Rynemma Pty Ltd v Miller
[2014] WADC 8
•6 FEBRUARY 2014
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: BUNBURY
CITATION: RYNEMMA PTY LTD -v- MILLER [2014] WADC 8
CORAM: STONE DCJ
HEARD: 26, 27 & 28 NOVEMBER 2013
DELIVERED : 6 FEBRUARY 2014
FILE NO/S: CIV 12 of 2011
BETWEEN: RYNEMMA PTY LTD
Plaintiff
AND
MARTIN JOHN MILLER
First defendantJANICE DIANE MILLER
Second defendant
Catchwords:
Contract - Goodwill - Restraint of trade - Clause in restraint of trade - Construction and interpretation - Alleged breach of restraint - Damages
Legislation:
Nil
Result:
Judgment for the plaintiff
Representation:
Counsel:
Plaintiff: Mr A P Hershowitz
First defendant : In Person
Second defendant : In person
Solicitors:
Plaintiff: Emeris Lawyers Pty Ltd
First defendant : Not applicable
Second defendant : Not applicable
Case(s) referred to in judgment(s):
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Cream v Bushcolt Pty Ltd [2004] WASCA 82
Extraman (NT) Pty Ltd v Blenkinship [2008] NTSC 31
Idameneo (No 123) Pty Ltd v Dr Teresa Angel-Honnibal [2002] NSWSC 1214
Jaddcal Pty Ltd v Minson [No 3] [2011] WASC 362
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535
Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169
STONE DCJ:
Introduction
The plaintiff, Rynemma Pty Ltd (Rynemma) together with others purchased from the first defendant, Mr Martin John Miller and the second defendant, Mrs Janice Diane Miller the automotive dismantling business conducted by Mr Miller and Mrs Miller under the business name 'South West Truck and 4x4 Dismantlers' (SWT&4x4D) at 23 Halifax Drive, Davenport in Bunbury.
The sale of the business, by a Deed of Sale of Business (the DofSofB), was conditional upon Rynemma together with others purchasing from Mr Miller and Mrs Miller the freehold land at 23 Halifax Drive simultaneously with settlement of the sale of the business on 30 September 2010.
Subsequently Rynemma acquired the interest of the other purchasers in the business SWT&4x4D and the land at 23 Halifax Drive.
On or about 30 September 2010 Rynemma took over the operation and trading of SWT&4x4D at 23 Halifax Drive. SWT&4x4D's business was wrecking, dismantling and sale of used auto parts in respect of trucks and four wheel drives (4‑WDs).
Rynemma claimed that on 6 April 2011 Mr Miller and Mrs Miller registered the business name 'Best Wrek Bunbury 4x4' (BWB4x4) and on that date commenced carrying on the business of wrecking, dismantling and sale of used auto parts in respect of trucks and 4-WDs from premises at 7 Allnut Court in Bunbury.
It was not in dispute that the distance between 23 Halifax Drive and 7 Allnut Court was less than 2 km.
It was an express term of the DofSofB that in consideration of Rynemma agreeing to purchase the business SWT&4x4D, Mr Miller and Mrs Miller:
shall not either directly or indirectly undertake or carry on or be engaged, concerned or interested, either alone or in partnership with or as manager, agent, or servant or financier of any other person or firm or company or trust or otherwise either as shareholder, unit holder or director, in the business of wrecking, dismantling and sale of used auto parts in respect of trucks and four wheel drives within the areas specified in sub-clause 8.2 … for the period specified in sub-clause 8.3 … from the Date of Settlement whichever of these is respectively the maximum area and period of the restraint which is enforceable in accordance with sub-clause 8.4 … and neither [Mr Miller and Mrs Miller] will directly or indirectly within the same period seek to obtain business or be in competition with [Rynemma], within the same area.
The area provided by sub‑clause 8.2 was a radius of 10 km, 15 km and 30 km from 23 Halifax Drive.
