A-Pak Plastics Pty Limited v Merhone Pty Limited

A-Pak Plastics Pty Limited (the appellant) appealed to the New South Wales Court of Appeal against a decision of the Supreme Court of New South Wales. The dispute concerned the interpretation and enforceability of a restraint of trade clause contained within a contract for the sale of a business. Merhone Pty Limited (the respondent) was the purchaser of the business.

The primary legal issue before the Court of Appeal was whether the restraint of trade clause, which purported to prevent the vendor from engaging in a similar business within a specified radius and for a defined period, was reasonable and therefore legally enforceable. This involved considering the scope of the restraint in terms of geographical area and duration, and whether it went beyond what was necessary to protect the legitimate interests of the purchaser.

The Court of Appeal found that the restraint of trade clause was unreasonable and therefore void. It reasoned that the geographical scope of the restraint was too wide, extending beyond the area in which the vendor had actually conducted business and where the purchaser had established goodwill. The Court applied the established legal principles that restraints of trade are prima facie void unless they can be shown to be reasonable, both in the interests of the parties and the public, and that the onus is on the party seeking to enforce the restraint to demonstrate its reasonableness.

Consequently, the appeal was allowed, and the Supreme Court's earlier decision upholding the restraint was overturned.