Competition Commission v. W. Hing Construction Co Ltd and Others

CTEA 2/2017

[2018] HKCT 6

IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ENFORCEMENT ACTION NO 2 OF 2017

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REASONS FOR DECISION

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Introduction

1.At the hearing fixed for the pre‑trial review of these proceedings, I heard and eventually dismissed the 4^th respondent’s application to amend its Response and file three new witness statements in substitution for a statement already filed.  These are the reasons for my decision.

2.By these proceedings the applicant (“Commission”) alleges that the 10 respondents were contractors, appointed from a reference list by the Hong Kong Housing Authority (“HKHA”), to perform decoration work for tenants of public housing units in three buildings (Phase 1) of On Tat Estate, Kwun Tong, although the tenants when engaging decoration contractors were not confined to those so appointed by the HKHA.  It is alleged that between June and November 2016, the respondents made or gave effect to an agreement or engaged in a concerted practice among themselves whereby they were each allocated various floors of each of the three buildings for which to carry out decoration work, and would not seek or accept business from tenants of other floors or would direct them to the respective respondents to whom those floors were allocated.  It is also alleged that the respondents made or gave effect to an agreement or engaged in a concerted practice whereby they jointly produced promotional flyers given to tenants setting out certain package prices which would be the prices used or offered by the respondents for the basic packages in the first instance.

3.The Commission says that these arrangements contravened the first conduct rule in the Competition Ordinance (Cap 619) (“Ordinance”) and that, furthermore, they amounted to serious anti‑competitive conduct in the form of market sharing and price‑fixing respectively.  The Commission seeks a declaration accordingly and an order for pecuniary penalty against each of the respondents.

4.The 4^th respondent, as named in these proceedings, is two persons, namely, Cheung Yiu Fai Danny and Wong Tung Hoi, trading in partnership as “Tai Dou Building Contractor”.  I shall refer to the 4^th respondent as “Tai Dou”.

Relevant course of proceedings

5.Proceedings were brought in this Tribunal by the Commission’s Originating Notice of Application on 14 August 2017.  A Notice to Act was filed by Messrs Littlewoods as solicitors for the 2^nd, 3^rd, 4^th, 6^th, 7^th, 8^th and 10^th respondents on 28 September 2017 together with a Response on behalf of these respondents filed pursuant to rule 75 of the Competition Tribunal Rules (Cap 619D).  The Response denies that there was any market sharing agreement or price‑fixing agreement as alleged.  It is averred, inter alia, that it was more economical for the respondents to carry out decoration work for flats located on the same floor and that the respondents were therefore inclined to seek business from tenants of the same floor.  It is averred that, if the alleged agreements existed, they did not contravene the first conduct rule since they in fact enhanced overall economic efficiency.

6.On 23 October 2017, the first Case Management Conference (“CMC”) was held at which various directions were given for the further conduct of the proceedings including a direction that the trial be targeted to take place during the period of 12 November to 14 December 2018.

7.On 19 April 2018, a witness statement made by Mr Ho Kit Chung (“KC Ho”) was filed by Littlewoods on behalf of Tai Dou.  In that statement KC Ho stated that he was the General Manager of Tai Dou and was authorised to make the statement on behalf of Tai Dou.  He said that whenever Tai Dou was invited by the HKHA to be a decoration contractor for public housing units, Tai Dou would contact him.  In response to the allegations about On Tat Estate, he said that Tai Dou did not enter into or authorised him or anyone to enter into any market sharing or price‑fixing arrangement.  He said, however, that there was a “Cleaning Agreement” among all the respondents whereby each respondent was to clean up four specified floors of each building.  Since Tai Dou was required to clean up certain floors (4^th, 14^th, 24^th and 34^th of Chun Tat House, 7^th, 17^th, 27^th and 37^th of Oi Tat House, and 1^st, 11^th, 21^st and 31^st floors of Shing Tat House), he decided that Tai Dou should target these floors and focus on tenants of these floors as customers for decoration work.  He said that the packages in the flyer were only a starting point and he tried to give as much discount to his customers as possible.  He gave examples of units where, he said, Tai Dou competed, rather than cooperated, with the other respondents.

