COMPETITION COMMISSION v. ATAL BUILDING SERVICES ENGINEERING LTD AND OTHERS

CAMP 369/2023 and CAMP 370/2023
and CACV 1093/2025 and CACV 1094/2025
(Heard together)

On appeal from [2023] HKCT 9 and
[2024] HKCT 1

[2025] HKCA 1120

CAMP 369/2023 and CAMP 370/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NOS 369 AND 370 OF 2023

(ON AN INTENDED APPEAL FROM CTEA NO 2 OF 2023)

________________________

________________________

AND

CACV 1093/2025 and CACV 1094/2025

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 1093 AND 1094 OF 2025

(ON APPEAL FROM CTEA NO 2 OF 2023)

________________________

________________________

(Heard together)

________________________

J U D G M E N T

________________________

Hon Zervos JA (giving the Judgment of the Court):

Introduction

1.  On 25 October 2023, the President of the Competition Tribunal (“the Tribunal”), Harris J (the “President” or “Judge”), handed down a decision (the “Decision”[1]), in which he made various orders at the first case management conference in enforcement proceedings between the Competition Commission (“the Commission”)  and the named respondents.  Having failed to obtain leave to appeal from the President in respect of two of those orders[2], the relevant party has applied to this Court for leave to appeal.  Directions were given for a rolled-up hearing of those applications and, if leave be granted, of the appeal itself.[3]

2.  In CAMP 369/2023, the 1^st Respondent seeks leave to appeal the President’s order that correspondence and communications relating to Cooperation Agreements between the Commission and the 1^st Respondent, as well as two of its employees, including correspondence and communications between the Commission and each of them (the “correspondence and communications”), are not subject to without prejudice privilege and should be disclosed to the 2^nd to 4^th Respondents.[4] 

3.  The 1^st Respondent seeks an order setting aside this order and a declaration that the correspondence and communications are confidential and protected by without prejudice privilege.  Further, the 2^nd to 4^th Respondents’ discovery application, asserting that the correspondence and communications contain “information which may assist the defence”, is wholly speculative and lacks any factual or evidential basis.  The 2^nd to 4^th Respondents oppose the application.  

4.  This appeal concerns the disclosure of communications between the Commission and immunised witnesses (the “Disclosure of Communications” issue).

5.  In CAMP 370/2023, the Commission seeks leave to appeal the President’s order that the Kam Kwong[5] procedure for determining pecuniary penalties between the Commission and the 1^st Respondent should take place after the trial involving the 2^nd to 5^th Respondents.[6]  The Commission seeks an order setting aside this order and directing that the Kam Kwong procedure be scheduled for hearing before the President, in consultation with counsel’s availability.  The 2^nd to 4^th Respondents oppose the application. 

6.  This appeal concerns the timing of the determination of pecuniary penalties (the “Sentencing of Penalties” issue).

The legal framework of competition law

7.  To address the two matters raised in these applications, it is necessary to briefly examine the legal framework governing competition law in Hong Kong under the Competition Ordinance (Cap 619)  (“the Ordinance”).[7]  

8.  The Ordinance applies to all sectors of the economy [8] and aims to prohibit conduct that prevents, restricts, or distorts competition, and mergers that substantially lessen competition in Hong Kong.  It establishes three competition rules:

·  The First Conduct Rule, which prohibits anti-competitive agreements (section 6);

·  The Second Conduct Rule, which prohibits abuses of substantial market power (section 21); and

·  The Merger Rule, which prohibits anti-competitive mergers and acquisitions (section 3 of Schedule 7). 

9.  The Ordinance is enforced by the Commission and the Communications Authority, which shares concurrent jurisdiction with the Commission in the telecommunications and broadcasting sectors (sections 3 and 4 of the Communications Authority Ordinance (Cap 616)).

10.  The Commission is established under section 129 of the Ordinance.  Section 130 outlines its functions, which include investigating conduct that may contravene the competition rules and enforcing the provisions of the Ordinance.  Under section 131(1), it is empowered to “do all such things as appear to it to be necessary, advantageous or expedient for it to do for, or in connection with, the performance of its functions”.

11.  Under section 134, the Tribunal is established to handle legal proceedings concerning competition matters, including hearing cases and reviewing decisions of the Commission.  It is a superior court of record, maintaining a record of proceedings for potential review or appeal.  The Tribunal is composed of judges of the Court of First Instance, with provisions for the roles of President and Deputy President.  It may also appoint one or more assessors to assist with the disposal of proceedings.  Under section 136(3), the President may issue directions regarding the arrangement of the Tribunal’s business and perform other functions assigned under the Ordinance.

12.  The Tribunal has jurisdiction to hear and determine matters specified under section 142(1), including subsection (a): “applications made by the Commission with regard to alleged contraventions, or alleged involvements in contraventions, of the competition rules”.  Under section 142(2), the Tribunal exercises “the same jurisdiction to grant remedies and reliefs, equitable or legal, as the Court of First Instance”.

13.  The Tribunal’s powers are outlined in section 143.  Subsection (1)  grants it the same powers, rights, and privileges as the Court of First Instance in matters relating to the attendance and examination of witnesses, the production and inspection of documents, the enforcement of orders, and “all other matters necessary for the exercise of its jurisdiction”.  Subsection (2)  further authorises the Tribunal to deal with evidence as specified in that subsection, and to “exercise such other powers as may be necessary or ancillary to the conduct of any proceedings”. 

14.  Under section 144, the Tribunal may determine its own procedures or “follow the practice and procedure of the Court of First Instance in the exercise of its civil jurisdiction”, conducting its proceedings “with as much informality as is consistent with attaining justice”.  The process of hearing and determining applications is governed by section 145.  Additionally, section 147 states that Tribunal proceedings are not bound by the rules of evidence, except in cases where the Commission applies for a pecuniary penalty under section 93 or a financial penalty under section 169.

15.  Under section 158, the Competition Tribunal Rules (Cap 619D)  (“CTR”)  have been promulgated to regulate the practice and procedures of the Tribunal.

16.  In addition to the CTR, two practice directions have been issued: Competition Tribunal Practice Direction No. 1, Proceedings before the Tribunal (“CTPD1”), and Competition Tribunal Practice Direction No. 2, Confidential Information (“CTPD2”).  The CTPD1 emphasises that competition cases should be dealt with practically and realistically, and that proceedings should be conducted expeditiously and informally in the interests of justice.  It is noted that the general principles and concepts of the civil procedure of the Court of First Instance are relevant to proceedings before the Tribunal (paragraphs 26 and 27), and that an underlying objective of the Tribunal’s procedures is to facilitate the settlement of disputes (paragraphs 72 and 107).

17.  While the Tribunal may determine its own procedures and exercise its powers with a reasonable degree of informality and practicality, it must act in accordance with the general principles and concepts of the civil procedure of the Court of First Instance.  This is an important consideration when examining the practice and procedures of the Tribunal. However, ordinary civil concepts may need to be replaced or adapted to address the special character of an enforcement regime with coercive investigative powers and functions.  This was illustrated in the discussion on the question of discovery in SFC v Wong Yuen Yee & Ors[9].

18.  Another important consideration is the relationship between the Commission and the Tribunal, which is central to the operation of the Ordinance.  The Commission is responsible for investigating potential contraventions of the competition rules and may bring cases before the Tribunal for adjudication or remedy.  The Tribunal, in turn, acts as a gatekeeper, overseeing the Commission’s exercise of its investigatory and enforcement powers in matters requiring its approval or orders under the Ordinance.  The legal foundation underpinning the operations of both the Commission and the Tribunal, and their interrelationship, is defined by the statutory provisions and case law. 

19.  The provisions for enforcing the competition rules before the Tribunal are set out in Part 6 of the Ordinance (Competition Commission v W Hing Construction (No 3)[10]). The primary sanction for breaching the competition rules is the imposition of a pecuniary penalty under sections 93 and 155A.  Additionally, the Tribunal is empowered under sections 101, 102 and 103 to disqualify a person from serving as a director or liquidator of any company if a company of which the person is a director is found to have contravened a competition rule.  The Tribunal may also issue a variety of other orders, including: a declaration of contravention; an order restraining conduct constituting a contravention; an order requiring the disposal of operations, assets, or shares of any undertaking[11]; and an order declaring an agreement void or voidable, or requiring its modification or termination (section 94 and Schedule 3). 

20.  The CTR set out the mechanism and procedure for submitting an application to the Tribunal for an order by consent of the parties in particular circumstances.  Rule 39 concerns consent orders in proceedings under Parts 3, 4, 5, and 6 of the Ordinance.[12]  Rule 39(1)  provides that if the parties agree on the terms of an order in proceedings under Part 3 or 4, it must be submitted to the Tribunal for approval.  Under Rule 39(2), the Tribunal may then issue the order with or without a hearing, taking into account the agreed terms and any information provided by the parties.  For such an order, Rule 39(4)  directs that Order 42 of the Rules of the High Court (Cap 4A)  (RHC)  applies, excluding Rule 5A.  Rule 39(5)  provides that if the agreed order arises in proceedings under Part 5 (follow-on actions)  or Part 6 (transferred proceedings), Order 42 of the RHC, including Rule 5A, applies. 

21.  Insofar as material, Rule 5A of Order 42 provides that where the parties agree on the terms of an order, it may be given effect as an order of the court by following the procedure under Rule 5, which sets out the drawing up and entry of an order by the Registrar (or the equivalent officer in the Tribunal).  Rule 5A has wide application[13] but does not extend to pecuniary penalties.  This rule effectively extends the consent procedure to specified classes of orders, allowing them to be made without a judicial officer’s direct involvement, provided the procedures in the rule are strictly adhered to.

22.  The CTPD1 emphasises that one of the Tribunal’s primary objectives is to facilitate the settlement of disputes.  In this context, paragraph 72 of the CTPD1[14] provides that the Tribunal may impose a pecuniary penalty under section 93 or issue other orders under section 94 of the Ordinance, so long as it is satisfied with the statement of agreed facts accompanying the application of the parties for the exercise of its statutory power. 

