Peters (WA) Ltd v Petersville Ltd

Peters (WA) Ltd v Petersville Ltd - [2001] HCA 45 - HCA 2001 case summary — Zoe

[9]

The respondents, Petersville Ltd ("Petersville") and Peters Foods Australia Pty Ltd ("Peters Foods"), in litigation instituted by them in the Federal Court in 1996, sought a declaration that a contractual restraint imposed upon them in favour of the appellant, Peters (WA) Ltd ("Peters WA")[1], is unenforceable at common law because it is in restraint of trade. The respondents also contended that in threatening to enforce that restraint Peters WA had contravened or attempted to contravene s 45(2)(b) of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act")[2] and that Peters WA had engaged in the practice of exclusive dealing contrary to s 47 of that statute.
Peters WA denied these claims and, in particular, defended the common law claim on two grounds. The first was that the restraint was not one to which the common law doctrine applied. The second was that, in any event, the restraint was reasonable in the interests of the parties and the public. These two defences and other issues respecting the Trade Practices Act claims were ordered by Carr J to be tried and determined separately from and in advance of any further trial in the proceedings. It will be necessary later in these reasons to say something respecting the other issues. The parties furnished a statement of agreed facts and an agreed bundle of documents. Carr J made a declaration that the provision in question was void as being in restraint of trade[3]. An appeal to the Full Court of the Federal Court (French, Kiefel and R D Nicholson JJ) was dismissed[4].
In this Court, Peters WA renewed its submission that the covenant in question does not impose any restraint within the meaning of the common law doctrine. In addition to rejecting that submission, Carr J had held that the restraint was not reasonable as between the parties and the Full Court upheld that holding. In this Court, there is no issue respecting the reasonableness of the restraint. Peters WA did use in its submission the phrase "inherent reasonableness" to describe the class or kind of the agreement containing the restraint, but this was not used to develop fully an argument and appears not to have added anything to and distinct from its other submissions to this Court. The appeal stands or falls upon the submission by Peters WA that the provision does not impose any restraint to which the common law doctrine applies.
Before turning to consider the submissions by which Peters WA seeks to show that the common law doctrine does not apply in this case, it is convenient further to consider the relevant circumstances.

[54]

In Quadramain[41], this Court considered s 45 of the Trade Practices Act as originally enacted. This provision used the phrase "in restraint of trade or commerce". Section 45 did not go on to limit the phrase to those restraints to which the common law doctrine applied. That omission may suggest, as was pointed out at the time[42], that Esso had no application and that s 45 was broader than the common law. Nevertheless, one of the bases upon which Gibbs J rested his judgment was that, because the covenant in question could not properly be described as one in restraint of trade or commerce for the purposes of the common law doctrine, s 45 did not apply to it[43].
The present relationship between the common law doctrine of restraint of trade and Pt IV of the Trade Practices Act has several aspects. The outcome in Quadramain suggested that the detailed provisions made in Pt IV (now ss 45‑51AAA) were to be read with, and perhaps constrained by, the provisions of the common law rather than as providing federally enacted norms of conduct which might supersede the common law[44]. Like s 45 in its original form, s 1 of the Sherman Act[45] uses the term "restraint of trade". It is well established by decisions of the United States Supreme Court that s 1 thereby invokes the common law understanding of the term "restraint of trade" but does so not merely by looking to the "static content" of the common law doctrine at the time of the enactment of the legislation in 1890[46]. Rather, as Judge Learned Hand put it, the statute incorporates "the changing standards of the common law"[47].
The construction given to s 45 in Quadramain was followed by significant amendments to the Trade Practices Act by the Trade Practices Amendment Act 1977 (Cth). This significantly amended Pt IV and introduced, largely in their present form, ss 45 and 47, the provisions relied upon by the respondents in their statement of claim. The 1977 amendments also introduced s 4M. This states that the Trade Practices Act "does not affect the operation of … the law relating to restraint of trade in so far as that law is capable of operating concurrently with this Act … but nothing in [that] law … affects the interpretation of this Act".
The result is threefold. First, unlike the position in the United States respecting s 1 of the Sherman Act, developments in the common law will not affect the interpretation of the Trade Practices Act. Secondly, the common law is free to develop independently of the statute, provided always that the common law is capable of operating concurrently with the statute. Thus, the common law may strike down a restraint which falls outside the operation of Pt IV. The outcome in Adamson v New South Wales Rugby League Ltd[48] is an example. The respondents do not suggest against Peters WA that, if the common law did place the restraint in question outside the doctrine, as Peters WA contends, that would produce a situation whereby the common law was incapable of operating concurrently with the Trade Practices Act.
But there is a third result. While s 4M leaves the common law free to develop in the fashion identified in the section, it does not deny that in such development the courts may have regard to the statute. Observations made by Deane J when dealing with the interrelation between the common law and the provisions of Pt V of the Trade Practices Act (especially s 52) are in point. His Honour's remarks in Moorgate Tobacco Co Ltd v Philip Morris Ltd [No 2][49] suggest that, in deciding what development, if any, there should be of the common law respecting a particular subject, the court should have regard to what the Parliament had determined to be "the appropriate balance between competing claims and policies". That is a point of significance here, where the question is whether the restraint in Art 7.1 is to be reconciled with the public interest, and Pt IV of the Trade Practices Act establishes a detailed regime to which particular exceptions are stated.