8.The second CMC was held on 4 June 2018 at which various further directions were given and the date of the pre-trial review fixed on 2 October 2018, with a view to the trial commencing on 12 November 2018.

9.On 25 June 2018, a Notice of Change of Solicitors was filed on behalf of the 2^nd, 3^rd, 4^th, 5^th, 6^th, 7^th, 8^th and 10^th respondents indicating that Messrs JCC Cheung & Co had been appointed to act in place of Littlewoods. 

10.On 5 July 2018, JCC Cheung & Co filed a summons on behalf of those respondents seeking leave to change their expert and an extension of time for the filing of an expert report.  With considerable reluctance, the Tribunal permitted the expert to be changed and granted further time to the respondents to file expert evidence: see the Tribunal’s decision dated 10 July 2018.

11.On 14 September 2018, a further Notice of Change of Solicitors was filed on behalf of Tai Dou stating that Messrs Henry Wan & Yeung, Solicitors had been appointed to act in place of JCC Cheung & Co.  On 24 September 2018, the present summons of Tai Dou was filed although it was only served on the Commission on 26 September. 

4^th respondent’s applications

12.The proposed Amended Response of Tai Dou was virtually a wholesale substitution of a new document for what had previously been pleaded.  It sought to say that neither Tai Dou nor any of its partners undertook any decoration work in relation to the three buildings in On Tat Estate, and that it was KC Ho, with whom Tai Dou had a “long‑standing informal arrangement since in or around 2006”, who undertook such work using the name of Tai Dou, as a sub-licensee or assignee of Tai Dou’s licence.  Once Tai Dou received an invitation from the HKHA to obtain a licence as an approved decoration contractor for public housing units, Madam To, one of the partners of Tai Dou, would inform KC Ho who would then decide whether to undertake the decoration work as invited by the HKHA.  Tai Dou “would then execute all necessary formalities to obtain a licence for the aforesaid decoration works”.  In carrying out such work, KC Ho did not report to Tai Dou.  He bore all the costs and retained all the revenues and profits.  If it was necessary to enter into any agreement or sign any document which might have legal effect on Tai Dou, KC Ho would have to inform and obtain the agreement of Pacquet Wong, a partner of Tai Dou.  It was, however, admitted that, in relation to On Tat Estate, Pacquet Wong replied to the HKHA to confirm Tai Dou’s acceptance of the appointment, executed a surety bond in the amount of HK$500,000, and accompanied KC Ho at the briefing session organised by the HKHA. 

13.The proposed Amended Response went on to state that Tai Dou and its partners did not authorise KC Ho in the capacity of an agent or employee to undertake the relevant decoration work on behalf of Tai Dou or its partners, and that KC Ho operated as a separate and independent undertaking from Tai Dou and its partners in relation to such work.  It was not admitted that KC Ho had made or given effect to the alleged market sharing agreement or price‑fixing agreement, or that those agreements had an anti‑competitive object or effect.  It was said that Tai Dou did not make or give effect to the alleged agreements.

14.The proposed three new witness statements were made by Wong Tung Hoi, Cheung Yiu Fai Danny and Pacquet Wong, in support of the new case in the proposed Amended Response.

