Case: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535
Outcome: cited
(i) Public policy lies at the root of the rule that contracts in restraint of trade are, prima facie, unenforceable: see Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973] HCA 40 ; (1973) 133 CLR 288 at 307; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45 ; (2001) 205 CLR 126 at [27] . The only justification for a restraint is if it is reasonable in reference to the interests of the parties and reasonable in the interests of the public: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565; Buckley v Tutty [1971] HCA 71 ; (1971) 125 CLR 353 at 376. The two requirements merge to some extent. As Walsh J observed in Amoco (at 307): "... if a restraint is imposed which is more than that which is required (in the judgment of the court) to protect the interests of the parties, that is a matter which is relevant to the considerations of public policy which underlie the whole doctrine, since to that extent the deprivation of a person of his liberty of action is regarded as detrimental to the public interests ... I acknowledge that the consequence of what I have just stated is that there is to some extent a merging of the second branch of the Nordenfelt formulation of the applicable principle with its first branch. But this does not mean that the distinction between them is wholly obliterated. In order to justify a restraint of trade both tests must be satisfied. The restraint must be reasonable in the interests of the parties in that it affords no more than adequate protection to the covenantee 'while at the same time it is in no way injurious to the public' (see the Nordenfelt Case ). It may be that although a restraint satisfies the first requirement it is injurious to the public for some reason other than being in excess of what is reasonable in the interests of the parties." 82 (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.)