CONCLUSIONS ON THE CLAIM FOR INJUNCTION
35 The first question for determination is the true construction of the relevant provisions of cl 6.
36 A modern statement of the rules of construction is:
"(1) [T]he question of construction should be approached in the first instance without regard to the question of legality or illegality;
(2) … the clause should be construed with reference to the object sought to be obtained;
(3) … in a restraint of trade case the object is the protection of one of the partners against rivalry in trade …
(4) … the clause should be construed in its context and in the light of the factual matrix of the time when the agreement was made."
37 (See Clarke v Newland [1991] 1 All ER 397 per Neill LJ at 402; Heydon, Restraint of Trade, 2nd ed. at 104.)
38 The context of cl 6, as appears from the language of the Agreement, and from the evidence previously mentioned, is the sale of a four-wheel drive tour business carried on in Norfolk Island; and, as it likewise appears, the object sought to be achieved is the protection of that business from competition. When so read, cl 6 means, in my opinion, that the activity restrained is engaging etc. in a four-wheel drive business on the Island, or engaging etc. in a business of a similar kind there. The underlying objective which is inherent in cl 6 is, I think, the restriction, for five years, of competition with a business of that kind.
39 That this approach is appropriate here is, in my view, well illustrated in the decision of the English Court of Appeal in Drew v Guy [1894] 3 Ch 25.
40 The background to the decision, which is, in my view, most significant for present purposes, is sufficiently explained in the headnote as follows:
"The Plaintiffs granted a lease to the A. B. Company containing a covenant that the tenants would not carry on the business of a restaurant similar to that carried on by R., another tenant of the Plaintiffs. R. was an hotel-keeper who had a restaurant on licensed premises connected with his hotel. The A. B. Company carried on a restaurant at which they sold tea, coffee, cocoa, pastry, and cold meat, but not any hot meat except beef pies, and this was not objected to. The A. B. Company having assigned their lease to the Defendant, he proceeded in his restaurant to sell hot meat and other things not sold by the A. B. Company. The Defendant had not a license for the sale of intoxicants, nor a victualler's license; his establishment was on a much smaller scale than that of R., his premises were of an inferior class to those of R., and his prices were much lower:-
Held, by Kekewich, J., that the Defendant's business of a restaurant was not similar to that of R. and that there had been no breach of the covenant:
Held, on appeal, that the test whether the Defendant's business was similar to that of R. was whether it was sufficiently like it to compete with it, and that, judging by this rule, although there were considerable differences between R.'s business and that of the Defendant, the Defendant's business was similar to that of R., and that an injunction must be granted in the terms of the covenant, with a proviso that it was not to prevent the Defendant from selling any of the articles in which the A. B. Company had dealt."
41 Lindley LJ said (at 28 - 29):
"The question, then, is whether the business of a restaurant carried on by the Defendant is similar to that carried on by Raven. There are considerable points of dissimilarity between them: the Defendant has no license to sell alcoholic drinks, and no license which enables him to keep his premises open to a late hour in the evening. Do these differences prevent the Defendant's business from being similar to that of Raven's? There is an important degree of similarity between the two businesses. The Defendant claims the right to carry on a business which will seriously compete with Raven's business. I do not think that the question of similarity is to be determined by considering whether both of the establishments sell ale, or whether the houses in which they are carried on are similar in appearance, but by the consideration whether the Defendant's restaurant is so like that of Raven as seriously to compete with it. I think that the business of the Defendant as he proposed to carry it on would seriously compete with Raven's. I cannot look at the exhibit T W G 2, containing the Defendant's bill of fare, and at his circular to his customers, without seeing that the Defendant is desirous of carrying on the general business of a restaurant without a license. He must be restrained in the terms of the covenant; but we shall add to the order the statement that this is not to restrain him from selling any of the articles which, in the affidavit of the manager of the Aërated Bread Company, are stated to have been sold by that company. We do not mean to say that he is confined to these, but anything else that he sells must be at his own risk."
