Alta Trading UK Ltd & Ors v Bosworth & Ors

The hearing has been returned to me 5½ years on, after a journey to the Court of Appeal, Supreme Court, European Court of Justice (CJEU) and back to the Supreme Court again, of the issue between the parties of contested jurisdiction as to where the Claimants' claims for conspiracy and fraud should be heard.

At a time when it was conceded by the Claimants that the First and Second Defendants (“the Defendants”) were employees of one or more of the Claimants when they committed the alleged fraud, I concluded that, despite Article 18(1) of the Lugano II Convention, which allocates jurisdiction to the domicile of the employee (in this case Switzerland) in the case of “matters relating to individual contracts of employment”, the Claimants were entitled to pursue their claims in this Court, after they had specifically abandoned any claim under the contracts of employment and certain claims for fiduciary duty, for reasons which I set out in my Judgment dated 1 April 2015 ([2015] EWHC 1030 (Comm)). I do not repeat the Judgment but it can be referred to for the full history and background.

The Defendants appealed to the Court of Appeal, who upheld my Judgment, but in the course of the hearing before the Court of Appeal, and also in the hearing before the Supreme Court on further appeal by the Defendants, the issue was canvassed whether in fact the Defendants were employees, within the autonomous definition of individual contracts of employment provided by Article 18(1); the Claimants withdrew their concession that the Defendants were employees, and the Supreme Court referred to the CJEU four questions, the first, third and fourth arising out of my original decision upheld by the Court of Appeal, and the second as follows (as set out by the CJEU):

If a company and an individual enter into a “contract”

The Supreme Court was persuaded by the Defendants that the facts underlying the conclusion by the CJEU as to the relationship of subordination had not been considered or found by me, and the Supreme Court ruled as follows:

“1.

The appeal be allowed but only to the extent of remitting the case to the Commercial Court to hear further evidence and submissions on whether the Appellants were in “a relationship of subordination” to their employing company or companies in the sense used by the Court of Justice of the European Union in its Judgment…, so as to place them in an employment relationship to which Section 5, Article 18(1) of the Lugano II Convention could apply.”

Hence the return to me of a case which, after 5½ years, has not even commenced to be heard: Mr Pilbrow, now QC and leading Mr Heaton, and Mr Eschwege, opposing juniors in 2015, have now themselves ably presented the case before me, the other difference, apart from the absence of the original leaders, being the interposition of Covid-imposed computer screens rather than live submissions.

The Claimants carry the burden, as before me in 2015, of establishing jurisdiction (on the basis, in this new issue, that the Defendants were not employees) and as before, by agreement between the parties, the Defendants went first.

I have first to address a number of preliminary questions. Mr Eschwege submits that the Claimants have what he described as threshold difficulties, namely that the pleaded case, and the original hearing before me, was run by the Claimants on the basis that the Defendants were employees. Now the Claimants are seeking to persuade me that they were not employees. I have no doubt at all that there is no threshold difficulty. The question before me has been succinctly summarised by the Supreme Court, as set out above. The fact that at English common law the Defendants were employees, at least of the First and Third Claimants (see paragraph 13 of my Judgment), and were conceded to be such at a time when the question of the autonomous definition within Article 18 (1) had not been addressed, is only a starting point, and the existence of (unsigned) contracts of employment no more prejudges a conclusion that there were contracts of employment within Article 18 (“Article 18 employment”) than would the absence of any such contract prejudge a case that there was not Article 18 employment (see paragraph 27 of the CJEU’s judgment, approving paragraphs 34 to 36 of the Advocate General's Opinion of 24 January 2019 to that effect). The question for me stands or falls on whether there was a “relationship of subordination”, as expounded by the CJEU at paragraphs 28 to 35 of its Judgment. Reference to cases on English domestic law, such as the illuminating decision of Andrew Baker J in Cunico Resources NV vDaskalakis [2019] EWHC 57 (Comm) does not provide an answer. Nor is it an answer for Mr Eschwege to postulate the binary conclusion that if the Defendants are not employees they must be self-employed. That might follow a similar conclusion at English domestic law and for tax purposes, but it does not follow where the question is whether they are Article 18 employees for jurisdictional purposes.

