Federal Court of Australia

INTRODUCTION

1 In this application three preliminary issues have been tried on facts which were largely agreed. The basic issue is whether a clause in an agreement for the sale and purchase of a business, made between the parties on 15 February 1983, which, on its face, prevents the sale of the applicants' products in Western Australia for a period (potentially) of nearly 30 years, is valid.

FACTUAL BACKGROUND

2 In the early 1900s an American, Mr F A B Peters, established various Peters ice-cream manufacturing businesses around Australia. The technology at the time required that ice-cream be manufactured near where it was sold. Accordingly, separate businesses were established under separate ownership in New South Wales, Queensland, Victoria and Western Australia. In the late 1920s the operators of those separate businesses entered into agreements under which they did not enter into each other's markets and co-operated in relation to the sharing of marketing and technical information. Although by the 1960s disputes had occurred between the operators (principally in Queensland and New South Wales) in relation to border incursions, substantial co-operation continued. The respondent became the operator of the Western Australian business in 1929 under the name Peters American Delicacy Co (WA) Ltd. It has had three changes of name since then. In the 1930s, a group of families with an interest in the dairy industry in Queensland founded Pauls Ltd to compete in the ice-cream market with the Peters company in Queensland (Peters Arctic Delicacy Co Ltd). In 1960 Pauls Ltd and two Peters companies in Queensland amalgamated to form a company which I will call "QUF". By 1980 QUF manufactured ice-cream (by which term I include ice-cream products) in Queensland, Victoria and Western Australia which it sold in Queensland under both the Peters and Pauls brands, but elsewhere solely under the Pauls brand. By that time (1980) all of the other Peters ice-cream businesses (i.e. other than the Western Australian and Queensland businesses) had been consolidated into a company called Petersville Ltd (the first-named applicant). I shall refer to that company as "Petersville". Again in 1980, Petersville and QUF established a partnership under the name "Australian United Foods" ("AUF"). AUF manufactured and sold ice-cream under the Pauls brand nationally and under the Peters brand in every State except Western Australia. At that time the respondent manufactured and sold ice-cream under the Peters brand in Western Australia. It still does. On 15 February 1983 QUF and Petersville (the partners in AUF) sold their Western Australian ice-cream business to the respondent under an agreement entered into on that date. That agreement was referred to in the pleadings and at the hearing as "the Principal Agreement". I shall also refer to it by that name. Under the Principal Agreement:

(a) QUF sold several parcels of land in Western Australia, on which the ice-cream business of AUF was conducted, to the respondent for $1,164,500;

(b) AUF sold the plant, equipment, motor vehicles and chattels used in its Western Australian ice-cream business to the respondent for $519,000;

(c) AUF sold the stock in trade of its Western Australian ice-cream business to the respondent for $752,000;

(d) AUF sold the right to use various Pauls and other associated trade marks in Western Australia, and the goodwill of AUF's Western Australian ice-cream business, to the respondent for $1,054,500;

(e) AUF agreed to grant, or procure the grant, to the respondent of the exclusive right and licence to use the Pauls marks in Western Australia;

(f) as payment for the exclusive right and licence to use those marks, the respondent was required to pay a royalty of 2.5 per cent on sales of all products bearing the Pauls marks ("the licensed products") in Western Australia and on ice-cream products sold by the respondent to Coles for resale as house brands as if they were licensed products. There was a minimum royalties provision;

(g) the respondent was entitled to market products and use advertising or promotions acquired or developed by AUF under the "Peters" mark on the basis that such products were to be considered as licensed products;

(h) AUF agreed to provide the respondent with access to AUF's manufacturing know-how, product development and technical marketing information in relation to ice-cream products marketed by AUF, in return for reimbursement of expenses; and

(i) QUF and Petersville covenanted not to sell, supply or distribute to any person in Western Australia ice-cream or frozen confections manufactured or distributed by either of them;

(j) the total purchase price was $3,490,000.

3 The covenant referred to at sub-paragraph (i) above ("the Restraint") and the covenants conferring the rights referred to in sub-paragraph (g) and (h) above (being Articles 7.2 and 7.3 upon which the respondent relied quite heavily in defending the Restraint) were in the following terms:

Article VII

FUTURE ARRANGEMENTS

7.1 Each of QUF and [Petersville] covenants and agrees with and for the benefit of [the respondent] solely for the protection of [the respondent] in respect of the goodwill of the ice-cream business but subject to the due performance by [the respondent] of its obligations hereunder and except as herein permitted that they and each of them will not:-

(a) sell, supply or distribute to any person in Western Australia ice-cream or frozen confections manufactured or distributed by them or either of them;
(b) sell, supply or distribute to any person anywhere ice-cream or frozen confections manufactured or distributed by them or either of them where such ice-cream or frozen confections are to the knowledge of QUF and [Petersville] or either of them ultimately intended for sale, supply or distribution in Western Australia whether by the first-mentioned person or any other person;
(c) carry on in Western Australia directly or indirectly and whether as principal or agent the business of manufacturer, distributor (or either of them) of ice-cream or frozen confections; or
(d) permit any subsidiary or related company (within the meaning of those expressions under the Companies (Western Australia) Code) of them or either of them directly or indirectly and whether as principal or agent to carry on the business of manufacturer, distributor (or either of them) of ice-cream or frozen confections in Western Australia;
during the period of the licensing arrangements referred to in Article V hereof.