The period provided by sub‑clause 8.3 was 18 months, two years and three years from 30 September 2010.
Rynemma claimed that in breach of the terms of the trade restraint clause in the DofSofB, Mr Miller and Mrs Miller had directly or indirectly carried on BWB4x4's business of wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs in competition with the business SWT&4x4D.
Rynemma claimed damages for loss of profits suffered and a loss of goodwill of the business SWT&4x4D.
The parties agreed the quantum of loss and damages suffered by Rynemma, but whether there was a breach of restraint of trade by Mr Miller and/or Mrs Miller, was in dispute.
Issues
The issues at trial were fairly narrow:
(a)Whether the trade restraint clause in the DofSofB was reasonable.
(b)If so, what period of the trade restraint in the area should apply?
(c)Whether Mr Miller and/or Mrs Miller directly or indirectly undertook or carried on or were engaged, concerned or interested in BWB4x4's business of wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs at its premises at 7 Allnut Court.
(d)If so, whether Mr Miller and/or Mrs Miller were in breach of the terms of the trade restraint clause in the DofSofB.
(e)If there was a breach of the terms of the trade restraint clause by Mr Miller and/or Mrs Miller, did that breach of the trade restraint cause Rynemma to suffer loss of goodwill and loss of profits for the business SWT&4x4D.
Evidence
Michael Joseph Lamberti
Mr Lamberti was the sole director of Rynemma. Rynemma carried on the business of wrecking 4‑WDs and other vehicles under its business name Wrek King (WK) and its previous business name, SWT&4x4D at its premises at 23 Halifax Drive. Mr Lamberti also operated the business Bunbury Towing & Busselton Towing (BT&BT).
Mr Lamberti knew Mr Miller and Mrs Miller operated the business Bunbury Auto Wreckers (BAW) at 23 Halifax Drive. BAW's business was dismantling passenger vehicles and 4‑WDs and selling the parts. Mr Miller and Mrs Miller also operated the business SWT&4x4D at 23 Halifax Drive for about 18 months before Rynemma and others acquired the business SWT&4x4D and the land at 23 Halifax Drive in late September 2010. Prior to sale, SWT&4x4D's business was dismantling 4‑WDs and selling the parts. When Mr Miller and Mrs Miller sold SWT&4x4D they moved to 28 Halifax Drive and operated BAW from there dismantling passenger vehicles and selling the parts.
Mr Lamberti explained the interest of himself, Rynemma, his former partner Mr Graeme Heron and his wife (the Herons), and his sister Mrs Lynette Cicchilitti and her husband (the Cicchilittis) in the acquisition of the business SWT&4x4D and the land at 23 Halifax Drive.
At some time before the sale of SWT&4x4D, Mr Lamberti spoke with Mr Miller about the business. Mr Miller said it was a really good business but he had burnt everything. On another occasion he spoke to Mr Miller and Mrs Miller. They told him they had been 'in the shed' at 23 Halifax Drive for 16 years and they had owned BAW for 20 years.
Prior to the acquisition of SWT&4x4D, Mr Miller and Mrs Miller gave Mr Lamberti permission to attend the business premises at 23 Halifax Drive to construct a mezzanine floor. He was there for about four weeks on a daily basis. During that period he was watching a steady flow of customers purchasing items; he spoke with Mr Miller about pricing, what he paid for vehicles; Mr Miller showed him big wads of cash; he observed the dismantling of 4‑WDs and the sale of parts; he observed the business was trading Tuesday to Saturday and closed Sunday and Monday. On an occasion he observed Mr Miller take from a tin $7,500 in cash and put it into his pocket. Mr Miller told him the turnover of the business was $40,000 to $50,000 per month. On another occasion he saw Mr Miller burning records. Mr Miller told him he did not want to pay tax. Mr Miller also told Mr Lamberti his intention was to retire.
Mr Lamberti was aware, prior to the acquisition of SWT&4x4D, that there were two 4‑WD wreckers in Picton. There were no 4‑WD wreckers and dismantlers in Bunbury apart from SWT&4x4D.