The second question is as to what can be challenged by way of findings made by me and the Court of Appeal, now that the case has been returned to me. I concluded at paragraph 14 of my judgment as follows:

“They were both, at all material times, the possessors of senior titles in the Arcadia Group. The First Defendant was CEO and the Second Defendant CFO. None of the individual contracts of employment, all of which were drafted by the First and SecondDefendantsthemselves, and contain an entire agreement clause, contain any provision that the First and Second Defendants should act as CEO or CF0 of the Arcadia Group” (my underlining).

Upon their return from the CJEU to the Supreme Court, the Defendants sought to challenge this underlined passage. TheSupreme Court ruled that:

“The Court ... refuses to allow the Appellants to raise at this late stage a new ground of appeal which seeks to attack the factual basis of a finding made by Mr Justice Burton in para 14 of his judgment. His finding, which was repeated in substance in the judgment of Gross LJ in the Court of Appeal (para 2) was not challenged or contradicted inthe Statement of Facts and Issues (see paras 10 and 13). On those findings and statements, the contracts of employment would have been drafted under the Appellants' direction and there is no suggestion that their terms were reviewed by a remuneration committee of their employing companies. In the Court's view it is too late and would lead to disproportionality if this finding were to be reopened.”

(The Court also denied the Claimants’ attempts to withdraw their abandonment in the Court of Appeal certain of their claims for breach of fiduciary duty).

This is clear. However, there was some argument before me in relation to the words of

The next question is as to the nature of the test which I must adopt on a challenge to the jurisdiction by a defendant, in the light of the speech of Lord Sumption in Brownlie vFour Seasons Holdings Inc [2018] 1 WLR 192 at paragraph 7, the decision of the Supreme Court (again per Lord Sumption) in Goldman Sachs International v NovoBanco SA [2018] 1 WLR 3683 at paragraph 9, and the exposition of it by the Court of Appeal in Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] 1 WLR 3514 per Green LJ at paras 57–80 and Davis LJ at para 119 who, though describing himself as being in a fog, was able to consign the words of Waller LJ in Canada Trust Co v Stolzenberg (No 2) [1998] 1WLR 547 at 555F to “outer darkness”.

One thing that is clear is that there is universal agreement that a claimant must have a

“good arguable case” to survive a challenge to jurisdiction. But the issue is whether this requires 'relativity', i.e. whether the claimant must have the “better of the case” on the evidence (not “much the better” as per Waller LJ) or simply a “plausible evidential basis”. Green LJ’s attempt at exposition, within the confines of Lord Sumption’s three limb test, seemed to lead him to contradict himself as between paragraph 73 of his judgment ( “The reference to “a plausible evidential basis” in limb (i) is hence a reference to an evidentialbasis showing that the claimant has the better argument“) and paragraph 74 (“In limb (i) – which is the basic test – the test is plausibilityalone”). Mr Pilbrow’s contribution to resolve this was to contend that in order to establish that a claimant has a good arguable case the claimant must have the better of the case that he has a plausible evidential basis.

However Carr J in Tugushev v Orlov [2019] EWHC 645 (Comm) had no difficulty in finding her way through at paragraph 59, and the Supreme Court itself in AspenUnderwriting Ltd v Credit Europe Bank NV [2020] 2 WLR 919, a case in which there had been considerable dispute as to the test in the Court of Appeal, per Lord Hodge simply stated at paragraph 21:

“Although there was a challenge in the Court of Appeal, there is now no disagreement between the parties that in relation to the preliminary question of the jurisdiction of the English courts it is for the [Claimants]to show that they have a good arguable case in the sense that they have the better of the argument.” Mr Pilbrow's ingenious solution is not necessary.

