Case Detail

CTEA 1/2017

[2019] HKCT 2

IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ENFORCEMENT ACTION NO 1 OF 2017

____________

BETWEEN

	COMPETITION COMMISSION	Applicant
	and
	NUTANIX HONG KONG LIMITED	1^st Respondent
	BT HONG KONG LIMITED	2^nd Respondent
	SIS INTERNATIONAL LIMITED	3^rd Respondent
	INNOVIX DISTRIBUTION LIMITED (trading as “INNOVIX DISTRIBUTION”)	4^th Respondent
	TECH-21 SYSTEMS LIMITED	5^th Respondent

____________

Before:

Hon G. Lam J, President of the Competition Tribunal

Dates of Hearing:	20-22, 25-29 June, 3 July, 17-20 September 2018
Date of Judgment:	17 May 2019

_________________

J U D G M E N T

_________________

TABLE OF CONTENTS

Paragraph
A. INTRODUCTION 1
B. LEGAL FRAMEWORK 11
1.  Statutory framework for prohibition and enforcement 12
2.  Warning notice 18
3.  Guidelines issued by the Commission 22
4.  The first conduct rule 24
5.  Agreement 25
6.  Concerted practice 28
7.  Infringement by object 35
8.  Vertical and horizontal agreements 40
9.  Knowledge and foresight 45
C. STANDARD OF PROOF 50
1.  The parties’ contentions 51
2.  The requirement of Art 11 53
3.  Is there derogation from the criminal standard of proof by statute? 63
4.  Nature of competition proceedings and overseas jurisprudence 68
5.  Application of the applicable standard 73
D. THE FACTS AND EVENTS 76
1.  Nutanix’s hyper-converged system 77
2.  Nutanix’s supply chain 80
3.  Nutanix’s deal registration system 83
4.  YWCA’s need for a new server system 88
5.  YWCA’s procurement policy and procedures 102
6.  The first tender 105
7.  The second tender 115
8.  Submission of bids in the second tender 138
  a.  Innovix 141
  b.  SiS 149
  c.  Tech-21 158
  d.  iCON 166
9.  The aftermath 168
10.  The third tender 174
E. AGREEMENT BETWEEN NUTANIX AND BT 181
1.  The communications 183
2.  Absence of Hung as witness 188
3.  Whether the Commission may impugn Chan’s evidence 196
4.  Discussion 200
5.  Conclusion 227
F. AGREEMENT BETWEEN NUTANIX AND SiS 229
G. AGREEMENT BETWEEN NUTANIX, BT AND INNOVIX 238
H. AGREEMENT BETWEEN NUTANIX AND TECH-21 267
I. ATTRIBUTION OF CONDUCT AND KNOWLEDGE 288
1.  The issue 288
2.  The facts 290
  a.  The set-up within SiS 291
  b.  The second tender 297
  c.  Submitting the bid on 18 July 2016 300
  d.  Meeting on 9 August 2016 304
  e.  SiS’s company chop 305
  f.  Shek’s motives 310
3.  Special rule of attribution 315
4.  The parties’ submissions 320
5.  Overseas jurisprudence 323
  a.  EU 323
  b.  UK 332
  c.  Australia 341
  d.  United States 344
6.  Section 91 of the Ordinance 346
7.  Attribution for the first conduct rule 360
8.  Application to the facts 374
9.  The Commission’s alternative case 378
10.  Conclusion 381
J. ANTI-COMPETITIVE OBJECT 382
1.  General principles 382
2.  Content and context of the agreements 392
3.  Deal registration system 404
4.  No inflated price 408
5.  No quid pro quo 413
6.  Vertical vs horizontal 417
7.  Subjective intentions 429
8.  Knowledge of YWCA 435
9.  Conclusion on “object” 437
K. EXCLUSION UNDER SECTION 5 OF SCHEDULE 1 440
L. WARNING NOTICE 443
1.  Section 82 443
2.  The relevant time for the purpose of s 82 451
  a.  The pleadings 451
  b.  The new point 455
  c.  Objection to the new point 458
  d.  Time for assessing existence of serious anti-competitive conduct under s 82 464
  e.  “Has reasonable cause to believe” 478
    i.  Subject matter of belief 479
    ii.  Subjective belief 486
    iii.  Objective basis 490
3.  Bid-rigging 491
  a.  Statutory definition 491
  b.  Agreement 494
  c.  Between 2 or more undertakings 497
  d.  Submission of bids or tenders arrived at by the agreement 506
  e.  Agreement not made known 511
  f.  A further controlling quality? 517
4.  Whether made known to YWCA 519
  a.  The scope of the question 520
  b.  Lok’s knowledge 524
  c. Reasonable cause for belief as to knowledge 545
5. The definition of bid-rigging applied 548
M SUMMARY AND CONCLUSION 553

Abbreviations
APD Administration and Procurement Department (YWCA)
BT BT Hong Kong FLimited, the 2^nd respondent
Chan Mr CHAN Wai Ying Denis, Technical Pre-Sales Manager of BT
Cheung CHEUNG Kar Hay Danny, Assistant Product Manager of Innovix
CJEU Court of Justice of the European Union
Commission Competition Commission, the applicant
EU European Union
FAC Finance and Administration Committee (YWCA)
Hung Mr Thomas HUNG, Territory Account Manager of Nutanix
ICCPR International Covenant on Civil and Political Rights
iCON iCON Business Systems Ltd
Innovix Innovix Distribution Limited, the 4^th respondent
ISD Information System Department (YWCA)
IT Information technology
ITDC Information Technology Development Committee (YWCA)
Li Mr Benny LI, Systems Engineer (YWCA) and assistant of Lok
Lok Mr LOK Yiu Ying Alan, Head of ISD and Secretary of the ITDC (YWCA)
Mak Mr MAK Pui Hing Harris, Administration and Procurement Manager of YWCA
Nutanix Nutanix Hong Kong Limited, the 1^st respondent
Ordinance Competition Ordinance (Cap 619)
Percy NgMr NG Tat Keung Percy, Alliance & Business Development Manager of BT
Shek Mr SHEK Ka Kit Keith, Product Manager of SiS
SiS SiS International Limited, the 3^rd respondent
Siu Mr SIU Kiu Fai Tommy, Product Manager of Innovix
Steve Ng Mr NG Chi Hang Steve, Sales Manager of Tech-21
Tech-21 Tech-21 Systems Limited, the 5^th respondent
TFEU Treaty for the Functioning of the European Union
Tribunal Competition Tribunal
UK United Kingdom
Wong Mr WONG Ka Man Morris, Assistant Procurement Officer in the Administration and Procurement Department of YWCA
YWCA Hong Kong Young Women’s Christian Association

A. INTRODUCTION

1. In these proceedings, the Commission contends that the five respondents, in their conduct in relation to a call for tenders for IT equipment YWCA in July 2016, each contravened the first conduct rule (s 6(1) of the Ordinance) which prohibits agreements or concerted practices between undertakings the object or effect of which is to prevent, restrict or distort competition in Hong Kong. The Commission seeks against each of them declarations of contravention and orders for pecuniary penalty pursuant to s 93.

2. Broadly described, the Commission’s case is as follows. In July 2016, in response to YWCA’s invitation to tender for the supply and installation of a Nutanix cloud-based server system, BT planned to submit a bid. YWCA’s procurement policy required a minimum of five bids for this tender. Where fewer than five bids were received, special approval would be required before the contract could be awarded. A prior tender had failed because only one bid was received (from BT). For the second tender, to assist BT’s bid, Hung (Nutanix) agreed with Chan (BT) that Hung would obtain four “dummy bids” (in the sense of non-genuine bids) from friendly Nutanix channel partners. Chan gave BT’s completed bid including the bid prices to Hung. Hung prepared bids for SiS, Innovix, Tech-21 and another IT company (iCON) with substantially higher bid prices than BT’s, and separately agreed with Shek (SiS), Siu (Innovix) and Steve Ng (Tech-21) and a friend from iCON, for them to sign the bids which he arranged to be submitted. Pursuant to these agreements, SiS, Innovix and Tech-21 (but not iCON) each submitted a dummy bid to YWCA, in addition to the bid submitted by BT.

3. The Commission contends that the arrangements between Nutanix and BT, Nutanix and SiS, and Nutanix and Tech-21 respectively were vertical, bilateral agreements or concerted practices, and that the arrangement with Innovix was either a trilateral one between Nutanix, BT and Innovix or a bilateral one between Nutanix and Innovix.

4. The Commission contends that the respondents’ conduct constituted contravention of the first conduct rule, in that they made or gave effect to agreements or engaged in concerted practices with the object of preventing, restricting or distorting competition.

5. The Commission further contends that the respondents’ conduct constituted “bid-rigging” and therefore “serious anti-competitive conduct” as defined in the Ordinance and that therefore no warning notice was required to be issued to them before the commencement of these proceedings in the Tribunal.

6. In broad terms, the respondents have raised the following matters. Nutanix and BT dispute that they agreed to procure, and Innovix and Tech-21 dispute that they agreed to submit, non-genuine bids. They contend that the bids submitted were genuine bids with prospects (albeit low prospects) of success. SiS contends that it was a junior employee (Shek) who privately agreed to and did submit a bid in its name, and that his conduct was outside his scope of work and authority and not attributable to SiS, which carried on business as a distributor and had never taken part in end-users’ tenders.

7. The respondents contend that any such agreements or concerted practices as existed did not have the object of preventing, restricting or distorting competition.

8. Further and in any event, the respondents contend that their conduct did not constitute “bid-rigging” for various reasons including that YWCA knew of their agreements. Accordingly, a warning notice was required before proceedings could be instituted against them and, since none was issued, the proceedings must be dismissed.

9. Separately, Tech-21 has argued that the first conduct rule is excluded by virtue of s 5 of Schedule 1 to the Ordinance on the ground that it has not been shown that the combined turnover of itself and Nutanix for the relevant year exceeds $200 million.

10. This judgment is structured as follows. Section B introduces the general legal framework and basic concepts in the Ordinance relevant to this case. Section C deals with the standard of proof the Commission has to meet in this application. Section D sets out the facts and events which are largely uncontroversial or supported by incontrovertible evidence. Sections E, F, G and H each deals with the agreements or concerted practices between Nutanix and BT, Nutanix and SiS, Nutanix and Innvoix (and BT), and Nutanix and Tech-21 respectively. Section I considers the question of attribution of Shek’s conduct to SiS. Section J is concerned with whether the agreements or concerted practices found had the object of preventing, restricting or distorting competition. Section K deals with the exclusion under s 5 of Schedule 1. Section L deals with the issues concerning warning notice, including whether there was bid-rigging and whether the agreements were made known to YWCA. A brief summary is set out in Section M.

B. LEGAL FRAMEWORK

11. In this section I shall outline the statutory scheme so far as relevant and explain in general some of the principal concepts that may be relevant in this case.

(1) Statutory framework for prohibition and enforcement

12. The Ordinance lays down three prescriptive provisions called “competition rules”. They include two “conduct rules”, namely, the first conduct rule (s 6) and the second conduct rule (s 21), and a “merger rule” (Schedule 7, s 3).

13. Section 6, which lays down the first conduct rule, provides:

“ (1) An undertaking must not—
(a) make or give effect to an agreement;
(b) engage in a concerted practice; or
(c) as a member of an association of undertakings, make or give effect to a decision of the association,
if the object or effect of the agreement, concerted practice or decision is to prevent, restrict or distort competition in Hong Kong.
(2) Unless the context otherwise requires, a provision of this Ordinance which is expressed to apply to, or in relation to, an agreement is to be read as applying equally to, or in relation to, a concerted practice and a decision by an association of undertakings (but with any necessary modifications).
(3) The prohibition imposed by subsection (1) is referred to in this Ordinance as the “first conduct rule”.”

14. In the present case the Commission alleges infringement of the first conduct rule “by object”. In this respect, s 6 has to be read together with s 7(1) and (2), which provide that:

(1) if an agreement, concerted practice or decision has more than one object, it falls within the first conduct rule if one of its objects is to prevent, restrict or distort competition (s 7(1)); and
(2) the object of prevention, restriction or distortion of competition may be found even if it can be ascertained only by inference (s 7(2)).

15. Following such investigation as it considers appropriate, the Commission may apply under s 92 to this Tribunal for a pecuniary penalty to be imposed on any person it has reasonable cause to believe (a) has contravened a competition rule, or (b) has been involved in a contravention of a competition rule. In addition to pecuniary penalty, under s 94 the Tribunal has power to make a wide range of orders specified in Schedule 3.

16. The Tribunal is set up under the Ordinance as a superior court of record consisting only of the judges of the Court of First Instance: ss 134-135. It has all the powers, rights and privileges of the Court of First Instance with respect to witnesses, production of documents and enforcement of its orders: s 143(1). It may receive any evidence whether or not admissible in a court of law and is not bound by the rules of evidence except in proceedings in which pecuniary or financial penalties are sought: ss 143(2) and 147.

17. Section 93(1) empowers the Tribunal, if it is satisfied on such application, that a person has contravened or been involved in a contravention of a competition rule, to order that person to pay to the Government a pecuniary penalty. Section 93(2)-(4) make further provision for the determination of the amount of a pecuniary penalty. According to s 93(3), the penalty may not exceed in total 10% of the turnover of the undertaking concerned for each year in which the contravention occurred, or, if it occurred in more than three years, 10% of the turnover for the highest three years.

(2) Warning notice

18. Sections 92 and 93, however, have to be read subject to s 82. Section 82(1) provides:

“ If the Commission has reasonable cause to believe that—
(a) a contravention of the first conduct rule has occurred; and
(b) the contravention does not involve serious anti-competitive conduct,
the Commission must, before bringing proceedings in the Tribunal against the undertaking whose conduct is alleged to constitute the contravention, issue a notice (a “warning notice”) to the undertaking.”

19. A warning notice has to state that the Commission requires the undertaking to cease the contravening conduct within the period specified in the notice, and not to repeat that conduct after that period: see s 82(2)(d)(i). It is only after the warning period has expired, where there is reasonable cause to believe that the contravening conduct has continued or is repeated, that the Commission may bring proceedings in the Tribunal, and then not in respect of any period preceding the warning period: see s 82(4) and (5).

20. “Serious anti-competitive conduct” is defined in s 2(1) to mean:

“ any conduct that consists of any of the following or any combination of the following—
(a)  fixing, maintaining, increasing or controlling the price for the supply of goods or services;
(b)  allocating sales, territories, customers or markets for the production or supply of goods or services;
(c)  fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services;
(d)  bid-rigging”.

21. Section 2(2) lays down a specific definition of “bid-rigging” for the purposes of the definition of “serious anti-competitive conduct”, which is set out in §491 below.

(3) Guidelines issued by the Commission

22. Certain guidelines have been issued by the Commission as required by s 35(1) of the Ordinance, including the Guideline on the First Conduct Rule. These guidelines are not subsidiary legislation (see s 35(8)) but the Legislative Council must be consulted before they are issued or amended (see s 35(4)). They represent the Commission’s views and policies and provide guidance to the public, but have no binding legal effect on this Tribunal and the courts or indeed on anyone else. Thus s 35(6) of the Ordinance provides:

“ A person does not incur any civil or criminal liability only because the person has contravened any guidelines issued under this section or any amendments made to them.”

23. However, s 35(7) goes on to provide that:

“ If, in any legal proceedings, the Tribunal or any other court is satisfied that a guideline is relevant to determining a matter that is in issue—
(a) the guideline is admissible in evidence in the proceedings; and
(b) proof that a person contravened or did not contravene the guideline may be relied on by any party to the proceedings as tending to establish or negate the matter.”

(4) The first conduct rule

24. The first conduct rule is modelled on Art. 101(1) of the TFEU.[1] Both provisions are directed at undertakings; both target agreements, concerted practices and decisions of associations of undertakings; both refer to the object and effect of these arrangements in the alternative, in each case with regard to the prevention, restriction or distortion of competition. EU case law is of obvious value in relation to the interpretation and application of the first conduct rule.

(5) Agreement

25. The present case is not concerned with decisions of associations of undertakings. Only agreements and concerted practices are relevant. An “agreement” is not required to be in any particular form and is not limited to a legally enforceable contract but is defined broadly in s 2(1) to include:

“ any agreement, arrangement, understanding, promise or undertaking, whether express or implied, written or oral, and whether or not enforceable or intended to be enforceable by legal proceedings.”

26. It is not in dispute that the central component in the concept of agreement is a meeting of minds or a concurrence of wills between at least two parties. In Case T-41/96 Bayer v Commission,[2] the General Court of the EU, based on previous case law, stated (at §69) that the concept of agreement centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention.[3] It is sufficient that the undertakings in question should have expressed their common intention to conduct themselves on the market in a specific way (§67; on appeal to CJEU, at §97). For the purpose of the first conduct rule, an agreement does not, in my view, require the same certainty as would be necessary for the creation of a contract enforceable at law.

27. The concurrence of wills does not have to consist in an explicit offer and acceptance. An agreement can equally exist where an apparently unilateral anti-competitive measure adopted by one party, constituting an invitation to another party, whether express or implied, to fulfil that goal jointly, receives the tacit acquiescence of that other party: Bayer v Commission, at §§71-72, on appeal at §102. It is not essential to have direct evidence of express communications; the existence of an agreement can be deduced from the conduct of the parties (Bayer, on appeal, at §100), subject of course to meeting the applicable standard of proof. The inclusion of “understanding” in the statutory definition, in my view, reinforces that tacit dealings suffice and also shows that there can be an agreement even if there is nothing to prevent either party from going back on it.

(6) Concerted practice

28. “Concerted practice” is not defined in the Ordinance. It is a concept borrowed from EU jurisprudence. A consistent line of decisions in the EU case law, starting with Case 48/69 etc ICI v Commission [1972] ECR 619,[4] has held that a concerted practice is:

“ a form of coordination between undertakings by which, without it having been taken to the stage where an agreement properly so-called has been concluded, practical cooperation between them is knowingly substituted for the risks of competition.”

29. The criteria of coordination and cooperation do not require the working out of an actual plan, and must be understood in the light of the concept that each economic operator must determine independently the policy which he intends to adopt on the market: Suiker Unie, §§172-173. Further (at §174):

“ Although it is correct to say that this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.”

30. Reciprocal contact between the undertakings in question is implied in the concept of “concerted practice”, in the sense that there is an element of acting in concert “where one competitor discloses its future intentions or conduct on the market to another when the latter requests it or, at the very least, accepts it …”: see Joined Cases T-25/95 Cimenteries CBR v Commission, EU:T:2000:77, §1849.

31. The fact that only one participant reveals his future intentions or other competitive information is not sufficient to exclude the possibility of an agreement or concerted practice, since the recipient of the information in question cannot normally fail to take that information into account when formulating its policy on the market: Cases T-202/98 etc Tate & Lyle plc v Commission [2001] ECR II-2035.[5]

32. Any direct or indirect contact between economic operators of such a nature as to disclose to a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market, where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of the market in question, constitutes a concerted practice: Case C-49/92P Commissionv Anic Partecipazioni SpA, EU:C:1999:356, §117; C-199/92P Hüls AG v Commission, §160.

33. In order to prove a concerted practice, it is not therefore necessary to show that the competitor in question has formally undertaken to adopt a particular course of conduct. It is sufficient that, by its statement of intention, the competitor should have eliminated or, at the very least, substantially reduced uncertainty as to the conduct to expect of the other on the market: Cimenteries at §1852.

34. There was some debate in this case concerning the distinction between agreements and concerted practices, and their relationship inter se. Ultimately it seems to me that the difference between the parties is simply a difference in focus and emphasis. That the two concepts are not synonymous is not in doubt. The fact that the legislature has employed two terms instead of one supports this. But the CJEU has stated that:

(1)  the relevant treaty provision is intended to apply to all collusion between undertakings, whatever the form it takes. “The only essential thing is the distinction between independent conduct, which is allowed, and collusion, which is not, regardless of any distinction between types of collusion”: Anic, §108;
(2)  the two concepts of agreement and concerted practice have partially different elements but are not mutually incompatible: Anic, §132;
(3)  the definitions of “agreement” and “concerted practice” are
“ intended, from a subjective point of view, to catch forms of collusion having the same nature which are distinguishable from each other only by their intensity and the forms in which they manifest themselves”:
see Case C-8/08 T-Mobile v Raad van bestuur van de Nederlandse Mededingingsautoriteit ECLI:EU:C:2009:343, at §23; Anic, §131; and
(4)  the distinction is made solely with the intention of catching such various forms of collusion: Case C-194/14P AC-Treuhand v Commission, ECLI:EU:C:2015:717, at §29.

(7) Infringement by object

35. It is common ground that an anti-competitive object and an anti-competitive effect are alternative conditions in determining whether certain conduct is prohibited by the first conduct rule (see Case C-56/65 Société Technique Minière v Maschinenbau Ulm, EU:C:1966:38, 249). In the present case the Commission only alleges infringement “by object” without advancing a case of infringement “by effect”. Where it is established that an agreement has the object of preventing, distorting or restricting competition, it can be concluded there is an infringement of the first conduct rule without having to consider the actual effects of the agreement on competition.

36. In the leading EU case of Case C-67/13P Groupement des cartes bancaires v Commission EU:C:2014:2204, the CJEU held that the General Court was wrong to find that the concept of restriction must not be interpreted “restrictively”, and that:

“ The concept of restriction of competition “by object” can be applied only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects.”

37. Consistently with the case law that will be further discussed in section J below, the Commission’s Guideline on the First Conduct Rule (at §§3.2 – 3.6) explains that:

(1)  An arrangement which has the object of restricting competition is one that, by its nature, is harmful to competition. In relation to restrictions having the object of harming competition, there is no need to establish that they have anti-competitive effects.
(2)  In order to determine whether an agreement has the object of harming competition, regard must be had to the content of the agreement, the way it is implemented and its context (including both the economic and legal context).
(3)  Although determination of the object of an agreement essentially involves an objective assessment of its aims, there is nothing to prevent the parties’ subjective intention from being taken into account.

38. Whether a concerted practice has an anti-competitive object is judged by the same criteria as those applicable in the case of an agreement: T-Mobile §24.

39. It is the contention of the Commission that the conduct in this case amounts to a prevention, restriction or distortion of competition by object and to bid-rigging because it was intended to interfere with the proper competitive process of a tender. I shall return to these topics in sections J and L below.

(8) Vertical and horizontal agreements

40. It is not in dispute that the first conduct rule applies not only to agreements between undertakings at the same level of the supply chain (horizontal agreements) but also agreements between undertakings at different levels (vertical agreements).

41. At a general level it is however correct to say that in many jurisdictions vertical agreements are viewed with less suspicion than horizontal agreements between competitors. Thus it is stated in the Commission’s Guideline on the First Conduct Rule that (omitting footnotes):

“ 5.5 Vertical arrangements are, as a general matter, unlikely to be considered Serious Anti-competitive Conduct although the definition of Serious Anti-competitive Conduct does not preclude the possibility (there is no reference in the definition to “competitors”).
5.6 The Commission considers, however, that vertical arrangements may amount to Serious Anti-competitive Conduct in certain cases. For example, in certain circumstances, resale price maintenance may be Serious Anti-competitive Conduct.”

42. That said, whether a vertical agreement contravenes the first conduct rule in a particular case depends on the nature, content and context of the agreement. As the CJEU stated in AC-Treuhand at §35, the relevant prohibition refers generally to all agreements and concerted practices which, in either horizontal or vertical relationships, distort competition, irrespective of the market on which the parties operate. In the Commission’s Guideline on the First Conduct Rule it is stated:

“ 6.6 While vertical agreements as compared with horizontal agreements are generally less harmful to competition, some vertical agreements may, nonetheless, cause harm to competition.
6.7 This may be the case where vertical agreements include restrictions which foreclose existing competition or limit the scope for market entry or expansion. In certain cases, vertical restrictions of competition may also serve to facilitate horizontal coordination between competing suppliers and/or downstream distributors.”

43. In Argos Ltd and Littlewoods Ltd v Office of Fair Trading [2006] EWCA Civ 1318, the English Court of Appeal also recognised the potential of vertical agreements to give rise to infringement of competition law. In terms of the general approach, the court stated:

“ 28.  The Chapter I prohibition catches agreements and concerted practices whether between undertakings at different levels or between those at the same level of commercial operation. An agreement between a supplier and a commercial customer, which may be called a vertical agreement, may breach the prohibition as much as an agreement between competing suppliers of the same product or the same type of product, which can be referred to as a horizontal agreement.
29.  Each of these types of agreement may be a serious breach of the prohibition, but horizontal agreements have generally been regarded as more serious. It is unavoidable for a supplier and a customer to have dealings and agreements, though they ought not to be anti-competitive. It is not normal for competing undertakings to have dealings with each other, so that any dealings which they do have are regarded with greater suspicion. However, it may be in the interests of a supplier and several of its customers to restrict competition in relation to the supplier’s products, so that a serious breach of the Chapter I prohibition may be created by dealings between a supplier and two or more of its customers.
…
31.  It is not in dispute that there could be a trilateral or multilateral agreement or concerted practice between two or more customers and their common supplier, nor that this might come about by virtue of indirect contact between the customers via that supplier. Equally it is clear that there could be a series of bilateral vertical agreements between one supplier and several of its customers, none of the customers being aware of the fact or nature of the agreements between the supplier and other customers, such that there would be no horizontal element to the customers’ agreements. If, on the other hand, each customer did know of the other agreements, it could be equivalent to a multilateral agreement between the supplier and each of the customers.”

44. In cases of that kind it is relevant to examine the structure of and parties to the agreement. In Argos Ltd and Littlewoods Ltd, the Court of Appeal considered the following scenario to fall within the case law of the CJEU on concerted practice (see §141):

“ The proposition which, in our view, falls squarely within the Bayer judgment in the ECJ and which is sufficient to dispose of the point in the present appeal can be stated in more restricted terms: if (i) retailer A discloses to supplier B its future pricing intentions in circumstances where A may be taken to intend that B will make use of that information to influence market conditions by passing that information to other retailers (of whom C is or may be one), (ii) B does, in fact, pass that information to C in circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B and (iii) C does, in fact, use the information in determining its own future pricing intentions, then A, B and C are all to be regarded as parties to a concerted practice having as its object the restriction or distortion of competition. The case is all the stronger where there is reciprocity: in the sense that C discloses to supplier B its future pricing intentions in circumstances where C may be taken to intend that B will make use of that information to influence market conditions by passing that information to (amongst others) A, and B does so.”

(9) Knowledge and foresight

45. The Commission submitted that, in order to find that an undertaking participated in an anti-competitive agreement or concerted practice, it is necessary to prove that the undertaking concerned intended to contribute by its own conduct to the common objectives pursued by all the participants and that it was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and that it was prepared to take the risk: AC-Treuhand, §30; see also Anic, §87, and C-204/00P etc Aalborg Portland and Othersv Commission, EU:C:2004:6, §83.

46. In Case T-82/13 Panasonic Corp v Commission, the cartel lasted for a number of years and had a number of facets, and the different actors took part in different forms of collaboration with each other. The question arose whether Panasonic by virtue of its participation in certain forms of coordination could be held liable for the single and complex infringement as a whole. The General Court held that the mere fact that each undertaking takes part in the infringement in ways particular to it does not preclude responsibility for the entire infringement, including conduct put into effect by other undertakings sharing the same anti-competitive object or effect (see §80). Panasonic could be held liable if it was aware of the other undertakings’ anti-competitive activities or it could reasonably have foreseen them (§82).

47. In Case C-542/14 VM Remonts v Konkurences padome, ECLI:EU:C:2016:578, three firms responded to a Latvian municipal council’s call for tenders for food supply. One firm, Pārtikas, had independently prepared a draft tender but had instructed another company providing legal services to prepare a formal tender and submit it on its behalf. That company had, in turn, engaged a sub-contractor, MMD lietas, to perform this task. Without the knowledge of Pārtikas, MMD lietas had also undertaken to prepare the tenders of other two firms, VM Remonts and Ausma. An employee of MMD lietas used the price information received from Pārtikas as a basis in preparing the bids of VM Remonts and Ausma, so that Ausma’s bid was approximately 5% lower than the Pārtikas’s and VM Remonts’ bid was in turn approximately 5% lower than Ausma’s. On a reference by the Latvian Supreme Court, the CJEU held (at §33) that an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider if (i) the service provider was in fact acting under the direction or control of the undertaking concerned, (ii) that undertaking was aware of the anti-competitive objectives pursued by its competitors and the service provider and intended to contribute to them by its own conduct, or (iii) that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed.

48. Precisely what an undertaking needs to be aware of or to expect will depend on the facts and evidence of the particular case. In the case of disclosure of commercially sensitive information, the English Court of Appeal considered in Argos Ltd and Littlewoods Ltd that there may be a concerted practice where A discloses to B its pricing intentions in circumstances where A foresees B would make use of the information to influence market conditions by passing it on to C, and B passes the information to C in circumstances where C appreciates that the information is being passed to him with A’s concurrence (see §§91 & 141).

49. There has been some debate between the parties in this case as to the relevance of reasonable foreseeability of the conduct of other parties. The respondents submitted that the approach taken in AC-Treuhand and Panasonic is not applicable in the present kind of case and that VM Remonts should not be followed. On the view that I have taken of the evidence, it is unnecessary to deal with this debate.

C. STANDARD OF PROOF

50. The Commission accepts, in my view correctly, having regard to the well-known Engel criteria[6] and the pecuniary penalties that the Tribunal is invited to impose, that these proceedings involve the determination of a criminal charge within the meaning of Arts. 10 and 11 of the Bill of Rights.[7] The parties are in dispute, however, as to whether the standard of proof to be applied in these proceedings is the criminal standard of proof beyond reasonable doubt or the civil standard of proof on the balance of probabilities.

(1) The parties’ contentions

51. The Commission acknowledges that because the proceedings involve the determination of a criminal charge, proof beyond reasonable doubt is the starting point. It contends, however, that the civil standard of proof nevertheless applies. Its submissions may be summarised as follows. A criminal classification for the purpose of Art. 11 of the Bill of Rights does not make the case a criminal one for all purposes under all laws. The precise implications of the classification must be determined on a case by case basis: see Han v Customs and Excise Commissioners [2001] 1 WLR 2253, §§84 and 88. The applicable legislative rules indicate that these proceedings are characterised internally as non-criminal and that the rules of civil procedure should apply. Such internal classification and the application of civil procedure indicate that the legislature intended that the civil standard of proof should apply. Applying the criminal standard might serve to frustrate the effective application of competition laws. The civil standard is applicable in other common law jurisdictions including Australia, Canada, New Zealand, Singapore and the UK, all of which (except Singapore) are state parties to the ICCPR. Application of the criminal standard of proof is not a “guaranteed” right under the Bill of Rights or ICCPR. Alternatively, if it is, then the application of the civil standard of proof in this particular case satisfies the proportionality test.

52. In contrast, the respondents contend that the criminal standard of proof should apply. Their submissions may broadly be summarised as follows. The Court of Final Appeal has decided in Koon Wing Yee that the criminal standard of proof is to be applied in proceedings involving the determination of a criminal charge under Hong Kong law, and that decision is binding on the Tribunal. There are legislative materials showing that the Administration’s intention was that the criminal standard should apply in proceedings where substantial pecuniary penalties were sought. In particular, SiS submitted that while it is in principle possible for the legislature to modify the standard of proof, any such modification must be prescribed by law and proportionate. Whether or not the legislature has in fact done so in a given case is a question of statutory construction governed by the principle of legality. The legislature has not modified the standard of proof in the Ordinance.

(2) The requirement of Art 11

53. I begin with the question whether Art. 11 of the Bill of Rights requires the application of the criminal standard of proof. Art. 11(1), which is identical to Art. 14(2) of the ICCPR, provides:

“ Everyone charged with a criminal offence shall have the right to be presumed innocent until proved guilty according to law.”

54. While Art. 11 does not expressly stipulate any mandatory standard of proof, authoritative guidance has been laid down in Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170 as to what it requires. In that case, the Court of Final Appeal considered the question whether, in an inquiry conducted under the Securities (Insider Dealing) Ordinance (Cap 395), the Insider Dealing Tribunal was obliged to apply the criminal standard of proof. In his judgment, in which the other members of the court concurred, Sir Anthony Mason NPJ recognised that it was not clear that Art. 6(2) of the European Convention on Human Rights mandated the criminal standard of proof.[8] His Lordship however noted that the position is clearer under Art. 14 of the ICCPR because General Comment No. 13 on Art. 14 of the ICCPR, which was later replaced by General Comment No. 32, stated: “No guilt can be presumed until the charge has been proved beyond reasonable doubt”.

55. In Koon Wing Yee, the relevant General Comment was No. 13 because the acts of infringements were committed and the tribunal inquiry took place both before 2007, when General Comment No. 32 was published. Nevertheless the court had regard to this later version which it considered to be a reinforcement of the criminal standard. General Comment No. 32 (para 30) stated:

“ According to article 14, paragraph 2 everyone charged with a criminal offence shall have the right to be presumed innocent until proven guilty according to law. The presumption of innocence, which is fundamental to the protection of human rights, imposes on the prosecution the burden of proving the charge, guarantees that no guilt can be presumed until the charge has been proved beyond reasonable doubt, ensures that the accused has the benefit of doubt, and requires that persons accused of a criminal act must be treated in accordance with this principle …”

56. Sir Anthony Mason NPJ continued to state in Koon Wing Yee (footnote omitted):

“ 101. The General Comments are a valuable jurisprudential resource which is availed of by the Committee in its adjudicative role. While the General Comments are not binding on this Court, they provide influential guidance as to how the ICCPR is applied and will be applied by the Committee when sitting as a judicial body in making determinations.
102. In Attorney-General of Hong Kong v Lee Kwong-kut, the Privy Council regarded General Comment No.13 as indicating that the standard of proof beyond reasonable doubt was the general standard applicable for the purposes of art.14 of the ICCPR and art.11(1) of the BOR. The judgment of the Privy Council delivered by Lord Woolf makes it plain that art.14 of the ICCPR and art.11(1) of the BOR permit a degree of flexibility which allows a balance to be drawn between the interest of the person charged and the state so that sensible and reasonable deviations in certain situations are not proscribed. Lord Woolf is not to be understood, however, as suggesting that the substitution of the civil standard of proof for the criminal standard of proof in a proceeding classified as criminal would be a sensible or reasonable deviation.
103. In my view, this Court should regard General Comment No.13, in so far as it prescribed the standard of proof beyond reasonable doubt, as the appropriate standard to be applied for the purposes of art.11 of the BOR before it was replaced by General Comment No.32 (which then reinforced the application of that standard). In this respect, my view is strongly fortified by the fact that in our criminal jurisprudence proof beyond reasonable doubt is the standard to be applied once proceedings have been classified as involving the determination of a criminal charge.”

57. In the case before it, the Court of Final Appeal held that the criminal standard was applicable in the light of the criminal character of the proceedings which flowed from the presence of the power to impose the penalty. Because it was impossible to say whether that standard had been applied by the tribunal, its findings were impaired. In the result, however, the Court held that the power to impose a penalty was invalid as being contrary to Arts. 10 and 11 of the Bill of Rights and, the reason for characterising the proceedings as criminal having been eliminated, the tribunal’s findings were reinstated and upheld.

58. In Attorney-General of Hong Kong v Lee Kwong-kut [1993] AC 951, the Privy Council had to consider whether certain statutory provisions creating offences[9] were inconsistent with Art. 11 of the Hong Kong Bill of Rights in placing a burden of proof on the defendant. The parts of the judgment of Lord Woolf referred to by Sir Anthony Mason NPJ in Koon Wing Yee are as follows. At p 968B-C, Lord Woolf, giving the advice of the Board, after quoting from General Comment No. 13, stated:

“ However, it should not be assumed from this statement that the comparable article in the International Covenant to article 11(1) does not permit the degree of flexibility which is normally assumed to be implicit in any provision of general application which is of the same nature as article 11(1) of the Hong Kong Bill. Placing to one side for the moment the decisions in Canada all of the many decisions in different jurisdictions, to which their Lordships were referred, recognise that provisions similar to article 11(1) are always subject to implied limitations so that a contravention of the provisions does not automatically follow as a consequence of a burden on some issues being placed on a defendant at a criminal trial.”

Further, at p 969D-E, Lord Woolf stated:

“ This implicit flexibility allows a balance to be drawn between the interest of the person charged and the state. There are situations where it is clearly sensible and reasonable that deviations should be allowed from the strict applications of the principle that the prosecution must prove the defendant’s guilt beyond reasonable doubt.”

59. There was argument before this Tribunal on the scope of the “flexibility” referred to by Lord Woolf and in particular whether such flexibility extended to the standard of proof applicable to a case as a whole. Upon fuller consideration of matter, I do not think the debate is open in this Tribunal. It seems to me that the tentative view I expressed obiter in Television Broadcasts Ltd v Communications Authority [2016] 2 HKLRD 41 (at §§290-295) that Koon Wing Yee could be distinguished, was wrong. The ratio decidendi of Koon Wing Yee, consisting in the essential logical steps in the reasons for the conclusion (Saif Ali v Sydney Mitchell & Co [1978] 3 All ER 1033, 1040h-j per Lord Diplock), seems to me to encompass the proposition that the appropriate standard of proof to be applied to proceedings classified as criminal for the purposes of Art. 11 is proof beyond reasonable doubt. It precludes this Tribunal from adopting the civil standard where pecuniary penalties are sought and the proceedings are to be classified as involving a determination of a criminal charge.

60. Every case is of course decided in the context of its facts, but it is in my view not open to this Tribunal to distinguish Koon Wing Yee on the basis that it involved insider dealing as opposed to an infraction of competition law. It is true that in earlier passages in his judgment[10] Sir Anthony Mason NPJ had referred to insider dealing as an “insidious mischief”, “very serious misconduct” and “a species of dishonest misconduct”, but these were stated as considerations favouring the classification of the proceedings as criminal (see §50), rather than as factors distinguishing insider dealing, for the purpose of standard of proof, from other conduct classified as criminal for Art. 11 purposes. In any event, there are also forms of competition law infringement, such as cartels and bid-rigging, that are viewed as serious misconduct and punishable as actual criminal offences in other jurisdictions including Australia, Canada, the UK and the United States.

61. Subsequent cases have reinforced the approach that Koon Wing Yee mandates. In Ng Po On v HKSAR (2008) 11 HKCFAR 91 at §22, Ribeiro PJ stated “there is a clear basis for suggesting that [the criminal] standard of proof is implicit within Article 11(1) of the Bill of Rights”.

62. In Wong Tak Wai vCommissioner of Correctional Services [2010] 4 HKLRD 409, the Court of Appeal held that prison disciplinary proceedings with the potential result of loss of remission for a serving prisoner involved the determination of a criminal charge for the purpose of Art. 11 of the Bill of Rights. Applying Koon Wing Yee, the Court of Appeal held that proof beyond reasonable doubt was required by Art. 11; see §100 of Kwan JA’s judgment with which Stock VP and A Cheung J (as they then were) agreed.

(3) Is there derogation from the criminal standard of proof by statute?

63. It is common ground that even if Art. 11 mandates the criminal standard of proof, this requirement is not absolute and can be deviated from by proportionate legislation. The difficulty with the Commission’s submission that a civil standard of proof applies to all elements of liability, however, is that the Ordinance is silent on this matter, in contrast with other statutes (such as ss 218(7), 252(7) and 387 of the Securities and Futures Ordinance (Cap 571)) that expressly prescribe for the civil standard. It is well established that the legislature will not be taken to have intended any derogation from fundamental rights absent express and unambiguous language or necessary implication: A v Commissioner of Independent Commission Against Corruption (2012) 15 HKCFAR 362, at §§28-29, 67-71; R v Secretary of State for the Home Department, ex parte Simms & Anor [2000] 2 AC 115, 131E. A necessary implication is one which necessarily follows from the express provisions of the statute construed in the context; it is a matter of express language and logic, not interpretation: R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioner [2003] 1 AC 563 at §45.

64. The fact that s 144 of the Ordinance provides for civil procedure to be adopted by the Tribunal “in so far as it thinks fit” is not an indication of legislative intent that the civil standard of proof should apply, because it is perfectly possible for the applicable standard of proof to be the criminal one notwithstanding the proceedings take a civil mode with civil rules of procedure, as in the case of contempt of court: see Secretary for Justice v Cheung Kai Yin [2016] 4 HKLRD 367, §§25, 27 and 36; In re B (Children) (Care Proceedings: Standard of Proof) (CAFCASS intervening) [2009] 1 AC 11. It is unnecessary to examine the Competition Tribunal Rules or the Tribunal’s Practice Directions for the requisite legislative intent cannot be derived from them.

65. So far as legislative materials are concerned, the respondents relied on the proceedings of the 17^thmeeting of the Bills Committee on Competition Bill held on 21 June 2011 where it was stated:

“ The Administration pointed out that contravention of the competition rules under the Bill would be subject to civil actions. If a substantial pecuniary penalty was to be imposed on a breach of the competition law, the criminal standard of proof would apply and criminal safeguards would be attracted to the legal proceedings.”[11]

The context was, however, a discussion of the territorial application of the first conduct rule so that the sentence relied upon appears to have been a side comment made during the discussion of a different topic.

66. Reliance was also placed by the respondents on a speech by the Under-Secretary for Commerce and Economic Development at a competition law forum in December 2009, which referred to the decision of the Court of Final Appeal in Koon Wing Yee and expressed the view that the criminal standard of proof had to be applied to meet the requirements of the Bill of Rights.

67. I do not regard these materials as of much significance. Their admissibility is in doubt. While legislative materials may be admitted to show the context in which a law was enacted, there is no need to rely on these materials to show that the administration and the legislature were aware of the decision in Koon Wing Yee. Nor do these materials go to the mischief at which the law was aimed. Beyond these established limits I am unable to see how these materials shed any light on the will of the legislature: PCCW-HKT Telephone Ltd v Telecommunications Authority (2005) 8 HKCFAR 337, §20.

(4) Nature of competition proceedings and overseas jurisprudence

68. The Commission submitted that having regard to the potentially complex and technical nature of competition proceedings it would not be appropriate to apply the criminal standard. Reliance was placed on what the (UK) Competition Appeal Tribunal said in Napp Pharmaceutical Holding Ltd v Director General of Fair Trading [2002] CAT 1 at §106:

“ We add that in many cases under the Act the factual issues before this Tribunal will often relate to such matters as determining the relevant market, whether dominance exists, and assessing whether conduct characterised as an ‘abuse’ is economically justified. Issues of that kind involve a more or less complex assessment of mainly economic data and perhaps conflicting expert evidence. It seems to us more likely that Parliament would have intended us to apply the civil standard of proof to issues of this kind, rather than the time-honoured criminal standard of ‘proof beyond reasonable doubt’.”

69. The Commission submitted that requiring the criminal standard of proof to be applied “might serve to frustrate the effective application of the competition laws”. A similar concern has been raised in relation to the proof of contravention of the equivalent of our second conduct rule in Whish & Bailey,Competition Law (9^thed), p 215, as follows: “If every case were to require the demonstration of anti-competitive foreclosure effects beyond reasonable doubt, the enforcement of Article 102 might become all but impossible, which would bring one back to the problem of false negatives and false positives.”

70. The Commission further submitted that the civil standard of proof is also uniformly applied (either as a result of express statutory provisions or judicial decisions) in other common law jurisdictions in relation to the imposition of pecuniary penalties for contravention of competition law:

(1)  In Australia, Part IV of the Competition and Consumer Act 2010 lays down a number of prohibitions, including against anti-competitive contracts, arrangements and understandings.[12] Section 76(1)(a)(i) empowers the court to impose a pecuniary penalty if a person has contravened a provision of Part IV (other than criminal cartel offences). The standard of proof for breach of the competition provisions (other than in relation to criminal proceedings for cartel offences[13]) is the civil standard of balance of probabilities: see s 140 Evidence Act 1995; Heating Centre Pty Ltd v Trade Practices Commission 65 ALR 429 at 435.
(2)  In Canada, issues before the Competition Tribunal are determined according to the civil standard of proof.[14] The Competition Act contains provisions dealing with abuse of dominant position (ss 78 and 79). The application of these provisions lies with the Tribunal, which has power inter alia to impose significant financial penalties.[15]
(3)  In New Zealand, Part 2 of the Commerce Act 1986 deals with “restrictive trade practices”, including “contracts, arrangements, or understandings substantially lessening competition” (s 27) and “cartel provisions” (s 30A). The court may impose pecuniary penalties in relation to restrictive trade practices (s 80). The applicable standard of proof is the civil standard (s 79A).
(4)  In Singapore, the Competition Act (Cap 50B) prohibits agreements or concerted practices which have as their object or effect the prevention, restriction or distortion of competition (section 34 prohibition) and also prohibits the abuse of a dominant position (section 47 prohibition). Section 69(2)(d) empowers the Singapore Competition Commission to impose a financial penalty for the infringement of a section 34 or 47 prohibition. The standard of proof is the civil standard of balance of probabilities: see Konsortium Express and Tours Pte Ltd & Others v Competition Commission of Singapore [2011] SGCAB 1, §85. This standard has been consistently applied to bid-rigging cases: Pang’s Motor Trading v Competition Commission of Singapore [2014] SGCAB 1 §40, though the issue was not argued in either case.
(5)  In the UK, while it is accepted that a finding of competition law infringement involves the determination of a criminal charge, the settled view is that the applicable standard of proof is the civil standard of balance of probabilities: NappPharmaceutical Holding Ltd v Director General of Fair Trading [2002] CAT 1, §§101-106; JJB Sports v Office of Fair Trading [2004] CAT 17, §193; Chester City Council v Arriva [2007] EWHC 1373 (Ch), §10. This applies equally to cases involving bid rigging.[16]

71. Article 14 of the ICCPR (the equivalent of Art. 11 of the Bill of Rights) has not prevented the courts in Australia, Canada, New Zealand and the UK, all being state parties to the ICCPR, from applying the civil standard of proof to competition cases. As far as Art. 6 of the European Convention on Human Rights is concerned, proof beyond reasonable doubt is not even a concept to be found in many of the domestic systems of the party states, or in the jurisprudence of the courts of the EU.[17]

72. For the reasons I have given above, however, in the absence of express provision or necessary implication by statute, this Tribunal is not at liberty to apply any other standard than proof beyond reasonable doubt. The matters relied upon by the Commission are therefore not matters that can justify the application of the civil standard of proof by this Tribunal.

(5) Application of the applicable standard

73. It is not in dispute what the applicable standard of proof requires. I would mention two aspects here. First, the Commission has submitted, and I do not understand it to be controverted by any respondent, that 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: Case C-407/08P Knauf Gips v Commission EU:C:2010:389, §47; Myers v R [2015] UKPC 40, §46.

74. Secondly, there is no dispute that this Tribunal can, like any other trier of fact, draw appropriate inferences from facts. As noted by the CJEU in Case C-204/00 Aalborg Portland v Commission, in many competition cases the existence of the practice or agreement in question has to be inferred:

“ 55.  Since the prohibition on participating in anti-competitive agreements and the penalties which offenders may incur are well known, it is normal for the activities which those practices and those agreements entail to take place in a clandestine fashion, for meetings to be held in secret, most frequently in a non-member country, and for the associated documentation to be reduced to a minimum.
56.  Even if the Commission discovers evidence explicitly showing unlawful contact between traders, such as the minutes of a meeting, it will normally be only fragmentary and sparse, so that it is often necessary to reconstitute certain details by deduction.
57.  In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of coincidences and indicia which, taken together, may, in the absence of another plausible explanation, constitute evidence of an infringement of the competition rules.”

75. Equally clear is that where the criminal standard of proof applies, three conditions have to be satisfied for an inference to be drawn: (1) the inference must be grounded on clear findings of primary fact; (2) the inference must be a logical consequence of those facts; and (3) the inference must be “irresistible”, that is, it must be the only inference that can reasonably be drawn on the basis of those facts: Winnie Lo v HKSAR (2012) 15 HKCFAR 16, §115.

D. THE FACTS AND EVENTS

76. This section sets out the background facts and the main events relating to YWCA’s tenders as found on the evidence. They are, for the most part, and unless otherwise specified, uncontroversial.

(1) Nutanix’s hyper-converged system

77. Founded in 2009 with its Hong Kong office established in December 2012, Nutanix is an IT infrastructure provider that sells “hyper-converged infrastructure”. A hyper-converged system is a new generation of servers. It is a software-defined IT infrastructure that virtualizes all of the elements of the traditional “hardware-defined” server system, including virtualized computing (a hypervisor), virtualized storage and virtualized networking, in a commodity hardware box.

78. Nutanix’s hyper-converged system is a software product which can either be packaged and sold on Nutanix’s own branded hardware made by contract manufacturers, or on the tailored hardware of one of Nutanix’s OEM[18] partners which included Dell and Lenovo at the time. These packaged product combinations may be referred to as the Nutanix-NX solution, the Dell-Nutanix solution and the Lenovo-Nutanix solution respectively. The product can also be sold on a software-only basis for use on compatible hardware provided by third party manufacturers.

79. Nutanix’s main competitors globally include traditional storage array vendors, traditional IT systems vendors which sell integrated systems, software providers such as VMware Inc, providers of public cloud infrastructure as well as a number of vendors which provide hyper-converged infrastructure.

(2) Nutanix’s supply chain

80. The Nutanix-NX solution is sold to end-customers via Nutanix’s own network of distributors and resellers. In Hong Kong, as of July 2016, Nutanix had two non-exclusive distributors, namely, Innovix and SiS, and around 23 approved resellers which were companies approved and authorised by Nutanix to re-sell Nutanix products.[19] Both BT and Tech-21 were among these resellers.

81. Of the two distributors, Innovix mainly promoted and sold products to resellers, while it would also promote and sell to end-users directly. SiS was permitted by its distributorship agreement to purchase Nutanix products for resale to both resellers and end-users, but in practice it sold only to resellers and not directly to end-users, with certain rare exceptions in special circumstances (see §291 below).

82. In Hong Kong, a reseller can only purchase the Nutanix-NX solution through a distributor, ie Innovix or SiS. For the Dell-Nutanix or Lenovo-Nutanix solution, the applicable hardware would have to be packaged with Nutanix software and then sold by the OEM partner, ie Dell or Lenovo, through its own sales teams or its network of channel partners, which may or may not also be channel partners of Nutanix. Dell or Lenovo would then pay Nutanix a royalty based on sales of Nutanix software as part of the combined product. In this particular case, as will be seen below, YWCA eventually purchased the equipment from a reseller of Dell.

(3) Nutanix’s deal registration system

83. Nutanix runs a deal registration system to encourage its OEM partners, distributors and resellers to identify, cultivate and close sales opportunities. It allows business opportunities to be registered via an online platform with Nutanix who would provide discounted pricing exclusively for a specified period on the registered opportunity. Only one partner may register for each opportunity. Nutanix’s guidelines suggested that a deal registration could be granted to more than one partner for situations such as RFP[20] or public sector requirements but this was considered non-standard and an exception and required approval on a case-by-case basis.

84. With a deal registration in place, other interested partners are still free to pursue the opportunity and are generally entitled to a standard discount, but the registered deal discount is only available to the registered partner. In Nutanix’s published guidelines, the level of the registered deal discount is defined by the partner’s level and programme status in the Nutanix Channel Programme, product type and deal registration status, ranging between [●]% and [●]%. In practice, sales representatives are allowed flexibility to depart from the published levels. The actual registered deal discount is therefore a matter of discretion for the relevant sales representative on a case-by-case basis but generally does not exceed [●]%.

