Court of Appeal (WA)|2004-04-22|Before: Malcolm CJ

Cream v Bushcolt Pty Ltd [2004] WASCA 82 (22 April 2004)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CREAM -v- BUSHCOLT PTY LTD [2004] WASCA 82

Contracts - Illegal and void contracts - Contract in restraint of trade - Whether covenant in restraint of trade for 10 years unreasonable - Whether statewide covenant restraint of trade on sale of livestock transport business reasonable - Business based in Geraldton and operated mainly in the Mid-West, Gascoyne and Murchison areas with some business in the Lower West of the State - Statewide covenant unreasonable - Restraint clauses not to be concerned in any way directly or indirectly in the livestock transport industry unreasonable - Cumulative effect of restraints unreasonable so that covenant contract in restraint of trade void - Appellant not precluded from involvement in livestock transport industry by the doctrine of promissory estoppel - Statement by appellant in negotiations that he intended to leave the livestock transport industry permanently was honest and based on reasonable grounds

Relevant provisions in contract in restraint of trade held void and unenforceable

Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288

Brendon Pty Ltd v Russell (1994) 11 WAR 280

British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563

Britten v Bishop, unreported; SCt of WA; Library No 960560S; 25 September 1996

Brown v Brown [1980] 1 NZLR 484

Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269

Fleming Brothers (Monaro Agencies ) Pty Ltd v Smith (1983) ATPR 40-389

Hawkesbury Bakery Pty Ltd v Moses [1965] NSWR 1242

Herbert Morris Ltd v Saxelby [1916] 1 AC 688

IRAF Pty Ltd v Graham [1982] 1 NSWLR 419

Jaques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-120

Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628

Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd [1987] FCA 70; (1987) 17 FCR 505

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181

Miba Ltd v Nescor Industries Group Ltd (1996) 141 ALR 525

Peters (WA) Ltd v Petersville Ltd (1999) ATPR 41-714

Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126

Pioneer Concrete Services Ltd v Galli [1985] VicRp 68; [1985] VR 675

Stenhouse Australia Ltd v Phillips [1973] UKPC 1; [1974] AC 391

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

Whitmore v Farley [1881] 29 WR 825

Windhill Local Board of Health v Vint [1890] 45 Ch D 351

Hoyvelans Pty Ltd v Weir [2000] WASC 144

Ricochet Pty Ltd v Equity Trustees [1993] FCA 99; (1993) 41 FCR 229

Sykes & Ors v Reserve Bank of Australia (1998) 88 FCR 511

1 MALCOLM CJ: This is an appeal by the appellant ("Mr Cream") against a judgment after trial before Scott J in the Supreme Court delivered on 1 May 2002 by which the learned Judge dismissed Mr Cream's claim against the respondent ("Bushcolt") that arose out of the sale of a livestock transport business which Mr Cream had commenced with his father in 1978. The business was carried on under the name of "Cream Transport" and was involved exclusively in the livestock transport industry ("the business"). The appeal was part-heard on 19 February 2003, but adjourned followed the grant of leave to amend the grounds of appeal by the addition of a substantial new ground 1A. The hearing was resumed on 13 November 2003.

2 The appeal raises issues relating to the reasonableness of a covenant in restraint of trade entered into by the appellant by reference to the cumulative effect of the covenant in terms of its duration, geographical scope and operative scope. It was Mr Cream's contention that the restraint was unreasonable in terms of its duration, or excessive or beyond that required to afford Bushcolt adequate protection or, alternatively, beyond that required to protect the goodwill of the business acquired; and did not justify a conclusion that a restraint over the whole of the State was reasonable.

3 Issues were also raised whether Mr Cream was precluded from re-entering the livestock transportation industry in Western Australia by virtue of the operation of promissory estoppel; and whether Mr Cream was guilty of misleading and deceptive conduct, as alleged by Bushcolt in its cross-appeal. The estoppel point would only arise if the agreement was not void as being contrary to public policy.

4 Bushcolt has cross-appealed. It seeks to overturn findings of fact that:

(1) Mr Cream's statement that he would leave the livestock transportation industry permanently was honest and based upon reasonable grounds;

(2) the statements by the appellant (plaintiff) were not misleading and deceptive.

5 Mr Cream has filed a notice of contention in response to the respondent's cross-appeal.

6 Mr Cream was the managing director of the first defendant by counterclaim in the action, Dolsa Pty Ltd ("Dolsa"). Dolsa acted as the trustee of the Cream Unit Trust which operated Cream Transport and which owned land at Geraldton, which was the depot for Cream Transport. This land was part of the real estate owned by the business and comprised the land from which the business was conducted. Prior to the commencement of these proceedings, there were some changes in the beneficial ownership of the business following the death of Mr Cream's father. These were not relevant except that in 1986 or 1987, a Mr Andrew Snell ("Mr Snell") joined the business as a manager and director of Dolsa. He acquired a 10 per cent interest in the business. The balance of the shareholding remained with Mr Cream and the business continued to trade under the name of Cream Transport.

7 As a livestock carrier, Cream Transport primarily carried cattle and sheep in the Mid-West, Gascoyne, Pilbara and Murchison regions of Western Australia. However, from time to time, livestock was carried outside those areas to other parts of the State and, on infrequent occasions, interstate.

8 By 1997-1998, the business had expanded to the stage where eight to ten drivers were employed full-time, together with one full-time subcontractor and some casual subcontractors. The business had initially commenced in Midland Junction, but moved to Geraldton in 1980 or 1981 and was based there subsequently. For a short period of two or three months, one truck and one driver were based in Carnarvon. Additionally, in 1992 and 1993, Mr Cream sought to extend the operations of the business into the Kimberley region. In that period, the business operated extensively, but livestock transport in that area was very competitive and the business of Cream Transport proved not to be financially viable in that area. Mr Cream was unable to operate the business successfully there without establishing a depot in the area which was uneconomic. Consequently, Mr Cream did not seek to continue operations there and discontinued the business in the Kimberley in mid-1994. Elsewhere, the business continued to expand and by the end of June 1998 had an annual turnover in excess of $3,000,000.

9 Mr Cream was the holder of a private pilot's licence which he utilised to make flying visits to customers from time to time. These were made annually for the most part. The various sheep and cattle stations visited by him and a customer reference map were the subject of evidence. The map showed a blue semi-circle which comprised an area within a radius of 200 km of Geraldton which was the principal area in which the business operated.

10 While in 1998 the business made deliveries or picked up livestock in every region of the State as shown on the reference map, the Goldfields interior and Eucla areas were aggregated. The focus of the business, however, was in the 200 km area around Geraldton. Business contact with other regions was far less significant and intermittent, as his Honour found. As his Honour put it in his reasons:

"Whilst it can properly be said that the operations of Cream Transport were insignificant in some regions of the State, in terms of the percentage of the overall area covered by the business, it is important to note that the business did operate throughout all of those regions of the State."

11 This finding, as far as it goes, was not challenged in the appeal. The learned Judge pointed out that in considering the various spreadsheets and the summary of the spreadsheet evidence presented by Mr Cream, it was important to note that in some cases, points of origin would be only for the purpose of back-loading in order to offset the cost of the return trip to base. In those cases, Mr Cream acknowledged that the back-loading would be a "one-off trip" which would not truly represent a client contact.

12 His Honour also said in par [14] of his reasons that:

"It is important also to note that Mr Cream, having spent his working life in the livestock transport industry, was closely associated with that industry and its representative association. For 10 years he was on the committee of the Livestock Transporters Association of WA (Inc) and from time to time was a member of the executive committee. He said in his evidence that he had constant exposure to many of the participants in the livestock transport industry throughout Western Australia. No doubt that would have been a fact known to the first defendant, Bushcolt Pty Ltd ("Bushcolt"), and generally to the Hampton Transport group ("Hamptons") of which Bushcolt, upon incorporation, became part."

13 In November 1998, following a meeting at the Windsor Hotel in South Perth, agreement was reached regarding the sale price of the business of Cream Transport to Hamptons for the sum of $1,573,000 on the basis that the plant and equipment of the business would be sold on a walk-in, walk-out basis for $1,423,000; and the land at Geraldton upon which the Cream Transport depot was situated would be sold for $150,000. It was also agreed that settlement would take place on 30 November 1998 so that Hamptons would take over from 1 December 1998. Bushcolt was incorporated by Hamptons as the corporate vehicle which would acquire and operate the business of Cream Transport. Settlement was subsequently delayed until early 1999. It was common ground that prior to settlement, some negotiations occurred resulting in adjustments of the individual prices of a number of specific vehicles to facilitate Bushcolt arranging finance. The total purchase price, however, remained the same.

