Bosworth & Anor v Arcadia Petroleum Ltd & Ors [2016] EWCA Civ 818

[2016] EWCA Civ 818

Case No A3/2015/1750

IN THE COURT OF APPEAL (CIVIL DIVISION)

[2015] EWHC 1030 (Comm)

ON APPEAL FROM THE QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Mr Justice Burton

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 19/08/2016

Before

LORD JUSTICE GROSS

LADY JUSTICE GLOSTER

LADY JUSTICE MACUR

Between

(1) PETER MILES BOSWORTHAppellants

(2) COLIN HURLEYAppellant

ARCADIA PETROLEUM LTD & OTHERSRespondents

David Foxton QC, Adrian Briggs QC and Richard Eschwege (instructed by Quinn Emanuel Urquhart & Sullivan UK, LLP) for Appellants

Mark Howard QC, Fionn Pilbrow and Edward Harrison (instructed by Freshfields Bruckhaus Deringer LLP) for Respondents

Hearing Hearing dates : 5th and 6th May 2016

Judgment Approved

Lord Justice Gross :

INTRODUCTION

[1]Mr Bosworth and Mr Hurley (“the Appellants”) appeal to this Court from the judgment of Burton J, dated 1st April, 2015 (“the judgment”), with the permission of the Judge.

[2]The principal issue goes to the proper application of Arts. 18 to 20 of the Lugano Convention (“the Convention”), together with Arts. 5.1 and 5.3 thereof, in circumstances where, on the facts available to us, the Appellants, though employees, exercised control over by whom, where and on what terms they were employed. There is no material difference between the relevant terms of the Convention and the corresponding provisions of Council Regulation (EC) No. 44/ 2001 (“the Judgments Regulation”), so, with very few exceptions, reference will be made simply to the Convention.

[3]Insofar as material, Arts. 18 and 20 of the Convention provide as follows:

“ SECTION 5 Jurisdiction over individual contracts of employment Article 18 1. In matters relating to individual contracts of employment, jurisdiction shall be determined by this Section…. Article 20 1. An employer may bring proceedings only in the courts of the State bound by this Convention in which the employee is domiciled.”

Jurisdiction over individual contracts of employment Article 18

Article 20

[4]Turning briefly to the Judgments Regulation, Recital (13) provides that in relation to insurance, consumer contracts and employment, “…the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules provide for.” Reverting to the Convention, Art. 5 is in these terms:

“ A person domiciled in a State bound by this Convention may, in another State bound by this Convention, be sued: 1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question….. …… 3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.”

For completeness, Art. 6.1 provides that a person domiciled in a State bound by the Convention may “also” be sued: “ where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings;”.

[5]The First, Second and Third Respondents are companies in the Arcadia Group (“the Arcadia Group”) involved in oil trading. For convenience (judgment, at [3]), the First Respondent may be referred to as “Arcadia London”, the Second Respondent as “Arcadia Switzerland” and the Third Respondent as “Arcadia Singapore”. The Fourth Respondent (“Farahead”) is the 100% owner of the Arcadia Group, including the other Respondents.

[6]At the material times, the Appellants, Mr Bosworth and Mr Hurley, were the de facto CEO and CFO of the Arcadia Group.

[7]The Respondents allege that they are victims of a fraud committed principally by the Appellants, together with eight other parties. They advance claims in unlawful means conspiracy and breach of fiduciary duty against the Appellants. Further, the Appellants face claims of dishonest assistance in the breach of fiduciary duty by other Defendants and for knowing receipt in respect of such breaches of fiduciary duty.

[8]In a nutshell, the essence of the alleged fraud involved the Appellants (and others) siphoning off sums from the Arcadia Group for their own benefit and to the detriment of the Group; as recorded in the judgment at [6], the Judge was told that the estimated loss was of the order of US$286.85 million and it is now estimated at just under US$340 million. The modus operandi of the alleged fraud was the insertion of corporate entities into both the purchasing and selling chains and the manipulation of those transactions so that almost all of the profits accumulated in the inserted corporate entities, rather than in the Arcadia Group. Suffice for the moment to say that the Appellants vigorously deny the allegations (to the extent they can without prejudicing their jurisdiction objection).

[9]Procedural hostilities commenced with the Respondents obtaining an ex parte order on the 12th February, 2015 (“the Teare Order”) including, inter alia, a freezing injunction and a proprietary injunction against the Appellants and all the other Defendants. In due course the Teare Order was continued both on an interim basis and, subsequently, on an inter partes basis, following a hearing before Flaux J on the 1st July, 2015.

[10]For present purposes, it is fair to note that the Respondents’ initial pleading alleged breaches of the Appellants’ employment contracts, in addition to unlawful means conspiracy and breach of fiduciary duty.

[11]By an application dated 9th March, 2015 (“the jurisdiction application”), the Appellants raised a jurisdictional objection to the proceedings here. As set out in paragraph 1 of his order dated 1st April, 2015 (“the Order”), Burton J declared:

“ (1) The Court has jurisdiction over the claims by the Claimants against the First and Second Defendants in conspiracy. (2) The Court has jurisdiction over the claims by the Claimants against the First and Second Defendants for breach of fiduciary duty, save to the extent set out at subparagraph (3) below. (3) The Court has no jurisdiction over any claims brought by the First, Second or Third Claimant against the First or Second Defendant for breach of fiduciary duty occurring whilst the First or Second Defendant was employed by the relevant respective Claimant, on the basis that any such claims are ‘matters relating to individual contracts of employment’ pursuant to article 18 of the Lugano Convention, with the result that such claims must, pursuant to article 20(1) of the Lugano Convention, be brought against the First and Second Defendants in Switzerland (where they are domiciled). All such claims are dismissed for want of jurisdiction.”

[12]Save to the extent recorded at para. 1(3) of the Order, the Appellants’ jurisdiction application was dismissed. Burton J granted the First to Third Respondents and the Appellants permission to appeal/cross-appeal these rulings.

[13]It is convenient to note here that Burton J concluded, at para. 2 of the Order, that, for the purposes of para. 1(3), the relevant contracts and dates were as follows:

“ (1) The First Claimant employed the First Defendant between March 2006 and 4 September 2009 and employed the Second Defendant between March 2006 and 31 July 2011. (2) The Second Claimant did not employ the First or Second Defendants at any of the material times. (3) The Third Claimant employed the First Defendant between September 2009 and May 2012 and employed the Second Defendant between August 2011 and July 2012. ”

[14]In the event, the Appellants appeal to this Court on the grounds that the Judge was wrong to hold that the (English) Court had jurisdiction over(1) the conspiracy claims against them; and

(2) any of the claims against them for breach of fiduciary duty.

[15]For their part, the Respondents submit that the Order should be upheld, essentially for the reasons given by the Judge.

[16]We were most grateful to leading counsel, Mr Foxton QC for the Appellants and Mr Howard QC for the Respondents, together with their respective teams, for the excellence of the assistance provided to us, both in writing and orally.

THE JUDGMENT UNDER APPEAL

[17]Early on in the judgment (at [11]) Burton J noted that if the Appellants’ jurisdiction application was well-founded, so that Arts. 18 and 20 of the Convention applied, then “….there will necessarily be [a] multiplicity of proceedings, because the First and Second Defendants cannot be sued here together with the other alleged co-conspirators…”.

