2.广州公司如果请求工商局主持调解，将面临在人民法院被诉 "tortious interference"，即“恶意损害（与工商局的关系）”。
Under Chinese law, is a Guangzhou company to a contractual dispute with a Hong Kong company entitled to request the Guangzhou Industry & Commerce Administration to preside at mediation where the two companies have already signed an exclusive arbitration agreement?
Does Chinese law consider the aforesaid request as tortious interference with any interest of the Hong Kong company?
The Industry & Commerce Administration has valid power to preside at mediations between parties to the contract. Guangzhou company can file a mediation request upon the Administration so long as the same dispute has not been lodged at the arbitration authorities, even if the parties have originally agreed to resolve all the disputes through arbitration.
Since the answer to the first issue is affirmative, the second issue on "tortious interference" becomes moot. Furthermore, despite the outcome of the first issue, a mediation request upon the Industry & Commerce Administration is not tortious interference. It is because, (1) Chinese jurisprudence does not acknowledge the theory of "tortious interference" and it is not of itself a claim in Chinese law; (2) even with reference to American rule of tortious interference, no "interference" exists where there is no business interest or prospective business opportunity of Hong Kong company has been sacrificed.
A construction contract was formed and signed at Guangzhou Economic Development Zone (Guangzhou City, Guangdong Province, People's Republic of China) between a Guangzhou company (hereinafter as GZ Co.), which is a wholly-owned subsidiary of a U.S. corporation, and a Hong Kong company (hereinafter as HK Co.). GZ Co. and HK Co. agreed to submit all disputes under the contract to New York Arbitration Committee.
During the course of performance of the contract, a dispute arose. GZ Co. intended to request the Contract Administration Section of Guangzhou Economic Development Zone Industry & Commerce Administration (hereinafter as the Guangzhou Administration) presiding at the mediation. However, HK Co. favored the arbitration before New York Arbitration Committee.
As a practical matter, companies doing business in China always give precedence to maintaining a good relationship with local Administration. It is a setback for such relationship if a business strongly resists the dispute resolution effort made by the Administration when the Administration is interested in taking opportunity to bring the quarrelling parties into harmony.
HK Co. argued that GZ Co. did not have any right to file the mediation request upon the Guangzhou Administration. Furthermore, HK Co. also threatened to bring a suit in Chinese court against GZ Co. for tortious interference with its good relationship with the Guangzhou Administration.
The contract in controversy was formed and signed in China. It is a construction contract and to be performed in China. Where the parties did not contemplate on the choice of laws clause in their contract, Chinese court uses "the closest proximate relationship" standard to determine the jurisdictional question. Since China is both the place of formation and performance of the contract, under the rule of locus contractus and locus actus, Chinese law shall apply. The issues are therefore addressed under applicable Chinese laws.
I. VIABILITY OF MEDIATION
The Industry & Commerce Administration shall not accept a request for mediation of a contractual dispute if (1) a complaint regarding the dispute has been filed at the People's Court; or (2) a request for arbitration has been made at the arbitration authority; or (3) while one party requests for a mediation, the other party opposes to it. (Art. 8, Measures on Contractual Dispute Mediation, State Administration of Industry & Commerce, November 3, 1997, Order No.97) (Guojia Gongshang Xingzheng Guanli Ju, Hetong Zhengyi Tiaojie Banfa).
For the purpose of this memorandum, it is supposed that there is no other potential obstruction barring GZ Co. from bringing the dispute to mediation before Guangzhou Administration.
A. Role of Industry & Commerce Administration-Presided Mediation
The State Administration of Industry & Commerce (SAIC) with its provincial bureaus and city/county sub-bureaus, as a whole, is the business and market regulating body of the Chinese Government. It is an administrative organ. The Administration is delegated with the power of regulating and monitoring the whole course of the performance of the contract. Art.127, Contract Law of the People's Republic of China. (March 15, 1999). This power is exercised by Contract Administration Section, an inner office of the Industry & Commerce Administration. The Section has power to preside over mediation of contractual controversy, while the mediation document is issued in the name of the Administration.
As identical to other kinds of mediation, the Administration-presided mediation also follows the principle of voluntariness. Art.3, Measures on Contractual Dispute Mediation. During the mediation procedure, if one party opposes to further mediation, the mediation should be terminated. Art.17, Measures on Contractual Dispute Mediation. The mediation is non-prejudicial, and it neither forecloses future arbitration nor prevents litigation. It is non-enforceable at a court of law. Art.20, Measures on Contractual Dispute Mediation.
Under Chinese law, the outcome of arbitration is final and non-appealable, except where the court orders a rescission or non-enforcement. Art.9, Arbitration Law of the People's Republic of China (August 31, 1994). Compared with arbitration, the outcome of mediation does not have any enforceable legal effect. In fact, a party can always disregard the outcome of an Administration-presided mediation and to proceed with an arbitration or litigation, provided that the Statute of Limitation does not expire.