14 During the course of the negotiations, the representatives of Hamptons made it clear to Mr Cream that they required him to enter into a deed of restraint of trade as part of the purchase. This was found by the learned Judge to be "... a matter of no concern to Mr Cream because ... his intention was to leave the livestock transport industry permanently." As the learned Judge put it in his reasons at pars [36] - [38]:

"There is some dispute in the evidence as to what exactly was said when the question of the restraint of trade was discussed. Mr Cream's recollection is that he said to Mr Paul Mullins from Hamptons, 'I don't mind signing something that says I won't work in livestock transportation - I've had a gutful and I don't intend to come back.'

Mr Cream also recalls that when he saw the draft restraint deed which provided for a 10-year restraint, as mentioned earlier in these reasons, his response was again:

'10 years. You could make it 100 years. Add a zero. I have no intention of coming back.'

There is some dispute as to exactly what Mr Cream said on that occasion. Mr Mullins' recollection was that Mr Cream said that the restraint could last for 'a lifetime'. In my view, that issue is unimportant because, on any version, Mr Cream made it plain that he was never intending to enter the livestock transport industry again. I accept Mr Cream's evidence that at the time he genuinely intended that to be the case. He had spent some time thinking about the matter and, as I have said, following his marriage he had finally decided, after discussions with his wife, to leave the livestock transport industry forever. The terms of the restraint deed were of no significance to him. On the other hand, from Hamptons' side of the transaction it was essential that a restraint deed be entered into because without such a deed the purchase by Hamptons of the Cream business would be commercially vulnerable"

15 The deed includes, among others, the following provisions:

"1.1 Definitions

'Restraint area' means the State of Western Australia;

'Restrainted business' means the transportation and carriage of livestock; and

'Restraint period' means ten (10) years from the date of this deed;

RESTRAINT

2.1 Restraint Obligation

The Convenantor must not, during the Restraint Period in the Restraint Area:-

(a) promote, participate in, operate or engage in whether on his own account or in partnership or by joint-venture; or

(b) be concerned or interested in (directly or indirectly, or through any interposed body corporate, trust, principal, agent, shareholder, beneficiary, or as an independent contractor, consultant or in any other capacity),

a Restrained Business.

2.2 Independence of Restraints

Each of the restraint obligations imposed on the Covenantor by Clause 2.1 (which results from the combinations of the Restrained Business, Restraint Period and Restraint Area) is a separate and independent obligation from the other restraint obligations imposed (although they are cumulative in effect).

2.3 Reasonableness of Restraint

The Covenantor agrees that each of the restraint obligations imposed by Clause 2.1 is reasonable in its extent (as to duration, geographical area and restrained conduct) having regard to the interests of each party. If any restraint obligation imposed by Clause 2.1 would be void as drawn but would be valid if the Restraint Period or the Restraint Area was re-drawn then the obligation in question shall apply with such modification as necessary to make it valid and effective."

16 The deed ("the Restraint Deed") was dated 30 November 1998 and executed by Mr Cream and Bushcolt.

17 Counsel for Mr Cream submitted that the appeal raised three issues for decision, first, whether the covenant in restraint of trade entered into by him was unreasonable and so void as contrary to public policy. Secondly, if so, whether the appellant was "estopped" from entering into the livestock transport business in Western Australia for 10 years from the date of the Deed. Thirdly, whether in the course of the negotiations leading to the entry into the Deed, Mr Cream engaged in misleading and deceptive conduct. The third issue is raised in the cross-appeal by Bushcolt.

18 In this area of the law, the principle of freedom of trade imposes limitations on the freedom of contract. The conflict between these two freedoms has been resolved by the adoption of a "clear rule" by which restraints of trade will be held void unless they can be justified as reasonable: Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at [37]; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288 at 306 - 307 per Walsh J; and 317 per Gibbs J. In Peters (WA) Ltd v Petersville Ltd (1999) ATPR 41-714 at [26] - [27] French, Kiefel and Nicholson JJ said:

"The reasonableness of a restraint inter partes is not adjudged and concluded from the viewpoint of the value a party derives from it. Menzies J in Amoco (294-5) expressed the view that the important question was what the person who accepts the tie expects to gain from it, but his Honour was in the minority. Nevertheless, the cases show that the Courts will look at aspects of the bargain in order to determine whether it is reasonable, but that the parties' views of it could not decide the question (Amoco, 306-8; 317-7; 318). An example given by Walsh J in that case (306) was the consideration paid for the restraint, as relevant to the length of its term. So far as it may be relevant here, I think it may be accepted that AUF was paid a substantial sum for the restraint and there were other advantages to it.

The critical question, in my view, is not whether AUF has received sufficient consideration nor whether it had good reason for entering into the whole agreement, but a matter which PWA's submissions addressed extensively, whether the restraint affords any more than adequate protection to PWA. The issue of reasonableness as between the parties is concerned with the protection of the interests of the party receiving the benefit of the restraint: Amoco, 315-6; applying Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 707."

19 See also Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd [1987] FCA 70; (1987) 17 FCR 505 at 513 - 514, per Spender J; and Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [56], per Gleeson CJ, Gummow and Hayne JJ; and at [68], per Kirby J.

20 The party who seeks to enforce a restraint of trade clause in a contract carries the burden of proving that the restrain is reasonable as between the parties: Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628 at 633 per Latham CJ. This reflects the principle that a restraint of trade is unreasonable if it provides greater protection than that which is reasonably required to give adequate protection to the person for whose benefit the restraint is imposed. In order to be reasonable, it must afford no more than adequate protection for the party in whose favour it is imposed: Butt v Long [1953] HCA 76; (1953) 88 CLR 476 at 486 per Dixon CJ; and see Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707 per Lord Parker.

21 In Butt v Long, (supra), at 486, Dixon J said:

"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 - Herbert Morris Ltd v Saxelby [at pp708, 709] per Lord Parker."

22 This passage was applied in Hawkesbury Bakery Pty Ltd v Moses [1965] NSWR 1242 at 1246 per Sugerman, Brereton and Asprey JJ; and in Brendon Pty Ltd v Russell (1994) 11 WAR 280 at 284, per Ipp J.

23 In considering whether a covenant in restraint of trade is reasonable as between the parties, the amount of the purchase price paid when a business is sold, particularly the amount paid for good will or distributed to it, is relevant to the question of reasonableness, but not decisive. The question in each case is whether the covenant goes no further than is necessary to afford the covenantee adequate protection in respect of the interests in respect of which he is entitled to be protected: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd, (supra) at 306 per Walsh J; Peters v Petersville (supra) at 43, 204, per French, Kiefel and Nicholson JJ. The question whether a restraint is reasonable is in the end a question of law: Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353 at 377, per Barwick CJ, McTiernan, Windeyer, Owen and Gibbs JJ; and see Amoco Australia Pty Ltd, above, at 317 - 318, per Gibbs J.

24 A restraint may be imposed more readily and more widely upon the vendor of a business in the interests of the purchaser than upon a former employee in the interests of the employer: Lindner v Murdock's Garage (supra); cf Butt v Long (supra).

25 The findings of the trial Judge stand on appeal in the same position or any other findings of fact. Gibbs J said in Amoco Australia Pty Ltd at 318:

"... an appellate court in reviewing such a decision enquires not whether it has been shown to be wrong, but simply whether it is right. Although a trial Judge enjoys no special advantages in deciding such a question, the reasons given for his decision are of course entitled to due consideration."

26 The question whether a particular provision in a contract operates unreasonably in restraint of trade is to be determined not by the form in which the relevant provision is framed, but by its effect and operation in practice: Stenhouse Australia Ltd v Phillips [1973] UKPC 1; [1974] AC 391. As Gleeson CJ, Gummow and Hayne JJ said in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2002) 210 CLR 181 at [56]:

"The fact that the restraint can be said to have freely been bargained for by the parties to the contract provides no sufficient reason for concluding that the doctrine should not apply. All contractual restraints can be said to be of that character."

27 In the present case, the parties agreed in cl 2.3 of the Restraint Deed that the restraint imposed was reasonable. Such provisions have been held to be of little assistance. The question of reasonableness is a question of fact to be determined in the light of all of the relevant circumstances: Amoco Australia (supra), at 306 - 308 per Walsh J; Peters v Petersville (supra) at 43,204; and Hawkesbury Bakery Pty Ltd v Moses (supra) at 1246 - 7 per Sugerman, Brereton and Asprey JJ.

