Foodco Group Pty Ltd v Northgan Pty Ltd

Foodco Group Pty Ltd commenced proceedings against Northgan Pty Ltd in the Supreme Court of New South Wales. The central issue in dispute was the enforceability of a clause within a franchise agreement. Foodco, the franchisor, sought to enforce a non-compete clause against Northgan, the franchisee, after Northgan entered into a similar business with a competitor. Northgan contested the enforceability of this clause, arguing it was unreasonable and therefore void under common law and statute.

The court was required to determine the validity of the non-compete clause, assessing its reasonableness and whether it was necessary to protect legitimate business interests. The court considered whether the clause went beyond what was necessary to protect Foodco's business interests and if it placed an undue restriction on Northgan's ability to earn a livelihood. The court also evaluated whether the clause was fair and reasonable under the relevant provisions of the Competition and Consumer Act 2010 (Cth).

The court found the non-compete clause to be unreasonable and thus unenforceable. The reasoning was based on the clause's excessive scope and its disproportionate impact on Northgan's ability to conduct business in a similar field. The court emphasised that the clause was broader than necessary to protect Foodco's legitimate interests and unduly restricted Northgan's commercial activities. Consequently, the court struck out the relevant clause and dismissed the remaining parts of the motion. The court ordered that Northgan pay Foodco's costs associated with the motion and set a date for further directions in the matter.