23.  In enforcement proceedings where the Commission has agreed to resolve the case with a settling party, the Tribunal in Competition Commission v Kam Kwong Engineering Co Ltd [15] established the eponymous Kam Kwong procedure.  This is modelled on the Carecraft procedure (Re Carecraft Construction Co Ltd[16]), which governs the disqualification of directors in the context of company and securities regulations.  Under the Kam Kwong procedure, the Tribunal resolves proceedings against a respondent who admits to a contravention on the basis of an agreed set of facts (sections 93 and 94 of the Ordinance,

and paragraph 72 of the CTPD1).[17]  This procedure is analogous to a plea and sentence on agreed facts in criminal proceedings, where the accused admits guilt and is sentenced without a contested trial.

The case history

24.  The Commission instituted two related enforcement proceedings arising from an investigation into anti-competitive conduct in the supply of air conditioning maintenance, installation, repair, and replacement works in Hong Kong (“air-conditioning works”). 

25.  The first case, CTEA 2/2022, was commenced on 16 June 2022 against the following respondents:

·  ATAL Building Services Engineering Ltd (“ATAL”)  (1^st Respondent);

·  Analogue Holdings Ltd, the parent company of ATAL, (“Analogue”)  (2^nd Respondent);

·  Shun Hing Engineering Contracting Co Ltd (“Shun Hing”)  (3^rd Respondent);

·  Shun Hing Holdings Co Ltd (4^th Respondent);

·  Ser Ka Wai, an employee of ATAL, (5^th Respondent);

·  Cheng Kit Shun, an employee of ATAL, (6^th Respondent);

·  Kwan Siu Kin, an employee of Shun Hing, (7^th Respondent). 

26.  It is alleged that between 14 December 2015 and 4 December 2019, ATAL and Shun Hing contravened the First Conduct Rule (FCR)  under section 6(1)  of the Ordinance by price-fixing, market sharing, and bid-rigging in relation to the provision of air-conditioning works through collusive conduct.

27.  On 4 November 2022, the Commission announced that ATAL had admitted liability for cartel conduct in the supply of air-conditioning works and had entered into a Cooperation Agreement with the Commission (the “Cooperation Agreement”).[18] Two employees of ATAL (the 5^th and 6^th Respondents in CTEA 2/2022)  also admitted liability and entered into separate Cooperation Agreements.  The Commission further stated that related proceedings would be commenced in the Tribunal and that it would seek an order requiring ATAL to pay a pecuniary penalty of HK$150 million covering both cases, as well as costs.

28.  A second case, CTEA 2/2023, was commenced on 23 May 2023, with the respondents in this leave application:

·  ATAL (1^st Respondent);

·  Johnson Controls Hong Kong Limited, (“Johnson Controls”)  (2^nd Respondent);

·  York International (Northern Asia)  Limited, the parent company of the 2^nd and 4^th Respondents, (3^rd Respondent);

·  Johnson Controls International PLC (4^th Respondent)  (the 2^nd to 4^th Respondents collectively, the “JC Parties”);

·  Lee Yui Ming, a former employee of Johnson Controls, (5^th Respondent).

29.  It is alleged that between 14 December 2015 and 24 June 2018, ATAL and Johnson Controls contravened the FCR by price-fixing, market-sharing, and bid-rigging, either through an overarching agreement or by engaging in a concerted practice to cooperate rather than compete against each other when responding to requests for tenders or quotations from customers.  In particular, it is alleged that they responded to customer tenders by seeking, offering, or providing cover bids (referred to as “pig quotes”), dictating cover prices that the other party should submit, sharing commercially sensitive information regarding intended bidding prices or other bid parameters, and/or preparing draft bids for the other party to copy or use as a reference.  This “collusive conduct” allegedly created a false impression of competition for customers issuing tenders or quotations for a wide range of air-conditioning works during the relevant period.  It is further alleged that this conduct was aimed at preventing, restricting, or distorting competition in Hong Kong: constituted “serious anti-competitive conduct” within the meaning of section 2(1); and amounted to either a single and continuous contravention of the FCR, or to a series of individual agreements and/or practices in contravention of the FCR.  The Commission applied to the Tribunal for:

(a)  Declarations under section 1(a)  of Schedule 3 of the Ordinance that:

(i)  by engaging in the Collusive Conduct, ATAL and Johnson Controls … (collectively, the “Undertakings”)  have contravened the FCR; and

(ii)    by his participation in the Collusive Conduct, Jimmy Lee [Lee Yui Ming, the 5^th Respondent] was involved in the Contravention;

(b)  Orders under section 93(1)  of the Ordinance that the Undertaking and the Individuals do pay to the Government a pecuniary penalty in such amount as the Competition Tribunal (the “Tribunal”)  considers appropriate;

(c)  Orders under section 1(b)  of Schedule 3 of the Ordinance prohibiting:

(i)  Johnson Controls from engaging in any conduct that constitutes the Contravention; and

(ii)    Jimmy Lee from engaging in any conduct constitutes involvement in the Contravention;

(d)  For the purpose of securing compliance with any order made by the Tribunal pursuant to 11(c)(i)  of this Application, orders under section 1(b)  of Schedule 3 of the Ordinance that the Undertakings do adopt and implement, to the reasonable satisfaction of the Commission, effective competition compliance programmes in such time period and manner as the Tribunal shall determine;

(e)  Orders under section 96(1)  of the Ordinance that the Undertakings do pay to the Government an amount equal to the reasonably incurred costs of and incidental to the Commission’s investigation into their conduct or affairs, to be assessed;

(f)  Orders that the Undertakings and Jimmy Lee do pay the Commission’s costs of and incidental to this Application, to be assessed; and

(g)  Such further or other relief as the Tribunal considers appropriate. 

30.  In CTEA 2/2023, the Commission and ATAL issued joint consent summonses dated 17 and 18 August 2023 for a hearing of a Kam Kwong application scheduled for 27 November 2023. 

31.  The 17 August summons was a joint application by the Commission (the Applicant)  and ATAL (the 1^st Respondent), made pursuant to Rule 39 of the CTR and paragraph 72 of the CTPD1, for an order by consent that:

1.  There be a declaration that the 1^st Respondent has contravened the First Conduct Rule under section 6 of the Competition Ordinance (Cap 619)  (“Ordinance”). 

2  For the present proceedings and the proceedings in CTEA 2/2022, the 1^st Respondent do pay to the Government a single pecuniary penalty in the sum of HK$150,000,000  pursuant to section 93 of the Ordinance within 120 days from the date of the Order to be made herein and provide documentary evidence of such payment to the Applicant within 7 days from the date of payment. 

3.  Pursuant to section 96 of the Ordinance for the present proceedings and the proceedings in CTEA 2/2022, the 1^st Respondent do pay to the Government the sum of HK$828,000, being one third of the costs of and incidental to the investigation into the 1^st Respondent’s conduct or affairs, reasonably incurred by the Applicant.

4.  The 1^st Respondent do pay to the Applicant:

(a)  costs of and incidental to the proceedings; and

(b)  costs of this application,

as against the 1^st Respondent, to be taxed if not agreed with certificate for two counsel.

32.  The 18 August summons was also a joint application by the Commission (the Applicant)  and ATAL (the 1^st Respondent), made pursuant to Rule 9 of the CTR, for an order by consent that:

1.  Pursuant to rule 9 of the Competition Tribunal Rules (Cap 619D), the joint application of the Applicant and the 1^st Respondent by way of Consent Summons dated 17 August 2023 filed in these proceedings and the joint application of the Applicant and the 1^st Respondent by way of Consent Summons dated 17 August 2023 filed in CTEA 2/2022 be consolidated, heard and determined on 27 November 2023 at 10 am.

2.  There be no order as to costs of this Consent Summons.

33.  On 29 August 2023, the President held the first case management conference in CTEA 2/2023, during which differences arose between the Commission and the respondents concerning the appropriate directions.

34.  On 25 October 2023, the President handed down his Decision, observing that the summonses gave rise to several issues.  The first issue was whether it was permissible under the Ordinance for an order to impose a single penalty arising from two separate proceedings and, if so, whether such an order would be appropriate.  He directed the parties in both proceedings to address this issue at the subsequent hearing on 27 November 2023.  The second issue was whether an application for consolidation should be made in the separate proceedings, thereby allowing the respondents in those proceedings an opportunity to make submissions on this issue.  The third issue concerned the JC Parties’ objection to the Kam Kwong application being determined before the trial or settlement of the other respondents’ cases.[19]  

35.  The President also raised the following issues, directing the parties to address them at the hearing on 27 November 2023:

(1)  whether one pecuniary penalty can be imposed in two proceedings;

(2)  if so, what matters should be taken into account in determining the appropriate penalty;

(3)  when the pecuniary penalty in CTEA 2/2022 should be determined (noting that this matter was addressed in CTEA 2/2023); and

(4)  whether the facts of the two proceedings make it appropriate for a single pecuniary penalty to be imposed.

36.  On 27 November 2023, the President heard the two cases together.  There were two applications for leave to appeal the President’s orders in the Decision: ATAL sought leave regarding the issue of the disclosure of communications; and the Commission sought leave regarding the issue of the sentencing of penalties.  In a decision handed down on 11 January 2024, the President refused both leave applications.  He explained:[20]

“1.  On 25 October 2023, I handed down my decision in respect of applications heard on 29 August 2023 in CTEA 2/2023 (“1^st Action”).  The applications were for an order that a Kam Kwong application that had been made in the 1^st Action (although wrongly formulated as an order for a declaration and penalty by consent)  by the Commission and the 1^st Respondent (“ATAL”)  be heard together with a similar application in CTEA 2/2022 (“2^nd Action”), although no such application had been issued and listed in the 2^nd Action before 29 August 2023.  I determined that the applications in the 1^st Action and (necessarily when the requisite application was made)  in the 2^nd Action, be heard at or immediately after the trial of the Actions or when all the Respondents had agreed that the Actions be determined by Kam Kwong applications for the reasons explained in my decision. …”

37.  The President then addressed the parties’ submissions on the four issues he raised concerning the imposition of a single penalty for the two proceedings.  On this issue, he stated:[21]

“3. It was apparent from ATAL’s skeleton that it understood that my concern was whether the Tribunal could properly give one composite judgment imposing one composite fine in two proceedings. At the hearing it was accepted by both the Commission and ATAL that this would not be appropriate, although the calculation of the penalties would need to be calculated so as to avoid unfairly imposing in each proceeding a penalty, which duplicated the penalty imposed in the other proceeding. This seems to me broadly correct. …”

38.  On 8 and 11 December 2023, ATAL and the Commission respectively renewed their applications for leave to appeal before this Court.

