Quadramain Pty Ltd v Sevastapol Investments Pty Ltd [1976] HCA 10;

Quadramain Pty Ltd v Sevastapol Investments Pty Ltd [1976] HCA 10; - HCA 1976 case summary — Zoe

[39]

3. Both defences raised by Sevastapol must in my opinion fail. In the first place, I consider that the rules relating to restraints of trade have no application to the present case. Of course it is now settled that those rules are not limited to particular kinds of restraint. "The categories of restraint of trade are not closed": Petrofina (Gt Britain) Ltd. v. Martin (1966) Ch 146, at p 169 . Indeed, the rules are not confined to contractual arrangements but apply to all restraints of trade, howsoever imposed: Dickson v. Pharmaceutical Society of Great Britain (1970) AC 403, at p 440 ; Buckley v. Tutty [1971] HCA 71; (1971) 125 CLR 353, at pp 375-376 . It is also settled that the rules apply to a restraint which extends only to the use of a particular piece of land: Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1967] UKHL 1; (1968) AC 269 ; Amoco Australia Pty. Ltd. v. Rocca Bros. Motor Engineering Co. Pty. Ltd. [1973] HCA 40; (1973) 133 CLR 288, at p 288 . Nevertheless, in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1967] UKHL 1; (1968) AC 269 all the members of the House of Lords who took part in that decision agreed that the rules do not apply to a covenant given by a purchaser or lessee restricting the use to which the land purchased or leased may be put: see per Lord Reid (1968) AC, at p 298 ; Lord Morris of Borth-y-Gest (1968) AC, at pp 308-309 ; Lord Hodson (1968) AC, at pp 316-317 ; Lord Pearce (1968) AC, at p 325 ; Lord Wilberforce (1968) AC, at pp 332-335 . In such a case the covenantee is not required to establish that the covenant is reasonable; the covenant is not subject to the doctrine. Different reasons were given by their Lordships in support of this conclusion. The view of the majority (Lords Reid, Morris of Borth-y-Gest and Hodson) was that the doctrine only applies where a person gives up some freedom which he already possesses, and that a person who buys or takes a lease of land subject to a negative restrictive covenant gives up no freedom which he previously had. Lord Wilberforce adopted a more flexible test which may in time come to be preferred; he said that the exemption of these transactions from the doctrine of restraint of trade should be explained "by saying that they have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society" (1968) AC, at p 335 . His Lordship continued: "If in any individual case one finds a deviation from accepted standards, some greater restriction of an individual's right to 'trade', or some artificial use of an accepted legal technique, it is right that this should be examined in the light of public policy." It is unnecessary, for present purposes, to consider whether either of these statements of principle correctly defines the limits of the doctrine. The conclusion that the rules relating to restraint of trade do not apply to restrictive covenants given by a person purchasing or leasing land should be accepted as correct, at least as a general rule. The doctrine of restraint of trade is based on public policy. When a purchaser, with a view to obtaining a particular piece of land, which he could not otherwise acquire, or could acquire only on paying a greater price, freely gives to the vendor a covenant, for the benefit of other land of the vendor, that he will not use the land purchased for the purpose of trade generally or for the purpose of a particular trade, there is, speaking generally, no possible reason of public policy that would require such a covenant to be invalidated. The same is true where a purchaser or lessee chooses to buy or lease land already subject to a restrictive covenant. Indeed, as Lord Pearce said in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd., "It would be intolerable if, when a man chooses of his own free will to buy, or take a tenancy of, land which is made subject to a tie (doing so on terms more favourable to himself owing to the existence of the tie) he can then repudiate the tie while retaining the benefit" (1968) AC, at p 325 . Where the public policy has no possible operation, the rules founded on it have no application. (at p402)

[47]

When the judgment of Farwell J. was affirmed in the Court of Appeal, Cozens-Hardy L.J. said that "the benefit of a restrictive covenant of this kind is a ... right in the nature of a negative easement" (In re Nisbet and Potts' Contract (1906) 1 Ch 386, at p 409 ), and the same opinion has been expressed in later cases, including Newton Abbot Co-operative Society Ltd. v. Williamson & Treadgold Ltd. (1952) Ch 286, at p 296 . The covenant in the present case created a contractual obligation between the original parties to the sale, but so far as Quadramain is concerned it is enforceable only as an interest in the land. Section 45(1) does not have any effect on equitable or other proprietary rights and has no application to the present proceedings. Thirdly, the effect of s. 45(4) is that if, apart from that subsection, it could properly be said (contrary to my opinion) that Quadramain was seeking to enforce a contract in restraint of trade, the covenant is not a contract in restraint of trade or commerce for the purposes of the Act. The "contract" is not of the kind referred to in sub-s. (3). Sub-section (1) does not refer to arrangements or undertakings; they are dealt with by sub-s. (2) which has no relevance to the present case. The effect of sub-s. (4) is that a contract will not be in restraint of trade or commerce for the purposes of the Act unless the restraint has, or is likely to have, a significant effect on competition between the parties to the contract, or on competition between those parties or any of them and other persons. However, the parties to the covenant were Berowra Heights Hotel Pty. Ltd. and Holloway Sackville (Australia) Pty. Ltd. Neither of those companies now has any interest in either piece of land and the restraint has no effect whatever on competition between those companies or between them or either of them and anyone else. It is unnecessary to consider whether the restraint has, or is likely to have, a significant effect on competition between Quadramain and Sevastapol because they are not parties to the contract. For all these reasons it is apparent that s. 45 has no effect on the rights of the parties to the present proceedings. It is therefore unnecessary to consider the important question whether the section is a valid exercise of the legislative power of the Commonwealth. (at p404)

