Amoco Australia Pty Ltd v Rocca Bros Motor engineering Co Pty Ltd

[1973] HCA 40

HIGH COURT OF AUSTRALIA

McTiernan A.C.J., Menzies, Walsh, Gibbs and Stephen JJ.

AMOCO AUSTRALIA PTY. LTD. v. ROCCA BROS. MOTOR ENGINEERING CO. PTY. LTD.

(1973) 133 CLR 288

11 October 1973

Restraint of Trade

Restraint of Trade—Doctrine—New business—Exclusive supply agreement—Agreement between supplier of petroleum products and owner of land proposing to erect and operate service station—Owner to lease land to supplier for fifteen years after completion of service station—Underlease back to owner for fifteen years less one day—Term requiring owner to acquire all supplies for business on that land from supplier for term of underlease—Owner not service station proprietor at date of agreement—Whether restraint reasonable.

Decisions

1973, October 11.
The following written judgments were delivered:-
McTIERNAN A.C.J. I have had the advantage of reading and considering the reasons which have been prepared by Walsh J. and I agree with them. (at p290)

2. I would therefore dismiss the appeal. (at p291)

MENZIES J. The judgment appealed against is one whereby the Full Court of the Supreme Court of South Australia reversed a decision of Wells J. to the effect that a restraint of trade in favour of the appellant ("Amoco") accepted by the respondent ("Rocca") was reasonable. His Honour granted injunctions enforcing this restraint. (at p291)

2. The restraint in question is one of a common kind, i.e., to ensure that the oil products of one company should for a term, be the only products supplied from the service station of another company. Amoco is a supplier of petroleum products; Rocca is the owner of a service station. At the time when the preliminary agreement was made, Amoco - a United States company - was endeavouring to establish itself in Australia and Rocca was in a position to become the owner of a piece of land suitable for a service station at Para Hills, a district outside Adelaide which was then about to be developed as a suburb. The restraint actually in question was effected by means of provisions in an underlease. Rocca, as owner, leased the site to Amoco for a term of fifteen years. Amoco granted Rocca an underlease for the same term less one day. The essence of the restraint was that Rocca would purchase from Amoco at a fixed rebate on current prices its full requirements of petrol and oil for sale at the service station and would not, except in special circumstances, sell at that service station the products of any other oil company. There were other less important stipulations relating, inter alia, to the times and manner of the operation of the service station and the payment of accounts. There was also a limitation in relation to assignment. All these were in favour of Amoco. Amoco, for its part, undertook to pay for certain work at the service station and to lend Rocca plant and equipment for its operation. When the station was ready to be opened in December 1964, Amoco had spent about $7,000 upon it. Later, further money was spent. Although the original agreement had been completed by June 1964, the lease and the underlease were not executed until May 1966. The term of the lease was fifteen years from 30th November 1964. In September 1969, the parties executed extensions of the lease and underlease for an additional five years. The consideration of Rocca agreeing to this extension was that Amoco should pay for certain further improvements to the service station and should increase the amount of the rebate for the extended term. In all, Amoco spent about $19,000 upon Rocca's garage. (at p291)

3. In 1971, Rocca wanted to re-negotiate these arrangements with Amoco. When Amoco refused to do this, Rocca started negotiations with another oil company, I.O.C. Australia Pty. Ltd. (I.O.C.). On 12th November 1971, Rocca ordered Amoco to remove some of the equipment that it had installed at the service station. When Amoco did not comply with these demands, Rocca began itself to remove the petrol pumps and illuminated sign, and to replace them with I.O.C. equipment. Amoco thereupon commenced proceedings in the Supreme Court and obtained interlocutory injunctions. (at p292)

4. An order was then made for a trial without pleadings of certain issues. These issues were:

"1. Is the defendant entitled to assert that the covenants contained in Memorandum of Underlease no. 2775160 or any of them are in restraint of trade, and unenforceable? 2. Are the covenants contained in Memorandum of Underlease no. 2775160 or any of them an unreasonable restraint of trade and unenforceable? 3. If the covenants in Memorandum of Underlease no. 2775160 or any of them are unenforceable is the whole of the said Memorandum of Underlease void? 4. If the said Memorandum of Underlease is void is Memorandum of Lease no. 2775159 also void? 5. All questions of consequential relief for either party arising from the resolution of the above issues shall be deferred for later consideration." (at p292)

5. The learned trial judge determined the second issue in the negative upon the basis that the first issue should be answered in the affirmative. (at p292)

6. The Full Court was of the opinion that both issues should have been determined in the affirmative. Upon this appeal it was argued for the appellant that the Full Court was wrong in its determination of both issues. (at p292)

7. The contention that the first issue should have been answered in the negative was based principally upon the submission that the doctrine of unlawful restraint of trade did not apply to restrictions contained in the underlease from Amoco to Rocca simply because it was in a lease restricting the use of leased premises rather than the activities of a trader. The argument was based principally upon the judgment of the Court of Appeal in Cleveland Petroleum Co. Ltd. v. Dartstone Ltd. (1969) 1 WLR 116; (1969) 1 All ER 201 . It seems to me that the basis of that decision was that a person who was out of possession of premises and who was let into possession of premises by an oil company on its terms, i.e., to tie himself to that company for supplies, cannot rely upon the doctrine of restraint of trade. This conclusion was supported, so the Court of Appeal found, by what was said by three members of the House of Lords in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 . In the circumstances here as stated, it would, however, be artificial to conclude that it was Amoco that let Rocca into possession of the service station. The service station was erected by Rocca upon land to which Rocca was entitled. Rocca, in the course of negotiations, had refused to sell the land to Amoco. The lease and the underlease were in no way a sham, but it would be wrong merely to look at the underlease as a source of Rocca obtaining possession of the land. At the beginning of the negotiations, Rocca owned the land and was entitled to possession of it. Once the lease and the underlease had been given, it is true in a sense that Rocca's possession was as under-lessee, but the substance of the matter is that Rocca, by granting a lease and taking an underlease, did not acquire possession of land. It was never out of possession of its land. The lease and the underlease were merely the machinery whereby the parties effected their purpose of arranging for the supply of petrol to a service station with a tie in favour of the supplier. This tie restricted Rocca in its trading upon its land. (at p293)

8. Accordingly, it is not necessary to determine whether Cleveland Petroleum Co. Ltd. v. Dartstone Ltd. (1969) WLR 116; (1969) 1 All ER 201 is a correct application of what was said in the House of Lords in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 . Nor do I think that the doctrine based upon public policy which requires a restraint of trade to be reasonable can have no application where the covenant in restraint of trade is given by someone starting a new business in relation to future trading. In Queensland Co-operative Milling Association Ltd. v. Pamag Pty. Ltd. (1973) 133 CLR 260, at p 260 a covenant given in such circumstances was subjected to the test of reasonableness. (at p293)

9. In my opinion, the first issue was rightly determined in the affirmative, and the tie to be enforceable must be found to have been reasonable in the circumstances. (at p293)

10. In the course of a very full, learned and powerful judgment, his Honour, the learned trial judge, reviewed the law relating to restraint of trade since Mitchel v. Reynolds (1711) 1 P Wms 181 (24 ER 347) , and set out the principles which he extracted from the review of authorities in a number of propositions. The law, which he so stated, he applied to the facts which he found in careful detail to conclude that the restrictions to be found in the underlease did not constitute an unlawful restraint of trade because, upon the whole, they were reasonable both as between the parties and as between the parties and the public. His Honour's judgment was, no doubt, intended as an application of the following statement from Mitchel v. Reynolds (1711) 1 P Wms, at p 197 (24 ER, at p 352) :

"In all restraints of trade, where nothing more appears, the law presumes them bad; but if the circumstances are set forth, that presumption is excluded, and the Court is to judge of those circumstances, and determine accordingly; and if upon them it appears to be a just and honest contract, it ought to be maintained." (at p294)

11. The Full Court reversed the decision not, as I understand it, because of any error by the learned trial judge in the formulation of the law which he applied, but because the Full Court came to a different conclusion upon the question whether the restraints were reasonable. (at p294)

12. It was the basis of the decision of the trial judge that when parties negotiate a commercial arrangement from positions where one does not have the other at an unfair advantage and do, after hard bargaining, reach an agreement which each finds in its interests to accept, the Court will not readily find that their bargain is unreasonable as between themselves, notwithstanding the well-established policy of the law against restraints of trade. The course of his Honour's reasoning was the same as that stated persuasively by Ungoed-Thomas J. in Texaco Ltd. v. Mulberry Filling Station Ltd. (1972) 1 WLR 814; (1972) 1 All ER 513 where another petrol tie was under consideration. In 1963, Rocca could and did freely negotiate for a supply of petroleum products for the service station which it desired to establish and after contact with at least one other supplier of petrol made the best bargain that it could at a time when there was competition among oil companies to secure solus outlets and, at a time when Amoco was in a disadvantageous position vis-a-vis its competitors in that it had only entered the Australian market in 1961. His Honour altogether rejected the suggestion that Rocca had been in any sense overborne into making an agreement to its disadvantage. His view was that Rocca had itself driven a hard bargain and had won the acceptance of favourable conditions which it required. His Honour accordingly weighed the advantages that Rocca had obtained against the disadvantage it suffered by tying itself to Amoco for fifteen years. (at p294)

13. I agree entirely with his Honour's approach to this problem of reasonableness as between the two parties, and consider that, despite the severe restrictions which Rocca accepted - restrictions which the Full Court regarded as unnecessary and harsh - there was not, applying Edwards v. Noble (1971) 125 CLR 296 , sufficient to warrant interference with the conclusion that the learned trial judge reached. For my own part, I regard it as a circumstance of considerable weight that five years after making the original arrangement and with the experience of its working during that time, Rocca should, in 1969, in consideration of Amoco paying for further work at the service station and increasing the rebate, have agreed to extend the terms of the lease and underlease for a period of five years. This hardly suggests that Rocca, having agreed to a term of fifteen years, considered itself to be thereby the victim of an unreasonable restraint of trade. The members of the Full Court did direct criticism to the use that his Honour made of certain evidence tendered by Amoco to show that a tie of fifteen years would do no more than provide it reasonable protection for its legitimate interests, i.e., the protection of its distributing system based upon a number of assured outlets. I think that his Honour gave expert evidence on this point more attention than I would have had I been trying the case, but this was but one matter which he took into account in reaching his conclusion. The Full Court did emphasize that a restraint cannot be justified simply as a means of maintaining a favourable competitive position. That is the law but it must, I think, be recognized that every restraint which has been upheld has afforded some measure of protection against competition, and the presence of this element does not spell invalidity. Surely it would not be an unlawful restraint of trade for the owner of an actually established service station to stipulate with its sole supplier that it would not for some substantial period of time during its contract, supply another station within the same locality. Such a restriction would, of course, be little more than protection against competition, even if it were to be expressed as the protection of an investment in the service station. Again, where solus agreements have been sustained, their effect has been as a protection against competitors notwithstanding that it can be expressed as a protection of the supplier's outlets. To pronounce and apply a dictum in favour of unlimited competition hardly determines whether or not a particular restriction is reasonable or unreasonable. (at p295)