My interpretation of the state of the law and the three limb test is straightforwardly as follows:

I turn to what is of course preliminary, but necessarily fundamental, to my conclusions, namely an assessment of what the CJEU requires in order to establish a relationship of subordination. Mr Eschwege refers to a number of decisions of the CJEU relating to the definition of employee or worker and the distinction between worker and self-employed for the purpose of various Regulations. He also relied upon the decision of the CJEU in Holterman Ferho Exploitatie BV v Spies von Büllesheim [2016] ICR 90, which was a decision of the CJEU expressly on the definition of Article 18 employment. The Advocate General in terms, and the CJEU by their omission, showed that it was this decision, and not decisions on other Regulations, which would give guidance. However it was only two paragraphs of Holterman which were expressly approved by the CJEU in Bosworth, paragraphs 46 and 47, though paragraphs 34 and 37 were mentioned in passing. Paragraphs 46 and 47 read as follows: –

“46 More specifically, with regard to the relationship of subordination, the issue whether such a relationship exists must, in each particular case, be assessed on the basis of all the factors and circumstances characterising the relationship between the parties: see Balkaya v Kiesel Abbruch- und Recycling Technik GmbH (Case C-229/14) [2015] ICR 1110, para 37.

47 It is for the referring court to examine the extent to which Mr Spies von Büllesheim, in his capacity as a shareholder in Holterman Ferho Exploitatie, 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 von Büllesheim’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.”

The significant conclusory paragraphs of the CJEU Judgment in Bosworth were as follows:

“26 It follows that an employment relationship implies the existence of a hierarchical relationship between the worker and his employer, and that the issue whether such a relationship exists must, in each particular case, be assessed on the basis of all the factors and circumstances characterising the relationship between the parties (judgments of 10 September 2015,

Holterman Ferho Exploitatie and Others, C-47/14, EU:C:2015:574, paragraph 46, and of 20

November 2018, Sindicatul Familia Constanța and Others, C147/17, EU:C:2018:926, paragraph 42).

27

It should, moreover, be noted that, according to the wording of the provisions of Section 5 of Title II (Articles 18 to 21) of the Lugano II Convention, the conclusion of a contract is not a condition for the application of the rules of special jurisdiction laid down in those provisions, and therefore that, as the Advocate General, in essence, indicated in points 34 to 36 of his Opinion, the absence of any formal contract does not preclude the existence of an employment relationship that falls within the concept of ‘individual contract of employment’ within the meaning of those provisions.

28

However, such a relationship can be treated as an

‘individual contract of employment’ within the meaning of the provisions of Section 5 of Title II (Articles 18 to 21) of the Lugano II Convention only if there is a relationship of subordination between the company and the director concerned.” Then in particular:

“29 In the present case, it should be noted that, according to the information provided by the referring court, Mr Bosworth and Mr Hurley were, respectively, chief executive officer and chief financial officer of the Arcadia Group, that they were directors of Arcadia London, Arcadia Singapore and Arcadia Switzerland, that they were each party to a contract of employment with one of those companies drafted by themselves or at their direction and that they acted at all material times on behalf of all Arcadia Group companies.

30

It is also apparent from the order for reference that Mr Bosworth and Mr Hurley exercised control over by whom, where and on what terms they were employed.

31

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 (see, to that effect, judgment of 10 September 2015, Holterman Ferho Exploitatie ...., paragraph 47), irrespective of whether or not they held part of the share capital of Arcadia.

32

The fact that Mr Bosworth and Mr Hurley were answerable to the Arcadia Group’s shareholders who, through Farahead Holdings, had the power to ‘hire and fire’ them, is irrelevant in that regard.

33

As the Advocate General noted in point 46 of his Opinion, neither the general directives which a director may be given by the shareholders of the company he directs for the orientation of that company’s business nor the legal mechanisms for control by shareholders point, in themselves, to the existence of a relationship of subordination, and therefore the mere fact that the shareholders have the power to revoke a directorship is not sufficient for the conclusion to be drawn that such a relationship exists.

34

It follows from this that a contract concluded between a company and the director of that company does not constitute, in circumstances such as those at issue in the main proceedings, as an ‘individual contract of employment’ within the meaning of Section 5 of Title II (Articles 18 to 21) of the Lugano II Convention.