7.2 At the request of PWA, AUF shall during a like period provide access to manufacturing know-how, product development and technical and marketing information in relation to products of the ice cream business then being marketed by AUF and if such information is requested and provided AUF shall be entitled to be reimbursed for costs incurred in respect of marketing or advertising.

7.3 If AUF shall develop or acquire advertising or promotions relating to products sold under the said trade names or like product under the brand name "Peters", then at the request of PWA and upon such reasonable terms and conditions as may then be agreed between PWA and AUF, PWA may market such products and may use such advertising or promotion therewith, and if any such products were not previously marketed by PWA then such products upon being marketed by PWA shall be considered "licensed products" for the purposes of Article V."

(b) If yes to (a) above:

(i) whether the Restraint was reasonable having regard to the interests of the parties at the time it was entered into?;

(ii) in determining (i) above, to what extent, if at all, can evidence of subsequent events be taken into account?;

(iii) whether the Restraint was reasonable having regard to the public interest?

2. In any event, whether the applicants are by reason of the matters pleaded in paragraph 14 of the Amended Defence not entitled to the relief sought?

3. Whether the Restraint is a provision in a contract for the sale of a business solely for the protection of the respondent in respect of the goodwill of that business within the meaning of s 51(2)(e) of the Trade Practices Act? I proceed to deal with those issues in the same order as set out above.

1(a) WHETHER THE RESTRAINT IS A RESTRAINT OF TRADE TO WHICH THE COMMON LAW DOCTRINE OF UNREASONABLE RESTRAINT OF TRADE APPLIES AT ALL?

Respondent's Contentions

6 It is convenient, in relation to this issue, to look first at the respondent's contentions. The respondent contended that the common law restraint of trade doctrine ("the doctrine") only applied to restraints effective and consequent upon completion of a contract for sale of a business or a contract of employment and to solus agreements, such as sole agencies. In relation to solus agreements the doctrine only applied where the contract regulating any ongoing commercial dealings between the parties exceeded the normal negative ties incidental to a positive commercial transaction. If the contract tied the parties only during the continuance of the contract, and the negative ties were only those incidental and normal to the positive commercial arrangements at which the contract aimed, then, so it was put, there was no restraint within the meaning of the doctrine. For this proposition the respondent relied on the decision of the House of Lords in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269 at 294, 295, 328, 331 and 332. The respondent argued that the Restraint applied only during the continuance of the Principal Agreement, applied only to ice-cream sales and was directed towards the absorption and continuation by it of the applicants' business activities in Western Australia, not the "sterilisation" of such activities. Recital F to the Principal Agreement, which recited the fact that AUF wished "to retire from direct engagement in the ice-cream business in Western Australia", showed that the applicants did not consider that they were totally withdrawing from that market, but only that they would participate via the respondent. The respondent pointed to various reports by the General Manager of AUF before execution of the Principal Agreement, as indicating the partnership's interest in maintaining the Pauls brand in Western Australia. The applicants' income was protected by minimum royalties as was its national brand presence in Western Australia. The Principal Agreement was said to require ongoing co-operation and dealings between the parties in a variety of areas. This was a reference to the respondent's entitlement to use brand names and trade marks ("the Pauls marks") via the licensing arrangements (Article 5.2) and access to manufacturing know-how, product development, technical and marketing information and the right to market any newly developed products under both the Pauls marks or the brand name Peters as licensed products (Article 7.2 and 7.3). The Restraint was simply part of that arrangement, and would cease immediately when the rest of the arrangement ceased. The respondent contended that it was "neither logical nor practical" to apply the doctrine to an ongoing contractual relationship of this nature. The consequence of doing so would be to "leave untouched" the respondent's obligation to pay minimum royalties for the licensed products, while freeing the applicants to use other ice-cream products to undermine the respondent's sales of licensed products. That would allow the applicants to compete against the respondent in Western Australia when it (the respondent) was contractually entitled to access to and use of the applicants' know-how and new products developed by the applicants. The respondent contended that if the Court applied the doctrine in that manner, it would be re-writing the consideration to be received by the parties as part of an ongoing business relationship. The respondent submitted that the Principal Agreement was, in truth a contract for the advancement and promotion of the applicants' trade rather than one which had the character of a contract in restraint of trade - a reference to an observation by Lord Morris in Esso at 307.

