Mr Justice Field:
Introduction
This is an application challenging the jurisdiction of the court over
proceedings brought against Mr Marco Benatti by WPP Holdings Italy
Srl (“WPP Italy”), WPP 2005 Limited (“WPP 2005”) and Berkeley Square
Holding BV (“BSH”).
Mr Benatti is an Italian national, domiciled in Italy. He is a successful
businessman who by about 1997 had acquired numerous interests in
companies in Italy active in the worlds of market research, advertising
and media buying, including CIA Group plc (later renamed Tempus Group
plc) and Inferentia-DNM Italia SpA.
WPP Italy is incorporated in Italy and is a subsidiary in the WPP group of
companies which carries on business in the worlds of advertising, media
buying, planning and public relations. WPP 2005 used to be called WPP
Group plc (“WPP Group”) but in October 2005 it swapped names with
another WPP company, WPP 2005 Limited. BSH is incorporated in the
Netherlands; it is another WPP company.
In February 2002 Mr Benatti entered into a written contract (“the
Agreement”), the counterparty to which was WPP Italy. Under the
Agreement Mr Benatti was appointed “as a consultant” of WPP Italy and
WPP Group (now named WPP 2005) for an initial period of three years
after which there could be termination on 12 months' notice. Clause 3.2
permitted Mr Benatti to have an interest in businesses not forming part of
the WPP group and there were listed in Schedule 2 almost 80 companies
which Mr Benatti represented to be all those in which he had an interest.
By clause 3.2 Mr Benatti undertook “in good faith to keep the Chief
Executive informed of his business activities which are not concerned with
[WPP Italy], [WPP 2005] or any Group Company.”
Clause 11 provided that the Agreement was governed by English law
and any controversies arising from or related to the interpretation or
enforcement of the Agreement were to be exclusively submitted to the
Courts of England.
On 9th January 2006 WPP Italy summarily terminated the Agreement.
The claimants contend that this was because Mr Benatti had failed to
disclose his interest in two Italian companies, Media Club SA (“Media
Club”) and Outdoor Visual Touch Srl (“OVT”).
Media Club, an independent Italian media buying and planning agency,
was acquired by the WPP group on 11 November 2002 under an
agreement (“the MCSA”) whereby Media Club's share capital was
purchased by BSH from Callia Trading Investimentos Lda (“Callia”),
Maria Letizia Zicolillo and Adriano Corbella for a fixed payment
of EUR 20.658,276, to be followed by three “earn-out” payments
dependent on the profits of Media Club for the years 2001 to 2006. BSH
made the first of these payments on 24 February 2003 in the sum of
EUR 2,073.229.00 and Mr Benatti was paid a 1 % commission totalling
EUR 206.582 on 10 February 2003, this sum being paid by BSH to
Blugroup.
Following the MCSA the operations of Media Club and another WPP entity,
mediaedge:cia Italy Holdings SpA were combined to form a merged
media buying and planning operation, mediaedge:cia Italy/Media Club.
It was also agreed between Sir Martin Sorrell, WPP Group's CEO, and Mr
Benatti that Mr Benatti should have a share in the profits of this merged
entity just as he had in another WPP media buying and planning entity,
Mindshare Italia SpA (“Mindshare Italy”). The thinking was that if Mr
Benatti had a share in the profits in mediaedge:cia Italy/Media Club
as well as in Mindshare Italy he would have no incentive to prefer one
company over the other. A contract (“the Royalty contract”) between BSH
and Royalty Marketing e Investimentos Lda (“Royalty”) was accordingly
executed, the effect of which was to give Royalty (a Madeiran company
owned by Mr Benatti) a 22.5 % share in the increased profitability of the
merged mediaedge:cia Italy/Media Club business.
Mr Benatti first suggested that WPP Group should consider acquiring
Media Club in 1999, before the Agreement was concluded. During the
ensuing negotiations and due diligence it was represented to WPP
Group that Media Club was owned and run by four of its employees, Mr
Maino, Mr Salvaderi, Mr Corbella and Ms Zicolillo, and it was said that Mr
Maino's and Mr Salvaderi's interests were held through Callia, a Madeiran
company. Media Club was not included in the list of companies set out
in Schedule 2 to the Agreement and it is alleged that at no stage did Mr
Benatti inform Sir Martin Sorrell, or anyone else from WPP Group, that he
had an interest in that company.
Witnesses for the claimants state that in November 2005 Mr Benatti told
WPP Group that the second earn-out payment would be in the region of
EUR 8.9 million, whereas WPP Group had estimated that it would be about
EUR 300.000. Mr Benatti sought to justify his estimate on the basis that
the sellers of Media Club's share capital were entitled to off-set certain
tax losses against profits in calculating the earn-out. He also argued
that such a large payment was needed to incentivise Mr Salvaderi. At
around this time Deloitte, who were auditing the figures on which the
earn-out was to be based, drew to Sir Martin Sorrell's attention what they
regarded to be a suspicious transaction involving the sale by Media Club
to Banca IFIS of a receivable owed to Media Club by OVT, a company that
was in liquidation. In the light of this information an investigation was
undertaken by the WPP group into Mr Benatti's interest in the acquisition
of Media Club and the sale of the OVT receivable.
Sir Martin Sorrell says in his first witness statement that at the meeting
he had with Mr Benatti on 9 January 2006 when the Agreement was
terminated and at a subsequent meeting on 20 January 2006 Mr Benatti
admitted that he had interests in both Media Club and OVT. Sir Martin
says that Mr Benatti's admission was later confirmed by Mr Marco Girelli,
the Vice President of Media Club and Chairman of FullSix SpA and Mr
Gianni Bossi, the Chairman of WPP Italy, who is also Chairman of Banca
IFIS and a long standing financial adviser to Mr Benatti. Sir Martin further
states that Messrs. Salvaderi, Maffei and Rossotto, the latter being Mr
Benatti's lawyer, also confirmed the failure properly to disclose the true
ownership of Media Club.
Mr Benatti says that the allegations made against him are untrue and
without substance; he absolutely denies any wrong doing. Acting on legal
advice he has not set out his side of the story since the hearing before me
is not the trial of the action. He accepts that the claims made against him
by WPP Italy constitute serious issues to be tried.
On 11 January 2006 WPP Italy issued a Claim Form in the Queen's
Bench Division against Mr Benatti claiming damages for breach of the
Agreement, and declarations that: (i) the relationship between WPP
Italy and Mr Benatti was not one of employer/employee; and (ii) Mr
Benatti remained bound by post-termination covenants contained in
clauses 6 and 8 of the Agreement. WPP Italy took the view that the court
had jurisdiction over the claim under Article 23 of Council Regulation
(EC) No 44/2001 (“the Judgments Regulation”). However, by mistake
the Claim Form had inserted into it the wrong endorsement required
by paragraph 3.5A of the CPR Particle 7 Practice Direction. Instead
of referring to the Judgments Regulation it referred to the Brussels
Convention.
On 1st February 2006 Mr Benatti commenced proceedings in the Tribunal
of Verona against WPP Italy and “WPP Group plc” seeking damages and
declarations that: (i) he was an employee of those companies; (ii) he
was not in breach of the Agreement; and (iii) the Agreement had been
unlawfully terminated. Proceedings were brought against “WPP Group plc”
because Mr Benatti and his Italian lawyers were unaware of the change
of name from WPP Group plc to WPP 2005 Limited that had occurred in
October 2005.
On 15 February 2006, Master Fontaine, on WPP Italy's application without
notice to Mr Benatti, made an order (“the joinder order”) joining WPP
2005 and BSH to the proceedings issued on 11 January 2006. The Master
ordered that a sealed copy of the joinder order be served on Mr Benatti
by 22 February 2006, but neither the order nor the application notice has
ever been served in compliance with this order.
Pursuant to the joinder order on 15 February 2006 the claimants issued
an Amended Claim Form which was served on Mr Benatti in Italy on 18
February 2006, together with Particulars of Claim. The Particulars of
Claim allege Mr Benatti: (i) did not disclose a conflicting personal interest
in Media Club and thereby made a secret benefit when that company
was acquired; (ii) failed to disclose his conflicting personal interest in
OVT and thereby made a secret profit; and (iii) circumvented budgetary
restrictions on WPP Italy by causing various WPP group companies to
enter into contracts with third parties, some of which were not in the
interests of WPP Italy and from some of which Mr Benatti obtained a
personal benefit.
WPP Italy claims damages for breach of the Agreement and also an
account of profits and equitable compensation on the basis that Mr
Benatti acted in breach of fiduciary duty. WPP Italy also seeks declarations
that: (i) it was entitled summarily to terminate the Agreement; (ii)
the Agreement was not an employment contract; (iii) the restrictive
covenants contained in the Agreement are binding on Mr Benatti; and
(iv) Mr Benatti holds any secret profit made in breach of the restrictive
covenants on trust for WPP Italy.