[18]At [13], Burton J made the finding as to the Appellants’ employment history, subsequently reflected in the Order (as set out above) and not challenged on the appeal. It follows that the Respondents do not challenge the Appellants’ status as employees at various times of the First and Third Respondents; also and as recorded by the Judge (at [15]), it follows that the Appellants were at no stage employed by either the Second or the Fourth Respondent. As to the Appellants’ “senior titles in the Arcadia Group” – namely, CEO in the case of the First Appellant and CFO in the case of the Second Appellant – Burton J said this (at [14]):

“ None of the individual contracts of employment, all of which were drafted by the First and Second Defendants themselves, and contain an entire agreement clause, contain any provision that the First or Second Defendants should act as CEO or CFO of the Arcadia Group. ”

[19]As already noted, the Respondents’ initial pleadings had included allegations of breach of contract. Burton J went on to recount (at [18]) that the Respondents had not drawn Arts. 18 and 20 of the Convention to the attention of Teare J. The Respondents apologised and accepted that they had been in error in not doing so; the reason advanced was that it was an oversight – it had not occurred to them that Arts. 18 and 20 applied and, of course, it remains the Respondents’ case that those provisions do not apply (save in respect of those aspects of the breach of fiduciary duty claims recorded at para. 1(3) of the Order). By the time the matter came before Burton J, all references to breach of contract had been removed from the Respondents’ amended pleadings. Inevitably, this topic featured in argument before the Judge (and, indeed before us). The judgment contains the following passages:

“ 24. There is no question in the case before me of the claim having been dressed up as tort to avoid Article 18, not least because Mr Croall [the Respondents’ solicitor] has explained the non-disclosure by making clear that Article 18 had not even occurred to them. So far as the pleadings are concerned, Mr Swainston [the Appellants’ then leading counsel], is, however, critical of what the Claimants have sought to delete by amendment since the Article 18 point was raised…… 26. This is, of course, a point that cuts both ways. Mr Swainston submits that it is indicative of games-playing in the pleadings, although…he says that in any event the fault was incurable, because the claim has always been, and remains, within Articles 18/20. Mr Howard would refer to it to show that the breach of contract claim was extremely subsidiary, and that the conspiracy and breach of fiduciary duty and dishonest assistance/constructive trust claims can and do stand without it, and are…. ‘not contractual claims at all’”

[20]Burton J then reviewed the authorities, both English and European, to all of which I shall come, before reaching his conclusion on the conspiracy claim. He said (at [42]) that “…the honesty of the parties in entering into various transactions…” was going to be “central”.

The Judge went on as follows:

“ 43. Mr Swainston characterised his submission by reference to Davis LJ’s dictum at paragraph 44 of Alfa Laval as being ‘a castigation of the pleading approach and seeing if the nature of the claim is essentially a breach of contract.’ 44. I agree. In my judgment, this is a case relating to alleged wrongs caused by a combination of wrongdoers, not a claim relating to an individual contract of employment.”

The Judge regarded it as “quite plain” (at [47]) that the substantive and real claim was and always had been a tortious claim for conspiracy against the First and Second Appellants and others. The contractual claims could be and had been “stripped out and dispensed with”. Although (at [48]) the conspiracy had involved some who were employees of Arcadia Group companies, amongst others who were not, the tortious claim was a “stand-alone claim”. The Judge was thus content to answer the question posed by Longmore LJ in Alfa Laval (see further, below), namely “Do the claims made against an employee relate to the individuals’ contract of employment?”, by the answer, “No”. Accordingly (at [49]), there was nothing to stand in the way of “the sensible course” of all the alleged co-conspirators being tried together.

[21]Turning to the claims for breach of fiduciary duty, the logic of Burton J’s decision, as reflected at paras. 1(2) and (3) of the Order, appears from the following passage in the judgment:

“ 75. …consistent with what I have found, namely that where there is no contractual nexus between the party who has suffered the loss, and is claiming breach of fiduciary duty, and the alleged tortfeasor, the claims are in tort, and do not fall within Articles 18-20. As that applies in relation to Arcadia Switzerland, so the same should apply in relation to Arcadia London, `in relation to the period after the First Defendant had left it. ”

. Mutatis mutandis, the same logic applied in respect of the Second Appellant and the Third and Fourth Respondents (as against both Appellants) – though my understanding is that no loss has been identified in respect of either of these Respondents.

THE CONSPIRACY CLAIMS

[22](1) The rival cases in outline: For the Appellants, Mr Foxton submitted that the Judge had erred. The Respondents’ case had a jurisdictional flaw. In essence, the conspiracy claim against the Appellants was that as CEO and CFO of the Arcadia Group, they had defrauded their employers. On both the English law authorities and the European jurisprudence such a claim fell squarely within Art. 18.1 of the Lugano Convention and “no clever pleading or amendments” could avoid the correct jurisdictional categorisation. The matter was emphasised by the Respondents’ pleading “volte face” in deleting their original contractual claims, based on the Appellants’ contracts of employment.

[23]In accordance with authority, the “touchstone” was not what was pleaded but whether the claims in question could have been pleaded as breaches of the Appellants’ duties of loyalty and fidelity under their contracts of employment. If that was the test, as Mr Foxton submitted it was, then it was accepted by Mr Howard that the Appellants must succeed on this issue. Any movement away from this touchstone, meant ceding the jurisdictional issue to the pleader’s choice. The relevant question was the substance of the conduct; if the conduct in question constituted a breach of the Appellants’ contracts of employment and therefore could be pleaded as such, the matter fell within Art. 18. The hierarchy of the Convention meant that the policy interest underlying Art. 18 took precedence over other considerations – even exclusive jurisdiction clauses under Art. 21. Moreover, Art. 18 protected employees as a class and there was no appeal from the Judge’s finding that the Appellants here were employees. There was no easy escape route from Art. 18 simply by pleading conspiracy – and, in any event, there were historical sensitivities relating to the use of conspiracy in the field of labour relations.

[24]For the Respondents, Mr Howard submitted that the relevant test was not mechanistic, turning on the question of whether a claim could be pleaded in a particular way. It was, instead, a test of substance as to the character of the conduct complained of. The question was whether the claims in issue were, in substance, contractual employment claims between an employer and employee. The answer was that the conspiracy claims here were not in substance contractual employment claims; they were free-standing, independent claims, brought against a collection of natural and legal persons (some of whom were altogether outside the Arcadia Group) who conspired together to steal significant sums of money from the Respondents. Some of the entities bringing the claims had not employed the Appellants, either at all or at the time when the relevant losses were incurred. Conspiracy was a joint tort; in respect of the same conduct it would be odd if the claims were characterised as contractual against some joint tortfeasors but tortious against others. As found by the Judge, the Appellants had acted as de facto CEO and CFO of the Arcadia Group; it was that group-wide fiduciary role that allowed them to run the day-to-day business of the Arcadia Group and the freedom to perpetrate and then conceal, the fraud with which these proceedings are concerned. By contrast, the Appellants had only a limited contractual relationship with only certain of the Respondent entities and for limited time periods only; no claims were brought against them pursuant to those contracts. All this reflected the fact that the Appellants exercised control over by whom and on what terms they were employed – and took advantage of this situation to suit their own financial and tax position, hence their move to Switzerland.

[25]The Judge’s conclusion was correct and accorded with authority, English and European, together with common sense. If the Appellants were right, the conspiracy claim could never be brought in a single jurisdiction – given that the Third and Fourth Defendants were domiciled in England. That was not a result that a rational system could have intended.

[26](2) The legal framework: It is convenient to proceed in the following order. First, to set the context, a brief summary of the scheme of the Convention, so far as here relevant. Secondly, to consider the English authorities. Thirdly, to consider the European jurisprudence. Fourthly, I shall seek to pull some threads together.

[27](A) The scheme of the Convention: Art. 2 furnishes the general rule as to jurisdiction: a defendant must be sued in the state where he/she is domiciled.

[28]Art. 5 provides “special jurisdiction” in respect of matters relating to a contract (Art. 5.1) and matters relating to tort (Art. 5.3). Thus a defendant to a contractual claim may be sued in the courts for the place of performance of the obligation in question and a defendant to a claim in tort may be sued in the courts for the place where the harmful event occurred. There is here a basic jurisdictional divide between matters relating to a contract and matters relating to tort, involving a binary division: a claim cannot concern both matters relating to a contract and matters relating to tort – the provisions of Arts. 5.1 and 5.3 are mutually exclusive.

[29]The history of jurisdiction in respect of contracts of employment and the emergence of Section 5 of the Convention, containing Arts. 18 and 20, is helpfully set out in Dicey, Morris and Collins, The Conflict of Laws (15th ed.) at paras. 11-370 and following but, as it sheds no real light on the resolution of the present appeal, I do not take time over it here. Section 5 deals with “Jurisdiction over individual contracts of employment”, as distinct from collective agreements or contracts for services and it is perhaps worth noting (if no more) that the wording speaks of “contract of employment” rather than “employment relationship”. In one sense, Section 5 comprises a particular subdivision within the basic contract/tort jurisdictional divide. It is common ground that the provisions of Arts. 18 and 20 must be interpreted autonomously. The policy, or as Mr Foxton put it, the “social purpose” underlying Section 5, as it underlies insurance and consumer contracts, is that the weaker party should be protected by rules of jurisdiction more favourable to his interests than provided for under the general rules. In matters coming within Section 5, the employee is presumptively treated as the weaker party.

