Following the Yunnan Province Higher People's Court's final judgment of August 28 2017, the curtain has – for now – fallen on the Yunnan Ying Ding v SINOPEC refusal to deal case. This update provides a review of the case and clarifies the implementation of the Anti-monopoly Law and several corresponding legal issues.
This case was first initiated in January 2014 by Yunnan Ying Ding Bio-energy Co, Ltd, the largest waste-oil processing enterprise in Yunnan Province. Yunnan Ying Ding claimed that SINOPEC and the Yunnan branch of SINOPEC's trading company (hereinafter referred to collectively as 'SINOPEC') had:
- abused their dominant market position – for no justifiable reason – by refusing to purchase Yunnan Ying Ding's biodiesel (produced from waste oil) for use in their distribution system; and
- violated Article 17 of the Anti-monopoly Law.
After more than four court proceedings in three-and-a-half years, the Yunnan Province Higher People's Court finally issued a judgment dismissing the appeal and upholding the original verdict. The court supported SINOPEC's allegations by confirming that:
- the facts of the case were clear;
- the law had been applied correctly; and
- no procedural errors had occurred during the course of the remanded proceedings before the first-instance court.
This case is unique for several reasons. First, it is reportedly the first antitrust dispute to involve the Chinese petroleum industry. As such, it has garnered extensive public attention. Some antitrust law experts have stated that this case may become an example for future reference, as it involves the use of antitrust litigation in a regulatory industry and thus opens up new means of solving this type of dispute in future.
Second, this is the first case in which the plaintiff's claims have concerned refusal to purchase. As such, it poses a threat to the traditional methods of defining a relevant market. Specifically, the Yunnan Province Higher People's Court considered that SINOPEC's behaviour (ie, refusing to purchase Yunnan Ying Ding's biodiesel) had occurred in a buyers' market. As such, the methods stipulated in the Guidelines on the Relevant Markets Definition by the Anti-monopoly Committee of the State Council could not be appropriately applied during the process of defining the relevant market, as these methods are, in theory, structured from a market demand perspective. To the contrary, the court held that the economic focus in this case should be on the supply side of the market and that:
- the extent to which the supplier (ie, Yunnan Ying Ding) would obtain access for products sales and circulation should be examined; or
- the actual or potential purchasers of the supplier's products in the market should be evaluated.
In other words, the details regarding the behavioural performance of a refusal to deal may lead to a shift away from traditional methods of defining the relevant market, further influencing the outcome of a case.
Third, this is the first time that an Anti-monopoly Law litigation has been subject to such a high degree of procedural complexity. The case went through both first-instance and appeal procedures, as it was remanded following the first appeal.
Specifically, in the first instance, the Kunming Intermediate People's Court ruled that SINOPEC's Yunnan branch had:
- borne a legal obligation to purchase and distribute the biofuel made by Yingding; and
- abused its dominance in the refined oil market by refusing to purchase Yingding's biodiesel for no justifiable reason.
However, the Yunnan Province Higher People's Court reversed the first-instance decision and remanded the case on account of unclear facts and procedural errors. Following another round of first-instance and appeal trial proceedings, the final judgments were delivered. In light of this, it can be deduced that:
- anti-monopoly litigations are extremely time consuming; and
- the details of such cases may determine their course.
Finally, as the first Anti-monopoly Law case to be filed in Yunnan Province, the court had no specific experience of this type of competition-based lawsuit. Nonetheless, it demonstrated clear use of logic and professional proficiency in its application of the relevant laws and reached a reasoned conclusion in its judgment. Hence, under these circumstances, both the Yunnan Province Higher People's Court and the Kunming Intermediate People's Court fulfilled a tough task quite brilliantly, despite some unclear facts and procedural errors being identified by the appeal court on remand.
During each trial proceeding in this case, lawyers on behalf of both parties engaged in fierce debate and exchanged legal views on relevant issues, such as:
- the definition of the relevant market;
- the determination of SINOPEC's position of market dominance; and
- the confirmation of a contractual relationship between Yunnan Ying Ding and SINOPEC.
Article 12 of the Provisions of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Civil Disputes arising from Monopolistic Behaviours stipulates that concerned parties may apply to the people's courts to have up to two parties with corresponding special knowledge participate in a trial and explain the professional issues of the case. Based on this article, SINOPEC applied for one industry and one economic expert to attend the trial in this case and elaborate on the issues regarding:
- the main raw materials of biodiesel;
- the characteristics of the product sales; and
- the corresponding effects of the market definition.
Similarly, in the earlier Qihu v Tecent case, both parties involved applied for internet industry experts and economists to explain issues regarding business models in the internet economy and their corresponding effects on market definition.
In light of these two cases, an increasing number of anti-monopoly litigation will likely see experts play a significant role. The opinions of these experts will, to some extent, influence the judges' recognition and confirmation of the legal issues at play, especially in regard to:
- the definition of the relevant market;
- the parties' market positions; and
- the competitive analysis.
In addition, the opinions may even influence the judges' general attitude towards the case.
Experts are expected to maintain a neutral position at all times when explaining relevant issues during a trial, rather than siding with either party. However, this also presents an opportunity for the lawyers involved to take advantage of expert professional opinions to evidence their legal views and support their litigation strategies. Hence, the above characteristics combine to make Anti-monopoly Law civil litigations generally more complex and technical than other types of civil litigation.
In general, the main legal issues in this case relate to the cross-application of:
- the Contract Law;
- the Anti-monopoly Law; and
- the Renewable Energy Law.
In considering the substantive legal issues, and based on the evidence provided by both parties, the Yunnan Province Higher People's Court first clarified that the legal relationship between the two parties was a type of private legal relationship, rather than a regulated relationship from an economic law perspective. Second, the court confirmed that no lawful and effective contract between Yunnan Ying Ding and SINOPEC existed, as the lawyer's letter sent by the former was to be regarded as a mere invitation to offer, as it did not set out the specific and indispensable clauses and trading terms of a legal contract. In addition, the quality of the biodiesel that Yunnan Ying Ding produced from waste oil was not certified and could not be held as meeting the relevant national standard in this area. In line with this, SINOPEC therefore had no obligation to observe the rules of the Renewable Energy Law. In other words, SINOPEC's refusal to purchase the biodiesel was held to be unrelated to the Anti-monopoly Law behaviour that was the subject of this case.
As previously mentioned, this case may result in new means of resolution in Anti-monopoly Law disputes in China – especially for regulated industries in which several regulatory and industrial laws apply. Conversely, the courts are tasked with balancing the relationship between such laws and the Anti-monopoly Law, which may be extended to include the relationship between regulatory and competitive policies.
Private enterprise Yunnan Ying Ding lost this lawsuit. However, there is likely to be an increasing number of Anti-monopoly Law suits filed against state-owned enterprises in China's regulatory industries. Further, this case shows that Anti-monopoly litigations are some of the best for examining the implementation of the Anti-monopoly Law in practice, as due process will be maximised during the trial. Meanwhile, lawyers and experts will play a more significant role in this type of litigation.
After receiving the final judgment, Yunnan Ying Ding's legal representative expressed that it will apply to the Supreme Court for a retrial. If Yunnan Ying Ding succeeds, the curtain over this case will once again be lifted, albeit at a higher court level court due to the remaining Anti-monopoly Law issues.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information on this topic please contact Hao Zhan, Ying Song or Tian Chen at AnJie Law Firm by telephone (+86 10 8567 5988) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AnJie Law Firm website can be accessed at www.anjielaw.com.?