Microsoft Claim Against Li-Ion Battery Cartel Stayed by English High Court Due to Arbitration Clause 

March, 2017 -

In a judgment handed down by the UK High Court on 28 February 2017, Mr Justice Marcus Smith stayed claims against one defendant and set aside permission to serve the proceedings outside the jurisdiction against the remaining defendants in a competition damages claim relating to the lithium ion (Li-ion) battery cartel. 

Competition damages claims are used when a party claims damages for losses allegedly caused by anti-competitive conduct. In this case, Microsoft Mobile (a wholly owned subsidiary of Microsoft Corporation) claimed the anti-competitive conduct was carried out between 1999 and 2011 by four suppliers of Li-ion batteries. The batteries are contained in the mobile telephones that the Claimant manufactured and distributed. Microsoft started the proceedings both in its own right and as assignee of the rights of Nokia Corporation, whose mobile device business Microsoft purchased in September 2013. The suppliers of the batteries against which the claim was made were Sony Europe Limited (D1), Sony Corporation (D2), LG Chem Limited (D3) and Samsung SDI Co. Limited (D4). 

The first defendant, Sony Europe, is domiciled in the UK.  The other three defendants are all domiciled outside the EU.  The second defendant, Sony Corporation, is the first defendant’s parent company.  The latter had a product purchase agreement with Nokia.  The agreement listed the first defendant as an affiliated company. The agreement contained a dispute resolution clause providing for disputes to be resolved under UK law (the parties agreed that this was intended to refer to English law) and by using ICC arbitration. The terms of the arbitration agreement were broad, encompassing “[a]ny disputes relating to this Agreement or its enforcement” and stating “The arbitration shall be the exclusive remedy of the Parties to the dispute”. Even though the case concerned tortious breaches of competition law rather than contractual claims, the court determined that the proceedings against the first defendant should be stayed due to the existence of the arbitration clause.  Mr Justice Marcus Smith further reasoned that it did not matter that Microsoft’s claim was grounded in competition law torts rather than a contractual breach as a Claimant would otherwise be able to selectively plead or not plead certain causes of action in order to circumvent the scope of an arbitration or jurisdiction clause.  Mr Justice Smith said “it would be an extraordinary outcome were a claimant successfully to be able to contend that, because a contractual claim had not been pleaded, a ‘parallel’ claim in tort arising out of exactly the same facts and with a scope defined by that contract fell outside the scope of such a provision.” It was common ground between the parties that the arbitration clause was binding on the first defendant, even though it was not itself party to the agreement, merely named in it as an affiliated company. 

Mr Justice Marcus Smith acknowledged that this approach may fragment claims which went against the general interpretation of the Brussels I Regulations that causes of action should be unified in a single forum.  However, the judge summarised Case C-352/13, Cartel Damage Claims (CDC) Hydrogen Peroxide SA v Evonik Degussa [2015] QB 609upon which Microsoft placed considerable reliance for its argument that the claim should be heard in the courts of England and Wales.  The Judge could “see nothing in the decision of the [Court of Justice of the European Union] to require me to displace the effect of the arbitration clause as something inimical to EU law”.

Under the recast Brussels I Regulation 1215/2012 (Recast Brussels Regulation), claimants should usually bring proceedings in the courts of the defendant’s domicile (Article 4). The first defendant was established in England and proceedings could therefore be brought against that defendant in the English courts as of right.  The remaining defendants were domiciled outside of the EU (in Japan and South Korea).  Article 6(1) of the Recast Brussels Regulation provides that jurisdiction over the claims against non-EU defendants is to be determined by national law. Under English law, the claimant was required to obtain the permission of the court to serve proceedings out of the jurisdiction in order to bring additional parties into the proceedings with the first defendant.

In order to persuade a court to grant permission to serve proceedings out of the jurisdiction, a claimant must show that there is a serious issue to be tried on the merits, there is a good arguable case that one of the so called “gateways” in CPR Practice Direction 3.1 applies and England and Wales is clearly and distinctly the proper forum for the trial of the claims. 

The parties were in agreement that the Judge should proceed on the basis that the “serious issue to be tried” requirement was met.  Moving to the second requirement, the first gateway on which Microsoft relied required it to demonstrate that there is a real issue between the claimant and the defendant which it is reasonable for the court to try and that the other defendants were “necessary or proper parties” to its claim against the first defendant. The court found that but for the arbitration clause, the claim would give rise to real issues which it is reasonable for the court to try and the other defendants would have been proper parties to that claim. The second gateway on which Microsoft relied required it to show that there had been damage suffered within the jurisdiction. Even though some 12.1million units had been sold within the jurisdiction, Microsoft was not able to demonstrate that its claims fell within the second gateway as this was found to be a tiny proportion of overall sales. The order permitting service outside of the jurisdiction was therefore set aside and the service of those proceedings out of the jurisdiction was also set aside. Therefore, the case could not pass through either of the “gateways”. The Judge as not therefore required to determine whether England and Wales would be the proper forum for the trial, but commented that if the proceedings had been able to continue against the first defendant, he would have found that it was.

This case illustrates the need for potential claimants to carefully scrutinise their underlying contracts with the potential defendants to ensure that the claim is being commenced in the correct forum. The case also shows how broadly drafted arbitration clauses can encompass claims in tort – something to bear in mind when agreeing the terms of a contract. It also shows how in multi-party proceedings an arbitration clause can have effects that go beyond the immediately obvious. In this case, a clause between the claimant and the second defendant affected the forum in which proceedings could be brought not only against its affiliate, the first defendant, but also against the remaining, unrelated, defendants. For defendants there might be real advantages in having competition claims determined by arbitration rather than a court – the claims would be heard behind closed doors, so its business practices and breaches of competition law would not be aired in open court. It would also prevent other potential claimants hearing about the case and commencing their own proceedings. Conversely, claimants might prefer the proceedings to be brought in court. 



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