Introduction

On 10 January 2020, the Competition Commission (the “Commission”) issued the first infringement notice under section 67(2) of the Competition Ordinance (Cap. 619) (the “Ordinance”) against a software supplier company for controlling a bidding exercise held by Ocean Park Corporation (“Ocean Park”). The cartel arrangement was first brought to the Commission’s attention through a leniency application made by one of the co-bidder under the Leniency Policy for Undertakings Engaged in Cartel Conduct (please refer to our previous newsletter issue of August 2019 for details of this policy). The Commission commenced proceedings against another co-bidder in this arrangement, Quantr Limited (“Quantr”) in the Competition Tribunal after its refusal to make a commitment to comply with requirements proposed by the Commission.

Background

In early 2017, the IT Department at Ocean Park organized a bidding exercise for the procurement and installation services of an IT workflow automation software to automate some paper-based processes within the company (“Bidding Exercise”). Ocean Park initially approached Nintex Proprietary Limited (“Nintex”) in March 2017 in view of purchasing its software. Nintex’s then Territory Manager of North Asia (“Nintex’s Representative”) engaged in the initial discussions with Ocean Park in which the requirements, scope, budget and size of the project were disclosed. However, since Nintex did not provide implementation services for the software, Ocean Park organized the Bidding Exercise to request for quotations from four of Nintex’s resellers for procuring (i) the software and (ii) the accompanying IT services to install and develop the software on 9 June 2017. Interested resellers had to return the completed quotation form to Ocean Park by 3:30 p.m. on 15 June 2017. All of the four bidders were recommended by Nintex, including Quantr Limited (“Quantr”) and Company X.

Shortly after Ocean Park issued the requests for quotation to the four bidders, Nintex’s Representative, knowing Ocean Park’s budget and that the bidders are competitors for the project, started a series of communications with Mr Cheung (the sole director and shareholder of Quantr) and Company X’s representative (“Mr X”) via WhatsApp. Nintex’s Representative used his influence as Quantr and Company X’s supplier and pressurized the two to communicate with each other before submitting their respective quotation forms. Nintex’s Representative expressly specified that Mr Cheung and Mr X should decide and coordinate as to who should win in the Bidding Exercise. On top of that, he also indicated that Mr X should let Mr Cheung of Quantr to carry out the work even if Company X won the tender.

In response to Nintex Representative’s suggestion and pressure, Mr Cheung and Mr X exchanged their respective fee quotes. Afterwards, Mr Cheung provided Nintex’s Representative with a screen capture of the exchanged messages. On 28 June 2017, Ocean Park awarded the project and issued a purchase order to Quantr after assessing the price and technical competencies of the bidders.

The Commission’s Decision

Applicable legislations

The first conduct rule is stipulated in section 6(1) of the Ordinance, which 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.”

Serious anti-competitive conduct

Section 2(1) of the Ordinance defines certain “serious anti-competitive conducts” for the purposes of the first conduct rule, which includes:-

1.         fixing, maintaining, increasing or controlling the price for the supply of goods or services;

2.         allocating sales, territories, customers or markets for the production or supply of goods or services;

3.         fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services;

4.         bid-rigging.

Whether there is an “agreement”

In an earlier Competition Tribunal decision (Competition Commission v Nutanix Hong Kong Limited v Ors [2019] HKCT 2), it was stated that wherever there is a “meeting of minds” or “concurrence of wills” between the parties concerned, the form in which it is manifested is unimportant.

Nintex, Quantr and Company X are separate undertakings, while Quantr and Company X are competing on the same level for the purposes of the Bidding Exercise. They should have determined their respective prices and submitted their quotes independently and refrained from any direct or indirect contact with each other. On the contrary, sensitive price information was communicated between Quantr and Company X without any legitimate business reason. As such, the exchange of information on future pricing intentions between them was assessed by the Commission to be price fixing conduct in the form of concerted practice.

