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Howard F Hudson Pty Ltd v Ronayne [1972] HCA 3; (1972) 126 CLR 449 (1 February 1972)

CATCHWORDS

HEARING

DECISION

2. I agree with the view expressed by my brothers Menzies and Walsh that the restraint upon the respondent's activities which that condition sought to impose was unreasonable and that a promise by the respondent in the same terms would not have been enforceable at the instance of the appellant. But I am unable to agree with their view that because that condition is therefore void the appellant's promise to pay is unenforceable by the respondent. (at p452)

3. Whilst the doctrine of consideration remains at the centre of our jurisprudence relating to the enforcement of promises, the respondent's past service in the employ of the appellant did not provide a valuable consideration to support the appellant's promise as a contract. But the seal which we are to suppose covered the execution of the instrument by the appellant did make its promise enforceable at law. There is thus no need to seek to erect a negative promise by the respondent out of the condition expressed and explained in the second and third clauses of the document in order to provide support for the appellant's promise to pay. But in any case, in my opinion, there was no such promise by the respondent. Probably if there had been such a negative promise, its unenforceability would have resulted in a formal promise to pay being unenforceable because it lacked consideration; or it may be that there would be the same consequence in the case of dependent covenants. Neither situation however arises here. (at p452)

4. In my opinion, the reason that the condition in the second and third clauses of the document is void is that it offends the public policy that in the public interest the citizen should be free of any unreasonable restraint upon the exercise of his capacity to be gainfully employed or to engage in trade or commerce. As has now been demonstrated in decisions in this Court and in the United Kingdom such an attempted restraint will be void though not effected by means of a promise by the person sought to be restrained. "The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason" : Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1967] UKHL 1; (1968) AC 269, at p 331 , per Lord Wilberforce. And a person who seeks to make the restraint effective in fact will be restrained by appropriate injunction. See Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353 . In this case it is the effect of the condition in imposing an unreasonable restraint upon the exercise of such a capacity of the respondent which offends public policy. The existence, but particularly the operation of the condition is offensive to that policy. It seems to me nothing to the point that the condition is in form or substance a condition precedent to the promise to pay. It is nonetheless effective to create the unreasonable restraint. But if the promise to pay is held to be unenforceable because the condition is void, the ground upon which that condition can be held to be void is, in my opinion, swept away. The condition only has a restraining effect upon the respondent whilst the promise to pay subsists. To hold that the promise to pay can only be enforced if the condition is observed seems to me completely to subvert the public policy which is of paramount importance. Of course, if that promise is unsupported by consideration or seal it will not be contractually binding but that is quite a different position from the present. Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 was, in my opinion, really a case of that kind. Again if the condition is inseverable from the promise to pay, that promise must be wholly void. But, I agree with the majority of the Full Court of the Supreme Court of New South Wales (1970) 92 WN (NSW) 734 that here the condition is severable from the promise to pay. Consequently, if that condition be void, the promise, being under seal, will remain enforceable. (at p453)

5. In reaching that conclusion, I find no need to treat the promise to pay as contained in the document as absolute or the condition as a condition subsequent, though there may be arguments that they are. A conclusion on such matters is in my opinion unnecessary to the resolution of this appeal. The covenant in cl. 1 was sought to be made conditional upon conduct by the respondent which would have involved an unreasonable restraint of trade. That condition is, in my opinion, void because it sought to impose that restraint, not by exacting a promise from the respondent, but by depriving him of the benefit of the promise to pay if he did not so conduct himself. The covenant in my opinion remained enforceable, not because it was absolute and unconditional but because being in terms conditional it became unconditional as the law treats as void the condition by means of which an unreasonable restraint of trade was sought to be imposed. I find no need to discuss in this connexion the elaborate body of law developed by equity in relation to testamentary instruments. Suffice it to say that I regard none of the cases there included as compelling me to a conclusion contrary to that I have reached in this case. I would dismiss the appeal. (at p454)

MENZIES J. The respondent, as plaintiff, sued the appellant, as defendant, for $750 as an instalment of a retiring allowance which the defendant had, upon certain terms and conditions, promised to pay him upon his retirement from its service. At the time of his retirement the plaintiff was sixty years of age and had been in the service of the defendant for thirty years. The defendant's business was that of a distributor of hardware and tools throughout Australia. The plaintiff, who was described as the company's Sydney manager, had, for some years prior to his retirement, been in charge of the company's sales and had travelled throughout Australia and overseas on its behalf. (at p454)

