By GAO Liang

 

On 29 August 2016, the Jiangsu Provincial Higher People’s Court made a landmark ruling in which an arbitration clause as agreed by the parties concerned was declared non-applicable to an antitrust dispute. This is the first time ever a Chinese court expressly sets out its position on the arbitrability of antitrust disputes. The ruling in this case will offer some meaningful guidance for the future antitrust dispute resolution mechanism in China. This article is intended to make a comparative analysis on the arbitrability of antitrust law between China and the EU and to set out my position on this issue.

 

Background of the case in question

 

In this case, the plaintiff was the distributor of the defendant and both parties entered into Distribution Agreements where it was agreed that the plaintiff would sell the products of the defendant; in addition, according to the Distribution Agreements, any disputes arising out of or in connection with the implementation of the Distribution Agreements shall be settled through arbitration. And in this case the plaintiff brought a lawsuit before the court and claimed that the defendant had conducted illegal behaviors in violation of antitrust law, such as abuse of dominant position, vertical monopoly agreement, etc. But the defendant argued that according to the Distribution Agreements, arbitration was the way of dispute settlement and thus it raised the objection to the jurisdiction with the court.  

 

The court of first instance dismissed this objection on the ground that the two Agreements set out different arbitration institutions and as such, such provisions were void and null, but it also ruled that antitrust disputes were arbitrable because the Chinese Antimonopoly Law did not exclude arbitration from the methods of antitrust dispute settlement. Nevertheless, the Higher People’s Court confirmed that antitrust disputes per se were not arbitrable and therefore ruled out the possibility that antitrust disputes could be settled through arbitration. The Higher People’s Court put forward three reasons why antitrust disputes may not be arbitrated:

 

(1) currently the relevant laws and judicial interpretations only expressly provide that civil litigation is a means to settle antitrust disputes;

(2) public policy in antitrust regime is an important factor in considering the arbitrability of antitrust disputes and at present Chinese laws do not provide for the arbitrability of antitrust disputes; and

(3) this case concerns the public interests, third-party interests and consumers’ interests and thus exceeds the limits of privity of contract.[1]

 

Legal analysis

 

With respect to the antitrust dispute resolution mechanism, if all parties expressly agree to settle disputes through arbitration in writing, we deem that the provisions of such kind shall be fully respected.

 

What follows is the analysis over the reasons for non-arbitrability of antitrust disputes by the Jiangsu Provincial Higher People’s Court, coupled with my views thereon.

 

First, we deem that the current relevant laws and judicial interpretations do not expressly exclude arbitration from the methods of antitrust dispute resolution. According to the Arbitration Law of China, contractual disputes and other disputes over rights and interests in property between citizens, legal persons and other organizations that are equal subjects may be arbitrated, and disputes which may not be arbitrated include: (1) marital, adoption, guardianship, support and succession disputes, and (2) administrative disputes that shall be handled by administrative organs as prescribed by law. We deem that the Arbitration Law is applicable to antitrust disputes which are within the scope of the application of arbitration.

 

As with the scope of antitrust law in other major jurisdictions, antitrust law in China mainly covers three aspects, i.e., monopoly agreements, abuse of dominant position, and merger control. In respect of monopoly agreements, the very essence of them is of contractual nature with the involvement of rights and interests in property between parties thereto, and for instance, as regards fixing the prices of commodities or partitioning the sales market, it takes the form of entering into the agreements to engage in monopolistic conducts, and its aim is to seek monopoly benefits which to a large extent reflect rights and interests in property. As for abuse of dominant position, it takes the form that an undertaking with dominant position abuses its positions by for instance, selling products at unfairly high prices or buying products at unfairly low prices. As with monopoly agreements, the purpose and nature of abuse of dominant position is to pursue monopoly benefits by imposing transactional conditions or undertaking some sort of monopolistic conducts. Lastly as regards merger control, there are a number of reasons for engaging in “Concentration”, including, but not limited to, expanding market power, achieving economies of scale, etc. But the ultimate objective of Concentration can boil down to the pursuit of a sort of economic interests.

