Harman v Opus Recruitment Solutions - Australia Pty Ltd - [2024] FCA 1356 - FCA 2024 case summary

Federal Court of Australia|2024-11-26|Before: Raper J

The seventh respondent's interlocutory application filed 7 August 2024, be dismissed.
The parties are to confer regarding appropriate short minutes of order as to the next steps in the proceeding and provide them to the Chambers of Justice Raper within 7 days of today's date.
The matter is listed for case management at 9.30 am on Tuesday, 10 December 2024. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

RAPER J: 1 In November 2021, Mr Harman (the applicant) entered into an Employment Contract with the first respondent, Opus Recruitment Solutions - Australia Pty Ltd, as well as a Shareholders' Agreement with the seventh respondent, Hexagon Topco Ltd (and its subsidiary undertakings), of which Hexagon Topco had ultimately control over Opus Australia. Both the Employment Contract and Shareholders' Agreement contain post-employment non-solicitation and non-competition restraints. Mr Harman's employment was terminated in February 2024, and he has commenced proceedings in this Court with respect to matters consequent upon that termination, including what payments he is entitled to upon termination, and whether and the extent to which he can be restrained by the two restraint clauses in the two agreements. 2 These reasons concern a stay application brought by Hexagon Topco, together with the sixth respondent (who supported the application), Graphite Capital Co-Investment IX LP. They claim that the Court ought exercise its discretion to stay the proceedings against them on the basis that the Shareholders' Agreement contains an exclusive jurisdiction clause, which states that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute which may arise out of, or in connection with, this Agreement. By contrast, the Employment Contract contains an exclusive jurisdiction clause that any dispute arising out of or in connection with the agreement will be the subject of the courts of New South Wales. 3 Therefore, the issue to be determined is whether the Court should exercise its discretion and stay the proceedings as against Graphite Capital and Hexagon Topco. The effect of staying the proceedings will mean that Mr Harman has to bring proceedings in both Australia and the United Kingdom. Courts will ordinarily adhere to the agreement of the parties as to the choice of forum to ventilate their dispute, unless there are strong countervailing reasons to depart from their agreement. 4 For the reasons which follow, Mr Harman has established that there are strong countervailing reasons why the proceedings ought not be stayed as against Graphite Capital and Hexagon Topco.

The agreed principles informing the Court's exercise of its discretion 5 The parties were in furious agreement as to the principles informing the Court's exercise of its discretion. As espoused by the High Court in Karpik v Carnival Plc [2023] HCA 39; 98 ALJR 45 at [66]: 66 The court retains a discretion whether to stay a proceeding the subject of a foreign exclusive jurisdiction clause. In the absence of strong countervailing reasons, proceedings will be stayed in the face of such a clause. (Citations omitted). 6 The reason for there being the need for Mr Harman to establish why there are strong countervailing reasons for why the proceedings ought not be stayed is because there has been agreement by the parties to submit to another jurisdiction. Accordingly, the Court ought require the parties to abide by their agreement, except where a party adduces strong reasons against doing so: Oceanic Sun Line Special Shipping Co Inc v Fay [1988] HCA 32; 165 CLR 197 at 259 (per Gaudron J). 7 As observed by Spigelman CJ in Global Partner Funds Ltd v Babcock and Brown Ltd [2010] NSWCA 196; 6 BFRA 1 at [67] (with whom Giles and Tobias JJA agreed): 67 A significant purpose of an exclusive jurisdiction clause is to ensure that all disputes are determined in a coherent manner by a single jurisdiction. There is a clear commercial interest in minimising the possibility of a dispute being determined by multiple tribunals, with the consequent prospect of divergent findings. Furthermore, the parties, in advance, have determined that a particular jurisdiction is acceptable to them, both in terms of the speed and efficacy of its civil dispute resolution procedures and for the competence and skill of its judges and lawyers. A party to such a clause should be held to its contractual obligations, whether enforced by another party on a contractual basis or by means of the exercise of a discretion conferred upon the Court. 8 Accordingly, it was without dispute that Mr Harman is required to establish there are "strong reasons" against granting the stay and has satisfied the Court that there are for the following reasons.