After the acquisition of SWT&4x4D, towards the end of September 2010, Mr Lamberti was working in the business with Mr Clinton Fraser as a salesman. Mr Clinton Fraser was Mr Miller's stepson and Mrs Miller's son. Mrs Cicchilitti did the books for SWT&4x4D and BT&BT.
Mr Lamberti described SWT&4x4D's business as buying 4‑WDs, dismantling 4‑WDs and selling the parts. If the parts were no good they were sold for scrap. Mr Lamberti explained how the business would buy a wreck from a customer by testing the engine and estimating the resale price of the engine. The engine would then be sold to cover the cost of the purchase. The remainder of the parts was profit. The primary cost was the purchase price plus the labour cost to dismantle the wreck. A good dismantler could dismantle two vehicles per day. The main source of business was local people (about 70%) although it acquired some vehicles through towing (10 ‑ 20%) and at auction. The average profit on a 4‑WD was $5,000, after taking into account the labour cost of approximately $250.
Mr Lamberti was directly involved in the operation of the business. He explained that sales were good in the beginning. The sales were recorded by Mr Clinton Fraser on paper in his handwriting.
Subsequently Mr Lamberti fell out with Mr Heron. By Deed of Settlement dated 16 March 2012 Mr Lamberti acquired the Herons' interest in the business SWT&4x4D and the land at 23 Halifax Drive. Mr Lamberti explained that he and the Cicchilittis had an arrangement whereby the Cicchilittis no longer had an interest in the business SWT&4x4D and the land at 23 Halifax Drive.
On 6 April 2011 BWB4x4 commenced as an automotive recycling business with its business premises at 7 Allnut Court.
The distance between BWB4x4's business premises at 7 Allnut Court was less than two km from SWT&4x4D's business premises at 23 Halifax Drive.
Around that time Mr Lamberti became aware that Mr Miller and Mrs Miller were involved in BWB4x4 and its business was wrecking 4‑WD wrecks and selling the parts. He instructed a solicitor who wrote to Mr Miller and Mrs Miller notifying them, inter alia, that they were in breach of the trade restraint in the DofSofB and requesting that they desist.
In the meantime, Mr Clinton Fraser left SWT&4x4D and he was working for BAW at 28 Halifax Drive.
Mr Lamberti explained how trade fell off within a month after 6 April 2011. The business stopped trading on Saturday because it had gone from $1000 to $3000 on a Saturday to $30 to $100; customers were not walking in off the street to sell 4‑WDs; and it had gone from selling three or four per week to two a year.
On 16 May 2011 Rynemma changed the business name from SWT&4x4D to WK because of the business difficulties after BWB4x4 opened. Mr Lamberti also wanted to use the name 'Wrek' as it was associated with wreckers. After the change of name to WK, business was generated at a significant cost by attending a conference in the Eastern States; joining 90 other wreckers across Australia to buy and sell wreck products online through Pinnacle Net; installing a computer program for its business; advertising; and substantial inter business loans from Mr Lamberti. The business became sustainable but not profitable because of the extra costs of advertising and Pinnacle Net. Mr Lamberti was unsure, but he believed Pinnacle Net accounted for 70% of the business.
On 5 September 2011 Mr Lamberti photographed outside BAW's premises at 28 Halifax Drive a truck displaying a BAW sign and a BWB4x4 sign on its tray. On 28 February 2012 Mr Lamberti photographed a number of 4‑WD wrecks in the front and rear yards of BWB4x4's premises at 7 Allnut Court.
