A Court of Appeal judgment overturns fraud convictions for bid-rigging for cooked food stalls at Tai Po Hui Market and makes clear that bid-rigging is perfectly legal. We call for the proposed competition law to make bid-rigging, price-fixing and other anti-competitive behaviour criminal offences. Civil tribunals won't cut it, not least because they cannot fine humans. In the meantime, the Government should include no-rigging warranties as a requirement for all tenders, so that they can prosecute for fraud.

Cooked auctions in HK
8 April 2010

An interesting newly-published Court of Appeal judgment caught our eye yesterday evening. It has far-reaching ramifications for the way the Government handles sales and procurement of all types of assets and supplies.

In 2004, the tenants (and their assistants) of cooked food stalls at the former Tai Po Temporary Market were given an exclusive opportunity by the Food and Environmental Hygiene Department (FEHD) to bid for 40 stalls in the newly-built Tai Po Hui Market, with reserve or "upset" prices fixed at 75% of the market rent assessed by the Ratings and Valuation Department. Both markets are government-owned. Before the auction, the tenants got together and secretly cooked up a plan. They drew lots for the stalls, and agreed not to compete in the auction. At the auction on 21-Jul-2004, 36 eligible bidders bought 40 stalls, each at the upset price, with no competing bids.

On 21-Mar-2007 the Government charged 19 of them with conspiracy to defraud. One pled guilty, and the other 18 were convicted on 16-May-2008 and sentenced on 19-May-2008 to between 9 and 12 months in jail. The 19 appealed against their convictions, and bail was granted on 13-May-2009 pending appeal. One of them died waiting, and the 18 remaining appeals were granted on 15-Mar-2010. The defendants were free to go. The reasons were handed down on 1-Apr-2010 and appeared online yesterday (7-Apr-2010).

The Court of Appeal, citing numerous authorities including the UK's Goldshield price-fixing case, held that, in the absence of any aggravating circumstances, such as misrepresentation or intimidation, a secret agreement simply to rig an auction was not a conspiracy to defraud. The judgment says:

"if FEHD had wanted to protect itself, it could have required suitable written warranties from a potential bidder."

For example, a representation and warranty that the bidder is not party to any bid-rigging arrangements or agreements (including an agreement for another person not to bid, or not to bid above a fixed price) would then open him to prosecution for fraud. No such warranties were required.

This was not the first time the courts have thrown out a case against bid-rigging. On 16-Mar-2005, seven suppliers to the Housing Authority were acquitted of conspiracy to defraud. They had rigged the tender for steel security doors for apartments, agreeing on who would win each tender, with the others submitting bids at higher prices. Excess profits were then divided amongst the cartel members. The judge said that the cartel was not illegal because no dishonesty had been proven.

Hong Kong's government continues to drag its feet on tabling a Competition Law outlawing anti-competitive behaviour, and even when that comes, the last consultation said that breach of it would be a civil matter to be handled by a tribunal, rather than a criminal offence to be handled by courts. The problem with that is that the average tenant of a cooked food stall is not someone with meaningful financial resources for whom a fine would be a great deterrent.

It is also doubtful whether, in the case of human (rather than corporate) defendants, fines by a tribunal would be upheld under judicial review, following the judgment of the Court of Final Appeal in Koon Wing Yee v Insider Dealing Tribunal (18-Mar-2008), because civil tribunals cannot punish - they can only order compensation. So the proposed competition law should also introduce criminal offences with criminal penalties - fines and/or jail time.

In the meantime, the Government should start including appropriate bidders' representations and warranties in any tenders or auction, including contracts where much more is at stake than a cooked food stall, such as:

In the opposite direction, in all government procurement exercises, the Government should require representations and warranties from suppliers of goods and services that they are not party to any agreement, arrangement or understanding with any other party in relation to the tender. If the Government fails to do this, then it leaves billions of dollars of public money at risk of legal bid-rigging and price-fixing arrangements.

© Webb-site.com, 2010

Organisations in this story

Topics in this story

Sign up for our free newsletter

Recommend Webb-site to a friend

Copyright & disclaimer, Privacy policy

Back to top