COMPETITION COMMISSION v. ATAL BUILDING SERVICES ENGINEERING LTD AND OTHERS

CTEA 2/2022 and CTEA 2/2023

(HEARD TOGETHER)

[2025] HKCT 3

CTEA 2/2022

IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ENFORCEMENT ACTION NO 2 OF 2022

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IN THE COMPETITION TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COMPETITION TRIBUNAL ENFORCEMENT ACTION NO 2 OF 2023

____________________

____________________

(HEARD TOGETHER)

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REASONS FOR DECISION

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1.  On 6 June 2024 I heard at the same time case management conferences in CTEA 2/2022 and CTEA 2/2023. The reason they were heard together was because the Commission had listed a summons in each proceeding that they be consolidated. I indicated at the outset of the hearing that I would not make such an order, although I had no objection (and neither did the Respondents in the two proceedings) to them being heard one after the other. As can be seen from the titles to the two proceedings they have one common party. They both concern alleged contraventions of the First Conduct Rule (“FCR”) in connection with tendering for air-conditioning maintenance, installation, repair or replacement works. There is little overlap between the facts other than for the business activity, which is the subject of the alleged anti-competitive practices and the identity of the 1^st Respondent. It seemed to me clear that the opposition to the application to consolidation of the principal Respondents in both proceedings, principally on the grounds that it would result in them having to participate in a longer, more complicated trial, is justified. It also seemed to me that although the total hearing time for the trial of the two proceedings might be shortened, there was potentially plenty of room for complication, because the Tribunal would be hearing two different cases simultaneously. I have, therefore, reserved dates for the trial in CTEA 2/2022 from 26 October 2026 to 13 November 2026 and CTEA 2/2023 from 30 November 2026 to 18 December 2026.

2.  The Commission has also sought directions that “the evidence in the trial of CTEA 2/2022, insofar as it is relevant to the issues in CTEA 2/2023, do stand as evidence in the trials thereof”. I am not prepared to make such a direction until the evidence (in the form of witness statements) have been served and an informed view can be taken on whether this is practical or will create more challenges than it avoids. I dismissed the Commission’s summons filed on 12 April 2024 in CTEA 2/2022 and CTEA 2/2023. The costs of the summons be the Respondents’ costs in the cause.

3.  The directions sought by the Commission for the further conduct of the two proceedings are largely conventional. There were differences over the inclusion of some and directions and time periods for compliance with the directions for exchange of witness statements. I made the directions contained in the orders dated 6 June 2024, which for ease of reference I have included as Annex 1 and 2 to these reasons.

Further and Better Particulars sought by 2^nd to 4^th Respondents in CTEA 2/2023

4.  The 2^nd to 4^th Respondents (“Johnson Controls”) seek further and better particulars of various paragraphs of the Notice of Originating Motion (“ONA” and “Particulars” respectively). I will approach the dispute over Johnson Control’s entitlement to the Particulars, by first setting out the Request and the paragraphs of the ONA to which they relate, followed by the principles I consider relevant in determining Johnson Control’s entitlement to them and then how they apply to the facts.

“1. Under paragraph 11(b) of the Originating Notice of Application dated 23 May 2023 (‘ONA’)

Of the plea that:

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

Request

1.1 Please state the amount of any pecuniary penalty sought against the 2^nd to 4^th Respondents (the ‘Proposed Penalty’);

1.2 Please state the methodology for calculation of the Proposed Penalty and any assumptions, parameters and alleged facts underlying the methodology, including but not limited to:

(a) The value of sales alleged to be related to the Proposed Penalty;

(b) The area of commerce alleged to be affected by the alleged Collusive Conduct (as defined in paragraph 7 of the ONA) and how, if at all, the alleged area of commerce affects the Proposed Penalty;

(c) The financial year(s) applied in calculating the Proposed Penalty and the basis for selecting the financial year(s);

(d) The gravity percentage applied in calculating the Proposed Penalty and the basis for selecting that gravity percentage;

(e) The duration multiplier applied in calculating the Proposed Penalty and the basis for selecting that duration multiplier; and

(f) Any aggravating, mitigating and other factors alleged to be relevant to the Proposed Penalty and the effect of those aggravating, mitigating and/or other factors on the Proposed Penalty.

