Share
Synopsis
In a recent case before the Court of Appeal in Hong Kong[1], the Court considered the issues of (1) disclosure of correspondence for negotiations leading up to the signing of Corporation Agreements between the Competition Commission (“Commission”) and Respondents to Competition Tribunal (“CT”) proceedings, and (2) the CT’s exercise of its case management power to adjourn sentencing hearing for Kam Kwong applications.
The Court of Appeal held that such correspondence for negotiations had to be disclosed to the other Respondents to the CT proceedings, and also upheld the decision of the President of the CT to adjourn the sentencing of those Respondents who have reached agreements with the Commission until after the trial of the other Respondents who have not admitted liability.
Background
The Commission commenced proceedings against ATAL Building Services Engineering Limited (named as 1st Respondent) (“ATAL”) in two sets of proceedings (CTEA 2/2022 & CTEA 2/2023). In those proceedings, the Commission claimed that ATAL, as well as the other Respondents, contravened the First Conduct Rule by price-fixing, market sharing and bid-rigging in relation to the provision of air-conditioning works through collusive conduct.
ATAL admitted liability and entered into a Cooperation Agreement with the Commission, which provided for disposing of the proceedings against ATAL through the Kam Kwong procedure (which is similar to the Carecraft procedure in disqualification proceedings commenced by the Securities and Futures Commission (“SFC”), and is analogous to a plea and sentence on agreed facts in criminal proceedings). ATAL’s two employees, who are also named as Respondents to the first CT proceedings (CTEA 2/2022), entered into Cooperation Agreements with the Commission as well.
On the other hand, the other (2nd to 5th) Respondents to the second CT proceedings (CTEA 2/2023, “2nd Proceedings”) did not admit liability. The 2nd to 4th Respondents are referred to the JC Parties. At a Case Management Conference in the 2nd Proceedings, ATAL objected to disclosure to the JC Parties the correspondence and communications with the Commission leading up to the entering of the Cooperation Agreements (“WP Correspondence”). ATAL claimed that the WP Correspondence were protected by the without prejudice privilege. On the other hand, the JC Parties wished to rely on the facts referred to in the WP Correspondence to contest the proceedings against them.
Separately, the Commission asked that the Kam Kwong proceedings be held before the trial of the other Respondents, while the JC Parties asked that the sentencing of ATAL be adjourned until the trial in the 2nd Proceedings.
The President of the CT ordered disclosure of the WP Correspondence, and he agreed with the JC Parties that the determination of the penalties to be imposed on ATAL should be adjourned until after the trial of the 2nd Proceedings, in order to achieve consistency in penalties. This adjournment means that the determination of the penalties against ATAL will likely have to wait until 2028.
Court of Appeal’s Judgment
Disclosure of WP Correspondence
The determination of this issue involved considering what fair disclosure entails in contested enforcement proceedings commenced by the Commission, and it was accepted that the scope of discovery in competition cases follows the principles in disqualification proceedings by the SFC.
The Court held that in general the duty of disclosure to the accused party extends to material or information in the possession or control of the Commission that may undermine its case or advance the defence’s case. Further, as the Commission would rely on the evidence of ATAL and its two employees against the JC Parties, the Court also considered the “warts and all” principle in respect of accomplice evidence - since there may be concern that an accomplice witness has his or her own interests to serve (e.g. as a promise of leniency by way of a reduced penalty or immunity from legal action or further legal action), the Court considered it is important that an accused party be provided with proper disclosure regarding such witness, in particular the terms of any immunity or leniency, and any matters affecting the credibility and reliability of the witness and his or her evidence.
The Court also took into account that the WP Correspondence was the product of successful settlements between the Commission and accomplices; and ATAL and its employees have cooperated with the Commission and indicated they are prepared to give evidence in the case against the non-settling Respondents. The Court considered that undoubtedly ATAL and its employees had expected, in giving evidence as an accomplice in the trial of the non-settling Respondents, their dealings with the Commission would be required to be disclosed.