[30]Where Section 5 applies, it is at or very near the top of “the hierarchy of jurisdictional rules” (Briggs, Civil Jurisdiction and Judgments, 6th ed., 2015, at para. 2.10); it “trumps” everything (or nearly everything) else. Thus, Section 5 applies to the exclusion of the special jurisdiction for contract and tort found under Art. 5. In one sense, Section 5 therefore insists on and applies the general rule under

Art. 2 the Convention

, namely, that an employee must be sued in the state of his domicile. Further, Art. 6.1 (set out above) cannot be invoked to ensure a single hearing where there are a number of defendants. Still further, it is only in a very limited set of circumstances that the provisions of Arts. 18 and 20 can be varied by an agreement on jurisdiction under Art. 21. There is thus no doubt as to the importance of Section 5 in the scheme of the Convention if once applicable; the anterior and crucial question, of course, is whether Section 5 is applicable.

[31](B) The English authorities: In Swithenbank Foods v Bowers

[2002] EWHC 2257 (QB)

; [2002] 2 All ER (Comm) 974, the claimant issued a claim form against nine defendants alleging breach of duty or conspiracy or both. As against the third defendant, the claimant advanced a tortious conspiracy claim and a contractual claim based on breach of duty under his contract of employment. The third defendant challenged the jurisdiction of the English Court, pursuant to Art. 20 of the Judgments Regulation, on the ground that he was domiciled in France, so that the claim could only be brought against him there. HHJ McGonigal, sitting in the Mercantile Court in Leeds, held that the Court had jurisdiction over the conspiracy claim but not over the contractual employment claim.

[32]In coming to his conclusions on the conspiracy claim, HHJ McGonigal focused on the cause of action relied upon and legal relevance; his critical reasoning appears from [24] – [26], as follows:

“ 24. The policy behind section 5 is based on the probability that the employer is financially stronger than the employee. Therefore, if one or other of them has to take proceedings in a foreign court, it should be the employer who has to bear the additional cost and inconvenience involved to ensure, so far as practicable, that the parties are on an equal footing so far as jurisdiction is concerned. The advantage is given to the employee as a member of a class, namely employees, and that advantage should be confined to cases where his status as an employee is legally relevant. Section 5 should not be construed as conferring jurisdictional advantages on a poor defendant sued by a rich claimant if they happen to be employee and employer. The reference to ‘individual contracts of employment’ rather than to the employment relationship generally, indicates that what is relevant is the contract of employment rather than the relationship generally. The contract of employment is relevant, and there is a matter relating to an individual contract of employment, only if the employer is seeking to rely on that contract of employment to bring the claim against the employee. 25. I can see no justification of policy for conspirators, or any other tortfeasors, who are employees of the claimant being given jurisdictional advantages not enjoyed by conspirators or other tortfeasors who are not employees of the claimant. I accept Mr Jory’s submission that section 5 is limited to claims in contract. …… 26. Accordingly…..the phrase ‘in matters relating to individual contracts of employment’ effectively means ‘where claims are made under individual contracts of employment’. ……If a claimant brings to the court a claim against a defendant who is or was his employee which is made independently of the contract of employment, prima facie he should be permitted to bring it in that court if the court would have jurisdiction over that claim if the defendant was not the claimant’s employer. If an employer sought to dress up a claim under an employment contract as one not made under such a contract no doubt the courts would be astute to prevent him. But that is not this case. To interpret the phrase in this way provides a clear test and leads to high predictability regarding jurisdiction. ”

[33]Swithenbank was referred to in passing by this Court in Samengo-Turner v Marsh & McLennan

[2007] EWCA Civ 723

; [2007] 2 All ER (Comm) 813, at [28], as “readily understandable” but not as shedding any light on the issue/s to be resolved in that case. I shall return to Samengo-Turner, later, in the context of the claims for breach of fiduciary duty. Subsequently, Swithenbank was to some extent doubted but loyally followed by Briggs J (as he then was) at first instance in Alfa Laval Tumba v Separator Spares International

[2012] EWHC 1155 (Ch)

; [2012] ILPr 40 (“Alfa Laval”).

[34]Swithenbank was, however, overruled in Alfa Laval

[2012] EWCA Civ 1569

;

[2013] 1 WLR 1110

in this Court. It is nonetheless helpful to keep in mind the reasoning of Swithenbank, so as to be clear as to the nature of this Court’s disapproval.

[35]The facts of Alfa Laval may be taken from the head note (at p. 1110):

“ The claimants, a Swedish company and a Polish company, designed, manufactured and sold marine separators. It was alleged that J, who was employed by the second claimant in Poland, conspired with the second defendant to obtain covertly and unlawfully copies of the claimants’ design drawings which were then used by the first defendant, an English company owned by the second defendant, to manufacture spare parts in competition with the claimants. In proceedings by the claimants in England alleging breach of copyright and misuse of confidential information by the first and second defendants, the claimants applied to join, inter alios, J as a defendant. Granting the application, the judge held that the status of J’s employment by the second claimant was not legally relevant to the claim against him and so the claim was not a matter ‘relating to’ an individual contract of employment for the purposes of article 18(1) ….and, that being so, he could not invoke article 20(1)….so as to require any claim against him to proceed only in Poland, the member state in which he was domiciled. ”

In the event, this Court reversed the decision of Briggs J at first instance and set aside the order joining “J” to the proceedings. Swithenbank was overruled, with the Court holding that “legal relevance” was not the appropriate test to apply.

[36]Giving the first judgment of this Court, Longmore LJ spoke (at [19] and following) of “difficulties” about the key paragraphs ([24] – [26]) in the Swithenbank judgment. It appeared that the reasoning in the judgment of HHJ McGonigal was either unclear or meant that it came down to a matter of pleading. Longmore LJ was also (and understandably, with respect) troubled (at [20]) as to whether HHJ McGonigal’s reference to claims made “under” individual contracts of employment would draw a distinction between claims made “under” and those “arising out of” or “in connection with” a contract – a distinction which had bedevilled English arbitration law but was now impermissible. Longmore LJ was unwilling to accept (at [22]) that Art. 20.1 of the Convention applied only to claims expressly formulated in contract and could not apply “…if an agile pleader can plead his case in tort or restitution or some other way….” and (at [23]) castigated the “pleaders’ ‘games’” which were “somewhat inevitable” on the Swithenbank construction of Section 5 - a matter demonstrated by the “careful and intricate” amendment of the pleadings in Alfa Laval itself to produce a claim in tort.

[37]Continuing, Longmore LJ (at [24]) found it “impossible” to accept “legal relevance” as the appropriate test to apply. It was much better “…to stick with the actual words of article 18(1) and ask oneself the question ‘do the claims made against an employee relate to the individual’s contract of employment?’” He then said this:

“ 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. ”

[38]In Alfa Laval, the claims advanced, if substantiated, amounted to breaches of J’s implied obligation of fidelity to his employer. This led Longmore LJ to observe (at [28]) that it could not be right, merely because such claims could also be framed in tort or delict, to conclude that Art. 20.1 did not apply; that would be to emasculate Art. 20.1. As to the construction of Art. 20.1, it did not require a “strict construction” because (at [29]) “…in cases brought against an employee, it provides for the normal rule that a defendant must be sued where he is domiciled.”

[39]Addressing the submission that Art. 20.1 only applied where the employee was sued qua employee and not in a case where wrongs were committed to which the employment of the employee was merely incidental, Longmore LJ said this (at [31]):

“ In so far as this constitutes a test for the application of article 20(1), I do not regard it as any more helpful than the test of ‘legal relevance’, and I would reject it for similar reasons. In one sense any employee who acts in breach of contract is not acting qua employee but it is in just those circumstances that the employer will be suing the employee in the first place. ”

[40]Davis LJ gave a short but, with respect, important concurring judgment. He too found difficulty with the meaning and ramifications of the “legally relevant” test. The task of interpretation (at [41]) was to construe the phrase “In matters relating to individual contracts of employment”. The words “relating to” were, in context, “…broad and unqualified words of nexus and do not require artificial limitation, even though it may be accepted that the nexus must be material” (at [43]) and, as Davis LJ had already concluded (at [42]), J’s status as employee was “…directly and substantially material in point of fact to the claim advanced…”. The matter should not be looked at (at [44]) through the “prism of English law” with its strict pleading requirements, not shared by all member states. In the view of Davis LJ (loc cit):

“ ….it is necessary to have regard to the substance of the matter”

[41]Sir Andrew Morritt C agreed with both judgments.