42 Lopes CJ said (at 29 - 30):
"The terms of the covenant clearly allow the lessee to carry on the business of a restaurant, but not so that it shall be similar to that of Raven. What is meant by similar? I should say so like that of Raven as to compete with it. There are substantial elements of dissimilarity between the two: one is alcoholic, the other is not, and there are many other points of difference. Raven's premises are superior in appearance, and would attract a higher class of customers - his prices also are higher; but all that appears to me not enough. If the Defendant supplies hot joints, chops, &c., a person wanting a hot dinner would very likely go to the Defendant rather than to Raven, the Defendant's lower scale of charges being an inducement. A person who wanted a hot dinner would not have gone to the Aërated Bread Company, but to Raven. If the Defendant carries on his business in the way he is seeking to do, a person may as well go to him as to Raven. I think, therefore, that the business the Defendant is seeking to carry on is substantially similar to that of Raven. I think that the Defendant is not at liberty to supply hot joints. He may sell whatever the Aërated Bread Company sold; but anything beyond that may give room for contest."
43 In my opinion, this reasoning, and this approach, are equally apposite in the present case.
44 I reject the plaintiffs' contention that by virtue of the words in cl 1, the prohibition in cl 6 should be construed so as to extend to any form of carriage of passengers for reward for tours within the Island. Those words in cl 1 must also, I think, be read in their context. Clause 1 is a provision describing, but in a general way only, the four-wheel drive tour business sold. The generality of that description in cl 1 cannot (except by an impermissible strained and artificial process) be transposed into cl 6 so as to widen substantially the ordinary and natural meaning of the words used in cl 6, and to alter the plain objective to which the clause is directed, namely, the restraint of competition with the business sold (and not the restraint of competition with a business carrying passengers for reward of any kind). No rationale or justification appears for importing into cl 6 a restraint of such width. On the contrary, it is legitimate to have regard to the nature of the business in fact being carried on at the time of the making of the contract. As Fullagar J observed in Butt v Long (1953) 88 CLR 476 (at 490):
"To do so is merely to refer to surrounding circumstances in order to ascertain the meaning of an expression which the parties have actually used, and this is always permissible and often necessary."
45 A similar approach was taken by Gibbs J in Geraghty v Minter (1979) 142 CLR 177 (at 186).
46 Given the construction of cl 6 that I have adopted, the next question is the reasonableness of the trade restraint. That is to say, is the trade restraint unduly wide? Is the area or scope of the restraint unduly wide? Is the duration of the restraint unduly long? At common law, a restraint will only be enforceable if it is reasonable, both in the interests of the contracting parties and in the interests of the public.
47 The general principles in this area were recently considered by a Full Federal Court in Peters (W.A.) Ltd v Petersville Ltd [1999] FCA 1245. French, Kiefel and R D Nicholson JJ noted (at para 8) that - "…to be valid the restraint had to be reasonable in the interests of both parties: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 305-6, Peters American Delicacy Co Ltd v Patricia's Chocolates & Candies Pty Ltd (1947) 77 CLR 574, 590; Adamson v NSW Rugby League Ltd (1991) 103 ALR 319, 341." Their Honours continued (at para 24 and following):
"It was accepted in argument that for the restraint to be held valid, the Court must be able to conclude that it was both reasonable in the interests of both parties (Amoco at 306; Peters American Delicacy Co Ltd v Patricia's Chocolates at 590) and reasonable having regard to the public interest. They are separate questions.
Save in a case where there is no question of there having been some unfair advantage taken of a party, it should be difficult for a contracting party to assert that the bargain it negotiated was not seen by it as beneficial: Esso [Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269] at 300, 305, 324; Amoco at 294, 308, 316. In some cases where such advantage is taken, the Courts might grant relief to the party the subject of the restraint. Given that, and that the basis for the doctrine of restraint of trade is public policy [Amoco, 307], it may be open to question whether the Courts need be concerned with the parties' positions (see Esso, Lord Hodgson, 321). In any event, the cases show that the Courts do not assess its value or benefit.
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. …
The critical question, in [our] 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."