WPP 2005 and BSH claim that they are entitled to sue Mr Benatti for
breach of the Agreement and also that he owed them the obligations of
a fiduciary and accordingly is liable in equity for allowing his personal
undisclosed interest to conflict with his fiduciary duties.
On 16 February 2006 (and prior to discovering that the Amended
Claim Form had been issued) Mr Benatti commenced a second set of
proceedings in the Tribunal of Verona against WPP Italy, WPP Group and
Sir Martin Sorrell for damages for defamatory statements in which it was
alleged that Mr Benatti had made secret profits and for a declaration that
Mr Benatti had not acted in breach of the Agreement.
On 30 March 2006 Mr Benatti commenced a third set of proceedings,
this time in the Tribunal of Milan and against BSH alone claiming, inter
alia, damages for defamation and a declaration that Mr Benatti had no
contractual relationship with BSH and is not liable to BSH in the English
proceedings on any basis.
On 1 March 2006 Mr Benatti commenced a fourth set of proceedings,
this time in the Corte di Cassazione against WPP Italy, WPP 2005 and Sir
Martin Sorrell seeking a ruling that the Italian courts have jurisdiction
under the Judgments Regulation over the first two sets of proceedings
commenced in the Verona Tribunal.
A brief summary of the parties' contentions
Articles 5 (1), 5 (3), 18 to 21, 23, 27 and 30 of the Judgments Regulation
provide:
Article 5
A person domiciled in a Member State may, in another Member State, be
sued:
1. (a) in matters relating to a contract, in the courts for the place of
performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the
place of performance of the obligation in question shall be:
– in the case of the sale of goods, the place in a Member State where,
under the contract, the goods were delivered or should have been
delivered,
– in the case of the provision of services, the place in a Member State
where, under the contract, the services were provided or should have
been provided,
(c) if subparagraph (b) does not apply then subparagraph (a) applies;
3. in matters relating to tort, delict or quasi-delict, in the courts for the
place where the harmful event occurred or may occur;
Article 18
1. In matters relating to individual contracts of employment, jurisdiction
shall be determined by this Section, without prejudice to Article 4 and
point 5 of Article 5.
2. Where an employee enters into an individual contract of employment
with an employer who is not domiciled in a Member State but has a
branch, agency or other establishment in one of the Member States, the
employer shall, in disputes arising out of the operations of the branch,
agency or establishment, be deemed to be domiciled in that Member
State.
Article 19
An employer domiciled in a Member State may be sued:
1. in the courts of the Member State where he is domiciled; or
2. in another Member State:
(a) in the courts for the place where the employee habitually carries out
his work or in the courts for the last place where he did so, or
(b) if the employee does not or did not habitually carry out his work in
any one country, in the courts for the place where the business which
engaged the employee is or was situated.
Article 20
1. An employer may bring proceedings only in the courts of the Member
State in which the employee is domiciled.
2. The provisions of this Section shall not affect the right to bring a
counter-claim in the court in which, in accordance with this Section, the
original claim is pending.
Article 21
The provisions of this Section may be departed from only by an
agreement on jurisdiction:
1. which is entered into after the dispute has arisen; or
2. which allows the employee to bring proceedings in courts other than
those indicated in this Section.
Article 23
1. If the parties, one or more of whom is domiciled in a Member State,
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. Such an agreement conferring jurisdiction
shall be either:
(a) in writing or evidenced in writing; or
(b) in a form which accords with practices which the parties have
established between themselves; or
(c) in international trade or commerce, in a form which accords with a
usage of which the parties are or ought to have been aware and which
in such trade or commerce is widely known to, and regularly observed
by, parties to contracts of the type involved in the particular trade or
commerce concerned.
2. Any communication by electronic means which provides a durable
record of the agreement shall be equivalent to “writing”.
3. Where such an agreement is concluded by parties, none of whom is
domiciled in a Member State, the courts of other Member States shall
have no jurisdiction over their disputes unless the court or courts chosen
have declined jurisdiction.
4. The court or courts of a Member State on which a trust instrument has
conferred jurisdiction shall have exclusive jurisdiction in any proceedings
brought against a settlor, trustee or beneficiary, if relations between these
persons or their rights or obligations under the trust are involved.
5. Agreements or provisions of a trust instrument conferring jurisdiction
shall have no legal force if they are contrary to Articles 13, 17 or 21, or
if the courts whose jurisdiction they purport to exclude have exclusive
jurisdiction by virtue of Article 22.
Article 27
1. Where proceedings involving the same cause of action and between
the same parties are brought in the courts of different Member States,
any court other than the court first seised shall of its own motion stay its
proceedings until such time as the jurisdiction of the court first seised is
established.
2. Where the jurisdiction of the court first seised is established, any court
other than the court first seised shall decline jurisdiction in favour of that
court.
Article 28
1. Where related actions are pending in the courts of different Member
States, any court other than the court first seised may stay its
proceedings.
2. Where these actions are pending at first instance, any court other than
the court first seised may also, on the application of one of the parties,
decline jurisdiction if the court first seised has jurisdiction over the actions
in question and its law permits the consolidation thereof.
3. For the purposes of this Article, actions are deemed to be related where
they are so closely connected that it is expedient to hear and determine
them together to avoid the risk of irreconcilable judgments resulting from
separate proceedings.
Article 29
Where actions come within the exclusive jurisdiction of several courts, any
court other than the court first seised shall decline jurisdiction in favour of
that court.
Article 30
For the purposes of this Section, a court shall be deemed to be seised:
1. at the time when the document instituting the proceedings or an
equivalent document is lodged with the court, provided that the plaintiff
has not subsequently failed to take the steps he was required to take to
have service effected on the defendant, or
2. if the document has to be served before being lodged with the court,
at the time when it is received by the authority responsible for service,
provided that the plaintiff has not subsequently failed to take the steps he
was required to take to have the document lodged with the court.
The claimants contend that their claims were made in England before any
of Mr Benatti's claims were made in Italy and that the courts of England
have jurisdiction in respect of all of their claims on the basis of Article 23.
In the case of WPP 2005 and BSH, this contention is founded on an
argument that these claimants are entitled to enforce the Agreement
under the Contracts (Rights of Third Parties) Act 1999 (“the 1999 Act”).
In the alternative, the claimants contend that the English Court has
jurisdiction over their claims for breach of fiduciary duty under Article 5
(1), alternatively Article 5 (3), of the Judgments Regulation.
Mr Benatti argues that the Italian courts in which the first three sets
of Italian proceedings were commenced were seised of the matters in
dispute between the parties before the English courts were seised of
those matters. He further argues that jurisdiction to sue him in England
cannot be founded on the exclusive jurisdiction clause in the Agreement
because that agreement is “an individual employment contract” for the
purposes of Section 5 of the Judgments Regulation, with the result that all
the claims brought by the claimants must be brought in the courts of his
domicile, Italy. In addition, he submits that Articles 5 (1) and 5 (3) of the
Judgments Regulation do not confer jurisdiction on the English courts over
the breach of fiduciary duty claims.
Which country's courts – those of England or Italy – were first seised of
the claims made by the parties?
The effect of Article 27 (1) is that if the Italian courts are the courts first
seised of the claims made by the parties, the English court must not
determine whether it has jurisdiction over those proceedings but instead
must stay them. Accordingly, the first issue I must determine is whether
the English court is the court first seised of the claimants' claims. For the
reasons given in paragraphs 54 to 61 below I proceed on the basis that
the burden of proof is on Mr Benatti and the standard of proof is a good
arguable case in the sense of a much better argument than the other side
on the material available.
Mr Chambers for Mr Benatti submitted that the Claim Form and Amended
Claim Form were not documents “instituting the proceedings” for the
purposes of Article 30 (1) because: (i) they did not identify each claim
made against Mr Benatti; (ii) they did not carry the correct endorsement;
and (iii) in respect of the Amended Claim Form, the claimants had failed:
(a) to give notice of their application for the joinder order; (b) to serve
a copy of the joinder order; and (c) to include in the Particulars of Claim
any jurisdiction endorsement at all.
Mr Chambers contended that the “document instituting the proceedings”
must bear the correct endorsement as required by paragraph 3.5A of the
CPR Particle 7 Practice Direction and must also be sufficiently detailed
to allow the cause of action being asserted to be identified, otherwise
the determination of which court is first seised under Article 27 could
not be undertaken. He pointed out that the endorsement inserted into
the Claim Form not only related to the Brussels Convention rather than
the Judgments Regulation, but also it referred only to an agreement
conferring jurisdiction and not to the additional grounds for asserting
jurisdiction now relied on by the claimants for the breach of fiduciary duty
claims. In Mr Chambers' submission the claimants' procedural failures
invalidated the issue and the service of the Claim Form as a matter of
domestic procedure and even if this were not the case, the requirements
of Article 30 (1) had not been satisfied.
