Positive Endeavour Pty Ltd v Madigan

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SUPREME COURT OF SOUTH AUSTRALIA

(Full Court: Civil)

POSITIVE ENDEAVOUR PTY LTD v MADIGAN & ORS

[2009] SASC 281

Judgment of The Full Court

(The Honourable Justice Bleby, The Honourable Justice Gray and The Honourable Justice Layton)

9 September 2009

TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - RESTRAINTS OF TRADE - VALIDITY AND REASONABLENESS  - PARTICULAR CASES - VENDOR OF BUSINESS

TRADE AND COMMERCE - OTHER REGULATION OF TRADE OR COMMERCE - RESTRAINTS OF TRADE - SEVERANCE

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

Appeal from order of District Court Judge dismissing appellant’s claim for damages for breach of contract – appellant and its controller were partners in finance broking business together with the respondents and companies controlled by them – partnership was dissolved and appellant bought part of business from other partners – contract for sale of business included clause by which vendors agreed not to “solicit, canvass or secure the custom of a person who is at completion, or was within twelve months before completion, a customer” of any of the partnership entities – appellant claims damages for breach of restraint of trade clause.

Whether restraint of trade clause imposes unreasonable restraint on trade – whether clause too broad in the activities it prohibits, the customers with whom it prohibits trading and the duration for which the restraint is to continue – consideration of intended purpose of restraint – whether severance is appropriate – whether relief avaliable against the third respondent, a company controlled by the first and second respondents.

Appeal allowed - (per Bleby and Layton JJ) clause unreasonably broad but severance of part of the clause is possible - (per Gray J) clause is reasonable restraint.

Supreme Court Act 1935 (SA) s 30; District Court Act 1991 (SA) s 36, referred to.
Brew v Whitlock (No 2) [1967] VR 803; Attwood v Lamont [1920] 3 KB 571, distinguished.
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Lake v Simmons [1927] AC 487; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Pacific Couriers Ltd v BNP Paribas (2004) 218 CLR 451; Watson v Phipps (1985) 63 ALR 321; Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] RPC 9; Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535; Hitchcock v Coker (1837) 6 AD & E 436; Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Company Pty Ltd (1973) 133 CLR 288; Ronbar Enterprises v Green [1954] 2 All ER 266; Eastwood Co-operative Society Ltd v Williams (1932) 34 SR(NSW) 403; Pemberton v Vaughan (1847) 10 QB 87; Avery v Langford (1854) 23 LJ Ch 837; Fitch v Dewes [1921]…

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Details
Case
[2009] SASC 281
Decision Date

CaseChat Overview and Summary

Positive Endeavour Pty Ltd appealed against the District Court's decision that dismissed its claim for damages for breach of contract. The appellant and its controller were partners in a finance broking business with the respondents and companies controlled by them. The partnership was dissolved and the appellant bought part of the business from other partners. The contract for the sale of the business included a clause by which the vendors agreed not to "solicit, canvass or secure the custom of a person who is at completion, or was within twelve months before completion, a customer" of any of the partnership entities. The appellant claimed damages for breach of the restraint of trade clause.

The appeal raised several legal issues. The primary issue was whether the restraint of trade clause imposed an unreasonable restraint on trade. The court also considered whether the clause was too broad in the activities it prohibited, the customers with whom it prohibited trading, and the duration for which the restraint was to continue. The intended purpose of the restraint was also considered. Additionally, the court examined whether severance of the clause was appropriate and whether relief was available against the third respondent, a company controlled by the first and second respondents.

The appeal was allowed by the majority of the judges, though there were differing views on the reasoning. Bleby and Layton JJ held that the clause was unreasonably broad but that severance of part of the clause was possible. Gray J held that the clause was a reasonable restraint. The majority concluded that by deleting the reference to new loans and limiting the class of loans to the refinancing of existing loans, the restraint was also limited in time to the duration of the loans existing at completion. This meant that the right to existing trail commission was preserved for the duration of the loan, as was the right to fresh commissions on any refinancing of an existing loan. The court also considered the position of First Pacific Mortgages Pty Ltd, a company controlled by the respondents. The court held that the company was not liable in damages for any breach of contract because it was not a party to the contract. However, there may be equitable remedies available against it. The court remitted the matter to the District Court for further hearing and determination, with the appellant to be awarded costs of the appeal.

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

BLEBY J
By deleting the reference to new loans and limiting the class of loans to the refinancing of existing loans by deleting the relevant words in Schedule 1, it means that the restraint is also limited in time to the duration of loans existing at completion. By that means the right to existing trail commission is preserved for the duration of the loan, as is the right to fresh commissions on any refinancing of an existing loan, as the negotiation for or arranging of the refinancing cannot be undertaken by the vendors during the currency of the existing loan without breaching the clause. The severance of those words does not prevent vendors from negotiating and arranging new i.e. additional loans for existing customers. However, that would not prejudice the appellants’ right to continuing trail commissions on the existing loans, which is what the clause was designed to protect.Conclusion – Restraint of trade In my opinion the trial Judge was correct, but for the wrong reasons, in holding that the restraint provisions of the contract as drawn are unreasonable. However, the trial Judge was wrong in failing to sever those identifiable covenants which rendered the provisions void. With appropriate severance I consider that the contract is enforceable.The position of First Pacific Mortgages Pty Ltd As to the position of the respondent First Pacific Mortgages Pty Ltd, the trial Judge considered that it was not bound by the restraint because it was not a party to the contract. I agree that it is not liable in damages for any breach of contract. It was not a party to the contract. However, I agree with Gray J that there may be equitable remedies available against it which have not yet been properly pleaded and which do not rely on contractual liability. It does not matter that the company was already in existence before the date of the contract. What matters is how it was used by the personal defendants in breach of the covenant if indeed there was a breach. As the matter must be remitted to the District Court for further hearing, those are matters which can be pursued in the District Court if the plaintiff is so advised.Proposed orders For all the foregoing reasons I would order that the appeal be allowed; that the orders made by the District Court on 11 September 2008 be set aside; that there be substituted for those orders an order by way of declaration that:(a)Clause 8(1)(a) and Schedule 1 of the agreement dated 22 March 2004 referred to in the Fourth Amended Statement of Claim should be applied as if the expression “, or was within 12 months before completion,” in clause 8(1)(a) and the expression “personal lending or home loans (including loans for the purpose of purchasing investment property) and whether new loans or” in Schedule 1 were deleted therefrom, and (b)clause 8(1)(a) and Schedule 1 of the said agreement as so amended are valid and enforceable; that the plaintiff’s claim be remitted to the District Court for further hearing and determination; and that the respondents pay the appellant’s costs of the appeal to be adjudicated.

Ratio Decidendi

Legal Principle Established

Established by: BLEBY J

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