14. To the members of the Full Court the critical matter was the period of the tie, and it was thought that fifteen years was too long to be reasonable. It is not possible, however, as a matter of law to fix some maximum length of time as the period within which a restriction may be regarded as reasonable. What seems to me of vital importance is what the person who accepts the tie expects to gain by doing so. Indeed, the real problem for a court is to weigh the advantages and disadvantages as they must have appeared to those who entered with their eyes open into the commercial arrangements involving restrictions upon future trading. The decision is one of mixed fact and law to be decided upon all the circumstances of the particular case. Here, the trial judge found that Rocca not only made the best bargain that it could to obtain a supply of petrol for the service station which it was minded to establish, but that the bargain which was made - including the provisions which members of the Full Court regarded as unnecessary and harsh - was as a whole fair to both sides. In doing so, he did not suggest that like restrictions would be reasonable in other cases; his decision was simply that taking the agreement as a whole the restrictions were reasonable in this case. In my opinion, the Full Court ought not to have substituted its own opinion for that of the learned trial judge as to these matters. (at p296)

15. In dealing with the issue whether the restraint was injurious to the interests of the public, his Honour quite properly laid stress upon the interest of the public in the carrying out of commercial arrangements entered into freely by parties who may be trusted to see and appreciate their own interests. His Honour took into account the consequence of destroying a commercial contract under which the party who was rejecting it had taken substantial benefits both at the time of making the contract and over a period of years subsequently. (at p296)

16. It is a matter of common knowledge that over the past fifteen years, the selling of petroleum products to the public has been through service stations operating in one way or another under solus agreements with suppliers. The restrictions that are implicit in such a system of trading are an accepted element of commercial life. The law recognizes this, and in any particular case, the essence of the problem is to decide whether or not particular restrictions are reasonable in all the circumstances, taking into account the interests of the public. What is reasonable, taking the interests of the public into account as well as the interests of the parties, is not injurious to the public. (at p296)

17. The cases show that it has become a matter for judgment after weighing the relative advantages and disadvantages of what has been agreed to decide whether a trade tie is reasonable in the sense already indicated. This, despite the differences that are apparent in the speeches of the members of the House of Lords in the Esso Case (1968) AC 269 is the essence of the decision in that case upholding one tie and condemning the other. Once this position has been reached, it seems to me that a great regard should be accorded to the judgment of a trial judge who has, without error of law, applied his mind after a careful review of the facts to the correct question. The judgment of the learned trial judge in this case is, to my mind, an excellent instance of the application of the right judicial method, viz., the application of the relevant law formulated clearly, and, as I think, correctly, to a carefully found factual situation. The Full Court, nevertheless, for reasons which seemed good to it, decided that the primary judge was in error in his assessment of that situation. I, with respect, do not share this view and would allow the appeal and restore the judgment of Wells J. (at p296)

WALSH J. This is an appeal brought pursuant to leave granted by the Full Court of the Supreme Court of South Australia (1972) 7 SASR 268 against a decision of that Court which upheld an appeal by the present respondent against a decision of Wells J., given in an action brought by the appellant against the respondent claiming certain injunctions and declarations. The basis of those claims was that the respondent had acted and was intending to act in breach of covenants contained in an underlease of certain land in respect of which the respondent had granted a lease to the appellant and had accepted an underlease from it. It is not in dispute that the respondent acted and proposed to act in a way which would constitute a breach of some of those covenants if they were binding, but it was asserted by the respondent that they were not enforceable because they were an unreasonable restraint of trade. (at p297)

2. The matter proceeded before Wells J. as a trial of certain agreed issues, including the following:

"1. Is the defendant entitled to assert that the covenants contained in Memorandum of Underlease no. 2775160 or any of them are in restraint of trade, and unenforceable? 2. Are the covenants contained in Memorandum of Underlease no. 2775160 or any of them an unreasonable restraint of trade and unenforceable?" (at p297)

3. There were further issues raising questions as to the consequences which would follow as to the validity of the underlease and of the headlease, if the covenants in the underlease or any of them were found to be unenforceable. It was agreed that all questions of consequential relief arising from the resolution of the stated issues should stand for later consideration. Wells J. answered the first question by stating that he treated the respondent as entitled to assert that the covenants were in restraint of trade and unenforceable. He answered the second question "No". Thereafter he made certain declarations and orders, with the terms of which we are not presently concerned. In the Full Court th first and second questions were answered in the affirmative and the Court ordered that the action be referred back to the trial judge for further consideration alternatively or in addition that any party might be at liberty to make any application to the Court consequential upon its order. In this appeal the Court is concerned only with the issues numbered 1 and 2 set out above. If the appeal succeeds the declarations and orders made by the trial judge will stand. If the appeal fails, the action will require further consideration in the Supreme Court. (at p297)

4. In 1963 members of the Rocca family, after some previous negotiations with another oil company, entered into discussions with the appellant (hereinafter called "Amoco"). The land was purchased in 1963 by one of the family and this was subsequently transferred to the respondent (hereinafter called "Rocca"), which was incorporated on 10th February 1964. The land is at Para Hills, some twelve to fifteen miles north of Adelaide, in an area which was at that time far from being fully developed. The subject of the discussions with Amoco was the establishment of a service station on the land. After a preliminary agreement, upon which I need not dwell, an agreement between Amoco and Rocca was executed on 19th June 1964. Rocca was not then the registered proprietor of the land, but, in my opinion, nothing turns on that fact. It became registered proprietor before the lease and the underlease, which the agreement contemplated, were executed. The agreement provided that Rocca would at its expense erect the service station in accordance with an attached plan. Amoco would lend plant and equipment to Rocca pursuant to an Equipment Loan Agreement which was to be executed by the parties. The service station was to be completed on or before 31st March 1965. On its completion by that date Rocca would grant and Amoco would accept a lease of the premises for fifteen years, with a right of determining the lease at the expiration of the first ten years on three months' notice. It is clear that this right of earlier determination was vested in Amoco only and not in both parties. The lease was to be at a yearly rental of one pound, plus a sum equal to threepence per gallon of all petrol delivered by Amoco to the premises for sale. It was further agreed that Amoco would grant and Rocca would accept an underlease for a term of fifteen years less one day (subject to the right of earlier determination by Amoco) at the yearly rental of one pound. The lease and underlease were to be in the forms annexed to the agreement, with such modifications as the parties might agree upon or circumstances might render necessary. (at p298)

5. The lease and underlease were not executed until 19th May 1966. The term of the lease was expressed to be fifteen years commencing on 30th November 1964 with a right by Amoco to determine it after ten years. The underlease was for a like term less one day. Meanwhile the agreement of 1964 had been acted upon. The service station was erected and was opened on 10th December 1964. Prior to that date Amoco lent to Rocca and installed certain plant and equipment. In the Equipment Loan Agreement, annexed to the agreement of 19th June 1964, it was provided that Amoco would lend certain specified equipment which would remain its property and on termination of the agreement by cancellation or otherwise it would have the right to enter and remove the equipment. Rocca was not to remove it from the premises without Amoco's consent. (at p298)

6. When the lease and the underlease were executed, their terms accorded generally with those set out in the agreement of 19th June 1964 and in the forms annexed to it. The underlease contained a schedule of equipment expressed to be part of the demised premises. This was not identical with the equipment specified in the earlier Equipment Loan Agreement, but I do not regard that fact as important. A more significant variation was that in the underlease as executed, cl. 3 (i) bound Rocca to purchase at least 8,000 gallons of petrol and at least 140 gallons of motor oil from Amoco in every month during the term. The corresponding printed clause, in the form attached to the agreement of 19th June 1964, had not been completed by filling in the quantities and it appears to have been crossed out. It is stated in the judgment of Wells J. that it was common ground that no "gallonage" was stipulated for until 1966. It will be necessary later to make some reference to the bearing of this clause upon the reasonableness of the convenants made by Rocca and to refer to the estimates of "gallonage" used by the officers of Amoco in certain calculations which they made in 1964. (at p299)

7. In relation to the dispute as to the enforceability of the covenants in the underlease the most important covenant is cl. 3 (h), which must be considered, of course, having regard to the length of the term of the underlease. The clause provides:

"3. The Lessee covenants with the Lessor:- ... (h) To purchase exclusively from the Lessor all petrol, motor oil, lubricants and other petroleum products required for sale on the demised premises and not directly or indirectly to buy, receive, use, sell, store or dispose of or permit to be bought, received, used, sold, stored or disposed of at or upon the demised premises or any part thereof any petroleum products not actually purchased by the Lessee from the Lessor provided that the Lessor is able to supply same." (at p299)

8. There are other clauses which need to be examined in so far as they affect the way in which and the conditions upon which the restrictions imposed by cl. 3 (h) might operate and in so far as they have been relied upon by Rocca as tending to show that it was subjected to harsh obligations going beyond what was necessary to promote any legitimate interest of Amoco. I proceed to refer to some of the clauses to which attention was given in the Supreme Court. (at p299)

9. Clause 3 (e) is a covenant not to assign the lease or to part with possession of the premises. It is absolute in form. It was said by Bray C.J. that it should be read as being subject to a proviso that consent is not to be unreasonably or capriciously withheld. I do not regard it as having much significance, in relation to the questions raised by this appeal; but its presence serves, perhaps, to emphasize that Rocca did not have available to it any means by which, during the currency of the underlease, it could free itself from the obligations undertaken by it. (at p299)

10. Clause 3 (g) requires Rocca to carry on and conduct in a proper manner on the premises the business of a petrol service station and not to use them for any other business or purpose "and not during the continuance of this lease to cease to carry on the said business without the prior written consent of the Lessor". Clause 3 (i) requires Rocca to purchase at least 8,000 gallons of petrol and at least 140 gallons of motor oil from Amoco in every month during the term of the lease. In dealing with cl. 3 (g), Wells J. referred to what was said by Diplock L.J. in Petrofina (Gt. Britain) Ltd. v. Martin (1966) Ch 146, at p 189 , concerning a provision of this kind, which binds a trader whether he trades at a loss or not to continue trading throughout a long period, during which changes may occur tending to make the trading unprofitable. After referring to differences between the circumstances of the Petrofina Case (1966) Ch 146 and the case before him, Wells J. went on to express the opinion that, although a strict compliance with cl. 3 (g) could require Rocca to trade at a loss, it was unreal to think that Amoco would insist upon compliance if the trading were unprofitable. His Honour referred to what he regarded as a lack of any commercial advantage to Amoco "in pursuing an empty claim on the covenant". With respect I do not find in these considerations a satisfactory basis for discounting the stringency of the covenant. I am not persuaded that if a time came when it was difficult for Rocca to trade profitably it would necessarily be of no commercial advantage to Amoco to insist upon compliance and it is far from being obvious that a claim on the covenant would be an empty claim. But no doubt that is a matter upon which minds may differ. What is more important is the question whether or not a party seeking to justify a restriction imposed for that party's benefit may be permitted to do so on the ground that it was unlikely that it would enforce the stipulations contained in the agreement according to their terms. Elsewhere in his judgment Wells J. referred to the following statement of Lord Reid in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269, at p 303 (herein called Esso):

