MICROSOFT, SERVICE AND FULL AND FRANK DISCLOSURE: HIGH COURT JUDGE SAYS “NO”

One feature of this blog  for this year has been the duty owed by litigants making without notice applications.  Another example of the problems caused can be seen in the judgment on Mr Justice Marcus Smith in Microsoft Mobile OY (Ltd) -v- Sony Europe Limited [2017] EWHC 374.  The judgment contains a clear summary of the relevant legal principles.

“In all the circumstances, given the seriousness of the non-disclosure and importance of the issues it went to, I would have discharged the order of the Master and set aside the service out on the grounds of non-disclosure.”

KEY POINTS

• An applicant had a duty of full and frank disclosure when making an application to serve out of the jurisdiction.
• On the facts of this case that duty had not been complied with.
• The order would have been set aside for that reason if jurisdiction had remained in issue.

THE CASE

The claimant is a Finnish company. It brought an action alleging anti-competitive conduct in the sale of Li-ion batteries. An application was made, and granted, for an order out of the jurisdiction. One of the issues before the court was whether the duty of full and frank disclosure had been complied with.  The defendants sought to set aside the order granting permission for service.  The judge held that the court did not have jurisdiction. However he went on to consider whether the claimant had complied with the duty to be full and frank.

THE JUDGMENT ON THIS ISSUE

“NOT FULL AND FRANK

201. It follows that I do not need to determine whether the order of the Master should be set aside on the ground of material non-disclosure by Microsoft Mobile. However, because I was addressed on the point, and in case the matter goes further, I deal with it.

202. The relevant principles that I must apply were set out by Warby J. in Sloutsker v. Romanova [2015] EWHC 545 (QB) at [51]:

“The relevant general principles are these:

1. i)       An applicant for permission to serve proceedings outside the jurisdiction is under a duty of full and frank disclosure which applies on all applications without notice.

2. ii)      The duty requires the applicant to make full and fair disclosure of those facts which it is material for the court to know: Brinks Mat v. Elcombe [1988] 1 W.L.R. 1350, 1356 (1) and (2) (Ralph Gibson L.J.). Put another way, disclosure should be made of “any matter, which, if the other party were represented, that party would wish the court to be aware of”: ABCI v. Banque Franco-Tunisienne [1996] 1 Lloyd’s Rep. 485, 489 (Waller J.).

iii)     Non-disclosure of material facts on an application made without notice may lead to the setting aside of the order obtained, without examination of the merits. It is important to uphold the requirement of full and frank disclosure.

1. iv)     But the court has a discretion to set aside or to continue the order. Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues that were to be decided. The answer to the question whether the non-disclosure was innocent is an important, though not decisive, consideration. See Brinks Mat at pp1357 (6) and (7) and 1358 (Balcombe L.J.).

2. v)      In the context of permission for service outside the jurisdiction the court has a discretion to set aside the order for service and require a fresh application, or to treat the claim form as validly served and deal with the non-disclosure by a costs order: NML Capital Ltd v. Republic of Argentina[2011] UKSC 31, [2011] 2 AC 495, [136] (Lord Collins).”

203. A helpful distillation of the correct approach was given by Kerr J. in B.P. Exploration v. Hunt [1976] 3 All E.R. 879 at 894:[78]

“…the court should not consider the supporting affidavit as though it were marking an examination paper, deciding one way or the other merely on the basis of the extent to which the affidavit could have been improved. The primary question should be whether in all the circumstances the effect of the affidavit is such as to mislead the court in any material respect concerning its jurisdiction and the discretion under the rule.”

204. In DSG Retail Ltd v. Mastercard Inc. [2015] CAT 7 at [44], Roth J. noted:

“44.   This application was heard without notice, as is usually the case for an application for permission to serve out. As on any application without notice, the applicant is under a duty to make full and frank disclosure of matters material to the application. That means not only that care needs to be taken in setting out the factual basis for the application, but also that the Tribunal’s attention should be drawn to any significant objections to the application that the defendants could reasonably be expected to raise if they were before the Tribunal. The duty does not require disclosure to the same degree as on an application for a without notice injunction, such as a freezing order, where granting the application has immediate and potentially serious consequences for the defendant. The factors relevant to an application to serve out are only those which relate to the limited inquiry the Tribunal carries out in determining whether to grant such permission. Nonetheless, within the limited scope of that inquiry, if the claimant is aware of such factors as might cause the Tribunal to doubt whether permission should be granted, they should be clearly disclosed…

45. In applications before the Tribunal, it will often be more appropriate for such disclosure to be made in a statement accompanying the claim form and similarly attested by a declaration of truth, rather than in the claim form itself. The Tribunal cannot be expected to go through a long claim form or Particulars of Claim teasing out material objections to service out of the jurisdiction. Moreover, since the Tribunal will generally seek to deal with such applications on the papers, compliance with the duty of full and frank disclosure cannot be left to counsel’s skeleton argument for a hearing since in most cases there will not be a hearing.”

