The Court of Appeal has held that claims in conspiracy against former employees did not come within the employment jurisdiction provisions in the Lugano convention (which require an employer to sue an employee in his or her domicile in matters relating to the employment contract). There was therefore no requirement to bring proceedings against the former employees in Switzerland as their place of domicile and proceedings could continue in England against all the alleged conspirators: Bosworth and another v Arcadia Petroleum & Others [2016] EWCA Civ 818.

The court rejected the argument that previous Court of Appeal and CJEU authorities meant that conspiracy claims which could be pleaded as a breach of an employment contract necessarily came within the employee protection provisions. The correct approach was to consider whether the reality and substance of the conduct related to an individual's contract of employment.

On the facts of this case, the court held that the contracts of employment provided the opportunity for the allegedly nefarious activities, but no more than that.

The outcome of this appeal has been awaited with interest as there has been substantial uncertainty over when a tort claim relates to an individual contract of employment within the meaning of the Brussels regime (the same question arises under the Lugano Convention, Brussels I Regulation and recast Brussels Regulation). The decision rejects a mechanistic approach in favour of looking at the substance of the conduct in issue. How it will apply in any particular case may not however always be easy to predict, given that the proper characterisation of the case will be determined by the substance of the matter and the facts of the case. Considerable scope for a jurisdiction challenge therefore remains where proceedings are commenced against an EU or EFTA domiciled employee in a country other than their domicile.

Background

The claim concerns proceedings brought by companies in the Arcadia Group against their former de facto CEO and CFO, Mr Bosworth and Mr Hurley ("the appellants"), as well as eight other defendants. The claimants allege that sums were siphoned off from the Group for the benefit of the defendants. The modus operandi of the alleged fraud was the insertion of corporate entities into purchasing and selling chains in oil trading and the manipulation of those transactions so that almost all of the profits accumulated in the inserted entities rather than the Arcadia Group. The loss is estimated at approximately US$340 million. The claims are brought in unlawful means conspiracy, breach of fiduciary duty, dishonest assistance and knowing receipt. The initial pleading also alleged breaches of the appellants' employment contracts with the first and third claimants but those claims were removed.

The appellants challenged the jurisdiction of the English court on the basis that the claims against them related to their individual contracts of employment and therefore, under Article 20 of the Lugano Convention, proceedings could only be brought against them in Switzerland, as the country of their domicile.

Burton J held that the English court had jurisdiction, save in respect of the claims for breaches of fiduciary duty occurring whilst they were employed by a claimant.

Decision

The Court of Appeal (Lord Justice Gross giving the judgment of the court) considered that the applicable test is whether the reality and substance of the conduct related to the individual contract of employment, having regard to the social purpose of the employment protection provisions of protecting the employee as the weaker party.

In reaching this view the court had to consider the previous decisions it was bound by: the Court of Appeal decision in Alfa Laval Tumba v Separator Spares International [2012] EWCA Civ 1569 and the CJEU decisions in Brogsitter v Fabrication de Montres Normandes EURL (Case C-548/12) and Holterman Ferho Exploitatie BV v Spies von Bullesheim (Case C-47/14).

In Alfa Laval the Court of Appeal set aside an order joining J, who was employed in Poland by a Polish company, to proceedings in England alleging breach of copyright and misuse of confidential information. This was on the basis that the employment provisions applied and J had to be sued in his domicile. The judge at first instance, following the earlier decision in Swithenbank Foods v Bowers [2002] EWHC 2257, had focused on whether the employment contract was "legally relevant" to the cause of action relied on. The Court of Appeal held that this was not the appropriate test to apply and that the focus had to be on the words in the article. The court must therefore just ask itself the question "do the claims made against an employee relate to the individual's contract of employment." Longmore LJ then went on to make the following comment:

"This is a broad test which should be comparatively easy to apply. Sir Andrew Morritt C indicated in argument that (without proposing a test of any kind) it might in many cases be helpful to ask whether the acts complained of by the employer constitute breaches of contract by the employee. If so the claims would be likely to 'relate' to the contract of employment. If not, not."