In cross‑examination by Mr Miller, Mr Lamberti said his only qualifications were as a business owner. He was adamant he saw Mr Clinton Fraser tear pages from the daily book of records for parts sold and give them to Mr Miller who burnt them in a 44 gallon drum. At that time the business had no till tape or till but a till drawer. Mr Lamberti accepted that Mrs Miller registered the business name SWT&4x4D after he was approached by Mr Miller and Mrs Miller to buy the land. He agreed that when SWT&4x4D was first up and running under Mr Miller and Mrs Miller the business did not have a business name. Mr Lamberti bought the land and the business as a going concern. As settlement of the sale of the business approached Mr Lamberti observed that Mr Miller sold SWT&4x4D's stock and stopped buying 4‑WD stock. Mr Miller ran down the 4‑WD stock. Mr Lamberti accepted that SWT&4x4D had stock of $8000 on the changeover date. Mr Lamberti accepted that Best Wrek‑King was registered as a business name on 24 April 2012.
Daniel Walter Richard Jones
Mr Jones was a wreck dismantler who started working for WK in January 2013. Prior to that he worked at BWB4x4's premises at 7 Allnut Court for about 18 months from when it opened for business. He left BWB4x4 of his own accord.
Mr Jones explained his role at BWB4x4, his observations of the role of others in the business and the nature of its business.
He was employed by Mr Miller as a dismantler. He was paid in cash. He reported to Mr Clinton Fraser. Mrs Miller did the office work, answered the telephones, served customers and took the money home. Mrs Miller worked four to five days per week and on Saturdays. Mr Miller was often there, he drove a truck two or three days a week and he made sure the yard was organised. Mr Jones went on to explain 'We seemed to always have to keep [Mr Miller] happy. [Mr Clinton Fraser] would tell us to do something but if [Mr Miller] ever ordered it', it had to go Mr Miller's way.
BWB4x4 only wrecked 4‑WDs. The yard was always full ' … some weeks, we would see three, four, five motors, and they were all quite a few grand each … '. There did not seem to be a record keeping system. It was mostly cash sales. Mrs Miller told him to slip the cash under the till so the sale was not registered. The business got a fairly good price for 4‑WDs; it sold a lot of 2.8 Rodeo motors. The business paid $200 to $300 for the vehicle but sold the Rodeo motor for $3,000 to $3,500. Most of the customers were local walk‑ins.
In cross‑examination by Mr Miller, Mr Jones agreed he was paid by Mr Clinton Fraser whilst he was employed at BWB4x4. However, on an occasion, Mr Miller told Mr Clinton Fraser to pay him $120 per day not $100. He was adamant Mr Miller ran the business and signed cheques: 'Well, you brought [sic] everything, you run it. Everything we did have to make you happy. Clint didn't really have a say in it, you always had the top say'. He knew the cost of parts because he asked the price and dealt with customers ' … I was the one pulling the motors out and selling them, and Clint never kept any of that a secret. Everything – I knew the prices we were selling things for. Because I was the one actually asking him, 90 per cent of the time, what the price is, and telling the customer'. He claimed the business did not keep true records.
Louise Anne Lamberti
Mrs Lamberti was the wife of Mr Lamberti. She was qualified in business management. She and Mr Lamberti discussed the acquisition of SWT&4x4D.
Prior to the sale of SWT&4x4D Mrs Lamberti went to 23 Halifax Drive during trading hours where she saw 4‑WDs, vans and utes. Across the road at 28 Halifax Drive she saw passenger cars and sedans.
On 29 September 2010 Mr Lamberti and Mrs Lamberti moved into the caretaker's quarters at 23 Halifax Drive. Around 17 March 2011 Mrs Lamberti left her previous employment and she took over the bookkeeping of SWT&4x4D.
Mrs Lamberti explained the significant change in SWT&4x4D's business after BWB4x4 commenced business and what was done to keep the doors open and stay afloat. She tried to improve sales by a change of name, advertising, use of the Pinnacle software product to record transactions, installation of computers and linkage to other wreckers to sell parts. It was necessary for BT&BT to make inter‑business loans to SWT&4x4D to keep it afloat.
Max Rickli
Mr Rickli was a principal of Airmax Investigations. He was hired by WK to conduct surveillance on the operations of BWB4x4 at its premises at 7 Allnut Court.
