Summary

On 28 February 2017 the High Court held that a claim by Microsoft against Sony in tort for breach of competition law came within the scope of a binding arbitration clause.  The court held that the tortious claim was sufficiently closely related to an arguable claim for a breach of contract to engage the arbitration agreement, despite the fact that Microsoft had chosen not to plead such a breach.

This decision carries significant implications for all cartel damages actions.  It has the potential to curtail claimants’ ability to establish jurisdiction in the High Court, and in some cases may make it impossible to consolidate connected claims into a single court, to the detriment of efficient case management.

Background

In September 2015, Microsoft Mobile (“Microsoft”), filed a £500m tortious claim against Sony Europe Ltd (“Sony”) and three other defendants.  These losses were claimed to arise out of an alleged price-fixing cartel operated by the defendants in the sale of lithium-ion batteries between August 1999 and May 2011.

Sony applied for a stay of the High Court proceedings pursuant to the arbitration clause contained in the original supply contract between the parties. In addition to the arbitration clause, the contract also contained an express good faith requirement that, during the course of the contract, “[c]hanges in Price(s) shall be mutually agreed in writing and negotiated in good faith.”  

Sony argued that if, as alleged, it had engaged in price-fixing, then such behaviour would have constituted a straightforward breach of this contractual obligation to negotiate price changes in good faith. Sony’s opinion was that Microsoft’s tortious cartel claim was sufficiently similar to this arguable contractual claim for it to trigger the application of the arbitration clause, even though such a contractual claim had not, in fact, been pleaded by Microsoft.

Judgment

As the starting point for determining the scope of the arbitration clause, the judge considered the established “one-stop-shop” presumption that, having expressly provided for recourse to arbitration in the contract and “absent extremely clear wording, a court would presume that the parties would have intended the same tribunal to deal with contractual disputes arising out of the relationship, as well as any “parallel” claims in tort.

The judge went on to explain that the one-stop-shop presumption would be applied in circumstances where the tortious claims were sufficiently “closely knitted together with the contractual claims”, irrespective of whether the contractual claim was in fact pleaded by the claimant. The unusual incentives created by this presumption can be seen from the fact that Sony, in order to succeed in its application for a stay of proceedings, was therefore required to create an arguable claim against itself based on a breach of contract that was not actually pleaded.

The judge agreed with this reasoning holding that Sony could not have engaged in the conduct complained of without also breaching the relevant provisions of the contract. He therefore ordered a stay of the High Court proceedings on the basis that otherwise “it would be easy for a claimant to circumvent the scope of an arbitration or jurisdiction clause by selectively pleading or not pleading certain causes of action.” Microsoft was ordered to pay indemnity costs to Sony of between 80-90% of its legal fees.

Furthermore, as a result of this judgment, Microsoft’s claims against the other defendants are no longer “anchored” to the High Court through the claim against Sony.  This is likely to result in Microsoft being forced to run the same essential case against the various defendants in multiple fora, at significant extra expense, and potentially result in conflicting decisions.

BLP opinion

The considerable strengths of arbitration as a consensual, private dispute resolution process are well established.  But this judgment does illustrate the difficulties that can arise where a claim encompasses multiple parties, not all of whom have agreed to refer disputes to arbitration.  Because it is impossible to compel the other parties to arbitrate the claim, there will necessarily be a splintering of a single dispute into multiple legal proceedings.

This judgment is likely to increase the complexity of jurisdictional considerations at the outset of any competition law claim.  Parties that are contemplating a competition law claim must now give greater consideration to their underlying contracts, and re-evaluate the nature of the pleaded case, to ascertain whether the claim is being presented in the correct forum.  The implications of getting it wrong are considerable…