35

Having regard to the above, the answer to the second question is that the provisions of Section 5 of Title II (Articles 18 to 21) of the Lugano II Convention must be interpreted as meaning that a contract between a company and a natural person performing the duties of director of that company does not create a relationship of subordination between them and cannot, therefore, be treated as an

‘individual contract of employment’, within the meaning of those provisions, where, even if the shareholder(s) of that company have the power to procure the termination of that contract, that person is able to determine or does determine the terms of that contract and has control and autonomy over the day-to-day operation of that company’s business and the performance of his own duties.”

Fundamental to Mr Eschwege's submission is his interpretation of paragraph 31 of the Bosworth judgment by reference to paragraph 47 of Holterman. Mr Eschwege submits that it is common ground in this case that the boards of the Arcadia companies played very little part, and that insofar as there were instructions and directions given to the Defendants as CEO and CFO, they were given by Farahead, the 100% shareholder, whose ultimate beneficial controller was Mr Fredriksen. Mr Eschwege's central submission is, by reference to his interpretation of paragraph 31 of the Bosworth Judgment (a paragraph not easy to understand) that subordination is only ousted if the employee is able to influence (to a non-negligible extent) the body that controls the

Mr Pilbrow submits that this is wrong. In Holterman the board controlled the company and the issue was whether Mr Spies (through his shareholding or otherwise) had a nonnegligible influence over the board, and therefore the company. It is obvious in Bosworth that the Defendants did not control Farahead. The question however is, he submits, whether the Defendants had a non-negligible ability to influence the companies which are wholly owned by Farahead and ultimately beneficially controlled by Mr Frederiksen.

The Advocate General, clearly influenced by the Order for Reference to the CJEU set out in paragraph 9 above, concluded in paragraphs 60 and 111(1) of his Opinion that “A company director who has complete control and autonomy over the day-to-day operation of the business of the company which he represents and the performance of his own duties is not subordinated to the company and, consequently, does not have an 'individual contract ofemployment', with the company within the meaning of that provision [Article 18(1) of the Lugano II Convention].” The CJEU however concluded, Mr Pilbrow submits, that total or complete control and autonomy was not required if a CEO or CFO had a non-negligible abilityto influence the company or companies. This is clarified by the CJEU’s approval, in paragraph 33, of paragraph 46 of the Advocate General’s Opinion:

“46.

In particular, contrary to the argument of the defendants in the main proceedings, there cannot be any confusion between subordination and the general directives which a director may be given by the shareholders for the orientation of the company’s business. Such general directives do not concern the actualperformance of the director’s duties or the manner in which heorganises them. A company director is mandated to act for the company and, as such, may receive reasonable instructions regarding his mission. For the same reasons, the control mechanisms which the law establishes for shareholders do not in themselves point to the existence of a subordination relationship. Every agent must render certain accounts to his principal. Furthermore, the mere fact that the shareholders have the power to revoke a directorship is not sufficient to demonstrate a relationship of subordination. The fact that they have such a power of revocation does not mean that they have involved themselves in the way of directing the company. Here again, in the context of any mandate, a principal may unilaterally terminate the relationship with his agent, without this circumstance in itself demonstrating subordination.”

Mr Eschwege submits that this would dilute or weaken the characterisation of employee, and render it uncertain whether a CEO in any large or group company was or was not an employee. This would undermine what is otherwise relied on as the predictability of the jurisdiction rules under the Convention: hence what Mr Pilbrow has called the 'lowering of the bar’ by the CJEU, as compared with the Advocate General's test from complete control down to non-negligible influence, which would make this unpredictability greater.

Mr Pilbrow's response is twofold: –

I can see the force of Mr Eschwege's concern about predictability, and his emphasis on the derivation of paragraph 31 of the Bosworth Judgment from paragraph 47 of the Holterman Judgment. However the words in the latter paragraph do not quite fit Mr

It may or may not be relevant to note that in Holterman the relationship which, according to paragraph 46, must be examined by reference to “all the factors and circumstances characterising the relationship between the parties” is the relationship of subordination, whereas in the equivalent paragraph (26) in the Bosworth Judgment the relationship which must be so explored is the existence of a “hierarchical relationship between the worker and his employer”.

