By decision dated 16 December 2020 ( HKCT 11), the Tribunal dealt with the consequential orders to be made against the 4 respondents (ie, Nutanix, BT, Innovix and Tech 21) which were found in a previous decision dated 17 May 2019 ( HKCT 2) to have contravened the first conduct rule in relation to a tender exercise conducted by the Young Women’s Christian Association (“YWCA”) for the supply and installation of an information technology server system.
A consent summons was signed between the Commission and 3 of the respondents (ie, Nutanix, BT and Innovix) covering the proposed declarations, orders for pecuniary penalties, and order for costs, pursuant to the “Kam Kwong procedure”.
The Tribunal made a declaration that Nutanix, BT, Innovix and Tech 21 have each contravened the first conduct rule under s6 of the Ordinance.
The Tribunal adopted the 4-step approach as set out in Competition Commission v W Hing Construction Co Ltd & Ors ( HKCT 1) (“W Hing Construction”):-
- Determining the base amount;
- Making adjustments for aggravating, mitigating and other factors;
- Applying the statutory cap; and
- Applying cooperation reduction and considering plea of inability to pay, if any.
For Step 1, the relevant value of sales was the revenue derived from the sales of the product which formed the subject of the YWCA tender, ie, equipment comprising a Nutanix hyper converged server system and services relating to the supply of such system including installation and maintenance.
The gravity percentage of 17% was adopted because the conduct was a “one off”, there was no price inflation between the first and second tenders and there was no direct financial reward for the friendly firms who put in the dummy bids.
The duration multiplier of 1 was adopted. Bid rigging may be very short in duration even though its effects on competition potentially last much longer. If the number of days on which the relevant conduct occurred turned into a fraction of a year to be applied as a multiplier, the base amount will end up being inordinately small.
For Step 2, an uplift of 40% to the base amount for Nutanix was adopted. Nutanix acted as the leader or instigator in the contravention, in the sense that it took part in formulating the bid rigging scheme and coordinated the dummy bids from the other respondents. None of the respondents had previously been found to have contravened the Ordinance. On the other hand, a downward adjustment of 20% to the base amount was accepted given that YWCA did not ultimately award a contract pursuant to the tainted tender. This also meant that there was no loss or damage caused by the conduct. The net adjustment for Nutanix for this stage was therefore +20%.
For Step 3, as the Step 2 figure for Nutanix exceeded the statutory cap, the statutory cap was therefore taken as the Step 3 figure.
At Step 4, a redacted cooperation discount was given to Nutanix given its cooperation at the penalty/costs stage of these proceedings by providing financial documents and information on a voluntary basis and agreeing to make a joint application to the Tribunal pursuant to the Kam Kwong procedure.
The end result was a penalty in the amount of HK$2,394,404 for Nutanix.
BT did not generate any turnover from sales of any Nutanix hyper-converged server system and related services in its financial year ended 31 March 2017. The Commission has examined its value of sales in the preceding year but took the view that it does not reflect the actual scale of the undertaking’s activities in the relevant product, and therefore concluded that it was not practicable to apply an approach based on value of sales.
The Tribunal therefore accepted a “lump sum approach” suggested by the Commission, which considered what an appropriate pecuniary penalty for BT would be in all the circumstances. This approach was used in the case of AC Treuhand AG v EU Commission (Case C-194/14P), paras 60-70.
A redacted sum was submitted by the Commission which has taken account of all the circumstances including the Step 2 figures for the other respondents, that BT’s culpability was on a par with that of Nutanix, and the proportion the figure bears to BT’s total Hong Kong turnover in the relevant year.
For Step 3, the said sum is below BT’s statutory cap.
For Step 4, a redacted cooperation discount was given to BT on the basis that:-
(1) During the investigation, BT assisted the Commission to access devices seized from BT’s premises and made submissions on factors such as relevant market structure; and
(2) BT’s cooperated in the penalty/costs stage as for Nutanix and Innovix.
The penalty recommended for BT is HK$2,730,000, which was agreed by BT.
A gravity percentage of 17% and a duration multiplier of 1 was adopted.
In Step 2, Innovix was also given a discount of 20%.
However, the resultant figure in Step 2 for Innovix, if not further adjusted, would represent only a relatively small percentage of its total turnover for the year 2016. In order to ensure the effectiveness of the competition regime, specific deterrence is called for in relation to Innovix and there should on that ground be an uplift of the result at Step 2 by 50%, to deter the particular undertaking from engaging in further anti competitive practices.
For Step 3, the Step 2 figure for Innovix is below the statutory cap.
For Step 4, a redacted discount is likewise adopted for Innovix, for its cooperation during the penalty/costs phase of the proceedings.
The agreed penalty for Innovix is HK$1,857,542.
The same gravity percentage of 17% and duration multiplier of 1 is applied.
To account for the mitigating factor that YWCA did not ultimately award the contract based on the tainted tender, and in parity with the other respondents, a 20% discount is applied in Step 2.
For Step 3, the Step 2 figure of is below Tech 21’s statutory cap.
For Step 4, Tech 21 has not cooperated with the Commission during any stage and no cooperation discount is warranted.
The penalty on Tech 21 is therefore HK$187,740.
Nutanix, BT and Innovix would pay the Commission’s costs of the proceedings each in the sum of HK$2,887,680, which reflects the following:-
- Overall relevant costs incurred by the Commission (excluding certain interlocutory matters) amount to about HK$18.8 million.
- In line with the approach adopted in W Hing Construction at para 139, the amount is reduced by 20% to reflect the fact that this was the first case in the Tribunal and more costs would have been incurred because of the novelty of the law than otherwise.
- A further discount of 20% is made to take account of the fact that the Commission failed in relation to SiS and the standard of proof issue.
- A further discount of 20% is adopted in lieu of taxation of costs.
- The Commission, Nutanix, BT and Innovix will each bear their own costs in relation to the determination of the consequential orders.
- Nutanix, BT and Innovix will each bear 30% of the resultant costs figure of HK$9,625,600, ie, HK$2,887,680 each.
As for Tech 21, having regard to the role it played in the contravention and in the proceedings, it should be ordered to pay 10% of the Commission’s costs of these proceedings (subject to a discount of 20% referred to above, and excluding the costs relating to SiS and the standard of proof issue), with a certificate for three counsel for the trial. The Tribunal also held that it should also bear the costs of the consequential orders hearing, with a certificate for one counsel. Tech-21 may elect to agree the costs at the sum of HK$962,560. In the absence of agreement, the costs are to be taxed.
The Commission did not seek any costs of investigation against any respondent pursuant to s96 of the Ordinance.