2. The agreement for a retiring allowance was embodied in a document dated 26th November 1964 which was treated as a deed. The allowance was 6,000 pounds payable by instalments of 375 pounds quarterly. Clauses 1, 2 and 3 of the deed are as follows:

"1. In consideration of the Employee's past services to the
Company prior to the said date the Company shall pay to the
Employee the said retiring allowance of Six thousand pounds
(6,000.0.0 pounds) (hereinafter called 'the retiring allowance') by
equal consecutive quarterly instalments of Three hundred and
seventy-five pounds (375.0.0 pounds) the first of such instalments
to be paid on the 28th day of November 1964.
2. The payment by the Company of the retiring allowance is
subject to the Employee not acting to the detriment of the Company
or its business and should the Employee so act then the Company
shall not thereafter be bound to pay any further instalments of the
retiring allowance to the Employee.
3. For the purposes of Clause 2 hereof the Employee shall
be deemed to act to the detriment of the Company or its business
if the Employee-
(a) Divulges to any person or company whomsoever or whatsoever
any information of a confidential nature concerning the
business or finances of the Company or any subsidiary
thereof;
(b) As principal director agent servant consultant or
otherwise
either alone or jointly with any other person firm or
corporation directly or indirectly -
(i) solicits business of the nature carried on by the
Company or any subsidiary thereof from any customer
of the Company or of such subsidiary ;
(ii) engages or is concerned within the Commonwealth
of Australia in the marketing or selling of any line or
product manufactured for and/or sold or supplied to
the Company or any subsidiary thereof by any
overseas
or Australian manufacturer or supplier ;
(iii) engages or is concerned within the Commonwealth of
Australia in the business of marketing or selling
builders' hardware architectural hardware, tools
sailcloth
pulley-blocks chain-blocks steel wire rope or
other lines or products of a nature now marketed or
sold by the Company or any subsidiary thereof." (at p455)

3. Upon the trial of the action in the District Court there was judgment for the defendant. The learned trial judge found that the plaintiff had acted to the detriment of the defendant and its business in entering into the employment of a group of companies known as the Dickson Primer Group, and his Honour rejected the plaintiff's contention that he could, nevertheless, recover because cl. 3 (b) (iii) was void as an unlawful restraint of trade. An appeal to the Court of Appeal of the Supreme Court of New South Wales succeeded (Holmes and Mason JJ.A., Asprey J.A. dissenting) (1970) 92 WN (NSW) 734 . The basis of the judgment was that the only breach of agreement proved against the plaintiff was the breach of an illegal but severable provision, i.e. cl. 2 and cl. 3 (b) (iii) read together. This is an appeal from that judgment. In their reasons for judgment the members of the court recited the facts in detail and dealt carefully and elaborately with the legal problems to which those facts give rise. It seems to me that, in deciding this case, attention ought to be paid to three questions:

(1) Whether cl. 3 (b) (iii), if it were a convenant not to engage or be
concerned in business, would be void as an unreasonable restraint
of trade.
(2) If so, whether cl. 2 together with cl. 3 (b) (iii), as part of the
limitation upon the company's obligation under cl. 1 to pay the
retiring allowance therein set out, is likewise void.
(3) If so, whether the avoidance of the condition leaves the
obligation to pay the retiring allowance to stand free from the
limitation imposed by cl. 2, or, whether the result is that the
obligation to pay the allowance fails with the failure of the
condition. (at p456)

