Arbitration Clauses May Not Preclude Courts from Adjudicating Monopoly Civil Disputes

Interpretation of the Supreme People’s Court on ‘Several Issues Concerning the Application of Law in the Trial of Civil Disputes over Monopoly’, Arts. 3, 4, 5, and para. 2 of Art. 51, and Arts. 24, 122, Item 2 of para. 1 of Art. 177; Civil Procedure Law of the People’s Republic of China, Art. 178 ‒ Vegetable Wholesale Market

Headnotes by the Editorial Office

1. Although a contract may stipulate that disputes arising during its performance should be resolved through negotiation or arbitration, this does not necessarily exclude court jurisdiction. Judicial intervention may be necessary when the case extends beyond the contractual rights and obligations of the parties to include issues such as the existence of a dominant market position, its potential abuse, and any alleged monopolistic conduct.

2. These issues, which directly affect the fairness of market competition, consumer interests, and the public interest, should not be confined solely to arbitration agreements between the parties.

Supreme People’s Court, judgment of 25 July 2024 – (2024) Zui Gao Fa Zhi Min Zhong No. 748

[…]

Appellant (Claimant in the original trial): X Tan

Respondent (Defendant in the original trial): Changsha Ma X Dui Agricultural Products Co., Ltd.

X Tan, the appellant in the present case, has been involved in a dispute with Changsha Ma X Dui Agricultural Products Co., Ltd (hereinafter ‘Ma X Dui Company’), the respondent in the present case concerning the abuse of a dominant market position. The appellant wishes to challenge a civil judgment (Case No. 2024 Xiang 01 Zhi Min Chu 75) made on 13 March 2024 by the Changsha Intermediate People’s Court, Hunan Province (hereinafter the court of the original trial) and lodged an appeal with this Court, which formally accepted the case on 9 July 2024. This Court formed an appeal panel in accordance with the law. The case has now been concluded.

[…]

Facts and grounds for the appeal:

(I) On 22 December 2017, X Tan, a vegetable wholesaler, and the Ma X Dui Company entered into a rental agreement and an occupancy agreement¹ concerned in the case. X Tan moved into Ji X Logistics Park, which is operated by the Ma X Dui Company. X Tan faithfully performed all of his obligations under the said agreements concerned in the case. He paid CNY 1.1 million in rent and CNY 300,000 in occupancy fees. On 2 June 2023, without warning or prior discussion with X Tan, Ma X Dui Company notified the latter that the service charges would be increased to 300% of the original rate on the grounds that X Tan had violated the rental agreement concerned in the case, as Ma X Dui Company believed that X Tan was also operating in the Hong X Market. X Tan communicated with Ma X Dui Company, but no agreement was reached. Ma X Dui Company insisted that X Tan must ‘choose one of the two markets’ before the original service charge rate would be restored, and the service fees already collected under the inflated rate would not be refunded.

(II) Based on its operational position, the level and extent of its control over the market and other relevant data, Ma X Dui Company has a 90% share of the vegetable supply market in Changsha County and has an absolute dominant market position. Ma X Dui Company has abused its dominant market position by restricting X Tan to only trading with itself, and forcing X Tan to pay unfair service charges. In addition, Ma X Dui Company treated customers in the same category dissimilarly in relation to transaction prices. The action of Ma X Dui Company has had a profound impact on X Tan’s legitimate interests and has resulted in the loss of businesses as well as considerable financial losses. Ma X Dui Company must cease its monopolistic activities forthwith and compensate X Tan for all of his losses in relation to and arising out of the actions of the former. Ma X Dui Company unilaterally altered the contract price, which constitutes a blatant violation of the fundamental principle of acting in good faith. The rental agreement and the occupancy agreement concerned in the case could no longer be performed.

Facts established by the court of the original trial:

Article 17 of the rental agreement in question stipulates that both parties shall abide by all of the provisions under the agreement. Should a dispute arise during the course of performing the contract, the parties shall conduct negotiations in a friendly manner in the first instance. Should the negotiations fail, the parties shall submit their dispute to the Beijing Arbitration Commission. Article 7 of the occupancy agreement stipulates that if a dispute arises between the parties, they shall conduct negotiations in a friendly manner in the first instance. Should the negotiations fail, the parties shall submit their dispute to the Beijing Arbitration Commission.

The court of the original trial establishes that X Tan’s submissions are as follows:

• 1) the contracts are terminated,

• 2) payment for relevant charges is refunded and

• 3) (Ma X Dui Company) must pay X Tan damages for his losses.

The court of the original trial holds that although X Tan claims that the disputes arise out of dissimilar treatment, his case remains a contractual dispute. The arbitration clause in the contracts in question clearly stipulates that disputes arising out of and in relation to the performance of the contracts must be submitted to the Beijing Arbitration Commission, which excludes the court from hearing the case. Therefore, the court of the original trial has no jurisdiction over this case. Consequently, on 13 March 2024, the court of the original trial issued a civil judgment (Case No. 2024 Xiang 01 Zhi Min Chu 75) in accordance with Art. 122, para. 4 of the Civil Procedure Law of the People’s Republic of China, in which it is stated that ‘X Tan’s case is dismissed.’

X Tan wishes to challenge the judgment issued by the court of the original trial and appeals to this Court. X Tan makes the following submissions:

• 1) the judgment issued by the court of the original trial should be overturned, and

• 2) the court of the original trial should hear the case.

Facts and grounds for appeal: the case in question is essentially a dispute concerning a monopoly, and the court of the original trial incorrectly determined that this case is a contractual dispute. This case meets the criteria for an appeal hearing, and according to the doctrine of precedent, a court has jurisdiction over disputes concerning monopoly.