39.  On 12 August 2024, the President made two separate orders: (1)  fixing the trial of CTEA 2/2022 for 15 days from 26 October to 13 November 2026; and (2)  fixing the trial of CTEA 3/2023 for 15 days from 30 November to 18 December 2026.

40.  We now turn to address the leave applications concerning the issues of the disclosure of communications and the sentencing of penalties.

CAMP 369/2023: Disclosure of Communications

41.  ATAL’s grounds of appeal are as follows.

Ground 1:  The Judge erred in holding that without prejudice privilege does not apply in respect of communications forming part of without prejudice negotiations in circumstances where such communications result in a cooperation agreement.  The Judge ought to have held that without prejudice privilege applies to all communications forming part of such negotiations irrespective of whether such negotiations were “successful”.

Ground 2:  Further and in any event, the Judge erred in failing to have regard to the considerations set out in Rule 24 of the Competition Tribunal Rules (Cap 619D)  before ordering disclosure of the Communications and Correspondence, including but not limited to (1)  whether the information contained in such documents is confidential; (2)  the balance between the interests of the parties and other persons; and (3)  the extent to which such documents are necessary for the fair disposal of the proceedings.  Had the Judge done so, he ought to have refused to order disclosure of the Communications and Correspondence on (inter alia)  the grounds that (1)  such documents are confidential; (2)  disclosure would result in prejudice to the 1^st Respondent and its employees, and the public interest in maintaining confidentiality in respect of negotiations between the parties; and (3)  the 2^nd to 4^th Respondents’ failure to establish that immediate disclosure of the said documents was necessary for the fair disposal of the proceedings.

Background

42.  ATAL and two of its employees (the 5^th and 6^th Respondents, in CTEA 2/2022)  entered into Cooperation Agreements with the Commission in relation to the resolution of CTEA 2/2022 and CTEA 2/2023.  It is claimed that, in negotiating those agreements, the parties engaged in extensive without prejudice discussions with the Commission, involving both written and oral communications.

43.  At the first case management conference on 29 August 2023, the JC Parties sought directions from the Tribunal for discovery, including disclosure of the correspondence and communications relating to the Cooperation Agreements.  ATAL did not object to disclosing the Cooperation Agreements but opposed the disclosure of the associated correspondence and communications on the basis that they were not relevant and were subject to the Without Prejudice Rule (the “WP Rule”).

44.  It would appear that the JC Parties sought disclosure of the correspondence and communications with a view to relying on the facts recited or asserted in that material to contest the enforcement proceedings instituted by the Commission against them. 

45.  The President ruled that the Cooperation Agreements between the Commission and the two employees, together with the related correspondence and communications, were discoverable.  He stated that the JC Parties were entitled to know the terms of the Cooperation Agreements and the manner in which the information was provided.  He considered the material relevant for two purposes.  First, to challenge the testimony of a live witness; and secondly, to assess the credibility of any underlying information relied upon by the Commission.  Citing a criminal law principle, he held that fairness required the circumstances in which ATAL and its employees, as cooperating accomplices, provided information and assistance to the Commission to be presented to the court “warts and all” (R v Tsui Lai-ying & Others[22]). 

46.  The President further ruled that such material was not protected by the WP Rule, as it resulted in a successful settlement between the Commission and ATAL.  He explained that the WP Rule does not apply to “successful” communications where leniency or settlement is granted.  In such cases, the successful party would reasonably expect those communications to be disclosed, particularly where third party involvement is concerned.  Additionally, he concluded that disclosure would not prejudice ATAL or its employees.[23]

47.  ATAL initially sought leave to appeal against the President’s “determination” on the WP Rule, but it later transpired that an actual disclosure order had been made (drawn up as paragraph 3(b)(iv)  of the Tribunal’s order dated 22 February 2024).  That order required that “correspondence and records of communications in relation to the Cooperation Agreements, including the correspondence between the Commission and the Cooperation Applicants” be disclosed by the Commission to the 2^nd to 5^th Respondents.  It has since been made clear that this is the order appealed against, with ATAL seeking that the order be set aside and a declaration that the correspondence and communications are confidential and subject to without prejudice privilege.

48.  It is relevant that, in the same order, the President also directed the Commission to file and serve on the 2^nd to 5^th Respondents a list of documents, separating (a)  those which the Commission sought to rely on in the proceedings, and (b)  unused materials, with the origin of each document identified.  It was stated that the documents to be disclosed by the Commission consisted of all pre-existing documents gathered in the cooperation process of ATAL and its two employees; correspondence between the Commission and the 5^th Respondent, including any statements; and Cooperation Agreements between the Commission and each of ATAL and its two employees (drawn up as paragraph 3(a), (b)(i), (ii)  and (iii)  and (d)  of the Tribunal’s order). 

49.  The President rejected the Commission’s approach that, where a document has not been designated as non-confidential, it was for the respondents to apply for discovery to determine whether it should be disclosed.  He accepted that this approach unfairly put the onus on the respondents, when it should be on the Commission to decide whether a document is confidential.  He was referred to the authorities, making it clear that the presumption is that all evidence should be made available to a person defending a criminal complaint, and that the onus is on the party asserting confidentiality to prove it by evidence.[24]  He properly deprecated a practice whereby a blanket assertion of confidentiality is made over all documents, leaving it for the respondents to challenge that assertion.[25]

The general principles of discovery and disclosure

50.  In addressing the issue of disclosure of communications under competition law, it is necessary to examine the legal framework for discovery in enforcement proceedings before the Tribunal.  This issue has already been canvassed extensively in Competition Commission v Nutanix Hong Kong Ltd & Ors (No. 2)[26].

Discovery under the Competition Ordinance

51.  Rule 24 of the CTR sets out the relevant principles for the discovery and inspection of documents (Competition Commission v ATAL Building Services Engineering Ltd [27]).  It provides:

24.    Discovery and inspection of documents

(1)   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. 

(2)  The application may be determined by the Tribunal with or without a hearing. 

(3)  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. 

(4)    Order 24 (except rules 1, 2, 3, 4 and 6)  of the RHC applies to the discovery and production of documents in any proceedings.

52.  Rule 24 provides a mechanism for a party to apply to the Tribunal for an order for discovery and production of a document relating to the proceedings from a person for inspection. 

53.  Order 24 of the RHC, except for Rules 1, 2, 3, 4 and 6, applies to proceedings before the Tribunal with any necessary modifications.  This includes Order 24, Rule 5, which requires that the grounds on which documents are privileged from production are to be stated in the list of documents, and Order 24, Rule 15, which directs that the rules on discovery are without prejudice to any rule of law authorising or requiring the withholding of a document on the ground that disclosure would be injurious to the public interest.  The decision to order discovery is at the discretion of the Tribunal, which must consider the matters specified under Rule 24(3), including whether the information contained in a document is confidential and whether its production is necessary for the fair disposal of the proceedings.

Confidential information under the Competition Ordinance

54.  Part 8 of the Ordinance protects confidential information through strict rules against unauthorised disclosure and provides a framework for its discovery.

55.  Section 2 defines confidential information by reference to section 123, which provides:

(1)  In this Part –

Confidential information means –

(a)  information that has been provided to or obtained by the Commission in the course of, or in connection with, the performance of its functions under this Ordinance, that relates to –

(i)  the private affairs of a natural person;

(ii)    the commercial activities of any person that are of a confidential nature; or

(iii)    the identity of any person who has given information to the Commission;

(b)  information that has been given to the Commission on terms that or in circumstances that require it to be held in confidence; or

(c)  informati on given to the Commission that has been identified as confidential information in accordance with subsection (2). 

(2)  If a person –

(a)  identifies information that the person has given to the Commission is confidential; and

(b)  provides a statement in writing setting out the reasons why, in that person’s opinion, the information is confidential, the information is also to be regarded as confidential information under this Part.

56.  Confidential information includes information obtained by the Commission in the course 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; the identity of any person who has given information to the Commission; and any information that has been given in confidence or treated as confidential.

57.  Section 124 provides that the Commission and the Communications Authority must establish and maintain adequate procedural safeguards to prevent the unauthorised disclosure of confidential information.  Section 125(1)  requires a specified person to (a)  preserve and aid in preserving the confidentiality of any confidential information; (b)  not disclose confidential information to any other person; and (c)  not suffer or permit any other person to have access to confidential information.  A specified person is subject to criminal sanctions for any contravention of these requirements.  However, these requirements do not apply to the disclosure of confidential information with lawful authority, as provided under section 126, which includes disclosure with consent (subsections (1)(a)  and (2)  and section 127); for the performance of the Commission’s functions (subsection (1)(b), subject to subsection (3)); in accordance with a court or Tribunal order, or as required by law (subsection (1)(c)); and for the purpose of judicial proceedings arising under the Ordinance (subsection (1)(d)).  Section 126 thus outlines exceptions to the general rule of confidentiality, permitting information to be disclosed for specific legal and official purposes without contravening the Ordinance.

58.  Rule 37(1)  of the CTR allows a party to make an application to the Tribunal for a document to be treated as confidential.  It provides:

37.    Confidential treatment of information

(1)  A party (the applicant)  may apply for an order to treat the whole or part of the following document as confidential –

(a)  a document (other than an originating document)  filed in connection with any proceedings; or

(b)  a document (including an originating document)  intended to be filed, served or otherwise disclosed in connection with any proceedings.

59.  The Tribunal has issued CTPD2 on confidential information, which sets out the procedures and directions for determining whether material constitutes confidential information and whether it is disclosable.

The duty of disclosure

60.  The Commission prosecutes an alleged contravention of the competition rules against an accused party before the Tribunal.  The Tribunal determines whether the party has committed the contravention and, if so, the penalty to be imposed, or the making of any other order.  In such enforcement proceedings, every accused party has a fundamental right to a fair trial, which includes the principle of equality of arms.  It has been accepted that the scope of discovery in competition cases follows the principles from disqualification proceedings, as set out in Securities and Futures Commission v Wong Yuen Yee [28].  The court in Wong Yuen Yee [29] addressed the scope and rules of discovery where a statutory body is established for public functions, noting that the discovery principles should be adapted to the special character of such proceedings and be sensitive to the requirements of the right to a fair trial and the principle of equality of arms. 