28 The question whether a particular restraint is unreasonable is a question similar to whether the facts in a particular case establish negligence. As Gibbs J pointed out in Amoco Australia at 317:

"The truth is, I think that, as Dixon J pointed out in Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd ((1947) 77 CLR at 590), there are two principles of policy that work in opposition - the policy of securing ample freedom of contract and enforcing contractual obligations, and that of preserving freedom of trade from unreasonable contractual restriction. As Dixon J went on to say (at 590):

'The opposition has been resolved by the adoption of a clear rule making it necessary to justify all contracts in restraint of trade as reasonable in the interests of both the parties and by applying the test of reasonableness according to the situation the parties occupy and so recognizing the different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of a business.'

The fact that the parties have bargained from a position of equality is therefore 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 Equalisation Association Ltd [(1953) 88 CLR 286 at 318])."

29 In Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1; [1968] AC 269 at 319 Lord Hodson said:

"It has been authoritatively said that the onus of establishing that an agreement is reasonable as between the parties is upon the person who puts forward the agreement, while the onus of establishing that it is contrary to the public interest, being reasonable between the parties, is on the person so alleging: see Herbert Morris Ltd v Saxelby [1916] 1 AC 688, at 700, 707-8."

"However, the question of reasonableness is a question of law for the decision of the judge: Mason v Provident Clothing and Supply Co Ltd ([1913] AC 724, at 732; [1911-13] All ER Rep 400); Attorney-General (Com) v Adelaide Steamship Co Ltd ([1913] AC 781, at 797; [1911-13] All ER Rep 1120); North Western Salt Co Ltd v Electrolytic Alkali Co Ltd ([1914] AC at 471); Herbert Morris Ltd v Saxelby ([1916] 1 AC at 707); Lindner v Murdock's Garage ((1950) [1950] HCA 48; 83 CLR 628, at 653; [1950] HCA 48; [1950] ALR 927). The judge's findings as to the circumstances of the case, of course, stand on appeal in the same position as any other finding of fact made by a judge, but his decision that the covenants were reasonable is not a decision of fact and an appellate court in reviewing such a decision inquires not whether it has been shown to be wrong, but simply whether it is right."

31 The approach adopted by Dixon J in Butt v Long was applied by Ipp J in Brendon Pty Ltd v Russell (supra).

32 The context in which this transaction was entered into was that Mr Cream went on an overseas holiday in 1996 during which he met his future wife. They married in September 1997. Following that holiday and his marriage, Mr Cream decided to reduce the intensity of his working life. He consulted a number of the senior employees of Cream Transport and indicated he would like to involve them more in the day-to-day running of the business. Mr Cream made those changes, but found that he was still working extremely hard. In 1997 and 1998, he attempted to persuade Mr Snell to buy the business. Mr Snell, however, did not wish to purchase Mr Cream's interest.

33 In July 1998, Mr Cream decided to terminate his involvement in the livestock transport industry. He and his wife decided to leave Geraldton and relocate to Perth. At that stage, Mr Cream had no plans for an alternative career. As the first step in winding down the business, Mr Cream sold some of the business equipment. Some 20 to 25 per cent of the equipment was sold privately over a number of months.

34 Mr Cream eventually contacted the manager of Hamptons, a Mr Mark Fleming. Hamptons were at that stage the largest livestock transport operators in Western Australia, with depots in Kalgoorlie, Perth, Broome, Katanning and Esperance. It was against this background that the agreement was negotiated.

35 The learned trial Judge concluded at [40] that:

"The evidence establishes that Mr Cream voluntarily entered into the restraint of trade deed; he was happy with its terms, and he voluntarily agreed to be bound by it, because he had no intention of ever returning to the livestock transport industry. The terms of the deed were not imposed upon him by Hamptons and were not designed to restrict Mr Cream in any undue manner. In his evidence in cross-examination Mr Cream accepted that at the time of signing the restraint deed its terms were of no significance to him because he had no desire whatever to return to the livestock transport industry in any form again. It did not matter to him at that time whether the restraint was for 10 or 100 years and it did not matter to him what geographical area it covered. The only matter of concern that he raised with the representatives of Hamptons was whether he would be able to accept employment as a truck driver in the livestock transport industry. On raising that query, he was told by Mr Paul Mullins from Hamptons that the restraint would prevent him from acting as a truck driver. He was prepared to accept that restriction."

36 Following the settlement of the sale, Mr Cream and his wife moved from Geraldton to Perth and Mr Cream took a year off work. During that year he worked for Hamptons for one week to relieve Mr Snell, so that the latter could have a holiday. In September 1999, Mr Cream and his wife took a three-week holiday in Canada. Just before leaving, he was called by Mr David Jones, a manager at Hamptons, who offered him employment as General Manager of that company. The offer was for employment for a 12-month period, with Mr Cream having the right to terminate the employment earlier if he chose to do so. From Hamptons' point of view, they would have liked Mr Cream to stay on for a longer period. Mr Cream wanted a contract in writing before accepting the position. When he returned from Canada and found there was no contract, he decided not to accept the offer. However, just prior to Christmas 1999, Mr David Jones and Mr Barton Jones of Hamptons again offered Mr Cream the same position which he accepted. He worked for Hamptons for some three months but, following a dispute, he decided to walk out of the job and did so without notice.

37 In October 2000, Mr Cream and his wife purchased, and commenced to operate, a licensed Post Office business at Balga. By January 2001, it became apparent to them that they were unhappy in the business and had not settled down to life in Perth. Mr Cream had spent the whole of his life in Geraldton and his family ties were there. His wife's friends were also located there. They sold the Post Office business and moved back to Geraldton.

38 Mr Cream realised that finding new employment in Geraldton would be difficult, but he accepted that he was bound by the terms of the relevant deed, so that he could not return to the livestock transport industry in Western Australia until the restraint expired. Subsequently, however, he sought legal advice in relation to the restraint deed and commenced proceedings for a declaration that the restraint was void. He gave evidence that he wished to resume operations in the livestock transport industry and operate in the same area as before.

39 In his statement of claim, it was pleaded that the restraint contained in cl 2.1 of the restraint deed was unreasonable. In par 12 of his amended statement of claim, it was pleaded that:

"The restraint contained in clause 2.1 of the Restraint Deed is unreasonable as between the plaintiff and the defendant in that:

(1) the duration of the restraint, ie. 10 years after 30 November 1998, is:

(a) excessive; further or alternatively

(b) beyond that required to afford the defendant adequate protection; further or alternatively

(2) the geographical scope of the restraint, ie. the State of Western Australia, is:

(a) excessive; further or alternatively

(b) beyond that required to afford the defendant adequate protection;

in circumstances where the business only transported livestock predominantly in the Mid-West, Gascoyne, Pilbara and Murchison regions of Western Australia. The particulars to paragraph 4 are repeated; further or alternatively

(3) The operative scope of the restraint, ie. restraining the plaintiff from being concerned or interested in any way in a livestock carriage or transportation business in Western Australia for 10 years is:

(a) excessive; further or alternatively

(b) beyond that required to afford the defendant adequate protection;

and restricts the plaintiff's ability to earn an income; further or alternatively

(4) [not pursued at trial]

(5) No valuable consideration was provided by the defendant to the plaintiff for the restraint."

40 Mr Cream sought a declaration that cl 2.1 of the restraint deed was unenforceable as an unreasonable restraint of trade.

41 Bushcolt pleaded a defence and counterclaim. It was common ground on the pleadings that Mr Cream was, prior to the completion of the sale, the Managing Director of Dolsa, which was the trustee of the Cream Unit Trust, the unit holders of which were Mr Cream as to 90 per cent and Mr Andrew Snell as to 10 per cent of the ordinary issued units. Dolsa was also the trustee of the Narngulu Superannuation Fund as to 90 per cent of the ordinary issued units and AT and JL Snell as trustees of the Snell Superannuation Fund, as to 10 per cent of such units.

42 As trustee of the Cream Unit Trust, Dolsa operated the business of Cream Transport. As trustee of the Dolsa Property Trust, Dolsa owned the land in Geraldton known as the "Narngulu Depot" being the premises from which the business was conducted.

43 The counterclaim was based upon alleged misrepresentations by Mr Cream to the effect that he would never again be involved in any capacity with a livestock transportation business in competition with "the business" within the area or Western Australia as a whole; and Bushcolt offered a price for the "sole assets" that included the payment by Bushcolt of a premium "to represent the good will of the business".

44 It was common ground on the pleadings that the majority of the livestock transported by the business was in the Mid-West, Gascoyne, Pilbara and Murchison regions of the State ("the Area"), although the business operated outside the Area as and when it was asked to do so. It was also common ground that on 30 November 1988, Dolsa agreed to sell and Bushcolt agreed to purchase certain assets of the business for $1,425,000.

