On 6 September 2018, the Hong Kong Competition Commission (HKCC) announced that it has commenced enforcement proceedings against a cartel in the renovation services industry.

The HKCC found that three companies (Goldfield N&W Construction Company Limited, Kam Kwong Engineering Company Limited, Pacific View Engineering Limited) and two individuals (Mr. Chan Kam Shui and Mr. Lam Po Wong) were involved in a cartel to allocate customers and coordinated the pricing of renovation services provided at a subsidised housing estate in Kowloon, from around June 2017 to November 2017. The case was first discovered following a complaint from a member of the public in August 2017.

Under the Hong Kong Competition Ordinance (Competition Ordinance), undertakings are prohibited from entering into agreements that have the object or effect of restricting competition in Hong Kong. Cartels involving price-fixing and customer allocation are generally considered to be serious anti-competitive conduct and condemned as being economically harmful. The HKCC has indicated that its current enforcement priority is to combat cartels.

Apart from seeking a fine against the companies involved, this is the first time that the HKCC has called for fines and director disqualifications to be variously imposed on individuals involved in the cartel.

Individual Liability for Competition Law Contraventions

Individual sanctions are part of the HKCC's tools to deter and end cartels. Given that companies act through individuals, the HKCC considers it necessary to deter individuals from involving their companies in cartels, to ensure compliance with competition laws.

Under the Competition Ordinance, an individual can, amongst others, be fined and disqualified from being a director if the below conditions are met:

Individual Sanction

Conditions

Financial Penalty

  • The individual contravened a competition rule

    OR

    the individual is involved in the contravention of a competition rule

  • Being involved in a contravention of a competition rule means a person who:

    1. attempts to contravene the rule;

    2. aides, abets, counsels or procures any other person to contravene the rule;

    3. induces or attempts to induce any other person, whether by threats, promises or otherwise, to contravene the rule;

    4. is directly or indirectly, knowingly concerned in or a party to the contravention; or

    5. conspires with another person to contravene the rule.

Disqualification Penalty
(up to 5 years from being a director, liquidator, receiver, or from being concerned in the promotion, formation or management of a company)

  • The person's conduct as a director makes the person unfit to be concerned in company management

  • In assessing if the individual is unfit for company management, the Competition Tribunal will consider if:

    1. the individual's conduct contributed to the contravention of the competition rule;

    2. the individual had reasonable grounds to suspect that the conduct of the company constituted a contravention and took no steps to prevent it; or

    3. the individual did not know but ought to have known that the conduct of company constituted a contravention.


A key difference between the disqualification penalty and the financial penalty is that the former does not require the individual to have first contravened any competition rule – as long as the individual had reasonable grounds to suspect or ought to have known that the conduct constituted a contravention, and took no steps to prevent it, he or she may be disqualified from being a director. The Competition Ordinance therefore imposes a greater burden on company directors to be aware of their company operations, and to take steps to investigate potentially suspicious activities instead of turning a blind eye. Even if they had no actual knowledge of the anti-competitive conduct being carried out, if it is found that they ought to have known, they may risk disqualification. The HKCC has emphasised that senior management and other individuals who manage or direct important aspects of a company's work are responsible for ensuring that all employees understand and comply with the Competition Ordinance. It has also indicated that its priority is to enforce against individuals who manage the infringing company, or who otherwise directed the cartel conduct, rather than frontline employees who merely carry out the directions.

While the HKCC has stated that it would prioritise taking action against individuals involved in cartel conduct, it is important to also highlight that this does not strictly preclude individual enforcement against non-cartel conduct. The Competition Ordinance allows personal liability to attach for contravention of competition rules, which cover cartels, but also other types of anti-competitive conduct. Personal liability under the Competition Ordinance appears to be on the stricter end of the spectrum compared to some other competition law jurisdictions, which either do not expressly impose individual liability (e.g. China, Singapore), or only provide for criminal sanctions for certain cartel offences (e.g. Germany, UK).

Key Compliance Measures

The HKCC has demonstrated its willingness to take action against individuals involved in anti-competitive activities and directors who ought to have known about anti-competitive infringements occurring in their companies. It is therefore important for senior management to:

  1. ensure that all employees are sufficiently and regularly trained to understand and comply with the Competition Ordinance, and that a written code of conduct exists to guide employees as they perform their operations at work. Some other competition authorities have considered that the existence of a competition law compliance program could serve as a mitigating factor to lower any penalties imposed in the event of an infringement;
  2. ensure that there are internal whistle-blowing procedures that allow employee complaints to be seriously considered and investigated internally, and protect them from negative whistle-blowing repercussions. Otherwise, employees may complain directly to the HKCC, which could trigger a regulatory investigation; and
  3. conduct competition law audits of company processes and operations to uncover any potentially anti-competitive conduct, especially in sectors and operations that frequently give rise to competition law issues.

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