Belflora Pty Ltd v Vinflora Pty Ltd

[2021] NSWCA 178

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Belflora Pty Ltd v Vinflora Pty Ltd [2021] NSWCA 178

Hearing dates:

2 June 2021

Decision date:

19 August 2021

Before:

Bathurst CJ at [1];
Brereton JA at [38];
Emmett AJA at [61]

Decision:

(1)   Appeal dismissed.

(2)   Direct the parties within seven days to make submissions as to the appropriate order of the costs of the appeal.

Catchwords:

COMMERCE – restraint of trade – validity and reasonableness – legitimate interests – where restraint imposed a blanket protection from importation of goods from a subcontinent – whether blanket protection directed to preserve or maintain a personal or corporate relationship with a supplier – where restraint did not relate to any particular supplier – Restraints of Trade Act 1976 (NSW), s 4

COMMERCE – restraint of trade – validity and reasonableness – public policy – where restraint imposed a blanket protection from importation of goods from a subcontinent – whether restraint was against the public interest – where restraint prohibited respondents from competing in the market for the supply and sale of goods from a subcontinent – Restraints of Trade Act 1976 (NSW), s 4

Legislation Cited:

Competition and Consumer Act 2010 (Cth)

Restraints of Trade Act 1976 (NSW)

Trade Practices Act 1974 (Cth)

Cases Cited:

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40

Attwood v Lamont [1920] 3 KB 571

Belflora Pty Ltd v Vinflora Pty Ltd [2020] NSWSC 1229

Birtley and District Co-op Society Ltd v Windy Nook and District Co-op Society Ltd (No 2) [1960] 2 QB 1; [1959] 1 All ER 623

Box v The Commissioner of Taxation (1952) 86 CLR 387; [1952] HCA 61

Butt v Long (1953) 88 CLR 476; [1953] HCA 76

Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717

Creamoata Ltd v Rice Equalization Association Ltd (1953) 89 CLR 286; [1953] HCA 40

English Hop Growers Ltd v Dering [1928] 2 KB 174; All ER Rep 396

Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269

Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; [1998] HCA 42

Geraghty v Minter (1979) 142 CLR 177; [1979] HCA 42

Herbert Morris Ltd v Saxelby [1915] 2 Ch 57

Herbert Morris Ltd v Saxelby [1916] 1 AC 688

Heron v Port Huon Fruitgrowers’ Co-op Association Ltd (1922) 30 CLR 315; [1922] HCA 20

Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163

Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449

Lindner v Murdock’s Garage (1950) 83 CLR 628; [1950] HCA 48

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181; [2001] HCA 70

Mason v Provident Clothing & Supply Co Ltd [1913] AC 724

McEllistrim v Ballymacelligott Co-op Agricultural and Dairy Society Ltd [1919] AC 548

Muller & Co’s Margarine Ltd v Inland Revenue Commissioners (1901) AC 217

Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535

North Western Salt Co Ltd v Electrolytic Alkali Co [1914] AC 461

Orton v Melman [1981] 1 NSWLR 583

Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45

Tank Lining Corporation v Dunlop Industrial Ltd (1982) 140 DLR (3d) 659

Trego v Hunt [1896] AC 7

Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852

Vandervell Products Ltd v McLeod [1957] RPC 185

Victorian Onion and Potato Growers’ Association Ltd v Finnigan [1922] VLR 384

Woolworths Ltd v Olson [2004] NSWCA 372

Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317

Texts Cited:

JD Heydon, The Restraint of Trade Doctrine (2nd ed, 1998, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

Belflora Pty Ltd (Appellant)
Vinflora Pty Ltd (First Respondent)
Vamsi Nagendra Babu Uppalapti (Second Respondent)

Representation:

Counsel:
B Coles QC with D Allen (Appellant)
A Moses QC with J Simpkins (Respondents)

Solicitors:
Russo & Partners Pty Ltd (Appellant)
Frank Law (Respondents)

File Number(s):

2020/306310

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity

Citation:

[2020] NSWSC 1229

Date of Decision:

10 September 2020

Before:

Sackar J

File Number(s):

2019/383473

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Belflora Pty Ltd (Belflora), commenced proceedings the subject of this appeal from a decision of a judge of the Equity Division of the Court in which his Honour concluded that a restraint provision in an agreement between Belflora and the first respondent, Vinflora Pty Ltd (Vinflora), (the Agreement) was void as an unreasonable restraint of trade. As a consequence, the primary judge dismissed Belflora’s claim for injunctive relief, seeking to restrain Vinflora and the second respondent, Mr Vamsi Nagendra Babu Uppalapti (Mr Uppalapti), from displaying and selling South American flowers in contravention of the restraint clause.

Up to 2002, Mr John Belcastro (Mr Belcastro) traded as a flower wholesaler at the Sydney Flower Market. In January 2003, Mr Uppalapti acquired a 50 per cent interest in the business carried on by Mr Belcastro, Belflora Australia Pty Ltd (Belflora Australia).

In July 2013, Belflora International Pty Ltd (Belflora International) commenced business, apparently taking over the stalls at Flemington markets previously operated by Belflora Australia. The companies associated with Mr Belcastro and Mr Uppalapti each held an equal number of shares in Belflora International. By 2018, Belflora International was entitled to the use of ten stalls at the market.

In 2017 and 2018, disputes emerged between Mr Belcastro and Mr Uppalapti and they ultimately agreed to divide the Belflora International business between them. Through a newly incorporated company, Belflora, Mr Belcastro became entitled to the stands Nos. 65, 81, 82, 82A, 83 and 84, whilst Vinflora, a company controlled by Mr Uppalapti, became entitled to four stands, Nos. 49, 50, 51 and 52.

That part of the Agreement found by the primary judge to constitute the restraint provision was in writing. The restraint provision prohibited Vinflora from importing flowers from South America and displaying such flowers on its stands. It also provided that Vinflora could only purchase South American flowers from Belflora, and only to fulfil orders, with the profit to be shared. Belflora was subject to the same restraints in relation to Kenyan flowers.

It was admitted in the proceedings that in July 2019, Vinflora commenced displaying South American flowers on its stands which had not been supplied by Belflora.

The main issue on appeal was whether the restraint provision in the Agreement was void as an unreasonable restraint of trade. Belflora argued that the primary judge erred in failing to apply s 4(1) of the Restraints of Trade Act 1976 (NSW) in determining whether the restraint was enforceable by Belflora. Belflora argued that had the primary judge applied that section, his Honour would have upheld the restraint as being a valid restraint of trade as it was not against public policy.

