Hong Kong Court of Appeal Confirms Joint and Several Liability Applies for Answering Penalty Amongst Entities Making Up the Same Undertaking - [2022] HKCA 786

06 June 2022

On 2 June 2022, the Hong Kong Court of Appeal handed down the first appeal on penalties for contravention of the First Conduct Rule (the “FCR”) in CTEA 2/2017 (the “W. Hing No. 3”) and CTEA 1/2019 (the “Fungs Sanction Judgment”).

In both cases, the Competition Commission (the “Commission”) brought enforcement action against the contractors who had contravened the FCR in providing renovation services to tenants in new public rental housing estates by engaging in the serious anti-competitive conduct of market sharing and price fixing.

The Appeal In Relation To One-Third Reduction of Base Amount

In W. Hing No. 3, the Tribunal laid down the seminal four-step approach for the determination of the amount of pecuniary penalty. It gave a one-third reduction of the Base Amount (i.e. a base amount linked to the volume of commerce affected by the contravention) in respect of the pecuniary penalties imposed on R1, R4 and R9 who had no direct participation and knowledge in respect of the contravention as they had lent their housing authority licenses to other subcontractors.

The reduction was given on the basis that:-

1. (1) The pecuniary penalties were sought only against the respondent and not together with their subcontractors;
2. (2) The association of the respondent and the sub-contractor was an ad hoc, temporary one;
3. (3) It would not be right or safe to assume the respondent would be able to recoup what it had to pay from the subcontractor;
4. (4)This reflected their role as part only of the undertaking in question.

In the Fungs Sanction Judgment, a one-third reduction was also given to R1 and a one-half reduction was given to R6.

The Commission brought these appeals to overturn the reductions. In addition, the Commission also sought to appeal against the refusal to grant a certificate for 3 counsel (one Queen’s Counsel, one Senior Counsel and one junior counsel) in W. Hing No. 3.  

The Court of Appeal allowed the Commission’s appeal in respect of the reduction to the Base Amount but dismissed the appeal on costs. In particular, the Court of Appeal confirmed that:-

1. (1) Under Hong Kong competition law regime, persons or entities constituting the same undertaking are jointly and severally liable for the undertaking’s infringement of competition law rules. It follows that the pecuniary penalties imposed are to be determined by reference to the entire undertaking’s contravention as a whole, and not a natural or legal person’s role within the undertaking.
2. (2) Pecuniary penalties are to be determined by reference to the economic activities of undertakings, rather than individual entities or persons.
3. (3) There was no injustice in holding an entity within an undertaking responsible for the whole of the undertaking’s infringement. The apportionment of responsibility between entities is to be resolved in subsequent proceedings for contribution or indemnity in which the Commission plays no role.
4. (4) The ability of an entity to recoup the penalty from other entities within the undertaking is not a relevant factor in determining the pecuniary penalty imposed.

The Appeal on Costs

Separately, the Court of Appeal dismissed the Commission’s appeal on costs as it was not satisfied that the Tribunal was plainly wrong in refusing to grant a certificate for three counsel.

Key takeaways

The Court of Appeal’s decision therefore brings the Hong Kong regime further in line with that of the European Union, applying European Commission v Siemens AG Österreich [2014] 5 CMLR 1 and Sumal SL v Mercedes Benz Trucks España SL [2021] Bus LR 1755.

It confirms that the role which an individual entity or person plays within the undertaking pertaining to the contravention has no impact on the finding of liability as well as the determination of penalty against that individual respondent. In other words, it will not be a mitigating factor simply because an entity had no direct participation in or knowledge of the cartel. It is also not necessary for the Commission to go after every entity which made up the same undertaking.

This will no doubt facilitate enforcement and strengthen the effectiveness of the action taken for recovery of fines.

On the other hand, the decision confirms that certificate for three counsel is still very much exceptional even when a great deal of novelty and complexities are involved in a particular case including enforcement action in this relatively new regime.

 

Connie Lee (assisted by Joshua Yeung, pupil barrister) appeared for the 9th Respondent in the W Hing No. 3, CACV 143/2020.  The judgment is available here.

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