4. The learned judge who heard the action decided that the restriction upon employment imposed by cl. 2 and cl. 3 (b) (iii) was no more than reasonable because it was reasonably necessary to protect the business of the defendant and it left a substantial area in which the plaintiff could use his accumulated business skill. The modern development of the law avoiding restraint of trade on the grounds of public policy has, I think, tended towards securing protection for former employees from restraints which interfere with their continuing to work. Lord Wilberforce has described this as a "sensitive area" in which the law always requires "the test of reasonableness to be passed" : Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1967] UKHL 1; (1968) AC 269, at p 332 . This test requires that the restraint should not go beyond what is reasonable for the protection of the former employer. It appears to me that a restriction, to operate for four years, against the former employee engaging or being concerned within the Commonwealth of Australia in the business of selling or marketing a wide range of specified goods and extending to "other lines or products of a nature now marketed or sold by the Company or any subsidiary thereof" would go further than would be reasonable to protect the company's business from the activities of the former employee, particularly having regard to the particular restrictions to be found in cll. 3 (a) and 3 (b) (i) and (ii). Such a restriction goes beyond the protection of the employer from what is in the nature of unfair competition from a former employee ; it would exclude the employee from all kinds of business activity which his thirty years of service with the company had equipped him to undertake and which he could undertake without any effect whatever upon the business of the company. He could not, for instance, open a hardware shop of his own in a suburb or in a country town. Indeed, if he were to buy a general store in a country town he could not sell a hammer, an axe, a spade or a clothes line. I agree with the Court of Appeal that, in deciding such a restriction was reasonable, the learned trial judge was in error. Before this Court it was not disputed that, had the clause taken the form of a covenant not to engage or be concerned in a business, it would have been void. (at p456)

5. To decide the second question requires consideration of Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 . There the Court of Appeal decided, in a case where a pension of 200 pounds per annum, payable by monthly instalments, had been granted to an employee who was retiring, upon the following stipulation : "You are at liberty to undertake any other employment or enter into any business, . . . except in the wool trade . . . " (1933) 1 KB, at p 794 that the contract was in restraint of trade and void, notwithstanding that there was no negative covenant by the employee not to enter the wool trade but that there was merely a stipulation that, were he to do so, he would forfeit the pension. This decision, that the contract there under consideration was in unlawful restraint of trade, does, I think, cover the second point. The decision excited some criticism, but it has stood since 1933. Moreover, I think that, of late, the tendency has been to look at the substance of what is being achieved, rather than the actual form which a particular restraint takes. As Lord Wilberforce said in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at p 331 , "The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason". This aspect of the case has, I think, been covered in a way which I readily accept in the judgment of Holmes and Mason JJ.A. (1970) 92 WN (NSW), at p 749 , who appositely cited Lord Wilberforce in Pharmaceutical Society of Great Britain v. Dickson (1970) AC 403, at p 440 . Furthermore, their Honours aptly pointed out that, in applying the standard of contrariety to public policy, as a ground of invalidity, the courts have invalidated conditions of forfeiture as well as covenants. Accordingly, I have no hesitation in accepting and applying Wyatt v. Kreglinger and Fernau (1) and deciding that cl. 2 with cl. 3 (b) (iii) does constitute an unreasonable restraint of trade. (at p457)

6. This brings me to the third question, i.e. what is the result of deciding that the forfeiture of the retiring allowance, because the plaintiff has been concerned, within Australia, in a business of marketing hardware, is, as a restrictive condition, contrary to public policy and void. (at p457)

7. The obligation which the company has undertaken is to pay the retiring allowance subject to the employee not being concerned, within Australia, in the business of marketing hardware. The employee has been so concerned. He nevertheless sues for an instalment of the retiring allowance, claiming that it is due and payable under the agreement because, he says that, he has done no more than disregard an illegal but severable provision of the deed. The company's obligation is "subject to certain terms and conditions". These words in the recitals are brought forward into cl. 1 by the reference there to "the said retiring allowance" and the terms and conditions are then stated in cl. 2. There is, I think, no way of severing cl. 2 from cl. 1. What cl. 3 does is to define the words "acting to the detriment of the company or its business" in cl. 2. The problem is whether part of that definition, i.e. cl. 3 (b) (iii), can be severed from the rest and rejected on the ground that its inclusion would make cl. 2 pro tanto void as against public policy. (at p458)

8. I have found this problem one of difficulty and am not surprised that it gave rise to a difference of opinion in the Court of Appeal (1970) 92 WN (NSW) 734 . (at p458)

9. In Wyatt v. Kreglinger and Fernau (1933) 1 KB, at p 807 Scrutton L.J. said that :

". . . a stipulation by the employer that he will pay the
plaintiff so much a year if the plaintiff does not enter into the
wool trade for the rest of his life in any part of the country or
world appears to me to be a contract in restraint of trade
which is unenforceable."

