This news article provides updates to our news article published on 31 January 2022, where we noted that the Competition Commission had commenced an enforcement action in the Competition Tribunal against five parties, comprising of three hotel operators, a travel services provider and a managing director of the travel services provider, alleging that the respondents were part of a travel services sector price-fixing cartel, and we noted that three of the respondents had elected to cooperate (“Settling Respondents“).

On 15 July 2022, the Tribunal granted orders to dispose of the proceedings between the Commission and the Settling Respondents by consent. The orders were granted based on the joint applications made by the Commission and the Settling Respondents. In the applications, the Settling Respondents admitted liability for contravening the First Conduct Rule of the Competition Ordinance or for being involved in the price-fixing cartel.

The Settling Respondents were: 1) Gray Line Tours of Hong Kong Limited (“Gray Line”); 2) Tak How Investment Limited (“Tak How”), owner and operator of InterContinental Grand Stanford Hong Kong; and 3) Mr. Wu Siu-Ieng, Michael, Managing Director of Gray Line (“Mr. Wu”). The Tribunal ordered Gray Line and Tak How to pay pecuniary penalties of HK$4,177,000 and HK$1,600,000 respectively, which reflected a 25% and 20% discount from their respective levels of recommended pecuniary penalty for their cooperation with the Commission, and ordered both to pay the Commission’s investigation and litigation costs. The Tribunal also ordered that Mr. Wu be disqualified from acting as a director in any company for three years. The enforcement action against the two hotel operators that did not elect to resolve the proceedings by consent continues.

The reduced pecuniary penalties that Gray Line and Tak How were ordered to pay reflect the benefits for undertakings to cooperate with the Commission pursuant to its “Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct” (“Cooperation Policy“). The case with the Settling Respondents is significant as it is the first case where the Commission obtained an order from the Tribunal resolving an enforcement action pursuant to the Cooperation Policy.

For further information, the Commission’s guidelines and policy documents can be found here.

On 2 June 2022 the Court of Appeal handed down its judgment on the Competition Commission’s (“Commission“) appeal against pecuniary penalties imposed by the Competition Tribunal (“Tribunal“) against certain respondents.

One of the issues raised on appeal was whether the Tribunal erred discounting the pecuniary penalties imposed on certain respondents that did not directly engage in anti-competitive conduct. The respondents in question were construction and engineering contractor companies that had subcontracted the works on two public housing estates and let their Housing Authority licences to subcontractors who in turn were found to have entered into price-fixing and market sharing agreements in breach of the First Conduct Rule of the Competition Ordinance (Cap. 619) (“Ordinance“).

At first instance the Tribunal discounted the pecuniary penalties imposed on these respondents by one-third on the grounds that:

1. the pecuniary penalty was sought only against the respondents and not the respondents together with their subcontractors;
2. it would not be right or safe to assume that the respondents would be able to recoup all or part of the pecuniary penalty imposed from their subcontractors; and
3. the pecuniary penalty imposed should reflect the role of the respondents as only part of their respective undertakings.

The Commission sought to set aside this discount on the basis that the Tribunal had erred on principle and taken irrelevant factors into account (or had failed to take account of relevant factors). The Commission contended that the pecuniary penalty must be specific to the undertaking and the undertaking’s contravention of the Ordinance, not to the natural or legal persons constituting the undertaking and/or their role within the undertaking.  Rather, each respondent along with their respective subcontractors formed a single economic unit or undertaking, and each undertaking as a whole infringed the First Conduct Rule.

The Court of Appeal held that it would be wrong in principle to reduce the penalty to reflect the extent of the respondents’ role as part of the undertaking. Where an undertaking contravenes the Ordinance, it is for the undertaking to answer for that infringement, and in this case the respondents and their subcontractors were to be jointly and severally liable for the infringement. Joint and several liability follows when an undertaking constituted by a number of natural and legal entities engage in anti-competitive conduct and facilitates the effective enforcement of the Ordinance. The Court of Appeal accepted that it would be highly onerous for the Commission to name all the entities within an undertaking in enforcement proceedings before the Tribunal in order to avoid any discount to the penalty.

The Court of Appeal allowed the Commission’s appeal, setting aside the one-third reduction and restoring the amount of pecuniary penalties to be paid by the respondents in full.

In The Joint Provisional Liquidators of Seahawk China Dynamic Fund [2022] HKCFI 1994, Harris J granted recognition of and assistance to the provisional liquidators of Seahawk China Dynamic Fund, a solvent entity, and at the same time took the opportunity to inform the banks and other organisations that provisional liquidators are able to exercise the more conventional powers of a company’s agent in Hong Kong which are expressly provided for in the order of their appointment.

This case involves a Cayman-incorporated company (“Company“) which is solvent and in provisional liquidation in the Cayman Islands. The joint provisional liquidators (“JPLs”) were appointed by the Cayman Court.

The JPLs have been trying to take possession of the Company’s assets in Hong Kong, which, expectedly, required the JPLs to obtain a local recognition order.

There were 2 issues before the Court:-

1. whether the court should provide recognition of and assistance to the liquidators of a solvent company; and
2. in light of Harris J’s decision in Global Brands Group Holding Limited (in liquidation) [2022] HKCFI 1789 (which provided that the Hong Kong courts should only recognise a collective insolvency process taking place in a company’s centre of main interests (“COMI”), subject to exceptions – see our earlier article), whether the JPLs’ application should still be granted given that the Company’s COMI is not in the Cayman Islands.