[57]

There are other objections of a more fundamental kind. First, as the facts of, and the submissions in, this case illustrate, the "test" involves the application of criteria of particular indeterminacy, at least some of which are likely to recur in any consideration of reasonableness. There is little to be said for a "test" which will involve the expenditure of the energies of disputants in fighting at the threshold matters which go to the substantive merits engaged by consideration of the reasonableness of the restraint in question. Secondly, consistently with the reasoning of Walsh J in Amoco, to which reference has been made, the determination that there exists a category of restraint which does not require justification requires a consideration of public policy. The deprivation by restraint, even if originally imposed consensually, upon the liberty of action of a trader has been regarded as detrimental to the public interest. What matter of public interest requires the removal of what otherwise is the requirement of justification for the upholding of a restraint such as that in Art 7.1?
It was submitted that the restraint in Art 7.1 was ancillary to and bolstered the licence provisions in Art 5[51]. The law already implies an obligation by the respondents to do all such things as are necessary on their part to enable Peters WA to have the benefit of those licence arrangements[52]. It is not now necessary to consider the basis of the implication. The law also implies a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises made in Art 5[53]. But, as will later appear, the restraint cannot be said to be referable only to the continuing licensing arrangements, notwithstanding their common duration. In any event, such matters are better considered in an analysis of the reasonableness of the restraint rather than as an element in the process of reasoning by which the occasion for any analysis of such reasonableness is avoided.
Peters WA also referred to the significance of the consensual nature of the restraint and its place in an overall commercial bargain. That may be accepted. However, at least since Nordenfelt, the common law in this field has fixed the appropriate balance between the competing claims and policies generally in favour of striking down restraints unless they can be justified. In this way, and by "a clear rule", there was removed the tendency, as Dixon J put it in Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd[54]:

[63]

The foregoing conclusion is sufficient to lead to the dismissal of the appeal but, as there was full argument upon a further question, we turn to consider it. The question may be stated as follows. On the assumption that the statements by Lord Pearce in Esso do justify the adoption in Australia of a particular category of restraint which does not require justification for reasonableness, was the Full Court in error in its conclusion that Lord Pearce's principle did not apply on the facts of this litigation? That is to say, was the Full Court wrong in deciding that on the facts Art 7.1 was still within the operation of the common law doctrine, thus requiring it to be justified if it were to be upheld? The determination of this final issue requires further attention to the effect of the Agreement.
In the Full Court, as in this Court, there was consideration in argument of the history of the negotiations leading to the execution of the Agreement. However, as the Full Court indicated[58], the relevance of that material related to the question of the reasonableness of the restraint, given the benefit AUF saw in the proposed arrangement.
Peters WA purchased (Art 2.1(c)) the right to use in Western Australia the "Pauls" brand name and associated trade marks. Effect to this was then given by Art 5. Article 5.2 provided for the grant by AUF to Peters WA of "the sole and exclusive right and licence" to use the "Pauls" marks in Western Australia. Reference to "sole and exclusive right and licence" is important because it is accepted that Art 5.2 prevents the respondents from using the "Pauls" marks in Western Australia[59]. Article 5.4 provides that Peters WA is to pay a percentage royalty on sales within Western Australia of all products bearing the "Pauls" marks. This provision further states that, for the purposes of Arts 5.4 and 5.6, royalties also are payable on ice cream products sold by Peters WA to Coles for resale by that organisation under any house brand. Article 5.6 contains a minimum royalties provision. Article 5.11 confers upon Peters WA the three options to which reference already has been made for the extension of the licence for consecutive terms of five years. It should be noted that Art 5.2, the licensing provision, applies to "Pauls" marks not held by either respondent; it obliges them to procure the owner of any such marks to provide the licence. As the Full Court pointed out, Art 7.1 prevents the respondents from selling, supplying or distributing to any person in Western Australia ice cream or frozen confections and extends to activities outside Western Australia if the ultimate destination of the products is Western Australia. The provision also purports to prevent any subsidiary or related company, including, it would seem, a parent company, from engaging in such activities.
The arguments on this issue put to this Court by Peters WA repeated those which the Full Court had rejected. The Full Court did so in terms which we would adopt. The passage in the Full Court judgment is as follows[60]:

[71]

Given the outcome of the litigation with respect to the common law doctrine, the occasion in this Court for any determination respecting the construction of this provision falls away.
The style of the appellant should be amended to read "PB Foods Ltd". Otherwise, the appeal should be dismissed with costs.
CALLINAN J. The argument in this case focussed upon the question whether the restraint of trade doctrine could apply to the parties' contractual arrangements and not upon the reasonableness or otherwise of the restraint inter partes and in the public interest. It is therefore unnecessary to explore the latter matters upon which, I think, I might well have entertained some doubt. After all, the arrangements were made between substantial corporations dealing at arms length in respect of the sale of frozen foods to population centres so remote from other parts of Australia and elsewhere that it was very unlikely that the foods would have originated anywhere except in Western Australia. It may also have been significant to any question of reasonableness that the parties were content to abide by their arrangements for about 14 years before one party (or its assignee) saw fit to seek to break part of its contract in reliance upon the restraint of trade doctrine. Further, s 4M of the Trade Practices Act 1974 (Cth)[65] does not mean that the common law of restraint of trade is not susceptible to incremental change in the way in which the common law customarily changes. Such a change may one day extend to reversing the presumption, derived from an ancient but perhaps anachronistic antipathy towards now obsolescent, highly restrictive guilds and royal monopolies[66], that all restraints of trade are obnoxious to private and public interests, and unenforceable, unless the beneficiary of the restraint demonstrates otherwise.
All of that having been said, however, I do not think that the appellant has made out a case for the location of this restraint outside any categories of restraint which the common law has hitherto accepted as being subject to the doctrine. There are, I think, uncertainties involved in the application of any of the tests propounded from time to time by the courts, and, in particular, the three tests formulated in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd[67]. The appellant here sought to have this Court adopt the sterilisation of capacity test proffered by Lord Pearce, who said this[68]:

[74]

His Lordship's test involves, in my respectful opinion, the same sorts of difficulties as do the other tests. Lord Pearce refers to "ordinary commercial contracts" and to negative ties which are "incidental and normal to the positive commercial arrangements at which the contract aims". There is great scope for difference of opinion on these matters; indeed, despite what his Lordship says, that no question of reasonableness will arise in the case of ordinary commercial contracts and normal and incidental ties, the question of what is an ordinary commercial contract, or what is incidental and normal will rarely be able to be divorced from a question of what is reasonable between the parties. So too, the question of what is an ordinary commercial contract and what is "normal" when complex commercial arrangements are under consideration will not always admit of one clear answer.
It seems to me that, in this case, if Lord Pearce's test were to be treated as the applicable test, either view would have been open. In other words, it would be possible to say that there was a strong element of the absorption of the respondents' capacities to supply a market with a product under a valuable trade name possessed by the appellant, or, that the arrangements were directed towards the sterilisation of the respondents' ability to service that market. Carr J at first instance and the Full Court of the Federal Court (French, Kiefel and R D Nicholson JJ) took the view that the restraint was not normal and incidental to the commercial arrangements between the parties. Given the matrix of the circumstances surrounding the making of the contract between the parties and the terms of the multifaceted agreement between them, I might have entertained some serious doubts whether this was so. As the view taken was open, however, I am not prepared to say that it was erroneously formed. The appellant has accordingly not shown that this agreement, with the restraint contained in it, is outside any category of agreements to which the doctrine applies. Questions of reasonableness or of the application of the Trade Practices Act do not therefore fall to be decided in this appeal.
I would dismiss the appeal with costs.

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