Arbitrability of competition claims in China – A case study of the EU, US and China
Both China’s arbitration law and competition law were derived from western jurisdictions around 10 years ago. In recent years, arbitration has become the preferable forum as an alternative to litigation in China.
In the meanwhile, the framework of competition law in China has been significantly refined, and market competition has increasingly become a focus point for both authorities and market players. However, if an arbitration clause is incorporated in a contract, using generally worded language, the question arises whether in the event of a dispute pertaining to competition law, the parties to the contract can proceed in the same way (i.e. by arbitration) as they would do in other contractual disputes.
A recent ruling of the China Supreme Court and Chinese precedents
In September 2019, the Supreme Court of China seemed to have answered the question concerning the arbitrability of competition claims in China, where the defendant Shell (China) insisted on excluding the court’s jurisdiction because of a pre-existing arbitration clause. Ultimately the case was brought before the Supreme Court, which issued a ruling noting that ‘issues associated with antitrust are not arbitrable and shall be settled by courts or competent authorities’. The concerns of the China Supreme Court can be summarized in two parts: (i) the scope of arbitration under Article 2 of China Arbitration Law does not explicitly include ‘antitrust claims’; and (ii) the public nature of Antitrust Law relates to public interests, which go beyond the privity of contract and in turn render the competition claims inappropriate for arbitration.
Based on the decision of the China Supreme Court, we can conclude that in current Chinese practices, competition claims cannot be subject to arbitration. However, since arbitration is growingly advocated by parties in international commerce in China, is there any leeway for competition issues falling within the purview of arbitral tribunals? Some EU and US practices may shed some light on this.
EU and US practices
The case of Eco Swiss was the first case where the CJEU indirectly admitted the arbitrability of competition claims. The dispute had been proceeded by an arbitral tribunal, but the losing party of the resulting arbitral award submitted it to the national court, calling for an annulment and alleging that the contract in question was inconsistent with Article 85 EC Treaty and the principle of public policy. The case was referred to the CJEU for a preliminary ruling. The CJEU held that if the national court deemed that the arbitral award had violated Article 85 EC Treaty and had gone against public policy, then the request for the annulment of the award would be supported. We can imply from this decision that as long as the competition issue does not go against public policy or competition law per se (i.e. hard-core violation), arbitration may extend to the antitrust area and the arbitral award shall be enforced. The US also adopted a similar approach, where the landmark case concerning this topic is the Mitsubishi case. The judge ruled that no specific type of contract dispute had been pre-excluded from arbitration by the US Arbitration Act, thus supporting the arbitrability of competition claims.
Though pairing arbitration and competition issues is far from easy in practice, at the minimum we can infer the affirmative answers concerning the arbitrability of competition claims from both the EU and US practices. For the time being, China is blocking the arbitration of competition claims partly due to not being explicitly covered by the scope of arbitration of China Arbitration Law. Nevertheless, this does not mean the end of the nexus between competition issues and arbitration in China. We can explore the possibility of whether there is room for the ‘public interests/policy’ ground, particularly where the enforcement of a foreign arbitral award is concerned.
In this situation, being a signatory State to the New York Convention, China has to observe Article V(2), which provides grounds for the merits of a case that may lead to the refusal of such enforcement. As to Article V(2) paragraph (a), in fact, the non-arbitrability subject matters stipulated in China Arbitration Law does not include competition claims, and as to Article V(2) paragraph (b), by referring to the above EU/US practices, we can infer that competition claims may not necessarily involve elements that jeopardize a State’s public policy.
Public policy analysis
Nonetheless, neither Article V(2)(b) of the New York Convention nor the ruling of Eco Swiss clarify which elements constitute or invade public policy triggering a national court to refute the enforcement of an arbitral award. To explore the scope of public policy in this context, the minimalist and maximalist approach analysed by Professor Assimakis Komninos may offer some enlightenment.
In the case of the EU, a hard-core violation under Articles 101 and 102 would inevitably be noticed by the European Commission and thus falls outside the jurisdiction of arbitrators. But regarding other competition claims, such as obligations imposed on parties by their vertical agreements or contractual disputes that contain affiliated competition concerns, the intrusion of the European Commission or the court may be limited. This approach was agreed in the case Thalès, where the Paris Court of Appeal decided that only if the infringement of public policy was considered ‘flagrant, effective and concrete’, would a review of the merits of the case perhaps be allowed. Otherwise, given the nature of arbitration – privity, efficiency and independence – the court shall remain discreet to avoid overriding the boundary between state justice and private autonomy. The extreme opposite to the above approach is that only very narrow exceptions permit the involvement of arbitration.
Returning to the situation in China, the decision of China’s Supreme Court stated merely in an abstract way that a ‘public interest’ resulted in non-arbitrability of competition complaints. Another case Beijing Xijing Trip was ruled on by the Beijing Higher Court. It concerned whether an arbitral award should be nullified on the grounds of public interests under Article 52 of China Arbitration Law. The Court interpreted public interests by stating that ‘Public interests touch the foundation of rules of law and morality of society, relating to the interests of all members of society and being contrary to private interests’. This interpretation implies that the scope of public interests goes beyond the privity of a contract. When it comes to competition issues, though, a large proportion of competition claims that involve cartels or price fixing practices do inevitably affect public interests. However, some of them are primarily binding on the contract parties. For example, the setting up of supply obligations by suppliers to distributors may pertain to competition concerns, but only affects the parties to the supply contracts.
Having absorbed most foreign arbitration rules into its own arbitration law framework, China possibly merely lacks a cornerstone case like the EU’s Eco Swiss and US’s Mitsubishi that would unlock the possibility for arbitration in competition claims. It is true that a large number of competition claims involve public interests and thus are suitable to be handled by competent authorities or courts. However, considering that some of the claims do not necessarily impact on public policy or public interests, it is conceivable that there could be some leeway for arbitration in competition disputes.