45 The learned trial Judge concluded that the relevant clause constituted a restraint of trade within the meaning of that term as exemplified in Peters (WA) v Petersville Pty Ltd [2001] HCA 45; (2001) 205 CLR 126 per Gleeson CJ, Gummow, Kirby and Hayne JJ at [14]. His Honour formulated the reasonableness test to be applied in pars [55] and [56] of his reasons as follows:

"55. The more central question in this case is whether the restraint imposed 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 interest: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535 at 565; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1973] HCA 40; (1973) 133 CLR 288; (1973) 1 ALR 385.

56. In this case it should be noted that not only was the commercial restraint a voluntary consensual restraint, but significantly, the plaintiff was prepared to agree to an even wider restraint. In that respect I accept Mr Cream's evidence that when he decided to sell Cream Transport, he honestly believed on reasonable grounds that he would never re-enter the livestock transport industry again. As I have said, he had spent all of his working life in the industry and had reached the stage where he had decided to leave the industry forever. His attitude in that respect was made known to the representatives of Hampton and clearly understood by all the parties to this transaction. The significance of that finding of fact will become apparent later in these reasons."

46 Scott J considered that there were three aspects of the restraint clauses which fell for consideration, namely, as it was stated in par [57] of the reasons:

"(1) The duration of the restraint - 10 years from 30 November 1998;

(2) The geographical scope of the restraint - the whole of the State of Western Australia;

(3) The operative scope of the restraint - restraining the plaintiff from being concerned or interested in any way in a livestock carriage or transportation business in Western Australia."

47 As to duration, his Honour said at [59] - [60]:

"In relation to the duration of the restraint, it is important to note that Mr Cream had been engaged in the livestock transport industry since he left school. It constituted the whole of his working life. Not only had he established a solid client base in the areas in which the company operated, but it is apparent from his evidence that he made many personal friends in the industry and, as I have said, took an active role in the industry association. He was well known, as was his company. His trucks had a distinctive colour, livery and identity. Indeed the defendants continued with that livery after the purchase to take advantage of the goodwill that had been acquired.

In my view, in those circumstances there was nothing unreasonable about a 10-year restraint to give the Hampton Group ample time to establish firm ties with the plaintiff's former clients."

48 In reaching that conclusion, the learned Judge relied upon what was said by Menzies J in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (supra) at 294, namely:

"It was the basis of the decision of the trial Judge that when parties negotiate a commercial arrangement from positions where one does not have the other at an unfair advantage and do, after hard bargaining, reach an agreement which each finds in its interest to accept, the court will not readily find that their bargain is unreasonable as between themselves, notwithstanding the well-established policy of the law against restraints of trade. The course of his Honour's reasoning was the same as that stated persuasively by Ungoed-Thomas J in Texaco Ltd v Mulberry Filling Station Ltd [1972] 1WLR 814 where another petrol tie was under consideration."

"I agree entirely with his Honour's approach to this problem of reasonableness as between the two parties, and consider that, despite the severe restrictions which Rocca accepted - restrictions which the Full Court regarded as unnecessary and harsh - there was not, applying Edwards v Noble [1971] HCA 54; (1971) 125 CLR 296, sufficient to warrant interference with the conclusion that the learned trial Judge reached. For my own part, I regard it as a circumstance of considerable weight that five years after making the original arrangement and with the experience of its working during that time, Rocca should, in 1969, in consideration of Amoco paying for further work at the service station and increasing the rebate, have agreed to extend the terms of the lease and under lease for a period of five years."

50 His Honour also referred at [62] to IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 429 per Roth J. His Honour's conclusion on the issue of duration of the restraint was as follows at [63] - [64]:

"In this case the evidence establishes that Mr Cream was anxious to sell the remainder of his livestock trucking business. To sell in one bulk sale was to his advantage. The price which he received from Hamptons constituted a satisfactory sale on his part. As I have said, he willingly entered into the restraint clause for the period of 10 years and, at that time at least, accepted that the period of the restraint was reasonable.

I have therefore concluded that the 10-year restraint in all of the circumstances of this case was reasonable."

51 In my opinion, given Mr Cream's extensive personal history and involvement in the livestock transport business, the element of personal goodwill generated in the business associated with his name was a major factor in the success of the business. In all the circumstances, it would be expected that such good will was reflected in the purchase price, even if only indirectly, because no part of the purchase price of $1,573,000 was specifically allocated to goodwill. Mr David Jones gave evidence on behalf of Bushcolt that Mr Cream spoke about the customer base and the Cream name on numerous occasions during the negotiations in an effort to negotiate the price upwards. Mr Jones gave evidence in which he frankly admitted that he would not have been prepared to go ahead with the purchase unless the appellant was "prepared to sign a restraint for at least five years". As has been seen, the plant was sold on a walk-in, walk-out basis for a specified sum and the land on which the depot was situated was sold for $150,000.

52 In my opinion, the absence from the agreement of any allocation of any part of the consideration for the sale and purchase of the business to goodwill is relevant to the assessment of the reasonableness of the restraints imposed in terms of duration, geographical area and operative scope. In the context of duration, significant weight is given to the parties' views regarding the length of the restraint. The evidence of Mr David Jones, the representative of Bushcolt in the negotiations, was that he would have been prepared to enter into a deed providing for a restraint for a period of five years. This suggests that the covenant for 10 years was more than was necessary for the reasonable protection of the goodwill of the business being purchased.

53 It was contended on behalf of the respondent that, in determining whether the duration of a restraint is reasonable, account must be taken of commercial reality. In this case the concession by Mr Jones would appear to reflect commercial reality so far as the respondent was concerned. The objective question is whether the duration of the restraint was reasonable. In this context it has been held that the most important consideration is the time required for severing the relationship between the vendor and those clients who would patronise the business after the sale: IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 428 - 4529, per Roth J; and see Fleming Brothers (Monaro Agencies ) Pty Ltd v Smith (1983) ATPR 40-389.

54 In the face of the concession by Mr Jones in the context of the objective facts, I consider that the 10-year duration of the restraint was excessive and beyond that required for the reasonable protection of the goodwill of the business being purchased, particularly in the context that no part of the consideration was allocated to goodwill. It follows that particular (1) of ground 2 has been made out.

55 So far as the area covered by the restraint is concerned his Honour said in pars [65] - [69]:

"65. The second aspect of the restraint relates to the geographical limit, ie, the whole of the State of Western Australia. Much of the evidence in this case focused upon the area of operation of Cream Transport. The analysis to which I have referred earlier in these reasons attached to Mr Cream's witness statement indicates the areas in which, and the extent to which, Cream Transport operated in various parts of the State. From that analysis, it is evident that the focus of the Cream Transport business was the mid-west, Gascoyne, Murchison and Pilbara area of Western Australia. The attempted extension of the business into the Kimberleys was brief and unsuccessful, and the evidence establishes that Cream Transport had only an insignificant presence in an area to the south of the metropolitan area.

66. In considering the geographical restraint in this case, one of the factors to be considered is that a restraint may be imposed more readily and more widely upon the vendor of a business in the interests of the purchaser, than upon a former employee in the interests of a master: Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628; Butt v Long [1953] HCA 76; (1953) 88 CLR 476; Britten v Bishop, unreported; SCt of WA (Malcolm CJ); Library No 960560S; 25 September 1996 at 3.

67. In considering this aspect of the clause, it is necessary to take into account the fact that Bushcolt was concerned to protect the goodwill of the business it had purchased. This was therefore one of those cases that came within the category of the sale of goodwill as distinct from restraint of trade clauses in the context of a master-servant relationship: Connors Bros Ltd v Connors (1940) 4 All ER 179 per Viscount Maugham at 190. His Lordship went on to say also at page 190:

'Their Lordships are not here concerned to deal with cases in the second category [that is, cases involving master and servant]. With regard to those in the first, it is plain that considerations which apply in such cases will often be applicable with necessary modifications to a case in which the goodwill sold is the property of a limited company. A covenant by such a company not to compete with the purchaser would in general be useless as a protection, for the company would in due course be wound up, and the most serious competition might be expected to come from those who had been actively engaged in managing and carrying on its affairs.'

68. It is important in this case to focus upon the facts and circumstances concerning the sale of the business by Mr Cream to Bushcolt. The evidence establishes that the livestock transport industry had a limited number of operators in the State of Western Australia. There were a few carriers who operated in the business apart from owner-operators. Cream Transport had a significant presence, particularly in the mid-west Gascoyne, Murchison and Pilbara regions of the State, but, in addition, was known in the Kimberleys and in the south-west. From Bushcolt's viewpoint it was of vital importance that it should be properly protected from competition from Mr Cream. The reasons for that are already apparent in this judgment. The evidence establishes that Hamptons operated throughout the State and that without adequate protection from competition by Mr Cream the goodwill which was acquired would be severely diminished.