85. If the opportunity concerns solely a Nutanix-NX solution, it would either be the re-seller registering for the opportunity or the distributor registering on behalf of the re-seller. If the opportunity concerns a Dell-Nutanix or Lenovo-Nutanix product, Dell or Lenovo may register for the opportunity.

86. Upon receipt of a deal registration, Nutanix will validate the request which would include checking that there are no other active registrations for the same opportunity and that the partner is pursuing the opportunity in good faith. The registration, once recognised, will remain valid for 90 days, extendible at Nutanix’s discretion.

87. In the case of Dell-Nutanix solutions or Lenovo-Nutanix solutions, the integrated solution is sold by the OEM partner, i.e. Dell or Lenovo, directly, with a royalty paid to Nutanix. Where the OEM partner is registered with Nutanix for a particular opportunity, it may grant a discount to its channel partners of up to [●]% on the Nutanix component of the integrated solution, beyond which it will require special approval from Nutanix.

(4) YWCA’s need for a new server system

88. In the first half of 2015, YWCA’s ISD was considering replacing the existing IT servers at YWCA Headquarters at MacDonnell Road, Mid-Levels. The person responsible within YWCA for IT services was Lok, the ISD Head.

89. At that time BT was working for YWCA on two other IT projects. One of them began in the third quarter of 2014, when BT was engaged to consult on a new Customer Relationship Management system to be used in YWCA centres. (For the implementation of the system, however, BT was outbidden by another company, though BT was later engaged to provide quality assurance checks on the implementation of that system in mid-2015.) In the second project, BT was awarded a contract in March 2015 to set up an IT server room and to install the cables and Wi-Fi routers for the YWCA Kowloon Centre in Ho Man Tin. In around the third quarter of 2015, BT was further awarded a contract to install the audio and visual equipment to be used at the YWCA Kowloon Centre, but this came later.

90. Percy Ng was the main person dealing with YWCA at that time. He was the Alliance & Business Development Manager of BT. His primary responsibility concerned the sales of BT’s IT products and services. Within his team, he was assisted by Chan, Technical Pre-Sales Manager of BT. Percy Ng’s role was focused on more “commercial” matters involving pricing, customer relations, sales of products and internal BT approvals, whereas Chan was more concerned with the pre-sales technical matters such as the provision of technical support.

91. Whilst working on the server room project, Percy Ng enquired with Lok to see what server system YWCA intended to install in the server room in the Kowloon Centre and how the servers at YWCA’s Headquarters could support each other. Since YWCA also intended to replace the servers at the Headquarters, Lok asked for Percy Ng’s opinion and discussed with him YWCA’s server requirements. Percy Ng got Chan involved and together they decided Nutanix’s cloud-based server system would suit YWCA. In around mid-2015 Percy Ng proposed to Lok that YWCA could consider using that system.

92. At around this time, between mid-2015 and September 2015, BT registered the YWCA opportunity on Nutanix’s deal registration system.

93. In the initial stages BT was considering offering a Nutanix-NX solution to YWCA. On 28 July 2015, Chan sent an e-mail to Siu (of Innovix) with the subject “YWCA quotation” for a quote based on Nutanix hardware. Siu in turn obtained quotes from Nutanix and, after a mark-up, gave the quotes to Chan. When BT requested a lower quotation, Innovix provided a revised quotation but BT still complained (to both Innovix and Nutanix) that it was too expensive. On 5 August, after discussing with Chan, Hung wrote to Siu saying he would like to update him on the pricing strategy on YWCA. Shortly afterwards, Innovix provided another revised quote to BT for the equipment for YWCA.

94. At that stage, however, BT had not decided which Nutanix model to propose to YWCA. In late September 2015, Chan asked Hung for an update on which model BT should propose to YWCA. On 24 September 2015, Hung sent a bill of materials to Chan (copied to Siu and Cheung of Innovix) and stated the quotation was being prepared.

95. Following a meeting in early October 2015, BT considered the Dell-Nutanix combination more suitable for YWCA having regard to their budget and storage configuration. YWCA’s ITDC (Information Technology Development Committee) also felt the Dell-Nutanix solution would be better because they had confidence in Dell’s hardware and after-sales maintenance.

96. After further discussions, BT offered to arrange for the loaning of a Dell-Nutanix hyper-converged server to YWCA as part of BT’s “proof of concept” to test whether the server was capable of meeting YWCA’s needs. Such proof-of-concept exercise is common with clients making the switch from traditional IT infrastructure to hyper-converged infrastructure. Three units of Dell-Nutanix servers were later loaned (from Dell) to YWCA in late October 2015.

97. On 12 November 2015, Percy Ng and Chan delivered a presentation to YWCA’s ITDC to introduce the concept of a hyper-converged system by using Nutanix’s system as an example.

98. On 5 January 2016, Cheung (Innovix) sent an e-mail to Chan (BT) (copied to Siu) asking if there was anything else Innovix could do regarding “the Nutanix YWCA case”. Also in around early January 2016, Siu and Cheung learnt that YWCA’s preference had moved to a Dell-Nutanix system. On 8 January 2016, Siu referred the YWCA matter to Innovix’s Dell team member Jacky Lee.

99. In late January or early February 2016, the deal registration for the YWCA opportunity was re-registered with Nutanix through Dell. Dell registered it with reference to BT’s name, recognising that BT would derive some benefit of the deal registration for this opportunity.

100. BT helped YWCA with the proof-of-concept process, and also assisted Lok to deal with the queries that ITDC members had about the Nutanix system. On 7 January 2016, Eric Mak of Innovix was brought into the loop for the “p2v” troubleshooting (a physical-to-virtual process of migrating a physical server’s operating system, applications and data to a virtual system). On 29 January 2016 Eric Mak forwarded an e-mail chain to Siu from which it is clear that BT was conducting a proof-of-concept for YWCA. On 1 February 2016, Siu responded: “Ok, i will ask Dell HK order the OEM deal to us”.

101. While certain technical problems arose and various questions were raised by YWCA about the product and about Nutanix, the Dell-Nutanix solution was eventually found to be suitable, and on 23 May 2016 the ITDC resolved that YWCA should procure Nutanix’s hyper-converged system for Headquarters as well as for Kowloon Centre. ISD was to commence preparing for the procurement process.

(5) YWCA’s procurement policy and procedures

102. Within YWCA, the APD (Administration and Procurement Department) is responsible for organising and overseeing the procurement of goods, services and works required by YWCA including through tender exercises. APD’s head was Mak, the Administration and Procurement Manager, who was assisted by Wong, an Assistant Procurement Officer.

103. Under YWCA’s procurement policy, contract for goods, services or works exceeding HK$50,000 must have written quotations from five companies. Procurement for goods exceeding HK$100,000, services exceeding HK$250,000 or works exceeding HK$500,000 must be conducted through a tender. Where the procurement involves a tender, the procurement decision must be approved by YWCA’s Tender Board, which is a sub-committee of the FAC (Finance and Administration Committee). The Tender Board is composed of members from FAC, a member from the relevant user department, and two Tender Board advisors selected from a list of external parties with relevant expertise.

104. The procurement policy required that at least five tender submissions be received from contractors or suppliers. If the requisite number of tenders is not obtained, approval from FAC and a report to YWCA’s board of directors are required before the contract can be awarded.

(6) The first tender

105. Within YWCA, APD looked to ISD for preparing the technical specifications for the procurement exercise. ISD in turn received assistance from BT in preparing those specifications. Following discussions, Chan produced the first draft of the technical specifications which he sent to Lok on 10 June 2016. The specifications were for (i) Nutanix’s hyper-converged system without specifying the brand of hardware to be used, together with (ii) hypervisors and (iii) backup software. At Lok’s suggestion, they had a meeting about the specifications on 16 June.

106. ISD then provided the revised draft technical specifications to APD, which prepared the other tender documents. On 20 June 2016, Wong e-mailed Lok and his assistant, Li, the draft tender documents with a query on the technical specifications. Wong also asked Lok and Li to recommend suppliers for the purpose of completing the tenderers list.

107. Mak explained that this was on the basis that while it was APD that would make the final decision on which tenderers to invite, ISD was likely to have greater familiarity with the potential suppliers and was in a better position to ascertain the companies capable of supplying the server system.

108. Li then made a call to Chan on the same day asking him to recommend the names of vendors in Hong Kong capable of supplying the Nutanix hyper-converged system. Percy Ng then in turn sent a message to Hung saying he needed to provide vendors’ names for YWCA to issue the tender, listing six companies including BT and Tech-21, and asked for Hung’s opinion.

109. As he was unable to reach Hung, Percy Ng decided to e-mail to Li all the names of Nutanix’s suppliers that he knew, suggesting six companies including BT and Tech-21 and mentioning four other companies that were on YWCA’s own suppliers list – a total of ten companies.

110. Li then gave this list to Lok. Based on the list, Lok sent a proposed tenderers list setting out those ten companies to APD for their consideration.

111. On 21 June, Hung asked Percy Ng: “Is it a dell Nutanix?” to which Percy Ng replied “yes”. Edward Yeung (Nutanix’s Managing Director – Hong Kong and Taiwan) suggested to Percy Ng that Expert Systems be removed from the list because they always “bugged” Nutanix for the best price. Percy Ng then asked Li to exclude Expert Systems. Hung also texted Percy Ng that morning, saying “I can assist to manage Tecg21 and basic bit” [sic]. Li then e-mailed Wong (copied to Mak and Lok) asking him to exclude Expert Systems. Li later asked Wong to add one more company called ITRC.

112. With these revisions suggested by Li and additions made by Mak himself, the APD finalized a list of tenderers which included twelve companies. An invitation to tender was sent to them on 21 June 2016. The twelve companies are as follows; they included BT and Tech-21 but not Nutanix, SiS or Innovix.

-  Afina Data Systems Ltd
-  Automated System Ltd
-  Basic Bit Technology Ltd
-  BT
-  HKT Ltd
-  ITRC
-  Microware Ltd
-  Nikoyo (HK) Ltd
-  Petabytes & Beyond Technology Ltd
-  Senco-Masslink Technology Ltd
-  Tech-21
-  Wafer Systems Ltd

113. Having received the invitation, on 21 June 2016 Chan wrote to his contacts in Dell, asking them for the latest quotation, with separate prices for product and maintenance items.

114. On 28 June 2016, after the tender deadline, it was found that only BT had submitted a bid while two other companies, namely, Basic Bit and ITRC, had written to YWCA to indicate that they declined to bid.

(7) The second tender

115. In view of there being only one bid received, whereas YWCA’s procurement policy required at least five return bids, on about 30 June 2016, Gary Sze, Director of Finance and Administration of YWCA, together with Mak and Lok, decided to conduct a second tender for the Nutanix server system.

116. In the next few days, in order to better organise the second tender, Mak and Wong contacted several of the companies which did not respond to the first tender to find out why they did not. The responses received included that the period for responding to the tender was too short, some of the mandatory items could not be supplied and that there were too many optional items listed. They passed on the feedback to Lok and asked him to prepare a new set of technical specifications for the second tender to make it easier for invitees to bid.

117. Quite a lot of activities took place on 5 July 2016, Tuesday:

(1)  At 09:20, Chan, who did not yet know the result of the first tender, texted to ask Lok whether there was any update on the first tender.
(2)  Lok telephoned Chan at 14:50 and they spoke for about six minutes. I find that in this conversation, Lok told Chan that the first tender failed because there were insufficient bids, that BT’s was the only bid, and that there would be a second tender.
Lok did not positively deny this conversation; he only said he could not recall whether it was he or Li who told BT. In his first statement he said (at §18) that he told Chan on the phone.
In this conversation Lok also asked Chan to provide names of companies who might be able to supply the equipment sought.
(3)  Chan called Hung at 15:37 and they spoke for ten minutes. In broad terms Chan and Hung agreed that Hung would get four friends of his who worked in Nutanix’s channel partners to submit bids in the second tender to make up the required minimum number of five. Chan asked Hung to provide him with a list with contact details of the four bidders that day. What Chan and Hung agreed is dealt with in greater detail in section E below.
(4)  At 16:14, Chan sent Hung an e-mail headed “YWCA tender docs” which set out in the body of the e-mail the prices which BT proposed to include in its tender response. It also attached the tender documents sent out by YWCA. The e-mail read:
“ Hi Thomas,
As discussed, attached is the tender spec document. This will change to just providing quotation for Nutanix HW and everything else like ESX license, Veeam license becomes optional so your friends don’t need to spend too much time on it. For our proposal, we are proposing the following the Dell XC630 model and price below. Anyway, once I finished the whole table, I will share it with you so you can give the quotation to your friend to just fill in. Thanks!”
(5)  At 16:22, Chan sent Lok an e-mail stating:
“ To make things simple, let’s get the quotation for Nutanix HW only and everything else becomes optional, e.g. ESX license, Veeam license, migration services etc. Also, please use the following updated spec for your new RFP HW requirement. Let’s catch up around 5 pm today to discuss further. Thanks.”
The e-mail further set out the technical specifications for the Nutanix server equipment, which were slightly different from those in the first tender. Since Lok was in a meeting, it is not clear whether he read the e-mail at that time.
(6)  At 17:08 Chan texted Lok asking him to give him a call when he was free. At 17:15 Lok texted back saying he was still in a meeting and would call him once it finished.
(7)  At 18:18, Lok called Chan and they spoke for about 14 minutes.
(8)  At 18:56, Chan texted Hung, stating:
“ Hi Thomas, please don’t forget to send me the list of vendors today with contacts so I can give to ywca. tks!”,
to which Hung replied at 19:01:
“ Yep and will get you back after review and discuss with partner.”
(9)  At 19:25, Lok sent Mak and Wong the revised “scope of work”, including technical specifications based on what Chan had provided him at 16:22. Only the Nutanix server system would be mandatory and all the other items called for in the first tender would become optional. Lok went further and decided that the Nutanix server system for the Kowloon Centre would also become optional so that only the Headquarters system would be mandatory.
(10)   At 20:42, Chan sent an e-mail to Lok stating that the number of cores that BT could provide without any change in the price was now ten cores (v4) instead of eight as stated in the specifications he had provided in the afternoon.
(11)   At 23:55 and 23:57, Chan sent the following messages to Percy Ng (who was on leave):
“ For your information, we are the only one responded to the ywca nutanix rfp. They will re-issue the rfp to just provide the server hw only and everything else become optional.”
“ i’d asked Thomas to provide dummy bids from 4 of his partners…”

118. On 6 July, at 08:45, Lok e-mailed the revised specifications (with the number of cores revised to 10) to Mak and Wong.

119. On 6 July, after being chased by Chan for the “vendor list”, Hung provided Chan with the names of four companies and the e-mail addresses of the individuals: Shek (SiS), Cheung (Innovix), Mike Lam (iCON) and Steve Ng (Tech-21). These were understood by Chan to be the friends who would submit bids in the second tender. Chan immediately cut and pasted these names and addresses into an e-mail to Lok and Li, stating: “Here is the vendor list”.

120. Lok in turn incorporated these names into the proposed vendors list he was preparing, which he sent to the APD by e-mail on 7 July (containing eleven companies including BT, SiS, Innovix, Tech-21, iCON and 6 others, namely, Afina Data Systems Ltd, Automated System Ltd, Expert Systems Ltd, Microware Ltd, PCCW Ltd and Senco-Masslink Technology Ltd). Mak and Wong revised the list by removing four companies and adding two others. SiS, Innovix, Tech-21 and iCON remained on the list. (Wong had also earlier, on 6 July, telephoned SiS and spoken to Priscilla Szeto: see §297 below.)

121. In the evening of 7 July, upon enquiry by Chan, Lok texted him that the second tender would be issued the next morning.

122. On 8 July, at 8:38am, Hung sent an internal e-mail to his colleagues within Nutanix, referring to, inter alia, the YWCA project and stating:

“ Last Tender fail, because only one partner response. Customer request 5 response on the tender. Nutanix assist to ask 4 NX partner for the re-issue tender in coming two weeks to make sure Dell win the deal.”

123. On 8 July, after Lok had endorsed the revised drafts of the tender documents, the APD sent the Invitation to Tender and the tender documents to the nine companies in the list, namely:

-  Automated Systems Ltd
-  BT
-  Expert Systems Ltd
-  iCON
-  Innovix
-  Petabytes & Beyond Technology Ltd
-  SiS
-  Tech-21
-  Wharf T&T Ltd

124. The invitation letter and e-mail of 8 July 2016 enclosing the tender documents stated:

“ To be acceptable as a tender, Technical Proposal (i.e. the content of Part D of Form of Tender and Supplier Profile Form), Fee Proposal (i.e. Form of Tender, Schedule of Rates and Compliance List) must be fully completed and furnished in duplicate. … The tender should be deposited in the tender box outside Room 405, 4/F, HKYWCA HQs, No. 1 MacDonnell Road, Hong Kong on or before 12:00 noon on 18 July 2016 (Closing date for the tender).”

125. The second tender therefore required tenderers to complete and submit four forms:

(1)  a Form of Tender;
(2)  a Schedule of Rates;
(3)  a Compliance List; and
(4)  a Supplier Profile Form

and, in addition, to submit a Technical Proposal as required by Part D of the Form of Tender.

126. For the second tender, YWCA included a letter with the title “Request for Support from Principal” which stated, inter alia, that YWCA had not authorised any IT company to be its “exclusive order fulfilment partner”, that YWCA respected the existing mechanism of the IT industry, particularly the business collaboration arrangements between manufacturers and their tiers of intermediary agents, and had no intention to interfere with their commercial decisions or collaboration relationship, and that YWCA needed “a fair-game tender exercise”.

127. On 8 July, at 12:03, Mike Lam of iCON, having received YWCA’s Invitation to Tender, emailed Hung:

“ Boss
Pls Help To Send Me Doc To Submit La.”

128. Shortly afterwards, at 14:39, Hung sent an e-mail to Chan, forwarding Mike Lam’s e-mail, adding:

“ Hi Denis,
Too many documents, send me one sample of what you will submit.”

129. Chan then telephoned and spoke to Lok that afternoon.

130. By e-mail dated 10 July with the subject “Pricing template”, Chan responded to Hung’s request and sent him copies of BT’s completed Schedule of Rates with BT’s bid prices filled in and Compliance List, stating:

“ Hi Thomas,
Attached is the template I prepared for your friends to fill in. In particular, the one highlighted in Yellow. All others are optional and no need to fill in if they don’t want to. Also, I have attached our compliance list for your reference as well. Any queries please don’t hesitate to give me a call. Thanks a lot for your help!”

131. On 11 July, Chan sent another e-mail to Hung, attaching BT’s completed Schedule of Rates again with minor corrections, in both “excel” and “pdf” formats, stating:

“ Hi Thomas,
I found some minor mistake in my previous template and has corrected it. Also, I found that the excel file’s format might be different with different version of excel, I have print out a pdf version of what it should look like. If your friends run into any problem, I can help to pdf them if they can provide me with the figure. And don’t forget to markup at least 30% on top of mine.
Also, there is another important doc that need to be filled in which is the ‘Form of Tender’, please ask your friends to fill in their info with the price.
Thanks!”

132. On 12 July, Chan texted Hung saying:

“Bro, lets spend an hour or so tomorrow to go thru this. I’m ok at 9:30 if you want to meet at my office …”.

133. On 13 July, Hung went to see Chan at BT’s office at 12:44pm to discuss what documents had to be submitted and how they should be filled out such that there would be five different tenderers responding. At 1:19pm, Chan sent Hung a further e-mail headed “YWCA RFP submission” stating:

“ Hi Thomas,
To make life easy for your friends, here is what you need to submit in hardcopy by next Monday.”

The body of the e-mail set out a table of contents of BT’s Technical Proposal. The following documents were attached: (i) Form of Tender (filled in); (ii) Schedule of Rates (filled in); (iii) Compliance List (filled in); (iv) Supplier Profile Form (blank); (v) Dell XC Web-scale Converged Appliances specifications sheet; and (vi) BT Supplement for Terms and Conditions of Contract.

134. On around 14 July, Chan called Lok to ask for his advice on how the Compliance List should be completed (such as which items should be marked as compliant or non-compliant).

135. Chan was going on holiday on 16 July. On 15 July, Friday, he submitted BT’s bid to YWCA. He texted Hung a photograph of the invitation to tender with the address and deadline circled in red. Later that day, at 19:14, Chan emailed Hung two Compliance Lists for SiS and Innovix respectively, which he had completed. The e-mail stated:

“ Hi Thomas,
Here are two lists for your friends. Basically they are the same with some wording changes. I’ve put ‘Yes’ for most of them with a remark to state that this will require further discussions. This should provide indemnity against any legal responsibilities because you already stated that you did not commit.
Those that are really obvious like ‘location’, I just put YES. If this is not Yes, then this will be very suspicious!
I think for your other vendor friends, you can use similar approach.
Thanks a lot!”

136. Shortly after sending this e-mail, Chan also left audio messages for Hung, saying:

“ Hey Thomas, just sent you two documents which are basically similar but some of the wordings are different. I put “Yes” on many sections, I’ve also reviewed the “T&C” and there is nothing much there.
In case you have some worries so I put “subject to further discussion” which means you would not commit, that is, as expressly indicated, even you said “Yes” on these sections, it still requires discussion before it turns into something legal. So, I think you can refer to this for other vendors. If you put “No” on these sections, there are many sections which obviously cannot be “No”, which implied that you’ve no intention to submit the tender. For example, if you put “No” on the clause of delivery address that meant you’ve no intention to make delivery which I felt quite strange.
So, if you see I have put “Yes” on some sections without any remark that meant those sections must need to put “Yes”.”[21]

and a little later:

“ Anyway, you can WhatsApp me if there is anything you want to clarify. Hope that you can submit before 12 on Monday otherwise all effort will be in vain.”[22]

137. On the same day at 23:34, Chan sent a “handover” e-mail to Percy Ng who was coming back from leave, in which he reminded Percy Ng in red ink:

“ By the way, YWCA Nutanix RFP is due on Monday before 12. Please check with Thomas to make sure that he will deliver all 4 folders before then! Otherwise all our effort will go to waste…”

(8) Submission of bids in the second tender

138. Over the weekend and on Monday 18 July, Hung liaised with his friends with a view to their submitting bids in the second tender. The dealings with them are set out separately below and further elaborated in sections F, G and H.

139. By 18 July 2016, Hung had prepared and largely filled in the tender documents for the four firms: SiS, Innovix, Tech-21 and iCON. The key financial information of BT’s bid and each of the bids of SiS, Innovix, Tech-21 and iCON as prepared by Hung may be seen from the following table:

BT SiS Innovix Tech-21 iCON
Equipment Dell-Nutanix Nutanix-NX Dell-Nutanix Nutanix-NX Nutanix-NX
Item 2.1
(Bid price of server for Headquarters — 3 nodes) $[●] $[●] $[●] $[●] $[●]
% higher than BT
(for Item 2.1) - 44.6% 16.6% 27.7% 27.7%
Annual maintenance for each of 4^th and 5^thyears (optional) $[●] $[●] $[●] $[●] $[●]
Item 3.1
(Bid price of server for Kowloon Centre — 3 nodes) (optional) $[●] - - - -
Contingency sum $[●] $[●] $[●] $[●] $[●]
Total (without optionals) $[●] $[●] $[●] $[●] $[●]

140. Hung had a very hectic morning on 18 July 2016. As described below, he e-mailed to his friends the documents he had prepared and went successively to Innovix (Quarry Bay), SiS (Chai Wan), Tech-21 (Kwun Tong) and YWCA (Mid-levels) for the purposes of completing, collecting and submitting the tender documents.

(a) Innovix

141. On or around 14 July 2016, Hung and Siu (a Product Manager of Innovix) had a telephone conversation. Siu said that he had received a tender invitation from YWCA and Hung said that he would “handle it”.

142. On 15 July, Cheung forwarded to Siu the reminder email from YWCA (Wong) that mentioned the Monday deadline and requested for a tender.

143. On 18 July, at 07:56, Hung texted Cheung (an Assistant Product Manager of Innovix):

“ Need your help on YWCA tender response, deadline today. I prepared the document and some need you to print and sign. V which will send you later. May I collect today before 11:00am?
Will call you 10:00.”

144. At 08:34, Cheung replied: “For YWCA please kindly call Tommy, he is handling the tender”. Immediately, at 08:35, Hung sent the same message as above to Siu, to which Siu replied at 09:02: “Ok”.

145. At 09:16, Hung sent an e-mail to Siu (cc Cheung) with the title “YWCA: Tender Deadlien [sic] today”, attaching the Form of Tender, Schedule of Rates and Compliance List already filled in, and stating:

“ Hi Tommy,
Can you please print out 2 copy each document with Sign and Chop.
We help BT to bid for Dell deal.
I will help to collect and pass submit today before 12:00pm.
Thanks.”

146. At 09:59, Hung sent a further e-mail to Siu (cc Cheung), attaching the Supplier Profile Form which he had also filled in for Innovix. The e-mail stated:

“ One more document need. Please help.”

147. Hung then went about getting the documents signed and submitted. His first stop was Innovix. Shortly after 10:00, Hung arrived at Innovix’s office in Quarry Bay and met with Siu to finalise the bid documents. Siu signed the tender documents, except the Supplier Profile Form which was signed by Cheung.

148. Hung put the documents into a brown envelope he had prepared in advance, sealed it, and took it away with him. Siu did not keep a copy of the signed tender documents.

(b) SiS

149. On 17 July 2016 (Sunday), Hung telephoned Shek (a Product Manager of SiS) and said that, as there were insufficient tenders for the YWCA deal, he wanted Shek to help submit a bid. Shek responded “Orr”, indicating his understanding. Hung did not tell Shek which other companies would submit bids. Shek’s oral evidence that it was a text message instead of a conversation must have been mistaken because there was no record of such written message.

150. On 18 July 2016, at 07:56, Hung sent a WhatsApp message to Shek, stating:

“ Need your help on YWCA tender response, deadline today. I prepared the document and some need you to print and sign. V which will send you later. May I collect today before 11:00am?
Will call you 10:00.”

151. At 08:26, Shek replied “Ok”.

152. At 09:29, Hung e-mailed Shek the tender documents he had drafted for SiS, including the Form of Tender, Schedule of Rates and Compliance List. The e-mail stated:

“ Hi Keith,
Can you print two copies with sign and chop on the attachment.”

153. At 11:03, Hung sent to Shek by WhatsApp an image of the invitation to tender with the address for submission circled in red. Shek replied:

“ wrte on the evelope?
i havent got your other email
only 3 document on hand.”

154. At 11:10, Hung sent another e-mail to Shek, attaching a Supplier Profile Form:

“ Last copy for print and sign. Need your contact information.”

155. At some time after 11:11, Hung arrived at SiS’s office in Chai Wan to finalise the documents with Shek. Hung told Shek where to sign and fill in the information required and Shek did so without making any changes to the information set out by Hung. Shek signed the documents, and also caused SiS’s company chop to be stamped on them.[23]

156. Hung put the SiS bid documents into an envelope addressed to YWCA which Hung had brought with him. He then gave Shek that envelope and another sealed envelope also addressed to YWCA (which, I infer, contained Innovix’s bid) and told him to take a taxi to deliver them to YWCA, because Hung had to go to another company in Kwun Tong to handle that company’s bid documents. I infer that they parted before 11:24 because at that time Hung texted Shek “Take receipt and I pay you back” and then “Thanks and sorry for the sudden request”.

157. Shek boarded a taxi at 11:29 and alighted at 11:44. He submitted the bids to YWCA and at 11:49 told Hung he had done it.

158. On 6 July 2016, Hung texted Steve Ng:

“ May I have your help on one pig pig quotation. YWCA or YMCA I call you now?”

159. This was followed by a telephone conversation between them.

160. On 18 July 2016, at 07:56, Hung sent Steve Ng the same WhatsApp message he was sending at the same time to Shek and Cheung, stating:

“ Need your help on YWCA tender response, deadline today. I prepared the document and some need you to print and sign. V which will send you later. May I collect today before 11:00am?
Will call you 10:00am.”

161. At 08:14, Steve Ng replied:

“ Send to me by 10 o’clock, ok?
I have a meeting with a client at 10 o’clock.”

162. After that, Hung and Steve Ng had a telephone conversation at 09:18.

163. At 09:20, Steve Ng sent an audio message to Hung:

“ Does it require company stamp? I don’t know, it should require having company stamp for normal case. I’ll need to see and think as to what to do for you.”[24]

164. Meanwhile, at 10:23, Ivan Lau (a director of Tech-21) replied to Wong’s reminder of 15 July and stated that Tech-21 was not able to supply the required product in the tender. However, at 10:38, Ivan Lau e-mailed Wong to apologise for the confusion and stated that Tech-21 would be submitting a bid after all.

165. At 10:38, Hung e-mailed the bid documents that he had drafted for Tech-21 to Steve Ng (without the Compliance List). Steve Ng printed them off, signed and stamped them with Tech-21’s company chop, without making any alteration to the documents. At 11:07 Steve Ng sent Hung by WhatsApp a photograph of the sealed envelope, followed by a message “Finished”, and a little later texted him an address in Kwun Tong. After leaving SiS, Hung went to Kwun Tong to collect the envelope from Steve Ng and then went to YWCA to submit it, arriving late at 12:15.

(d) iCON

166. Hung also sent an e-mail to Mike Lam of iCON at 09:26 on 18 July, attaching a Form of Tender and Schedule of Rates he had largely filled in for iCON and stating:

“ Hi Mike,
Only two doc. Need your assist for sign and chop submission.
Call you around 10:00am.”

167. Hung did not go to iCON’s office that morning and, as it turned out, iCON did not submit a bid to YWCA.

(9) The aftermath

168. In the evening of 18 July 2016, Hung sent Chan a message that he had submitted three tenders from SiS, Innovix and Tech-21 and that iCON had told him they would do it themselves (although iCON did not in fact submit a bid in YWCA’s second tender). Chan replied: “Great. Thanks a lot!”

169. After YWCA opened the tender on 18 July 2016, it was found that bids from four invitees had been received, namely, BT, SiS, Innovix and Tech-21. Wong noticed that there were certain similarities between the tender submissions of these four companies. On Mak’s instruction, he compiled a table detailing these similarities.

170. On 21 July, Mak made a complaint on behalf of YWCA to the Commission about suspected bid-rigging by the four companies. The complaint was kept confidential among a few senior people within YWCA. The ISD was not informed. Mak told Lok there was a problem with the second tender because most tenderers did not put in a price for the optional items including the Nutanix server system for the Kowloon Centre. In response, on 26 July, Lok emailed Mak asking that the APD simply compare the tenderers’ prices of the mandatory items only and speed up the tender evaluation process, as there was urgency in installing the CRM and other new applications on the Nutanix platform.

171. Subsequently YWCA decided to hold a third tender for the supply of the Nutanix system. On 3 August, upon Percy Ng’s enquiry, Lok told him that it was likely YWCA would issue a third tender because not every return bid had submitted the answers YWCA required in the second tender, and asked for his opinion. Percy Ng told Lok that the easiest thing would be to ask those who had replied to provide the price of optional Nutanix equipment and nothing else, adding: “Then, we can help to ensure that a prompt response can happen timely.”

172. On 4 August, Percy Ng texted Lok:

“ Alan, the Nutanix manager helping us on the tender will be away to US for next week. Please see if the clarifications can be out by tomorrow or not.”

173. On 4 August, Mak called Percy Ng and told him YWCA’s intention was to issue a third tender.

(10) The third tender

174. On 28 July 2016, for the purposes of the third tender, Mak asked Erica Chan of Nutanix for a list of local dealers in Hong Kong to conduct a tender exercise. On 29 July, Erica Chan replied to Mak (copied to Hung) with the contact details of BT, SiS, Innovix, Tech-21 and Expert Systems Ltd.

175. On 2 August, Mak wrote again to Erica Chan saying it did not need to be the Dell-Nutanix server and that the Lenovo-Nutanix and Nutanix-NX server were also acceptable. He asked for a supplementary list of Nutanix’s authorised sellers or partners instead of the five names supplied on 29 July.

176. Meanwhile, Lok had revised the technical specifications for the third tender and asked the APD to put out the tender as soon as possible. In an effort to attract a greater number of bids, the scope of the third tender was narrowed down. Certain software elements included as optional items in the second tender were removed.

177. On 8 August, Erica Chan sent Mak a list of 41 firms. The APD selected a total of 17 firms to which an invitation to bid in the third tender was sent on 9 August. They included BT, SiS, Innovix and Tech-21, as YWCA did not wish to alert them to the fact that YWCA suspected they had attempted bid-rigging in the second tender, though YWCA would not consider any bids received from them.

178. On 9 August, the Commission executed a search warrant in SiS’s office.

179. Upon the closing date of 23 August, it was found that only one firm (IT Channel (Asia) Limited) had submitted a bid. The type of equipment offered was the Nutanix-NX solution at $[●] or $[●] per node ($[●] or $[●] for three nodes) which was substantially higher than BT’s bid with the Dell-Nutanix solution in the second tender.

180. YWCA decided not to award the third tender or conduct a further tender exercise. Instead, with authorisation of the FAC, YWCA approached Dell directly to arrange the acquisition of the Dell-Nutanix solution. Eventually, on about 16 November 2016, YWCA acquired three units of the Dell-Nutanix solution for the Headquarters through a Dell re-seller, CriticMission Data Limited, at $[●] per node ($[●] for three nodes). A month later, YWCA purchased another three nodes of Dell-Nutanix solution at a similar price for the Kowloon Centre. There were only minor differences between the technical specifications for the second tender and the eventual purchases. The ultimate purchases included a slightly different version of the processor (with no material difference), seven additional TBs of HDD capacity, and five instead of three years of maintenance support.

E. AGREEMENT BETWEEN NUTANIX AND BT

181. This section deals with the agreement Nutanix came to with BT. The next three sections will deal with the equivalent question with regard to SiS, Innovix and Tech-21 respectively.

182. The Commission contends that there was an arrangement between Nutanix and BT whereby they agreed to distort the competitive process of the second tender by seeking to obtain a number of bids that were not independently arrived at just to make up the numbers; BT provided commercially confidential information to Nutanix in order to assist; both the objective purpose and subjective intention of the arrangement were to procure four dummy bids (i.e. non-genuine bids) so as to assist BT in winning the second tender.

(1) The communications

183. The principal facts have been set out in Section D(7) above.

184. The first tender failed because there was only one bid, by BT. On 5 July 2016, Chan learnt the result of the first tender and the reason. He was also asked by Lok to provide names of suppliers for the purposes of a second tender. Chan spoke with Hung and they agreed Hung would obtain bids from certain friends. Chan then followed up within an hour with an e-mail to Hung that set out BT’s proposed bid prices for the server and for the 4^th and 5^thyears’ maintenance, adding that once he finished the whole table, he would share it with Hung so that he could “give the quotation to [his friends] to just fill in”. At the end of that day, Chan texted Percy Ng that he (Chan) had asked Hung “to provide dummy bids from 4 of his partners”.

185. After the invitation to tender was issued on 8 July 2016, Hung asked Chan for a “sample” of what BT would submit, and in the next few days Chan sent him BT’s completed Schedule of Rates. Chan also offered to help prepare the documents for Hung’s friends if they could provide him with “the figure”, adding “don’t forget to markup at least 30% on top of mine”. On 13 July he provided Hung with a complete set of documents in order to “make life easy for [his] friends”.

186. On 15 July, Friday, the day before he went on leave, Chan sent Hung two Compliance Lists for SiS and Innovix respectively which Chan had completed in such a way that the documents would not look “suspicious”. He told Hung to use the same approach for his other two friends. At the end of that day he reminded Hung to submit the bids before noon on Monday (18 July) or else “all effort will be in vain”.

187. Hung prepared the bids for SiS, Innovix and Tech-21 including the bid prices, procured them to be signed by Shek, Siu/Cheung and Steve Ng respectively and submitted them to YWCA on 18 July 2016. Hung reported to Chan that he had submitted three tenders from SiS, Innovix and Tech-21 and that iCON had told him they would submit it themselves.

(2) Absence of Hung as witness

188. Before discussing the evidence it is convenient at this point to deal with two evidential points. The first arises from the absence of Hung at the trial; the second is related to Chan’s status as a witness called by the Commission.

189. Hung was at all material times and up to around July 2017 an employee of Nutanix. Eventually he did not give evidence at the trial of this matter. It was accepted by the Commission that as a result, no weight should be attached to his interview records at all. Some of the respondents have, however, further submitted that (i) adverse inferences should be drawn against the Commission from its failure to call Hung; and (ii) any doubt arising from the absence of Hung should be resolved in favour of the respondents. To assess this submission, it is necessary to outline the relevant procedural steps.

190. Hung was interviewed by the Commission pursuant to s 42 of the Ordinance on 21-22 February 2017, accompanied by two solicitors from Latham & Watkins who have also been acting for Nutanix throughout these proceedings. The Commission’s Originating Notice of Application made references to certain statements made by Hung in the interview. There was subsequently a dispute as to whether the record of Hung’s interview was inadmissible against Nutanix in these proceedings by virtue of the prohibition against direct use in s 45(2). This Tribunal ruled that s 45(2) rendered Hung’s statements inadmissible against himself as the person compelled to answer questions but not inadmissible against his employer Nutanix: see the Tribunal’s decision dated 3 October 2017.

191. At an earlier stage of these proceedings there was some uncertainty as to whether and how the records of interview of various persons might be adduced as evidence. Upon the insistence of the respondents, the Commission indicated it was prepared to call Hung and applied for a witness summons for that purpose in December 2017, but as Hung did not provide a statement, the Commission applied by summons in April 2018 to adduce evidence from him without a statement. That application was not opposed by the respondents except SiS, who submitted, presciently, that it would be an “exercise in futility” because Hung would claim privilege and refuse to answer any questions at all. It was only in May 2018 that the Commission came to agreement in principle with Hung that he would provide a statement and give evidence at the trial in return for the Commission’s undertaking not to bring any proceedings against him under the Ordinance in connection with YWCA’s tender.

192. On 1 June 2018, the Commission’s lawyers provided a draft witness statement to Hung’s then lawyers (Sidley Austin), who reverted with comments on 4 June in the form of extensive deletions from and additions to the draft. The Commission responded on 6 June stating that it “does not consider that the revised draft fully and truly reflects the answers provided in [Hung’s] two interviews with the Commission on 21 and 22 February 2017”. It was therefore not prepared to grant him immunity. The Commission declined Hung’s lawyers’ request to identify which of his comments were considered unacceptable, stating that its position was “self-evident” from the draft it prepared. The Commission indicated that it would instead call Hung as a witness and examine him at trial without reliance upon a signed statement from him, whereupon Sidney Austin gave notice by a letter dated 15 June that Hung intended, when called upon to testify, “to invoke his claim for privilege against self-incrimination as regards any questions directed at his involvement in the invitations to tender issued by YWCA in 2016”.

193. In the light of that indication, on the first day of the trial the Commission decided not to call Hung to testify, accepting that as a consequence no weight should be attached to his interview records at all. None of the respondents took up the opportunity offered to call or require Hung to be tendered for cross-examination. Nor did the Tribunal propose to call Hung of its own motion. As a consequence Hung did not appear at trial to testify.

194. In these circumstances it would not, in my opinion, be justified to draw any adverse inference against the Commission from the decision not to call Hung as a witness. Granted that the Commission is a public body, not a private litigant, it was nevertheless not bound to put forward any statement that Hung had prepared if it believed that it did not properly reflect the information provided in his earlier interviews with the Commission. The Commission intended to call Hung without adopting his statement but, in light of the intimation that he would claim privilege in relation to any questions about his involvement in the tender, the Commission was entitled ultimately to take the view that calling him would not be a useful exercise. Furthermore, the Commission’s position was subject to the caveat that if any of the respondents wished to question Hung, he should attend the trial.

195. While Hung was a central player in the events in question, I do not consider that his absence from the trial precludes the Tribunal altogether from drawing inferences, one way or another, in relation to matters of which he has knowledge. It seems to me the Tribunal should simply assess and evaluate the available evidence as a whole, drawing inferences from primary facts where it is appropriate to do so, but without taking account of Hung’s interview records.

(3) Whether the Commission may impugn Chan’s evidence

196. Chan was at all material times and up to the time of trial an employee of BT. He had been on garden leave since the Commission’s investigation of BT began.

197. He was interviewed (in English) by the Commission under s 42 of the Ordinance on 25 January 2017 accompanied by a partner of Baker & McKenzie as BT’s external lawyer. He gave the Commission a signed witness statement (in English) dated 7 December 2017. There were certain passages in earlier drafts prepared by the Commission which he asked to remove. He was still in the employ of BT though he was not called by BT, but by the Commission, to give evidence at trial.

198. Arguments were raised in closing submissions as to whether it was open to the Commission to advocate for a version of the facts which, according to the respondents, was contradicted by Chan’s evidence in chief or in re-examination. I shall come to the specific points in issue further below but I set out here the principles by which I propose to be guided.

199. The legal position, so far as relevant, seems to me to this. There is nothing to prevent a party in the position of the Commission from calling a witness whose evidence is regarded as in part worthy of belief and reliable but not wholly reliable. A party, however, cannot (without obtaining leave to treat the witness as hostile) seek to discredit his witness, i.e. contend that evidence given in chief by a witness he has called is untruthful, though he may suggest, by calling contrary evidence or by inviting an inference, that such evidence, albeit honestly given, is mistaken, unreliable or an innocent exaggeration, provided that care is taken to avoid surprise and hence injustice to the other parties. Ultimately, the Tribunal is not bound to accept the evidence of any witness in full. There is nothing to prevent the Tribunal, upon evaluation, from accepting parts of a witness’s evidence and rejecting other parts, or placing different weight on different aspects of his evidence: The Filiatra Legacy [1991] 2 Ll R 337, §§361-362; Secretary for Justice v Tang Sau Ling [2013] 2 HKLRD 174, §§36-40; China Shanshui Cement Group Ltd & Others v Zhang Caikui & Anor[2018] HKCFI 444, §87.

(4) Discussion

200. It is not in dispute that there was an agreement between Hung and Chan. As to what that agreement was, the principal source of evidence is Chan and the contemporaneous documents.

201. Chan gave evidence both in his witness statement and in his answers during his interview by the Commission which he confirmed in evidence to be true unless corrected by his statement. In his witness statement (§27), Chan said:

“ On the same day [i.e. 5 July 2016], I informed Thomas Hung of Nutanix (“Thomas”) that the return bid submitted by BT failed because it was the only bid submitted in response to the First Tender and that YWCA required a minimum of five tenders to be submitted. I therefore asked Thomas to help find four Nutanix partners to submit bids to make up the required minimum number of tenders. Thomas agreed to help and told me he would find a few friends who work in Nutanix’s distributors, resellers or systems integration partners to submit bids to do so. He asked me to provide him with the relevant information I had relating to the YWCA tender and to show him how to fill in the tender documents. I asked Thomas to provide me with a list with contact details of the four bidders that day. I cannot now recall whether this particular discussion took place at a meeting or over the telephone but Thomas and I had a few meetings at BT’s office and a number of telephone conversations to discuss matters relating this.”

202. It was submitted by the respondents that this paragraph of Chan’s statement (and his interview records) did not suggest there was any reference to “dummy bids” in his conversations with Hung. When his statement was being prepared, Chan declined to accept a sentence in the draft that read: “I therefore asked Thomas to help find four Nutanix partners to submit dummy bids to make sure BT wins this deal”. I note however that Chan appeared deeply embarrassed when he was testifying with regard to his communications with Hung. He had a clear motive to legitimise his actions and lessen his responsibility, apart from being still in BT’s employ. It is necessary to have regard to the totality of his evidence, the documents and intrinsic probabilities, and not just a particular passage or a specific omission in his statement in isolation.

203. It is clear that Chan’s intention was that these bids from Hung’s friends would be “dummy bids”. Chan himself, in his message to Percy Ng on 5 July 2016, described his arrangement with Hung as being for “dummy bids from 4 of his partners …” (see §117 above). Chan accepted that when he sent this message to Percy Ng, he (Chan) knew that the bids that the four partners were to submit would be dummy bids.[25]

204. As to what Chan meant by dummy bids, he said in his statement at §31, which he re-confirmed in re-examination:

“ When I referred to ‘dummy bids’, I meant that Thomas’s friends would be submitting bids as a favour to him just to make up the numbers, without any expectation of winning the bids and with the knowledge that the prospects of winning the bids would be low (although in the unlikely event that the bids had been successful, I would have expected that they would have been honoured).”

205. Chan had also explained in his interview as follows:[26]

“ Q: But you used ‘dummy bids’, what’s the meaning of ‘dummy bids’?
A: There is a better description in Chinese, which is 陪跑bid [also-ran bid], ok. So I don’t know how that in English, so that’s why.
…
Q: So from my understanding is if you say it’s 陪跑bid [also-ran bid], then that means the chance to win the tender will be low.
A: Yes, yes. Like I said, it is a natural sort of thing that I explained to you earlier. If a company don’t see any win chance, they simply would not bid, the whole reason why they bid is because they were doing a friend’s favour, that’s all there is.
Q: So that’s, so that’s a dummy bid.
A: Yes, yes.”

206. This is consistent with Percy Ng’s understanding of what Chan told him, namely, that Hung would help BT find four bidders who were willing to be “also rans” so that sufficient bids would be received by YWCA to fulfil the requirement of the tender. Percy Ng’s evidence in this regard was not challenged in cross-examination.

207. Terms such as “low” prospects and “unlikely” event of winning involve questions of degree. As explained in his interview, Chan’s expectation was that the dummy bids were so unlikely to win that the bidders would not even want to “waste the taxi fare to physically go and submit” the bids and that instead Hung would collect the tenders and submit them to YWCA.[27] It is to be noted that in fact, Hung offered to repay Shek his taxi fare for going to YWCA and that Hung delivered Tech-21’s bid to YWCA.

208. Chan’s understanding with Hung can further be seen from what he went on to do with Hung. Immediately after their conversation on 5 July 2016, by email at 16:14 Chan informed Hung of BT’s bid prices and also that BT would be tendering the Dell-Nutanix solution, and said he would share with Hung the whole table when finished so that he could “give the quotation to [his] friend to just fill in”. This can be contrasted with the email he sent Lok shortly afterwards at 16:22 in which he took care to set out only the technical specifications of the Nutanix node, and nothing on price. If Chan had wanted to send Hung only the specifications, he could have done it in the same way. By e-mails dated 10 July and 11 July (see §§130-131 above), Chan sent Hung copies of BT’s completed Schedule of Rates (among other things), again with the actual prices that BT intended to submit to YWCA, saying it was the template he had prepared for Hung’s friends to fill in.

209. BT’s bid prices included not only the cost of the Nutanix software but also the cost of the Dell hardware and BT’s own mark-up margin on both components. Thus Chan was quite willing and indeed anticipated that the content and prices of his bid would be shown to the friends. As Chan accepted in his evidence, it would not be necessary for him to reveal BT’s prices if the agreement was simply to find four companies which would formulate and make their own bids. Nor was it necessary for him to send BT’s prices to Hung for any legitimate purposes between BT and Nutanix unrelated to friends’ bids.

210. Then there was also Chan’s e-mail of 11 July to Hung (see §131 above), where Chan stated:

“ If your friends run into any problem, I can help to pdf them if they can provide me with the figure. And don’t forget to markup at least 30% on top of mine.”

In his evidence, Chan confirmed that the “figure” was the bid price that the friends would be submitting to YWCA. In the context of this e-mail and the documents attached (in particular the Schedule of Rates filled in by BT), what was written was, on an objective and natural reading, clearly a request to ensure that Hung’s friends would tender prices that were at least 30% higher than BT’s bid prices. The documents attached to the e-mail did not set out BT’s cost, but did set out the prices that BT was going to tender to YWCA.

211. In his interview and in his statement, however, Chan said that he made a mistake in the language and that what he really meant was to remind Hung to mark up the prices that Nutanix would charge his friends by at least 30% over BT’s cost.

212. The respondents submitted that the Commission cannot disown or contradict the contents of Chan’s witness statements. Three points may be made here. First, I accept that on such a matter as what Chan meant by the words he used, it is difficult for the Commission to invite the Tribunal to reject the evidence on the ground that Chan’s memory was not reliable or that his evidence was mistaken. In submitting that Chan’s suggestion is “not credible”[28] the Commission came close to saying Chan was untruthful on this point, which was not permissible. Further, no prior notice was given that the Commission intended to submit that Chan’s evidence on this point should be rejected as incredible. For these reasons, while I have grave doubt on the veracity of the explanation offered by Chan (who was very good at English), I shall proceed on the basis that he did in fact subjectively mean to remind Hung to mark up the prices that Nutanix would charge his friends by at least 30% over BT’s cost.

213. Secondly, whatever the subjective thinking of Chan might be, what the request objectively conveyed to Hung was clear, namely, a request to ensure his friends’ bid prices would be at least 30% higher than BT’s. This is entirely consistent with Chan’s evidence, which claimed he made a mistake in expression.

214. Thirdly, even on the basis that Chan requested Nutanix to mark up its price to the friends by at least 30% over BT’s cost, it would nonetheless be for the purpose of ensuring that the friends’ bids would not win — by making sure that their bid prices would be higher than BT’s or at least not lower than BT’s by a sufficient margin to overcome BT’s other advantages. Chan explained in his evidence that even if the friends’ bid prices were lower than BT’s, then provided they were “very close” (within 1% or 5%), he was confident BT would still win. In Chan’s words during his interview, “as long as there is a 30 per cent difference between their cost and our cost, then we should be fine, so everyone should be safe, yes, if you know what I mean”.[29] In his evidence Chan also said the request was to satisfy Dell that it was given a deep discount but he did not say, nor I do not accept, that this was the sole purpose.

215. In his interview Chan also said that the request to make sure the other bidders’ cost would be at least 30% more than BT’s came from Dell, which I do not accept. But he also said he reasoned that Dell did not know they were dummy bids because “if they know it’s a dummy bid, they don’t have to remind me of this…”.[30] This shows that Chan intended that the dummy bids were not supposed to win.

216. Of course, to ensure everyone was “safe”, from Chan’s point of view the chances of BT being accidentally defeated by a dummy bid should be as “low” and as “unlikely” as possible, although obviously the dummy bids’ prices should not be so out of the range as to arouse suspicion on the part of YWCA. In the contemporaneous communication, Chan had referred to avoiding suspicion, albeit not in relation to pricing (see his e-mail to Hung at 19:14 on 15 July 2016 and also the audio message on the same date referred to in §§135-136 above).

