Jurisdictional clash: Australia to hear post-termination restraint case with English choice of law clause

A New South Wales court has allowed an individual to proceed with litigation concerning the terms of his employment contract and shareholders’ agreement, despite the shareholders’ agreement containing an exclusive jurisdiction clause requiring disputes to be resolved in the courts in England and Wales.

Background

In 2021, Craig Harman entered into an employment contract with Opus Recruitment Solutions Australia Pty Ltd (Opus) and a shareholders’ agreement with Hexagon Topco Limited (Hexagon), a UK-based related entity. Each agreement contained post-employment non-solicitation and non-competition restraints. The two agreements included different exclusive jurisdiction clauses providing that disputes arising from the agreements were to be settled in New South Wales for the employment agreement, and England and Wales for the shareholders’ agreement.

In February 2024, Mr Harman’s employment was terminated and he commenced proceedings in the Federal Court of Australia against Opus and Hexagon, among others, seeking declarations regarding his termination entitlements and post-employment restraints. 

Hexagon sought an interlocutory injunction to stay the Federal Court proceedings, arguing that the shareholders’ agreement required disputes be resolved in the courts of England and Wales.

If granted, the order would have required Mr Harman to commence proceedings in both New South Wales, and England and Wales.

The decision

The issue to be determined was whether the Court should exercise its discretion to stay the proceedings. 

Mr Harman successfully argued that there were ‘strong countervailing’ reasons why the proceedings should continue, despite the agreement by the parties to submit to the jurisdiction of the courts of England and Wales for disputes arising from the shareholders’ agreement.

In the decision of Harman v Opus Recruitment Solutions – Australia Pty Ltd (Stay Application) [2024] FCA 1356, Justice Raper in the Federal Court was satisfied that the Court should not exercise its discretion to stay the proceedings. If the suspension has been granted, the litigation would have been divided across two sets of proceedings, involving “inter-related parties, intertwined contracts and obligations arising from the same factual source and two conflicting exclusive jurisdiction clauses”. There would be “very clear factual overlap” in the cases, with respect to an assessment of the restraints and the potential termination benefits due to Mr Harman under both agreements. Further, the parties’ resources would be wasted by the running of two cases in different jurisdictions, likely with the same witnesses in each set of proceedings. 

Key takeaways

Consideration should be given to the terms of overlapping and intertwining agreements, such as employment agreements and shareholder agreements, where one is governed by the laws of one of the states or territories of Australia and another by a foreign jurisdiction. 

Despite the inclusion of a clearly drafted choice of law clause in an agreement, the Federal Court of Australia may decide not to stay proceedings related to an agreement governed by the law of a foreign jurisdiction if a party can establish strong countervailing reasons for the proceedings to continue in Australia.

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