Louvain Nominees Pty Ltd v Cesure Pty Ltd
[2002] WASC 277
LOUVAIN NOMINEES PTY LTD -v- CESURE PTY LTD & ANOR [2002] WASC 277
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 277 | |
| Case No: | CIV:2536/2002 | 14 NOVEMBER 2002 | |
| Coram: | EM HEENAN J | 14/11/02 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Interlocutory injunction granted | ||
| B | |||
| PDF Version |
| Parties: | LOUVAIN NOMINEES PTY LTD CESURE PTY LTD CHRISTOPHER FABIANO CANDELORO |
Catchwords: | Contract Sale of retail clothing business Agreement containing condition against competition in local area by vendor Vendor proposing to open a new clothing store nearby Application for injunction Plea that restraint of trade void or unenforceable Serious questions to be tried Balance of convenience Interlocutory injunction granted to preserve status quo |
Legislation: | Nil |
Case References: | Nil American Cyanamid v Ethicon Ltd [1975] AC 396 Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563 Britten v Bishop, unreported; SCt of WA (Malcolm CJ); Library No 960560; 25 September 1996 Brown v Brown [1980] 1 NZLR 484 Butt v Long (1953) 88 CLR 476 Castlemaine Tooheys Limited v State of South Australia (1986) 67 ALR 553 Cream v Bushcolt Pty Ltd [2002] WASC 100 Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd (Administrators Appointed) (Receivers and Managers Appointed) & Ors [2001] WASC 190 Hoylevans Pty Ltd v Weir [2000] WASC 144 Lindner v Murdock's Garage (1950) 83 CLR 628 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co [1894] AC 535 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [No 3] (1998) 195 CLR 1 Peters (WA) v Petersville Ltd (2001) 181 ALR 337 State Transport Authority v Apex Quarries Ltd [1988] VR 187 Temwood Holdings Pty Ltd v Asean Australian Assets Pty Ltd [2000] WASC 84 Vancouver Malt and Sake Brewing Co Ltd v Vancouver Breweries Ltd [1934] AC 181 Walton's Stores (Interstate) Ltd v Maher & Anor (1987) 164 CLR 387 Weir v Hoylevans [2001] WASCA 23 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
CESURE PTY LTD
First Defendant
CHRISTOPHER FABIANO CANDELORO
Second Defendant
Catchwords:
Contract - Sale of retail clothing business - Agreement containing condition against competition in local area by vendor - Vendor proposing to open a new clothing store nearby - Application for injunction - Plea that restraint of trade void or unenforceable - Serious questions to be tried - Balance of convenience - Interlocutory injunction granted to preserve status quo
Legislation:
Nil
(Page 2)
Result:
Interlocutory injunction granted
Category: B
Representation:
Counsel:
Plaintiff : Mr P P McCann
First Defendant : Mr M L Bennett
Second Defendant : Mr M L Bennett
Solicitors:
Plaintiff : Hotchkin Hanly
First Defendant : Bennett & Co
Second Defendant : Bennett & Co
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
American Cyanamid v Ethicon Ltd [1975] AC 396
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288
British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563
Britten v Bishop, unreported; SCt of WA (Malcolm CJ); Library No 960560; 25 September 1996
Brown v Brown [1980] 1 NZLR 484
Butt v Long (1953) 88 CLR 476
Castlemaine Tooheys Limited v State of South Australia (1986) 67 ALR 553
Cream v Bushcolt Pty Ltd [2002] WASC 100
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269
Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349
(Page 3)
Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd (Administrators Appointed) (Receivers and Managers Appointed) & Ors [2001] WASC 190
Hoylevans Pty Ltd v Weir [2000] WASC 144
Lindner v Murdock's Garage (1950) 83 CLR 628
Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co [1894] AC 535
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [No 3] (1998) 195 CLR 1
Peters (WA) v Petersville Ltd (2001) 181 ALR 337
State Transport Authority v Apex Quarries Ltd [1988] VR 187
Temwood Holdings Pty Ltd v Asean Australian Assets Pty Ltd [2000] WASC 84
Vancouver Malt and Sake Brewing Co Ltd v Vancouver Breweries Ltd [1934] AC 181
Walton's Stores (Interstate) Ltd v Maher & Anor (1987) 164 CLR 387
Weir v Hoylevans [2001] WASCA 23
(Page 4)
1 EM HEENAN J: In this action the plaintiff, Louvain Nominees Pty Ltd, sues two defendants, Cesure Pty Ltd and Christopher Fabiano Candeloro, for an injunction to restrain the defendants from carrying out activity alleged to be in breach of a condition of restraint of trade contained in an agreement for the sale and purchase of a business at Albany entered into between Louvain Nominees Pty Ltd as purchaser and Cesure Pty Ltd, as vendor, in August 1998. In addition, or alternatively, the plaintiff seeks damages.