I cannot accept Mr Chambers' submissions. In my judgement, it is
plain that the question whether proceedings have been instituted
by a document for the purposes of Article 30 (1) is a question to
be determined by the national law of the state where it is said the
proceedings were begun. And in English law, there is no doubt that
proceedings are started when the court issues a Claim Form at the
request of the claimant, see CPR 7.2. I would also observe that the
application of English law in determining whether English proceedings
have been instituted by the issue of a Claim Form will not frustrate
the operation of Article 27 since the question whether the court
should stay its own proceedings under that Article can only arise after
Particulars of Claim have been served. This is because under CPR 11 (2)
a defendant who wants to dispute the court's jurisdiction must first file
an Acknowledgement of Service under CPR 10 and under that rule, the
period for filing an Acknowledgement of Service begins after service of the
Particulars of Claim, if these are served separately from the Claim Form.
I am also of the view that the procedural failures alleged against the
claimants are not such that under CPR 3.10 the court would invalidate
the steps taken by the claimants. It is true the wrong endorsement
was inserted into the Claim Form and Amended Claim Form, but the
endorsement that did appear signalled that the claimants were basing
jurisdiction on an agreed jurisdiction clause. It is also true that the
Particulars of Claim contained no endorsement at all but they were served
in connection with the Amended Claim Form whose endorsement made
clear, as I have said, the basis on which jurisdiction was being asserted.
Nor do I think that the failure to include in the endorsement a reference
to Articles 5 (1) and 5 (3) is any reason for invalidating the proceedings
brought by the claimants. These jurisdiction grounds are relevant only to
the breach of fiduciary duty claims and are very much an alternative long
stop to the primary ground relied on, namely an agreed jurisdiction clause
in the form of clause 11 in the Agreement. The claimants' failure to serve
a sealed copy of the joinder order and a copy of the application leading to
that order are also not so serious that they should be held to invalidate
the issuance and service of the English proceedings. The Amended Claim
Form states that it was amended pursuant to order of Master Fontaine
dated 15 February 2006 and it was to be easily inferred that that order
had been applied for. Further, it is not suggested by Mr Chambers that
Mr Benatti has been materially prejudiced in any way by the claimants'
failure to serve on them the order or the application notice.
It is common ground that the English proceedings have been duly served
on Mr Benatti in Italy. Accordingly, I hold that the English court became
seised of the claims made by WPP Italy for breach of the Agreement on
11 January 2006 and of the claimants' claims for breach of fiduciary duty
on 15 February 2006. No Italian proceedings at all had been commenced
by 11 January 2006 and proceedings in Italy against BSH were only
commenced on 30 March 2006. It follows that as between the courts of
Italy and England, the courts of England were first seised of the causes of
action in issue between Mr Benatti of the one part and WPP Italy and BSH
of the other.
It remains to consider which state's courts, Italy's or the UK's, were first
seised of the causes of action in issue between Mr Benatti and WPP 2005,
it being common ground that the identity of the parties and the causes of
action and the object of both sets of proceedings are the same.
In Italy the originating document has to be served before it is lodged
with the court. It is therefore Article 30 (2) of the Judgments Regulation
which determines when the Italian courts became seised of the WPP 2005
claims.
The writ setting out Mr Benatti's claim against WPP Italy and “WPP Group
plc” was handed to the authority responsible for service, UNEP, on 1
February 2006. The writ referred to “WPP Group plc” because neither
Mr Benatti nor his lawyers knew that the company formerly known
by that name had swapped names with a company called WPP 2005
Limited in October 2005. However, when giving details of the parties
sued, the writ correctly specified WPP 2005's registration number. It was
also stated in the writ that: (a) since the beginning of 2002 Mr Benatti
had been involved in a working relation with WPP Group plc and its
Italian group represented worldwide by Mr Martin Sorrell; (b) Mr Benatti
had been appointed as Country Manager of WPP Group plc under the
Agreement; and (b) as Country Manager of WPP Mr Benatti was subject to
the direction of WPP Group plc's CEO.
An officer of UNEP signed a declaration (the “relata di notifica”) which
stated that at the request of Mr Benatti's lawyer he had served a
copy of the writ “to WPP Group plc in the person of its actual legal
representatives, at the legal offices of the company in 27 Farm Street,
London WIJ 5RJ (UK), in accordance to article 14 of the CE regulation no.
1348/2000 by means of registered mail with advice of receipt.”
WPP Group plc and WPP 2005 both have a presence at 27 Farm Street,
London. When the writ arrived there a receptionist signed a Posteitaliane
pro-forma receipt which arrived back in Verona on 22 February 2006 and
was lodged with the court. However, no attempt was made to serve a
translation of the writ at the time the writ was served.
Mr Smouha QC for the claimants submits that Article 30 (2) requires
that the authority responsible for service receiving the document must
be instructed to serve it on the entity sought to be sued. He further
submits that the document must subsequently be served on that entity
in accordance with Council Regulation (EC) No 1348/2000 (“the Service
Regulation”). Those requirements, says Mr Smouha, were not met in this
case because UNEP was instructed to serve the document on WPP Group
plc which is a separate entity from the party sought to be sued and if
any entity was served it was WPP Group plc and not WPP 2005. In any
event, there was in fact no effective service on anyone under the Service
Regulation because a UK addressee may refuse to accept service if the
principal document is not accompanied by a certified translation.
Mr Smouha's submissions founded on the misnaming of WPP 2005 are
decidedly technical since the mistake made by Mr Benatti and his lawyers,
Professor Avvocato Claudio Consolo and Avvocato Marco Mamoli, was a
perfectly understandable one in the circumstances and once the writ is
looked at, albeit with the benefit of a translation, it is perfectly plain that
the intended party is WPP 2005.
Article 30 (2) is to be read with Article 30 (1). In my view this means
that “the document” in Article 30 (2) means the document instituting
proceedings or an equivalent document. Mr Chambers submitted that
it is the national law where the document is issued and received for
service that determines whether the document constitutes a document
instituting proceedings against the intended defendant and whether as
such it is received by the authority responsible for service on the intended
defendant.
In my opinion Mr Chambers' submission is correct. Each side put in
witness statements from Italian lawyers stating how in their view the
Italian courts would rule on an application in domestic proceedings for the
mistake made by Mr Benatti and his lawyers to be retrospectively cured.
On behalf of Mr Benatti, Avvocato Mamoli cited three decisions of the
Corte di Cassazione (3 August 1988, n.4815; 8 April 1998, n.3638; and
14 June 1999, n. 5897) to support the proposition that not only a simple
change of name of a company but also a transformation of the type of
corporation will not affect legal proceedings brought against the company.
In his view, these authorities showed that the misnaming of WPP 2005
would be retrospectively curable in Italian law.
Professor Avvocato Antonio Briguglio, who holds the Chair of Civil
Procedural Law at the University of Rome “Tor Vergata”, disagreed with
Avvocato Mamoli. In his first statement he explains that Italian law
distinguishes between defects in service that render service null and void
and defects that render service non-existent. Defects of the first sort
are curable; defects of the second sort are not. He goes on to say that
the authorities relied on by Avvocato Mamoli are not pertinent because
they dealt with a situation where there was only one entity whereas here
there are two, WPP 2005 and WPP Group plc. He states that service is
non-existent when it is: (i) rendered to an entity which is different to the
addressee; (ii) and that entity does not have a relationship which would
entitle it to receive service on behalf of the addressee. Accordingly, in his
opinion the service effected in the instant case was non-existent service
and could not be cured.
Professor Consolo in his fourth witness statement is strongly of the view
that Professor Briguglio's second condition for service to be non-existent
is not supported by the authorities. He says that in the authority relied on
by Professor Briguglio the court stated that where in practice a link can
be traced between the place and recipient of the notice and the actual
addressee, although the rules governing service have been breached,
such notice cannot be non-existent but is void and curable.
Professor Consolo cites Article 160 of the Italian CPR which provides
that if the document has served its intended purpose, service will not
be declared to be a nullity. And in paragraph 14 of his fourth statement,
Professor Consolo says:
There are many further Italian authorities on the same issue, all
confirming the approach explained above, and, in particular, the strict
burden of proof for any plea of “non-existence” – as a very rare and strict
category – imposed on the objecting party. Here below I summarise some
decisions which, among others, support this perspective and set out a
short “abstract” of their main contents (mentioning specifically the most
interesting decisions). Extracts of these decisions, with translations, are
exhibited at ps. 5 – 10 of CC11:
non-existence of service is confined in principle to extreme cases in which
the recipient is “totally extraneous” to the addressee: see, among many
others, Cass. 7.1.2002, n. 102, a case where service on a party made to
the bailiff of the court was determined as non-existent. See also Cass.
27.7.2001, n. 10278, Cass. 26.9.2000, n. 12717, Cass. 10.8.2000, n.
10571 and Cass. 21.12.1999, n. 14393, all of which categorise as a
curable nullity service executed in a place and/or to an individual “which
may still have some reference to the addressee”, even where there is
“absolute uncertainty over the person of the addressee”; but note that
before a finding of absolute uncertainty can be made “it is not sufficient to
limit oneself to looking at the service report, but the entire context of the
writ must be examined, starting with its heading, as a suitable indication
to fill any gaps may be found in any part thereof” (Cass. 18.5.2001,
n. 6805 and Cass. 10.10.2000, n. 13468). Thus, if examination of the
“entire context of the writ” provides sufficient information to identify the
addressee, service will be considered valid.
