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Law

Hong Kong’s competition watchdog sues 5 IT firms for collusion in bid-rigging in first action under new law

Competition Commission alleges that BT Hong Kong and Nutanix obtained ‘dummy’ bids from ‘friends’ at three other firms to meet YWCA tender rules.

PUBLISHED : Wednesday, 20 June, 2018, 6:53pm
UPDATED : Wednesday, 20 June, 2018, 9:15pm

Any form of bid rigging is a serious breach of the competition law no matter the method or who is involved, Hong Kong’s antitrust tribunal heard on Wednesday in its first case since the ordinance was fully implemented in December 2015.

The city’s antitrust regulator, the Competition Commission, has taken five information technology companies to the tribunal for alleged bid rigging involving a tender issued by a social services organisation, the Hong Kong Young Women’s Christian Association (YWCA), in July 2016.

The hearing is expected to last for 19 days with 12 witnesses set to testify.

The commission’s complaint stems from a YWCA tender for the installation of a new server system based on technology from Nutanix Hong Kong.

The five firms involved in the case are Nutanix and four IT suppliers – BT Hong Kong, which is part of British telecoms giant BT, SiS International, Innovix Distribution, and Tech-21 Systems.

In the first round of tenders, BT was the only firm to bid, so the YWCA issued a second tender.

In a writ filed with the Competition Tribunal, the commission, which provided WhatsApp and email conversations, claimed that representatives from BT Hong Kong and Nutanix obtained “dummy” bids from “friends” at the three other IT companies to meet the YWCA tender requirements.

There was a “high degree of consistency” in common mistakes and omissions made in the four bids, the complaint said.

Antitrust regulator takes first legal action since competition law came into effect

The regulator – which has been accused of dragging its feet in bringing cases to the tribunal – said the firms breached the first conduct rule in the ordinance, in which companies engage in cartel conduct that prevents, restricts or distorts competition.

It is seeking remedies including financial penalties and a declaration that each company contravened the rule. The firms could face a fine of up to 10 per cent of their total sales in 2016.

Five Queen’s Counsel or ­Senior Counsel are involved on both sides in the first challenge under the ordinance.

At the heart of arguments at Wednesday’s hearing was the nature of competition. Counsel for the respondents had argued the commission failed to do market analysis, and that agreements between suppliers and customers, a common occurrence, should not amount to bid rigging.

Mark Hoskins QC, for the regulator, however said that a tender-fixing agreement would “defeat the independent tender process”.

“Throwing in dummy bids … has no other function than to restrict competition. That’s why the parties entered into it,” Hoskins said. “The impact on competition is exactly the same.”

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The commission cited multiple EU cases which said employers have to be accountable for an employee’s role in a dummy bid.

Nutanix’s lawyer, Matthew Gearing QC, said the fact that the first tender received no response was “a clear indication that there’s no or little competition [in the market] to be distorted”.

Asked by tribunal president Godfrey Lam Wan-ho whether communication between bidders was allowed, Gearing said there was no sign of an increased price for the tender, or a trade-off from the winner to the others, which were typical consequences of bid rigging.

Paul Shieh Wing-tai, for Innovix Distribution, said there was no “antecedent negotiations”.

He added: “To put it bluntly, there is no suggestion that there was an overarching meeting by the big bosses in the cigar room to knock out a deal – this time I’ll get the deal, you’ll get it next time.”

Shieh called for the case to be dropped as, according to a witness, the YWCA was told Nutanix had encouraged staff from the four other firms to submit bids. He argued that this prior knowledge quashed claims of bid-rigging under the ordinance.