69. Whilst the law is clear the restraints of trade are contrary to public policy and prima facie void, that presumption is capable of rebuttal in a case where the restraint is held to be reasonable: Lindner v Murdock's Garage (supra) per Kitto J at 655."

56 It follows, as the learned trial Judge found at [70], that the geographical restraint related to the whole of the State of Western Australia, including areas in which Cream Transport did not have a significant presence. His Honour went on to say in that paragraph that:

" ... however, the fact that Cream Transport did have a presence throughout the State is of significance. As Malcolm CJ said in Britten v Bishop (supra) at 4:

'In this case, however, it was known to both parties that the appellant and his family had very long-standing connections in the hotel and tavern trade generally, both in the metropolitan area and in the country. The respondent gave uncontradicted evidence that the relevant business was of a very close knit kind and also very competitive. It is not necessary for the covenantee to prove that the business, for the protection of which the restraint was imposed, has in fact been carried on in every part of the area specified in the contract.'

71. This case is in many respects similar to that considered by Malcolm CJ in Britten's case. The evidence establishes that the livestock transport industry in this State is very competitive and, in my view, Bushcolt has established that the geographical area of the restraint was necessary to properly protect the goodwill of the business that it was purchasing."

57 The learned Judge found that the principal area of the State in which Cream Transport operated was within a radius of 200 kilometres from Geraldton. The appellant gave evidence that in 1998 the business made deliveries or pick-ups of livestock in every region of the State depicted on the map (Exhibit 1). At the same time, his Honour accepted that the contact of the business in other regions was far less significant and intermittent. A detailed analysis was attached to the appellant's statement of evidence. In [11] - [13] the learned Judge said:

"Mr Cream's analysis of the geographical area into which the business extended is best shown on the spreadsheet analysis annexed to his witness statement (exhibit E) and shown as exhibits D(1) to (6). Whilst it can properly be said that the operations of Cream Transport were insignificant in some regions of the State, in terms of the percentage of the overall area covered by the business, it is important to note that the business did operate throughout all of those regions of the State.

A summary of the spreadsheets prepared by Mr Cream can be found in his proof of evidence following par 39.

In considering these spreadsheets and the summary of the spreadsheet evidence, it is important to note that in some cases points of origin would be only for the purpose of back-loading in order to offset the cost of the return trip to base. In those cases Mr Cream's evidence was that the back-loading would be a one-off trip which would not truly represent a client contact."

58 The justification for the inclusion of a restraint of trade provision in the contract of purchase is the protection of the goodwill of the business which is a reflection of the customer loyalty and reputation of the business being acquired. The protection of other businesses already owned by the purchaser or by companies associated with the purchaser is not a legitimate interest to be protected by a covenant in restraint of trade in respect of the purchase of an additional business.

59 The evidence of the appellant included an analysis of the business of Cream Transport's business having regard to the 12 Districts of Western Australia identified by the Commonwealth Bureau of Meteorology. These are the Western Australian District Forecast boundaries for the following regions of the State, namely, Kimberley, Pilbara, Gascoyne, Central West, Lower West, South-West, Central Wheatbelt, Great Southern, Southern, Eucla, Goldfields and Interior. The finding made by the learned Judge in this context was that:

"While it can be properly said that the operations of Cream Transport were insignificant in some regions of the State in terms of percentage of the overall area covered by the business, it is important to note that the business did operate throughout all those regions of the State."

60 It was acknowledged that it was in this sense that the business made deliveries or pick-ups of livestock in every region of the State shown in exhibit 1 on the basis that the Goldfields, Interior and Eucla areas were aggregated.

61 In 1996 the economic source of transport work for Cream Transport showed that in that year 79.9 per cent was generated from the Central West, 12.7 per cent from the Gascoyne, 3.1 per cent from the Lower West, 1.4 per cent from the Pilbara and 2.9 per cent from the remainder of the State. The comparative figures for 1998 were 75 per cent from Central West, 18 per cent from the Gascoyne, 3.6 per cent from the Lower West, 0.5 per cent from the Pilbara and 2.9 per cent from the remainder of the State.

62 In 1996 the places of origin were 67 per cent from the Central West, 13.8 per cent from the Gascoyne, 12.2 per cent from the Lower West, 2.4 per cent from the Pilbara and 4.6 per cent from the remainder of the State. In 1998 the comparative figures were 69.5 per cent from Central West, 14.7 per cent from the Gascoyne, 10.9 per cent from the Lower West, 2.4 per cent from the Pilbara and 2.5 per cent from the remainder of the State.

63 In terms of place of destination, in 1996 47.8 per cent were to Central West, 3.9 per cent to the Gascoyne, 41.5 per cent to the Lower West, 0.5 per cent to the Pilbara and 6.3 per cent to the remainder of the State. In 1998, 51.2 per cent was to the Central West, 7.2 per cent to the Gascoyne, 34.3 per cent to the Lower West, 0.1 per cent to the Pilbara and 7.2 per cent in the remainder of the State.

64 Mr Cream's evidence at the trial was also that an analysis of the geographical scope of the business of Cream Transport for 1996 and 1998 showed that it had no real presence in the Kimberley, Interior, Goldfields, Central Wheatbelt, South-West, Southern Coastal, Great Southern or Eucla. Mr Cream's evidence was that it was the Economic Source Spreadsheet and the Point of Origin Spreadsheet which best described the geographical scope of Cream Transport's business for 1996 and 1998. He also said that the same spreadsheets showed the area from which the person awarding the work operated. In many cases the source of the work is not the livestock producer but, rather, a livestock agent or livestock buyer. The Point of Origin Spreadsheet showed the area from which the livestock was sourced. According to Mr Cream, this generally had a high correlation with the economic source of the work. By contrast, the Point of Destination Spreadsheet was not representative of Cream Transport's clientele. It was a function of the location of saleyards, abattoirs and live-export feedlots.

65 Mr Cream explained in his evidence that the Place of Destination Spreadsheet showing a large number of deliveries to the Lower West region was explained by a number of factors. First, the Midland saleyards are located in the Lower West. The Midland saleyards are the only regular weekly selling complex in Western Australia other than the Great Southern's Katanning facility. Cream Transport made very few deliveries to the Katanning saleyard because it was too far from Geraldton and did not sell cattle. In most years no deliveries at all were made to the Katanning saleyards. However, Cream Transport made many deliveries of cattle and sheep to the Midland saleyards.

66 The great majority of live-export feedlots, which are the processing centres or delivery points for those live sheep exports handled through the Port of Fremantle, are located in the Baldivis and Gidgegannup areas which are also in the Lower West. Cream Transport regularly made deliveries of sheep for the live sheep export trade.

67 The Place of Destination Spreadsheet also showed a number of deliveries to the South-West region. This was explained by deliveries to V and V Walshe in Bunbury, Goodchild Meats, an abattoir in Australind, and E G Green and Sons, the largest beef abattoir in Western Australia at Harvey. V and V Walshe handled the slaughter of lambs exclusively for Woolworths Supermarkets, as well as killing for others. Goodchild Meats, the abattoir in Australind, handled the slaughter of lambs exclusively for Coles Supermarkets in Western Australia, and also killed for others. The existence of the Bunbury and Australind abattoirs was particularly relevant because they killed lambs for other domestic wholesale markets, as well as Woolworths and Coles. The majority of lambs from the Central West are slaughtered at these abattoirs as the Geraldton abattoir, Geraldton Meat Exports, does not slaughter lambs.

68 To the extent that the Economic Source Spreadsheet and the Point of Origin Spreadsheet show jobs allocated from the Lower West regions, those jobs would ordinarily be on a "back-loading" basis. In other words, having made a delivery in the Lower West, Cream Transport would have been seeking a load to take back to the Central West. If Cream Transport were not Geraldton based, it would not be able to offer back-loading rates, which are ordinarily cheaper, to secure such work. Also, in general, the destination of such work is usually to regular Central West clients. Mr Cream's own analysis of the geographical scope of Cream Transport's business 1996-1998 showed that its business and customer bases were primarily located in the Central West (or Mid-West), Gascoyne, Lower West and Pilbara regions. These were the immediate regions surrounding the Geraldton depot. The bulk of the clientele and work was located within 200 kilometres of Geraldton.