48 In assessing reasonableness, the nature of the parties' relationship is significant. In C & S Constructions Pty Ltd v Dawson (1991) ATPR 41 - 148, Waddell CJ in Eq. said (at 53,105):
"In assessing the reasonableness of the area and duration of the restraint in this case, it is necessary to keep in mind the fact that it appears in a contract for the sale of a business rather than an employment contract. In Nordenfelt v Maxim-Nordenfelt Guns & Ammunition Co Ltd (1894) AC 535 at 566 per Lord Macnaghten:
'To a certain extent, different considerations must apply in cases of apprenticeship, and cases of that sort, on the one hand, and cases of the sale of a business or dissolution of a partnership, on the other … there is obviously more freedom of contract between buyer and seller than between master and servant, or between an employer and a person seeking employment.'
See also Mason v Provident Clothing and Supply Co Ltd (1913) AC 724 at 731; Herbert Morris Ltd v Saxelby (1915) 2 Ch 57 at 77."
49 The first issue here is as to the parameters of the trade restrained (see Heydon, op. cit. at 158 - 160). As has been said, upon its proper construction, cl 6 in my view restrains the activities of engaging in (etc.) (1) a four-wheel drive tour business in Norfolk Island; or (2) a business of a similar kind in Norfolk Island.
50 In my opinion, restriction (1) is, beyond any argument, reasonable as it seeks to do no more than protect the very subject matter of the sale, viz. the goodwill of the vendors' business.
51 With respect to (2), it is true that this necessarily goes further, in its potential operation at least, than (1). The operation of (2) depends upon the process of characterising a business activity as something "similar" to (1).
52 The primary dictionary (Macquarie Dictionary, 2nd ed.) meaning of "similar" is "having likeness or resemblance, esp. in a general way". (Emphasis added)
53 In the present context, Heydon, op. cit. (at 159) cites the following observations of Van Winsen J in Weinberg v Marvis (1953) (3) SA 863 at 868:
"What the purchaser is entitled to do is to protect himself against the seller's future competition in regard to activities normally falling within the confines of the type of business bought by the purchaser."
54 (See also Pioneer Concrete v Galli (1985) VR 675 at 695.)
55 Heydon observes (at 159):
"Sometimes, the covenant may appear wider than necessary in the sense that it may cover more activities than the business actually carried on, but it may be held valid because no narrower covenant which gives adequate protection can be devised."
56 I agree.
57 Heydon cites, in this connection, the decision of a Full Court of the Supreme Court of Victoria (Irvine CJ, Cussen J) in T.W. Cronin Shoe Pty Ltd v Cronin (1929) VLR 244. In an agreement for the sale of a shoe-manufacturing business, one of the vendors covenanted "not [to] … be engaged … in the business of a shoe-manufacturer … within one hundred miles of the said leasehold premises…".
58 Irvine CJ said (at 248):
"… we feel that it would be difficult to frame any less general expression, and still more difficult to set out any exhaustive enumeration of particular employments or functions prohibited, which would be sufficient to safeguard the goodwill which was purchased. In these circumstances it does not appear unreasonable that business men meeting and discussing this question, and intending to give the fullest protection to the goodwill, should come to the conclusion that they could not effectively protect the goodwill which is purchased from damage or injury from competition otherwise than by using the very wide language which is here adopted."
59 In my view, this reasoning is equally applicable here, so far as concerns the scope of the business activities inhibited by cl 6. As I have construed it, there is nothing in it, in my opinion, which goes beyond affording reasonable protection to the goodwill sold by the defendants.
60 Nor, in my view, is there any basis for suggesting that the scope of the area to which the restraint applies is more extensive than the business sold. As I construe it, the operation of cl 6 is confined to activities on Norfolk Island: the first limb of the restraint is explicit in this respect; and the second limb should, I think, be read as operating in a similar area, i.e. on the Island.
61 Finally, on the issue of the reasonableness of the restraint, I turn to its duration, viz. five years from completion of the sale.
62 In Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505, Spender J said (at 525):
"As to duration, ordinarily a time restraint is to permit sufficient time for the former owner's connection with customers to fade away. In this case, repeat business was rare, and the purpose of a time restraint was to shut the prior owner out of competing for potential new customers. Given the size of the possible market, and the time frame and capacity for construction, a ten year restraint would seem reasonable."
