By BILL H. ZHANG

 

In an official media interview on November 3, 2008, the head of the Administrative Tribunal of the China’s Supreme People’s Court (“Supreme Court”) clarified certain rules applicable to the trial to administrative cases involving the China’s newly effective Anti-monopoly Law (“AML”). In the interview, the Supreme Court tried to set up rules for applying the Administrative Procedural Law[1] with the trial to antitrust-based administrative cases. These clarifications are not official juridical interpretation, however, they will definitively have certain guidance to courts at all levels hearing such administrative cases involving anti-trust matters. Therefore, the foreign enterprises intending to merger with and acquire Chinese enterprises, which will result in concentration, shall draw close attentions to these clarifications.

 

BACKGROUND

 

One year later after its promulgation on August 30, 2007, the AML took into effect on August 1, 2008. The languages in the AML are very vague and many provisions therein are in principle. Except the very simple five-article Provision on Business Operators Pre-concentration Declaration Threshold (“Declaration Threshold”)[2] promulgated just two days before the AML took into effect, no detailed implementation regulations regarding the AML have yet been issued till nowadays. In practice, many issues relevant to the enforcement of the AML are unclear. The administrative authorities may possibly abuse their administrative power to enforce the AML, thus causing damages to the interests of the concerned parties in the disputed anti-trust cases. Most importantly, the Chinese courts have never heard any administrative cases involving anti-trust matters before the AML took into effect. Obviously, the Chinese courts lack of experience in dealing with administrative trial involving anti-trust issues. However, the anti-trust cases are often very complicated and technical. After the AML took into effect, some administrative lawsuits involving anti-trust disputes have already been launched in some courts. In such situation, the Supreme Court’s clarification on the application of the Administrative Procedural Law and the AML with trial to administrative cases involving anti-trust matters will surely have certain guidance to courts at all level hearing such cases.

 

This article, based on the Supreme Court’s clarifications, addresses several crucial issues which are worthy of attentions for foreign investors in the antitrust-based administrative litigation, particularly on the types of administrative acts and their differentiation, court jurisdiction, qualified defendants, judicial review over antitrust-based administrative decisions, allocation of burden of proof, and the crosswise trial between antitrust-based administrative and civil litigations.

 

TWO TYPES OF ADMINISTRATIVE ACTS AND THEIR DIFFERENTIATION

 

To have some basic knowledge on administrative acts will help us to understand and analyze the legal issues of the administrative litigation involving anti-trust matters. Under the Administrative Procedural Law, the administrative authorities may make out two types of administrative acts. One is the abstract administrative acts (“Abstract Administrative Acts”) and the other is the specific administrative acts (“Specific Administrative Acts”). The Abstract Administrative Acts refer to those acts made by the administrative authorities for general guidance and repeated use, further creating an overall legal binding effect on the public rather than on any specific individual citizen, enterprise or organization. Examples of Abstract Administrative Acts include issuance of laws, administrative regulations, policies, decrees or orders, etc. Since the Abstract Administrative Acts are general acts, not aiming to any specific individual citizen, enterprise or organization, therefore, under the current Chinese legal system, such acts are not suable. Where the administrative authorities make any specific administrative decisions according to law targeting to any specific individual citizen, enterprise or organization, which means such administrative acts will create binding legal effect only on the specific target and can not be used repeatedly, such administrative acts fall within the scope of Specific Administrative Acts. Granting license, imposing fines, restricting personal freedom, sealing up, seizing or freezing properties are examples of Specific Administrative Acts. Since the Specific Administrative Acts aims to a specific individual citizen, enterprise or organization whose interests will be possibly damaged by such acts directly, therefore, according to the Administrative Procedural Law, the Specific Administrative Acts are suable.

