Global Development

Introduction

People’s Republic of China (‘PRC’) judicial practice, like Chinese culture more generally, involves delicately distinguishing and balancing elements that others may see as inseparable or unsupportable, such as the arbitrability of potentially myriad anti-trust issues or the determination of an anti-monopolistic agreement in the first place. It is true, however, that the inner workings that achieve the special Chinese harmony make up an inimitably dynamic but partly ‘black’ box: attempting to analyze the rationales and ramifications of seemingly isolated components may have some value for both legal practitioners and the PRC judiciary itself, but wide-sweeping conclusions run the risk of being counter-productive. As such, this article aims only to shed some specks of light into China’s take on the arbitrability of anti-trust matters while, more importantly, comparing and contrasting certain related cases to illuminate the larger, underlying issues that may influence contemporaneous and future judicial practices.

Supreme People’s Court decision in Huili v. Shell: Anti-trust disputes not arbitrable?

Although the arbitrability of anti-trust disputes has been of interest for some time in China, it became a hot topic upon the August 2019 announcement that by decision of the Supreme People’s Court (‘SPC’), in the words of triumphant counsel, ‘[i]t is clear that the dispute over monopoly agreement is non-arbitrable’.¹

In this case, it appears that ‘Huili’² filed suit against Shell (China) Limited (‘Shell’) and claimed that Shell had violated the PRC Anti-Monopoly Law, specifically its prohibition on horizontal and/or vertical monopolistic agreements, ³ and thereby caused damage to Huili as one of Shell’s distributors in China. Shell seems to have raised an arbitration clause in the distributor agreement as a basis for the court of first instance, Hohhot Intermediate People’s Court, to dismiss the case, and the Hohhot Court and SPC rejected this jurisdictional challenge. Finally, reports other than from either court indicate that both courts ruled the dispute – or all disputes involving anti-trust matters – not arbitrable.

Huili’s specific claims, the nature of the arbitration clause and even, in fact, the reasoning of either Court or whether there exists a parallel arbitration proceeding overlapping in substance with the dispute in the PRC courts are among the aspects of the case of which little to nothing is known. If an overlapping arbitral award, or other award on anti-trust matters, ever exists and is sought to be enforced in China, it would put to the test one of the main concerns engendered by the Huili v. Shell decision: would such an award be refused recognition and enforcement on the basis that anti-trust disputes are not arbitrable in China?⁴

Such issues cannot be addressed based solely on the Huili v. Shell decision, certainly not without the text of the ruling itself and properly not even with it, as the issues are entwined with other aspects of arbitrability and also other aspects of anti-monopoly law in China.

Prior PRC cases on arbitrability of anti-trust disputes

Whatever the extent of academic debate in China, PRC courts have in almost every case held that arbitration clauses do not preclude judicial jurisdiction over claims that agreements or conduct were anti-monopolistic.⁵

The spotlight should therefore perhaps be on the one clear outlier case, decided by the Beijing Higher People’s Court the month before the Huili v. Shell decision and also concerning Shell (Changlin v. Shell case).⁶

The Beijing Higher People’s Court reviewed the Changlin v. Shell case on appeal from the Beijing Intellectual Property Court, where another distributor of Shell (‘Changlin’) claimed that Shell had and abused a dominant market position, in particular, that it executed anti-monopolistic transactions. Changlin apparently made its claims as if it was only one of many affected distributors (and other parties). The Beijing Intellectual Property Court rejected Shell’s jurisdictional objection that was based on the existence of a valid and wide-scope arbitration clause, reasoning that the lawsuit was ‘for a dispute over abuse of a market dominant position’: specifically, according to the court, Changlin advocated that Shell ‘set up unfair factory pricing and further treated different distributors differently based on that pricing, which constituted abuse of market dominance’. The Beijing Higher People’s Court reversed because, with relatively brief reasoning, it emphasized the wide scope of the arbitration clause and deemed the dispute over abuse of market dominance to be ‘inseparable from the stipulated rights and obligations under the Distributor Agreement and still to be a dispute arising out of the performance of the Distributor Agreement’. This court was particularly concerned that ‘parties should not be allowed to exclude the application of the effective arbitration clause by choosing an action’, i.e. between anti-trust infringement and breach of contract.

The Beijing Higher People’s Court’s decision is the outlier, whereas almost every other PRC court, even before the SPC, have handled such matters essentially as the Beijing Intellectual Property Court did. For example, in 2015, a Jiangsu Higher People’s Court rejected a jurisdictional objection and reasoned, inter alia, that the case involved not only the plaintiff and defendant but ‘also the sales relationship between [the defendant] and all distributors, and also directly affected the interests of all consumers of [the defendant’s] products’.⁷

The Changlin v. Shell case may thus best reflect the PRC judiciary’s competing concerns over the arbitrability of anti-trust disputes, though it seems that preserving the broad intent and effectiveness of arbitration clauses and preventing claim/forum-shopping are still secondary to a deeper driving force, as evinced by a more important anti-trust decision of the SPC announced this past summer.

