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Hong Kong courts

10 construction firms deny price fixing for Hong Kong home renovations at housing estate

  • Competition Tribunal hears allegations that contractors conspired to share out work on allocated floors at agreed prices
PUBLISHED : Monday, 26 November, 2018, 8:42pm
UPDATED : Monday, 26 November, 2018, 8:42pm

Ten construction and engineering companies accused of working together to fix prices and influence the market for renovations on a new Hong Kong public housing estate have denied the allegations by the city’s antitrust regulator.

The Competition Commission says 10 contractors for Phase 1 of On Tat Estate in Kwun Tong fixed package prices and agreed among themselves to focus their business on allocated floors after their appointment in August 2015.

But lawyers for the firms flatly denied anti-competitive conduct on Monday, with some countering that their collaboration was necessary for economic efficiency which would benefit consumers in the end.

It was the second case the commission had brought to a tribunal following a bid-rigging case that accused five technology companies of anti-competitive arrangements in a tendering process by the Hong Kong Young Women’s Christian Association in 2016.

Opening his case for the commission, Daniel Beard QC said the 10 companies had blatantly breached the first conduct rule of the Competition Ordinance, which prohibits any agreement or concerted practice with the objective or effect of preventing, restricting or distorting competition.

Beard alleged the contractors had discussed among themselves to each renovate four floors in each block, with each of the four floors being 10 floors apart. Under the alleged agreement, they would not accept nor actively seek business from tenants on other floors, and would direct interested tenants to their allocated contractors.

He said the companies also printed promotional fliers together and shared the cost.

The 10 contractors combined renovated 868 of the 2,582 flats in the 10 blocks. Only 35 units involved work not carried out in accordance with the 10 firms’ alleged floor allocation plan.

Beard said their conduct removed choice from consumers and undermined rivalry among competitors.

Our Competition Commission is pushing this one, very bad, idea

“Market sharing and price fixing are simply antithetical to competition,” Beard said.

But Carter Chim, who represents two of the contractors, countered: “Any reasonable person who listened to the commission’s case would have this lingering doubt: why would the respondents share the market and fix the price?”

Chim said basic economics dictated that the contractors had no market power or economic incentive to fix prices, given the unique characteristic of the market that they were not direct competitors.

All they had agreed on was a cleaning arrangement in which Chim said the contractors collaborated in clearing construction debris and waste from multiple flats on the same floor in one go to save time waiting for lifts.

“It’s natural for them to focus their business on particular floors,” Chim said. “Otherwise they would face a free-riding problem.”

Chim argued that the commission must show the conduct in question was capable of harming competition and consumers, or there would be a real risk of the commission bringing more cases in which no consumer harm could be demonstrated.

“If they win this case, will consumers benefit from lower prices? The answer is ‘no’,” Chim said. “Is it a waste of resources for the Competition Tribunal to deal with this case? The answer is ‘yes’.”

Richard Yip, representing four other contractors, added that his clients were small business owners providing renovation services to public housing residents at a “very, very modest price” of about HK$20,000 to HK$30,000 per flat.

“Despite this low price they are being prosecuted for market sharing and price fixing,” Yip said.

The 10 companies are W. Hing Construction Company Limited, Sun Spark Construction Limited, Mau Hang Painting & Decoration Company, Tai Dou Building Contractor, Kam Kee Machine Electrical Iron Works Company Limited, Hip Yick Construction Company, Tai Wah Civil Engineering, Wai Sun Iron & Decoration Company, Wide Project Engineering & Construction Company and Luen Hop Decoration Engineering Company Limited.

The 24-day hearing continues before Competition Tribunal president Godfrey Lam Wan-ho.