61.  In contested enforcement proceedings, the Commission will serve witness statements and exhibits, as well as a list of unused material, on the accused party, since the general principles of disclosure apply to the Commission (HKSAR v Lee Ming-tee and Securities and Futures Commission [30]).  It must make fair disclosure to the accused party as an integral part of the fair trial process. In general, the duty of disclosure to the accused party extends to material or information in the possession or control of the Commission that may undermine its case or advance the defence case.  This is subject to any claim of privilege or public interest immunity (Nutanix[31]).

62.  The “warts and all” principle in respect of accomplice evidence is a species of the more general duty of disclosure.  Accomplice evidence refers to the testimony of a witness who participated in the commission of the alleged wrongdoing.  There may be concern that such a witness has his or her own interests to serve, such as a promise of leniency by way of a reduced penalty or immunity from legal action or from further legal action.  It is therefore important that an accused party be provided with proper disclosure regarding the witness, in particular the terms of any immunity or leniency, and any matters affecting the credibility and reliability of the witness and his or her evidence.

The Without Prejudice Rule

63.  The foundational statement of the WP Rule is found in Lord Griffiths’ speech in Rush & Tompkins Ltd v GLC [32]:

“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 … 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.’”

64.  In addition to the public policy justification, the WP Rule is also grounded in an implied agreement between negotiating parties to communicate freely and in confidence.  Hoffmann LJ (as he then was)  elaborated on this principle in Muller v Linsley and Mortimer [33]:

“Some of the decisions on the without prejudice rule show a fairly mechanistic approach, but the recent cases, most notably the decisions of this court in Cutts v Head[1984] Ch 290, and the House of Lords in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, are firmly based upon an analysis of the rule’s underlying rationale.

Cutts v Head shows that the rule has two justifications. Firstly, the public policy of encouraging parties to negotiate and settle their disputes out of court and, secondly, an implied agreement arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice. In some cases both of these justifications are present; in others, only one or the other.

So, in Cutts v Head the rule that one could not rely upon without a prejudice offer on the question of costs after judgment was held not to be based upon any public policy. It did not promote the policy of encouraging settlements because as Oliver LJ said:

‘As a practical matter, a consciousness of a risk as to costs if reasonable offers are refused can only encourage settlement...’

  It followed that the only basis for excluding reference to a without prejudice offer on costs was an implied agreement based on general usage and understanding that the party making the offer would not do so.  Such an implication could be excluded by a contrary statement as in a Calderbank offer.”

65.  The WP Rule is not absolute and is subject to exceptions, as explained by Lord Griffiths in Rush & Tompkins [34]:

“… These cases show that the rule is not absolute and resort may be had to the ‘without prejudice’ material for a variety of reasons when the justice of the case requires it. …”

66.  Lord Walker of Gestingthorpe reiterated this principle in Ofulue v Bossert [35], emphasising that the WP Rule should not be restricted unless justice clearly demands it.  The limits on the broad application of the WP Rule were further outlined by Lord Hope of Craighead, also in the same case [36]:

“12. I think that the public policy basis for not allowing anything said in the letter to be used later to her prejudice provides Ms Bossert with all she needs to defeat the argument that the implied admission that it contains can be used as an acknowledgement against her in these proceedings. The essence of it lies in the nature of the protection that is given to parties when they are attempting to negotiate a compromise. It is the ability to speak freely that indicates where the limits of the rule should lie. Far from being mechanistic, the rule is generous in its application. It recognises 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. It is not to be defeated by other considerations of public policy which may emerge later, such as those suggested in this case, that would deny them that protection.”

67.  In Unilever plc v Procter & Gamble Co [37], Robert Walker LJ outlined a number of exceptions to the WP Rule, observing that they are not exhaustive.  He stated:

“(1)  As Hoffmann LJ noted in Muller’s case, when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible. Tomlin v Standard Telephones and Cables Ltd [1969] 1 WLR 1378 is an example.

(2)  Evidence of the negotiations is also admissible to show that an agreement apparently concluded between the parties during the negotiations should be set aside on the ground of misrepresentation, fraud or undue influence.  Underwood v Cox (1912)  4 DLR 66, a decision from Ontario, is a striking illustration of this.

(3)  Even if there is no concluded compromise, a clear statement which is made by one party to negotiations and on which the other party is intended to act and does in fact act may be admissible as giving rise to an estoppel.  That was the view of Neuberger J in Hodgkinson & Corby Ltd v Wards Mobility Services Ltd [1997] FSR 178, 191, and his view on that point was not disapproved by this court on appeal.

(4)  Apart from any concluded contract or estoppel, one party may be allowed to give evidence of what the other said or wrote in without prejudice negotiations if the exclusion of the evidence would act as a cloak for perjury, blackmail or other ‘unambiguous impropriety’ (the expression used by Hoffmann LJ in Forster v Friedland, 10 November 1992, CAT 1052).  … But this court has, in Forster v Friedland and Fazil-Alizadeh v Nikbin, 1993 CAT 205, warned that the exception should be applied only in the clearest cases of abuse of a privileged occasion.

(5)  Evidence of negotiations may be given (for instance, on an application to strike out proceedings for want of prosecution)  in order to explain delay or apparent acquiescence.  Lindley LJ in Walker v Wilsher (1889)  23 QBD 335, 338, noted this exception but regarded it as limited to ‘the fact that such letters have been written and the dates at which they were written.’  But, occasionally fuller evidence is needed in order to give the court a fair picture of the rights and wrongs of the delay.

(6)  In Muller’s case (which was a decision on discovery, not admissibility)  one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders.  Hoffmann LJ treated that issue as one unconnected with the truth or falsity of anything stated in the negotiations, and as therefore falling outside the principle of public policy protecting without prejudice communications.  The other members of the court agreed but would also have based their decision on waiver.”

68.  Robert Walker LJ also identified two further exceptions[38], concerning communications made “without prejudice save as to costs” and communications received in confidence for the purpose of matrimonial conciliation. 

69.  The WP Rule applies where the parties have acknowledged its operation, either by agreement in contract or during settlement negotiations.  The underlying principle of the WP Rule is to allow parties in dispute to speak freely, and this principle defines the limits of the rule.  The application of the WP Rule depends on the nature of the communications, the circumstances in which they were made, and the purpose for which they are relied upon in court proceedings.

70.  It is against this background that we consider whether the correspondence and communications in the present case should be disclosed.

Whether the correspondence and communications are discoverable

71.  The JC Parties argue that ATAL cannot claim without prejudice privilege, particularly in the context of enforcement proceedings where an entity has entered into a Cooperation Agreement with the Commission.  They submit that disclosure is justified on the basis that a wrongdoer who has entered into an immunity or settlement agreement and is presented as a witness against another alleged party must provide the court and the defence with a “warts and all” account of the circumstances in which the immunity or settlement agreement was reached.  The JC Parties contend that this principle overrides or displaces without prejudice privilege. 

72.  ATAL submits that it is reasonably arguable that the correspondence and communications are subject to the WP Rule and therefore not discoverable.  Moreover, it says there is a fundamental legal question as to whether the rule applies to correspondence and communications where there is an executed Cooperation Agreement, in other words, where there has been a successful settlement.  ATAL contends that this question is of particular importance in the context of competition law, especially given the insidious nature of cartel conduct and the fact that cooperation between parties and the Commission is fundamental.

73.  ATAL further argues that, even if the correspondence and communications were not subject to the WP Rule, the Tribunal must nevertheless determine whether disclosure is lawful under Rule 24 of the CTR.  This may also warrant consideration of the interplay between the balancing exercise required under that rule and the “warts and all” principle.

74.  The Commission took a neutral stance on this issue and made no submissions.  However, before the President, the Commission opposed disclosure of the Cooperation Agreements and the associated documents on the following grounds.  First, the Cooperation Agreements were not relevant; they merely provided the basis for the Commission and ATAL agreeing to make the Kam Kwong application.  However, the Commission reserved its position in the event that it decided to call the two employees who were each a party to a Cooperation Agreement.  Secondly, the Cooperation Agreements and associated documents were subject to without prejudice privilege.  Thirdly, the associated documents were not relevant.[39] As already noted, the relevant Cooperation Agreements were eventually disclosed, and the present issue of disclosure concerns only the correspondence and communications.

75.  ATAL argues that the WP Rule applies equally to cases where an entity agrees to cooperate with a regulator, and the regulator issues a public decision based on the facts and material submitted by that entity (Property Alliance Group Ltd v Royal Bank of Scotland [40]; Nutanix [41]). In Property Alliance Group Ltd, 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 WP Rule, which could in principle be asserted against a third party seeking disclosure of the documents in a subsequent civil suit against the bank.  In Nutanix [42], Godfrey Lam J (as he then was)  considered that there was no reason in principle why the WP Rule could not apply to negotiations between the Commission and a person subject to investigation or proceedings, even though the context lay outside litigation of private rights.

76.  ATAL argues that the established exceptions generally arise where (1)  the relevance of the communication lies not in the truth of any fact asserted or admitted, but simply in the fact that it was made; or (2)  the WP Rule is being used as a cloak for impropriety (Unilever [43]; Bradford & Bingley plc v Rashid [44]).  Accordingly, it submits that the WP Rule has not been displaced by the “warts and all” principle, and the correspondence and communications are subject to the rule and therefore not discoverable.

77.  ATAL further argues that, under the CTR, orders for discovery and production of documents must be made after consideration of all the circumstances of the case.  These include: (1)  whether the information contained in the relevant documents is confidential; (2)  the balance between the interests of the parties and other persons; and (3)  the extent to which the relevant documents are necessary for the fair disposal of the proceedings.  In support of this argument, ATAL contends that the discovery ought to have been refused, having regard to: (1)  the confidential nature of the negotiations; (2)  the chilling effect which disclosure may have on parties seeking to cooperate with the Commission; and (3)  the JC Parties’ failure to demonstrate the relevance or necessity of the correspondence and communications.  It is further contended that the application for discovery was premature and should have awaited disclosure of documents by the Commission and the exchange of witness statements.

78.  The JC Parties submit that the rationale of the WP Rule is to encourage frank exchange in an attempt to reach a settlement, without fear that anything said will be held against a party’s substantive position.  To this end, public policy protects negotiations from disclosure while liability remains in issue (Nutanix [45]). Once a leniency application is successful, however, the rationale for the rule ceases to apply, and there is little conceivable prejudice caused by such disclosure (Nutanix [46]).

