Arbitration agreements in MMORPG dispute hit Singapore courts

It's no-holds-barred in the world of massively multiplayer online role-playing games (MMORPGs), with thousands of players slugging it out in virtual worlds. But perhaps even more epic are the real-world battles between industry players in this high-stakes, high-value sector (valued in 2022 at c USD 50bn).  There have been big disputes between developers, licensees, publishers and distributors.

An example is a long-running dispute between the developers of the popular MMORPG The Legend of Mir 2 and its affiliated games. This has now led to an interesting Singapore International Commercial Court (SICC) decision concerning the use of arbitration agreements in the game’s licensing. The game was co-developed by South Korean gaming companies WeMade and Actoz Soft.  Actoz, purporting to act on behalf of itself and WeMade, later entered into a 2001 License Agreement (SLA) with two Chinese Distributors (Lansha Information Technology and Shanda Games) for the exclusive distribution of the game in China.  The SLA was governed by Singapore law and provided for Singapore-seated ICC arbitration. 

Disputes then broke out over software bugs, cheating programs, and royalty payments, spawning an ICC arbitration and some 20 lawsuits in the Korean courts between 2002-2004, which were subsequently settled. The peace broke down and, in 2017, WeMade commenced the present ICC arbitration accusing the Chinese Distributors of unauthorized sub-licensing of PC, web, and mobile versions of the game in breach of the SLA.  Shortly after the arbitration commenced, and before the formation of the ICC Tribunal, Actoz signed an Extension Agreement (EA) with the Chinese Distributors purporting to extend the license and replace the dispute resolution clause in the original SLA from ICC arbitration to Shanghai-seated arbitration under the Shanghai International Arbitration Centre (SHIAC).  The Chinese Distributors then argued that the ICC tribunal had no jurisdiction because the ICC arbitration clause from which it derived its competence had been replaced by the SHIAC clause under the 2017 EA.

That challenge failed – following a full oral hearing, the ICC tribunal held that the EA was void as Actoz had signed it in breach of its fiduciary duty as WeMade’s agent. Consequently, the ICC clause remained operative and the ICC tribunal had jurisdiction. On the merits, the tribunal found that Actoz and the Chinese Distributors had breached the licensing agreement through unauthorized sub-licensing of the web and mobile versions of the game, and held them liable for USD 3 million in costs. Actoz and the Chinese Distributors then approached the SICC to set aside the partial awards on the basis that the ICC clause was invalid.

SICC upholds the tribunal’s jurisdiction

The SICC conducted a detailed de novo review of the evidence (primarily emails leading up to the signing of the EA, and the oral evidence before the ICC tribunal), and upheld the ICC tribunal’s finding that it had jurisdiction. It concluded that Actoz signed the EA in “haste and secrecy” and precisely with a “view to frustrating” the ongoing ICC arbitration [84, 202]. In particular, Actoz and the Chinese Distributors deliberately excluded WeMade in their discussions (by email, without copying WeMade) to change the mode of dispute resolution from ICC arbitration and Singapore governing law, to SHIAC arbitration and PRC governing law, knowing that WeMade would object or demand to increase the license fee as a quid pro quo [163,203] The SICC also rejected Actoz’s argument that the SHIAC clause was separable from the main EA and that WeMade had to prove that Actoz breached its fiduciary duties in relation to the SHIAC clause specifically – it found that the entire EA, including the SHIAC clause, was invalid [158,175, 203-204]. Consequently, the SICC refused to set aside the tribunal’s awards [205].

Takeaways     

Singapore courts are renowned for their pro-arbitration stance and reluctance to annul awards, including on the basis of invalidity of the arbitration clause.  However, this case was fairly unique in that the challenge involved the validity not of the clause under which the arbitration was commenced (the ICC clause), but a separate arbitration clause (the SHIAC clause) in a subsequent agreement. The Actoz parties tried to argue that since it was constituted under the ICC clause in the SLA, the tribunal had no jurisdiction to determine the validity of the SHIAC clause under an entirely different agreement (the EA), but the SICC’s approach was pragmatic - it concluded that the validity of the separate arbitration clause was properly a matter for the tribunal to decide because that was precisely the issue that went to whether it had jurisdiction.

Are there any lessons for developers thinking about disputes at the contracting stage? Two points stand out. First, whilst co-development arrangements are common, there is potential risk in using a co-developer as an agent. Interests may diverge and, if possible, being a direct party to the licensing agreement would have reduced the possibility of this type of situation arising. Second, to the extent possible, consistency in arbitration agreements (in terms of e.g.  governing law, seat arbitral institutions and applicable rules) in related agreement promotes efficiency in dispute resolution. Here the problem was apparently caused deliberately, but it is a reminder of that useful rule of thumb. 

Clara Tung would like to thank Tigmika Srivastava for her assistance in the preparation of this article.