10. Here the promise to pay was conditional, not absolute. I have already said in my opinion cl. 2 cannot be severed from cl. 1 to make cl. 1 absolute. All cl. 3, including cl. 3 (b) (iii), does is to define what is meant by cl. 2. In these circumstances I do not think that the majority of the Court of Appeal was correct in deciding, first, that cl. 2 is itself inseverable, and, then, and in so far as it incorporates cl. 3 (b) (iii), it is severable. Clause 2 cannot be considered without cl. 3. (at p458)

11. This is a case where, as part of a business arrangement, a retiring allowance was granted on certain conditions. The retiring employee could, at his choice, accept the allowance on the stated conditions, or, if it would suit him better, forgo the allowance. Here, by entering into the employment of the Dickson Primer Group, he, in effect, made his choice. The company committed itself to pay the allowance upon certain conditions, but it did not commit itself to pay the allowance without conditions. In my opinion, once it is decided that cll. 1 and 2 are inseverable, that disposes of the claim. Clause 2 as read, as it must be, with cl. 3 is void. Accordingly, cl. 1 creates no liability to continue to pay. This is not a case where cl. 3 (b) (iii) can simply be excluded from consideration. That provision is not void; it is merely part of a definition. What is void is cl. 2 because it incorporates cl. 3, including cl. 3 (b) (iii). I would therefore apply the second part of the decision of the Court of Appeal in Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 as well as the first. (at p459)

12. For the foregoing reasons I would allow this appeal. (at p459)

OWEN J. I agree with the construction which my brother Walsh places upon the document upon which the plaintiff sued. I will assume that the case is one to which the doctrines relating to restraints of trade are applicable although I have some doubt whether such is the case. On that assumption, however, it seems to me to follow that it is the defendant's conditional promise to pay which offends public policy and is unenforceable since it is that promise which provided the inducement to the plaintiff to restrict his business activities and I do not think that the terms of that promise are to be read as though one of the definitions contained in cl. 3 of the deed did not exist. (at p459)

2. I would allow the appeal. (at p459)

WALSH J. This appeal raises questions as to the effect in the events which occurred of an instrument signed by the appellant and the respondent on 26th November 1964. Although the instrument does not appear to have been sealed by the appellant, it was treated as a deed in the earlier proceedings from which the appeal arises and, by concession, is to be treated as a deed by this Court. In the deed the appellant was called the "Company" and the respondent was called the "Employee". It was recited that the employee served the company for many years as its Sydney manager and had retired on 28th August 1964. Then followed these recitals:

" . . . WHEREAS at the time of the Employee's said retirement
the Company agreed that in consideration of the Employee's
past services to the Company the Company would pay to the
Employee a retiring allowance of Six thousand pounds
(6,000.0.0 pounds)
upon and subject to certain terms and conditions
AND WHEREAS the parties are desirous of entering into these
presents for the purpose of setting out herein the terms and
conditions upon and subject to which the said retiring
allowance shall be payable by the Company to the Employee."

"1. In consideration of the Employee's past services to the
Company prior to the said date the Company shall pay to the
Employee the said retiring allowance of Six thousand pounds
(6,000.0.0 pounds)
(hereinafter called 'the retiring allowance') by
equal consecutive quarterly instalments of Three hundred and
seventy-five pounds (375.0.0 pounds)
the first of such instalments to
be paid on the 28th day of November 1964.
2. The payment by the Company of the retiring allowance
is subject to the Employee not acting to the detriment of the
Company or its business and should the Employee so act then
the Company shall not thereafter be bound to pay any further
instalments of the retiring allowance to the Employee.
3. For the purposes of Clause 2 hereof the Employee shall
be deemed to act to the detriment of the Company or its
business if the Employee -
(a) Divulges to any person or company whomsoever or
whatsoever
any information of a confidential nature concerning
the business or finances of the Company or any subsidiary
thereof;
(b) As principal director agent servant consultant or otherwise
either alone or jointly with any other person firm or
corporation directly or indirectly -
(i) solicits business of the nature carried on by the
Company or any subsidiary thereof from any customer
of the Company or of such subsidiary;
(ii) engages or is concerned within the Commonwealth of
Australia in the marketing or selling of any line or
product manufactured for and/or sold or supplied to
the Company or any subsidiary thereof by any
overseas
or Australian manufacturer or supplier;
(iii) engages or is concerned within the Commonwealth of
Australia in the business of marketing or selling
builders' hardware architectural hardware, tools
sailcloth
pulley-blocks chain-blocks steel wire rope or
other lines or products of a nature now marketed or
sold by the Company or any subsidiary thereof."