Was the restraint provision in the Agreement void as an unreasonable restraint of trade?

1. The restraint provision was contrary to public policy and void as an unreasonable restraint of trade: [30]-[33] (Bathurst CJ); [60] (Brereton JA); [62] (Emmett AJA).

2. The question of whether there is a “restraint” is to be answered having regard to the practical working of the alleged restraint: [20] (Bathurst CJ).

Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181; [2001] HCA 70, referred to.

1. The restraint plainly operates as a vertical and a horizontal restraint of trade: [22] (Bathurst CJ); [43] (Brereton JA).

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181, referred to.

1. At common law, a restraint of trade is contrary to public policy and void unless it is reasonably necessary to protect the interests of the parties and is reasonable in the interests of the public: [26] (Bathurst CJ); [44] (Brereton JA).

Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 164, referred to.

1. Pursuant to s 4(1) of the Restraints of Trade Act, a restraint is valid to the extent to which it is not against public policy, even if not in severable terms: [23] (Bathurst CJ); [44] (Brereton JA).

Orton v Melman [1981] 1 NSWLR 583; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 164; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449, referred to.

1. A mere restraint against competition per se is unenforceable: [26] (Bathurst CJ); [49] (Brereton JA).

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40; Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449, referred to.

1. A restraint directed to preserving or maintaining a personal or corporate relationship with a supplier may be reasonable in the interests of the parties, such as where the beneficiary of the restraint has a legitimate interest to protect, analogous to goodwill, as something which adds value to the business: [29] (Bathurst CJ); [46] (Brereton JA).

Trego v Hunt [1896] AC 7; Muller & Co’s Margarine Ltd v Inland Revenue Commissioners (1901) AC 217; Box v The Commissioner of Taxation (1952) 86 CLR 387; [1952] HCA 61; Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; [1998] HCA 42; Tank Lining Corporation v Dunlop Industrial Ltd (1982) 140 DLR (3d) 659; Vandervell Products Ltd v McLeod [1957] RPC 185; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, referred to.

1. The restraint did not protect a legitimate interest and was therefore unreasonable as between the parties: [30] (Bathurst CJ); [58] (Brereton JA).

2. In dealing with public policy considerations, it may be appropriate to have regard to the provisions of the Competition and Consumer Act 2010 (Cth): [32] (Bathurst CJ); [59] (Brereton JA).

Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45, referred to.

1. Irrespective of whether the Agreement was unreasonable as between the parties, it was unreasonable in the public interest and also void for that reason: [33] (Bathurst CJ); [59] (Brereton JA); [62] (Emmett AJA).

2. Additional observations with respect to principles pertaining to the restraint of trade doctrine: [45]-[59] (Brereton JA).

Judgment

1. BATHURST CJ: This is an appeal from a decision of a judge of the Equity Division of the Court in which his Honour concluded that a restraint provision in an agreement between the appellant, Belflora Pty Ltd (Belflora), and the first respondent, Vinflora Pty Ltd (Vinflora), (the Agreement) was void as an unreasonable restraint of trade and as a consequence, dismissed Belflora’s claim for injunctive relief seeking to restrain Vinflora and the second respondent, Vamsi Nagendra Babu Uppalapti (Mr Uppalapti), from displaying and selling South American flowers in contravention of the restraint clause (Belflora Pty Ltd v Vinflora Pty Ltd [2020] NSWSC 1229 (the primary judgment)).

Factual background

2. The factual background was not in dispute and may be summarised as follows.

3. Up to 2002, Mr John Belcastro (Mr Belcastro) traded as a flower wholesaler at the Sydney Flower Market. In January 2003, Mr Uppalapti acquired a 50 per cent interest in the business carried on by Mr Belcastro. The primary judge found that that occurred by virtue of Mr Belcastro transferring 50 per cent of the shares in Belflora Australia Pty Ltd (Belflora Australia) to Mr Uppalapti. Rather, it seems that Belflora Australia was incorporated on 17 January 2003 and each of Mr Belcastro and Mr Uppalapti acquired a 50 per cent shareholding. Nothing turns on this distinction.

4. In 2004, Mr Uppalapti identified an opportunity to expand into the Kenyan roses market through a contact, Mr Mohamed Ehiya Mohamed Gani (Mr Ehiya). It appears that in 2011, Belflora Australia invested €200,000 into a start-up Kenyan flower grower associated with Mr Ehiya.

5. In July 2013, Belflora International Pty Ltd (Belflora International) commenced business, apparently taking over the stalls at Flemington markets previously operated by Belflora Australia. The companies associated with Mr Belcastro and Mr Uppalapti each held 33 shares in Belflora International, while Mr Ehiya personally held 30 shares.

6. Although there was some dispute at the hearing before the primary judge as to their manner of acquisition, it appears that by 2018 Belflora International was entitled to the use of ten stalls at the market.

7. In 2017 and 2018, disputes emerged between Mr Belcastro and Mr Uppalapti and they ultimately agreed to divide the Belflora International business between them. Through a newly incorporated company, Belflora, Mr Belcastro became entitled to the stands nos. 65, 81, 82, 82A, 83 and 84, whilst Vinflora, a company controlled by Mr Uppalapti, became entitled to four stalls, nos. 49, 50, 51 and 52. The evidence does not disclose how the interest of Mr Ehiya in Belflora International was dealt with, but it was not in issue in the proceedings.

8. That part of the Agreement found by the primary judge to constitute the restraint clause was in writing. It consisted of the following provisions:

“VAMSI WHOLESALE        JOHN WHOLESALE

Kenyan flowers to be exclusive      South American flowers to be

to Vinflora. Only Vamsi to speak      exclusive to Belflora. Only John

to them.               to speak to them.

The flowers above can be purchased from each other for orders only. They cannot be put on the floor for sale. The profit is to be shared.

VINFLORA             BELFLORA

Lee Flower Farm            Orchid Alliance

Suvarna               L&A Nurseries

The farms listed above are to be shared. They are to be sold at the same price on both stands. Vamsi can wholesale what Vinflora imports and John can wholesale what Belflora imports.

Vamsi pays for shipment clearance of flowers from Vinflora growers. John pays for shipment clearance of flowers from Belflora growers.

Other things to share:

Truck

Warehouse

Anil

Belflora Natives

The reason for these agreements is so that we do not have two identical stands.”