Discussion

15.The trial was originally scheduled to begin on 12 November 2018, with 25 days reserved.  Notwithstanding the order made on 26 September 2018 allowing the 2^nd, 3^rd, 5^th, 6^th, 7^th, 8^th and 10^th respondents to file and serve witness statements verifying the factual matters referred to in their expert report dated 30 July 2018 (see the Tribunal’s decision: [2018] HKCT 5), Mr Abraham Chan SC who appeared on behalf of the Commission confirmed that, subject to the present application made by Tai Dou, the Commission would be ready to proceed with the trial commencing on 26 November 2018.  All the other respondents were ready to proceed on the same basis.  Tai Dou’s application was evidently made, on any view, at a very late stage, when the other parties were under a very tight timetable for taking steps in preparation for the trial (including, in the case of the Commission, the filing of factual evidence in response to the 2^nd, 3^rd, 5^th, 6^th, 7^th, 8^th and 10^th respondents, experts’ reports, joint experts’ report, trial bundles, opening submissions and authorities) which has been anticipated for over a year to take place in November 2018.  I recognise that delay on its own may not be sufficient to justify a refusal of leave to amend pleadings: Topwell Corp Ltd v Kwan Kam Kee [2014] 5 HKLRD 1, §34, but as will be seen below it is important to place the application in the context of the procedural history and the forthcoming trial dates.

16.The explanation put forward on behalf of Tai Dou for the need to make its applications and for their lateness was this.  Pacquet Wong, who held a wide power of attorney dated 2012 on behalf of all the partners of Tai Dou including himself, learnt in March 2017 that the Commission had begun investigation into Tai Dou’s conduct in the decoration work of On Tat Estate.  He spoke to KC Ho and decided to allow him to explain the matter and submit relevant documents to the Commission.  Subsequently, after Pacquet Wong received the Commission’s Originating Notice of Application in August 2017, he and Danny Cheung had a meeting with KC Ho in which he told KC Ho:

“ This case was brought about by you. You have to be responsible for getting a lawyer for my younger brother (Wong Tung Hoi) and Cheung Yiu Fai to sort it out. You also have to be responsible for all the legal fees, including all the expenses of this case, and the consequences.”[1]

From that early stage KC Ho had therefore been empowered to engage lawyers and conduct the defence on behalf of Tai Du. 

17.Tai Dou now claimed that KC Ho was not authorised to conduct the defence without reference to the partners and that he had failed to keep them informed.  The evidence, however, did not fully support Tai Dou’s assertion.  Certain WhatsApp messages between KC Ho and Pacquet Wong were exhibited but the picture was far from complete because: (a) many entries were redacted; (b) Pacquet Wong gave many responses through audio recording, which were not transcribed; and (c) the communications between 25 June and 3 September 2018 were not shown.  Nor was it clear from the evidence whether there were other communications between them such as by telephone conversation or email. 

18.It was also notable that Pacquet Wong and KC Ho together went to a meeting with the lawyers in August 2017, but it was wholly undisclosed as to what was said there in terms of KC Ho’s authority to represent Tai Dou vis-à-vis the lawyers.  For all we know the solicitors were satisfied thereafter that KC Ho had authority to sign Tai Dou’s Response and prepare a witness statement and, it would appear, to give instructions on behalf of Tai Dou.

19.Further, within the WhatsApp messages exhibited, I note that on 30 August 2017, KC Ho assured Pacquet Wong that he would follow up with the lawyers[2] and Pacquet Wong replied “OK”.  A little later he told KC Ho to get more evidence and witnesses and said that “it would be even better if evidence could be found to show the need to allocate floors for cleaning up the waste/debris”.[3]  This is consistent with the plea in the existing Response (at §29(h) and §32(d)) concerning the efficiency of dividing the floors for the cleaning up of waste and debris, as well as the cleaning agreement subsequently mentioned in KC Ho’s witness statement.  Pacquet Wong was later expressly informed by KC Ho that the deadline for the Response to be filed was 28 September 2017, but some of the ensuing communications were not disclosed.  On 9 May 2018, KC Ho sent a note of certain information he proposed to provide (apparently to the lawyers) and asked Pacquet Wong for his approval, but it was not known if he responded.