2. Under paragraph 11(d) of the ONA

Of the plea that:

‘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;’

Request

2.1 Please state the basis for seeking an order that the 2^nd to 4^th Respondents ‘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’, including but not limited to:

(a) Any alleged defects in the 2^nd to 4^th Respondents’ existing compliance policies; and

(b) The proposed changes (both in terms of the time period and manner) to the existing compliance policies.

3. Under paragraph 11(e) of the ONA

Of the plea that:

‘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;’

Request

3.1 Please state the particulars of the alleged ‘costs of and incidental to the Commission’s investigation’ sought against the 2^nd to 4^th Respondents, including but not limited to the alleged costs attributable to the 2^nd to 4^th Respondents.”

5.  As can be seen what is sought is details of the relief that the Commission invites the Tribunal to order against Johnson Controls.

The Relevant Legal Principles

6.  The function of properly particularised pleadings is well-established. They include:

(1)  to inform the other side of the nature of the case they have to meet as distinguished from the mode in which that case is to be proved;

(2)  to prevent the other side from being taken by surprise at the trial;

(3)  to enable the other side to know what evidence they ought to be prepared with and to prepare for trial;

(4)  to limit the generality of the pleadings, the charge and the evidence;

(5)  to limit and define the issues to be tried; and

(6)  to tie the hands of the party so that he cannot, without leave, go into any matters not included (although if the opponent omits to ask for particulars, evidence may be given which supports any material allegation in the pleadings).

See Angela Chen v Wai Wai Chen[1].

7.  As Stuart-Smith J (as he then was) observed in Pedro Emiro Florez Arroyo v EquionEnergia Limited[2]:

“9. … it must now be axiomatic that the purpose of statements of case is to ‘enable the court and the parties to identify and define the real issues in dispute’ … That is necessary for the furtherance of other aspects of the Overriding Objective, including ensuring that the parties are on an equal footing, saving expense and ensuring that litigation is dealt with expeditiously and fairly.

10. Seen in this light, the necessity for amendments arises where a party wishes to raise or pursue an issue which the existing pleadings do not accurately and fairly identify for the Court and the other party. The touchstone should be whether the existing pleadings identify the issue with sufficient particularity to enable the opposing party to understand the case it has to meet so that it can take appropriate steps to prepare to meet it (which may include accepting that it is well founded, assessing and pursuing the prospects of settlement, attempting to defeat it, or any variation on these themes) and, if necessary, to enable the Court to rule on the issue in due course…

14. In my judgment, the level of precision that is required when pleading an issue or case… should be determined by the need to provide a fair and sufficient indication to the Court and the opposing party of the case that is being brought and that the opposing party has to meet. … If that information is not provided, there can be no equality of arms and the opposing party is unfairly disadvantaged.” (emphasis added)

8.  A similar point in relation to a party’s ability to consider a settlement being assisted by proper particulars is made in CS Low Investment Ltd v East Asia Warburg Ltd & Others[3]:

“A plaintiff must plead his case with sufficient particularity to enable the defendant to gauge its strength, to admit or deny the allegation made and reasonably to assess the propriety of a payment into court.”(emphasis added)

9.  Rule 7 of the Competition Tribunal Rules (Cap. 619D) (“CTR”) provides that all proceedings before the Tribunal must be commenced by filing an originating notice of application in Form 1 in the Schedule, which must state the reliefs sought and the grounds on which the reliefs are sought. More specifically, Competition Tribunal Practice Direction No.1 (“CTPD 1”) [88] provides that:

“The originating notice of application, initiating the proceedings in the Tribunal, should contain not only the material facts relied upon, but also a succinct presentation of the arguments of fact, economics (if applicable) or law supporting the findings and relief sought, so that from the outset the Tribunal and the respondent are apprised of the substance of the case advanced by the applicant.” (emphasis added)

This is reinforced by [12], which states that “Cases will be managed and directions given by the Tribunal so that the parties’ respective cases are disclosed and the real issues identified and focused upon as early as possible” and the Tribunal will [10] “ensure that cases are as efficiently, inexpensively and expeditiously disposed of as is consistent with fairness”.

10.  I agree with Mr Shieh that in considering how these principles apply it is relevant that they involve the determination of a criminal charge[4] (within the meaning of the Arts. 10 and 11 of the Bill of Rights, albeit not criminal proceedings) and that the Commission invites the Tribunal to impose significant penalties. It is all the more important given the character of the proceedings that a respondent is fully informed at outset of the case, including the relief, advanced against it[5].

Discussion

11.  It is not in dispute that Johnson Controls is entitled to know the case against it in sufficient detail to be able to respond to it either by defending it or proposing a settlement. The Commission’s position assumes that liability will be tried first and only if the Tribunal finds that Johnson Controls has contravened the FCR will the proceedings move onto the penalty stage at which time the Commission will have to provide the type of particulars that Johnson Controls seek. Thus says the Commission it is not necessary at this stage to provide the particulars that Johnson Controls seek.

12.  Johnson Controls dispute this. It says, correctly, that as the Commission’s pleaded case is currently formulated they assume that any penalty will be determined in accordance with the four-stage process explained by Godfrey Lam J (as he then was) in Competition Commission v W Hing Construction Co Ltd (No3)[6]. This involves:

(1)  Stage 1: determining a base amount;

(2)  Stage 2: making adjustments for aggravating, mitigating and other factors;

(3)  Stage 3: applying the statutory cap;

(4)  Stage 4: applying any reduction considered appropriate because of the contravenor’s cooperation and considering a plea of inability to pay.

13.  Stage 1 has several components. First, the value of the undertaking’s sales directly or indirectly related to the contravention in the relevant geographical area. Secondly, a gravity percentage. Thirdly, the period during which the contravening conduct took place (i.e. the duration), which is used as a multiplier applied to the relevant value of the undertaking’s sales. Johnson Controls say that consistent with Form 1 in the Schedule of the CTR and CTPD 1, it is necessary for it to be told, albeit succinctly, “the arguments of fact, economics (if applicable) or law supporting the findings and relief sought, so that from the outset the Tribunal and the respondent are apprised of the substance of the case advanced by the applicant[7].” These will include the following facts and matters, which Johnson Controls seek by way of Particulars:

(1)  §1.1: The amount of the pecuniary penalty;

(2)  §1.2(a): The value of sales;

(3)  §1.2(b): The area of commerce directly or indirectly related to the alleged contravention (for calculating the value of sales);

(4)  §1.2(c): The relevant financial year (for calculating the value of sales);

(5)  §1.2(d): The gravity percentage and its basis;

(6)  §1.2(e): The duration multiplier and its basis; and

(7)  §1.2(f): Any aggravating, mitigating and other circumstances relevant to the calculation of the pecuniary penalty.

14.  It seems to me clear that Johnson Controls is correct and that the combined effect of footnote 5 to Form 1 and [88] is that a compliant Originating Notice of Application will provide the particulars that they seek at the very least of the penalty and the investigation costs. In the case of the compliance program I incline to the view that it is not necessary to provide a draft programme, but the ONA should identify what the Commission says its principal components should be.

15.  The Commission argued before me relying on Rules of the High Court, Cap. 4A, O18 r12(3B), that the Tribunal should not make an order for particulars unless it is satisfied that it is necessary to fairly dispose of the matter or to save costs. CTPD 1 [25](b) provides that O18 is not applicable unless there are pleadings. Plainly the ONA is not a pleading for this purpose otherwise this rule would be rendered meaningless as the proceedings are always commenced by an ONA.