9. The restraint thus prohibited Vinflora from importing flowers from South America and displaying such flowers on its stands. Belflora was subject to the same restraints in relation to Kenyan flowers.

10. It was admitted in the proceedings that in July 2019, Vinflora commenced displaying South American flowers on its stands which had not been supplied by Belflora.

11. There are a number of other factual matters of some relevance which do not appear to be in contention:

1. The Sydney Flower Market is Australia’s largest flower market for fresh cut flowers. The growers and wholesalers at the Sydney Flower Market primarily supply florists in the Sydney area, regional New South Wales and the Australian Capital Territory, but the market is also open to the general public.

2. The Sydney Flower Market accounts for approximately 75 per cent of the wholesale cut flower trade in New South Wales.

3. There are about 100 or more growers and wholesalers operating at the Sydney Flower Market. Of these, approximately 35 are wholesalers and the remainder are growers, who sell their flowers at the market.

4. Generally, a wholesaler buys flowers directly from the importer and sells them at the Sydney Flower Market. An importer buys flowers from the grower directly and sells them to the wholesalers. Importers do not operate stands inside the Sydney Flower Market.

5. Almost all wholesale operators sell roses imported from South America (predominately, Columbia and Ecuador) and Kenya.

6. There are about two or three operators who import directly from growers in Kenya and South America (Columbia and Ecuador) and wholesale at the Sydney markets, in addition to Belflora and Vinflora.

7. Imported roses are usually sourced from Africa, with the majority from Kenya, and South America, with the majority from Columbia and Ecuador.

8. South American roses are usually “premium” grade, packed in stems of 25, and are 25 per cent more expensive than African roses.

9. Usually, in any one shipment from Africa or South America, the imported flowers are sourced from five or six different farms.

The primary judgment

12. The primary judge extensively reviewed the principles surrounding the doctrine of restraint of trade, referring in particular to the judgment of Gleeson JA in Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 at [59]-[72]. Both parties to the appeal accepted that that contained a correct summary of the principles. The primary judge stated at [59], [60] that indefinite restraints had been held to be valid, but the question is one of reasonableness.

13. The primary judge stated at [63] that the question of reasonableness is to be considered at the date of the contract, although under s 4(1) of the Restraints of Trade Act 1976 (NSW), restraints that are not wholly unreasonable are to be considered valid to the extent they are not contrary to public policy.

14. The primary judge pointed out that there was no doubt the restraint was intended to create, aspirationally, a basis for both former principals to launch each of their new businesses. However, his Honour said (at [157]) that in a market where there were numerous vendors, the main effect of the clause, having regard to its duration, would be to place both contracting parties indefinitely at a competitive disadvantage not only against each other, but also against other participants in the market. His Honour considered the most serious impact would be placed on Vinflora because of its need to rebrand. His Honour noted that there was no obligation on Belflora to keep Vinflora fully supplied with South American flowers.

15. The primary judge (at [158]) described the prohibition as one to endure indefinitely and, by reason of its entirely unlimited operation in the circumstances of the flower market, anti-competitive and against the interests of the parties, especially Vinflora. His Honour pointed to the fact that Mr Belcastro already had a significant commercial advantage by retaining the name and reputation of his brand. His Honour also pointed out that no South American growers were named in any schedule of the Agreement, and that there was no way of knowing who Mr Belcastro may have dealt with.

16. The primary judge stated (at [159]) that in those circumstances, the restraint was wholly unreasonable to protect whatever goodwill Mr Belcastro had. His Honour stated that the real, as well as the apparent effect of the Agreement was to stifle competition. The primary judge also stated (at [160]) that even if he was wrong about the validity of the restraint, he would have had difficulty in granting an injunction. His Honour noted that he was not asked to grant an injunction for a period shorter than the period of the restraint.

17. In those circumstances, the primary judge dismissed Belflora’s claim.

The grounds of appeal

18. Belflora relied on the following grounds of appeal:

“1 His Honour, having found that the parties entered into a covenant for mutual restraints of trade, failed to apply section 4(1) of the Restraints of Trade Act 1976 (NSW) in determining whether the covenant was enforceable by the appellant (‘Belflora’) as covenantee.

2 Had his Honour applied section 4(1) of the Restraints of Trade Act 1976 (NSW), his Honour would have upheld the covenant as being a valid restraint of trade as it was not against public policy because the covenant was reasonable as between the parties, there was no, or insufficient, evidence that the covenant was against the public interest and public policy militated that the respondents be held to the bargain by which they obtained valuable commercial benefits.

3   In finding that the covenant was against public policy, his Honour:

a.   erred in failing to find that the covenant was reasonable as between the parties;

b.   made findings at [158] of the reasons for judgment that were not supported by the evidence, namely:

1   whilst Belflora had a legitimate interest in protecting its international goodwill, it did not pay any additional consideration for that protection. His Honour ought to have found that Belflora gave valuable consideration for the covenant which included the agreement that Belflora would not import Kenyan Flowers;

2   the covenant was anticompetitive. There was no evidence that the covenant curtailed the market for South American and Kenyan flowers and the parties agreed to the covenant as they perceived it to be to their mutual benefit.

3   the covenant was against the interest of the parties. There was no, or insufficient evidence, to support this finding;

4   the covenant was against the public interest. There was no, or insufficient evidence, to support this conclusion;

5   the covenant unreasonably restricted competition between the parties and other vendors. There was no, or insufficient evidence, to support this conclusion;

6   Belflora received a significant commercial advantage by maintaining the name and reputation of his brand (see also [144] of the reasons for judgment). There was no, or insufficient evidence, to support this conclusion and Belflora kept the name as part of the bargain struck by equals because the name had a long association with the principal of Belflora, Mr Belcastro and its use by the respondents would have been antithetical to the division of the business known as Belflora because it would raise doubt whether the business had in fact been dissolved.

4   Though not the basis for dismissing Belflora’s claim, his Honour erred at [160] of the reasons for judgment in making the obiter observation, on an argument not made by the respondents (see [5] of the respondents’ closing submissions) and not met by Belflora, that he would have not have granted an injunction when that issue was not raised by the respondents and any injunction granted would not have required the continued supervision of the Court.”

The relevant legislation

19. Because some reliance was placed on it by the appellant, it is convenient to set out the provisions of s 4 of the Restraints of Trade Act:

“4   Extent to which restraint of trade valid

(1)   A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.

