Hamilton v Lethbridge [1912] HCA 20;

[1912] HCA 20

High Court of Australia|1912-05-06|Before: Isaacs JJ

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Court

High Court of Australia

Decision date

1912-05-06

Before

Isaacs JJ

Source

Original judgment source is linked above.

Judgment (88 paragraphs)

[1]

Hamilton v Lethbridge [1912] HCA 20; (1912) 14 CLR 236 (6 May 1912)

[2]

Hamilton Plaintiff, Appellant; and Lethbridge Defendant, Respondent.

[3]

This is an action brought by the plaintiff, the appellant, against the respondent, claiming an injunction to restrain a breach of covenants contained in articles of clerkship of 28th April 1905 by which the defendant, who was then a minor, bound himself to serve the plaintiff for five years as an articled clerk. The premium to be paid was 200 guineas, for which defendant's father executed a bond. The defendant's father also executed a covenant that on the admission of defendant as a solicitor he would not at any time thereafter practise as a solicitor at Toowoomba, where the plaintiff was then practising, or within 50 miles thereof, without his consent in writing, and that if defendant should be guilty of a breach of that obligation, the father should be liable to pay to the plaintiff, his executors, administrators, or assigns, the sum of £2,000, as liquidated damages, to be deemed and taken in full satisfaction and discharge of the covenant, and not in the nature of a penalty. The father further covenanted that immediately upon the defendant attaining 21 he would enter into a covenant with the plaintiff, his executors, administrators and assigns, similar to the covenant I have just stated, and by which, on breach of the covenant, he should be liable to pay as liquidated damages £2,000. On defendant's failure to enter into such covenant the plaintiff was to be at liberty to cancel the articles. There was also a further stipulation that the plaintiff should be at liberty, at any time during the term of five years "and without any compensation" either to the father or the son, to assign the articles to any solicitor of the Supreme Court practising in Toowoomba or elsewhere in Queensland. The defendant entered into the plaintiff's service at Toowoomba, and attained the age of 21 in August 1907. He did not execute the covenant stipulated for, and was not, indeed, asked to do so, and the plaintiff did not cancel the articles. The defendant continued his service. More than two years afterwards, on 2nd November 1909, at the defendant's request, the articles were assigned to plaintiff's son, who was also his partner. The defendant finished his service under the assignment, and on 7th June 1910 he was admitted as a solicitor. He practised elsewhere for a little while, and in June 1911 he began to practise in Toowoomba, where the plaintiff and his son were still practising in partnership. The learned Chief Justice under these circumstances granted an interim injunction until the hearing. On appeal the motion was treated as the hearing of the action, and the Court, by majority, J. dissenting, dismissed the action.

[5]

From respect to the learned Judges from whom I am differing, I will briefly state the view I take of the law as applicable to this point. Some contracts made by an infant are said to be absolutely void, but that rule does not in general apply, as I understand it, to executory contracts still open to be performed on the attainment of majority. Other contracts by an infant are in general voidable only. It cannot be suggested that articles of apprenticeship or articles of clerkship are absolutely void, although there is high authority for saying that a covenant, although contained in articles of apprenticeship, is void and cannot be enforced against an infant after attaining 21 as was pointed out by Chitty J., in the case of De Francesco v. Barnum[2]. A contract made by an infant cannot be enforced against him during infancy unless it is held to be for his benefit. For the purpose of determining that question the whole of the contract must be looked into, and not a particular portion only. Clements v. London and N. W. Railway Co.[3] is sufficient authority for that proposition. When an infant comes of age he is free to affirm or disaffirm the contract as to anything remaining to be done under it. If he affirms it the question of it being for his benefit no longer arises. If he disaffirms it there is an end of the matter. He must do one thing or the other. The principal objections taken to this contract now in question, as showing that it was not for the benefit of the infant, were based on the covenant restricting the right of practice, and the provisions as to assignment of the articles. The first of these objections is based upon public policy. So far as regards public policy the point is just the same whether the covenantor is an infant or an adult. If the restriction is not against public policy and is not too wide for the protection of the master, the question would be whether on the whole it was for the benefit of the infant to enter into a contract in which such a stipulation regarded per se was reasonable. The question of minority is quite irrelevant. One point taken was that the restriction was unusual in Queensland. In my opinion, in the present circumstances of Queensland, in which the conditions are constantly changing with the growth and distribution of population, it is impossible to say that any stipulation in articles is usual or unusual. All that can be said is that in the still comparatively small number of cases that have occurred some stipulations have been used oftener than others, or rather that one has been more frequently adopted than others. It appears, indeed, that in fact a stipulation in the terms of this covenant has been by no means infrequent in Queensland. The amount of the premium cannot be, as suggested by the learned Judges, any test of the reasonableness of the restriction.

