Howard F Hudson Pty Ltd v Ronayne [1972] HCA 3;

Howard F Hudson Pty Ltd v Ronayne [1972] HCA 3; - HCA 1972 case summary — Zoe

[9]

4. In my opinion, the reason that the condition in the second and third clauses of the document is void is that it offends the public policy that in the public interest the citizen should be free of any unreasonable restraint upon the exercise of his capacity to be gainfully employed or to engage in trade or commerce. As has now been demonstrated in decisions in this Court and in the United Kingdom such an attempted restraint will be void though not effected by means of a promise by the person sought to be restrained. "The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason" : Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1967] UKHL 1; (1968) AC 269, at p 331 , per Lord Wilberforce. And a person who seeks to make the restraint effective in fact will be restrained by appropriate injunction. See Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353 . In this case it is the effect of the condition in imposing an unreasonable restraint upon the exercise of such a capacity of the respondent which offends public policy. The existence, but particularly the operation of the condition is offensive to that policy. It seems to me nothing to the point that the condition is in form or substance a condition precedent to the promise to pay. It is nonetheless effective to create the unreasonable restraint. But if the promise to pay is held to be unenforceable because the condition is void, the ground upon which that condition can be held to be void is, in my opinion, swept away. The condition only has a restraining effect upon the respondent whilst the promise to pay subsists. To hold that the promise to pay can only be enforced if the condition is observed seems to me completely to subvert the public policy which is of paramount importance. Of course, if that promise is unsupported by consideration or seal it will not be contractually binding but that is quite a different position from the present. Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 was, in my opinion, really a case of that kind. Again if the condition is inseverable from the promise to pay, that promise must be wholly void. But, I agree with the majority of the Full Court of the Supreme Court of New South Wales (1970) 92 WN (NSW) 734 that here the condition is severable from the promise to pay. Consequently, if that condition be void, the promise, being under seal, will remain enforceable. (at p453)

[16]

4. The learned judge who heard the action decided that the restriction upon employment imposed by cl. 2 and cl. 3 (b) (iii) was no more than reasonable because it was reasonably necessary to protect the business of the defendant and it left a substantial area in which the plaintiff could use his accumulated business skill. The modern development of the law avoiding restraint of trade on the grounds of public policy has, I think, tended towards securing protection for former employees from restraints which interfere with their continuing to work. Lord Wilberforce has described this as a "sensitive area" in which the law always requires "the test of reasonableness to be passed" : Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1967] UKHL 1; (1968) AC 269, at p 332 . This test requires that the restraint should not go beyond what is reasonable for the protection of the former employer. It appears to me that a restriction, to operate for four years, against the former employee engaging or being concerned within the Commonwealth of Australia in the business of selling or marketing a wide range of specified goods and extending to "other lines or products of a nature now marketed or sold by the Company or any subsidiary thereof" would go further than would be reasonable to protect the company's business from the activities of the former employee, particularly having regard to the particular restrictions to be found in cll. 3 (a) and 3 (b) (i) and (ii). Such a restriction goes beyond the protection of the employer from what is in the nature of unfair competition from a former employee ; it would exclude the employee from all kinds of business activity which his thirty years of service with the company had equipped him to undertake and which he could undertake without any effect whatever upon the business of the company. He could not, for instance, open a hardware shop of his own in a suburb or in a country town. Indeed, if he were to buy a general store in a country town he could not sell a hammer, an axe, a spade or a clothes line. I agree with the Court of Appeal that, in deciding such a restriction was reasonable, the learned trial judge was in error. Before this Court it was not disputed that, had the clause taken the form of a covenant not to engage or be concerned in a business, it would have been void. (at p456)

[38]

7. The fact that the respondent would not be legally bound by the deed to refrain from acting in the manner described in the conditions set out in cll. 2 and 3 does not necessarily preclude him from raising in curial proceedings the question whether the provisions of the deed tended towards a restraint which is contrary to public policy. That is established by Pharmaceutical Society of Great Britain v. Dickson (1970) AC 403 , and by the recent decision of this Court in Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353 , in which it was affirmed that the doctrine of the common law that invalidates restraints of trade is not limited to contractual provisions. But although the respondent did not bind himself in the deed to any legal obligation, it was a deed which he executed as a party that contained the conditions which are said by him to be in restraint of trade and that set them out as the conditions upon which the appellant undertook the obligation which the respondent seeks now to enforce. In this respect the case is different from those cases in which some benefit is conferred upon a person who has nothing to do with the execution of the instrument by which it is conferred and who has no knowledge, before the instrument comes into operation, of any terms to which the benefit is made subject. Because of that difference, I think it is doubtful whether much assistance can be obtained in resolving the problem which arises in this case, by referring to the decisions upon the effect of a condtion which may create a tendency towards some conduct which the law regards as contrary to public policy, upon a gift contained either in a will or in a deed with which the donee is in no way concerned except that he is named as a beneficiary. Here the terms of the bargain made by the parties and embodied by them in a deed must be examined, notwithstanding that those terms did not include any covenant by the respondent, in order to ascertain what was the intention of the parties. This is not to be ascertained, in my opinion, simply by deciding whether the conditions in the deed should be classified as conditions precedent or as conditions subsequent and by applying the somewhat complex rules (see In re Cuming; Nicholls v. Public Trustee (S.A.) [1945] HCA 32; (1945) 72 CLR 86, at p 91 ) which have been developed to determine the effect, upon a gift made by will, of a void condition. (at p463)

