Philip Monaghan, Partner; Scott Schaeffer, Counsel; and Charles Paillard, Associate; O’Melveny, discuss the implications of a recent decision by the Hong Kong Competition Tribunal which clarifies respondent discovery rights in enforcement actions brought by the Competition Commission.
The Hong Kong Competition Tribunal, which hears all cases regarding violations of Hong Kong’s competition law, recently issued a decision addressing the discovery obligations of the Competition Commission in proceedings before the Tribunal. The decision, Competition Commission v Nutanix Hong Kong Limited and others (CTEA 1/2017  HKCT 1), is the first of its kind. It provides increased clarity on a number of discovery issues relevant to respondents in enforcement proceedings. Key holdings include:
- Leniency communications. Communications between the Competition Commission – Hong Kong’s competition enforcement agency – and parties who unsuccessfully seek leniency are privileged and need not be disclosed in later proceedings.
- Complaints to the regulator. Complaint forms filed by members of the public – which can result in Commission investigations and Tribunal proceedings – are ordinarily protected from disclosure.
- Internal Commission documents.
The Commission’s internal documents are not exempt from disclosure simply because they are internal. Any withholding must be justified based on the content of the individual document. Public interest immunity may, however, extend to (1) internal communications which reveal the Commission’s sources or plans, methods, procedures, and tactics; and (2) reports made by staff and case handlers to Commission members for decision and minutes of Commission meetings.
- Scope of discovery. Discovery in Tribunal proceedings ‘should approach the standard applicable to the prosecution in criminal proceedings’, including the disclosure of relevant material which may undermine the Commission’s case or advance a respondent’s case.
Notably, the Nutanix decision did not address discovery obligations placed on respondents. Still, the decision’s guidance regarding Commission obligations and respondent discovery rights should aid respondents in future enforcement actions.
This article discusses in detail the Nutanix decision, highlighting key takeaways and comparative considerations relative to other jurisdictions.
Hong Kong’s Competition Ordinance (Cap 619) took effect in December 2015. In March 2017, the Commission filed its first enforcement action, alleging that Nutanix and other information-technology companies engaged in bid rigging. Specifically, the Commission alleged that Nutanix orchestrated the submission of fake ‘cover’ bids in order to ensure another respondent secured a contract to supply and install an IT server system for the Hong Kong Young Women’s Christian Association.
SiS International Ltd (SiS) – one of the respondents accused of submitting a so-called ‘dummy’ bid – sought discovery from the Commission. On 26 May 2017, the Tribunal issued an order requiring the Commission to disclose ‘a list of documents . . . separating: (a) those sought to be relied upon and used by [the Commission] in these proceedings, and (b) unused materials, with the origination of each of the documents identified.’ SiS argued that the Commission’s subsequent disclosure was deficient and sought redress before the Tribunal.
On 14 March 2018, Justice Godfrey Lam partially ruled in favour of SiS. He made a number of points at the outset, holding that:
while the Rules of the High Court (O 24 r 2 of the Rules of the High Court) apply to Tribunal proceedings, there is no automatic general discovery in enforcement actions before the Tribunal
- discovery is at the discretion of the Tribunal
- while discovery in Tribunal proceedings should approach the standard applicable in criminal proceedings, the law does not require automatic disclosure of all unused materials, only those materials meeting the ‘test of relevance’, and
- even if competition cases involve the determination of a criminal charge, this ‘does not necessarily mean that criminal jurisprudence and procedures apply, or apply in the same way in all respects to these proceedings’.
Justice Lam then examined each class of documents subject to the discovery application lodged by SiS.
SiS sought all without prejudice correspondence, as well as all records of without prejudice communications, between the Commission and respondents in relation to the Commission’s leniency policy. The Commission was willing to produce (1) any pre-existing documents provided during the course of the leniency process, and (2) communications related to successful leniency applications (an academic concession in the circumstances as there were none). It objected to the production of communications between the Commission and unsuccessful leniency applicants or records of such communications, invoking the without prejudice privilege and public interest immunity. Justice Lam sided with the Commission.
Public Interest Considerations. The Commission’s Leniency Policy emphasises that leniency is ‘a key investigative tool’, and that it is ‘in the public interest that leniency should be accorded to an undertaking which is willing to terminate its participation in cartel conduct’. The Commission argued that disclosure of communications related to unsuccessful leniency applicants would ‘severely undermine’ the leniency programme, as individuals and companies would be hesitant to come forward without the assurance of confidentiality.
Justice Lam balanced the public interest considerations of encouraging leniency applicants against the desire to determine Tribunal proceedings based on all available information. He held that the public interest in non-disclosure of unsuccessful leniency communications outweighs any contrary interest in disclosure.
Justice Lam recognised the ‘strong public interest in encouraging eligible parties to apply for leniency and in facilitating free and frank communication in the process’. Disclosure of unsuccessful leniency communications would mean that leniency applicants would be in a ‘worse position than those who have not applied for leniency at all’. For the same reason, Justice Lam suggested that public interest weighs in favour of an informer privilege for any person who has given information to the Commission, although that privilege would still be subject to a balancing exercise.