“If notice of a writ given to a legal person has been delivered to a person
only occasionally present on the premises of that person and, as such,
not authorised to receive the writ on behalf of and in the interests
of the addressee, it is up to the latter to prove the non-existence of
any relationship between the notifying party and the consignee of the
writ” (see Cass. 29.5.1998, n. 5304). Further, Cass. 13.6.1992, n. 7249,
states that it is not sufficient to prove the absence of an employment
relationship between the person into whose hands the writ is delivered
and the addressee, it being possible to conceive of “other relationships
suitable to confer the capacity [to receive service] required”. For a case
regarding individuals see Cass. 24.5.1984, n. 3191, which considered
only null, and not non-existent, service received by the mother of the
addressee at her home, where the addressee used in the past to live;
“whenever the writ, despite the unusual nature of the notification, is
brought to the knowledge of the addressee” it is not possible to declare
service a nullity, let alone that it is non-existent (see Cass. 27.1.2001, n.
1184). Therefore in case of appearance in court (even if only to object to
the service on the basis that it is a nullity) or in any other case in which
there is a demonstration or admission in fact of knowledge of the writ,
this “prevents the declaration of nullity, since confirmation of notice given
by it applies ex tunc” (i.e. since the beginning) and, therefore, since the
date of request of the null service.
None of the Italian lawyers was cross-examined, the hearing being an
interlocutory application. I must therefore come to a view on what is said
in the witness statements. With respect to Professor Briguglio, I find on
the evidence presented to me by Professor Consolo that under Italian
law the misnaming of WPP 2005 in the writ and the relata di notifica is a
curable defect which once cured would leave unaffected the date the writ
was received by UNEP.
I accordingly reject Mr Smouha's submission that the Italian courts were
not first seised of the first set of Italian proceedings on 1 February 2006
because of the misnaming of WPP 2005 in the writ and relata di notifica.
I turn next to Mr Smouha's submission based on the failure to serve a
certified translation of the writ at the time the writ was served.
The method of service adopted by Mr Benatti was not the centralised
mechanism contemplated in Chapter II, Section 1 of the Service
Regulation (Articles 4 to 11) but transmission by post, which is governed
by Article 14 in Section 2.
Article 14 provides:
Service by post
1. Each Member State shall be free to effect service of judicial documents
on persons residing in another Member State.
2. Any Member State may specify, in accordance with Article 23 (1), the
conditions under which it will accept service of judicial documents by post.
In respect of service by post the UK has specified:
Service of a document by post is acceptable by means of registered
mail or recorded delivery only. A signature must be obtained from the
addressee or any other person who is prepared to accept receipt on behalf
of the addressee as proof of delivery of the document. The addressee
may refuse to accept service of the principal document unless it is
accompanied by a certified English translation or by a certified translation
into a language which the addressee understands.
Article 8 (1) of the Service Regulation reads:
Refusal to accept a document
1. The receiving agency shall inform the addressee that he or she may
refuse to accept the document to be served if it is in a language other
than either of the following languages: (a) the official language of the
Member State addressed or, if there are several official languages in that
Member State, the official language or one of the official languages of the
place where service is to be effected; or (b) a language of the Member
State of transmission which the addressee understands.
Mr Chambers submits that Article 30 (2) of the Judgments Regulation is
not concerned with service of the originating document on the defendant,
only with receipt of the originating document by the authority responsible
for service. In the alternative he argues that service by post in the UK is
only defective for want of a translation if the addressee refuses to accept
service for this reason, and WPP 2005 never gave the lack of a translation
as a reason for refusing to accept service. In the further alternative, he
relies on Leffler v. Berlin Chemie AG [2006] I.L.Pr. 88 where the ECJ
held that a failure to provide a translation of the document as required
by Article 8 could be remedied by the sender of the document sending
the translation requested by the rejecting addressee. In Mr Chambers'
submission it matters not that the decision in Leffler was concerned with
the construction of Article 8 (the method of service in that case being
the centralised mechanism covered by Section 1 and not post covered by
Article 14). In his submission, by reason of paragraph 1 of the first update
of information communicated by Member States under Article 23 of the
Service Regulation (OJ C 202 18th July 2001), Article 8 was extended to
Article 14 and thus Leffler applies to the instant case.
I reject all three of Mr Chambers' submissions. In my judgement it is
implicit in Article 30 (2) that for the receipt of the document by the
authority responsible for service to be the time the court is first seised
of the proceedings the document must, post receipt, be served in
compliance with the Service Regulation. As to Mr Chambers' second
submission, WPP 2005 has never accepted service of the writ in the first
set of Italian proceedings and in my judgement they are entitled in this
application to give as a ground for not doing so the failure to serve a
translation. Turning to Mr Chambers' third submission, paragraph 1 of the
first update reads:
As regards Article 14, the fact that a Member State has not communicated
any specific language requirements means that the language
requirements of Article 8 apply.
In my opinion this paragraph applies only to the situation it expressly
addresses and does not render Article 8 applicable where a Member State
has communicated specific language requirements under Article 14.
If it had been intended to cut down further the liberty conferred on
Member States by Article 14 (2) to specify the conditions under which
they will accept service by post it would have said so. Since Leffler was
undoubtedly decided on the basis that Article 8 applied to the method of
service adopted and since, as I have held, Article 8 only applies to service
by post under Article 14 if a Member State has not communicated specific
language requirements, Leffler cannot assist Mr Benatti. The writ in the
first set of Italian proceedings was therefore not served in accordance
with the Service Regulation and it follows that the Italian courts were not
first seised of the causes of action asserted by and against WPP 2005.
Do the courts of England have jurisdiction over the claims brought by the
claimants?
The burden of proof
The first question I have to deal with is: on whom is the burden of
proof? It is common ground that this issue falls to be determined by the
applicable national law of the UK. Mr Smouha submits that it is plain
that WPP Italy satisfies the requirements of Article 23 (1) and in these
circumstances the burden is on Mr Benatti to establish that the Agreement
is an individual contract of employment for the purposes of Section 5 of
the Judgments Regulation. He contends that Article 23 (5) is not in the
nature of a pre-condition to establishing an agreed jurisdiction clause
under Article 23 (1); it is not the substantive provision by which an
otherwise valid exclusive clause is dis-applied; rather, it is of the nature
of a “for the avoidance of doubt” provision. Accordingly, Mr Benatti should
be viewed as relying on an exception contained in an instrument akin to a
statute, and the general rule that he who relies on a statutory exception
has the burden of proving it should apply. Mr Smouha relied on the obiter
observations of Rix LJ in Konkola Copper Mines plc v. Coromin Ltd [2006]
1 Lloyds' Rep 410 at 428. There, jurisdiction in England over each of the
defendant and Particle 20 reinsurers was established under Article 2 and
in some cases Article 6 of the Lugano Convention and the Particle 20
defendants were seeking to displace this jurisdictional basis by relying
on a jurisdiction clause contained in what they said was the governing
reinsurance contract. The Court of Appeal heard argument both on the
standard of proof and the connected issue of burden of proof but declined
to determine these issues since it was unnecessary to do so. However,
having referred to the decisions of Steel J at first instance in Knauf UK
GmbH v. British Gypsum Ltd [2002] 1 WLR 907 (CA); Lawrence Collins
J in Bank of Tokyo-Mitsubishi Ltd v. Baskan Gida Sanayi ve Pazarlama
AS [2004] 2 Lloyds' Rep 395; and Mr Richard Siberry QC in Carnoustie
Universal SA v. ITWF [2003] ILPr 82, Rix LJ set out in some detail his
conclusions on the burden of proof and standard of proof:
94. I would seek to sum up these authorities, which are all at first
instance, in this way: that where an established Regulation (or
Convention) jurisdiction in England is challenged under article 23 (or
article 17), (1) there are conflicting views as to where the burden of proof
lies (there is a decision in Carnoustie that the burden remains on the
claimant, a decision in Knauf (at first instance) that it is on the defendant,
and a view in Bank of Tokyo-Mitsubishi also to the latter effect); (2) that
the standard of proof has not been settled, but that there is a general
tendency to apply the good arguable case test in a form which is more
or less consistent with the Canada Trust gloss, but that question was
expressly reserved in this court in Knauf; and (3) that no case cited to
us has dealt specifically with either aspect of the present case which
is of particular interest here, namely (a) a situation where the foreign
jurisdiction clause is not within article 23 (17), and (b) the jurisdiction
clause issue goes to the heart of the ultimate merits at trial.
95. As for the difference of opinion at first instance on burden of proof,
I would hazard the opinion, without seeking to decide the issue, that
the views of David Steel J and Lawrence Collins J are to be preferred.
