PRD Realty Pty Ltd & Anor v Expectation Pty Ltd

PRD Realty Pty Ltd and another party (the plaintiffs) brought proceedings against Expectation Pty Ltd (the defendant) in the Supreme Court of New South Wales. The dispute concerned the interpretation and enforceability of a restraint of trade clause within a franchise agreement. The plaintiffs sought declarations that the restraint was void and unenforceable, and an injunction to prevent the defendant from enforcing it.

The central legal issue before the court was whether the restraint of trade clause, which purported to prevent the plaintiffs from engaging in a similar business for a period of two years after the termination of the franchise agreement within a specified geographical area, was reasonable and therefore legally enforceable. This required the court to consider the scope of the restraint, the legitimate business interests the defendant sought to protect, and whether the restraint went beyond what was necessary to protect those interests.

The court applied the established legal principles governing restraints of trade, which are presumed to be void as contrary to public policy unless the party seeking to enforce the restraint can demonstrate its reasonableness. Reasonableness is assessed by balancing the interests of the party imposing the restraint in protecting their legitimate business concerns against the interests of the restrained party in pursuing their trade or profession, and the public interest in free competition. The court found that the restraint was wider than necessary to protect the defendant's legitimate business interests, particularly in relation to the geographical scope and the breadth of activities prohibited.

Consequently, the Supreme Court of New South Wales declared the restraint of trade clause to be void and unenforceable and granted the injunction sought by the plaintiffs.