For these reasons, despite ATAL’s objections (including their submission that allowing disclosure of the WP Correspondence would have a chilling effect on other parties seeking to cooperate with the Commission), the Court of Appeal was of the view that the claim that the WP Correspondence were confidential or subject to without prejudice privilege was based on a bare and general assertion, without anything further to substantiate such claim.
Adjournment of sentencing of penalties
The Commission raised 3 points to challenge the direction to adjourn the sentencing of ATAL until after the trial of those Respondents who do not admit liabilities – (1) the substantial delay which will cause prejudice; (2) there is no justifiable concern regarding disparities between the penalty imposed on ATAL and the penalties imposed on the other Respondents; (3) prompt and efficient settlement of cases is in the public interest.
The Court considered that the Kam Kwong procedure is analogous to a guilty plea in a criminal case, where the settling party admits it has contravened a competition rule as outlined in a statement of agreed facts. In cases where some but not all the Respondents admit to contraventions, as each party will be dealt with differently based on facts that are agreed or found by the CT, there is a legitimate reason which justifies disparity in penalties.
In addition, the Court also emphasised that expeditious and effective resolution of contraventions of competition laws is a key feature of the competition regime. The Kam Kwong procedure is one route to achieving prompt resolution. Therefore, a proposed penalty under the Kam Kwong procedure should not normally be adjourned pending the outcome of proceedings against other alleged offenders, unless there is good reason to do so.
Nonetheless, whether to adjourn proceedings is a matter of the CT’s discretion, and the President of the CT, being familiar with both sets of CT proceedings, was entitled to consider whether it was more appropriate to address the penalties to be imposed on ATAL only after the trial or settlements of the other Respondents. The Court did not consider the President of the CT was laying down a rigid rule that penalties must always be adjourned pending the conclusion of all related cases. Further, the decision for adjournment was not plainly wrong and it cannot be said that the President of the CT exercised his discretion unreasonably. The decision to adjourn was therefore upheld.
Takeaways
Given that competition cases often involve allegations of different entities colluding in anti-competitive behaviour or conduct, it will not be uncommon to have cases where one or some Respondents to an enforcement action reach(es) a settlement with the Commission, with the other Respondents contesting the matter through to trial.
For those parties who wish to reach a settlement with the Commission to achieve a prompt resolution of the matter, the possibility that correspondence made with the Commission (which are without prejudice for the purposes of settlement negotiations) may eventually be disclosed to co-respondents has to be borne in mind. That said, even in circumstances where the Commission discloses such correspondence to any co-respondents, as the Court of Appeal said in its judgment, if there are valid concerns which warrant confidentiality treatment, it should be raised with the CT, so that it may exercise its powers to afford appropriate protection against collateral use.
Given that the Kam Kwong procedure is modelled on the Carecraft procedure, and the Court has previously held that for disqualification proceedings commenced by the SFC, despite their civil form, there is a heightened need for disclosure having regard to their special charter; and the SFC occupies a position analogous to criminal law enforcement agencies[2], one can foresee the possibility that in SFC disqualification proceedings, a non-settling respondent may raise a similar argument that correspondence made between the SFC and a co-respondent who has settled under the Carecraft procedure need to be disclosed. In other words, the Court of Appeal’s judgment may have a wider application.
On the issue of determination of penalties under the Kam Kwong procedure, instances of substantial delay between admission of contravention and sentencing should be rare. Therefore, in the great majority of cases, adopting the Kam Kwong procedure will still lead to a more speedy resolution of the matter. In addition, it should also be noted that, as provided for in the Commission’s Cooperation and Settlement Policy, where a party indicates its willingness to cooperate with the Commission before the commencement of any CT proceedings, the Commission will identify an applicable band of a cooperation discount in respect of pecuniary penalty based on the order in which parties express their interest to cooperate – with the party making the indication earlier receiving a larger discount. If a party only begins to cooperate with the Commission after the commencement of any enforcement proceedings against it, the Commission may recommend an even lower cooperation discount (up to 20% only) to the CT.
Construction and engineering
Retail
Hong Kong