"It is true that if some of the provisions were operated by the appellants in a manner which would be commercially unreasonable they might put the respondents in difficulties. But I think that a court must have regard to the fact that the appellants must act in such a way that they will be able to obtain renewals of the great majority of their very numerous ties, some of which will come to an end almost every week. If in such circumstances a garage owner chooses to rely on the commercial probity and good sense of the producer, I do not think that a court should hold his agreement unreasonable because it is legally capable of some misuse." (at p300)

11. There may be cases in which it is very clear that a provision would never be enforced according to its strict terms and I do not question the propriety of disregarding in such cases some theoretical possibility. But I am of opinion that, except within very narrow limits, the Court must have regard to the rights and obligations created by the agreement rather than to the manner in which it thinks it is likely that the agreement will operate in fact. I agree with respect with what Bray C.J. has said on this point in the present case. (at p301)

12. Clause 3 (i) has the effect, in my opinion, of imposing an obligation that could operate in a very unreasonable way. It binds Rocca to purchase the stated minimum quantities, regardless of the state of its trade at any time throughout the period of the lease, and no matter what changes in circumstances may have occurred causing a reduction in its sales. In his judgment Wells J. said, as I have mentioned above, that this clause was left incomplete in the form of underlease annexed to the 1964 agreement. He said, also, that at that time the officers of Amoco in Adelaide had estimated sales for 1966 at 80,000 gallons (Imp.) of petrol and 1,400 gallons of motor oil. But when the time came to execute the formal lease and underlease it was found that sales had been greatly in excess of expectation and in the first year of operation the sales of petrol had reached 96,000 gallons. His Honour concluded that in 1966 the figure of 8,000 gallons per month was not otherwise than in accordance with reasonable expectations, although it might have seemed rather severe if that figure had been demanded in 1964. Accepting his Honour's views of the facts which I have just mentioned, they raise a difficulty concerning the date at which the question of reasonableness should be examined. In the Full Court it appears that the case was conducted on the footing that the proper date at which to consider that question was the date when the agreement was executed (June 1964). Wells J. considered that he should examine all the circumstances relevant to the trading venture and ought not to exclude the events and circumstances of 1964 and 1965 simply because the lease and underlease had not then been executed. At the same time he said that he did not wholly equate the situation to that which would have existed if, from the beginning, the parties had operated under a formal lease and underlease. In this Court it was stated to be common ground that the enforceability of the underlease was to be judged by reference to the circumstances which existed as at June 1964. The case has been conducted on the footing that the agreement then made was immediately operative and (subject to the restraint of trade question) binding upon the parties. This means that when they made their agreement as to the length of the period of the tie and as to other terms and conditions under which they would do business, the provisions afterwards inserted in cl. 3 (i) formed no part of their bargain. It cannot be asserted, therefore, that that stipulation was considered to be necessary in order to protect the interests of Amoco. It is difficult to see that between then and May 1966, it could have become necessary to include it in the formal document in which the bargain was then embodied. The question at this point is not whether the specified amount of the minimum supply appeared in 1966 to be an amount which Rocca would be able to meet but whether any such provision was reasonably necessary. It cannot be doubted however that the clause did become a binding provision (subject to the restraint of trade question) when it was included in the underlease and it is, therefore, to be taken into account in considering the question of the reasonableness of the restraint of trade, in the light of all the covenants which are associated with it. (at p302)

13. Clause 4 (a) provides that Amoco will sell to Rocca at the "usual list prices to resellers" its entire requirements of petroleum products. It provides, also, for payment in cash at the time of delivery. Clause 4 (b) provides that if Amoco is unable for any reason which in its opinion is beyond its control to supply petroleum products as required its obligation to supply shall be suspended. During such a period of suspension Rocca is to be at liberty to obtain supplies from other sources. Clause 4 (c) provides that there is no obligation on Amoco to sell any such products until Rocca has paid for any already supplied and has otherwise observed the conditions of the underlease and that a refusal to supply is not to be deemed a breach of the underlease so as to release Rocca from its obligations to purchase exclusively from Amoco. It will be sufficient I think to make two comments on these provisions. The first is that Amoco is not at liberty to fix prices to be charged by it to Rocca in an arbitrary manner so as to discriminate against it in favour of all other retailers, although it appears that it did grant special discounts on some occasions. The second comment is that the liability of Amoco to maintain supplies is limited in a way that could leave Rocca in difficulties against which it could not guard itself, with no means of escape from those difficulties, except "the cheerless right" to seek supplies elsewhere: see Esso (1968) AC, at p 329 . (at p302)

14. In his judgment Wells J. said that in addition to what was contained in the agreement for a lease the parties had arrived at a collateral agreement which was implemented from time to time that Amoco would lay out considerable sums on fixtures and equipment as well as bearing certain other initial costs. He referred to a grand ceremonial opening of the service station which took place in December 1964, in preparation for which Amoco made a fairly substantial outlay. Its appropriations made before the opening amounted to $7,130. Between then and 1969 there were further appropriations and the total of all the appropriations was $18,995. His Honour said, also, that Rocca received certain intangible benefits from Amoco and in providing them Amoco was acting consistently with a shared intention that it was to treat the Rocca service station much as it would treat one of its own service stations. In a letter written in May 1964 Amoco stated its intention to include the Para Hills service station "in the sales promotions and sales aid activities which we may introduce from time to time". In my opinion it was not shown that by June 1964 or by May 1966 Amoco had undertaken any specific obligations to provide to Rocca any equipment or to make on its behalf expenditure, other than the obligations contained in the formal agreement. Nor was its stated intention as to sales promotion expressed in terms specific enough to be contractually binding. Any expenditure which occurred after May 1966 cannot be regarded, in my opinion, as part of the consideration provided by Amoco for the covenants into which Rocca entered, which has to be assessed at the date when the covenants were made. Such consideration could include, of course, any obligations which Amoco had undertaken. But, in my opinion, it had not committed itself to any defined amount of future expenditure. It is to be observed, also, that Rocca committed itself to a substantial capital outlay. In accordance with the terms of the underlease Rocca received what amounted to a rebate of threepence per gallon on the price of petrol supplied to it. It was suggested that this was a high rebate. But as Bray C.J. has pointed out, the rebate was not related to the price of petrol for the time being but was fixed for the duration of the term so that increases in the price of petrol could make the rebate a relatively small one. (at p303)

15. In 1969 the parties agreed upon an extension of the agreement for a further period of five years, on the understanding that Amoco would at its cost effect alterations to the service station and that the rebate would be increased for the extended period of five years to four cents per gallon. In my opinion this fact has no bearing upon the decision of the questions raised by the appeal. (at p303)

16. It is convenient now to turn to a consideration of the first and second issues set out above. The first issue is intended to raise the question whether or not the restraint of trade doctrine has any application at all in the circumstances of this case. Amoco has contended that this question should be answered "No". The first ground on which this contention was based may be expressed as follows. The result of the agreement which the parties made and of the execution of the lease and the underlease was that Rocca, having parted with possession of the land by granting the lease, obtained possession of it from Amoco under the underlease. These were genuine documents. There was no ground for treating them as shams or as cloaks for some different bargain having a different legal effect. It was submitted that the consequence was, in accordance with the observations of some of their Lordships in Esso (1968) AC 269 , adopted in Cleveland Petroleum Co. Ltd. v. Dartstone Ltd. (1969) 1 WLR 116; (1969) 1 All ER 201 , that Rocca must be considered to have given up no freedom to trade on the land by accepting the underlease and entering into the covenants contained in it. It could not be said that there had been a restriction on any freedom which it had and the question of the reasonableness of the terms upon which it obtained a right to trade does not arise. In my opinion, this submission should not be accepted. I agree with respect with the reasons given by Bray C.J. for rejecting it (1972) 7 SASR, at pp 332-337 . It is not necessary to examine closely the correctness of the principle stated in the passages in some of the speeches in Esso (1968) AC 269 on which Amoco relies. I should be reluctant to accept that principle as a valid ground for treating the restraint of trade doctrine as necessarily inapplicable. But even if it were to be accepted, this is not a case in which the covenantor came to the land as a stranger and obtained for the first time a right of possession and with it a right to trade on the land, by purchasing or leasing it from its owner upon terms that included restrictions on the scope of its right to trade. Rocca was in possession as owner. The circumstance that in June 1974 it was not yet registered is, in my opinion, immaterial for present purposes. It remained in actual possession at all times. I agree with the opinion of Bray C.J. that any notional interval of time between the taking effect of the lease and the taking effect of the underlease ought not to be allowed to obscure the realities of the situation for the purpose of the application of the doctrine of restraint of trade. To say that is not to assert that the lease and underlease were shams. It is merely to deny that they had the effect that Rocca must be held to have had no freedom to trade on the land until it obtained the underlease and to deny that the covenants into which it entered, pursuant to an agreement made prior to the execution of the lease and the underlease, imposed no restriction on its freedom. (at p304)

17. Two additional matters were put forward in support of the argument that the doctrine of restraint of trade was wholly excluded in the circumstances of this case. It is not clear, I think, whether these are two distinct grounds or refer to two aspects of a total situation to which, according to the argument, the doctrine is inapplicable. It was said that where at the relevant time the covenantor was entering upon a new business and had no way of doing this except by entering into an agreement with a substantial trade tie, the court will not examine the terms of the agreement to ascertain whether or not it imposes unreasonable restrictions. Likewise, if it appears that the parties have agreed to embark upon a joint venture in setting up a business the doctrine will not be applied. In my opinion, there is no warrant for laying down any such rules of exclusion of the doctrine as those proposed by these submissions. The particular circumstances to which the argument refers may need to be taken into account when the court considers whether or not the restrictions go beyond those that are permissible. But they should not be held to prevent the court from considering that question at all. (at p305)

18. I am of opinion, therefore, that the first issue should be decided in favour of Rocca. That means that the court is required to examine the second issue, that is, whether the covenants in the underlease or any of them are an unreasonable restraint of trade. In relation to that issue it is convenient to refer, first, to some matters of principle. (at p305)