69 Mr Cream's evidence was that the reason for this was that the economics of the livestock transportation business meant that a single-depot business must operate within its sphere of influence. As was Cream Transport's experience in the Kimberley, routinely competing outside the region immediately beyond the depot could only be done at a price which is uneconomic.

70 In my opinion, on a proper analysis of the facts, the nature and extent of the operations of the business in the rest of the State outside its main area of operations within the 200-kilometre radius of Geraldton, even coupled with the extension into the Lower West, was insufficient to warrant a state-wide restraint. Consequently, to that extent, the clause constituted an unreasonable restraint of trade and was invalid. In this context, it matters not that the business was conducted on the basis that Cream Transport would pick up stock from anywhere in the State and take it to anywhere else in the State, provided it was economical to do so. The extent and frequency of such transactions was not such as to make a State-wide restraint of trade reasonable.

71 The proviso was very significant because the evidence showed that the business was focused on the area around its depot so that, for example, one would not drive a truck to the Kimberley to pick up sheep and transport them elsewhere in the Kimberley and then return to Geraldton empty. Similarly, one would not drive from Geraldton to Esperance in order to take a load of sheep somewhere else in the Southern region and then drive back up to Geraldton. The evidence was that there was a thriving transport industry in the Great Southern region and many of those operated simply in a local fashion around their depot and never went anywhere north of Perth, for example. Consequently, to preclude Mr Cream from being a contract driver or an owner/operator conducting a business located at Esperance or a depot near Esperance was not necessary to protect the goodwill of the business the subject of the sale.

72 In my opinion, the same could be said of operations in the South-West and Great Southern areas of the State where Cream Transport, when controlled by the appellant, did not previously operate to any or any significant extent. In my opinion, it was an unreasonable restraint to prevent the appellant from working as an owner/operator in areas remote from the Central West and Lower West areas in which the business of Cream Transport was concentrated, as the appellant had described. The business of Cream Transport was localised in the sense of generally operating in the Mid-West, Gascoyne, Murchison and Pilbara, extending to the Lower West for the reasons I have already indicated. In this context, I have already referred to the comment made by the learned Judge in [68] that the evidence established that Hamptons operated throughout the State and that "without adequate protection from competition by Mr Cream the goodwill which was acquired would be severely diminished."

Ground 1A - Errors in findings made by trial Judge

73 It follows that Cream Transport did not have significant operations which generated any significant part of the goodwill outside its principal areas of operation which I have described. As a result, ground 1A(1) which contended that it was not open on the evidence for the learned trial Judge to find that the business operated throughout the regions of Western Australia so as to justify a State-wide restraint has been made out. It also follows that ground 1A(2) has been made out in that the restriction imposed was not reasonable. I also consider that the finding that Cream Transport had "established a solid client base in the areas in which Cream Transport operated" was contrary to the evidence, insofar as it applied outside the areas comprising the Central West, Lower West, Gascoyne and Pilbara regions.

74 Contrary to his Honour's finding at [11], it was not the case that Cream Transport operated throughout the State. Likewise, it was not the case that Cream Transport had a "presence" throughout the State, contrary to the finding in that respect at [70]. In my opinion, the learned Judge correctly found that Cream Transport had an insignificant presence South of the Metropolitan Area, save for the transport of sheep to the abattoirs in the Lower West from the Mid-West. There were otherwise no significant customers located in the Lower West or South-West. In these two areas the focus of the business was carting sheep and cattle to abattoirs from areas north of Perth. If there were opportunities for back-loading, they would be taken. It follows from what I have already said that ground 1A(3) and (7) have also been made out and that the area of the restraint restricted the appellant in an undue manner, contrary to his Honour's finding in [59]. The "solid client base" to which his Honour referred was limited to the specific areas to which I have referred. There were large parts of the State in which Cream Transport either obtained no work or no significant work. A restraint of trade is not justified in respect of a particular area by showing that at some time or another work was undertaken there: Brown v Brown [1980] 1 NZLR 484.

75 As to ground 1A(4), the learned Judge found at [68] that the evidence established that the livestock transport industry in the State had a limited number of operators. In my opinion, this finding was against the undisputed evidence that there was a very significant number of operators in the industry in all of the relevant regions of the State.

76 Ground 1A(5) challenged the finding by the learned Judge at [68] that Cream Transport was known in the Kimberleys and the South-West. In my opinion, it has been demonstrated that this ground has also been made out.

77 Grounds 1A(6), (8) and (9) challenged the findings by the learned Judge in [68], [71] and [74] of the judgment that the evidence established that:

(a) without adequate protection from competition by Mr Cream the goodwill acquired would be severely diminished;

(b) the geographical area of the restraint was necessary to properly protect the goodwill of the business that was purchased;

(c) re-entry by Mr Cream into the livestock transport industry as an owner or contract driver would be likely to lead to the acquired business being damaged.

78 I accept that there was no evidence that the goodwill of Cream Transport would be diminished by, for example, the conduct by Mr Cream of a business based in Esperance which did not extend north of Perth. Insofar as the finding in [68] by the learned trial Judge referred to competition throughout the State, there was no evidence capable of supporting such a finding. Ground 1A(6) is therefore made out. Furthermore, it was not necessary to impose a State-wide restraint to properly protect the goodwill of the business of Cream Transport. It follows, in my opinion, that ground 1A(8) has been made out.

79 Likewise, ground 1A(9) has been made out on the basis it could not be said that re-entry by Mr Cream into the livestock transport industry anywhere in the State as an owner or contract driver would be likely to lead to the acquired business being damaged.

80 With all due respect, the purpose of any covenant in restraint of trade in this context was to ensure that Bushcolt would acquire the goodwill of the business of Cream Transport and, in particular, the goodwill in the Central West, Gascoyne, Murchison and Pilbara regions, as well as the Lower West. The amount of business conducted elsewhere did not warrant any wider area of geographical protection. As has been said previously, it was no part of the function of the restraint clause to protect Hamptons' goodwill elsewhere in the State. To that extent, the State-wide restraint was unreasonable and prima facie void.

81 It follows from what I have already written that the geographical scope of the restraint exceeded that which was reasonably required to protect the goodwill of the business that was being required and the restraint was void for that reason also.

82 The third aspect of the restraints imposed on the appellant related to the personal restraints imposed Mr Cream in relation to his involvement in the livestock industry. As to this part of the case, the learned Judge said:

72. This third aspect relates to the scope of the clause and specifically focuses upon cl 2.1(b), namely, the restraint on Mr Cream that he must not during the restraint period in the restraint area "be concerned or interested in (directly or indirectly, or through any interposed body corporate, trust, principal, agent shareholder, beneficiary, or as an independent contractor, consultant or in any other capacity) a Restrainted business".

73. It is common ground that the scope of that clause was such as to prevent Mr Cream from driving a truck as an independent contractor to a livestock transport carrier.

74. In my opinion, the construction of the clause was designed to prevent Mr Cream from re-establishing a presence in the livestock transport industry. Even as an owner driver or as a contractor driver, if Mr Cream re-entered the livestock industry, particularly in the area where his business focused, it is likely that the business of Bushcolt would be damaged. In that respect, in my view, the covenant cannot be said to be unreasonable.

75. I have therefore come to the conclusion that the clause under consideration is not an unreasonable restraint of trade and, as a consequence, the clause is not invalid."

83 It may be accepted that a purchaser of a business is entitled to protection in respect of competition by the vendor falling within the confines of the type of business bought by the purchaser: Pioneer Concrete Services Ltd v Galli [1985] VicRp 68; [1985] VR 675 at 695, per Brooking J. In the present case it was contended on behalf of the respondent that, if the appellant was permitted to work in any capacity in the livestock transport industry, the goodwill which the respondent purchased would be "destroyed". Reliance was placed on the conclusion of the learned trial Judge at [74] that:

"Even as an owner driver or as a contractor driver, if Mr Cream re-entered the livestock industry, particularly in the area where his business focused, it is likely that the business of Bushcolt would be damaged. In that respect, in my view, the covenant cannot be said to be unreasonable." (My emphasis)

84 Counsel for the respondent omitted the qualifying words from his submission. In my opinion, those words are critical. Had the limitation been restricted to the main areas in which the business was focused, to which I have referred, it may have been reasonable, but the restraint was State-wide.

85 In my opinion, the scope of this clause, which would exclude the appellant from playing any part in the livestock transport business anywhere in Western Australia, was too wide and an unlawful restraint of trade.

86 Ground 1 of the grounds of appeal contended that:

"The learned trial Judge erred in law in not testing the reasonableness of the restraint of trade imposed by the Restraint Deed by reference to the cumulative effect of its duration, geographical scope and operative scope."