Applicants' Contentions

7 The applicants contended that there could be no doubt that the Restraint was a restraint to which the common law doctrine applied. When regard was had to the terms of Article 7.1(a), (b), (c) and (d) there was hardly any other apt description because those provisions restricted the rights of the applicants to trade in Western Australia, they restricted rights to deal with certain persons outside Western Australia who may be trading in that State and they purported to impose a restriction on other companies from trading in Western Australia. The applicants submitted that the Restraint clearly restrained trade in the sense of being an "interference with individual liberty of action in trading" a reference to part of the speech of Lord Macnaughton in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co, Ltd [1894] AC 535 at 565. The partners in AUF had given up a liberty to trade. Without the Restraint, AUF, having sold the ice-cream business, would not have been prevented from setting up in competition. There would have been a prohibition, as a matter of general law, on the solicitation of customers, but no more: Trego v Hunt [1896] AC 7 at 23. The doctrine had never been held to apply to such a common law restraint. But the doctrine did apply where there was a contractual obligation imposed whereby a vendor gave up a right to trade which he otherwise would have had, but for the contract. The Principal Agreement involved the sale of each and every asset of the business with perhaps one exception. The exception comprised the Pauls marks which were the subject of the licence. The fact that Article 7.2 and 7.3 imposed some ongoing obligations on the applicants but not the respondent, could not, so it was put, alter that position. Even in agreements involving ongoing relationships, particular restrictions on trade could fall within the doctrine. The House of Lords in Esso, by applying varying tests, had held that the restriction on purchasing petrol in relation to one of the garages fell within the doctrine. In this matter the applicants had given up not only their right to sell Pauls ice-cream in Western Australia but ice-cream by whatever other name, with the probable exception of Peters (the "probable exception" being a reference to a right which the applicants probably did not have).

My Reasoning

8 The Principal Agreement involves two broad aspects. The first is the sale of the business. The second is the licensing and other like arrangements. By "other like arrangements" I refer to the rights conferred by Articles 7.2 and 7.3. Not surprisingly, there is no "term" of the Principal Agreement. In any event there are many cases where restraints which applied during the term of an agreement have been held to fall within the doctrine. Those authorities are conveniently collected in Mr J D Heydon's "The Restraint of Trade Doctrine" (2 ed) at pp 55-56. I acknowledge that the respondent was not relying merely on the proposition that the Restraint applied only during the term of the Principal Agreement. The respondent linked that factor to the Restraint being incidental to the licensing arrangements. There was an initial term of the licensing arrangements of nearly 15 years which, as I have outlined above, was capable of extension and which could be terminated. It is quite true that clause 7 of the Principal Agreement expressly provides that the Restraint is to take effect during the period of the licensing arrangements. In that sense, there is a relationship between the Restraint and the licensing arrangements. The parties saw fit to link the term of the Restraint to the term of the licensing arrangements. I accept that the Restraint can thus be seen as being incidental to the positive commercial arrangements reflected in the licensing arrangements. However, that does not, in my view, exclude the Restraint from the operation of the common law doctrine against unreasonable restraints of trade. 9 One of the passages in Esso upon which the respondent relied was in the speech of Lord Pearce who (at 328) said:

"When a contract only ties the parties during the continuance of the contract, and the negative ties are only those which are incidental and normal to the positive commercial arrangements at which the contract aims, even though those ties exclude all dealings with others, there is no restraint of trade within the meaning of the doctrine and no question of reasonableness arises. If, however, the contract ties the trading activities of either party after its determination, it is a restraint of trade, and the question of reasonableness arises. So, too, if during the contract one of the parties is too unilaterally fettered so that the contract loses its character of a contract for the regulation and promotion of trade and acquires the predominant character of a contract in restraint of trade. In that case the rationale of Young v Timmins [1831] EngR 63; [1 CR & J 331] comes into play and the question whether it is reasonable arises."

"It is much too late now to say that this rather anomalous doctrine of restraint of trade can be confined to the two classes of case to which it was originally applied."

"As the whole doctrine of restraint of trade is based on public policy its application ought to depend less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it is the policy of the law to protect.

. . .

Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had."

"A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other parties not parties to the contract in such manner as he chooses."

* the fact that Esso did not bind itself so as to assure the respondent of supplies of petrol at a reasonable price. Esso had an absolute discretion in the event of a failure in its own sources of supply;

* the price was to be fixed by Esso; and

* the respondent accepted a contractual obligation to continue to keep the garages open or find a successor who would do so on like terms.

15 Accordingly, the contracts were to be assessed in terms of the conventional reasonableness tests. Lord Wilberforce reviewed the authorities and noted that not all restraints fell within the common law doctrine of restraint of trade. At 335 his Lordship referred to what he described as

"... the well-known type of case where a man sells his business and its goodwill and accepts a limitation on his right to compete."