 

In practice, it is quite difficult to differentiate the two types of administrative acts because of complicity and intersection. Sometimes, an administrative authority may concurrently make out Abstract Administrative Acts and Specific Administrative Acts. In an attempt to further clarify the difference, the Supreme Court particularized three important factors for distinguishing these two types of administrative acts, (1) target - whether the involved administrative acts aim to a specific individual citizen, enterprise or organization or just to the general public; (2) application – whether the involved administrative acts can be used repeatedly or just only for once; and (3) enforcement – whether the involved administrative acts can be directly enforceable or just serving as a general rule or guidance to the public. Those acts with the aim to the general public, which can be used repeatedly and serve only as a general rule or public guidance, are Abstract Administrative Acts. Otherwise, those acts with the aim to a specific individual citizen, enterprise or organization, which can be used only for once but directly enforceable, are Specific Administrative Acts.

 

JURISDICTION OVER ANTITRUST-BASED ADMINISTRATIVE CASES IN FIRST INSTANCE

 

The Administrative Procedural Law[3] provides that the intermediate people’s courts shall have jurisdiction as courts of first instance over the administrative cases which (1) confirm granting of patent rights or involve customs; (2) are initiated against the Specific Administrative Acts of the various ministries under the State Council or the provincial level governments; and (3) are influential and complicated within the areas of their jurisdiction. The Supreme Court further listed several important factors, in its Regulation on Several Issues Relating to the Jurisdiction of Administrative Cases[4], to determine whether the administrative cases are influential and complicated within the jurisdictions of the intermediate people’s courts. One of the important factors is that the defendant making the Specific Administrative Acts is a governmental agency at or above the county level.

 

The AML provides that the State Council establishes an antimonopoly commission (“Antimonopoly Commission”) and an antimonopoly enforcement agency (“AMEA”). In terms of enforcement, the AMEA may further delegate power to its counterparts at provincial level to enforce the AML. Therefore, the Antimonopoly Commission and the AMEA (including its authorized counterparts) are all governmental agencies above the county level. Also considering the complexity, professionalism and technicality, the Supreme Court has finally delegated the power to hear administrative cases involving anti-trust matters to the intermediate or the high people’s court (provincial level) where the defendants are located.

 

QUALIFIED DEFENDANT IN ANTITRUST-BASED ADMINISTRATIVE CASES

 

As above discussed, the AML has designed two levels of governmental authorities to deal with antimonopoly activities. One is the Antimonopoly Commission; the other is the AMEA and its counterparts at provincial level. The main function and responsibilities of the Antimonopoly Commission[5] are to (i) study and draft relevant competition policies; (ii) organize investigation and assessment of overall competition situations, and release an assessment report; (iii) formulate and release anti-monopoly guidelines; and (iv) coordinate the anti-monopoly administrative law enforcement. Obviously, the Antimonopoly Commission can only make Abstract Administrative Acts and can not make any Specific Administrative Acts targeting to any specific individual citizen, enterprise or organization. Therefore, the Antimonopoly Commission can not and will not be a qualified defendant in antitrust-based administrative cases.

 

Unlike the Antimonopoly Commission, the AMEA and its provincial level counterparts will be mainly responsible for the AML’s daily enforcement work. The AMEA and their local counterparts will make Specific Administrative Acts towards any specific individual citizen, enterprise or organization which has conducted monopoly activities. The dissatisfied citizen, enterprise or organization may initiate administrative litigation against the AMEA or its local counterparts which have made the Specific Administrative Acts.

 

Under the current AMEA structure, the power to enforce the AML is splited among the Ministry of Commerce (“MOFCOM”), the State Administration for Industry and Commerce (“SAIC”) and the National Development and Reform Commission (“NDRC”). MOFCOM will be solely responsible for anti-trust review for pre-merge concentration by business operators, while SAIC will take its responsibilities to prevent conclusion of monopoly agreement (excluding price-related monopoly agreement), abuse of market dominant position or administrative power to restrict or eliminate competition. NDRC will have authority to investigate and prevent price monopoly or abuse. As said, MOFCOM, SAIC and NDRC may, on their sole discretions, empower their counterparts at provincial level to undertake their responsibilities to enforce the AML. Therefore, only MOFCOM, SAIC and NDRC or their respective counterparts at provincial level can be a qualified defendant in the antitrust-based administrative cases, while the Antimonopoly Commission will not be qualified to be such defendant.