Between 5 July 2012 and 18 July 2012 Mr Rickli and another operative conducted surveillance inside BWB4x4's premises at 7 Allnut Court. The main business was a wrecking yard. Photographs and video footage were taken of 4‑WD wrecks and accessories. On 14 July 2012 Mrs Miller was observed behind the reception area of the office speaking on the telephone. She then served a customer. When the other surveillance operative enquired about a set of side‑steps for a 4‑WD, Mrs Miller directed him into the warehouse where she showed him a set of side‑steps from a 4‑WD. Mrs Miller directed him to speak to another male about his specific enquiry. Mrs Miller was then seen polishing a fender.
Between 21 July 2012 and 11 August 2012 Mr Rickli and another operative conducted surveillance outside BWB4x4's premises at 7 Allnut Court. On one occasion Mr Miller was observed departing the premises.
In cross‑examination by Mr Miller, Mr Rickli said he was on the premises for about half an hour when he saw Mrs Miller speaking on the telephone, polishing a fender and behind reception dealing with customers. He did not see Mrs Miller putting money in the till or doing EFTPOS transactions.
Martin John Miller
Mr Miller had been in business for 30 years. He had operated 10 to 15 businesses. He was a qualified mechanic. He was an authorised vehicle examiner and a registered vehicle repairer.
Mr Miller had been employed on a sub‑contract basis as an authorised vehicle examiner by Alltrack from 31 January 2011 to 11 April 2012 and from 6 November 2012 to 18 February 2013. He ran his own trucking company from April 2012 to October 2012. Around that time he did some part‑time work at BAW at its premises at 28 Halifax Drive for Mr Daniel Fraser, his stepson and Mrs Miller's son. He was now unemployed because of his health.
Mr Miller explained that he and Mrs Miller did not work at BWB4x4 at its premises at 7 Allnut Court. BWB4x4 was run by Mr Clinton Fraser. Mr Miller had his own truck. He said his evidence was supported by the Department of Commerce Business Names Extract for BWB4x4, created on 12 September 2011, because that document showed that the person carrying on business since 5 April 2011 was Mr Clinton Fraser; the persons previously carrying on business were Mr Miller from 6 April 2011 to 15 April 2011 and Mrs Miller on 15 April 2011; BWB4x4's principal place of business since 15 April 2011 was 7 Allnut Court; and its previous place of business from 6 April 2011 to 15 April 2011 was 8 Smokebush Drive.
After Mr Lamberti approached Mr Miller and Mrs Miller to purchase the land and business package at 23 Halifax Drive, Mr Lamberti discussed with Mrs Miller a name for the business. Mr Lamberti liked the name SWT&4x4D which Mrs Miller registered in March 2010. At that time all sales were under BAW. There was nothing advertising SWT&4x4D.
In cross‑examination by Mrs Miller, Mr Miller agreed she was often babysitting at BWB4x4's business premises at 7 Allnut Court.
In cross‑examination by Mr Hershowitz, Mr Miller said he operated BAW for 23 years. There were two components to BAW's business; wrecking 4‑WDs and other vehicles. BAW had only been involved in wrecking 4‑WDs for three years prior to September 2010. Mr Miller had no problem with the terms of the restraint of trade clause in the DofSofB. At the time (he executed) the DofSofB, the same solicitors were acting for both parties and he quite possibly got some accounting advice.
Mr Miller accepted that the nature of BWB4x4's business of wrecking and dismantling 4‑WDs and selling the parts was the same as SWT&4x4D's business.
Mr Miller said that his 'defence' to the claim by Rynemma was that he and Mrs Miller were not involved in BWB4x4; however, there was a 'grey area'. Mr Miller explained that because of Mr Clinton Fraser's severe health issues, Mr Clinton Fraser 'went into a dark place' and 'he was under our wing for a long time, and during this time, he had bad financial dealings with regards to a loan … so to help him with his business I offered him assistance' with BWB4x4. He offered Mr Clinton Fraser advice for the start‑up and correct procedures regarding dealer's licences. Mr Miller went on to say 'Now, because of our involvement in the wrecking industry, and our good standing financially, a lot of the documents would reflect that we were in fact involved in it ... The grey area would be the first few months before he had his proper banking accounts'.