2. The appellant paid instalments under the deed up to and including that which became due in November 1966. Upon its failure to pay the next instalment, the respondent brought an action in the District Court at Sydney claiming $750, alleged to have become due on 28th February 1967. The defence was that the respondent had not complied with the terms of cll. 2 and 3 of the deed. The particulars of defence asserted that before 28th February 1967 the respondent acted to the detriment of the appellant and its business, in that "he engaged and was concerned within the Commonwealth of Australia in the business of marketing or selling one or more of the following items, viz. architectural hardware, tools, pulley-blocks and chain-blocks". (at p461)

3. At the trial of the action the respondent disputed that he had done any of the acts described in cll. 2 and 3. But it was found by the learned trial judge that he had accepted employment with another company and that in that employment he had been, by the end of 1966, engaged and concerned in the marketing and selling of goods of the types specified in par. (b) (iii) of cl. 3. It is not now contended that that finding was not supported by evidence. The respondent claims that he is nevertheless entitled to recover the sum for which he sued. He contends that the restrictions set out in cll. 2 and 3 were in restraint of trade and were too wide to be enforceable. Then it is contended that the result was that the liability of the appellant to pay the instalments continued notwithstanding the non-fulfilment of the conditions specified in those clauses. (at p461)

4. The learned trial judge found that the conditions, to which he referred as "the covenant", were reasonable and were therefore not contrary to public policy. Accordingly he found a verdict for the appellant. In this Court counsel for the appellant conceded that if the rules were applicable which would apply if a former employer sought to enforce a contractual promise, in the terms set out in par. (b) (iii) of cl. 3, made by a former employee, then the restraint would be too wide. (at p461)

5. Upon an appeal by the present respondent to the Supreme Court of New South Wales that Court held by majority that the respondent was entitled to recover the sum claimed (1970) 92 WN (NSW) 734 . An appeal from that decision has been brought by special leave to this Court. (at p461)

6. In most cases in which the rules relating to the refusal of the courts to enforce restrictions upon freedom of trade have been considered, the court has been asked to enforce a promise contained in a contract, in which the party against whom relief has been claimed has bound himself not to engage in some stated business or employment or activity. Here the respondent did not bind himself contractually in any way. No step could be taken pursuant to the deed to restrain him from engaging in any of the activities mentioned in cll. 2 and 3. A further circumstance in this case is that there was no valuable consideration for the undertaking by the appellant to pay the retirement allowance; that undertaking would not have been enforceable against the appellant if it had not been contained in a deed. Those two features of the case must be kept in mind in deciding what is the proper construction and effect of the provisions of the deed. But before examining its particular provisions it is desirable to refer to some more general matters. (at p462)

7. The fact that the respondent would not be legally bound by the deed to refrain from acting in the manner described in the conditions set out in cll. 2 and 3 does not necessarily preclude him from raising in curial proceedings the question whether the provisions of the deed tended towards a restraint which is contrary to public policy. That is established by Pharmaceutical Society of Great Britain v. Dickson (1970) AC 403 , and by the recent decision of this Court in Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353 , in which it was affirmed that the doctrine of the common law that invalidates restraints of trade is not limited to contractual provisions. But although the respondent did not bind himself in the deed to any legal obligation, it was a deed which he executed as a party that contained the conditions which are said by him to be in restraint of trade and that set them out as the conditions upon which the appellant undertook the obligation which the respondent seeks now to enforce. In this respect the case is different from those cases in which some benefit is conferred upon a person who has nothing to do with the execution of the instrument by which it is conferred and who has no knowledge, before the instrument comes into operation, of any terms to which the benefit is made subject. Because of that difference, I think it is doubtful whether much assistance can be obtained in resolving the problem which arises in this case, by referring to the decisions upon the effect of a condtion which may create a tendency towards some conduct which the law regards as contrary to public policy, upon a gift contained either in a will or in a deed with which the donee is in no way concerned except that he is named as a beneficiary. Here the terms of the bargain made by the parties and embodied by them in a deed must be examined, notwithstanding that those terms did not include any covenant by the respondent, in order to ascertain what was the intention of the parties. This is not to be ascertained, in my opinion, simply by deciding whether the conditions in the deed should be classified as conditions precedent or as conditions subsequent and by applying the somewhat complex rules (see In re Cuming; Nicholls v. Public Trustee (S.A.) [1945] HCA 32; [1945] HCA 32; (1945) 72 CLR 86, at p 91 ) which have been developed to determine the effect, upon a gift made by will, of a void condition. (at p463)