"...the latter doctrine [the restraint of trade doctrine] only applies to covenants which are imposed in a trade or commercial context or for a trade or commercial purpose, present or future. I use those words very widely, particularly bearing in mind recent decisions such as Pharmaceutical Society of Great Britain v Dickson and Buckley v Tutty. There is nothing narrow about the doctrine of restraint of trade and its categories are never closed. But it is not all embracing. So far as I am aware it has never been applied outside the context of commercial purposes, within which words I include personal employment of skills and labour, as an employee or otherwise, as well as commercial transactions of business.
...

I now turn to the covenants in the present case. The purpose and effect of them is clear, namely, the protection of the business of the covenantee from competition. In my opinion these circumstances at once bring the covenant within the scope of the doctrine of restraint of trade..."

In view of my conclusion on this issue, i.e. that the common law doctrine applies to the Restraint, its validity falls to be decided according to whether it is reasonable in the interests of the parties and reasonable in the interests of the public: Nordenfelt at 565; Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353 at 376; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Pty Ltd [1973] HCA 40; (1974) 133 CLR 288 at 305-306.

1(b) (i) and (ii)

WHETHER THE RESTRAINT WAS REASONABLE HAVING REGARD TO THE INTERESTS OF THE PARTIES AT THE TIME IT WAS ENTERED INTO (AND TO WHAT EXTENT IF AT ALL CAN EVIDENCE OF SUBSEQUENT EVENTS BE TAKEN INTO ACCOUNT?)

Applicants' Contentions

18 It was common ground that to be valid, the Restraint had to be reasonable in the interests of both parties: Attwood v Lamont [1920] 3 KB 571 at 584-586; Amoco at 306; Peters American Delicacy Co Ltd v Patricia's Chocolates [1947] HCA 62; (1947) 77 CLR 574 at 590 and Adamson v NSW Rugby League [1991] FCA 425; (1991) 103 ALR 319 at 341. It was also common ground that the reasonableness of the restraint was to be determined at the time it was entered into. But the applicants submitted that facts occurring after the giving of the Restraint were not necessarily irrelevant, particularly if they threw light on the circumstances existing at that time. The circumstances included the parties' expectations about what might possibly happen in the future. In the present case, the respondent had extended the term of the Restraint by extending the licensing arrangements for a further five years to the year 2003. The Restraint could be extended potentially to the year 2013. The applicants contended, that while it was clearly in the interests of the respondent to be protected from competition for this time, that did not make it reasonable. For a restraint to be reasonable inter partes it had to do no more than give adequate protection to an interest which the respondent was entitled to have protected: Herbert Morris Ltd v Saxelby [1916] AC 688 at 700, 707. The applicants submitted that the fact that, first, AUF wanted the Restraint and, secondly, that there were ongoing obligations and ongoing royalty payments neither by themselves nor in conjunction could satisfy the tests. The anxiety of a vendor to sell could not, so it was put, determine the objective test of what adequate protection was needed. In circumstances where there were ongoing obligations to make available know-how and trade marks and the like, the respondent had not pointed to any reason whatsoever why it had to keep the applicants out of the market for as long as they exclusively held those trade mark and other rights. The Restraint was one against competition per se and was unacceptable: Butt v Long [1953] HCA 76; (1953) 88 CLR 476 at 486. The proposition put by the respondent, that it had acquired a bundle of individual rights including the trade marks and the like, which formed part of the goodwill and was thus entitled to protection by the Restraint elided inappropriately the distinction between goodwill and the sources of goodwill. The trade marks and the like may have been sources of the goodwill of the business but were not part of the goodwill; the goodwill was an indivisible item of property, an asset legally distinct from the other assets of the business which created it: Federal Commissioner of Taxation v Murry [1998] HCA 42; (1998) 155 ALR 67. In the Principal Agreement, although the consideration for the sale of the goodwill and the grant of the licence were joined, they were otherwise treated as separate parts of the sale. The only qualification on the Restraint was that the respondent not be in breach of its obligations under the Principal Agreement. The applicants could terminate the licensing arrangements for default if not remedied within 30 days. The applicants said that it was "not to the point" that they were recompensed by the royalty; there was nothing to suggest that the rate of royalty was excessive and indeed the evidence was that the respondent would have been prepared to agree a higher rate. The existence of the licence did not of itself provide a justification for the extent (in area or time) of the Restraint. The onus was on the respondent to show that the Restraint was reasonable i.e. that it afforded no more than adequate protection to the respondent. In terms of geographical area, the Restraint should have been confined to the area within which in all probability the respondent might have been injured. Although the nature and extent of the business conducted by a vendor and the extent of the business conducted by a purchaser (if similar to that purchased) were relevant, the latter interest was not an interest entitled to protection by a restrictive covenant. Other relevant factors, so it was submitted, were:

* the apportionment of the purchase price and the amount received for goodwill;

* whether the Restraint was "fairly and properly ancillary to the sale": Bridge v Deacons [1984] AC 705 at 713; and

* the period during which, having regard to the nature of the business, developments in the market were foreseeable. One test was whether the period after which the vendor's re-entry into the market would affect the business no more than would the entry of a stranger. Another was the adequacy of the period to protect the interests of the purchaser without unreasonably affecting the interests of the vendor.