(2)   Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy.

(3)   Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order.

(4)   Where, under the rules of an association, a person who is a member of the association is subject to a restraint of trade, the association shall, for the purposes of subsection (3), be deemed to have created or joined in creating the restraint.

(5)   An order under subsection (3) does not affect any right (including any right to damages) accrued before the date the order takes effect.”

Consideration

20. It was not contended by the appellant that the clause in question was not a covenant in restraint of trade. The appellant was correct in not doing so. In Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45 (“Peters”) at [14], the plurality stated that the question of whether there is a “restraint” is to be answered having regard to the practical working of the alleged restraint. In Maggbury Pty Ltd v Hafele Australia Pty Ltd (2002) 210 CLR 181; [2001] HCA 70 (“Maggbury”) at [55], the majority noted without criticism that the plurality in Peters rejected the criterion of “fettering existing freedom” associated with the speeches of Lord Reid, Lord Morris and Lord Hodson in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269, and rejected the principle of exclusion by reference to “sterilisation” associated with the speech of Lord Pearce in that case.

21. In the present case, so far as Vinflora was concerned, the effect of the Agreement was to prevent Vinflora from importing South American flowers and purchasing them only from Belflora, with the profit to be shared. There is a further limitation that the flowers so purchased could not be displayed and could only be used in the fulfilment of orders.

22. The provision plainly operates as a restraint of trade. It operates effectively as a vertical restraint, limiting the exporters and wholesalers from whom Vinflora can acquire flowers. It also operates as a horizontal restraint, restraining the trading activities of two corporations which would otherwise be competing with each other. As it was said in Maggbury at [54], the provisions restrict the liberty of the parties to conduct their dealings with third parties in such manner as they think fit.

23. With this background it is convenient to turn to the grounds of appeal. It seems that the complaint in ground 1 was that the primary judge failed to apply the approach to s 4(1) of the Restraints of Trade Act suggested as appropriate by McLelland J in Orton v Melman [1981] 1 NSWLR 583 at 587: namely, to first determine whether the breach infringes the term of the restraint properly construed, and if so, then to determine whether the restraint as it applies to the breach infringes public policy. If the restraint as it applies to the breach is not against public policy, then by virtue of s 4(1) the restraint is to that extent valid, subject to any order which may be made under s 4(3). This approach has been accepted as correct in a considerable number of cases, including the decision of this Court in Isaac v Dargan Financial Pty Ltd at [61].

24. It seems to be submitted by the appellant in its written submissions that had the primary judge properly applied those principles, his Honour would have first determined that the breach was that, from June 2019 to the date of the hearing, Vinflora imported and displayed South American flowers. It was contended that the primary judge erred in failing to consider whether the restraint was valid so far as it applied to that breach.

25. I do not think the primary judge erred in the manner suggested. Having regard to the admission in the respondent’s pleading that that breach occurred, there was no reason for his Honour to make any specific finding in that regard. His Honour concluded that the restraint was wholly unreasonable, both as to duration (at [157]) and extent (at [158]). It follows that irrespective of the date of the breach or its nature, the primary judge concluded that the restraint in the manner of its operation was void as contrary to public policy. The real question was whether his Honour was correct in so concluding.

26. At common law, a restraint of trade is contrary to public policy and void unless it is reasonably necessary to protect the interests of the parties and is reasonable in the interests of the public: Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; [1973] HCA 40 at 307; Peters at [27]; Isaac v Dargan Financial Pty Ltd at [59]. It has been emphasised on a number of occasions that a mere restraint against competition per se is unenforceable: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd at 295; Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 414; [2008] NSWSC 852 at [47]; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [30].

27. In the present case, senior counsel for the appellant submitted that the restraint created a distinction between the business of Belflora and that of Vinflora which could only be to the advantage of each of them. He accepted and indeed embraced the proposition that the mutual benefit for each party was the absence of competition from each other. He submitted that when parties who have been in business together decide that one will operate exclusively in one market and the other in another market, free from competition from each other, they enter into what he described as a “mutual and cross-beneficial commercial arrangement”. He stated that that was a legitimate commercial purpose which was not manifestly unjust to one or the other. He submitted that the parties had a legitimate interest in protecting each other from competition against the other.

28. Senior counsel for the appellant submitted that a legitimate purpose of the Agreement must “be seen in people who knew their business wanting to promote separate and individually recognisably distinctive businesses, … underpinned by the supporting mutual restraints”. He asked rhetorically, why is such an agreement contrary to public policy.

29. I am prepared to accept that there may be circumstances where a restraint directed to preserving or maintaining a personal or corporate relationship with a supplier may be reasonable in the interests of the parties. In such a case, the beneficiary of the restraint may have a legitimate interest to protect, analogous to goodwill, as something which adds value to the business: Trego v Hunt [1896] AC 7 at 17, 24; Muller & Co’s Margarine Ltd v Inland Revenue Commissioners (1901) AC 217 at 235; Box v The Commissioner of Taxation (1952) 86 CLR 387; [1952] HCA 61 at 396-397; Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; [1998] HCA 42 at [16], [24]. The circumstances in which such a restraint may be legitimate, and its interaction with the cartel provisions in s 45AD(3)(a)(iv) of the Competition and Consumer Act 2010 (Cth), need not be explored in the present case because on any view, the restraint falls outside the boundaries of the protection of any legitimate interest.

30. In the present case, the restraint did not relate to any particular supplier, and no evidence was led by Belflora as to any particular relationship it had with a supplier which may entitle it to protection. No justification for a blanket protection from importation from a subcontinent was offered, except that it would protect Belflora from competition. The position is exacerbated by the fact that Vinflora was not only prohibited from importing flowers from South America but was prohibited from purchasing South American flowers from anyone other than Belflora and then selling them only on a profit share basis. This goes well beyond any legitimate interest Belflora would be entitled to protect.

31. Three things should be added. First, the fact that there were mutual restraints does not affect the position. Whilst it may have been seen by the parties as beneficial to have mutual restraints against competition, that does not mean the restraints were valid. Second, the fact that the mutual restraints were freely bargained for provides no sufficient reason for concluding that the doctrine should not apply. As was pointed out by the majority in Maggbury at [56], all contractual restraints can be said to be of that character. Third, there was some debate in the Court below as to whether Vinflora benefited from the restraint to a greater degree than Belflora. That, in my opinion, is immaterial to the resolution of the question.