63 I respectfully agree with his Honour's approach. In my opinion, a restraint of five years' duration was within reasonable parameters if the goodwill sold were to be adequately protected.
64 Turning next to the question of reasonableness in the public interest (an issue in which the defendants bear the onus), it is well settled that, upon the sale of goodwill, a reasonable covenant is permissible, as Lord Watson explained in the Nordenfelt Case (at 552):
"… it is to the advantage of the public to allow a trader who has established a lucrative business to dispose of it to a successor by whom it may be efficiently carried on. That object could not be accomplished if, upon the score of public policy, the law reserved to the seller an absolute and indefeasible right to start a rival concern the day after he sold. Accordingly it has been determined judicially, that in cases where the purchaser, for his own protection, obtains an obligation restraining the seller from competing with him, within bounds which having regard to the nature of the business are reasonable and are limited in respect of space, the obligation is not obnoxious to public policy, and is therefore capable of being enforced."
65 See also Heydon, op. cit. at 150 - 151.
66 It is true that cl 6 extends to a business of a "similar" character. But restraints, though wider than the business sold, may be valid if the kinds of conduct in question are so intermingled that one cannot be protected without including the other (Heydon, op. cit. at 158 - 159). Heydon cites in this connection Anchor Electric Co v Hawkes 50 NE 509 (SC Mass, 1898) where Knowlton J, after discussing Nordenfelt, said (at 511):
"The plaintiff corporation carried on different, but closely connected, departments of the electrical business, and the different departments were so related to each other that sometimes it would be difficult, if not impossible, to distinguish between competition with one department and competition with another."
67 In my opinion, the restraint in cl 6 was reasonable as between the parties, and in terms of the public interest. It will be declared valid and enforceable in accordance with its terms.
68 The next issue is whether a breach of cl 6 has occurred. This is a question of mixed fact and law, and essentially one of characterising the present activities of the defendants.
69 In this connection, apart from the making of the Agreement itself, a fact not in issue, I make the following findings of fact:
· The area of the Island is approximately thirty-four square kilometres.
· Access to tourist sites is by sealed and unsealed roads. Sealed sections of roads total about 160 kilometres.
· There is a limited number of tourist attractions.
· The plaintiffs' tour (which is essentially that conducted at the time of the sale) travels off-road at some stages, but the tour also includes attendance at sites accessible by sealed and unsealed road.
· The plaintiffs' tour incorporates visits to the following sites or locations:
q Mt Pitt
q Hollow Pine Tree
q Gum and Pine Forests
q Bumboras
q Crystal Point
q Mr & Mrs Sheridan's home (for morning tea)
q Anson Bay
q Headstone Point
q Puppy's Point
q Some off-road driving
· The plaintiffs' tour is largely on sealed roads. The driver engages in four-wheel drive between ten to twenty per cent of the duration of the tour.
· The plaintiffs' tour is conducted by two four-wheel drive vehicles, with thirteen passenger seats in one vehicle, and five in the other. (As has been seen, the Agreement refers to them as "2 x Toyota 4 wheel drive buses which are presently used in the operation of the business".)
· The defendants' tour uses a thirty-five seat touring bus.
· The defendants' tour includes visits to historical sites and points of interest. The tour is guided, with commentaries.
· The defendants' "itinerary" tour extends over a period of seven separate days, with some daily and nightly attractions as well.
· The following differences are revealed upon a comparison of the plaintiffs' tour with the defendants' tour:
(1) The defendants' vehicle is of a different type and size.
(2) The defendants' tour spends more time on sealed road.
(3) The defendants' tour places more emphasis on historical sites.
(4) The defendants' tour does not proceed off-road.
· Notwithstanding these differences, both tours visit the following sites:
(1) Mt Pitt (when road open)
(2) Kingston (convict buildings)
(3) St. Barnabas' Chapel
(4) All Saints' Church
(5) Puppy's Point
(6) Bumboras
(7) Crystal Pool
(8) Headstone Point
(9) Kentia Palm Nursery
(10) Captain Cook Monument
(11) Anson Bay
70 On these facts, has a breach occurred? The question, a difficult one, is I think, to be viewed as one of overlap, or of degree or emphasis, real and apparent, in the orientation of the respective services offered.