Whether or not there will be fracturing of the litigation in the Karpik sense, the discretion ought be exercised 9 Mr Harman submitted, consistent with one of the two strong reasons identified by the High Court in Karpik (at [69]), the enforcement of the exclusive jurisdiction clause would fracture the litigation: 69 Second, enforcement of the exclusive jurisdiction clause would fracture the litigation. Whether or not Mr Ho's claims against Princess are stayed, the representative proceedings in the Federal Court would continue. And as the primary judge identified, if the parties to a contract containing the US Terms and Conditions are forced to commence individual proceedings in the United States when essentially identical claims for the vast majority of passengers will be heard in the class action in the Federal Court, this will have the undesirable consequence of wasting the parties' resources and will run the risk of producing conflicting outcomes in different courts with the attendant risk of bringing the administration of justice into disrepute. 10 Graphite Capital and Hexagon Topco do not accept that there would be such a "fracturing of the litigation" of the kind identified in Karpik because the claims as against them are distinct, arising from the operation of the Shareholders' Agreement and the relevant Articles of Association and for which separate forms of relief are sought. It was submitted that, whilst it is accepted that the litigation will be split in two, it is fracturing by design, because Mr Harman commenced the proceedings against different parties, with different claims arising from different contracts seeking different forms of relief. So, according to Graphite Capital and Hexagon Topco, unlike Karpik, there would be no fracturing of "the claim" if the stay is granted. It was said that this is not a case of a class action where members of a group with essentially identical claims are fractured between jurisdictions. There is no such fracturing here because the claims are distinct. 11 One needs to take care when applying the reasoning of Karpik and the other authorities referred to above. Ultimately, the Court's task is one that must be informed by the particular circumstances of the case. This case, unlike Karpik, and the other authorities referred to, involves inter-related parties, intertwined contracts and obligations arising from the same factual source and two (conflicting) exclusive jurisdiction clauses. 12 I accept, as Graphite Capital and Hexagon Topco submitted, that Mr Harman had expressly agreed, with consideration, to enter the Shareholders' Agreement, and agreed to the courts of England and Wales being the exclusive jurisdiction. I accept that, ordinarily, Mr Harman should be held to his bargain because the Shareholders' Agreement and the Articles of Association concern Mr Harman's shares in Hexagon Topco. However, the unusual circumstances of this case, unlike those of the relevant authorities, call for the discretion to be exercised.

The entities are related and Mr Harman's obligations to them both are intertwined 13 Graphite Capital and Hexagon Topco submitted that the stay ought be granted because the Shareholders' Agreement and the Articles of Association concern Mr Harman's shares in Hexagon Topco. Graphite Capital and Hexagon Topco have no connection to New South Wales or Australia at all. It is submitted that neither entity has in Australia any offices, employees, operations or assets. 14 However, the respondents, whilst different entities, are inter-related. There was no dispute that Hexagon Topco owns and controls (indirectly, through Hexagon Midco 1 Limited, Hexagon Midco 2 Limited, Hexagon Bidco Limited and Opus Talent Solution Limited), Opus Australia. Each of the entities have Keryn James, Christopher Peel and Sahil Rishi as directors and, Sahil Rishi is also a director of Opus Australia. 15 As stated at the outset of these reasons, Mr Harman entered into the two agreements in November 2021. Both are inter-related. Both depend on the existence of an employment relationship and confer obligations and benefits and, in particular, consequent upon termination. By way of illustration, Mr Harman was required under his Employment Contract to comply with the Articles of Association (namely, those of Hexagon Topco): Employment Contract cl 3.2.2. Opus Australia was able to terminate Mr Harman's employment if he committed "any material breach or non-observance" of the Shareholders' Agreement or the Articles of Association: Employment Contract cl 17.3.10. 16 Upon termination, Mr Harman was the subject of restraints under both agreements. Whilst drafted in different terms, they both include as restricted areas Australia, but also in the case of the Employment Contract, "such other countries in which the Company and any Group Company carried out the Restricted Business" and under the Shareholders' Agreement, the "Restricted Territory" is the "United Kingdom, the United States of America, Australia, Hong Kong, the Netherlands and any other country in which any Group Company operates or contemplates operating at the relevant Termination Date". Both agreements include expansive foundational definitions, for the purpose of defining the scope of their restrictive covenants. Each protected business extends beyond their respective entities to any "Group Company". Similarly, the jealous guarding of the relevant "clients" extends beyond those of their respective entities to any "Group Company". 17 As to what benefits are conferred upon Mr Harman upon termination, under both agreements, they depend on the circumstances giving rise to his termination and how the cessation of the employment is categorised. Of particular significance is the shareholding Mr Harman obtained, upon commencement of employment, and in accordance with the Shareholders' Agreement. Upon termination, the Articles of Association allow for the compulsory transfer of shares. The price of the shares that may be received by Mr Harman is dependent on, how the circumstances giving rise to his termination, then categorise him as a "Good", "Intermediate", "Bad", "Very Bad" or "Subsequent Very Bad" Leaver. A person is a "Very Bad Leaver" or "Subsequent Very Bad Leaver" if, among other things, the Group Company had been lawfully entitled to dismiss the Leaver without notice under the terms of such Leaver's service agreement.