19. The Full Court reversed the decision of the learned trial judge. Its members decided for themselves whether the term for which the tie endured, whether considered in conjunction with the alleged harshness of certain other covenants or independently of those covenants, was longer than was reasonable in the circumstances. In my opinion, they were correct in taking that course. Most of the primary facts were not in dispute. One issue of fact that was in dispute had been resolved in favour of Amoco. The trial judge rejected an argument that Rocca had been the victim of overreaching and deception. His finding on that question depended upon oral evidence. It was not challenged in the Full Court or in this Court. It does not appear that the Full Court failed to accept any findings of the learned trial judge which depended in any way upon the credibility or reliability of witnesses. They differed in some respects from the conclusions drawn by him from the evidence, but these differences were not as to any findings which depended upon the forming of opinions as to the competence or the credibility of the witnesses. It has been held repeatedly that the ultimate questions of reasonableness and of the lawfulness of a restraint upon freedom of trade are questions of law. They are questions to which it is inappropriate to apply the principles relating to the approach to be made by an appellate court to the findings of a trial judge on questions of fact, for example, the question whether or not a driver of a motor vehicle has failed to exercise reasonable care. (at p305)

20. I refer next to the question of the extent to which the court, when considering whether or not a restraint is reasonable, should take into account the benefits which the covenantor obtains from the transaction in exchange for his covenants. The formulation by Lord Macnaghten in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894) AC 535, at p 565 of the principles by which the enforceability of a covenant in restraint of trade is to be tested has been constantly repeated and adopted. A recent instance is to be found in the judgment of this Court in Buckley v. Tutty (1971) 125 CLR 353, at p 376 . That formulation refers to the "interests of the parties concerned". But it lays down that a restriction is to be justified only if it is "so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public" (1894) AC, at p 565 . This formulation, as it has been developed and applied, means that a restraint will not be enforceable, unless it affords no more than adequate protection to the interests of the covenantee in respect of which he is entitled to be protected. If the court is not satisfied on that question it is immaterial, in my opinion, whether the covenantor has received much or little by way of benefits from entering into the transaction. But, although it was held from early times that the court would not inquire into the adequacy of the consideration for a restraint, nevertheless, I am of opinion that the quantum of the benefit which the covenantor receives may be taken into account in determining whether the restraint does or does not go beyond adequate protection for the interests of the covenantee. For example, if a large sum is advanced a longer period of restraint may be held to be required to give adequate protection to the covenantee than that which would be appropriate in the case of a small advance. It is to be borne in mind, also, that the benefit received by a covenantor is not limited to what he receives in money or other property. A covenantor may be regarded as obtaining, in return for a restraint, a benefit which consists simply in being able by this means to procure an agreement in aid of his trading, e.g., an agreement for the regular supply of goods which he would not be able to procure, except upon terms of submitting to a restraint. If that restraint does not exceed what is reasonably adequate for the protection of the covenantee, then it may be regarded as reasonable so far as the interest of the covenantor is concerned. It may be in his interests to be able so to bind himself: see Herbert Morris Ltd. v. Saxelby (1916) 1 AC 688, at pp 700, 707-708 and Esso (1968) AC, at p 312 . (at p306)

21. But if the restraint goes beyond what is reasonable for the protection of the interests of the covenantee it will not be regarded by the court as being in the interests of the parties. Although the parties have not bargained upon unequal terms and although there has been no deception or overbearing of one by the other, in my opinion the Court cannot accept the fact that the restrictions are those upon which the parties have agreed as conclusive to show that they are reasonable in reference to the interests of the parties concerned. There have been judicial observations to the effect that the court will not readily substitute its own views as to what is reasonable for those of the contracting parties: see, for example, Esso (1968) AC, at p 323 . No doubt the court will give weight to the fact that the parties have agreed upon the restrictions. But, in my opinion, it is not entitled to hold itself bound by what they have done and for that reason to refrain from making any judgment on the question of reasonableness. In Texaco Ltd. v. Mulberry Filling Station Ltd. Ungoed-Thomas J. said (1972) 1 WLR, at p 826; (1972) 1 All ER. at p. 525 :

"It seems to me right in principle and in accordance with the habitual inclination of the court not to interfere with business decisions made by businessmen authorised and qualified to make them."

With respect that is a statement which, in my opinion, goes beyond what is warranted by the authorities and which cannot be accepted. There is no doubt that the court has interfered with such "business decisions". The requirement of reasonableness with reference to the interests of the parties and that of reasonableness with reference to the interests of the public are to be regarded, in my opinion, as raising distinct questions. That has been laid down in many cases of high authority. But it does not mean, in my opinion, that in dealing with the first of those questions, no element of public policy is involved. It is public policy which lies at the root of the rule that agreements in restraint of trade are, prima facie, unenforceable. A decision whether the circumstances of a particular case call for the application of that rule or justify a departure from it is a decision on a matter concerning public policy. Therefore, if a restraint is imposed which is more than that which is required (in the judgment of the court) to protect the interests of the parties, that is a matter which is relevant to the considerations of public policy which underlie the whole doctrine, since to that extent the deprivation of a person of his liberty of action is regarded as detrimental to the public interest: see McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society Ltd. (1919) AC 548, at p 574 . I acknowledge that the consequence of what I have just stated is that there is to some extent a merging of the second branch of the Nordenfelt formulation of the applicable principle with its first branch. But this does not mean that the distinction between them is wholly obliterated. In order to justify a restraint of trade both tests must be satisfied. The restraint must be reasonable in the interests of the parties in that it affords no more than adequate protection to the covenantee "while at the same time it is in no way injurious to the public" (see the Nordenfelt Case (1894) AC, at p 565 ). It may be that although a restraint satisfies the first requirement it is injurious to the public for some reason other than being in excess of what is reasonable in the interests of the parties. Perhaps this will rarely be so. But the possibility that it may occur is fully recognized in the authorities and it is to be noticed that in Esso (1968) AC, at p 321 Lord Hodson rested his decision on the second branch of the Nordenfelt formulation. (at p308)

22. From the opinions that I have expressed, I think that it follows that the court must form its own judgment in dealing with the question of reasonableness as between the parties. It must decide whether or not it is satisfied (the onus being on the covenantee) that the restraint provides no more than adequate protection. It has been said that when "free and competent parties agree and the background provides some commercial justification on both sides for their bargain" that onus should be easily discharged: see Esso (1968) AC, at p 324 . But yet it is to be observed that in Esso (1968) AC 269 it was held that a tie for a period of twenty-one years was not shown to be reasonable, although the parties, who were not considered to have been on unequal terms, had agreed to it. (at p308)

23. Having regard to the foregoing principles, the question is whether or not the Full Court was in error in holding that the second issue should receive an affirmative answer. In my opinion, it was not in error. I have discussed the principal facts and the terms of the agreement embodied in the documents executed by the parties. A decision upon the question of reasonableness depends upon a judgment the reasons for which do not admit of great elaboration. In my opinion it was not shown that the restrictions placed upon Rocca did not go beyond what was adequate for the protection of Amoco's interests. It is not in doubt, in my opinion, that Amoco was entitled in the circumstances to obtain the benefit of a trade tie in aid of the recoupment of its investment and in aid of the trading interests arising out of its agreement to supply its products to Rocca. The question is whether or not the term of the tie, considered in conjunction with the covenants to which I have referred, was greater than was reasonably necessary. In my opinion it was. At all events its reasonableness was not established. In his judgment Bray C.J. said (1972) 7 SASR, at p 345 :

"The conclusion I have reached is that the covenants in the underlease go beyond what was reasonably necessary for the protection of Amoco. Certainly Amoco, in my view, has not shown the contrary and the onus is on it. A shorter term would, in my view, have been adequate to afford ample protection to its proprietary interest in its investment: and a shorter term or less onerous covenants or both would, in my view, have been adequate to protect its commercial interests."

I find myself in agreement with that statement, subject to the qualification that in my opinion the same conclusion would have been correct even if the covenants (other than the exclusive trade tie) had been less onerous. (at p309)

24. Having regard to the careful examination of the facts made by Wells J. and by the Full Court I do not consider it to be necessary to discuss the details of the evidence by which Amoco sought to show that the restrictions it obtained were reasonably necessary to protect its interests. But there is one matter of evidence to which I should make some reference. (at p309)

25. The document P. 12 which was tendered in evidence by Amoco is described as a "determination of profitability index". It came into being in September 1964 that is sometime after the agreement of June 1964 was made. It is described by Wells J. as a document which showed a calculation by which from certain primary statistical facts the likely future cash flow from the project was examined and it was determined that at the end of fifteen years the project would yield 10.2 per cent "profitability" after tax. The explanations given in evidence of the factors which entered into the calculation were somewhat complicated, but what was meant by the term "profitability index" was indicated by the evidence of a witness called by Amoco, who said that "if a project earns enough above operating costs to return the invested amount by the end of the project life plus X per cent after tax effects on the amount still invested each year, that project has an X per cent profitability index". There was evidence that Amoco would not regard a proposed project as acceptable unless the profitability index was 10 per cent or more. It was submitted for Amoco that this calculation was not made for the purpose of determining what should be the period of the tie, which had been agreed upon before the calculation was made, but it was said that it provided evidence that the period agreed upon was a reasonable one. A lecturer in economics, Dr. Moffatt, whose evidence the learned trial judge accepted, said that in making the calculation Amoco had adopted figures that reflected an extremely cautious or conservative approach. By taking figures based on a more sanguine attitude a similar calculation would yield a result of about 17 per cent. His Honour agreed with the opinion that the company's calculation was on the conservative side. He added that from this the conclusion did not inevitably follow that Amoco was unreasonable in choosing a fifteen-year period. There is no reason to disagree with this last statement. But it is of no assistance to Amoco. It was obliged to establish that the tie was reasonable, which means, in my opinion, that it was reasonable in an objective sense, not simply in the judgment of some officers of Amoco. It appears to me that the production of Ex. P. 12 and the evidence about it did not provide any proof that the period of the tie was reasonable. (at p309)

26. Some observations concerning Ex. P. 12 were made by members of the Full Court. Counsel for Amoco has submitted that the decision of the Full Court was based solely or mainly upon the view taken on this matter and that that view was mistaken. Now if it appeared that the Full Court or some members of it had erred in treating the calculation as tending positively to indicate that the restrictions were unreasonable, that would not enable Amoco to rely on it as evidence that they were not. I do not agree, however, that the members of the Full Court who discussed this matter were mistaken in the principal opinions they expressed about it. It is clear, as Bray C.J. pointed out (1972) 7 SASR, at p 341 , that the calculation assumed a sale in the fourth year of the project of 72,000 American gallons (60,000 Australian gallons). But this was substantially less than the estimate (96,000 Australian gallons) that had been made early in 1964 by the retail sales manager of Amoco in Adelaide (Mr. Nelson), the latter figure being one which, as it turned out, was reached during the second year and which was used, as stated earlier, in filling in cl. 3 (i) in the underlease. Now it may well be that the officers who decided to use the lower figure for the purpose of the calculation had reasons for doing so which to them seemed valid. Some reasons that might influence the making of a reduction in an estimate supplied by the officers of a branch were suggested in evidence. But the use of the lower figure must surely affect greatly, and, indeed, must destroy the value of the results of the calculation, if these are put forward as tending to show that in fact the period of fifteen years was no longer than was reasonably necessary in order to secure for Amoco a "profitability" in the order of 10 per cent, in the absence of proof that in 1964 an average monthly sale of 5,000 gallons in the fourth year was a reasonable expectation. The absence of evidence to establish that Mr. Nelson's estimate was too high and to show by how much it ought to have been reduced in order to take account of the facts that the service station had not yet been established and that it might not prove successful is a matter to which importance was attached in the judgment of Hogarth J. (1972) 7 SASR, at pp 355-356 . In my opinion his Honour was not in error in this respect or in attaching importance to these considerations. I have examined carefully the evidence upon which counsel for Amoco relied in a submission that Hogarth J. was in error in thinking that the evidence did not show that the estimate of the gallonage adopted for the purposes of the feasibility test was a reasonable one and did not explain how that figure came to be selected. In my opinion his Honour's view of the relevant evidence was not mistaken. (at p310)