Ma X Dui Company has not submitted a response to the appeal proceedings.

This Court holds that the present case is a dispute over the abuse of a dominant market position. The Anti-Monopoly Law of the People’s Republic of China (amended in 2022, hereinafter the ‘2022 Anti-Monopoly Law’) came into effect on 1 August 2022. The alleged monopolistic activities concerned in this case took place after 2 June 2023. Therefore, the 2022 Anti-Monopoly Law is applicable to this case. Paragraph 2, Art. 51 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Disputes over Monopoly (the Anti-monopoly Civil Dispute Judicial Interpretation hereinafter), which came into effect on 1 July 2024, states:

‘Upon entry into force, the provisions in this interpretation shall be applicable to the first and second trials, which are currently conducted at the people’s courts’.

The judicial interpretation is applicable to the second trial of this case. Based on the claims and counterclaims of the parties, it can be concluded that the key point in the second trial of this case is whether the court of the original trial has jurisdiction over the dispute concerned. That is to say, whether the court should continue to hear this case.

First, Art. 3 of the Anti-monopoly Civil Dispute Judicial Interpretation stipulates:

‘Where a party initiates anti-monopoly civil proceedings at a people’s court, and if the respondent claims that the people’s court should not accept the case on the grounds that there is a contractual relationship (between the parties) and an arbitration clause under the agreement, the people’s court shall not support the respondent’s claim.’

In this case, although the contracts in question stipulate that disputes arising out of or in relation to the performance of the contracts should be submitted to the Beijing Arbitration Commission, it does not only concern the rights and obligations of X Tan and Ma X Dui Company. The case also involves the question of whether Ma X Dui Company has a dominant market position and, if so, whether the company has abused its dominant market position. In addition, whether Ma X Dui Company has carried out the alleged monopolistic activities has a direct impact on fair competition and market order, as well as the interests of consumers and the wider public. Therefore, the fact that there is an arbitration agreement between X Tan and Ma X Dui Company cannot be used as grounds to exclude a people’s court from accepting this case. This case falls within the range of cases that is heard by a people’s court (i.e., it is within the jurisdiction of a people’s court).

Second, Art. 4 of the Anti-monopoly Civil Dispute Judicial Interpretation stipulates:

‘An intellectual property court or an intermediate people’s court designated by the Supreme People’s Court shall have jurisdiction over civil dispute cases concerning monopolistic conduct as the court of the first trial.’

Article 5 of the same judicial interpretation stipulates:

‘The territorial jurisdiction over civil disputes arising from monopolistic conduct shall be determined according to the specific circumstances of a case and in accordance with the jurisdictional provisions of the Civil Procedure Law and relevant judicial interpretations on torts, contractual disputes and other matters.’

The alleged abuse of market dominance in this case occurred while the parties performed the contracts in question. X Tan claimed that the alleged action was illegal, and it rendered the contracts unperformable. He requested that the contracts be terminated and his counterparty, Ma X Dui Company, be held liable for the termination of the contracts. Therefore, the dispute in this case as a whole is contractual. As the contractual dispute is caused by the alleged abuse of a dominant market position, the dispute in this case can be further defined as a dispute concerning the abuse of a dominant market position under the generic term of a ‘contractual dispute’. Based on X Tan’s current submissions, the matter regarding the jurisdiction over this case should be determined in accordance with the Civil Procedure Law of the People’s Republic of China (hereinafter the ‘Civil Procedure Law’) and relevant judicial interpretations concerning the jurisdiction of contractual disputes.

Third, Art. 24 of the Civil Procedure Law stipulates:

‘Contractual disputes shall be heard at the people’s court where the defendant resides or where the contract is performed.’

The domicile of Ma X Dui Company and the Ji X Logistics Park, where X Tan rented a space are both located in Changsha County, Hunan Province. That is to say, the defendant resides and the contract was performed in Changsha County, Hunan Province. According to the provisions in the Supreme People’s Court’s Decision on ‘Setting up Designated Courts at the Third Intermediate People’s Courts in Zhengzhou, Changsha, and Xi’an, Which Will Have Jurisdictions over Intellectual Property Cases Across the Regions’, the court of the original trial has jurisdiction over the first trial of civil cases concerning any monopolistic activities that occur in Hunan Province. Therefore, the court of the original trial has jurisdiction over the present case.

Finally, X Tan’s case meets all the criteria for filing a civil lawsuit as stipulated in Art. 122 of the Civil Procedure Law. The court of the first trial’s ruling, in which it is stated that ‘X Tan’s case is dismissed’, is not in accordance with the law. This Court overturns this decision accordingly. The court of the original trial should hear X Tan’s case.

In summary, in accordance with Arts. 3, 4, 5, and para. 2 of Art. 51 of the Interpretation of the Supreme People’s Court on ‘Several Issues Concerning the Application of Law in the Trial of Civil Disputes over Monopoly’, and Arts. 24, 122, Item 2 of para. 1 of Art. 177, and Art. 178 of the Civil Procedure Law of the People’s Republic of China, this Court makes the following decision:

I. The civil judgment (Case No. 2024 Xiang 01 Zhi Min Chu 75) issued by the Changsha Intermediate People’s Court of Hunan Province is revoked;

II. The Changsha Intermediate People’s Court of Hunan Province is ordered to hear the case.

This decision is final.

[…]

Translated from the Chinese by Connie Kongkui Hubbard,

Farnborough, Hampshire, United Kingdom.

Footnotes