In Competition Commission v Nutanix Hong Kong Ltd a High Court judge recently considered the scope of the 'direct use prohibition' contained in Section 45(2) of the Competition Ordinance (Cap 619), which protects a person who is required to answer questions as part of an investigation by the Competition Commission pursuant to Section 42. The case decides that the protection does not extend to a third party (eg, the employer of the person being questioned), even where the third party is the subject of the commission's investigation. The decision is important because it clarifies the scope and beneficiary of the prohibition.
Where the common law privilege against self-incrimination has not been replaced by statute, the individual being questioned may be entitled to refuse to answer questions in civil proceedings. However, the case suggests that an individual who is subject to a requirement to answer questions cannot refuse to do so on the basis that this might incriminate his or her employer. In short, where it is available, the privilege against self-incrimination cannot be claimed for the benefit of a third party (other than a spouse).
Where statute removes the common law privilege against self-incrimination, generally it is provided that a relevant regulatory or investigatory body cannot use any statement made by a person under compulsion against that person in specified circumstances. Those circumstances depend on the wording of the statute. This is generally known as the 'direct use prohibition' – sometimes called 'direct use immunity'.
As with some other regulatory legislative provisions, Section 45 of the Competition Ordinance has abolished the privilege against self-incrimination, although the ordinance preserves legal professional privilege.(1) The privilege against self-incrimination has been replaced with a direct use prohibition. Section 45(2) provides that (save for limited exceptions that did not apply here) no statement made by a person, whether in explaining a document pursuant to Section 41(5) or in answering questions pursuant to Section 42, is admissible against that person in proceedings commenced by the commission for a pecuniary penalty (under Section 93) or a financial penalty (under Section 169).
In Competition Commission v Nutanix Hong Kong Ltd(2) the Competition Commission commenced its first legal proceedings under the Competition Ordinance, which came into force in Hong Kong in December 2015. Under the ordinance, the commission can commence enforcement proceedings before the Competition Tribunal, which has the status of a superior court of record and is presided over by a High Court judge. Enforcement proceedings are civil in nature, not criminal.
In this case, the commission's complaint alleged that the respondents had engaged in bid-rigging type activity in contravention of the ordinance. If true, one or more of the respondents could (among other things) be ordered to pay a pecuniary penalty pursuant to Section 93 of the ordinance.
In the course of its investigations, the commission served three employees of the first two respondent companies with notices pursuant to Section 42 of the ordinance ("Persons may be required to attend before Commission"). These notices required the employees to meet with the commission in order to answer relevant questions. The commission used certain statements made by the employees in its complaint in the proceedings.(3) The two respondent companies applied to strike out references to the statements in the commission's complaint, and to debar the commission from relying on the statements in evidence, on the ground that (among other things) the commission's use of the employee statements prejudiced the respondents' right to a fair trial and was otherwise an abuse of process.(4)
The first respondent company (the employer of one of the three individuals interviewed by the commission) argued that given that the commission might seek to attribute the individual's conduct to the company and that the individual was interviewed as a representative of the company, in effect it was the company who had (for this purpose) made the statements in answer to questions raised in the Section 42 interview. Therefore, so the argument went, the company could also benefit from the direct use prohibition.
The second respondent company's objection to the commission's use of some of the statements made by two of its employees was a variant of the first respondent's objection. In addition, the second respondent argued that the direct use prohibition for the benefit of the person being interviewed by the commission should, as a matter of statutory construction, be interpreted as if it also applied to an entity or other person on whose behalf a statement is to be attributed (eg, a company that is the subject of an investigation).
In response, the commission argued that the statements made by the three individuals were not statements made by the two respondent companies. Therefore, while the statements were inadmissible against the individuals, they were admissible against their employers and anyone else.
It was not disputed that the privilege against self-incrimination had been abrogated by Section 45 of the ordinance and replaced with a direct use prohibition.(5) That prohibition protected a person in the context of Section 41 of the ordinance ("Powers to obtain documents and information") and Section 42. The definition of a 'person' is not limited to an individual and can include any legal entity.(6)
The issue for determination by the judge (presiding over the Competition Tribunal) was the scope of the direct use prohibition and, in particular, whom did it benefit. For example, in this case, could the beneficiary of the prohibition (as regards the use of the statements) include the individual's employer? This, in turn, was primarily an issue of statutory construction.