217. Furthermore, Chan did not only provide his own bid prices to Hung and requested the mark-up for the friends, he also helped prepare documents for the friends. In his evidence,[31] Chan explained that he sent Hung a set of largely completed tender documents that BT were going to submit “to help his friends to fill in those documents”, although he wanted BT to win the tender. From Chan’s point of view, he would not have gone to such lengths to assist Hung’s friends absent an arrangement with Hung that the friends would merely be submitting bids that were intended not to win but to help BT win. In his interview Chan accepted that he “prepared all these documents for Thomas to assist him to submit some dummy bids”.[32] He also said that if Hung’s friends were submitting “a genuine bid”, he would not have helped them.[33]

218. Chan also explained in re-examination that he did not just leave it to SiS and Innovix to complete their own tender documents because he “knew that they would not spend any time at all to read these things”. He also said in his interview that if he did not help, they would not do it properly,[34] and he was worried that Hung would “just copy and paste” what Chan had given him.[35] In his statement, Chan states: “I deliberately changed the wording in each of the documents for Thomas because I wanted to avoid having identical documents submitted, as that would arouse suspicion with YWCA”. Quite plainly Chan considered that SiS and Innovix would not genuinely be submitting bids to compete and believed they knew they were to submit dummy bids just to make up the numbers. Chan knew what he and Hung agreed was not acceptable and would fail to mislead YWCA if it found out.

219. In his statement, Chan said he believed that each of SiS, Innovix and Tech-21 knew that the bids submitted by them were dummy bids in the sense he had described, and he suspected that Innovix also knew that this was to help BT win the tender. Leaving aside their evidential value on the knowledge of SiS, Innovix and Tech-21, these statements are clearly evidence of Chan’s own understanding as derived from his arrangements with Hung.

220. In his audio message to Hung and e-mail to Percy Ng on 15 July 2016, Chan emphasised the need to submit all four bids by the deadline on 18 July, otherwise all the efforts would “go to waste” and be “in vain”. In his interview Chan explained that he was concerned that if the tender was not successful, there might be a third tender, and that BT might not be able to participate as “no company can afford to do one bid three times”.[36]

221. For their part, Nutanix submitted that the only agreement between Hung and Chan is that, in light of YWCA’s requirement of a minimum of five bidders, Hung agreed that he would try to find four Nutanix partners who would submit bids in the second tender.[37] Nutanix submitted that there is no evidence to suggest that Chan and Hung had any meeting of minds that the bids would not be genuine.[38] It was said that Hung knew YWCA had selected Nutanix software and in all probability Nutanix would receive an order from a partner for its software to be supplied to YWCA, and that there was little incentive or reason for Nutanix to engage in anti-competitive conduct.

222. Having regard to the actual evidence, I am unable to accept this submission. Nutanix was very keen to make sure that BT would win the deal. On 5 October 2015, when there was still concern whether YWCA could afford to purchase a Nutanix solution, Edward Yeung (Nutanix’s Managing Director for Hong Kong and Taiwan) stated in an e-mail to Percy Ng (copied to Chan and Hung) headed “YWCA”: “Just tell us how we can help you win … Whatsapp me what you need and will try to help”. A few days later, Edward Yeung sent an e-mail to Hung headed “What do you need to close YWCA”, stating: “If we must win this with BT. How?” In early February 2016, Percy Ng e-mailed Edward Yeung and Hung that BT had just lost a deal on Nutanix solutions: “It’s a pity to all of us. Let’s get some new wins in the new year of monkey shortly”, to which Edward Yeung replied (copied to Chan and Hung and other Nutanix staff): “Thanks for your efforts and the opportunity. It is a pity. Yes we need to win YWCA”.

223. It is plain that Hung agreed with Chan to make the arrangements not only to ensure there would be at least five bidders so that the second tender would not be abortive, but also that the friends’ bids were not intended to win or would not win. In Hung’s e-mail on 8 July 2016 (§122 above), he told his colleagues he was assisting by asking four Nutanix channel partners to take part in the second tender “to make sure Dell win the deal”. In referring to Dell, Hung meant the BT/Dell bid. Hung knew that YWCA wanted the Dell-Nutanix solution. He had specifically learnt from Percy Ng in relation to the first tender on 21 June 2016 that YWCA wanted a Dell-Nutanix solution. The proof-of-concept equipment on loan to YWCA was Dell-Nutanix servers. Chan had also told Hung on 5 July that BT was proposing the Dell-Nutanix solution in the second tender. Yet, of the four sets of tenders Hung prepared for his friends, three offered the Nutanix-NX solution; only Innovix’s bid offered the Dell-Nutanix solution. As for Innovix’s bid, in his e-mail to Siu at 09:16 on 18 July 2016, Hung made clear who was to win: “We help BT to bid for Dell deal”. Hung had also, of course, with knowledge of BT’s bid, determined the bid prices of SiS, Innovix, Tech-21 and iCON that were, for the main item (2.1), 44.6%, 16.7%, 27.7% and 27.7% higher than BT’s respectively (see the table in §139 above). Innovix’s bid also had the highest price for the 4^th and 5^thyear’s maintenance, which was exactly 20% higher than BT’s.

224. The contents of the tender documents Hung prepared for SiS, Innovix and Tech-21 are also telling, as will be seen below. Had they been intended by Hung to be genuine bids representing those firms’ real attempt to win business, they would not have been such botched documents, as described in sections F, G and H below. For the Compliance List, he used those prepared by Chan for SiS and Innovix. He did not prepare a Compliance List for Tech-21 at all with the result that it was missing from its bid.

225. The respondents relied on the fact that in preparing his statement with the Commission, Chan had declined to include the words “submit dummy bids to make sure BT wins this deal” or to equate “dummy bids” with “non-genuine bids”. From the totality of the evidence, however, it is entirely clear that it is both an objective and a subjective aim of the agreement to submit bids that would not be counted but would not win, the natural consequence of which was that BT would win. Further, while it could be said that the dummy bids were real in the sense that they were capable of being accepted by YWCA and, if accepted, would become binding on the bidders, they were not genuine in the sense that they were not intended to win.

226. The respondents also submitted that bidders often enter a tender with a low expectation and low prospects of winning, that there can be no suggestion there is anything anti-competitive merely because bids were submitted with a low prospect of success, and that at least in the case of Siu (Innovix), his experience in practice was that out of the many quotations he provided, only a very few would end up in purchase orders. As can be seen from the evidence, however, this is far from the facts of the present case.

(5) Conclusion

227. Taking account of all the evidence, I have no doubt that Chan and Hung came to an arrangement that bids were to be submitted from Hung’s friends solely to make up the numbers to make the second tender valid. The bids were not intended or supposed to win. They were to have such a low prospect of winning that it would be safe, and they would instead enable BT to win. The fact that, in the unlikely and wholly unintended event that a dummy bid won the tender, it would be honoured, does not mean that it was intended to win or was a genuine bid in the relevant sense.

228. In my view, the evidence overwhelmingly demonstrates, and I find, that there was an agreement or concerted practice between Chan and Hung:

(1)  Chan and Hung both knew YWCA had a requirement of a minimum of five bids and the first tender had failed because there was only one bid, from BT.
(2)  For the second tender Chan and Hung agreed to procure from four friendly Nutanix channel partners (i.e. SiS, Innovix, Tech-21 and iCON) a dummy bid each.
(3)  Chan and Hung were of one mind that these bids were not intended to win, were to have such low chance of winning that they would make sure that BT win, and were submitted solely for the purpose of making up the numbers to meet the 5-bid requirement so that the second tender would be valid and BT’s bid would win.
(4)  Chan provided commercially confidential information (including BT’s own bid prices) to Hung for the purpose of their agreement, and, to make sure the friends’ bids would not outbid BT, he asked Hung to ensure the friends’ bid prices (or, in Chan’s mind, their cost) were marked up by 30%.
(5)  With knowledge of BT’s bid including the prices, Hung prepared the friends’ bids, inserting bid prices ranging from 16.7% to 44.6% higher than BT’s.
(6)  Chan and Hung also agreed to use the documents filled in by Chan (i.e. the Compliance List) for two of the friends (SiS and Innovix).
(7)  Chan and Hung intended that YWCA would, without its suspicion being aroused, take the dummy bids as genuine and count them towards the required number.
(8)  As agreed, Hung procured bids from SiS, Innovix and Tech-21 which were not genuine, but failed eventually to procure a bid from iCON.

F. AGREEMENT BETWEEN NUTANIX AND SiS

229. This section deals with the agreement between Hung and Shek. The question whether Shek’s acts are attributable to SiS is dealt with in section I below. The Commission contends that Hung and Shek made an agreement for Shek to submit a non-genuine bid just to make up the numbers in the second tender.

230. The basic circumstances in which Shek came to submit a bid in the name of SiS are not in dispute. The telephone conversation between Hung and Shek on 17 July 2016 and what they did the following day have been set out in §§149-157 above.

231. Hung prepared the tender documents to be submitted in the name of SiS, including the prices in the Schedule of Rates. The bid offered Nutanix-NX equipment, not Dell-Nutanix. The price inserted for the main item (2.1) — as determined by Hung — was 44.6% higher than BT’s. Shek knew that YWCA wanted to purchase Dell-Nutanix equipment, and that Dell had a deal registration with Nutanix.

232. Shek printed off the documents from Hung’s e-mails on the morning of 18 July 2016 but did nothing to them on his own until Hung arrived at SiS’s office in Chai Wan shortly after 11:10. When they met, time was short. Hung told Shek where to sign and fill in the information required, and Shek did so without making any changes to the information set out by Hung. Shek looked at the documents but not in any detail. The whole process took only minutes — they had already parted by 11:24. They were in real haste because there was a deadline for submission of the tender at 12:00. Shek had to go to YWCA in Mid-Levels to deliver SiS’s bid and another bid Hung entrusted him with (which was in fact Innovix’s), while Hung had to collect Tech-21’s bid in Kwun Tong before taking it to YWCA. Hung offered to reimburse Shek for the taxi fare.

233. Shek said that his understanding was that SiS’s bid was “just to make up the required number”[39] and that he had never thought of winning the tender. This is why the details (including the bid prices) were not of concern to him. Indeed, Shek said he believed Hung had put in very high bid prices in SiS’s bid so that it would not be selected by YWCA. Hung did not tell Shek, and Shek did not know, which other companies were also submitting bids. But Shek clearly knew there was some requirement in connection with the tender that there had to be a certain minimum number of bids.

234. I bear in mind that Shek was an immunised witness and that, as such, his evidence must as a general rule be approached with caution: HKSAR v Shek Ka-kwan (CACC 438/2014; 27 January 2017). Not surprisingly, Shek’s credibility has been heavily attacked by SiS but, importantly, not with respect to his evidence of what he had agreed to do with Hung. In SiS’s submission, the common theme around the matters on which Shek had been untruthful is that they either seek to tie SiS to his own wrongdoing, or else to minimise his own role in it.[40]

235. Shek’s evidence on what Hung told him and asked of him on 17 and 18 July 2016, and his evidence on purpose of SiS’s bid and that he never intended or believed SiS’s bid would win, seems to me to be entirely consistent with the other facts. No one challenged Shek in cross-examination with respect to that evidence. Indeed, in its pleaded case SiS relied on Shek’s evidence in that regard in order to explain why he concealed his actions from SiS.[41] I accept that evidence.

236. Furthermore, as SiS pointed out, the tender documents Hung prepared for SiS were replete with errors: for example, the business registration filled in had an expired validity date; the technical proposal misstated SiS’s name as “SiS Distributor Limited” rather than “SiS International Limited”; the Supplier Profile Form stated SiS’s work schedule to be 30 days per month and 24 hours per day. This fortifies Shek’s evidence on the nature of the bid Hung told him to sign and submit.

237. On the evidence, I find that:

(1)  Pursuant to his agreement with Chan, Hung needed to procure Shek to submit a dummy bid in the name of SiS.
(2)  Shek knew that a certain minimum number of bids were required in the YWCA tender.
(3)  At Hung’s request, there was an agreement between Hung and Shek that Shek would submit a bid in SiS’s name to YWCA just to make up the numbers but not genuinely to compete in the tender. Neither of them had any intention or expectation that SiS’s bid would win.
(4)  As they both knew, SiS’s bid documents, and in particular the bid prices, had been provided by Hung. They were not prepared by or in consultation with Shek or anyone else in SiS.
(5)  Hung knew BT’s bid prices and that YWCA preferred the Dell-Nutanix solution. He had prepared SiS’s bid in such a way that it would offer the Nutanix-NX solution and at a price 44.6% higher than BT’s bid.
(6)  Shek did not know BT’s bid prices or indeed that BT was bidding, but he knew SiS’s bid was not intended to win – it was submitted solely to help ensure the tender was valid and that someone else would win.
(7)  Both Hung and Shek intended that YWCA would treat SiS’s bid as a genuine bid and count it towards the required number.

G. AGREEMENT BETWEEN NUTANIX, BT AND INNOVIX

238. This section deals with the agreement involving Innovix. The basic facts concerning Innovix’s bid in the second tender are not in dispute and have been set out in section D(8)(a) above (§§141-148). The Commission contends that there was an agreement or concerted practice among Nutanix, BT and Innovix for Innovix to submit a non-genuine bid to YWCA to help BT win the tender.

239. Innovix raised an objection that it was not open to the Commission to advance a case of concerted practice because “concerted practice” was not mentioned in the Originating Notice of Application. I reject this objection. While the Originating Notice of Application referred to an “arrangement” between Nutanix, BT and Innovix, the Commission’s Reply made it clear that it was alleging agreements or concerted practices. The basis of the Commission’s argument, both formal and substantive, was clear to Innovix on the pleadings.

240. Again, Hung had prepared the tender documents to be submitted by Innovix, including the prices in the Schedule of Rates. The prices inserted were 16.7% higher (for the main item – Item 2.1) and 20% higher (in respect of annual maintenance for the 4^th and 5^thyears) than BT’s prices. Hung emailed the tender documents he had prepared to Siu and Cheung on 18 July 2016. Later, in Hung’s presence, Siu filled in the blanks and signed the tender documents (except the Supplier Profile Form which was signed by Cheung). Hung took away the tender documents, which were eventually delivered by Shek to YWCA together with SiS’s bid.

241. Siu and Cheung were called by Innovix to give evidence at trial. Siu was a Product Manager of Innovix. He explained that Innovix was both a distributor and re-seller of IT products. His team, being one of two such teams in Innovix, was responsible for a number of brands of products including Nutanix, and handled a large number of transactions every year (eg around 5,800 purchase orders in 2016) and several hundreds of requests for quotations and other enquiries from customers each week. Although he rarely came across tenders, he considered his role to be the same, ie to provide a quotation for the customer’s consideration. In the case of Nutanix products, Innovix had to ask Nutanix for a quote in order to pursue any business opportunity.

242. Siu was involved in providing quotations for the Nutanix-NX solution to BT for the YWCA opportunity in the summer of 2015 (see §§93-100 above), but by early January 2016 he had learnt that YWCA wanted a Dell-Nutanix solution instead. He said that this meant the end of his team’s involvement because another team in Innovix (in particular, Jacky Lee’s) was responsible for Dell products. He said that after passing to Jacky Lee at the end of January 2016 the e-mails on technical issues between Innovix, BT, Nutanix and YWCA, he did not have any further involvement with the YWCA opportunity until July 2016. He was not aware of the first tender.

243. Cheung received the invitation to the second tender from YWCA and passed the documents to Siu. As to the telephone conversation with Hung on around 14 July 2016 in which he mentioned YWCA’s tender invitation and Hung said he would “handle” it (see §141 above), Siu said he understood Hung to mean that Nutanix would decide whether to provide Innovix with a quotation and revert to him.

244. Siu explained that he was not feeling well on the morning of 18 July 2016 and arrived in his office at around 10:00. He said shortly after opening the attachments to Hung’s two e-mails at 09:16 and 09:59 that morning, Hung arrived at Innovix’s office. In his statement he said he had no recollection of reading the sentence “We help BT to bid for Dell deal” which appeared in the first e-mail or hearing it from Hung. In his oral evidence he positively said he did not read it. He further said in his statement: “Even now, after my attention has been drawn to this sentence, I do not understand what the phrase was intended to mean and I have no idea what Hung meant by that”.

245. Siu went through the tender documents with Hung in the meeting room (except the Technical Proposal which Hung prepared without showing Siu). He said Hung was clearly in a rush and kept telling him to hurry in completing the papers. Siu said the entire process, lasting no more than 20 to 30 minutes, was quite hectic and he had to run around the office to obtain the missing information such as the business registration records and to ask Cheung to sign one of the documents. Siu did not change the prices filled in by Hung and although Siu did not recall discussing Innovix’s margin with Hung, he said he felt “comfortable” that Innovix would end up with room for its margin if it won the tender. Hung offered to deliver the tender documents to YWCA and, as Siu was not feeling well, he had no objection.

246. Siu said he was not at that time aware that BT was also a bidder in the second tender, that anyone had a deal registration with Nutanix relevant for the second tender or that YWCA’s procurement rules required at least five bids for a valid tender. He considered that whether anyone had a deal registration with Nutanix was not relevant to his decision-making process when providing quotations for Nutanix products. He believed he had “properly considered and completed” the tender documents for Innovix and that, once submitted, they would constitute “a genuine bid with a good chance of winning”.

247. Cheung was an Assistant Product Manager of Innovix. He worked with Siu in handling Nutanix products from July 2015 to the end of June 2016. His evidence was that he found Hung very pushy, scary and difficult to work with and that he agreed to stay on in Innovix beyond June 2016 only after it was agreed that he need not work on Nutanix matters from July 2016. YWCA’s second tender therefore took place during his transition period.

248. Cheung also recalled that in late 2015 he learnt that YWCA preferred the Dell-Nutanix solution and considered that thereafter it would be a matter for Innovix’s Dell team. When he received the WhatsApp message from Hung at 07:56 on 18 July 2016 (see §143 above), he told Hung to contact Siu. He arrived in the office at about 09:15 and then went out with his colleagues for breakfast before returning to the office at about 10:00. He had not read the two e-mails from Hung to Siu which were copied to him. He recalled that later that morning, Siu came to his desk and asked him to sign some papers, saying they were tender documents. Cheung signed them without paying any attention.

249. Cheung’s evidence was of peripheral relevance. As to Siu, I do not find him a reliable witness and in critical respects I do not believe his evidence. He was evasive during cross-examination. His answers do not hang together.

250. The WhatsApp message Hung sent him at 08:35 on 18 July 2016 began with the phrase “Need your help”. Hung was asking Siu for help; he was not offering help to Innovix to bid for the YWCA business. Siu’s response that he did not find those words surprising because if Innovix won the deal Nutanix would also have business, does not sit well with their description of Hung as “scary”, “aggressive” and “pushy”, or with Siu’s evidence that he was simply expecting Hung to help him by providing him with a quotation.

251. Siu had not even attempted to fill in the tender documents by himself prior to 18 July 2016. Although Innovix had not requested or authorised Hung to prepare a tender for it, Hung had taken it upon himself to do so, and had gone to the lengths of filling in the forms as far as he could including the prices. Siu’s claim that he was not surprised by this either was unrealistic if it was Innovix’s genuine bid. When asked whether it was a normal procedure at Innovix for an outsider such as Hung to draft Innovix’s tender submissions at his own initiative, Siu was unable to provide any credible explanation other than to say he found it “reasonable”. In fact he said he had rarely come across tenders, as opposed to requests for quotation.

252. The 09:16 e-mail from Hung to Siu expressly stated “We help BT to bid for Dell deal”. The e-mail also asked him to print two copies and he did so.[42] Since he said he was a person who disliked hardcopies, he would not have printed off two copies of the attachments unless he had read the e-mail. I do not find it credible either that he had no recollection of reading the sentence (as claimed in his statement) or that he did not read the e-mail (as claimed in his oral evidence). He was not able to give a satisfactory answer to whether it was his practice to open attachments without reading the text of e-mails. Just prior to the weekend, on around 14 July, Siu had asked Hung what should be done with regard to the YWCA tender which had a deadline of Monday 18 July noon. On 15 July, Friday, Cheung forwarded to Siu the reminder from YWCA (Wong) stating the Monday deadline and requesting for a tender. When he finally received Hung’s email on Monday he would have wanted to know how Hung wanted to “handle” the tender. I found that Siu did read it.

253. It is also not credible that Siu did not know what that sentence meant. It was a short, simple sentence. Siu admitted he knew what “BT” referred to. In writing it, Hung plainly thought that Siu would know what he meant. After all, Siu had been involved in helping BT with giving quotations to YWCA for the Nutanix system, and later learnt that YWCA wanted the Dell-Nutanix solution instead of the Nutanix-NX solution. He received the invitation to the YWCA tender and had asked Hung what should be done with it. On Monday morning the email to him had the subject of “YWCA Tender deadline today”, told him to “help BT to bid for Dell deal”, and attached completed YWCA tender forms for him to sign. Siu accepted that he had wondered from time to time what Hung was getting at, but could offer no alternative meaning. His claim that even after the Commission’s investigation and the commencement of these proceedings, and even as he was testifying in the Tribunal, he still had “no idea” what Hung meant, is to my mind utterly beyond belief. Plainly, as he well understood, it indicated to him an arrangement whereby Innovix was to put in a bid to YWCA, not to win but to help BT’s bid win.

254. The Schedule of Rates had been completely filled in by Hung, leaving only the signature. Remarkably on his case, Siu did not know how much Innovix would itself have to pay for the product. His explanation was that he took a look at the price in the Schedule of Rates, guessed the cost price which he thought would be “a bit more than HK$200,000” per node, and thought the tender price should be “okay”. I find this explanation wholly incredible.

255. The mark-up margin of Innovix is a matter for Innovix to decide. It is against business common sense that Innovix would submit a tender, with a price binding on itself, without even obtaining a quotation from the ultimate vendor. If Innovix’s bid was truly intended to be genuine, it is inconceivable that Siu would have taken no step at all to find out what Innovix would be charged for the product by Nutanix or Dell, particularly given the importance he attached to prices and numbers.

256. Since Hung was there in Innovix’s office, there was no reason why Siu did not obtain a quotation from him, which was what he claimed he thought Hung would revert to him with. In cross-examination, Siu said there was “not a word” discussed with Hung as regards the cost price for Innovix, but could not credibly explain why. Siu said he did not raise it with Hung because he (Siu) “did things based on trust”. He knew Hung would not let Innovix make a huge profit but trusted that he would give Innovix “at least a reasonable margin”. This is hard to believe given that, according to Siu, he did not like Hung very much at all and found him “pushy and aggressive”, and “scary and difficult to work with”.[43] Hung had previously repeatedly made demands to Innovix which required “huge resources” from Innovix but with “all too little benefit” to it.

257. It is also incredible that Siu could “guess” the cost price, as he claimed, because the evidence was that it would differ depending on which kind of hardware was employed — Dell, Lenovo or Nutanix. At one point in his oral evidence Siu said the price would be similar whichever hardware was used, but just a little later he said he knew YWCA had earlier opted for Dell partly because of the difference in price between Dell hardware and Nutanix hardware. There is no explanation why he needed to “guess” when Hung was right there at the office with him.

258. What was offered in Innovix’s bid was in fact the Dell-Nutanix combination, which means that Innovix would have had to source from Dell. The evidence from Nutanix (Frank Young III) was that for a Dell-Nutanix solution, the product (Dell hardware packaged with Nutanix software) would be sold by Dell directly who would pay a royalty to Nutanix for the software component. Siu did not know how much Dell would charge. In fact, on Siu’s evidence, what Dell would charge Innovix would never have entered Siu’s mind at all because he did not even notice that Innovix’s bid offered a Dell-Nutanix solution; he thought it was a Nutanix-NX solution.

259. If the bid was genuine, it would be extraordinary that Siu, as he claimed, did not notice that the Schedule of Rates specified a Dell-Nutanix solution rather than a Nutanix-NX solution. The model numbers for the two products were completely different, and Siu said he was very familiar with Nutanix products. Even if Siu was a “computer geek” (in the words of Innovix’s counsel) who would not read the fine print of a tender document, and even assuming he was as busy as he claimed, he would at least have paid attention to what product he was offering to sell in the tender. On his own evidence, while he might not be too interested in the other information, the “most important” was the price and technical documents.

260. The only credible explanation for what happened was that he did not care. It was simply not a genuine bid. He had no expectation that Innovix would be called upon to deliver whatever was written there. There is no truth in his claim that he had carefully and properly considered the tender documents.

261. It is plain that Siu approached the tender documents in a “slap-dash” manner.

(1)  In the Form of Tender, Siu filled in the initial numbers of Innovix’s business registration certificate and its date in the section intended to apply where a subsidiary of the tenderer will be submitting the bid and gave no particular thought as to whether it would be Innovix or its subsidiary that might take up the opportunity. Incidentally, the Form of Tender sent by Hung to Siu (as one of two attachments to the 09:16 e-mail) had Tech-21’s website address and Steve Ng’s e-mail address inserted. These were tippexed out when Siu completed the form with Hung.
(2)  Siu had read neither the Terms and Conditions of Tender nor the Technical Specifications before signing the Compliance List which provided what were supposed to be Innovix’s answers to questions about those documents.
(3)  As for the Supplier Profile Form:
(a)  It wrongly stated Innovix to be a “Partnership” (as opposed to “Private Corporation”).
(b)  None of the documents requested in the Supplier Profile Form, such as a brochure and the business registration certificate, was included with the tender. Nor was any banking information provided. In the space for the bank’s name, Hung had typed in the words: “Detail will provided when Tender Award” (sic).
(c)  Under “work schedule”, Hung had typed “5 Days/Month, 7 Days/Week, 24 Hours/Day”. Siu crossed out “5” and wrote down “30”, but even with the amendment the work schedule was still patently unrealistic.
(4)  Siu did not prepare and include any Technical Proposal which was prominently stated in Part D of the Form of Tender as a document required as part of the tender offer:
“ The Tenderer is required to provide a Technical Proposal, which forms part of the Tender Offer, for the consideration of the [YWCA]. …”
Furthermore, YWCA’s invitation letter and e-mail of 8 July 2016 had mentioned the Technical Proposal as one of the documents required for the tender to be acceptable.
(5)  Siu did not apply Innovix’s company chop to the tender documents.
(6)  Siu did not even keep a copy of the tender documents as filled in, amended, and signed.

262. While one does not necessarily expect perfection in the documentation, a company which had any desire of winning the tender would have taken some care with the preparation of the tender documents. Clause 1.8 of the Terms and Conditions of the tender expressly provided that tenders may not be considered if complete information was not given or if any of the particulars and data asked for in the Form of Tender, Schedule of Rates and/or Letter of Invitation were not furnished in full. This is not a simple quotation that Siu could provide by sending a short email.

263. Innovix submitted that there was no motive for Siu to agree to submit a non-genuine bid to YWCA. However, as the documents show, it was Hung’s request to Siu for help, which was in turn to help BT’s bid. I do not think that the absence of any specific financial or commercial reward shows the agreement to be improbable. After all, the parties were in a continuing relationship: Innovix was one of the only two distributors of Nutanix products in Hong Kong at the time, and despite being a relatively new entrant to the Hong Kong market, Nutanix products accounted for about 5% of the team sales of Siu. Nutanix was also a major player, if not the one with the biggest market share worldwide – for hyper-converged systems in 2015 to 2016.

264. For its part, BT knew Innovix was one of the “friends” from whom Nutanix would procure dummy bids. I reject BT’s submission that “they had no knowledge that Nutanix were contacting Innovix”.[44] On 5 July 2016 Chan already told Hung that once Chan finished the table (referring to the Schedule of Rates), “I will share it with you so you can give the quotation to your friend to just fill in”. On 6 July, Hung gave Chan four names including Innovix. On 10 July, Chan sent Hung BT’s completed Schedule of Rates saying: “Attached is the template I prepared for your friends to fill in”. In fact, on 15 July, Chan prepared and sent Hung a Compliance List with Innovix’s name filled in.

265. In my judgment, the evidence shows beyond doubt that:

(1)  Pursuant to his agreement with Chan, Hung needed Siu’s help to submit a dummy bid to YWCA in the name of Innovix to help make up the numbers so that BT would win the second tender.
(2)  BT knew that Innovix was one of the friends from whom Hung was to obtain a dummy bid, which was not intended to win but just to make up the numbers.
(3)  Siu agreed to help. He knew that BT was entering a bid and what Hung requested of him was intended to help BT win.
(4)  Siu knew that the bid for Innovix and, in particular, the bid prices, had been prepared by Hung and not by himself, without any reference to anyone in Innovix. Hung knew BT’s bid prices and that Innovix’s bid prices on the main item were 16.7% higher, though there is no evidence that he told Siu this. Nor did Hung tell Chan Innovix’s bid prices. But all three knew that Innovix’s bid was not intended to win and was submitted solely to help BT win, and they all had no expectation that Innovix would win.
(5)  They all intended that YWCA would treat Innovix’s bid as a genuine bid.

266. There was therefore a trilateral agreement between Nutanix, BT and Innovix for Innovix to submit a dummy bid to YWCA to help BT’s bid. Alternatively, they knowingly substituted practical cooperation for the risks of competition by procuring Innovix to submit a bid with no intention of winning but with the intention of helping BT, and thereby engaged in a concerted practice.

H. AGREEMENT BETWEEN NUTANIX AND TECH-21

267. This section deals with the agreement between Nutanix and Tech-21. The Commission contends that there was an agreement or concerted practice between Nutanix and Tech-21 for Tech-21 to submit a non-genuine bid to YWCA.

268. The basic facts are again not in dispute (see section D(8)(c) above). On 6 July 2016, Hung sent a message to Steve Ng, Sales Manager of Tech-21, stating: “may I have your help on one pig pig quotation. YWCA or YMCA. I call you now?” They then had a telephone conversation. Tech-21 received the invitation to the second tender but its director, Ivan Lau, did not originally intend to bid, and replied to YWCA to that effect at 10:23 on 18 July 2016.

269. Meanwhile, Hung had prepared the tender documents to be submitted by Tech-21, including the prices in the Schedule of Rates. The price inserted for the main item (item 2.1) was 27.7% higher than BT’s. The product offered was a Nutanix-NX solution. Hung sent a message to Steve Ng at 07:56 on 18 July 2016 stating: “Need your help on YWCA tender response …” They had a telephone conversation at 09:18, which was followed by Steve Ng’s audio message to Hung at 09:20. There were further telephone calls from Hung to Steve Ng and then, at 10:38, Hung e-mailed to Steve Ng (i) the Form of Tender, (ii) the Schedule of Rates, and (iii) the Supplier Profile Form, for him to complete and sign. By 11:07 Steve Ng had finished with the documents. After leaving SiS’s office in Chai Wan, Hung went to Kwun Tong and collected Tech-21’s bid, which he submitted to YWCA late, at 12:15. Tech-21’s bid did not contain a Compliance List.

270. Tech-21 called Steve Ng to give evidence. He explained that he had first approached Hung in around December 2015 to enquire about Nutanix products. Between then and mid 2016, Tech-21 had three business dealings with Nutanix. He was on a long vacation between June and mid July 2016. He said that he was a bit confused by Hung’s WhatsApp messages at 07:56 on 18 July 2016 and therefore spoke to him on the telephone. He was under the impression that Nutanix had already done the pre-sales preparatory work with YWCA and that Tech-21’s chance of winning the tender was “high”.

271. Steve Ng said that he checked the price Hung put in the Schedule of Rates which he found to be similar to the price Tech-21 usually offered. As time was short, he had not gone through the details of the tender documents except the price. He signed and stamped the company chop on the tender documents, put them into an envelope and handed it to Hung in Kwun Tong. He had not seen the Technical Proposal submitted with Tech-21’s bid, which must have been inserted by Hung himself after collecting the envelope.

272. Steve Ng said he adopted Hung’s price since his main concern was to win the tender. He thought that Nutanix would offer him “a good price” and that he “would be able to negotiate a good price from Nutanix and make some profit should Tech-21 win the bid”. He thought the chance of winning the tender was “50/50”. He said some time after 18 July 2016 he called Hung and asked whether Tech-21’s price was attractive and Hung said it was. Steve Ng said he had never heard of the company “BT Hong Kong Limited” and that he believed Tech-21’s bid was a genuine bid.

273. Although Steve Ng had already left Tech-21 by the time of trial, I do not find his evidence reliable. In my judgment the evidence establishes that Steve Ng knew that the bid submitted by Tech-21 was not intended to win but was submitted simply as a favour to Hung.

274. Steve Ng claimed that he understood Hung was referring the YWCA tender opportunity to Tech-21. However, he accepted that in doing so, Hung would be helping him. But the WhatsApp message Hung sent him at 07:56 on 18 July 2016 started with “Need your help …”. This was not usual pleasantry, as Steve Ng claimed. Tech-21 had received YWCA’s invitation to tender but did not intend to bid. Steve Ng’s boss, Ivan Lau, indeed replied to YWCA at 10:23 on the very same day that Tech-21 would not be tendering. In truth, Steve Ng knew that he was being asked by Hung for help and that he was helping Hung — rather than the other way round — by completing the tender documents.

275. This is fortified by the audio message Steve Ng sent Hung at 09:20, which ran:

“ Does it require company stamp? I don’t know, it should require having company stamp for normal case. I need to see and think as to what to do for you.”[45]

276. Plainly Steve Ng knew that this was not a “normal case” and that he was doing something for Hung. When asked about this audio message, Steve Ng was unable to give any coherent explanation of what was abnormal about this case, as shown in the following exchanges:

“ Q. Now, in that conversation you made it clear — I’m referring to the second sentence — that for the normal case a company stamp would be required?
A. Right.
Q. So what was abnormal about this case?
A. That no company stamp was affixed, that no company chop was affixed, if there was no company chop affixed and I got flunked, so I will be dead.
Q. So if this was just a normal transaction, why did you not arrange for the company chop to be used, as was the normal practice?
A. So I said that the company stamp needed to be arranged. This here says that the company stamp needed to be arranged. Otherwise the customer might flunk me.
Q. Did you arrange for the chop?
A. Yes.
Q. Was the chop used on the documents?
A. Yes.
Q. Was there anything abnormal about this case that you had to ask that question?
A. No.
Q. In the end of that message you said to Mr Hung, ‘I’ll need to see and think as to what to do for you’. Do you see those words?
A. Yes.
Q. Was that in response to Mr Hung asking you for help?
A. I would have to give him the reply that I would take the case.
Q. He had asked you for help, and you were saying, ‘I’ll need to see and think as to what to do for you’?
A. Right, correct.”

277. When the three tender documents were eventually sent to Steve Ng at 10:38, time was very short, and he also had a meeting at 11:00. There was clearly insufficient time for him to give proper consideration to the tender documents. Steve Ng also admitted he had not read the terms and conditions of tender before signing the tender documents without any alteration at all.

278. If Tech-21 was serious about the tender, it was important that it submitted documentation satisfactory to those who had the task of awarding the tender. Steve Ng’s evidence disputing this seems to me incredible. It is however understandable why he denied it, since there were numerous problems with Tech-21’s bid.

279. Prominently on the front page of the Form of Tender, Tech-21 did not fill in its business registration certificate number or the expiry date. Instead, the phrase “Please FILL-in” appeared twice on that page as submitted, which had obviously been inserted by Hung (and highlighted in yellow for Steve Ng in the soft copy).

280. Only one entry (in the space for seven numbered entries) was put in Part D of the Form of Tender, namely “Overall Company Profile with Technical Proposal”. However, Steve Ng had neither seen such Overall Company Profile nor Technical Proposal, even though he signed the page and stamped the company chop at the bottom. While a Technical Proposal was eventually submitted with Tech-21’s bid, it is plain that Hung inserted it himself into the envelope after he collected it from Steve Ng. Steve Ng said he had not seen the Technical Proposal and had “no idea about this document at all”. On Tech-21’s case, it would be extraordinary that Steve Ng did not even think about the Technical Proposal, which, as stated in the Form of Tender, was a document required and formed part of the tender offer (see quoted words in §124 above). In fact, Steve Ng had no idea about the document because he was not serious about the tender.

281. Steve Ng said he did not have any discussion with Hung about the price. He simply signed and stamped the Schedule of Rates without making any changes. He thought the amount stated in the Schedule of Rates was the cost price to Tech-21, and that if Tech-21 really won the tender they would “become thick faced” and start asking Nutanix to offer a lower cost. I accept that Steve Ng did not discuss the price with Hung but I reject his explanation.

(1)  Steve Ng at first accepted that the “normal” procedure for Tech-21 when tendering a price to an end-user was to include a figure with two elements: (i) acquisition cost to Tech-21, and (ii) Tech-21’s mark-up margin.
(2)  When questioned as to why this transaction was any different, Steve Ng was unable to provide any coherent explanation. Instead, he was forced to say that there was “no difference” and his “usual practice” was to give out a quote of “zero margin” and then “negotiate the price” with the vendor. This, he claimed, he did “all the time”.
(3)  This is wholly at odds with his statement, which stated that after he had received a price quote from the vendor, he could decide whether or not to mark up, and, if so, how much to mark up.
(4)  On Steve Ng’s new version, Tech-21 would inevitably make a loss on its contract with YWCA unless Tech-21 could subsequently negotiate a lower price with Nutanix, given that if it won, Tech-21 had to provide a 3-year onsite maintenance support warranty, third-party liability and employee compensation insurance coverage, site supervision, site coordination with other parties, site protection, site cleaning and debris removal under item 1.0 in the Schedule of Rates. Yet Steve Ng simply signed it, without changing the rates and without even speaking to Hung about price at all. As a matter of business common sense, the evidence is not credible.
(5)  This is not a case where Steve Ng was given a quote by Hung of what Nutanix would charge Tech-21 and asked to make his own bid to YWCA. He was faced with a remarkable situation where Hung had, of his own motion, filled in the Schedule of Rates for Tech-21 and sent it to Steve Ng simply to print out and sign. There is no credible reason, if this was a genuine tender, why Steve Ng simply assumed the bid price filled in by Hung was Tech-21’s cost price, without speaking to Hung about the price at all.
(6)  Steve Ng’s explanation is therefore implausible even in the isolated context of the YWCA tender. It is wholly inconceivable that this was Tech-21’s “usual practice” as he claimed.
(7)  Steve Ng’s suggestion that he understood the price stated in the Schedule of Rates provided by Hung represented Tech-21’s cost is inconsistent with Siu’s suggestion that the price inserted by Hung represented Innovix’s cost plus a mark-up margin for Innovix (see §245 above). The truth is that neither explanation is credible.
(8)  Tech-21’s submission that this might be a naïve but innocent attempt on its part to win a customer is not realistic. The only reasonable inference in my view is that Steve Ng did not care about the price and did not discuss it with Hung because the bid was not intended to win and he did not expect Tech-21 would be called upon to supply the product to YWCA.

282. Tech-21 did not fill in the Supplier Profile Form properly.

(1)  The form wrongly stated Tech-21 to be a “Partnership” (as opposed to “Private Corporation”).
(2)  It wrongly stated the total number of employees as “over 60” when there were only ten odd people in the company.
(3)  Under “work schedule”, Hung had typed “5 Days/Month, 7 Days/Week, 24 Hours/Day”, as in the form he had filled in for Innovix. Unlike Innovix’s bid, however, no amendment was made to “5 Days/Month” (see §261 above). The work schedule as submitted just did not make sense.
(4)  Under “Bank Name”, Hung had filled in: “Detail will provided when Tender Award” (sic), which Tech-21 left to stand.

283. Furthermore, Tech-21 did not submit a Compliance List with its tender. That means Steve Ng omitted both the Compliance List and the Technical Proposal even though YWCA’s invitation letter and e-mail of 8 July 2016 expressly specified both documents were required for the tender to be acceptable.

284. Tech-21 also did not bother to keep a copy of the signed tender documents.

285. Tech-21 submitted that between 18 July and 9 August 2016, Steve Ng followed up with Hung and asked whether the price offered by Tech-21 was attractive and whether they had the chance to win, and that Hung told him it was attractive and they did have a chance. However, as I have found the central part of Steve Ng’s story about the events on 18 July 2016 incredible, I do not consider this alleged subsequent conversation (albeit not dealt with by the Commission in cross-examination) can be given credence.

286. It is true that there is no evidence to show that Steve Ng was aware that YWCA required a certain minimum number of bids, or that Tech-21’s bid was to make up a total of at least five bids, or that it was submitted to help BT win. There is no evidence that Steve Ng knew who the other bidders were. However, the way Tech-21 approached the tender is wholly incompatible with any intention on its part that the bid was a genuine one submitted with a view to winning the contract. On the contrary, the evidence shows that Steve Ng saw this as an abnormal case. He knew he was submitting a bid, which was not genuine and not intended to win, in cooperation with Nutanix. The plain intention is to create a false impression for YWCA that there was an independent genuine bid from Tech-21 competing in the tender.

287. On the evidence, I find that:

(1)  Pursuant to his agreement with Chan, Hung needed to procure a dummy bid from Tech-21.
(2)  The bid documents had been provided by Hung; they were not prepared by or with reference to anyone in Tech-21, and Steve Ng knew that. Steve Ng also knew that the bid prices had already been inserted in the documents, but was not concerned about them because he did not intend or expect the bid to win.
(3)  Tech-21’s bid was submitted solely because of Hung’s request and as a favour, and Steve Ng knew that.
(4)  Steve Ng knew that Tech-21’s bid was not intended to win, and did not have any expectation it would win, but he intended that YWCA would receive Tech-21’s bid as a genuine bid and be led to believe that there was an independent genuine bid from Tech-21 competing in the tender.

I. ATTRIBUTION OF CONDUCT AND KNOWLEDGE

(1) The issue

288. The competition rules in the Ordinance focus on the conduct of undertakings. An undertaking, as defined in s 2:

“ means any entity, regardless of its legal status or the way in which it is financed, engaged in economic activity, and includes a natural person engaged in economic activity”.

289. It can be seen that an undertaking designates an economic unit. It does not correspond to the concept of a legal person. While undertakings may be natural persons, very often they are companies. Each of the five respondents in this case is a company. A company acts through human agents. There is no dispute that the conduct of Hung, Chan, Siu and Steve Ng was attributable to Nutanix, BT, Innovix and Tech-21 respectively. The issue has arisen, however, as to whether what Shek knew and did may be attributed to SiS.

(2) The facts

290. The following facts are established by the evidence.

(a) The set-up within SiS

291. SiS was a wholly-owned subsidiary of SiS International Holdings Ltd, a company listed on the Hong Kong Stock Exchange. The principal business of SiS involved the distribution of IT products, including computer storage, network and infrastructure products, in Hong Kong and Macau. This means that SiS would purchase products from the vendors and sell them to resellers who would on-sell them to end-users. It would also help vendors market and promote their products to resellers. As a distributor, SiS did not, with rare exceptions, sell directly to end users, and did not respond to tender invitations from end-users. Exceptions occurred where, for example, resellers purchased products from SiS for their own use, thereby assuming the role of end-users, or a vendor had already signed a global contract with an end-user and SiS was involved as a fulfilment hub to sell directly to the end-user.

292. Thus although the terms of the International Distribution Agreement, whereby SiS was appointed a non-exclusive distributor of Nutanix products, allowed SiS to purchase Nutanix products for resale to both resellers and end-users, SiS did not in fact sell directly to end-users. In particular, SiS had never submitted a bid in the tender exercises of end-users. This is consistent with the evidence that, on 6 July 2016, when Priscilla Szeto, Assistant Sales Manager of SiS, received a telephone call from Wong (of APD of YWCA) asking if SiS would be interested in submitting a tender to YWCA for a hyper-converged system, she immediately replied in the negative, though she mentioned that she could forward his enquiry to resellers. She followed this up with an email of the same date to Wong in which she offered to remind some resellers to respond to the tender.

293. In cases involving response to a reseller’s request for quotation, SiS’s Sales Department would work with and obtain approval from the Product Marketing Department, Technical Department, and Finance Department before submitting the response to Raymond Au, Business Development Director and the head of SiS, for consideration, who would also pass the same to the Finance Department at the group level for the terms to be reviewed. No single member of staff within SiS could individually decide on the contents of a response to a request for proposal.

294. Within SiS there were well defined limits of employee responsibility. Shek was at the material time one of eleven Product Managers in SiS, who were relatively junior employees in the organisation, working under the supervision of Joe Lam, Senior Business Manager. Each Product Manager was responsible for approximately two vendors. One of those, in the case of Shek, was Nutanix, starting from October 2015. His job included providing product information to customers and organising promotional activities, but he did not have authority to make any major decisions. He was authorised to provide provisional quotations to resellers, but if a provisional quotation was acceptable to the reseller, the matter still had to be approved by Shek’s superiors and other departments and eventually by Raymond Au. Shek had no authority to commit SiS to any expenditure, to sign any outgoing documents to bind SiS, or to enter into any formal agreement on behalf of SiS, including the tender submitted to YWCA. Shek accepted that the statement in the Form of Tender in SiS’s bid that he was the authorised personnel of SiS was false.

295. SiS published a Code of Conduct for its employees. The version current at the relevant time provided in clause 6:

“ - We believe in vigorous, fair and legal competition. The anti-trust laws (aka competition laws, consumer protection laws or unfair competition laws in some countries) prohibit business practices that limit competition improperly. Although the spirit of these laws is straightforward, their application to particular situations can be very complex. Always seek legal advice if there is any doubt.
- Agreements among competitors to fix prices, restrict output, allocate markets or customers, rig bids or violate fair bidding practices, or boycott the supplier or customer are prohibited and generally illegal.”

296. After Shek joined SiS, there had been at least two compliance training sessions for its employees on regulatory and compliance issues organised by SiS’s vendors. One of them was held in September 2015 and included topics on competition best practices, which explained that bid rigging (referred to as a scheme in which businesses collude so that a competing business can secure a contract for goods or services at a predetermined price) was prohibited.

(b) The second tender

297. On 6 July, Wong called Priscilla Szeto and asked if SiS was a distributor of Nutanix products, to which Szeto said yes, and whether SiS would be interested in submitting a tender to YWCA for a hyper-converged system, to which Szeto said no. She however offered to forward his enquiry to other resellers to see if they were interested.

298. Later that day, Szeto emailed Wong (cc Shek) and asked him to provide the tender document so that she could chase the resellers to reply. Wong replied (cc Shek), saying the detailed tender specifications were still a work in progress, but gave the basic information of what was required. Szeto then replied saying she would update Wong soon, which she did not because, she explained in her evidence, SiS would not sell directly to end-users anyway and she did not receive the tender document from Wong.

299. By an email dated 8 July 2016 sent to Shek, Wong sent SiS an invitation to the second tender.

300. According to Shek, on the morning of 18 July 2016, he had told Raymond Au and Joe Lam that Hung would be coming to SiS’s office and that Hung had asked SiS to submit a return bid as there were insufficient bids, and neither of them expressed any disapproval. I reject this evidence. In fact, on Au’s evidence, which was in the end unchallenged, he was on sick leave that morning and did not get back to the office until after both Hung and Shek had left, and could not therefore have had the conversation with Shek as alleged by him. Joe Lam was in the office and did catch sight of Hung just as he was about to leave, but I accept his evidence that he did not speak to Shek as alleged.

301. Although there were other people in the office, Shek acted alone with Hung in filling in the tender documents in SiS’s office. Shek did manage to have SiS’s company chop applied to the tender documents. Precisely how this occurred was the subject of controversy, which I deal with below.

302. Shek took a taxi to YWCA to deliver SiS’s and Innovix’s bids. Hung offered to reimburse him for the taxi fare but Shek declined. Instead, Shek submitted the taxi receipt to SiS for reimbursement of the expense. For the claim, Shek stated that he went to “M Security” or “M Securities”, instead of YWCA. Shek was unable to identify which entity he meant to refer to by that name, or to offer any credible explanation for putting down that name which he had not heard of before. I do not believe the suggestion that by the time he filled in the expense form, he had forgotten where he had been that morning. It seems to me far more likely, and I find, that he put down a nondescript name because he did not want to reveal to SiS’s Finance Department his trip to YWCA on 18 July 2016.

303. Shek made no report of the bid to SiS; nor did he keep a hard copy of the documents submitted. I do not accept his claim that he kept a set of the documents next to his desk — it was not there when the Commission searched the office. The probable reason why he did not keep a copy was that he believed SiS would never win the tender. Since he was the sole contact person on the tender documents, he would have been the only one in SiS notified by YWCA when eventually the bid, as expected, failed.

(d) The meeting on 9 August 2016

304. Shek did not report to anyone in SiS afterwards that he had submitted a bid to YWCA in the name of SiS. The first time that SiS’s management learnt of the bid was 9 August 2016 when the Commission visited SiS’s office for investigation. After the Commission officers left, Raymond Au called a meeting with Shek, attended also by Joe Lam, Priscilla Szeto and one Alan Chan. When questioned why he submitted a bid to YWCA, Shek explained he did so because Hung asked him to do so. He said that the request came at very short notice and that he had submitted the tender “for reference only”. Au had a few choice words for Shek for what he had done and told him not to do it again. I reject Shek’s evidence that Au did not express any disapproval of his conduct.

(e) SiS’s company chop

305. Regarding the use of SiS’s company chop on the tender documents, Shek’s evidence vacillated. In his statement dated 13 February 2017, Shek said he recalled placing a chop on the documents, which suggests it was he who stamped them. This is consistent with the Commission’s Reply which pleaded that Shek signed and chopped the documents. In his statement dated 19 October 2017, Shek said he brought the documents to the colleague who kept the company chop and asked her to stamp the documents with it. He said the colleague asked about the nature of the documents and his reply “should be” that they were tender documents, though he could not recall the exact answer he gave. He identified the colleague as Shirley Pang, head of the Operations Department, in his statement of 27 November 2017. His draft statements were likewise inconsistent. In oral evidence Shek initially said that the chop was applied by Shirley Pang and he did mention to her that it was a tender document, but later retreated to saying that if it was he himself who affixed the chop, it would have been in Pang’s presence and with her knowledge.

306. I do not think Shek’s evidence that he told Shirley Pang about putting the chop on tender documents is reliable. His evidence in the October 2017 statement was tentative. In that same statement he claimed that no guidelines had ever been laid down by SiS on the use of the company chop, which he admitted at trial to be a false statement, because in fact Shirley Pang had issued a circular on 6 June 2016 on the use of the company chop which stated as follows:

“ For security reason, please be reminded that you should put the company chop in a safe and proper place when you are away. For those who need the Chop for business purpose, you can get it from me by completing the requisition form with your department head’s approval.”

The requisition form attached required the purpose to be filled in.

307. It is common ground that there was no requisition form filled in by Shek on 18 July 2016. But this could be due to the fact that Shek’s responsibilities included completing documents for obtaining import and export licences for products on a weekly basis, which Shek had to bring to Shirley Pang for stamping with the company chop. Raymond Au said that, as a consequence, Shek was in a somewhat special position, so that the policy on company chop was not strictly enforced in relation to him and approval could be obtained orally from Shirley Pang instead.

308. The Commission submitted that the Tribunal should draw an inference, adverse to SiS, from the fact that it did not produce Shirley Pang, who was still in its employ, as a witness. I noticed that Raymond Au was distinctly uneasy when asked why he did not mention Shirley Pang by name in his own statement and also when asked why she was not called. His answer to the latter question was that she “doesn’t really know how to speak”. Further, SiS’s hearsay notice did not cover the paragraph in Raymond Au’s witness statement which stated that he had checked with the colleague in question who confirmed that it was Shek who took the chop and applied it to the tender documents. However, I decline to draw an inference that Shirley Pang knew that Shek applied the company chop to the tender documents, because:

(1) While the Commission relied in its pleaded case on the fact that Shek was provided with access to SiS’s company chop, it did not advance a case that Shirley Pang or any other person responsible for the chop either knew or should have known that Shek applied it to the YWCA tender documents.
(2) Shek’s evidence in his statement about what he said to Pang was tentative — using the phrase “should be” and saying he could not recall exactly what he told her. Also, for some unknown reason, like Raymond Au, he too was reluctant to name Shirley Pang in his witness statement. It was only in his oral evidence that he asserted definitely that he mentioned it to Pang. Further, his evidence, insofar as it sought to implicate others in SiS, has been shown to be unreliable.