27. I am of opinion that the appeal should be dismissed. (at p311)

GIBBS J. The facts of this case are recited in the judgment of my brother Walsh, which I have had the benefit of reading. The first of the two questions stated by the learned trial judge and answered by the Full Court is whether the respondent company ("Rocca") is entitled to assert that the covenants contained in the underlease dated 19th May 1966 from the appellant company ("Amoco") to Rocca, or any of those covenants, are in restraint of trade and unenforceable. That underlease, of the land at Para Hills on which Rocca's service station is now constructed, was for a term of fifteen years (less one day) from 30th November 1964. It is relevant at this stage to refer to the provisions of certain of the covenants in the underlease. By cl. 3 (g) Rocca (called in the underlease "the Lessee") covenanted with Amoco (called "the Lessor") "to carry on and conduct in a proper manner in and upon the demised premises during all lawful trading hours the business of a petrol service station only and not to use same for any other business or purpose whatsoever and not during the continuance of this lease to cease to carry on the said business without the prior written consent" of Amoco. By cl. 3 (h) it covenanted "to purchase exclusively from the Lessor all petrol, motor oil, lubricants and other petroleum products required for sale on the demised premises and not directly or indirectly to buy, receive, use, sell, store or dispose of or permit to be bought, received, used, sold, stored or disposed of at or upon the demised premises or any part thereof any petroleum products not actually purchased by the Lessee from the Lessor provided that the Lessor is able to supply same". By cl. 3 (i) Rocca agreed "to purchase at least 8000 gallons of petrol and at least 140 gallons of motor oil from the Lessor in every month during the term of this lease". Amoco on its part agreed to sell to Rocca and to deliver to the demised premises at Amoco's "usual list prices to resellers at the time and place of delivery" Rocca's entire requirements of petroleum products (cl. 4 (a)). However, if Amoco is unable for any reason whatever which is, in the sole opinion of Amoco, beyond its control, to supply petroleum products as required, its obligation to supply is suspended and Rocca is at liberty to supply itself from other sources with sufficient petroleum products but only until such time as Amoco shall notify it that it is prepared to resume supply (cl. 4 (b)). There can be no doubt that the covenants of the underlease, if they are valid, will interfere with Rocca's liberty to carry on its trade in the manner which it considers most advantageous. The question is whether they create restraints whose validity is to be tested by the common law rules relating to restraint of trade. (at p311)

2. It has been held, or assumed, in many cases, and is now clearly settled, that those rules apply to an agreement by which a trader undertakes to buy exclusively from one supplier all the goods of a particular kind that he needs for the purposes of his trade: Peters American Delicacy Co. Ltd. v. Champion (1928) 41 CLR 316 ; Foley v. Classique Coaches Ltd. (1934) 2 KB 1 ; Peters American Delicacy Co. Ltd. v. Patricia's Chocolates and Candies Pty. Ltd. (1947) 77 CLR 574 ; Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 . Similarly an undertaking by a producer to sell his whole output exclusively to one buyer can fall within the doctrine: McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society Ltd. (1919) AC 548 ; Heron v. Port Huon Fruitgrowers' Co-operative Association Ltd. (1922) 30 CLR 315 . The doctrine is not rendered inapplicable by the fact that the restraint extends only to the use of a particular piece of land; it applies, for example, where a farmer agrees to sell all the produce of his farm to a particular buyer or where the proprietor of a petrol service station agrees to give to a particular oil company the exclusive right to supply him with petrol: Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at pp 297-298, 308-311, 315-319 . Prima facie, therefore, the covenants in the underlease operated in restraint of Rocca's trade. (at p312)

3. However, on behalf of Amoco it was submitted that the doctrine of restraint of trade has no application to the present case for two reasons. In the first place, it was said that during the moment of time between the grant of the lease by Rocca to Amoco and the grant of the underlease by Amoco, Rocca no longer had any right to possession of the land or any right to trade on it, so that when Rocca took possession subject to the covenants in the underlease it gave up no existing right to trade but rather acquired a qualified right to trade. Secondly, it was said that on 19th June 1964, the date of the agreement to grant the lease and to accept the underlease, Rocca was not in business as a service station proprietor and, from a practical point of view, had little chance of getting the supplies necessary to enable it to conduct such a business unless it was prepared to bind itself to take all its requirements of petrol from one oil company. For this reason, it was said, Rocca was not prevented from exercising any right or freedom to trade, but was in truth enabled to trade by the agreement which it made with Amoco. (at p312)

4. Both of these submissions were founded upon some of the speeches in the House of Lords in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 and upon the later decision of the Court of Appeal in Cleveland Petroleum Co. Ltd. v. Dartstone Ltd. (1969) 1 WLR 116; (1969) 1 All ER 201 . In Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 their Lordships, in discussing the argument that the doctrine of restraint of trade does not apply to a restraint on the use of a particular plot of land, drew a distinction between the case before them, in which the covenantors, before they made the agreement, were in possession of the land and entitled to use it as they chose, and the situation of a purchaser or lessee of land who takes possession for the first time subject to a restrictive covenant. It was said that the doctrine has no application to the latter case: see per Lord Reid (1968) AC, at p 298 , per Lord Morris of Borth-y-Gest (1968) AC, at p 309 , per Lord Hodson (1968) AC, at pp 316-317 , and per Lord Pearce (1968) AC, at p 325 . The reason for this was expressed as follows by Lord Reid (1968) AC, at p 298 :

"Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had. A person buying or leasing land had no previous right to be there at all, let alone to trade there, and when he takes possession of that land subject to a negative restrictive covenant he gives up no right or freedom which he previously had."

Lord Morris of Borth-y-Gest (1968) AC, at p 309 and Lord Hodson (1968) AC, at pp 316-317 expressed similar views. The Court of Appeal in Cleveland Petroleum Co. Ltd. v. Dartstone Ltd. (1969) 1 WLR 116; (1969) 1 All ER 201 referred to these remarks as dicta but followed and applied them on an interlocutory application. (at p313)

5. I have, with respect, no difficulty in sharing the opinion of Lord Pearce that "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" (see Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at p 325 ). However, I do not find it necessary to consider whether an unjust repudiation by a purchaser or lessee in such circumstances should be prevented by holding that a transaction of that kind is not subject to the doctrine of restraint of trade or by treating it as subject to the doctrine and upholding the covenant as reasonable. In the present case it is unnecessary to decide whether the scope of the doctrine is limited in the manner suggested by Lord Reid, Lord Morris of Borth-y-Gest and Lord Hodson in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 . Assuming that the principle stated in the passages to which I have referred is accepted as correct, it does not in my opinion follow that the covenants in the underlease in the present case lie outside the doctrine. (at p313)

6. The present is not a case in which a covenantor accepts a lease of land of which he had never been in possession and on which he had never previously had a right to trade. Here, pursuant to the agreement made between the parties on 19th June 1964, Rocca, on 19th May 1966, granted to Amoco a lease of land which Rocca owned and of which it had possession and on the same day took an underlease of the land from Amoco for the term of the lease less one day. Clearly the execution of the lease and the underlease formed part of one transaction. It was intended that Rocca, which had possession, should, if not retain it, at least regain it after the lapse of a mere moment of time. This is not to say that the transaction was a sham - it was not; there was a genuine lease under which Amoco acquired an interest in the land and a real underlease to Rocca: cf. Strick (Inspector of Taxes) v. Regent Oil Co. Ltd. (1966) AC 295, at pp 312, 336, 340 . Nevertheless the effect of the transaction was that Rocca subjected itself to restrictions as to the use which it could make of land which it was previously free to use as it pleased. In truth and substance Rocca did fetter a right to trade which it previously had. The application of the doctrine of restraint of trade does not depend "on legal niceties or theoretical possibilities" (Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at p 298 ) but is to be determined "by reference to the practical working of the restraint, irrespective of its legal form" (Pharmaceutical Society of Great Britain v. Dickson (1970) AC 403, at p 440 ). The practical effect of the agreement, and of the covenants in the underlease made pursuant to the agreement, was to limit Rocca's pre-existing freedom to trade, and the agreement and the underlease were both within the doctrine of restraint of trade. Further, the positive agreement by Rocca to carry on the business during all lawful trading hours throughout the period of the underlease (cl. 3 (g)) might in itself have been regarded as a restraint of Rocca's trade - cf. Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at p 298 . (at p314)

7. I am quite unable to accept the second argument advanced on behalf of Amoco, which would in my opinion give the statements of their Lordships in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. an application far wider than was intended. The argument was in effect that Rocca had no existing freedom to trade because it had no existing business as a retailer of petrol and, from a practical and commercial point of view, had probably no prospect of successfully commencing such a business unless it agreed to take its supplies exclusively from one oil company or another. However, that does not mean that Rocca had no choice but to tie itself to Amoco; it had the power to negotiate with other oil companies and, if it agreed to a tie, would not inevitably have bound itself for the same length of time and on the same conditions as are stipulated in the underlease. Rocca did have the right to trade on the land, although it had not previously exercised the right by conducting a service station. There is no justification in principle or in the authorities for excluding the doctrine of restraint of trade from cases where the covenantor is for practical or commercial reasons obliged to accept some restrictions on his freedom; perhaps it is in such cases that the doctrine is most likely to be needed to prevent the imposition of restraints which would be injurious to one of the parties or contrary to the public interest. In further support of this branch of Amoco's argument it was contended that Amoco, which had only recently commenced to trade in Australia, and Rocca, which was commencing business as a service station proprietor, stood in a relationship of mutual need and ought to be regarded as being engaged in a joint venture rather than as supplier and retailer. With all respect, I can see no reason why, if this were correct, the doctrine relating to restraint of trade should be inapplicable, but in any case the parties were in truth not joint venturers; Amoco was a supplier endeavouring to bind Rocca, when it commenced business as a retailer, to obtain its supplies exclusively from the one source. (at p315)

8. For these reasons the Full Court was in my opinion correct in holding the doctrine of restraint of trade to be applicable and in answering the first question "Yes". (at p315)

9. The second question raised for decision is whether the covenants contained in the underlease, or any of them, are an unreasonable restraint of trade and unenforceable. The test to be applied in determining the validity of a restraint of trade was stated by Lord Macnaghten in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894) AC 535, at p 565 , in a passage that has been cited with approval in many cases including, to name only recent decisions, Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at pp 299, 307, 318 , and Buckley v. Tutty (1972) 125 CLR 353, at p 396 . Lord Macnaghten said:

"All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public."