[42]Petter v EMC Europe Ltd

[2015] EWCA Civ 828

; [2016] IL Pr 3 is another authority to which it will be necessary to return when dealing, below, with the claims for breach of fiduciary duty. For immediate purposes, however, various dicta in Petter are pertinent.

[43]First, as Moore-Bick LJ observed, at [18]:

“ When seeking to interpret European legislation it is important to ascertain the purpose which it is designed to achieve, since that is likely to provide a surer guide to its meaning than a close scrutiny of the words used…..”

[44]Secondly, Moore-Bick LJ remarked (at [20]) that “relating to” was an expression “…capable of being given a broad interpretation...”; a dispute might “relate to” a contract of employment even though the claim itself sounded in tort.

[45]Thirdly, when asking (also at [20]) whether the dispute related to Mr Petter’s contract of employment, Moore-Bick LJ answered his own question in terms of the “reality and substance” of the matter.

[46]Fourthly, as Sales LJ explained (at [57]), the policy underlying Section 5 treated employers and employees as “general categories”:

“ …it has not been thought appropriate to provide in the legislation for individualised assessments of relative bargaining power of employer and employee to be made case by case. That would be an invidious, very difficult and costly exercise to try to undertake.”

[47](C) The European jurisprudence: The argument before us centred on two authorities from the Court of Justice of the European Union (“the ECJ”). The first is Brogsitter v Fabrication de Montres NormandesEURL (

Case C-548/12

);

[2014] QB 753

(“Brogsitter”). This was not a Section 5 case at all; instead, it rested squarely on the Art. 5 division between contract and tort. The facts were straightforward. The German claimant and the French defendants had entered into a contract; the claimant alleged that the activities of the defendants breached the terms of the contract; the claimant then commenced proceedings against the French defendants in Germany, bringing claims for breach of the German Law against Unfair Competition, fraud and breach of trust. The defendants challenged the German jurisdiction, contending that only the French courts had jurisdiction, under Art. 5.1, whether as a matter of contract or tort. The German court referred to the ECJ for a preliminary ruling the question whether a civil liability claim, made in tort under national law, nonetheless had to be regarded as concerning “matters relating to a contract” for the purposes of Art. 5 because of the existence of a contract between the parties to the dispute.

[48]Unusually, the ECJ chose to proceed without an Opinion from the Advocate General: see, Dickinson, Towards an agreement on the concept of ‘contract’, in EU Private International Law, [2014] LMCLQ 466, at pp. 470 and following. The Court (at [18]) underlined the need to interpret the concepts in Art. 5 (matters relating to a contract and matters relating to tort, etc.) “independently” (i.e., autonomously) so as to ensure uniform application in all member states. Further underlining the binary division in Art. 5, the Court (at [20]) treated the concept of “matters relating to tort” as covering all actions which seek to establish the liability of a defendant and which do not concern “matters relating to a contract”. At [21], the ECJ posed this question:

“ In order to determine the nature of the civil liability claims brought before the referring court, it is important first to check whether they are, regardless of their classification under national law, contractual in nature….”

[49]The central reasoning of the Court then follows:

“ 23. …the mere fact that one contracting party brings a civil liability claim against the other is not sufficient to consider that the claim concerns ‘matters relating to a contract’…. 24. That is the case only where the conduct complained of may be considered a breach of contract, which may be established by taking into account the purpose of the contract. 25. That will a priori be the case where the interpretation of the contract which links the defendant to the applicant is indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the former by the latter. 26. It is therefore for the referring court to determine whether the purpose of the claims brought by the applicant in the case in the main proceedings is to seek damages, the legal basis for which can reasonably be regarded as a breach of the rights and obligations set out in the contract which binds the parties in the main proceedings, which would make its taking into account indispensable in deciding the action. 27. If that is the case, those claims concern ‘matters relating to a contract’ within the meaning of article 5(1)(a) ….Otherwise, they must be considered as falling under ‘matters relating to tort, delict or quasi-delict’ within the meaning of article 5(3)…. ……. 29. Therefore, the answer to the question referred is that civil liability claims such as those at issue in the main proceedings, which are made in tort under national law, must none the less be considered as concerning ‘matters relating to a contract’ within the meaning of article 5(1)(a)…. where the conduct complained of may be considered a breach of the terms of the contract, which may be established by taking into account the purpose of the contract.”

It may be noted that the “operative part” of the ruling is set out thereafter in essentially the same terms as [29].

[50]In the judgment (at [41] – [42]), the Judge had sought to apply [26] of Brogsitter. Before us, there was vigorous debate as to the ratio of Brogsitter and in which passage/s of the Brogsitter judgment it was to be found.

[51]Deferring my own conclusions for the moment, I turn to the second ECJ authority upon which argument was concentrated, namely, Holterman Ferho Exploitatie BV v Spies von Bullesheim (

Case C-47/14

)

[2016] ICR 90

(“Holterman”). This authority post-dates the judgment. Ultimately, in my view and notwithstanding the significant attention focused upon it, its principal significance for the present appeal lies in such light as it may shed on Brogsitter.

[52]The facts of Holterman emerge most clearly from the Opinion of the Advocate General. The first claimant was the Dutch holding company of a group of companies; the second to fourth claimants were the three German subsidiaries of the Dutch holding company. The defendant (“Mr Spies”), a German national domiciled in Germany, entered the service of the Dutch holding company, as managing director, under a contract described by the Dutch (intermediate) appeal court as a “contract of employment”. Mr Spies also had the role as a director – in the company law sense – of the Dutch holding company. Further still, Mr Spies was a director of the three German subsidiaries. Mr Spies was the only employee of the Dutch holding company and was also a shareholder of that company; he worked solely in Germany.

[53]Disputes arose and the relationship between Mr Spies and all four claimant companies was terminated. The claimants advanced claims against Mr Spies, alleging that he had performed his (company law) duties as director improperly, that he had acted deceitfully or recklessly in the performance of his contract of employment with the Dutch holding company and that the serious irregularities in the performance of his duties constituted unlawful conduct for the purpose of another provision of the Dutch Civil Code. At first instance, Mr Spies submitted successfully that the Dutch Court had no jurisdiction to hear the case. The (intermediate) Dutch Court of Appeal upheld that decision but distinguished between the claims brought by the Dutch holding company and those brought by the three German subsidiaries; on any view, the Dutch Court had no jurisdiction to entertain the claim of the German subsidiaries against the German domiciled Mr Spies. As to the claims brought by the Dutch holding company, the Dutch Court lacked jurisdiction either by virtue of the equivalent provisions to Section 5 of the Convention found in the Judgments Regulation or by virtue of the general domiciliary rule of jurisdiction, contained in Art. 2 of the Judgments Regulation.

[54]All four claimants appealed to the Supreme Court of the Netherlands but only in respect of the claims advanced by the Dutch holding company. The Supreme Court stayed the proceedings and referred three questions for a preliminary ruling to the CJEU. These questions, largely as summarised in the head note (at p.90) were as follows: i) Whether Arts. 18-21 of the Judgments Regulation precluded the application of Arts. 5.1 and 5.3 to a claim by a company against a director and manager (i.e., managing director) brought both on the basis that he had improperly or wrongfully carried out his duties as a director and on the basis of his deceit or recklessness in the performance of his contract of employment? (“question 1”) ii) If the answer to question 1 is in the negative, whether a manager and director’s breach of his obligation to perform his duties properly under company law was within the concept of “matters relating to a contract” in Art. 5.1(a), and whether the “place of performance of the obligation in question” in Art. 5.1(a) would be the place where the company had its central administration? (“question 2”) iii) If the answer to question 1 is in the negative, whether “matters relating to tort, delict or quasi-delict” in Art. 5.3 included a case where a company sued a director and manager on the basis of his improper performance of his duties under company law, and whether the “place where the harmful event occurred” in Art. 5.3 referred to the place for performance of those duties? (“question 3”)

[55]As will be apparent, the questions and the answers to them given by the ECJ as such are not centrally relevant to the present case. Plainly this is so with regard to questions 2 and 3, given the premise on which each was put: namely, that Section 5 did not preclude the application of Arts. 5.1 or Art. 5.3, as the case may be.