2 The application before me is for an interlocutory injunction to grant orders enforcing the condition in restraint of trade against both defendants pending trial or further order. The second defendant, Mr Candeloro, is the sole director and controls the first defendant corporation Cesure Pty Ltd.
3 Until about August 1998 Cesure Pty Ltd operated in Albany two stores which were adjacent or closely proximate, one selling music and DVDs, the other selling surf and leisure wear. The latter traded under the name of Mad Marty's. Mad Marty's operated from 156 York Street, Albany.
4 Under the agreement of sale of August 1998 Cesure Pty Ltd sold the business of Mad Marty's to the plaintiff, including its goodwill, plant, furniture, fixtures, fittings and stock and trade, licenses and franchises for a sum of $425,000 which included stock at valuation. The provisional value attributed to stock was $150,000 but on valuation that came down to about $90,000, so the final sale price was $365,000 or thereabouts.
5 The agreement was completed and Louvain Nominees Pty Ltd went into possession and has since conducted the surf and leisure wear business under the name of Mad Marty's from that location. The agreement for sale contained a condition in relation to trade restraints for a period of 7 years within a radius of 20 kilometres. The restraints were to apply to Mr Candeloro and Cesure Pty Ltd. It is to be noted, however, that only Cesure Pty Ltd was a party to the agreement for sale.
6 Under condition 4 of the agreement for sale the terms of the restraint were elaborated upon. Condition 4 provides:
"The vendor will not directly or indirectly, whether solely or jointly with or as a director, manager, agent or servant of any person or corporation, carry on or be engaged or interested in any business of the nature of the business hereby sold or any significant component thereof, or permit the vendor's name or the names of any of them to be used in connection with such
(Page 5)
- business, (i) within the area set out in (b) of the particulars [that is within a 20 kilometre radius], and (ii) for the period set out in (e) of the particulars [that is within 7 years]."
- Subparagraph (b) of condition 4 provides:
"Except to the extent otherwise agreed the vendor shall not, after completion of this agreement, during the period referred to in the restraint [namely the 7-year period], engage in conduct derogating on the purchaser's right to obtain a full benefit of the goodwill of the business."
Subparagraph (c):
"The area and period of restraint are acknowledged by the vendor to be no greater than reasonably required to protect the goodwill sold to the purchaser."
Subparagraph (d):
"The vendor will, upon completion, deliver to the purchaser a deed whereby the persons named in paragraph (e) of the particulars [namely Mr Candeloro], will covenant, if more than one jointly and severally, with the purchaser to accept the same restrictions on competition as are accepted by the vendor in clause 4(a) hereof. Such deed will be prepared and tendered by the purchaser to the vendor within a reasonable period before the date of settlement."
8 There are several bases upon which it was argued that Mr Candeloro is so obliged. The first, advanced by counsel for the plaintiff, is that in the circumstances which occurred in this case the execution of the contract, the completion of it and the representations which that involved led to a collateral contract arising between Mr Candeloro and the plaintiff that Mr Candeloro would abide by the terms of the restraints agreed by his company and/or enter into the deed.
9 The second basis for contending that Mr Candeloro is similarly obliged, again put by counsel for the plaintiff, is that in the events which have happened there have been representations acted upon by the plaintiff
(Page 6)
- which gives rise to an estoppel which would prevent Mr Candeloro from denying that he was not personally bound by these covenants.
10 The third basis, which arose in the course of argument in response to a question which I asked, is that the undoubted express condition in the agreement for sale between Louvain and Cesure that the vendor would, upon completion, deliver to the purchaser a deed containing a covenant by Mr Candeloro to abide by those restraints, imposes upon Cesure an obligation, enforceable if necessary in these proceedings, to perform that covenant. In the circumstances where Mr Candeloro is the sole director of Cesure, this would almost certainly result in both being compelled to execute such a deed.
11 In the circumstances I consider that a strong case is disclosed by the materials that Mr Candeloro personally is obliged to meet the obligations which are contained in the restraint of trade condition in the agreement for sale and that there is, at the very least, a serious question to be tried as to the extent to which his personal obligations in respect of that restraint will coincide with those of Cesure, as vendor. That conclusion of course does not in any way foreclose the resolution of other issues about the enforceability of the restraints generally nor of the scope of their subject matter.
12 As to those issues the defendants submit that no identity of character has been shown between the nature of the business which was sold under this agreement for sale and the nature of the business which is about to be conducted by Cesure Pty Ltd and by Mr Candeloro, which I will describe in a moment. The defendants also contend that this restraint is unenforceable in that it is unreasonable both as to scope and duration as well as to area.
