Two pharmaceutical companies (company A and company B) entered into an authorisation agreement and a master service agreement, agreeing that both parties shall fulfil their confidentiality obligations. Article 22 of the master service agreement provides that “any dispute or claim arising out of, or in connection with, this agreement shall be settled by arbitration conducted by the Shanghai International Arbitration Centre in accordance with its arbitration rules”.
Company A’s position is that in the course of the performance of the master service agreement, due to a system error of company B which disclosed confidential documents involving company A’s trade secrets, another two pharmaceutical companies (company C and company D) had unjustified access to the above-mentioned documents.
Company A then filed a tort suit to the Shanghai Intellectual Property Court against companies B, C and D as joint defendants, demanding that the three defendants bear joint infringement liability. The court, however, dismissed company A’s suit against company B on the basis of the arbitration clause contained in the above-mentioned master service agreement, after considering company B’s objection to jurisdiction.
Company A appealed to the Supreme People’s Court (SPC), arguing that the behaviour of companies B, C and D, and its consequence, were highly integrated and inextricably linked, constituting an indivisible and necessary joint action, which should be heard in one case with one forum. Company A also contended that the underlying disputes were out of the scope of the arbitration clause of the master service agreement.
The SPC summarised that the issues arising in this case were whether the case was an indivisible and necessary joint action and whether the disputes in question was out of the scope of the arbitration clause.
As to the first issue, the SPC ruled that first, disputes arising from joint tort behaviour are not necessarily heard by an indivisible and necessary joint action, company A’s contention that its claims against companies B, C and D should belong to the necessary joint action lacks legal basis as it is confused with the provisions of substantive laws and procedural laws.
Second, this case is categorised under article 13 of the Tort Law, that is, even if several tortfeasors shall have joint and several liabilities for their joint tort behaviour, the tort suit against them is still a divisible action. Last but not least, as the Civil Procedure Law provides for a number of methods for adjudicators, such as witness testimony to ascertain the facts of the case, it is not necessary to include all the parties related to the infringement being sued as joint defendants in order to ascertain the infringement facts, while the disputes regarding the infringement being heard separately in the two parallel forums – litigation and arbitration – does not affect the ascertainment of facts, or the identification of infringement.
As to the second issue, the SPC expressed its view that, according to article 2 of the Arbitration Law, the dispute that can be resolved by arbitration is not limited to those related to a contract, but includes other property rights. The underlying arbitration clause is a general agreement covering any dispute or claim arising out of or related to the master service agreement, and thus includes the claims raised by company A.
Second, when the adjudicator is facing the question of how to interpret the scope of the arbitration clause regarding tort claim arising from the breach of contractual obligations, he/she shall bear in mind that the plaintiff shall be bound by the arbitration clause in the contract, even if he/she files a lawsuit, as the liability for breach of contract competes with the liability for tort.
In addition, the plaintiff shall also not be allowed to circumvent the application of the arbitration clause by choosing a cause of action afterwards. Finally, it shall not be supported by the court if the plaintiff added some party who had not signed the arbitration agreement as joint defendants deliberately for the purpose of escaping from the forum of arbitration.
The SPC concluded that, according to the arbitration clause in the master service agreement, the dispute between companies A and B should be settled by arbitration conducted by the Shanghai International Arbitration Centre, rather than the people’s courts. Therefore, the SPC upheld the Shanghai Intellectual Property Court’s decision on dismissing company A’s lawsuit against company B, for it was consistent with the relevant laws and judicial interpretations.
The determination of jurisdiction over disputes arising from complex legal relationships between multiple parties and multiple contracts or other civil legal acts is a threshold question in commercial dispute resolution practice. The general solution to this question in civil law countries is to centralise jurisdiction supported by the joint action theory in the subject matter of litigation.
However, competing claims in substantive law are not necessarily the same as joint action in litigation law. In particular, in a scenario where the forum of arbitration and court is intertwined, it is necessary to take into account the principle when applying the doctrine of joint action, that is a valid arbitration agreement precludes a court from entertaining a dispute on the merits, and instead requires that the parties be referred to arbitration.
In this case, the SPC not only clarified that joint tort claims do not necessarily belong to indivisible and necessary joint action, but also reaffirmed the spirit of the negative obligations under an agreement to arbitrate, that is, to respect the true intention of the parties to resolve disputes through arbitration. Accordingly, if the parties enter into a contract with an arbitration clause covering any dispute or claim arising out of, or relating to, that contract, it is reasonable to interpret the scope of the arbitration clause as it shall cover the dispute arising from a tort behaviour where it is related to a breach of contractual obligations.
What’s more, even if the plaintiff files a lawsuit by adding someone who is not the signed party of the arbitration agreement, it does not override its negative obligations to arbitrate. It is not surprising that the SPC’s opinions once again reflect the judicial attitude of Chinese courts to respect the characteristics and principles of arbitration, to hear arbitration judicial review cases in accordance with the arbitration laws, to guarantee the correct implementation and accurate application of the arbitration legal framework, and to promote the credibility and international competitiveness of Chinese arbitration.
Xu Zhihe is the deputy head of the Department of Research and Information at SHIAC