[56]So far as question 1 is concerned, the issue (at [33] – [49] of the ECJ judgment) was whether Mr Spies was an employee at all. The Court recited that Art. 18 must be given an independent interpretation common to all member states. It further rehearsed the policy aim of Section 5 of protecting weaker parties to employment contracts; the provisions of Section 5 were (at [44]) “…not only specific but also exhaustive”. However, for Section 5 to apply, Mr Spies had to be an employee – and for there to be a contract of employment (at [40]) “…it may be considered that it presupposes a relationship of subordination of the employee to employer”. The essential feature of an employment relationship was that (at [41]) “….for a certain period of time one person performs services for and under the direction of another in return for which he receives remuneration..”. The upshot was the ECJ’s conclusion, expressed as follows:

“ 47. It is for the referring court to examine the extent to which Mr Spies…., in his capacity as a shareholder in ….[the Dutch holding company]…, was able to influence the will of that company’s administrative body of which he was the manager. In that case, it will be necessary to establish who had authority to issue him with instructions and to monitor their implementation. If it were to turn out that …[Mr Spies’s]…ability to influence that body was not negligible, it would be appropriate to conclude that there was no relationship of subordination for the purposes of the court’s case law on the definition of a worker. ….. 49. In the light of all the foregoing considerations, the answer to the first question is that, in a situation such as that at issue in the main proceedings in which a company sues a person, who performed the duties of director and manager of that company, in order to establish misconduct on the part of that person in the performance of his duties and to obtain redress from him, the provisions of Chapter II, Section 5 (articles 18-21) of Regulation No 44/2001 must be interpreted as meaning that they preclude the application of article 5(1) and (3) of that Regulation, provided that that person, in his capacity as director and manager, for a certain period of time performed services for and under the direction of that company in return for which he received remuneration, that being a matter for the referring court to determine. ”

[57]In the present case, the issue raised by question 1 in Holterman does not arise. Despite the Appellants’ seniority, the Respondents have not sought to challenge the Judge’s conclusion that they were employees, for the periods specified, of companies in the Arcadia Group (as set out above). As Mr Howard put it (on Day 2 of the hearing before us):

“ ….although they were senior people and they actually effectively ran their own show in Arcadia, that’s part of what went wrong here, we say, that they were left to their own devices. But…ultimately, they were answerable to the ultimate shareholders in Arcadia through Farahead….there was a power to hire and fire [them].”

[58]Against this background, the relevance of Holterman to the present appeal may be summarised as follows. First and although the Advocate General’s Opinion must be treated with caution – as it is not adopted “wholesale” in the Holterman judgment – the careful scrutiny in that Opinion of what is needed for the application of Section 5 is striking. Thus (at [26]) the Advocate General set out the English language version of Art. 18 before turning to the German language version, described as “a little more specific”, which applies “….if the subject matter of the proceedings is an individual contract of employment or claims deriving from an individual contract of employment….” (emphasis added). Accordingly, the Advocate General concluded (at [26] and [33]) that the decisive factor for the application of Section 5 was that the defendant was being sued in his capacity as a party to an “individual contract of employment” and that the claim was “derived from that contract”. In order to determine whether the claim derived from the “individual contract of employment”, the Advocate General (at [34]) had regard to Brogsitter, at [23] – [25]. The mere fact that there was a contract of employment between the parties was not sufficient to justify the application of Section 5: [35]. The Advocate General went on (at [36]) to utilise the Brogsitter test, at [24], in posing the question for the referring court (so far as relevant for present purposes).

[59]Secondly, the Advocate General, albeit when dealing with question 2 (at [48]), shed some light on the interpretation of Brogsitter, at [26], saying this:

“ It is for the referring court to determine whether the actions brought by the applicant constitute a claim for liability that might reasonably be considered to be based on a failure to respect the rights and obligations under the ‘contract’ (for the purposes of the Regulation) between the parties, with the result that it is indispensable to consider that ‘contract’ in order for the case to be resolved….. ”

Thus, where the legal basis for the claim may “reasonably be regarded” as a breach of contract, the result is that it is “indispensable” to consider the contract for the case to be resolved.

[60]Thirdly, the ECJ judgment (at [71]) when dealing with question 3 and summarising the test for determining whether Art. 5.1 or Art. 5.3 was applicable, applied Brogsitter “by analogy”. Of interest for present purposes, the Court referred to Brogsitter at [24] – [27].

[61]Before parting from the European jurisprudence, it is necessary to record that the parties sought to refer us to a number of academic “Commentaries”. These had been canvassed before the Judge, as appears from the judgment (at [19] and [20]) and Mr Howard submitted that they were “on the whole” supportive of the Respondents’ position on the appeal and their interpretation of recent European case law. For my own part and with respect, I am not persuaded that the Commentaries provide any significant assistance with the arguments on this appeal. I therefore say no more of them.

[62](D) Pulling some threads together: It is time to pull some threads together as to the authorities.

[63]First, it is helpful to clear the decks. Thus: i) Plainly, we are bound by previous Court of Appeal authority – Alfa Laval specifically. Likewise, the decisions of the ECJ, Brogsitter and Holterman, are binding. ii) In my judgment (and as dealt with below), there is no conflict between the English authorities and the ECJ decisions. iii) Both parties to the appeal accept and rely on the English and European authorities but draw very different conclusions from them. iv) With respect and contrary to Mr Foxton’s submissions as to the nature of the Respondents’ case, both parties focus on the substance of the conduct in question, not on the substance of the cause of action. They disagree, fundamentally, as to where they go from there.

[64]Secondly, Mr Foxton submitted that the “touchstone legal issue” in respect of the conspiracy claims was whether they could have been pleaded as a breach of the Appellants’ contracts of employment. If the conduct in question constituted a breach of those contracts and therefore could be pleaded as such, Art. 18 applied without more. As already foreshadowed, Mr Howard accepted that if that was the test, then the Respondents must lose on the jurisdictional issue before us. For my part and as explained below, I am unable to accept that either the English or ECJ authorities oblige us to accept the test as formulated by Mr Foxton. Unless that test is binding upon us, I would not choose to adopt it, for these reasons: i) It is mechanistic and of potentially unacceptable width. It is common ground that the mere fact that there is a contract between the parties does not suffice for the application of Art. 18. Yet, if this were the test, there are any number of matters of misconduct in the employment field which could arguably be pleaded as a breach of contract but which may not “relate to” the individual contract of employment, even giving that expression a broad interpretation. Put another way, there is no necessary relationship between this test and the underlying social purpose of Section 5; as underlined by Moore-Bick LJ in Petter (supra), at [18], that purpose is of the first importance. ii) I do not agree that any movement away from this “touchstone” means ceding the jurisdictional issue to the pleader’s choice. Provided that the test is one of the substance of the conduct in issue, the pleader’s choice, skill or artifice is irrelevant.

[65]Thirdly, as a matter of English law, Alfa Laval does not oblige us to adopt that mechanistic test. As already discussed, Longmore LJ was anxious to reject the “legal relevance” test adopted in Swithenbank (supra) and, for very good reason, to discourage “pleaders’ games”. It simply does not follow from Longmore LJ’s approach that, merely because a matter could be pleaded as a breach of contract, therefore Art. 18 applies. Instead, Longmore LJ favoured, as we have seen, sticking with the actual words of Art. 18.1 and asking whether the claims made against the employee relate to individual contracts of employment. That is a broad test and involves a broad inquiry, not a mechanistic approach; the wording of Art. 18.1 does not require any gloss. For his part, Davis LJ likewise focused on the words of Art. 18.1, saying that they were broad and unqualified words of nexus, not requiring artificial limitation. However, the nexus needed to be material and it was “…necessary to have regard to the substance of the matter”. So far as concerns the observation of Sir Andrew Morritt C in argument (recorded at [25]), the important point is that it was not proposed as “a test of any kind”. In many cases, it might, with respect, indeed be helpful to ask the question of whether the acts complained of by the employer constituted a breach of the contract of employment by the employee. But it would be wrong to elevate that question into a test or touchstone – and nothing in Alfa Laval requires us to do so. For my part, the correct approach as a matter of English law 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 Section 5: see too, the observations of Moore-Bick LJ in Petter, at [18] and [20].