205. Four points were taken by the Defendants in relation to what were said to be material deficiencies in the evidence before Master Clark:

206. i) First, it was said that Microsoft Mobile failed to draw to the Master’s attention the full position regarding damage sustained in the jurisdiction. D4/LG Chem’s written submissions stated:

“76.   First, whilst relying on [Gateway (9)(a)], the Claimant failed to point out that it was unable to establish that any significant damage (or indeed any damage at all) had been incurred in England and Wales. Instead, Murray 1 sought to rely on sales of the relevant products made by the First Defendant, without going on to elucidate the critical fact whether those sales were made in England or whether they were made to Nokia entities located elsewhere…

77. Further, the Claimant failed to point out to the Court that, given the inadequacy of its evidence in relation to the place in which damage occurred, the Defendants would have a good argument that [Gateway (9)(a)] was not satisfied.

78. Second, the Claimant failed in its application and evidence to present the position in relation to each individual assignee, and wrongly proceeded on the fundamentally flawed basis that all of the assignees’ claims are to be treated not as separate claims but as if all of the sales had been made to a single entity. The Claimant failed to explain to the Court that the Defendants would have an argument that evidence of loss having been caused to one Nokia entity in England would be insufficient to fulfil [Gateway (9)(a)] in respect of the whole claim.”

1. ii) Secondly, it was contended that Microsoft Mobile had failed to draw to the Master’s attention the range of factors pointing to Japan or Korea as being more appropriate fora. These factors have already been described in paragraphs 189 above. Paragraph 79 of D4/LG Chem’s written submissions stated:

“Third, the Claimant failed to draw to the Court’s attention the wealth of factors indicating that Japan and South Korea are much more closely connected to the claim than England. The only discussion of Japan and South Korea as alternative fora was in Murray 1, §50. This (i) made the point that neither of these jurisdictions “is the home jurisdiction of all of the Defendants”, and (ii) sought to minimise the linguistic difficulties in bringing a claim in England. Nowhere has the Claimant drawn to the Court’s attention the factors set out…above and notably that:

(a)     the pleaded conduct giving rise to the alleged infringement took place entirely (alternatively, almost entirely) in Japan and Korea;

(b)     the persons alleged by the Claimant to have been involved all appear to be in Japan or Korea;

(c)     most of the documents are likely to be held in Japan and South Korea; and

(d)     most of the damage that is alleged to have been caused to the Claimant was not even sustained in the EEA, let alone in England and Wales. Given that this claim does not extend to damage suffered in the United States, most of the loss is likely to have been suffered in Asia.”

iii)               Thirdly, it was contended that Microsoft Mobile had failed to draw to the Master’s attention that there was a good argument that D1/Sony Europe had only been sued in order to found jurisdiction against the other Defendants.

1. iv) Fourthly, and finally, it was contended that Microsoft Mobile had failed to draw to the Master’s attention the fact that the Defendants were likely to raise as a defence that the claim fell outside the scope of Article 101 TFEU. Paragraph 74 of D4/LG Chem’s written submissions states:

“In iiyama v. Schott AG [2016] EWHC 1207 (Ch), Mann J. recently set aside an order permitting service out of the jurisdiction on the ground inter alia that the claimants had not complied with their duty of full and frank disclosure. That claim was also a cartel damages claim brought mainly against defendants domiciled in Asia in respect of cartel conduct in Asia. Mann J. held that the claimants had failed properly to set out for the court the factual position in relation to purchases of the cartelised product in the EEA and had also failed to draw the court’s attention to the fact that the defendants were likely to raise as a defence that the claim fell outside the territorial scope of Article 101 TFEU…Mann J. held that these omissions were “serious” and went “to the heart of the case”.”