8. When a promise by one party is unenforceable because its enforcement would be contrary to public policy and when that promise is the sole consideration for a promise by the other party, the latter promise may be held to be unenforceable upon the ground that there is no valuable consideration to support it. In such a case, the latter promise is unenforceable whether or not the promise which is contrary to public policy has been observed. But when mutual promises are contained in a deed and, therefore, do not depend for their enforceability upon the doctrine of valuable consideration applicable to simple contracts, it has been held that, nevertheless, if a covenant by one party is contrary to public policy and is the sole or the principal "consideration" for a covenant by the other party, then the latter covenant is unenforceable: see Bennett v. Bennett (1952) 1 KB 249 , and see Brooks v. Burns Philp Trustee Co. Ltd. [1969] HCA 4; (1969) 121 CLR 432 . In the latter case Taylor J. (1969) 121 CLR, at p 442 expressed the view that although in the case of a simple contract the necessity for consideration may introduce an additional element to be taken into account, the problems of what intentions should be imputed to the parties and how these problems should be resolved are, generally speaking, common to simple contracts and to deeds. In the same case Windeyer J., in a dissenting judgment, expressed the view (1969) 121 CLR, at p 463 that the judgments in Bennett v. Bennett (2) on this aspect turn not on consideration in the contractual sense, but on a theory of dependent covenants. I agree with that. I think it is a view which is not really different from the notion expressed by Kitto J. (1969) 121 CLR, at p 438 , when he referred to an "intended reciprocity of obligation between promises", which required an inference that the validity of each promise is a condition of the operation of the other. (at p464)

9. In my opinion if a deed contains covenants by both parties and the covenant of one party offends against public policy and if there is no express declaration of intention concerning the interdependence or the independence of the covenants, the question whether the covenant of the other party may be enforced will generally call for the application of similar considerations, including the principles relating to severability, as are applicable to a like question arising under a simple contract. There is the difference, already mentioned, between the effect of a deed and the effect of a simple contract, which may sometimes be of importance, that is, that an unenforceable promise by one party does not constitute valuable consideration to support a promise by the other party in a contract not under seal and unless some other valuable consideration is given for the latter promise it is not enforceable. But this distinction is not of significance in the present case. It is not necessary here to decide whether the covenant of the appellant would have been unenforceable even if the respondent had not acted to the detriment of the appellant or its business. If the respondent had covenanted not to act in that manner, a question could have arisen whether the operation of the appellant's covenant was dependent upon the enforceability of the respondent's covenant or merely upon the continued actual observance of it: see Brooks v. Burns Philp Trustee Co. Ltd. (1969) 121 CLR, at pp 464 and 476 , per Windeyer J. But that is a question which need not be resolved in this case. (at p464)

10. Having regard to the judgments given in the Court of Appeal (1970) 92 WN (NSW) 734 and to the arguments addressed to this Court, I have thought it right to discuss the matters of principle to which I have referred. But a decision upon the question raised by the appeal must depend upon a conclusion as to the meaning to be attributed to the relevant provisions of the deed. The conclusion to which I have come as to the effect of those provisions accords with the construction put upon it by Asprey J.A. in the Supreme Court. The different construction adopted by Holmes J.A. and Mason J.A. made it necessary for their Honours to discuss some questions which upon my view do not need to be explored. (at p464)

11. In my opinion, the deed should not be read as conferring, in the first instance, upon the respondent an absolute right or a "vested" right to receive the whole sum of 6,000 pounds and as then providing for the defeasance of that right upon the occurrence at a later time of a specified act or event. As the recitals show, the appellant agreed to pay a retiring allowance of 6,000 pounds "upon and subject to certain terms and conditions" and the parties entered into the deed for the purpose of setting out in it the terms and conditions "upon and subject to which the said retiring allowance shall be payable by the Company to the Employee". Clauses 1 and 2 of the deed should be read together. So read, they provide that the payment of the retiring allowance is subject to the respondent not acting to the detriment of the appellant or its business. That is stated expressly in cl. 2. The further provision in cl. 2 that should the respondent so act, then the appellant should not thereafter be bound to pay any further instalments of the retiring allowance, does not require the conclusion that the deed contained an absolute grant of the whole of the retiring allowance which was then qualified by a condition providing for defeasance of the grant. On the contrary, the terms of the latter part of cl. 2 are in harmony, in my opinion, with the construction that the only bargain expressed in the deed is a bargain by which the quarterly instalments of the allowance are to be paid, up to the total amount of 6,000 pounds , during the continuance of a period in which the respondent is not acting to the detriment of the appellant or its business. If at the date when an instalment falls due the respondent has not been and is not so acting, then his right to that instalment becomes complete and even if he begins to act to the detriment of the appellant or its business, after that date but before payment of that instalment, he is still entitled to it. Likewise, he is entitled in that event to retain instalments which have previously been paid to him. But the company is not thereafter bound to pay any further instalments. What I have stated is subject to the further condition, resulting from cl. 5, that at the date when an instalment becomes payable the respondent should still be alive. (at p465)