79.  The JC Parties further submit that the correspondence and communications fall within the sixth exception in Unilever (the “Muller exception”).  They argue that, despite the criticisms of the Muller exception, it may be invoked where some independent relevance can be shown, and, so long as admitting the negotiations into evidence does not impinge on the truth or falsity of the statements made during the negotiations, such negotiations may be adduced into evidence. 

80.  The case of Muller was a decision of the English Court of Appeal.  In that case, the plaintiffs were in dispute with third parties in connection with a share transfer, and they were advised by the defendant solicitors in that transaction.  The dispute between the plaintiffs and the third parties resulted in a settlement.  Subsequently, the plaintiffs brought a claim in negligence against the defendant solicitors. The defendants argued that the earlier settlement did not constitute reasonable mitigation of damage and sought production of letters and other documents leading up to that settlement.  It was held that the without prejudice negotiations in the prior proceedings should be disclosed. 

81.  Hoffmann LJ in Muller drew a distinction between the two-party and three-party situations.  In a three-party situation, where the rationale for without prejudice privilege is public policy rather than implied contract, he said that the privilege operates as an exception to the general rule on admissions, namely that the statement or conduct of a party is always admissible against that party to prove any fact thereby expressly or impliedly asserted or admitted.  The public policy aspect of the rule is not, however, concerned with the admissibility of statements that are relevant otherwise than as admissions; that is, statements which are relevant independently of the facts alleged to have been admitted.[47]  

82.  Hoffmann LJ distinguished Rush & Tompkins as a case where the documents were required as evidence of admissions against interest, whereas in Muller the documents were relevant not as admissions but to the reasonableness of the settlement.  In those circumstances, he considered there were no public policy reasons to refuse to admit them. 

83.  Despite the criticisms of Muller, an exception based on that case continues to exist, as summarised by Robert Walker LJ in Unilever.  The JC Parties point out that there have been cases addressing the scope of the Muller exception, such as Barclays Wealth Trustees (Guernsey)  Limited v Alpha Development Limited [48], where the exception was further justified on the basis that the protection of without prejudice communications must give way to the public interest in full disclosure when the issue is incapable of resolution without it.  The JC Parties submit that a court should be more ready to recognise an exception to the WP Rule where the core rationale for the public policy is not engaged, and where there are competing and more powerful public policy considerations which justify the disclosure of the without prejudice materials. 

84.  There has been considerable judicial debate regarding the Muller exception, and its scope is problematic.[49]  It has been said that the boundaries of the WP Rule should not be lightly eroded, and that the protection afforded by the rule should be enforced unless it can be shown that there is good reason for not doing so.[50]

85.  Against this doctrinal background, the JC Parties argue that the WP Rule does not prohibit the disclosure of the correspondence and communications.  First, they submit that the case falls within the Muller exception, primarily because the disclosure of the correspondence and communications does not engage the public policy rationale underlying the WP Rule.  It is argued that the public policy protecting without prejudice communications would not be endangered because the relevance of this material is independent of the truth or falsity of any statements made by ATAL or its employees in it.  Instead, the relevance lies in the manner in which ATAL or its employees concluded the Cooperation Agreements, which may reveal that they had their own interest to serve, thereby affecting their credibility, and the reliability of any information they had provided.  Secondly, given that the Commission intends to rely on the accomplices’ evidence to establish its case against the JC Parties, it is submitted that the trial cannot be conducted fairly without disclosure of the correspondence and communications, as required by the JC Parties’ fundamental right to a fair trial.  This is said to constitute a further exception to the WP Rule.  Thirdly, it is submitted that there are ample grounds for recognising an exception to the WP Rule to permit the disclosure of without prejudice communications between the Commission and the accomplices to the accused party, in circumstances where (1)  there has been a successful settlement between the Commission and the accomplices; and (2)  the accomplices have provided, or will provide, assistance to the Commission in aid of its action against the accused party.

86.  When determining whether to order discovery and production of material for inspection, the Tribunal must consider all the circumstances of the case, including whether the material sought is confidential.  This process requires the Tribunal to balance the interests of the parties and the fair disposal of the proceedings, while bearing in mind the duty to preserve the confidentiality of the material and whether it is lawful for that material to be disclosed.

87.  In Nutanix, the Commission accepted that, subject to the CTR, the scope of discovery it was required to provide should approach the standard applicable to the prosecution in criminal proceedings, and should include relevant unused material.  It was acknowledged that unused material generally encompasses information and documents obtained from the investigation of the transactions that were ultimately relied upon and complained of in the enforcement proceedings, except those which are obviously irrelevant.  However, the Commission argued that neutral material or material adverse to the respondents need not be disclosed.[51]

88.  As a general principle, a prosecuting authority should make full disclosure of unused material that may undermine its case or assist the defence; however, this does not extend to material adverse to the defendant, which may be used by the prosecution against him (R v H [52]).  A different approach applies where the material concerns another party who will be a prosecution witness: in such cases, material adverse to that witness is disclosable.  This is a fundamental requirement for the fair trial of a defendant, particularly where the prosecution witness is an accomplice who is to give evidence under immunity.  Accordingly, the defence is entitled to know all relevant information about such a witness, including the terms of immunity and any matters affecting the credibility of his or her evidence.  This principle applies to witnesses for the Commission in enforcement proceedings, although it has significant practical implications, as illustrated by the Nutanix case.  It is not appropriate, in addressing such an application to take a broad brush approach; rather, each item or class of items of the relevant material should be considered as to whether it is confidential under the Ordinance or subject to any privilege or immunity. 

89.  While the Nutanix case concerned an application by a respondent in an enforcement action before the Tribunal for discovery orders against the Commission, the materials sought included: (1)  without prejudice communications between the Commission and respondents regarding its Leniency Policy; and (2)  without prejudice communications between the Commission and any respondent where no agreement had been reached.  This warranted an examination of the individual items or class of items in order to determine their status.

90.  These principles of disclosure must be considered in the particular context of cartel enforcement and leniency.  The insidious nature of cartels makes them difficult to detect, investigate and prove in enforcement proceedings.  To address this, the Commission has adopted a Leniency Policy to encourage cartel members to self-report and cooperate with investigations, offering leniency according to specified requirements and criteria.  As explained by Godfrey Lam J in Nutanix [53], a leniency programme operated by an enforcement agency typically offers individuals involved in a cartel immunity from a penalty, or sometimes a reduction, under the Commission’s policies in return for cooperation, often in the form of providing information and evidence.[54]

91.  Paragraph 5.7 of the Commission’s Leniency Policy[55] states that it is the Commission’s policy not to release leniency material, whether or not it is confidential information, and to resist firmly, on public interest or other applicable grounds, requests for such material, including the fact that leniency has been sought or is being sought.  Exceptions are made only if: (1)  the Commission is compelled to make a disclosure by an order of the Tribunal or under a law; (2)  it has the consent of the leniency applicant to disclose the material; (3)  the relevant information or document is already in the public domain; or (4)  the Commission has terminated the leniency agreement under section 81 of the Ordinance.

92.  Godfrey Lam J in Nutanix examined the terms and scope of the Commission’s Leniency Policy, noting the importance of balancing the public interest in protecting informers and confidential information against the countervailing interests advanced by the party seeking disclosure.  In his review of the practices of enforcement agencies regarding leniency, both locally and elsewhere, he observed:

“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. …”

93.  A similar view was expressed by Gordon J in the cartel case of Cadbury Schweppes Pty Ltd v Amcor Ltd and Others[56], that “it is both inevitable and self-evident that the statements of a cooperating criminal conspirator will be used against (i.e., disclosed to)  the non-cooperating conspirators, 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.”  She added that any reasonable expectation of confidentiality with respect to statements made to investigators was devoid of substance.  Even in circumstances where the cooperating party is negotiating a settlement, once a settlement has been struck, there is no prejudice to the settling party, whereas the lack of full and frank disclosure to the accused party of the settling party’s communications could prejudice his fair trial.

94.  A subsequent amendment was introduced to the Australian Trade Practices Act 2009 by the insertion of a new provision, section 157B, which provides that the Australian Competition and Consumer Commission is not required to disclose “protected cartel information” to a court or tribunal except with the leave of the court or tribunal, having regard to a number of specified matters: the protection of confidential cartel information; any disruption to law enforcement investigations or functions; the protection of an informant or associated person; the risk of discouraging informants from providing protected cartel information in the future by the production of the information; in the case of a court, the interests of the administration of justice; and, in the case of a tribunal, the interests of securing the effective performance of the tribunal’s functions.

95.  In the context of the competition regime in Hong Kong, the underlying consideration is likewise the securing of the effective performance of the Tribunal’s functions, consistently with the interests of justice.

96.  There is no question that the non-settling respondents, who are contesting the allegations made against them, have a fundamental right to a fair trial.  Consequently, the Commission has a duty to disclose to the defence all material evidence in its possession for and against the accused party, including any evidence which would tend to undermine the prosecution’s case or to assist the case for the defence.  Where the case against the accused party includes the evidence of an accomplice witness, the duty of disclosure requires that the defence be given the terms of any immunity, together with any matters surrounding it which may affect the credibility of the accomplice’s evidence (HKSAR v Wun Shu Fai [57]).

97.  The Commission properly recognised this principle, as it reserved its position on disclosing the correspondence and communications, depending on whether the two ATAL employees are to be called as witnesses at the trial of the non-settling respondents. 

98.  In our view, it is a relevant consideration that the correspondence and communications are the product of successful settlements between the Commission and accomplices.  The JC Parties are not seeking to rely on any admissions by ATAL or its employees to establish liability against them.  ATAL and its employees have already admitted liability, and the relevance of the correspondence and communications is to facilitate the fair trial of the remaining respondents.  ATAL and its employees have cooperated with the Commission and indicated a preparedness to give evidence in the case against the non-settling respondents.  There undoubtedly would be an expectation that, in giving evidence as an accomplice in the trial of the non-settling respondents, their dealings with the Commission would be required to be disclosed.

