Introduction

The recent case of Competition Commission v Hong Kong Commercial Cleaning Services Limited and Others (CTEA 2/2021) highlighted the importance of enforcing competition laws to protect fair competition in public procurement. This article explores the facts of the case, the legal principles under the First Conduct Rule of the Competition Ordinance (Cap. 619) (the “Ordinance”), and the key lessons for businesses to ensure compliance.

Facts of the case

On 14 December 2021, the Hong Kong Competition Commission (the “Commission”) commenced proceedings in the Competition Tribunal (the “Tribunal”) against Hong Kong Commercial Cleaning Services Limited (“HKC”), Man Shun Hong Kong & Kln Cleaning Company Limited (“MS”), and their three directors, namely Ms. Chan Ming Chu, Mr Cheng Yip Chiu (both from HKC), and Mr Cheng Hok Kuen (from MS) for engaging in cartel conduct between May 2016 and August 2018. The case was brought to the Commission’s attention through a complaint by a group of complainants, including cleaning workers at Hoi Lai Estate in December 2017.

Investigation

The Commission’s investigation revealed that HKC and MS exchanged commercially sensitive information, such as tender pricing and financial proposals, regarding 17 tenders valued at approximately HK$180 million. These tenders were for providing cleansing services for public housing estates and Housing Authority-managed buildings.

The investigation further revealed that HKC and MS shared offices and IT systems, allowing MS staff to access HKC’s documents. The tender submissions also exhibited identical or similar pricing, with a common mistake in one instance. Such collusion constituted price fixing and bid rigging.

Obstruction of investigation

During a search of HKC’s office, attempts were made to delete shortcuts linking the two companies’ computers and servers. This act of obstruction violated section 54 of the Ordinance, which criminalizes deliberate interference with the Commission’s investigations. Under section 54, obstruction of the Commission’s search is a criminal offence punishable by a fine of up to HK$1 million and imprisonment of two years. Moreover, anyone who instructs or assists in obstructing the Commission’s work is subject to the same maximum penalties. The obstruction case was referred to the police, with potential criminal consequences.

The First Conduct Rule

The First Conduct Rule under Part 2 of the Ordinance prohibits agreements, concerted practices, or decisions that have the object or effect of preventing, restricting, or distorting competition in Hong Kong.

Anti-competitive object vs effect

The First Conduct Rule applies in two ways: by “object” or by “effect”.

·           By object: agreements with an anti-competitive object, such as price fixing, market sharing, output restriction, or bid rigging are deemed harmful to competition. The mere existence of such an agreement constitutes a breach of the First Conduct Rule, regardless of whether it was implemented or had actual anti-competitive effects.

·           By effect: agreements with an anti-competition effect require evidence of their adverse impact on competition, such as higher price, reduced product quality, or stifled innovation. The Commission assesses such conduct on a case-by-case basis, considering factors such as market structure, the parties’ market power, and the likelihood and extent of harm the conduct would cause.

In this case, the collusion between HKC and MS fell under the “by object” category, as it involved price fixing and bid rigging, which are defined as “serious anti-competitive conduct” under section 2 of the Ordinance. These practices distort public procurement processes, harm consumers, and undermine fair competition.

Tribunal outcome

All respondents admitted liability for breaching the First Conduct Rule. The Tribunal imposed the following penalties against the parties:

·           HKC: pecuniary penalty of HK$10.96 million.

·           MS: pecuniary penalty of HK$11.3 million.

·           Directors: Ms. Chan Ming Chu, Mr Cheng Yip Chiu, and Mr Cheng Hok Kuen were each fined HK$10,000 and disqualified as company directors for 24 months.

The penalties totalling HK$22.29 million and the disqualification of three company directors are a warning of the severe consequences of engaging in cartel conduct.

Takeaways

Avoid collusive practices

Sharing commercially sensitive information, such as pricing or tender strategies, with competitors is strictly prohibited. Businesses must ensure independence during tendering and avoid any form of coordination with competitors.

Implement compliance programs

Companies should adopt compliance programs to educate employees and directors about competition laws. These programs should include regular training, internal monitoring, and clear policies to prevent anti-competitive conduct. Early detection mechanisms can help address potential violations before they escalate.

Cooperate with investigations

Attempts to obstruct the Commission’s investigations, such as deleting evidence, can lead to severe criminal penalties. Businesses must fully cooperate with authorities to mitigate legal risks.