SPC decision in Hainan Yutai: Competence retained by administrative agencies

In a decision announced this summer (though rendered in December 2018), in the context of administrative enforcement actions, the SPC ruled in favor of administrative anti-trust agencies in a long-standing divergence between them and PRC courts in the approach to determining whether a particular type of agreement, resale price maintenance (‘RPM’), ⁸ violates anti-monopoly law (Hainan Yutai case). ⁹ The divergence in method, which has a long history in other jurisdictions as well,¹⁰ pitted the PRC courts’ ‘rule of reason’ analysis (involving weighing of potential pro- as well as anti-competitive effects) against the agencies’ ‘per se illegal’ view of RPM agreements. In fact, this issue was much more clearly contentious than the arbitrability of anti-monopoly disputes, with many PRC courts essentially questioning the administrative determinations of agencies, until the SPC’s decision curbing judicial review. In effect, unless an administrative agency’ interpretation of an agreement as establishing RPM is incorrect, PRC courts will now very likely defer to the agency’s further determination that the agreement violates anti-monopoly law.¹¹

Thus, the Huili v. Shell decision and Hainan Yutai were issued around the same time, concerned the same kind of agreement, and were aimed at demarcating the authority – and responsibility – for policing the Chinese market for anti-competitive elements. While the Huili v. Shell decision may have preserved the power of PRC courts, the Hainan Yutai case designated the core power as lying with administrative agencies. And while the Huili v. Shell ruling has yet to be (publicly) rendered, the reasoning of the SPC in the Hainan Yutai case elucidates underlying issues likely driving the decisions of both cases.

The SPC acknowledged the rationality of the divergent approaches adopted by the agencies and the courts on RPM, but considered the latter approach unfeasible or at least impractical in China’s current market environment. In particular, the SPC judged the rampant anti-trust violations and pressing need for strict regulation of fair competition incompatible with an approach to administrative enforcement that would require agencies to conduct comprehensive investigations and complicated economic analyses to determine RPM agreements’ impact on the market. The decision suggests that China’s anti-trust framework is simply not ready for the adoption of the more flexible, judicious review – but therefore leaves the door open for reconsidering its suitability, possibly in the near future. The 2015 Jiangsu Higher People’s Court decision discussed above, for instance, stated as follows:

Although in recent years, in the legislation and judicial practice of some European and American countries, public policy has not been used as a determining factor in the arbitrability of antitrust disputes, and some countries have incorporated antitrust disputes into the scope of arbitration matters, nevertheless, in our country, because of the short implementation time of antitrust law, less antitrust enforcement and judicial practice, a mature antitrust enforcement and judicial experience has not yet been formed and the public policy nature of antitrust must be an important factor for China to consider arbitrability.

Moreover, the SPC explicitly endorsed the continued judicial review, similar to a ‘rule of reason’, in civil cases (as opposed to administrative actions).

Conclusion: Arbitrating anti-trust disputes in China?

In light of the almost entirely consistent PRC court decisions, including but not only that of the SPC, holding that an arbitration clause does not preclude court jurisdiction over anti-trust claims, parties cannot expect to succeed on such jurisdictional objections, if ever they did. The Hainan Yutai case, among others, reinforces the current inclination of the PRC to retain – if not reserve – authority for policing anti-competitive conduct within the power of courts and especially administrative agencies. Given these bases, however, concluding that arbitral awards touching on anti-trust matters will be not be recognized or enforced, or even that any anti-trust-related suit filed in the face of an arbitration clause will withstand a jurisdictional objection, would be narrow speculation.

Such speculation is unwarranted not only because no ruling of the Huili v. Shell case is publicly available (yet) but also because prior and related cases show that PRC courts are addressing issues of arbitrability and anti-trust in subtle, multi-faceted ways. It may be that the SPC or lower courts narrow the scope of anti-trust matters that are apparently not arbitrable, e.g. to address the claim/forum-shopping concerns raised in the Changlin v. Shell, or even eschew a strict holding that any such matters are not arbitrable, e.g. to preserve more flexibility to further China’s enforcement friendliness. In any case, to the extent the concerns motivating the judiciary’s view on the arbitrability of anti-trust matters are tied to keeping close regulation on a sensitive market order, the motivations and therefore position of the judiciary may change as quickly as China’s market continues to change.

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