99.  We do not consider that ATAL’s objections to disclosure of the correspondence and communications displace the application of the “warts and all” principle in respect of accomplice evidence.  ATAL and its two employees have cooperated with the Commission by admitting their wrongdoing in participating in a cartel with others concerning air-conditioning works.  They have provided information and material in admitting their wrongdoing and have entered into a settlement with the Commission.  They have also agreed to cooperate in the case against the other cartel members.  Their status is that of accomplices cooperating with the Commission, not of informers, and informer privilege therefore does not apply.[58]  As the President stated in the Decision[59]:

“13. The Commission has been provided with information from the 1^st respondent’s employees and this, if I have understand things accurately, would have formed part of the material before them when the Commission decided to commence the proceedings and will inform the way in which the Commission pursues the complaint going forward.

14. The cooperation agreements form the basis on which the 1^st respondent and its employees agreed to provide assistance to the Commission in, inter alia, the prosecution and investigation of the 2^nd respondent.

15. It matters not whether the 1^st respondent’s employees are ultimately called as witnesses to give sworn testimony at trial. The cooperation agreements are not relevant only by way of undermining any live witness testimony. The associated documents are relevant for the purpose of evaluating the credibility of any underlying information provided. This is analogous to the requirement under RHC (Cap. 4A, Sub.Leg.)  O.41 r.5(2)  that a deponent (who is usually not cross-examined at the interlocutory stage)  shall state the source and grounds of his information or belief in his affirmation - the underlying rationale is to enable the contesting party the opportunity to explore those grounds and evidentially counter them: Commissioner of Police v Lin Xin Nian[60].

16. Therefore, it is only fair that the circumstances in which the 1^st respondent and its employees, being the accomplice have cooperated, should be presented to the Court “warts and all” and the 2^nd respondent is entitled to know everything about the terms of the cooperation agreements and the manner in which the 1^st respondent and its employees agreed to provide the information and assistance to the Commission. This is relevant to assessing the veracity of any such information - which is currently being deployed by the Commission against the 2^nd respondent.”

100.  We agree with the rationale of the President’s ruling on disclosure of the correspondence and communications.  This constitutes relevant material of accomplices, the evidence of which is being relied upon in the case against the non-settling parties, and should, therefore, be disclosed.  The settling parties have engaged in correspondence and communications with the Commission in negotiating and agreeing a settlement, and they have agreed to assist the Commission in the prosecution of its case against the non-settling parties.  As the Commission will be relying on the information and material provided by the settling parties, and to the extent that the employees will give evidence on behalf of the Commission, it is only fair that full disclosure be made of the correspondence and communications to the non-settling parties.  This is required pursuant to the Commission’s duty of disclosure in performing its function in the conduct of enforcement proceedings against the non-settling parties before the Tribunal.  There is no prejudice to the settling parties because they have admitted their involvement in a cartel with the non-settling parties and will give evidence in the case against them. The claim that the correspondence and communications are confidential or subject to without prejudice privilege is based on a bare, general assertion, without anything further to substantiate it.

101.  We would add that, if a party submits that material (such as the correspondence and communications)  , despite disclosure to the non-settling respondents for the purposes of the enforcement proceedings, remains privileged vis-à-vis other third parties or constitutes confidential information under the Ordinance that warrants confidentiality treatment, it may raise the matter with the Tribunal, and the Tribunal may exercise its powers to afford such protection as may be appropriate.

102.  In the premises, ATAL has not established that the correspondence and communications as a general category are confidential and protected by without prejudice privilege as against the JC Parties.  While the JC Parties did not make a formal application for discovery pursuant to Rule 24 of the CTR, it is apparent that the parties in addressing the disclosure of the correspondence and communications were mindful of the relevant requirements and considerations for discovery of confidential information, as they were specifically addressing the issue of accomplice evidence. 

103.  Accordingly, we uphold paragraph 3(b)(iv)  of the President’s order dated 22 February 2024.

CAMP 370/2023: Sentencing of Penalties

104.  The Commission’s grounds of appeal are set out as follows. 

Ground 1.  The Order of the President (Decision [4])  was irrational and/or in error of principle on the following basis:

1.1.  As to the President’s justification of “consistency in penalties” on the basis that the Tribunal “will be at its most familiar with the facts of the case” (Decision [4])  at the adjourned hearing on penalties after trial, the President erred in principle and/or took into account a plainly irrelevant consideration.

a.  Under the Kam Kwong procedure, as between the settling party, i.e., R1 and the Commission, the only facts that should be considered by the Tribunal in deciding on penalties are those that are set out in the Statement of Agreed Facts.  The facts which may be established as between the non-settling respondents (i.e., R2 to R4)  and the Commission should not be relied upon as against those who have submitted to the Kam Kwong procedure (i.e., R1).

b.  As against the non-settling respondents, the facts admitted by R1 by way of the Statement of Agreed Facts are expressly not binding.  It is inherent in the Kam Kwong procedure that respondents may be sentenced on different factual basis.  To the extent that R2 to R4 succeed at trial in disputing the factual basis (or any part thereof)  of the Commission’s case, the pecuniary penalty to be imposed on them – even if liability is established – will be on the basis of a more narrow (and less culpable)  factual basis than that in respect of R1, who has admitted liability to the entirety of the Commission’s case.  There is no justifiable prejudice to R2 to R4.

c.  Any concerns on disparity arising out of determinations by different judges can be addressed by having the matter determined by the same judge.  Provided that the judge bears in mind the relevant considerations applied to the imposition of pecuniary penalty for R1 when determining the matter in respect of R2 to R4, having had the benefit of R1’s submissions on pecuniary penalty, will have the opportunity to make the appropriate submissions in that regard.

1.2.  The President erred in principle and in failing to take into account relevant considerations that distinguish competition proceedings from criminal proceedings, including the following:

a.  the substantial, not insignificant, delay between the conclusion of the Cooperation Agreement (in 2022)  and judgment after trial (estimated to be around 2026 at the earliest), i.e., a matter of years.  The longer the delay, the more imperative that the matter be dealt with ahead of trial (cf. in criminal proceedings, the relatively short delay that generally arises as a result of an adjournment in sentencing results in little prejudice).  Even in criminal proceedings, substantial delay or prejudice arising from an adjournment in sentencing is a ground for departing from the general practice of sentencing co-defendants at the same time by the same judge.

b.  the prejudice to the Commission and R1 arising from the substantial delay and the public interest in the early settlement of cases and the administration of justice.

i.  In light of factors such as the substantial delay between settlement and trial and, pursuant to the President’s adopted approach, the possibility of unforeseen circumstances or evidence being established at the trial that could adversely impact the penalty of the settling respondent (who will unlikely take part in trial)  ([1.1a] above), the President failed to take into account the relevant consideration that the Order would discourage respondents from settling or increase the risk of a settling party resiling from the settlement.  The Order removes one of the primary benefits of settlements to respondents, namely the commercial certainty (including on penalty)  provided by the full and final resolution of a dispute in a timely manner.

ii.  In competition proceedings, changing circumstances over time (particularly where the delay is a matter of years)  can impact a respondents financial ability to pay (cf. criminal proceedings where there is generally no issue of a defendant’s ability to serve his custodial sentence even if sentencing is delayed).  This not only impacts the Commission’s ability to recover – and the public interest in recovering – the agreed pecuniary penalty, it may also deter respondents from agreeing to such sums in an early settlement.

c.  the fact that both the Commission and R1, being the parties to the settlement, wished to have the matter resolved as soon as possible (as recognised at Decision [4])  and acceded to the interest of R2 to R4 in delaying the determination of the penalty of R1.

1.3.  While competition enforcement proceedings involve the determination of a criminal charge for purposes of Article 11 of the Hong Kong Bill of Rights, contraventions of conduct rules are not themselves criminal offences and enforcement proceedings should not be treated in every respect as if they were trials for criminal offences.

1.4.  The President should instead have adopted the courts’ practice in dealing with Carecraft [61] applications in directors’ disqualification proceedings (on which the Kam Kwong procedure is based), which are regularly disposed of by the Court against respondents who have consented to the use of that procedure without awaiting the conclusion of the proceedings against other respondents.  A similar “hybrid procedure” is endorsed by the European Commission in competition matters, whereby separate, staggered penalty decisions are rendered for settling and non-settling parties.

Ground 2.  The holding that generally, determination of the penalty in respect of a respondent who has agreed to the Kam Kwong settlement should be adjourned until after trial or after all respondents have agreed to a Kam Kwong settlement (Decision [5])  was irrational and/or in error of principle.  The reasons set out at [1] above apply mutatis mutandis.

Background

105.  At the first case management hearing in CTEA 2/2023, the JC Parties objected to the Kam Kwong application by the Commission and ATAL being determined before the trial.  They argued that pecuniary penalties for all respondents found to have contravened the relevant provisions should be addressed together.  In considering the approach to imposing a penalty against a party in joint proceedings, the President referred to the practice in criminal courts when sentencing multiple defendants in the same proceedings.  He concluded in the Decision[62]:

“5. It would seem to me that in the present case, and generally in future cases, the appropriate procedure is for the Tribunal to determine liability first and adjourn the determination of the penalty until after trial or after all the respondents have agreed to a Kam Kwong settlement. This is how the Kam Kwong application in the present case should proceed.”

106.  The President explained that adopting this practice, akin to that in criminal cases, was appropriate because “it assists in achieving consistency in penalties and it is more efficient for the Tribunal to deal with sentencing at one hearing when it will be at its most familiar with the facts of the case.”[63]

107.  The Commission contends that the Decision was irrational and that he erred in generally adopting the procedure he proposed. In contrast, the JC Parties submit that the Decision cannot be regarded as plainly wrong, and that he properly exercised his discretion to adjourn the Kam Kwong application. 

108.  By the consent summons dated 17 August 2023 in CTEA 2/2023, the President was asked to impose a single pecuniary penalty covering two distinct cases, each involving ATAL’s cartel conduct with separate undertakings (CTEA 2/2022 and CTEA 2/2023), which were at different procedural stages but with the colluding parties proceeding to trial.  As the Tribunal did not have the first proceedings (CTEA 2/2022)  formally before it, the Commission and ATAL made a joint application that the first proceedings be “consolidated, heard and determined” together with the second proceedings (CTEA 2/2023)  on 27 November 2023. 

109.  In determining a pecuniary penalty, section 93 of the Ordinance, provides that, on an application by the Commission under section 92, the Tribunal must be satisfied that a person has contravened, or been involved in a contravention of, a competition rule before it can make an order for a pecuniary penalty.  The Tribunal must also ensure that the amount ordered is appropriate, having regard to:

(a)  the nature and extent of the conduct that constitutes the contravention;

(b)  the loss or damage, if any, caused by the conduct;

(c)  the circumstance in which the conduct took place; and

(d)  whether the person has previously been found by the Tribunal to have contravened this Ordinance.

