China’s Supreme Court Enunciated The Non-Arbitrability Of Antitrust Civil Disputes

Legal News & Analysis - Asia Pacific - China - Competition & Antitrust - Dispute Resolution

13 November, 2019

 

For a few years, the topic of whether antitrust civil disputes could be arbitrable had been hotly debated in China. There were few precedents in connection with this issue for people to better understand what China’s judicial position is, and local courts presented discrepant attitudes toward this issue in the past.

 

Nevertheless, the Supreme People’s Court of China (the “Supreme Court”) has made clear its stance in one of its recent adjudications, rendered in August 2019, that the arbitration clause could not exclude jurisdiction of Chinese courts over the antitrust civil disputes, which could be viewed as an official judicial voice on this regard and could be relied on.

 

This landmark adjudication is related to a dispute between one of Shell’s Chinese subsidiary Shell China and one of Shell China’s distributors Huili. Specifically, Huili brought an action against Shell China before the Intermediate People’s Court of Huhehot, on the ground that Shell China organized several of its distributors to collude in the bidding process, thereby had concluded and implemented horizontal monopolistic agreement, in violation of China’s Anti-Monopoly Law. Shell China then challenged the court’s jurisdiction over this litigation, by asserting that Shell China and Huili had agreed to solve any disputes arising from the distribution agreement thereafter through arbitration, rather than litigation. As such, one of the key procedural issues in this case is, as mentioned at the beginning, if antitrust civil disputes are arbitrable at all or not.

 

Both the first instance court, the Intermediate People’s Court of Huhehot, and the appellate court, the Supreme Court, found that the arbitration clause cannot negate the court’s jurisdiction over antitrust civil disputes. One main ground of the Supreme Court is that antitrust law in nature is under the umbrella of public law, and determination of monopolistic conducts is beyond the contractual relationship of  the contract parties. As such, antitrust civil disputes should not be categorized as disputes between parties with equal standing, thus are out of the arbitrable scope provided in the Arbitration Law of China. The other key argument that the Supreme Court relied on to render its ruling is the fact that arbitration is not specifically stipulated in the Anti-monopoly Law or other relevant laws and regulations as the means for resolution of antitrust civil disputes, while only public enforcement by antitrust authority and private enforcement by Chinese courts are clearly articulated. Therefore, given the above two reasons, the Supreme Court in the end maintained the ruling of the first instance court that the arbitration clause cannot exclude the court’s jurisdiction on antirust civil disputes.

 

Although the aforesaid adjudication has provided clarity regarding Chinese courts’ jurisdiction over antitrust civil disputes, even where an arbitration clause exists in the concerning contract, things are not that straightforward. Potential conflict may rise to the surface in specific scenarios.

 

For instance, it may not be uncommon that one party to the contract applies to the agreed arbitration institute for an arbitration in accordance with the arbitration clause, for the purpose of solving relevant antitrust civil disputes between the parties, while at the same time the other party ignores the arbitration clause or the already-initiated arbitration procedure and bring an private antitrust litigation before a Chinese court to its advantage. This scenario frequently happens to disputes in connection with IP infringements and FRAND (fair, reasonable and non-discriminatory) rate setting of standard essential patents (“SEP”).

 

For example, when a Chinese licensee breaches its contractual obligation of paying royalties or holds out to pay the royalties to the licensor, the licensor may apply for an arbitration based on the previously agreed arbitration clause. In the meantime, for the strategic reason, the licensee very often lodges an antitrust action in parallel at a court of its home country, claiming that the licensing rate offered by the licensor with a dominance market position in each SEP market is not FRAND, thereby the licensing terms violated the Anti-Monopoly of China and should be invalidated . Sometimes one party requests the arbitration tribunal, while the other party requests the court bench to decide the FRAND rate, which may be very different in practice.

 

In consequence, the problem comes. Especially when the arbitration award is rendered by a foreign arbitration institute , there exist high risks of the arbitration award cannot be recognized and enforced by Chinese courts, on either the ground that the concerning disputes are not arbitrable according to the laws of the place of enforcement, or the reason that recognition and enforcement of the award will lead to violation of the public policies of China .

 

Even though, the above-mentioned scenario is not scarcely seen in practice, because the litigation or arbitration proceeding that is brought subsequent to the prior proceeding very often plays the role of increasing bargaining power of the claiming party to its business counterpart. For a fair amount of such cases, it turned out that the parties end up with a settlement.

 

Lastly, it can be concluded that China’s Supreme Court had articulated the non-arbitrability of antitrust civil disputes. However, in view of the evolvement of views in a lot of jurisdictions that have a longer history of competition law enforcement, such as the US. EU and Germany, which have recognized the arbitrability of antitrust civil disputes some period after the initial rejecting attitude, we may not exclude that China may change its stance in future towards the issue of arbitrability of antitrust civil disputes as well. After all, competition policies in specific jurisdiction evolve with the development of its national economy.

 

Now the Judicial Interpretation of PRC Anti-monopoly Private Litigation is under scrutiny by China’s Supreme Court for a modification, thus this new Judicial Interpretation will determine the tendency of Chinese private antitrust action in the coming days, and influence the enforcement of AML in the long term.  

 

For further information, please contact:

 

Zhan Hao, Managing Partner, AnJie law firm

zhanhao@anjielaw.com