Adams v Alemite Lubrequip Pty Ltd

In *Adams and Ors v Alemite Lubrequip Pty Ltd and Ors*, the New South Wales Court of Appeal considered a dispute concerning the enforceability of a restrictive covenant contained within a contract of sale of a business. The plaintiffs, who had purchased the business, sought to restrain the defendants, the former owners, from operating a competing business within a specified radius and for a specified period after the sale. The defendants argued that the restrictive covenant was void as being contrary to public policy, and therefore unenforceable.

The central legal issue before the Court of Appeal was whether the restrictive covenant, which prohibited the defendants from engaging in a similar business within a 50-mile radius of the plaintiffs' business premises for a period of five years, was reasonable and thus enforceable. The court was required to determine if the scope of the restriction, in terms of both geographical area and duration, went beyond what was necessary to protect the legitimate interests of the purchasers of the business.

The Court of Appeal applied the established legal principles governing the enforceability of restrictive covenants in restraint of trade. It held that such covenants are prima facie void unless they can be shown to be reasonable in the interests of the parties and not contrary to the public interest. The court examined the nature of the business sold, the area of operation, and the duration of the restraint, considering whether these factors were proportionate to the need to protect the goodwill and proprietary interests acquired by the purchasers. The court found that the covenant, as drafted, was wider than necessary to protect the plaintiffs' legitimate business interests and was therefore unreasonable and void.

Consequently, the Court of Appeal dismissed the plaintiffs' appeal, upholding the trial judge's finding that the restrictive covenant was unenforceable.