206. In response, Microsoft Mobile could do little more than refer me to Murray 1 and suggest that these matters – to the extent they needed to be drawn to the attention of the court – had been properly adverted to in Murray 1. I have, therefore, reviewed this statement with particular care bearing in mind the points raised by the Defendants. I have also borne in mind that the mere fact that the statement might be improved upon is not the point. The question is whether the court has been misled.

207. The points raised by the Defendants are all connected to the fact that – in reality – the centre of gravity of the Cartel was actually Asian, whether one has regard to the participants (both corporate and individual); the sales of the cartelised products (the Li-ion Batteries); and many of the purchasers. Microsoft Mobile, in my judgment, wrongly downplayed these important matters by:

208. i) Aggregating the claims of Nokia (as a group of companies) and not differentiating between them. As a result, it was possible to present purchases from D1/Sony Europe as by a single (legal) entity, and to avoid all mention of the potential that there were chains of purchasers within the Nokia group. This was a matter which only emerged during Mr. Beal Q.C.’s oral submissions (see paragraph 20 above); which is significant; and which was certainly not disclosed in Murray 1. Indeed, when seeking to distinguish Emerald Supplies v. British Airways[2015] EWCA Civ 1024 in paragraph 41 of Murray 1, Mr. Murray says at paragraph 41(a):[79]

“Nokia was a direct purchaser of Li-ion Batteries, whereas in Emerald the purchasers were indirect (that is, the defendants sold the relevant product to third parties, who then re-sold it to the claimants.”

This statement is incomplete at best, and positively misleading at worst. Nokia can only be described as a “direct” purchaser when viewing matters at the level of the Nokia group. Viewed at the more granular level of the individual companies within the Nokia group, matters might well be different. The fact is that Microsoft Mobile simply does not know, and this undermines the boldness of the plea (at paragraph 150.1 of the Amended Particulars of Claim, paragraph 19(i) above) that Nokia was a direct purchaser of Li-ion Batteries. As far as it goes, this is right: but the certainty of the averment is only achieved through the broad definition of “Nokia”. This should have been drawn to the Master’s attention.

1. ii) A consequence of this would have been that the Master would have been able to probe a little more deeply into who was purchasing Li-ion Batteries from D1/Sony Europe. As it was, all that Murray 1 says (at paragraph 33(a)) is:

“In the Cartel Period and the Run-Off Period, Nokia and/or the Claimant purchased 12.1 million units from the First Defendant, which, as set out above, is a company located in the UK and incorporated under English law.”

iii)               No mention is made of the fact that Microsoft Mobile was unable to say who had purchased these 12.1 million units – save that it was some company in the Nokia group. It is worth noting – although it is a minor point[80] – that this paragraph (and also paragraph 5(e)) makes no mention of the fact that 12.1 million units is a drop in the ocean when considered in relation to the overall sales of Li-ion Batteries.

1. iv) It is entirely right to say that Murray 1 is silent on factors pointing in favour of a non-English jurisdiction. Murray 1 makes the point that D1/Sony Europe is, inevitably, going to be sued in England and that it would be hugely disadvantageous to have parallel relating proceedings going on elsewhere. That, as I have already noted is an entirely fair point of great force. But – even disregarding the effect of the arbitration clause – the point is not a conclusive one, as the authorities described in paragraph 198 above demonstrate. Murray 1 should have set out the factors pointing in the other direction. Paragraphs 45 to 50 of Murray 1 do not come close to a fair statement of the points that the Defendants could deploy, and before me did deploy, in favour of a jurisdiction other than England and Wales.

2. These are major criticisms, going to the heart of the issue that the Master had to decide. I consider that Murray 1 fell far short of what should have been said to the Master on the application to serve out.

3. In The Arena Corporation Ltd v. Schroeder [2003] EWHC 1089 (Ch) at [213], the principles according to which the court should exercise its discretion in this case are helpfully set out:

“On the basis of the foregoing review of the authorities, I would summarise the main principles which should guide the court in the exercise of its discretion as follows:

(1)     If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2)     Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.

(3)     That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4)     The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.

(5)     The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

(6)     The court can weigh the merits of the plaintiff’s claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the principle.

(7)     The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.

(8)     The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.

(9)     There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.”

210. In all the circumstances, given the seriousness of the non-disclosure and importance of the issues it went to, I would have discharged the order of the Master and set aside the service out on the grounds of non-disclosure.”

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