What better way to start a Monday morning than with a litigation extravaganza?
In Alta Trading UK Ltd v Bosworth [2021] EWCA Civ 687, the Court of Appeal considered the ‘individual contracts of employment’ provisions of the Lugano Convention.
The issue arose in the context of a claim brought by companies trading in oil and oil derivatives arising out of a substantial and sustained fraud allegely perpetrated on them by their former CEO and CFO (the Defendants).
The ruling has continuing relevance because the post-Brexit English rules on both jurisdiction and service have in effect replicated the previous Brussels-Lugano rules concerning ‘individual contracts of employment’. These constitute one of the crucial exceptional categories of cases in which there is no need for permission to serve abroad.
This was in essence a dispute about whether the Defendants were the Claimants’ employees within the meaning of article 18(1) of the Lugano Convention.
That was important, since, where the employee is domiciled in a Lugano Contracting State, an employer has to bring proceedings against the employee in the courts of the employee’s domicile: see article 20.
The Defendants said that they were the Claimants’ employees, and, since they were both domiciled in Switzerland, they had to be sued there. The Claimants, on the other hand, said that there was no employment relationship, so that they were entitled to sue in England and Wales.
There was an extensive procedural history running over the course of 6 years and involving an appeal to the CJEU via the Supreme Court. Sir Geoffrey Vos pulled no punches in a short concurring judgment:
This, I regret to say, is an indictment of a system that has, in this case, allowed relatively straightforward jurisdictional arguments to expand into an unrestrained litigation extravaganza. Courts at all levels need to keep a close eye on proportionality.
The CJEU gave its judgment in Bosworth v Arcadia Petroleum Ltd (Case C-603/17), a decision which contains important guidance on what constitutes an ’employment’ relationship within the meaning of the European rules.
On the return of the case to the Supreme Court, the Justices were persuaded that further evidence on the employment relationship issue needed to be considered before a decision could be made. They ordered that the case be remitted to the Commercial Court so that the further evidence could be heard.
Sir Michael Burton GBE – the same judge who had first heard the case over 5 years earlier – gave a new judgment. He accepted that the Claimants had a ‘good arguable case’ that the Defendants were not their employees. This meant that they were entitled to sue in England. The Defendants challenged this conclusion on appeal.
In the Court of Appeal, Nugee LJ summarised the CJEU’s general approach to the employment contract rules:
in order for there to be a contract of employment for the purposes of the Lugano Convention you do not need anything in the way of a formal contract of employment but you do need a relationship of subordination.
What exactly is a relationship of subordination? Nugee LJ summed up the open-textured test nicely later on in the judgment by reference to what the CJEU had decided:
How do you assess whether a person is in a hierarchical relationship, or a relationship of subordination, with a putative employer? By having regard to all the factors and circumstances characterising the relationship between the parties [26].
This essentially involves looking at the reality of the situation rather than focusing too heavily on any ’employment’ contract:
For present purposes it is to be noted that the inquiry is a factual one, not one determined solely on the basis of the terms of the contract.
The CJEU had found that there was no relationship of subordination. This was on the basis that the Defendants, as company directors
had an ability to influence [the Claimants] that was not negligible and that, therefore, it must be concluded that there was no relationship of subordination (see, to that effect, [Holterman] [47]), irrespective of whether or not they held part of the share capital of Arcadia.
Furthermore, ‘the mere fact that the shareholders have the power to revoke a directorship is not sufficient for the conclusion to be drawn that such a relationship exists.’
Nugee LJ thought that this reasoning seemed straightforward enough:
It is that if A is in a position where he can exercise non-negligible influence over B, A is not in a relationship of subordination to B.
It was also no real surprise that the CJEU had concluded on the evidence before it (later to be challenged when the case returned to the Supreme Court) that the Defendants did exercise this influence over the Claimants:
the CJEU’s reasoning is evidently that if you can choose your own employer and your own terms of employment, it can be concluded that you have a non-negligible influence over your employer.
Nugee LJ was unpersuaded by the Defendants’ attempt to import some alternative test from other CJEU authorities. This simply overcomplicated things:
The test for whether Mr Bosworth or Mr Hurley were in a relationship of subordination to each of the Arcadia Claimants is the simple one: did they have a non-negligible ability to influence that Claimant?
On the facts, the judge had been right to conclude that the test was met:
This is precisely what the Judge concluded when he said (Jmt at [25]) that the issue which the CJEU was concerned with, and which he had to reconsider, was whether the Defendants had a non-negligible influence over the Group companies of which they were CEO and CFO, that is the Arcadia Claimants (see paragraph 31 above). In my judgment he was entirely right in this conclusion.
That was sufficient to dismiss the appeal, but Nugee LJ went on to make interesting concluding comments rejecting an argument that this approach drastically reduced the scope of the employment contract jurisdictional protections:
I do not think we can assess how widespread the impact might be, but I doubt that this case will be a precedent for many others. Even senior managers are usually in a relationship of subordination to their employers. The Appellants had (or, to be more precise, the Respondents have established a good arguable case that they had) an unusually free hand in running the Arcadia Group as their own private fiefdom to the extent of writing their own contracts of employment.
It would be unusual for other cases to involve similar ‘private fiefdoms’:
I do not think the Judge’s Judgment means that any senior manager, or even director, who is given a degree of autonomy as to how he does his job is outside the protection of Art 18(1); as the Master of the Rolls said in argument, this may appear a low bar but it is not in fact because it is quite unusual for employees, even in the case of senior managers, to be in a position of influencing the decision-making of the company that is employing them.