SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
HYDRON PTY LTD v HAROUS
Judgment of The Honourable Justice Bleby
17 May 2005
TRADE AND COMMERCE - TRADE AND COMMERCE GENERALLY - RESTRAINT OF TRADE - RESTRAINT BY AGREEMENT - VALIDITY AND REASONABLENESS
Related company of plaintiff engaged in the manufacture, distribution and sale of contact lens and contact lens care products in UK – Defendant majority shareholder and managing director of contact lens company in Australia – Joint venture agreement for sale of UK company’s products in Australia – Later acquisition by related company of all shares in joint venture company – simultaneous acquisition by plaintiff of business of defendant’s company and employment of defendant by plaintiff – defendant subject to restraint of trade clauses in business sale agreement, Deed of Non-Competition with plaintiff and contract of employment with plaintiff - Termination of defendant's contract of employment and engagement by rival company – “ladder clause” restraints – Whether restraint clauses void for uncertainty – Whether restraint clauses unreasonable and therefore void on grounds of public policy – Distinction between purpose of post employment restraints and sale of business restraints – Restraint clauses not void for uncertainty – Sale of business restraints unreasonable and therefore void – Relevant employment restraints unreasonable and therefore void – Plaintiff’s action dismissed.
Fair Trading Act 1987 (SA) s 56; Trade Practices Act 1974 (Cth) s 45, s 52, s 53, s 80 and s 87; Competition Reform (South Australia) Act 1995 (SA) Part IV; "Employee Agreements Not to Compete", HM Blake, (1960) 73 Harvard Law Review 625; "The Restraint of Trade Doctrine", JD Heydon, (2nd ed, 1999), Chapter 4, referred to.
Herbert Morris Ltd v Saxelby [1916] 1 AC 688; Lindner v Murdock's Garage (1950) 83 CLR 628; Butt v Long (1953) 88 CLR 476; Buckley v Tutty (1971) 125 CLR 353; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; Geraghty v Minter (1979) 142 CLR 177; Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505, applied.
Peters Ice Cream (Vic) Ltd v Todd [1961] VR 485; Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840, distinguished.
JQAT Pty Ltd v Storm [1987] 2 Qd R 162; SA Petroleum Co Pty Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269, discussed.
Cruttwell v Lye (1810) 17 Ves. 335; 34 ER 129; Davies v Davies (1887) 36 Ch D 359; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 ALR 342; (2004) 79 ALJR 129; L'Estrange v Graucob [1934] 2 KB 394, considered.
HYDRON PTY LTD v HAROUS
[2005] SASC 176BLEBY J:
Introduction
The plaintiff, Hydron Pty Ltd (‘Hydron’), is a wholly owned subsidiary, by way of several holding companies, of Aspect Vision Holdings Ltd, having become a wholly owned subsidiary in early 2002. In turn, Aspect Vision Holdings…
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- AGLC
- Hydron Pty Ltd v Harous [2005] SASC 176
- Case
- [2005] SASC 176
- Decision Date
CaseChat Overview and Summary
The court considered the nature of the restraints, distinguishing between post-employment restraints and those associated with the sale of a business. It held that the sale of business restraints were unreasonable and therefore void. Additionally, the relevant employment restraints were also deemed unreasonable and thus void. The court found that the restraint clauses were not void for uncertainty, as they contained sufficient particulars to be understood by a reasonable person. However, the court found that the restraints imposed on Mr Harous were unreasonable and void because they were overly broad and not necessary to protect Hydron's legitimate business interests.
As a result of the court's findings, Hydron's action was dismissed, and Mr Harous was free to engage in activities with the rival company. The court's decision underscored the importance of balancing the need to protect legitimate business interests with the public policy of allowing individuals to engage in lawful activities. The court's ruling provided clarity on the validity and reasonableness of restraint of trade clauses in the context of business sales and employment agreements in Australia.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The “Business” referred to in that clause was defined as meaning the business of Nu Contacts. Schedule 14 in the draft Business Sale Agreement was left blank. Therefore, in the absence of agreement, it could have been dealt with under clause 2.7 of the Nu Contacts Option Agreement.Operation of CVA and Nu Contacts From July 1999 to 1 November 2002, CVA engaged in the distribution and sale of AVCL’s contact lenses and contact lens care products throughout Australia. Under the terms of the joint venture, Nu Contacts continued to operate and distribute and sell its own products. The two businesses were managed by Mr Harous from the Nu Contacts premises in Adelaide. Employees were employed either by one company or the other. Mr Harous had two roles: his involvement in the day-to-day running of Nu Contacts as well as working in the position of managing director of CVA, a position he occupied from September 1999 to 1 November 2002.Exercise of Options On 1 October 2002, AVCL assigned its rights under the Nu Contacts Option Agreement to Hydron, which was, by then, also a member of the Coopervision Group. Also on 1 October 2002, Hydron exercised the call option under the Nu Contacts Option Agreement. The purchase price calculated in accordance with the agreement was $3,115,369 plus 85% of the trade debtors as at 11 November 2002. AVCL also exercised the call option under the Coopervision Option Agreement. The purchase price payable under that agreement was $2,234.079. Although the call options were formally exercised on 1 October 2002, Mr Harous was aware for some months before that the options would be exercised at that time. Throughout October 2002, Hydron and Mr Harous conducted negotiations to finalise the terms of the Sale and Purchase Agreement for the Nu Contacts business. In the Sale and Purchase Agreement as executed, to which the directors of Nu Contacts were also parties, clause 3.1 provided that the Agreement was subject to some conditions precedent, one of which was that Nu Contacts and its directors would execute Deeds of Non-Competition in substantially the same form as set out in Schedule 14. Clause 23 also contained a restrictive covenant binding Nu Contacts and the directors. The terms of that covenant are set out in full later in these reasons. There was also negotiated and executed an Employment Agreement between Mr Harous and Hydron whereby Mr Harous was to be employed by Hydron from 1 November 2002 as Sales Director, OPSM Group. The Employment Agreement also contained a restraint provision in clause 10. The nature and effect of that clause is discussed below. The negotiations for these agreements were conducted primarily between Mr Harous and representatives from both Hydron and Hydron’s solicitors. Much of the evidence was directed to the conduct of those negotiations, whether there was a failure on the part of Hydron to negotiate in good faith, and whether Mr Harous, when he signed the agreement, was aware of the content and effect of clause 23 of the Sale and Purchase Agreement, the Deed of Non-Competition and clause 10 of the Employment Agreement. In the view that I take of the validity of those provisions it is not necessary to discuss that evidence.