[8]

The contract now in question as a whole is clearly not void, but at most voidable. When an infant by whom a voidable contract has been made comes of age he must, as I have already stated, elect whether he will affirm or disaffirm it. If he elect to disaffirm it, which in this case he did not do, he must do so within a reasonable time. In the case of Edwards v. Carter[4], Lord Watson says (at p. 366): - "The law gave this minor the privilege of repudiating the obligations which he had undertaken during his minority within a reasonable time after he came of age. It laid no obligation upon him - it merely conferred upon him a privilege of which he might or might not avail himself, as he chose. If he chooses to be inactive, his opportunity passes away; if he chooses to be active, the law comes to his assistance. In this case, my Lords, it appears to me that the period of four years and eight months which he permitted to elapse before he took any steps in the matter cannot possibly be regarded as a reasonable time." Lord Halsbury merely quoted and adopted the words of Lindley L.J., who said: - "Whether the defendant could have repudiated the deed in five or six or nine months after he came of age I do not care to discuss; but to ask us to hold that he repudiated within a reasonable time is to ask us to hold that which no reasonable man could think of holding." In this case after the defendant came of age he continued to serve under the articles for more than two years after the assignment. That, of itself amounts to ratification and adoption by the infant. I will read what was laid down in the case of Harris v. Wall[5]: - "Any act or declaration which recognises the existence of the promise as binding is a ratification of it, as, in the case of agency, anything which recognises as binding an act done by an agent, or by a party who has acted as agent, is an adoption of it. Any written instrument signed by the party, which in the case of adults would have amounted to the adoption of the act of a party acting as agent, will in the case of an infant who has attained his majority amount to a ratification."

[10]

I do not know how a more clear and distinct ratification and adoption of the obligations contained in the original articles could be expressed. Alternatively it may be regarded, if necessary, as a new contract by the defendant himself. It is, indeed, both a new contract and a ratification of the old one. Further, the defendant applied to the Supreme Court for admission as a solicitor on the faith of these articles, and of his service under them, and put them forward as the basis and foundation of his right to admission. For these reasons I think the fact that he was a minor when the articles were originally executed is quite irrelevant, and that he is bound by the ratification of the original contract, from whatever point of view you look at it. The only question for determination, therefore, is whether the restriction in the covenant, regarding the contract as between persons sui juris, is too wide. The rule as to that may be taken to be as laid down by Chief Justice Tindall in Horner v. Graves[7] which was adopted in the case of Nordenfeldt v. Maxim Nordenfeldt Guns and Ammunition Company[8] by Lord Herschell L.C.: "We do not see how a better test can be applied to the question, whether reasonable or not, than by considering whether the restraint is such only as to afford a fair protection to the interests of the party in favour of whom it is given, and not so large as to interfere with the interests of the public. Whatever restraint is larger than the necessary protection of the party can be of no benefit to either; it can only be oppressive, and, if oppressive, it is, in the eye of the law, unreasonable." I do not think the restriction that the defendant should not practise within 50 miles of Toowoomba can be said to be obnoxious to public policy. I think from that point of view the observations of Lord Macnaghten, at p. 573, are very relevant. Referring to a case before Lord Langdale in which a solicitor sold his business covenanting not to practise in Great Britain and then began to practise again; his Lordship said: "His defence was that a covenant so wide was against public policy. But it did not occur to him to return the price: that he kept in his pocket. Lord Langdale thought the public would not greatly suffer if Mr. Howe withdrew for a time from the ranks of an honourable profession. I cannot think he was very wrong. It seems almost absurd to talk of public policy in connection with such a case. It is a public scandal, when the law is forced to uphold a dishonest act: would the public find suitable compensation in the privilege of employing an unprincipled lawyer practising in violation of his solemn engagement?"

