Hong Kong competition authority pursues first director disqualification

Out-Law News | 21 Sep 2018 | 8:17 am | 3 min. read

Hong Kong's competition authority is seeking to enforce competition laws in the country against individuals for the first time.

The Competition Commission announced earlier this month that it had lodged proceedings before the Competition Tribunal over alleged cartel conduct in the property renovation sector. It confirmed that it had asked the Tribunal to declare that three businesses had contravened Hong Kong's Competition Ordinance and that two individuals had been involved in the contravention.

The regulator said it has asked the Tribunal to issue a director disqualification order against one of the men.

The three companies and two individuals could face financial penalties if the Competition Commission is successful with its application, and could also be "restrained or prohibited from entering into or participating in any anti-competitive agreements in respect of any renovation projects under the [Hong Kong] Housing Authority’s Decoration Contractor System", according to the Commission's statement.

The regulator said it had identified alleged customer allocation and price coordination by Goldfield N&W Construction Company (Goldfield), Kam Kwong Engineering Company (Kam Kwong), and Pacific View Engineering (Pacific View) "around June to November 2017". That activity alleged occurred in relation to the provision of renovation services at a housing estate in Hong Kong that was developed by the Hong Kong Housing Authority, it said.

Chan Kam Shui, director of Kam Kwong, and Lam Po Wong of Pacific View participated in the alleged cartel conduct, the Commission has claimed.

The regulator thanked the Housing Authority for having "rendered full assistance in the investigation of the case".

Brent Snyder, chief executive of the Competition Commission in Hong Kong, said, "This is the second case in which the Commission has brought an enforcement action against a cartel targeting residents of public housing and we have, for the first time, brought direct enforcement action against individuals who were involved in the conduct."

"These proceedings drive home the deterrent message that not only companies, but also individuals who engage in cartels may expect to face the full force of the law. Combating cartels is an enforcement priority for the Commission. Market participants in all sectors should steer clear of such practices, while those already involved should consider approaching the Commission for leniency," it said.

Under the First Conduct Rule of the Competition Ordinance in force in Hong Kong, undertakings are prohibited from making or giving effect to an agreement, or engaging in a concerted practice, if the object or effect of the agreement or concerted practice is to prevent, restrict or distort competition in Hong Kong.

Cartel conduct, which includes price fixing, market sharing and bid-rigging, is generally regarded as a particularly harmful form of anti-competitive agreement or concerted practice, the Commission said in its statement.

The Competition Ordinance also provides scope for Hong Kong's Competition Tribunal to issue make a number of orders against company directors it has found to have breached competition laws, including an order disqualifying them from serving as a director for another company or from being involved in the promotion, formation or management of a company for a specified period of time.

Hong Kong-based competition law expert Peter Clayton of Pinsent Masons, the law firm behind Out-Law.com, said: "The Hong Kong Competition Commission has taken a keen interest in the property renovation sector and has now shown its willingness to pursue individuals as well as companies. These actions underline the importance of compliance with competition law and it remains to be seen whether other parts of the construction industry will be subject to scrutiny."

Individual liability in the form of both criminal prosecution and director disqualification can also arise in the context of UK competition law infringements. The UK's Competition and Markets Authority (CMA) recently pursued criminal cartel investigations against individuals in relation to the supply of galvanised steel tanks and precast concrete drainage products respectively. In each case, a director pleaded guilty to the offence and was sentenced to two years’ imprisonment, suspended for two years. However, in the galvanised steel tanks case, two individuals were also acquitted of the offence after a jury found that they had not acted "dishonestly", although the requirement to prove dishonesty has since been removed from the offence. 

In 2016 the CMA obtained a disqualification undertaking from a company director under the Company Directors Disqualification Act for the first time.

Earlier this year the CMA also announced that it had "secured legally binding undertakings" from two directors of an estate agency business that "have the effect of disqualifying them as directors and preventing them from being involved in the management of any UK company".  If the undertakings had not been voluntarily given, the CMA could have sought a disqualification order, which would have equivalent effect, against the individuals.

The CMA is intent on pursuing director disqualifications as the norm in cases where businesses breach competition rules, Pinsent Masons said at the time.

Alan Davis of Pinsent Masons said: "The UK's competition authority has repeatedly stated that it considers that pursuing directors and individuals is an important way of deterring cartels. In July the CMA acknowledged that it had no continuing criminal investigations under the cartel offence but will open further criminal cartel investigations as appropriate. Even with the removal from the offence of the requirement to prove dishonesty, this reflects the inherent challenge of finding the right case and evidence to bring a successful criminal prosecution. However, it appears that the CMA's current focus is on director disqualification proceedings as an alternative to criminal prosecution. It is no surprise that the Hong Kong Competition Commission is taking the same approach."