[66]

8. However, there were decisions which made the matter less clear. Covenants in leases might be held to be collateral and therefore not to "touch or concern" the demised land so that they ran with the lands in the possession of a successor, an assignee of a lease. In that case there would be no privity of estate in respect of the particular covenant but only privity of contract between the original lessor and lessee: Spencer's Case [1583] EWHC J53 (KB); (1583) 5 Co Rep 16a (77 ER 72) . However restrictions on the use of land, including "ties", were generally, though not always, regarded as "touching or concerning" the leased land and therefore binding on successors. But a covenant by a lessor of a public house not to build or keep any house for the sale of spirits or beer within half a mile of the demised premises was held in Thomas V. Hayward (1869) LR4Ex311 to be collateral and not to run with the land because it was for the benefit of the lessee's trade on the leased land and not for the benefit of the land itself. That case was decided in the same year as Catt V. Tourle (1869) LR 4 Ch App 654 was decided in equity. In Catt V. Tourle there was a covenant by purchasers of a piece of land that the vendor should have the exclusive right of supplying beer to any public house erected on the site. The defendant bought with notice of the covenant which was construed as an implied negative covenant not to purchase beer elsewhere. The restriction was held to be enforceable in equity against a successor in the title of the original purchasers even though it did not appear that any land of the covenantee was intended to be benefited. There was probably no conflict between the 1869 decisions as the law was then understood to be, because it was not established at that date that a purchaser with notice would only be bound by the burden of a covenant if the covenant was intended for the benefit of land of the covenantee and was capable of benefiting that land: London County Council V. Allen (1914) 3 KB 642 where Catt V. Tourle (1869) LR 4 Ch App 654 was disapproved on this point. Once this necessity was established there was a conflict. As the covenant had to be intended for the benefit of land of the covenantee before Tulk V. Moxhay (1848) 2 Ph 774 (41 ER 1143) would apply, the covenant would only be good in run at law. Such a covenant must be intended for the protection of, and be capable of protecting, that is to say, it must "touch or concern", the land to be benefited before the benefit of the covenant will be annexed to the land and run with the land. Similarly, under the law now established in London County Council V. Allen (1914) 3 KB 642 , before land will be burdened in equity in the hands of a successor in title to the original covenantor the covenant must have been imposed for the benefit of other land and be capable of benefiting that other land. The test for "touching and concerning" and that for "imposition for the benefit of" can hardly be distinguished. See per Wilberforce J. in Marten V. Flight Refuelling Ltd. (1962) Ch 115, at pp 136-139 . Therefore if the covenant in Thomas V. Hayward (1869) LR 4 Ex 311 did not run with the land, the covenant in Catt V. Tourle (1869) LR 4 Ch App 654 likewise was not of a kind which was capable of running with land. It would not have satisfied the Tulk V. Moxhay (1848) 2 Ph 774 (41 ER 1143) rule even if that rule had been properly understood at that date. (at p410)

[71]

"In 1923 Mrs. Mardon was carrying on the business of an

ironmonger at Devonia. No doubt the covenant was taken

for the benefit of that business and to prevent competition

therewith, but I see no reason to think, and there is nothing

in the conveyance of 1923 which leads me to believe, that

that was the sole object of taking the covenant. Mrs. Mardon

may well have had it in mind that she might want ultimately

to sell her land and the business and the benefit of the covenant

in such manner as to annex the benefit of the covenant

to Devonia for, by so doing, she would get an enhanced

price for the totality of the assets which she was selling;

a purchaser would surely pay more for a property which

would enable him to sue in equity assigns of the defendants'

premises taking with notice and to pass on that right, if he

so desired, to his successors, than for a property which would

only enable him to sue the original covenantor, for that is the

result of the view urged on me by Mr. Bowles.

Further, Mrs. Mardon may well have thought that her own

business might ultimately be closed down, or the goodwill

thereof sold to someone who was going to carry it on on

some other premises. She would then be left with Devonia,

and Devonia could be sold at an enhanced price to someone

intending to carry on the business of an ironmonger, because,

if, as part of the sale transaction, he obtained the benefit of

the covenant, he could prevent competition from the defendants'

premises opposite in the trade.

In my judgment, it was always open to Mrs. Mardon, when

she desired to dispose either of the land or the business, to

assign the benefit of the covenant with the one or the other

or both as she chose. By taking this covenant, she was thereby

enabled to sell her premises, or her business, to better

advantage as she thought fit. In my judgment, Mrs. Mardon

was in the position of the vendor in the example given by

Cozens-Hardy M.R. in Reid v. Bickerstaff (1909) 2 Ch 305, at p 320 , where

At a glance

Court

Decision date

Before

Source

Judgment (99 paragraphs)

Quadramain Pty Ltd v Sevastapol Investments Pty Ltd [1976] HCA 10; (1976) 133 CLR 390 (19 March 1976)

Parties

Legislation Cited (4)

Cases Cited (3)