The Court of Appeal has held that an exclusive jurisdiction clause in a settlement agreement between an employer and employee was not effective to give jurisdiction to the chosen court. The dispute related to an individual contract of employment and the jurisdiction agreement had not been entered into after the particular dispute had arisen, as there had been no prior communication between the parties concerning the issue: Merinson v Yukos International UK BV [2019] EWCA Civ 830.

Article 22 of the recast Brussels Regulation provides that, in matters relating to individual contracts of employment, an employee may only be sued in the courts of their domicile. A jurisdiction clause cannot therefore be relied on by the employer, unless (under article 23(1)) it was entered into after the dispute had arisen.

In this case the Court of Appeal found that, for a jurisdiction clause to be effective under article 23(1), at the time it is concluded the parties must disagree on a specific point and proceedings between them must be imminent or contemplated. It is not enough that there is merely a potential, rather than an actual, dispute between the parties.

This decision is significant as it means that a jurisdiction clause in a settlement agreement entered into with certain categories of defendants (such as employees, consumers and insurance policy holders) will only be effective in respect of matters actively in dispute at the time the settlement is reached. It will not extend to the release of potential future disputes under wide releases in the agreement, even if those disputes are within the separate contemplation of the parties, if they are matters relating to the employment contract, or consumer contract, or insurance policy.

Background

Mr Merinson was employed by various entities in the Yukos group. Disputes arose between him and his employers and proceedings were begun in the Netherlands where he was based. Those proceedings were settled in 2016. The settlement agreement was widely drawn and included a jurisdiction clause giving exclusive jurisdiction to the courts of the Netherlands.

In 2017, Yukos began English proceedings alleging that Mr Merinson had accepted kickbacks in the course of his employment. Yukos claims damages and also to annul the settlement. Mr Merinson denies the allegations and says that Yukos is seeking to punish him for “whistleblowing” in respect of wrongdoing by those in charge of Yukos. At the time the proceedings were commenced, Mr Merinson was domiciled in England.

Mr Merinson challenged the jurisdiction of the English court on the basis that all the claims against him fell within the scope of the settlement agreement and the Dutch courts therefore had exclusive jurisdiction.

Yukos resisted this challenge on the basis that, under article 22, it could bring the proceedings only in the courts of the member state in which Mr Merinson was domiciled, ie England. The jurisdiction clause in the settlement agreement did not meet the requirements of article 23(1) because, Yukos argued, it was not entered into after the dispute had arisen.

Decision

The Court of Appeal, Lord Justice Gross giving the judgment of the court, dismissed Mr Merinson’s challenge to the English court’s jurisdiction.

Matters relating to a contract of employment

The court held that the claims, including the annulment claims, were matters relating to Mr Merinson’s individual contract of employment. The test was whether, in reality or substance, there was a material nexus between the claims and Mr Merinson’s employment contract. Despite the interposition of the settlement agreement, there was a strong nexus with his employment as the basis for the claims turned on alleged breaches of the employment contract.

In reaching this decision, the court followed the approach of the Court of Appeal in Aspen Underwriting Ltd v Credit Europe Bank NV [2018] EWCA Civ 2590 in which Gross LJ also gave the lead judgment. In that case insurers settled with shipowners over the loss of a vessel. They later brought proceedings seeking to avoid the settlement agreement, alleging that the loss arose by reason of the owners’ misconduct. The question in that case was whether the claim was “a matter relating to insurance” or whether the settlement agreement constituted a “firewall” or broke the chain between the policy and the claim. The Court of Appeal held that the claims came squarely within the heading “matters relating to insurance” as there was a material nexus between the claims and the policy.

The court considered that there were telling similarities between Aspen and the present case. The employment contract was much more than a matter of history and it was necessary to consider its terms to resolve the matter in dispute.

Jurisdiction clause entered into after dispute has arisen

A jurisdiction clause contained in an employment contract is ineffective in so far as it seeks to give an employer the option to bring proceedings in a country other than where the employee is domiciled. Such a jurisdiction clause will, however, be effective if it is entered into after a dispute has arisen.

The 1979 Jenard Report on the Brussels Convention (a predecessor to the recast Brussels Regulation) interpreted “after a dispute has arisen” in the context of the equivalent provisions relating to insurance claims as meaning “as soon as the parties disagree on a specific point and legal proceedings are imminent or contemplated”. In the present case, the Court of Appeal considered this test to be equally applicable to employment claims, despite academic criticism of the test.

The test has two limbs:

  • the parties disagree on a specific point; and
  • legal proceedings are imminent or contemplated.

So far as limb 1 is concerned, the court found that parties need to have joined issue on the specific point so that there is an actual dispute rather than a potential dispute on the issue.

Here there had been no direct communication about kickbacks between Yukos and Mr Merinson prior to the settlement agreement. It was insufficient that Yukos may well have harboured suspicions about kickbacks, or that Mr Merinson was aware of those suspicions from questions Yukos had asked a witness in a US deposition. The fact that the settlement agreement was drafted in wide terms also didn’t assist Mr Merinson as it meant it encompassed potential as well as actual disputes. Settlement agreements do not comprise some special category so it remains necessary to distinguish between potential and actual disputes.

As the court recognised, the curious outcome in this particular case  was that the employee, whom articles 22 and  23 are designed to protect, was forced to litigate a Dutch law settlement agreement before the English courts despite an exclusive jurisdiction clause in favour of the Netherlands. If the court had had a discretion to stay the proceedings in favour of the Netherlands it would have done so, but, in contrast to the common law, under the recast Brussels Regulation there is no discretion to stay in favour of a more convenient forum.