[42]

11. In my opinion, the deed should not be read as conferring, in the first instance, upon the respondent an absolute right or a "vested" right to receive the whole sum of 6,000 pounds and as then providing for the defeasance of that right upon the occurrence at a later time of a specified act or event. As the recitals show, the appellant agreed to pay a retiring allowance of 6,000 pounds "upon and subject to certain terms and conditions" and the parties entered into the deed for the purpose of setting out in it the terms and conditions "upon and subject to which the said retiring allowance shall be payable by the Company to the Employee". Clauses 1 and 2 of the deed should be read together. So read, they provide that the payment of the retiring allowance is subject to the respondent not acting to the detriment of the appellant or its business. That is stated expressly in cl. 2. The further provision in cl. 2 that should the respondent so act, then the appellant should not thereafter be bound to pay any further instalments of the retiring allowance, does not require the conclusion that the deed contained an absolute grant of the whole of the retiring allowance which was then qualified by a condition providing for defeasance of the grant. On the contrary, the terms of the latter part of cl. 2 are in harmony, in my opinion, with the construction that the only bargain expressed in the deed is a bargain by which the quarterly instalments of the allowance are to be paid, up to the total amount of 6,000 pounds , during the continuance of a period in which the respondent is not acting to the detriment of the appellant or its business. If at the date when an instalment falls due the respondent has not been and is not so acting, then his right to that instalment becomes complete and even if he begins to act to the detriment of the appellant or its business, after that date but before payment of that instalment, he is still entitled to it. Likewise, he is entitled in that event to retain instalments which have previously been paid to him. But the company is not thereafter bound to pay any further instalments. What I have stated is subject to the further condition, resulting from cl. 5, that at the date when an instalment becomes payable the respondent should still be alive. (at p465)

[48]

2. The first question that falls for decision is whether any, and if so which, of the provisions of the deed would if valid operate as a restraint of trade. The deed contained no covenant by the respondent not to engage or be concerned in the business described in cl. 3 (b) (iii) but, as we have recently held in Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353 , the doctrine of restraint of trade is not limited to contractual restraints. Whether the provisions of the deed operated as a restraint of trade depended on their practical working rather than on their legal form (see the passage from the judgment of Lord Wilberforce in Dickson v. Pharmaceutical Society of Great Britain (1970) AC 403, at p 440 , which was cited in Buckley v. Tutty (1971) 125 CLR, at p 375 ). The relevant provisions of the deed, assuming them to be valid, obliged the appellant to pay the respondent any particular instalment of the retiring allowance only if before the time for payment of that instalment had arrived the respondent had not engaged or been concerned in the business described in cl. 3 (b) (iii). Clearly the provisions of the deed provided the respondent with an inducement to refrain from engaging in the business lest he lose the allowance and the question is whether this can be said to amount to an interference with the free exercise by the respondent of his trade. The case in this respect seems to me to be indistinguishable from Wyatt v. Kreglinger and Fernau (1933) 1 KB 793 where it was held, at least by Scrutton and Slesser L.J.J., that an agreement by an employer to pay his employee a pension if he did not enter into the wool trade was an agreement in restraint of trade. That decision has been criticized on the ground that the liberty of action of the employee was not restrained by such an agreement, since the employee was at any time free to enter into the wool trade and forgo the pension, but in my opinion a promise by one person to pay another a sum of money if he does not engage in trade may rightly be regarded as a restraint of trade because its practical operation is to tend to deter or restrain the promisee from engaging in trade even though it does not prohibit him from doing so. I hold that in the present case the deed operated in restraint of trade. It was not contested that the restraint went beyond what was reasonable in the interests of the parties. (at p468)

At a glance

Court

Decision date

Source

Judgment (54 paragraphs)

Howard F Hudson Pty Ltd v Ronayne [1972] HCA 3; (1972) 126 CLR 449 (1 February 1972)

Parties

Cases Cited (4)