110.  In case managing two separate proceedings involving the same principal offender, and dealing with an application for a single penalty across both, the President decided that the appropriate procedure was to determine liability first and to adjourn the determination of the penalty until after trial or after all the respondents had agreed to a Kam Kwong settlement.

The submissions of the parties

111.  The Commission argues that the rights established under Articles 10 and 11 of the Hong Kong Bill of Rights Ordinance (Cap 383)  relating to the determination of a criminal charge are safeguarded in competition proceedings, albeit in forms distinct from those in criminal cases (Scania v Commission [64]; Koon Wing Yee v Insider Dealing Tribunal [65]).  It notes that European courts have upheld the legality of a ‘staggered hybrid’ procedure – similar to the Kam Kwong procedure – against challenges alleging violations of the right to a fair and public hearing under Article 6 of the European Convention on Human Rights (Pometon SpA v European Commission [66]).  This procedure allows a settling party to proceed under an accelerated process, resulting in a decision including penalties, while non-settling parties follow the standard procedure.

112.  The JC Parties question why the established practice in criminal cases, where all defendants are sentenced together by the same judge, should not be adopted by the Tribunal.  This practice minimises the risk of wide disparities and ensures that the sentencing court has a comprehensive understanding of the relevant facts.

113.  The Commission makes three points in support of its contention that the President erred in the exercise of his discretion.

The prejudice due to delay

114.  The Commission’s first point is that a substantial delay in imposing the pecuniary penalties agreed with ATAL would cause prejudice.  It argues that any efficiency gained by adopting the criminal practice of sentencing all parties together is outweighed by the prejudice resulting from such delay. 

115.  The Commission submits that the protracted delay between settlement and trial (followed by the determination of the penalty)  distinguishes competition proceedings from criminal cases.  In criminal cases, the period between a plea and the trial of other defendants is usually relatively short and does not ordinarily result in serious injustice in sentencing, although substantial delays in complex criminal cases such as fraud are recognised as unacceptable.  By contrast, competition proceedings almost always involve significant delays, particularly between the conclusion of a settlement agreement and the determination of penalties. 

116.  The Commission contends that such delays prejudice both the settling party and the Commission.  For the settling party, delay creates practical difficulties for business operations, including the need to make financial provision for the substantial penalty and to comply with any related requirements for its conduct.  For the Commission, prolonged delay introduces risks and uncertainties in recovering penalties and managing any consequential enforcement, especially if the settling party’s financial capacity to pay changes.  Unlike criminal cases, which primarily concern penalties involving personal liberty, competition cases require the Tribunal to consider practical and factual factors that may evolve over time and affect the nature and amount of the penalty imposed on the settling party.

117.  The JC Parties submit that the Commission has overstated the prejudice.  They contend that even if the appeal were successful, the Kam Kwong hearing would likely occur close to the trial date, so that any supposed benefit of an earlier determination would be minimal.  They further submit that the imposition of a pecuniary penalty on a corporate respondent does not cause significant prejudice; ATAL would simply be required to make provision for the penalty amount.  There is no evidence that postponing the Kam Kwong hearing would jeopardise recovery of the penalty from ATAL.

118.  The Commission points out that the trial dates for CTEA 2/2022 and CTEA 2/2023 are fixed for November and December 2026, respectively, and that it intends to apply for directions for a split trial limited to liability.  On that basis, any determination of penalty would likely occur in 2028, some six years after ATAL’s cooperation agreement concluded in November 2022.  The Commission argues that the assumption that no real prejudice arises in competition proceedings involving only pecuniary penalties fails to take into account the factors it has identified. 

The risk of disparity

119.  The Commission’s second point is that there is no justifiable concern regarding disparities between the penalty imposed on ATAL under the Kam Kwong procedure and the penalties to be imposed on the other respondents.  This is advanced in response to the President’s justification for dealing with sentencing at a single hearing, when the Tribunal will be most familiar with the facts of the case.

120.  The Commission argues that facts established at the trial of the other parties are irrelevant to the penalty imposed on the settling party under the Kam Kwong procedure. Under that procedure, the Tribunal relies solely on a statement of agreed facts, and would be acting improperly if it were to take into account facts found at the trial of non-settling parties when determining the penalty for the settling party. 

121.  The Kam Kwong procedure is modelled on the Carecraft procedure used in applications for the disqualification of directors.  Under that procedure, the court determines the application on the basis of an agreed statement of facts and is not entitled to make findings on other materials.  The procedure does not oblige the court to make a disqualification order, nor does it bind the court to a particular period of disqualification if it considers that the agreed facts do not justify such an order (Secretary of State for Trade and Industry v Rogers [67]; Kam Kwong [68]; Re Emperor Hotel Management Co Ltd [69]). 

122.  The Commission argues that there is no justifiable concern regarding the penalties imposed on the non-settling parties, because the Tribunal is entitled to make different factual and legal findings in their cases and to impose different penalties accordingly.  It refers to Scania [70], a competition case, in which it was observed that, in relation to parties who chose not to settle, the European Commission was not bound by the factual findings and legal classifications adopted in a prior settlement decision.  A similar approach is taken in disqualification proceedings of directors (Secretary of State for Trade and Industry v Tjolle & Ors [71]). 

123.  The Commission contends that disparities in penalties are more of a concern in criminal proceedings, where the main component of the sentence is the starting point of a term of imprisonment, which is largely at the discretion of the court.  In contrast, competition penalties are determined primarily by the financial benefit derived from the contravention.  In W Hing Construction Co Ltd (No 3) [72], Godfrey Lam J (as he then was)  set out the following four-step approach for calculating pecuniary penalties:

•  Step 1 – determining the base amount;

•  Step 2 – adjusting for aggravating, mitigating, and other factors;

•  Step 3 – applying the statutory cap; and

•  Step 4 – applying cooperation reductions and considering pleas of inability to pay.

124.  The Commission submits that this approach focuses primarily on the undertaking’s revenue, with adjustments for aggravating and mitigating factors typically representing only a relatively small fraction of the base amount.  On this basis, it contends that there is no real risk of disparity if, when determining penalties for other parties, the Tribunal has regard to the approach applied to the settling party.  In any event, those other parties may refer to and make submissions regarding the penalty imposed on the settling party.  The Commission also notes that Carecraft applications in directors’ disqualification proceedings are routinely determined prior to the trial of other parties (Securities and Futures Commission v Chen Li Jun & Ors [73]).  Moreover, only the statement of agreed facts is relevant under the Kam Kwong procedure, not those established at the trial of the non-settling respondents.  This is similar to criminal trials involving multiple defendants, where one or some plead guilty on a summary of facts before trial, and others proceed to trial, contesting the prosecution case by challenging the prosecution evidence or calling evidence on their own behalf.  In such circumstances, sentencing of all defendants will usually occur at the conclusion of the remaining trials, although there may be circumstances where a defendant who has pleaded guilty may be sentenced before the trial of those who have pleaded not guilty.

125.  The JC Parties submit that the Commission’s assertion – that there is no justifiable concern over disparity in penalties – is untenable.  They argue that the Tribunal must be satisfied that the facts admitted by ATAL constitute contraventions of the FCR and must determine the appropriate method for calculating the penalty.[74]  They dispute the notion that penalties in competition proceedings are determined primarily by a readily ascertainable figure (the undertaking’s revenue), leaving the Tribunal with limited discretion.  They contend that significant disputes may arise regarding the proper approach to the calculation of the base amount, adjustments for aggravating and mitigating factors, and other relevant considerations.  They further note that the Commission has not yet specified its method for quantifying the penalty against the 2^nd to 5^th Respondents, nor has it exchanged witness statements.

126.  The JC Parties further submit that, in the absence of justification, wide discrepancies in sentencing create an impression of arbitrariness, contrary to the policy of administering punishments in line with the culpability of offenders whose conduct is broadly similar.  Consistent penalties, they argue, promote confidence in the integrity of the administration of justice.  They also contend that, if the matters agreed between the Commission and ATAL are treated as having no relevance in the case against the 2^nd to 5^th Respondents, there is a risk that the Tribunal may reach different findings on liability and penalty, and that it would benefit from hearing submissions from all parties before settling the appropriate method of calculating penalties.

127.  The JC Parties contend that if the matters agreed between the Commission and ATAL have no relevance in the case against the 2^nd to 5^th Respondents, there is a risk that the Tribunal may reach different findings on liability and penalty.  The Tribunal, therefore, would benefit from hearing submissions from all parties before deciding on the appropriate method for calculating penalties, and that this contrasts with Carecraft applications, where the sentencing principles are far more established.

128.  In response, the Commission argues that an early Kam Kwong determination for ATAL poses no risk of inconsistency, as the Tribunal’s findings will be based on facts specific to ATAL and will neither bind nor directly affect other respondents.  To the extent that there are any common issues, the Commission suggests that non-settling respondents may seek leave to make submissions at the Kam Kwong hearing.  It also reiterates that penalties are determined using a relatively structured four-step approach, based on ascertainable factors, which it describes as more transparent than criminal sentencing and which enables other respondents to address relevant issues if and when penalties are considered in their cases. 

129.  While the Tribunal would benefit from hearing submissions from all respondents when determining the appropriate method for calculating penalties, that will depend on whether a case has been established against a particular respondent and on the facts and circumstances as found by the Tribunal.  In our view, the fact that other respondents are contesting the allegations made against them and proceeding to trial does not prevent the Tribunal from determining an appropriate method for calculating penalties based on submissions from ATAL, which may be relevant if penalties must later be addressed for those other respondents.  However, this will depend on the particular facts and circumstances of the case or cases before the Tribunal.

The public interest

130.  The Commission’s third point concerns the public interest in the prompt and efficient settlement of cases (Kam Kwong [75]). It argues that, although a deferred penalty decision may not prevent respondents from settling, the encouragement given to those who plead guilty at the earliest opportunity ought to be recognised and implemented through early sentencing.  Accordingly, a party’s early admission and cooperation should be acknowledged by a timely determination of the penalty, providing an incentive that is distinct from a cooperation discount. 

