CJEU rules on where to sue (former) directors

The question of jurisdiction – knowing where to sue and in what forum – is key in any dispute. In a recent podcast and blog posts, we’ve discussed the rules of jurisdiction in the EU and the potential impacts of Brexit. We’ve also previously commented/blogged on the (politically thorny) issue of the Brexit-related role of the Court of Justice of the European Union (CJEU):

• “ECJ cannot be ‘air-brushed’ out of UK legal system”
• "'U turn if you want to’ says CJEU"

Against this backdrop, the CJEU has (in a week that could have seen the UK leave the EU on a ‘no deal’ basis) handed down an important judgment applying two jurisdiction regimes: the Brussels Recast Regulation and the Lugano Convention.

In Arcadia & others v Bosworth & others, the CJEU has ruled in favour of Freshfields’ clients (who have brought proceedings in the English Courts on the basis that they are the victims of a multi-million dollar fraud committed by their former directors, Mr Bosworth and Mr Hurley, and others).

In doing so, the CJEU has ruled on the scope of the special rules of jurisdiction applying to matters relating to “individual contracts of employment” (the Employment Provisions).

The thrust of the Employment Provisions is that where a claim falls within their scope the employer can only bring that claim against the employee in the country where they are domiciled. Mr Bosworth and Mr Hurley are now domiciled in Switzerland, and so had contended that they could only be sued in Switzerland, and could not be sued in England (alongside their fellow conspirators).

The CJEU has held that the Employment Provisions apply only to claims brought by a company against its current or former director where there is or was (at the relevant time) a relationship of subordination between that company and its director.

Subordination will not be present where a director has an ability to influence the company that is “not negligible”.

The CJEU further ruled that the Employment Provisions will not apply to a director who is able to determine or does determine the terms of his or her contract with the company or "has control and autonomy over the day-to-day operation of [the] company’s business and the performance of his [or her] own duties.” This is not changed by the fact that the company’s shareholder(s) may have the power to hire or fire the director.

In its judgment, the CJEU made clear that it had all the information necessary to give a ruling (rejecting Mr Bosworth and Mr Hurley’s request for the oral part of the Luxembourg procedure to be reopened). Having done so, it stated at paragraph 31 of its judgment: “In the circumstances, it appears that Mr Bosworth and Mr Hurley had an ability to influence Arcadia that was not negligible and that, therefore, it must be concluded that there was no relationship of subordination [...], irrespective of whether or not they held part of the share capital of Arcadia.”

Having concluded that Mr Bosworth and Mr Hurley were not entitled to the protection of the Employment Provisions (because they were not, in the autonomous European law sense, “employees” for these purposes), the CJEU did not consider it necessary to go on and consider the questions that arose about the application and scope of the protection.

The CJEU’s conclusions are binding across all EU Member States and the Lugano Contracting States (Iceland, Norway and Switzerland).

This decision is of importance to anyone considering a claim against a (current or former) director, whether against him or her alone, or as part of a claim against multiple defendants.

The Freshfields team consisted of Tom Snelling (Partner), Samantha Trevan (Partner), Jonathan Kelly (Associate) and Tahleel Lateef (Associate) in our Commercial Disputes Group. Freshfields instructed Mark Howard QC and Fionn Pilbrow QC of Brick Court Chambers and Niranjan Venkatesan of One Essex Court Chambers in respect of the CJEU proceedings.

For further information about the case, please see the Advocate General's Opinion and the UK Supreme Court page.