 

JUDICIAL REVIEW OVER ANTITRUST-BASED SPECIFIC ADMINISTRATIVE ACTS

 

The AML mainly involves administrative license, administrative fine, administrative decisions, administrative examination and approval and administrative compulsory measures. When any of these Specific Administrative Acts are sued, the court will fully hear and review the legality and rationality of these administrative acts according to law from the following aspects:

 

(1)    whether the application of laws to these administrative acts is correct;

(2)    whether the facts on the basis of which the administrative acts are made are clear;

(3)    whether the legal procedures are strictly followed when the AMEA or its authorized agencies made the Specific Administrative Acts;

(4)    whether the AMEA or its authorized agencies have exceeded their power of authority or abuse their power to make the Specific Administrative Acts;

(5)    whether the administrative fine is obviously unfair; and

(6)    whether the AMEA or its authorized agencies have not performed their statutory duties.

 

The court will review the legality and rationality of the Specific Administrative Acts according to the Administrative Procedural Law, the AML and other administrative laws, further referring to other administrative regulations on antimonopoly stipulated by various ministries under the State Council. The laws connected to the AML on the basis of which the court reviews the legality of the Specific Administrative Acts are the Administrative Punishment Law, the Administrative License Law, the State Compensation Law, the Anti-unfair Competition Law and the Price Law. The anti-trust related administrative regulation to which the court will refer when reviewing the legality of the Specific Administrative Acts is the Declaration Threshold.

 

Based on its judicial review, the court will make different judgments depending on different situations. Where the AMEA enjoys much right of discretions or the important policy tendency, the State or public interests are involved, the court will not materially alter the administrative decisions of the AMEA or its authorized agencies because such power shall be solely enjoyed by administrative authorities according to the principle of separation of administrative power and juridical power established by the Constitution. While under certain specific situations involving administrative examination and approval, for instance, such approval shall be made on the spot because the AMEA will not enjoy much right of discretions and the public interest is not involved, the court may change the administrative decisions and order the AMEA to grant the approval. For administrative fine, if the court believes it is obviously unfair, the court may change the AMEA’s decision to a reasonable extent.

 

ALLOCATION OF BURDEN OF PROOF

 

As a general principle, in an administrative litigation, it is the defendant – the administrative authority, who has to bear the burden of proof for the Specific Administrative Acts it has made and shall provide all evidence and regulatory documents on the basis it has made the Specific Administrative Acts within ten days after receipt of the complaint[6]. Failure to provide or provide evidence in delay without reasonable cause will be deemed that the Specific Administrative Acts being challenged have no supporting evidence. Further, the evidence which was not recorded in the file by the administrative authorities when making Specific Administrative Acts shall be excluded as the support of the legality of the Specific Administrative Acts being sued. In other words, the court will have to review the legality of the Specific Administrative Acts being challenged only based on the evidence and facts recorded in the file by the administrative authorities. Those evidence and facts which AMEA failed in recording them in the file when making the Specific Administrative Acts can not be used as evidence to support the legality of the said administrative acts even though those evidence and facts are objectively true.

 

Normally, the plaintiff will not have to bear the burden of proof and provide evidence that the administrative authorities have violated law when making the Specific Administrative Acts. However, under some special circumstances, the plaintiff will still have to bear the burden of proof.  For instance, if the plaintiff alleges that the defendant fails in performing its statutory duties, the plaintiff must prove that it has filed application with the defendant to request the defendant to perform its statutory duties, but the defendant has failed in performing such duties upon the plaintiff’s request. In the administrative litigation, if the plaintiff further claims compensation because of the Specific Administrative Acts, then the plaintiff will also have to bear the burden of proof that it has suffered losses and the causality exists between the plaintiff’s loss and the Specific Administrative Acts made by the defendant.

 

Considering the complexity, technicality and professionalism, sometimes, the antitrust-based administrative cases will also involve complicated technical issues. In such case, either of the concerning parties may request the court to allow the relevant experts and professionals to attend the hearing to make explanation or clarification to these technical issues. The court may also notify these experts and professionals to attend the hearing for explanation. When necessary, the court may further organize the experts and professionals to crossly examine and review the evidence and facts involving technical issues.

