Taching Petroleum Co Ltd v. Meyer Aluminium Ltd
Read the full judgment text of CTA 1/2018 on BabelCite. This CTA judgment was delivered on 12 October 2021.
1. Taching and Shell sue Meyer in the Court of First Instance for costs of industrial diesel oil delivered to Meyer. In defence, Meyer alleges, amongst others, that Taching and Shell have breached the First Conduct Rule by colluding to fix price (“ Alleged Contravention ”). This is a trial of that single defence transferred from the Court of First Instance pursuant to section 113(3) of the Competition Ordinance, Cap 619.
Cited by 9 cases · Cites 3 cases
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CTA 1/2018 & [2021] HKCT 2 IN THE COMPETITION TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COMPETITION TRIBUNAL ACTION NO 1 OF 2018 ____________
AND IN THE COMPETITION TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COMPETITION TRIBUNAL ACTION NO 2 OF 2018 ____________
Before: Hon Au-Yeung J, Deputy President Dates of Hearing: 27-30 July, 2, 3 and 9 August 2021 Date of Judgment: 12 October 2021 _______________ J U D G M E N T _______________
1.Taching and Shell sue Meyer in the Court of First Instance for costs of industrial diesel oil delivered to Meyer. In defence, Meyer alleges, amongst others, that Taching and Shell have breached the First Conduct Rule by colluding to fix price (“Alleged Contravention”). This is a trial of that single defence transferred from the Court of First Instance pursuant to section 113(3) of the Competition Ordinance, Cap 619. 2.Meyer’s pleaded case on the Alleged Contravention was evidenced by and/or inferred from 2 factors only:
3.Based on these 2 factors alone, Meyer claims that the only reasonable inference for the uniformity in the 118 Pairs of Price Adjustment Notices is that it was the result of anti-competitive collusion between Taching and Shell. 4.Taching and Shell deny any collusion. 5.Taching’s case is that it sourced industrial diesel only from Sinopec (Hong Kong) Petroleum Co Ltd (“Sinopec”) and sold it to Meyer.
6.Shell’s case is that:
7.There are a few preliminary observations arising from the parties’ cases:
8.Ms Lam (and Ms Xu) representing Taching reminds the Court that the “Core Period” in this case is really between 13 March and 6 June 2017 (ie the period during which the price of industrial diesel was not paid); and the Tribunal should not make any findings on the Alleged Contravention outside the Core Period (if proved). I do not think, in the light of the findings in this judgment, that it makes much difference to the conclusion, whether one adopts this Core Period or the Relevant Period for analyses. I therefore focus on the Relevant Period in this judgment. B1. Oil Majors and Sellers 9.Crude oil has to be refined to produce a range of fuel products including diesel. There are no refineries in Hong Kong and so all diesel has to be imported. These imports arrive principally by sea: HKCC Report (2017), §3.3. 10.There are 4 companies in Hong Kong with the necessary licences for importing diesel into Hong Kong and with terminal storage facilities in Tsing Yi. They are Shell, ExxonMobil Hong Kong Ltd (“ExxonMobil”), Chevron Hong Kong Ltd (“Chevron”) and Sinopec. They are commonly referred to in the industry as the “Oil Majors. The diesel is distributed from Tsing Yi, typically by tanker trucks, to customers. 11.Each of the Oil Majors provides bulk supply of industrial diesel to both end-users (who consume the product themselves) and dealers/resellers (who resell the product to end users). Each of the Oil Majors use a “list less” pricing mechanism[1] with some variations. 12.According to the estimates of Taching and Shell, there are around 80 to 100 sellers of industrial diesel oil in Hong Kong of variable sizes. Taching is one of the dealers/retailers. 13.The Oil Majors revise their List Prices periodically. In the case of Shell and Sinopec, they do this around once or twice a month, though there is no regular interval. 14.The Oil Majors will give prior notice to their customers of proposed changes to the List Price. In the case of Shell and Sinopec, customers are given notice by way of, amongst others, notification letters, normally issued shortly before the adjustment (which invariably takes place at 00:00 on the following day). 15.Sinopec has been publishing adjustments of its List Price on its website since 2013, according to Shell’s witness. B2. Supply of industrial diesel to Meyer 16.Meyer is an aluminium manufacturer with an aluminium manufacturing plant in Tai Po Industrial Estate. It requires a daily supply of industrial diesel for its manufacturing process. 17.At all material times, Meyer only had 2 suppliers of industrial diesel, Taching and Shell. Taching had supplied industrial diesel to Meyer since 1970s; and Shell to Meyer since 1950s. Taching’s industrial diesel was abbreviated as IDO, but later changed to IEVD. Shell’s industrial diesel was abbreviated as MULSD. 18.Taching entered into long term contracts with Meyer. 19.Similarly, Shell generally enters into long-term supply contracts with commercial end-users, typically ranging from 1 to 3 years. Shell provides to its long-term customers a range of services, including those relating to safe delivery of diesel, set up, safety and efficiency seminars at the customers’ sites. In respect of each customer, Shell would assign an Account Manager, whose responsibilities include building and maintaining long-term relationship with the customers, assisting customers with their requests and developing solutions based on customers’ needs. 20.One of the advantages of these long-term supply contracts, whether with Taching or Shell, is that it guarantees supply of industrial diesel to the customer. 21.Meyer had always tried to maintain the ratio of approximately 50:50 “share of wallet” between Taching and Shell. Towards the end of their relationship, Meyer purchased about $47 million worth of fuel from Taching and Shell. 22.The Net Price (ie the price at which industrial diesel was delivered to Meyer) was computed by a similar formula with slight variations:
23.Although Shell had additional components (ie Shell’s Fixed Minor Adjustments), such difference from Taching had no real significance to Meyer because the Net Prices payable by Meyer to Taching and Shell respectively at all material times were exactly identical. 24.Under the aforesaid pricing formulae:
25.There is no dispute that the Initial Net Price of Taching and Shell was arrived at following arm’s length negotiations with Meyer. 26.During the Relevant Period, Meyer had initiated Renegotiations of Fixed Discounts with Taching and Shell separately but at about the same time, on 3 occasions in 2010, 2012 and 2013. Meyer did that to ensure that Taching and Shell would increase their respective Fixed Discounts by the same amount on the effective date; and that their Net Prices would end up being identical. Meyer does not allege that there was collusion between Taching and Shell in those 3 Renegotiations. 27.Meyer would use the price quotes from other suppliers as leverage to persuade Shell to offer a lower discount. 28.In respect of Taching and Meyer, the sale and purchase of IEVD during the Relevant Period was governed by the Taching-Meyer Agreements made in 2010, 2012 and 2014, which gradually increased the Taching’s Fixed Discount in favour of Meyer from per litre. The estimated quantity of IEVD to be ordered by Meyer per month was 300,000 litres but Meyer was not bound to purchase the stated quantity from Taching. 