There was then the following exchange in cross‑examination:
Would you accept that for the first few months after 6 April 2011, you and Mrs Miller were actually involved in the business, BWB4x4? ‑‑‑Involved in that, as I've read it, had an interest in. Not involved as in undid nuts and bolts.
Mr Miller was adamant that Mrs Miller did not have an interest in BWB4x4.
Mr Miller explained that he went to Bunbury Tower and completed on behalf of Mr Clinton Fraser the paperwork for the Department of Commerce Business Names Extract for BWB4x4, created on 28 May 2011, which showed that BWB4x4's principal place of business since 15 April 2011 was 7 Allnut Court. Although he had nominated Mr Clinton Fraser as the current person carrying on business, the document erroneously showed the persons carrying on business as Mr Miller from 6 April 2011 and Mrs Miller from 15 April 2011. The document also erroneously referred to a shed at 8 Smokebush Drive as BWB4x4's previous place of business. Mr Miller did not agree that his explanation was fanciful.
Mr Miller agreed he signed a lease as trustee for a trust as lessee and as guarantor for BWB4x4's premises at 7 Allnut Court for three years from 1 April 2011 to 31 March 2014. Mr Miller explained that he did that because Mr Clinton Fraser would not have got a lease. Mr Miller said he 'over‑stepped the boundaries'. Mr Miller said he paid a third of the $10,000 security bond and Mr Clinton Fraser paid the balance. Mr Miller agreed there was an assignment of the lease from him as trustee for a trust as assignor to Mr Clinton Fraser as assignee on 22 August 2013 with effect 1 September 2013.
Mr Miller said:
We did wish to get all relevant documents into Clinton's – Clinton Fraser's name, as it was his business, and we realised that some of the documents could be quite damning. Our ignorance to the rent – the lease is shown again there where we made no effort to change that ... It's not that it was just something we forgot … I didn't realise the gravity of the fact that I leased a building.
Mr Miller did not accept that after the writ issued in August 2011 official documents were backdated to insert Mr Clinton Fraser as the person running BWB4x4. Mr Miller explained:
I went back to them and showed them that there was a mistake. It needs to change. I didn't understand how my wife's name got on there at all, and I needed it changed from mine to Clinton's. Because it became obvious to me that my name was on there … What actually happened is I went down with the request that Janice and my name be removed, and Clinton's name be added. What happened then is they added Clinton's name, and left Janice and my name on there … So I went back again and had our names removed and left Clinton's name on there.
Mr Miller did not accept that he put any money into BWB4x4. He explained that Mr Clinton Fraser used the cheque account that had Mr Miller's name on it. Mr Clinton Fraser was also a signatory on the cheque account. He accepted that in April 2011 he opened the Westpac bank account 'Mr Martin John Miller T/as Best Wrek Bunbury 4x4'. The account was already an operational account and it was a change of name. The account was active until March 2013 but not being operated. Mr Clinton Fraser had opened a second bank account.
Mr Miller agreed a licence was required for wrecking and dismantling. He said Mr Clinton Fraser had the necessary licences for BWB4x4 on 6 April 2011. The earlier documentation had expired or been destroyed.
Mr Miller agreed a forklift he had acquired under finance in April 2011, had been given to Mr Clinton Fraser because he needed a forklift. BWB4x4 had taken over the finance payments for him.
Mr Miller explained that Mrs Miller's email address on a BWB4x4 business card and a BWB4x4 invoice dated 31 May 2011 came about because Mr Clinton Fraser's partner was showing Mrs Miller respect 'because she would realise that she wouldn't have been allowed to put her own name on there'. Mr Miller said the documents were old.
