Court of Appeal confirms the test as to when Articles 18 and 20 of the Lugano Convention will apply to claims against former employees

The jurisdiction of the English courts over defendants domiciled in Europe is determined in most cases by:

The general rule, under both instruments, is that a person domiciled in a member or contracting state must be sued in the state where he or she is domiciled. Article 5 of the 2007 Lugano Convention provides for "special jurisdiction" for matters relating to a contract (where a defendant may also be sued in the courts of the place of performance of the obligation in question) and for matters relating to tort (where the defendant may also be sued in the courts of the place where the harmful event occurred or may occur). There is a basic jurisdictional divide between matters relating to a contract and matters relating to a tort, and a claim cannot concern both.

However, Articles 18 to 21 of the 2007 Lugano Convention determine jurisdiction in matters relating to individual contracts of employment. They comprise a particular subdivision within the basic contract/tort jurisdictional divide, and apply to the exclusion of the special jurisdiction rules for contract and tort under Article 5. Article 20(1) provides that, in matters relating to individual contracts of employment, an employer may only bring proceedings in the courts of the contracting state where the employee is domiciled. The social policy underlying Articles 18 to 21 is that the weaker party should be protected by rules of jurisdiction more favourable to his interests. The Recast Brussels Regulation contains materially similar provisions.

Prior to this case, only a small number of English decisions have directly considered the scope of the special protection provided to employees by Articles 18 to 21, and the extent to which it applies to what would ordinarily be characterised as tortious or equitable claims under English law. All of these decisions pre-date recent relevant developments in European jurisprudence in Brogsitter v Fabrication de Montres Normandes EURL (Case C-548/12) [2014] QB 753 and Holterman Ferho Exploitatie BV v Spies von Bullesheim (Case C-47/14) [2016] ICR 90. Previously, the most important domestic authority considering Articles 18 to 21 was the Court of Appeal's decision in Alfa Laval Tumba AB v Separator Spares International Ltd [2012] EWCA Civ 1569, discussed in Legal update, Claims against employee for breach of copyright and misuse of confidential information covered by Articles 18 to 21 of Brussels Regulation (Court of Appeal). In Alfa Laval Longmore LJ said that it could not be right that, merely because claims for breach of an individual employment contract could be framed in tort, Article 20(1) did not apply to those tort claims. The question was "do the claims made against an employee relate to the individuals' contract of employment?"

For detailed discussion about jurisdiction, see Practice note, Jurisdiction: Recast Brussels Regulation.

Giving the leading judgment, Gross LJ found that the more recent European authorities of Brogsitter and Holterman are consistent with existing English authority. The correct approach is to consider the question "whether the reality and substance of the conduct relates to the individual contract of employment, having regard to the social purpose of [Articles 18-21]".

Turning to the facts of this case, he asked "do the conspiracy claims relate to the Appellants' individual contracts of employment? Is there a material nexus between the conduct complained of and those contracts? Can the legal basis of these claims reasonably be regarded as a breach of those contracts so that it is indispensable to consider them in order to resolve the matter in dispute?". He said that, whilst not every conspiracy would fall outside Articles 18 to 21 and those articles could not be circumvented simply by pleading a claim in conspiracy, in the circumstances of this case, however precisely the test was formulated, the answer was clearly "no".

The key to the alleged fraud lay not in the appellants' contracts of employment (the parties and terms of which were controlled by the appellants and none of which provided for the appellants to act in a group-wide role), but in their de facto roles as CEO and CFO of the Arcadia Group. The reality, or substance, of the matter was that the conspiracy claims concern the appellants acting as a part of a "wider-ranging conspiracy, free-standing and outside the[ir] contracts of employment", which only formed part of the history and the opportunity for the appellants allegedly nefarious conduct. Distinguishing the facts of this case from those in Alfa Laval, he said that the claims in this case were about the alleged dishonesty of a number of conspirators acting in combination and there was no material nexus between the conspiracy claims and the appellants' contracts of employment. Those contracts of employment did not feature at all (and were certainly not indispensable) in the resolution of the claims. As such, the conspiracy claims were correctly characterised as tort claims falling outside Articles 18 and 20 and Gross LJ could see no countervailing policy interest to prevent the sensible course being followed, of the alleged co-conspirators being tried together in the English courts.

Gross LJ confirmed that, again, the starting point was to consider "the reality or substance of the matter, as a matter of fact". In order to decide whether the appellants' fiduciary duties related to their individual contracts of employment it was inescapably necessary to consider the contracts to which they were party. In this case, the appellants were only party to contracts with some of the claimants and only for some of the time. Gross LJ declined to treat the appellants as parties to contracts with other companies in the Arcadia Group, especially when they had "strained" not to have such contracts and devised the contractual arrangements that were in place. He said that there was nothing in the existing English authorities that entitles or obliges a wholesale disregarding of separate corporate personality between group companies for the purposes of Articles 18-21. He agreed with Burton J's conclusion that claims between parties not in a contractual relationship could not be said to be "matters relating to a contract", a fortiori cannot be matters relating to individual contracts of employment. As such, claims made by the claimants for periods where they were not party to an employment contract with the appellants fell outside Articles 18-21 and could proceed in the English courts.

The Court of Appeal held that the English court has jurisdiction over the claims of dishonest assistance and knowing receipt for the same reasons given for the conspiracy claims.