[66]Fourthly, the ECJ authorities do not require the adoption of the mechanistic test. With respect to Mr Foxton’s argument to the contrary, I am unable to accept that the ratio of Brogsitter is to be found (in effect) solely in paragraphs [24] and [29]. There is more to it than that, as appears from the discussion in Holterman, set out above, especially the reference by the Court in Holterman to paragraphs [24] – [27] of Brogsitter. To my mind, the true ratio of Brogsitter appears from the entirety of the passage at [24] – [27]; there can be no good reason to look at paragraphs [24] and [29] in isolation. It may be remarked that the point is even clearer if regard is had to the German language text but I do not rest my conclusion on that consideration. Accordingly, it does not suffice to pose the – literal – question as to whether the conduct complained of “may be considered a breach of contract”. Instead, the requirement that the legal basis of the claim “can reasonably be regarded” as a breach of contract, assists in directing the focus of the inquiry to the substance of the matter, with the result that it is “indispensable” to consider the contract in order to resolve the matter in dispute. This is a test and an approach indistinguishable to my mind from that adopted in Alfa Laval, so that (in Davis LJ’s words) there will be a material nexus between the conduct complained of and the individual contract of employment.

[67](3) Discussion: I turn to apply these conclusions of law to the facts of the appeal. As a matter of reality and substance, 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? As it seems to me and however precisely the test is formulated, the answer is the same and is clearly “no”. My reasons follow.

[68]First, the Appellants’ roles. The key to the alleged fraud lies not in the Appellants’ contracts of employment but in their de facto roles as Arcadia Group CEO and CFO respectively. As the Judge held (at [14] of the judgment, set out above), none of the individual contracts of employment, drafted by the Appellants themselves and which contained entire agreement clauses, provided for the Appellants to act as Group CEO or CFO as the case may be. The reality – or substance – of the matter is that these over-arching claims concern the Appellants acting outside of their contracts of employment and ranging across the Group.

[69]Secondly, while it cannot be gainsaid that the conspiracy allegations could be pleaded as breaches of the Appellants’ implied duties of fidelity and loyalty under their contracts of employment, as a matter of substance those contracts simply form part of the history and thus a very small part of the picture. They provided the opportunity for the Appellants’ allegedly nefarious activities but no more than that; these claims are instead about the alleged dishonesty of a number of alleged conspirators acting in combination. In these circumstances, such nexus as there was between the conspiracy claims and the Appellants’ individual contracts of employment was tenuous and, in my judgment, not material. Put another way, those contracts do not feature at all, let alone are indispensable, in the resolution of these claims.

[70]Thirdly, as to parties and as already foreshadowed, neither the Second nor the Fourth Respondent was ever party to a contract of employment with the Appellants. With regard to the alleged conspirators, some were never employees of the Respondents at all. In this regard, Mr Howard submitted that conspiracy is a joint tort and the (alleged) conspirators are joint tortfeasors; if, however, the Appellants are correct, the claim against them must be characterised differently from the claims against other joint tortfeasors. There is some force in that but it cannot be taken too far. It does not follow and I do not suggest, that there is a special rule for conspiracy; that every conspiracy must be outside of individual contracts of employment and that simply by pleading a claim in conspiracy the provisions of Arts. 18.1 and 20.1 of the Convention can be circumvented. Quite the contrary; on the approach which I favour – a focus on the reality and substance of the conduct complained of – there is no way of circumventing Arts. 18 and 20 simply by pleading conspiracy. It is the substance of the matter and the facts of the particular case which determine its proper characterisation.

[71]Fourthly, the facts of the present case are plainly distinguishable from those in Alfa Laval. Although the claims in Alfa Laval could be framed in tort, they were, in substance, related to the individual contract of employment; there was a material nexus. There was no wider-ranging conspiracy, free-standing and outside the contracts of employment as is alleged here. The only escape in Alfa Laval from the requirements of Arts. 18.1 and 20.1 of the Convention was by way of a focus on the cause of action and legal relevance. The position here is very different, to repeat, as a matter of the substance of the conduct complained of. Moreover, Alfa Laval involved bringing a Polish employee, J, with no other English connections, into proceedings in this jurisdiction. By contrast, here, the Appellants had very strong connections with the jurisdiction and only became residents in Switzerland for their own financial and tax purposes. Still further, the Respondents have submitted (without contradiction) that the Appellants have opted to be taxed in Switzerland under a regime which precluded any employment or gainful activity in Switzerland; hence the Appellants’ choice of employment with Arcadia Singapore rather than Arcadia Switzerland. In cases such as this under the Convention, the “merits” may matter little – and I do not rest my judgment on them – but a “reality check” can be worthwhile.

[72]Fifthly, I turn to the policy and social purpose underlying Arts. 18.1 and 20.1 of the Convention: the use of jurisdictional rules for the protection of the weaker party and, in the employment context, treating the employee as presumptively the weaker party. As is clear, powerful though the Appellants were, their status (with some of the Respondents) was that of employees and must be treated as such. It does not, however, follow that there is a policy interest in shoehorning the conspiracy claims against them into the framework of Section 5. The mere fact that the Appellants and some Respondents were parties to contracts of employment does not, of itself, suffice for Section 5 to apply: Brogsitter, at [23]. Nor does it follow that the control which the Appellants exercised over by whom, where and on what terms they were employed, is irrelevant. To the contrary, that control illuminates the substance of the matter and the conduct complained of, rendering (for the reasons already given) the individual contracts of employment no more than part of the history. Once that reality is grasped it is apparent, in my judgment, that these conspiracy claims do not relate to the Appellants’ individual contracts of employment.

[73]Sixthly, I accordingly agree with the conclusions expressed by the Judge (outlined earlier), at [42] – [44] and [47] – [48] of the judgment. I further agree with the Judge’s observation (at [49]) that there was therefore nothing and, for the reasons I have sought to give, certainly no countervailing policy interest, to stand in the way of the “sensible course” of all the alleged co-conspirators being tried together in this jurisdiction.

[74]In my judgment, the Respondents have a good arguable case that the conspiracy claims fall outside of Arts. 18.1 and 20.1 of the Convention. They are correctly characterised as claims in tort and, whether under Art. 5.3 or Art. 6.1 of the Convention this Court has jurisdiction to try these claims. I would dismiss the Appellants’ objection to the jurisdiction in respect of the conspiracy claims.

THE CLAIMS FOR BREACH OF FIDUCIARY DUTY

[75](1) Introduction and recap: Burton J dealt with these claims at [50] et seq in the judgment; the summary of the Respondents’ pleaded case there set out suffices and need not be repeated here. In the event, as reflected at para. 1(3) of the Order (set out above), Burton J drew a distinction between those claims where there was a contractual nexus between the relevant Respondent and the Appellants and those claims where there was no such nexus: see esp., at [60], [61] and [75] of the judgment. In the case of the former, Burton J held that there was no good arguable case that the fiduciary duties in question fell outside Arts. 18 and 20 of the Convention; in the case of the latter, the claims were for these purposes to be characterised as tortious and thus outside Arts. 18 and 20. The practical consequences, as earlier outlined, were that the entirety of Arcadia Switzerland’s claims for breach of fiduciary duty could proceed in this jurisdiction, as could Farahead’s; that Arcadia London’s claims could proceed in respect of the period after the Appellants had left its employment and that Arcadia Singapore’s claims could proceed in respect of the period before and after the Appellants were employed by it.

[76]The Judge’s answer has, it may be said, a common sense attraction. Moreover, it is not immediately obvious how much in practice turns on the jurisdiction issue as to these claims, given the conclusion already reached as to the conspiracy claims. Nevertheless, the Appellants contend that the Judge was wrong and I turn to the rival cases on the appeal.

