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Are Antitrust Disputes Arbitrable in China?

On August 29, 2016, Jiangsu High People’s Court (“High Court”) rendered a final jurisdictional ruling invalidating the arbitration clause of a distribution agreement (“Agreement”) involved in an antitrust litigation case. [1] The plaintiff, a distributor of the defendant, filed antitrust claims to Nanjing Intermediate People’s Court (“Trial Court”), alleging the defendant’s abuse of dominant market position, conclusion of vertical restraint agreement and other antitrust violations. There was an arbitration clause in the Agreement, providing that any controversy arising out of or in connection with the Agreement shall be submitted for arbitration. The defendant challenged the Trial Court’s jurisdiction based on the arbitration clause, arguing that the dispute, including the antitrust allegations, should be adjudicated by arbitration.

 

Although the Trial Court held that the PRC Anti-monopoly Law (“Anti-monopoly Law”) does not preclude arbitration as a form of antitrust dispute resolutions, and antitrust disputes between equal parties fall within the scope of arbitrable matters as provided by the PRC Arbitration Law (“Arbitration Law”), the Trial Court dismissed the defendant’s jurisdiction objection on the ground that the arbitration clause was vague as no single arbitration institution was elected in various related agreements. Contrary to the Trial Court’s view, the High Court concluded that antitrust disputes were non-arbitrable with analysis in three aspects: (a) current legal regime explicitly provides civil litigation as the only way to settle civil antitrust disputes; (b) public policy plays a pivotal role when weighing the arbitrability and the current statutes do not explicitly provide that antitrust disputes are arbitrable; (c) the case involves the interest of the public, the third party and consumers, which breaks through the privity of contract.

 

This article is intended to cast a glance at the arbitrability of civil antitrust disputes from the perspectives of current Chinese legislation, nature of civil antitrust disputes, public interest or public policy, concurrence of claims and harmonization of international practice.

 

I          The Legislation and Nature of Civil Antitrust Disputes

The Arbitration Law provides for the arbitrability, in recapitulative and enumerative means in Article 2 and Article 3. It is worth noting that under these provisions, the Arbitration Law provides bright-line rules for non-arbitrable matters, which only encompass matrimonial and family disputes and administrative disputes.

 

By the Anti-monopoly Law, antitrust disputes may arise as administrative disputes and civil disputes. Further, in accordance with the Provisions of Supreme People's Court (“SPC”) on Several Issues Relating to Laws Applicable for Trial of Civil Dispute Cases Arising from Monopolies, civil antitrust disputes can be divided into two categories: tortious disputes arising out of monopolistic acts and contractual disputes arising out of antitrust violations by contracts or articles of association of industry associations.

 

As stated above, the Arbitration Law only excludes administrative disputes, which does not cover civil antitrust disputes. Besides, the Anti-monopoly Law does not exclude arbitration. There is no legal basis to conclude that civil antitrust disputes are not arbitrable.

 

II        Public Interest or Public Policy Considerations

Concern of public policy or public interest has been one of the underlying factors in determining arbitrability. Yet not all disputes involving public policy or public interest are non-arbitrable especially in the case that the Arbitration Law recapitulates what is arbitrable and enumerates what is non-arbitrable. In other words, public policy or public interest should no longer be an element to determine arbitrability.

 

The arbitral award judicial review regime under the Arbitration Law and the PRC Civil Procedure Law is able to deal with the public interest issues in antitrust cases. That is similar to the so-called second look doctrine in other jurisdictions. Arbitral awards in violation of public interest should be set aside or denied enforcement. In civil antitrust disputes, involvement of public interest does not necessarily yield the arbitral award’s violation of public interest. 

 

An interesting issue is whether the public policy or public interest considered in judicial review of arbitral awards bears the resemblance to the one involved in antitrust disputes? Bear in mind the stringent review standard of public policy adopted by the PRC courts in judicial review of arbitral awards. That, at some level, reflects the legislative intention and courts’ view to respect the party autonomy to agree on arbitration. But the main question in vertical restraint agreement disputes is whether it caused damages to the distributors and potential consumers. It does not even involve public interest by the standard of arbitral award review. Therefore, to deny the arbitrability in civil antitrust disputes at the outset ostensibly invoking public interest would diverge from the nation’s law on arbitrability.

 

Furthermore, the PRC courts’ review standard of public policy under the New York Convention concerning the recognition and enforcement of foreign arbitral awards is stricter than that in domestic cases. The centralized approval system where the SPC has a final say on the refusal of recognition and enforcement of foreign arbitral awards is a proof. By this standard, the direct denial of arbitrability of civil antitrust disputes, which will lead to the non-recognition and non-enforcement of foreign arbitral awards involving antitrust disputes, may be viewed as an aberration from the long-established law for recognition and enforcement of foreign commercial arbitral awards in China under the New York Convention.

 

III       The Concurrence of Claims in Civil Antitrust Disputes

As mentioned above, civil antitrust disputes can be divided into tortious disputes and contractual disputes. Thus, the problem of concurrence of claims arises in the area of civil antitrust disputes where the plaintiff may choose tortious or contractual cause of action. However, if the parties have concluded an arbitration clause, the claimant will have limited choices. Recently, the SPC has recognized the arbitrability of tortious disputes through a serious of cases. In a recent case, the SPC opined that the plaintiff should still be subject to the arbitration clause even he claimed the opposite’s tortious liability. [2] Akin to these cases, the plaintiff should not be allowed to evade the arbitration clause even he chooses the tortious cause of action for his antitrust claims.

 

There are exceptions in some special situations. We have dealt with an antitrust case where there were multiple companies jointed in both sides. Not all the plaintiffs had concluded the arbitration clause with all defendants. In such an indispensable joint action, parties without arbitration clause should not be subject to the arbitration clause, and the plaintiffs may be allowed to sue the defendants before a competent court. [3]

 

IV      Harmonization of International Practice

Nowadays, recognizing arbitrability of antitrust disputes has become a prevailing practice in other jurisdictions. Denying the arbitrability of antitrust disputes would bring new risks to the enforceability of international arbitral awards in the PRC. Article V (2) (a) of New York Convention provides the situation that recognition and enforcement of an arbitral award may be refused if the case is not arbitrable under the law of country where the recognition and enforcement is sought. Therefore, non-arbitrability of the subject matter will be an easier reason than public policy violation for denial of the recognition and enforcement of a foreign arbitral award.

 

Economic globalization inevitably brings the internationalization of antitrust disputes. Keeping a harmonization with international practice will improve the efficiency of solving antitrust disputes and dispel the concerns of international licensers in licensing their technologies to the Chinese users or authorizing the distribution of their products to the Chinese dealers.

 

[1] The background of the case is quoted from Arbitrability of Chinese Civil Antitrust Disputes, http://opinion.caixin.com/2015-12-08/100883075.html

[2] See: http://www.court.gov.cn/wenshu/xiangqing-10639.html

[3] The SPC held the following opinion through three verdicts, (2005) Min Si Zhong Zi Di 16, (2012) Min Ti Zi Di 130 and (2013) Min Ti Zi Di 54: In an necessary joint action in relation to the tort disputes and only a part of defendants have concluded valid arbitration agreement, courts could have jurisdiction over such joint litigation.

 

Haiwen Arbitration Note

Denning Jin 金立宇

Arbitrator of SHIAC 〡上海国际经济贸易仲裁委员会(上海国际仲裁中心)仲裁员

Denning.jin@haiwen-law.com

Wang Kailuo〡王凯珞

Wangkailuo@haiwen-law.com

 

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