The requirement that the restriction be reasonable in the interests of the parties has been explained as meaning that the restraint "must afford no more than adequate protection to the party in whose favour it is imposed" (Herbert Morris Ltd. v. Saxelby (1916) 1 AC 688, at p 707 , or in other words, "does the restriction exceed what is reasonably necessary for the protection of the covenantee?" (McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society Ltd. (1919) AC, at p 563 ). The test thus stated suggests that it is not material to consider the effect of the contract on the covenantor. It is established that the court is not entitled to inquire into the adequacy of the consideration for a restraint, that is, the court may not weigh whether the consideration is equal in value to that which the covenantor gives up or loses by the restraint: Hitchcock v. Coker (1837) 6 Ad &El 438, at p 457 (112 ER 167, at p 175) ; Herbert Morris Ltd. v. Saxelby (1916) 1 AC, at p 707 . Nevertheless the fundamental rule remains that the restraint must be reasonable in the interests of the contracting parties, and it would not be in the interest of a covenantor to subject himself to any restraint unless he received some advantage by so doing. In my opinion it is permissible, in asking whether a restraint is reasonable in the interests of the parties, to consider, as part of the circumstances of the case against which the question of reasonableness is to be decided, the quantum of consideration received by the covenantor and the effect of the agreement on the position of the covenantor: see Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at pp 300, 323 ; Fitch v. Dewes (1921) 2 AC 158, at p 163 ; Attwood v. Lamont (1920) 3 KB 571, at p 589 ; Heron v. Port Huon Fruitgrowers' Co-operative Association Ltd. (1922) 30 CLR, at p 337 ; Peters American Delicacy Co. Ltd. v. Patricia's Chocolates and Candies Pty. Ltd. (1947) 77 CLR, at p 591 . (at p316)

10. Analogous to the rule that the court is not entitled to concern itself with the adequacy of the consideration is the further principle that has been stated and restated in the authorities, with more or less emphasis, that where the parties to a contract have been in a position to bargain on an equal footing they should be treated as the best judges of what is reasonable in their own interests: North Western Salt Co. Ltd. v. Electrolytic Alkali Co. Ltd. (1914) AC 461, at p 471 ; English Hop Growers Ltd. v. Dering (1928) 2 KB 174, at p 181 ; Peters American Delicacy Co. Ltd. v. Patricia's Chocolates and Candies Pty. Ltd. (1947) 77 CLR, at pp 583, 599 ; Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at pp 300, 305-306, 320, 323-324 ; Texaco Ltd. v. Mulberry Filling Station Ltd. (1972) 1 WLR, at p 826; (1972) 1 All ER 513, at p 525 . Lord Pearce, in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC, at p 323 , gave cogent reasons for the proposition which he there stated that "Undue interference, though imposed on the ground of promoting freedom of trade, may in the result hamper and restrict the honest trader and, on a wider view, injure trade more than it helps it." Nevertheless these statements, authoritative as they are, cannot mean that where the parties have been in an equal position of bargaining the question of reasonableness is entirely for the parties to decide. If that were so, the rule stated in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894) AC 535 and constantly approved would be given quite a limited application, and the many cases in which agreements entered into between parties contracting on an equal footing have been held to operate unreasonably in restraint of trade could only be explained on the ground that the restraint was unreasonable in the interests of the public - a ground which in most of those cases was not in fact given for the decision. The truth is, I think, that, as Dixon J. pointed out in Peters American Delicacy Co. Ltd. v. Patricia's Chocolates and Candies Pty. Ltd. (1947) 77 CLR, at p 590 , there are two principles of policy that work in opposition - the policy of securing ample freedom of contract and enforcing contractual obligations, and that of preserving freedom of trade from unreasonable contractual restriction. As Dixon J. went on to say (1947) 77 CLR, at p 590 :

"The opposition has been resolved by the adoption of a clear rule making it necessary to justify all contracts in restraint of trade as reasonable in the interests of both the parties and by applying the test of reasonableness according to the situation the parties occupy and so recognizing the different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of a business."

The fact that the parties have bargained from a position of equality is therefore one of the circumstances to be considered in determining whether the covenants were reasonable, but it does not save from invalidity a covenant found to be unreasonable or contrary to the public interest (see also Creamoata Ltd. v. Rice Equalization Association Ltd. (1953) 89 CLR 286, at p 318 ). (at p317)

11. In Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd., Lord Hodson said (1968) AC, at p 319 :

"It has been authoritatively said that the onus of establishing that an agreement is reasonable as between the parties is upon the person who puts forward the agreement, while the onus of establishing that it is contrary to the public interest, being reasonable between the parties, is on the person so alleging: see Herbert Morris Ltd. v. Saxelby (1916) 1 AC, at pp 700, 707-708 ."

However, the question of reasonableness is a question of law for the decision of the judge: Mason v. Provident Clothing and Supply Co. Ltd. (1913) AC 724, at p 732 ; Attorney-General (Cth) v. Adelaide Steamship Co. Ltd. (1913) AC 781, at p 797 ; North Western Salt Co. Ltd. v. Electrolytic Alkali Company Ltd. (1914) AC, at p 741 ; Herbert Morris Ltd. v. Saxelby (1916) 1 AC, at p 707 ; Lindner v. Murdock's Garage (1950) 83 CLR 628, at p 653 . The judge's findings as to the circumstances of the case, of course, stand on appeal in the same position as any other finding of fact made by a judge, but his decision that the covenants were reasonable is not a decision of fact and an appellate court in reviewing such a decision inquires not whether it has been shown to be wrong, but simply whether it is right. Although a trial judge enjoys no special advantages in deciding such a question, the reasons given for his decision are of course entitled to due consideration. It is right to say, with all respect, that the reasons of the learned trial judge in the present case were very full, careful and helpful, as indeed were the reasons of the learned judges who constituted the Full Court. (at p318)

12. It has been held that the validity of a restraint must be decided as at the date of the agreement imposing it: Lindner v. Murdock's Garage (1950) 83 CLR 628, at p 653 ; Commercial Plastics Ltd. v. Vincent (1965) 1 QB 623, at p 644 . It was conceded by the parties in the present case that the question whether the restraint was reasonable should be decided in the light of the circumstances as at June 1964. I am not entirely satisfied that this concession was correct. There would in my opinion be much to be said for the view that the relevant date for the purposes of the inquiry as to the validity of the underlease - the instrument sought to be enforced - was 19th May 1966, notwithstanding that the underlease was executed pursuant to the agreement made in 1964. The provisions of cl. 3(i) (requiring the purchase of the specified minimum number of gallons of petrol and oil) had been struck out of the agreement made in 1964 but they formed part of the underlease executed in 1966. It would be somewhat anomalous to consider whether that requirement, made in the light of the knowledge available in 1966, was reasonable by reference only to the circumstances existing in 1964. Moreover, I should add that although it appears to be settled that the validity of the restraint must be decided as at the date of the agreement, it would seem to me that facts that have occurred since that date would not necessarily be irrelevant; such facts might throw light on the circumstances existing at the relevant date and might, for example, absolve the Court from the necessity of speculating as to the value of the consideration agreed to be furnished by the covenantee when, at the date of the litigation, it might be possible to quantify that consideration exactly. However, these matters, which might in other cases be of vital importance, are not crucial in the present case. (at p318)

13. There is no doubt that Amoco had commercial interests which it was reasonable to protect by making agreements with the owners of service stations under which those owners would agree, in exchange for certain benefits offered by Amoco, to take their supplies exclusively from Amoco. For Amoco to trade successfully it was necessary for it to obtain secure outlets for the sale of its petrol over a period of time. Agreements of the kind mentioned - solus agreements, as they are sometimes called - would serve Amoco's interests by enabling it to maintain or increase the volume of its sales and to effect the distribution of its products in an efficient and economical way. Indeed, the sale of petrol through one-brand service stations was the normal way in which most of the oil companies in Australia conducted their business and Amoco could not have entered the field of trade unless it had been able to ensure that a sufficient number of service stations would sell only its brand of products. It is not suggested by Rocca that agreements of this kind were in themselves unreasonable but rather that the restraints in the present case exceeded what was reasonably necessary for the protection of Amoco's admitted interests. (at p319)

14. Amoco had the further interest of ensuring that its investment of the moneys outlaid for the benefit of Rocca proved secure and profitable. The cost to Amoco of providing and installing equipment at the service station during 1964 was about $7,775. (For purposes of comparison it may be mentioned that the cost to Rocca of building the service station was about $24,000, but since members of the Rocca family did much of the work themselves the real cost was greater.) In 1968 Amoco, at Rocca's request and in return for an agreement to extend the lease and underlease for five years, spent substantial additional sums in improving the service station. What occurred at that time was not done in pursuance of any obligation imposed by the underlease and it would not seem possible to regard it as part of the consideration given in exchange for the restraints now sought to be enforced. However, if it were assumed in Amoco's favour that it is permissible to consider the whole of the financial outlay made by Amoco - which totalled $18.955 to the end of 1969 - the ultimate result would not in my opinion be altered. Further, in May 1964 Amoco agreed to include the service station at Para Hills in its "sales promotions and sales aid activities" and it did in fact provide Rocca with some assistance of this kind. However, there is no evidence which enables the value of these services to be expressed in terms of money. The remaining benefit of a financial kind which Rocca derived from the transaction was the rental which under the lease Amoco was obliged to pay for the demised premises. This rent was fixed at one pound per year, plus a sum equal to three pence (2.5 cents) per gallon on all petrol delivered by Amoco to the demised premises for sale. This sum, although described as rental, was intended to be a rebate on the wholesale price of the petrol and the parties so regarded it. In 1968, when the parties agreed to the extension of the lease and underlease, the rebate was increased to four cents per gallon. (at p320)

15. There are certain other circumstances that must be considered in deciding upon the reasonableness of the restraints. Amoco and Rocca negotiated on an equal footing - Rocca was not under pressure to agree to Amoco's suggestions. It was in Rocca's interests to enter into an agreement with some oil company ensuring supplies for the service station. An arrangement effected by means of a lease and an underlease is not an uncommon way for an oil company to obtain a tie over a service station and, generally speaking, the terms of the underlease were not unusual. Some difficulty may have been created in the selection of an appropriate term for the tie by the fact that the area in which the service station was established was not fully developed and the volume of business which the service station was likely to attract was to some extent in doubt. (at p320)