[77](2) The rival cases: Mr Foxton’s submission, as crystallised in oral argument, was this: the claims for breach of fiduciary duty were contractual in nature even for the “non-employing entities” because they follow from the Appellants’ assumption of office/s; claims for breach of duties owed by directors in a company law sense were to be regarded as contractual for the purposes of the Convention. The Appellants, as Arcadia Group CEO and CFO, had provided services and performed functions not limited to the employing entity; they were provided on a group-wide basis. For the purposes of Art. 18, the separate corporate entities were to be disregarded – it was the Group which mattered as a socio-economic entity. This approach did not involve piercing the corporate veil; it was simply an allocation of jurisdiction. Group companies other than the employing entities were not free to “evade” Art. 18. Further and as found by the Judge (at [62]), the bonus to which the Appellants were entitled under their contracts of employment fell to be calculated by reference to the consolidated profits of the Arcadia Group, thus, for example, including those of Arcadia Switzerland.

[78]Mr Howard relied on the Judge’s fact findings as to the Appellants’ periods of employment with particular Group companies. As Mr Howard put it in his skeleton argument:

“ ….the Judge’s conclusion that a claim for breach of fiduciary duty between parties who are not in a contractual relationship cannot relate to an individual contract of employment is …..clearly correct. The Appellants’ position faces….an insuperable problem: claims between parties ….not in a contractual relationship with each other cannot sensibly be said to be ‘matters relating to a contract’; it follows therefore that they cannot be ‘matters relating to individual contracts of employment’. ”

Developing this submission orally, Mr Howard submitted that the issue, put simply, was whether “non-employers” were to be treated under the Convention as if they were employers. This was largely a factual point determined by the Judge in favour of the Respondents. There was no basis in law for treating any company, merely by virtue of its membership of the Arcadia Group, as an employer. As to the bonus arrangements, the Appellants acquired no rights against non-employers; all the scheme did was to calculate the bonus with reference to Group profits. As a result of the Appellants’ own choice, there was no contractual nexus, whether as a matter of fact or law, with the non-employers in the Group; in consequence:

“ ….it would be a slightly odd conclusion to say that where somebody has, as it were, strained every sinew not to have a contract and still less to have a contract of employment, to say that, despite that, they are entitled to say for the purposes of the regulation that there is a contract of employment or they should be treated as if there were.”

[79](3) Authority: Mr Foxton relied heavily and concentrated much of the thrust of his submissions on three authorities: Samengo-Turner, Petter and Holterman (all supra).

[80]Samengo-Turner concerned the Marsh McLennan (“MM”) group of companies. The claimants, domiciled in England, were employed as reinsurance brokers under written contracts of employment with “MSL”, an English member of the MM group. The claimants successfully obtained anti-suit injunctions on the basis of Arts. 18 and 20 of the Judgments Regulation, when proceedings were brought against them in New York by “GC” and “MMC”, two Delaware companies forming part of the same group – GC being a sister company of MSL and MMC the holding company.

[81]In a nutshell, the facts were these. The claimants gave MSL notice to terminate their contracts of employment and indicated that they intended to work for a competitor. They were at once put on “garden leave”. Shortly thereafter, GC and MMC commenced the New York proceedings, founded upon the terms of the incentive award granted to the claimants - under which they assumed obligations to repay the award if they engaged in detrimental activity and to provide information to enable “the company” to determine whether they had complied with the terms of the award. The suspicion was that the claimants had been behind the recruitment by the competitor of a number of GC staff. The incentive award was subject to terms and conditions contained in “the bonus agreement”. The claim in the New York proceedings was for breach of the bonus agreement.

[82]Giving the only substantive judgment in this Court and overruling the decision of the Judge, Tuckey LJ held that the claim related to the claimants’ individual contracts of employment. He said this, at [31]:

“ ….I cannot see how it can be said that the claimants’ bonus agreements do not relate to their contracts of employment. They are part of them. One cannot ascertain the terms upon which they were employed without looking at both the original contracts and the bonus agreements.”

[83]The next question was whether the claim in New York had been brought by an “employer” within Art. 20. Under the bonus agreement, the claimants had assumed obligations to all the companies in the MM group in matters relating to their contracts of employment. Tuckey LJ observed (at [33]) that GC and MMC were bringing an employment claim against employees “…and one would expect such a claim to be made by an employer”. Tuckey LJ then continued as follows:

“ 33. ….MMC and GC have only been able to sue in the right of and as if they were employers because of the wide definition of ‘the Company’ in the bonus agreement and so I think they should be regarded as employers for the purpose of Section 5. MSL, who also come within this wide definition, could only have sued in England to enforce the terms of the claimants’ employment. MMC and GC as companies within the same group have an economic interest in the contracts containing those terms and their enforcement and should be subject to the same jurisdictional restraint as MSL. I do not think that this is a strained construction. It simply recognises the reality of the situation without adopting an over-formalistic approach. ….. 34. Nor does this construction pierce the corporate veil in any real way. The Jurisdiction Regulation is only concerned with the allocation of jurisdiction. The fact that MMC and GC should be treated as employers for such purposes does not mean that they should be so treated for any other purpose. 35. A construction of Section 5 in the way I have indicated gives effect to the objectives of the Jurisdiction Regulation. It achieves certainty and avoids multiplicity of proceedings by ensuring that all those companies in the MM group who wish to sue on the terms of the bonus agreement are required to sue in the courts of the employees’ domicile. Otherwise MMC and any other company in the MM group could sue in New York and MSL would have to sue in England. …..This construction also offers the claimants protection from proceedings in jurisdictions other than that of their domicile. Section 5 applies to all employees irrespective of any particular need for protection… ”

[84]Mr Foxton sought to extract from Samengo-Turner the proposition that, for Art. 18 purposes, the separate corporate personality of group companies could be disregarded. With respect, however, I do not think that Samengo-Turner will bear the weight Mr Foxton rests upon it. The key to Samengo-Turner is the finding of fact (at [31]) that the bonus agreement was part of the claimants’ contracts of employment. On this footing, the contractual claim based on the bonus agreement not only (self-evidently) related to the claimants’ individual contracts of employment but GC and MMC were bringing it as employers. This falls a long way short of a general proposition that in this sphere – regardless of the facts – the separate corporate personality of group companies can be disregarded.

[85]Petter was a case on strikingly similar facts to Samengo-Turner. Mr Petter was an important employee of EMC Europe, a subsidiary of a US-based parent company, EMC. As Mr Petter could be expected to make a significant contribution to the success of EMC’s overall business, EMC included him in a share distribution scheme, known as a “Stock Plan”. The value of awards under this scheme could be considerable. Such awards were made by the employee’s acceptance in writing of an offer contained in a document known as a Restricted Stock Unit Agreement (“RSU Agreement”). The awards were conditional upon Mr Petter observing the “key employment agreement” incorporated into his contract of employment and into the RSU Agreement. The RSU Agreement contained an exclusive jurisdiction agreement in favour of the Massachusetts courts. In the event, Mr Petter decided to leave EMC Europe and take up employment with a local subsidiary of another US company. Disputes arose; EMC commenced proceedings against Mr Petter in the courts of Massachusetts; in turn, Mr Petter commenced proceedings against EMC and EMC Europe in the English High Court. Mr Petter also sought an anti-suit injunction prohibiting EMC from pursuing the proceedings against him in Massachusetts. The Judge held that Mr Petter could show a good arguable case that the English Court had jurisdiction under Section 5 of the Judgments Regulation but declined to grant the anti-suit injunction. EMC appealed unsuccessfully against the English Court assuming jurisdiction. Mr Petter cross-appealed, successfully, against the refusal to grant an anti-suit injunction.