131.  The JC Parties submit that any potential benefits of an early Kam Kwong hearing are outweighed by the public interest in achieving consistency in penalties and in the efficient use of judicial resources by hearing penalty issues together with those of the other respondents. 

The rights of the JC Parties

132.  The JC Parties submit that there would be an overlap of issues between ATAL and the other respondents, and that they would be deprived of the opportunity to make submissions on these issues.  The Commission argues that the Tribunal’s determination on various issues turns on facts specific to ATAL, which are not relevant to or binding on the other respondents.  However, the Commission suggests that, to the extent that there are issues common to the non-settling respondents, the proper course would be for those respondents to obtain leave to make submissions at the Kam Kwong hearing.  We recognise that the validity and efficacy of such a proposal is questionable when the Kam Kwong application is between the Commission and ATAL based on a statement of agreed facts, particularly while there is an outstanding case with the non-settling respondents.  Nonetheless, the Kam Kwong application is between the Commission and ATAL, and, like a plea of guilty, would not involve the other respondents.

133.  The JC Parties’ argument that any decision arising from the Kam Kwong hearing prior to its trial may infringe its constitutional right to the presumption of innocence is misconceived.  They have elected to contest the Commission’s allegation that it has breached a competition rule, and the case proceeds to trial before the Tribunal.  There is nothing to suggest that there has been an infringement of their presumption of innocence.  As already noted, the Kam Kwong application is between the Commission and ATAL, and whatever facts are agreed between the parties, are not relevant to or binding on the JC Parties. 

The Kam Kwong procedure

134.  Whether to adjourn proceedings is a matter for the Tribunal’s discretion, to be exercised in light of the particular facts, circumstances, and issues of the case.  In competition proceedings, it is usual practice that the question of liability is determined first, followed by a determination of the pecuniary penalty and any other orders.  However, it must be recognised that the Kam Kwong procedure plays a unique and important role in the enforcement of competition law. 

135.  The Tribunal’s function in enforcement proceedings is adversarial.  The Commission decides what case to present to the Tribunal and what allegations to make against the accused party.  The accused party decides what defence to present to the Tribunal and which allegations to dispute or accept.  Where the Commission and the accused party place before the Tribunal a statement of agreed facts in settlement of the case, the Tribunal’s function is to determine the matter on the basis of the case as presented, while satisfying itself that the proposed orders are within its powers and are appropriate under the Ordinance.

136.  The Tribunal has established the Kam Kwong procedure, based on the Carecraft procedure, to expedite the resolution of enforcement proceedings by the Commission against alleged offenders of competition law.  As explained by Sir Richard Shaw VC in Rogers [76], the Carecraft procedure effectively limits the facts on which a court can base its judgment as to the order that should be made for the disqualification of a director.  However, it cannot oblige the court to make a disqualification order, nor can it bind the court as to the period of disqualification to be imposed.  The essential feature of the procedure is that the parties submit an agreed statement of facts on which the disqualification order sought should be made.  Whether the order should be made, or for the period proposed, is a matter for the court. 

137.  Similarly, in applying the Ordinance, the Tribunal is not a rubber stamp.  It must be satisfied that the pecuniary penalty is appropriate, having regard to relevant matters, including the nature and extent of the conduct, the loss or damage caused, the circumstances of the conduct, and any previous contraventions.

138.  In general terms, the Kam Kwong procedure is analogous to a guilty plea in a criminal case, in which the settling party admits that it has contravened a competition rule as outlined in a statement of agreed facts.  By contrast, a non-settling party contests the allegation and proceeds to trial.  There will be a formal hearing at which the non-settling party may challenge the Commission’s evidence and present a defence, including by presenting evidence on its own behalf.  Due to the differing nature and circumstances of the two sets of proceedings, there will be differences between them, mainly because the proceedings involve different parties.  Additionally, one proceeding is based on agreed facts, while the other involves findings of fact based on the clash of evidence presented by the parties at a contested hearing.  We do not consider the risk of disparity to be a valid concern, as it may or may not arise depending on the circumstances of the case.  Even if there is a disparity, there may be a legitimate reason for it.  These are separate proceedings, and each party will be dealt with according to the facts, whether agreed or found, depending on whether it admits or contests its alleged contravention of a competition rule.

139.  The fundamental imperative of competition law is to prohibit conduct that improperly affects competition.  This is achieved by exposing breaches of the competition rules and imposing appropriate penalties on wrongdoers in a practical manner, in accordance with the interests of justice.  It is therefore important to encourage the prompt and effective settlement of disputes in order to eradicate anti-competitive practices [77].  This principle was articulated by Lord Sumption JSC in R (Gallaher Group Ltd)  v Competition and Markets Authority [78]:

“Cartel investigations are notoriously difficult without inside information or the active co-operation of at least one participant and are not necessarily straightforward even then. Early Resolution Agreements are a standard tool at the disposal of competition authorities for settling them by consent at an early stage after the investigation has been notified to those under investigation. A party under investigation is offered the prospect of settling the allegation on the basis of a negotiated admission and a discount on the penalty which would otherwise have been imposed. Properly used, they enable an investigation to be conducted expeditiously, economically and fairly and are in principle in the public interest.”

140.  Lord Sumption identifies an important underlying policy consideration behind leniency and cooperation in the enforcement of competition laws.  The insidious nature of cartel conduct makes it necessary for the authorities to incentivise participants to cooperate.  This is achieved by offering settlement on the basis of a negotiated admission and a discount on the penalty that would otherwise have been imposed.  

141.  Where multiple parties or cases are involved, it would be preferable for the Tribunal to have before it all the facts and circumstances relevant to the case or cases when assessing the appropriateness of a pecuniary penalty.  However, in an agreed settlement between the Commission and an offending party, the Tribunal will have before it a statement of agreed facts and will also receive submissions from the parties in assessing the appropriateness of the proposed pecuniary penalty.  

142.  A key feature of the competition regime is the expeditious and effective resolution of contraventions of competition laws.  To this end, the Commission may enter into an agreed settlement with an offending party on liability and penalty under the Kam Kwong procedure, even if the case against other alleged offenders remains outstanding.  It is incumbent on the Tribunal to give effect to such an agreed settlement to achieve prompt resolution of anti-competitive conduct in the marketplace.  There may be occasions where the agreed facts may be incomplete or imprecise regarding the nature and degree of the contravention, or its impact on the economic interests of relevant entities or the market in general.  In such cases, the Tribunal may require the parties to address these matters, whether on a question of liability or to ensure the appropriateness of the pecuniary penalty.

143.  The Commission advances valid arguments concerning the delay of a Kam Kwong application.  The longer the delay, the greater the likelihood of material prejudice, particularly where a contravention of the competition rules is not addressed expeditiously and effectively.  It is in the public interest to promptly address anti-competitive practices in the marketplace by taking corrective action against such conduct and its perpetrators, including the imposition of pecuniary penalties and other remedial measures.  In these circumstances, there must be a good reason to delay a Kam Kwong application, in which a party admits to contravening a competition rule.

144.  If there is concern that, due to delay, the cooperating party may not be able to pay the proposed pecuniary penalty in the future, the consenting parties and the Tribunal have appropriate mechanisms to address this, such as requiring payment of the proposed pecuniary penalty to the Tribunal until the appropriateness of that penalty is finally determined. Where such issues arise, there are a range of remedial measures available to address them.

ATAL’s Kam Kwong application

145.  In the present application, ATAL is the principal offender involved in two separate cartel contraventions with different parties.  The Tribunal is dealing with two cases at different procedural stages, with the non-settling parties proceeding to trial.  The consent application in CTEA 2/2023 sought to resolve both liability and penalty in respect of CTEA 2/2023 and CTEA 2/2022 by means of a single pecuniary penalty, at a time when the two cases had not been consolidated and, except for ATAL, the respondents in CTEA 2/2022 were not before the Tribunal at the first case management hearing of CTEA 2/2023.

146.  These circumstances raised potential legal and procedural issues, including the propriety of imposing a single penalty covering two separate cases, and the interaction between a consent order in one proceeding and its effect, if any, in another.  The President, being familiar with both cases, was best positioned to address the consent application submitted by the Commission and ATAL.  While the Commission and ATAL preferred to resolve the matter as soon as possible, the President was entitled to consider whether, in the circumstances and configuration of the cases, it was more appropriate to determine liability first and address penalty only after the trials or settlements of the other respondents.

147.  Having regard to the stage of each case, the procedural matters associated with a single penalty covering two cases, and the need to manage both cases effectively, the President concluded that in this case, the appropriate course was to determine liability first and adjourn penalty determination until after trial or after all respondents had agreed to a Kam Kwong settlement.  He emphasised that this approach would assist in achieving consistency in penalties and would be more efficient, as the Tribunal would be most familiar with the complete factual matrix at the sentencing stage. 

148.  We do not consider that the President was purporting to lay down a rigid rule that penalties must always be adjourned pending the conclusion of all related cases.  However, it is noteworthy that the usual practice in competition proceedings is for liability to be decided first, followed by a determination and imposition of a penalty and the making of other related orders.  It was open to the President, for the reasons he gave, to adjourn the determination of the penalty in this instance. 

149.  In the circumstances of this application, it cannot be said that the Decision was plainly wrong or that he exercised his discretion unreasonably.  However, we would stress that the importance of prompt and effective enforcement of competition rules means that an admission of contravention and a proposed penalty under the Kam Kwong procedure should not normally be adjourned to await the outcome of proceedings against other alleged offenders unless there is good reason to do so.  Each case must be considered on its own facts and procedural circumstances.

150.  Accordingly, we uphold the Decision to adjourn the determination of ATAL’s penalty in this particular case, whilst emphasising that, as a matter of general principle, Kam Kwong applications should ordinarily be determined without unnecessary delay. 

Conclusion

151.  In CAMP 369/2023, for the reasons stated, treating the leave application as the hearing of the appeal, we grant ATAL leave to appeal the President’s order that the correspondence and communications between the Commission and ATAL and its employees be disclosed, but dismiss the appeal.

152.  In CAMP 370/2023, for the reasons stated, treating the leave application as the hearing of the appeal, we grant the Commission leave to appeal the President’s ruling that the Tribunal determine liability first and adjourn the determination of penalty until after trial or after all the respondents have agreed to a Kam Kwong settlement, but dismiss the appeal.

153.  As costs follow the event, we make, in each case, an order nisi that costs be awarded to the 2^nd to 4^th Respondents.