12. Upon that construction of the deed, it is plain in my opinion that the respondent did not become entitled to the instalment for which he sued. The provisions contained in cl. 3 are not a set of separate conditions to which the respondent has agreed to submit. They are all part of the definition or explanation of the ambit of one condition, contained in cl. 2. In the circumstances no such question of severability arises as might have arisen if the respondent had entered into covenants in the terms of cl. 3 and the appellant had sought by injunction or by action for damages to enforce the covenants against him. I do not find it necessary to discuss in detail the cases of Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 ; In re Prudential Assurance Company's Trust Deed (1934) 1 Ch 338 ; and Bull v. Pitney-Bowes Ltd. (1967) 1 WLR 273 , to which we were referred. In my opinion there are important differences between each of them and the present case and I have not found in them any single principle which, if accepted, would be decisive of this case. As I have said earlier, I do not think that the respondent's claim was one which must necessarily have been rejected for the reason that he did not bind himself to refrain from engaging in the activities mentioned in the deed. In Bull v. Pitney-Bowes Ltd. (1967) 1 WLR, at p282 , Thesiger J. said:

"From the public point of view there is every justification
for the plaintiff's argument in this case that the employer
cannot achieve by the inducement of a continued pension that
which he could not achieve by obtaining a direct promise in
return for particular wages or salary."

13. I do not mean to assert that the doctrine of restraint of trade can never apply to a bargain by which a retiring allowance is granted although there is no pre-existing legal obligation to grant it, or that the doctrine can never apply to a condition of forfeiture contained in such a bargain. But in each case the terms of the bargain and the circumstances in which it is made must be considered in deciding what is the effect in a case of that kind of a condition which is unduly restrictive. It may be that the grant itself will be made void by reason of the tendency which the attachment to it of the condition has towards an undue restraint of trade. But assuming that the grant is not for that reason void, it may be made in such terms that the obligation imposed by it depends upon the performance of the conditions, not in the sense that there is a forfeiture of a vested right upon breach of the condition, but in the sense that there is no obligation if the condition is not performed. In my opinion this is the effect of the relevant provisions of the deed in this case. (at p467)

14. The appeal should be allowed. (at p467)

GIBBS J. The facts of this case have been set out in the judgments prepared by my brother Menzies and my brother Walsh. In argument before us the respondent did not seek to challenge the finding made by the learned primary judge and upheld by the Court of Appeal (1970) 92 WN (NSW) 734 that the respondent had been concerned in the business of marketing and selling builders' and architectural hardware within the meaning of cl. 3 (b) (iii) of the deed and had therefore acted to the detriment of the appellant company within cl. 2 of the deed. It was common ground that if those provisions of the deed were valid the respondent could not succeed in recovering the instalment of the retiring allowance for which he sued. The case for the respondent, however, was that the provisions of cl. 3 (b) (iii) were void as being in unreasonable restraint of trade, but severable, and that the respondent took the benefits conferred by cl. 1 free from the condition which cl. 3 (b) (iii), if read into cl. 2, would impose. (at p467)