309. It was possible that Shek gave Pang some broad, anodyne reason for requiring urgent access to the company chop, and was trusted by Pang with it. Shek made no claim that he explained to the meeting on 9 August 2016 that he had told Pang about submitting a tender, which one would have expected him to do upon being reprehended, if Pang was indeed in the know. At most, in my opinion, the evidence shows that Pang allowed Shek to have access to the company chop without herself ascertaining what the documents were.

(f) Shek’s motives

310. As to Shek’s motives, in his statement he said that he assisted Hung because it was in the interest of SiS, as one of Nutanix’s two distributors in Hong Kong, to maintain good relations with Nutanix and Hung. He was afraid that if he did not act as instructed, he would upset him and that might in turn indirectly affect future business cooperation between SiS and Nutanix. He also said that he made an expense claim for the taxi fare because he considered doing work for SiS’s vendors to be part of his day-to-day duties.

311. This in my view is not the complete picture. A very substantial proportion of Shek’s income from SiS in May and June 2016 consisted of commission for the sale of Nutanix products (Shek being entitled to a percentage of the revenue as his commission if certain conditions on sales volume and gross profit were met). His income in May 2016 was by far the highest he earned while in SiS. In addition, he was invited to a worldwide Nutanix function in Las Vegas between 20 and 24 June 2016 — his first trip to the United States — during which he socialised with Hung, among others, in events including a helicopter tour of the Grand Canyon (free of charge for Shek).

312. It seems to me that by July 2016, Hung held sway over Shek. In a way, Hung was “boss” (which was how Mike Lam (iCON) addressed him in an email: see §127 above). When Hung asked for a favour, Shek felt obliged to help. He was worried that if he did not, Hung would be very angry with him, and that could potentially affect the sales of Nutanix products through SiS and hence his own performance and commission income, even though Hung made no explicit threat of withdrawing business. He felt under great stress that morning because of the time pressure. He was, on his own evidence, “very worried” that Hung would be “extremely angry” with him if he failed to deliver the bids on time.

313. I accept that keeping good relations with Nutanix would be of benefit to SiS too, but there was a formal distributorship agreement between the two companies and it is doubtful to my mind how much the personal relationship between Hung and Shek could affect, and was perceived by Shek as capable of affecting, the relationship between the two companies. Moreover, as evidenced by the taxi fare expense claim, Shek took steps to conceal the transaction from SiS. He knew what he did was not authorised or permitted by his employer. It seems to me Shek was actuated to do what he did by a desire to please Hung or avoid offending him.

314. SiS submitted that because it was essentially a distributor only, winning the YWCA tender might have jeopardised SiS’s commercial arrangements with vendors and resellers. However, I do not think these consequences entered Shek’s mind at the time because he had never intended or expected SiS to win the tender. In all likelihood, he thought that what he did would not cause any harm to SiS, but I do not think he acted primarily with a view to benefiting SiS.

(3) Special rule of attribution

315. As explained by Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, apart from the primary rules of attribution found in a company’s constitution, typically the articles of association, and general rules of attribution in the form of the principles of agency and vicarious liability and the like, there is a third category of special rules of attribution which may be relied upon to determine the rights and obligations of companies. In particular, Lord Hoffmann stated:

“ But there will be many cases … in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.”

316. In Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue (2014) 17 HKCFAR 218, Lord Walker of Gestingthorpe NPJ stated (at §78):

“ The third category is sometimes referred to as special rules of attribution, which may give the impression that they are to be found in specific statutory provisions. Any such impression would be misleading. The way in which Lord Hoffmann himself put it (at p 507E) was that “In such a case, the court must fashion a special rule of attribution for the particular substantive rule.” Often the legislature will not have spelled out any rule of attribution in clear terms, and in those cases it is the court’s task to determine the intention of the legislature from the statutory language, purpose and context. …”

317. In HKSAR v Luk Kin Peter Joseph (2016) 19 HKCFAR 619, Lord Hoffmann NPJ (with whom all other members of the court agreed) stated (at §41):

“ In my opinion it cannot be too strongly emphasized that there are no such ‘common law principles’ [ie uniform common law principles by which one attributes acts, knowledge, states of mind etc to a company]. The authorities since Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 and in particular the more recent cases of Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue (2014) 17 HKCFAR 218 and Bilta (UK) Ltd (in liquidation) and others v Nazir and Ors (No 2) [2016] AC 1 make it clear that in every case the criteria for attribution must be such as will give effect to the purpose and policy of the relevant substantive rule, whether that rule is contained in a statute or the common law.”

318. The Commission does not contend that Shek represented SiS on the basis of any primary rule of attribution found in SiS’s articles or the general principles of agency. For its part SiS accepts that there should be a special rule of attribution for the purposes of the first conduct rule that goes beyond the general rules. BT was also content to accept that it may be correct for the purposes of the Ordinance to fashion some special rule of attribution which goes beyond the primary rules and agency rules (although it submitted that for the purpose of the definition of bid rigging, the sole question is that of actual authority for the submission of the bid). Nutanix took a neutral stance on SiS’s defence.

319. It is common ground, therefore, that the issue involves fashioning a special rule of attribution for the purpose of the first conduct rule that is appropriate in light of the statutory scheme. One finds the answer by applying the usual canons of interpretation to the first conduct rule, taking into account its language, content and policy.

(4) The parties’ submissions

320. The Commission’s primary position is that, as a matter of construction of the Ordinance, an undertaking is responsible for acts of its employees carried out during their employment which give rise to contraventions of the first conduct rule. It is a rule of attribution that depends on the act being committed within the temporal currency of the employment.

321. As an alternative case, the Commission contends, relying on a number of specified matters which are discussed below, that there was a “sufficiently close connection” between Shek’s conduct and his employment with SiS or that Shek acted with the actual or ostensible authority of SiS, and that SiS should therefore be held liable for Shek’s conduct.

322. In contrast, SiS submitted that an undertaking can be liable for the wrongful acts of its employee provided that the employee, in so acting (albeit in a wrongful manner), was authorized to act on behalf of the undertaking. Whether the undertaking should actually be held liable involves a “multifactorial assessment”, taking into account, inter alia, the role and scope of authority of the employee and its proximity to the impugned conduct; whether the acts were done to benefit the undertaking or some other party; whether management (if not the perpetrator) was aware of the unlawful act, and whether it has been tolerated or tacitly approved; and whether the individuals responsible for the acts could separately be held liable under the Ordinance even if they are not attributable to the undertaking.

(5) Overseas jurisprudence

(a) EU

323. As the Commission submitted that its contention is consistent with the position in both EU and English case-law in relation to similar prohibitions on anti-competitive agreements, I shall first examine the jurisprudence of these two jurisdictions.

324. In Joined Cases 40/73 etc Suiker Unie and Others v Commission, it was argued, inter alia, that since the agreements in question had been entered into between the relevant applicants and their agents who were trade representatives, Art. 85 did not apply. The CJEU held (at §539) that if an agent sells in the name and for the account of a producer or association of producers, he may in principle be regarded as an “auxiliary organ forming an integral part of the latter’s undertaking” bound to carry out his principal’s instructions and thus, “like a commercial employee, forms an economic unit with this undertaking”.

325. Suiker Unie did not concern liability for the acts of employees as such, but it illustrates that EU law approaches the question from the concept of undertaking. For many purposes EU law views employees as incorporated into the employer undertaking, and for that reason, does not consider employees themselves to constitute undertakings within the meaning of EU competition law: see Case C-22/98 Becu and Others, EU:C:1999:419, §26.

326. In Joined Cases 100/80 to 103/80 Musique Diffusion française and Othersv Commission EU:C:1983:158, a distributor of Pioneer Hi-Fi equipment, Melchers, which was a partnership, was said to have engaged in a concerted practice with Pioneer and MDF, another distributor, to prevent the import of Pioneer products from Germany into France, infringing Art. 85(1) of the EEC Treaty. Melchers argued that acts committed by employees who have not received instructions from the partners in the undertaking may not be attributed to the undertaking (§5) and that it was not liable because it had not been shown that its partners intended to commit the alleged infringement or that they acted negligently (§96). Rejecting the argument, the CJEU held that for liability to attach,

“ it is not necessary for there to have been action by, or even knowledge on the part of, the partners or principal managers of the undertaking concerned; action by a person who is authorized to act on behalf of the undertaking suffices.” (§97)

At §98, the court added:

“ The applicant has not shown that the managers of the hi-fi division of Melchers exceeded the powers which the partners conferred on them by employing them in those posts. …”

327. In Case T-53/03 BPB plc v Commission, ECLI:EU:T:2008:254, it was found that the representatives of BPB and other companies had exchanged information on sales volumes and price increases and met with a view to sharing out or at least stabilising the plasterboard markets in various EU countries. It was argued by BPB that since its relevant employee, a Mr D who was a CEO of BPB[46], continued the information exchanges even though it had prohibited them in March 1998, BPB could not be responsible for actions taken by an employee who was acting contrary to its instructions, and that any attributable infringement should therefore be held to have ended in March 1998. The Court of First Instance of the EU stated (at §360):

“ [BPB’s] argument that its participation in the infringement would have already come to an end in March 1998 if Mr [D] had not disobeyed its instructions is irrelevant. An undertaking — that is to say an economic unit comprising personal, tangible and intangible elements (Case 19/61 Mannesmannv High Authority [1962] ECR 357, 371) — is directed by the organs provided for in its articles of association and any decision imposing a fine on it may be addressed to the management as provided for in those articles of association (management board, management committee, chairman, manager, and so on). The rules of competition would be easily circumvented if the Commission, faced with unlawful conduct on the part of an undertaking, were required to ascertain and to prove who is the author of the various activities, which could have the effect of preventing it from penalising the undertaking which benefited from the cartel.”

328. In Case T-588/08 Dole Food Co Inc v Commission (affirmed on appeal: Case C-286/13 P), a case concerning a concerted practice between undertakings in coordinating their quotation prices for bananas marketed in Northern Europe, it was argued that the employees who engaged in the impugned pre-pricing communications did not have authority to set, and did not in fact set, the quotation prices. The General Court, rejecting the argument, held (at §§581-582) that “action by a person who is authorised to act on behalf of the undertaking suffices”, citing Musique Diffusion française. Since the applicants did not contest that their employees involved, being an Area Manager and a Sales Executive, were authorised to engage in the pre-pricing communications, the fact that they did not have final responsibility for setting quotation prices was irrelevant. See also FSL Holdings v Commission Case T-655/11, §§303-304 to the same effect.

329. In Case C-68/12 Protimonopolný úrad Slovenskej republiky vSlovenská sporiteľňa a.s. EU:C:2013:71 (which I shall refer to as the “Slovakian competition authority case”), the Slovakian competition authority found that three major banks had infringed Art. 81 by entering into an agreement to terminate the current accounts of Akcenta and to refrain from concluding new contracts with Akcenta, which was a non-bank financial institution providing services comprising cashless foreign exchange transactions and needed to have current accounts in banks for its activities. One of the banks submitted that its employee who took part in the meeting of the representatives of the banks concerned had not been given authority to that effect (§24), though the Slovakian Supreme Court noted that the bank had “not distanced itself from the conduct of that employee”. The CJEU, answering a preliminary question posed by the Slovakian Supreme Court, stated:

“ 25.  The court observes in that regard that, for Article 101 TFEU to apply, it is not necessary for there to have been action by, or even knowledge on the part of, the partners or principal managers of the undertaking concerned; action by a person who is authorised to act on behalf of the undertaking suffices (Joined Cases 100/80 to 103/80, Musique Diffusion française and Othersv Commission [1983] ECR 1825, paragraph 97).
26.  Furthermore, as the Commission has pointed out, participation in agreements that are prohibited by the FEU Treaty is more often than not clandestine and is not governed by any formal rules. It is rarely the case that an undertaking’s representative attends a meeting with a mandate to commit an infringement.
…
28.  … Article 101(1) TFEU must be interpreted as meaning that, in order to find that an agreement is restrictive of competition, it is not necessary to demonstrate personal conduct on the part of a representative authorised under the undertaking’s constitution or the personal assent, in the form of a mandate, of that representative to the conduct of an employee of the undertaking who has participated in an anti-competitive meeting.”

330. In Case C-542/14 VM Remonts v Konkurences padome EU:C:2016:578, a case concerning attribution of the acts of an independent service provider to an undertaking, the facts of which I have described in §47 above, the CJEU nevertheless referred to the principles relating to attribution of the conduct of employees before distinguishing them from the principles on attribution of the acts of an independent service provider to an undertaking. The CJEU first noted that, in EU competition law, an undertaking is understood as designating an economic unit even if in law that economic unit consists of several persons, natural or legal (§22). The court went on to state, after citing Musique Diffusion française and the Slovakian competition authority case:

“ An employee performs his duties for and under the direction of the undertaking for which he works and, thus, is considered to be incorporated into the economic unit comprised by that undertaking …” (§23)

and that:

“ For the purposes of a finding of infringement of EU competition law any anti-competitive conduct on the part of an employee is thus attributable to the undertaking to which he belongs and that undertaking is, as a matter of principle, held liable for that conduct.” (§24)

331. While the language of §24 of the judgment in VM Remonts appears very wide, it seems to me, with great respect, that the previous case law did not go that far. Musique Diffusion française concerned the acts of managers who had not apparently exceeded the powers conferred on them by the employment in their posts, and the court referred to the actions of “a person who is authorized to act on behalf of the undertaking”. In BPB the employee was the CEO. The employees in Dole Food were authorised to engage in the pre-pricing communications which amounted to a concerted practice. VM Remonts itself is not an employee case. None of the cases cited to me is a decision that an undertaking is liable for the infringing acts of any employee regardless of his position and general responsibilities.

(b) UK

332. In the UK, in the context of the old law under the Restrictive Trade Practices Act 1976, the question of attribution was considered by the House of Lords in Director General of Fair Trading v Pioneer Concrete (UK) Ltd and Another [1995] 1 AC 456. In that case, injunctions had been obtained by the Director General of Fair Trading from the Restrictive Practices Court against, inter alia, four companies, restraining them from giving effect to certain agreements in contravention of the 1976 Act. Subsequently, employees of those companies (including one Hayter, Unit Manager of Smiths, one of the four companies) made an agreement for the future allocation of supplies of concrete according to certain fixed percentages. The Director applied for remedies on the ground that the four companies were in contempt, having committed breaches of the injunction, and that their relevant employees aided and abetted the contempt. In defence, each company contended that express instructions had been given to each employee not to participate in arrangements of the kind that were concluded and that it had adopted reasonable compliance systems to prevent such breaches. Two of the companies admitted contempt. The Restrictive Practices Court found in favour of the Director in relation to the other two companies but, on appeal by Smiths, the English Court of Appeal reversed the decision, holding that (in Smiths’ case) the agreement was entered into by Hayter personally, not on Smiths’ behalf, as he had made it clear to the other parties that he was forbidden by Smiths to do so and had no authority to do so on its behalf.[47] The two companies who had admitted liability sought leave to appeal out of time and their appeals were also allowed by the Court of Appeal.[48]

333. On appeal of the Director from the decision in relation to these two companies, the House of Lords, however, rejected the Court of Appeal’s reasoning, and held that, under the Act, an employer was liable for the acts of its employees carried out during their employment, even if the acts were prohibited by the employer, known by the other parties to be so prohibited and thus beyond the ostensible authority of the employees. Lord Templeman, referring to the Court of Appeal’s reasoning, said at p 465:

“ My Lords, I cannot accept this pronouncement.[49] It would allow a company to enjoy the benefit of restrictions outlawed by Parliament and the benefit of arrangements prohibited by the courts provided that the restrictions were accepted and implemented and the arrangements were negotiated by one or more employees who had been forbidden to do so by some superior employee identified in argument as a member of the ‘higher management’ of the company or by one or more directors of the company identified in argument as ‘the guiding will’ of the company.
The decisions of the Court of Appeal in Smiths’ case and in the instant case infringe two principles. The first principle is that a company is an entity separate from its members but, not being a physical person is only capable of acting by its agents. The second principle is that a company, in its capacity as supplier of goods, like any other person in the capacity of taxpayer, landlord or in any other capacity, falls to be judged by its actions and not by its language. An employee who acts for the company within the scope of his employment is the company. Directors may give instructions, top management may exhort, middle management may question and workers may listen attentively. But if a worker makes a defective product or a lower manager accepts or rejects an order, he is the company. … When Mr Hayter procured Smiths to implement the arrangement that he had made in breach of his instructions Smiths became a party to the arrangement and Mr Hayter aided and abetted Smiths to commit a breach of the Act of 1976 and a breach of the court orders which bound Smiths.” (emphasis added)

334. Similarly, Lord Nolan said at pp 472H-473A:

“ [E]ven in the case of a statute imposing criminal liability, and even without any express words to that effect, Parliament may be taken to have imposed a liability on an employer for the acts of his employees, provided that those acts were carried out in the course of the employment. Further, the liability may be imposed even though the acts in question were prohibited by the employer.” (emphasis added)

and at pp 474G-475E:

“ A limited company, as such, cannot carry on business. It can only do so by employing human beings to act on its behalf. The actions of its employees, acting in the course of their employment, are what constitute the carrying on of business by the company. …
It follows that, at any rate for the purposes of the Restrictive Trade Practices Act 1976, I am unable to accept that a prohibition at some senior level against the making of an agreement or arrangement which is ignored by the employees concerned is nonetheless sufficient to prevent the employing company from becoming a party to the agreement or arrangement when made. The Act is not concerned with what the employer says but with what the employee does in entering into business transactions in the course of his employment. The plain purpose of section 35(3) is to deter the implementation of agreements or arrangements by which the public interest is harmed, and the subsection can only achieve that purpose if it is applied to the actions of the individuals within the business organisation who make and give effect to the relevant agreement or arrangement on its behalf.
This necessarily leads to the conclusion that if such an agreement is found to have been made without the knowledge of the employer, any steps which the employer has taken to prevent it from being made will rank only as mitigation. Liability can only be escaped by completely effective preventive measures. How great a burden the devising of such measures will cast upon individual employers will depend upon the size and nature of the particular organisation. There are, of course, many areas of business life, not only in the consumer protection field, where it has become necessary for employers to devise strict compliance procedures. If the burden is in fact intolerable then the remedy must be for Parliament to introduce a statutory defence for those who can show that they have taken all reasonable preventive measures.” (emphasis added)

335. As Lord Hoffmann explained in Meridian at p 508G, the attribution rule in Pioneer Concrete was derived from a construction of the restriction by injunction or undertaking against the background of the Restrictive Trade Practices Act 1976: such restriction on corporations would be worth little if the company could avoid liability for what its employees had actually done by arguing that the board did not know about it.

336. The case therefore suggests that where an employee committed an act within the course of his employment that infringed a restriction against collusive agreement, an employer cannot avoid responsibility by relying on a prohibition on the employee against committing anti-competitive acts generally or the specific infringing act in question. Hayter was a Unit Manager of Smiths with extensive responsibilities. From the findings made by the Restrictive Practices Court in that case[50], one can see that there were six plant managers below him. He attended board meetings and made reports to the board. Although minimum prime gross margins were laid down for him, Hayter could intervene in pricing, he had a discretion in setting the target gross margin, he was in charge of the performance of the unit as a whole and of the individual plants within the unit and he generally had responsibility to achieve results. His job specifications included “the efficient and profitable operation and control of all ready mixed concrete operations in the unit”. He had managerial responsibility for all of Smiths’ operations in the area covered by the agreement. He was nominally responsible for pricing (though in fact he did not intervene in pricing contracts), and for contracts and customer relations generally. His duties included meeting competitors. On this basis the court concluded that his participation in the prohibited agreements was an unauthorised mode of doing that which he was employed to do, i.e. to manage the unit, and that his attendance at the impugned meetings was in the course of his employment.

337. By referring to the scope or course of the employment, it seems to me that the House of Lords had in mind the kind of considerations relevant to the question of an employer’s vicarious liability for the tort of his employee. That was also the sense in which the phrase was used by the Restrictive Practices Court at first instance.[51] Accordingly Pioneer Concrete does not support a purely temporal test that attaches liability to an employer simply on the basis that the act impugned was done during the employee’s working time.

338. As mentioned already, the Pioneer Concrete case was a decision under the Restrictive Trade Practices Act 1976, independent of EU competition law. Under the (UK) Competition Act 1998, s 60 of which seeks to ensure that the principles of competition law applied by the UK courts are consistent with those laid down by the CJEU, the approach in the UK is now aligned with that in EU law. In A H Willis and Sons Ltd v Office of Fair Trading [2011] CAT 13 at §§22-26, the (UK) Competition Appeal Tribunal stated that following EU law, the relevant question under the (UK) Competition Act 1998 was whether the person who did the act was part of the undertaking, rather than whether the undertaking was liable upon the common law principles of ostensible authority or vicarious liability although these concepts could be useful by way of cross-check.

339. In Tesco Stores Ltd v Office of Fair Trading [2012] CAT 31, which was concerned with concerted practices through the exchange of retail pricing intentions relating to cheeses, the (UK) Competition Appeal Tribunal held that the state of mind to be attributed to an undertaking should be determined as a matter of UK and, by virtue of s 60(2) of the 1998 Act, EU competition law, and that common law concepts of ostensible authority and vicarious liability are therefore “not relevant” (§60). The Tribunal went on to observe (at §62):

“ In Suiker Unie, the Court of Justice stated, at paragraph 539, that employees form part of the same undertaking, or “economic unit”, with their employer. Employees are “auxiliary organs forming an integral part of the principal’s undertaking” (paragraph 542). It was on this basis that the Court of Justice attributed the employees’ collusive activities to their respective employers in the sugar industry. Since an undertaking comprising a body corporate can only act through the individuals employed by it, the acts or conduct of an undertaking are inevitably performed by those individuals. It follows that any act by any employee could, potentially, lead to an infringement attributable to their corporate employer, with whom they comprise the same undertaking.” (emphasis added)

The Tribunal decided to proceed on the basis (at §74(a)) that:

“ acts of any employee may be attributed to his or her corporate employer, with whom they comprise the same undertaking”. (emphasis added)

340. It should be noted, however, that on the facts of that case, there was no suggestion that any of the individuals in question “acted without authority or disobeyed instructions given to them” (§63). It should also be noted that in the passages quoted above the Tribunal said “could, potentially, lead to” and “may be attributed to”. I do not read these passages as pronouncing a principle that employees’ acts, provided they were done during working hours, are inexorably attributable to the undertaking.

341. The question of attribution is expressly governed by statute in Australia. With regard to the attribution of conduct, the Competition and Consumer Act 2010 (Cth) provides in s 84(2) that:[52]

“ (2) Any conduct engaged in on behalf of a body corporate:

(a) by a director, employee or agent of the body corporate within the scope of the person’s actual or apparent authority; or
(b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.”

Attribution of state of mind is governed by a similar provision in s 84(1). It can be seen that the Australian rule of attribution is, by statute, in part based on the common law concepts of actual and apparent authority.

342. By the time of closing submissions, SiS no longer relied on the Australian position, but BT submitted that the Australian approach was instructive. Reference was made in particular to Australian Competition and Consumer Commission v Leahy Petroleum (2004) FCA 1678 at §§99-100 and the cases there cited which stated that, in determining whether an employee had relevant authority, it was not to the point to ask whether or not he had actual authority to enter into the particular unlawful transaction, but rather whether, in general, transactions of the sort in question were within the scope of his employment.

343. Although s 84(2) has been described as supplementing the common law position and not replacing it (see Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 3) [2001] FCA 1861), Australian cases have apparently focussed principally on the law of agency and not approached the matter as a question of finding a special rule of attribution: see Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi SRL (No 12) [2016] FCA 822 at §§217-229. For this reason the Australian jurisprudence on this question, whilst instructive, does not lend itself to direct application to the Ordinance.

(d) United States

344. The antitrust law of the United States has adopted a comparable approach to the three jurisdictions considered above. In United States v Hilton Hotels Corp, 467 F 2d 1000 (9^thCir 1972), cert. denied, 409 US 1125 (1973), a hotel owner was prosecuted for violation of s 1 of the Sherman Act (15 USC §1) by agreeing with other hotels to prefer suppliers who paid money to help attract conventions to the City of Portland and not to purchase from suppliers who refused to pay. The company’s president testified that it would be contrary to the company’s policy for the manager of one of its hotels to condition purchases in that manner. The manager of the hotel in question and his assistant testified that it was the hotel’s policy to purchase supplies solely on the basis of price, quality, and service, and that they had told the hotel’s purchasing agent to take no part in the boycott. The purchasing agent confirmed the receipt of these instructions, but admitted that, despite them, he had threatened a supplier with loss of the hotel’s business unless the supplier paid the contribution. He testified that he violated his instructions because of anger and personal pique toward the individual representing the supplier.

345. The US Court of Appeals for the Ninth Circuit stated that criminal liability for the acts of agents is more readily imposed under a statute directed at the prohibited act itself, one that does not make specific intent an element of the offence. This applies to the relevant offence under the Sherman Act since neither specific intent nor conscious wrongdoing is an element. The court stated:

“ The breadth and critical character of the public interests protected by the Sherman Act, and the gravity of the threat to those interests that led to the enactment of the statute, support a construction holding business organizations accountable, as a general rule, for violations of the Act by their employees in the course of their businesses. In enacting the Sherman Act, ‘Congress was passing drastic legislation to remedy a threatening danger to the public welfare …’ United Mine Workers v. Coronado Coal Co, 259 U.S. 344, 392, 66 L. Ed. 975, 42 S. Ct. 570 (1922). The statute ‘was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.’ Northern Pacific Ry. v United States, supra, 356 U.S. at 4.
With such important public interests at stake, it is reasonable to assume that Congress intended to impose liability upon business entities for the acts of those to whom they choose to delegate the conduct of their affairs, thus stimulating a maximum effort by owners and managers to assure adherence by such agents to the requirements of the Act. …
In sum, identification of the particular agents responsible for a Sherman Act violation is especially difficult, and their conviction and punishment is peculiarly ineffective as a deterrent. At the same time, conviction and punishment of the business entity itself is likely to be both appropriate and effective.
For these reasons we conclude that as a general rule a corporation is liable under the Sherman Act for the acts of its agents in the scope of their employment, even though contrary to general corporate policy and express instructions to the agent.” (emphasis added)

(6) Section 91 of the Ordinance

346. SiS submitted that the relatively strict approach to attribution adopted in the EU and UK should not be adopted in Hong Kong, because in those jurisdictions sanctions for anti-competitive conduct may be imposed only on undertakings. Specifically, there is no provision there akin to s 91 of the Ordinance. This “key difference” means the case law in those jurisdictions is of limited value in Hong Kong, and that adoption of a less strict approach to attribution would not diminish the deterrent effect of the Ordinance.

347. To assess this submission it is necessary to examine the scope of the relevant provisions. I do so as briefly as possible because the application of s 91 does not directly arise in the present case and the Commission, whilst expressing “broad agreement” with SiS’s interpretation of that provision, has understandably refrained from advancing in detail any submissions on it, which is not free from difficulties.

348. Section 92 of the Ordinance provides that the Commission may apply for, and s 93 provides that the Tribunal may make, an order imposing a pecuniary penalty, not only on a person who has contravened a competition rule, but also a person who has been “involved in a contravention of a competition rule”. Section 91, which sets out the persons who are thus involved, provides:

“ A reference in this Part to a person being involved in a contravention of a competition rule means a person who—
(a)  attempts to contravene the rule;
(b)  aids, abets, counsels or procures any other person to contravene the rule;
(c)  induces or attempts to induce any other person, whether by threats or promises or otherwise, to contravene the rule;
(d)  is in any way, directly or indirectly, knowingly concerned in or a party to the contravention of the rule; or
(e)  conspires with any other person to contravene the rule.”

349. This provision, couched in language familiar in criminal law, is partly based on Australian legislation, incorporating elements of ss 75B and 76(1) of the Competition and Consumer Act 2010 (Cth),[53] which are in turn derived from ss 5, 7A and 86 of the Crimes Act 1914 (Cth).[54]

350. SiS submitted that by targeting “persons” rather than “undertakings”, s 91 extends the net of liability to natural persons and corporations that either are not undertakings at all or, if they are undertakings, not the undertaking(s) liable for a primary violation of a competition rule.

351. SiS’s argument has to be premised on the notion that liability can be imposed on a person via s 91 independently of any contravention of a competition rule by an undertaking. Only if this is so can it be argued that the existence of s 91 “casts the net much wider” than regimes that only impose liability on undertakings.

352. It seems to me, however, that the premise is not entirely correct. First, s 91(b) and (d) concern accessorial liability, which is premised on a primary contravention of a competition rule, which can only be committed by an “undertaking”. As SiS accepted, proof of a contravention is logically necessary for liability under s 91(b) for aiding, abetting, counselling or procuring.[55] Likewise, SiS accepted that liability for being “knowingly concerned in or a party to the contravention of the rule” under s 91(d) and also under s 91(c) insofar as it refers to a person who induces another to contravene a competition rule, presupposes the existence of a “contravention”.

353. It follows, as SiS accepted, that if an undertaking is not liable because an employee’s acts are not attributed to it, then equally the employee cannot be held liable under s 91(b) and (d) for aiding and abetting or for being knowingly concerned in any contravention by that undertaking. Deterrence cannot be effected by imposing sanctions on the employee as an accessory of a non-liable employer.

354. SiS offered two answers to this problem: first, that the employee can instead be made liable under s 91(a), (c) and (e), being forms of inchoate liability that, in its submission, do not depend on the existence of a primary contravention; secondly, the employee can be held liable as an accessory under s 91(b) and (d) in a contravention by an undertaking other than his employer.

355. Without going into details, it seems to me these “solutions” are themselves replete with difficulties. For example, as regards the first answer:

(1)  Can an employee be said to have attempted a contravention, or attempted to induce his employer to commit a contravention, in circumstances where the employer undertaking is not liable for any contravention? SiS submitted that liability for “inchoate” contravention such as attempting to contravene (s 91(a)) and attempting to induce another to contravene a competition rule (s 91(c)) does not depend on the existence of a primary contravention: ACCC v Australian Egg Corporation Ltd [2016] FCA 69 at §66.[56]
(2)  However, the concept of “attempt to contravene” under s 91(a) seems to be targeted at an undertaking’s conduct that is more than merely preparatory to the commission of a contravention. It is doubtful if an employee of such an undertaking can be said to be responsible for attempting a contravention.
(3)  The concept of “attempt to induce any other person … to contravene” in s 91(c) seems equally inapt to an employee who has purported to act for his employer. It has been said by the Federal Court of Australia in Yorke v Lucas (1983) 80 FLR 143, 152 that
“ Inducing a contravention in the context of para.75B(b) [of the Trade Practices Act 1974 (Cth)] connotes, in our view, some act of compulsion by force or threat of force or some act of persuasion or stimulation aimed at ensuring that an act is committed which constitutes a contravention. The word ‘incite’ is akin to ‘induce’, though ‘induce’ probably covers a wider field. ‘Incite’ is a word familiar to the criminal law and involves some deliberate act of rousing, stimulating, urging or spurring on: Young v. Cassels (1914) 33 N.Z.L.R. 852 per Stout, C.J. (at p.854).”[57]
(4)  As for conspiracy to contravene a competition rule (s 91(e)), SiS submitted that, by analogy with s 159A of the Crimes Ordinance (Cap 200)[58], conspiracy is an inchoate wrong that can be established even though no actual contravention of any competition rule exists.
(5)  But it is again difficult to see how the employee who has engaged in anti-competitive conduct purportedly on behalf of the employer can be said to have conspired with the employer to contravene a competition rule.

356. As to SiS’s second answer, as can be illustrated with reference to the alleged facts of the present case, there are likewise problems with the notion that, even if SiS was held not to have contravened a competition rule, Shek could be held liable on the basis that he aided and abetted the contravention by the other respondents, or that he was knowingly concerned in, or a party to, such contravention, or that he conspired with Hung or Nutanix to contravene the first conduct rule. Shek’s entire involvement in the case was allegedly to submit a bid purportedly on behalf of SiS, at the request of Hung. If there was no agreement made by SiS, and therefore no liability on Nutanix for making an agreement with SiS, it is difficult to see how it can be said that Shek had aided and abetted some other contravention. It is also not straightforward, to say the least, to suggest that Shek conspired with Hung or Nutanix to contravene the first conduct rule under s 91(e), when Shek’s acts were, ex hypothesi, not attributable to SiS.

357. The task at hand is to devise a special rule of attribution based on the Meridian approach. That approach requires an exercise of statutory construction, taking into account the language, content and policy of the statute, to devise a rule that is workable for all instances where the statute applies, and not just on the facts in this particular case.

358. The tentative discussion above shows there must be a real concern that without attribution of conduct to undertakings, there can be no contravention by the undertaking in question, and that without a primary contravention, it is by no means clear that the employee can be held liable as a person involved in a contravention. Contrary to SiS’s argument, therefore, the accessory liability provisions in s 91 cannot “fill the gap” left by a lax rule of attribution.

359. Difficulties and complexities such as these militate against the suggestion that the legislature intended that the scope of attribution of acts to undertakings should be reduced because of the extension of liability to persons involved. I am unable to accept SiS’s assertion that the Ordinance would remain effective in the absence of attribution. Likewise I do not accept SiS’s submission in essence that there is a fundamental difference between the respective legal schemes such that the attribution rule in Hong Kong should be much narrower than that in the EU or the UK.

(7) Attribution for the first conduct rule

360. The essential policy aim of the first conduct rule is to deter anti-competitive conduct relating to agreements, concerted practices and decisions of an association of undertakings. The deterrent effect is achieved primarily through the availability of financial sanctions under s 93, together with other orders under s 94 and Schedule 3.

361. The first conduct rule applies to and focusses on undertakings. The definition of “undertaking” in s 2(1) has been set out in §288 above. “Undertaking” is a key concept of EU competition law but it is a term unknown in other branches of Hong Kong law. In EU law employees are often regarded to be incorporated as part of an undertaking. They are distinguished from independent service providers who may be themselves functioning as undertakings. But no one has suggested that every act of an individual who is an employee of an undertaking is attributable to the undertaking. Neither the language of the first conduct rule nor that of the definition of “undertaking” sheds real light on the question as to when acts of an employee should be so attributed.

362. A fundamental consideration is the furtherance of the policy of the underlying rule which raises the question whether attribution is required to promote the policy of the substantive rule, and whether, if attribution is denied, that policy will be frustrated: see Moulin Global Eyecare Trading Ltd, §116. At the same time one must bear in mind the need for a proper balance between effectiveness in enforcement of competition law on the one hand, and avoiding hardship and injustice on the other hand.

363. The approach the Commission primarily contends for is that an undertaking is responsible for the acts of its employees carried out during their employment which give rise to a contravention of the first conduct rule. SiS characterised this as the functional equivalent of absolute liability. Putting labels on one side, it is undeniably a strict approach which would hold an undertaking responsible so long as the acts in question were done while the employee was at work, irrespective of the responsibilities and authority normally conferred on that employee. This is illustrated by the Commission’s contention that SiS would be liable even where one of its messengers managed to submit a bid in its name stamped with the company chop.

364. While the question under consideration concerns the rules of attribution of conduct to undertakings, some assistance may be derived from the authorities on the imposition of strict liability cited by counsel, although in those cases the question was sometimes couched in terms of the requirement of mens rea, which is not apt in the present context.

365. In Reynolds v G H Austin & Sons [1951] 2 KB 135, 149-150, Devlin J said:

“ Thus a man may be made responsible for the acts of his servants, or even for defects in his business arrangements, because it can fairly be said that by such sanctions citizens are induced to keep themselves and their organizations up to the mark. …
I think it a safe general principle to follow … that where the punishment of an individual will not promote the observance of the law either by that individual or by others whose conduct he may reasonably be expected to influence then, in the absence of clear and express words, such punishment is not intended.”

366. In a similar vein, in Lim Chin Aik v The Queen [1963] AC 160, 174, Lord Evershed, giving the Opinion of the Privy Council, said:

“ [I]t is not enough in their Lordships’ opinion merely to label the statute as one dealing with a grave social evil and from that to infer that strict liability was intended. It is pertinent also to inquire whether putting the defendant under strict liability will assist in the enforcement of the regulations. That means that there must be something he can do, directly or indirectly, by supervision or inspection, by improvement of his business methods or by exhorting those whom he may be expected to influence or control, which will promote the observance of the regulations. Unless this is so, there is no reason in penalising him, and it cannot be inferred that the legislature imposed strict liability merely in order to find a luckless victim.”[59]

367. In Hin Lin Yee v HKSAR (2010) 13 HKCFAR 142, Ribeiro PJ described certain situations when absolute liability might in principle be imposed. His Lordship considered that the imposition of absolute liability may have a justifiable utility in cases involving the statutory imposition of a duty on a person (which may be a corporate body) where the conduct or task which is the subject of the duty is in practice likely to be carried out by someone else, such as an employee or a contractor.[60] The justifiable effect of imposing absolute liability in such circumstances is that it promotes proactive management and diligent supervision on his part to see that the duty is in fact being properly discharged. If the employer knows that he will be held to account, even without actual fault on his part, if his contractor or employee is slack or careless or incompetent on the job, he has every incentive to make sure that the job is properly done and to replace employees who are not up to the task.[61]

368. I accept that anti-competitive conduct is an issue of social concern and that the Ordinance has been enacted to address that concern and provide relevant regulation of economic activity for the public welfare.

369. The terms of the first conduct rule invite attention upon the economic activities of the undertaking in question and their impact on competition in Hong Kong. While s 91 extends the liability in applicable cases to relevant persons involved, it is undertakings that carry on economic activities and it is their conduct that may have the object or effect of preventing, restricting or distorting competition in Hong Kong. The statute deters such conduct by, inter alia, a pecuniary penalty on the person that constitutes the undertaking. The obligation is placed on the undertaking to provide effective preventive measures and to organise its affairs in such a way as to avoid infringements.

370. Undertakings often carry on their activities through employees. The business and economic activities of an undertaking are carried on by the actions of its employees, acting within the course of their employment. Holding undertakings liable for the acts of their employees in the course of their employment will serve to promote the objects of the statute by encouraging greater vigilance to prevent the commission of the prohibited acts.

371. The policy of the statute would be undermined if an undertaking is only liable for an employee’s acts that are specifically authorised by or known to senior management. Likewise, exonerating an employer simply on the basis that an employee’s anti-competitive conduct is contrary to or prohibited by the employer’s policies or instructions would allow the restriction placed on undertakings to be easily bypassed. As was pointed out in Pioneer Concrete, it would be fallacious to judge an undertaking simply by what its management has said rather than by what its employees have done in the course of their employment.

372. But I do not consider that attributing all acts of all employees to an undertaking solely because they were done during the employees’ working hours is either just or necessary for the effective enforcement of competition law. There must be a sufficient connection between the acts of the employee in question and the undertaking so that the former can properly be regarded as part of the latter in the relevant context. Where the employer has put the employee in his position to do the kind of acts in question, it will often be fair to conclude that the employer has engaged in economic activity through the employee and is answerable for the manner in which the employee has conducted himself in that appointment.

373. The Commission, relying on BPB plc v Commission (see §327 above), submitted that effective implementation of the competition rules would be undermined if it was necessary to prove exactly which individual was responsible for the infringing act in the scope of his authority to act in that way. But BPB was a case where the undertaking argued that it was not liable because the employee in question, who was its CEO, had acted contrary to its instructions in continuing the information exchanges. In my respectful opinion, the court was not there making a general statement that competition law would be easily circumvented unless an undertaking is to be held liable for all the acts of all its employees done within their working hours without regard to any other circumstances.

(8) Application to the facts

374. Applying these principles to the facts of this case, should Shek be regarded as part of the undertaking, SiS, such that what he did on the morning of 18 July 2016 should be attributed to SiS?

375. As stated above, save for exceptional circumstances which did not apply here, SiS, as a distributor, did not compete in the market of supplying to end-users such as YWCA. The highest the Commission put its case is that SiS was not prohibited by its contract with Nutanix from competing in the market for end-users. Instead, SiS’s business was in the supply of products to resellers. It had never submitted a tender at the invitation of an end-user. It was not within the job description of anyone in the company to be tendering in that market — lawfully or otherwise. On 6 July 2016, Priscilla Szeto had already decided that SiS would not take part in the second tender of YWCA.

376. It was not part of Shek’s general responsibility to deal with end-users or to submit tenders to them or to anyone else. Shek accepted he had no authority to commit SiS to liability even for a single dollar. He had no authority to set the price of any deal, even those within the business of SiS, whether upstream or down. As one of the Product Managers, his job involved liaising with upstream suppliers to obtain product information and passing it to the Sales Department for their discussion with resellers. He had no authority to sign any outgoing documents for SiS, which would require the approval of Raymond Au or other departments of SiS. Still less was it part of Shek’s job to agree with Hung to put in a bid in the name of SiS which was not intended to win the tender but simply to make up the numbers so as to facilitate a reseller’s bid for the contract.

377. It boils down to a case where Shek, a relatively junior employee whose responsibility did not include submitting tenders, had gone rogue. Acting on his own, at the request of a vendor’s representative whom he felt obliged to obey, he submitted a dummy bid in a market in which SiS did not compete. He was not acting primarily with his employer’s interest in mind. Instead he concealed it from SiS. While Shek did the acts in question within his working hours, he was not acting in the course of his employment. He was not acting as part of SiS.

(9) The Commission’s alternative case

378. The Commission’s alternative case is that there was a “sufficiently close connection” between Shek’s conduct and his employment with SiS or that Shek acted with the actual or ostensible authority of SiS, and that SiS should therefore be held liable for Shek’s conduct. For this case the Commission pleaded the following matters:

(1)  Shek was SiS’s Product Manager responsible for Nutanix products with responsibilities including the provision of product information to customers, conducting promotional activities and negotiating prices with vendors and customers.
(2)  Although distributors such as SiS would not generally sell products to end-users directly, a distributor may in certain circumstances sell a product to an end-user directly or participate in a tender submission.
(3)  The submission of ‘dummy” bids was a common practice in the IT industry in Hong Kong.
(4)  Shek was provided with access to SiS’s company chop and SiS’s tender was printed, signed and chopped by Shek at SiS’s office during his working hours. Hung attended SiS’s office for this purpose.
(5)  Shek set out from SiS’s office to deposit the tenders at YWCA during his working hours.
(6)  Raymond Au and Joe Lam knew that Hung attended SiS’s office on 18 July 2016 and that Shek submitted a bid on behalf of SiS to “help” Hung. Neither of them raised any disapproval or questioned Shek’s authority to do so.
(7)  It was in the interests of SiS, as one of Nutanix’s two distributors in Hong Kong, to maintain good relations with Nutanix, otherwise its future business cooperation might be affected.

379. Based on my findings, it is plain that a number of these matters are not made out.

(1)  The first point is not wholly established in that even if Shek did negotiate prices, he was only authorised to provide provisional quotations to customers which were subject to approval by his seniors.
(2)  The second point is not made out because SiS would only supply to end-users in exceptional circumstances which did not apply here, and SiS had never participated in any tender submissions of end-users.
(3)  As to the third point, there is some evidence that the practice of submitting bids just to help make up the numbers happened from time to time. Priscilla Szeto accepted there was such practice. In June 2016 she had received an unsolicited email from a reseller, Basic Bit, about YWCA’s first tender, where the writer anticipated that another reseller had already secured the deal registration and he (Basic Bit) wanted to see if he needed “to help to submit a higher bid” (emphasis added), which Szeto understood to involve bid-rigging. I prefer her evidence when she said it was very likely that Raymond Au and Joe Lam knew that this sort of thing did occur, to their contrary evidence that they had never heard of it. While she disagreed with the suggestion that such practice happened “all the time” in the IT industry in Hong Kong, she accepted that anyone involved in the business must have been aware that it happened “from time to time”. There is no more detailed evidence, however, as to how prevalent this was in the IT industry in Hong Kong.
(4)  On the fourth point, it is established that the tender was printed, signed and chopped by Shek at SiS’s office during his working hours, but the way in which Shek came by the company chop was not sufficient to implicate anyone else in SiS: see §§305-309 above.
(5)  The fifth point is factually correct, but it should be noted that (i) Hung offered to reimburse Shek for the taxi fare; and (ii) Shek concealed the destination from SiS in his expense claim.
(6)  The sixth point is not made out on the evidence.
(7)  As for the seven point, as stated in §§310-314 above, I have found that Hung was in a position of ascendancy over Shek and that Shek was motivated by a desire to please Hung or avoid offending him.

380. On this basis, in my judgment the Commission’s alternative case against SiS also fails.

(10) Conclusion

381. For these reasons, the Commission has failed to establish that Shek’s conduct in relation to YWCA’s tender should be attributed to SiS. It follows that there was no relevant agreement made between Nutanix and SiS and that there was no contravention of the first conduct rule by either of them arising from the agreement between Hung and Shek.

J. ANTI-COMPETITIVE OBJECT

(1) General principles

382. As explained in section B(7) above, the Ordinance has adopted the same two-prong structure as Art. 101(1) of the TFEU in prohibiting agreements that have the object or effect of restriction of competition in Hong Kong. If an agreement is a restriction by object, it is not necessary to consider its effects on competition: T-Mobile, §§28 and 30; Cases C-501/06 P etc GlaxoSmithKline Services and Othersv Commission, EU:C:2009:610, §55. The Commission has in the present case only alleged that the relevant agreements infringed the first conduct rule “by object”. There is no effects case advanced.

383. The Commission submitted that the essential feature of a tendering process is the expectation on the part of the body calling for tenders that it will receive, as a response, a number of independently articulated bids formulated by contractors wholly independent of each other. The agreements or concerted practices in the present case aimed to interfere with fundamental aspects of the tender process, leading to conditions of competition which do not correspond to normal market conditions. They were expressly intended to subvert the competitive nature of the tender process by leading YWCA to award the tender in the mistaken belief that there had been a genuine competition. Such arrangements, in the Commission’s submission, were by their nature harmful to competition and had the object of preventing, restricting or distorting competition in Hong Kong.

384. It is common ground that the leading EU authority on the approach to restriction by object is Case C-67/13P Groupement des cartes bancaires v Commission. That case concerned certain new rules proposed by a grouping of payment card issuers that required financial contribution from its members to finance the operating costs of the payment system and to avoid “free riding” by those which primarily issued cards but did little to ensure that merchants accepted the cards. The EU Commission and the General Court found that the rules constituted a restriction of competition by object, but the CJEU disagreed and remitted the case for consideration of the effects of the rules. The key holdings in that case include:

(1)  Certain types of coordination between undertakings reveal a sufficient degree of harm to competition for the examination of their effects to be considered unnecessary. This arises from the fact that certain forms of coordination between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition: see §§49-50.
(2)  The essential test for an object restriction is whether such coordination reveals in itself a sufficient degree of harm to competition: §57.
(3)  In order to determine whether an agreement or concerted practice constitutes a restriction by object, regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question: see §53.
(4)  Although the parties’ intention is not a necessary factor in determining whether an agreement or concerted practice is restrictive, there is nothing prohibiting that factor from being taken into account: see §54.
(5)  The General Court was wrong in that case to find that the concept of restriction must not be interpreted “restrictively”. The concept of restriction of competition “by object” can be applied only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects: see §58.

385. The decision in Cartes Bancaires was subsequently applied by the Grand Chamber of the CJEU in Case C-179/16 F. Hoffmann-La Roche Ltd v Autorità Garante della Concorrenza e del Mercato, where it was held that an agreement between Roche and Novartis for the dissemination of misleading information to prevent the off-label use of the lower-priced product Avastin (marketed by Roche) in order to favour the sales of the higher-priced product Lucentis (marketed by Novartis) could be regarded as a restriction of competition by object.

386. Whilst the CJEU referred in the case law to “types” of coordination, there is no exhaustive list of the categories of agreements that have the object of restriction of competition. As noted in Whish and Bailey, Competition Law (9^th ed), p 131, the content of the “object box” is not capable of precise definition. Agreements not of a kind considered before may yet be found to be restrictive by object upon a proper assessment in light of their own content and context.

387. An agreement may be found to have an anti-competitive object even if it also pursues legitimate aims. Thus in Case C-209/07 Competition Authority v Beef Industry Development Society Ltd, the CJEU held that even if the parties to an agreement acted without any subjective intention of restricting competition but with the object of remedying the effects of a crisis in their sector, their agreement could still be found to have the object of restricting competition.[62] In Cartes Bancaires, the CJEU held that the fact that the proposed new rules pursued the legitimate object of combatting “free riding” did not preclude their being regarded as having an object restrictive of competition.[63] In Hong Kong, the Ordinance, by s 7(1), makes clear it is sufficient if one of the objects of an agreement is to prevent, restrict or distort competition.

388. Where it is alleged that an agreement has the effect of restricting competition, it is necessary to assess what the competitive position on the relevant market would have been in the absence of the alleged restrictive agreement — commonly referred to as the “counterfactual”, and to compare it with the position in the “actual” world: Case 56/65 Société Technique Minière v Maschinenbau Ulm GmbH [1966] ECR 235; Case T-328/03 O2 (Germany) GmbH v Commission, EU:T:2006:116, §§68-73. Whilst in an “object” assessment the agreement has to be seen in its context, the whole point of prohibiting an object restriction is to avoid the need for an effects investigation. The requisite assessment for an object case is therefore to be distinguished from an effects investigation based on an extensive market analysis, which is not required for an assessment of the existence of a restriction by object. Nor is it necessarily required in such cases to define the market: see Whish & Bailey, Competition Law (9^th ed), pp 28 & 121.

389. The agreement need not have been implemented in order for it to have an anti-competitive object. This is clear from the wording of s 6(1)(a) of the Ordinance, which requires an undertaking not to “make” or “give effect to” an agreement. “Making” an agreement with an anti-competitive object will contravene the first conduct rule, even if it is not given effect to.

390. Further, as the Commission submitted, in order for an agreement to be regarded as having an anti-competitive object, it is sufficient that it has the potential to have a negative impact on competition. As the CJEU held in Case C-32/11 Allianz Hungária Biztosító Zrt and Others v Gazdasági Versenyhivatal, EU:C:2013:160, §38:

“ … in order for the agreement to be regarded as having an anti-competitive object, it is sufficient that it has the potential to have a negative impact on competition, that is to say, that it be capable in an individual case of resulting in the prevention, restriction or distortion of competition within the internal market. Whether and to what extent, in fact, such an effect results can only be of relevance for determining the amount of any fine and assessing any claim for damages …”

The emphasis in Allianz on potential impact is not inconsistent with Cartes Bancaires. The former case was cited in the latter. The focus of enquiry in an object case is not the concrete actual effects of an agreement as implemented but the agreement’s potential effect on competition. It was in this context that the CJEU in Cartes Bancaires referred to a sufficient degree of harm to competition.

391. It is common ground that whether certain conduct falls within the definition of “serious anti-competitive conduct” in the Ordinance and whether it contravenes the first conduct rule are distinct questions (see section L(1) below), with the latter turning on whether the Commission can establish that the conduct has the object or effect of restricting, preventing or distorting competition.