It seems to me to be counter-intuitive to think that, where a statutory
jurisdiction has been established but an exceptional jurisdiction elsewhere
is put forward based on a contract which must be clearly shown to have
the assent of both parties, it remains the burden of the claimant to
prove a negative rather than that of the applicant who challenges the
established jurisdiction to prove that he is entitled to rely on the clause
in question. After all, article 23 comes in a section of the Regulation
(section 7) called “Prorogation of Jurisdiction”.
Mr Chambers accepts that clause 11 satisfies the requirements of
Article 23 (1) but argues that Article 23 (5), referring as it does to
Article 21, should be construed as establishing a precondition to the
application of Article 23 (1), namely, that the party seeking to rely on a
jurisdiction clause must not only satisfy the requirements of Article of 23
(1) but also show that the clause is not contained in an individual contract
of employment.
In my judgement, Mr Smouha is correct on the burden of proof issue.
WPP Italy having established that clause 11 satisfies the requirements of
Article 23 (1), the burden is on Mr Benatti to prove that the “trumping”
provisions of Section 5 apply. It is not for WPP Italy to prove the negative
that the Agreement is not an individual contract of employment.
The standard of proof
This too is an issue to be decided by English law, see Shevill v. Presse
Alliance [1995] ECR 1-415.
In paragraph 94 in Konkola Rix LJ observed:
the standard of proof [in jurisdiction disputes] has not been settled but
there is a general tendency to apply the good arguable case test in a form
which is more or less consistent with the Canada Trust gloss, but that
question was expressly reserved in Knauf…
The “Canada Trust gloss” is Waller LJ's formulation of the test in Canada
Trust Co v. Stolzenberg (No 2) [1998] 1 WLR 547, “that one side has a
much better argument on the material available”.
In both Canada Trust and Konkola the Court of Appeal said that where
a jurisdiction issue will also be an issue going to the merits at the trial,
the court hearing a jurisdiction challenge must be careful not even to
give the appearance of pre-trying that issue. Indeed, in Konkola, Rix
LJ was of the view that where the power to give leave to serve out of
the jurisdiction is a discretionary one (which is not the case here) the
Canada Trust gloss was inappropriate: it was enough for the judge to
decide if there was a good arguable case simply by taking account of the
opposing arguments (paragraph 81). In the instant case the Article 23
jurisdiction issue is closely connected with an issue in the English and
Italian proceedings since in the English proceedings WPP Italy seeks
a declaration that the Agreement was a consultancy agreement and
not a contract of employment and in the latter proceedings Mr Benatti
seeks a declaration to the opposite effect. This issue is not however
identical to the issue at trial as to the status of the Agreement since the
jurisdiction issue involves an autonomous concept governed by the law of
the Judgments Regulation, whereas the issues at trial will be determined
by English law and possibly, in the case of the Italian proceedings, by
certain mandatory provisions of Italian law depending on a contention
based on Article 6 (1) of the Rome Convention.
Since each side, consistently with their respective contentions that the
other side has the burden of proof, submits that the standard of proof
is the Canada Trust gloss, I have decided that that is the standard I
should apply. In the circumstances, I trust that any domestic court that
comes to try the claims made by the parties will understand that I am not
attempting in any way to pre-empt its process.
So far I have been dealing with the dispute between the parties as to
whether Article 23 founds jurisdiction for the claimants' claims. In my
opinion, the claimants having established that clause 11 satisfies the
requirements of Article 23 (1) and shown that the proceedings brought in
England on 11 January 2006 were brought before any proceedings were
commenced in Italy, the burden of proving which state's courts were first
seised of the proceedings is on Mr Benatti. I am also of the view that the
standard of proof applicable to the first seised issue is the Canada Trust
gloss, particularly since this issue is quite unconnected with the issues on
the merits that will be determined at trial.
Is the Agreement an individual contract of employment for the purposes
of Section 5 of the Judgments Regulation?
It is common ground that the words “individual contract(s) of
employment” in Article 18 (1) and (2) of the Judgment Regulation are to
be interpreted autonomously and in light of Recital 13 to the Judgments
Regulation which reads:
(13) In relation to insurance, consumer contracts and employment, the
weaker party should be protected by rules of jurisdiction more favourable
to his interests than the general rules provide for.
To date the ECJ has not pronounced on the meaning of “an individual
employment contract” in the context of Section 5 of the Judgments
Regulation but it has had to deal with the concept of an employment
contract in other autonomous contexts, particularly Article 5 (1) of the
Brussels Convention. In Ivenel v. Schwab [1982] ECJ 1891 the question
was whether under Article 5 (1) of the Brussels Convention the place
where an obligation under a contract of employment was to be performed
was to be determined by the nature of the contract. In paragraphs 14 to
17 of the judgement the ECJ said:
14. The experts' report on the Convention on the law applicable to
contractual obligations (Official Journal 1980, C 282, p. 1) explains in that
respect that the adopting of a special conflict rule in relation to contracts
of employment was intended to provide an appropriate arrangement
for matters in which the interest of one of the contracting parties were
not the same as those of the other and to secure thereby adequate
protection for the party who from the socio-economic point of view was to
be regarded as the weaker in the contractual relationship.
15. It follows from the foregoing account that in the matter of contracts
Article 5 (1) of the Convention is particularly concerned to attribute
jurisdiction to the court of the country which has a close connection with
the case; that in the case of a contract of employment the connection lies
particularly in the law applicable to the contract; and that according to the
trend in the conflict rules in regard to this matter that law is determined
by the obligation characterizing the contract in question and is normally
the obligation to carry out work.
16. It emerges from an examination of the provisions of the Convention
that in establishing special or even exclusive jurisdiction for insurance,
instalment sales and tenancies of immovable property those provisions
recognize that the rules on jurisdiction, too, are inspired by concern to
afford proper protection to the party to the contract who is the weaker
from the social point of view.
17. Those factors must be taken into account in answering the question
which has been put to the Court.
In Schenavai v. Kreischer [1987] ECR 239 the question was how Article 5
(1) applied to a claim brought by an architect for recovery of fees said
to be due under an oral commission for the construction of three holiday
homes. The court distinguished contracts of employment from the
contract sued on as follows:
16.… it should first be observed that contracts of employment, like other
contracts for work other than on a self-employed basis, differ from other
contracts – even those for the provision of services – by virtue of certain
particularities: they create a lasting bond which brings the worker to
some extent within the organizational framework of the business of the
undertaking of the employer, and they are linked to the place where the
activities are pursued, which determines the application of mandatory
rules and collective agreements. It is on account of those particularities
that the court of the place in which the characteristic obligation of such
contracts is to be performed is considered best suited to resolving the
disputes to which one or more obligations under such contracts may give
rise.
The particularities of an employment contract identified in Shenavai were
re-affirmed in Six Constructions v. Humbert [1989] ECR 341 and Mulox
IBC Ltd v. Geels [1993] ECJ I-4075, both of which were concerned with
the application of Article 5 (1) of the Brussels Convention.
In Lawrie-Blum v. Land Baden-Wurttemberg [1986] ECR 2121 the
question was whether a trainee teacher was “a worker” for the purposes
of Article 48 (1) of the EEC Treaty (free movement of persons). At
paragraph 17 of the judgement, the ECJ said:
That concept [“a worker”] must be defined in accordance with the
objective criteria which distinguish the employment relationship by
reference to the rights and duties of the persons concerned. The essential
feature of an employment relationship, however, is that for a certain
period of time a person performs services for and under the direction of
another person in return for which he receives remuneration.
The ECJ repeated this definition of the essential feature of an employment
relationship in Brown v. Secretary of State for Scotland [1988] ECR 3205
(paragraph 21) and Bernini v. Minister van Onderwijs en Wetenschappen
[1992] ECR 1-1071 (paragraph 14).
I take from these decisions that the objective criteria of an employment
contract for the purposes of Section 5 of the Judgments Regulation are:
(i) the provision of services by one party over a period of time for which
remuneration is paid; (ii) control and direction over the provision of the
services by the counterparty; and (iii) integration to some extent of
the provider of the services within the organizational framework of the
counterparty. In applying these broad criteria I think regard must be
had particularly to the terms of the contract; the conduct of the parties
is relevant too. Further, in recognition of the fact that the exercise is
one of fact and degree and quite different relationships may share to a
considerable extent some of the criteria, the court should use as reference
points a paradigm of a contract of employment (eg a contract under
which a clerk works full time in an office) and a paradigm of a contract
for services (eg contract under which an architect agrees to design a
number of houses as in Shenavai). The court should also keep in mind the
underlying policy of Section 5 – the protection of parties to a contract who
are weaker from a socio-economic point of view than the other party.
At what point in the life of the contract must its status be assessed for
the purposes of Section 5? In my opinion it is the date when proceedings
were commenced or, if the contract was terminated before that date (the
jurisdiction clause continuing to apply), the date of termination. That
said, I think that it is most important that the assessment should be
made having regard to the whole of the preceding life of the contract,
particularly where the jurisdiction clause relied on was part of the contract
at its inception. This is because Section 5 of the Judgments Regulation
is concerned with contracts of employment and also because of the
desirability of legal certainty: the parties should know from the outset
whether an exclusive jurisdiction clause in a contract involving the
provision of services is effective under Article 23 or ineffective under
Section 5.
