Pearson v Arcadia Stores, Guyra Ltd (No 1)

The appellant, Oscar Randolph Pearson, appealed to the High Court of Australia against an injunction granted by the Supreme Court of New South Wales. The injunction, sought by the respondent, Arcadia Stores, Guyra, Ltd., restrained Pearson from continuing to carry on the business of a produce merchant within a defined area and for a specified period, in contravention of a covenant he had entered into. This covenant was part of an agreement for the sale of his business in 1927, where he agreed not to engage in a similar business for ten years within a fifty-mile radius of Guyra.

The legal issues before the High Court were whether the respondent was entitled to enforce the covenant, and whether the appellant had established grounds to resist the injunction. Specifically, the appellant argued that the respondent, and its predecessors in title, had forfeited their right to an injunction due to: (a) a breach of a separate employment agreement by failing to pay the full salary stipulated, which the appellant contended was a collateral inducement for the covenant; (b) the granting of permission by certain directors to continue trading, creating a defensive equity in his favour; and (c) laches and acquiescence on the part of the respondent and its predecessors.

The High Court dismissed the appeal, affirming the decision of the Supreme Court. The Court reasoned that the respondent, as the assignee of the covenant, had a prima facie right to an injunction, and the appellant had failed to displace this right. The Court found that the appellant had not acted in reliance on any purported permission from the directors, noting that at the time such permission was allegedly given, the directors lacked authority to bind the company. Furthermore, the appellant had been repeatedly warned that his conduct was in breach of the covenant. The Court also held that the failure to pay the full salary under the employment agreement did not disentitle the respondent to an injunction, as the service agreement was terminable and the appellant had continued under it despite the partial non-payment, and the covenant was not conditional upon the full performance of the service agreement in a manner that would render enforcement inequitable. The appellant's arguments regarding laches and acquiescence were also rejected, as he had not demonstrated that he acted upon a belief, induced by the respondent or its predecessors, that the covenant would not be enforced.