CJEU rules directors who are employees must be sued in their EU domicile

In a recent decision, the Court of Justice of the EU held that directors who are also employees (within the meaning of EU case law) must be sued in the courts of the member state in which they are domiciled: Holterman Ferho Exploitatie BV and others v Spies von Büllesheim Case C-47/14.

The CJEU considered the applicability of the special jurisdictional rules for employment contracts under the Brussels Regulation to a case where the defendant is being sued by a company for improper performance of his duties both: (i) as an employee under a contract of employment; and (ii) as a director from a company law perspective. It held that the special rules applicable to employment contracts take precedence over any other applicable provisions. So where a company has a claim against a present or former director who is or was an employee of the company, this decision suggests that the director will have to be sued in the place of his or her domicile. The claims may fall under a number of heads – company law claims, breach of fiduciary duties, breach of express or implied terms of a contract, or claims in tort.

The position may be different however where a director is able to influence the decisions of the company in its supervision of him (eg by reason of his shareholding in the company). Where such influence is not negligible, the relationship of subordination, necessary for an employment relationship to exist under EU case law, may not be present. Anna Pertoldi and Donny Surtani, a partner and senior associate in the disputes team, consider the decision further below.

Background

The Brussels regime contains special rules for determining jurisdiction in matters relating to individual contracts of employment. In general terms, an employee can sue his employer either in the employer's domicile or where the employee habitually carries on work. However, an employer can only bring proceedings against its employee in the place of the employee's domicile (articles 19-20 of the Brussels Regulation No 44/2001, corresponding to articles 21-22 of the recast Brussels Regulation No 1215/2012).

In this case, Mr Spies von Büllesheim ("Mr Spies"), a German national, resident in Germany, entered into an agreement with Holterman Ferho Exploitatie BV ("Holterman"), whose registered office is in the Netherlands. That agreement confirmed his appointment as director of Holterman and set out his rights and obligations as a director. Mr Spies was also a director of three German subsidiaries of Holterman and performed his duties mostly in Germany. Additionally, Mr Spies also held shares in Holterman (although he was not a majority shareholder).

Subsequently, Holterman and its subsidiaries terminated their agreements with Mr Spies and brought proceedings against him in the Netherlands on grounds of improper performance of his contract and improper performance of his duties as a director under company law. Relying on the employment provisions in the Brussels Regulation, Mr Spies argued that the courts in the Netherlands lacked jurisdiction in the matter and only the German courts, as the courts of his domicile, could exercise jurisdiction.

Decision

The CJEU held that if there were a contract of employment between Mr Spies and Holterman, the employment provisions in the Brussels Regulation applied and precluded the application of any other potentially relevant provisions, such as the general contractual jurisdiction ground in article 5(1) and the tort ground in article 5(3).

As to whether there was such a contract of employment, this was for the national court to determine applying the principles established in EU case law. The CJEU said a key consideration would be whether there was the necessary relationship of subordination between Mr Spies and Holterman. It observed that if it were to turn out that Mr Spies' ability to influence Holterman in its supervision of him (eg by reason of his shareholding in the company) was not negligible, it would be appropriate to conclude that he was not an employee within the meaning of that term in EU case law.

The court went on to hold that if Mr Spies were not an employee, then claims based on breaches of company law would come within the concept of matters relating to a contract in article 5(1) and any claims which fell outside of article 5(1) could come within article 5(3).

The decision does not consider what, if any, connection there needs to be between the employment contract and the subject-matter of the claim, a question which has caused some uncertainty in English case law (see Alfa Laval Tumba AB v Separator Spares International Ltd [2012] EWCA Civ 1569 and Arcadia Petroleum Ltd v Bosworth [2015] EWHC 1030 (Comm)).

In the opinion of the Advocate General, for the employment provisions to apply the claim must derive from the contract of employment. In other words, the conduct complained of must be considered a failure to perform obligations arising from the employment contract, which may be established by taking into account the purpose of the contract in question.

The Arcadia decision is subject to appeal, so further discussion and guidance may be forthcoming from the Court of Appeal next year.