The Administration-presided mediation is not a substitute of the arbitration before New York Arbitration Committee. An administrative circular of SAIC clearly distinguished the Administration-presided mediation from the arbitration presided by Industry & Commerce Administration Economic Contract Arbitration Committee. See, Reply to Related Legal Questions on the Arbitration of Economic Contract, SAIC (August 16, 1996) (Guojia Gongshang Xingzheng Guanli Ju, Guanyu Jingji Hetong Zhongcai Anjian Youguan Falü Wenti de Dafu). Therefore, to request such mediation is not to circumvent New York Arbitration Committee's procedure and thus not a violation of the arbitration agreement between GZ Co. and HK Co.
Since the mediation requested by GZ Co. does not prejudice HK Co.'s legal rights or interests at Chinese law, nor does it pre-exclude New York Arbitration Committee's jurisdiction, which is final and non-appealable under Chinese law, GZ Co. does have its option to request Guangzhou Administration to preside a mediation over the controversy between GZ Co. and HK Co..
B. Guangzhou Administration's acceptance of mediation request
Art.8 of Measures on Contractual Dispute Mediation lists three independent conditions of which each can prevent Guangzhou Administration from accepting GZ Co.'s request for mediation.
If a complaint regarding the dispute has been lodged at the People's Court, Guangzhou Administration therefore shall not accept the request for mediation. In this case, GZ Co. and HK Co. had already written down an arbitration clause in their contract. According to Art.5 of Arbitration Law of the People's Republic of China, the Court should dismiss the complaint because the parties had already agreed to submit the dispute to arbitration authority. The first condition in Art.8 of the Measure does not exist.
If a request for arbitration has been made at the arbitration authority, then the Guangzhou Administration cannot conduct the mediation. However, here in this case, HK Co. only expressed its strong disfavor in regards to proposal of mediation, but it has never tried to directly bring the controversy before New York Arbitration Committee yet. So long as before the arbitration request is filed at New York, GZ Co. can submit its mediation request to Guangzhou Administration and activate the formal mediation process.
The third preventing condition is that the HK Co. does not agree to the proposal of mediation. If HK Co. insists going to arbitration and not acceding to GZ Co.'s proposal, that is impossible to bring it to the mediation. However, it is only a preventing condition to the opening of a mediation procedure, but not an obstacle for a party filing the mediation request at the Administration. It should be noted that to initiate a mediation process, only a request document is needed and the signature of only one party to the dispute is enough. Once the request is filed, the Administration will ask the other party whether it agrees to resolve the dispute through mediation. Art.10 of Measures on Contractual Dispute Mediation. To file the request itself does not guarantee a mediation to take place. Even if HK Co. insists on arbitration and prevents Guangzhou Administration from presiding at the mediation, GZ Co. is still entitled to file its request at the beginning.
As to these facts at present, GZ Co. is rightfully entitled to request Guangzhou Administration to preside at mediation over its contractual dispute with HK Co.
As a practical matter, it is a delicate issue how HK Co. will handle the situation when it is asked by Guangzhou Administration whether to start the mediation. With assistance of a clear understanding that the mediation is not binding and nor does it foreclose future arbitration at New York, it is likely that HK Co. will agree to the proposal of mediation in the end.
GZ Co. should file the request for mediation at Guangzhou Administration because it is highly possible that the Administration will accept the request without HK Co.'s opposition.
A. Non-existence in Chinese Law
China is a jurisdiction following Civil Law traditions. Statutes are the only source of the law (Fa Lü). Chinese courts do not have power to make any law and they are required to adjudicate cases in full accordance with statutes.
No clear statutory rule in Chinese laws has ever addressed the issue that is known in U.S. laws as "tortious interference". Such a term or definition does not appear in the General Principles of Civil Law of the People's Republic of China (April 12, 1986), the most basic law to all the civil laws in China. Nor does it appear in the most recent Contract Law of the People's Republic of China (March 15, 1999), which will become an important component of the grandeur Civil Code currently under Chinese legislators' contemplation. Lacking of the definition or even not mentioning it in Chinese statutes clearly defeats any complaint alleging sufferings from "tortious interference" in Chinese courts.
A United States District Court once even dismissed a plaintiff's action where it alleged that the defendant's business dealing in China constituted tortious interference with its Chinese market transactions. To justify the dismissal, the court held, inter alias, that no theory of "tortious interference" existed in Chinese jurisprudence at all. See, Orion Tire Corp. v. Goodyear Tire and Rubber Co., SA CV 95-221 (U.S Dist. Ct. M.D. Cal. March 22, 1996 Order and August 5, 1996 Order). The court's opinion correctly reflected the current situation of Chinese jurisprudence with regard to the issue of tortious interference. Where Chinese jurists do comment on the issue of "tortious interference", it has always been used as an example to show the difference between legal cultures, to illustrate a legal concept totally foreign to Chinese laws, rather than giving an analysis of the similarity.