[17]

It is certain that, as Lord Herschell L.C. says in a case I shall presently cite[10]: - "In early times all agreements in restraint of trade, whether general or restricted to a particular area, would probably have been held bad; but a distinction came to be taken between covenants in general restraint of trade and those where the restraint was only partial." He quotes inter alia the statement of Willes C.J. in the case of Master &c. of Gunmakers v. Fell[11], that to the general rule "that all restraints of trade, which the law so much favours, if nothing more appear, are bad, ... there are some exceptions, as, first, if the restraint be only particular in respect to the time or place, and there be a good consideration given to the person restrained." The weight of modern authority, however, shows that the test to be applied in determining whether a covenant, be it general or limited, is void as an unreasonable restraint, is, as stated in the judgment of the Court of Exchequer in Mallan v. May[12], "whether it be prejudicial or not to the public interest; for it is on grounds of public policy alone that these contracts are supported or avoided." Apparently the Court regarded the question, whether a covenant is wider than is necessary for the protection of the trade of the covenantee, as a question involving the public interest, since that interest requires that none of its members should be restricted in earning their living to a greater extent than is reasonably necessary for the protection of others with whom they choose to contract. It would appear from the same judgment that, to support a partial restraint at any rate, it was enough to show that it was consistent with public convenience and the general interest, the validity of the covenant being for the Court to determine. But for a long time it was a widely received opinion that a general restraint was void. It was regarded as in all cases something beyond reason. That is, in practice at least, it was in vain to urge in support of a general restraint that it was reasonable in the circumstances of the particular case. It is questionable, however, whether the decisions of the highest authorities went quite so far. Of Tindal C.J., Lord Macnaghten says[13]: - "There is no higher authority upon this subject in modern times." And certainly neither Tindal C.J. nor Parke B. laid down the rule as absolute in all events. As time went on, and as commerce and manufacture and means of communication increased, the view taken by the Courts in construing covenants of this kind also expanded, until in 1894 the case of Nordenfeldt v. Maxim Nordenfeldt Co. was decided by the House of Lords[14], unanimously affirming the decision of the Court of Appeal. There a patentee and manufacturer of guns and ammunition for use in war made a covenant, unrestricted as to space, with a company to which his patents and business had been transferred, that he would not for 25 years engage, except on behalf of the company, in the business of a manufacturer of guns and ammunition. It was held that having regard to the nature of the business and the limited number of the customers (namely, the Governments of the United Kingdom and other countries) the covenant, as I have stated it, was not wider than was necessary for the protection of the company, nor injurious to the public interests of the country: that it was therefore valid and enforceable by injunction.

[18]

The antecedent authorities were so closely and extensively reviewed by the learned Lords that it is unnecessary to go further than their speeches for a statement of the principles which must govern such a case as the present on the point now under discussion. Lord Macnaghten said[15]: - "The true view at the present time, I think, is this: the public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade, of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraint of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public; so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public. That, I think, is the fair result of the authorities. But it is not to be supposed that that result was reached all at once. The law has changed much, even since Mitchell v. Reynolds11 P. Wms., 181.. It has become simpler and broader too ..." He declared that "the better opinion is that the Court ought not to hold the contract void unless the defendant made it plainly and obviously clear that the plaintiff's interest did not require the defendant's exclusion or that the public interest would be sacrificed if the proposed restraint were upheld: Tallis v. Tallis21 E. & B., 391, at p. 412.." And the same learned Lord said: "a fetter is placed on trade, and trading is discouraged, if a man who has built up a valuable business is not to be permitted to dispose of the fruits of his labours to the best advantage." Lord Herschell L.C., in the same case, after alluding to the rule or supposed rule that a general restraint of trade was in all cases void, had quoted from the judgment of Fry J. in Roussillon v. Roussillon[18]: - "I have, therefore, upon the authorities, to choose between two sets of cases, those which recognize and those which refuse to recognize this supposed rule; and for the reasons which I have mentioned, I have no hesitation in saying that I adhere to those authorities which refuse to recognize this rule, and I consider that the cases in which an unlimited prohibition has been spoken of as void relate only to circumstances in which such a prohibition has been unreasonable." And on this question Lord Herschell goes on to say: - "Whether the cases in which a general covenant can now be supported are to be regarded as exceptions from the rule which I think was long recognized as established, or whether the rule is itself to be treated as inapplicable to the altered conditions which now prevail, is probably a matter of words rather than of substance. The latter is perhaps the sounder view. When once it is admitted that whether the covenant be general or particular the question of its validity is alike determined by the consideration whether it exceeds what is necessary for the protection of the covenantee, the distinction between general and particular restraints ceases to be a distinction in point of law." Lord Macnaghten, indeed, says that Sir Edward Fry in Roussillon v. Roussillon "has rightly apprehended the common law doctrine as it may be traced in the books."