In response to the first issue, the Court held that common law principles of recognition and assistance had no application to liquidators of a solvent company. Instead, the principles of conflict of laws which are independent of those of cross-border insolvency should be engaged, and as a matter of private international law, if a foreign court of a company’s place of incorporation has made an order appointing a liquidator (as in this case), the liquidator will be able to act as the agent of the company with the powers which the liquidator has as a consequence of his appointment.

In response to the second issue, the Court held that while the COMI considerations discussed in the Global Brands case still stand, they would not be relevant if the liquidator of a solvent company was merely seeking an order confirming that he had particular powers by virtue of his appointment in the company’s place of incorporation, as in this case. Harris J also explained that if the foreign liquidation was a solvent liquidation, it would not fall within the principle of modified universalism in the first place, and would be more akin to a ‘private arrangement’ as opposed to a collective insolvency proceeding.

In a message to the banks and “sophisticated organisations”, Harris J reminded them of what he said in his earlier cases, A Co v B [2014] 4 HKLRD 374 and Capital Asia LP v DBS Bank (Hong Kong) Ltd [2016] HKEC 2377, that it should not be necessary for foreign liquidators, whether it be of a solvent or insolvent company, to obtain a local court order in order to access the company books and records.  (For solvent companies, the liquidators’ ability to do so could stem from the powers given to them in the company’s place of incorporation where the order of appointment was made.)  If banks insist that the foreign liquidators obtain a local court order to exercise in Hong Kong no more than the conventional powers of a company’s agent, then they face the risk of an adverse costs order, if made a party to the application.

It is not entirely clear though from Harris J’s judgment in the latest Seahawk case whether it is still necessary for foreign liquidators to obtain a local court order to deal with the company’s assets in Hong Kong.  It would appear that it remains necessary to do so, at least for an insolvent liquidation.

On 28 June 2022, the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission (SFC) issued a joint announcement regarding the inclusion by Mainland and Hong Kong exchanges of eligible exchange-traded funds (ETFs) in mutual stock market access between the Mainland and Hong Kong (ETF Connect).

From 4 July 2022 onwards, in addition to stocks, Mainland and Hong Kong investors may trade eligible ETFs listed on each other’s exchanges through local securities firms or brokers via the existing Stock Connect infrastructure.  Under the ETF Connect, there are currently 83 Mainland-listed ETFs which can be traded by international investors via the northbound Stock Connect routes, while four Hong Kong-listed ETFs have been added by the Shanghai and Shenzhen stock exchanges to the southbound Stock Connect which can be traded by mainland investors.

The ETF Connect is said to be an important milestone because the Stock Connect is expanded beyond stock trading for the first time.  It is hoped that the scheme will strengthen Hong Kong’s position as a top ETF hub and underscore Hong Kong’s unique role in connecting global capital with the Mainland.

For further information, please visit the SFC’s website at this link.

In  Global Brands Group Holding Limited (in liquidation) [2022] HKCFI 1789, Harris J granted recognition of and assistance to the provisional liquidators, and at the same time took the opportunity to notify future applicants of the latest requirements for similar recognition and assistance given to them by the Hong Kong Courts.

The Global Brands case is another  liquidation case where a provisional liquidator was appointed by the Bermudian Court, the same place where Global Brands was incorporated and wound up.

The provisional liquidator had been trying to take possession of the Company’s assets in Hong Kong from custodians, which, expectedly, required the provisional liquidator to obtain a local recognition order before they will release the funds to him.

The Court noted the criteria for granting recognition and assistance to foreign liquidators has been: (a) that the foreign insolvency proceedings are collective insolvency proceedings; and (b) that the foreign insolvency proceedings are open in the company’s country of incorporation. Having revisited the jurisprudence of modified universalism, the Court introduced a new criteria to be adopted in the future in determining whether or not foreign insolvency proceedings should be recognised and assistance granted:–

1. that the foreign proceedings should constitute a collective insolvency process; and
2. that the proceedings should be conducted in a jurisdiction in which the Company’s centre of main interests (COMI) is located. Examples of the factors to help determine a company’s COMI are the location of the directors and board meetings, the company’s principal officers, operations, assets, bank accounts, books and records, and the location in which the restructuring activities took place.

The Court also noted that if the liquidators are not appointed in the COMI of the company but its country of incorporation, then recognition and assistance should be declined unless the assistance sought  is limited in nature (i.e. “managerial assistance”), or the recognition and assistance sought  is a matter of practicality. The Court held that the Global Brands case fell under the first exception, given that the provisional liquidator was appointed in the Company’s place of incorporation, and that the provisional liquidator only requires an order which demonstrates that it is the lawful agent of the Company who is entitled to direct the funds to be transferred to another bank account – i.e. only managerial assistance is sought.

Although the Global Brands case confirms that common law recognition of and assistance to foreign liquidators is still possible, such recognition and assistance are now limited in scope.  In particular, it would be a challenge for “soft-touch” provisional liquidators to be recognised by the Hong Kong Court.