29.In respect of Shell and Meyer, the sale and purchase of MULSD was governed by the Shell-Meyer Agreements in 2010, 2012 and 2013. The last one was extended by a letter dated 19 February 2016. Those Agreements gradually increased Shell’s Discounts in favour of Meyer from . C1. Meyer’s Pleaded Case 30.Meyer did not know how the List Prices were actually determined by Taching or Shell. Meyer was, however, given to understand that the adjustments of Shell’s List Prices were to cater for the fluctuation of the import costs of industrial diesel or international oil prices. 31.In about May 2017, upon obtaining quotes from another supplier in Hong Kong, Meyer discovered that the then prices charged by Taching and Shell were about double that of the other supplier. 32.In its new quotations, Taching almost halved its Net Price overnight from HK$6.15 per litre (6 June 2017) to HK$3.8 per litre (7 June 2017). Taching’s price further dropped in its next two quotes which were both at HK$3.6 per litre (12 June 2017 and on 15 June 2017). 33.Meyer carried out further investigations and discovered parallel pricing in (i) the Net Prices charged by Taching and Shell; and (ii) the adjustments made to the List Prices of Taching and Shell between 2011 and June 2017. In the 6 years between 2011 and 2017, out of the 118 Pairs of Notices, 111 were initiated by Shell, 1 by Taching and 6 were by both of them on the same day. Those Notices effected identical changes to their respective List Prices either on the same day or very shortly thereafter, after a corresponding change was made by either Taching or Shell. 34.According to Meyer, the changes specified in the respective Price Adjustment Notices by Taching and Shell were not public information and the striking uniformity in such changes could not be explained by mere coincidence. 35.The only reasonable inference was the Alleged Contravention,which has been set out in 2 paragraphs in Meyer’s Points of Defence to Taching and Shell’s claims:
36.I have in my Decision dated 29 May 2020 (“May 2020 Decision”) (§28) held that any reference to an “effect” defence shall be disregarded. C2. Taching’s Pleaded Case 37.Taching was and is a non-exclusive authorized seller of Sinopec. Taching sources industrial diesel solely from Sinopec since 2007 and sells it to end customers like Meyer. Taching has never purchased from Shell. 38.Taching denies any collusion. As to the manner in which its Net Price and the adjustments thereto were determined, Taching’s explanations are that:
39.Taching has never discussed, agreed or concerted with Shell on any matter relating to the prices at which each of them would supply industrial diesel to Meyer. Taching did not have any information or knowledge about the pricing mechanism between Shell and Meyer or the prices charged by Shell to Meyer. C3. Shell’s Pleaded Case 40.Shell denies any collusion. Its List Prices were determined by reference to its internal policies, set out in the Confidential Annex to Shell’s Re-amended Points of Reply (“RAPoR”). Extracts from Shell’s Local Price Book (2012) (“Price Book”) evidencing its internal policies, and all emails evidencing each adjustment to the List Price in the Relevant Period with the underlying rationale (“List Price Emails”), have been disclosed. 41.Shell’s List Price was primarily based on its costs of acquiring industrial diesel, and would be reviewed in accordance with established policies by reference to, amongst others, market factors, without reference to Taching. 42.It was commonplace for the Oil Majors to make similar or identical changes to their List Price in order to maintain the competitiveness of their product. This explained why the price adjustments to Taching’s List Price (which followed Sinopec’s) almost always coincided with Shell on the same day or shortly thereafter. 43.As for the Discount,
44.The reviews of and adjustments to Shell’s List Price were undertaken by designated personnel within Shell who did not have any direct dealings or negotiations with the representatives of Shell’s end-users. 45.The negotiations on Discounts and changes thereto were undertaken by designated Account Managers (each being responsible for specific end-users), who had no involvement in the fixing of the List Price. 46.Shell’s personnel were expressly prohibited from engaging in direct or indirect discussions with Shell’s competitors or their staff about pricing information. 47.Bearing in mind the preliminary observations in paragraph 7 above, the key issues are as follows:
E. LEGAL PRINCIPLES ON FIRST CONDUCT RULE 48.Under the First Conduct Rule, an undertaking must not make or give effect to an agreement or engage 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: section 6(1)(a) and (b) of the Competition Ordinance. 49.Fixing, maintaining, increasing or controlling the price for the supply of goods is regarded as “serious anti-competitive conduct”: section 2 of the Competition Ordinance. 50.I extract from the May 2020 Decision, the pertinent principles in relation to the First Conduct Rule:
51.There are 3 methods to prove that an agreement or concertation existed in the context of parallel conduct: May 2020 Decision, §161:
F. BURDEN AND STANDARD OF PROOF 52.An agreement or concertation for the purpose of price fixing is considered serious anti-competitive conduct under section 2 of the Competition Ordinance. There is no dispute that the burden of proof lies on Meyer to prove its case with evidence of commensurate cogency. 53.The civil standard of proof on the balance of probabilities applies. This standard will not be heightened because of the gravity of the allegations. The party bearing the burden of proving a serious allegation must discharge the burden with evidence of commensurate cogency. The more serious the allegation, the stronger should be the evidence before the court would conclude that the allegation is established on the balance of probabilities. See Re H [1996] AC 563, Lord Nicholls; Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387 at §§182 & 184, Television Broadcasts Ltd v Communications Authority (“TVB v CA”) [2016] 2 HKLRD 41 at §296, G Lam J (as he then was). 54.Re H has been applied in the competition context in Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading: [2002] ECC 13, at §§107-109. As explained by the UK CAT at §§107-108:
55.The May 2020 Decision has held that parallel conduct alone is not sufficient to establish collusion. Under EU law, although the Tribunal should consider the circumstantial evidence holistically (where individually each piece of evidence is not sufficient to found liability) together with economic evidence, expert evidence alone is not sufficient to establish the existence of collusion, eg Wood Pulp II (§§164-169 of the May 2020 Decision). 56.Of the 3 methods mentioned in paragraph 51 above, this case is only concerned with the 3rd. By the 3rd method, where the claimant relies solely on parallel conduct:
57.Mr Lee (with Ms Lui and Mr Tse) representing Meyer contends that propositions (b) and (c) effectively establish a standard of proof of beyond reasonable doubt and there is no obligation to satisfy this test. He relies on the Bank St Petersburg PJSC v Arkhangelsky [2020] 4 WLR 55 for the proposition that a potential plausible explanation does not mandate a finding of no dishonesty or no impropriety. 58.In the May 2020 Decision, at §§58-60 and 86-87, I have rejected Mr Lee’s argument. The civil standard of proof should not be conflated with the necessary elements nor the quality of evidence needed to establish collusion. In deference to counsel, I explain the reasons further. 59.Parallel conduct, in itself, cannot constitute proof of concerted practice because it can be the “very essence” of competition: FCR Guideline §2.31; Motta, Competition Policy: Theory and Practice at 186-189; Rey, “On the Use of Economic Analysis in Cartel Detection” in European Competition Law Annual: 2006 – Enforcement of Prohibition of Cartels (2007) at 76-81. 60.In cases involving a homogenous product, one would positively expect to see parallel prices even in the absence of collusion:
61.Accordingly, parallel conduct could be innocent. This can happen when an undertaking adapts its pricing intelligently to its competitor’s, or follows the pricing of another without any communication with the other, or obtains information of its competitor through market intelligence. 62.Hence, if a respondent falling with the 3rd Method adduces evidence to provide an alternative explanation for the parallel conduct, it behoves the claimant to demonstrate that the alternative explanation is implausible in order to justify the serious inference of agreement or concertation. 63.Mr Lee’s submission that this elevates the standard of proof to one of beyond reasonable doubt is unsustainable for the following reasons: 64.Firstly, a precise standard of proof such as balance of probabilities or beyond reasonable doubt is not a concept espoused by the courts in the EU. For the civil law system, the pervasive requirement is generally that the level of proof must be one that is convincing to the court: TVB v CA, §284. 65.Under EU law, it is not necessary for every item of evidence produced to satisfy the standard of proof in relation to every aspect of the contravention. It is sufficient if the body of evidence relied on, viewed as a whole, satisfies the burden: Nutanix, §73. 66.In EU, the quality of evidence in the context of parallel conduct has been described as requiring sufficiently precise and coherent proof to justify the view that parallel behaviour was the result of concerted action. Joined Cases 29 and 30/83, Compagnie Royale Asturienne des Mines SA v Rheinzink GmbH [1984] ECR 1679 at §20. In other words, there must be a firm, precise and consistent body of evidence, the absence of which would prevent the establishment of concertations: Wood Pulp II, §127. This is consistent with the civil standard of proof, as explained by the UK CAT in Napp Pharmaceutical. 67.Secondly, Meyer says that were all enforcement cases. It does not matter. The fact that an undertaking is entitled to the presumption of innocence and to any reasonable doubt there may be, does not mean a standard of proof other than the civil standard of balance of probabilities nor does it reverse the burden of proof. Applying a civil standard on the basis of strong and convincing evidence, taking into account any reasonable doubt there may be, is simply a reflection of the seriousness of what is alleged (including the possibility of attracting significant penalties in another arena) in accordance with the principles established in Re H. See Napp Pharmaceutical, §§109-111. 68.As the Tribunal pointed out in the May 2020 Decision §114, this approach does not preclude Meyer from relying on inferences from a number of coincidences and indicia which, taken together, may in the absence of another plausible explanation, constitute evidence of contravention of the competition rules. Such inferences are consistently drawn in the EU, as well as in the UK where the standard of proof is the civil standard of balance of probabilities. See, for example, Lexon (UK) Ltd Competition and Markets Authority [2021] CAT 5, §220 and Napp Pharmaceutical, (supra) §110 where this was described as “inferences or presumptions that would, in the absence of any countervailing indications, normally flow from a given set of facts”. These principles recognise the clandestine nature of an agreement or concertation and difficulty of proof. 69.Of course, inferences concerning serious misconduct can only be drawn if –
Nina Kung at §§185‑187. 70.Compared to the criminal standard of proof for enforcement cases in Hong Kong, the 2nd and 3rd propositions became: (b) the inference must be a logical consequence of those facts; and (c) the inference must be “irresistible”, that is, it must be the only inference that can reasonably be drawn on the basis of those facts: Nutanix §75. 71.Applying Nina Kung in the context of the Alleged Contravention, where the only primary fact is the parallel conduct, a claimant will fail to satisfy Nina Kung tests (b) and (c), because undertakings may engage in parallel conduct even in the absence of any anti-competitive agreement or concertation. 72.Thirdly, Arkhangelsky is not a competition case:
73.Arkhangelsky does not support Meyer’s proposition:
74.Accordingly, for the 3rd Method, it is necessary, as a matter of law, for Meyer to show that collusion constituted the only plausible explanation for the parallel conduct. G(1). Credibility of witnesses 75.Given the lapse of time since 2011-2017, the Court assesses the credibility of witnesses against the contemporaneous documents and the inherent probabilities in their evidence. 76.Meyer has only called Ms Sandy Chan (Chief Administrative Officer) to give evidence, but she had not been personally involved in negotiations and dealings with Taching. Though an articulate and careful witness, much of Ms Chan’s knowledge and understanding of matters was based on what others had told her, eg that the industrial diesel from Taching was imported from Singapore (when in fact it was from Mainland China). That said, I find her to be a truthful witness. 77.Meyer has not produced a witness with first-hand knowledge of its dealings with Taching – Mr James Cheng (Meyer’s CEO), Mr Philip Wong (who had power to sign contracts on behalf of Meyer for the purchase of industrial diesel) and Ms Kitty Chu (assisting Mr Wong). Ms Kitty Chu was physically unwell and her failure to give evidence was excusable. 78.Taching had Mr Lawrence Ma and Mr David Wong as witnesses. Mr Lawrence Ma is the General Manager of Taching and has been in the oil business for 40 years. As Ms Lam describes, he was typically a “boss” focussed on the big picture, but he was not the one handling Taching’s List Price Adjustment Notices. It was not surprising that he mistakenly thought that all the figures under the “Old List Price” on page 1314 were different to those under “New List Price” on page 1313. Mr Ma would not hide the fact that he only discovered those differences when Annex A to the Agreed Facts (“Exhibit Annex A”) setting out the 118 Pairs of List Price Adjustment Notices were prepared. He would not offer an answer not within his knowledge but left it to Mr David Wong. 79.Mr David Wong was the Operation Manager who joined Taching in 1976. He was the one handling the Taching List Price Adjustment Notices. He was frank and careful. He admitted having committed errors. He remained consistent throughout his cross-examination. He mentioned about having a discretion in issuing List Price Adjustment Notices more than 1-2 days after Sinopec issued its, which was not in accordance with Mr Lawrence Ma’s instructions. I shall come back to this under Taching’s case in Section J below. 80.However, I consider any inconsistency in Mr Lawrence Ma and Mr David Wong’s evidence was more a revelation of these witnesses having different duties to discharge in Taching rather than their lying. In any case, if Mr David Wong had not followed Mr Lawrence Ma’s instructions, it was an employment issue and could not give rise to a basis for inferring anti-competitive conduct. 81.Overall, I find Mr Lawrence Ma and Mr David Wong to be credible witnesses. 82.Shell has 2 witnesses: Ms Christina Tam and Ms Jessica She. 83.Ms Tam (Account Manager) gave evidence on, amongst others, the collection of market intelligence with the Trading and Supply Department of Shell. Both departments would use the same method, ie getting price quotations from customers and through enquiries in failed tenders. 84.Mr Lee criticizes her for giving “guarded testimony”, even in relation to peripheral questions.