The Agreement grew out of a project pursued in Italy in the late 1990s
by the WPP group called Project Wellington. At the end of 1997 the WPP
group purchased Mr Benatti's 14.4 % interest in CIA Group plc for £ 10
million. Discussions then began between the WPP group and Mr Benatti
and three of his former associates aimed at involving them in a new
WPP group media buying and planning operation, Mindshare Italy. Under
the agreement finally concluded Mr Benatti and his three associates
were granted a?rd interest in Mindshare Italy and the benefit of put-
options. To date, this and further agreements with the WPP group have
generated payments to Mr Benatti and companies controlled by him of
£ 13 million. Project Wellington led onto the idea that there should be a
second agreement under which Mr Benatti would further assist the WPP
group in Italy whilst at the same time remaining interested in a large
number of companies, several of which were operating in the advertising,
media-buying and planning, and public relations fields in Italy.
Throughout the negotiation of the Agreement Mr Benatti was represented
and advised by his lawyer, Mr Ricardo Rossotto of Rossotto e Associati.
The Agreement was signed in February 2002. As stated above, the parties
are WPP Italy and Mr Benatti and by clause 2.1 Mr Benatti was appointed
“as a consultant” of WPP Group plc and of WPP Italy in respect of all
their business activities in Italy. Indeed, throughout the Agreement he
is referred to as “the Consultant”. Clause 2.1 also provided that “the
designation of the Consultant shall be WPP Country Manager for Italy
…” The initial term of the Agreement was three years, after which it
could be terminated on 12 months' notice expiring at any time after
that period. Clause 3.1.1 obliged Mr Benatti to assist WPP Italy and
“the Group Companies” (defined as any subsidiary, direct or indirect,
of WPP Group plc and any company affiliated to WPP Group plc) when
requested to do so. Mr Benatti was further obliged to report to WPP
Group's Chief Executive (“the CEO”) and be subject at all times to the
directions of WPP Group's Board. In particular, Mr Benatti agreed to
assist in: identifying and negotiating business acquisitions; identifying
key executives; developing client relationships in Italy; identifying and
proposing network synergies for WPP group companies; and assisting the
CEO of WPP Group in formulating and implementing strategic objectives in
Italy (clause 3.1.2). Clause 3.4 provided that Mr Benatti was not obliged
to work on average over any period of 90 days more than 1 ½ days per
week.
The remuneration payable to Mr Benatti under the Agreement consisted
of: (i) an annual retainer of EUR 198.000 payable quarterly (in respect
of which he was to submit monthly invoices) (clause 4.1.1); (ii) a
commission of 1 % of the cash value of any acquisition introduced by him
(clause 4.1.2); (iii) in respect of other work (save for that done for the
Mindshare Italy group) a fee payable by the company benefiting from
his assistance to be agreed with the Chief Executive (clause 4.1.3); and
(iv) such other fees or compensation as might be agreed with the CEO
(clause 4.1.4). Mr Benatti was entitled to be reimbursed his reasonable
expenses wholly and properly incurred in performance of his duties save
for those incurred in respect of a financial adviser or accountant (clauses
4.1.1 and 5.1). He was also entitled to be provided by WPP Italy (at its
expense) with a p.a., a secretary and a properly equipped office. Clause
5.3 provided “for the avoidance of doubt” that Mr Benatti was responsible
for paying all tax and social security payments.
An important feature of the Agreement was that it permitted Mr Benatti
to have an interest in businesses not forming part of the WPP group. The
relevant provisions are clauses 3.2, 8.1 and 8.1.1 which read:
3.2 Nothing in this agreement shall prevent the Consultant being
concerned or interested whether as a shareholder and/or as a director
in businesses not forming a part of the WPP Group, provided that his
interests in such companies does not detract from or interfere with the
Consultant's ability to perform his duties hereunder or be detrimental
to the interests and operation of the Company, WPP or any Group
Company in connection with its or their business or any other obligations
in this agreement. The Consultant shall in good faith keep the Chief
Executive informed of his business activities which are not concerned
with the Company, WPP or any Group Company. As at the date hereof the
Consultant has an interest (whether as shareholder, director, employee or
Consultant in the businesses referred to in Schedule 2 hereto).
8.1 The Consultant hereby agrees with the Company on behalf of
itself and as agent for WPP and for the Group Companies that he will
not (unless otherwise agreed between the Consultant and the Chief
Executive) during the currency of this agreement and for a period of
twelve months after the termination of this agreement and for a period
of twelve months after the termination of this agreement in favour of the
Company and/or WPP and/or any of the Group Companies:
8.1.1 In Italy on his own account or for any other person, firm, company
or organisation and in competition with the Company or any Relevant
Group company directly or indirectly carry on or be engaged or concerned
or interested or provide technical, commercial or professional advice
(whether as principal, shareholder, partner, employee, officer, agent,
nominee or otherwise) to any business engaged in any of the Restricted
Services unless the Consultant was already engaged or concerned with
such a business immediately prior to the determination of this Agreement.
It is accepted and agreed that at the date hereof the Consultant is
interested in the businesses referred to in Schedule 2 hereto.
8.1.2 either on his own account or for any other person firm company or
organisation and in competition with the Company or any Relevant Group
Company whether directly or indirectly solicit, interfere with, entice or
endeavour to solicit, interfere with or entice away from the Company or
any relevant Group Company the custom of any Restricted Client with
whom the consultant shall have had personal contact or dealings to a
material extent in the course of his duties or in relation to whom the
Consultant had access to Confidential Information hereunder at any time
in the Relevant Period;
8.1.3 either on his own account or for any other person, firm, company or
organisation and in competition with the Company or any Relevant Group
Company whether directly or indirectly solicit, entice, or endeavour to
entice away from the Company or any Group Company a senior employee
(i.e. one earning more that the equivalent of US100.000) with whom
the consultant shall have had material dealings during his employment
whether or not such person would commit any breach of his/her contract
of employment or engagement by leaving the service of the Company or
Group Company.
As already recorded, clause 11 provided that the Agreement was
governed by English law and any controversies arising from or related to
the interpretation or enforcement of the Agreement were to be exclusively
submitted to the Courts of England. It is to be noted that by the time the
Agreement was executed the Brussels Convention had been amended
to limit the scope of prorogation of jurisdiction in the case of individual
contracts of employment and to provide in Article 5 (1) that in matters
relating to such contracts the place of performance of the obligation in
question was where the employee habitually carried out his work.
There were listed in Schedule 2 to the Agreement nearly 80 companies
which Mr Benatti represented to be all the non-WPP companies in which
he had an interest. Amongst these companies were three substantial
groups, Blugroup, Onetone and FullSix. It is also important to note
that many of the listed companies carried on business in Italy in the
fields of advertising and media planning and buying and were therefore
competitors of the WPP group in Italy.
The effect of clauses 3.2, 8.1, 8.1.1, and 8.1.2 is that both during the
currency of the Agreement and after its termination Mr Benatti was
permitted to retain his interest in the companies listed in Schedule 2 and
to assist those companies so long as this did not amount to solicitation
within 8.1.2, or employee poaching within 8.1.3, or detract from or
interfere with his duties under the Agreement or was “detrimental” to
the interests of WPP Italy or the WPP group. Mr Benatti therefore had
a wide liberty to carry on his pre-Agreement entrepreneurial activities
notwithstanding that a substantial proportion thereof were in competition
with WPP Italy and the WPP group.
Applying the criteria set out in paragraph 69 above, I am clearly of the
view that the claimants' argument that at its inception the Agreement
was not an individual contract of employment is much stronger than Mr
Benatti's argument to the contrary. The principal factors that go into
the contract of employment scale include the length of the term of the
Agreement, the breadth of the different forms of assistance set out
in clause 3.1 and the provision that Mr Benatti should at all times be
subject to the directions and instructions of the WPP Group Board (the
Board and the CEO being in my view the agents of WPP Italy and of WPP
Group). These factors in my opinion are outweighed by the method of
remuneration – a low retainer plus commission; the provision that Mr
Benatti was not obliged to work more than 1 ½ days a week (which was
clearly intended to allow him to spend a substantial amount of time on
his other business interests); the types of assistance it was contemplated
Mr Benatti would provide; and the liberty granted to Mr Benatti to remain
interested in and to assist the companies listed in Schedule 2, many
of which were in competition with WPP Italy and the WPP group. It is
important to bear in mind that many independent contractors are paid
their expenses and are given a very detailed brief requiring them to report
to and take instructions from their client. I am also of the opinion that the
obligation on WPP Italy to provide a p.a., a secretary and an office points
if anything away from a contract of employment since in the employment
context such facilities routinely go with a senior appointment, whereas
here it was felt necessary to provide for them expressly.
