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28 Mar 2017

Hong Kong anti-trust regulator launches legal proceedings against suspected bid-riggers for the first time

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On 23 March 2017, Hong Kong’s anti-trust regulator, the Competition Commission (“Commission”), initiated legal proceedings against suspected violators of Hong Kong’s competition legislation for the first time since the legislation came into force in December 2015.

Five information technology companies (Nutanix Hong Kong Limited, BT Hong Kong Limited, SiS International Limited, Innovix Distribution Limited and Tech-21 Systems Limited) are facing allegations of rigging bids in response to a tender issued by the Hong Kong Young Women’s Christian Association (“YWCA”) for the supply and installation of an IT server system. Under the YWCA’s tender rules, at least five tenders needed to be received. The Commission has claimed that the five defendants colluded to provide four “dummy” bids to the YWCA so that BT could submit the lowest bid, thereby ensuring that BT would win the contract.

The Commission is seeking monetary penalties against the defendants, as well as a declaration that the defendants have contravened the First Conduct Rule (please see below).

Under what is known as the First Conduct Rule within section 6(1) of the Competition Ordinance (Cap. 619) (“Ordinance”), cartel conduct such as bid-rigging is generally regarded as a particularly harmful form of anti-competitive agreement or concerted practice. Bid-rigging occurs when two or more bidders that would normally be competitors secretly agree, without the knowledge of the party calling for bids, that they will not compete with one another for a particular project or tender. Bid-rigging can come in different forms, such as deliberately submitting “dummy” bids, or agreeing to take turns in bidding or to share the results of a successful bid through sub-contracting. The Commission has made it clear that combating bid-rigging cartels is a priority, and has issued public guidance to encourage parties to report suspected bid-rigging.

In practice, it can sometimes be difficult for businesses to know where to draw the line between innocuous information exchange which does not harm competition, and information exchange which may be regarded as anti-competitive and in contravention of the First Conduct Rule. Anti-trust regulators generally treat with scepticism exchange of competitively sensitive information such as prices. Even if the information exchange is not made with the object of harming competition, the regulators may nevertheless consider whether it has an anti-competitive effect. When the regulators analyse the potential anti-competitive effect of an information exchange, it will consider the type of information exchanged and the structure of the market in which the information exchange occurred. In the absence of direct evidence of explicit agreement or communication, regulators may employ economic analysis to detect collusive behaviours such as bid-rigging.

The case comes as a reminder of the importance of proactive transparency in all tender and bidding processes in Hong Kong.

Ms. Anna Wu, the Chairperson of the Commission, said, “These proceedings drive home the message that market participants in all sectors should steer clear of bid manipulation practices, while those already involved in rigging bids should consider approaching the Commission for leniency. Members of the public should also be alert and we encourage them to report suspected bid-rigging to the Commission. The Commission will use the full extent of its powers to combat bid-rigging.”

It is clear from the Commission’s statement and published guidelines that if an individual or company found themselves in a situation where they had run afoul of competition law, as a last resort, it might be possible for them to voluntarily approach the Commission and seek leniency or amnesty in return for cooperating with the Commission. Such an approach will need to be handled with extreme caution, and with the advice and support of experienced competition and dispute resolution lawyers. If you or your company should require any assistance, please do not hesitate to contact us.

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