19 The applicants submitted that the evidence showed that at the time of the acquisition:

(a) the ice-cream business was performing poorly and was unlikely to improve without significant capital expenditure;

(b) the market was stagnant with manufacturing over-capacity;

(c) there was the threat of entry by Streets;

(d) the respondent had a dominant market share and was stronger than AUF in the country areas particularly;

(e) AUF sales into certain remote areas were very limited;

(f) rationalisation in some form had been "on the agenda" since 1980; and

(g) the respondent was on the point of committing itself to build a new factory, and the acquisition would give it the additional through-put necessary to make that factory viable and eliminate the need for costly imports from the eastern States.

20 The applicants argued that the ice-cream business was worth more to the respondent than to any other purchaser, but that the respondent had secured the business at a price which was very reasonable having regard to the independent valuation placed on it. The acquisition, so it was submitted, presented a "unique opportunity" to the respondent. 21 In terms of the geographical extent of the Restraint, the applicants submitted that, independent of its then existing business, the interests which the respondent was entitled to protect were quite limited. The applicants argued that a restraint over the whole of Western Australia was "hardly warranted" having regard to AUF's distribution arrangements. 22 As to the period of the Restraint, the applicants contended that a term of three to five years would have been the maximum necessary and reasonable to recoup the respondent's investment and to protect the goodwill acquired. The applicants submitted that the term of the Restraint in 1983 was, and remains still, uncertain. It depended on an election by the respondent in relation to the term of the licensing arrangements, which, so the applicants submitted, could have no bearing on the goodwill acquired. The goodwill acquired was "a finite item of property" at the date of purchase. There was an element of arbitrariness about a covenant which purported to be referrable to a concluded transaction, but whose duration could be altered unilaterally by one of the parties.

Respondent's Contentions

23 The respondent accepted that it had the onus of establishing circumstances from which the Court might conclude that the Restraint was reasonable as between the parties. The respondent contended that the Restraint was reasonable as between the parties because:

* the term of the Restraint did not extend beyond the term of the Principal Agreement;

* the Principal Agreement was "driven by the desire of" AUF to rationalise their operations across Australia and to withdraw from the Western Australian market;

* it was an integral part of the sale of AUF's business that the respondent would be licensed to use the Pauls names and to sell various of AUF's products, including all products during the term of the Principal Agreement marketed by AUF in the eastern States under the Pauls or Peters marks, for which the respondent agreed to pay a royalty of 2.5 per cent with a guaranteed $150,000 per annum minimum;

* those licensing and know-how arrangements were inseverable parts of the goodwill of the business acquired; and

* it was reasonable as between the parties that, during the term of the Principal Agreement (i.e. the term of the licensing arrangements), AUF would not enter the market in their own right, but would maintain their presence in Western Australia through the Principal Agreement and the receipt of royalties.

24 In oral submissions, supplemented by further written closing submissions, the respondent referred to certain facts which were said to be relevant to reasonableness. I shall not set them out in full, but incorporate them here by referring to them. They can be found in paragraph 4 of the written closing submissions, but paragraph 3 (which deals mainly with what were described as legal propositions regarding reasonableness) also refers to factual aspects of the present matter. They too should be read as incorporated by reference into these reasons. These facts were said to demonstrate that the sale of the business was motivated by the desire referred to above, a belief that AUF's operations in Western Australia were not viable and also that not only were the partners in AUF willing participants in the sale, but they were the driving force behind it. The transaction had been suggested and pursued at the direction of the AUF Board. Other benefits to the applicants were identified in those submissions. One such benefit, which the respondent contended was very important, was that the licensing arrangements enabled AUF to maintain a continuing involvement in the Western Australian market through the Pauls marks thus enabling national arrangements to be made with national retailers such as Coles. The respondent emphasised that the Court should be especially reluctant to intervene, because the Restraint had been agreed upon between two experienced traders after obvious careful bargaining on equal terms. But for the Restraint, the respondent would be exposed to the prejudice of paying minimum royalties on a product which the applicants could undermine in the market place. A shorter period of restraint would leave the respondent so exposed while still having to pay minimum royalties and being entitled to access to the applicants' know-how and the other like rights mentioned earlier. The respondent contended that it had a legitimate interest in the Restraint to protect it against the prejudice to what were in effect ongoing goodwill payments. So far as the geographic area was concerned, the respondent argued that the Restraint mirrored the market in which AUF and the respondent had both been operating. Article 7.1(b) and (d) were reasonably necessary to make the Restraint effective i.e. to prevent circumvention by selling through an intermediary or operating in Western Australia via a related company.