Whilst the terms of the restrictive covenants are different, the relevant substratum of facts overlaps 18 I accept account must be given to the terms of the restrictive covenants being different. However, I do not accept the respondents' contention that reliance ought not be placed on the common element between the claims, namely, the broad subject matter of restrictive covenants. For the reasons set out above, there is likely to be very clear factual overlap underpinning the construction of the validity of both restraints (regardless of different legal considerations). There is clear definitional overlap between both clauses, as to the scope of the restraints, in the identification of the business, its clients, and the restricted area. 19 It can be without dispute that the determination of the validity of the restrictive covenants will involve common factual findings including the determination of the nature of and necessity for the preservation of the respective business interests vis-à -vis Mr Harman's past and future conduct. Both agreements restrain similar conduct. There will need to be assessments as to the reasonableness of that conduct, where that assessment will be undertaken at the same time, given both contracts were entered into at the same time. Further, the Shareholders' Agreement prohibits Mr Harman from competing "with all or any part of any trade of business of any Group Company". The Employment Agreement prohibits Mr Harman from being "involved in any Capacity with any business concern which is (or intends to be) in competition with any Restricted Business", which is defined to include those parts of the business of Opus Australia, or "a Group Company" which he was "involved to a material extent in the 12 months prior to the Relevant Date". 20 Given the definitional overlap, the factual determination of Mr Harman's employment history, client relationships, contact with customers, Mr Harman's access to confidential information, his role and responsibilities, current and potential clients to be protected and the nature of the industry, are all matters which are likely to overlap between the claims. 21 Furthermore, the evidence as to Mr Harman's role and responsibilities and the circumstances giving rise to his termination will be common to both his claims relating to the restrictive covenants, but also his claim as against Opus Australia, regarding the characterisation of the termination of his employment (arising from his redundancy claim) and also his claim as to the kind of "leaver" he is for the purpose of the declarations sought with respect to Graphite Capital and Hexagon Topco relating to the Articles of Association. 22 There are therefore likely to be common witnesses with respect to the claims as against Opus Australia and Graphite Capital and Hexagon Topco. 23 It was unfortunate that the Court was not provided with any real assistance regarding the extent to which there was overlap between the applicable laws across both jurisdictions. In any event, it is clear, that regardless of the operation of the common law, the Restraint of Trade Act 1976 (NSW) applies to the Employment Contract restraint. 24 However, I am of the view that the more compelling argument is the existence of a factual overlap between the claims, the fact that the respondents are related and there are two exclusive jurisdiction clauses provide strong countervailing reasons in favour of departing from the exclusive jurisdiction clause and not granting the stay.

The effect on the parties if the stay is not granted 25 As was the case in Karpik, consideration may be given to the likely consequences to befall the parties in determining whether to grant the stay. 26 It may be accepted that, if the stay were granted, it would waste parties' resources. Mr Harman would need to pursue proceedings in both the English or Welsh Courts and Australian Courts to achieve a release with respect to post-employment restraints and otherwise achieve certainty as to his entitlements upon termination. Whilst it is unclear whether his claim relating to the restraint under the Employment Contract is futile given it expires in February 2025, certainly, his "leaver" status will materially affect his entitlement to the shares. 27 Graphite Capital and Hexagon Topco submitted that given neither entity has in Australia any offices, employees, operations or assets, and where Mr Harman has agreed to the exclusive jurisdiction clause, they should not be put to the time and cost and the requirement for expert evidence as to English law. Whilst account must be taken of this submission, it is suggestive of only very limited prejudice. Here, it is notable that the facts giving rise to the claims as against Opus Australia and Graphite Capital and Hexagon Topco are both relatively confined. No submission was made to the effect that the proceedings would be lengthy nor that the proceedings against the entities would be disproportionately larger as against one over the other. It appears that the hearing would be a relatively short one, where the factual matters regarding both matters are intertwined and where there would likely be common witnesses in both. 28 Further, to the extent that the sixth and seventh respondents refer to a potential consequence of this failure to adhere to the bargain being compounded by the fact that Mr Harman has the protection of the presumption of a no-costs jurisdiction with respect to the entire dispute by operation of s 570 of the Fair Work Act 2009 (Cth), I am not persuaded that this consequence has been established. There was no evidence before me as to what the costs consequences would be in England and Wales for such a proceeding. Further, I note that the Shareholders' Agreement contains a clause concerning "Costs and Expenses" which states that each party will bear its own costs and expenses in connection with this Agreement (cl 29.1). No submission was made by either party as to what the effect this clause would have on any costs arising from proceedings in England and Wales.

Conclusion 29 For these reasons, the Court is satisfied that it ought not exercise its discretion in staying the proceedings as against Graphite Capital and Hexagon Topco and the application be dismissed. The Court will make orders for the parties to confer regarding the next procedural steps to be taken with respect to the proceedings and to list it for case management. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Raper.

Restraint of Trade Act 1976(NSW)

Harman v Opus Recruitment Solutions - Australia Pty Ltd

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