome of certain proceedings, it is expected that the opportunity will soon arrive for the Court to discuss and lay its decision.