 

In addition, according to Article 50 of the Antimonopoly Law, “where an undertaking carries out a monopolistic conduct which causes losses to other person, it shall assume the relevant civil liabilities in accordance with laws.” This provision essentially recognizes that monopolistic conducts have the nature of rights and interests in property, since civil liabilities arising out of losses basically take the form of monetary compensation in China.

 

In the light of the above, in terms of both form and substance, we understand that antitrust disputes should fall within the scope of arbitration under the Chinese Arbitration Law and that arbitration, as an important dispute resolution mechanism, should not be excluded from the scope of settling antitrust disputes, provided that the relevant laws and judicial interpretations do not explicitly declare arbitration as non-applicable to antitrust disputes.

 

Second, according to the Jiangsu Provincial Higher People’s Court, in this case, public policy in relation to antitrust is a critical factor in vetoing the arbitrability of antitrust disputes. Although relative to the traditional civil law, the antitrust law bears strong characteristics of the economic law, putting more emphasis on active state intervention in monopolistic conducts. But this does not hinder arbitration from serving as a means to settle antitrust disputes, and concerns about public policy caused by arbitration can be addressed at the enforcement stage without needing to rule out the possibility of the arbitrability of antitrust disputes in the first place. The arbitration institutions have no power of enforcement, and it is the courts that have the power to enforce arbitral awards. According to Article 237 of the Civil Procedure Law of China, if the people’s court determines that the enforcement of the arbitral award is against the social and public interest, it shall make an order not to allow the enforcement. According to Article 5 (2) of the New York Convention of which China is a member, recognition and enforcement of an arbitral award may be refused if the competent authority finds that the recognition and enforcement of the arbitral award would be contrary to the public policy. Be it domestic arbitration or foreign arbitration, prior to the enforcement of an arbitral award, the courts have the power to review whether or not the arbitral award is contrary to public policy. As such, during the enforcement stage judicial review is in a position to tackle the negative effect of public policy an arbitral award could lead to, and thus it is not necessary to refuse the arbitrability of antitrust disputes in the first place.

 

Third, the Jiangsu Provincial Higher People’s Court observed that antitrust disputes are not arbitrable on the ground that this case was involved in the public interests, third-party interests and consumers’ interests and thus exceeded the limits of privity of contract. We understand that such argument is open to debate.

 

On the basis of the information of the case made available, the parties agreed to settle the disputes in writing through arbitration, and such arbitration provision per se has reflected the principle of privity of contract, only binding on the parties concerned. As indicated above, during the enforcement stage, judicial review would be applied to determine whether or not some arbitration award is contrary to public interests, so recognition of the arbitrability of antitrust claims would not enable public policy to be neglected. As a result, whether or not some antitrust dispute is involved in the public interests, third-party interests and consumers’ interests is not in conflict with the principle of privity of contract.

 

The EU perspective on arbitrability of antitrust disputes

 

Currently, there is no EU competition legislation expressly providing for the arbitrability of antitrust disputes, except the EU Regulation 1400/2002 on vertical agreements and concerted practices in the motor vehicle sector; and the European Court of Justice has not directly set out its position on the arbitrability of antitrust claims either; nonetheless, it has been widely recognized in the EU that antitrust disputes are arbitrable.

 

According to Article 3.6 of the EU Regulation 1400/2002 on vertical agreements and concerted practices in the motor vehicle sector, disputes arising out of vertical agreements in relation to rights and obligations in the motor vehicle sector can be referred to an independent expert or arbitrator; accordingly, such Regulation can be interpreted as allowing settlement of antitrust disputes via arbitration in the EU competition law. Additionally, the arbitrability of antitrust disputes is not expressly prohibited under the current EU competition law. Currently the courts of the EU member states basically hold a positive position towards the issue of the arbitrability of antitrust claims.