B. Comparison with Counter-unfair Competition Law in China
There has been only one clause in a single legislation in China that might give rise to an argument based upon "tortious interference", however very weakly.
Article 2 of Counter-unfair Competition Law of the People's Republic of China (September 2, 1993) reads as, "All businesses dealing in market transactions must follow the principle of voluntariness, equality, fairness and bona fide, and must obey the well-known trade customs. The unfair competition as used in this law refers to the behavior which is in violation of this law, and infringing upon the legal rights and interests of others or disturbing social, economic orders"(emphasis added).
This clause forbids unfair competition behaviors that infringe upon the rights and interests of other competitors in business. But it is not a catchall clause. To support an allegation of unfair competition, the plaintiff must prove that the alleged act falls into at least one category of the prohibited dealing behaviors enumerated in Counter-unfair Competition Law. The court must rely on the statutory enumeration as the standard and find the defendant having committed a specific violation of the statute to hold it liable for the unfair competition.
Even though some commentators have compared this legal application with tortious interference, it is clear that the reason for Chinese court to hold a business liable is its violation of a specific statutory prohibition, not to use "tortious interference" as a standard to test all kinds of its business dealings.
Furthermore, Chinese court does not acknowledge an independent claim based on "tortious interference". The plaintiff must allege a specific claim as which is listed in Counter-unfair Competition Law.
No theory of tortious interference exists in Chinese law. Neither can HK Co. rely on Counter-unfair Competition Law to bring its suit against GZ Co. only for the alleged "interference".
C. Tortious Interference as in United States Law
Even if a Chinese court wants to hear this case as the first impression in the whole nation and to bring "tortious interference" into Chinese jurisprudence, it is very possible that GZ Co. will be acquitted.
Since China does not have its own rule of tortious interference, it has to borrow the theory from other jurisdictions. American law resembles much of the rules in other jurisdictions with regard to the issue of tortious interference. By applying a US legal analysis, HK Co.'s complaint must find defeat.
The elements of tortious interference with contractual relations are fourfold in US law. Namely, they are: (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of the contract; (3) the defendant's intentional procurement of a breach of the contract by the third party; and (4) damages caused by the breach. Martin Ice Cream Co. v. Chipwich, Inc., 554 F. Supp. 933, 945 (S.D.N.Y. 1983). The most critical element is missing in this case: the existence of a valid contract between HK Co. and Guangzhou Administration.
The relationship between HK Co. and Guangzhou Administration is one that between a market player and a market regulator. There was no other contract existing between the two; or even there was, HK Co. did not allege that GZ Co. interfered with that contractual relationship. All it concerned is its "connection" with Guangzhou Administration, and no matter what kind of business interest it might be, it is not an interest addressed by the theory of tortious interference.
Even if Chinese court does not distinguish business transactions from connection built-up social dealings, HK Co. failed to identify a clear object of the "interference".
HK Co.'s allegation is more like one that charges GZ Co. for tortious interference with prospective economic advantage. To sustain this allegation, HK Co. must satisfy an extremely high pleading standard. It is because that "plaintiff's allegations must include elements 'more demanding than those for interference with [the] performance of an existing contract.'" Fine v. Doernberg & Co., Inc., 610 N.Y.S.2d 566, 567 (App. Div. 2d Dep't 1994)(citation omitted)(alteration in original).
"A 'general allegation of interference with customers without any sufficiently particular allegation of interference with a specific contract or business relationship' will not withstand a motion to dismiss." McGill v. Parker, 582 N.Y.S.2d 91, 95 (App. Div. 1st Dep't 1992). Even ignoring the fact that Guangzhou Administration is indeed not a customer of HK Co., HK Co.'s threat of litigation has no more merit than a general and illusory allegation such as "interfering with the good co-operation with Guangzhou Administration". This is far from adequate for a complaint of "tortious interference with prospective economic advantage".
Therefore, even the Chinese court is like to hear the complaint of HK Co. and will borrow legal principles from US laws to adjudicate the case, some elements of tortious interference are missing in this case and no claim will be sustained.
GZ Co. is entitled under Chinese law to submit a request for mediation upon Guangzhou Administration and ask it to preside at the mediation over the controversy between GZ Co. and HK Co. It is probable that HK Co. will not oppose such request and therefore Guangzhou Administration will have the opportunity to preside at the mediation eventually.
Chinese law does not acknowledge the theory of tortious interference and it is not an independent claim. The present case even does not qualify a tortious interference claim under US law because no business interest exists between HK Co. and Guangzhou Administration. In case a suit emerges, Chinese court is very likely to either dismiss the complaint or deliver a favorable judgment, with prejudice, for GZ Co.