20.As stated above, the Notice to Act and Response were both filed on behalf of Tai Dou on 28 September 2017.  There was an assertion in some of the affirmations now filed that the solicitors were not properly authorised, but Mr Peter Dong who appeared on behalf of Tai Dou on this application accepted that he was in no position to seek a ruling in that regard.  Indeed, there was no suggestion that the assertions now made by Tai Dou had been made known to, let alone supported by, KC Ho or Tai Dou’s former solicitors.

21.In the circumstances, while I do not go so far as to find that the application was made in bad faith or purely a tactical manoeuvre, I was not satisfied that this was a case where Pacquet Wong was kept completely in the dark.  Indeed, Mr Dong only submitted that the partners of Tai Dou were not “fully” informed of the progress of the proceedings and failed to “fully” participate in the proceedings.

22.Even on Tai Dou’s own evidence, the picture was one of utter complacency.  The partners only began to take an interest in around early September 2018 when they learnt that the maximum pecuniary penalty that could be imposed under the Ordinance was referable to the turnover of the undertaking and not just the turnover on the On Tat Estate project.

23.On behalf of Tai Dou, Mr Dong submitted that the Commission would be “well prepared” to deal with the new case, that the factual evidence required by the Commission was “already in place” and that no significant prejudice would be caused.  I did not accept this assertion.  In contrast, Mr Chan’s submission, which I accepted, was that very substantial factual investigation would have to be carried out to meet the new case, concerning the control mechanisms within Tai Dou, the precise terms of the arrangement between the partners and KC Ho, the position and response of the HKHA, and how knowledge was imparted between the partners and KC Ho.  It is to be noted that KC Ho had apparently carried out decoration work in the name of Tai Dou in other public housing estates in 2006, 2008, 2010 and 2013 respectively.

24.Tai Dou relied on the fact that the 1^st and 9^th respondents had already raised the “sub-contractor” argument, contending that they only let their names be used by others who should be regarded as separate undertakings.  In response to that argument (which had been pleaded at the outset), however, the Commission had required a significant amount of time to analyse the relevant interview records and respondent‑specific factual matrices.  The Commission accepted that the legal research and analysis already conducted in relation to the 1^st and 9^th respondents’ cases might be of some use in reviewing Tai Dou’s proposed new case, but the factual investigations and responses that would be necessary were such that the trial dates would have to be vacated altogether.  There would in addition be the question as to the possible joinder of KC Ho as a respondent.

25.It was in my view a specious argument for Tai Dou to point to the matters relied on by the Commission in reply to the 1^st and 9^th respondents’ Responses and to the fact that their alleged sub‑contractors were not brought in by the Commission as additional respondents, to assert that the Commission would therefore not require significant time to respond to Tai Dou’s new case.  The scope of an undertaking and whose acts may be attributed to it are fact‑sensitive questions.  The Commission’s position vis‑à‑vis the 1^st and 9^th respondents was necessarily the result of an assessment of and the response to the specific factual cases raised by those two respondents.  The Commission had, indeed, sought a considerable amount of time from the Tribunal to consider the question of joinder of the alleged sub‑contractors of those two respondents.  There was no justification to force the Commission to squeeze its investigation, preparation and decision‑making processes all into the coming few weeks especially when it already, through no fault of its own, had to expend utmost effort towards responding to the factual evidence recently filed by the 2^nd, 3^rd, 5^th, 6^th, 7^th, 8^th and 10^th respondents with a view to proceeding to trial during the existing trial period.  Any time taken to meet the 4^th respondent’s new case would be time taken out of the very tight timetable for preparation for trial.

