Case: Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505
Outcome: cited
(viii) The principal interest protected by restraints on competition on the sale of goodwill is customer connection, the customers being existing or potential customers. The protection of that interest in a given case can contrive what is the acceptable area or scope of a restraint: cf Whitehall v Bradford [1952] 1 Ch 236 esp at 249-250 where a ten mile radius restraint on a retiring partner of a medical practice was unsuccessfully challenged, the evidence establishing that, though the patients on the periphery of that area were small in number they contributed about one-third of the total partnership income; see also Kennett v Crawford [1940] SASR 199; C &amp; S Constructions Pty Ltd v Dawson (1991) 13 ATPR 41-148 and Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 at 524. Important in this regard for present purposes are observations of Viscount Maugham in the Privy Council in Connors Brothers Ltd v Connors [1940] 4 All ER 179 at 194 in the context of a covenant taken on the sale of a sardine business not to engage in any such business in Canada: "... 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. In the Nordenfelt case, no attempt was made to prove that all the governments of the world, or even of the civilised world, had ordered goods from the company, though the greater number no doubt had done so. 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. If, for example, a restrictive covenant were limited to the province of Quebec, it would seldom be possible to prove that the goods were used in every part of that province. However, the goodwill of a business such as is now under consideration could not adequately be protected if the restrictive covenant had to be limited to the towns and villages where actual sales could be proved, whilst leaving the vendor free to establish a business, which would almost certainly be competitive , in all the adjoining places." (Emphasis added. Footnotes omitted.) 95 I am satisfied that the State-wide restraint is unreasonable given the nature and the manner of conduct of laundry hire businesses. While it is not necessary to show that a covenantee actually has carried on, or proposes to carry on, the business in every part of the area specified in the covenant, it nonetheless must be shown that the covenant against competition is confined to the area within which it would in all probability enure to the injury of the purchaser: Butt v Long at 486; Kennett v Crawford , at 203. In ascertaining that area regard may be had to such expansion of the business as might reasonably be contemplated: Lloyd's Ships , at 524. 96 It is misleading to suggest that the evidence establishes that Old Co "serviced" Whyalla, Roxby Downs, the Barossa Valley and Victor Harbour. It did nothing of the sort. It did not make its services available in those towns to businesses that wished to avail of them. Rather, for distinctive reasons, Old Co was obliged to or else was willing to make distinct arrangements for a single business in each of those places except the Barossa Valley where it dealt with two businesses. There was no evidence led to suggest that Old Co at the relevant time was proposing or reasonably contemplating an expansion of their ordinary business activities into any of those areas: cf Lloyd's Ships , at 524. Neither was it suggested that, though remotely located, these customers contributed a significant proportion of Old Co's sales revenue: cf Whitehall v Bradford , at 249-250.