Still, Justice Lam acknowledged – and the Commission did not contest – that the Commission should disclose (i) any pre-existing documents provided during the course of the leniency process, and (ii) any ‘successful’ leniency communications (that is, where leniency had been granted – there were, however, no successful leniency applications in the case as noted above).
Without prejudice privilege. Justice Lam also held that communications regarding unsuccessful leniency applications benefited from the without prejudice privilege or ‘a privilege akin to it’. As a general rule, this means that leniency communications and any information contained therein cannot be disclosed or used against the unsuccessful applicant in enforcement proceedings.
Justice Lam explained that without prejudice privilege facilitates the kinds of cooperation and settlement envisioned by the Leniency Policy. As in civil litigation, parties must be able ‘to put their cards on the table’ and negotiate openly without fear that what they disclose will be used against them. Accordingly, without prejudice privilege applies to ‘negotiations between the Commission and persons subject to investigation and proceedings even though the context lies outside litigation of private rights’.
Finally, Justice Lam concluded that without prejudice privilege would also apply to settlement negotiations (separate and apart from leniency communications) between the Commission and potential enforcement targets, at least when those communications have not resulted in a successful settlement agreement. Although not expressly discussed, the holding appears to imply that successful settlement negotiations may be disclosed.
Complainant’s original complaint
The Commission objected to the disclosure of the original complaint form alerting it to the potential bid rigging. The Commission claimed that public interest immunity was warranted in order to encourage reporting without fear of disclosure. Justice Lam recognised that the complaint form, along with the complainant’s name and contact details, normally is confidential and covered by informer privilege. In the Nutanix case, however, the Commission had already revealed the identity of the complainant, likely with the complainant’s consent. That fact undermined any further interest in protecting the complaint form and the Tribunal ordered the Commission to disclose the document.
Internal Commission documents
The Commission objected to the production of any internal reports, minutes, or correspondence regarding its investigation and ongoing Tribunal proceeding against the Nutanix respondents. Justice Lam rejected the Commission’s claims that (1) these internal Commission documents were irrelevant as a matter of law, and (2) that the public interest privilege uniformly prohibited the disclosure of internal documents. He acknowledged, however, that legal professional privilege would apply to the extent the dominant purpose of any communication was for obtaining legal advice.
For any document not related to the obtaining of legal advice, Justice Lam concluded that discovery obligations must be assessed by reviewing the contents of the documents. The Nutanix decision indicates that the first step in assessing disclosure is relevance. It is only when documents are relevant that a question of public interest privilege can arise.
Relevance. The decision is clear that a document is not ‘necessarily irrelevant simply because it is an internal communication within the Commission’. For example, an internal document may be relevant and discoverable when it records information gathered during an investigation and that information has not otherwise been disclosed. Conversely, an internal document would likely be irrelevant if the Commission has already disclosed the primary material on which the internal document is based.
Public interest immunity. Justice Lam refused a ‘sweeping proposition that every internal communication is privileged’ pursuant to public interest privilege. And while the Commission attempted to divide its internal documents into five subcategories, Justice Lam concluded that many of the categories were too broad to assess whether disclosure was required. Some of the key conclusions regarding internal documents are set out above.
The Nutanix decision also addressed the disclosure of documents related to a witness statement by Mr D, an employee of SiS who purportedly participated in the bid rigging and who received immunity. SiS requested a ‘warts and all’ account of the witness. Justice Lam ruled that the Commission must disclose two intermediate drafts of the witness statement not previously shared, but refused to require disclosure of internal notes made prior to meetings with Mr D. Justice Lam explained that ‘warts and all’ does not mean ‘everything under the sun’.
The Nutanix decision is notable for an additional reason: the Commission’s positions on disclosure and privilege mirror those taken by antitrust enforcers in other jurisdictions, notably the US Department of Justice (DOJ). In the US, the DOJ ‘holds the identity of leniency applicants and the information they provide in strict confidence, much like the treatment afforded to confidential informants’. On that basis, the DOJ has successfully argued that communications and information received from leniency applicants – both successful and unsuccessful – can properly be withheld. In particular, courts have accepted that the disclosure of confidential sources (including their very existence) ‘would lead members of the cartel to identify and intimidate the leniency applicant and to more carefully hide information’, placing at risk ongoing and future investigations.
The DOJ has also successfully challenged the disclosure of internal documents on privilege grounds, including under the attorney-work-product privilege, the deliberative-process privilege (sometimes called ‘executive privilege’) and the attorney-client privilege. The attorney-work-product privilege in particular ‘extends to documents and tangible things that are prepared in anticipation of litigation or for trial by an attorney’, which is broad but not without limits.
Philip Monaghan, Partner; Scott Schaeffer, Counsel; and Charles Paillard, Associate; O’Melveny
Copyright: O’Melveny & Myers LLP
The Competition Commission’s leniency policy is available on the Commission’s website: www.compcomm.hk.
This article is a summary for general information and discussion only. It should not be relied upon as legal advice and does not purport to represent the views of O’Melveny & Myers LLP.