I turn to consider the parties' conduct under the Agreement and the
significance this has in determining the status of the contract. The
evidence relevant to this enquiry is voluminous and to a considerable
extent conflicting. Certain of the claimants' evidence came in late which,
with the exception of Professor Bruguglio's statement, I propose to
ignore. Making due allowance for the fact that this is an interlocutory
hearing in which the witnesses have not been cross-examined my task is
to make such findings as can be fairly arrived at. Those findings are as
follows.
From the inception of the Agreement until the legge Biagi (a new Italian
labour law) came into effect in October 2004, Mr Benatti did not serve
quarterly invoices in respect of the retainer fee but was paid this fee in
monthly instalments. He was also issued with an Amex gold card to pay
his expenses for which he had to invoice WPP Italy.
WPP Italy and Mr Benatti treated the Agreement as being a Contratto
di Collaborazione Coordinata e Continuativa (“co.co.co.”)' which is a
particular type of contract distinct from an ordinary employment contract
for the purposes of the Italian Codice di Procedura Civile (the Italian CPR)
and for the purposes of Italian social security law. Under the legge Biagi
co.co.co. contracts have to be in a special form. The Agreement was not
in this form, which prompted discussions between Mr Benatti's lawyer, Mr
Rossotto, and WPP Italy during which thought was given to amending the
Agreement to allow Mr Benatti to assign it to a company which would be
under his sole control. In the event the Agreement was not amended in
this way but Mr Benatti agreed to the suggestion that he should register
personally for VAT and submit VAT invoices for his remuneration, which
he did until the termination of the contract. It is clear that Mr Benatti took
this step to reinforce the contention that the relationship between him
and WPP Italy was a fully independent and professional one and not one
of employer/employee.
In the first year of the Agreement Mr Benatti worked no more than 1
½ days a week. The social security and industrial accidents insurance
payments appropriate to a co.co.co. agreement were deducted by WPP
Italy from Mr Benatti's remuneration and paid direct to the relevant
government agencies. In the following year the number of days worked
by Mr Benatti increased to about three days a week. On 10 February
2003 he received the EUR 206.582 commission for the Media Club
acquisition and in May 2003 it was agreed that from 1st January 2004
his annual fee would be raised to EUR 500.000. This increase was born
out of the fact that Mr Benatti had not been paid any fees by any WPP
company benefiting from Mr Benatti's development of client relationships,
identification of key executives, or suggested synergies for the WPP
group.
On 12th May 2003 a formal written amendment to the Agreement was
signed which: (a) substituted for clause 4.1.1 a clause that provided
for an annual fee of EUR 500.000 payable on a monthly basis; (b)
deleted the entitlement to fees from companies benefiting from Mr
Benatti's assistance; and (c) inserted a new clause 5.1.2 entitling Mr
Benatti to a company car for his business and personal use subject to a
stipulated annual cost. It was also expressly provided in the amendment
agreement that “All the other clauses of the Agreement, of which this
letter agreement shall be deemed to be part, shall remain in full force
and effect.” Accordingly, the provision stating that Mr Benatti was not
obliged to work more than 1 ½ days a week remained in full force after
the amendment agreement.
In the period March 2003 to November 2003 Mr Benatti was a director
of WPP Italy. This was the only Board appointment he held during the
currency of the Agreement.
In January 2005 Mr Benatti's annual fee was increased to EUR 850.000.
In a pitch on his behalf to the WPP Group Compensation and Benefits
Manager it was stated that the proposed increase “related to a full time
job (rather than 3 days a week) wider perimeter of companies and more
operative role”. The increased fee was agreed by Sir Martin Sorrell. There
is no evidence that he saw or knew of the pitch. He agreed to the increase
because he was conscious that Mr Benatti was receiving less than some
of his Project Wellington associates, in particular Mr Malegori who had
become CEO of Mindshare Europe. Sir Martin was also pleased with the
performance of the Italian operations: Mr Benatti had added value and Sir
Martin wanted to keep him. Sir Martin did not, however, ask Mr Benatti to
work a stipulated number of days a week under the Agreement. He did
not know how many days a week Mr Benatti was working and Mr Benatti
did not say to him that he wanted the increase because he was working 5
days a week; nor did he offer to work 5 days a week in exchange for the
increase.
In the last year of the Agreement (2005) the days Mr Benatti worked
increased over time to five days a week. WPP Italy must have realised
that he was putting in this amount of time but at no point was he required
to do so, whether by WPP Italy or WPP Group.
In May 2004 and 2005 Mr Benatti was granted respectively 2149 and
2235 stock options in WPP Group under the WPP Executive Stock Option
Plan. These options were not awarded under the WPP World Leaders
Programme but were part of an award to certain Country Managers and
key client managers. They were worth about US$ 9000. After the May
2004 grant Mr Benatti received a letter from Sir Martin Sorrell in these
terms:
Dear Marco,
We are extremely grateful to you for the leadership you provide to our
business in Italy. To add substance to those words, I'm delighted to
enclose your award of options.
As you know already, WPP believes very strongly in nurturing an
ownership culture throughout the company; a culture that encourages
our leaders to think and behave not just as paid employees but as part
owners of this enterprise: with shared goals, shared determination to
succeed and shared delight in success. So awards of WPP options form an
important part of our remuneration philosophy.
Thank you again for your continuing leadership – and our very best
wishes for much success to come.
Although this letter refers to “paid employees” very little, if anything,
turns on this since the letter was not drafted by Sir Martin but, save for
the opening paragraph, was in common form for despatch to all those
who being awarded options.
It is also of some significance that it was not thought appropriate to
include Mr Benatti in the WPP group's Short Term Incentive Plans or Long
Term Incentive Plans which typically form a substantial portion of the
remuneration of senior WPP executives.
I do not accept Mr Benatti's claim that he was “fully integrated into the
WPP …. with the power to direct and manage the CEO's in Italy exercising,
in effect, the delegated authority of Sir Martin Sorrell, as was understood
by all within WPP”. The WPP Italian operating companies had a vertical
reporting structure that ended up above WPP Italy because a number
of these companies were in competition with each other. The COOs and
CEOs of the WPP Italian companies therefore did not report to Mr Benatti
but to a supra Italian level. Nor do I accept that Mr Benatti had authority
to require the Italian COOs and CEOs to implement his instructions. No
doubt those executives knew that Mr Benatti was close to Sir Martin
Sorrell and treated him with respect, but it was for them to decide
whether to accept his advice and suggestions, including his suggestions
as to whom should be appointed to senior positions.
In the April 2003 edition of the WPP newspaper “The Wire”, Mr Benatti
described his main activities as Country Manager in Italy as: (i) mergers
and acquisitions; (ii) support to operating companies on new business and
ongoing relationships where key clients are concerned; (iii) development
of inter-Group synergies; and (iv) recommendations for top management
recruiting. In my judgement these activities, which track the activities
set out in clause 3.1.2 of the Agreement, were indeed his main activities
throughout his appointment. Examples of the synergies he proposed
were IBOS (Italian Back Office System; FAST (Financial Administration
Solutions & Technologies); Shared Service Center (centralisation
and standardisation of administrative procedures); and Cross Selling
(encouraging companies within the Italian WPP group to persuade clients
to use the services offered by other companies in the group). Mr Benatti
appears to have taken the initiative with such projects but he was not
permitted to develop them until they had been approved by Sir Martin
Sorrell. In carrying out his activities Mr Benatti would have one-on-
one meetings with the CEOs of the WPP Italian companies and would
occasionally meet with them as a group. However, he did not have his
own budget. Instead, the cost of his activities had to come out of the
individual budgets of the Italian companies.
In addition to these main activities Mr Benatti kept a supervisory eye on
the operations of the WPP Italian operating companies and would report
on their performance to Sir Martin, but in my judgement this was ancillary
to and in aid of his main activities as an adviser and “ideas man”.
Until May 2003 Mr Benatti did not work out of an office provided by the
WPP group but from the office of one of his companies, the cost of which
was met by WPP Italy on a proportionate basis. In May 2003 WPP Italy's
COO and CFO and Mr Benatti moved to the premises of mediaedge:cia,
a WPP operating company, and henceforth Mr Benatti had an office next
to that of mediaedge:cia's CEO. He was also issued with a WPP business
card and given two email addresses that were integrated within the WPP
group network.
Mr Benatti reported to Sir Martin Sorrell on his activities on a regular
basis. He met Sir Martin in London every two months and there
were monthly telephone calls. Sir Martin also met Mr Benatti in Italy,
particularly in 2005.
How is the Agreement to be analysed in the light of the parties' conduct?
Over time Mr Benatti's remuneration took on more of the appearance of
a salary and in 2005 he came to be working 5 days a week. From May
2003 he had an office within the offices of a WPP Group company. He
worked closely with the senior executives of WPP Italy and the Italian
operating companies. The implementation of any of his proposals and
suggestions all depended on the sanction of Sir Martin Sorrell to whom
he reported regularly. All these factors point to a contract of employment.