Although Nintex did not directly participate in the communications between Mr Cheung and Mr X, he was the person who created a shared understanding among the parties and directed for the information exchange to happen. Thus, the Commission considered Nintex to be a party to the agreement and/or concerted practice with the object of harming the proper functioning of normal competition in the market.

The Contravention

In view of the above findings, the Commission concluded that Nintex, via the acts of its Representative, made an agreement and/or engaged in concerted practice with Quantr and Company X aiming to prevent, restrict or distort competition. Such arrangement had in fact substantially reduced the strategic uncertainly between Quantr and Company X, and distorted the normal competitive process in respect of the Bidding Exercise. Hence, contravening the first conduct rule against section 6 of the Ordinance.

Nintex’s Representative’s actions also clearly constituted serious anti-competitive conduct within the meaning of section 2(1) of the Ordinance, in the form of fixing, maintaining, increasing  or controlling the price for the supply of goods or services.

Issuance of infringement notice

Through the Commission’s investigation, it was believed that the management of Nintex did not have knowledge of the contravening conduct until the Commission contacted the company for investigations, as all relevant communications were conducted through Nintex’s Representative’s personal phone. The company has fully cooperated with the Commission throughout its enquiries after it became aware of the matters.

In view of this, the Commission decided to issue an infringement notice against Nintex for contravening the first conduct rule on 10 January 2020. According to section 67(1) of the Ordinance, where the Commission has reasonable grounds to believe that a party’s conduct contravened the first conduct rule, and it has not yet brought proceedings in the Competition Tribunal in respect of the contravention, it may issue an infringement notice against a contravening party. By issuing the infringement notice to Nintex, the Commission has offered not to bring proceedings against it on the condition that it commits to comply with the requirements as stated in the infringement notice, which include:-

1.         admitting that, by Nintex Representative’s conduct, Nintex has contravened the first conduct rule in section 6 of the Ordinance; and

2.         committing to adopt and implement, to the satisfaction of the Commission, an effective competition compliance programme within the time period as specified in a confidential letter.

Responding to the Infringement Notice

A party receiving an infringement notice can, but is not obliged to, make a commitment to meet the Commission’s requirements and submit the compliance programme to the Commission within the prescribed compliance period. If the requirements are duly complied with, the Commission will not bring Tribunal proceedings against the party for the contravening conduct. However, as specified in section 68 of the Ordinance, the receiving party is not obliged to make such commitment if it is not willing to fulfil the requirements proposed. The Commission may then bring proceedings to seek various orders in the Tribunal.

In this case, Nintex elected to make a commitment and submitted the details of the competition compliance programme to the Commission on 16 January 2020. Nintex committed to:-

1.         circulate Commission materials among its staff and authorized resellers to raise awareness of competition law;

2.         amend its internal competition compliance policy (details of which are kept confidential) and its directors to make personal commitment to comply with the same;

3.         revise its standard reseller agreement to state that parties must not engage in any anti-competitive conduct during the term of appointment;

4.         attend a Commission training session by all staff; and

5.         appoint a solicitors’ firm at its own cost for the purpose of monitoring compliance.

Conclusion

The Commission made it clear that it is not necessary to show an undertaking has participated or agreed to each and every aspect of an anti-competitive agreement to be held responsible for the agreement as a whole. As occurred in this case, even though a party has only taken part in some of the constituent elements of the cartel agreement, it is very likely to be found responsible for the collusion if it knew, or should have known, that its conduct forms part of an overall plan intended to harm normal competition in the market.

Further, this case sets the first example that in the event any market participants are found to have contravened the first or second conduct rule, and the Commission offers to issue an Infringement Notice instead of bringing proceedings in the Competition Tribunal, market participants should try their best to make a commitment to comply with and fulfil the requirements raised in the Infringement Notice. This may be an easier way to resolve the matter saving time and resources by avoiding Tribunal proceedings.