87 In my opinion, there was considerable substance in this contention. His Honour did not appear to consider the cumulative effect of the three major restraints to which I have referred. The learned Judge concluded that the restraints imposed by the clause were not too wide in scope, in terms of the activities restrained, not too wide in its geographic area and not far too long. It appears clear, on the face of it, that the learned Judge did not expressly consider the cumulative effect of the restraints imposed. At the same time, it is apparent from the facts and circumstances of the case, that his Honour was very much aware of the combination of the three categories of restraint. It was contended, however, that his Honour's analysis of the restraints did not examine the cumulative effect of the three significant restraints imposed in the context of reasonableness.

88 It was contended on behalf of the respondent that the appellant had not pleaded his case at the trial on the basis that the cumulative effect of each of the restraints, in terms of duration, geographical scope and operative scope, was an unreasonable restraint of trade. It is apparent, however, on the face of the subject deed that the restraints imposed were cumulative. Clause 2.2 of the Restraint Deed provided that:

"Each of the restraint obligations imposed on the Covenantor by Clause 2.1 (which results from the combinations of the Restrained Business, Restraint Period and Restraint Area) is a separate and independent obligation from the other restraint obligations imposed (although they are cumulative in effect)."

89 In my opinion, however, although the cumulative effect of the restraints was not specifically pleaded, it was incumbent on the learned trial Judge to determine the case on the proper construction of the Restraint Deed, including the express provision that each restraint constituted an independent obligation, although they were cumulative in their effect. Reference was made in this context to the decision of the New Zealand Court of Appeal in Brown v Brown (supra) at 494 where Cooke J (as he then was) held that a covenant in restraint of trade between two brothers was unreasonable and void. The brothers had fallen out and entered into an agreement by which Robert agreed to buy the shares of his brother Leonard and Leonard's Family Trust for $122,000. In accordance with the agreement, Leonard and the members of his family entered into a covenant in restraint of trade for a term of 20 years by a deed dated 30 April 1968. At the date of the sale Leonard was aged 48 and Robert was aged 46. Leonard contended that the duration of 20 years was unreasonable.

90 The Court of Appeal held that the transaction was not an ordinary transaction between a willing vendor and a willing purchaser. It was a forced sale by fraternal conflict. There was a lack of evidence providing any legitimate specific justification for the 20 years. The evidence was consistent with the possibility that the 20 years was aimed more at preventing possible competition than conflict, rather than protecting the goodwill of the business, the control which was purchased. It had not been established by the evidence that more than 12 years would have been reasonable. On the authority of Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd (supra), it was held that the covenant was void and inseverable at common law by Cooke, Richardson and McMullin JJ on the basis that no more than 12 years would have been reasonable. Richardson and McMullin JJ also considered that the covenant was unreasonably wide as to area and should have been limited to the northern part of the North Island and should not have excluded drilling for coal, minerals or oil from the terms of the injunction.

91 In the present case Brown v Brown (supra) was relied upon as indicative of a further error, namely, that the scope of the geographical restraint within the whole of the State was invalid. This was because the nature and extent of the business outside of its "core areas" was insufficient to warrant a state-wide restraint in the context of the cumulative effect, together with the duration and operative scope of the restraint. In Brown v Brown their Honours also held that it was not sufficient to justify a restraint of trade in a particular area to show that at some time some work was done there.

Ground 2 - unreasonableness of the restraint

92 Ground 2, which needs to be considered in conjunction with ground 1, contended that the learned trial Judge erred in law in holding that the restraint of trade imposed by the restraint deed was reasonable as between the appellant and the respondent. In this respect, it was contended by way of particulars in support of ground 2 that:

"(1) The duration of the restraint, ie 10 years was excessive, further or alternatively, beyond that required to afford the respondent adequate protection. The learned Trial Judge erred in law in holding that the duration of the restraint was reasonable as the appellant was willing to enter into a restraint for 10 years or more. Alternatively, the learned Trial Judge erred in law in placing excessive weight on that matter."

(2) The geographical scope of the restraint, ie the State of Western Australia, was excessive, further or alternatively, beyond that required to afford the respondent adequate protection. The learned Trial Judge erred in law in holding that the geographical scope of the restraint was reasonable by taking into account that Hamptons operated throughout Western Australia when the question ought to have been tested by reference only to what was necessary to protect the goodwill of the business being acquired. Further, the learned Trial Judge erred in law in holding that the operations of the business being acquired outside the Mid-West, Gascoyne, Murchison and Pilbara regions of Western Australia were of a nature and extent to justify a conclusion that a restraint over the whole of the State of Western Australia was reasonable.

(3) The operative scope of the restraint, ie restraining the appellant from being concerned or interested in any way in a livestock carriage or transportation business in Western Australia for 10 years was excessive, further or alternatively, beyond that required to afford the respondent adequate protection."

93 It may be accepted that the justification for the taking of the restraint lay in the protection of the goodwill of the business being acquired. In the present context that is the customer loyalty and reputation of Cream Transport. This is the goodwill of the business being acquired, which a purchaser is entitled to protect, but not that of other businesses already owned by the purchaser or companies related to the purchaser: cf British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563 in which it was held that in considering the reasonableness of a covenant in restraint of trade entered into by a vendor on the sale of a business, the Court must merely consider whether it was reasonably necessary for the protection of the purchaser in respect of the particular business sold. The purchaser's existing businesses were not the legitimate subject of this protection and their nature and extent must be disregarded. As Dixon CJ said in Butt v Long (supra) at 486:

"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 - per Lord Parker of Waddington (Herbert Morris Ltd v Saxelby (1916) 1 AC, at pp 708, 709).

If the clause in question operates generally throughout Australia, it is impossible to regard it as going no further than was reasonable as a protection of Long against injury in respect of the business of transhipment at Wallangarra."

94 The parallel in the present case is obvious. The customers of Cream Transport were substantially in the Mid-West, Gascoyne and Pilbara regions. The learned trial Judge found the focus on the business was in these regions and that the business had only an insignificant presence in the area to the south of the Perth metropolitan area, with the exception of the Lower West. It was submitted that his Honour failed adequately to analyse the nature and extent of the work done in and the clients of the business outside its core geographical areas. It was also submitted that the relatively small quantity of work done outside the core geographical areas was insufficient to justify a restraint over the whole of the State.

95 The evidence of Mr Cream himself suggested two possible indicia of the geographical scope of the business, namely, the client and the point of origin of the job. Six regions each provided less than 1 per cent of jobs in each of the years 1996 and 1998. Two other regions provided less than 2 per cent. There was a total of eight regions outside the acknowledged core area of the business which provided the economic source for less than 3 per cent of jobs in those two years and were the point of origin for less than 4 per cent of those jobs. There were thriving livestock production industries in many regions where Cream Transport had very little business and none or very few clients, such as the Kimberley, South-West, Great Southern, Eucla and Southern Coastal regions. In these areas there were numerous small operators with one truck or one depot.

96 There was evidence that the economics of the industry explained why livestock transport businesses were localised within an area around their depot or depots. There was evidence that Cream Transport did not have any reputation with potential customers in the southern region of the State. This was acknowledged by Mr Cream in his own evidence. This was a point of distinction between the present case and Britten v Bishop, unreported; SCt of WA; Library No 960560S; 25 September 1996.

97 In my opinion, it follows that the scope of the operative restraint sought to be imposed throughout the whole of the State was unreasonable and the restraint was void for that reason.

98 The conclusions that I have already reached are sufficient to dispose of the appeal. It also follows, however, from what I have already written, that each of the duration, geographical and operative restraints was void as unreasonable. This makes it unnecessary to consider the cumulative effect as such, but I am of the opinion that, even if I am wrong in that respect and each of those restraints considered individually could be regarded as reasonable, their combined effect constituted an unreasonable restraint of trade, with the result that the covenant was void. As counsel for the appellant submitted, the restraint purported to prevent the appellant from driving a truck as an independent contractor to a livestock transport carrier, in which he had a share or interest. Such a restraint was clearly unnecessary to protect the goodwill purchased by the respondent. That goodwill was derived from customers in the geographical area which represented the area which I have referred to as that in respect of which it would have been reasonable to impose a restraint of reasonable duration. The cumulative or combined effect of the restraints taken together, however, constituted an unreasonable restraint of trade.

