On June 16, 2022, just a few days ago, the Competition Commission (the “Commission”) has announced a high profile case relating to an alleged contravention of the First Conduct Rule by a key player in the building service sector, ATAL Building Services Engineering Ltd & Analogue Holdings Limited, a company listed in the Hong Kong Stock Exchange (“Analogue”), and a well-known household appliance supplier, Shun Hing Engineering Contracting Company Ltd. & Shun Hing Holdings Co. Ltd (“Shun Hing”), both involving in price fixing, market sharing and bid-rigging. There are warnings to be noted, particularly for listed companies with a holding (parent/subsidiary) structure. Legal proceeding has commenced against Analogue, Shun Hing and 3 persons including 2 senior engineers and a senior manager.
The gist of this case is:
- The period of infringement covers a long 4-year period i.e., from Dec 2015 to Dec 2019, without being detected or exposed to regulatory action at the early stage;
- It would be understandable that the investigation effort for such a long period is huge, reflected in the examination of a million documents by the investigation team;
- The overall value of money involved in the bids is huge, for some $2 billion worth of air condition works;
- Even though the holding company may not be a cartel member, it could be left exposed as primary contraveners for potentially in violation of competition law if the subsidiaries participate in the contravention;
- Furthermore, the Commission may bring action against any entity comprised in the same undertaking for the full unmitigated penalty; and
- The potential pecuniary penalty may be up to hundreds of millions of dollars (max. to 10% of group annual turnover for 3 years), s93, Cap 619, (Competition Ordinance).
It is the first time that the Commission has prosecuted the parent companies of the 2 companies directly involved in suspected contravention of the First Conduct Rule, following the success of the appeal to the Court of Appeal by the Commission in the On Tat Estate case (CTEA 2/2017, 1/2019) against the original judgement to discount the penalties of the main-contractors on the basis that they are not directly involved in the price fixing and market sharing arrangement between the sub-contractors. It was further mentioned that parent companies will constitute as members of the same undertaking should their subsidiaries, related companies or subcontractors carry out anti-competitive activities.
This case highlights the need for parent companies to ensure their subsidiaries to comply with the Competition Ordinance. The Commission may bring action against any entity or company comprised in the same undertaking which directly took part in the contravention.
Hence, companies should be vigilant in identifying and monitoring anti-competition conduct. It is important to understand the Competition Ordinance and implement a Compliance Programme and a governance structure with the Board steering the implementation of such Programme. SWCS, with Eversheds and the Chamber of HK Listed Companies has jointly published “a Practical Guide to Compliance on the Hong Kong Competition Ordinance,” which contains a summary of the Ordinance, guidance notes and suggestions on a compliance programme.
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