Zhan Hao Song Ying November 28 2019 Supreme Court decision on non-arbitrability of antitrust civil disputes AnJie Law Firm | Competition & Antitrust - China Zhan Hao, Song Ying Competition & Antitrust IntroductionFactsDecisionCommentIntroductionThe topic of whether antitrust civil disputes are arbitrable has been hotly debated in China in recent years. There are few case law precedents in this regard and local courts have taken different positions regarding this issue in the past.That said, the Supreme People's Court of China made its stance clear in an August 2019 decision which found that an arbitration clause could not exclude the jurisdiction of Chinese courts in antitrust civil disputes, which can be viewed as a reliable judicial opinion on the matter.FactsA dispute arose between Shell China and one of its distributors, Huili. Huili brought an action against Shell China before the Huhehot Intermediate People's Court on the ground that Shell China had organised for several of its distributors to collude in the bidding process and had thereby concluded and implemented a horizontal monopolistic agreement in violation of the Anti-monopoly Law. Shell China challenged the court's jurisdiction by asserting that it had agreed with Huili 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 was whether antitrust civil disputes are arbitrable.Both the first-instance court, the Huhehot Intermediate People's Court and the Supreme Court found that an arbitration clause cannot negate court jurisdiction over antitrust civil disputes. The main ground of the Supreme Court's decision was that antitrust law falls under the umbrella of public law and the determination of monopolistic conduct is beyond the contractual relationship of contracted parties. As such, antitrust civil disputes should not be categorised as disputes between parties with equal standing and thus fall outside the scope provided by the Arbitration Law. The Supreme Court further relied on the fact that arbitration is not specifically stipulated in the Anti-monopoly Law or other relevant laws and regulations as the means to resolve antitrust civil disputes – rather, the law sets out public enforcement by the antitrust authority and private enforcement by the courts. As a result, the Supreme Court maintained the first-instance court's decision that the arbitration clause could not exclude the court's jurisdiction in antirust civil disputes.DecisionAlthough the Supreme Court's decision has provided clarity regarding the Chinese courts' jurisdiction in antitrust civil disputes when an arbitration clause exists in the relevant contract, things are not that straightforward and potential conflicts may arise in specific scenarios.For example, it may not be uncommon for one party to a contract to apply for arbitration under the agreed clause to resolve a relevant antitrust civil dispute between the parties, while at the same time the other party ignores the arbitration clause or the already-initiated arbitration procedure to bring a private antitrust litigation before a Chinese court. This scenario frequently happens in disputes concerning IP infringements and the fair, reasonable and non-discriminatory (FRAND) rate of standard essential patents (SEP).For instance, when a Chinese licensee breaches its contractual obligation to pay royalties or holds out to pay the royalties to the licensor, the licensor may apply for arbitration based on the previously agreed arbitration clause. In the meantime, for strategic reasons, the licensee will often lodge an antitrust action in parallel at a court in its home country, claiming that the licensing rate offered by the licensor with a dominant market position in each SEP market is not FRAND and thus the licensing terms will violate the Anti-monopoly Law and should be invalidated. In some cases, one party will request an arbitration tribunal, while the other will request the court to decide the FRAND rate, which may be different in practice.This can cause problems, especially when an arbitration award is rendered by a foreign arbitration institute, as there is a high risk that the arbitration award cannot be recognised and enforced by the Chinese courts on the ground that the disputes are not arbitrable under the laws of the place of enforcement or that recognition and enforcement of the award will violate Chinese public policy.However, the abovementioned scenario is rarely seen in practice, as litigation or arbitration proceedings brought after prior proceedings will often increase the claiming party's bargaining power with its business counterpart. In a fair amount of such cases, the parties will end up with a settlement.The Supreme Court clearly articulated the non-arbitrability of antitrust civil disputes. However, given the ongoing development of case law in different jurisdictions with a longer history of competition law enforcement (eg, the United States, the European Union and Germany), which recognises the arbitrability of antitrust civil disputes for some time after an initial rejection, it cannot be excluded that China will change its stance on arbitrability in antitrust civil disputes in future. After all, competition policies in specific jurisdictions evolve with the development of national economies.CommentNow that the judicial interpretation of anti-monopoly private litigation is under scrutiny by the Supreme Court, it could well determine the direction of Chinese private antitrust action going forward and influence the enforcement of the Anti-monopoly Law in the long term.or further information on this topic please contact Hao Zhan or Ying Song at AnJie Law Firm by telephone (+86 10 8567 5988) or email ([email protected] or [email protected]). The AnJie Law Firm website can be accessed at www.anjielaw.com.