[20]

In Hitchcock v. Coker[21] by an agreement between the plaintiff, a chemist and druggist, and the defendant, contracting to serve the plaintiff as his assistant, it was provided that if the defendant should at any time thereafter exercise the business of a chemist and druggist in the town of Taunton or within three miles thereof, he would pay the plaintiff £500 as liquidated damages. The King's Bench held that the restraint in point of time was larger than the necessary protection of the plaintiff required, and that it was therefore oppressive and unreasonable. The Exchequer Chamber reversed this judgment, and in delivering the judgment of the Court Tindal C.J. put the decision on the ground that the goodwill of a trade (and the same consideration applies to a professional practice), is a "subject of value and price": and if the restriction as to time is held to be illegal, the value of the goodwill is or may be destroyed. "If it is reasonable that the master should by an agreement secure himself from a diminution of the annual profits of his trade, it does not appear as unreasonable that the restriction should go so far as to secure to the master the enjoyment of the price or value for which the trade would sell, or secure the enjoyment of the same trade to his purchaser, or legatee, or executor. And the only effectual method of doing this appears to be, entering into the trade or business within the given limit co-extensive with the servant's life." The covenant into which the defendant has bound himself to enter may under these authorities be perfectly valid, and is so if the restrictions are reasonable and are not otherwise obnoxious to the public interest. The objections to them affect both the exclusion from practice within a radius of 50 miles from Toowoomba, and the duration of that exclusion, and they were confined to these points. As to the latter, the cases of Haynes v. Doman[22] and Hitchcock v. Coker[23] seem conclusive without more. As to the former, a radius of 50 miles does not in these days appear to be unreasonable for the covenantee's protection. In Horner v. Graves[24], Tindal C.J. observes that in one of the cases cited 150 miles was considered as not an unreasonable limit, where an attorney had bought the business of another who had retired from practice, and points out that "it is obvious that the profession of an attorney requires a limit of a much larger range" (than that of a dentist) "as so much may be carried on by correspondence or by agents." These expressions were used over 80 years ago, and I would respectfully adopt and apply to the circumstances of this case some words used by Rigby L.J. in a case already cited: "The law as to contracts in restraint of trade was originally founded on public policy according to the ideas, and having regard to the business organization, of the time. The whole business organization of society has been revolutionized by the use of railways, the post office, and the telegraph, so that a single firm may have a business extending over a vastly larger portion of the earth's surface than would have been dreamt of in the days when questions similar to those raised in this action were first dealt with. In addition to this, it has been clearly recognized in recent times that public policy is at least as much concerned in holding persons to their contracts as in prohibiting contracts in restraint of trade."

[27]