Mr Miller said the Consumer Protection Dealer Licensing Report, created 12 September 2011, which showed Mr Miller and Mrs Miller as the authorised licence dealers for BWB4x4 was incorrect. Mr Miller went on to say by reference to the document 'the evidence here would show that, but I don't agree with it'.
Mr Miller said he did not place the BAW newspaper advertisement in the Bunbury Mail for 13 March 2013 which showed the locations of BAW and BWB4x4.
Trade restraint
Legal principles
The principles applicable to the reasonableness of restraint of trade clauses were stated by McLure JA in Smith v Nomad Modular Building Pty Ltd [2007] WASCA 169 [6] by reference to the test applied by Lord Macnaghten in determining the validity of a restraint of trade in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535. At 565 Lord Macnaghten said:
It is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guided as to afford adequate protection to the party in whose favour it is imposed, whilst at the same time it is no way injurious to the public.
At [8] McLure JA explained that 'a restraint is reasonable in relation to the restraining party if it is necessary for the adequate protection of that party and reasonable in relation to the party restrained if it preserves the fullest liberty of action consistent with that protection'.
Although the question of reasonableness was determined at the date of the contract, subsequent developments could be considered to determine whether the agreement was reasonable to make at the date of the contract, having in mind the best estimate that the parties could make for the future: Smith v Nomad Modular Building Pty Ltd [7].
Whether a restraint was reasonable was a question of law. Reasonable means both reasonable in relation to the parties and in relation to the public interest. The onus was on the restraining party to prove the restraint was reasonable as between the other parties, but the other party has the onus of proving that the restraint injures the public interest: Jaddcal Pty Ltd v Minson [No 3] [2011] WASC 362 [61] (Le Miere J).
The interest of a buyer of a business in protecting its goodwill from competition by the seller was a recognised legitimate interest meriting protection: Jaddcal [65].
In determining whether the restraint clause was reasonable there were three questions which must be addressed. First, was the operative scope; were the activities restrained, unduly wide? Second, was the area of the restraint unduly wide? Third, was the duration of the restraint unduly long? As well as addressing these three questions separately, it was also necessary to consider the cumulative effect of the three categories of restraint: Cream v Bushcolt Pty Ltd [2004] WASCA 82 per Malcolm CJ [87].
A factor to which the Court has regard was whether the parties had, as a result of negotiation on equal terms, freely made a bargain in which the particular restraint had been sought by one and given by the other. It was often said that in such a case the parties must be taken to know what was in their interests and what was reasonable: Idameneo (No 123) Pty Ltd v Dr Teresa Angel‑Honnibal [2002] NSWSC 1214 [51] (Palmer J).
The principles relevant to the reasonableness of the duration of restraint of trade were considered in Extraman (NT) Pty Ltd v Blenkinship [2008] NTSC 31 [78] (Angel J):
It seems to me, with respect, that sale of goodwill cases which treat customer connection as determinative of the reasonableness of the duration of a restraint, do not take sufficient account of a number of matters: that reasonableness is to be judged as at the date the covenant was entered into; that goodwill is not confined to customer connection: Federal Commissioner of Taxation v Murray (1998) 193 CLR 605; that goodwill is property; that subject to the contrary intention of the parties, a covenant protecting goodwill is for the benefit of the business - rather than the purchaser personally - which can be resold, the new purchaser gaining the benefit of the restraint: Pearson v Arcadia Stores, Guyra Ltd (No 1) (1935) 53 CLR 571; that the transfer of businesses from one hand to another would be discouraged if a narrow view of duration was taken. As Professor Trebilcock (The Common Law of Restraint of Trade, Carswell (1986) at 232) has observed, there is a public interest in promoting the sale of businesses and restraint clauses on the sale of businesses, while commonplace, are much less frequently litigated than post-employment contracts and much less frequently overturned. Furthermore, as Lord Macnaghten said in Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 567: 'When all trades and businesses are open to everybody alike, it is not very easy to appreciate the injury to the public resulting from the withdrawal of one individual'.