 

At the EU level, the European Court of Justice takes a relatively ambiguous attitude to the arbitrability of antitrust disputes, circumventing a direct stance on the issue. Nonetheless, in my view, the arbitrability of antitrust disputes, to a large extent, has been already recognized in the ruling of Eco Swiss V Benetton (C-126/97) which is considered to be a landmark case in this respect. What follows is the brief introduction to the case, followed by the analyses.

                                                

In this case, on 1 July 1986, Benetton, a company established in Amsterdam, entered into a licensing agreement with Eco Swiss, established in Hong Kong, and Bulova, established in New York. According to this agreement, Benetton granted Eco Swiss the right to produce watches and clocks bearing the words “Benetton by Bulova”, which could then be sold by Eco Swiss and Bulova. Under this agreement, all disputes or differences between the parties are to be settled by arbitration with the arbitrators appointed are to apply Netherlands Law. When Benetton gave notice of termination of the agreement, arbitration proceedings were instituted thereafter between the three parties. And the arbitrators delivered the FFA (Final Arbitral Award) ordering Benetton to make compensation for the damage suffered by Eco Swiss and Bulova. But Benetton applied to the Rechtbank for annulment of the Final Arbitral Award on the ground that the arbitration award was in violation of public policy due to a market-sharing arrangement in the licensing agreement caught by Article 85 of the Treaty.

 

The Gerechtshof observed that Article 85 of the Treaty is a provision of public policy in the sense of the Netherlands Code of Civil Procedures and considered that, in the procedure for annulment, the FFA could be held to be contrary to public policy[2]. Eventually the Hoge Raad der Netherlanden decided to refer to the Court of Justice for a preliminary ruling the question of “if the court considers that an arbitration award is in fact contrary to Article 85 of the EC Treaty, …… must it allow a claim for annulment of that award if the claim otherwise complies with statutory requirements?[3]” And the Court of Justice responded that if a national court considered that an award is in violation of Article 85 of the Treaty due to failure to observe national rules of public policy, the application for annulment of the arbitration award should be granted[4].

 

Although the Court of Justice never directly answered the question of whether or not antitrust disputes are arbitrable, there is a wide consensus that the Court of Justice has recognized the arbitrability of antitrust disputes; and in my view, granting the application for annulment of an arbitration award per se, in fact, amounts to indirect recognition of arbitrability of antitrust disputes, because if antitrust disputes were not arbitrable in the first place, it would be legally meaningless and unreasonable to allow the application for annulment of the arbitration award.

 

At present, the EU competition law circle is focusing more attention on the scope of public policy and on the extent to which a violation of antitrust rules would constitute a violation of public policy. There are differing views on whether or not any violation of antitrust rules amounts to a violation of public policy in the EU. But the view of the majority holds that not every violation of an antitrust rule can be equated with a violation of public policy[5].

 

Conclusion

 

Through the above analyses on the relevant Chinese laws and regulations concerning arbitration in combination with the understandings of practices of the EU competition law on the arbitrability of antitrust disputes, we deem that the decision made by the Jiangsu Provincial Higher People’s Court’s that antitrust disputes are not arbitrable, is open to debate. We reckon that as an important dispute resolution mechanism, arbitration should be applicable to antitrust disputes. Given that the current Chinese laws and regulations do not prohibit the arbitration institutions from invoking antitrust rules, the arbitration institutions may make arbitration awards on antitrust disputes directly on the basis of antitrust rules.

 

Public policy is at the heart of the decision of Jiangsu Provincial Higher People’s Court; as mentioned above, during the enforcement stage, the court may conduct a review over an arbitration award to determine whether an antitrust dispute concerns public policy and to decide whether it is necessary to annul the award if public policy is practically involved; as such, the monitoring over the enforcement of arbitral awards by the courts can ensure that public policy will be protected; and therefore, there is no need for the courts to deny the arbitrability of antitrust disputes in the first place. In addition, generally arbitrators in the arbitration institutions are composed of experts, whose expertise and legal skills are able to ensure that the aims and spirits of China’s antitrust rules can be fulfilled in the awards.