Given the disagreement as to the meaning of the crucial paragraph 31 in the Bosworth Judgment, I am left with what seems to me to be important, namely the matters which the CJEU itself concluded that it should examine in order to arrive at its conclusion ("In the circumstances"), on the assumed facts before them, that the Defendants had an ability to influence Arcadia that was not negligible:

The CJEU Judgment then continues, in paragraph 31: “In the circumstances, it appears that Mr Bosworth and Mr Hurley had an ability to influence Arcadia that was not negligible”. It seems to be clear that they were not considering any question of control over or influence upon the body which otherwise controls the Group, the holding company, whose role they regarded as irrelevant in paragraph 32, and whose general directives and (at least) legal mechanisms for control are not considered sufficient in paragraph 33. If they had known more, it might have been a factor, but it is certainly not being addressed by them as conclusive. Again I refer to the CJEU's answer to the Question, which did not, as Mr Eschwege would wish, refer to influence over the controlling body, but (inter alia) to “control and autonomy over the day-to-day operation of that company's business and the performance of his own duties”.

I therefore disagree with Mr Eschwege: on his analysis, there would be no need to assess “all the factors and circumstances characterising the relationship between the parties”, but the matter can be decided simply on the basis, which is common ground, that the Defendants had no ability to influence or control Farahead or Mr Fredriksen. I am satisfied that the issue which the CJEU resolved, though on the basis of assumed facts which I must now reconsider, is that the Defendants had a non-negligible influence over the Group companies of which they were CEO and CFO.

Before me, both sides directed their evidence to this question. The Claimants contend that the Defendants “called the shots” in relation to the companies they ran, while the Defendants claim that they were entirely subordinate to Farahead and Mr Fredriksen (and his associates). I must decide, if I can, which side has the better of the argument, or, if I am unable to decide that, then whether the Claimants have a plausible evidential basis and hence a good arguable case. Notwithstanding that there has been, as is understandable after 5½ years of litigation, a morass of papers even at this interlocutory stage to consider, and certainly lengthy submissions put before me by both sides, I must do my best to reach such conclusions. Although both sides have invited me to consider the separate position of the two Defendants, and it is clear that as between the two of them the Second Defendant was subordinate to the First Defendant, nevertheless I am satisfied that they worked together and that I can and should treat the two of them together in reaching the conclusion as to whether they had a non-negligible ability to influence the Arcadia companies.

There is one issue which, as agreed with the parties, I shall address separately and to which I shall return. It is common ground that the boards of the Arcadia Claimants (the first three Claimants) did not exercise any supervision over the Defendants. Mr Eschwege submits that it is because of the Defendants’ subordination to the holding company Farahead that they are Article 18 employees. That may render them employees of the First and Third Claimant (and I am not invited to make any distinction between them and the Second Claimant, notwithstanding the present absence of any signed or unsigned contract of employment). He submits however that if I were to conclude that the Defendants were Article 18 employees of the first three Claimants then I should also so find in respect of Farahead. There are separate arguments in that regard to which I shall return if they arise.

The parties have referred to numerous documents. Included amongst them are a number of different flowcharts or management charts, and I have not found them very helpful, both because there are no clearly structured documents to support either side and because a number of them, if not all, are marked draft and are said to have been overtaken. Two documents are of significance in terms of the way in which the Arcadia Group presented itself to the public, namely two Singapore Investment Memoranda dated 2010 and 2012. Both were prepared by or under the direction of the Defendants but approved by Farahead. The second memorandum is slightly different from the first, which may indicate corrections or may simply indicate that 'life has moved on’ in the two years. They refer to the important role of Mr Fredriksen and Farahead, but speak powerfully of the role of the Defendants:

I now refer to the most significant parts of the evidence in relation to the general question of control. It is common ground that Farahead acquired the first Arcadia company - the First Claimant - from Mitsui with the First and Second Defendants already in place as CEO and CFO, and that the Defendants simply adopted a standard form Mitsui contract for their employment contracts with the First Claimant (although these were not signed). As to the witness statements:

Mr Eschwege relies upon the fact that in submissions before the Court of Appeal, still before the Article 18 employment issue had taken over, Mr Howard QC, then instructed by the Claimants, said while "accepting for these purposes ... that [the Defendants] were employees" as follows:

“although they were senior people and they 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 I mean, ultimately, they were answerable to the ultimate shareholders in Arcadia through Farahead, Mr Fredriksen, who ultimately owns it all and, as Mr Foxton says, there was a power to hire and fire or ultimately a power to say “Do this” or “Do that”.”

The power to “hire and fire” (perhaps a quote from this passage) was of course expressly said by the CJEU in paragraph 32 of its Judgment to be irrelevant.

The only way in which I could attempt to resolve the dispute was, at the initiative of the parties, to look at examples of whether the Defendants did, or did not, “call the shots”, in order to see whether they had a “non-negligible influence” on the Arcadia companies. This was helpfully summarised and stratified by the parties, in the Seventh witness statement of Mr Greeno, the Defendants' solicitor dated 10 July 2020 at paragraph 12, as examples of the “directorial powers that Farahead and/or Mr Fredriksen and/or Mr Troim exercised over the Arcadia Group” ("the Greeno schedule") and in the schedule of “Examples showing the absence of a relationship of subordination between the Claimants and [the Defendants]” prepared by Mr Heaton during the hearing (“the Heaton Schedule”).

The Greeno Schedule

The Heaton Schedule

There is one specific area of contentious evidence, arising out of the restructuring in 2008/09. The Defendants rely on documents which are said to record emphasis given by tax advisers that the holding company should be seen to control the Group, for tax reasons. The documents include:

The relevant question is whether any of the above, addressed for important tax considerations, in the event made any difference to the situation in which Farahead had bought Arcadia from Mitsui with the Defendants in place, and they were being paid a very substantial remuneration to 'run the show': the First Defendant received US$ 48 million over seven years (plus a $20 million loan), and the second Defendant somewhat under half of that:

I am left to decide the question on the basis of this very contested and untested evidence, which I have carefully considered, both before and at the hearing and, as Lord Templeman once advised, in my room afterwards, as to whether the Defendants were in a relationship of subordination to the Arcadia companies because of the degree of control of the companies and of the Defendants by Farahead (and Mr Fredriksen). Just as the Advocate General pointed to the fact (at paragraph 41 of his Opinion) that in Holterman the Court "stated that a director having a sufficient share of the capital to influence in a 'non-negligible' manner the persons normally competent to give him instructions and to supervise their implementation cannot be subordinate to the company", so the Claimants can say here that these Defendants between them, without a shareholding, had such power over the Arcadia companies that they were in a position to exercise that same influence. Whether the Defendants had the same powers as, or greater powers than, a normal CEO and CFO in such a situation, and in a case in which Farahead is in Cyprus, Mr Fredriksen in London and the Defendants are running an international group of companies, I do not need to decide. I am entirely clear however that, on the basis that the Claimants bear the onus to establish jurisdiction and my task has been to set their evidence against the rival evidence for the Defendants, and weigh it all in the context of such contemporaneous documents as are before me, I am satisfied that the Claimants have a good arguable case that there is not such a relationship, in that the Defendants had a more than negligible ability to influence the Arcadia companies. If I have, after such a difficult task, to conclude, on my assessment of the present evidence, without cross-examination, weighing the balance of the two Schedules, and taking into account, in addition to the submissions and evidence of the parties before me, in particular the Singapore Investment Memoranda and the witness statement of Ms Vaswani, that the Claimants have the better case, I do so. I am in any event satisfied, with reference to limbs (ii) and (iii) of the Brownlie test, that they have a plausible evidential basis.

Accordingly, I dismiss the Defendants' challenge to the jurisdiction in relation to the first three Claimants. Returning to paragraph 27 above, the same result must follow a fortiori without further consideration in respect of the Fourth Defendant.