The relationship between director and employee in PIL continued

May 26, 2015
Cathalijne van der Plas - Höcker Advocaten

Opinion AG Cruz Villalón in Holterman Ferho v SpiesHocker-logo
A few months ago I wrote a newsflash in response to questions referred by the Dutch Supreme Court for a preliminary ruling with regard to the internal liability of directors. Last week AG Cruz Villalón issued an engaging Opinion on this issue (C-47/14, Opinion of 7 May 2015).

The AG submits that the question of whether a “contract of employment” within the meaning of the Regulation exists must be determined per individual case on the grounds of all the elements and  circumstances that characterise the relationships between the parties. Such an assessment is, in principle, for the referring court to make. The AG provides the referring court with a review framework for this. It is essential to determine whether it is a contract under which a party undertakes to another party, subject to the authority and instructions of that party, to carry out certain activities against payment. The mere fact that such activities may be executive activities does not rule out the element of subordination. The same applies when a director who is subject to instructions of the shareholders’ meeting of the company he administers owns shares in that company. Apart from the factual circumstances, the fact-finding court will for the most part have to review the company’s articles of association and the contract that the company has concluded with the director.

If the referring court finds that the case in question involves a contract of employment within the meaning of the Regulation, it must determine whether the action brought arises from that contract of employment. For this it may link up with the ruling of the European Court in the Brogsitter case (C-548/12, which decision had not yet been delivered when the Dutch Supreme Court referred its questions for a preliminary ruling): the conduct complained of must be considered a breach of contract, which may be established by taking into account the purpose of the contract, in this case the contract of employment. This will a priori be the case where the interpretation of the contract is indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the defendant  by the applicant.

If that question too is answered in the affirmative, the national court must base its jurisdiction on section 5 of Brussels I. The AG submits that his answer to the first question renders an answer to the other questions superfluous. As I understand the AG, Article 5 of Brussels I (i.e. Article 7 of the Recast Brussels I) will be relevant only where the action brought does not arise from the contract of employment; thus the principal claim might fall within the scope of the jurisdiction regime of section 5, whilst the alternative claim might not. The AG is however not explicit about this.

In case (or insofar as) the European Court finds that section 5 does not apply, the AG also discusses the other questions referred for a preliminary ruling:

– In his opinion, Spies (the director) and Ferho had voluntarily assumed reciprocal obligations; Spies undertook to manage and administer the company, whilst the company undertook to reward him for his activities. This lends a contractual character to their relationship within the meaning of the Regulation, i.e. both the relationship arising from the contract by which Spies accepted the position of director as well as the relationship arising from company law under which he assumed the position of director.

– Next, it should be determined, once more by applying Brogsitter, whether the action brought arises from “a contract” within the meaning of Article 5(1) Brussels I. The contracts that must be interpreted for that purpose are the ones that bind Ferho and Spies and they do not necessarily have to have been put down in writing in full, as well as the rules of company law that govern the duties of the position that Spies had voluntarily assumed. If the answer is in the affirmative, the jurisdiction of the court must be based on Article 5(1) Brussels I and not on Article 5(3) Brussels I (i.e. Article 7(1) and Article 7(2) of the Recast Brussels I, respectively).

– According to the AG, the activities of a director of a company may thereby be classified as “provision of services” within the meaning of Article 5(1)(b) Brussels I. The referring court must determine where those services were provided. First of all, it must accordingly be examined whether the “contract (within the meaning of the Regulation)” between Spies and Ferho refers to the place where the main obligation should be performed, i.e. the administration of the Dutch holding. If that is not the case, it must be determined where Spies performed most of his activities (provided that the provision of the services in that place is not inconsistent with the intention of the parties as shown by what they agreed), whereby specific account may be taken of the time spent in that place and the importance of the activities that were performed there.

– If the referring court finds that the action brought does not arise from “a contract”, the court must determine the jurisdiction on the grounds of Article 5(3) Brussels I. The Handlungsort is thereby the place where Spies usually carried out his activities as director of the Dutch holding. According to Spies’ statement, which is not being contested, those activities were carried out in Germany (according to Spies the administration of the holding was confined to the management of the German subsidiaries).

o The question is whether this factual approach taken by the AG is in line with the previous Öfab decision of the European Court (C-147/12), in which the failure of the director (and the shareholder) is linked to the place where the company has its seat (put briefly); where the director in question actually carried out his activities did not play a part in the decision for the localisation of the actions of that director.

– The AG, in closing, made few new comments on the Erfolgsort (interpretation should not be too broad, no indirect financial losses).

All in all, a useful though laborious step-by-step plan for the referring court. The AG’s factual approach in localising the Handlungsort may be questionable. I am interested to see how far the European Court follows the AG’s Opinion.