[86]For present purposes, it is only necessary to refer to the judgment of Moore-Bick LJ. At [9], Moore-Bick LJ’s observations as to Samengo-Turner reinforce my view as to the correct interpretation of that decision:

“ ….Accordingly, the bonus agreement, on which the claim in New York was based, was part of the claimants’ contracts of employment for the purposes of art. 18(1)… MMC was to be regarded as the claimants’ employer for the purposes of the Regulation and s.5 of the Regulation was therefore engaged…”

[87]In coming to his conclusion as to the jurisdiction of this Court, Moore-Bick LJ had regard (at [16]) to the autonomous meaning to be given to “employer” for the purpose of Section 5 and to the underlying policy of Section 5 being “…to protect employees because they are considered from a socio-economic point of view to be the weaker parties to the contract…” (at [17]). Moore-Bick LJ’s observations at [18] (as to purpose) and [20] (as to the meaning of “relating to”) have already been recounted. At [20], the passage where Moore-Bick LJ referred to “reality and substance”, (see above) continued as follows:

“ …If in the present case one asks whether the dispute between Mr Petter and EMC ‘relates to’ his contract of employment, it is not difficult to see that in reality and substance it does. Although he may have had no right in law to receive an award of stock units, I have little doubt that he, and for that matter both EMC and EMC Europe, regarded such awards as intrinsically bound up with his contract of employment. They were made available to him as an important employee and were intended to act as a reward for past efforts and an incentive to make efforts in the future. They were probably also viewed by EMC as a way of retaining highly valued employees. The awards were made by EMC as the parent company both for its own benefit and for the benefit of the subsidiaries by whom recipients were employed.....”

[88]Moore-Bick LJ went on to say (at [21]) that he could see no distinction between Samengo-Turner and the case with which he was concerned; he viewed Samengo-Turner as binding authority for the proposition:

“…that a company which provides benefits to employees of associated companies within the same group may be regarded as an employer for the purposes of the Regulation if it provides those benefits in order to reward and encourage those employees for the benefit of their immediate employer and the group as a whole. ”

In this way, no doubt, effect could be given to “…the substance of the relationship rather than the legal structure within which it sits” (at [19]).

[89]Again, I am not persuaded that Petter, by which we are of course bound, carries the debate in the present case significantly further, apart from the comfort it provides in interpreting Samengo-Turner. As it seems to me, Petter does not stand for some wider proposition as to disregarding the separate corporate personality of different entities in a group of companies. Like Samengo-Turner, it was concerned with an awards scheme, which (in Petter) gave rise to a contract between Mr Petter and EMC (see, at [15] and [16]). The only remaining questions, already dealt with above, were whether the claim in question related to Mr Petter’s individual contract of employment and whether EMC was to be treated as an “employer” for the purpose of Section 5. The difficulty for Mr Foxton is that the facts of the present case contain nothing similar. The only contracts are between the Appellants and the various individual Respondent companies of whom they were employees. The bonus arrangements conferred no rights and gave rise to no contractual relationship with any other companies in the Arcadia Group – a conclusion unaffected by the fact that Farahead appears to have run the bonus scheme.

[90]Holterman can be taken very briefly. Question 2 (as defined above) was answered by the ECJ saying that an action by a company against its managing director on the basis of an alleged breach of his obligations under company law could (emphasis added) fall within the concept of “matters relating to a contract” in Art. 5.1(a). It will be recollected that question 2 only arose if the answer to question 1 was that Mr Spies did not perform his duties as an employee of the Dutch holding company. Assuming question 2 did arise, then, as the Court observed (at [53]), on the factual premise that Mr Spies and the Dutch holding company had freely assumed mutual obligations, their relationship “may be regarded as …contractual in nature…”. With respect to Mr Foxton’s submissions, it is altogether too great a leap from the answer to question 2 in Holterman to a more generalised conclusion that, without more, claims for breach of fiduciary duties owed by directors in a company law sense must be regarded as contractual for the purpose of the Convention – still less that they must be regarded as relating to an individual contract of employment.

[91]For completeness, Mr Foxton placed reliance before us, as the Appellants did before the Judge (see the judgment, at [55] and [57]), on the writings of Prof. Briggs. Before this Court, Mr Foxton made reference to Prof. Briggs’ views as they appear in the 2015 edition (Briggs, op cit). Prof. Briggs here argues (at para. 2.171) that if fiduciary duties are imposed by equity on a defendant as a result of a relationship freely entered into, then the “preferable view” – but free of authority – is that their enforcement is contractual for the purposes of the Convention. If such duties are imposed on a defendant without the agreement of the claimant, then the matter will fall on the tortious or delictual side of the divide. Prof. Briggs goes on to observe (loc. cit):

“ And even if these two cases do represent the two sides of the argument, there will still be cases which appear to fall rather closer to the borderline, such as that of the company director who diverts a corporate opportunity to his own secret profit. ”

[92]In a subsequent passage (at para. 2.196), Prof. Briggs addresses the contract/ tort divide for the purposes of Art. 5 by asking whether the claim is “rooted in an agreement between the parties” (contract) or from the unilateral conduct of a defendant (tort). In this passage, the view is expressed (rather less tentatively) that the secret profit of a company director should fall on the contract side of the line. It is further contended that there is an exception to the tortious characterisation of an equitable obligation arising from the unilateral conduct of a defendant “…where this arises from a contractual relationship, such as employment.”

[93]Building on these passages, Mr Foxton submits that in acting as de facto CEO and CFO of the Arcadia Group, the equitable obligations incurred by the Appellants arising from a relationship freely entered into, are to be characterised as contractual rather than a matter relating to tort. Plainly, Prof. Briggs’ views are entitled to respect and provide a helpful foundation for a generalised characterisation of fiduciary duties, having regard to the binary contract/tort divide. That said they are not presented as and could not stand as a hard and fast characterisation, regardless of the facts of the particular case. Furthermore, the autonomous characterisation of an obligation as contractual does not – without more – entail its characterisation as a matter relating to an individual contract of employment. Any such further characterisation is necessarily fact specific.

[94](4) Conclusions: I can express my conclusions relatively briefly. First, it is necessary to guard against over-elaboration. The starting point is 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 is inescapably necessary to consider the contracts to which they were party and the other parties thereto.

[95]Secondly, as already underlined, the only contracts to which the Appellants were parties were those with the corporate entities who employed them for the periods set out above. Unless bound to do so, I would not wish to treat the Appellants as parties to contracts with other companies in the Arcadia Group.

[96]Thirdly, I would be all the more unwilling to treat the Appellants as parties to contracts with other companies in the Arcadia Group when, as Mr Howard tellingly put it, the Appellants “strained” not to have any such contracts – and indeed devised the contractual arrangements which there were.

[97]Fourthly, absent any other contractual relationships beyond their contracts of employment to which the Appellants were parties, I agree with Mr Howard’s submission and the Judge’s conclusion that claims between parties not in a contractual relationship cannot be said to be “matters relating to a contract”, a fortiori cannot be matters relating to their individual contracts of employment.

[98]Fifthly and for the reasons already given, neither Samengo-Turner nor Petter entitles or obliges a wholesale disregarding of separate corporate personality between group companies; the decisions in those cases were rooted in their own facts and the particular contractual bonus arrangements; there is nothing like that here.

[99]Sixthly, even if the logic of Prof. Briggs’ writing is that the equitable obligations assumed by the Appellants flowing from their acting as de facto CEO and CFO are to be characterised as contractual, it is a step too far to contend that they must therefore be treated as matters relating to the Appellants’ individual contracts of employment. The blunt answer is that, on the facts and as a matter of reality, they do not relate to those individual contracts of employment – other than for the periods when the Appellants were employed.

[100]It follows that I would dismiss the appeal in respect of the claims for breach of fiduciary duty.

DISHONEST ASSISTANCE AND KNOWING RECEIPT

[101]The claims under this heading brought by the Respondents against the Appellants were contained in an amended pleading. Although not originally part of the appeal before us – indeed, as I understood it, they did not feature before the Judge – good sense on the part of all concerned prevailed and it was agreed that we should seek to deal with these claims, rather than doom the parties to a further hearing. Moreover, it was common ground or certainly not seriously in dispute that the jurisdiction outcome in respect of these claims would follow the outcome in respect of the conspiracy claims. Accordingly and for (mutatis mutandis) the same reasons as those given in respect of the conspiracy claims, I would conclude that this Court has jurisdiction to deal with the claims of dishonest assistance and knowing receipt.

OVERALL CONCLUSION

[102]It follows, for the reasons given, that I would dismiss the appeal. I would be grateful for the assistance of counsel in drawing up the order, not least bearing in mind the need to regularise the procedural position with regard to dishonest assistance and knowing receipt.

Lady Justice Gloster:

[103]I agree.

Lady Justice Macur:

[104]I also agree.

Cited in 14 later judgments

and 5 more of the most senior