(2) Content and context of the agreements

392. The agreements or concerted practices between (i) Nutanix and BT, (ii) Nutanix, BT and Innovix, and (iii) Nutanix and Tech-21, have been set out in sections E, G and H above. As the Commission submitted, the whole point of the exercise was to mislead YWCA into awarding the tender under the mistaken belief that there had been a genuine competitive tender process.

393. It is relevant first to remind oneself what a tendering process is about. In Apex Asphalt and Paving Co Ltd v Office of Fair Trading [2005] CAT 4, there were concerted practices between contractors in relation to the making of bids for a tender for flat roofing contracts. Apex supplied figures to another tender invitee (Briggs) for a cover bid to be put in by Briggs for certain contracts (though Briggs in fact did not submit a tender). In relation to another set of contracts, Apex received the tender documents but decided not to carry out a full estimating exercise because the product specification gave a price advantage to another firm (Howard Evans) who, Apex knew, was likely to bid, and also because of Apex’s own workload. Apex contacted Howard Evans for a cover price. Howard Evans provided prices to Apex who then bidded at those prices. Howard Evans won the tender. Dismissing the appeal from the decision of the Office of Fair Trading that Apex was liable for concerted practices with the object of restricting competition, the UK Competition Appeal Tribunal held:

“ 208. The essential feature of a tendering process conducted by a local authority is the expectation on the part of the authority that it will receive, as a response to its tender, a number of independently articulated bids formulated by contractors wholly independent of each other. A tendering process is designed to produce competition in a very structured way.
209. The importance of the independent preparation of bids is sometimes recognised in tender documentation by imposing a requirement on the tenderers to certify that they have not had any contact with each other in the preparation of their bids. This is important from the standpoint of the customer, since the tendering process is designed to identify the contractor that is prepared to make the most cost-effective bid. The competitive tendering process may be interfered with if the tenders submitted are not the result of individual economic calculation but of knowledge of the tenders by other participants or concertation between participants. Such behaviour by undertakings leads to conditions of competition which do not correspond to the normal conditions of the market.” (emphasis added)

394. The notion that bids should be independently articulated finds support also in EU law. In Case T-29/92 SPO v Commission, §119, the EU Court of First Instance stated that consultation by contractors regarding the manner in which they intend to respond to an invitation to tender is incompatible with Art. 85(1) of the TFEU, and that it is for each contractor to determine independently his conduct in the tender. This reflects the fundamental principle of competition law that “each economic operator must determine independently the policy which he intends to adopt on the … market”: Case 40/73 Suiker Unie v Commission, §173.

395. The facts of both Apex and SPO concern horizontal contacts between potential bidders but the principle is in my view not confined to that setting. The topic of vertical and horizontal agreements will be further discussed below.

396. Nevertheless, whether an agreement or concerted practice has an anti-competitive object depends on a proper analysis of the agreement and the facts of the case. The nature of a tendering process does not warrant any presumption of anti-competitive object simply because the conduct impugned involves interference with that process by the submission of bids that have not been independently articulated.

397. In terms of the economic and legal context of their agreements, it is true that YWCA had selected a very specific brand of product, Nutanix’s hyper-converged system (with three possible hardware combinations). Nevertheless, there is no suggestion that BT was the only entity capable of supplying this system. It could have been supplied by the other bidders in the second tender, or the sole bidder in the third tender, or by direct purchase. In other words, there was still actual and potential competition in the supply of this product, which would be precluded by the agreements if successfully implemented. If YWCA had only received BT’s bid in the second tender, it would have had decisions to make as to what to do next, on the basis of the true conditions of the market. The objective purpose of the respondents’ agreements was to interfere with that process, and to lead YWCA to believe it had received additional genuine bids and to award the tender on that mistaken basis.

398. The respondents also submit that YWCA had a close pre-existing relationship with BT, which had successfully carried out the proof-of-concept exercise. It does not follow, however, that YWCA would have chosen BT irrespective of the content or price of the other bids received. In fact, in spite of YWCA’s favourable experience with BT at the time, it decided to procure the Nutanix system through a competitive tender. There is no basis to suggest that the whole tendering process was intended to be a charade. Although Lok had a close working relationship with Percy Ng and Chan and had some influence in the procurement decision especially on the technical side, I do not think he would, or would be able to, dictate BT be chosen even if that was not supported by the outcome of the tendering process. It is to be recalled that despite BT was the consultant to YWCA on procuring a Customer Relationship Management system, it was eventually outbidden in the tender for the implementation of the system in late 2014 or 2015 (see §89 above).

399. Reliance has been placed by the respondents on the terms and conditions of the tender. It is said that not only was there no requirement for bidders to certify that they had not had contact with each other in the preparation of the bids, there was a statement in YWCA’s “Request for Support from Principal” that it “respects the existing mechanism of the IT industry, particularly the business collaboration arrangements made between IT manufacturers (principals) and their tiers of the intermediary agents (distributors/dealers)”. In my judgment, this cannot sensibly be read as indicating that YWCA expected there to be direct or indirect contact between bidders or expected there to be arrangements to provide non-genuine bids just to meet its requirement of a minimum number of bids. On the contrary, in that letter YWCA made clear that it had not appointed any company to be its “exclusive order fulfilment partner” and that YWCA wanted “a fair-game tender exercise”. The requirement of a minimum of five bids shows that YWCA viewed as important the existence of genuine competition in its procurement exercises.

400. The respondents also submitted that there was little competition for the supply of the Nutanix system to YWCA. In particular, only one response (from BT) was received in the first tender, showing that the invitees did not find it a particularly attractive opportunity. However, a tender can generate competition, by way of inviting competing bids from different bidders, which might otherwise be absent. The agreements in question were intended to bring the tendering and procurement process to an end, which had the potential effect of preventing further competition from being canvassed. After the second tender, Nutanix supplied a list of 41 firms that were its authorised sellers or partners, from which YWCA selected 17 firms (including the 2^nd to 5^threspondents) to be invited to take part in the third tender. As it happened, there was in fact one response (from IT Channel (Asia) Ltd) in the third tender. Eventually the contract was awarded by direct contact with Dell and a retailer CriticMission Data Ltd. This shows that while the level of interest in YWCA’s business was low, it cannot be said there was no potential or actual competition. BT was far from being the only possible supplier.

401. The respondents submitted that any coordination found could not have caused harm to competition if there was no competition to be restricted in the first place. The principle is recognised by the Commission, which stated in its Guideline on the First Conduct Rule (at §3.11):

“ In examining the relevant context for an agreement, the following factors may show that an agreement does not have the object of harming competition:
…
(b) an examination of the relevant context reveals that at the relevant time there is in fact no competition in the market to be harmed;
…”

402. However, as stated above, it cannot be said here that competition was non-existent. The cases relied upon by the respondents concern very different facts. In Bookmakers’ Afternoon Greyhound Services Ltd v Amalgamated Racing Ltd [2009] EWCA Civ 750, until 2007 the off-course bookmakers had in place an arrangement to pay a distributor (formed by bookmakers) for the right to show live pictures of horseracing in LBO (licensed betting offices). From 2007 onwards, a number of racecourses formed a joint venture which would serve as a new distributor through another broadcasting channel. The racecourses licensed their own LBO media rights to the joint venture at higher prices. The bookmakers argued that the creation of the joint venture and its entry into the market was the result of an anti-competitive agreement among the racecourses. However, the pre-existing two-sided market was one of a monopoly purchaser of broadcasting rights from racecourses and a monopoly supplier to LBOs. The new arrangements actually had the potential to increase competition in the market. It was in that context that the Court of Appeal (at §92) accepted the argument that there was no competition to be restricted in the first place. In contrast, in the present case, as explained above BT was by no means a monopolistic supplier of Nutanix products.

403. Case T-374/94 European Night Services Ltd v Commission, EU:T:1998:198 concerned agreements by which ENS was formed by French, Dutch, German and British railway undertakings for the purpose of providing overnight Channel Tunnel passenger rail services as well as agreements by which ENS acquired certain services including traction, cleaning services and passenger-handling services. The EU Commission concluded they restricted competition by effects, taking the view that there was potential competition among the parent undertakings or between them and ENS. The EU Court of First Instance disagreed, noting that given the prohibitive cost of the investment required and the fact that there were no economies of scale in the operation of a single route, it would be unrealistic to postulate potential competition among parent undertakings and between them and ENS. Further, following publication of a Commission’s notice inviting interested parties to make representations, no third parties took any steps to submit representations as a potential competitor capable of being affected by the implementation of the agreements in question.[64] It can readily be seen that the facts are quite different from those of the present case.

(3) Deal registration system

404. A related point raised by the respondents is that because of the deal registration in place, BT would be able to benefit from a substantial discount from Nutanix and was therefore in an “unassailable” position to win the tender, or at least that was what Chan believed.

405. There is no doubt BT enjoyed certain advantages, but I do not find that it was, or that Chan understood it to be, in an unassailable position to win. The fact that BT (via Dell) had a deal registration with Nutanix in place for the second tender does not mean that there could be no competition for the tender. The discount BT could expect applied to the Nutanix software component of the integrated solution, and was not precisely quantified in evidence. Chan understood that only part of the discount obtained by Dell from Nutanix would be passed on to BT. The cost of the Nutanix software was only part of the bid price; the cost of the hardware component and the reseller’s own mark-up on both components would constitute the other parts. As an illustration, in relation to YWCA’s eventual purchase of the Dell-Nutanix solution from CriticMission Data Ltd in November 2016, out of the total contract price of HK$[●], Nutanix received US$[●] net. Although YWCA had a preference for the Dell-Nutanix solution, it had specifically discussed with BT to ensure that all three types (Dell-Nutanix, Lenovo-Nutanix and Nutanix-NX) were capable of meeting YWCAs’s needs. A non-deal-registered reseller may be able to quote a low and competitive price if it is prepared to take a lower margin or is able to save costs in other aspects, which was accepted by Siu. If the exercise was purely meant to encourage a few other resellers or distributors to bid, Chan would not have needed to send Hung BT’s bid prices, and Hung would not have said to his colleagues he was assisting “to make sure Dell win the deal”[65] and to Siu that they were to “help BT to bid for Dell deal”. There are also other factors apart from price which an end-user may consider when choosing a reseller, whose importance increases as the price difference decreases. Chan’s own evidence suggests that it was only if the received bids were “very close” in price that he was confident BT would win even if its bid was not the lowest.

406. Further, the fact that a particular bidder has a cost or other advantage does not mean that there is no restriction of competition if it enters into agreements with its supplier or other potential bidders to procure non-genuine bids and further enhance its prospects of success. In Apex Asphalt, Apex provided a cover bid precisely because (in part) it considered Howard Evans had a price advantage and was likely to bid. The fact that Howard Evans’s bid would have been successful even without Apex’s cover bid was not a defence, but simply a matter for mitigation.[66]

407. The same point applies to the respondents’ argument that there was also no commercial rationale for BT to engage in bid-rigging, because it already had a long-standing relationship with YWCA and was therefore the favoured supplier for the Nutanix product anyway. As its own experience shows, even where it had been appointed by YWCA as the consultant for the CRM system, it did not succeed in the bid to implement the system.

(4) No inflated price

408. Nutanix submitted that the agreements did not contain “typical” features of bid-rigging, the first of which is increased or controlled pricing. Similarly, Innovix argued that the Commission must advance a theory of harm which is likely to result from the agreements explaining how they had, or were likely to have, an appreciable adverse impact on the parameters of competition such as price, output, product quality, product variety and innovation (citing the Guidelines on the Application of Article 81(3) issued by the EU Commission, at §§15-16).

409. In my view, as Nutanix recognised, price inflation may be a common or typical feature of bid-rigging, but it is by no means a necessary ingredient of a restriction by object or bid-rigging. Cover pricing[67], for example, does not necessarily involve any price increase or contribute to the fixing of the price eventually charged to the purchaser, but is generally regarded as an infringement of competition law. The absence of price inflation in BT’s second bid relative to the first is a matter of mitigation in BT’s favour, but it does not exonerate it from responsibility for contravention of the first conduct rule.

410. By considering whether there is evidence of increased or controlled pricing, one strays into an inquiry into the effects of the agreement. Yet restrictions by object reveal a sufficient degree of harm to competition in themselves, so that “there is no need to examine their effects”: Cartes Bancaires, at §49. The Guidelines on the Application of Article 81(3) referred to by Innovix actually the efficiency defence found in Art. 101(3) of the TFEU (the equivalent of s 1 of Schedule 1 to the Ordinance). In the Guidelines on the applicability of Article 101 to horizontal co-operation agreements (2011/C 11/01) issued by the EU Commission, it is under the section on “Restrictive effects on competition” that the discussion on the parameters of competition is located:

“ 27. For an agreement to have restrictive effects on competition within the meaning of Article 101(1) it must have, or be likely to have, an appreciable adverse impact on at least one of the parameters of competition on the market, such as price, output, product quality, product variety or innovation. Agreements can have such effects by appreciably reducing competition between the parties to the agreement or between any one of them and third parties …” (emphasis added)

411. The vice of such practice as found in the present case is in its harm to competition. The concrete negative effects of these practices (if successfully implemented) can take various forms: see Apex Asphalt, at §251; Kier Group plc v Office of Fair Trading [2011] CAT 3, at §§95-99. It is not necessary for the Commission to prove that YWCA suffered or would have suffered actual financial detriment in order to establish an infringement. To find an anti-competitive object, it is generally not necessary to show that an agreement entailed disadvantages for final consumers: Bellamy & Child, European Union Law of Competition (8^th ed), §2.160. As the Commission submitted, the first conduct rule, in line with Art. 101 of the TFEU, should be interpreted as being intended to protect, among other things, the structure of competition. In Joined Cases C-501/06P etc GlaxoSmithKline Services Unlimited v Commission, a case concerning parallel trade, the CJEU held (at para 63):

“ First of all, there is nothing in that provision to indicate that only those agreements which deprive consumers of certain advantages may have an anti-competitive object. Secondly, it must be borne in mind that the Court has held that, like other competition rules laid down in the Treaty, Article 81 EC aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such. Consequently, for a finding that an agreement has an anti-competitive object, it is not necessary that final consumers be deprived of the advantages of effective competition in terms of supply or price (see, by analogy, T-Mobile Netherlands and Others, cited above, paragraphs 38 and 39).”

The same principle was repeated by the CJEU in Case C-286/13P Dole Food Company Inc v Commission ECLI:EU:C:2015:184 at §125 which was decided after Cartes Bancaires.

412. The focus on increased or controlled pricing misapprehends the essence of a tender which is a structured competitive process. The conduct in question is aimed at distorting that process.

(5) No quid pro quo

413. Nutanix submitted that another typical feature of bid-rigging is a trade-off or quid pro quo for the other participants who, it is agreed, would not win the tender in question, and that there is no evidence of any quid pro quo for SiS, Innovix and Tech-21 in this case. In my view, however, while a quid pro quo is a common element in this kind of cases, it is not a necessary component for such an arrangement to be found a restriction of competition by object. Its absence may be a matter relevant to the plausibility of the agreement or to mitigation, but not to the question whether the agreement, if established, was a contravention by object.

414. Two cases were referred to by Nutanix: Kier Group and Case C-440/11P Commission v Gosselin EU:C:2013:514. Kier Group involved both “simple” cover price cases, as well as infringements that involved compensation payments to the cover bidders. It was an appeal against penalties only which means there was no dispute that even “simple” cover price cases were a contravention. The cases involving compensation payments were considered by the Office of Fair Trading to be more serious than “simple” cover pricing, thereby meriting a higher starting point for the calculation of the appropriate penalty. There is nothing in the case, however, to suggest that quid pro quo was a necessary element of liability.

415. In Gosselin, the cartel was alleged to have taken various forms: agreement on prices, agreement on cover quotes and agreement on commissions (financial compensation for losing bids, ie quid pro quo). The General Court noted that this system was “based on the concept of quid pro quo, insofar as each undertaking which paid a commission or issued a cover quote expected to be able, in the future, to benefit itself from that system and obtain commissions or cover quotes. Therefore… those arrangements were ad hoc but displayed a link of complementarity”.[68] The court, however, simply analysed each agreement separately, finding each to be a restriction by object, without relying on the quid pro quo as a necessary constituent.[69]

416. Reciprocity may make agreements such as bid-rigging a repeated, systemic problem but it is not required as an element for liability in an individual case. There is nothing to prevent a one-off agreement, done simply as a favour, from being anti-competitive by object.

(6) Vertical vs horizontal

417. On this Tribunal’s findings, the agreements in question, with the exception of the trilateral agreement between Nutanix, BT and Innovix, are each a bilateral agreement between a reseller and its supplier. The first conduct rule does not distinguish in terms between horizontal and vertical agreements, and in principle applies to any agreement irrespective of whether it is horizontal or vertical. It may be noted in this connection that the legislature has chosen not to exclude vertical agreements from the scope of the first conduct rule, in contrast to Singapore’s Competition Act which does exclude vertical agreements from the equivalent prohibition.[70]

418. Having said that, it is right to point out that in general, horizontal agreements are viewed by competition law with much greater vigilance and suspicion than vertical agreements, though it would be mistaken to think that vertical agreements can never be held to have an anti-competitive object. It depends on their specific content and context.

419. It is not in dispute that vertical discussions between the supplier and downstream undertakings such as a distributor or retailer concerning retail pricing do not in themselves contravene Art. 101 of the TFEU or the UK Chapter 1 prohibition. As stated by the UK Competition Appeal Tribunal in Makers UK Ltd v Office of Fair Trading[2007] CAT 11, §99:

“ A simple disclosure of retail pricing information by a retailer to a supplier cannot be treated, without more, as an agreement to fix the retail price.”

420. Likewise, in Argos Ltd v Office of Fair Trading [2006] EWCA Civ 1318 at §106, Lloyd LJ, giving the judgment of the court, stated:

“ Mr Lasok submitted that the Tribunal’s decision in the Football Shirts case has caused uncertainty in commercial circles, casting doubt on freedom of discussion on a vertical basis, above all between manufacturers and their principal customers, in relation to matters which both parties need reasonably to be able to discuss, including actual or likely retail prices, profit margins and wholesale prices or terms of sale. It seems to us that the present decision, and that of the Tribunal, ought not to be seen as casting any cloud of illegality over such discussions, so long as they are conducted on a bilateral basis and limited to discussions of the nature described…” (emphasis added)

421. In the case of a tender, as the respondents have submitted, there may be nothing anti-competitive in a supplier requesting its customers to bid in a tender held by an end-user and in such customers speaking individually to the supplier about costs or as to the level of their bids. If that is all there is, little competition law concern would be raised.

422. But that is not the present case. The agreement between Chan and Hung was not about BT’s pricing or other parameters of BT’s bid, but about what Hung should procure other distributors or resellers to do in the second tender, thus taking on a horizontal dimension. The purpose of their agreement was that Hung would find four friends to put in a dummy bid each so as to ensure there were five bids in the second tender, in order to meet YWCA’s requirement so that the second tender would be valid and BT would win. In connection with this agreement Chan provided BT’s own bid prices to Hung, and Hung prepared four bids for SiS, Innovix, Tech-21 and iCON respectively which he was certain would lose.

423. Equally the agreement between Hung on the one hand and Steve Ng on the other was not about “matters which both parties need reasonably to be able to discuss, including actual or likely retail prices, profit margins and wholesale prices or terms of sale”[71], but about submitting a non-genuine bid for Hung’s purposes. Indeed it was the absence of any discussion of those things they should normally need to discuss that, inter alia, shows the non-genuineness of the bid. The objective aim of the agreement between Hung and Steve Ng was to put in a non-genuine bid in the name of Tech-21 to help make up the numbers so as to meet the tender requirement for it to be valid. Hung of course knew more but Steve Ng knew or intended that the bid had been prepared by Hung at prices without input from Tech-21, was submitted purely as a favour to Hung, was not intended to win and would not win, but was intended to be taken by YWCA as genuine and to create a false impression for YWCA that there was an independent genuine bid from Tech-21 competing in the tender.

424. It should be noted that in Argos, the Court of Appeal went on in the same paragraph as the passage quoted above to state:

“ … As the Tribunal said, there is a risk that discussions about possible prices, or about historic prices, can tend towards discussion of future prices, and agreement as to what they should be. Any party to such discussions on a vertical basis needs to be aware of that risk and to avoid it. But this case is not about such discussions at all. Nor does it outlaw complaints by a wholesale customer to its supplier in general, especially if they are directed at getting better terms for the business between those two parties. In the present case the complaints did not have that aim, and the discussions between manufacturer and customer had a strong and unusual context which makes it clear that there was a horizontal element in the subject of discussion. That is what makes what happened in the present case a breach of the Chapter I prohibition.” (emphasis added)

425. In my view the Commission is correct to submit that, consistently with Art. 101 of the TFEU, the first conduct rule is to be interpreted as applying “to all agreements and concerted practices which, in either horizontal or vertical relationships, distort competition …, irrespective of the market on which the parties operate, and … only the commercial conduct of one of the parties need be affected by the terms of the arrangements in question”: Case C-194/14P AC Treuhand v Commission, §35.

426. It was submitted that in a bidding context, a bilateral vertical agreement has no effect on competition because it only has the effect of affecting the behaviour of that single retailer in question, without any impact on the behaviour of other bidders. It was said that either the tender would be successful and result in the award of the project to other bidders “whose actions were completely independent of and unaffected by this single agreement”, or the tender would be unsuccessful on the basis that, if the non-genuine bid were to be discounted, there would not be sufficient bids to meet the minimum requirement.

427. I agree with the Commission that this argument misses the point. A bilateral vertical agreement to submit a non-genuine bid in a tender process solely for the purpose of meeting the requirement of a minimum number of bids for the tender to be effective had, at the very least, the potential to result in the tender being awarded by the procurer in the false belief that it had in fact received the necessary number of genuine bids. The agreement is as such aimed at distorting the competitive process and preventing any further potential competition. In this particular context, the impact on competition occurs whether the submission of a dummy bid has resulted from a vertical or a horizontal agreement.

428. As to the trilateral agreement among Nutanix, BT and Innovix, it was clearly horizontal as between BT and Innovix, who were bidders or potential bidders in the second tender. The aim of the agreement was to put in a dummy bid in the name of Innovix to help make up the numbers so as to satisfy the tender requirement and so that BT would validly win the tender. As already explained, Hung and Chan knew more but Siu knew or intended that the bid had been prepared at prices without input from Innovix, was solely to help BT to win, was not itself intended to win and would not win, but was intended to be treated by YWCA as a genuine bid.

(7) Subjective intentions

429. It was argued by Nutanix and BT that they merely intended to assist YWCA to meet its internal requirement for five bids, so that the second tender would not be abortive. However, this subjective intention, even if accepted, does not itself mean that the object of the agreements was not to prevent, restrict or distort competition.

430. Determining whether an agreement has an anti-competitive object is an objective exercise. The subjective intentions of the parties, while potentially relevant, are not determinative. The concept of a restriction by object does not presuppose that the parties to an agreement have the subjective intention of restricting competition, or even that they have actually considered the effect of their conduct on competition.

431. Agreements can be restrictive of competition by object even if the parties are able to show that restricting competition was not their aim or primary aim, or that they had other laudable motives: see Beef Industry Development Society cited in §387 above.

432. Likewise, it was argued in Apex Asphalt that the object of putting in the cover bids was to avoid the procuring entities “looking unkindly” on the parties who were invited to bid but failed to put in a bid, lest that they would not be invited on the next occasion. The Tribunal held that this explanation did not absolve Apex of liability. The subjective intentions of a party are immaterial where the obvious consequence of the conduct is to prevent, restrict or distort competition.[72]

433. In any event I do not accept that the parties were solely motivated by a desire to help YWCA. Plainly an abortive second tender would lead to further uncertainty not welcome to BT or Nutanix. Their cooperation with the help of Hung’s friends would substantially eliminate this uncertainty. In his interview by the Commission, Chan said he was concerned that if the second tender was not successful, there might be a third tender, and that BT might not be able to participate as “no company can afford to do one bid 3 times”.[73] Chan also said Hung’s friends were “doing this to help Thomas to close the deal. Because if we are stuck, Thomas is stuck. That means we can’t buy anything from Thomas, right. So everyone just at the same place, we’re not moving forward”.[74] It is also to be recalled that Hung announced in his internal email on 8 July 2016 that Nutanix assisted “to make sure Dell[75] win the deal”, and that he stated in his email to Siu on 18 July 2016 that what they were doing was to “help BT to bid for Dell deal”.

434. On the evidence, an examination of the subjective intentions of the parties reinforces the view that each of the agreements in question had the object of restricting, preventing or distorting competition.

(8) Knowledge of YWCA

435. The respondents have pleaded the issue of YWCA’s knowledge of the impugned agreements only in relation to the definition of “bid-rigging” in connection with the warning notice requirement. The question of YWCA’s knowledge has arisen only in that context and is dealt with in section L(4) below. In closing, however, Nutanix and Innovix argued separately that the arrangements would not be anti-competitive by object if YWCA had knowledge of them.

436. It seems to me, first, that in theory this is a separate point. Secondly, however, it has not been raised by the respondents up to the opening and ought not to be dealt with separately now. Thirdly, the persons within YWCA whose knowledge is relevant to this question may well be different. For the specific purposes of the warning notice argument and for the reasons set out in section L(4)(a) below, I find that the Commission has accepted that Lok’s knowledge is attributable to YWCA, but, for the purposes of the anti-competitive object of the agreements, there may be an argument that the relevant knowledge is that of those in YWCA who were to decide on the outcome of the tender. There is no suggestion that members of the Tender Board or staff of APD had any relevant knowledge. Lok had influence (especially on technical matters) but was by no means the sole decision-maker. Fourthly and in any event, as explained in section L(4)(b) below, I find that Lok did not have the requisite knowledge.

(9) Conclusion on “object”

437. In many object cases there would be a debate that the arrangements in question were intended to pursue a legitimate commercial goal rather than to restrict or distort competition. For example, in Cartes Bancaires, it was argued that the new rules were intended to promote the grouping’s acquisition of merchants’ acceptance, which closely interacted with the card-issuing activities of members because consumers would not wish to hold a card that was not accepted by a sufficient number of merchants. In contrast, on the Tribunal’s findings, there was no commercial justification in this case. The purpose of the agreements was to mislead YWCA into awarding the tender under the mistaken belief that there had been a genuine competitive tender process. They were aimed at giving YWCA a false impression of competition with additional independent bids to choose from. Their object was to interfere with fundamental aspects of the tender process and distort the true competitive process. The agreements had the potential of deceiving YWCA into awarding the contract simply based on the second tender, rather than to consider further steps in the procurement exercise. In my view, the Commission has shown that the agreements have the object of preventing, restricting or distorting competition.

438. In Apex Asphalt the UK Competition Appeal Tribunal held (at §250) that:

“ Concertation the object of which is to deceive the tenderee into thinking that a bid is genuine when it is not, plainly forms part of the mischief which section 2 of the Act is seeking to prevent.”

In my opinion this is also true of the first conduct rule in the Ordinance.

439. Despite the many ingenious submissions made on behalf of the respondents, the conduct in the present case is not innocuous (as the respondents’ counsel sought to suggest), and in my view plainly had an object to prevent, restrict or distort competition, although there may be scope for debate as to its seriousness when it comes to the question of the orders to be made.

K. EXCLUSION UNDER SECTION 5 OF SCHEDULE 1

440. It is convenient to deal at this juncture with a point raised solely by Tech-21. Tech-21 submitted that there is no evidence before the Tribunal that the combined turnover of the Nutanix and Tech-21 exceeded $200 million during the relevant turnover period. According to s 30 of the Ordinance and s 5(1) of Schedule 1 to the Ordinance, the first conduct rule does not apply to an agreement between or a concerted practice engaged in by undertakings if their combined turnover for the turnover period does not exceed $200 million. Section 5(2) provides, however, that s 5(1) does not apply to an agreement or concerted practice that involves serious anti-competitive conduct. Tech-21 submitted that, therefore, unless the Commission proves serious anti-competitive conduct, its case must be dismissed.

441. It is notable that this point was only raised by Tech-21 and not the other respondents, and then only in its closing submissions for the first time. It was not mentioned or in any way hinted at in the Response it filed or in counsel’s opening submissions. It is Tech-21 which seeks to assert that this exclusion applies. Given the lack of evidence, it is in my judgment not open to Tech-21 to rely on this exclusion.

442. In any event, as acknowledged by Tech-21, the exclusion does not benefit serious anti-competitive conduct. This therefore simply brings one back to the question raised in the context of warning notice, namely, whether there was bid-rigging in this case, which is dealt with in section L below.

L. WARNING NOTICE

(1) Section 82

443. Section 82 of the Ordinance provides as follows:

“ (1)  If the Commission has reasonable cause to believe that—
(a)  a contravention of the first conduct rule has occurred; and
(b)  the contravention does not involve serious anti-competitive conduct,
the Commission must, before bringing proceedings in the Tribunal against the undertaking whose conduct is alleged to constitute the contravention, issue a notice (a “warning notice”) to the undertaking.
(2)  A warning notice must—
(a)  describe the conduct (the “contravening conduct”) that is alleged to constitute the contravention;
(b)  identify the undertaking (the “contravening undertaking”) that has engaged in the contravening conduct;
(c)  identify the evidence or other materials that the Commission relies on in support of its allegations;
(d)  state—
(i)  that the Commission requires the contravening undertaking to cease the contravening conduct within the period (the “warning period”) specified in the notice, and not to repeat that conduct after the warning period;
(ii)  that, if the contravening conduct continues after the expiry of the warning period, the Commission may bring proceedings in the Tribunal against the contravening undertaking in respect of the contravening conduct; and
(iii)  that, if the contravening undertaking repeats the contravening conduct after the expiry of the warning period, the Commission may bring proceedings in the Tribunal against the contravening undertaking in respect of the contravening conduct and the repeated conduct; and
(e)  indicate the manner in which the contravening undertaking may cease the contravening conduct.
(3)  In determining the warning period, the Commission must have regard to the amount of time which the contravening undertaking is likely to require to cease the contravening conduct.
(4)  After the expiry of the warning period—
(a)  if the Commission has reasonable cause to believe that the contravening conduct continues after the expiry, the Commission may bring proceedings in the Tribunal against the contravening undertaking in respect of the contravening conduct; and
(b)  if the Commission has reasonable cause to believe that the contravening undertaking repeats the contravening conduct after the expiry, the Commission may bring proceedings in the Tribunal against the contravening undertaking in respect of the contravening conduct and the repeated conduct.
(5)  To avoid doubt, proceedings under subsection (4) may not be brought in respect of any period that precedes the warning period.
(6)  The Commission may, either of its own volition or on application made to it in writing, extend the warning period specified in a warning notice if it considers that there is a good reason for doing so.
(7)  An application for an extension under subsection (6) must be made before the expiry of the period sought to be extended.”

444. Section 82 is a special feature of the Hong Kong competition law regime, not found in other jurisdictions. It requires a warning notice to be issued before any enforcement proceedings may be brought by the Commission in the Tribunal in specified circumstances, and precludes any proceedings from being brought in respect of any time preceding the warning period where applicable.

445. No warning notice was issued to any of the respondents in this case. The Commission’s position is that none was required as this case involved “serious anti-competitive conduct” and in particular “bid-rigging”. The respondents disagree and contend that the case should be dismissed on this ground alone.

446. It is common ground that the Tribunal has jurisdiction to consider the challenge raised by the respondents based on the absence of a warning notice, as a matter related to the Commission’s application with regard to alleged contraventions of the competition rules: s 142(1)(a) & (g). The Commission also accepts that if a warning notice was required in this case, then the proceedings should be dismissed because none was issued.

447. The concept of “serious anti-competitive conduct” is a statutory creature. The definition has been set out in §20 above. Within the Ordinance, this concept is relevant for the following purposes:

(1)  in relation to an alleged contravention of the first conduct rule, whether the Commission must issue a warning notice under s 82 before bringing proceedings in the Tribunal (see s 82(1) & (5));
(2)  whether the Commission may issue an infringement notice under s 67 in respect of a contravention of the first conduct rule (see s 67(1)((a)(i)); and
(3)  whether the exclusion of agreements of lesser significance from the first conduct rule in s 5 of Schedule 1 applies (see s 5(1) and (2) of Schedule 1).

448. Whether certain conduct is serious anti-competitive conduct does not affect the meaning of the first conduct rule, or the question of whether a particular agreement has the object or effect of restriction of competition. Despite the label of “serious anti-competitive conduct”, the Ordinance does not provide that such conduct is taken as a matter of law or presumed to be anti-competitive by object or effect, seriously or otherwise. The Commission has expressed the same view in its Guideline on the First Conduct Rule at §5.7, where it is stated:

“ Whether conduct is considered Serious Anti-competitive Conduct is not part of the determination of whether the conduct contravenes the First Conduct Rule because it has the object or effect of harming competition. The issue of whether the conduct is considered Serious Anti-competitive Conduct only arises after the Commission forms the view that the conduct contravenes the First Conduct Rule. Conduct that is Serious Anti-competitive Conduct may contravene the First Conduct Rule where it has either the object or effect of harming competition.”

449. The respondents agree with this approach. In the present case, the only relevance of “serious anti-competitive conduct” is whether a warning notice was required and the implications under s 82.[76] It does not affect the question whether the conduct infringed the first conduct rule.

450. Serious anti-competitive conduct, as defined, includes several forms of conduct of which only “bid-rigging” is relevant in the present case. The statutory definition of “bid-rigging” is set out in §491 below. That definition has relevance only in the context of the definition of “serious anti-competitive conduct” (see s 2(2)). As will be seen below, one of the components of bid-rigging is that the agreement in question was not made known to the person who called for the tender, namely, YWCA in this case. It is in this context that the extent of YWCA’s knowledge of the respondents’ agreements has become an issue in these proceedings.

(2) The relevant time for the purpose of s 82

(a) The pleadings

451. In the Commission’s Originating Notice of Application, it was stated:

“ 80. The relevant arrangements were not known to YWCA, its Tender Board or any of its staff at or before the time when the bids were submitted by BT, SiS, Innovix and Tech-21. In particular, Mr Lok Yiu Ying (also known as Alan Lok), Head of the Information System Department of YWCA (“Mr Lok”) has expressly denied knowledge of any arrangements to submit “dummy” bids in response to the Second Tender and states that he was not aware of any irregularity or communications among BT and other tender invitees in the Second Tender.
81. As the facts and matters above involved “serious anti-competitive conduct”, no warning notice is required to be issued by the Commission pursuant to section 82(1) of the Ordinance.”

Reference was made in a footnote to §80 to the statements of Lok dated 21 December 2016 and 6 March 2017 respectively.

452. The respondents filed Responses which, broadly speaking, denied that YWCA had no knowledge of the alleged agreements. For example, Nutanix’s Response stated:

“ The Applicant did not issue a warning notice to the 1^st Respondent before bringing these proceedings. Accordingly, the Applicant must prove that the 1^st Respondent’s alleged conduct constitutes serious anti-competitive conduct. Otherwise, its case must be dismissed even if it can demonstrate that there is an independent contravention of the First Conduct Rule.”

453. The Commission’s Reply dated 7 July 2017 did not respond on this matter and made no mention of warning notices.

454. Prior to the trial, it would appear from the documents filed that the parties (except Innovix, see below) had been proceeding on the basis that the Commission needed to prove serious anti-competitive conduct at trial or its application would have to be dismissed.

(b) The new point

455. In its written opening dated 30 May 2018, the Commission submitted that even if the Tribunal does not at the end of the trial find serious anti-competitive conduct, it can still make a finding of breach of the first conduct rule and make orders under ss 93-94, because, prior to the commencement of the proceedings, the Commission “had reasonable cause to believe that YWCA had no knowledge of the alleged dummy bids”.

456. As explained by counsel, the Commission’s stance is that, in relation to YWCA’s knowledge, only the evidential position before the commencement of proceedings is relevant to the need to issue a warning notice. The findings on YWCA’s knowledge based on all the evidence available at trial are not relevant to that question. Accordingly:

(1) If the Tribunal finds that at the time of commencement of proceedings, the Commission had reasonable cause to believe that YWCA did not have knowledge of the dummy bids, then the Commission was not required to issue a warning notice, and the proceedings should not be dismissed pursuant to s 82 even if the Tribunal finds at the end that YWCA did have knowledge. Indeed, on this logic, the question whether or not (based on all the available evidence at trial) YWCA in fact had knowledge is immaterial and need not be determined by this Tribunal.
(2) If the Tribunal finds that prior to the commencement of proceedings, the Commission did not have reasonable cause to believe that YWCA did not have knowledge, then the Commission accepts the Tribunal should dismiss the proceedings due to the failure to issue a warning notice.

457. It seems to me clear that this is a new point which the respondents could not have anticipated from the Commission’s pleadings.

458. Nutanix and BT submitted that this argument is not open to the Commission because it is a wholly new case which has not been pleaded or otherwise notified to the respondents in advance. The Commission has not disputed that it is a new point, but argued that it is a legal argument which it should be allowed to run.

459. It is to some extent a legal argument, raising issues on the construction of s 82. But in my view it is not a discrete, pure point of law. As can be seen below, there are arguments about what it is that the Commission had to have reasonable cause to believe. The question of what materials were available to the Commission at the time of commencement of proceedings and what it had reasonable cause to believe at that time are clearly factual matters hitherto not the subject of attention.

460. Nutanix and BT complained that they were taken by surprise. They submitted that they were likely to have pursued a different approach in the evidential stage, particularly in terms of exploring the Commission’s state of knowledge prior to the commencement of proceedings.

461. Without determining the question of the respondents’ entitlement to discovery of documents or disclosure of information, it seems to me impossible within the present context to rule out that the respondents might have approached the disclosure procedures differently and that the evidentiary base for the trial on this question might have been different, if the Commission had taken the point at an earlier stage.

462. In these circumstances, I agree with Nutanix and BT that the point is not open to the Commission at this late stage. This appears also to be the position of Tech-21. The relevant issue for these respondents is therefore whether the Commission has proved serious anti-competitive conduct based on the evidence at trial. This does not mean the Tribunal will “misapply the law” but simply that it will decide the issues properly raised in the case.

463. In contrast, Innovix submitted that on the Commission’s new argument, it had failed to show that at the time of commencement of proceedings it had no reasonable cause to believe YWCA knew of the alleged agreements. (This argument was adopted by Nutanix and BT as their fall-back position if their objection did not prevail.) The Commission submitted that the same approach on this point should be adopted with respect to all respondents. However, Innovix’s argument has been its case as stated in its Response from the outset. There is no unfairness to the Commission in dealing with it provided it is based on a correct construction of the statute.

(d) Time for assessing existence of serious anti-competitive conduct under s 82

464. As already explained, the Commission’s (and Innovix’s) position is essentially that, for the purposes of s 82, it is its belief or grounds for belief in relation to serious anti-competitive conduct that are relevant. In contrast, Nutanix and BT submit that the touchstone is whether serious anti-competitive conduct is established at trial, irrespective of the Commission’s belief or grounds for belief at the time of commencement of proceedings.

465. Having regard to the wording of s 82(1), there is in my view considerable force in the Commission’s and Innovix’s contention. The warning notice, where required, has to be issued before the commencement of proceedings. The time for deciding whether a warning notice is necessary must therefore be that point in time. The bringing of an enforcement application in the Tribunal without having first issued a warning notice (where required) is in itself a breach of s 82(1), vitiating the proceedings from the start irrespective of the substantive merits.

466. Conversely, where the Commission has acted correctly in not issuing a warning notice before bringing proceedings, even if it subsequently transpires that no serious anti-competitive conduct is involved, there is nothing in s 82 to suggest that a warning notice would retrospectively become necessary or that the proceedings properly begun would be vitiated on that ground. Rather, the language and structure of s 82 suggest that the position is crystallised as at the commencement of proceedings.

467. Nutanix and BT submitted that that argument is incorrect as a matter of statutory interpretation because it is (a) contrary to the legislative purpose of s 82, and (b) unworkable in practice.

468. Turning first to legislative purpose, it may be noted that neither the warning notice mechanism nor the notion of serious anti-competitive conduct appeared in the Competition Bill as gazetted in July 2010. As explained in the Report of the Bills Committee on the Competition Bill,[77] the warning notice mechanism was introduced in response to concerns raised by the business sector and in particular small and medium enterprises over the possibility of being found to have inadvertently breached competition law for “non-hardcore anti-competitive activities”, which were of a less serious nature and for which “there is no hard and fast rule as to whether they may or may not give rise to competition concerns”.

469. The protection offered by the warning notice mechanism is two-fold. By requiring a warning notice to be issued before commencement of proceedings, it provides a chance for the undertakings, within a limited period, to remedy its conduct, without being subjected to enforcement proceedings. Secondly, by virtue of s 82(5), it “limits their exposure to sanctions to the period starting from the commencement of the period prescribed in the warning notice”.

470. Another protection added to the law to allay the concerns of small and medium enterprises was an exclusion in respect of agreements of lesser significance, ie agreements between undertakings with a combined turnover not exceeding HK$200 million.

471. At the same time, however, it was considered that these concessions ought not to apply to “hard-core anti-competitive activities” which were widely recognised in other jurisdictions as activities that almost always had an adverse impact on competition. The concept of “serious anti-competitive conduct”, comprising price-fixing, market allocation, output control and bid-rigging, was accordingly introduced.[78]

472. These purposes do not, in my view, stand against the Commission’s and Innovix’s interpretation of s 82. The materials demonstrate a legislative intention in principle to afford protection to undertakings by the warning notice mechanism. How the mechanism should work in detail does not appear to have been discussed (although there was discussion of the situation where a warning notice is wrongly issued[79]). There is nothing in the legislative materials, which were couched in general terms, that is contrary to what appears to be the correct interpretation based on the words used in the statute. Indeed, the respondents have not offered any route of construction by which the language of the statute can be read to bear the meaning they advance.

473. It was submitted that the Commission’s and Innovix’s construction would give the Commission the power to decide for itself whether conduct which might not in fact be serious anti-competitive conduct could nevertheless be proceeded against without a warning notice. It was even submitted that it would encourage the Commission to postpone as much as possible the evidence-gathering exercise until after the instigation of proceedings.

474. This is, with respect, an extreme submission. In using the phrase “[i]f the Commission has reasonable cause to believe”, the legislature plainly intends to make the Commission’s obligation to issue a warning notice — and the correlative right of the undertaking not to be proceeded against without one — dependent upon the Commission’s belief or grounds for belief. As with other situations in which statutory power is placed in the hands of public bodies through similar formulae, the legislature proceeds on the basis that the Commission is duty bound to and will act in good faith. Furthermore, even on the Commission’s construction, it is not up to it to form whatever belief it desires — the statutory words are “has reasonable cause to believe”, which, as is well established, import an objective standard as explained below.

475. Nutanix and BT also submitted that having a two-stage inquiry would be cumbersome and burdensome and would render proceedings more complex and onerous. It was said that on the Commission’s and Innovix’s interpretation, in all cases on the first conduct rule where no warning notice has been issued but the respondent says it should have been, the Tribunal would be required not merely to consider whether breach of the first conduct rule is proved in the end, but also, in the same proceedings, to look at the material available (or potentially available) to the Commission at the commencement of proceedings, ignoring the evidence that has in fact been led at trial, and reach a determination as to whether or not the Commission had reasonable cause to believe at that stage that serious anti-competitive conduct had or had not occurred. Counsel submitted that it is hard to imagine a more unsatisfactory and wasteful procedure.

476. The need to investigate the evidential position at an earlier stage can indeed potentially make the trial more complex. Dealing with it as a preliminary issue has been mentioned as an alternative, but whether it would be appropriate to do so would be a matter to be decided in each particular case. But it seems to me such complexities, where they do arise, are the inexorable result of s 82 as formulated. On the other hand, such complications do not necessarily arise in every case on the first conduct rule. The present case, where the issue arises in connection with the knowledge of the person calling for the tender, is by no means a typical one.

477. I take the view therefore that the Commission’s and Innovix’s interpretation is correct.

(e) “Has reasonable cause to believe”

478. The parties have in addition debated what has to be shown if the position is to be assessed as at the commencement of proceedings.

(i) Subject matter of belief

479. The requirement of warning notice arises if the Commission has reasonable cause to believe that the contravention does not involve serious anti-competitive conduct. In a case such as the present where no warning notice was issued, the Commission’s position is necessarily that the requirement did not arise, i.e. it did not have reasonable cause to believe that the contravention did not involve serious anti-competitive conduct. In the context of this case, the contravention would not have involved serious anti-competitive conduct (viz bid-rigging) if the agreement in question was made known to the person calling for tenders (YWCA). In other words, the Commission has to show it did not have reasonable cause to believe that it was made known to YWCA.

480. In its submissions the Commission stated that it had reasonable cause to believe that YWCA did not know. The respondents submitted that the Commission asked itself the wrong question, and that the correct question was whether there was reasonable cause to believe that YWCA did know. I accept that not having reasonable cause to believe “X” is not logically equivalent to having reasonable cause to believe “not X”, but I think the difference has been exaggerated in this case.

481. The fallacy in the respondents’ position is illustrated by the submission that, because the Commission has to show that it had no reasonable cause to believe YWCA knew, so long as there is some evidence tending to show that the alleged agreements had been made known to YWCA, the Commission fails.[80] A slight variant of that submission, advanced by Innovix and adopted by Nutanix, was that the materials available could provide reasonable cause both for believing that YWCA did not know and for believing that YWCA did know. I do not accept this submission.

482. Belief is more than idle wondering, conjecture and even suspicion. In George v Rockett (1990) 93 ALR 483, the High Court of Australia distinguished the concept of “a reason to believe” from “a reason to suspect”. In a unanimous judgment, their Honours stated (at pp 490-491):

“ In Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266, a question was raised as to whether a payee had reason to suspect that the payer, a debtor, ‘was unable to pay [its] debts as they became due’ as that phrase was used in s 95(4) of the Bankruptcy Act 1924 (Cth). Kitto J said (at 303):
‘A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion, but without sufficient evidence’, as Chambers’ Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which ‘reason to suspect’ expresses in sub-s (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the sub-section describes — a mistrust of the payer’s ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors.’
The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.”

483. Similarly, as Hely J stated in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 154 in relation to belief, “it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question”.

484. It can be seen that the legislature also differentiates between the two concepts in the Ordinance. It has used the phrase “reasonable cause to believe” in s 82[81] in contradistinction to the term “reasonable cause to suspect” which may be found in ss 39 and 41 as the condition for exercising investigative powers.

485. The Commission’s belief – as an overall inclination – is to be formed by looking at the available material in the round. It is not an instantaneous reaction to each piece of evidence considered in isolation, changing from one moment to another as the Commission sifts through the material. What there is reasonable cause to believe should similarly be based on the entire body of material. If the material examined as a whole objectively gave reasonable cause for one to believe that the matter was not made known to YWCA, this effectively means it did not give reasonable cause to believe that it was made known to YWCA.

(ii) Subjective belief

486. The respondents submitted that the condition in s 82(1) for not issuing a warning notice is partly subjective and partly objective:

(1) the Commission must at the relevant time in fact not believe that the contravention did not involve serious anti-competitive conduct; and
(2) it must be reasonable for the Commission to hold such position on the evidence then available to it.

487. The Commission submitted that the test is purely objective. While the Commission is correct to point out that the language of the statute in Yeung May Wan & Others v HKSAR (2005) 8 HKCFAR 137 at §§71-72 (“he reasonably believes”) is distinguishable, the other two cases cited, namely, Inland Revenue Commissioners v Rossminster [1980] AC 952 at 1013D-E and O’Hara v Chief Constable of the Royal Ulster Constabulary [1997] AC 286 at 298A-E, both concern statutory language similar to the phrase “has reasonable cause to believe” in s 82(1). I am inclined to think that the phrase imports a subjective element as was the conclusion in those two cases. This may be contrasted with the different formula “there is reasonable cause to believe” which may well indicate a purely objective test: Hong Kong Archbold 2018, §41-19.

488. For the subjective part of the condition, the respondents submitted that the Commission has to lead evidence on its actual state of mind. I do not think that is the legislative intention. The cases cited above concern the power of arrest without warrant on the part of a police officer (O’Hara[82] and Yeung May Wan[83]) and the power of seizure and removal on the part of an officer executing a search warrant (Rossminster[84]). In contrast, under the Ordinance, the person whose belief is relevant is the Commission, which is a statutory body consisting of up to 16 members and which makes decisions by a majority of the votes cast at meetings.[85] The power to make an application to the Tribunal under s 92 is a non-delegable function reserved to the Commission.[86] It is therefore the collective belief of the majority of members who voted in favour of bringing proceedings under s 92 without first issuing a warning notice that is relevant.

489. The existence of such belief is in my view evidenced by the decision to file proceedings itself. It could not have been the legislative intention that the deliberation process and results and the subjective state of mind of each and every member who voted in favour of the decision should be probed into. I accept the Commission’s submission that there is a presumption as to the genuineness of its subjective belief: see Rossminster, at p 1009B-D.

(iii) Objective basis

490. The objective part asks whether there in fact existed reasonable grounds for the Commission to hold that position when it instituted proceedings without first issuing a warning notice. The grounds on which the Commission acted must be sufficient to induce in a reasonable person the required belief: Nakkuda Ali v Jayaratne [1951] AC 66, 77; Rossminster, at p 1000C-D, 1011B-D. This is an objective question of fact to be determined on the basis of all of the evidence and information known to the Commission before proceedings were issued. The material need not be limited to evidence admissible in an eventual trial: Secretary for Justice v Xu Aimin (HCMP 1072/2016; 29 August 2016), §16.

(3) Bid-rigging

(a) Statutory definition

491. Section 2(2) provides that, for the purposes of the definition of “serious anti-competitive conduct” (quoted in §20 above), “bid-rigging” means—

“ (a)  an agreement—
(i)  that is made between or among 2 or more undertakings whereby one or more of those undertakings agrees or undertakes not to submit a bid or tender in response to a call or request for bids or tenders, or agrees or undertakes to withdraw a bid or tender submitted in response to such a call or request; and
(ii)  that is not made known to the person calling for or requesting bids or tenders at or before the time when a bid or tender is submitted or withdrawn by a party to the agreement or by an entity controlled by any one or more of the parties to the agreement; or
(b)  a submission, in response to a call or request for bids or tenders, of bids or tenders that are arrived at by an agreement—
(i)  that is made between or among 2 or more undertakings; and
(ii)  that is not made known to the person calling for or requesting bids or tenders at or before the time when a bid or tender is submitted or withdrawn by a party to the agreement or by an entity controlled by any one or more of the parties to the agreement”

492. The relevant limb of the definition in this case is (b). There are four basic elements to the definition in (b):

(1)  there is an agreement;
(2)  the agreement must be made between two or more undertakings;
(3)  there is a submission of bids or tenders that are arrived at by the agreement; and
(4)  the agreement is not made known to the person calling for or requesting the bids or tenders at or before the time when a bid or tender is submitted.

493. The definition of bid-rigging in s 2(2) closely resembles (with one significant difference), and appears to have been derived from, s 47(1) of the Competition Act of Canada (quoted in §497 below),[87] which was originally enacted in 1976 as s 32.2 of the Combines Investigation Act.[88]

(b) Agreement

494. Section 2(2)(b) refers to “agreement”. It will be recalled that the word has a wide definition, which includes any agreement, arrangement, understanding, promise or undertaking, whether express or implied, written or oral, and whether or not legally enforceable or intended to be legally enforceable (see s 2(1)).