32. In these circumstances, it is strictly unnecessary to draw any conclusion as to whether the restraint was void as against the public interest. However, an agreement which not only had the effect of prohibiting Vinflora from competing against Belflora but competing in the market for the supply and sale of South American flowers generally, could not be said to be in the public interest. In Peters, it was suggested at [28] that in dealing with public policy considerations, it may be appropriate to have regard to the provisions of the Trade Practices Act 1974 (Cth). Whilst it is unnecessary to decide whether the Agreement involved the contravention of s 45AD or s 45AJ of the successor statute, the Competition and Consumer Act, it is clearly an Agreement of the nature of which those provisions were directed.

33. In these circumstances, irrespective of whether the Agreement was unreasonable as between the parties, it was unreasonable in the public interest and also void for that reason.

34. It is unnecessary to deal with the hypothetical question of whether an injunction would be granted to restrain some breach in respect of which the restraint could validly operate by virtue of the provisions of s 4(1) of the Restraints of Trade Act.

Conclusion

35. In the result, the appeal should be dismissed.

36. The appellant should pay the respondent’s costs of the appeal. At the conclusion of the hearing, senior counsel for the respondent indicated that if the appeal was dismissed, his client would seek a special costs order. I would give it the opportunity to seek such an order but should indicate that I am of the preliminary view that the lack of merit of the appeal does not of itself warrant that such an order should be made.

37. I would make the following orders:

1. Appeal dismissed.

2. Direct the parties within seven days to make submissions as to the appropriate order of the costs of the appeal.

38. BRERETON JA: Until 1 July 2018, Belflora International Pty Ltd (“Belflora International”) operated ten stalls at the Sydney Flower Markets at Flemington, as a wholesaler of flowers, including roses imported from South America and Kenya. Its shareholders were Belcastro Holdings Pty Ltd (owned by Mr John Belcastro) as to 33, Uppalapti Holdings Pty Ltd (owned by Mr Vamsi Uppalapti) as to 33, and Mr Mohamed Ehiya Mohamed Gani (Mr Ehiya) as to 30. These arrangements had their origin in about 2002, when Mr Uppalapti began to supply Mr Belcastro, who was trading as a wholesaler at the Sydney Flower Markets, with roses sourced from India, and commenced working for him. From about 17 January 2003, the business which had been operated by Mr Belcastro was operated by Belflora Australia Pty Ltd (“Belflora Australia”), in which each of Mr Belcastro and Mr Uppalapti held 50% of the shares. In 2004, Mr Uppalapti introduced an opportunity to import and market roses from Kenya, through his contact Mr Ehiya. It appears that Belflora International was incorporated in mid-2013 and took over the business of Belflora Australia.

39. Differences developed between Mr Belcastro and Mr Uppalapti, and from late 2017 they discussed splitting the business between them. Although at first instance there was an issue as to whether any agreement was ever concluded, it is no longer in dispute that, by June 2018, Mr Belcastro and Mr Uppalapti had entered into a binding agreement, providing for the division of the business between Mr Belcastro (who would operate through a new company, the appellant Belflora Pty Ltd (“Belflora”)) and Mr Uppalapti (who would also operate through a new company, the first respondent Vinflora Pty Ltd (“Vinflora”)), the relevant part of which is in writing, as follows:

“VAMSI WHOLESALE        JOHN WHOLESALE

Kenyan flowers to be exclusive      South American flowers to be

to Vinflora. Only Vamsi to speak      exclusive to Belflora. Only John

to them.               to speak to them.

The flowers above can be purchased from each other for orders only.

They cannot be put on the floor for sale. The profit is to be shared.

VINFLORA             BELFLORA

Lee Flower Farm            Orchard Alliance

Suvarna               L&A Nurseries

The farms listed above are to be shared. They are to be sold at the same price on both stands. Vamsi can wholesale what Vinflora imports and John can wholesale what Belflora imports.

Other things to share

Truck

Warehouse

Anil

Belflora Natives

The reasons for these agreements is so that we do not have two identical stands”

40. Thus:

1. only Vinflora, via Mr Uppalapti, could source flowers from Kenyan suppliers and import and market them for sale;

2. only Belflora, via Mr Belcastro, could source flowers from South American suppliers and import and market them for sale;

3. however, each party could purchase from the other Kenyan and South American flowers sourced and imported by the other, “for orders only. They cannot be put on the floor for sale” and “profit is to be shared”; 

4. the parties would continue to share a truck, warehouse, an employee (Anil), and “Belflora Natives” (presumably a supplier); and

5. the rationale for the agreement was expressed to be “so that we do not have two identical stands”.

41. Belflora and Vinflora commenced their respective separate operations on 1 July 2018. Although not provided for in the written agreement, Belflora operated five of the stalls (Nos 65, 81, 82, 82A, 83, and 84), while Vinflora operated four (Nos 49, 50, 51, and 52). How Mr Ehiya’s interest was accommodated is not apparent, but was not in issue, and can be put to one side.

42. It is not in dispute that, in July 2019, Vinflora commenced to import and market flowers from South America. Belflora sought an injunction permanently restraining Vinflora and Mr Uppalapti from displaying flowers imported from South America at stands 49, 50, 51, and 52, and from selling flowers imported from South America at those stands, other than flowers supplied by Belflora.  Sackar J rejected defences advanced by Vinflora that no binding agreement was concluded, and that any such agreement had been terminated by repudiation or abandonment. However, his Honour held that the relevant terms of the agreement were invalid as an unreasonable restraint of trade contrary to public policy, and accordingly dismissed Belflora’s suit. [1] From that judgment, Belflora appeals to this Court.

    1. Belflora Pty Ltd v Vinflora Pty Ltd [2020] NSWSC 1229.

43. The effect of the agreement was to prohibit Vinflora from importing South American flowers and displaying them for sale, and to require it to purchase such flowers only from Belflora and only to fill orders, and then to share the profits on such sales with Belflora; similarly, it prohibited Belflora from importing Kenyan flowers and displaying them for sale, and required it to purchase them only from Vinflora and only to fill orders, and then to share the profits on such sales with Vinflora. In those respects, the agreement restricts the liberty of each of Vinflora and Belflora to source flowers from suppliers for wholesale in the case of Vinflora, and also constrains each of them as to the product they can market for sale. In the case of Vinflora, the restriction prohibits it from sourcing and marketing flowers from the whole of South America, regardless of any existing connection with any supplier. In those ways, the agreement restricts the liberty of the parties to conduct their commercial dealings with third parties in such manner as they think fit. [2] Plainly – and so much was not disputed – in those respects the agreement operated in restraint of trade.