My Reasoning

25 The following passages from the reasons for judgment of Dixon CJ in Butt v Long at 486), in my respectful opinion, provide a very useful starting point for deciding this issue:

"... a restraint of trade is unreasonable if it is greater than is needed to give adequate protection to the person for whose benefit the restraint is imposed. It may be too great in the area which it covers or in the time through which it endures or in other respects.
...
For a restraint to be reasonable in the interests of the parties it must afford no more than adequate protection to the party in whose favour it is imposed [citing Lord Parker in Herbert Morris Ltd at 707].
...
A distinction is drawn between the position of the purchaser of the goodwill of a business taking a covenant in restraint of trade from his vendor and the case of the owner of a business taking such a covenant from his servant or apprentice. The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment and if the purchaser is to take over such goodwill with all its advantages it must in his hands remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell. The covenant against competition is therefore reasonable if confined to the area within which it would in all probability enure to the injury of the purchaser [further citations from Lord Parker's speech in Herbert Morris Ltd]."

"It should also be observed that, the question of reasonableness being a matter of law for the court, it has never yet been supposed that it is necessary in relation to the trade of a large manufacturer or merchant to prove to the satisfaction of the court that the business which the covenant is designed to protect has been carried on in every part of the area mentioned in the covenant. In the cases in which the area has been the whole of England, or a substantial part of it, such as 100 miles or 150 miles from a named town, it has never been held that the covenantee was under an obligation to prove that the business has been carried on in all the towns and villages within the area.
. . .
A great deal no doubt depends on the nature of the business and the area in question. In a country of vast spaces, like the Dominion of Canada, it will always be possible, until the population of the country reaches a point now scarcely contemplated, to point to areas where there are only few settlers or inhabitants, and where, accordingly, few, if any, of the goods sold by the manufacturer have penetrated."

ADMISSIBILITY OF EVIDENCE OF SUBSEQUENT EVENTS

29 I have reached the above conclusion i.e. that the Restraint was not reasonable having regard to the interests of the parties, without needing to consider evidence of what has transpired since 15 February 1983. It is thus not necessary to decide the extent, if at all, that evidence of subsequent events may be taken into account. However, there was one document, tendered by the applicants, to which objection was taken on the ground that it was dated January 1992. Argument ensued about its admissibility and I reserved that question. I shall give some brief reasons in relation to my ruling upon the admissibility of that document. The document comprises three pages (numbered 15 to 17) of text to which are annexed three tables of market share statistics dated August 1996. It is apparent that what was tendered as one document ("the Information Memorandum"), thus contains two sets of documents. I was told that the Information Memorandum was circulated by a major shareholder of the respondent. It was tendered by the applicants, so I understand, to show the increase in the respondent's share of the Western Australian ice-cream market since 1985. The respondent maintained that the authorities were quite clearly to the effect that the validity of a restraint must be decided as at the date of the agreement imposing it. In particular, the respondent relied upon the reasons for judgment of Gibbs J in Amoco at 318, where the following passage appears:

"Moreover, I should add that although it appears to be settled that the validity of the restraint must be decided as at the date of the agreement, it would seem to me that facts that have occurred since that date would not necessarily be irrelevant; such facts might throw light on the circumstances existing at the relevant date and might, for example, absolve the Court from the necessity of speculating as to the value of the consideration agreed to be furnished by the covenantee when, at the date of the litigation, it might be possible to quantify that consideration exactly."

30 The respondent submitted that a suggestion to the contrary by Lord Denning MR in Shell U.K. Ltd v Lostock Garage Ltd [1977] 1 All ER 481 at 489 was not to be followed, being contrary to the majority in that case and the view expressed by Sheppard J in Adamson v New South Wales Rugby League Ltd (1991) ATPR 41-141 at 53,038-53,039.

31 Senior counsel for the applicants submitted that at least so far as a contract for the sale of a business was concerned (as distinct from a contract of service) the position remained open in Australia. The rule was laid down by Kitto J in Lindner v Murdoch's Garage [1950] HCA 48; (1950) 83 CLR 628 at 653 in the context of a service contract. Gibbs J (and Mason J in dissent) in Geraghty v Minter [1979] HCA 42; (1979) 142 CLR 177 had left open the exception proposed by Lord Denning in Shell UK Ltd. Aitken J simply concurred with Gibbs J. The other judges in that case did not deal with the point. Secondly, the applicants submitted that in relation to the Principal Agreement, the documents tendered were relevant to the circumstances in which that option was exercised in 1997.