495. In addition, s 6(2) provides:

“ Unless the context otherwise requires, a provision of this Ordinance which is expressed to apply to, or in relation to, an agreement is to be read as applying equally to, or in relation to, a concerted practice and a decision by an association of undertakings (but with any necessary modifications).”

496. The respondents dispute the application of s 6(2) to the definition of bid-rigging, but I do not see why the plain terms of this provision should not have effect or why the context requires it should not be applied. Section 6(2) is enacted in the context of the first conduct rule and the notion of bid-rigging, as a form of serious anti-competitive conduct, has relevance specifically for the first conduct rule. Accordingly, by virtue of s 6(2), “agreement” in the definition of bid-rigging in s 2(2) includes “concerted practice”. It may be noted that BT submitted that the distinction is likely to be immaterial in the present case because “agreement” includes an understanding or arrangement.

497. Section 47(1) of the Competition Act of Canada (RSC, 1985, c C-34), from which the definition of “bid-rigging” in s 2(2) is apparently derived, provides:

“ (1) In this section, bid-rigging means
(a) an agreement or arrangement between or among two or more persons whereby one or more of those persons agrees or undertakes not to submit a bid or tender in response to a call or request for bids or tenders, or agrees or undertakes to withdraw a bid or tender submitted in response to such a call or request, or
(b) the submission, in response to a call or request for bids or tenders, of bids or tenders that are arrived at by agreement or arrangement between or among two or more bidders or tenderers,
where the agreement or arrangement is not made known to the person calling for or requesting the bids or tenders at or before the time when any bid or tender is submitted or withdrawn, as the case may be, by any person who is a party to the agreement or arrangement.” (emphasis added)

498. In comparison with the Canadian statute (especially the words underlined above), it will be noted that the definition of bid-rigging in the Ordinance does not expressly require the agreement to be between or among two or more bidders or tenderers, but simply two or more undertakings. The fact that Canadian law does not use the concept of “undertaking” does not explain why Hong Kong cannot retain the wording of “two or more bidders or tenderers”.

499. The requirement of two or more undertakings means that an agreement between two persons who form a single economic unit, and therefore one undertaking, does not fall within the definition. Nor does an agreement with an individual who is not himself an undertaking suffice, unless this is attributable to the undertaking on whose behalf he has acted. It follows that the agreement between Hung and Shek does not satisfy the definition, as Shek’s conduct was not attributable to an undertaking (SiS).

500. It has been submitted on behalf of the respondents that vertical agreements are not caught by the definition of bid-rigging, and that purely vertical agreements can never constitute bid-rigging.[89] They submitted that bid-rigging as commonly understood must involve a horizontal agreement between competitors. There is however no universal rule that vertical agreements can never give rise to or be characterised as bid-rigging.

501. BT referred to the Commission’s Guideline on the First Conduct Rule at §6.26 which states that bid-rigging “generally involves two or more undertakings agreeing that they will not compete with one another for particular projects” and at §6.28 that:

“Bid-rigging can take a number of forms, including undertakings agreeing:
(a)  that certain parties will not submit a bid or will withdraw a bid submitted previously (“bid suppression”);
(b)  to take turns at being the winning bidder (“bid rotation”);
(c)  that certain bidders will submit higher bid prices or less attractive terms than the supplier “chosen” to win the tender (“cover bidding”); or
(d)  to take other actions that reduce the competitive tension in the bidding process, such as by agreeing minimum bidding prices or agreeing that the winning bidder will reimburse other bidders’ bid costs.”

In my view, these general, inclusive statements based on the experience that bid-rigging often involves agreements between competitors cannot be elevated to put a gloss on the statutory provisions so as to alter their meaning.

502. The legislature has conspicuously not confined the definition in the Ordinance to agreements between bidders. It is significant to bear in mind the peculiar context in which the definition is found in Hong Kong. While s 47(2) of the Canadian Act enacts a substantive offence of bid-rigging punishable by a fine or imprisonment for up to 14 years, in Hong Kong the definition in s 2(2) is relevant only to the question whether there is serious anti-competitive conduct, which is not a breach of any substantive rule as such but has relevance only for the specified purposes referred to in §447 above. Having regard to the different contexts, it is not surprising for the legislature to have adjusted the definition.

503. Moreover, much depends on the nature and content of the agreement. A purely vertical agreement between a reseller and his supplier as to how the reseller should respond to a tender exercise by way of his own bid is one thing. Contact by an undertaking with his supplier in a bidding situation, in relation to matters such as cost, profit margin and terms of sale, is normal and unobjectionable (see also §§419-423 above). But several “vertical” agreements between resellers and their common supplier respectively as to how each reseller should bid, with a view to putting in non-genuine bids or helping one of them win, would be a very different matter. Each case has to be examined on its own facts.

504. Nutanix submitted that even in situations involving a vertical player such as a supplier, there must, through that supplier, directly or indirectly, be a horizontal element. Even on this basis, it can be seen that, while the agreement between Nutanix and BT in the present case is structurally vertical, its content was not at all about the vertical relationship between them, but related to the submission of bids by other undertakings acting at the level of BT in the same tender. BT provided its own bid prices to Nutanix not for the purpose of discussing that price with Nutanix. Nutanix then determined the bid prices of the others, who simply adopted them without paying any attention because these were not genuine bids. In the circumstances while the Nutanix/BT agreement was a vertical agreement, its content is about the conduct of BT’s horizontal counterparts and not about any vertical relationship (see also section J(6) above).

505. In any event the objection does not apply to the trilateral agreement between Nutanix, BT and Innovix, which involved a horizontal coordination between BT and Innovix.

(d) Submission of bids or tenders arrived at by the agreement

506. The definition requires a submission (in response to a call or request) of bids or tenders that are arrived at by the agreement. In the Canadian case of R v Durward (2015), the trial judge directed the jury with respect to the requirement that the bids must be “arrived at” by the agreement, that:

“ the outcome of the impermissible agreement or arrangement must lead to the bid and not simply relate to steps in the preparation of the bid.”[90]

507. R v McLellan SupplyLtd and Scott (SF) Manufacturing Company Ltd (No 2) [1986] AJ No 1715 was cited by the respondents. There a municipal authority issued an invitation to tender for the installation of chain-link fences to a number of suppliers, including Scott and McLellan. McLellan was a supplier of chain-link fence materials to Scott. McLellan would often submit its own bid whilst at the same time providing quotes to Scott which Scott used to formulate its bid, on the informal understanding that McLellan would not “undercut” Scott. Following receipt of the tender, Scott sought quotes from McLellan for the required materials and they discussed “acceptable profit margins” on materials as well as labour costs. Subsequently McLellan gave Scott a cost price. Scott then prepared a bid based on the quote. McLellan also submitted a direct bid.

508. The court dismissed the charge of bid-rigging under s 32.2 of the Combines Investigation Act against Scott and McLellan, but it seems to me to be a case on very different facts where (i) the final amount of Scott’s bids were not made known to McLellan at any time and vice versa, (ii) there was no agreement made to submit a bid of any particular nature or to bid at all on the project, (iii) there was no agreement affecting the calculation of the bids, and (iv) each accused submitted its own tender based on its own projection of costs.[91] As such the case does not assist the respondents. Nor, with respect, does the case of Australian Competition and Consumer Commission v Olex Australia Pty Ltd [2017] FCA 222 assist, which is concerned with quite different statutory provisions in s 44ZZRD of Australia’s Competition and Consumer Act 2010 (Cth).

509. Nutanix and BT submitted that the opening words in s 2(2)(b) “a submission … of bids or tenders that are arrived at by an agreement” should be interpreted as only applying to a submission by a party to the agreement, and that since BT’s own bid was not arrived at by its agreement with Nutanix and the other bids were not submitted by a party to the agreement between Nutanix and BT, that agreement did not fall within bid-rigging. I agree with the Commission that this argument should be rejected:

(1)  First, no such limitation appears in the wording of s 2(2)(b) (unlike the Canadian Act). The provision should be applied in accordance with its plain wording, without reading in words.
(2)  The friends’ bids were arrived at by, inter alia, the agreement between Nutanix and BT.
(3)  The agreement was (on the Commission’s case) not made known to YWCA at or before the time when a bid was submitted by BT which was a party to the agreement, meeting the requirement of s 2(2)(b)(ii).

510. On the evidence, the bids of Innovix and Tech-21 (and the bid made by Shek in SiS’s name) would not have been submitted without the agreements in question.

(e) Agreement not made known

511. The fourth element of s 2(2)(b) is that the agreement must not have been made known to the person calling for or requesting the bids or tenders at or before the time when a bid or tender is submitted or withdrawn by a party to the agreement. In Canada it appears that the concern that underlay the requirement of “not made known to” was that, otherwise, the law might unwittingly prohibit bids by joint ventures and similar groups, the purposes of which may be entirely legitimate and beneficial to the economy.[92] Canadian authorities on the equivalent provision suggest that express notification of the agreement to the person calling for tenders is required.

512. In R v Travelways School Transit Ltd (1980) 52 CCC (2d) 399, Osler J rejected the argument that the agreement was made known to the person at the opening of the tender because it was obvious that the bids were identical and that the submission of identical bids was the result of an agreement. The court took the view that such an interpretation of the statute would give rise to an inappropriate lack of certainty in concluding if an agreement has been made known or not. Instead, Osler J held that:

“ there is an affirmative obligation under those who join in such agreement not just to make it possible for the recipient of their bids to become aware that they had made an agreement but to affirmatively notify such persons in some manner other than the mere production of identical bids.”[93]

513. In R v Charterways Transportation Limited (1981) 32 OR (2d) 719,[94] Dupont J adopted Osler J’s view and stated that a necessary inference that the bids were drawn pursuant to an agreement does not amount to making known as required by section 32.2(1) of the Combines Investigation Act.

514. In R vLorne Wilson Transportation Ltd (1982) 138 DLR (3d) 690, on appeal from R v Charterways Transportation Limited, the Ontario Court of Appeal, rejecting an argument that the agreement was “made known” to the person requesting tenders because it could be inferred from the fact that identical tenders were submitted that they represented the product of an agreement between the tenderers, stated:

“ As we construe the section, express notification of the agreement or arrangement is required. A person submitting a bid or tender which contravenes s 32.2(1)(a) or (b) must give actual notice of the agreement or arrangement to the person calling for or requesting the bids or tenders at or before the time when the bid or tender is made in order to take advantage of the proviso in s 32.2(1).”

515. The same approach was adopted more recently in R v Durward where the judge directed the jury that the “made known” element “requires express notification to the person calling for bids or tenders” and that “[t]he person calling for bids or tenders must be aware of the impermissible agreement or arrangement”.[95]

516. In my respectful opinion, this interpretation of the phrase makes equal sense in the context of the Ordinance. When one comes to the stage of considering this element, the agreement is ex hypothesi one that is restrictive or distortive of competition and that falls within “bid-rigging” subject to the question whether it has been made known to the person calling for tenders. In my opinion it is sound law, and not an onerous burden, to require express notification of the agreement if it is to be exempted from being serious anti-competitive conduct on this ground. A different rule would introduce much uncertainty and create scope for unmeritorious argument such as that the person calling for bids or tenders must have believed, or could have guessed, or should have suspected, that the impermissible agreement existed.

(f) A further controlling quality?

517. Nutanix submitted that there must be a further “controlling quality” of the agreement for it to amount to bid-rigging, for not every agreement, even between competing undertakings, resulting in the submission of bids would, without more, be bid-rigging. For example, it was said that an agreement between two undertakings that both would respond to a call for tenders will not, without more, be anti-competitive.

518. The contrary argument is that it is unnecessary to read any such additional element into the statute because the definition of bid-rigging assumes that the first conduct rule is engaged. As explained above, serious anti-competitive conduct is relevant only in the context of the first conduct rule. It is a sub-set of conduct infringing the rule. The inquiry whether there is serious anti-competitive conduct presupposes there is anti-competitive conduct infringing the first conduct rule. The purpose of the inquiry would be one of those set out in §447 above. In the example postulated, the agreement would simply not infringe the first conduct rule in the first place, so that it would be unnecessary to consider whether it was bid-rigging. In the end Nutanix accepted that the inquiries in both contexts would be similar, so that where, as in the present case, the agreements are held to be anti-competitive by object in the way established, I do not consider that any additional “controlling quality” should be required.

(4) Whether made known to YWCA

519. The main factual issue relevant to the definition of bid-rigging is whether the agreements in question were made known to YWCA at or before the time when the bids were submitted in the second tender.

(a) The scope of the question

520. YWCA is a large organisation. The invitation to tender was issued by APD (headed by Mak), with input from ISD (headed by Lok), after a decision to procure was made by ITDC. The contract was to be awarded by the Tender Board, a sub-committee of FAC. In principle there might be a question as to which individual’s knowledge constituted YWCA’s knowledge in this context, but it does not arise in this case because, as the respondents submitted and I accept, the parties had up to the commencement of the trial proceeded on the basis that Mak’s and Lok’s knowledge was the relevant knowledge. There is no hint of an alternative case in the Commission’s pleadings or written opening that, even if the agreements were made known to Mak or Lok, it did not amount to YWCA’s knowledge.

521. Mak, who made the complaint on behalf of YWCA to the Commission and testified at trial, stated he had no knowledge and none of the respondents has suggested otherwise.

522. While Percy Ng and the chairman of ITDC, Rosaline Tam, knew each other as former colleagues in another company, there is no doubt that Lok, responsible for YWCA’s ISD, was, together with his assistant, Li, the primary contact point within YWCA for BT in relation to the project concerned. By agreement between the parties, Lok, but not Li, was called by the Commission to give evidence.

523. It would not be fair to permit the Commission to run a new case at trial that even if the agreements were made known to Lok, it did not matter because some other persons in YWCA did not know. The issue that arises in this case is therefore whether the agreements had been made known to, in the sense of having been expressly notified to, Lok.

(b) Lok’s knowledge

524. Lok denied knowledge of the agreements in question. His evidence was the subject of vigorous attack by the respondents. I bear in mind that he has his own reputation and perhaps his position within YWCA to protect and as such cannot be regarded as wholly disinterested.

525. In assessing the evidence of his knowledge I have borne in mind the good working relationship that existed between Lok and BT. It is clear that by the time of the tenders for the Nutanix solution, Lok had found BT’s work for YWCA, thus far, satisfactory and had a good working relationship with Percy Ng and Chan. BT had helped with the presentation of the proposed hyper-converged system to ITDC and with the proof-of-concept exercise. The evidence also shows that Lok and Li trusted Chan and were prepared to give him information and relied on him for assistance on certain matters relating to the procurement exercise:

(1)  In late 2015, Lok told BT that he thought YWCA had a budget of about $200,000 for each node of the Nutanix server.
(2)  On around 10 June 2016, as neither Lok nor Li was specifically trained on Nutanix’s products and the hyper-converged system was a new generation of servers, Lok let Chan prepare the first draft of the technical specifications for the first tender (see §105 above), which Lok adopted and provided to APD.
(3)  On 20-21 June 2016, for the purposes of the first tender, Li asked Chan to suggest names of companies capable of supplying the Nutanix system. The names provided by Percy Ng were passed on by Lok to APD. Li later also adopted BT’s request (which originated from Nutanix) to remove one of the companies from the list (see §111 above). (It might be thought unusual for YWCA to ask BT to name any potential bidders, but this was due to the fact that at that time, the Nutanix product was very new on the market.[96])
(4)  On 5 July 2016, Lok told Chan the first tender had failed because there were insufficient bids and that there would be a second tender.
(5)  On 6 July 2016, Lok adopted the revised technical specifications prepared by Chan for the purpose of the second tender and passed them on to APD. The respondents submitted that Lok’s evidence that he checked the specifications were available on the market was incredible, but I do not think so. His statement did not mention that check, which was a minor matter, but did say he considered Chan’s suggestions with Li. Carrying out an online search to see a product was actually available would not be a difficult or lengthy exercise.
(6)  On the same date, Lok also accepted the four names suggested by Chan and included them in the list of potential suppliers he sent to APD for the purposes of the second tender.

526. There is also evidence that BT had in its possession a soft copy of the blank Compliance List in editable format that had been created by Wong. It was put to Lok that he had supplied it to BT but he denied it. There are the following points to note:

(1)  The metadata analysis of the file shows that its title had the number “TR16016MW” which was the reference number of the first tender.
(2)  While it may not have been entirely consistent with YWCA’s procurement practice, the provision of the soft copy suggests a readiness to accede to BT’s requests rather than an intention to facilitate anti-competitive behaviour.
(3)  As the Commission pointed out, if the suggestion is that the soft copy document was provided by Lok to Chan to facilitate the preparation of the second tender documents for Hung’s friends, there is no reason why the other documents (such as the Form of Tender, Supplier Profile Form and Schedule of Rates) would not have been provided also.

527. I accept Lok’s evidence that he did not himself provide the soft copy to BT but in any event, even if he did, I do not consider it to be evidence of any relevant knowledge of the agreement between Hung and Chan.

528. Lok knew about the deal registration system in the IT industry generally and that BT had registered the YWCA opportunity (although he was not sure whether it was with Dell or Nutanix). He believed that BT might be able to secure a more favourable discount than other IT companies because of the deal registration but there is no suggestion he knew the precise details.

529. The respondents suggest there was an urgent need to procure the system. There is some dispute on the evidence which ultimately seems to me a matter of degree. Clearly Lok wanted YWCA to be able to procure the equipment sooner rather than later. Some of YWCA’s data had been transferred to the proof-of-concept machines, which were on loan and had to be returned to Dell. However the pressure to return them, in my view, fell more on Chan than on Lok. By late July 2016, after the second tender, Lok told Mak there was urgency in installing applications on the Nutanix platform and asked him to speed up the process.

530. When it was suggested to Lok that he had agreed with Chan that BT would find other tenderers to make up the required minimum number of bidders for the second tender, Lok admitted that either he or Li had contacted Chan for assistance in identifying other companies in the market who would be able to provide YWCA with the Nutanix solution.

531. Chan’s evidence was that on 5 July 2016, Lok told him that BT’s bid was the only bid received in the first tender and that there would be a second tender. Chan and Lok agreed to try to make the second tender successful. Chan said he would simplify the tender specifications. In a subsequent telephone conversation, Chan told Lok that Hung would locate partners to try to make up the minimum number of five responses in the second tender and Chan would supply a list of the partners to Lok.

532. I consider that Lok did understand that Chan contacted the supplier i.e. Nutanix (though Lok did not know Hung’s name) who would help and try to get some channel partners of Nutanix to submit bids in the second tender. To the extent he denied that I do not accept that evidence.

533. However, Lok was adamant that he believed the companies suggested by Chan would be capable of and genuinely interested in bidding in the second tender. He stated that he did not ask Chan or Percy Ng or any other person in BT for their assistance to find companies to submit dummy bids to YWCA, nor did Chan or Percy Ng tell him that they would do so or had done so. He said that had he known that a company intended to submit a dummy bid, he would have immediately reported this to APD.

534. Lok also categorically disagreed with the suggestion that he had agreed with Chan, whether on 5 July 2017 or otherwise, that BT would find companies to put in bids that would have no chance of winning.

535. It should be noted that Lok added seven other companies to the four names suggested by Chan and gave a list of eleven to APD (see §120 above). Once the company names were given to APD, APD had its own mechanism to produce a list of invitees to tender. Although Priscilla Szeto had told Wong on 6 July 2016 that SiS would not bid, APD did not remove its name. According to Mak, whose evidence I accept, one of the reasons was that Lok wanted SiS on the list. This suggests that Lok thought SiS might well be encouraged to bid, but does not tend to show he was notified of any agreement to procure non-genuine bids.

536. Chan’s (unchallenged) evidence was that he did not tell Lok that either he (Chan) or Hung would obtain dummy bids. Indeed, BT did not put to Lok that he was made aware of an agreement to submit dummy bids in the sense referred to by the Commission, i.e. not genuine or not intended to win.

537. In the absence of any evidence of express notification to Lok, the respondents submit that he must have understood from the context that dummy bids would be submitted by the four companies Chan named to him. The high point of this argument is the evidence that Chan sought Lok’s advice on 14 July 2016 on how the Compliance List should be completed. This is what Chan said in his witness statement:

“ … After Thomas mentioned to me how he was planning to complete the Compliance List, I asked Alan for his advice how the document should be completed (such as which items should be marked as compliant or non-compliant). It is my belief that Alan would have known from this that I was assisting Thomas so that Thomas could help the other bidders to complete their bids. I did not expressly inform Alan that the other bids would be “dummy bids” in the sense I have mentioned above[97], though I believe he may have known this from the context.”

538. This passage concerned what Chan believed Lok might have understood from the context. In submitting that the agreements in question had not in fact been made known to Lok, the Commission is not in my view in any way impermissibly seeking to discredit Chan.

539. When it was suggested to Lok in cross-examination that he should have known that Chan was assisting Hung to help other bidders to complete their bids, Lok rejected such suggestion. As to this:

(1)  Lok explained he did not know and could not remember having met Hung. The first time he learnt about Hung was when he gave his statement to the Commission. I accept this evidence. Lok and Hung clearly had no pre-existing relationship. The fact that Lok might in fact have met Hung on one prior occasion when Percy Ng took Hung to meet with YWCA staff is neither here nor there. It was not something Lok would necessarily have registered in his mind. It is notable that Percy Ng, in a message to Lok on 4 August 2016, wrote in terms of “the Nutanix manager helping us on the tender” rather than referred to Hung by name.
(2)  Further, while Lok relied on Chan for certain matters, Lok was after all an employee and a representative of YWCA, the client. Chan had been careful not to include Lok in his communications with Hung. Thus, for example, Chan did not send Lok his email to Hung of 5 July 2016 at 16:14 but sent Lok a different email at 16:22 to set out the specifications. Nor did Chan simply forward to Lok the email from Hung of 6 July 2016 setting out the four names, which would have contained in the chain Chan’s email to Hung. Instead, Chan composed a separate email to Lok giving him the names.
(3)  Lok’s evidence of his understanding was that Chan needed his help on how to complete the Compliance List as Percy Ng was on leave at the time. Chan said he had received assistance and input from Percy Ng on the Compliance List in relation to the first tender, and that he did not himself require help from Lok on how to fill in the Compliance List for BT in relation to the second tender. There is no reason, however, that Lok should know that Chan had prepared BT’s Compliance List in the first tender or, even if he did, that Chan intended to submit for BT an identical Compliance List in the second tender. As Lok explained in his evidence, YWCA’s prior contracts with BT were Percy Ng’s responsibility. Lok understood Chan had come in as the deputy since Percy Ng was on leave and that the second tender was the first time Chan had to fill in such document. Percy Ng’s evidence also suggested that he would have dealt with the documents for the first tender but for the fact that he was going on leave on 25 June 2016. The invitation to the first tender had however already been sent out on 21 June 2016 (with the deadline of noon on 28 June) and there is no reason why Lok must have known that Percy Ng did not fill in the Compliance List before going on leave.
(4)  Lok’s evidence that if he had known that anyone intended to submit a dummy bid, he would have reported it to APD, seems to me to be genuine. He was keen for YWCA to procure the equipment, but had no reason to make sure that BT was the successful tenderer at all costs. There is no basis to doubt his loyalty to YWCA. Despite his reliance on and good working relationship with BT, obtaining more genuine bids might result in the receipt of a bid lower than BT’s, which would be for YWCA’s benefit. There is no suggestion Lok knew the precise deal registration discount BT would get and I do not consider that he believed that no bids genuinely and independently formulated and submitted by any other company would have a chance to beat BT’s. I do not find it inherently probable that he would acquiesce in Chan procuring bids that were not intended to win but purely to make up the numbers so that BT’s bid would prevail.
(5)  For his part, Chan simply had a working relationship with Lok and had no control over him. It would be highly unlikely that Chan would wish Lok to know that Chan and Hung were arranging for non-genuine bids to be submitted to YWCA or that Chan had given Hung BT’s bid prices for the exercise. On the contrary, Chan was taking care to avoid suspicion on the part of YWCA (see his email to Hung dated 15 July 2016 set out in §135 above). Chan also said in his statement that he deliberately changed the wording in each of the Compliance Lists for SiS and Innovix respectively to avoid arousing “suspicion within YWCA”. He was concerned that what he was doing would not be acceptable to YWCA if it found out.
(6)  On Chan’s own evidence in the statement quoted in §537 above, he did not expressly inform Lok of the purposes of his enquiry about the Compliance List; nor did he tell Lok that he (Chan) and Hung were arranging for dummy bids to be submitted.
(7)  In cross-examination, Chan agreed with the suggestion put to him by counsel for Innovix that from the conversation about the Compliance List, Lok must have understood that the bidders found by BT “would not be putting in competitive bids”. However, he went on to explain that he said this because BT had a preferential discount with Nutanix and even if the prices were similar, BT would not lose because of the efforts it had already put in and the relationship with YWCA.
(8)  When asked by the Tribunal to explain in his own words the relevant conversation he had with Lok, Chan said:
“ Because at the time Thomas said to me that they would fill in most parts in the compliance list with ‘no’. So after a discussion with Alan, Alan told me that for some parts, they could not be filled in with a ‘no’, because if those parts were filled in with a ‘no’ then it would mean that they did not comply.”
There was no suggestion Chan had actually told Lok that he was seeking advice on how the Compliance List should be filled in – not for BT – but for other tenderers that either BT or Nutanix was going to procure to put in tenders.
(9)  In his re-examination, Chan was asked by the Tribunal to clarify what he said Lok knew, and Chan’s answer was:
“ That we helped find four other bidders to make up the five-bidder requirement.”
When asked if there was anything else, he said “No”.

540. Innovix submitted that Lok had more relevant knowledge than Siu and that if it is found that Siu had sufficient knowledge to render Innovix privy to an agreement to submit a non-genuine bid, then there must be reasonable cause for the Commission to believe that Lok had sufficient knowledge to take the case out of the definition of bid-rigging. I do not accept this submission. The following critical facts were known to Siu but not to Lok:

(1)  Hung provided the completed tender documents to Innovix only on the morning of 18 July 2016 and asked Innovix to print and sign them to “help BT to bid for Dell deal”.
(2)  Hung had already inserted the bid price for Innovix’s bid and virtually completed the documentation without reference to Innovix.
(3)  Hung had not sent any Technical Proposal to Siu (it was put into Innovix’s bid privately by Hung).
(4)  Siu did not know the cost price for Innovix of the product tendered and did not discuss it with Hung at all.
(5)  Siu dealt with the tender documents so perfunctorily that he did not even notice the product offered was a Dell-Nutanix solution.
(6)  Innovix’s bid was submitted with no intention on its part to win the tender but only for the purpose of helping BT.

541. Tech-21 complained about the absence of discovery made from Lok’s mobile phone which was in fact seized by the police in July 2017 in connection with an offence committed by Lok at that time which was wholly unconnected with the subject matter of these proceedings. However, it has not been indicated how such disclosure would have any bearing on this case. Moreover, screenshots from Lok’s mobile phone were in fact disclosed to the respondents and the textual communication between Lok and Percy Ng and Chan had also been disclosed by BT.

542. On the evidence, I find that Lok did not understand from his conversation with Chan about the Compliance List that Chan was helping other companies to fill in the document. But even if Lok had understood from the context that Chan was seeking to help Nutanix to help the four named companies to tender with a view to meeting YWCA’s requirement of five bids, this would not prevent the agreements from constituting serious anti-competitive conduct, for it is common ground that one bidder can arrange for independent, genuine bids to be submitted by others in response to a tender. It would not amount to express notification to Lok of the agreements to procure non-genuine bids.

543. I consider that Lok was truthful in saying that he had no knowledge that Chan or Hung was trying to procure dummy bids from the four other companies for the purposes of the second tender. I also accept Lok’s evidence that he believed the four companies suggested by Chan would be capable of and genuinely interested in bidding in the second tender.

544. On the evidence, the Commission has in my view established that it was not expressly notified to Lok, and that Lok was not aware, at any time before 18 July 2016, that there was any agreement to procure non-genuine bids just to make up the numbers.

545. There remains the question, as between the Commission and Innovix, whether, at the time of commencement of these proceedings (23 March 2017), the Commission did not have reasonable cause to believe that the relevant agreements had been made known to YWCA. Again, the person that Innovix had focussed upon was Lok.

546. Based on the materials available to the Commission at that stage:

(1)  There was no contemporaneous document that indicated that YWCA was notified or in any way knew that it would receive non-genuine bids from SiS, Innovix, Tech-21 or iCON.
(2)  Chan had been interviewed by the Commission though he had not made his statement yet. In his interview Chan suggested that Lok knew that Hung had arranged for four companies to submit bids in the second tender, but he did not suggest that Lok was told or otherwise knew that these would be dummy bids, non-genuine bids, bids not intended to win, or bids whose prices were determined by Hung with knowledge of BT’s.
(3)  There was nothing to suggest that Lok was privy to any of the email communications between Chan and Hung, including those in which Chan gave Hung BT’s bid prices or requested the 30% mark-up for the friends. Nor was there anything to suggest Lok was privy to Chan’s email to Percy Ng in which Chan said he had asked Hung to provide “dummy bids”.
(4)  In his statements and interviews with the Commission, Lok was clear that he had no knowledge of any false bids. Innovix criticised as incredible Lok’s statement in the interview on 23 February 2017 that he “doubted he had much communicated with [Chan]” (emphasis added). It is, however, not surprising that Lok could not remember the number of communications he had with Denis Chan, nor is the context of that particular note entirely clear. Lok told the Commission he was “certain” he had not asked Chan to submit any “false” bid. His evidence on this has been consistent throughout. Innovix commented that the interview note did not say the agreements were not made known to Lok, but Chan had never suggested that any agreement to procure false bids was disclosed to Lok.
(5)  It was argued that since Lok gave BT preferential treatment and inside information and allowed BT to take part in the design of the technical specifications, he could not conceivably have understood BT or Nutanix would have procured “competitive bids” compared to BT. One can readily accept that Lok believed BT would have a good chance of winning, but this is no basis to think that he was notified or otherwise knew that the other bids would be not genuine in the way already described.
(6)  The respondents submitted that in his interview with the Commission, Mak had mentioned his “suspicions” of potential involvement of employees in ISD. In fact the note said Mak and Gary Sze (Director of Finance and Administration) had “not discussed their suspicions with the IT department”. This was consistent with Mak’s explanation in his evidence, which I accept, that what he meant was he did not tell his colleagues in the IT department about the suspicious features found in the tender documents (such as spelling mistakes). While this was in a section headed “Potential Involvement of other employees in YWCA?” and shows that the Commission was indeed investigating that possibility with YWCA, I accept the Commission’s submission that there was no additional material there which overall gave YWCA basis for believing that any its employees were involved.
(7)  It was also submitted that the Commission must itself have suspected at some stage that ISD staff or Lok was involved. Even assuming this was the case, one must distinguish between pursuing all reasonable lines of suspicion or inquiries at the investigative stage and forming an overall belief based on the entire body of available material at the stage of commencement of proceedings.
(8)  Innovix further referred to the Request for Support from Principal (see §126 above). The evidence is that Mak decided to include that document in the second tender to try to maximise the number of responses, as he was concerned that potential tenderers might think YWCA had already chosen a seller. I do not think the document could give rise to any basis for the Commission to believe that YWCA or its employees had knowledge of any anticompetitive arrangements.
(9)  The possibility that Lok might have asked Chan to get help from Nutanix or Hung to encourage more people to submit bids in the second tender does not tend to show that the agreements for dummy bids were made known to Lok.

547. Ultimately, it seems to me there was nothing that should have led the Commission to believe that Lok, let alone anyone else in YWCA, had been expressly notified of the alleged agreements. In my view there was no reasonable cause for the Commission, as at the date of commencement of proceedings, to believe that the agreements it intended to impugn had been made known to YWCA.

(5) The definition of bid-rigging applied

548. Accordingly, the elements of the definition of bid-rigging apply to the conduct in question as follows.

549. In respect of the agreement between Nutanix and BT:

(1)  There was an agreement.
(2)  It was made between two undertakings, namely, Nutanix and BT.
(3)  The bids of Innovix and Tech-21 submitted to YWCA were the direct, intended result of the agreement. They were arrived at by that agreement (as well as by the individual agreements between Nutanix and each of Innovix and Tech-21).
(4)  The agreement was not made known to YWCA before those bids were submitted.

550. In respect of the agreement between Nutanix, BT and Innovix:

(1)  There was an agreement.
(2)  It was made between three undertakings, namely, Nutanix, BT and Innovix.
(3)  Innovix’s bid was arrived at by this agreement.
(4)  The agreement was not made known to YWCA before Innovix’s bid was submitted.

551. In respect of the agreement between Nutanix and Tech-21:

(1)  There was an agreement.
(2)  It was made between two undertakings, namely, Nutanix and Tech-21.
(3)  Tech-21’s bid was arrived at by this agreement.
(4)  The agreement was not made known to YWCA before Tech-21’s bid was submitted.

552. Coupled with the fact that, as found above, the agreements, examined in the context of the second tender, had the object of preventing, restricting or distorting competition, it follows that the agreements in question constituted bid-rigging and thus serious anti-competitive conduct within the meaning of the Ordinance, and that no warning notice was required before the commencement of these proceedings.

M. SUMMARY AND CONCLUSION

553. In summary, this Tribunal finds as follows. As these proceedings, which are brought by the Commission seeking orders for pecuniary penalties, involve the determination of a criminal charge within the meaning of Art. 11 of the Bill of Rights, the applicable standard of proof required of the Commission is proof beyond reasonable doubt.

554. Nutanix (through Hung) and BT (through Chan) made an agreement to procure the submission of four dummy bids (i.e. non-genuine bids) to YWCA in its second tender for Nutanix equipment in July 2016. BT knew Nutanix would approach SiS, Innovix, Tech-21 and one other firm to procure them to put in bids just to make up the numbers. BT provided Nutanix with BT’s own tender documents including its bid prices in order to assist.

555. Pursuant to that agreement, Hung approached Shek (SiS) with the tender documents he had prepared including the bid price which was substantially higher than BT’s. Shek agreed to submit the bid in the name of SiS. It was not intended to win but just to make up the numbers. Shek signed the tender documents and stamped them with SiS’s company chop.

556. Shek’s conduct, however, is not attributable to SiS. Shek was a junior employee whose general duties did not include submission of tender or even provision of any binding quotation, and had no authority to bind SiS in relation to any commercial commitment. SiS was a distributor whose business did not include sale to end-users. The Commission also failed to show that Shek’s seniors were cognisant of his arrangements with Hung, as Shek alleged. The Commission’s application in relation to the alleged agreement between Nutanix and SiS must therefore be dismissed.

557. Pursuant to the agreement with BT, Nutanix approached Innovix with the tender documents already prepared including the bid price which was substantially higher than BT’s, stating in the email: “We help BT to bid for Dell deal”. Innovix agreed to submit the bid which was not intended to win but to help BT’s bid. Accordingly there was a trilateral agreement or concerted practice between Nutanix, BT and Innovix.

558. Pursuant to the agreement with BT, Nutanix approached Tech-21 with the tender documents already prepared including the bid price which was substantially higher than BT’s. Tech-21 agreed to submit a bid which was not intended to win but to help someone else’s bid.

559. The bilateral agreement between Nutanix and BT, the trilateral agreement between Nutanix, BT and Innovix, and the bilateral agreement between Nutanix and Tech-21, each had the object of preventing, restricting or distorting competition in Hong Kong.

560. The exclusion of agreements of lesser significance under s 5 of Schedule 1 to the Ordinance had not been properly raised and it was not open to Tech-21 to rely on it.

561. Further, each of the three agreements falls within the definition of “bid-rigging” and, as such, within the definition of “serious anti-competitive conduct” in the Ordinance because, in particular, there was a submission of bids that were arrived at by these agreements which were made between two or more undertakings and had not been made known to YWCA before the submission of the bids. Nor did the Commission have reasonable cause to believe this was not the case at the time of commencement of the proceedings. Accordingly, the Commission was not required to issue a warning notice to any of the respondents before issuing proceedings, and these proceedings do not fail for want of a warning notice.

562. Nutanix, BT, Innovix and Tech-21 are therefore persons who have contravened the first conduct rule and liable to have orders made against them accordingly. The application as against SiS (and as against Nutanix in relation to the alleged agreement with SiS) is dismissed. The orders that should be made consequent upon the Tribunal’s findings and conclusions are to be dealt with in a further hearing.

	(Godfrey Lam)
	President of the Competition Tribunal

Mr Mark Hoskins QC, Mr Peter Duncan SC and Ms Catrina Lam, instructed by Winston & Strawn, for the Applicant

Mr Matthew Gearing (Solicitor Advocate), instructed by Latham & Watkins, for the 1^st Respondent

Mr Charles Hollander and Mr Law Man-chung, instructed by Baker McKenzie, for the 2^nd Respondent

Mr Gerard McCoy SC and Mr Timothy Parker, instructed by Norton Rose Fulbright, for the 3^rd Respondent

Mr Paul Shieh SC, Ms Eva Sit and Mr Joshua Chan, instructed by Linklaters, for the 4^thRespondent

Ms Cindy Kong, instructed by Fongs, for the 5^th Respondent

[1] Art. 101(1) of the TFEU provides:

“ The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a)  directly or indirectly fix purchase or selling prices or any other trading conditions;
(b)  limit or control production, markets, technical development, or investment;
(c)  share markets or sources of supply;
(d)  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e)  make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”

[2] [2000] ECR II-3383.

[3] The passage was apparently approved by the Court of Justice on appeal: Joined Cases C-2/01 & C-3/01P [2004] ECR I-23, §97.

[4] Case 40/73 etc, Suiker Unie v Commission, EU:C:1975:174, [1975] ECR 1663, §191; Joined Cases C-89/85 A. Ahlström Osakeyhtiö v Commission (Woodpulp II), EU:C:1993:120, [1993] ECR I-1307, §63; Case C-8/08 T-Mobile, §26. The quotation is taken from T-Mobile at §26.

[5] Upheld on appeal to the CJEU in Case C-359/01P British Sugar plc v Commission, ECLI:EU:C:2004:255, 29 April 2004.

[6] See Engel v The Netherlands(No 1) (1976) 1 EHRR 647 for the criteria, namely, (1) the classification of the offence under domestic law; (2) the nature of the offence; and (3) the nature and severity of the potential sanction.

[7] Section 8 of the Hong Kong Bill of Rights Ordinance (Cap 383).

[8] In Revenue and Customs Commissioners v Khawaja [2009] 1 WLR 398, decided after Koon Wing Yee, Mann J specifically held that the civil standard of proof applied in the UK in tax penalty cases despite the fact that Art. 6(2) was applicable; see also R (on the application of V) v Independent Appeal Panel for Tom Hood School [2010] EWCA Civ 142 at §33. In Jussila v Finland (2007) 45 EHRR 39 at §43, the European Court of Human Rights recognised that the criminal-head guarantees will not necessarily apply “with their full stringency” to all proceedings classified as criminal by reference to the Engel criteria but which do not fall with the “hard core of criminal law”.

[9] Section 30 of the Summary Offences Ordinance (Cap 228) and s 25 of the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap 405).

[10] Koon Wing Yee at §§45 and 46.

[11] LC Paper No. CB(1)3059/10-11, Appendix, p 8.

[12] For a summary, see Miller’s Australian Competition and Consumer Law Annotated (39^th ed, 2017), pp 353-354, 358-361, 371-380, 603-607 and 611-612.

[13] See ss 45AF and 45AJ.

[14] See Musgrove, Fundamentals of Canadian Competition Law (3^rd ed), p 17.

[15] See Musgrove, Fundamentals of Canadian Competition Law (3^rd ed), p 255.

[16] Eg see Makers UK Ltd v Office of Fair Trading [2007] CAT 11 §46; GMI Construction Holdings Plc v Office of Fair Trading [2011] CAT 12 §14; and Durkan Holdings Ltd v Office of Fair Trading [2011] CAT 6 §94.

[17] See the summary of the position in the courts of the EU in Television Broadcasts Ltd v Communications Authority & Anor [2016] 2 HKLRD 41 at §§283-284. There are, however, statements by the EU courts referring to the principle “in dubio pro reo” and that the “benefit of … doubt must be given to the undertakings accused of the infringement” of competition law: Case C-89/11P E.ON Energie AG v Commission, §§71-74.

[18] Original equipment manufacturer.

[19] Innovix’s distributorship of Nutanix products has ceased since November 2017, but nothing turns on that.

[20] “RFP” stands for “request for proposal”.

[21] In Chinese original:

「喂Thomas，啱啱send咗兩份欸document畀你。佢哋基本上差唔多嘅，但啲wording唔同嘅啫。嗱，我就擺咗欸yes for都……即係都幾多嘅section嘅，但我睇過嗰啲T&C呢其實嗰啲真係無咩嘢嘅。
欸……欸如果即係我怕你驚呢，咁我都擺咗一個啲wording呢就話係subject to further discussion嘅。咁呢個已經係……即係你欸唔會Commit嘅啦，即係已經講咗明，even你話yes呢，都係要傾咗先至係變成一啲即係Legal 嘢嘅呢。所以我覺得你可以仿傚呢個……呢個做法，even for你嗰其他嗰幾個vendor嘅。因為呢如果唔係呢你全部話no呢。有好多呢即係好多呢好obvious係無可能no嘅。如果你答no呢即係基本上唔會報嘅。即係好似譬如你話連「跌」個delivery address都話no嘅，咁你即係唔deliver，即係我覺得有少少好怪囉。
嚇，總之呢你見到呢，如果我有啲淨係寫咗yes，欸但係就無remark嗰啲呢，嗰啲尤其是嗰啲呢一定要寫yes嘅呀。」

[22] In Chinese original:「嗱，anyway你如果你有咩嘢你……你想欸再Clarify嘅呢，你可以WhatsApp我……哦咁欸……咁欸希望你禮拜一欸十二點鐘之前又即係遞呀……遞過去交交啦…如果唔係就……就即係所有effort都白費㗎喇。」

[23] The circumstances in which SiS’s chop was applied to the documents are dealt with in §§305-309 below.

[24] In Chinese original: 「喂要唔要扱公司印㗎？個簽名……我唔知呀，正常應該要揼公司印㗎喎，我要睇嚇諗諗同你點樣搞呀。」

[25] Chan’s interview record, §§1353-1354.

[26] Chan’s interview records, §§1342-1350.

[27] Chan’s interview record, §§1669-1680.

[28] Applicant’s Closing §94b.

[29] Chan’s interview record, §1513.

[30] Chan’s interview record, §1539.

[31] Chan (Re-X) [Day 6/19:2-10].

[32] Chan’s interview record, §§1574-1575.

[33] Chan’s interview record, §§1735-1740.

[34] Chan’s interview record, §1611.

[35] Chan’s interview record, §§1577-1585.

[36] Chan’s interview record, §§1647-1654.

[37] Nutanix Closing para 132.

[38] Nutanix Closing para 134.

[39] In his Chinese statement:「只是為了湊夠數」。

[40] SiS Closing §134.

[41] SiS Closing §121.

[42] Siu said either he or Cheung (though he was not sure which) printed the documents but since Cheung had not read the e-mails, it must be Siu who printed the attachments.

[43] a description of Hung by Cheung with which Siu agreed.

[44] BT Closing §98.

[45] In Chinese original: 「喂要唔要扱公司印㗎？個簽名……我唔知呀，正常應該要揼公司印㗎喎，我要睇嚇諗諗同你點樣搞呀。」

[46] See §§95, 267.

[47] See In re Supply of Ready Mixed Concrete [1992] QB 213, 231, 235.

[48] In re Supply of Ready Mixed Concrete (No 2) [1994] ICR 57.

[49] Referring to the similar holding by the Court of Appeal in the decision allowing the other three companies to obtain leave to appeal out of time: [1994] ICR 57, 66-67.

[50] [1991] ICR 52, at 64-66.

[51] See [1992] ICR 52, 65D, 66G-H.

[52] Formerly s 84 of the Trade Practices Act 1974.

[53] The Competition and Consumer Act was called the Trade Practices Act 1974 (Cth) prior to 1 January 2011.

[54] See Yorke v Lucas (1985) 158 CLR 661.

[55] It is unnecessary to discuss here whether under the Ordinance the primary “offender” has to have been held liable in proceedings. The Court of Final Appeal stated in Sze Kwan Lung v HKSAR (2004) 7 HKCFAR 475 at §19 that, under the common law principles of accessorial liability, in criminal proceedings “the person charged with aiding, abetting, counselling or procuring an offence can only be convicted if the principal offender, charged at the same trial, is found guilty of the relevant principal offence”. Contrast ACCC v Black on White Pty Ltd & Ors [2001] FCA 187 at §§46-53, which suggests that it is only necessary for the court to make a finding that the principal offender has committed the contravention, and that the fact that the principal offender is a corporation which has been dissolved does not prevent an accessory from being found liable.

[56] Upheld on appeal: [2017] FCAFC 152. Indeed, SiS submitted that liability for attempt cannot be established unless the actual substantive contravention has not been completed: Rogers v Arnott [1960] 2 QB 244.

[57] On appeal, the High Court of Australia did not deal with the meaning of “induce”: (1985) 158 CLR 661.

[58] Section 159A provides:

“ (1)  Subject to the following provisions of this Part, if a person agrees with any other person or persons that a course of conduct shall be pursued which, if the agreement is carried out in accordance with their intentions, either—
(a)  will necessarily amount to or involve the commission of any offence or offences by one or more of the parties to the agreement; or
(b)  would do so but for the existence of facts which render the commission of the offence or any of the offences impossible,
he is guilty of conspiracy to commit the offence or offences in question.”

[59] In the context of criminal liability in Hong Kong, Ribeiro PJ said in Hin Lin Yee v HKSAR (2010) 13 HKCFAR 142 at §151 that the principle should be supplemented by an additional condition, namely, that before concluding that the offence is one of absolute liability, the court should first determine whether the statutory purpose can sufficiently be met by construing the statute as creating an offence subject to the intermediate defence, which allows the accused to prove an exculpatory honest and reasonable belief on a balance of probabilities (see §136).

[60] Hin Lin Yee, §156.

[61] Hin Lin Yee, §158.

[62] See §21.

[63] See §70.

[64] See §§144-145.

[65] See §223 above for the context and meaning of that email.

[66] See §263.

[67] In Kier Group plc v Office of Fair Trading [2011] CAT 3 at §3, the UK Competition Appeal Tribunal explained that “simple” cover pricing occurs “where one of those invited to tender for a construction contract (Company A) does not wish to win the contract, but does not want to indicate its lack of interest to the client, for whose work it may wish to be invited to tender in the future. Company A therefore seeks a cover price from another company which is tendering for that contract (Company B). Company B will be seeking to win the contract and will have reached a view as to its own tender price. Indeed it may already have submitted its own tender to the client. The cover price which it provides to Company A will be at a level sufficiently high to ensure that Company A does not win. This price is submitted to the client by Company A as though it is a genuine tender. It should be noted that Company B does not reveal its own tender price to Company A – the cover price is an inflated price.”

[68] Cases T-208/08 and T-212/08 Team Relocations NV v European Commission at §52.

[69] §§91-93.

[70] Section 8 of the Third Schedule to the Competition Act provides that the section 34 prohibition shall not apply to any vertical agreement, other than such vertical agreement as may be specified by the responsible Minister. For this purpose, “vertical agreement” is defined to mean “any agreement entered into between 2 or more undertakings each of which operates, for the purposes of the agreement, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services and includes provisions contained in such agreements which relate to the assignment to the buyer or use by the buyer of intellectual property rights, provided that those provisions do not constitute the primary object of the agreement and are directly related to the use, sale or resale of goods or services by the buyer or its customers”.

[71] per Lloyd LJ in Argos Ltd as quoted above.

[72] See §§248-249.

[73] Chan’s interview record, §§1647-1654.

[74] Chan’s interview record, §§1370-1372.

[75] As explained in §223 above, this was a reference to BT’s bid offering the Dell-Nutanix solution.

[76] The point on agreements of lesser significance is not open to Tech-21, as stated in section K above.

[77] See LC Paper No. CB(1)1919/11-12, §§27-35.

[78] See LC Paper No. CB(1)1919/11-12, §§27, 32, 33, 41(b).

[79] See LC Paper No. CB(1)1919/11-12, §§36-37.

[80] R3 Opening §§24-27; R4 Closing §30.

[81] and in ss 92, 97 and 99 in relation to commencement of proceedings.

[82] Section 12(1) of the Prevention of Terrorism (Temporary Provisions) Act 1984 provided: “… a constable may arrest without warrant a person whom he has reasonable grounds for suspecting to be … (b) a person who is or has been concerned in the commission, preparation or instigation of acts of terrorism …”.

[83] Section 50(1) of the Police Force Ordinance (Cap 232) provided: “It shall be lawful for any police officer to apprehend any person who he reasonably believes will be charged with or whom he reasonably suspects of being guilty of: (a) any offence for which the sentences fixed by law or for which a person may (one a first conviction for that offence) be sentenced to imprisonment …”.

[84] Section 20C(3) of the Taxes Management Act 1970 provided: “On entering the premises with a warrant under this section, the officer may seize and remove any things whatsoever found there which he has reasonable cause to believe may be required as evidence for the purposes of proceedings in respect of such an offence as is mentioned in subsection (1) above …”.

[85] Schedule 5 to the Ordinance, ss 2(1), 15(4).

[86] Schedule 5 to the Ordinance, s 31(2)(o).

[87] R.S.C. 1985, c. C-34.

[88] R.S.C. 1970, c. C-23; as am S.C. 1974-75-76, c. 76.

[89] R1 Opening §59, R2 Opening §83.

[90] R v Durward, Final Instructions to the Jury, Court File No 09-300-68, p 88.

[91] See §§24-25.

[92] Debates of the Senate, Official Report (Hansard), 19 March 1975, p 680.

[93] This case concerns bid-rigging as an offence contrary to section 32.2(1) of the Combines Investigation Act (predecessor of section 47 of the Competition Act).

[94] Osler J’s decision in R v Travelways School Transit Ltd was the decision on motions to quash the orders for committal while Dupont J’s was the decision after the trial.

[95] R v Durward, Final Instructions to the Jury, Court File No 09-300-68, p 142.

[96] Chan’s interview record, §§1299-1304.

[97] This refers to the passage in his statement quoted in §204 above.

