Are monopoly disputes arbitrable in China?

In its final judgment in a case involving an objection to jurisdiction in a monopoly dispute between a Chinese company of a Fortune 500 company and its distributor, the Jiangsu Provincial Higher People’s Court held that where a monopoly dispute involves the public interest, and where Chinese laws are silent on whether such a dispute is arbitrable, the arbitration agreement between the parties cannot serve as the basis for determining jurisdiction.

This case has been called “the first case on whether a monopoly dispute is arbitrable” in China, and the Jiangsu court’s finding that a “monopoly dispute is not arbitrable” indicates that current Chinese judicial practice holds that monopoly disputes are not arbitrable. The authors, however, would question that whether a monopoly dispute is arbitrable in China should be analyzed on a case by case basis.

The Jiangsu court’s conclusion that a “monopoly dispute is not arbitrable” is closely tied to the background of the case. As counsel for the defendant in this case, the authors argue that the specific background of this case had a major impact on the court findings, e.g., such background factors as both of the parties to the dispute being Chinese companies, the arbitration institution specified in the arbitration clause being an arbitration institution in China, the disputed matters being limited to distribution matters in the relevant regions of China, etc. What was substantively and specifically discussed in this case was the issue of whether a Chinese arbitration institution could have jurisdiction in a contract dispute between Chinese entities in China that involves anti-monopoly.

On this basis, although the Jiangsu court was aware that certain Western countries no longer exclude anti-monopoly disputes from the scope of arbitrable matters based on public policy considerations, nevertheless, based on the reality that there is a continuing lack of mature expertise in current anti-monopoly law enforcement and judicial practice in China, it found, on the basis of a comprehensive consideration of public policy and the public interest, that monopoly disputes are currently not arbitrable in China.

In anti-monopoly disputes with a foreign element, the validity of an arbitration clause should not unquestioningly be denied, and arbitration jurisdiction excluded. In contrast to the above-mentioned case in which the dispute is mainly limited to entities in China, in practice a large number of anti-monopoly disputes between entities arising around contracts involve a foreign element. For example, one of the parties to the dispute has a foreign connection, the arbitration institution specified in the arbitration clause is a foreign arbitration institution, or the applicable governing law may also be the laws of a foreign country. The disputed matters may also not be limited to a single country, but involve multiple countries or regions, usually greatly increasing the complexity of the dispute.

Under such a circumstance, one thing that is quite obvious is that the relevant foreign arbitration institution will have more extensive practical experience in handling civil anti-monopoly disputes, and the impact of the objective reality of current anti-monopoly law enforcement and judicial practice in China on determining whether a foreign-related monopoly dispute is arbitrable ceases to be so important.

With respect to the public policy angle, viewed from the perspective of judicial practice in Western countries, since the confirmation by the Supreme Court of the US in 1985 in the Mitsubishi Motors Corp case of the principle that antitrust disputes in the international sphere are arbitrable, the restrictions that public policy imposes on whether a monopoly dispute, particularly a foreign-related monopoly dispute, is arbitrable have progressively decreased. In Chinese judicial practice, public policy is also being applied more and more prudently. Not only are grounds of “public policy” rarely being applied in refusals to recognize and enforce foreign arbitral awards, but also in objective analysis conducted from the perspective of the potential outcome to determine whether Chinese legal order will be jeopardized, the pretext of “public policy” is not widely used.

It can be seen that, in a monopoly dispute with a foreign element, the factors that need to be considered and analyzed are more complex, and more balance among public policy, the public interest and the resolution of the dispute between the parties needs to be found. Accordingly, whether the Jiangsu court’s finding that “a monopoly dispute is not arbitrable” can unhesitatingly be applied in a foreign-related monopoly dispute is worth discussion.

Resolution of an anti-monopoly dispute with a foreign element through arbitration may be more conducive to comprehensive resolution of the dispute. The institution of a right of claim in a civil anti-monopoly dispute in China is based on article 50 of the Anti-Monopoly Law (AML). This provision specifies that, “a business operator that commits a monopoly act, causing a third party to incur a loss, shall be civilly liable in accordance with the law”. From this it can be seen that, in essence, an anti-monopoly dispute arising from a contract between two equal Chinese entities remains a civil dispute with a property attribute and a private rights attribute, and although the resolution of the dispute between the parties may have a bearing on the competitive order and consumer welfare of the relevant country or region, it is, in terms of the core of the dispute, manifested more in the civil rights and obligations between the parties.

Accordingly, over-emphasis of the public order and public interest of a country may result in the dispute between parties to a foreign-related anti-monopoly dispute being artificially disrupted, which is not conducive to its effective and comprehensive resolution. (Taking Huawei v IDC as an example, notwithstanding the fact that the Guangdong Provincial Higher People’s Court ruled for a Chinese royalty rate for a 3G wireless communication standard-essential patent, the dispute between the parties on global licensing of the wireless communication standard-essential patent was ultimately comprehensively resolved through the agreed upon arbitration institution.) Comprehensive resolution of all of the disputes arising between parties around a contract by the arbitration institution selected by the parties may be more efficient than resolving the dispute piecemeal by instituting legal actions in multiple countries.

In a situation where current legislation in China does not expressly address the arbitrability of monopoly disputes, the Jiangsu court’s finding that a monopoly dispute is not arbitrable should not be taken as a universally applicable conclusion, and the question of whether foreign-related monopoly disputes between specific equal entities is arbitrable still requires a case-by-case analysis.