13 What has given rise to this litigation is that, within the last few months, it has become apparent that the first defendant intends to open a new store nearby in Albany from which it will conduct the business of selling DVD materials, music, an associated Internet cafe and the retail sale of clothing of a particular kind. There is considerable issue between the parties as to the type of the clothing which is to be sold from the first defendant's new premises and, more particularly, whether or not it is within the scope of the prohibition contained in the restraint of trade clause as properly understood.
14 I have to acknowledge that there is certainly scope for controversy about the extent and nature of the business conducted at Mad Marty's
(Page 7)
- which enjoys, if it does, the protection of the restraint of trade. Nevertheless, it seems to me that that is an issue which will ultimately only be resolved by an examination of all the evidence in this case and will take its answer from the general pattern of business undertaken by Mad Marty's at the time of the sale.
15 It is sufficient for me to note that it has been described as a surf and leisurewear business and that this includes the sale of a variety of leisure clothing. Just where the beginning and end of the scope of that business lies and just where, if at all, the scope of the competition between the sale of clothes and other produce from the first defendant's new store is something which I imagine will only be precisely ascertainable by the evidence at the trial of this case.
16 Nevertheless, I consider it sufficiently clear that there is likely to be, at the very least, a substantial overlap between the nature of the business conducted at Mad Marty's and the nature of the clothing sales to be conducted by the defendants at their new business sufficient to raise an arguable case that there has been a breach of the restraints contained under condition 4. In making those observations, I do no more than acknowledge at this point that a serious question to be tried in this regard has been shown.
17 That then leaves the questions of whether or not this restraint is valid and enforceable having regard to its scope, its duration and the geographical area. Effectively, it would prevent the defendants from entering into a surfing or leisurewear business or any business which included those components within the town of Albany. There is evidence in the affidavit of Mr Sims that the first defendant had a substantial reputation and advertised widely in the Albany area up to the time of the sale so as to establish and maintain a goodwill associated with this store for that surf and leisurewear business. There is also evidence to the effect that at the time of the sale, Cesure was contemplating transferring its other businesses, including any clothing sales, to Perth. That being the case, I consider that an arguable case has been shown that these restraints were reasonable at the time of the agreement for sale, both as to duration and area. Again, those observations do not foreclose those issues but simply acknowledge that an arguable case has been demonstrated.
18 That brings me to the question of the balance of convenience, the terms upon which an interlocutory injunction are being sought, and whether or not an adequate undertaking as to damages has been offered. It does seem to me that, if this restraint is valid, to allow the establishment
(Page 8)
- of another business which would infringe the restraint and establish an erosion of the plaintiff's business in this protected area is likely to produce damage and prejudice of a kind which cannot easily be compensated for by any process of assessment. This is especially so in a situation where the proposed business of Cesure Pty Ltd at its new premises has not commenced.
19 It seems to me that the balance of convenience favours prohibiting activity which would encroach upon the restraint rather than the alternative of leaving the plaintiff to an action for damages with all the complications which would follow in trying to assess the degree to which reductions in profitability of the plaintiff's business, if they were to occur, had been caused by the competition undertaken by Cesure Pty Ltd in breach of the restraint. It seems to me that it would be simpler, clearer and more reliable to grant interlocutory relief prohibiting encroachment on the restraint until the trial of this action or final order. In that case, the situation would be that the plaintiff's business would continue unhindered by the alleged illegal competition whereas the defendants' new business would suffer the disadvantage of not being able to operate over its full intended range of sales.
20 It seems to me that in that situation, it would be easier to compensate the defendants, in the event of failure by the plaintiff in the action, than it would be to compensate the plaintiff for losses caused should it emerge that the defendants' actions are, in fact, in breach of a valid restraint of trade. I am disposed therefore to grant relief, but the terms of the relief will require further consideration.
21 I will deal first with the adequacy of the undertaking as to damages. The plaintiff has offered today an undertaking as to damages which would affect all the assets of the plaintiff, whether held beneficially or as trustee. I propose to accept that undertaking as to damages but to reserve liberty to apply for any supplementary undertaking or alternative security in the event that the defendants, or either of them, wish to challenge the adequacy of the undertaking which has been offered.
22 As to the terms of the injunction, I will grant this evening an injunction in the terms sought by the Chamber summons but, again, I will direct that the parties confer over a period of 7 days with a view to attempting to reach agreement upon the terms of an injunction which will prevent the first or second defendants from trading at the new business in relation to surf and leisurewear or other business of the nature conducted by Mad Marty's as at the date of the sale in August 1998. I reserve liberty
(Page 9)
- to apply to settle the terms of that order in the event that there is no agreement.
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