CTEA 1/2017

[2018] HKCT 1

IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ENFORCEMENT ACTION NO 1 OF 2017

____________

BETWEEN
	COMPETITION COMMISSION	Applicant
	and
	NUTANIX HONG KONG LIMITED	1^st Respondent
	BT HONG KONG LIMITED	2^nd Respondent
	SIS INTERNATIONAL LIMITED	3^rd Respondent
	INNOVIX DISTRIBUTION LIMITED	4^th Respondent
	(trading as “INNOVIX DISTRIBUTION”)
	TECH‑21 SYSTEMS LIMITED	5^th Respondent

____________

Before: Hon G. Lam J, President of the Competition Tribunal in Chambers

Date of Hearing: 9 February 2018

Date of Decision: 14 March 2018

_______________

D E C I S I O N

_______________

	TABLE OF CONTENTS
		Paragraph
I.	Introduction	1
II.	Background	3
III.	Position on discovery of documents	9
IV.	The present application	15
V.	Legal framework	18
VI.	Class 1 — Any without prejudice correspondence and records of without prejudice communication between the Commission and respondents in relation to the Commission’s Leniency Policy	28
	A. Scope	28
	B. Leniency Policy	29
	C. The claim for public interest immunity	34
	D. Informer privilege	35
	E. International practice	41
	F. Balancing the relevant considerations	48
	G. Without prejudice privilege	55
VII.	Class 3 — The Complainant’s original electronic complaint form which was submitted to the Commission on 21 July 2016	66
VIII.	Class 5 — All without prejudice correspondence and records of without prejudice communications between the Commission and any Respondent where an agreement has not been reached	77
IX.	Class 6 — All confidential internal reports, minutes and correspondence relating to the Commission’s investigation and present proceedings. This includes any records of communication between Commission staff during the execution of search warrants under s 48 of the Competition Ordinance	75
	A. Relevance	76
	B. Legal professional privilege	84
	C. Public interest immunity	86
X.	Mr D documents	104
XI.	Residual prayer of summons	121
XII.	Itemisation of documents	123
XIII.	Conclusion and orders	128

I. Introduction

1. This is the Tribunal’s decision on the 3^rd respondent’s application for orders of discovery against the Competition Commission who is the applicant in the substantive proceedings. The application raises questions of principles regarding the Commission’s obligations of discovery and claims of public interest immunity and without prejudice privilege as well as questions in the application of the principles to the particular facts.

2. The other respondents have neither opposed the 3^rd respondent’s application nor appeared at the hearing. I shall refer to the 1^st, 2^nd, 3^rd, 4^th and 5^th respondents as Nutanix, BT, SiS, Innovix and Tech‑21 respectively.

II. Background

3. The underlying proceedings in this case are an application by the Commission against 5 undertakings for a declaration pursuant to s 94 of the Competition Ordinance (Cap 619) (“Ordinance”) that they have contravened the first conduct rule (s 6(1)) and for the imposition of a pecuniary penalty on each of them pursuant to s 93.

4. Broadly described, the allegation is that in July 2016, in response to the Hong Kong Young Women’s Christian Association’s (“YWCA”) invitation to tender for the supply and installation of an IT server system, BT planned to submit a bid based on a system supplied by Nutanix. YWCA’s procurement policy required a minimum of 5 bids for this tender. Where fewer than 5 bids were received, approval of a certain committee and board would be required before the contract could be awarded. To assist BT’s bid, Mr A[1] of Nutanix agreed with Mr B of BT that Mr A would obtain 4 “dummy” bids (ie not genuine bids) from friends of his. Mr A then agreed with each of 3 individuals who worked in SiS, Innovix and Tech‑21 respectively and an individual who worked in another firm, for them to do so. It is said that pursuant to these agreements SiS, Innovix and Tech‑21 (but not the fourth firm) each submitted a dummy bid to YWCA. The Commission contends that the conduct of the 5 respondents constituted “bid‑rigging” and therefore “serious anti‑competitive conduct” under the Ordinance and contravened the first conduct rule.

5. In particular, in the case of SiS, it is alleged that Mr A telephoned Mr D, a manager of SiS, told him there were insufficient tenders, and asked him to help submit a bid. Mr A emailed Mr D the completed tender documents and asked Mr D to print out 2 copies, sign and stamp them, which Mr D did as requested. He also deposited the tender at YWCA at Mr A’s request.

6. Some of these allegations made are based on a statement made by Mr D dated 13 February 2017, in which Mr D further said he only submitted a bid because Mr A asked for his help and that, from his point of view, the bid was submitted just to make up the required number, without any thought of winning the tender. The Commission alleges that the arrangement between Mr A and Mr D was an anti‑competitive vertical bilateral arrangement between Nutanix and SiS which contravened the first conduct rule.

7. In these proceedings, the Commission has filed a witness statement of Mr D dated 19 October 2017 (which confirmed his statement of 13 February 2017 subject to some amendments) and a supplemental witness statement of Mr D dated 27 November 2017.

8. SiS has, in its Response, raised various grounds in opposition to the Commission’s case. It is not necessary to set them all out here for present purposes. Suffice it to say that SiS submits that Mr D’s statements were obtained in highly questionable circumstances, challenges the facts as narrated in Mr D’s statements, and contends in any event that Mr D lacked authority and acted on a frolic of his own and in fraud of SiS in doing what he is said to have done.

III. Position on discovery of documents

9. Although the provisions of O 24 r 2 of the Rules of the High Court (“RHC”) for automatic general discovery do not apply to enforcement actions before this Tribunal, an order for discovery by the Commission was made at the first case management conference on 26 May 2017, essentially with the agreement of the parties. The terms of the order directed that the Commission do file and serve:

“a list of documents … separating (a) those sought to be relied upon and used by the Applicant in these proceedings and (b) unused materials, with the origination of each of the documents identified (eg ‘From R2’)”.

10. The basis of this direction was explained in the Tribunal’s Reasons for Decision dated 12 June 2017 (at §4) as follows:

“As regards discovery, the Applicant takes the position that it will disclose both used and unused materials in its possession to the Respondents, following the approach the Court of First Instance has recently held to apply in disqualification proceedings under s 214 of the Securities and Futures Ordinance (Cap 571): Securities and Futures Commission v Wong Yuen Yee [2017] 1 HKLRD 788. There is no dispute in principle regarding the scope of disclosure by the Applicant.”

11. The Commission has since filed 4 lists of documents, whose format resembles those used in actions in the High Court. The first list is substantial, containing 231 entries (some compendiously described) in part 1 of schedule 1. The subsequent lists are supplemental in nature. The documents disclosed include, amongst others, all the pre‑existing documents obtained by the Commission during the investigation and all the records of interview conducted under s 42 of the Ordinance. In addition, on the application of Nutanix and Innovix, the Tribunal on 12 October 2017 made an order for discovery by a third party, namely, YWCA, for a range of documents that were not in the possession of the Commission.

12. Both the first and second lists filed by the Commission dated 23 June and 31 August 2017 respectively contain this statement:

“The Applicant objects to produce the documents enumerated in Part 2 of [Schedule 1 hereto] on the ground that they are by their nature privileged from production or subject to public interest immunity.”

13. Part 2 of Schedule 1 in the first list contains 4 classes of documents (numbered 1 to 4) while that in the second list has 2 classes (numbered 5 to 6), described as follows:

No. Description
1. Any without prejudice correspondence and records of without prejudice communication between the Commission and respondents in relation to the Commission’s Leniency Policy.
2. Affirmations of Wong Kam Hung (together with exhibits), and drafts thereof, for the purpose of applying for search warrants in HCCM 261/2016.
3. [The Complainant’s] original electronic complaint form which was submitted to the Commission on 21 July 2016.
4. Correspondence, reports, and other documents passing between the Commission and its solicitors for the purpose of this action, instructions to Counsel, advice, opinions and drafts; correspondence, reports and other documents passing between the Commission and its solicitors and other parties written or prepared for the purpose of obtaining evidence or furnishing to the Commission’s solicitors information which might lead to the obtaining of evidence to be used in legal proceedings, statements, notes, memoranda, and other documents prepared by or for the use of the Commission’s solicitors for the purpose of legal proceedings.
5. All without prejudice correspondence and records of without prejudice communications between the Commission and any Respondent where an agreement has not been reached.
6. All confidential internal reports, minutes and correspondence relating to the Commission’s investigation and present proceedings.
This includes any records of communication between Commission staff during the execution of search warrants under section 48 of the Competition Ordinance.

14. The specific grounds for objecting to production of these documents were set out in the affidavits filed with those 2 lists.

IV. The present application

15. SiS’s application is made by summons issued on 3 November 2017 (following a debate in correspondence) and amended on 24 January 2018, pursuant to rule 24 of the Competition Tribunal Rules (Cap 619D) (“CTR”) and RHC O 24 r 7.

(1) In form, the summons seeks an order that the Commission file and serve a list of documents, to include all documents in Class 1, 3, 5 and 6 and all documents passing between the Applicant and “other parties” under Class 4 above, with each of the documents identified individually and the originator thereof specified.
(2) The summons seeks an order for a list of documents to include all documents (again, to be individually identified) described in the schedule to the summons (all being, broadly speaking, documents relating to Mr D, which I shall refer to as “Mr D documents”). There are 7 sub‑categories in the schedule which are set out in §104 below.
(3) The summons also seeks an order essentially for a list of other documents which should be but have not yet been disclosed by the Commission.
(4) The summons asks for an affidavit from the Commission verifying the fresh list of documents to be filed and stating, in particular, “to the extent that privilege from production in respect of any part(s) of any of the documents is asserted, the grounds for objection be specified for each part of each document”.
(5) Finally, the summons seeks a direction that the grounds for and the extent of objection from production claimed by the Commission shall be in accordance with the determination of the Tribunal.

16. Regarding Class 4 as set out in the table above, since SiS does not dispute that the Commission is entitled to claim legal advice privilege for communications between itself and its lawyers, the application was directed at communications with “other parties”. It was initially opposed on the ground of litigation privilege but, at the hearing, Mr Mok SC (who appeared with Ms Lam) confirmed on behalf of the Commission that it would no longer claim litigation privilege in this respect and would file a further list in consequence. It is therefore unnecessary to deal with Class 4 or the question of litigation privilege in this decision.

17. The Commission opposes the rest of the summons on various grounds including (i) public interest immunity, (ii) without prejudice privilege, (iii) the factors referred to in CTR r 24(3), and (iv) lack of relevance. As the context of argument varies as between different classes of documents, I shall address each category of documents separately before dealing with the question of enumeration and the form of any order to be made.

V. Legal framework

18. S 144(1) of the Ordinance provides that the Tribunal may decide its own procedure, and may follow the practice and procedure of the Court of First Instance in the exercise of its civil jurisdiction, and for this purpose, has the same jurisdiction, powers and duties of the Court. Pursuant to s 158, the CTR have been made by the Chief Judge of the High Court.

19. CTR r 24(1) provides that a party may apply to the Tribunal for an order for discovery and production of a document relating to the proceedings from a person for inspection. RHC O 24 (except rr 1, 2, 3, 4 and 6) is specifically incorporated and applies to proceedings before the Tribunal by virtue of r 24(4) of the CTR. This includes O 24 r 5 which provides that the grounds on which documents are privileged from production are to be stated in the list of documents, and O 24 r 15 which makes clear the rules on discovery are without prejudice to public interest immunity. CTR r 4(2)(a) specifies that if any provision of the RHC applies, it applies with any necessary modifications.

20. CTR r 24(1) provides:

“A party may apply to the Tribunal for an order for discovery and production of a document relating to the proceedings from a person for inspection.”

21. CTR r 24(3) — a special provision found only in the CTR — specifically provides:

“The Tribunal may make or refuse to make an order for discovery and production of a document having regard to all the circumstances of the case, including —
(a) the need to secure the furtherance of the purposes of the Ordinance as a whole;
(b) whether the information contained in the document sought to be discovered or produced is confidential;
(c) the balance between the interests of the parties and other persons; and
(d) the extent to which the document sought to be discovered or produced is necessary for the fair disposal of the proceedings.”

This rule makes clear that discovery is in the discretion of the Tribunal, to be exercised in all the circumstances including the 4 matters specified. The application of RHC O 24 and the jurisprudence on discovery in actions in the High Court should be approached accordingly.

22. Reference should also be made to Part 8 (ss 122‑128) of the Ordinance intituled “Disclosure of Information”. By s 123, information obtained by the Commission in the course of, or in connection with, the performance of its functions that relates to the private affairs of a natural person, the commercial activities of any person that are of a confidential nature, or the identity of any person who has given information to the Commission, and information given to the Commission on terms that or in circumstances that require it to be held in confidence, is regarded as “confidential information”. S 125 stipulates that a “specified person” (which includes the Commission and its employees[2]) must preserve and aid in preserving the confidentiality of confidential information, must not disclose it to any other person, and must not suffer or permit any other person to have access to it. By virtue of s 126, however, this does not apply if disclosure is made with “lawful authority”, which is the case if, inter alia, the disclosure is made in accordance with an order of the Tribunal or any other court or in accordance with a law or a requirement made by or under a law, or in connection with judicial proceedings arising under the Ordinance.[3]

23. Subject to the CTR, the Commission accepts on this application, as it has from the outset in this case, that the scope of discovery it is to give — especially the test of relevance — is as set out in Securities and Futures Commission v Wong Yuen Yee [2017] 1 HKLRD 788; hence it consented to the order for discovery set out in §9 above. It was held in that case that the Securities and Futures Commission’s discovery, in an application for disqualification orders under s 214 of the Securities and Futures Ordinance (Cap 571), should approach the standard applicable to the prosecution in criminal proceedings as explained in HKSAR vLee Ming Tee (2003) 6 HKCFAR 336 and encompass relevant “unused materials”, which

“should ordinarily include the information and documents it has obtained from the investigation of the transactions that are eventually relied upon and complained of in the disqualification proceedings, except those which are obviously irrelevant even on this generous test”.

24. It was stated that the duty of the prosecution is to disclose to the defence “relevant material which may undermine its case or advance the defence case”.[4] Reference was also made there to the test suggested by Jowitt J in R v Melvin (unrep, 20 December 1993):

“I would judge to be material in the realm of disclosure that which can be seen on a sensible appraisal by the prosecution: (1) to be relevant or possibly relevant to an issue in the case; (2) to raise or possibly raise a new issue whose existence is not apparent from the evidence the prosecution proposes to use; (3) to hold out a real (as opposed to a fanciful) prospect of providing a lead on evidence which goes to (1) and (2)”

At §83 of Wong Yuen Yee, the court observed that the language expressing the R v Melvin test is not radically different from the traditional test of relevance in civil cases as laid down in Compagnie Financière et Commerciale du Pacifique v The Peruvian Guano Co (1882) 11 QBD 55, 62–63.

25. “Unused materials” generally encompass materials gathered during the investigation but, as was pointed out in Wong Yuen Yee at §71, even in criminal cases the law does not require automatic disclosure of all unused materials, but only in accordance with the test for relevance. Mr Mok also pointed out that neutral material or material damaging to the respondents need not be disclosed: R v H [2004] 2 AC 134, §35.

26. Mr McCoy SC, who appeared with Mr Parker on behalf of SiS, placed heavy reliance on Wong Yuen Yee. It should be noted, however, that the debate in Wong Yuen Yee centred round the test of relevance. In particular, it did not decide whether public interest immunity or without prejudice privilege could be claimed; this kind of issues was simply not raised in that case (see Wong Yuen Yee, at §81).

27. Counsel also emphasised the penal nature of the penalty sought by the Commission in these proceedings. Mr McCoy submitted that these are criminal proceedings but acknowledged that it is not necessary to decide this question here on which I heard no argument. I recognise there are special features of enforcement actions for pecuniary penalty such as this, as distinct from ordinary civil actions between private parties. Even if these proceedings involve the determination of a criminal charge within the meaning of Article 11 of the Hong Kong Bill of Rights (Cap 383), however, it does not necessarily mean that criminal jurisprudence and procedures apply or apply in the same way in all respects to these proceedings. As Lord Bingham put it in Brown v Stott [2003] 1 AC 681, 704D‑G:

“The jurisprudence of the European Court very clearly establishes that while the overall fairness of a criminal trial cannot be compromised, the constituent rights comprised, whether expressly or implicitly, within article 6 are not themselves absolute. Limited qualification of these rights is acceptable if reasonably directed by national authorities towards a clear and proper public objective and if representing no greater qualification than the situation calls for. The general language of the Convention could have led to the formulation of hard-edged and inflexible statements of principle from which no departure could be sanctioned whatever the background or the circumstances. But this approach has been consistently eschewed by the Court throughout its history. The case law shows that the Court has paid very close attention to the facts of particular cases coming before it, giving effect to factual differences and recognising differences of degree. Ex facto oritur jus. The Court has also recognised the need for a fair balance between the general interest of the community and the personal rights of the individual, the search for which balance has been described as inherent in the whole of the Convention: see Sporrong and Lönnroth v. Sweden (1982) 5 EHRR 35, at para 69; Sheffield and Horsham v. United Kingdom (1998) 27 EHRR, 163, at para 52.”

VI. Class 1 — Any without prejudice correspondence and records of without prejudice communication between the Commission and respondents in relation to the Commission’s Leniency Policy

A. Scope

28. Class 1 concerns what may be described as “leniency documents”. They contain correspondence and records of communications with leniency applicants in relation to the Commission’s leniency policy, but two important qualifications should be noted. The Commission raises no objection to production of (i) any pre‑existing documents which could serve as evidence in these proceedings provided during the course of the leniency process, or (ii) any “successful” communications, ie those where leniency is granted.[5] Subject to this, the Commission objects to production of Class 1 documents on the grounds of both without prejudice privilege and public interest immunity. In particular, it is said that the Commission is concerned to protect the identity of the party who engaged in leniency communications with the Commission. The class is drawn in general terms because, the Commission submits, it is not practicable to identify the origin of the documents without revealing the identity of the person concerned.

B. Leniency Policy

29. Leniency is an important investigative tool found in the competition law and practice of many jurisdictions to combat cartels. Hard‑core cartels are virtually universally condemned by competition authorities as being economically harmful. By their very nature they are also usually difficult to detect, investigate and prove. This has led to the adoption of leniency programmes which are, in essence, schemes designed to reward co‑operation by a cartel member to aid in exposing cartels. A leniency programme operated by an enforcement agency typically offers persons involved in a cartel immunity from fines (or sometimes a reduction) which might otherwise be imposed, in return for cooperation, often in the form of provision of information and evidence. The value of such a programme extends beyond dealing with the immediate case to creating “a general climate of uncertainty among potential cartel members which may inhibit the actual formation of cartels”.[6]

30. In Hong Kong, the Commission’s leniency programme has express statutory foundation. S 80(1) of the Ordinance empowers the Commission to enter into leniency agreements in these terms:

“The Commission may, in exchange for a person’s co‑operation in an investigation or in proceedings under this Ordinance, make an agreement (a “leniency agreement”) with the person, on any terms it considers appropriate, that it will not bring or continue proceedings under Part 6 for a pecuniary penalty in respect of an alleged contravention of a conduct rule against [that person or any employee, officer, agent, partner, as appropriate] in so far as the contravention consists of the conduct specified in the agreement.”

S 80(2) provides that the Commission must not, while a leniency agreement is in force, bring or continue proceedings for a pecuniary penalty in breach of that leniency agreement. Thus the Ordinance expressly contemplates the Commission using leniency as a means of facilitating the performance of one of its principal functions, namely, the investigation of conduct that may contravene the competition rules (s 130(a)).

31. The Commission has promulgated its “Leniency Policy for Undertakings Engaged in Cartel Conduct” (“Leniency Policy”) setting out its approach to leniency, albeit strictly applicable only in relation to leniency agreements with undertakings. As to persons who are not undertakings, it is stated that the Commission “will consider case by case whether it is appropriate to exercise its enforcement discretion towards such persons”.[7]

32. The principal features of the Leniency Policy include the following:

(1) Leniency is available only in respect of cartel conduct contravening the first conduct rule.
(2) Leniency is provided only to the first successful applicant. Potential applicants are ranked in sequence of time by a marker system whereby a potential applicant, upon providing sufficient information, is given a marker which identifies the time and date of the call.
(3) The Commission makes a preliminary determination whether the reported conduct is cartel conduct and whether leniency is available.
(4) If the Commission determines that there is cartel conduct and leniency is available, it will notify the undertaking with the highest ranking marker that it may make an application for leniency.
(5) Before the applicant submits its application, it will be asked to agree to a non‑disclosure agreement with the Commission which provides that the applicant will keep confidential: (a) the fact that it is submitting an application for leniency; and (b) the information provided or to be provided.
(6) The applicant is asked to provide a detailed description of the cartel, the entities involved, the role of the applicant, a timeline of the conduct and the evidence the applicant can provide. This is commonly referred to as a “proffer”. The proffer may be made in hypothetical terms and through a legal representative on a “without prejudice” basis.
(7) After considering the proffer, the Commission may ask the applicant to provide access to some evidence in support of the proffer such as documentary evidence (including pre‑existing documents relating to the cartel) and/or by making available witnesses to be interviewed by the Commission. Information of this kind provided to the Commission during the proffer stage will not be used as evidence in proceedings for a finding of a contravention of the First Conduct Rule against the applicant or any other person.
(8) Based on the proffer and any additional information requested and provided by the applicant, the Commission will determine whether to make an offer to enter into a leniency agreement.
(9) The leniency agreement, according to the template annexed to the Leniency Policy, specifies the parties and their current and former officers or employees against whom the Commission agrees not to bring proceedings and the specific obligations of the parties by way of cooperation. The Commission may use any information or documents provided by the parties under the agreement.

33. Paragraph 5.7 of the Leniency Policy states:

“Subject to paragraph 3.4 above[8] on the use of information by the Commission in Tribunal and other court proceedings and the requirements of Part 8 of the Ordinance to the extent applicable, it is the Commission’s policy not to release Leniency Material[9] (whether or not it is confidential information under section 123 of the Ordinance) and to firmly resist, on public interest or other applicable grounds, requests for Leniency Material, including the fact that leniency has been sought or is being sought, where such requests are made, for example, in connection with private civil proceedings in Hong Kong or in other jurisdictions unless:
(a) it is compelled to make a disclosure by an order of the Tribunal or any other court, by law or any requirement made by or under a law;
(b) it has the consent of the leniency applicant to disclose the material;
(c) the relevant information or document is already in the public domain; or
(d) the Commission, after entering a leniency agreement, has terminated the leniency agreement under section 81 of the Ordinance.”

C. The claim for public interest immunity

34. In support of the claim for public interest immunity, the Commission has filed a certificate made by its Chairperson, Ms Anna Wu (“Chairperson”), which states as follows:

“12. It is … essential that the Leniency Policy gives cartel participants sufficient incentives for them to come forward to the Commission. As part of these incentives, it is key that undertakings which come forward to the Commission to report cartel conduct, ie leniency applicants, are not placed in a worse position than those who have not applied for leniency at all.
13. That would be the case, for example, where the without prejudice records and communications relating to an unsuccessful leniency application are disclosed in proceedings related to the cartel conduct in question. In this respect:
(a) The leniency application will usually involve the leniency applicant engaging in without prejudice discussions with the Commission in order to persuade the Commission that the applicant qualifies for leniency before the Commission will enter into a leniency agreement with the Commission.
(b) In that context, the applicant has probably made an admission in relation to some or all of the conduct in question.
(c) Where the Commission ultimately institutes proceedings in respect of the cartel conduct, the position of the unsuccessful leniency applicant in the proceedings would be unfairly prejudiced compared to other respondent cartel members, should the content of its earlier without prejudice communications with the Commission be revealed to the Tribunal and other respondents. For example, the interests of the other respondents may not be aligned with those of the unsuccessful leniency applicant and might even be diametrically opposed.
(d) A requirement that the Commission disclose and produce without prejudice correspondence and records of without prejudice communications between the Commission and an unsuccessful leniency applicant would unduly dissuade potential leniency applicants in the future because of their knowledge that the contents of such communications may become disclosable if their leniency application is unsuccessful.
……
15. Thus, the effectiveness of this essential tool in the detection, investigation and prosecution of cartel activities would be severely undermined if the fact and content of these leniency discussions were to be held disclosable. This would in turn inhibit and adversely affect the proper functioning of the Commission and the effect investigation and prosecution of the infringements of competition.”

D. Informer privilege

35. At common law, there is a rule of law (not a matter of discretion for the court) that an informer’s identity is privileged from disclosure in criminal or civil proceedings: Marks v Beyfus (1890) 25 QBD 494. This covers not only the informer’s name but any information that singly or in combination might tend to reveal his or her identity. The rule, which may be regarded as a species of public interest immunity, is subject to an exception in a criminal trial where the information is necessary in order to demonstrate the accused’s innocence.

36. SiS has not contended that the privilege does not apply to informers of the Commission; nor do I see in principle why it should not apply. The public interest in protecting informers is as important to an enforcement agency such as the Commission as it is to the police: Australian Securities and Investments Commission v P Dawson Nominees Pty Ltd (2008) 169 FCR 227, §48. S 123(1)(a)(iii) of the Ordinance specifically classifies as confidential information that relates to “the identity of any person who has given information to the Commission”. The privilege was held in an Australian case to be engaged in respect of the identity of persons providing information under the immunity programme of the competition law enforcement authority there (equivalent to the Leniency Policy of the Commission in Hong Kong): Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia SRL [2011] FCA 938, §182.

37. In HKSAR v Agara [2014] 2 HKLRD 648, Stock VP said:

“2. The first point is that the circumstances in which the disclosure of an informer’s identity in a criminal trial may be justified is an exception — indeed the sole exception — to informer privilege. One does not start from the other end, which is to say one does not start from a presumption that unless it be shown that the public interest considerations otherwise demand, a defendant is entitled to that information.
3. This point is evident from a study of the judgment of McLachlin J in R v Leipert to which Yuen JA refers where it was said, at 293, that :
‘Connected as it is to the essential effectiveness of the criminal law, informer privilege is broad in scope … Subject only to the ‘innocence at stake’ exception, the Crown and the court are bound not to reveal the undisclosed informant’s identity.
Informer privilege prevents not only disclosure of the name of the informant, but of any information which might implicitly reveal his or her identity. Courts have acknowledged that the smallest details may be sufficient to reveal identity.
…
… In the case at bar [the judge] noted: ‘The privilege is a hallowed one and it should be respected scrupulously.’
…
In Bisaillon v Keable … this Court held (at p 93):
‘The rule is subject to only one exception, imposed by the need to demonstrate the innocence of an accused person.’” (Emphasis added).”

38. The “innocence at stake” exception (as it has been called) was previously considered to be the only exception to the rule in the UK: D v National Society for the Prevention of Cruelty to Children [1978] AC 171, 218E‑F. This remains the case in Canada: see R v Leipert [1997] 1 SCR 281 and, more recently, R v Durham Regional Crime Stoppers Inc, 2017 SCC 45. Authorities in the last two decades show that, in the UK, further exceptions to the rule are recognised, and that even in a case not falling within the established exceptions, a balancing exercise would still be required between the public interest in the protection of informers and the countervailing interests advanced by the person seeking disclosure.[10]

39. In HKSAR v Agara, Yuen JA noted there might be a difference in approach between the UK and Canada, and adopted the Canadian approach at least for drug cases. Whilst agreeing with Yuen JA, Stock VP emphasised several points as quoted above, evidently basing his decision on the Canadian case of R v Leipert.[11] Derek Pang J agreed with both judgments.[12]

40. Since the Commission has invited this Tribunal to take the balancing approach, it is unnecessary for me to decide whether in the present kind of case, the informer privilege is as a matter of Hong Kong law subject only to the “innocence at stake” exception. I shall deal with the competing interests after canvassing the practice of other jurisdictions.

E. International practice

41. On behalf of SiS, Mr McCoy submitted that the Commission’s stance is “wholly out of step” with the practice in the UK, Australia and the EU. This submission does not seem to me to be wholly accurate. The practice in the UK, where it is the administrative agency which imposes sanctions for anti‑competitive conduct in the first instance subject to appeals to the Competition Appeal Tribunal, may be gleaned from the guidance in Applications for Leniency and No‑Action in Cartel Cases published by the Office of Fair Trading in 2013 (and adopted by the Competition and Markets Authority in 2014). At §7.7, it is stated:

“Disclosure of application statements may be of particular concern to applicants because application statements sometimes disclose certain aspects of the application that the OFT has chosen not to pursue or the applicant’s own analysis of the emerging details of the cartel at the time of the application, and there is therefore a potential risk that any unnecessary disclosures may put leniency applicants at a disadvantage relative to non‑leniency parties. Accordingly, whilst application statements, including transcripts of oral statements, will be placed on the OFT’s file, when assessing the need for disclosure, the OFT will give weight to the strong public interest in encouraging full and frank applications, and notes that non‑disclosure of such material may be in the public interest in order to protect the efficacy of the leniency regime. In practice, this means that the OFT will not ordinarily grant access to the application statement to other recipients of a statement of objections.[13]However, in the event that the application statement contains relevant evidential material that has not been presented in other forms that can be made available as part of access to the file*, it may be necessary to grant access to the application statement, for rights of defence purposes. In such cases, we will keep confidential any parts of the statement that are not relevant to the case in question. …” (emphasis added)

42. The footnote to the text marked with an asterisk above states:

“The OFT expects applicants to provide all primary source material that led to the generation of the application statement that the OFT considers is relevant to its case, so this situation is expected to be exceptional, rather than the norm.”

43. While it is stated in §7.8 of Applications for Leniency and No‑Action in Cartel Cases that:

“Even in the case of an unsuccessful leniency applicant or in the case of a leniency applicant which is not proceeded against or where the leniency application was subsequently withdrawn, it cannot be excluded that disclosure of some or all of the material provided as part of the leniency application, including the identity of the applicant, may have to be disclosed to other parties in the course of access to the file”,

it is fair to infer that this would be the case primarily where, as stated in §7.7 quoted above, the application statement contained relevant evidential material that had not been presented in other forms that could be made available. In the present case, the Commission has not sought to withhold any pre‑existing documents which could serve as evidence in these proceedings, and has further confirmed that Class 1 documents do not contain any relevant evidential material or other material or information that may undermine the Commission’s case against SiS or advance SiS’s case that have not been presented in other forms already disclosed.

44. For the position in Australia, Mr McCoy referred to the decision of Cadbury Schweppes Pty Ltd v Amcor Ltd (2008) 246 ALR 137, [2008] FCA 88. There, following earlier proceedings mounted by the Australian Competition and Consumer Commission (“ACCC”) against a company (Visy) and other entities for colluding with Amcor to fix prices in the cardboard box market, Cadbury brought an action against Amcor for damages under the Trade Practices Act 1974 (Cth). Visy was joined by Amcor as a respondent to Amcor’s cross‑claim in the damages action. The relevant issue was whether certain witness proofs of Amcor employees drafted by ACCC and served on Visy in the earlier proceedings were protected by public interest immunity from being disclosed and produced by Visy and Amcor to Cadbury in the damages action. Gordon J held that they were not. But, with respect, the case does not advance Mr McCoy’s submissions for the following reasons:[14]

(1) Amcor was a successful applicant to the ACCC for leniency (see §29)[15] — disclosure of the communications with Amcor would be consistent with the Commission’s position in the present case that successful leniency communications would be disclosed. Gordon J’s observation (in §30) that “it must be taken for granted that a cartel participant contemplating a confession to the authorities knows, or should know, that his statements will be used by the authorities to prosecute the other party or parties” was made in the context of such an applicant.[16] In contrast, an applicant for immunity or leniency can legitimately be said to have a reasonable expectation that, if his application is unsuccessful, the statements he has made would not be disclosed or used in the proceedings that may well include him as a respondent.
(2) Secondly, Amcor did not seek any confidentiality guarantee in its immunity application, as a result of which the court considered that the force of any public interest immunity claim was vitiated (see §29).
(3) Thirdly, the court observed that the proofs in question were statements by witnesses that Cadbury would be free to approach in order to obtain all relevant information, so that ACCC’s argument boiled down to that Cadbury should not enjoy a “free ride” on ACCC’s work (§§31‑33).
(4) The practice in Australia has since been changed. Shortly after the decision of Gordon J in Cadbury Schweppes Pty Ltd v Amcor Ltd (2008) 246 ALR 137, [2008] FCA 88 and of the Full Court in [2009] FCAFC 32, legislative amendments were introduced via the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009. The Explanatory Memorandum to the Bill stated the context as follows:
“7.2 The ACCC has expressed concerns that its ability to obtain confidential information regarding cartel conduct has been significantly hindered by concerns that it may be required to disclose that information to third parties in certain circumstances.
7.3 The ability of the ACCC to obtain confidential information from informants is of particular importance to the detection of cartel conduct. Cartel conduct by its nature is often engaged in covertly. As a result, information from cartel participants or those closely connected to a cartel participant is often required to reveal the conduct.
7.4 However, given the relationship of such informants to the cartel, they may be discouraged from providing the relevant information if concerns or uncertainty exist as to the circumstances in which the information may be disclosed to others.
For example, if appropriate protection was not afforded informants may be reluctant to cooperate with the ACCC due to concerns such as reprisals or liability to third parties.
7.5 For the TP Act to meet its objectives it is essential that the ACCC is able to obtain the information necessary to effectively enforce it. If the protection provided to confidential cartel information is not clarified, the ACCC’s ability to obtain the information necessary to enforce the cartel provisions of the TP Act may be frustrated.”
(5) Consequently, a new provision, s 157B, was inserted into the statute, which provided that the ACCC is not to be required to disclose “protected cartel information”[17] to a court or tribunal except with leave of the court or tribunal. In exercising this power, the court or tribunal must have regard to a number of specified matters, namely:
“(a) the fact that the protected cartel information was given to the Commission in confidence;
(b) Australia’s relations with other countries;
(c) the need to avoid disruption to national and international efforts relating to law enforcement, criminal intelligence and criminal investigation;
(d) in a case where the protected cartel information was given by an informant:
(i) the protection or safety of the informant or of persons associated with the informant; and
(ii) the fact that the production of a document containing protected cartel information, or the disclosure of protected cartel information, may discourage informants from giving protected cartel information in the future;
(e) in the case of a court — the interests of the administration of justice;
(f) in the case of a tribunal — the interests of securing the effective performance of the tribunal’s functions.”

45. Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia SRL [2011] FCA 938, on which Mr McCoy also placed reliance, was likewise a case where disclosure was ordered in relation to the identity of a person to whom immunity had been granted (see §34), and therefore takes the matter no further.

46. The Commission of the EU also treats leniency material in a special way. Parties to whom a statement of objections has been addressed may have one‑time access to corporate leniency statements in the files of the Commission (the primary decision‑maker as to liability and level of fine) provided they shall not make any copy by mechanical or electric means of any information,[18] while there is an absolute ban on the disclosure of leniency statements for the purposes of follow‑on damages claims. At the level of the individual member states of the EU, however, different practices exist as regards access to the file.[19]

47. It can be seen from this brief review that while practices vary significantly across different jurisdictions, they all regard the adverse deterrent effects unimpeded disclosure may have on informants to be sufficiently harmful to the public interest to be singled out as potential justification for non‑disclosure or restricted disclosure. In comparison, the approach adopted by the Commission is in my view by no means markedly less favourable to respondents to enforcement actions. In fact, Mr Mok submitted that the approach of the UK Competition and Markets Authority described above is in substance the same as the Commission’s approach and should be adopted.

F. Balancing the relevant considerations

48. It is in my view plain that public interest considerations are engaged. In deciding whether or not to order discovery, the Tribunal needs to take account of the need to secure the furtherance of the purposes of the Ordinance as a whole (r 24(3)(a) of CTR). As the long title to the Ordinance states, one of its purposes is “to prohibit conduct that prevents, restricts or distorts competition in Hong Kong”. The Commission’s Leniency Policy is ultimately devised and operated to further that purpose in the public interest, with express statutory support in s 80.

49. There is in my opinion a strong public interest in encouraging eligible parties to apply for leniency and in facilitating free and frank communication during the process. The process is rightly treated with strict confidence, although I recognise this is by no means a complete answer to disclosure because any assurance of confidentiality by the Commission has to be subject to its disclosure obligations in legal proceedings and to any order for disclosure that may be made by the Tribunal.

50. While a person can perhaps reasonably be held to expect that if his leniency application is successful, the statements made by him will be disclosed and used vis-à-vis third parties, it seems to me that the distinction drawn in relation to unsuccessful leniency communications has a sound logical basis. The position of a party who has unsuccessfully applied for leniency would be undermined if the without prejudice communications were disclosed to the other respondents. By definition, the person has failed to obtain immunity, and is as such likely to be among the respondents proceeded against by the Commission. It can be a real concern for an informant that if his leniency application is unsuccessful, information disclosed by him including admissions made by him can be used, whether or not directly or indirectly against him, by other respondents. As the Chairperson stated in her certificate, he would be placed in a worse position than those who had not applied for leniency in the first place. Informants would be deterred from coming forward or from being full and frank in the information furnished to the Commission during the application process, and this would plainly be harmful to the public interest.

51. The agreed confidentiality protocol in the present case, using a “confidentiality ring”, does not seem to me to afford adequate protection to the unsuccessful applicant. For example, the ring encompasses in‑house representatives including SiS’s financial controller. More importantly, the prejudice to the unsuccessful applicant is in the information being disclosed to other respondents and used by them in the proceedings, and that would not be mitigated in any way by a confidentiality protocol.

52. Even in the UK where informer privilege may be overcome after a balancing exercise (and not only under the “innocence at stake” exception), it is recognised that informer privilege remains a “general rule” and “very considerable weight” should be accorded to the public interest in the protection of informers: Commissioner of Police for the Metropolis v Bangs [2014] EWHC 546 (Admin), §45, per Beatson LJ.

53. On the other hand, there is the public interest that proceedings before the Tribunal should be determined on the basis of all information available, or to put it slightly differently, the interest that SiS should have all relevant material to mount its defence. This in my view applies with particular force to an enforcement action seeking pecuniary penalties. Having said that, it is relevant to note that in the present case:

(1) All pre‑existing documents gathered in the leniency process that could serve as evidence in these proceedings have been disclosed.
(2) Further, the Commission has reviewed the documents and confirmed that none of the documents falling with Class 1 contain any relevant evidential material or other material or information that may undermine the Commission’s case against SiS or advance SiS’s case that have not been presented in other forms already disclosed.
(3) Whatever the correct characterisation of this enforcement action may be (be it criminal, quasi‑criminal or civil), it is ultimately not proceedings in which the respondents’ or anyone’s liberty is at stake: see Chief Constable of the Greater Manchester Police v McNally [2002] Crim LR 832, §23; Bangs, supra, at §45.
(4) While I appreciate that SiS has not seen the documents, it has not attempted to show that this class of documents is required for the purposes of demonstrating that it was innocent of any breach of the first conduct rule. This is not a case in which the respondents are running a “cut‑throat” defence. In fact, Mr McCoy has not sought to demonstrate how any material prejudicial to others would be likely to be of assistance to SiS’s defence. All that is being said is that the Commission has to disclose them to SiS as part of the “unused materials”.
(5) It seems to me that the right of SiS to defend itself would not be significantly impaired by non‑disclosure of this class of documents.

54. On balance, I am of the view that the public interest in non‑disclosure outweighs any contrary interest in disclosure.

G. Without prejudice privilege

55. The Commission also relies on without prejudice privilege in resisting production of Class 1 documents. The justification usually cited for this privilege is the public policy explained in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, 1299, per Lord Griffiths:

“The ‘without prejudice’ rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish. It is nowhere more clearly expressed than in the judgment of Oliver L.J. in Cutts v. Head [1984] Ch. 290, 306:
‘That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings. They should, as it was expressed by Clauson J. in Scott Paper Co. v. Drayton Paper Works Ltd. (1927) 44 R.P.C. 151, 156, be encouraged fully and frankly to put their cards on the table … The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of negotiations for settlement being brought before the court of trial as admissions on the question of liability.’
The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence.”

56. The rationale of the rule is not only to prevent the use of admissions, but that “parties and their representatives who are trying to settle a dispute should be able to negotiate openly, without having to worry that what they say may be used against them subsequently, whether in their current dispute or in some different situation”: per Lord Rodger in Ofulue v Bossert [2009] 1 AC 990 at §43. The public policy protects negotiations from disclosure “whilst liability is still in issue”: Cutts v Head [1984] Ch 290, 310. This protection continues so long as the dispute remains unresolved one way or another for there was a risk that things said in negotiations might be used against the parties; the precise way in which they might be used against them is beside the point: per Lord Hope in Ofulue at §9.[20]

57. The rule is “generous in its application. It recognizes that unseen dangers may lurk behind things said or written during this period, and it removes the inhibiting effect that this may have in the interests of promoting attempts to achieve a settlement”: Ofulue at §12. To dissect out identifiable admissions and withhold protection from the rest would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties so that they could speak freely about all issues in the litigation when seeking compromise: Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436, 2448‑9.

58. These judicial statements were uttered in the context of private civil litigation. While the actions that may be taken by the Commission for infringement of competition rules are not ordinary civil actions between private parties, there is in my view an at least equally strong public interest in facilitating the kind of cooperation and settlement envisaged in the Leniency Policy (as well as other forms of cooperation and settlement referred to below in relation to Class 5). Such arrangements enable the Commission to carry out its investigations more efficiently, save the public time and costs, and (especially in the case of settlement) give early redress to any harmful conduct, thereby benefitting society as a whole.

59. In Property Alliance Group Ltd v Royal Bank of Scotland plc [2016] 1 WLR 361, where the bank had previously negotiated with the (UK) Financial Services Authority in relation to alleged manipulation of Libor which resulted in a financial penalty being imposed, it was held that a privilege had arisen in respect of the communications between the bank and the authority by analogy with the without prejudice rule, which could in principle be asserted against a third party who sought disclosure of the documents in a subsequent civil suit against the bank (see §99). Similarly, I see no reason in principle why without prejudice privilege cannot apply to the negotiations between the Commission and persons subject to investigation or proceedings even though the context lies outside litigation of private rights.

60. Without prejudice privilege does not only mean the information cannot be used as evidence against a party but generally permits privileged documents to be withheld from third parties in litigation connected with the same subject matter: see Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, 1301.

61. Mr McCoy submitted that such negotiations between the Commission and a third party on potential cooperation or settlement, even where they have not resulted in any agreement, should be disclosed to SiS, even though they remain “without prejudice” to the third party concerned and therefore, for instance, could not be used by the Commission in any enforcement proceedings against him. I view this submission with some alarm because, if accepted, it would mean that no one could safely negotiate with the Commission on a without prejudice basis with any confidence that the communications would remain confidential between them at least unless and until an agreement is reached. On that submission, as soon as an enforcement action has begun, the Commission would have to disclose to the respondents all these communications. The line between using the information against the negotiating party and allowing other parties to make use of it for their own purposes is too fine to offer any comfort.

62. In this connection it is to be noted that in September 2017, when another respondent herein applied for an order to expunge from the affidavits and the Commission’s list of documents references to certain without prejudice communications, and for a consequential order that the other respondents deliver up copies of the documents, SiS did not object on the ground that without prejudice privilege did not justify withholding the documents from the other respondents or on any other ground.

63. Relying on R vK(A) [2010] QB 343, Mr McCoy made a sweeping submission that without prejudice privilege simply does not apply in proceedings such as these as against respondents that are not party to the negotiations. In R v K(A), the relevant issue was whether statements made by a person in a without prejudice meeting with his wife’s lawyers relating to ancillary relief, which tended to show he had failed to account for tax, were admissible as evidence in his subsequent prosecution for cheating the public revenue. The English Court of Appeal held that they were. For the reasons below, however, I do not consider the decision to be authority for Mr McCoy’s wide proposition:

(1) R vK(A) did not concern a contest for disclosure and production of the materials, but rather their admissibility in circumstances where they had already fallen into the hands of a third party, i.e. the Crown — this was emphasized in the judgment (see pp 365G, 367C, 368B, 368G, 369B‑C). In referring to R v Derby Magistrates’ Court, ex parte B [1996] AC 487, the court specifically noted that legal professional privilege (the subject matter of Derby Magistrates’ Court) was concerned with disclosure and not with admissibility (see §69). This could also be seen from the reliance placed on R v Tompkins (1977) 67 Cr App R 181 (and also R v Cottrill [1997] Crim LR 56) which held that although the defendant could have refused to disclose a privileged note, it was admissible in evidence once it had fallen into the hands of the prosecution (see §§70, 71).
(2) The charge prosecuted in R v K(A) was wholly unconnected with the without prejudice negotiations. On that basis, and noting that “the public interest in preserving confidentiality becomes weaker the more remote the subject matter of those proceedings becomes from the subject of the original negotiations” (see §72, p 369D), the Court held that the public interest in prosecuting crime outweighed the public interest in the settlement of disputes. Here, in contrast, the without prejudice negotiations were conducted by the Commission in connection with the very proceedings as those involving SiS in which disclosure is being sought.
(3) These proceedings do not concern the prosecution of a traditional hard‑core criminal offence. Even if they involve the determination of a criminal charge within the meaning of Article 11 of the Hong Kong Bill of Rights, this does not mean that they are to be equated for all purposes with criminal proceedings. See also §27 above.
(4) In any event, R v K(A) only decided that without prejudice statements in negotiations connected with prior civil proceedings could (once they had found their way into the prosecution’s hands) be adduced in evidence by the prosecution against the maker of the statements. It did not decide that the prosecution was obliged to disclose without prejudice negotiations with one defendant to a co‑defendant where no settlement had resulted. Specifically, it did not decide that documents covered by the kind of privilege held in Property Alliance Group Ltd v Royal Bank of Scotland plc to subsist in the negotiations between a person and a regulatory authority, could be disclosed by the authority and used by other respondents in the very proceedings which those negotiations unsuccessfully sought to avoid.
(5) Accordingly R v K(A) does not seem to me to provide the answer to the question at hand at all. Of greater relevance in my view are three Canadian authorities not cited by counsel. In R v Bernardo [1994] OJ No 1718 (10 May 1994), LeSage J of the Ontario Court (General Division) said (at §16):
“I agree … that there should be a recognised privilege surrounding plea discussions vis‑à‑vis the accused and the Crown. There are many reasons in the nature of public policy that would suggest that such a privilege does exist or ought to exist in order to encourage Crown and defence to have full, frank and private negotiations in criminal cases. … I am of the view that the public interest is well served by encouraging such frank and full discussions between counsel for the accused and counsel for the Crown. The saving to the public and the resulting benefit to the administration of justice in resolving cases that ought to be resolved is substantial. …”
These considerations mirror those canvassed in the context of the question of public interest immunity above.
(6) Mr McCoy was not able to cite any case in which failed plea negotiations between the prosecution and one defendant were required to be disclosed to a co‑defendant. The case of R v Sayers and Elanik 2003 NWTSC 58 is authority to the contrary. There Sayers had entered into plea negotiations with the Crown which resulted in an agreed statement of facts being prepared, but eventually he did not plead guilty. Elanik, who was jointly charged and to be jointly tried with Sayers for second degree murder, sought disclosure of the agreed statement of facts. Schuler J of the Supreme Court of Northwest Territories rejected the application, holding that Sayers was still an accused and very much at risk of prejudice. The line advocated on behalf of Elanik, between using the information for her own case and using the information against Sayers in their joint trial, was “so fine as to be non‑existent”. Any agreed statement of facts and other information provided to the Crown in the course of the plea bargaining on Sayers’ behalf was privileged and the privilege was a reasonable limitation on Elanik’s Charter right to make full answer and defence.
(7) R v Sayers and Elanik may be contrasted with R v Nestlé Canada Inc 2015 ONSC 810, where two companies, Cadbury and Hershey, sought to prevent information they had provided to the Competition Bureau of Canada under its immunity and leniency programmes (during the “proffer” stage) from being disclosed by the Crown to persons who were subsequently indicted and facing trial for price fixing contrary to the Competition Act. Nordheimer J of the Ontario Supreme Court held that settlement privilege[21] (the Canadian equivalent of without prejudice privilege) did not apply to prohibit disclosure to the accused of the information in question to the extent it was factual information. As I read the decision, a critical fact was that Cadbury had been granted immunity and Hershey had received leniency treatment and pleaded guilty, so that neither of them was facing any criminal proceedings (or, indeed, any civil proceedings), nor could they point to any prejudice that would be occasioned to them from the disclosure sought: see §§11, 15‑16, 64, 69. The judge relied on R v Bernardo, supra, in which Lesage J held that the privilege surrounding the plea negotiations between the Crown and Homolka (an accomplice of Bernardo) did not prevent disclosure of the materials to Bernardo because the negotiations had resulted in a plea and Homolka was no longer at risk of prejudice and was instead being called as a witness for the Crown in the trial of Bernardo (see §§16‑17).
(8) These Canadian authorities fortify my view that privilege exists in relation to leniency and settlement negotiations between the Commission and a potential target of investigation or enforcement at least where they have not resulted in a successful settlement.

64. Mr McCoy further referred to Davies and Davies v Nyland and O’Neil (1975) 10 SASR 76, but the relevant passages seem to me, with respect, to support no more than the proposition that statements made during a discussion for compromise that constituted one or more of the ingredients of the tort of interference with contract may be admitted in evidence (see pp 88‑91, per Wells J at first instance). As such the statements may well fall within a recognized exception to the without prejudice rule, namely, where the privilege is a cloak for wrongdoing. The authority does not assist SiS in the present case. The same may be said of the cases cited by Mr McCoy in the same vein including New Zealand Institute of Chartered Accountants v Clarke [2009] 3 NZLR 264, §46; Jung v Templeton (HC Auckland CIV‑2007‑404‑5383, 30 September 2009), §36; and Pisimi v Kari [2011] PGNC 52, §22.

65. For the above reasons, the Commission is in my view also entitled to withhold from SiS all Class 1 documents on the ground of without prejudice privilege or a privilege akin to it as applied to these proceedings.

VII. Class 3 — The Complainant’s original electronic complaint form which was submitted to the Commission on 21 July 2016

66. The Commission objects to production of this document on the ground of public interest immunity. The Chairperson’s certificate filed for this purpose stated that the vast majority of the Commission’s current investigations were commenced by way of complaints lodged by members of the public or companies based in Hong Kong, and that it is important that complainants not be discouraged from reporting to the Commission potential anti‑competitive conduct which merits investigation. It is said that some complainants would be reluctant to lodge a complaint if the contents of their originating complaint (including their identity and contact details) would be made known to the subject of the complaint, and that disclosure of such information might expose the complainant to the risk of retaliatory or punitive measures and unnecessary harm. This concern is reflected in the Commission’s Guideline on Complaints issued under s 38 of the Ordinance, where it is stated that the Commission “will not normally disclose the Complainant’s identity, without the Complainant’s consent”.

67. Having regard to the discussion above in relation to Class 1 documents, I accept that normally the complaint form, which contains the complainant’s name and other details that might tend to reveal his identity, would not only be confidential but also covered by informer privilege.

68. The Complainant’s identity in this case was, however, revealed by the Commission of its own motion in the Originating Notice of Application.[22] The fact that it made a complaint was deployed as part of the Commission’s case (since the knowledge of the complainant is a relevant issue in this case). Having regard to the statement in the Commission’s Guideline on Complaints set out above, it can be inferred that this was done with the consent of the Complainant. While the Complainant’s identity has been redacted in the public version of the document, this does not alter the fact that it has from the start been known to the respondents and “pleaded” as part of the Commission’s case.

69. Mr Mok submitted that even though the identity of the complainant had been disclosed, the identity of the individual who signed the complaint form has not yet been disclosed. But there is nothing to suggest that the Complainant consented to the disclosure of its identity on condition that the signer’s identity be concealed. The Commission has also disclosed documents recording information provided by the Complainant shortly after the submission of the initial complaint. It seems to me that in these circumstances there is little left in the rationale for the complaint form to be withheld. Further, as I understand the position, the key individuals within the Complainant involved in the tender will be giving evidence at the substantive hearing of the proceedings. The complaint form may well constitute a prior statement on which they can be cross‑examined.

70. For this reason, there is in my view no further interest to protect that requires the complaint form to be withheld from SiS. Relevance is not denied and the document should therefore be made available within the confidentiality ring.