99 For these reasons, I have concluded that the appeal should be allowed subject to the question of estoppel.

100 Grounds 3 and 4 of the grounds of appeal were that:

"The learned Trial Judge erred in law and fact in holding that, if the restraint of trade imposed by the Restraint Deed was unenforceable as an unreasonable restraint of trade, by reason of the operation of the doctrine of promissory estoppel the appellant should nevertheless be precluded from entering the livestock transportation industry in the State of Western Australia for 10 years. The effect of the learned Trial Judge's finding is to permit the operation of the doctrine of promissory estoppel to defeat the public policy which underlies the contractual doctrine that restraints of trade are unenforceable unless reasonable. Further, there is nothing unconscionable in the appellant entering the livestock transportation industry in Western Australia in that the restraint of trade that would occur if the appellant were estopped from doing so is unreasonable as between the appellant and the respondent.

Further or in the alternative to paragraph 3, the learned Trial Judge erred in law and fact in holding that the doctrine of promissory estoppel applied to estop the appellant from entering the livestock transportation industry in the State of Western Australia for 10 years."

101 As to ground 3, the learned Judge concluded that, if he was wrong in upholding the validity of the covenant in restraint of trade, he would have upheld Bushcolt's counterclaim so as to preclude the appellant from participating in the livestock transportation industry in the State of Western Australia for a period of 10 years from the date of the contract based on a promissory estoppel in equity. The estoppel was of the kind described by Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 404, namely:

"One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it': per Dixon J in Grundt [v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641], at p 675; see also Thompson [v Palmer [1933] HCA 61; (1933) 49 CLR 507], at p 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption."

102 The appellant also relied upon two passages in the judgment of Brennan J at 423 and 428 - 429. The first of these was as follows:

"It is essential to the existence of an equity created by estoppel that the party who induces the adoption of the assumption or expectation knows or intends that the party who adopts it will act or abstain from acting in reliance on the assumption or expectation: see per Lord Denning MR in Crabb v Arun District Council [[1976] Ch at 188]. When the adoption of an assumption or expectation is induced by the making of a promise, the knowledge or intention that the assumption or expectation will be acted upon may be easily inferred. But if a party encourages another to adhere to an assumption or expectation already formed or acquiesces in the making of an assumption or the entertainment of an expectation when he ought to object to the assumption or expectation - steps which are tantamount to inducing the other to adopt the assumption or expectation - the inference of knowledge or intention that the assumption or expectation will be acted on may be more difficult to draw.

The unconscionable conduct which it is the object of equity to prevent is the failure of a party, who has induced the adoption of the assumption or expectation and who knew or intended that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion. The object of the equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon."

103 The second passage (at 428 - 429) was concerned with the matters required to be established in order to sustain an equitable estoppel, namely, as Brennan J said:

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

104 In my opinion, there is a complete answer to the application of these principles in the present case. There was no room for the operation of a doctrine of estoppel in this case because the conclusion which I have reached that the covenant in restraint of trade was void as being contrary to public policy constituted a complete obstacle to the grant of any relief in equity which would be contrary to public policy. In this case, Bushcolt would not be entitled to invoke the doctrine of estopped in equity by reason of the equitable maxim that "He who comes into equity must come with clean hands". This maxim is closely linked with another equitable maxim, namely, "He who seeks equity must do equity". Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed) par 3-055 and et seq and par 3-110 et seq. In the present case, Bushcolt as a party to a contract in unlawful restraint of trade would not be entitled to any relief or equity which would have the effect indirectly of enforcing a contract otherwise void or being contrary to public policy.

105 Alternatively, had Bushcolt sought to enforce the agreement in equity, it would have been met with a defence that the agreement was unenforceable as being entered into in unlawful restraint of trade: cf Thomson v Thomson (1802) 2 VSC 470; Whitmore v Farley [1881] 29 WR 825; and Windhill Local Board of Health v Vint [1890] 45 Ch D 351.

106 It follows from the reasons which I have expressed that the appeal must be allowed and that the relevant provisions in the contract in restraint of trade should be held void and unenforceable as being in unreasonable restraint of trade.

107 Bushcolt has cross-appealed. It seeks to have the following findings by the learned trial Judge set aside:

"1.1 that the Appellant's (Plaintiff's) statement that he would leave the livestock transportation industry permanently was honest and based upon reasonable grounds;

1.2 that the statements by the Appellant (Plaintiff) were not misleading and deceptive."

108 Bushcolt also seeks an order that the orders made by the learned trial Judge on 1 May 2002 that the counterclaim be dismissed and that there be no order as to costs on the counterclaim be set aside, and in lieu thereof it be ordered that:

"2.1 pursuant to Section 77 of the Fair Trading Act, the Deed of Restraint be varied by amending the following definitions:

'Restraint Area' so that it is defined to mean 'Geraldton and the Mid-West, Gascoyne, Pilbara and Murchison regions in the state of Western Australia';

'Restraint Period' so that it is defined to mean '5 years from the date of this Deed';

2.2 the Appellant (Plaintiff) pay the Respondent's (Defendant's) costs of the counterclaim including reserved costs (if any) to be taxed if not agreed."

109 The grounds of the cross-appeal are as follows:

"1. The learned trial Judge erred in fact and law in holding that statements made by the Appellant (Plaintiff) to the Respondent (Defendant) that he was leaving the livestock industry permanently were made on reasonable grounds in that:

1.1 the learned trial Judge erred in law in failing to provide any reasons for holding that the statements made by the Appellant (Plaintiff) to the Respondent (Defendant) were made on reasonable grounds;

1.2 the learned trial Judge erred in law in having regard to the conduct of the Appellant (Plaintiff) after the statements were made as being relevant to the issue as to whether the statement was honestly made upon reasonable grounds;

1.3 the learned trial Judge erred in fact in finding in the absence of any evidence at all alternatively against the weight of evidence that the statements made by the Appellant (Plaintiff) to the Respondent (Defendant) were made on reasonable grounds;

1.4 the learned trial Judge should have held on the evidence that the statements made by the Appellant (Plaintiff) to the Respondent (Defendant) were not made on reasonable grounds in that:

1.4.1 the Respondent (Plaintiff) gave evidence that he had :

1.4.1.1 no qualification s to carry on any other profession;

1.4.1.2 no experience in any other industry or trade;

1.4.1.3 no plans to carry on any other business or trade after disposing of his business;

1.4.1.4 taken no advice from any person as to what he should do after disposing of his business;

1.4.2 the Appellant (Plaintiff) by reason of his age (36 years) after the sale of his business had insufficient capital to occasion his retirement;

1.4.3 The Appellant (Plaintiff) had no connections nor prospect of advancement outside Geraldton;

1.4.4 the Appellant (Plaintiff) adduced no evidence at all to establish the reasonableness of his statement."

110 Mr Cream has responded to the cross-appeal by contending in his notice of contention that:

"1. The statements made by the appellant to the respondent were not representations with respect to a future matter within the meaning of s 9 of the Fair Trading Act 1987 (WA).

2. The respondent did not rely on the statements made by the appellant to the respondent as distinct from the restraint imposed by the Restraint Deed.

3. The respondent did not suffer and is not likely to suffer, loss or damage by reason of the statements made by the appellant to the respondent.

4. If, which is denied, the respondent did suffer, or is likely to suffer, loss or damage by reason of the statements made by the appellant to the respondent, the proposed variations to the Restraint Deed sought by the respondent are not an appropriate remedy to compensate the respondent for the loss or damage or to prevent or reduce the loss or damage."

111 The issue raised by the Bushcolt's cross-appeal is whether the appellant's representation to the respondent that he would leave the livestock industry permanently was misleading and deceptive. Section 9 of the Fair Trading Act, which is contained in Part II dealing with unfair practices, provides that:

"(1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person.

(3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead."

112 It may be accepted that prima facie every representation is misleading and deceptive unless there are reasonable grounds for making it at the time it was made: Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901. The onus of establishing reasonable grounds is on the person making the representation: Adelaide Petroleum NL v Poseidon Ltd (supra) at 49,700, per French J. It may also be accepted that an honest belief in the accuracy of the representation does not necessarily mean that the speaker had reasonable grounds for making the representation. In the present case, the appellant had represented that he wanted to get out of the industry permanently. In my opinion, there was nothing in the evidence on which a finding could be made against the appellant that such was not his genuine intention at the time the statement was made. He also indicated that he had no intention of returning to the industry at any time in the future. Again, there was nothing in the evidence to suggest that these statements did not genuinely reflect the appellant's state of mind and intention at the time they were made.

Cream v Bushcolt Pty Ltd [2004] WASCA 82

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (245 paragraphs)

Cream v Bushcolt Pty Ltd [2004] WASCA 82 (22 April 2004)

Ground 1A - Errors in findings made by trial Judge

Ground 2 - unreasonableness of the restraint

Parties

Legislation Cited (2)

Cases Cited (23)