16.  The Commission is bringing a complaint of a criminal nature, which if made out would normally result in a penalty being imposed, often of a significant amount. Although, CTPD 1 [89] encourages succinctness, it is clear from [88] that an ONA is meant to be a comprehensive exposition of the case a respondent has to meet and that this includes “the findings and relief sought”. It seems likely that the express reference to relief was included, because it is not something that will necessarily be apparent from the matters relied on to prove a contravention, but it forms an important part of the case against the respondent and one, which the respondent is entitled to be told at the outset. The Commission argues that the Tribunal is entitled to take into account in determining the penalty to impose all the circumstances of the case including findings made after a trial on liability and, therefore, it is premature to require the Commission to plead its case as to the calculation of the penalty. It seems to me that this consideration rather than suggest that it is not necessary for the Commission to state its case on the determination of the penalty at this stage, points to the opposite conclusion. If it is thought that evidence may be called and arguments advanced at the trial on liability, which prove to be relevant to the penalty then it is all the more important that the parties know what the competing cases on penalty are before trial in order that the kind of matters the Commission has in mind (but has not identified) as being relevant to the four-stage process I have briefly summarised earlier, might be properly investigated at trial.

17.  It is difficult to see how requiring the Commission to state what at the time the proceedings are commenced it will invite the Tribunal to order by way of penalty and how it should be calculated is imposing an unreasonable burden on the Commission given the character of the proceedings. It is also likely to facilitate rather than hinder the prospects of the parties agreeing to dispose of the proceedings by way of the Kam Kwong procedure.

18.  I will, therefore, make an order in the terms of paragraph 1 of Johnson Controls summons filed on 9 May 2024. I note that the Commission has not provided an alternative formulation were I minded to make an order for Particulars of paragraph 11(b) of the ONA.

19.  So far as paragraph 2 of the summons (competition compliance programmes) is concerned, I will order request 2.1(a). In my view if the current compliance policies are said to be defective the defects should be identified in order that they can be examined at the trial on liability as in my view it is foreseeable that this may have relevance to liability, as they may be relevant to Johnson Control’s staff actions, as well as the possible penalty. I do not think that at this stage the proposed changes are necessary.

20.  The final request in paragraph 3 of the summons is an order that the costs of the investigation be paid by Johnson Controls. The Commission’s response to this request is that it is not necessary to dispose of the matter fairly or save costs. I disagree. For the reasons I have explained the Commission is required to provide details of the relief that it seeks. In the case of the costs of the investigation this is a liquidated amount that must be known to the Commission, even if it may increase. This is a fact that supports the relief sought and should be provided.

Costs

21.  I will make a costs order nisi that the Commission pays Johnson Controls costs of the summons filed on 9 May 2024 in CTEA 2/2023 with a certificate for two counsel, such costs to be taxed if not agreed.

Order dated 6 June 2024 in CTEA 2/2022

IT IS ORDERED that:-

A.  Witness (as against the Applicant and the 3^rd, 4^th and 7^th Respondents (the “Shun Hing Respondents”) only)

1.  The deadline for the filing and exchange of witness statements as to fact be extended to 112 days from the date of this Order;

2.  All witness statements as to fact in reply (if any) to be filed and exchanged within 56 days thereafter;

3.  Such witness statements shall stand as evidence in chief of the respective witnesses unless otherwise directed by the Tribunal;

B.  Counsel’s advice (as against the Applicant and the Shun Hing Respondents only)

4.  Parties do within 28 days after the exchange of witness statements as to fact obtain Counsel’s advice (if necessary).

C.  Interlocutory Applications (as against the Applicant and the Shun Hing Respondents only)

5.  The deadline for parties to take out all interlocutory applications as may be advised, including any witness summons application under Rule 36 CTR, be extended to 28 days after §4 above.