VIII. Class 5 — All without prejudice correspondence and records of without prejudice communications between the Commission and any Respondent where an agreement has not been reached

71. The following points should be highlighted as regards the scope of this class:

(1) Class 5 differs from Class 1 in that:
(a) Class 5 (referring to “Respondent”) is limited to communications with the 5 respondents in these proceedings (though SiS obviously only seeks the Commission’s communications with the other 4 respondents).
(b) Class 5 applies to without prejudice communications that do not fall under the Leniency Policy, and thus covers communications with regard to other forms of cooperation or settlement agreement with the Commission where the respondent did not qualify under the Leniency Policy or it was otherwise inapplicable.
(2) Further, as in the case of Class 1 (see §28 above), the Commission’s objection:
(a) does not extend to any pre‑existing documents which could serve as evidence in these proceedings provided during the without prejudice communications; and
(b) covers only unsuccessful without prejudice communications. Thus the Commission has disclosed the communications with Mr D which led to the conclusion of a cooperation agreement.

72. These other forms of cooperation or settlement agreement with the Commission may take different forms, as can be seen from the Commission’s Enforcement Policy, §§4.1‑4.5:

“4.1 Persons may wish, at any time, to cooperate with the Commission in its investigations. The Commission will take such cooperation into account in considering the proportionate enforcement response in relation to that person.
4.2 Persons may also wish to approach the Commission to seek to settle a matter. Approaches to the Commission to discuss settlement may be made on a “without prejudice” basis.
4.3 The Commission will rely on its general enforcement discretion to consider offers of settlement. Settlement may take various forms, such as:
(a) the Commission agreeing not to take action against individuals who wish to provide assistance to the Commission in their personal capacity in return for their cooperation;
(b) the person entering a commitment with the Commission not to engage in anti‑competitive conduct again, and/or to offer appropriate redress to parties affected by the conduct; or
(c) the person agreeing to resolve Tribunal proceedings on a consent basis through a statement of agreed facts and by seeking specific orders.
4.4 If the Commission decides to apply for a penalty or other order before the Tribunal, settlement may, to the extent permitted by law, involve the Commission agreeing to make submissions for a reduced penalty and/or other appropriate orders by the Tribunal having regard to the timing, nature, value and extent of cooperation provided.
4.5 Where cooperation relates to cartel conduct, the Commission will exercise this discretion mindful of the Commission’s Leniency Policy for Undertakings Engaged in Cartel Conduct.”

73. I should mention that the mechanism of “commitment” mentioned in §4.3(b) has express statutory basis in s 60 of the Ordinance, and that the resolution of proceedings on a consensual basis through a statement of agreed facts, referred to in §4.3(c), appears to be within the scope of CTR r 39.

74. In the present case, since the commencement of investigation, the Commission has engaged in without prejudice correspondence and communications with certain respondents with a view to resolving the Commission’s concerns in respect of those parties or entering into an agreement for cooperation in exchange for favourable treatment. The Commission objects to production of these communications on the grounds of public interest immunity and without prejudice privilege. It may be that informer privilege does not apply to this class of documents. It is, however, unnecessary to consider the wider question of public interest immunity for I find that, for the reasons set out in connection with Class 1 above, Class 5 documents may be withheld from SiS on the ground of without prejudice privilege or a privilege akin to it applicable in these proceedings. In any event, as SiS accepted, it is very unlikely that without prejudice communications regarding matters other than ultimately liability, eg agreeing procedural matters or interlocutory steps, would be relevant.

IX. Class 6 — All confidential internal reports, minutes and correspondence relating to the Commission’s investigation and present proceedings. This includes any records of communication between Commission staff during the execution of search warrants under s 48 of the Competition Ordinance

75. The Commission objects to production on the ground that this class of documents are irrelevant. As a fall‑back position, the Commission submits that the documents are covered by public interest immunity as a class and also asserts legal professional privilege over documents brought into existence for the dominant purpose of obtaining or providing legal advice.

A. Relevance

76. On behalf of the Commission Mr Mok submitted that Class 6 documents fall outside even the generous ambit of disclosure as explained in HKSAR v Lee Ming Tee, supra, and SFC v Wong Yuen Yee, supra. It is to be noted that in Lee Ming Tee, Sir Anthony Mason NPJ said (at §§148, 161), after referring to the judgment of Lord Hope in R v Brown (Winston) [1998] AC 367, 377D, that the duty of disclosure related to materials “gathered by the investigating agency”. In the seminal case of R v Ward [1993] 2 All ER 577, 601j, the English Court of Appeal also referred in this context to “all the material evidence which the prosecution have gathered”. In Wong Yuen Yee, the Court also stated (at §82) that the required disclosure “should ordinarily include the information and documents [the SFC] has obtained from the investigation of the transactions that are eventually relied upon and complained of”.

77. Mr Mok submitted that internal documents generated within the Commission do not constitute materials gathered or obtained by it in the investigation. I think that would generally be the case. This is perhaps why the Prosecution Code published by the Department of Justice of Hong Kong states (at §12.6): “Internal records and materials generated by the prosecution in the preparation of the case may not be disclosable” (italics added). Likewise, the practice of the European Commission, as stated in Commission Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54 and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004, is that:

“Internal documents can be neither incriminating nor exculpatory. They do not constitute part of the evidence on which the Commission can rely in its assessment of a case. Thus, the parties will not be granted access to internal documents in the Commission file. Given their lack of evidential value, this restriction on access to internal documents does not prejudice the proper exercise of the parties' right of defence.” (footnotes omitted)

Examples of internal documents given in the footnote are

“drafts, opinions, memos or notes from the Commission departments or other public authorities concerned”.

78. The same approach is adopted by the Competition and Markets Authority of the UK, allowing the authority to exclude “internal documents” from access by a relevant party: see rule 6(2) of the Competition Act 1998 (Competition and Markets Authority’s Rules) Order 2014 (SI 2014/458).[23]

79. Mr McCoy’s riposte to this is that the list of documents as ordered by the Tribunal should only contain relevant documents. If documents are irrelevant, they should not have been included in the list in the first place. It is difficult to fault this logic, but the history of the matter shows that Class 6 was added by way of a supplemental list in order, inter alia, to assert public interest immunity over internal documents, in response to challenges in correspondence raised on behalf of SiS and Innovix. Mr Mok submitted that public interest immunity was the fall‑back position of the Commission in the event the documents were not held to be irrelevant. Accordingly I do not think the Commission is precluded from contending that the documents are irrelevant, although this has led to difficulties in assessing the immunity claim as I shall explain below.

80. There is undoubtedly reason to believe that the vast majority of the documents within Class 6 are irrelevant and not necessary for the fair disposal of the proceedings. The opinions and assessments of the Commission’s members and staff are neither evidence nor material that will assist any party in any relevant sense, as is accepted by SiS. Nor will communications of an administrative nature generally be relevant. One can readily see that internal reports, Commission’s minutes, internal comments, analyses, assessments and the like, so long as the primary materials on which they are based are disclosed, are unlikely to be relevant. Their disclosure would be quite unnecessary for the fair disposal of the proceedings.

81. But it does not follow that a document is necessarily irrelevant simply because it is an internal communication within the Commission. An internal document containing information gathered during the investigation which is not otherwise recorded and disclosed may for that reason be a relevant document. A hypothetical example was raised during argument: supposing an officer of the Commission, after speaking on the telephone to a person approached for information or evidence, did not create a separate note of the conversation but instead recorded what he was told in an email to a colleague, that email, albeit internal, would contain a record (not found elsewhere) of information gathered in the investigation. Mr Mok was driven to accept that the email would be disclosable. Whether such documents in fact exist is not known, but there were in the present case external communications of which no note has been produced (see, for example, §108 below).

82. The Commission said that there are at least 7,325 internal emails alone that were generated during the investigation, not all of which apparently had been inspected by the Commission for relevance or sensitivity. If one seeks to focus on those that may possibly contain external information not otherwise disclosed, I do not think the task would be oppressive. In future, the Commission can adopt practices to minimise the possibility that its internal documents become relevant and potentially disclosable.

83. It follows that I am unable to accept that a document must be irrelevant merely because it originated and was destined within the Commission and was not produced for the purposes of disclosure outside the Commission. The Commission should in my opinion review its position to see whether on the basis explained above there are any Class 6 documents that are relevant and prima facie lie within its duty of disclosure.

B. Legal professional privilege

84. Within Class 6 the Commission invokes legal professional privilege for “internal confidential documents which were produced or brought into existence with the dominant purpose that they or their contents be used to obtain or provide legal advice from the Commission’s in‑house lawyers”.

85. There is no dispute of principle here. SiS accepts that the Commission is entitled to claim legal advice privilege over the entire continuum of communications, provided that the documents in question are actually connected with the seeking of legal advice from a qualified lawyer, whether external or in‑house, acting in a legal professional capacity: see Super Worth International Ltd v Commissioner of the Independent Commission Against Corruption [2016] 1 HKLRD 281, §63; Balabel v Air India [1988] Ch 317, 330.

C. Public interest immunity

86. The law recognises that an immunity may arise where disclosure of a document is injurious to the public interest. To assess a claim for immunity the court has to examine closely, inter alia, the potential damage to the public interest that, it is said, would result from disclosure. The initial affidavit of the Commission verifying the supplemental list of documents claimed public interest immunity over Class 6 en bloc based on the need for the Commission’s staff to freely communicate with each other and because the effectiveness of the Commission’s operations may be prejudiced if its internal reports, correspondence and minutes are disclosed. That approach seems to me far too general. I am unable to accept the sweeping proposition that every internal communication is privileged on such general grounds.

87. The Chairperson’s certificate subsequently filed divided the internal documents generally generated by the Commission into 5 sub‑categories but several of these sub‑categories are still widely defined. Moreover, since the question of public interest immunity only arises if a document is relevant and is necessary for the fair disposal of the proceedings, and a balancing exercise may be involved, it has been difficult to assess the claim for immunity in any final manner because it is at present not clear precisely which documents might be relevant and at least what kind of relevant information they might contain. Doing the best I can in the circumstances, I shall deal with the 5 sub‑categories in turn stating my views to the extent appropriate.

(i) Records of internal communications between Commission staff during the execution of search warrants issued under s 48 of the Ordinance

88. It appears that this class of documents relate solely to the execution of search warrants. It is not easy to see how they would contain anything relevant or necessary for the fair disposal of the proceedings. It is not in dispute that the affirmations made in support of the application for search warrants are covered by public interest immunity (Class 2 above).[24] It seems to me that if and to the extent these internal communications tend to reveal the Commission’s sources of information or its plans, methods, procedures and tactics in investigation, then they likewise should be privileged because their disclosure would be prejudicial to the discharge of the Commission’s functions in future. There seems to me to be little basis, however, to hold that all internal communications during the execution of search warrants would, as a widely defined class that may comprise communications of all sorts, meet that condition.

(ii) Preliminary and preparatory working drafts of witness statements of informants, complainants and/or persons under investigation generated internally by staff of the Commission

89. The Chairperson has explained that, after Commission staff has conducted an interview with an informant, complainant or person under investigation and before the information gathered is reduced to a finalised witness statement, initial or working drafts of some form of a statement would normally be prepared by the staff responsible for the questioning. These initial drafts represent an interpretation of the information provided in the interview only and will by nature be incomplete, not yet fit or approved for external review, and may not have been cross‑checked for accuracy. Often such drafts will be prepared by junior staff, with the intention that they would be reviewed by a supervisor prior to being finalised. It was said that disclosure of such drafts might lead to inaccurate representations of fact or evidence and misinformed challenges, unnecessarily require staff to perfect what are merely intended to be working drafts and thereby prejudice the Commission’s overall investigation process.

90. I doubt if these feared consequences are sufficient to constitute substantial harm or real damage to the public interest so as to attract public interest immunity. It may be that the real objection to disclosure of purely internal drafts not communicated to the maker of the statement in question, is that such internal works‑in‑progress, varying in content from time to time as the relevant staff works on it, are irrelevant and not necessary for the fair disposal of the proceedings. In the absence of anything more, however, I do not think a case for public interest immunity has been made out for such drafts.

(iii) Internal preparatory and briefing notes prepared by Commission staff for the purpose of conducting interviews or executing warrants under s 48 of the Ordinance

91. The Chairperson explained that, in practice, prior to questioning persons under investigation or executing a search warrant, Commission staff would generate (for their own use) preparatory notes for the relevant meeting, interview or operation. Briefing notes may thereafter be prepared for use by other staff participating in the investigation of the case to expedite their grasp of the facts, suggest potential lines of questioning, or advise on operation tactics. Such records are of an informal and incomplete nature, created for the use of staff in discharge of their duties.

92. It is said that if such records are disclosable, there is a very real risk that the staff responsible for the investigation would be inhibited from expressing themselves in a clear, frank and forthright manner when reporting their views, opinions, suspicions and recommendations. This would prejudice the proper conduct and management of the Commission’s investigatory work. The disclosure of the manner and methods by which the Commission carries out its gathering of evidence, including for example interview or operation tactics, would enable persons to develop counter‑measures to thwart the Commission’s investigations.

93. To the extent this sub‑class concerns the execution of search warrants and the documents in it might reveal the investigation methods, procedures and tactics of the Commission, I consider that, for the reason referred to in §88 above in relation to sub‑class (i), such documents should also be covered by immunity.

94. Other internal preparatory and briefing notes, however, have not traditionally been treated as covered by public interest immunity as a class. Nor do I think that the considerations put forward in the certificate are sufficient to justify conferring protection on all such documents irrespective of contents, many of which would not be of a sensitive character at all. Nevertheless it seems to me these documents may well generally fall outside the duty of disclosure, though not because of public interest immunity, but because they are not materials gathered in the investigation nor are they otherwise relevant. Preparatory and briefing notes record the planning, subjective understanding, appraisal of the materials and proposed strategies of the Commission’s staff, not what the interviewees say. They are prepared before the relevant operation, not as a record of it afterwards. They are for the staff’s own use, not shown to the interviewees for confirmation or otherwise.

(iv) Records of internal communications, recommendations, approvals, meetings and the relay of information generally, as between Commission staff and Commission Members, for the purpose of the performance of the Commission’s investigative and enforcement functions

95. The Commission consists of up to 16 members one of whom is the Chairperson.[25] It is the Commission that decides, in meetings or by written resolutions, how to discharge its statutory functions and exercise its powers including the bringing of applications before the Tribunal. The Commission has to rely on its staff to conduct investigations and produce reports, recommendations, updates and other communications for the Commission members to keep them apprised of the progress of particular cases and to seek their approval for particular steps.

96. Although this category covers communications both ways, it seems unlikely that there would be anything relevant in the approvals, instructions or decisions relayed by the Commission to its staff. The focus is, I believe, on the communications from the staff to members of the Commission. Even then I think the category is drafted too widely: “internal communications” and “the relay of information generally” may include administrative matters such as notices to Commission members of the date of a forthcoming meeting, which cannot possibly be relevant or attract public interest immunity in the present context.

97. It seems to me that the category of documents answering this description which may possibly be privileged is much narrower, and may consist, for example, of some of the substantive reports made by the staff to the Commission members for their decision and the Commission’s minutes. We are concerned only with these internal documents themselves, as opposed to their annexes which may include primary documents generated such as statements and notes or records of interview or materials gathered such as pre‑existing documents seized or otherwise obtained during the investigation. As I understand the position, such primary or pre‑existing documents have already been disclosed by the Commission.

98. In the context of such reports and minutes, there is in my view much force in the Chairperson’s statement that disclosure could reveal highly sensitive and confidential information, for example in relation to the Commission staff’s appraisal of the case, the Commission members’ internal deliberations and the Commission’s approval mechanisms generally, and that it would prejudice the Commission’s effectiveness in its future operations by stifling proper and robust analysis and debate by Commission members and staff due to disclosure concerns. Taylor v Anderton (Police Complaints Authority Intervening) [1995] 1 WLR 447 and O’Sullivan v Commissioner of Police of the Metropolis (The Times, 15 June 1995), both decided after the seminal decision of the House of Lords in R v Chief Constable of West Midlands Police, ex parte Wiley [1995] 1 AC 274, are authorities for the view that reports of such nature may properly be said to belong to a class to which public interest immunity attaches.

99. Taylor concerned reports prepared by investigating officers during investigations into police conduct pursuant to the (UK) Police and Criminal Evidence Act 1984 for use of the police authority which commissioned it and the Police Complaints Authority. In Taylor, Sir Thomas Bingham MR stated (at p 465E‑H):

“I am fully alive to the existence of a current of opinion strongly flowing in favour of openness and disclosure. I am also, however, mindful of the fundamental public interest in ensuring that those responsible for maintaining law and order are themselves uncorrupt, law‑abiding, honest and responsible. I do not myself find the points made by Mr. Cartwright in his affidavit to be unconvincing, unrealistic or suggestive of self‑interested special pleading. In very many cases where an investigating officer is appointed, there must be a real prospect of civil, criminal or disciplinary proceedings. I have no difficulty in accepting the need for investigating officers to feel free to report on professional colleagues or members of the public without the apprehension that their opinions may become known to such persons. I can readily accept that the prospect of disclosure in other than unusual circumstances would have an undesirably inhibiting effect on investigating officers’ reports. I would therefore hold that the reports of investigating officers made in circumstances such as these form a class which is entitled to public interest immunity. …”

100. O’Sullivan concerned the initial report form sent by the police to the (UK) Crown Prosecution Service following an investigation into a suspected criminal offence. Butterfield J held that such report, as the genesis of a dialogue between the police and the Crown Prosecution Service commenting upon and expressing opinions about the primary material, belonged to a class of documents to which public interest immunity attached.

101. I agree it is equally vital that there should be freedom of communication in this context between the Commission and its staff, without apprehension that what was expressed might be disclosed to respondents in future. An appropriately defined sub‑category of these documents could well, in my view, be covered by immunity. Not knowing more precisely what these documents are, nor (assuming there are such documents that are relevant) what it is they contain that make them relevant, I am not in a position to assess whether they are necessary for the fair disposal of the proceedings or whether on balance their disclosure should still be required despite the immunity.

(v) Records of general internal communications between Commission staff responsible for investigations or litigation‑related tasks, including internal reports and electronic correspondence

102. The Chairperson explained that a large volume of general internal communications, reports and records may be generated by Commission staff in the performance of investigation and litigation‑related tasks. This includes the preparation of reports or memoranda seeking internal approval from other Commission staff in relation to various investigative steps. It was said that in these contexts, the Commission’s staff must be able to communicate with one another without fear that their views and discussions would be disclosed and scrutinised by parties to proceedings. The prospect of disclosure would inhibit and prejudice the discharge of the Commission’s regulatory, investigatory and enforcement functions, and could give rise to misinformed challenges against tentative conclusions.

103. With respect, I am unable to accept that so large and general a class of internal documents all fall within the protection of public interest immunity. The reality is probably that the vast majority of them are simply irrelevant because they concern administrative matters, or represent the opinions and analyses of Commission’s staff, or simply rehearse and therefore add nothing to other documents already disclosed. To the extent they encompass reports to senior officers of a nature similar to the kinds of reports to Commission members considered in (iv) above, they may be protected by public interest immunity, but in the absence of more specific evidence about such reports I am not prepared to declare blanket immunity here.

X. Mr D documents

104. This class of documents sought by SiS, as stated in its supporting affirmation, relate to how the statement of Mr D dated 13 February 2017 came about. The schedule to the summons sets out the following 7 sub‑classes of documents sought:

1.   All drafts, notes, or earlier versions of Mr D’s Statement
2.   Documents or records on how the communication between Mr D and the Commission was initiated
3.   Documents recording the “offer of cooperation” from Mr D
4.   Attendance notes of the telephone discussions on 9 December and 16 December 2016
5.   The relay of information to the Commission on 15 December 2016 and the process for deciding whether to grant Mr D any guarantee/immunity
6.   Notes on the questions posed to Mr D to generate the information given on 14 December 2016 and 31 December 2016
7.   Internal communication of the Commission relating to Mr D

105. Mr McCoy’s overarching submission in respect of Mr D documents is that Mr D is no mere witness in this case. He was a party to the alleged wrongdoing who has been given immunity in exchange for evidence relied upon by the Commission against SiS. Counsel relied on the principle established by authorities that where a party to the wrongdoing alleged is given immunity and presented as a witness against other alleged parties, the court and the defence are to be given a “warts and all” account. The phrase originated in this context from the judgment of the Court of Appeal in R v Tsui Lai‑ying & Others [1987] HKLR 857, given by Silke JA, where he said (at p 873B):

“It is clear beyond peradventure that in cases like this the accomplice should be presented to the Court warts and all. The defence, is entitled to know everything about him, the terms of the immunity and any matters surrounding it which could affect the credibility of his evidence. …”

106. One example of the reasons for this need was given by Hartmann JA in HKSAR v Chong Chi Ho (unrep, CACC 259/2008, 29 May 2009), at §51:

“For example, the manner in which he came to agree to give accomplice evidence may reveal that he was more interested in protecting himself than giving evidence as to the truth.”

107. The Court of Appeal recently reiterated the particular importance of the prosecution’s duty of disclosure in respect of prosecution witnesses who themselves are accomplices in the offence concerned: HKSAR v Wun Shu Fai [2017] 2 HKLRD 896, §§62‑63. Mr Mok had no quarrel in principle with the application of this approach in these proceedings as far as Mr D is concerned.

108. To put the application in context it is necessary first to set out the relevant course of events:

(1) On 9 December 2016, following a telephone call between a Manager in the Operations Division of the Commission (Mr Au) and Ms Wai, the principal of Wai & Co, the solicitors’ firm acting for Mr D, Wai & Co wrote to the Commission confirming a meeting on 14 December. This letter has been disclosed by the Commission. Mr Au had stated he did not take a note of the telephone conversation.
(2) On 14 December, Mr D, accompanied by Ms Wai, attended a meeting with Mr Lear (then Executive Director (Operations) of the Commission) and Ms Tam (a Legal Counsel of the Commission) at which Mr D’s offer to cooperate in the Commission’s investigation was discussed. The Commission’s file note and a 1‑page handwritten note of this meeting have been disclosed.
(3) On 16 December, Mr Lear had a telephone call with Ms Wai informing her of the Commission’s position with regard to Mr D’s offer of cooperation. Apparently no notes of this conversation exist.
(4) On 22 December, the Commission wrote to Wai & Co setting out the Commission’s position as communicated orally on telephone on 16 December by Mr Lear to Ms Wai. On 29 December, Wai & Co returned the acknowledgment signed by Mr D. This correspondence thus constituted the cooperation agreement reached between the Commission and Mr D. It has been disclosed by the Commission.
(5) On 31 December, Mr Wong (a Manager in the Operations Division of the Commission) and Ms Li (an officer of the Commission under the supervision of Mr Wong), met with Mr D, Ms Wai and a barrister instructed on behalf of Mr D for the purpose of interviewing Mr D. The notes of this meeting have been disclosed by the Commission, being a 10‑page handwritten note prepared by Ms Li and a 2‑page handwritten note made by Mr Wong.
(6) Following this meeting, Ms Li drafted a statement based on her notes and recollection of the meeting, on which Mr Wong provided comments to Ms Li orally. Ms Li then prepared a second draft reflecting Mr Wong’s input, which she sent to Mr Wong for review. During this process, they contacted Mr D by way of “brief telephone calls” (the exact number of which cannot now be recalled) to verify the accuracy of certain factual information in these initial drafts, but no records of such conversations exist.[26]
(7) On 8 February 2017, a draft statement of Mr D was circulated by the Commission to Ms Wai by email which stated that the draft was attached for her reference. This draft statement was disclosed in the Commission’s list of documents. The covering email was not disclosed in the list as it was thought to be obviously irrelevant, but has been exhibited to the Commission’s affidavit made in response to the present application.
(8) The statement was signed by Mr D and dated 13 February 2017 and has been disclosed.
(9) Mr D has made a witness statement after the commencement of proceedings dated 19 October 2017 (in which he confirmed the statement of 13 February 2017 subject to specified revisions). He also made a supplemental statement dated 27 November 2017. These were the statements exchanged under the Tribunal’s case management directions.

109. In relation to the matters leading to Mr D’s statement dated 13 February 2017, therefore, SiS has already been given: the co‑operation agreement with Mr D; the 2‑page file note and a 1‑page handwritten note of the meeting with Mr D on 14 December 2016; Mr Wong’s 2‑page note and Ms Li’s 10‑page note of the meeting with Mr D on 31 December 2016; the draft statement circulated to Mr D on 8 February 2017; and the statement itself signed and dated 13 February 2017. I now deal with the 7 items listed in the schedule to SiS’s summons.

Item 1 — All drafts, notes, or earlier versions of Mr D’s Statement

110. In the light of the evidence, the focus falls on the two draft statements prepared by Ms Li based on the meeting of 31 December 2016 and reviewed by Mr Wong referred to in §108(6) above. Mr Mok argued that they are internal documents prepared for internal purposes only, not for “external consumption”.

111. I have already explained more generally in §90 above why the claim for public interest immunity in respect of draft statements fails. Moreover, on the evidence, as pointed out by Mr McCoy, these statements are not purely internal works‑in‑progress. Whilst not circulated to Mr D, the drafts were at least in part the result of conversations with Mr D “during the process”, on unknown dates and in unknown number of telephone conversations, during which his response was sought. Mr McCoy accepted that had a full record been kept of such communications, it might be convincingly argued that the intermediate draft versions were irrelevant as they “could add nothing to the picture”. As it is, however, there being no other records of what the Commission gathered from Mr D on those occasions, and having regard to the special position of Mr D, it seems to me that the two drafts should be disclosed.

Item 2 — Documents or records on how the communication between Mr D and the Commission was initiated

Item 3 — Documents recording the “offer of cooperation” from Mr D

Item 4 — Attendance notes of the telephone discussions on 9 December and 16 December 2016

112. As for items 2, 3 and 4, the Commission has stated that no document exists. Mr McCoy submitted that it was difficult to believe no written record was made, but counsel’s incredulity alone is not a ground for disregarding the prima facie conclusive affidavit evidence filed by the Commission as to the non‑existence of the documents: Tai Fook Futures Ltd v Cheung Moon Hoi Jeff [2006] 4 HKC 81, §§33‑35. In any event, to counter SiS’s submission that it is inherently improbable that no written note was created, the Commission prays in aid the practice of the European Commission which, as stated in §13 of Commission Notice on Access to File, involves “no obligation on the Commission departments to draft any minutes of meetings with any person or undertaking.”

113. It is, however, not clear whether in confirming that no written records exist, the Commission has included its “internal” documents or communications (see §§76‑83 above). Mr McCoy gave the example of an internal email reporting a call from an insider in SiS who offered to tell all in exchange for immunity. I have already explained above why such communications cannot automatically be excluded from the scope of disclosure on the ground of irrelevance or public interest immunity merely by reason of their being “internal”. As things stand, the Commission’s affidavit evidence in response to these items need to be supplemented or clarified.

Item 5 — The relay of information to the Commission on 15 December 2016 and the process for deciding whether to grant Mr D any guarantee/immunity

114. The Commission submitted that item 5 (as well as item 7) are obviously irrelevant as they do not contain contemporaneous records of any communications with Mr D. I think that “the process for deciding whether to grant Mr D any guarantee/immunity”, so far as it refers to the internal assessment by the Commission, is irrelevant and unnecessary. Such documents, to the extent they reveal the Commission’s deliberations and approval process for settlement or immunity, may also fall within sub‑class (iv) of Class 6 and be potentially covered by public interest immunity (see §§95‑101 above).

115. But item 5 has arisen in part because the Commission’s file note of the meeting on 14 December 2016 recorded that Mr Lear told the meeting that:

“the purpose of the meeting was to ascertain what evidence [Mr D] may be able to provide to assist in the investigation. This information will then be relayed to the Commission on Thursday (15 December 2016), who will decide whether or not to grant some form of guarantee/immunity to [Mr D]”.

116. The information as to what evidence Mr D could provide seems to me to be material gathered from the investigation. Insofar as an internal document was then produced which “relayed” such information to the Commission on 15 December which was not already wholly reproduced in other documents disclosed (such as the file note of 14 December), the ground of objection of irrelevance would be invalid. Nor do I think that the claim for public interest immunity is a valid basis for objecting to production of this relaying of factual information, which seems to me within the scope of presenting Mr D “warts and all”. Indeed, at the hearing, Mr Mok accepted that if a document is found to exist that recorded the relay of information, it will be disclosed (presumably subject to any appropriate redaction).

Item 6 — Notes on the questions posed to Mr D to generate the information given on 14 December 2016 and 31 December 2016

117. The evidence is that prior to the meeting of 14 December 2016, Mr Wong, the case manager, prepared a short briefing note setting out the factual information gathered to date and suggesting some potential lines of questioning that might be pursued should the opportunity arise, in order to give Mr Lear and Ms Tam the necessary background to Mr D’s involvement in the case. Mr Wong also spoke with Ms Tam prior to the meeting and she made some handwritten notes in Chinese in preparation for the meeting. No list of questions as such was prepared for either this meeting or the one on 31 December 2016.

118. On this evidence, I do not think these internal notes made by the officers prior to meeting Mr D and asking him questions are of relevance. I refer to §§91‑94 above in relation to sub‑category (iii) of Class 6 more generally.

Item 7 — Internal communications of the Commission relating to Mr D

119. While a high degree of disclosure is accepted in this context, “warts and all” does not mean everything under the sun. Given that ex hypothesi we are not concerned with any document falling within items 1 to 6 above, it is difficult to see why all internal communications “relating to Mr D” fall within the ambit of the Commission’s accepted obligation of disclosure.

120. In Counsel’s submissions, item 7 was explained to be a broader catch‑all designed:

“to require production of any internal communications that directly or indirectly reveal the contents of the communications between Mr D and the Commission about his being given immunity, and about what he will say when called as a witness”.[27]

Provided it is so limited to the contents of the communications with Mr. D, it seems to me this residual sub‑category of documents (if in existence) may be disclosable.

XI. Residual prayer of summons

121. In addition to the various specific classes of documents discussed above, §1(d) of the summons asks for a list of “all other documents in relation to these proceedings which have not been disclosed by the Applicant to date”. This seems to me to add nothing to the obligation accepted by the Commission from the outset. SiS sought this order because (it alleged) there were shortcomings in the Commission’s discharge of its discovery obligations which led to doubts as to whether it had carried out a proper discovery exercise.

122. In my view, while the position taken by the Commission on discovery has not entirely been accepted by this Tribunal, the differences are disagreements in opinion which in no way cast doubt on the good faith of the Commission. Having regard to the nature of what was disclosed in the supplemental lists, I do not think they in any way show that the Commission has taken a cavalier or obstructive approach to disclosure. Accordingly, I do not think this repetitive order is called for.

XII. Itemisation of documents

123. By CTR r 24, RHC O 24 r 5 expressly applies to the discovery of documents in proceedings in the Tribunal. R 5(1) and (2) provide:

“(1) A list of documents made in compliance with rule 2 or with an order under rule 3 must be in Form No. 26 in Appendix A, and must enumerate the documents in a convenient order and as shortly as possible but describing each of them or, in the case of bundles of documents of the same nature, each bundle, sufficiently to enable it to be identified.
(2) If it is desired to claim that any documents are privileged from production, the claim must be made in the list of documents with a sufficient statement of the grounds of the privilege.”

124. In the case of Classes 1, 4, 5 and 6 (see §13 above), the production of which was opposed by the Commission, it can be seen that the documents have been described as a class. SiS submitted that the proper approach was to list and identify each document individually, with the originator specified, and with parts redacted (as appropriate) stating the grounds of objection to disclosure of each part.

125. While O 24 r 5(1) requires that the list “must enumerate the documents … describing each of them”, it is the long established practice, based on authorities, that in the case of documents for which privilege is claimed, it is not required to list them individually; it is “permissible to give a compendious description by type or category, so long as it is possible to identify them, … provided that the ground of privilege and the facts giving rise to the claim for privilege are clearly stated”: Re Kong Wah Holdings Ltd (in compulsory liquidation) (No 4) [2007] 5 HKC 202, citing Ventouris v Mountain [1990] 3 All ER 157, 160g and Derby & Co Ltd v Weldon (No 7) [1990] 3 All ER 161, 178j. As stated in the commentaries in Hong Kong Civil Procedure 2018, §24/5/4 (said in Re Kong Wah Holdings Ltd at p 201C to be an accurate summary), it is not required that the dates of the documents should be specified nor the names of the makers. “ ‘Correspondence between the (defendant) and his solicitors for the purpose of obtaining legal advice’ is sufficient”. There was nothing in the context to indicate that the direction given for discovery (see §9 above) was intended to depart fundamentally from this established practice.

126. In Kong Wah Holdings Ltd itself, Kwan J (as she then was) directed the respondent to provide “a list of the documents being withheld from production on the grounds of legal professional privilege, detailing the date of the particular document, the author, the addressee, a brief description of its nature (without disclosing its contents) and the ground of privilege relied upon” (see §§42, 72). However, that case was concerned not with discovery of documents but with an order for production of documents made under s 221 of the then Companies Ordinance (Cap 32)[28]. No valid reason has been identified for the Tribunal to depart from the practice of the High Court so far as discovery is concerned.

127. Public interest immunity seems to me to stand on a different footing, at any rate where immunity is claimed by content not by class. To make a proper claim for immunity, it would be incumbent on the Commission to specify the document and state the grounds on which it is said immunity exists in as much detail as possible (except perhaps where to do so would itself undermine or defeat the privilege).

XIII. Conclusion and orders

128. In broad summary, my conclusions are that:

(1) Class 1 documents are covered by informer privilege and without prejudice privilege and Class 5 documents are covered by without prejudice privilege. They do not have to be produced.
(2) Class 3 — the original complaint form — is ordinarily protected by informer privilege but should be disclosed in this case within the confidentiality ring because the identity of the complainant has already been disclosed and deployed in the Commission’s case (with the inferred consent of the Complainant).
(3) Class 6 documents cannot as a whole be said to be irrelevant simply because they were internal. Instead, relevance has to be judged by content. Nor are Class 6 documents protected by public interest immunity as a single class of internal documents. Even based on their division into 5 sub‑classes in the Chairperson’s certificate, the class formulations seem too wide. It is likely that two narrower types of documents, ie (without trying to define them) (i) reports to and minutes of the Commission concerning the results of the investigation and the enforcement steps to be taken, and (ii) certain internal communications and notes relating to the execution of the search warrants showing the methods, procedures and tactics of the Commission, would be covered by public interest immunity, but immunity for the rest of Class 6, if claimed, would have to be justified by content following the proper procedures.
(4) As for Mr D documents, the two intermediate drafts of the statement made between 31 December 2016 and 8 February 2017 — which fall within item 1 — should be disclosed. The Commission should review and clarify whether there are documents including internal documents that respond to items 2, 3, 4 and 7 (as explained in §120 above). Documents within item 5 should be disclosed insofar they contain the relay of information to the Commission on 15 December 2016. Item 6 would not be ordered.
(5) No order need be made for a list of other documents not yet disclosed.
(6) Where privilege is claimed by the Commission (except documents for which public interest immunity is claimed by content), it is permissible for it to describe the documents compendiously in the conventional way without listing each and every document individually.

129. The orders of the Tribunal are therefore:

(1) The Applicant do within 14 days from the date hereof file and serve on the 3^rd Respondent a list of documents (“List”), such List to include:
(a) all documents under Class 3 and all documents passing between the Applicant and “other parties” under Class 4 in Part 2 of Schedule 1 to the List of Documents of the Applicant dated 23 June 2017;
(b) all documents under Class 6 in Part 2 of Schedule 1 to the Supplemental List of Documents of the Applicant dated 31 August 2017, such list to include (without limitation) (i) the 2 drafts of the statement referred to in paragraph 12b of the 2^nd Affidavit of Stephen Joseph Ryan filed on 7 December 2017; (ii) any documents falling within items 2, 3, 4 and 7 of the Schedule to the 3^rd Respondent’s summons; and (iii) any documents relaying information to the Commission as envisaged in the file note of the meeting held on 14 December 2016 (item 114 of the List of Documents of the Applicant dated 23 June 2017).
(2) The Applicant do at the same time as the List is filed, file and serve an affidavit verifying the List, setting out (if applicable) its claim for public interest immunity in respect of any documents.
(3) The 3^rd Respondent be at liberty to serve a written notice on the Applicant to request for inspection or copies of any of the documents in the List within 3 working days after service thereof.
(4) Subject to any privilege or immunity claimed, the Applicant do allow inspection or provide the copies requested by the 3^rd Respondent within 4 working days of the service of such notice. In the case of Class 3 in Part 2 of Schedule 1 to the List of Documents of the Applicant dated 23 June 2017, the document shall be made available only to the Confidentiality Ring Members established pursuant to the Order of the Tribunal dated 26 May 2017.
(5) There be liberty to apply.

130. On the question of costs, failing agreement, SiS should lodge brief written submissions within 21 days, followed by the Commission within 14 days thereafter.

	(Godfrey Lam)
	Judge of the Court of First Instance, High Court
	President of the Competition Tribunal

Mr Johnny Mok SC and Ms Catrina Lam, instructed by Winston & Strawn, for the Applicant

Mr Gerard McCoy SC and Mr Timothy Parker, instructed by Norton Rose Fulbright Hong Kong, for the 3^rd Respondent

[1] The identity of the individuals involved will be kept confidential, at any rate at this stage, pursuant to the confidentiality ruling dated 28 March 2017.

[2] S 122.

[3] S 126(1)(c) and (d).

[4] Wong Yuen Yee at §71, citing HKSAR v Lee Ming Tee at §170.

[5] This is consistent with the Commission’s stance that without prejudice privilege ceases to apply where an agreement is reached, but is of theoretical interest only in this case since no undertaking has been granted leniency. It was said in the certificate of the Chairperson of the Commission that even in the case of successful leniency applicants, there is a need to withhold from disclosure without prejudice communications pursuant to which the application is made (such as the application statement or “proffer”, as referred to in §2.18 of the Leniency Policy). As this aspect does not arise in the present case, it is unnecessary to deal with it.

[6] per Advocate General Mazák in §31 of his opinion in Pfleiderer AG v Bundeskartellamt, Case C‑360/09, 14 June, 2011; [2011] 5 CMLR 7.

[7] Leniency Policy, p 1.

[8] Paragraph 3.4 concerns the situation where a leniency agreement has been terminated (as envisaged under s 81 of the Ordinance). It states: “Information provided by an undertaking to the Commission pursuant to a leniency agreement which has been terminated may be retained by the Commission and used as evidence against that undertaking and other persons involved in the cartel.”

[9] Defined as (a) any confidential information provided to the Commission by a leniency applicant for the purpose of making a leniency application and/or pursuant to a leniency agreement, and (b) the Commission’s records of the leniency application process, including the leniency agreement.

[10] See the summary by Auld LJ in Chief Constable of the Greater Manchester Police v McNally [2002] Crim LR 832, at §§14‑21.

[11] See §§2‑5, although his Lordship also emphasised the special role of informers in drug cases: §§6‑7. See also HKSAR v Lam Timothy Yat Fung [2015] 4 HKLRD 666 (English translation at [2015] 4 HKLRD 679), at §§14‑15, applying HKSAR v Agara.

[12] At §65.

[13] A statement of objections notifies the relevant parties of a proposed infringement decision in respect of the competition law prohibitions. It is provisional and affords the parties an opportunity of making representations on the matters set out, before a final decision is made.

[14] Incidentally it may be noted that the court actually held that certain other statements of Amcor’s witnesses were subject to ACCC’s litigation privilege (§§39‑42). See also ACCC v Yazaki Corporation [2014] FCA 1316 on the application of litigation privilege to information obtained pursuant to ACCC’s immunity policy.

[15] See also see [2007] FCA 617 at §8.

[16] See also §35.

[17] Defined in s 157B(7) to mean information given to the ACCC in confidence relating to breaches of certain sections of the statute.

[18] See Commission notice on immunity from fines and reduction of fines in cartel cases OJ [2006] C 298/17 (as amended by Communication 2015/C 256/01) §§33‑34.

[19] As recognised in ECN Model Leniency Programme (revised in November 2012), Explanatory Notes §52.

[20] In Ofulue v Bossert [2009] 1 AC 990, the issue arose, in a second action for possession, as to whether it was permissible for the registered owner to rely, as an acknowledgment of title, on a without prejudice offer made by the occupiers to buy the land in a previous action for possession between the same parties which was struck out for inactivity. The House of Lords held it was impermissible.

[21] It should be noted that public interest immunity was not relied upon by the Crown in that case: see §74.

[22] At §34.

[23] “Internal document” is defined in rule 1(1) as: “(a) a document produced by, or exchanged between, the CMA, a regulator or another public authority and which has not been produced for the purpose of public disclosure by the CMA, a regulator or another public authority, or (b) a document produced by, or exchanged between, any person from time to time retained under a contract for services by the CMA, a regulator or another public authority and the CMA, a regulator or another public authority and which has not been produced for the purpose of public disclosure”.

[24] As has been held in the authorities, eg Apple Daily Ltd v Commissioner of the Independent Commission Against Corruption (No 2) [2000] 1 HKLRD 647.

[25] s 2 of Schedule 5 to the Ordinance.

[26] To explain the absence of telephone notes, the Commission prays in aid the practice of the European Commission referred to in §112 below.

[27] SiS’s skeleton submissions §151.

[28] Now s 286B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)

Dates of Written Submissions:	1 and 8 December 2020
Date of Judgment:	16 December 2020

COMPETITION COMMISSION v. NUTANIX HONG KONG LTD AND OTHERS

Related cases with same parties

Files (7)

		Paragraph
A.	INTRODUCTION	1
B.	LEGAL FRAMEWORK	11
	1. Statutory framework for prohibition and enforcement	12
	2. Warning notice	18
	3. Guidelines issued by the Commission	22
	4. The first conduct rule	24
	5. Agreement	25
	6. Concerted practice	28
	7. Infringement by object	35
	8. Vertical and horizontal agreements	40
	9. Knowledge and foresight	45
C.	STANDARD OF PROOF	50
	1. The parties’ contentions	51
	2. The requirement of Art 11	53
	3. Is there derogation from the criminal standard of proof by statute?	63
	4. Nature of competition proceedings and overseas jurisprudence	68
	5. Application of the applicable standard	73
D.	THE FACTS AND EVENTS	76
	1. Nutanix’s hyper-converged system	77
	2. Nutanix’s supply chain	80
	3. Nutanix’s deal registration system	83
	4. YWCA’s need for a new server system	88
	5. YWCA’s procurement policy and procedures	102
	6. The first tender	105
	7. The second tender	115
	8. Submission of bids in the second tender	138
	a. Innovix	141
	b. SiS	149
	c. Tech-21	158
	d. iCON	166
	9. The aftermath	168
	10. The third tender	174
E.	AGREEMENT BETWEEN NUTANIX AND BT	181
	1. The communications	183
	2. Absence of Hung as witness	188
	3. Whether the Commission may impugn Chan’s evidence	196
	4. Discussion	200
	5. Conclusion	227
F.	AGREEMENT BETWEEN NUTANIX AND SiS	229
G.	AGREEMENT BETWEEN NUTANIX, BT AND INNOVIX	238
H.	AGREEMENT BETWEEN NUTANIX AND TECH-21	267
I.	ATTRIBUTION OF CONDUCT AND KNOWLEDGE	288
	1. The issue	288
	2. The facts	290
	a. The set-up within SiS	291
	b. The second tender	297
	c. Submitting the bid on 18 July 2016	300
	d. Meeting on 9 August 2016	304
	e. SiS’s company chop	305
	f. Shek’s motives	310
	3. Special rule of attribution	315
	4. The parties’ submissions	320
	5. Overseas jurisprudence	323
	a. EU	323
	b. UK	332
	c. Australia	341
	d. United States	344
	6. Section 91 of the Ordinance	346
	7. Attribution for the first conduct rule	360
	8. Application to the facts	374
	9. The Commission’s alternative case	378
	10. Conclusion	381
J.	ANTI-COMPETITIVE OBJECT	382
	1. General principles	382
	2. Content and context of the agreements	392
	3. Deal registration system	404
	4. No inflated price	408
	5. No quid pro quo	413
	6. Vertical vs horizontal	417
	7. Subjective intentions	429
	8. Knowledge of YWCA	435
	9. Conclusion on “object”	437
K.	EXCLUSION UNDER SECTION 5 OF SCHEDULE 1	440
L.	WARNING NOTICE	443
	1. Section 82	443
	2. The relevant time for the purpose of s 82	451
	a. The pleadings	451
	b. The new point	455
	c. Objection to the new point	458
	d. Time for assessing existence of serious anti-competitive conduct under s 82	464
	e. “Has reasonable cause to believe”	478
	i. Subject matter of belief	479
	ii. Subjective belief	486
	iii. Objective basis	490
	3. Bid-rigging	491
	a. Statutory definition	491
	b. Agreement	494
	c. Between 2 or more undertakings	497
	d. Submission of bids or tenders arrived at by the agreement	506
	e. Agreement not made known	511
	f. A further controlling quality?	517
	4. Whether made known to YWCA	519
	a. The scope of the question	520
	b. Lok’s knowledge	524
	c. Reasonable cause for belief as to knowledge	545
	5. The definition of bid-rigging applied	548
M	SUMMARY AND CONCLUSION	553

APD	Administration and Procurement Department (YWCA)
BT	BT Hong Kong FLimited, the 2^nd respondent
Chan	Mr CHAN Wai Ying Denis, Technical Pre-Sales Manager of BT
Cheung	CHEUNG Kar Hay Danny, Assistant Product Manager of Innovix
CJEU	Court of Justice of the European Union
Commission	Competition Commission, the applicant
EU	European Union
FAC	Finance and Administration Committee (YWCA)
Hung	Mr Thomas HUNG, Territory Account Manager of Nutanix
ICCPR	International Covenant on Civil and Political Rights
iCON	iCON Business Systems Ltd
Innovix	Innovix Distribution Limited, the 4^th respondent
ISD	Information System Department (YWCA)
IT	Information technology
ITDC	Information Technology Development Committee (YWCA)
Li	Mr Benny LI, Systems Engineer (YWCA) and assistant of Lok
Lok	Mr LOK Yiu Ying Alan, Head of ISD and Secretary of the ITDC (YWCA)
Mak	Mr MAK Pui Hing Harris, Administration and Procurement Manager of YWCA
Nutanix	Nutanix Hong Kong Limited, the 1^st respondent
Ordinance	Competition Ordinance (Cap 619)
Percy NgMr	NG Tat Keung Percy, Alliance & Business Development Manager of BT
Shek	Mr SHEK Ka Kit Keith, Product Manager of SiS
SiS	SiS International Limited, the 3^rd respondent
Siu	Mr SIU Kiu Fai Tommy, Product Manager of Innovix
Steve Ng	Mr NG Chi Hang Steve, Sales Manager of Tech-21
Tech-21	Tech-21 Systems Limited, the 5^th respondent
TFEU	Treaty for the Functioning of the European Union
Tribunal	Competition Tribunal
UK	United Kingdom
Wong	Mr WONG Ka Man Morris, Assistant Procurement Officer in the Administration and Procurement Department of YWCA
YWCA	Hong Kong Young Women’s Christian Association

	BT	SiS	Innovix	Tech-21	iCON
Equipment	Dell-Nutanix	Nutanix-NX	Dell-Nutanix	Nutanix-NX	Nutanix-NX
Item 2.1 (Bid price of server for Headquarters — 3 nodes)	$[●]	$[●]	$[●]	$[●]	$[●]
% higher than BT (for Item 2.1)	-	44.6%	16.6%	27.7%	27.7%
Annual maintenance for each of 4^th and 5^thyears (optional)	$[●]	$[●]	$[●]	$[●]	$[●]
Item 3.1 (Bid price of server for Kowloon Centre — 3 nodes) (optional)	$[●]	-	-	-	-
Contingency sum	$[●]	$[●]	$[●]	$[●]	$[●]
Total (without optionals)	$[●]	$[●]	$[●]	$[●]	$[●]

“ Q:	But you used ‘dummy bids’, what’s the meaning of ‘dummy bids’?
A:	There is a better description in Chinese, which is 陪跑bid [also-ran bid], ok. So I don’t know how that in English, so that’s why.
…
Q:	So from my understanding is if you say it’s 陪跑bid [also-ran bid], then that means the chance to win the tender will be low.
A:	Yes, yes. Like I said, it is a natural sort of thing that I explained to you earlier. If a company don’t see any win chance, they simply would not bid, the whole reason why they bid is because they were doing a friend’s favour, that’s all there is.
Q:	So that’s, so that’s a dummy bid.
A:	Yes, yes.”

“ Q.	Now, in that conversation you made it clear — I’m referring to the second sentence — that for the normal case a company stamp would be required?
A.	Right.
Q.	So what was abnormal about this case?
A.	That no company stamp was affixed, that no company chop was affixed, if there was no company chop affixed and I got flunked, so I will be dead.
Q.	So if this was just a normal transaction, why did you not arrange for the company chop to be used, as was the normal practice?
A.	So I said that the company stamp needed to be arranged. This here says that the company stamp needed to be arranged. Otherwise the customer might flunk me.
Q.	Did you arrange for the chop?
A.	Yes.
Q.	Was the chop used on the documents?
A.	Yes.
Q.	Was there anything abnormal about this case that you had to ask that question?
A.	No.
Q.	In the end of that message you said to Mr Hung, ‘I’ll need to see and think as to what to do for you’. Do you see those words?
A.	Yes.
Q.	Was that in response to Mr Hung asking you for help?
A.	I would have to give him the reply that I would take the case.
Q.	He had asked you for help, and you were saying, ‘I’ll need to see and think as to what to do for you’?
A.	Right, correct.”

“ -	We believe in vigorous, fair and legal competition. The anti-trust laws (aka competition laws, consumer protection laws or unfair competition laws in some countries) prohibit business practices that limit competition improperly. Although the spirit of these laws is straightforward, their application to particular situations can be very complex. Always seek legal advice if there is any doubt.
-	Agreements among competitors to fix prices, restrict output, allocate markets or customers, rig bids or violate fair bidding practices, or boycott the supplier or customer are prohibited and generally illegal.”

No.	Description
1.	Any without prejudice correspondence and records of without prejudice communication between the Commission and respondents in relation to the Commission’s Leniency Policy.
2.	Affirmations of Wong Kam Hung (together with exhibits), and drafts thereof, for the purpose of applying for search warrants in HCCM 261/2016.
3.	[The Complainant’s] original electronic complaint form which was submitted to the Commission on 21 July 2016.
4.	Correspondence, reports, and other documents passing between the Commission and its solicitors for the purpose of this action, instructions to Counsel, advice, opinions and drafts; correspondence, reports and other documents passing between the Commission and its solicitors and other parties written or prepared for the purpose of obtaining evidence or furnishing to the Commission’s solicitors information which might lead to the obtaining of evidence to be used in legal proceedings, statements, notes, memoranda, and other documents prepared by or for the use of the Commission’s solicitors for the purpose of legal proceedings.
5.	All without prejudice correspondence and records of without prejudice communications between the Commission and any Respondent where an agreement has not been reached.
6.	All confidential internal reports, minutes and correspondence relating to the Commission’s investigation and present proceedings. This includes any records of communication between Commission staff during the execution of search warrants under section 48 of the Competition Ordinance.