16. In deciding upon the reasonableness of the restraint it is not possible to regard the length of the tie apart from the provisions of the covenants - all must be considered together. Perhaps it should be said that some covenants found objectionable in other similar cases do not appear in the present case. For example, there is no covenant giving Amoco the right to fix the price at which Rocca might sell its products. Further, it is expressly provided (by cl. 4(a)) that Amoco will sell to Rocca at its usual list prices. It is true that Amoco if so minded might sell at a discount to a competing retailer and it is also true that cl. 4(b) gives Amoco power to suspend supply in certain circumstances, but I do not regard these provisions as of cardinal importance. The covenants which seem to me most to require further mention, apart from cl. 3 (h) which binds Rocca to buy exclusively from Amoco, are the following. The obligation cast on Rocca by cl. 3 (i) to purchase a specified minimum gallonage of petrol and motor oil would not have been unreasonable had it enured only for a short period, since the evidence shows that the gallonage fixed (at least that of petrol) was by no means excessive. However, if over a long term the business of the service station declined, the covenant could impose an unreasonable burden on Rocca. However, the most onerous of the covenants in the underlease is cl. 3 (g) which requires Rocca to carry on the business of a petrol service station for the whole period of fifteen years unless Amoco releases it from this obligation. Perhaps cl. 3 (e), which prevents Rocca from assigning, subletting or otherwise parting with possession of the demised premises, should be mentioned in this connexion. It may be assumed that Amoco's consent to an assignment or sublease could not be unreasonably withheld, but there might be practical difficulties in finding a person willing to take an assignment or sublease on terms which included cl. 3 (g), particularly if the business got into difficulties. It is true that provisions in the form of cl. 3 (g) are not uncommonly inserted in leases of various descriptions. However, as I have already indicated, the clause was not inserted in the present case by an owner of land to protect his interests when he leased it, but for the purpose of imposing a restriction on the owner itself. Moreover, the long period of the underlease renders the possible operation of the clause unduly harsh. During the period of fifteen years, trade at the service station could become quite unprofitable for a variety of reasons, including some of those mentioned by Diplock L.J. in Petrofina (Gt. Britain) Ltd. v. Martin (1966) Ch 146, at p 189 : "Better or cheaper products may be discovered. New or improved highways may divert the motor traffic from passing the filling station, other filling stations may be opened in the vicinity - even by the appellants themselves". However, Rocca is obliged to carry on the business even if it is trading at a loss. It was said that in practice Amoco would be likely to release Rocca from its obligation if in fact the business became unprofitable, but the interests of Amoco might well be served by maintaining the service station as an outlet for its products as long as it could, notwithstanding that Rocca was making an inadequate profit or even trading at a loss. (at p321)

17. After full consideration of all the circumstances, I have reached the conclusion that it has not been shown that a tie for fifteen years on the terms of the underlease was reasonably necessary to protect the interests of Amoco. On the one hand, the great changes that might occur in the space of fifteen years could render the covenants intolerably burdensome on Rocca and the effect of inflation during that period might well greatly reduce the value of the fixed rebate which formed an important part of the consideration receivable by Rocca. On the other hand, there is nothing whatever to show that a tie for fifteen years was necessary to ensure for Amoco the stable outlet and economical system of distribution at which it was entitled to aim. Further, it was not shown that Amoco's outlay - even taking it as $18,955 - could not be recouped with profit in a shorter period. (at p321)

18. Finally, it is necessary to make brief mention of the evidence relating to a document referred to as "Determination of Profitability Index" which was prepared for Amoco on 28th September 1964 and was in effect a feasibility study which purported to show that a tie for a period of fifteen years was necessary to render the venture sufficiently profitable for Amoco. In my opinion this document was no evidence that a tie for a period of fifteen years was reasonable. It is unnecessary to go into the details of the calculations set out in the Profitability Index. The final result depended on the adoption of a figure of 72,000 U.S. gallons (60,000 Australian gallons) as representing the gallonage that it was estimated would be sold at the service station in the fourth year of its operation. The evidence showed that in fact the officers of Amoco had in 1964 estimated that the gallonage sold in the fourth year would reach 96,000 Australian gallons but for some reason which was inadequately explained the figure was reduced for the purposes of the calculations. The estimate of 96,000 Australian gallons was proved in the event to have been conservative - in fact that figure was considerably exceeded in the second year of operations (1966) and in all years thereafter. It is clear that if, for the purposes of the calculations, a considerably larger figure than 72,000 U.S. gallons had been taken, the profitability index arrived at would have been greater, and the study would not have supported the conclusion that the venture would only be profitable if conducted over a period of fifteen years. No doubt Amoco, for its own purposes, was entitled to make a study of the profitability of its operations on whatever basis it chose. However, the circumstances mentioned indicate that the Profitability Index cannot be relied upon as any guide to the question how long it was necessary to bind Rocca to its covenants in order that the transaction should be profitable to Amoco. (at p322)

19. For the reasons I have given, I have reached the conclusion that the Full Court correctly answered the second question in the affirmative. It was not reasonably necessary for the protection of Amoco's interests to bind Rocca to the covenants of the underlease for a period of fifteen years. Since the restraints in the underlease were not reasonable in the interests of the parties it is unnecessary to consider the further question whether they were reasonable in the interests of the public. (at p322)

20. I would dismiss the appeal. (at p322)

STEPHEN J. In my view the doctrine of restraint of trade is not applicable to the facts of this case. I would allow this appeal and restore the judgment of Wells J. (at p322)

2. My reasons for this conclusion may be stated quite shortly but the considerations which I regard as supporting those reasons require some greater elaboration. (at p322)

3. I regard the doctrine of restraint of trade to be inapplicable because the respondent ("Rocca"), in its arrangements with the appellant ("Amoco"), and which were arrived at after hard bargaining between parties neither of whom was disproportionately lacking in bargaining power, did not subject itself to restraints upon any existing ability to trade as the proprietor of a service station business. On the contrary, by its arrangements with Amoco it acquired, for the first time, the ability to enter into its intended business as a service station proprietor. But for those arrangements, or others of a similar nature which it might have been made with another supplier but which it regarded as less favourable to its own interests, Rocca's entry into the trade and its use of its vacant land as the site for a service station would not have been possible. Those arrangements were not restrictive of its trade but, on the contrary, have been productive of that trade. (at p323)

4. The arrangements which were concluded certainly contained stipulations restricting Rocca's freedom of action once it began its trade and dictating the manner in which that trade might be conducted. The fact that such restrictions are imposed is not however, of itself, enough to require application of the doctrine; in Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 , their Lordships, while not all agreeing upon any one test to determine the precise width of application of the doctrine of restraint of trade, were in substantial agreement that there were extensive fields in which the doctrine did not apply despite the existence of restraints imposed upon liberty to trade as one wished. It is not, therefore, every restriction, viewed in isolation from context and circumstance, that attracts the doctrine. (at p323)

5. The doctrine of restraint of trade seeks to give effect to, and at the same time to reconcile, two important and apparently conflicting aspects of public policy; on the one hand, the preservation of the freedom of the individual to employ his talents and industry in any lawful activity and, on the other, the preservation both of his freedom to contract and of his ability to enforce by legal process those contracts into which he may enter. It is the function of the doctrine to maintain a balance between these two; with changes of emphasis in the community upon the relative importance of each, the point of balance has shifted over the years and will no doubt continue to do so. But any suggested application of the doctrine which gives effect to neither of these policies but is, on the contrary, destructive of the one without promoting the other seems to me to be a mistaken application. (at p323)

6. The judgment of Lord Macclesfield in Mitchel v. Reynolds (1711) 1 P Wms 181 (24 ER 347) has long been regarded as of the highest authority in this field; in Herbert Morris Ltd. v. Saxelby (1916) 1 AC 688, at p 717 Lord Shaw described it as, of all the decisions "the most outstanding and helpful authority". Lord Macclesfield's statement of the reasons lying behind past decisions on voluntarily accepted restraints of trade and his reconciliation of "the jarring opinions" (1711) 1 P Wms, at p 183 (24 ER, at p 348) of the past is illuminating since it provides a sound indication of the scope of the doctrine by reference to its purpose in promoting those public policies whose instrument it is. There were, he said (1711) 1 P Wms, at p 190 (24 ER, at p 350) , four reasons to be discerned from the cases for the application of the doctrine; the mischief to the covenantee involved in threatened loss of his livelihood, the mischief to the public by depriving it of a useful member, the tendency of such voluntary restraints to foster abuses either by tending towards a monopoly, thus reducing trade into as few hands as possible, or by injuring the interests of apprentices and, lastly, and especially in the case of general restraints, the infliction of hardship on the covenantor while not benefiting the covenantee, who required no such width of restraint for his adequate protection. (at p324)

7. If such were the reasons why the common law discouraged the acceptance of voluntary restraints on trade it can hardly be that the public policies which gave rise to the doctrine are properly effectuated by an application of the doctrine which, far from relieving against these evil consequences, has rather the opposite effect. Where no ends of public policy are attained by the application of the doctrine that is a sound reasons for not applying it; otherwise the result may be "to miss the substance of the rule in a blind adherence to its letter": per Lord Herschell L.C. in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. (1894) AC 535, at p 547 . (at p324)

8. In the present case a marked contrast exists, at each point, between those evil consequences at which Lord Macclesfield found the doctrine to be aimed and the consequences of the transaction here in question. By accepting the present contractual restraints Rocca was able to engage for the first time in a trade instead of being debarred from it, so that nothing equivalent to any loss of livelihood is present; as a result of its arrangement with Amoco Rocca's services were made available to the community rather than the public being deprived of a useful member; as a further consequence the total number of service stations serving the community has been increased rather than reduced; and from the arrangement Rocca has obtained considerable benefits while Amoco obtained protection useful to itself. (at p324)

9. My reasons for concluding that the doctrine of restraint of trade does not apply in the present case may, then, be summarized as follows: to apply it to the present facts seems to me to run counter to each of those reasons associated with the upholding of a public policy in favour of the individual's freedom to engage in trade, which is one component of the doctrine, while at the same time disregarding entirely that other component, freedom of contract. Moreover I know of no authority which compels me to a contrary view to that which I have formed, in light of the particular facts of this case. (at p325)

10. The courts have, of course, over the years provided a number of descriptions of the doctrine and on occasions definitions of what is a relevant restraint have been given; some of these are referred to by their Lordships in the Esso Case (1968) AC 269 , always accompanied by a warning against any too literal application of them (1968) AC, at pp 294-296, 307, 331 . As Lord Wilberforce says (1968) AC, at p 331 , the doctrine is one "to be applied to factual situations with a broad and flexible rule of reason" and in the Nordenfelt Case Lord Watson (1894) AC, at p 553 distinguished between the binding authority of decisions dealing with and formulating principles which are purely legal and those decisions, such as the precedent cases here in question, "based upon grounds of public policy". (at p325)