The judge held that the identity of the person required by a Section 42 notice to attend before the Competition Commission depended on the construction of the notice itself. It was the notice that invoked the commission's statutory power and imposed a legal obligation on the addressee. In this case, the Section 42 notices had been addressed to the three individuals and required their attendance before the commission on certain dates. It did not matter if the Section 42 notices were sent to the individuals care of their work address.(7) Therefore, the direct use prohibition protected the person who gave the explanation or who answered the commission's questions – that person was not necessarily the subject of the commission's investigation. The benefit of the direct use prohibition did not extend to the employers of the individuals (ie, the first two respondent companies).
While the judge acknowledged that the two respondent companies were not arguing that the statements made by an employee in a Section 42 interview should be inadmissible against them merely because they were the employers, he did not accept the argument that:
- the individual employees had been summoned by the commission to speak on behalf of their employer; or
- the individual employees' conduct would necessarily be attributed to the respondent companies when findings of fact fell to be determined at the substantive hearing.
The second respondent's alternative argument (to the effect that words should be imported into Section 45(2) to extend the direct use prohibition) appears to have received short shrift from the judge. On a proper construction of Section 45(2), the judge considered that the legislative intention was clear and the direct use prohibition applied to the person compelled to provide information to the commission.
Therefore, in answer to the main issue raised, the 'beneficiary' of the protection was the person required to attend before the commission and answer its questions. As a result, the challenges to the commission's complaint were dismissed.
The judgment arises in the context of the first legal proceedings launched by the Competition Commission. As a result, the case has attracted considerable attention in Hong Kong, and on current estimates it appears to be listed for a final 15-day hearing in June 2018.
The judgment will, no doubt, be welcomed by the commission and it lawyers.(8) The same might not be said of proponents of the privilege against self-incrimination or the limited protection afforded by the direct use prohibition. Indeed, it is difficult not to have some sympathy for the argument made on behalf of the two respondent companies that, given that a Section 42 notice may be addressed to any individual whom the commission considers can answer relevant questions, the direct use prohibition would appear to offer a corporate entity that is the subject of an investigation little (if any) protection in practice.(9)
While a corporate entity that is the subject of an investigation and to whom a Section 42 notice is addressed could invoke the direct use prohibition in its own right, the determination of which principal officer could be said to represent the corporate entity for this purpose (other than possibly with respect to so-called 'one-man' companies) is fact specific.
On a more sanguine note is the acknowledgement by the judge that a company may claim the privilege against self-incrimination in its own right, in circumstances where the privilege has not been abrogated by legislation. However, the judge considered that an individual who is subject to a requirement to answer questions cannot refuse to do so on the basis that this might incriminate his or her employer or a company of which he or she is a director. This is thought to represent the general common law position in Hong Kong.
In an environment where the demarcation between civil, regulatory and criminal proceedings becomes less and less clear, the issues raised in the case are important. If an appeal ensues it will be interesting to see whether arguments about a corporate entity's fundamental rights have a greater role in the appeal proceedings. In the meantime, the case is a timely reminder of the need to consider whether certain employees or directors of a corporate entity should obtain separate legal representation at the outset of a regulatory investigation and what insurance cover is in place as regards legal costs.
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For further information on this topic please contact Warren Ganesh or David Smyth at RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.
Endnotes
(1) For example, see Section 58 of the Competition Ordinance (Cap 619). The privilege against self-incrimination applies in civil proceedings where (for example) a person's answer to a question or production of a document might expose that person to a real risk of prosecution for an offence or the recovery of a penalty under Hong Kong law – Section 65(1) of Evidence Ordinance (Cap 8).
(2) CTEA 1/2017, October 3 2017.
(3) Known as an 'originating notice of application'.
(4) Rule 40 of the Competition Tribunal Rules (Cap 619D).
(5) The exact scope of the abrogation of the privilege against self-incrimination and the restriction on use depends on the construction of the legislative provision and certain fundamental rights. A direct use prohibition does not necessarily prevent a 'derivative use'. These are difficult and evolving legal principles under Hong Kong common law. Supra note 2 at paragraph 44.
(6) Section 3 of the Interpretation and General Clauses Ordinance (Cap 1).
(7) Section 167(1) of the Competition Ordinance (Cap 619) and paragraph 59 of the judgment.
(8) Also see the decision of the Competition Tribunal on June 12 2017, [2017] 3 HKLRD 584. A decision arising out of a case management conference in the case and sanctioning (among other things) a 'confidentiality protocol' between the parties – whereby all documents produced in the proceedings are to be used only for the purpose of the proceedings and any collateral use should be subject to the parties' agreement or the direction of the Competition Tribunal.
(9) The judge made a number of observations with respect to this argument. Supra note 2 at paragraphs 82-85. Readers can make of this what they will.