    2. Cf Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 202-203 [54] (Gleeson CJ, Gummow and Hayne JJ); [2001] HCA 70.

44. Although at common law a restraint of trade is contrary to public policy and void unless it is justified by the special circumstances of the particular case, [3] in New South Wales a restraint is valid to the extent to which it is not against public policy, even if not in severable terms. [4] The effect of the Restraints of Trade Act1976 (NSW) (“Restraints of Trade Act”) is that, in New South Wales, one approaches this type of case by determining, first, whether the alleged or apprehended breach does or will infringe the terms of the restraint properly construed (independently of public policy considerations); secondly, whether the restraint in its application to that breach is against public policy; and thirdly, if it is not, then in its application to the alleged infringing conduct, the restraint is valid unless the court makes an order under Restraints of Trade Act, s 4(3). [5] That is because the effect of the Restraints of Trade Act, s 4(1), is to require that, for the purpose of determining the validity of a restraint, attention be focussed on the actual or apprehended breach, rather than on imaginary or potential breaches. [6] Thus the essential question is whether the agreement, insofar as it purports to preclude Vinflora and Mr Uppalapti from displaying flowers imported from South America at stands 49, 50, 51, and 52, and from selling flowers imported from South America at those stands, other than flowers supplied by Belflora (being the actual or apprehended breach of which Belflora complains) is void as an unreasonable restraint of trade.

    3. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653 (Kitto J) (“Lindner”); [1950] HCA 48; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 706-707 (Lord Atkinson) (“Herbert Morris [1916]”); Nordenfelt v Maxim Nordenfelt Guns & Ammunition [1894] AC 535 at 565 (Lord Macnaghten) (“Nordenfelt”).

    4. Restraints of Trade Act, s 4(1); Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [26]-[27] (Brereton J) (“Koops Martin”).

    5. Woolworths Ltd v Olson [2004] NSWCA 372 at [42] (Mason P; McColl JA and Bryson JA agreeing) (“Olson”); Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 337-338 (Kirby P) (“Gasweld”); Orton v Melman [1981] 1 NSWLR 583 at 587-589 (McLelland J).

    6. Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at 13-14 [10] (Brereton J); [2006] NSWSC 717 (“Cactus Imaging”).

41. The restraint of trade doctrine reconciles two conflicting policies, the first being “that a man should be free to use his skill and experience to the best advantage and should not be put in the position of a slave”, and the second that covenants should be observed and enforced. [7] The fundamental principle is that a restraint of trade is not contrary to public policy if it is reasonable as between the parties, and not unreasonable in the public interest, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public. [8]

    7. Koops Martin at [26] (Brereton J); Attwood v Lamont [1920] 3 KB 571 at 577 (Lord Sterndale MR) (“Attwood”); Herbert Morris Ltd v Saxelby [1915] 2 Ch 57 at 76 (Lord Cozens-Hardy MR) (“Herbert Morris [1915]”).

    8. Lindner at 653 (Kitto J); Herbert Morris [1916] at 706-707 (Lord Atkinson); Nordenfelt at 565 (Lord Macnaghten).

42. Whether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. The identification of a legitimate protectable interest is fundamental; without one, no restraint is reasonable; and where one is established, it informs the extent of what is reasonable to protect it. The legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter, [9] including trade secrets and confidential information, and goodwill including customer connection. It extends to information as to the identity of reliable suppliers, even though not such as to amount to a “trade secret” which would attract equitable protection in the absence of express agreement; [10] and to connection with staff, so that “anti-poaching” covenants prohibiting a former employee from soliciting the employer’s staff have been upheld. [11] However, it is well-established that a covenantee is not entitled to protection against mere competition.

    9. Tank Lining Corporation v Dunlop Industrial Ltd (1982) 140 DLR (3d) 659 at 664 (Blair JA for Houlden, Blair and Cory JJA); Vandervell Products Ltd v McLeod [1957] RPC 185 at 192 (Lord Evershed MR; Hodson LJ and Morris LJ agreeing).

    10. Gasweld at 327C-G (Gleeson CJ), 337E (Kirby P), 341F-G (Samuels JA).

    11. Cactus Imaging at 29 [64] (Brereton J).

43. The doctrine operates in diverse fields, but the fundamental principles are constant, although the balance between the competing interests of upholding contracts freely made and striking down bargains that unreasonably constrain an individual’s liberty to trade may vary. As Lord Macnaghten said in Nordenfelt: [12]

“To a certain extent, different considerations must apply in cases of apprenticeship, and cases of that sort, on the one hand, and cases of the sale of a business or dissolution of a partnership, on the other … there is obviously more freedom of contract between buyer and seller than between master and servant, or between an employer and a person seeking employment.”

12. At 566 (Lord Macnaghten).

48. The differences between the various classes of cases are informed by the nature of the legitimate protectable interest in each class. A less rigorous view is taken in respect of covenants in restraint of trade in commercial agreements for the sale of goodwill than in respect of covenants between employer and employee, [13] essentially because a vendor should not be permitted to derogate from the grant of goodwill by competing for it after having sold it for valuable consideration. ^[14] The purchaser has a legitimate protectable interest in the goodwill for which it has paid. As Dixon CJ said in Butt v Long: [15]

“A distinction is drawn between the position of the purchaser of the goodwill of a business taking a covenant in restraint of trade from his vendor and the case of the owner of a business taking such a covenant from his servant or apprentice. The goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment and if the purchaser is to take over such goodwill with all its advantages it must in his hands remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell. The covenant against competition is therefore reasonable if confined to the area within which it would in all probability enure to the injury of the purchaser — per Lord Parker of Waddington in Herbert Morris Ltd v Saxelby (1916) 1 AC, at pp 708, 709.”

13. Olson at [38] (Mason P; McColl JA and Bryson JA agreeing); Geraghty v Minter (1979) 142 CLR 177 at 185 (Gibbs J; Aickin J agreeing); [1979] HCA 42; Herbert Morris [1915] at 77 (Lord Cozens-Hardy MR); Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 at 731 (Viscount Haldane LC; Lord Dunedin agreeing), 738 (Lord Shaw of Dunfermline); Nordenfelt at 566 (Lord Macnaghten); JD Heydon, The Restraint of Trade Doctrine (2nd ed, 1998, LexisNexis Butterworths) at 68-69 (“Heydon”).

