Introduction

We have previously written an article on the case of Taching Petroleum Co Ltd v Meyer Aluminium Ltd [2018] 2 HKLRD 1284, [2018] HKCFI 1047 where the Court of First Instance (the “CFI”) allowed a transfer of the civil action to the Competition Tribunal (“Tribunal”) regarding a contravention of section 6(1) of the Competition Ordinance (Cap. 619) (the “CO”) by the Plaintiffs alledged by the Defendant as a defence in a contractual dispute civil action. This article discusses the decision of the Tribunal on such novel use of competition law defence.

Background

In the CFI proceedings, Taching and Shell sued Meyer for unpaid costs of industrial diesel oil delivered to Meyer. As a defence to Taching and Shell’s claim, Meyer alleged that Taching and Shell had breached the First Conduct Rule in the CO by colluding to fix price, which renders the contract illegal.

Shell is one of the two Oil Majors that possess licences for importing diesel in Hong Kong and provide bulk supply of industrial diesel to end-users like Meyer and dealers/resellers including Taching. Taching and Shell are the only two suppliers of industrial diesel to Meyer, a local aluminium manufacturer. The Oil Majors revise their list prices periodically and give notification to customers of the proposed changes to the list prices.

Meyer alleged that Taching and Shell had contravened the First Conduct Rule by way of fixing their respective net unit prices for the supply of industrial diesel to Meyer. The allegation was based on three factors: (i) there were 118 pairs of corresponding price adjustment notices issued by Taching and Shell respectively during the relevant period; (ii) those 118 pairs of list price adjustment notices made the same adjustments to the list price of industrial diesel (“parallel conduct”); and (iii) the said adjustments were not public information and the striking uniformity in such changes could not be explained by mere coincidence.

Legal principles

The First Conduct Rule (section 6(1) of the CO) prohibits agreement or concerted practice having effect of preventing, restricting, or distorting competition in Hong Kong.  In the context of parallel conduct, there are three methods to prove that an anti-competitive collusion exists, depending on the level of evidence. In the present case, because there is no direct or indirect evidence of any explicit collusion, the applicable method is that the claimant bears the burden to prove that anti-competitive collusion is the only plausible explanation for the parallel conduct. Where the respondent is able to show other explanations for the parallel conduct, the claimant must prove that the alternative explanations are implausible.

The civil standard of proof on the balance of probabilities applies. The Tribunal clarified that such standard will not be heightened because of the gravity of the allegations. Meanwhile, the party bearing the burden of proving a serious allegation must discharge the burden with evidence of commensurate cogency.

Ruling

Taching’s case is that their adjustments to the list price followed the price adjustment notices issued by another Oil Major, Sinopec, so that Taching could have stable profit margins. Shell explained that the changes in their list price were independent commercial decisions to adapt to the existing and anticipated conduct of their competitors.

The Tribunal accepted the case put forth by Taching and Shell, and held Meyer failed to prove any agreement or concertation between Taching and Shell even on the face of it. In particular, the Tribunal pointed out that the list price information of Taching and Shell was not confidential information despite not put on the internet. Considering the evidence adduced by Meyer, the Tribunal was of the view that the best Meyer could prove is that Taching unilaterally followed the pricing of Shell, but such conduct is not prohibited by the competition law.

To sum up, Meyer failed to provide sufficient evidence that renders Taching and Shell’s explanations implausible and to show that the only plausible explanation is collusion. Meyer’s case must therefore fail.

Protection of commercially sensitive information

Apart from the substantive issues of this case, an important procedural issue is the confidentiality of the evidence that contains commercially sensitive information. Pursuant to Rule 28 of the Competition Tribunal Rules (Cap.619D), trials in the Tribunal should generally be heard in open court, but the Tribunal has discretion to direct that a matter be heard in camera, which must be justified by considering and balancing all interests. Referring to the relevant factors in the judgment of Unwired Planet International Ltd v Huawei Technologies Co Ltd [2018] Bus LR 896, the tribunal considered that, among others:

1.       some of the documents that the witness may be asked about did contain confidential and commercially sensitive information, the leakage of which to competitors and customers would harm Shell’s business interests;

2.       it would suffice for the public to know that Shell had an internal and independent policy of making adjustments to the list price which was complied with, but not details of the said policy; and

3.       confidential information was frequently intermingled with non-confidential information in the same document so that it was not practical to delineate the evidence into different portions.

At the end, the Tribunal approved the application by Shell to hear part of its witness evidence in camera.

Order for indemnity costs

On the issue of costs, the Court has a broad discretion upon taking into account the litigation conduct of the parties, but will usually only grant an order for indemnity costs where proceedings are scandalous or vexatious or conducted in an oppressive or disproportionate manner.

In the present case, the Tribunal accepted that it is not Meyer’s intention to use litigation to defer its payment obligations. However, the problem is that Meyer started off with mere suspicion arising out of 118 pairs of notices and the pleading of collusion between Taching and Shell, and to this end it made a few interlocutory applications later to fish for information to support its claim of collusion involving other market players. In this regard, Meyer applied to amend its pleadings to expand its allegation involving “other suppliers and/or other facilitating third parties”, but such application was rejected by both the Tribunal and the Court of Appeal.

The Tribunal also pointed out that Meyer’s approach to the Tribunal’s trial was still one of “fishing through cross-examination”. Notably, without making proper pleadings, Meyer attempted to show that Shell did not follow its internal procedure and had agreement with its resellers. In addition, Meyer also made an application for filing of expert evidence before the trial, which turned out to be wholly unnecessary. The filed expert evidence was excluded by the Tribunal as being irrelevant to any of the issues in dispute.

In comparison, both Taching and Shell put forth their case at the very first opportunity and never shifted their case. The Tribunal also recognized that the two companies were forced to spend a few more years on expensive litigation, and have been put to the risk of leakage of their confidential business information.

In view of all the circumstances, the Tribunal decided to order costs on an indemnity basis to the two winning parties of the proceedings.

Takeaway

Taching v Meyer or Shell v Meyer is the first case where the Tribunal rules on the proceedings between private parties and provides useful insight with respect to legal and procedural matters regarding the application of the First Conduct Rule in the context of civil claims. It also serves as an important precedent where allegations of contraventions of competition law are raised as a defence to a civil claim between private parties.

Given its serious nature of an allegation of anti-competitive conducts, parties making such an allegation are expected to plead the case in details and prove with cogent evidence. Thus, to avoid being ordered by the Court to pay for higher portion of legal costs of the other side in the event of failure to establish the competition law defences, it is advisable for potential claimants to obtain adequate legal advice to fully assess the merits of their case before making such an allegation.