32 I have examined the document (really two documents). I do not need to consider whether Lord Denning's observations in Shell are good law in Australia. The question in this case is different from that posited by Lord Denning, which was whether the court should enforce a covenant in restraint of trade if circumstances afterwards arose in which it would be unreasonable or unfair to enforce it. That is not the question here. Nor is it the basis upon which the applicants plead that the Restraint is void as a restraint of trade and against public policy. In my view, the information contained in the documents relates to circumstances so long after 15 February 1983 as to be inadmissible on the question whether the Restraint was unreasonable as between the parties at the time when it was entered into. However, although there does not appear to be any authority on the point, I think, had it been necessary to decide whether the options to extend had a bearing on that question, these documents would have been admissible on that issue. It has not become necessary for me to consider that issue because I consider that the initial term of the Restraint (nearly 15 years) in itself, when taken with the other factors which I have discussed above, rendered the Restraint unreasonable having regard to the interests of the parties. I did not have to consider the relevance of the three option periods to that particular issue. Although again there does not appear to be any authority on this further point, I think that if the Restraint had been valid, the question whether it continued to be valid after each exercise of the option to extend was a new issue. The options amounted to offers which were capable of acceptance by the respondent exercising the right to extend the licensing arrangements. The Restraint was thus renewed on each such occasion. It was at that point that a further restraint was imposed in terms of time. In those circumstances, I consider that evidence of the circumstances as at the date of each such extension would be relevant to decide whether all that was being obtained by the respondent was still only reasonable to protect the interests which it had acquired under the Principal Agreement. Accordingly I admit the documents tendered under the description "Information Memorandum" as Exhibit A7, on the basis that they would have been potentially relevant to the issues which I have just discussed, but which, as matters turned out, it was not necessary for me to decide.

1(b)(iii) WHETHER THE RESTRAINT WAS REASONABLE HAVING

REGARD TO THE PUBLIC INTEREST?

Applicants' Contentions

33 The applicants contended that the law on restraint of trade was "particularly susceptible to influence from current views of public policy and that the standard of public policy must be the standard of the day". There had always been the conflicting policies of freedom of contract and of freedom of trade. The applicants submitted that the Trade Practices Act 1976 reflected both current public policy and public policy as it existed in 1983. That policy was that no area of the economy should be insulated from competition except where that could be justified as being a public benefit. Section 4M of that Act did not affect the general direction of that policy. [Section 4M relevantly provides that the Trade Practices Act does not affect the operation of the law relating to restraint of trade insofar as that law is capable of operating concurrently with the Act, but nothing in that law affects the interpretation of the Trade Practices Act.] The applicants submitted that in 1983, as in 1998, a restraint for potentially thirty years extending to the whole of the State of Western Australia could not be supported as being in the public interest. The Restraint potentially prevented consumers in Western Australia from obtaining the products of a major producer for thirty years. Furthermore, the Restraint was expressed to restrain parties other than the contracting parties. Even before the enactment of the Trade Practices Act it was evident that public policy was against anti-competitive agreements.

Respondent's Contentions

34 The respondent contended that there was no evidence in the agreed statement of facts or in the agreed bundle of documents relating to, or establishing that, the Restraint was not reasonable in the public interest.

My Reasoning

35 In view of the conclusions which I have expressed on the question whether the Restraint was reasonable having regard to the interests of the parties, it is not strictly necessary for me to consider this issue. But I shall do so briefly. The question whether the Restraint was reasonable having regard to the public interest is also a question of law. The only difference from the earlier question is that the applicants bear the onus of showing circumstances which would indicate that the Restraint was not reasonable having regard to the public interest. In my view, for a partnership of two traders, having a significant share of a market, to covenant even for the initial period of nearly 15 years was against the public interest in that it prevented consumers in Western Australia from obtaining their products for such an inordinately long time. I make that assessment purely in the context of the common law. Whether the restraint falls foul of the Trade Practices Act is not a matter for me to decide, at this stage. I think that the applicants have discharged the onus which they bore.

2. WHETHER THE APPLICANTS ARE, BY REASON OF THE MATTERS PLEADED IN PARAGRAPH 14 OF THE AMENDED DEFENCE, NOT ENTITLED TO THE RELIEF SOUGHT?

Applicants' Contentions

36 The applicants pointed out that they did not seek an injunction. They sought declaratory relief and submitted that the discretionary bars to equitable relief did not apply to a declaration of rights. Furthermore, the Court's power to grant declaratory relief did not have an equitable basis. That power was conferred by statute, namely s 21 of the Federal Court of Australia Act (Cth).

Respondent's Contentions

37 The respondent contended that it would be inequitable for the Court to exercise its discretion to grant relief of the nature sought by the applicants, given that the respondent would continue to be bound to pay minimum royalties on products while the applicants would be able to re-enter the ice-cream business in Western Australia and sell products competitive with those upon which the respondent paid royalties. This would diminish the contractual benefits for which the respondent was paying and enhance the valuable contractual benefits which the applicants continue to receive under the Principal Agreement.

