What it does
The Restraints of Trade Act 1976 (NSW) fundamentally alters the common-law treatment of restraints of trade in New South Wales. At common law a restraint is valid only if it is reasonable in the interests of the parties and in the interests of the public; if it fails that test it is wholly void. Section 4(1) reverses the traditional "all or nothing" consequence by providing that a restraint of trade "is valid to the extent to which it is not against public policy, whether it is in severable terms or not".
The Act therefore introduces a doctrine of partial validity. A restraint created by contract, by the rules of an association, or "otherwise created" (s 2(2)) is enforceable in so far as its particular application does not offend public policy. The definition of "public policy" in s 2(1) is deliberately circular: it means public policy "in respect of restraint of trade", thereby preserving the existing common-law criteria of reasonableness as to time, area and scope of activity.
Subsection 4(2) makes clear that the statutory partial-validity rule does not cure invalidity arising from any ground other than public policy (for example, uncertainty, lack of consideration or statutory illegality). The Act is expressed to operate notwithstanding any contractual stipulation to the contrary (s 3(2)) and applies only to restraints created on or after the date of assent (s 3(1)).
A distinctive judicial-adjustment power appears in s 4(3). On application by a person subject to the restraint, the Supreme Court may examine whether the restraint is against public policy "to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint". If that threshold is met, the Court may order that the restraint be altogether invalid or valid only to a lesser extent (not exceeding the extent to which it is not against public policy). The order takes effect from a date no earlier than the date it is made (s 4(5)) and does not disturb accrued rights, including rights to damages.