Nicholas Siddall QC considers the recent decision of the Court of Appeal in Merinson-v-Yukos International UK BV & Ors  EWCA Civ 830 which is a salutary warning to drafters of the effect of the Recast Brussels Regulation (“Brussels”) on jurisdictional provisions in a settlement agreement.
A The Issue
It is a normal feature of settlement agreements that they will compromise the specific dispute between the parties and will also include additional provisions seeking to settle potential and future claims in order that the parties can achieve a ‘clean break’.
It is also a common feature of such agreements (which is of increasingly greater significance as a result of the international nature of the employment market) that jurisdiction is allocated to a particular forum by the provisions of the agreement as regarding all such claims.
The issue discussed in Merinson was the extent to which such a provision is effective in the light of Brussels.
B The Facts of Merinson
The Claimant worked for the Defendant group of companies and most of his work took place in the Netherlands. His employment ended on non-amicable terms which led to the conclusion of a settlement in Holland. The settlement agreement sought to confer exclusive jurisdiction on the Dutch courts.
The Defendant discovered later alleged misconduct (relating to the receipt of ‘kickbacks’ from Banks) on the part of the Claimant and issued proceedings in England & Wales. This was in accordance with the requirements of Brussels as by that time the Claimant was domiciled in this jurisdiction.
The Claimant sought the dismissal of the English proceedings as he contended that they fell within the scope of the settlement agreement and thus under Article 25 Brussels must be litigated in Holland.
The Defendant succeeded in resisting that application in the High Court and the Claimant appealed to the Court of Appeal.
C The Issues on Appeal
The issues explored by the Court of Appeal were:
|(1)||Whether an additional claim fell within the scope of the term “matters relating to an individual contract of employment” (not here material)?|
|(2)||Whether the settlement agreement had been entered into after the dispute in question? and|
|(3)||Was the English Court otherwise precluded from entertaining the claim under Brussels? It was held not as the effect of the Dutch judgment was contractual in nature.|
D The Brussels Provisions
The relevant Brussels Provisions are summarised as follows in the Judgment
|17.||The Recitals provide as follows:|
|(18)||In relation to insurance, consumer and employment contracts, the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules.|
|(19)||The autonomy of the parties to a contract, other than an insurance, consumer or employment contract, where only limited autonomy to determine the courts having jurisdiction is allowed, should be respected subject to the exclusive grounds of jurisdiction laid down in this Regulation.”|
Chapter II, Section 5 of Brussels Recast deals with “Jurisdiction over individual contracts of employment”. Art. 20.1 provides that “In matters relating to individual contracts of employment…” jurisdiction shall be determined by “this Section.”. Art. 22.1 contains the protective rule of jurisdiction designed to favour employees:
“An employer may bring proceedings only in the courts of the Member State in which the employee is domiciled.”
Art. 23(1) provides that the provisions of Section 5 may be departed from only by an agreement:
“which is entered into after the dispute has arisen…”
Chapter II, Section 7 deals with the recognition of exclusive juisdiction agreements, subject (inter alia) to the provisions of Art. 23. Art. 25.1 is in these terms:
“If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction….Such jurisdiction shall be exclusive unless the parties have agreed otherwise….”
However, Art. 25.4 provides the qualification, of the first importance for present purposes, that agreements conferring jurisdiction “…shall have no legal force if they are contrary to…” (amongst others) Art. 23.
E The Court of Appeal Decision
The Court of Appeal recognised the tension between the Brussels intention of protecting the weaker party to the transaction but also respecting the contractual intentions of the parties. It also accepted that the settlement plainly post dated some (but not all) of the disputes between the parties. It also frankly accepted the objective ‘sense’ of the matter being heard in Holland whilst recognising that under Brussels it had no discretion in that regard.
The Court of Appeal endorsed the ‘Jenard Test’ -taken from a report prior to the enactment of Brussels- that in order for the Article 23 test to be satisfied that (paragraph 44)
|i)||Limb 1: The parties disagree on a specific point; and|
|ii)||Limb 2: Legal proceedings are imminent or contemplated.|
Thus, under this test, the parties are not free to enter into a jurisdiction agreement departing from the Section 5 jurisdiction regime unless and until both Limb 1 and Limb 2 are satisfied.”
The High Court had found on the facts that the parties were each aware of some of the matters which formed the subject matter of the dispute but at the time of the settlement agreement they had not “joined issue or communicated with each other about those specific issues”. It had also found that jurisdiction clauses in settlement agreements were no different from similar clauses in employment contracts themselves.
In applying the Jenard test the Court of Appeal said this:
…The inescapable connotation of disagreement on a specific point is that the parties have “joined issue” on that specific point. I am unable therefore to accept [counsel’s] submission that the Judge had added an unwarranted gloss to the Jenard test. It further seems to me that [counsel] was plainly correct to say that a dispute cannot have arisen before there has been communication as to its subject-matter by one party to the other. Given the context of these protective provisions and the premium placed on certainty and predictability, the outcome cannot sensibly turn on what one party (the presumptively weaker party) may have gleaned from a third party (at all events, a third party not an authorised agent of the “presumptively stronger party”). And
…The reason is that settlement agreements, especially if widely drafted, frequently encompass potential as well as actual disputes. Potential disputes will not, however, satisfy Art. 23(1). Moreover, with regard to Art. 23(1), settlement agreements do not comprise some special category, so that it remains necessary to distinguish actual from potential disputes. In terms of the Settlement Agreement, the subject-matter of this action comprised no more than a potential dispute.”
On the facts the Court of Appeal upheld the High Court’s determination that the test was not satisfied as follows:
|(I)||At the time of the settlement agreement there had been no communication at all between the parties on the issue of kickbacks;|
|(II)||The dispute between the Claimant and the Defendant was at the time of conclusion of|
|(III)||Despite the wisdom of litigating the claim in Holland there was no such discretion afforded to a court under Brussels.|
The Court of Appeal’s judgment on this issue did conclude with the following observation:
“That decision does not mean that Mr Merinson may not ultimately prevail in his reliance on the Settlement Agreement as barring the claims now pursued against him. The decision means no more than that the Annulment Claims can be considered by the English Court. Like the Dutch Court, however, the English Court must apply Dutch law when considering those claims. The English Court is vastly experienced in deciding questions of foreign law, so that the outcome ought to be unaffected.”
On the basis of the above application of Brussels it seems likely that a forensic assessment of the extent to which a dispute has arisen in all respects shall be required when assessing the effect of a jurisdiction provision. It is only if such a dispute has indeed arisen and been communicated that the effect of a settlement agreement shall be to displace the normal rule that an employee must be sued in their state of domicile. Thus drafters of such documents shall need to bear that concern in mind.
Written by Nicholas Siddall QC.