I do not therefore find anything in the articles which can be held to make the whole contract unfair. As Channell J. says in Bromley v. Smith[26], a contract which contains the only terms on which an infant can reasonably expect to obtain employment must be for his benefit. But if its terms as a whole are fair and just, I do not think that the contract can be said to become prejudicial, merely because he could have obtained employment elsewhere on slightly better terms. Take such a contract as a clerk's articles. A great deal depends on the preferences of the clerk or his father on many points, such as the place of service, the nature and character of the solicitor's practice, the personality of the solicitor himself. An infant may be able to obtain somewhat better terms, even at a less premium, in another town or in a less desirable office, or with a less respected or less capable solicitor - and where the bargain is less advantageous in all these respects, he may probably obtain articles without any restrictive covenant, without indeed any stipulation that he does not like, at a remarkably low premium, and with an early and increasing salary; and yet such a contract may be wholly undesirable, and dangerous to the infant. All of which amounts to saying that the advantage of the contract does not depend solely on the favourable aspect of its terms as they appear on paper, and that where the conditions external to the deed are favourable, it is enough that the terms expressed should be just. Otherwise it would be open to an infant on coming of age to repudiate at his caprice a contract eminently advantageous in operation simply because he could have obtained terms better on paper, though not in substance. Now after hearing all that can be said against the defendant's articles I have come to the conclusion that they are just, and that in all probability, whatever slight advantages in terms he might have obtained elsewhere, he would not have obtained a more beneficial contract.

[32]

I venture to supplement it with the following statement of law made by Lindley M.R. in Viditz v. O'Hagan[28]: "Now, what is the effect of the English law as expounded by the House of Lords in Edwards v. Carter2(1893) A.C., 360.? What is the theory of it? The theory is, I apprehend, this - that there are some contracts of infants which by English law are absolutely void. There are a few (not a great many) contracts which in the view of English law cannot possibly be for the benefit of the infant - take a bond with penalties as an illustration - and they are void. An infant cannot so contract. The great bulk of infants' contracts are only voidable. What does that mean? It means that when the infant comes of age he can elect either to affirm or to disaffirm the contract. If he does nothing within a reasonable time after he attains twenty-one, the presumption is that he has affirmed the contract. The contract is binding and has been binding on him ever since he attained twenty-one, unless he proves the contrary by repudiating it within a reasonable time. But I think it would be an entire mistake to apply that part of English law which relates to repudiation within a reasonable time if you shut out the other part which relates to the ability to ratify." If the articles were voidable, as I do not think they were, not only were they not avoided by the defendant, but he distinctly ratified and affirmed them after he came of age. First, he paid the premium out of funds to which he then became entitled. Then he continued to serve under the same articles as if they were binding, and without a sign of protest that they were not so, until, two years and more after his twenty-first birthday, he first asked for and then joined in an assignment of them to his master's partner as valid and subsisting articles; and he made these articles the basis of the admission to his profession which he sought and gained on the 7th June 1910. Up to his admission he continued to receive the benefit of this contract, which he now asserts to have been void - although had it been void he would have had no ground whatever for asking admission to the roll of solicitors. In the face of all these facts the objection that his own covenant, as well as those made by his father, was not expressly reserved to the plaintiff by the assignment is of little weight; for the assignment cannot be interpreted as excepting that covenant from the significance of the ratification. I do not think that the parties to the assignment ever thought of including that personal covenant. They probably considered that it needed no reservation. But having been affirmed already, together with the rest of the articles, it matters little if at law it was transferred by the assignment to the plaintiff's son, another member of the same firm, as it was if the argument founded on the maxim expressio unius, &c., be accepted. If the right of action upon it was assigned at law to Charles Alday Hamilton, he could scarcely be regarded as a covenantee for his own benefit. The assignment was made at the defendant's request to enable him to remain in the Toowoomba office for the five or six months of his term which were yet to run; for the plaintiff was then mainly occupied in the Brisbane office of the firm, and could not give constant attention to the defendant unless he preferred to come to Brisbane. If Mr. Charles Alday Hamilton sued on the covenant he would do so as trustee for the plaintiff. But if so the plaintiff could sue on it himself. Alternatively, there is the suggestion that if the assignment must be read as imputing a new covenant by the defendant as an adult with Charles Alday Hamilton that he would not practise within the prescribed limits, such a new covenant with the plaintiff's son and partner could only be reasonably read as an accord and satisfaction for the breach of the defendant's original covenant which had then already occurred. But if this were so the same consequences would follow. If the assignee sued he would do so as trustee for the plaintiff. And the plaintiff could bring the action instead of leaving his trustee to do so. If, again, the view is taken that the defendant's original covenant had not then been broken, and that the assignment could be read as involving an implied rescission by deed of the defendant's original covenant and the making of a new one in the same terms with the assignee, there would be no difference in the result. One thing is certain, that the defendant's covenant has not dropped out, and whether it remains as a covenant with the plaintiff or one with his partner, it remains for the advantage of the plaintiff.