26.As pointed out by Lord Griffiths in Ketteman v Hansel Properties Ltd [1987] 1 AC 189, 220G, a factor that must be put in a balance is the necessity that “in the interests of the whole community, legal business should be conducted efficiently”.  As was stated by DHCJ Lok (as he then was) in Li Shiu To v Li Shiu Tsang and others (unrep, HCA 416/2003, 14 August 2012), at §17, adjournment of the trial is now considered itself serious prejudice to the parties involved in litigation.  Similarly, DHCJ Le Pichon said in Jose Miranda da Costa Junior & Anor v Lorenzo Yih, also known as Yu Chuan Yih & Ors (unrep, HCA 156/2010, 28 April 2014), at §18, referring to a late application to adduce further affidavit evidence to oppose a summons for judgment:

“ … Such a last‑minute manoeuvre creates a dilemma for the innocent party: to seek an adjournment which would mean having to derail the hearing (when the innocent party was anxious to have its summons heard as soon as possible) or to live with it and doing what was possible within the limited time available. It has been said that “[t]he unenviable position that such a party finds himself in is in itself a prejudice”: see per A Cheung J (as he then was) in Wise Union Industries Ltd v Hong Kong Science and Technology Parks Corporation, unreported, HCAL 12/2009, 21 September 2009 at §9.”

27.I have not lost sight of the fact that these proceedings are an enforcement action under the Ordinance which is not entirely the same as ordinary civil litigation.  However, s 144 of the Ordinance enables the Tribunal to follow “the practice and procedure of the Court of First Instance in the exercise of its civil jurisdiction”; the Competition Tribunal Rules (Cap 6D) to a significant extent incorporate the Rules of the High Court (see rule 4); and Practice Direction No 1 of this Tribunal states (at §10) that parties have a duty to assist and cooperate “to ensure that cases are as efficiently, inexpensively and expeditiously disposed of as is consistent with fairness”, (at §11) that “the Tribunal will indicate, as early as practicable, a target date or range of dates for the substantive hearing of a matter.  Realistic timetables leading towards such date or dates will be laid down which are expected to be strictly observed”, and (at §12) that “[c]ases will be managed and directions given by the Tribunal so that the parties’ respective cases are disclosed and the real issues identified and focused upon as early as possible, unreasonable interlocutory disputes are prevented, and unnecessary evidence minimized.  A high level of realism will be expected from the parties.”

28.The public interest in maintaining the integrity of the litigation process is no less important in the Tribunal than in cases in the High Court.  As Mr Chan submitted, the Commission, as well as the other respondents, have an interest in the resolution of these proceedings without delay.  There is also a broader public interest in these enforcement actions to see the proceedings being dealt with as expeditiously as is reasonably practicable.  The outcome of these proceedings may well serve as guidance to other undertakings and persons in the regulation of their economic conduct.  In other cases the additional dimension of the impact on potential follow-on actions could also be relevant, although I did not take it into account in this particular case.

29.It was said that if the application was refused, Tai Dou would be forced to run a case in which it clearly had no conviction.  But as pointed out above (see §19 above), the case now shown on the existing Response was one in which Pacquet Wong had given his input.  Whether or not Tai Dou would call KC Ho as a witness, or rely upon the efficiencies exclusion which is the subject matter of expert evidence, are ultimately matters for Tai Dou.  At the end of the day, I did not think that the problems (if any) that Tai Dou brought upon itself justified allowing the application at this late stage and thereby inevitably abandoning the trial dates.

30.For these reasons, Tai Dou’s application was refused.

Mr Abraham Chan SC and Mr Byron Chiu, instructed by King & Wood Mallesons, for the Applicant

Mr Harrison Cheung, instructed by Wong & Lawyers, for the 1^st Respondent

Mr Carter Chim, instructed by JCC Cheung & Co, for the 2^nd and 3^rd Respondents

Mr Peter Dong, instructed by Henry Wan & Yeung, for the 4^th Respondent

Mr Anson Wong Yu Yat, instructed by JCC Cheung & Co, for the 5^th Respondent

Mr Richard Yip, instructed by JCC Cheung & Co, for the 6^th, 7^th, 8^th and 10^th Respondents

Ms Connie Lee and Mr Tommy Cheung, instructed by Benjamin Au & Nilly Chan, Solicitors, for the 9^th Respondent