Cheng Ta Reinforced Plastics and Steel Co., Ltd., Chuang Fu Enterprises Ltd., and Chieh Hung Reinforced Glass and Fiber Co., Ltd. committed deceptive or unfair acts capable of affecting the trading order in violation of the Fair Trade Law by borrowing or lending licenses to participate collusively in the bidding process.
Case:
Cheng Ta Reinforced Plastics and Steel Co., Ltd., Chuang Fu Enterprises Ltd., and Chieh Hung Reinforced Glass and Fiber Co., Ltd. committed deceptive or unfair acts capable of affecting the trading order in violation of the Fair Trade Law by borrowing or lending licenses to participate collusively in the bidding process.
Key Words:
call for bids, lending of security for bidding, semblance of bidding
Reference:
Fair Trade Commission Decision of August 3, 2000 (the 456th Commissioners' Meeting); Disposition (89) Kung Ch'u Tzu No. 136
Industry:
Glass and Fiber Products Manufacturing Industry (2623)
Relevant Laws:
Article 24 of the Fair Trade Law
Summary:
1. This case originated from a letter received from the Investigation Bureau's Taitung Office, alleging that Cheng Ta Reinforced Plastics and Steel Co., Ltd. ("Cheng Ta Reinforced Plastics and Steel"), Chuang Fu Enterprises Ltd (Chuang Fu Enterprises), and Chieh Hung Reinforced Glass and Fiber Co., Ltd. (Chieh Hung Reinforced Glass and Fiber) had joined the bidding for a contract to build "Model Funerary and Cultural Facilities for Public Cemeteries" for Ch'angpin Hsiang, Taitung County. After investigation, the Fair Trade Commission (the Commission) found that Hou T'ing-cheng, the elder brother of Hou Ta-yuan, Cheng Ta Reinforced Plastics and Steel's responsible person, purchased three promissory notes with consecutive numbers and a face value of NT$700,000 for each from Bank of Taiwan in the name of Cheng Ta Reinforced Plastics and Steel payable to the Ch'angpin Hsiang government. These promissory notes were used by the respondents as the first-round bidding security on 30 November 1994. After t he Ch'angpin Hsiang government discovered that the promissory notes were numbered consecutively and voided the bidding, the promissory notes were re-deposited in Cheng Ta Reinforced Plastics and Steel's checking account at the Bank of Taiwan's Ta Ya branch. These acts were indication of bid rigging through borrowing of license and could have violated the Fair Trade Law 2. The description regarding the flow of funds to and from Cheng Ta Reinforced Plastics and Steel's checking account at the Bank of Taiwan's Ta Ya branch indicating that Cheng Ta Reinforced Plastics and Steel had each lent NT$700,000 to Chuang Fu Enterprises and Chieh Hung Reinforced Glass and Fiber as bidding security and were returned to Cheng Ta Reinforced Plastics and Steel's account the day after the bidding was voided had been acknowledged by the parties. Although Cheng Ta Reinforced Plastics and Steel argued that it was repaying a loan from Chuang Fu Enterprises and that it had provided Chieh Hung Reinforced Glass and Fiber with the bidding security as out of the consideration of routine business courtesy, it is quite questionable for Chuang Fu Enterprises to return the NT$700,000 the very next day if these funds were indeed a loan. To this, Cheng Ta Reinforced Plastics and Steel claimed that it had later returned the funds to Chuang Fu Enterprises. But its reply plainly defied common sense and was purely an attempt to evade responsibility. Although it is common for friends in a given industry to lend one another funds to remain solvent, the three companies in this case are competitors. Furthermore, according to Hou Ta-yuan's testimony, the other two companies were informed by him of the bidding project under review and their security deposits for the bidding were also paid by him. On the basis of common experience, the Commission finds it difficult to believe that the two companies receiving assistance intended to bid competitively when the company assisting them was also bidding. Clearly, Cheng Ta Reinforced Plastics and Steel assisted the other two companies for the sole purpose of successfully concluding the bidding process and winning the contract. Although each of the three companies completed and delivered its bidding documentation independently, the three companies had a history of doing work for one another and lending funds to one another. Consequently, all three companies were well-informed regarding each other's costs. Moreover, Wu Chia-hsun of Chuang Fu Enterprises testified that because the contract would not have been awarded if only Cheng Ta Reinforced Plastics and Steel submitted a bid, Cheng Ta Reinforced Plastics and Steel lent him the security to participate in the bidding. This testimony proves that the three companies had engaged in the lending of licenses and collusive bidding, which are deceptive or obviously unfair acts capable of affecting trading order. 3. By lending licenses and bidding collusively on government contracts, the respondents created an semblance of competition between three companies that caused the Ch'angpin Hsiang Government to believe mistakenly that competition had occurred. The semblance of competition also caused competitors to lose opportunities for fair, competitive trading. These acts were detrimental to the ethics of business competition, and had obstructed the functioning of the market pricing mechanism in violation of Article 24 of the Fair Trade Law. Since the illegal acts in this case occurred before the amendments to the Fair Trade Law took effect on 3 February 1999, the Commission disposed in accordance with the fore part of Article 41 of the pre-amended Fair Trade Law. Appendix: Cheng Ta Reinforced Plastics and Steel Co., Ltd.'s Uniform Invoice Number: 52814077 Chuang Fu Enterprises Ltd.'s Uniform Invoice Number: 84353891 Chieh Hung Reinforced Glass and Fiber Co., Ltd.'s Uniform Invoice Number: 84505530 Summarized by Yeh Tien Fu; Supervised by Shih Gin Tsun