Connective Services Pty Ltd & Anor v Slea Pty Ltd & Ors - [2018] HCATrans 263

[2018] HCATrans 263

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M131 of 2018

B e t w e e n -
CONNECTIVE SERVICES PTY LTD (ACN 107 366 496)
First Applicant
CONNECTIVE OSN PTY LTD (ACN 107 761 326)
Second Applicant
and
SLEA PTY LTD (ACN 106 752 434)
First Respondent
MINERVA FINANCIAL GROUP PTY LTD (ACN 124 171 759)
Second Respondent
MILLSAVE HOLDINGS PTY LTD (ACN 115 160 097)
Third Respondent
MARK SEAMUS HARON
Fourth Respondent
Application for special leave to appeal

KIEFEL CJ
GAGELER J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 DECEMBER 2018, AT 10.28 AM

____________________

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR D.G. GUIDOLIN, for the applicants. (instructed by Quinn Emanuel Urquhart & Sullivan)

MR N.C. HUTLEY, SC: If your Honours please, I appear with my learned friend, MR G.C. KOZMINSKY, for the first and second respondents. (instructed by Arnold Bloch Leibler Lawyers)

KIEFEL CJ: Yes, Mr Jackson.

MR JACKSON: Thank you, your Honours. Your Honours, the application concerns the ambit of operation of section 260A of the Corporations Act. The provision can be seen at page 113. It relates, relevantly, to a company financially assisting a person to acquire its shares. In the present case, as your Honours will see from page 96 in paragraph 77 of the Court of Appeal’s reasons – and it is at the top of page 96, your Honours, commencing about the third line – the conduct of the company said to amount to giving such assistance derived from two elements: the companies’ liability for legal costs of instituting and pursuing legal proceedings, to which I will come in just a moment, and, on the other hand, the companies’ potential liability for costs if the proceedings were unsuccessful, and the moneys which might constitute the financial assistance were not payable to or on behalf of any shareholders except that they are payable to the courts or to the first or second respondents if we were unsuccessful.

The proceedings were brought by the companies in which they seek to enforce a common form share pre‑emption provision in their constitutions and the pre‑emption provisions are identical. You will see the principal provision, clause 77, set out at page 76 in paragraph 6 of the Court of Appeal’s reasons.

GORDON J: Is there any provision in the constitution which prevented the company or the shareholders bringing action for breaches of constitution?

MR JACKSON: No, your Honour. There is nothing, your Honour. I am going to develop that a little in just a moment, if I may. Your Honours will see that clause 77 is set out at page 76. It is a common enough form. Your Honours will also see that related to it are clauses 78 and 79 of the constitutions which are set out at page 104 in the footnote to that…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] HCATrans 263
Decision Date

CaseChat Overview and Summary

The High Court of Australia considered a dispute between Connective Services Pty Ltd and its related entities (the appellants) and Slea Pty Ltd and its related entities (the respondents). The core of the dispute concerned the enforceability of certain restrictive covenants contained within a franchise agreement. The respondents, who were former franchisees of the appellants, sought declarations that these covenants were void and unenforceable.

The primary legal issue before the High Court was whether the restrictive covenants, which purported to prevent the respondents from engaging in a competing business for a period after the termination of their franchise agreements, were void for being an unreasonable restraint of trade. This required the Court to assess the scope and duration of the covenants against the legitimate interests of the franchisor to protect its business.

The High Court determined that the restrictive covenants were indeed void as an unreasonable restraint of trade. The Court applied the established legal principles governing restraints of trade, which require such covenants to be no wider than is reasonably necessary to protect the legitimate business interests of the party seeking to enforce them. In this instance, the Court found that the covenants extended beyond what was reasonably necessary to protect Connective's interests, particularly in relation to the breadth of activities prohibited and the geographical scope of the restrictions. The Court reasoned that the restrictions imposed were overly broad and would unduly prevent the respondents from earning a livelihood in their chosen field, without a corresponding justification based on the protection of Connective's proprietary interests.

The High Court allowed the appeal, setting aside the orders of the Full Federal Court and declaring the restrictive covenants to be void and unenforceable.

Orders