71 Some illumination of the present question is, in my view, provided by the decision of the English Court of Appeal in Fitz v Iles [1893] 1 Ch 77. The defendants were bound by a covenant in the lease of their premises, not to use the premises as a coffee house. The defendants were dealers in tea, coffee and other groceries. They proposed, as ancillary to that business, and for the convenience of customers, to sell light refreshments consisting of cups of tea and coffee, bread and butter, pastry, ham sandwiches and pork pies, to be consumed on the premises. It was held that the sale of light refreshments amounted to the carrying on of the business of a coffee-house keeper, and was a violation of the covenant. An injunction was granted accordingly.
72 Lindley LJ said (at 81) that it was plain that the defendants were not using the premises exclusively for a coffee shop; but that it was equally plain that this class of business was calculated to injure the plaintiff. His Lordship said (at 82):
"We must use our common sense. I think this case is really one of degree, and the conclusion to which I have arrived is that in the fair meaning of this covenant the Defendants are carrying on two businesses, one of which is a grocer's business and the other of which is a coffee-house business, though, perhaps, not a very extensive one. They do not sell everything which coffee-house keepers sell; a coffee-house keeper need not sell all sorts of meats and so forth. He may confine himself to light refreshments such as these. … I look upon this as really a new-fashioned coffee-house, but one to which the covenant is applicable."
73 A L Smith LJ said (at 83 - 84):
"… I come to the conclusion that as class 1 would be a coffee-house business, so class 2 would be a coffee-house business, although ancillary, it may be, to a much larger business. The Defendants are going to carry on a coffee-house business to the extent of about Ł350 year, no mean figure, in direct competition with the Plaintiff in Bermondsey New Road. When once the conclusion is arrived at that this is a coffee-house business, … it does not render it any less a coffee-house business because it is carried on as ancillary to another business."
74 In other words, a breach will occur notwithstanding that the businesses are not the same, if there is sufficient degree of overlap in their activities. In my opinion, that degree of overlap has been demonstrated on the facts of the present case; the consequence is that the defendants are thus engaging in a business of a kind similar to that sold.
75 Another, equally helpful, approach is, I think, indicated by the reasoning in Drew v Guy. There, it will be recalled, emphasis was placed upon the consideration that one business was so like the other that they would seriously compete. Notwithstanding substantial elements of dissimilarity, there were, as here, important degrees of similarity. In the present case, both these businesses will seriously compete, even if, in some respects, their orientations differ.
76 Another approach, leading to the same result, is to focus on the ordinary meaning of the language used, particularly the employment of the word "similar". As has been noted, this word suggests an intention to restrict any activity which is like, or resembles, the plaintiffs' tour, especially in a general way. In my opinion, notwithstanding some specific dissimilarities, the defendants' tour does resemble the plaintiffs' service in a general way.
77 It follows, in my opinion, that a breach occurred when the defendants thus engaged in a business of the similar kind mentioned.
78 Moreover, in my view, it is proper that the breach of this negative stipulation be enjoined so as to protect the goodwill sold. As has been noted, on behalf of the defendants, it is pointed out that they did not retain a lawyer to advise them in relation to the Agreement. But, the language used in cl 6 should have caused them no difficulty in comprehension: the words used were ordinary English words of extension ("similar"), and not technical language. In that sense, the defendants were not then disadvantaged.
79 It is appropriate, I think, that the injunction be in the terms of the contractual provision. It will be recalled that this was the course adopted in Drew v Guy, above, (at 29) where Lindley LJ enjoined the defendant in the terms of the covenant. I have considered, but rejected for the reasons given by Irvine CJ in Cronin, above, the possible grant of an injunction which enumerates specific and particular activities which may not be engaged in. In the necessary absence of foreknowledge of the full context in which a range of hypothetical activities might be pursued, it is not feasible to endeavour to lay down, as it were, a roadmap of activities that are permissible on the one hand, and those that are not, on the other.