D.  Hearsay Evidence (as against the Applicant and the Shun Hing Respondents only)

6.  The requirement under section 47A of the Evidence Ordinance (Cap. 8) that notice shall be given by any party proposing to adduce hearsay evidence in these proceedings be dispensed with.

E.  4^th CMC and trial window

7.  The matter be adjourned to a date to be fixed for the Fourth Case Management Conference (“4^th CMC”) with 3 hours reserved before the Honourable Mr Justice Harris.

8.  Parties shall within 14 days from the date of this Order, confer with each other and write to the Tribunal to:

(a)  fix a date for the 4^th CMC; and

(b)  fix a trial window.

9.  Parties shall confer with each other and submit a list of all proposed directions not less than 14 days before the 4^th CMC.

F.  Language

10.  The language to be used in these proceedings (including at trial) will be English.

11.  Witness statements and documents in a language other than English must be submitted with a proposed translation for use at trial. Only those parts sought to be relied upon by the parties at the trial, and such other parts as are necessary to give fair and proper context, need to be translated.

12.  Parties shall endeavour to reach an agreement on any proposed translation of documents within 28 days of receipt thereof, failing which the party serving the proposed translation shall obtain a certified translation of the relevant document.

G.  Other Matters

13.  The list of documents filed by the Applicant on 27 March 2024 be provided by the Applicant to the 1^st Respondent within 7 days from this Order and any amended or supplemental list of documents filed by the Applicant by provided by the Applicant to the 1^st Respondent on the same day when such list is served on the other Respondents in these proceedings.

14.  Liberty to apply.

15.  Costs of the 3^rd CMC hearing on 6 June 2024 be in the cause.

Order dated 6 June 2024 in CTEA 2/2023

IT IS ORDERED that:-

A.  Witness (as against the Applicant and the 2^nd – 5^th Respondents only)

1.  All witness statements as to facts shall be filed and exchanged within 56 days from the date of: (a) the determination of the Summons of the 2^nd to 4^th Respondents dated 9 May 2024 for Further and Better Particulars of the Originating Notice of Application dated 23 May 2023; or (b) service of the Further and Better Particulars (if so ordered), whichever is later.

2.  All witness statements as to fact in reply (if any) to be filed and exchanged within 56 days thereafter;

3.  Such witness statements shall stand as evidence in chief of the respective witnesses unless otherwise directed by the Tribunal;

B.  4^th CMC and trial window

4.  The matter be adjourned to a date not before 11 June 2025 for the Fourth Case Management Conference (“4^th CMC”) with 3 hours reserved before the Honourable Mr Justice Harris.

5.  Parties shall within 14 days from the date of this Order, confer with each other and write to the Tribunal to:

(a)  fix a date for the 4^th CMC; and

(b)  fix a trial window.

6.  Parties shall confer with each other and submit a list of all proposed directions not less than 14 days before the 4^th CMC.

C.  Language

7.  The language to be used in these proceedings (including at trial) will be English.

8.  Witness statements and documents in a language other than English must be submitted with a proposed translation for use at trial. Only those parts sought to be relied upon by the parties at the trial, and such other parts as are necessary to give fair and proper context, need to be translated.

9.  Parties shall endeavour to reach an agreement on any proposed translation of documents within 28 days of receipt thereof, failing which the party serving the proposed translation shall obtain a certified translation of the relevant document.

D.  Other Matters

10.  Liberty to apply.

11.  The list of documents filed by the Applicant on 21 March 2024 be provided by the Applicant to the 1^st Respondent within 7 days from this Order and any amended or supplemental list of documents filed by the Applicant be provided by the Applicant to the 1^st Respondent on the same day when the such list is served on the other Respondents in these proceedings.

12.  Costs of the 3^rd CMC hearing on 6 June 2024 be in the cause.