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Earlier this year, in Microsoft Mobile OY (Ltd) v Sony Europe Limited & Ors [2017] EWHC 374 (Ch), the English High Court considered whether an arbitration clause in a supply contract caught a private cartel damages action. Its conclusion that it did needs to be kept in mind by claimants in this field.
In brief, the case concerned the purchase of lithium-ion batteries, to be used in mobile phone manufacturing, by a Microsoft subsidiary, the claimant. The claimant alleged that the defendants, one English company, one Japanese, and two South Korean companies, participated in anti-competitive behaviour in supplying these batteries. Accordingly, the claimant brought proceedings against them for damages in tort.
The case concerned whether the English court had jurisdiction over this dispute. The claimant’s case was that it had mandatory jurisdiction over the English defendant under EU Law as a result of its domicile in England. This, in short, would then provide it with an “anchor” to bring in the other, non-EU, defendants on the basis of common law jurisdiction rules regarding necessary and proper parties.
A key part of the dispute was, however, the potential scope of an arbitration clause in an earlier purchase contract. This was accepted to be binding on the claimant, the English defendant and the Japanese defendant. If the claimant’s action was within that clause then the proceedings against those two defendants would be stayed in favour of arbitration. This would then have consequences for whether the other defendants could be sued before the English court, and the claimant’s overall ability to have its arguments heard in one forum (a common aim of claimants in cartel damages claims). Despite some minor infelicities in the drafting of the relevant provisions it appears to have been common ground that the arbitration clause in question fell to be governed by English law.
Marcus Smith J took the view that the starting point for this issue of construction was the House of Lords decision in Fiona Trust [2007] UKHL 40 which establishes that, under English law, in the usual course of events commercial parties intend a “one-stop-shop” for all disputes (whether contractual or tortious) arising from the contract that the relevant dispute resolution clause relates to. In this respect a claim for cartel damages against an alleged participant with whom there is a purchase contract containing such a clause can raise questions of categorisation: is that claim to be regarded as concerning an entirely different relationship and therefore outside the scope of the dispute resolution clause?
Earlier English authority (Ryanair v Esso [2013] EWCA Civ 1450) had held that where there is merely a contract between buyer and (participant) supplier, and no plausible claim on that contract, then the claim for cartel damages is indeed outside the scope of the clause. In Microsoft Mobile, however, Marcus Smith J distinguished that decision on the basis that there were specific provisions in the supply contract, primarily a term which expressly provided for the prices to be negotiated in good faith, which, in the event of a cartel, would have been breached and would give rise to plausible, arguable contractual claims with significant overlap with the tortious cartel actions. That being the case, the judge regarded it as being within the parties’ contemplation that the tortious dispute was caught by the arbitration clause.
A further argument relied upon by the claimant in the face of that conclusion was that it was contrary to EU law. This was based on reasoning deployed by the Advocate General in the recent CDC case (C-352/13). In that case similar issues had arisen before the CJEU but in the context of jurisdiction clauses in favour of EU Member States governed by the Brussels Regulation. In that opinion, the Advocate General placed significant reliance on Article 101 TFEU, and the policy behind it, to attempt to fashion a solution avoiding potential fragmentation of claims. The problem for the claimant, however, was that the CJEU itself had not adopted such reasoning; instead adopting a more conventional application of the EU jurisdiction rules. This led the judge in Microsoft to reject the claimant’s arguments in this respect. (For further consideration of the CJEU’s decision in that case and its (different) conclusions on whether, in the different context of jurisdiction clauses in favour of EU Member States, cartel claims come within such a clause see our earlier note here).
This decision is currently the subject of an appeal but, on its face, it means that, in cases where a relevant contract contains an arbitration clause to which English law applies, claimants in cartel damages cases may face a fragmentation of proceedings. In the context of contracts, such as long-term supply agreements for goods, where such issues tend to be more frequently encountered, are there any solutions for claimants (potential or otherwise) where such a clause is relevant? Most likely not at the drafting stage; ordinarily, attempting to expressly cater for the (potential) existence of a cartel in an arbitration clause is likely to be a commercial non-starter for a variety of reasons. And it may also be considered, on balance, that the potential for this issue to transpire does not justify, where arbitration is otherwise preferred, resorting to a different dispute resolution mechanism.
There are, however, ways that claimants can mitigate or distinguish the effect of Microsoft Mobile (insofar as it is applicable) in any later proceedings. Two points come to mind. First, it will not stop claimants bringing, and where possible in one court, proceedings against the other members of a cartel with whom there is no contract. Second, even where the decision is directly relevant, it should be remembered that it turned on the fact that there was a clear and plausible claim under the particular contract itself. In other cases, this may not be so.
Click here for the judgment.
Elizabeth Jordan and Alexander Fawke would like to thank Ryan Abotomey for his assistance in the preparation of this article.
8 August 2017
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