The appellants in the present case submitted that the "touchstone legal issue" in respect of conspiracy claims in light of Alfa Laval was whether they could have been pleaded as a breach of the appellants' contracts of employment (in particular the implied duties of fidelity and loyalty).

The Court of Appeal rejected the appellants' interpretation of Alfa Laval and focused on those parts of the judgments which emphasised the broad and unqualified nature of the test. As regards Longmore LJ's comment, the important point was that it was not proposed as a test of any kind. It might well be useful to ask whether the acts complained of amounted to a breach of the employment contract, but it would be wrong to elevate that question into a test or a touchstone and nothing in Alfa Laval required it to do so.

As regards the CJEU authorities, Brogsitter read as a whole (and the light shed upon it by Holterman) required consideration of whether it was "indispensable" to consider the contract in order to resolve the matter in dispute. The Court of Appeal took the view that that test and approach were indistinguishable from that adopted in Alfa Laval.

In applying its conclusions of law to the facts, the court asked itself whether as a matter of reality and substance the conspiracy claims related to the appellants' individual contracts of employment; whether there was a material nexus between the conduct complained of and those contracts; and whether the legal basis of the claims could reasonably be regarded as a breach of those contracts so that it was indispensable to consider them in order to resolve the matter in dispute.

It considered the answer was clearly no for a number of reasons including:

  • The key to the alleged fraud lay in the appellants' de facto roles as CEO and CFO, which did not stem from their employment contracts. The reality or substance was that the claims concerned the appellants acting outside of their contracts of employment and ranging across the Arcadia Group.
  • While the conspiracy allegations could be pleaded as breaches of the appellants' implied duties of fidelity and loyalty, as a matter of substance the employment contracts simply formed part of the history and a very small part of the picture.
  • Some of the claimants were never parties to the contracts of employment and some alleged conspirators were never employees.
  • The facts were distinguishable from those in Alfa Laval as in that case there was no wider-ranging conspiracy, which was free-standing and outside the contracts of employment. Alfa Laval concerned a Polish employee with no English connections. Here the appellants had very strong connections with the jurisdiction and only became resident in Switzerland for their own financial and tax purposes.
  • The policy and social purpose of the employment provisions was not undermined by the outcome. It was relevant that the appellants exercised control over the way in which they were employed, making the contracts of employment no more than part of the history.

That disposed of jurisdiction over the conspiracy claims and also over the claims of dishonest assistance and knowing receipt where the court held the same reasoning applied.

As regards the claims of breach of fiduciary duty, the Court of Appeal followed the decision of Burton J, finding only those claims brought in respect of breaches of fiduciary duty occurring whilst the appellants were employed by a claimant were within the employment jurisdiction provisions.

Comment

The question of jurisdiction in tort claims against employees is a vexed one. The "legal relevance" test resulted in "agile pleading" – avoiding all reference to the employment contract to try to ensure it had no "legal relevance". A test which asks whether the conduct, however pleaded, would amount to a breach of the employment contract (which many commentators thought was the effect of the Alfa Laval decision) provides certainty but may mean an action against a number of co-conspirators cannot be brought in the same jurisdiction.

The Court of Appeal in Arcadia has opted for a more flexible approach, but determining whether "as a matter of reality and substance" a claim relates to an individual contract of employment will not be easy to predict. The court made clear that there is no special rule for conspiracy and simply pleading a claim in conspiracy will not by itself take the claim outside of the employment provisions. It is also unclear what factors the court will take into account and their relative importance. How significant was it for example that the appellants' CEO and CFO roles were key to the fraud and did not stem from their employment contracts? This is far from a typical scenario. Similarly, how important was it that while the appellants were, from a legal viewpoint, "employees" they exercised control over by whom, where and on what terms they were employed?

Considerable uncertainty and scope for jurisdiction challenges is therefore likely to remain.