Chunilal v Merrill Lynch International Incorporated

For jurisdictional purposes, an employment contract is made where acceptance of the relevant terms is received in an instantaneous communication. A previous employment contract with a different group company does not determine the governing law of a later novated contract.

Where the parties have made no express choice, the habitual place from which the employee performs the essential part of the work is the principal connection under Article 6 of the Rome Convention. A contractual secondment does not prevent that place from being the employee’s habitual workplace. The claimant must also show that England is clearly the most appropriate forum and must establish a good arguable case that the relevant breach occurred within the jurisdiction.

The claimant, a UK national resident in Hong Kong, had formerly been employed in London by an English group company. In 2003 his employment was novated to the defendant, a Delaware corporation based in New York, and he was transferred to work in Hong Kong.

After his employment ended, he claimed damages for breach of an implied term that the defendant would not exercise its discretion under a bonus plan irrationally or perversely. He sought to rely on English jurisdictional gateways based on the place where the contract was made, the governing law, and the place of breach.

The defendant applied to set aside permission to serve the proceedings out of the jurisdiction. The issues were whether the claimant had a good arguable case on any gateway and whether England was clearly the most appropriate forum.

The defendant’s application to set aside permission to serve out of the jurisdiction was granted.

1. The 2003 contract was a novation of the claimant’s earlier employment contract. The earlier contract had ended, and the new contract was between the claimant and a different employer on newly negotiated terms. The negotiations took place in New York. Acceptance was communicated there by fax. Applying the principles in Entores Ltd v Miles Far East Corporation and Brinkibon Ltd v Stahag Stahl, the claimant had no good arguable case that the contract was made in England.

2. There was no express choice of law. English law could not be demonstrated with reasonable certainty under Article 3 of the Rome Convention. The relevant factors pointed principally to Hong Kong and New York. The preservation of particular UK benefits and termination terms did not establish that the contract as a whole remained governed by English law.

3. Article 6 therefore applied. The claimant habitually carried out his work in and from Hong Kong. His visits to England were temporary, and the fact that the contract described his work as a secondment did not alter the practical centre of his employment. If Article 6(2)(b) had required consideration, New York would have been the place of business through which he was engaged.

4. The claimant also failed to establish a good arguable case that the alleged breach occurred in England. The bonus was paid in Hong Kong, while the evidence indicated that the relevant decision was made in New York. Possible consultation with a London-based human resources officer did not establish that the impugned decision was made there.

5. The claimant would in any event have failed the forum test. He bore the burden of showing that England was clearly the most appropriate forum. The claimant, the principal employment relationship and most relevant witnesses were connected with Hong Kong, and any differences between English and Hong Kong law could be understood and applied by either court.

First instance decision. The judgment records that Teare J had granted permission to serve the proceedings out of the jurisdiction on 10 December 2009. That order was set aside.