[36]

That contention, however, is not sustainable, because it overlooks a fundamental distinction. It is not necessary here to investigate the absolute accuracy of the division of infant's contracts into void and voidable, or the precise meaning of the term void as used in many of the cases. But certain rules of law are firmly established, and when recalled to mind elucidate the present point. The first is that, as Lord Macnaghten said in Cooper v. Cooper[32]: - "Infants are incapable, speaking generally, of binding themselves absolutely by contract." Then there are exceptions to that rule, and it is all important to see what those exceptions do not include. In the case of Walter v. Everard[33] the Court of Appeal laid down the law. That was an action by a master against his apprentice when the latter was of age for £300, the balance of premium due under the defendant's covenant in the apprenticeship deed. A clear question arose as to whether such a covenant was enforceable as such, and it was held that it was not. The plaintiff succeeded not on the covenant as a binding agreement, but on the findings of the jury, that the deed was a proper one, the arrangement fair and the premium fair and reasonable. Lord Esher M.R. said[34]: - "It is not true that you can sue an infant upon a bond given by him for the price of necessaries supplied to him with all the ordinary incidents of such an action." And again: - "You cannot sue the infant upon his bond as a bond. But if the bond is what is called a single bond - that is, if it is given only for the reasonable price of the necessaries supplied to the infant and there is no penalty, - the infant can be sued upon it. ... It comes in the result to this - that a bond given by an infant for the price of necessaries does not prevent the obligee from recovering that price from him if the bond is a single one, and it is not relied on simply as a bond. In the same way an infant can be sued upon a covenant by deed for the price of necessaries but the case must be treated just as if there had been no deed." The foundation of that is in Co. Litt., 172_a_, which is quoted in the case. The effect is - and, if possible, it is made clearer by reference to Nash v. Inman[35], and particularly to the judgment of Buckley L.J. - that an infant has a limited capacity to contract for the price of necessaries. But it is for their price, and the observations of Fletcher-Moulton L.J. go far to show the reason of that limitation. With great respect to the learned Judges who decided Gadd v. Thompson[36] it appears to me they carried the law beyond what was laid down in Walter v. Everard[37]. It is not that whatever an infant contracts for, even in regard to necessaries, binds him irrevocably on attaining full age, but that he is bound to pay a reasonable price for them.

[47]

The principle is that having the capacity and power to elect whether he will keep or surrender the benefit of the contract, then if he retains the benefit, he is to be taken as ratifying the bargain and to be bound by its obligations. This was the principle in which the cases of the London and North Western Railway Co v. McMichael[64]; Whittingham v. Murdy[65]; and Cornwall v. Hawkins[66] were decided. In the present case the respondent continued for about two years after his majority and until the assignment to receive all the benefits of the articles from the appellant. He continued to receive from his master the instruction, and to acquire at his hands the experience and qualification essential to equip him for entry into the ranks of the legal profession. At the same time he continued as a necessary consequence to establish a fuller acquaintance with the existing clients of the firm, and to meet additional clients as they came in. Then in accepting the assignment in completing his service under that assignment, and in his application for admission in reliance on both the original articles and the assignment, he did acts absolutely inconsistent with any notion of disaffirmance. If on attaining his majority he had disavowed the articles, left his employment and entered the profession by an entirely new and independent avenue as from the beginning, he would in my opinion have been free from the obligation of this covenant. But as it is, he is certainly bound as if he were an adult when the original articles were executed. I cannot assent to the contention that, because the appellant did not call upon the respondent on his attaining 21 to enter into the restrictive covenant, he waived it. The appellant's intention to insist on the restriction was manifested by the terms of the assignment, and so far from the exception of the father's covenant from the transfer being evidence of abandonment by tacit exclusion, I think it looks in the opposite direction. The father being dead, and unable to assent, it might well have been thought safer for the appellant's security to expressly except that covenant from the transfer, because it related to a covenant between respondent and the assignor which from the moment of execution was intended to protect his business, however much its benefit might subsequently pass. The retention of the father's covenant would have been absurd if the right to require the respondent to make the covenant were given up.