 

CROSSWISE TRIAL BETWEEN ANTITRUST-BASED ADMINISTRATIVE AND CIVIL LITIGATION

 

The AML provides two levels of remedies for the aggrieved parties whose interests are damaged in the monopoly activities. The aggrieved party may initiate a civil litigation against the business operators who have conducted monopoly activities, such as concentration, or sue the AMEA for its administrative decision or failure to perform its statutory duties to prevent the monopoly activities by business operators.

 

In case the two litigations being concurrently launched, normally, the court will adhere to the first-filing principle, which means to handle the litigation which was first filed, then move to the second litigation after completion of the first one. Normally, the antitrust-based administrative and civil litigations can run in parallel. However, in some circumstances, the judgment of the administrative litigation will be a precondition to the civil litigation, and vice versa, then the court will have to temporarily cease one litigation procedure before proceeding with the other one. The crosswise trial between the administrative and civil litigation is necessary because of the special characteristics of antitrust cases, however, such crosswise trial will also be very complex. Further detailed clarification by the Supreme Court on this aspect is expected.

 

CONCLUSION

 

After the AML took into effect, more and more antitrust-based administrative litigations will be initiated. However, the Chinese courts have never heard antitrust-based administrative cases before the promulgation of the AML. Under such situation, the Supreme Court’s clarifications on applying the Administrative Procedural Law and the AML with trial to antitrust-based administrative cases, though not an official judicial interpretation, will definitively have certain guidance on the courts at all levels hearing such antitrust-based administrative cases. The acquaintance with these clarifications will enable the foreign enterprises intending to merger with and acquire Chinese enterprises which will trigger for antitrust matters to protect their legal rights and effectively seek for remedies to the administrative decisions made by AMEA or its authorized agencies.

 

Under the Supreme Court’s clarifications, the Antimonopoly Commission will only make Abstract Administrative Acts which are not sueable under the current Chinese legal system. Thus the Antimonopoly Commission can not and will not be a qualified defendant in the antitrust-based administrative litigation. While, the AMEA and its authorized agencies will be responsible for the daily enforcement of the AML and will make various Specific Administrative Acts which are sueable. Further more, the power to enforce the AML is splited among MOFCOM, SAIC and NDRC and their respective authorized counterparts at provincial level. Therefore, in the antitrust-based administrative litigation, only MOFCOM, SAIC and NDRC or their respective authorized counterparts at provincial level can be qualified defendant.

 

All antitrust-based administrative cases will be heard by the intermediate or the high people’s court where the defendants are located. Like all administrative litigation, in the antitrust-based administrative litigation, normally, the defendant will have to bear the burden of proof, but in some rare special circumstances, the plaintiff will also have to bear such burden. In the administrative litigation, the court will mainly hear and review the legality and rationality of the Specific Administrative Acts being challenged. Due to special characteristics of the antitrust-based cases, the aggrieved party may initiate administrative and/or civil litigation on its sole discretion. Normally, these two litigation procedures can run in parallel, however, when the final decision of one litigation is a precondition of the other, then the court might possibly have to temporarily cease one litigation procedure before proceeding with the other one.

 

About The Author

 

Bill H. Zhang is the managing partner of China Sunbow & Associates with rich experience in cross-board transactions involving China with more focus on corporate and commercial matters, such as mergers and acquisitions, direct investment in China, joint venture, intellectual property, technology license and transfer, international trade, corporate governance and compliance, restructuring and reorganization, labor and employment, and dispute resolutions. He has represented many multi-national companies to merge and acquire Chinese enterprises, make investment, register and enforce various trademarks, patents and copyrights, resolve commercial disputes in China. He has also counseled many foreign invested enterprises on their daily operations in China.

 

For more information about this article and the author, please contact:

 

Bill H. Zhang

T: +8621 5081 5229

F: +8621 5081 5239

E: bill.zhang@chinasunbow.com

 

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