85.I am unable to see how being careful not to generalize when her customers’ situation might be fact sensitive could create any negative impact on Ms Tam’s credibility. Nor can I see how her answers to those examples can assist in resolving the issues. 86.Next, Ms Tam was cross-examined as to whether she could verify the accuracy of a purported competitor’s lower price quotation. She conceded that she could not. 87.Again I cannot see how that answer could undermine her credibility. She was not publishing an academic paper on oil prices and thus have to ensure accuracy in her data. She was in a commercial entity collecting market data to cater for the rolling changes in List Prices/Discounts. As could be seen from Exhibit Annex A, the changes could be as frequent as within 7-8 days. Ms Tam’s evidence showed that Shell consistently collected market intelligence in the way she described, placed the weight as Shell deemed fit on it in a commercial context, and went on to adjust the List Price/Discounts. 88.Ms Tam was heavily cross-examined on §18 of her witness statement:
89.In her oral evidence, Ms Tam testified that all the Discounts referred to in her witness statement were in fact “Shell’s” Discounts only. Mr Lee queried how a customer could have used Shell’s Discount as a leverage in their negotiations with Shell. 90.Ms Tam explained by a hypothetical example. A customer told her that the successful bid of another supplier was $10. At that time, the List Price of Shell was, say, $15. As the delivery charge of Shell was $0.05, so the Net Price was $14.95. The notional “Discount” of that supplier would have been $4.95 (ie $15–$0.05–$10). As Shell offered a Discount of less than $4.95, that was why Shell lost in that bid. 91.Having heard Ms Tam, I am satisfied that what she really meant in paragraph 18 of her witness statement was that she would obtain information from her customers as to the discounts and/or net prices offered by other suppliers. She would convert those discounts and/or net prices into notional “Shell’s Discounts” for market intelligence purpose. In that manner, the information user would be able to compare suppliers’ notional discounts/net prices on like bases. 92.Overall, I find Ms Tam to be a credible witness. 93.The other witness, Ms Jessica She, was a Pricing Analyst of Shell between 2007 and 2013 and has since 2013 been a Pricing Manager. She gave evidence on the internal and independent system of seeking approval for adjustments to Shell’s List Price. 94.Mr Lee criticizes Ms She’s evidence as unsatisfactory in many regards. [The redaction in paragraphs 94 and 95 concerns Ms She’s predictions.] 96.It was plain from Ms She’s evidence that her job required educated guesses of adjustments in List Prices, acting at best as she could on the information available in the market. I am unable to see how the fact that could affect Ms She’s credibility. 97.Another example that Mr Lee gave was Ms She’s evidence in relation to 98.In this example, Ms She referred to customers informing “Shell” and not her. Even based on Ms Tam’s evidence, there was another department who could have received the customer’s information. I cannot see how Mr Lee’s example could undermine Ms She’s credibility. 99.Both Ms Tam and Ms She were careful and frank witnesses who would only give evidence on matters within their own knowledge. By way of example, Ms She would not accept that Shell’s List Price Adjustment letters were sent to 200-300 customers as suggested by Ms Lam in cross-examination. Ms She also volunteered the information that Sinopec only published its List Prices on its website starting from 2013. Both witnesses were prompt in answering the Tribunal’s questions. 100.Having heard all the witnesses, I am satisfied that they were all truthful witnesses who have tried to tell the Tribunal the truth as best they could. Save where specifically identified, I accept their evidence. G(2). Hearing of evidence in camera 101.I have granted leave to hear the evidence of Ms She in camera on the basis that her evidence may touch on matters on which confidentiality has been asserted. I give my reasons now. 102.The principles for hearing in camera have been aptly summarized by Ms Sit SC (leading Mr Joshua Chan) representing Shell as follows:
103.Mr Lee objected to Ms She sitting in camera. He stated that the cross-examination was likely to be on the oil costs and reasons for increase. He did not have a lot of questions on redacted information in Ms She’s witness statement. 104.Applying the above principles, I directed the hearing of part of Ms She’s evidence to be in camera. 105.Firstly, the Price Book (still in force today) and List Price Emails contained confidential and commercially sensitive information, the leakage of which to competitors and customers would harm Shell’s business interest. 106.Secondly, §§4-14 of Ms She’s witness statement were concerned with market conditions which was public information. I directed that sitting in camera be restricted to the time when cross-examination concerned §15 of her witness statement onwards, which touched on the Price Book and List Price Emails. 107.Thirdly, when one paid regard to the core issue of collusion and Shell’s defence, it could readily be seen that it sufficed for the judgment to find if Shell had an internal and independent policy of making adjustments to List Prices which was complied with. It was not necessary for the public to know what constituted Shell’s pricing policy and what factors affected each adjustment. 108.Fourthly, the confidential information was frequently intermingled with the non-confidential on the same document, such as the List Price Emails. It was not practical to delineate Ms She’s oral evidence into confidential and non-confidential portion. If one were to make such delineation, then as Ms Sit submitted, people would have to “hop in and out of camera sessions”. That would not be time economical and would be extremely disruptive to the proceedings. 109.Fifthly, Shell was not the party who has put the confidential information in issue. Shell’s claim was admitted by Meyer and did not involve the confidential information. To the contrary, it was Meyer who sought to put Shell’s pricing policy into issue when running its defence. 110.For the given reasons in Section G(2), Ms She’s evidence was heard in camera after her evidence in chief. 111.It turned out that hearing her evidence in camera was fully justified. Whilst Mr Lee told the Tribunal that his cross-examination would not touch on confidential matters, the contrary happened as soon as he started cross-examining Ms She. 112.Having heard the evidence of the factual witnesses and upon the application of Taching and Shell, I excluded the expert reports from the evidence in the course of the trial. Here are my reasons. 113.In CTPD1, §9 states that active and robust case management will form a central element of the procedure of the Tribunal. 114.The giving of expert directions is very much a matter of case management: Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd [2019] 2 HKC 175, §9. 115.There are 3 conditions to be met before expert evidence can be adduced:
116.In Shenzhen Futaihong, §6, the Court of Appeal explained that evidence meeting condition (a) can still be excluded by the Court if the Court takes the view that calling it will not be helpful in resolving any issue in the case justly. Such evidence will not be helpful where the issue to be decided is one on which the Court is able to come to a fully informed decision without hearing such evidence. 117.Applying Shenzhen Futaihong, I excluded the expert evidence for the following reasons: 118.Firstly, this Tribunal has asked Mr Lee whether there was a particular paragraph in the expert reports that the Tribunal should focus on so that at the end of the day the Tribunal could infer that there was agreement, communication or collusion between Taching and Shell. Mr Lee gave an unequivocal answer, “No.” He went on to say that the expert evidence was not central and the “main focus” was really whether the cases put forth by Taching and Shell were accepted and that it would be those matters, instead of the expert issues, that would be the main factual findings on which inference might or might not be drawn. Mr Lee’s answers formed a clear admission that the expert evidence was irrelevant. The “main focus” that he referred to could be decided on the factual evidence. 119.Secondly, Dr Sharon Pang’s report prepared on behalf of Meyer showed the expert evidence to be irrelevant to any of the issues defined in Section D above. This was evident from Dr Pang’s summary of conclusions in §6 of her report that:
120.Conclusion (1) was about evidence relating to pricing behaviour of the midstream Oil Majors (ie those who imported from overseas into Tsing Yi Island). It had absolutely nothing to do with the present situation in which Taching and Shell sold to end-users at a different, downsteam, level of the supply chain. It also had absolutely nothing to do with Taching. 121.Conclusion (2) again was about Oil Majors and Taching was not involved. Mr Lee, however, suggested that if there was no transparency between the Oil Majors, it was hardly arguable that a small reseller like Taching would have additional means of improving the transparency and have access to more information than the Oil Majors. So the expert evidence about transparency between the Oil Majors and resellers was still valuable to consider the relevant transparency in this case. 122.Mr Lee’s suggestion meant that if there was no transparency in the mid-stream market, somehow the Tribunal could still infer that there would not be transparency in the downstream market. With respect, I fail to see the logic. In fact, there was no factual premise for Mr Lee’s suggestion because none of the experts, including Dr Pang, dealt with transparency in the downstream market. 123.Mr Lee also referred to §3.3 of Shell’s RAPoR to justify adducing expert evidence for the purpose of showing lack of transparency:
124.According to Mr Lee, if there was no transparency in the market, that could provide some support for the contention that Taching could not, without collusion with Shell, have got Shell’s updated List Prices from the market, in such a timely manner, almost on the same day or following day. 125.With respect, Mr Lee has misread Shell’s case. Shell expressly denied in §3.1 of its RAPoR the sharing of pricing information with Taching. In the evidence, Shell got List Prices of other market players but Taching did not feature in Shell’s process of setting the List Price. 126.Mr Lee has also misread Taching’s case. Whether there was transparency or not simply did not affect Taching, as it did not determine its own List Price or adjustments but simply followed Sinopec’s. Taching never had Shell’s List Price information. 127.Whether the List Price was transparent was background information that, in the circumstances of this case, could be proved by factual evidence without expert evidence. No transparency could not give rise to inference of communication between Taching and Shell to fix price or assist Meyer in building up a positive case of agreement or concertation. 128.In any case, the fact that one market player got the price information of another was in itself innocent. It was how that market player got the price information that was relevant. That was not something that needed to be proved by expert evidence in this case and in fact Dr Pang did not purport to prove it. 129.Conclusion (3), even accepting that to be true, was irrelevant because Sinopec was not a party to the Alleged Contravention and Meyer’s attempt to amend its pleadings to plead a wider collusion has been rejected: §§94-131 of the May 2020 Decision. There was thus a missing link between the prices of Shell and Sinopec on the one hand and the alleged collusion between Taching and Shell on the other. Sinopec, not being a party, simply had no input to Dr Pang’s views in her report. 130.In his submission, Mr Lee clarified that he was not involving Sinopec in any way to show that there was collusion between Taching and Shell. He was just saying that Taching was directly following Shell. With respect, if Mr Lee was correct, that was a matter of fact and not a matter for expert evidence. 131.For the reasons given in Section H, it was plain and obvious that expert evidence was irrelevant in this case. 132.Mr Lee has also tried to justify the need for expert evidence to prove some “peripheral issues”, ie the number of players in the market, whether the product was homogenous and whether there were similar costs. He submitted that usually for conscious parallelism to be present there would be similar costs. 133.Such submission again showed a misunderstanding of the core issues. None of the peripheral issues could prove or disprove collusion. In fact, during cross-examination, homogeneity of the product virtually did not feature. Little was explored on similar oil costs. It was not anyone’s case that there was conscious parallelism. 134.The closing submission of Meyer can be summarized as follows:
135.With respect, there is not even a “prima facie case” of agreement or concertation for Taching and Shell to answer. 136.Firstly, after a full trial, there is still no evidence as to when the alleged agreement or concertation was entered into, who on behalf of Taching and Shell entered into it and its scope. In fact, these matters were never put to any of the witnesses of Taching or Shell. 137.Indisputably, there is not the slightest evidence of any communication or exchange between Taching and Shell at any time during the Relevant Period, not even before the Competition Ordinance came into effect. 138.Secondly, even on Meyer’s own case, Taching and Shell could not have “fixed” their Net Prices through “determining and manipulating” their respective List Prices in view of Meyer’s orchestration of the Initial Net Prices for Taching and Shell after each of the 3 Renegotiations. 139.Thirdly, the List Price information of Taching and Shell was not confidential information, despite the fact that the information was not put on the internet. The List Price Adjustment Notices issued by Taching and Shell were not marked “confidential”. They were distributed to all of their existing or potential customers and covered more products than just industrial diesel, although the price adjustment for each product might be different. Neither Taching nor Shell prohibited their customers from disclosing the List Price or adjustments to other people. In fact, Meyer itself disclosed such information of other suppliers to Shell and Taching. 140.Fourthly, in cross-examination, Meyer suggested that Taching was directly following Shell’s, rather than Sinopec’s, List Price Adjustments. (More details are in Section J(3) and (4) below.) Even if that was true, (i) competition law did not prevent economic entities from adapting themselves intelligently to the existing and anticipated conduct of their competitors: Wood Pulp II, §71, cited in the May 2020 Decision, §84; (ii) Meyer itself accepts that conscious parallelism is legitimate (§184.4 of Meyer’s closing submission); (iii) Meyer’s case rested principally on Taching’s conduct; and (iv) there was nothing to show the meeting of minds of Taching and Shell. 141.Fifthly, even if Meyer can shatter the credibility of Taching and Shell’s witnesses, Meyer would still be left with only 118 Pairs of List Price Adjustment Notices, and the unilateral and equivocal conduct of Taching in following the pricing of Shell. These 2 facts were not sufficient to establish a prima facie case of agreement or concertation, as they were consistent with innocence. 142.Sixthly, it is not open to the Tribunal to infer collusion from unpleaded facts (ie failure to follow changes in international oil prices and charging supra-competitive prices). 143.Meyer’s case must fail. 144.Taching’s case is supported by:
145.Meyer, however, points to 10 occasions (should be 11, classified into 4 Categories) when Taching “deviated from its practice” and suggested that “Taching followed Shell instead of Sinopec”. J(1). Witnesses’ evidence 146.On Taching’s side, Mr Lawrence Ma testified that there was never any contact between Taching and Shell during the Relevant Period. There was no communication channel between Taching and Shell. In fact, he testified that it was unthinkable for Taching to work with Shell because they were opponents to each other. He might have been “the person most hated by Shell” as he had poached a lot of business from them. 147.Mr Lawrence Ma’s evidence was supported by Shell’s evidence:
148.Taching’s case that it followed Sinopec’s price adjustments and had no control over how Sinopec adjusted its price was supported by Meyer’s own evidence. As Ms Sandy Chan accepted:
J(2). Scale of Taching’s business 149.Practically, it made sense for Taching to follow Sinopec’s adjustments because Taching was a comparatively small business compared to the Oil Majors. Its customers went from 7 (including Meyer) to 3 (after losing Meyer) by now. 150.The Net Price at which Taching purchased industrial diesel from Sinopec was pegged to the price adjustments of Sinopec. It would be in the interest of Taching to follow Sinopec’s increase by the same amount to cover the increased cost of sourcing; and to follow Sinopec’s decrease by the same amount to maintain Taching’s competitiveness. That would secure its share of wallet as one of Meyer’s 2 suppliers. 151.Mr David Wong, the person actually dealing with Taching’s List Price Adjustment Notices, testified that the downward adjustments were issued faster to increase Taching’s competitiveness and upward adjustments could be issued more slowly so that its customers would have a better impression and more confidence with Taching. I have no reason to doubt his evidence, which was an exercise of commercial discretion. J(3). Sinopec and Taching’s respective List Price Adjustment Notices 152.Exhibit Annex A summarizes all the Sinopec, Taching and Shell’s List Price Adjustment Notices in the Relevant Period. It shows that, save for the 4 Categories, Taching had made the same adjustments either on the same day or shortly after Sinopec did so. “Items” in Section J shall mean those in Exhibit Annex A. 153.In view of the 4 Categories, Meyer submits that Taching “deviated from its practice” and “followed Shell instead of Sinopec”
154.Category 1 only occurred on 2 occasions. It was first discovered after Exhibit Annex A was prepared shortly before trial. Mr Lawrence Ma apparently was unable to explain Category 1 except to say that it might be a “human error”. He drifted to unconvincing explanations (such as his own birthday and the taking of vaccine) as to why he did not press Mr David Wong for an explanation before trial. Apparently, he avoided giving an answer inconsistent with Mr David Wong’s. 155.Mr Wong testified that Sinopec introduced “Sinopec industrial diesel” in February 2011. Sinopec had re-arranged the order of products in the 2 List Price Adjustment Notices such that the subject product (IEVD) was moved from line 4 to line 3. Mr Wong was not aware of the re-arrangement at that time when copying the List Price changes from Sinopec’s Notice into Taching’s own. 156.Mr David Wong took time to figure out the explanation. He did not shy away from his own copying mistake. Viewed on its own, Mr David Wong’s explanation was credible. 157.What was inexplicable, however, was that Ms Au, the accountant of Taching, should have but did not discover Category 1. However, as the matter was first raised in cross-examination, there was no chance for Taching to call Ms Au to give evidence. 158.Even on this state of unsatisfactory evidence of Taching, it is insufficient to justify an inference of agreement or concertation to fix prices. In particular,
159.Category 2 is said to have 3 “missing” Sinopec List Price Adjustment Notices. Meyer’s suggestions are these. The “Old List Price” in a Sinopec List Price Adjustment Notice should be the same as the “New List Price” in the preceding Notice; yet that was not the position in Items 4 and 5, 15 and 16, 16 and 17. Therefore, one or more Sinopec Notices must have been missing between those 3 pairs of Notices. 160.Again, the issue was only raised in cross-examination. Mr Lawrence Ma was taken by surprise by Meyer’s suggestion. At first he did not even understand what was suggested to him. He initially thought that all the Old List Prices on Item 5 (p 1314) were different from the New List Price on the Item 4 (p 1313) until the Tribunal pointed out to him that only first 3 Old List Prices had changed. It was quite clear that Mr Lawrence Ma was not aware of the discrepancies in Category 2, nor any complaints by other distribution agents of Sinopec. He said that Sinopec did not issue any statement that they had issued wrong List Prices. 161.Mr David Wong responded to the suggestion of “missing” Sinopec Notices with a straight answer, “no way”. 162.Both Mr Lawrence Ma and Mr David Wong rejected any suggestion that there was any “missing” Sinopec Notices which Taching had received but (i) chose not to follow; or (ii) Taching did not adjust its List Price because Shell did not do so. 163.Whilst Taching had no control over how Sinopec issued Notices, Mr Lawrence Ma and Mr David Wong were adamant that the Old and New List Prices in Sinopec’s List Price Adjustment Notices had no impact on Taching, because Taching conducted business with Sinopec by using a “Net Price” rather than “list-less” mechanism. The Net Price payable by Taching was pegged to Sinopec’s price adjustment under the column of “difference” in Sinopec’s List Price Adjustment Notices. 164.Again, Ms Au could not be called to give evidence. There was no other circumstantial evidence pointing to missing Sinopec Notices. In fact, I cannot see why Taching would want to conceal the “missing notices”. In any case, these 3 instances occurred in 2011, long before the Competition Ordinance came into effect. There is not enough for the Tribunal to infer, even if there had been “missing notices”, that there was collusion between Taching and Shell, or that Taching had something to hide. 165.Category 3 involved 5 occasions. Ms Lam adds items 4 and 115 to the list but excludes item 34, but that has no impact on the big picture. 166.Mr Lawrence Ma’s evidence was that Mr David Wong was instructed to adjust Taching’s price within 1 or 2 days of Sinopec’s. Taching would issue notices on Saturdays but not Sundays. 167.However, on those 5 occasions, Taching’s Notices were issued more than 1 or 2 days after the corresponding Sinopec Notices. 168.Looking at the Taching Notices as a whole, 109 of them were consistently issued on the same day as, or up to 3 days (with an intervening Sunday) from the corresponding Sinopec Notices. 169.Even where Taching’s Notices were issued more than 2 days after the corresponding Sinopec’s Notices, the gaps between the dates of the corresponding Taching and Shell Notices were often also more than 2 days apart. 170.As events happened long ago, Mr David Wong could only guess. He said he would have regard to the business situation at the relevant time. He claimed to have some “flexibility” in bringing forward downward adjustments or deferring upward adjustments, as that would increase the competitiveness of Taching and attract more business for Taching in the long run. 171.With respect, such evidence sat uncomfortably with what Mr Lawrence Ma said, that Taching almost had to write a cheque to Sinopec every day. 172.However, Mr David Wong also said that he was the only one responsible for handling List Price changes and he might have been out of office or on leave on those occasions. Mr Lawrence Ma confirmed that it was common practice for Oil Majors to always follow one another to make the same amount of adjustments within a short time. It was acceptable for Taching for there to be “a few days’ difference” because Meyer would not place an order everyday (because of the share of wallet between Taching and Shell). Further, the potential loss to Taching (for not making adjustments within the 1-2 day policy) would be in the range of a few thousand dollars and that was acceptable to Mr Lawrence Ma. 173.Mr Lawrence Ma and Mr David Wong’s evidence meant an approach of “increase slowly, reduce quickly”. The latter’s evidence was consistent with the issuing pattern of the 116 pairs of Sinopec and Taching Notices:
174.The 5 (or 6) occasions could not undermine the pattern of Taching closely following Sinopec’s List Price Adjustment Notices. I accept Taching’s explanation for Category 3. 175.Category 4 was a unique incident whereby Taching issued its List Price Adjustment Notices on 24 October 2014, 3 days before Sinopec. Mr David Wong explained that Ms Kitty Chu used Shell’s decrease in List Price as leverage and threatened to stop ordering IEVD from Taching the following day unless Taching matched the price reduction. Mr David Wong reported the matter to Mr Lawrence Ma. Mr Lawrence Ma said he felt compelled to and did accede to Ms Kitty Chu’s request as Meyer was Taching’s most important customer. He knew, from experience, that Shell was the leader of oil companies in Hong Kong and predicted that Sinopec was likely to follow Shell’s List Price adjustment within a few days. His prediction came true. 176.In cross-examination, Mr Lee queried why Taching did not bother to make a phone call or re-negotiate with Meyer before committing to the reduction, which was diametrically opposite to Taching’s usual practice of engaging in several rounds of negotiations before agreeing to a reduction. 177.In my view, Mr Lee has misunderstood the evidence. The Renegotiations were in relation to new contracts whereas Category 4 was one-off. It was quite clear that all that Mr Lawrence Ma did was to make a quick commercial decision in the light of his knowledge of the usual market situation. This was an example of Meyer using another supplier’s price as leverage (this time against Taching), and Taching intelligently adapting to Shell’s conduct by following Shell’s price. There was no suggestion of collusion between Taching and Shell. 178.Category 4 was first raised in cross-examination. Given the unique circumstance, it came as no surprise that Mr Lawrence Ma was able to promptly answer the question in the witness box. He candidly explained that he was not aware of this item until he saw Exhibit Annex A. He was not shaken in cross-examination. Meyer has not called any witness (including Ms Kitty Chu) to contradict Taching. I accept Taching’s explanation for Category 4. 179.Assuming I am wrong, I would only draw these inferences from the 4 Categories: Taching did not follow Sinopec’s List Price on 2 occasions. Taching had withheld 3 Sinopec Notices. Mr David Wong acted contrary to express instructions and might have caused loss to Taching in the period connected to Category 3. Taching had followed Shell’s instead of Sinopec’s price adjustment on one occasion. 180.Just to complete the picture. In 2017, Meyer complained about Taching’s price level and threatened to withhold payment for the outstanding purchase price. Ms Kitty Chu requested for a discount of more than $3. Taching gave 3 quotations as desperate measures to win back Meyer as a customer. The prices in the 3 quotations were lower than Taching’s costs of acquisition from Sinopec (Exhibit T1) and were spot prices that would apply to a limited quantity of industrial diesel for a short period. The temporary loss from trading was acceptable to Taching. 181.Those 3 quotations were not pleaded bases of the Alleged Contravention and were hence irrelevant. J(4). Meyer’s suggestion that Taching followed Shell’s price adjustments 182.Mr Lee submits that the inference from the 4 Categories was that Taching had followedShell’s price adjustment. With respect, this submission is flawed:
183.In the premises, save that Taching had followed Shell’s price adjustment on one occasion under Category 4, I decline to draw any other inferences as suggested by Mr Lee. The 4 Categories do not assist Meyer. On balance of probabilities, Taching’s case is credible and plausible and I accept the same. 184. Shell’s case is supported by: (i) the Price Book; (ii) the List Price Emails; and (iii) evidence of its own and Meyer’s witness. 185.Of importance is that Meyer has never challenged the authenticity of the Price Book and the List Price Emails. K(1). Price Book 186.Shell’s List Price Adjustment Policy is set out in its Price Book (D1/12). There is division of labour between determination of the List Price and negotiating Discounts with customers. 187.The List Price should be reviewed based on the following factors of which Shell, rightly, claims confidentiality: 188.In determining whether and to what extent its List Price should be adjusted, Shell’s policy (though not pleaded but ) also requires keeping track of the following factors and monitoring them for abnormalities (Exhibit S1): 189.Pursuant to such policy, List Price adjustments are calculated and proposed by the Pricing Analyst/Pricing Manager (in this case, Ms She), and endorsed by the Business Manager (in this case, Ms Joanna Chow). In the Relevant Period,
190.The Discount was customer specific and negotiated on a case by case basis. Shell’s Account Managers were responsible for review and negotiation of the Discount offered to individual customers (though, as explained below, this was subject to approval). See Price Book, §5.3. 191.In determining what Discount/Net Price to give to a customer, Shell’s Account Managers would be assisted by the Pricing Analyst/Manager, who would build up a profitability analysis model on the basis of the proposed offer (as may be put forward by the Account Manager or the customer) to work out whether the proposed offer was likely to be sufficiently profitable. 192.The Account Manager (in this case, Ms Tam who was assigned to deal with Meyer) would then report the proposed offer together with the profitability analysis to the Sales Manager (Mr Samson Lam) and the Business Manager (Ms Joanna Chow), who would evaluate the proposal and decide whether to support/endorse it. 193.Ms Tam and another Department were responsible for collection of market intelligence (“MI”), 194.Shell has strict policy prohibiting its personnel from engaging in discussions with Shell’s competitors about pricing information. 195.It is also notable that , Shell actually made assessment K(2). List Price Emails 196.The List Price Emails evidenced how Shell’s personnel complied with the internal policy. Ms She proposed 115 out of 118 List Price changes during the Relevant Period. Taching never featured in the List Price Emails. 197.When determining whether to adjust its List Price, Shell drew on various factors including It is clear that Shell made its own independent commercial decision when determining its price adjustments. 198.Examples of price adjustments are as follows:
199.Example (3) was an independent commercial decision to match the price of a competitor, which was not prohibited by the First Conduct Rule (which had not yet taken effect any way) and indeed, an indicator of a highly competitive market. 200.Mr Lee submits that Shell has failed to make full and frank disclosure. He points to 3 instances when the List Price Emails were missing. 201.Ms She explained that she was on leave at that time. She was not responsible for and did not have records of those missing List Price Emails. She had made enquiries of those colleagues who might have handled the matter then but those documents (which should have been in existence in 2012) were no longer available. 202.I am satisfied that Ms She has made reasonable endeavours to locate the missing List Price emails. In any case, 3 instances compared to the total of 118 could not affect the overall weight of the consistent pattern in Shell’s List Price Emails. Without disrespect, Mr Lee’s complaint as regards non-disclosure carries no weight. 203.Meyer has attempted to cross-examine Shell’s witnesses to show that there had been communications between Shell and other resellers showing that Shell’s staff had not followed the internal policy. The attempt was thwarted because, quite apart from the fact that the subject was not pleaded, the prejudicial value would outweigh the probative value. K(3). Evidence of Shell and Meyer’s witnesses 204.I have referred to the evidence of Shell’s witnesses in paragraph 147(2) above. 205.With respect to each of the supply agreements in force during the Relevant Period, the Discounts/Net Prices agreed between Shell and Meyer were the result of either Meyer disclosing to Shell the Discount/Net Price which other suppliers had offered or agreed to charge Meyer, or Shell independently working out a Discount which was offered to and accepted by Meyer:
These are not disputed by Meyer. 206. In fact, Ms Sandy Chan confirmed under cross-examination that:
K(4) Finding on Shell’s case 207.Meyer’s closing submission has only one comment on Shell’s case: “the unsatisfactory evidence given by Ms Tam and Ms She on the material matters could also be taken into account by the Tribunal ‘in the general mix of determining the issue’ and entitle the Tribunal to reach the conclusion that there was collusion in this case.” 208.Given the Tribunal’s finding that Ms Tam and Ms She were credible, this comment is a virtual concession that Shell’s case is unimpeachable. The evidence of Shell in proving its case is overwhelming and not shaken in cross-examination. Meyer never put to Shell’s witnesses the existence of anything close to an agreement or concertation. Nor did Meyer challenge Shell’s case that its decision to adjust its List Prices was made independently and internally, without reference to Taching. If Shell had acted independently, there could not have been collusion with Taching. On balance of probabilities, Shell’s case is credible and plausible and I accept it. L. COLLUSION AS THE ONLY PLAUSIBLE EXPLANATION 209.It can readily be seen that if the matter has stopped here and the Tribunal were to apply the “lesser” standard of proof propounded by Mr Lee, on balance of probabilities, Meyer’s case must fail when the Tribunal finds the case of either Taching or Meyer credible. Therefore, to be able to succeed in the arena of competition law, in the absence of explicit concertation, Meyer must provide sufficient evidence render Taching and Shell’s explanations implausible and to show that the only plausible explanation is collusion. 210.Meyer utterly fails in discharging this part of its burden. In fact, the circumstantial evidence was against Meyer. 211.Firstly, the purpose of price-fixing is to ensure cooperation between competitors who collectively hold a sufficiently large share of the market, such that they can charge inflated prices without fear of being undercut by competitors. The existence of a large number of market players (who are not alleged to be part of the cartel) militates strongly against the existence of collusion: Wood Pulp II, §§116-118. 212.It would also be easy for a purchaser (like Meyer) to switch to 80-100 suppliers (who were not parties to the Alleged Contravention). In fact, as borne out by the evidence, Meyer could quickly switch to another supplier (ExxonMobil) after discovering the 118 Pairs of List Price Adjustment Notices. 213.Secondly, such alleged collusion would only, in turn, harm the business of Shell and Taching. The evidence established that Shell’s adjustments to List Price applied to all of its customers who used the “list-less” pricing mechanism. The majority (over 200) of Shell’s customers used that mechanism. Shell would be putting itself at risk of being undercut by its competitors as regards those customers. 214.There was no sense in Taching (a reseller/supplier who never purchased from Shell) fixing price with Shell (an Oil Major) when Meyer was not obliged by contract to purchase from Taching. 215.Both Ms Sit SC and Ms Lam have submitted that even if the Tribunal were to find the Alleged Contravention established to the requisite standard, it would not constitute a contravention of the First Conduct Rule, unless the Tribunal is also satisfied that it is a “by object” restriction. They submit that despite price fixing belongs to a category which would normally be regarded as anti-competitive, on the evidence, this was not a typical case that was by its very nature harmful to the proper functioning of competition such that it should be regarded as a “by object” restriction, without an effects analyses. 216.The Alleged Contravention involved only 2 out of 80-100 suppliers on the market. It involved only the fixing of List Price supplied to one common customer. It did not involve the fixing of Discounts. 217.Without Meyer’s orchestration, Taching and Shell might not be charging the same Net Prices during the Relevant Period. Taching and Shell could still have undercut the other by offering a lower Net Price even if they had agreed on the List Price. There is undisputed evidence that other market players could undercut Taching and Shell’s prices by offering substantially lower net prices which Meyer used as leverage against Shell. 218.Therefore, even if Taching and Shell had agreed to fix their price adjustment, the Net Price after such adjustments would still be subject to competition from other suppliers, so it is submitted. 219.Further, Taching and Shell even competed between themselves to maintain the share of wallet:
220.In my view, having rejected Meyer’s case on breach of First Conduct Rule, it is not appropriate for the Tribunal to comment on the issue of object infringement. Given the submission of Ms Sit SC and Ms Lam, the issue may be fact sensitive and may even require expert evidence on analyzing the effects. I decline to embark on a wholly academic exercise. 221.Taching and Shell seek costs on indemnity basis. 222.The Tribunal may make an order for indemnity costs where it is appropriate in the circumstances. In that respect, the Tribunal can take into account the litigation conduct of the losing party: Order 62, rule 5(1)(e) of RHC. Examples of where the Court grants an order for indemnity costs are where the proceedings are scandalous or vexatious, or have been conducted maliciously, or for an ulterior motive, or in an oppressive or disproportionate manner, or involved an obviously unsustainable or fabricated claim, though the Court’s discretion is a broad one: Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1333I-1334H, 1335C-F, 1336G-I, 1337C, 1337F-J. 223.The General Terms and Conditions at Section B of the Shell-Meyer Agreement stated that:
224.I accept that it was not Meyer’s intention to use litigation to defer its payment obligations. It has been paying all of Taching and Shell’s invoices for years until the present dispute arose. It had paid all the amounts under the unpaid invoices into the Court of First Instance. 225.I would not say that proportionality in this case should only be viewed by comparing the costs and the amounts of Taching and Shell’s claim. Given the commercial implications for Meyer (ie the amount of over $47 million worth of industrial diesel it used to purchase per year from Taching and Shell and the damages it could claim if breach of the First Conduct Rule is established), there was reason why Meyer wanted to defend. 226.The greater problem was that Meyer started off with no more than a suspicion arising out of 118 Pairs of List Price Adjustment Notices. It went on to build its case on surmise upon surmise. From a pleaded case of collusion between Taching and Shell, Meyer sought, at the interlocutory stage, through its amendment application, redaction application and application for further and better particulars, to fish for information to support its potential claim of collusion involving other market players. 227.Taching and Shell have put forth their cases at the very first opportunity in the respective PoR and their cases have never shifted. The lack of agreement or concertation was at the forefront of their defence during Meyer’s interlocutory applications. After discovery, Meyer pursued its competition defence knowing full well that it could not challenge the authenticity of Shell’s Price Book and List Price Emails. 228.At the trial, Meyer has failed to show even a prima facie case of agreement or concertation. Meyer’s approach was still one of fishing through cross-examination. It attempted to show that Shell did not follow its internal procedure and had some sort of agreement with its resellers. This attempt was not based on a pleaded case and in fact has been rejected at the Tribunal when Meyer sought further and better particulars of Shell’s RAPoR. 229.The expert evidence turned out to be wholly unnecessary. 230.Taching and Shell have been forced, since the grant of unconditional leave to defend to Meyer, to spend 2 more years on an expensive piece of litigation. Taching and Shell, in particular Shell, are put to the risk of leakage of their confidential business information. 231.Not only should costs follow the event but I consider it appropriate to order that costs after the close of pleadings should be on indemnity basis with certificates for 2 counsel. I make an order nisi accordingly. 232.To answer the key issues in paragraph 47 above, the Alleged Contravention is not established.
233.It is not necessary, in view of the above findings, to decide whether the Alleged Contravention had the object of preventing, restricting or distorting competition in Hong Kong. 234.On a nisi basis, I order Meyer to bear the costs of Taching and Shell, such costs in respect of the proceedings after close of pleadings shall be on indemnity basis, to be taxed if not agreed, with certificates for 2 counsel. 235.I extend my greatest gratitude to counsel for their enlightening arguments and their dedicated efforts in this case.
Ms Catrina Lam and Ms Cherry Xu, instructed by Herbert Tsoi & Partners, for Taching, the plaintiff in CTA 1/2018 Ms Eva Sit, SC and Mr Joshua Chan, instructed by Clifford Chance, for Shell, the plaintiff in CTA 2/2018 Mr Kenneth K H Lee, Ms Nana Lui and Mr William Tse, instructed by Robertsons, for Meyer, the defendant in both cases [1] ie List Price minus various items. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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