14. Herbert Morris [1915] at 77 (Lord Cozens-Hardy MR).

15. (1953) 88 CLR 476 at 486 (Dixon CJ; Webb J and Fullagar J agreeing); [1953] HCA 76. See also Attwood at 582 (Younger LJ; Atkin LJ agreeing); Herbert Morris [1915] at 89-90 (Joyce J); Nordenfelt at 566 (Lord Macnaghten).

49. Thus, the first – and in this case dispositive – inquiry is whether the prohibitions protect a legitimate interest of Belflora, as distinct from merely precluding competition.

50. Prior to 1 July 2018, the goodwill was that of Belflora International, to which (at least as between them) Mr Belcastro and Mr Uppalapti were, through their controlled entities, equally entitled. Although there was some evidence that Mr Uppalapti had introduced the opportunity to market Kenyan flowers, there was no evidence that either had any relationship with or investment in any particular supplier or suppliers that might warrant protection, let alone in respect of the whole of South America. While the parties were to continue to share a number of resources, Vinflora was necessarily required to rebrand, while Belflora was not. Belflora retained five stalls, while Vinflora obtained four. There is nothing to indicate that, on balance, Vinflora received any consideration for its promise not to source or market flowers from South America, other than Belflora’s corresponding covenant not to source or market flowers from Kenya. The restraints cannot be supported on the basis of protection of a legitimate interest in goodwill, customer connection, or connection with reliable suppliers.

51. For the appellant, it was submitted that Belflora and Vinflora had a mutual legitimate interest in protecting each from competition by the other. It was argued that the effect of the restraint was a “mutual and cross beneficial arrangement” which advantaged each of them by creating a distinction between their respective businesses, and protecting each from competition by the other. It was submitted, in effect, that it was not contrary to public policy for “people who know their business wanting to promote separately and individually recognisably distinctive businesses underpinned by mutual restraints” to do so.

52. Although not referred to in argument, there is a category of case in this territory which involves neither employee/employer covenants, nor purchaser/vendor covenants, but concerns traders who combine with the object of restricting or regulating supply or prices, or otherwise involving restrictive trade practices. In this context, it has been said that “a restrictive clause in a service contract is viewed nowadays with much more strictness than a restrictive clause in an agreement regulating the business relations of traders”, [16] and courts have not been favorably disposed to permitting a trader, who has voluntarily entered into a restrictive arrangement with other traders, to escape from the obligation by pleading that it has imposed an unreasonable burden on itself, [17] adopting the view that the parties themselves are the best judges of what is reasonable in their own interest. [18]

    16. Creamoata Ltd v Rice Equalization Association Ltd (1953) 89 CLR 286 at 318 (Fullagar J); [1953] HCA 40 (“Creamoata”).

    17. English Hop Growers Ltd v Dering [1928] 2 KB 174 at 181 (Scrutton LJ); All ER Rep 396 at 400 (Scrutton LJ) (“English Hop Growers”).

    18. Creamoata at 318 (Fullagar J); North Western Salt Co Ltd v Electrolytic Alkali Co [1914] AC 461 at 471 (Lord Haldane).

53. In this context, reasonableness between the parties has been determined primarily according to the considerations which mutually influenced the members of the combination, as illustrated by Scrutton LJ’s observation in English Hop Growers (emphasis added): [19]

“I may also refer to the well-known judgment, delivered by Lord Parker in A-G Commonwealth of Australia v Adelaide Steamship Co, Ltd (6) and to the judgment of Younger, LJ, in Attwood v Lamont (7) which deals particularly with the distinctions between contracts of service and contracts for the sale of goodwill, where much greater freedom of contract is allowed owing to the nature of the subject-matter and the equal position of the contracting parties. I myself have always regarded it as in the public interest that parties who, being in an equal position of bargaining, make contracts, should be compelled to perform them, and not to escape from their liabilities by saying that they had agreed to something which was unreasonable. Here there is no allegation that the public interest is affected, and the defendant, an educated man of full age, was one of the principal promoters of the agreement which he now says is an unreasonable restraint of trade. In view of the fluctuating character of the yearly supply of hops, I see nothing unreasonable in hop-growers combining to secure a steady and profitable price, by eliminating competition amongst themselves, and putting the marketing in the hands of one agent, with full power to fix prices and hold up supplies, the benefit and loss being divided amongst the members. It may be that it would have been better to put more restraints on the individual, but the members have agreed to less restraints, and I cannot say their action was unreasonable.” 

19. At 181 (Scrutton LJ); All ER Rep 396 at 400 (Scrutton LJ); see also Birtley and District Co-op Society Ltd v Windy Nook and District Co-op Society Ltd (No 2) [1960] 2 QB 1 at 13-14 (Streatfeild J); [1959] 1 All ER 623.

54. Nonetheless, the restrictive promise will still be held void if it is actually found to be unreasonable, or contrary to the public interest. [20] That will be the case if there is no legitimate protectable interest, as Fullagar J explained in Creamoata (emphasis added): [21]

“Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd (1894) AC 535, at p 565, observed that the law with regard to restraints of trade had changed much even since Mitchel v Reynolds (1711) 1 P Wms 181 (24 ER 347). It may be correct to say that it has changed further since 1894, but I think the truth probably is that, while the principles are the same, the approach of the courts to the question has in some degree altered. In particular the approach to a restrictive clause in a service contract is viewed nowadays with much more strictness than a restrictive clause in an agreement regulating the business relations of traders. So Lord Haldane in North Western Salt Co Ltd v Electrolytic Alkali Co Ltd (1914) AC 461 said:

My Lords, when the controversy is as to the validity of an agreement, say for service, by which some one who has little opportunity of choice has precluded himself from earning his living by the exercise of his calling after the period of service is over, the law looks jealously at the bargain; but when the question is one of the validity of a commercial agreement for regulating their trade relations, entered into between two firms or companies, the law adopts a somewhat different attitude — it still looks carefully to the interest of the public, but it regards the parties as the best judges of what is reasonable as between themselves (1914) AC, at p 471.

