Originating from a recent Competition Tribunal (the "Tribunal") decision in April 2020, the Competition Commission (the "Commission") published a Policy on Recommended Pecuniary Penalties (the "Policy") for anti-competitive behaviour on 22 June 2020. In this article, we will walk you through the major principles and methodology of the Policy.
The Competition Ordinance (Cap. 619 of the Laws of Hong Kong) (the "Ordinance") empowers the Tribunal to impose pecuniary penalty on any person if the Tribunal is satisfied that a person has contravened or has been involved in contravention of a competition rule under the Ordinance. To assist the Tribunal in doing so, the Commission has a statutory power under the Ordinance to investigate where appropriate and to apply to the Tribunal for imposition of pecuniary penalty if it has a reasonable cause to believe that the said contravention exists. The Commission will also recommend to the Tribunal an amount it considers to be appropriate as the recommended pecuniary penalty (the "Recommended Pecuniary Penalty").
Hong Kong's first pecuniary penalty judgment
On 29 April 2020, the Tribunal rendered a decision in the case of Competition Commission v W. Hing Construction Co Ltd And Others  HKCT 1 which laid down the proper approach for the determination of pecuniary penalties. In that case, the 10 respondents had contravened the first conduct rule in the Ordinance by making and giving effect to a market sharing arrangement and a price fixing arrangement while providing decoration services to individual tenants of a public housing estate. Details in relation to the facts of the case can be found here. The first conduct rule stipulates 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.
One of the issues before the Tribunal was the amount of pecuniary penalties that should be imposed on the respondents. The Commission argued that Hong Kong should adopt an approach similar to those applied in the European Union and the United Kingdom. Both the European Union and the United Kingdom adopt a multi-step approach which involves the calculation of a "basic amount" of penalty (which is linked to relevant turnover of the undertaking or the value of the sales to which the infringement relates), adjusted by taking into consideration factors such as: (i) mitigating factors, and (ii) specific deterrence. On the other hand, one of the respondents argued that the Australian approach that does not involve a mathematical element but simply a value judgment based on a balance of all factors should be adopted.
The Tribunal held that a structured and mathematical approach should be adopted in Hong Kong because the object of deterrence is best served by such an approach and the step-by-step approach provides for greater predictability of outcome in penalty. The Tribunal then laid down a 4-step approach when assessing the amount of appropriate pecuniary penalties, which became the origin of the Policy. The Policy
Thanks to the aforesaid judgment, the Commission formulated the Policy which aims to ensure consistency and provide transparency as to the principles it will follow when formulating the Recommended Pecuniary Penalty. The Commission will generally apply the 4-step approach as set out in the Policy which is in line with the principles provided in the Ordinance and the decision in the aforesaid judgment when determining the Recommended Pecuniary Penalty but there could be particularities of a case which may justify a departure from such general methodology. It is also important to note that the power to make final decision still vests in the Tribunal and the Policy does not bind the Tribunal. The Commission will also revisit and amend the Policy from time to time to reflect the decisions of the Tribunal and the appellate courts where applicable.
The Policy only applies to conduct which may constitute:-
- contravention of the First Conduct Rule in section 6 of the Ordinance or the Second Conduct Rule in section 21 of the Ordinance (each, a "Conduct Rule"); or
- involvement in a contravention of a Conduct Rule under section 91 of the Ordinance by undertakings and associations of undertakings, but not involvement in a contravention of a Conduct Rule by individuals who are not undertakings.
The 4-Step Approach
- Determining the base amount
To determine the base amount of the Recommended Pecuniary Penalty, the Commission will consider:
- the value of sales directly and/or indirectly related to the contravention;
- the gravity of the conduct; and
- the duration of the contravening conduct.
- Making adjustments for aggravating, mitigating and
The circumstances in which the contravention took place, whether the person has previously been found to have contravened the Ordinance and the extent of loss or damage caused by the conduct are all relevant factors in considering whether to increase or decrease the base amount.
In addition, some non-exhaustive examples of aggravating factors include:-
- The undertaking acting as a leader in, or an instigator of, the contravention;
- The undertaking taking coercive and/or retaliatory measures against other persons to ensure the implementation, continuation, and/or concealment of the contravention;
- directors and senior management being involved in the contravention;
- The undertaking's conduct is of a particularly egregious nature;
- The anti-competitive conduct is reflective of widespread industry practice so that there is a need for additional general deterrence;
- The conduct is a serious anti-competitive conduct and the undertaking has continued with the contravention despite being aware of the Commission's investigation; and
- The undertaking obstructing the Commission's investigation.
- Genuine uncertainty as to the lawfulness of the conduct in question;
- The undertaking's participation in the contravention being a limited one; and
- The undertaking having taken steps to ensure genuine compliance with the Ordinance through implementing a proportionate and on-going compliance programme that reflects a corporate commitment to competition compliance.
- Applying the statutory cap
If the amount calculated after carrying out the above two steps exceeds the maximum pecuniary penalty prescribed under section 93(3) the Ordinance, i.e. 10% of the undertaking's total turnover in Hong Kong for each year of the contravention up to a maximum of 3 years, the Commission will adopt the statutory maximum as the recommendation, subject to any adjustments in Step 4.
- Applying cooperation reduction
Where a business cooperates with the Commission, often in the form of provision of information and evidence during the course of investigation by the Commission, a cooperation reduction will, if applicable, be applied as a final adjustment to the amount calculated after carrying out the above steps 1 to 3.
Application of the 4-Step Approach
Back to the case, the Tribunal applied the 4-step approach to determine the pecuniary penalty to be imposed on the 10 respondents as follows:-
- First, the Tribunal reached the base amount for each respondent
- the amounts of the value of the respondents' respective sales directly or indirectly related to the contravention within Hong Kong by relying on each respondent's work orders and invoices issued for renovation works at the public housing estate concerned, and the amounts of the value of sales ranged from HK$1,324,410 to HK$4,938,040;
- the gravity percentage as 24% by taking into account the roles the respondents played, the cartel arrangements and the fact that the contravention was committed despite express warning from the Hong Kong Housing Authority that "pie-sharing" should not be practised etc.; and
- the duration multiplier as 1 by taking into account the fact that the value of sales for each respondent captured only the sales of that respondent within the period of infringement rather than the sales spread over an entire financial year;
- Secondly, the Tribunal then adjusted the base amount by considering mitigating factors such as indirect role played by the respondents;
- Thirdly, the statutory cap was applied; and
- Lastly, the Tribunal considered the factor of cooperation reduction but none of the respondents had claimed for reduction in the penalty for cooperation. Further, the Tribunal also considered the factor of inability to pay. However, the Tribunal was not satisfied that there was clear and compelling evidence that the viability of the respondent who claimed for reduction of the penalty on account of inability to pay would be undermined to justify such a reduction.
As a result, pecuniary penalties of the amount ranging from HK$132,000 to HK$740,000 were imposed on the 10 respondents.
Following the issue of the Policy, we could now expect a more consistent recommendation to be made by the Commission to the Tribunal in relation to the amount of pecuniary penalty for anti-competitive behaviour. The Policy also provides transparency on the determination process of the Recommended Pecuniary Penalty. We expect that together with the introduction of cooperation reduction in the Policy, the enforcement and deterrence as to anti-competitive behaviour will be enhanced and will be welcome by customers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.