How does China’s Court Determine the Validity of Arbitration Clauses in Monopoly Dispute?

Pursuant to the Anti-Monopoly Law, the Civil Procedure Law and the Arbitration Law, there is no limitation of applying arbitration clause as a settlement to monopoly disputes in China. The Arbitration is well acknowledged for its confidentiality, flexible legal or commercial basis of arbitrating and its finality of one award, which are perfectly adapted to the requirements of confidentiality, efficiency and reliance on customs in business operation. Therefore, the practice of arbitration clause can bring about significant values and meanings to commercial subjects, and furthermore help indicate various risks and opportunities of different timing in relevant market. In this essay, we will introduce relevant cases and investigate whether the judicial opinions on arbitration clauses applied in monopoly disputes are appropriate.

Case Introduction

Appellant (Defendant at first instance): Samsung (China) Investment Co., Ltd. (“Samsung”)

Respondent (Plaintiff at first instance): Nanjing Songxu Technology Co., Ltd. (“Songxu”)

Court of First Instance: Nanjing Intermediate People’s Court

Case No.: (2014)宁知民辖初字第44号

Court of Second Instance: Jiangsu High People’s Court

Case No.: (2015)苏知民辖终字第00072号

Songxu, a distributor of displayers produced by Samsung, believed that, during cooperation, Samsung had abused its dominant position towards its distributors and infringed Songxu’s benefits by means of such as monopoly pricing, and unreasonable increasing on sales-targets for distributors. Therefore, Songxu filed a lawsuit and claimed that Samsung shall stop such monopolistic acts and compensate Songxu for damages.

Samsung then motioned an objection on jurisdiction, arguing that both Songxu and Samsung had consented to be subject to arbitration and thus the court might not accept this case while there were no laws or regulations prohibiting applying arbitration in such cases. So, Samsung requested for a dismissal on this case.

The court of first instance determined that the disputes between equal parties on vertical monopoly could be arbitrated pursuant to the Arbitration Law. But in this case, there were two distribution-contracts concerning two different arbitration institutions, and both parties failed to agree on an institution being appointed, so the court of first instance judged that the arbitration clauses shall be void.

Samsung was dissatisfied with the judgment and then appealed. But the court of second instance sustained the original ruling and analyzed from three aspects.

Firstly, the Anti-Monopoly Law is aimed at the protection of fair competition in market, and the governmental institutions (usually appointed by the State Council in China) shall perform the duty of enforcing the law; as to the judicial part. Only the Provisions of the Supreme People’s Court on Certain Issues Relating to the Application of Law in Hearing Cases Involving Civil Disputes Arising out of Monopolistic Acts issued by the Supreme People’s Court has stipulated that civil courts shall provide certain remedies to individuals, while it also set restrictions on the scope of courts which has jurisdiction for monopoly dispute.

Secondly, the Anti-Monopoly Law is more inclined to be implemented as public law, and the disputes closely related to public policies are excluded from arbitration for a long time in many countries. In China, the period of implementing the Anti-Monopoly Law is quite short and the relevant experiences are still being accumulated, so the public policy still takes an important role while demonstrating the possibility of applying arbitration. Now there is no regulation about applying arbitration in monopolistic disputes and there is no such experience either.

Thirdly, this case involves public interests. Though both parties have consented to be subject to arbitration instead of judicial jurisdiction yet, generally the contract is only binding between these two parties, while this case involves the interests of third parties and consumers, which shall be beyond the Principle of Relativity. Thus, this case shall not be handled by arbitration.

Lawyer’s Comment

About the judgment and reasons cited above, we believe that the courts analyze the whole issue separately, which means that the courts emphasized on the characteristics of monopolistic disputes while neglecting the rationality and legitimacy from a comprehensive perspective of applying arbitrations to settle such disputes. The arbitration agreement or clauses are completely voluntary, and such arrangements often lead to strict limitations of disclosure, which means there could be no significant social impact. Therefore, arbitration shall be admitted as a solution to monopolistic disputes thereof.

Specifically, we could discuss from three following aspects:

First of all, arbitration agreement or clauses are completely voluntary wills of the parties as a solution to settle such disputes, which embody the core-value of “Autonomy of Will” in civil and commercial fields, and thus the judicial authorities shall restrain itself and endeavor not to intervene in such arrangements. Differentiated from the open administrative and judicial procedures and decisions, the confidentiality of arbitration could prevent the public from knowing the steps and details of relevant settlements, which means there would be no significant social impacts or even precedent effects. Meanwhile, experts on board of arbitration can refer to various bases such as commercial customs and this could be better adapted to the needs of interests and efficiency for those commercial disputing parties.

The second is that the administrative power shall be limited within administrative authorizations. The implementation of the Anti-Monopoly Law is performed by governmental institutions, but this doesn’t mean such disputes are exclusively under jurisdictions of administrations. Therefore, there is no ground for applying Article 3, Section 2 of the Arbitration Law, namely, “The following disputes may not be arbitrated: administrative disputes that shall be handled by administrative organs as prescribed by law.” This exclusion of arbitration shall refer to such matters as resolution of disputes of administrative regions borders, which are under exclusive administrative jurisdiction.

Finally, current laws and regulations haven’t limited the ways of dealing with monopolistic disputes, and neither exclusive jurisdiction on monopolistic disputes. Therefore, referring to idea of “Absence of Legal Prohibition Means Freedom”, commercial parties shall have the right to voluntarily choose arbitration to solve such problems.

Since the current judgments haven’t taken all effective elements into considerations, we believe that Samsung may file this case to the Supreme People’s Court for a retrial and try to protect the validity of arbitration clauses, realizing its initial purposes of its arrangements of settlement through arbitration.

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