2. The first question that falls for decision is whether any, and if so which, of the provisions of the deed would if valid operate as a restraint of trade. The deed contained no covenant by the respondent not to engage or be concerned in the business described in cl. 3 (b) (iii) but, as we have recently held in Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353 , the doctrine of restraint of trade is not limited to contractual restraints. Whether the provisions of the deed operated as a restraint of trade depended on their practical working rather than on their legal form (see the passage from the judgment of Lord Wilberforce in Dickson v. Pharmaceutical Society of Great Britain (1970) AC 403, at p 440 , which was cited in Buckley v. Tutty (1971) 125 CLR, at p 375 ). The relevant provisions of the deed, assuming them to be valid, obliged the appellant to pay the respondent any particular instalment of the retiring allowance only if before the time for payment of that instalment had arrived the respondent had not engaged or been concerned in the business described in cl. 3 (b) (iii). Clearly the provisions of the deed provided the respondent with an inducement to refrain from engaging in the business lest he lose the allowance and the question is whether this can be said to amount to an interference with the free exercise by the respondent of his trade. The case in this respect seems to me to be indistinguishable from Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 where it was held, at least by Scrutton and Slesser L.J.J., that an agreement by an employer to pay his employee a pension if he did not enter into the wool trade was an agreement in restraint of trade. That decision has been criticized on the ground that the liberty of action of the employee was not restrained by such an agreement, since the employee was at any time free to enter into the wool trade and forgo the pension, but in my opinion a promise by one person to pay another a sum of money if he does not engage in trade may rightly be regarded as a restraint of trade because its practical operation is to tend to deter or restrain the promisee from engaging in trade even though it does not prohibit him from doing so. I hold that in the present case the deed operated in restraint of trade. It was not contested that the restraint went beyond what was reasonable in the interests of the parties. (at p468)

3. However, in my opinion the unreasonable restraint of trade is not to be found only in cll. 2 and 3 (b) (iii) of the deed. Those clauses by themselves can have no operation. Their function is to set out the terms upon which the allowance provided by cl. 1 is payable. If cl. 1 did not provide for the payment of an allowance, cll. 2 and 3 would have no restraining tendency. The restraint is brought about by the making of a promise to pay which is conditional, inter alia, on the promisee not engaging in a certain trade, that is, by the combined effect of cll. 1, 2 and 3. The decision in Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 in my opinion supports this view for in that case the Court seem to have regarded the whole agreement, and not merely the condition of the promise to pay, as constituting the invalid restraint of trade. Scrutton L.J. appears to have expressed this view when he said (1933) 1 KB, at p 807 :

"Now this agreement, stated in the most favourable form
for the plaintiff, namely a stipulation by the employer that he
will pay the plaintiff so much a year if the plaintiff does not
enter into the wool trade for the rest of his life in any part of
the country or world, appears to me to be a contract in
restraint of trade which is unenforceable just as much as a
contract by the employee not to trade in the wool trade for
the rest of his life in any part of the world . . . " (at p469)

4. Even if it were possible to regard cll. 2 and 3 as operating by themselves in restraint of trade those clauses are in my opinion inseverable from cl. 1. Whether one provision of a deed is severable from another is fundamentally a matter of the intention expressed in the deed : cf. Brooks v. Burns Philp Trustee Co. Ltd. (1969) 121 CLR, at p 442 . In my opinion the intention which the deed discloses was that the payment of any instalment of the allowance should be conditional on the respondent not acting in the manner generally described in cl. 2 and more particularly defined in cl. 3. To require the appellant to make the payments even if the respondent acted to the detriment of the appellant within the meaning of cll. 2 and 3 of the deed would be entirely to alter the nature of the obligation which the deed imposes. (at p469)

5. The present case in my opinion is distinguishable from In re Prudential Assurance Company's Trust Deed (1934) 1 Ch 338 and Bull v. Pitney-Bowes Ltd. (1967) 1 WLR 273 . In the former of those cases a trust deed providing for a pension scheme contained a term that the pension should cease if the pensioner should engage in any business in competition with his former employer and it was held that assuming this clause to be unenforceable as in restraint of trade the whole scheme was not thereby rendered invalid. In the latter case the offending clause, which it was assumed rather than held was severable, gave the committee administering the trust fund power in certain circumstances to cancel the rights and benefits of an employee under the scheme. In each of these cases the invalid clause operated in defeasance of a right elsewhere conferred rather than as a statement of the conditions subject to which the right came into existence and on the proper construction of the deed as a whole was severable from the other provisions of the deed. In the present case, on the other hand, the right conferred by cl. 1 is conferred only on the conditions imposed by cll. 2 and 3 and the former clause cannot stand alone if the latter fail. (at p470)

6. It follows in my opinion that the deed was unenforceable and the respondent was not entitled to recover the instalment for which he sued. (at p470)

7. I would allow the appeal. (at p470)

ORDER