11. This is a case the relevant facts of which appear to me to distinguish it from the relatively few other decided cases where the doctrine has been applied outside its traditional spheres of master and servant, vendor and purchaser of goodwill and its less frequently applied, but nevertheless acknowledged, application in cases of combination to fix prices or restrict output. (at p325)

12. The general facts of the case appear adequately from the judgments of other members of this Court and it suffices, for my purpose, to confine myself to that area of fact which is concerned with Rocca's entry into the petrol retailing trade and which provides the important distinction between this case and precedent decisions. (at p325)

13. The evidence of the state of the trade in South Australia at the relevant time is all one way and is not in dispute, it discloses that virtually all reseller outlets were tied to one or other of the relatively few marketers of petroleum products, conveniently described as oil companies, and were required to enter into trade ties with them ensuring exclusive supply rights. Representatives of Amoco described it as a fact of life within the industry that any new service station would be one which was "tied" to a particular oil company, the method of petrol distribution through service stations contractually "tied" to a particular oil company being by then firmly established throughout South Australia. The members of the Rocca family were well aware of this situation. Mr. Vincenzo Rocca, who led the negotiations on behalf of the Rocca family and its company, knew that he would have to "do a deal" with an oil company if he were to open a service station on the proposed site, as did his son, Mr. G.G. Rocca, to whom it was obvious "that we needed an oil company" and that to come to terms with an oil company would involve an arrangement for exclusive dealing with it. His other son, Mr. P.A. Rocca, also knew that to build a service station it would be necessary to make an arrangement with an oil company and that all service stations were then operating as one-brand service stations. (at p326)

14. It was upon the footing of this evidence that Wells J. said in his judgment that the Roccas realized "that it was, to all intents and purposes, impossible to set up a service station unless they could interest one of the major oil companies in becoming their supplier" (1972) 7 SASR, at p 286 . His Honour thus concluded that "for the Roccas, the chance of establishing a service station business that was capable of surviving and developing in the current commercial situation was almost non-existent, unless they were prepared to submit to a substantial trade tie" (1972) 7 SASR, at p 314 . (at p326)

15. The doctrine of restraint of trade being designed to give effect to broad concepts of public policy it must be to the commercial realities of the situation that attention is to be directed. As Lord Reid said in the Esso Case (1968) AC, at p 298 :

"As the whole doctrine of restraint of trade is based on public policy its application ought to depend less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it is the policy of the law to protect."

and see Pharmaceutical Society of Great Britain v. Dickson, per Lord Wilberforce (1970) AC 403, at p 440 . (at p326)

16. It seems consistent with such an approach to the doctrine, based as it is upon public policy, to have regard to the practical choice which confronted Rocca, when it contemplated entry into the service station business. That choice consisted either of making an arrangement with an oil company, a term of which would be that it should be its exclusive supplier of petroleum products, or of refraining altogether from entry into the trade of service station proprietor. (at p326)

17. It follows that Rocca, in seeking to make its first entry into its chosen trade, was not accepting a restriction upon any pre-existing trade which it carried on or upon its ability to earn profits in that trade. It had at that time no such trade nor any such ability. (at p326)

18. Throughout the precedent cases concerned with voluntary contractual restraints of trade there is to be found the concept that it is the acceptance by a trader of a restraint upon the carrying on of "his" trade that is the evil to be guarded against. Lord Macnaghten, in his notable judgment in the Nordenfelt Case, begins his much cited statement of "the true view at the present time" by saying (1894) AC, at p 565 : "The public have an interest in every person's carrying on his trade freely: so has the individual." Later, his Lordship describes the leading principle laid down in Mitchel v. Reynolds (1711) 1 P Wms 181 (24 ER 347) as being "that the public have an interest in every person carrying on his trade freely" (1894) AC, at p 571 . In Attorney-General (Cth) v. Adelaide Steamship Co. Ltd. (1913) AC, 781, at p 793 , Lord Parker spoke of the doctrine as prohibiting interference with another's "free exercise of his trade or business", and from this Diplock L.J. took his definition of restraint of trade in Petrofina (Gt. Britain) Ltd. v. Martin (1966) 1 Ch 146, at p 180 when he said that it concerned a restriction upon an individual's liberty "in the future to carry on trade with other persons". In the Esso Case (1968) AC, at p 304 Lord Morris refers to the many centuries during which the law has set itself against restraint of trade and, after referring to monopolies, gives as a reason for its application to wider fields the fact that "restraints which would result in preventing a man from pursuing his trade and earning his living may be injurious to the man himself and ... detrimental to the public interest". Lord Hodson cites a number of passages from earlier cases where the prevention of the existing trade of the individual is emphasized (1968) AC, at p 318 . In the Pharmaceutical Society Case Lord Wilberforce describes the proposed new rule of the society there in question as being plainly in restraint of trade because aimed at the trading side of the profession of a pharmacist the restraint being "of a trade actually and legitimately carried on" (1970) AC, at p 440 . (at p327)

19. The use of the word "restraint" in the title of the doctrine, descriptive of an enforced deprivation or diminution of personal liberty or freedom of action, in itself illustrates how central to the doctrine is this concept of the acceptance of a diminution of an existing freedom to engage in trade. (at p327)

20. In the Esso Case (1968) AC 269 , as in the other petrol re-selling cases of the recent past, the defendant was already engaged in trade as a retailer of petrol, it had had an existing trade and had accepted a restraint upon that trade. There Lord Reid regarded the doctrine as based upon the giving up of an existing freedom, saying (1968) AC, at p 298 : "Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had." (at p327)

21. Lord Morris indicated the ambit of the doctrine when he said (1968) AC, at p 309 : "There is a clear difference between the case when someone fetters his future by parting with a freedom which he possesses and the case where someone seeks to claim a greater freedom than that which he possesses or has arranged to acquire." He thus distinguished between the taking of a lease subject to a restriction as to trading and the case before him in which "Harper's had their garages" and by the agreements "agreed for periods of years to limit and restrict their trading activity". Lord Hodson when dealing with the argument as to restraints imposed on the use of land, pointed out that all land dealings were not in the same category and said: "the purchaser of land who promises not to deal with the land he buys in a particular way is not derogating from any right he has, but is acquiring a new right by virtue of his purchase" (1968) AC, at p 316 and continued by saying if one subjected oneself to "... restrictions as to the use to be made of your own land so that you can no longer do what you were doing before, you are restraining trade..." (1968) AC, at p 317 . (at p328)

22. Lord Pearce drew a similar distinction (1968) AC, at p 325 . Both he and Lord Wilberforce refer to the concept of sterilization of a man's capacity for work; Lord Pearce contrasts it with the absorption of that capacity and says that it was its sterilization and not its absorption that underlay the objection of the common law to restraint of trade (1968) AC, at p 328 ; Lord Wilberforce says that in the case of contracts of employment it is the limitative or sterilization nature of a restriction that may make such a contract subject to the doctrine (1968) AC, at p 336 . (at p328)

23. Where, as here, there is neither sterilization of any pre-existing ability to trade nor any shackling of a pre-existing freedom to engage in trade there should, in my view, be no reluctance on the part of a Court to enforce contractual obligations solemnly entered into after free negotiation between parties at arms length, at least when the obligations which are in question are reasonably referable to the trade which is to be entered upon and are confined, as they are here, to the period of the contract. There is much authority for the view that a restriction imposed only during the period while contractual obligations remain to be performed on both sides may, in the context of the doctrine of restraint of trade, be viewed in a different light from a restriction which operates after the other party's obligations have come to an end: Pilkington v. Scott, per Rolfe B. (1846) 15 M &W 657, at p 661 (153 ER 1014, at pp 1015, 1016) ; Hartley v. Cummings, per Creswell J. (1847) 5 CB 247, at p 261 (136 ER 871, at p 877) ; William Robinson &Co. Ltd. v. Heuer (1898) 2 Ch 451, at p 458 ; Rely-a-Bell Burglar &Fire Alarm Ltd. v. Eisler (1926) Ch 609, at p 612 ; Warner Bros. Pictures Inc. v. Nelson (1937) 1 KB 209, at p 214 . In the Esso Case Lord Pearce referred to this aspect (1968) AC, at p 328 and Lord Reid (1968) AC, at p 294 and Lord Morris (1968) AC, at p 307 also mentioned it, as did Lord Wilberforce (1968) AC, at p 332 . (at p328)

24. It may be that there would be room for the doctrine to operate had the price of entry into the trade included, in this case, the acceptance of some restraint operating after the contractual obligations of Amoco to supply Rocca had come to an end or if some restraint were imposed which could not be seen as reasonably related to Rocca's trade as a retailer of Amoco's petroleum products. Any such restraint could perhaps be said to form no integral part of the commercial arrangement which, by providing Rocca with supplies of the products in which it was to trade and with associated facilities, made it possible for it to engage in its chosen trade. No such considerations arise in the present case. (at p329)

25. If a rationale for my view of the application of the doctrine is to be sought it may lie in this; where an existing freedom is surrendered the courts will examine the circumstances and will refuse to enforce that surrender if it be not reasonable; where, however, viewed as a practical question and apart from legal forms or theoretical possibilities, it appears that there has not been any surrender of a pre-existing right nor any acceptance of a restraint operating after the commercial relationship between the parties has ended or otherwise unconnected with that relationship, the doctrine of restraint of trade will have no application. (at p329)

26. There may perhaps be thought to be social or economic evils involved in a state of affairs which permits entry into a particular trade to be denied to those who will not conclude some exclusive supply agreement with a distributor. That is not, however, of itself any reason for the application of the doctrine of restraint of trade although some may view the situation as calling for legislative intervention or for the application to it of appropriate existing legislative measures. It cannot of course be assumed that the situation which prevailed in South Australia at the relevant time was one which relied for its existence upon trade ties which, if the doctrine were to be applied to them, would be unenforceable; from the evidence it appears that in many cases the distributors were themselves the owners of retail sites, as to the rest the trade ties involved might, for all the evidence discloses, in each case be upheld as reasonable if subjected to individual scrutiny. (at p329)

27. The learned trial judge, Wells J., after a minute examination of the evidence and an exhaustive analysis of the authorities, concluded that the argument of counsel for Amoco that the doctrine was inapplicable was both logical and attractive; he inclined, he said, to the view that it correctly represented the law and I respectfully agree with that conclusion. For reasons stated by his Honour he nevertheless went on to decide the case in favour of Amoco upon the footing that the doctrine did apply. (at p329)

28. I would allow this appeal for the reason that the doctrine of restraint of trade upon which Rocca relies is inapplicable. However if, contrary to my own view, the doctrine is properly applicable to the facts of this case I would agree with the reasons for judgment of Menzies J., which I have had the advantage of reading, and would then, for those reasons, allow this appeal. (at p330)

Orders

Appeal dismissed with costs.