My Reasoning

38 I accept the applicants' contentions. The Restraint is void and they are entitled to a declaration to that effect. The weight of the authorities is that the discretionary bars to equitable relief do not apply to a declaration: see Snell on Equity (28 ed) at 567-568; Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428 at 454. The learned authors of Meagher, Gummow and Lehane "Equity: Doctrines and Remedies" ( 3 ed) at par 1929 also contend that the traditional equitable barriers to relief do not apply to declaratory relief. I accept, of course, that in this Court relief by way of a declaration is statutory in its basis and source. No authority binding on me has been cited to the effect that equitable considerations may never be taken into account when exercising the discretion to grant a declaration. However, it is not necessary for me to decide this point, because I do not think there is any substance in what is relied upon in paragraph 14(b) of the defence. In this case, I have found that the Restraint is void. No relevant rights are further affected if, in those circumstances, I grant a declaration to that effect. The circumstances pleaded in paragraph 14(b) of the defence which the respondent fears will transpire, will happen because I have found the Restraint to be void, not because of any declaration which may be made. If there is a discretion, I would exercise it in favour of granting the declaration sought. My reasons, shortly stated are as follows. First, as I have mentioned, the respondent has had the benefit of what I have held to be a void covenant in restraint of trade for nearly sixteen years. Its obligations to pay minimum royalties expire in just under four years time. Secondly, the whole doctrine of restraint of trade has public policy as its basis. I think that it would not be sufficiently inequitable to make the declaration sought and I think that it is in the public interest that I should do so.

39 3. WHETHER THE RESTRAINT IS A PROVISION IN A CONTRACT FOR THE SALE OF A BUSINESS SOLELY FOR THE PROTECTION OF THE RESPONDENT IN RESPECT OF THE GOODWILL OF THAT BUSINESS WITHIN THE MEANING OF S 51(2)(e) OF THE TRADE PRACTICES ACT?

Applicants' Contentions

40 Section 51(2)(e) of the Trade Practices Act relevantly provides that in determining whether a contravention of a provision of Part IV (other than sections which are irrelevant to this case) of the Act has been committed, regard shall not be had, in the case of a contract for the sale of a business, to any provision of the contract that is solely for the protection of the purchaser in respect of the goodwill of the business. 41 The applicants contended that if the Restraint did no more than provide reasonable protection it would not be rendered invalid by the Trade Practices Act and s 51(2)(e) would operate so that the Restraint would be disregarded when determining whether a relevant provision of that Act has been contravened. If the Restraint were rendered unenforceable by the common law doctrine, the applicants submitted that there might be a residual question as to whether giving effect to the provision contravened the Act. The applicants submitted that the Restraint did more than provide reasonable protection and was not "solely for the protection of the purchaser in respect of the goodwill of the business". Accordingly, so it was submitted, the Restraint did not obtain "the benefit" of s 51(2)(e).

Respondent's Contentions

42 The respondent contended that s 51(2)(e) was intended to encapsulate the common law position. It relied on the submissions earlier advanced on the reasonableness of the Restraint.

43 The respondent contended that the Principal Agreement was plainly a contract for the sale of a business. It also referred to the express terms of clause 7.1 which stated that the Restraint was "solely for the protection of (the respondent) in respect of the goodwill of the ice-cream business". It argued that the Restraint thus fell squarely within s 51(2)(e) of the Act.

My Reasoning

44 In my view the Restraint does not fall within the exception provided for by s 51(2)(e) of the Trade Practices Act. The Restraint was not solely for the protection of the respondent in respect of the goodwill of the business which it acquired under the Principal Agreement. The protection which the respondent obtained, or stood to obtain, from the Restraint was far wider than that. I refer to, but shall not repeat, what I have said in that regard in relation to the issue of whether the Restraint was reasonable having regard to the interests of the parties.

Conclusion

45 For the above reasons, there will be declarations that Article 7.1 of the Principal Agreement is void as being in restraint of trade and against public policy and that the Restraint is not a provision of the type referred to in s 51(2)(e) of the Trade Practices Act. I think that the respondent should pay the applicants' costs of and incidental to the determination of the above preliminary issues, but I will hear counsel on that matter.

I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Carr

Associate:

Dated: 8 January 1999

Counsel for the Applicants:	Mr T F Bathurst QC with Mr A I Tonking
Solicitor for the Applicants:	Messrs Minter Ellison
Counsel for the Respondent:	Mr W S Martin QC with Mr S Penglis
Solicitor for the Respondent:	Messrs Freehill Hollingdale & Page
Date of Hearing:	7 & 8 December 1998
Date of Judgment:	8 January 1999