Case: Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd [1973] HCA 40 ; (1973) 133 CLR 288
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." 77 (ii) The onus of establishing that a restraint is reasonable as between the parties rests with the party who puts forward the restraint, while the onus of establishing that it is contrary to the public interest is on the party alleging this: Amoco , at 317. (iii) "The fact that the parties have bargained from a position of equality is ... one of the circumstances to be considered in determining whether the covenants were reasonable, but it does not save from invalidity a covenant found to be unreasonable or contrary to the public interest (see also Creamoata Ltd v Rice Equalization Association Ltd [(1953) [1953] HCA 40 ; 89 CLR 286 at 318]." Per Gibbs J in Amoco , at 317. This is a proposition upon which the parties divide, the respondents emphasising that significant weight should be given in this regard to a commercial agreement reached "after hard bargaining" by parties, which each finds in its interests to accept: Amoco , per Menzies J (in dissent). Whether or not the observations of Menzies J accurately reflects Australian law is not a matter that I need consider as I do not consider that the Heads of Agreement represented "an ordinary transaction between a willing vendor and a willing purchaser": Brown v Brown [1980] 1 NZLR 484 at 489 per Cooke J. I will later return to this matter. 78 (iv) The question of reasonableness is a question of law for the Court which ultimately depends upon "a judgment the reasons for which do not admit of great elaboration": Amoco , at 308. The validity of the restraint is to be determined as at the date of the agreement, though facts occurring after that date may be relevant if they throw light on the circumstances existing at the date of the restraint: Amoco , at 318. 89 The 5 August 2005 agreement cannot on the evidence meaningfully be characterised as embodying an ordinary transaction between a willing vendor and a willing purchaser. The character Mr James gave the dealing which I accept "a walk in walk out on the basis of a quick clear severance so they didn't have to look at each other much longer" comes closer to the transaction described in Brown v Brown , between two brothers who carried on a business together through a corporate vehicle but who could no longer continue in business together (at 489): "... it was a transaction forced on the parties, in effect a case of one partner buying out the other because unhappy differences had made co-operation impossible." I mention this, not for the purpose of inquiring into the adequacy of the consideration for the restraint: cf Amoco , at 316; but rather to indicate that the circumstances surrounding the transaction do not warrant its being characterised as having been "bargained from a position of equality": cf Amoco , 317; and hence to be so considered in determining whether the restraints were reasonable.