Turning to the factors pointing the other way, Mr Benatti did not hold an
executive position with authority over the senior executives of WPP Italy
and the operating companies: it was up to those executives whether to
adopt his ideas and strategies. Moreover, he was not concerned with the
everyday running and management of the WPP Italian companies; rather
he was an adviser and “ideas man” who was expected to draw on his
considerable entrepreneurial experience in advertising and media buying
to come up with strategies and proposals for the Italian operations and
promote client relationships. In addition, it was known and understood
that he would continue to receive large payments in his entrepreneurial
Project Wellington capacity and it was also accepted that he could and
would continue to hold business interests in the 80 or so listed non-WPP
companies, a number of which were in competition with WPP's Italian
operations. He also remained entitled to a 1 % commission on the value
of acquisitions introduced by him, a valuable potential entitlement since
mergers and acquisitions were one of his main activities.
Further, although in the course of 2005 he came to be working 5 days a
week, he was not contractually obliged to do so. Mr Chambers submitted
that the Agreement was amended by conduct so as to require Mr Benatti
to work full time 5 days a week in exchange for an annual salary of
EUR 850.000 but I reject this submission. As I have already noted, the
amendment agreement of 12 May 2003 expressly provided that the
other clauses of the Agreement remained in full force and effect. In my
judgement, Mr Benatti is not to be taken to have exchanged the benefit
of not having to work more than 1 ½ days a week for an obligation to
work full time 5 days a week unless the conduct of both sides makes this
abundantly plain. I find that there is no credible evidence that anyone
within WPP Italy or WPP Group plc said anything to Mr Benatti about
having to agree to work more than 1 ½ days a week to be entitled to the
increased fee of EUR 850.000, or that Mr Benatti made any such offer. On
the contrary, the evidence is that the increase was agreed for the reasons
set out in paragraph 85 above. Such conduct, in my opinion, is a quite
insufficient basis for finding that the Agreement was amended by conduct
as submitted by Mr Chambers.
In a situation where there are factors going both ways on the question
whether a contract is one of employment, I think regard can be had to
conduct of the parties that evidences a positive intention that the contract
should or should not be a contract of employment. Accordingly, I propose
to give some weight to the fact that in consequence of the legge Biagi Mr
Benatti registered personally for VAT and submitted monthly VAT invoices
for his fee as he agreed (with the benefit of legal advice) he would. In my
judgement this conduct shows that both parties intended that Mr Benatti
should perform the services contemplated by the Agreement in a self-
employed capacity.
As I observed in paragraph 69 above, the exercise I am engaged upon
is one of fact and degree and it must be remembered that different
relationships may share to a considerable extent some of the criteria
propounded by the ECJ. Inevitably there will be cases that only just come
within the category of a contract of employment and there will be cases
that only just fall outside that category. Weighing all the factors present
in this case I conclude that when the Agreement was terminated on 9
January 2006 (alternatively when proceedings were started on 11 January
2006) it was not an individual contract of employment for the purposes of
Section 5. Although it was pretty close to being a contract of employment,
it distinctly fell on the other side of the line.
In my judgement, in substance Mr Benatti's role under the Agreement
was in the nature of a self-employed management consultant who for a
fee was engaged to come up with proposals and strategies to improve
the performance of a corporate group. He could not implement strategies
without Sir Martin Sorrell's express authority and he was under an
obligation to report to Sir Martin in detail and on a regular basis. But,
as I have said, it is not unknown for management consultants to work
under a detailed brief with an obligation to report regularly and in detail
to the client and to accept instructions on how the engagement is to be
executed. It is also not unknown for management consultants to carry out
lengthy engagements which involve them becoming embedded to some
extent in the client's organization.
In the event, therefore, I find that the argument that the Agreement
was not an individual employment contract for the purposes of Section 5
of the Judgments Regulation is much better on the material before me
than the argument to the contrary. Accordingly, I hold that WPP Italy has
established jurisdiction under Article 23 for its claims for breach of the
Agreement.
In the course of argument, my attention was drawn to the decision
of Judge Pier Paolo Lanni of the Verona Tribunal dated 5 June 2006
granting precautionary measures to Mr Benatti to allow for the return of
certain documents. In that decision Judge Lanni said that the Agreement
and the documents filed by Mr Benatti lead to the conclusion that the
relationship between Mr Benatti and WPP Italy was at least one of “para-
subordination” so that Articles 19 and 20 of the Judgments Regulation
applied. I was quite properly shown this decision but it was common
ground that it is not binding on me. Apart from anything else, the learned
judge had jurisdiction to grant interim measures irrespective of Articles 19
and 20, and, as he himself noted, he heard no argument from WPP Italy.
I, on the other hand, have heard extensive argument from both sides,
and for the reasons I have given I respectfully differ from Judge Lanni's
views on the status of the Agreement.
Do the English Courts have exclusive jurisdiction over the claims of WPP
2005 and BSH for breach of the Agreement?
The Particulars of Claim plead claims by WPP 2005 and BSH for breach
of clause 3.2 of the Agreement. Neither of these claimants is named as
a party to the Agreement, although Mr Benatti is expressly appointed a
consultant of WPP 2005 (named WPP Group plc in the Agreement). BSH
is not named in the Agreement at all and Mr Benatti did not know of its
existence until after the Media Club acquisition. However, BSH is a wholly
owned subsidiary of WPP 2005 and Mr Benatti agreed to assist “the Group
Companies in Italy,” which expression includes WPP Group and any direct
or indirect subsidiary thereof.
Mr Smouha submits that WPP 2005 and BSH can enforce the Agreement
including clause 11 under s. 1 of the 1999 Act. He cites s. 1 (4) of the
1999 Act: “This section does not confer a right on a third party to enforce
a term of a contract otherwise than subject to and in accordance with any
other relevant terms of the contract”. He also contends that an analogy
is to be drawn with: (a) those cases where it has been held that a claim
by a third party on a contract that contains an arbitration agreement
must be brought in arbitration, eg Nisshin Shipping Co. Ltd v. Cleaves
& Co Ltd [2004] 1 Lloyd's Rep 38; and (b) the European jurisprudence
to the effect that where consent to a jurisdiction clause can be shown
between the original contracting parties, and a third party succeeds to the
rights of one of those parties (as a matter of national law), the third party
also “succeeds” to the jurisdiction clause so as to satisfy Article 23 of the
Judgments Regulation, eg Case 71/83 The Tilly Russ.
Mr Chambers contends that s. 1 of the 1999 Act is of no assistance to
these claimants because clause 11 does not purport to confer a benefit
on a third party. He also relies on s. 6 (3) of the 1999 Act which provides
that s.1 confers no right to enforce any term of a contract of employment.
In my judgement, for the reasons submitted by Mr Smouha and in
light of my finding that the Agreement is not an individual contract of
employment for Section 5 purposes, WPP 2005 and BSH have a good
arguable case that the court has jurisdiction over their claims for breach
of the Agreement by virtue of Article 23.
The claimants' claims for breach of fiduciary duty
The fiduciary duties relied on arise directly from the Agreement and in my
opinion the claims for breach of these duties fall within the words “any
controversies arising from or related to the …enforcement of this contract”
in clause 11. Given my finding as to the nature of the Agreement, I hold
that the English court has jurisdiction over WPP Italy's claim for breach of
fiduciary duty under Article 23.
So far as WPP 2005's and BSH's breach of fiduciary duty claims
are concerned, the submissions were essentially the same as those
summarised in paragraphs 102-103 above with Mr Smouha arguing in
addition that the situation was comparable to that in: (a) Nordic American
Shipping AS v. KS AS ManhattanTankers [1996] I.L.Pr. 400, where the
Norwegian Supreme Court held that a claim for general average against
the head charterer was to be brought in the jurisdiction provided for
by the jurisdiction clause in the contract between the claimant and a
subcharterer, since although the claim was brought against a party who
was not privy to that contract, it was based on and derived from it;
and (b) Gerling Konzern Speziale Kreditverscherungs- AG v. The Italian
Treasury [1983] ECR 2503, where the ECJ held that a beneficiary of an
insurance policy (to which it was not party) was entitled to avail itself of
the jurisdiction clause therein.
I prefer Mr Smouha's submissions to those of Mr Chambers. In my
judgement there is a good arguable case that Article 23 affords
jurisdiction in respect of WPP 2005's and BSH's claims for breach of
fiduciary duty
The conclusions I have reached render it unnecessary for me to deal with
the claimants' alternative submissions based on Articles 5(1) and 5(3).
Suffice it to say that if I had been of the view that the Agreement was
an individual contract of employment for the purposes of Section 5, I
would have held that all of the claims for breach of fiduciary duty were
claims brought by “the employer” on the Agreement for the purposes
of Article 20 (1), with the result that the breach of fiduciary duty claims
would have had to be brought in the state of Mr Benatti's domicile.
Conclusion
For the reasons given above, the English courts have jurisdiction under
Article 23 of the Judgments Regulation over all of the claims brought by
the claimants against Mr Benatti.
Accordingly, Mr Benatti's application challenging the jurisdiction of the
court is dismissed.