But even in a case of the latter type it is still, I think, true to say that there must be consideration for the restrictive promise even though it be made under seal. It is also still true, I think, to say that the promise must have a real interest to be protected by the restrictive promise. Lord Birkenhead in McEllistrim's Case (1919) AC, at p 564 said: "it has been laid down by your Lordships over and over again that in this class of case the covenantee is not entitled to be protected against competition per se." It is also, I think, still true to say that in this class of case, although prima facie the parties themselves are the best judges of what is reasonable, the restrictive promise will be held void if it is actually found to be unreasonable or to be against the public interest: see Heron v Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315, and Victorian Onion and Potato Growers' Association Ltd v Finnigan (1922) VLR 384 (a case decided by Cussen J).”

20. Creamoata at 318 (Fullagar J), citing Heron v Port Huon Fruitgrowers’ Co-op Association Ltd (1922) 30 CLR 315 and Victorian Onion and Potato Growers’ Association Ltd v Finnigan [1922] VLR 384.

21. Creamoata at 318 (Fullagar J).

55. However, even in this context, restraints have been held to be unreasonable where their intent has been to eliminate competition, and/or where there is injury to the public interest. In Heron v Port Huon Fruitgrowers’ Co-op Association Ltd,[22] the High Court held void a restriction on a fruit grower selling his fruit, as it took away all liberty and freedom of action from him, and – relevantly for present purposes – the association did not apparently have any interest requiring protection and was therefore not entitled to be sheltered against competition per se. Knox CJ, Gavan Duffy and Starke JJ said (emphasis added): [23]

“Can so extensive a restriction as that above stated be justified as reasonable between the Company and the appellant? The grower was at the mercy of the middlemen mainly because they captured the space on the ships transporting fruit. But, whatever was the position in 1918, when the Company was formed, what interests of the Company required so extensive a protection? Freights were not for ever fixed, and open competition must reduce the power of the middlemen. The stability of the Company was, no doubt, of importance, but the Company was not entitled to shelter itself against all competition for an unlimited period. And, whatever the benefits of co-operative selling and of central control of picking, packing and grading of fruit may be, was it necessary to preclude the appellant from exercising his own skill and talent in the conduct of his own business during an unlimited period and in respect of all fruit grown by the appellant in any part of Tasmania? The appellant had not sold any business to the Company which required protection against him, nor had he obtained any "inside knowledge or competitive resource by reason of the fact that special confidence ... had been reposed in him" (McEllistrim's Case, per Lord Birkenhead). That case makes it clear that the Company was not entitled, under these circumstances, to protection against competition per se. In view of the opinions expressed in that case, we think the restriction imposed upon him was in excess of anything that was necessary for the protection of the business of the Company, and therefore constitutes, in our opinion, an unlawful restraint of trade.”

22. (1922) 30 CLR 315; [1922] HCA 20 (“Heron”). See also McEllistrim v Ballymacelligott Co-op Agricultural and Dairy Society Ltd [1919] AC 548.

23. Heron at 326-327 (Knox CJ, Gavan Duffy and Starke JJ).

56. In Creamoata, the covenant prevented a rice miller (who had associated with eight others for the purpose of securing equal rates of return for millers from the sale of milled rice) from obtaining or attempting to obtain more than a given quantity of rice from the statutory body responsible for disposing of unmilled or paddy rice. This was held to be unreasonable for reasons including that it was for a term of ten years, whether or not the miller remained a member of the co-operative; and that it was potentially injurious to the public interest.

57. Moreover, in each of these cases, the covenantor and those with whom it combined at least had a mutual interest, not merely in avoiding competition, but in avoiding the jeopardy of a volatile market and securing a steady and profitable trade by eliminating competition between themselves, and sharing the benefit and loss of doing so. No such interest is apparent in the present case: as has been noted, the rationale for the restraints was apparently “so that we do not have two identical stands”. No legitimate interest of either party that was protected by the restraints has been identified. They did no more than prohibit the parties from competing with each other.

58. In my view, the restraints served to protect no legitimate protectable interest. In circumstances where no legitimate protected interest is identifiable, questions as to the reasonableness of the scope of the restraint do not need to be considered.

59. Moreover, since Creamoata and the other cases to which reference has been made, there has been a hardening of public policy against anti-competitive agreements between traders. This is reflected in legislation, such as the Competition and Consumer Act 2010 (Cth), its predecessor and analogues. It is not necessary to determine in this case whether the agreement would infringe any requirement of that legislation, but it provides a policy background. As long ago as 1999, it was questioned whether the approach of upholding such cartel arrangements in the absence of some specially harsh feature would survive. [24] In the modern context, in my judgment, the restraints in issue here, by prohibiting competition between traders in the market without any countervailing public benefit, were contrary to the public interest, regardless of whether or not they were unreasonable as between Belflora and Vinflora.

    24. Heydon at 204.

60. It follows that the primary judge was right to hold that the agreement, insofar as it purported to preclude Vinflora and Mr Uppalapti from displaying flowers imported from South America at stands 49, 50, 51, and 52, and from selling flowers imported from South America at those stands, other than flowers supplied by Belflora, was void as contrary to public policy. I agree with the orders proposed by the Chief Justice.

61. EMMETT AJA: The question in this appeal is whether a provision in an agreement between the appellant, Belflora Pty Ltd (Belflora), and the first respondent, Vinflora Pty Ltd (Vinflora), was void as an unreasonable restraint of trade. The agreement was entered into in the context of a parting of ways between the controlling minds of Belflora and Vinflora, each of which is engaged in the marketing of fresh flowers. The provision in question purported to prohibit Vinflora from importing flowers from South America and offering such flowers for sale on its stands at the Flemington Markets and to prohibit Belflora from importing flowers from Kenya and offering such flowers for sale on its stands at the Flemington Markets. Belflora brought proceedings in the Equity Division seeking to enforce the restraint. A judge of the Equity Division made orders dismissing the proceedings and Belflora has now appealed to this Court from those orders.

62. The purported restraint was not limited to any particular supplier of flowers and there was no evidence before the primary judge that Belflora had any particular relationship with any supplier that may entitle it to protection. Further, not only Vinflora was prohibited from importing flowers from South America but it was also prohibited from purchasing South American flowers from anyone other than Belflora. An agreement that had that effect could not be said to be in the public interest, whether or not it was unreasonable as between Belflora and Vinflora.

56. I have had the advantage of reading in draft form the reasons of the Chief Justice for concluding that the appeal should be dismissed with costs. I agree with the orders proposed by the Chief Justice.

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Endnotes

Decision last updated: 19 August 2021