A restraint clause was to be interpreted like any commercial agreement giving the words and their operation a reasonable and commonsense interpretation. The words 'concerned in' have a very wide meaning and could be regarded as meaning 'having something to do with' a similar business: Jaddcal [120].
In assessing damages for breach of the restrictive covenant, the basic principle was that the injured party was to be placed in a situation which would have resulted in the proper performance of the contract: Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 [23] (Mason CJ and Dawson J).
Findings
I made the following findings with respect to the reasonableness of the restraint of trade clause in the DofSofB:
1.The goodwill of SWT&4x4D's automotive recycling business was of value, a genuine interest to protect and justification for a restraint from competition. There had been the sale of an existing business which had goodwill. Under the DofSofB $20,000 had been paid for goodwill of the business. Further, Mr Miller and Mrs Miller were obligated under the DofSofB to continue trading until settlement to protect the goodwill of the business. Mr Miller's evidence was that the business of 4‑WD wreckers and dismantlers which had been sold as SWT&4x4D was part of the business operations of BAW which had been going for approximately three years. Mr Lamberti's evidence was that prior to the acquisition of SWT&4x4D, he was aware of two other 4‑WD wreckers in Picton. There were no 4‑WD wreckers and dismantlers in Bunbury apart from SWT&4x4D. The restraint of trade clause was legitimate to protect the goodwill of the business being sold.
2.SWT&4x4D commenced business on or about 30 September 2010.
3.The restraint clause as to the automotive recycling business activities was reasonable. It was not too wide in its scope. The activities restricted under clause 8 of the DofSofB were wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs. The restraint clause restricted Mr Miller's and Mrs Miller's business activities to ensure that no competing business of theirs did what SWT&4x4D's business was doing, namely wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs.
4.The 10 km area of restraint under clause 8 of the DofSofB was, in all the circumstances, reasonable. It was not too wide in area. The evidence was that there were no other 4‑WD wreckers and dismantlers in Bunbury. It was not in dispute that the distance between the business at 23 Halifax Drive and the competing business at 7 Allnut Court was less than 2 km.
5.I do not accept Rynemma's contention that three years restraint under clause 8 of the DofSofB was reasonable. In my view, in the circumstances, two years was not unduly long. I reached that conclusion upon a consideration of the evidence that the purchase price of the business was $40,050 of which $20,000 was the goodwill component and $20,050 was for plant; there was $8,000 in stock at the changeover; there was no evidence that the land, which was purchased as part of the package for $1,980,000, had diminished in value because of the financial difficulties of the business; Rynemma was aware when it acquired the business that it was not a sophisticated business in that its financial records were hand written, they had not been kept properly or destroyed; the business was the only 4‑WD wreckers and dismantlers business in Bunbury; and the existing business had operated for three years before it was hived off and sold as SWT&4x4D. In my view two years would give SWT&4x4D a sufficient and reasonable opportunity to preserve or build up its business and establish its own name without competition. I also bear in mind Mr Miller and Mrs Miller acknowledged in clause 8.6 that the restraint area and period were no greater than was reasonably required to protect the goodwill of the business sold. Further, Mr Miller and Mrs Miller had access to lawyers at the time of the sale and quite possibly an accountant.
6.The cumulative effect of the duration, extent and activities restrained did not change my view that in the circumstances of the case, a restraint clause for a period of two years over an area of 10 km radius involving the restrained business activities of wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs was reasonable.
7.Mr Miller and Mrs Miller adduced no evidence and made no submissions that the restraint of trade clause was unreasonable or against the public interest.
I made the following findings with respect to whether Mr Miller breached the restraint of trade clause in the DofSofB:
1.Since 6 April 2011 BWB4x4 was carrying on the business of wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs in competition with SWT&4x4D.
2.Mr Miller admitted in par 9.1 of his Defence that in or about April 2011 the business BWB4x4 was registered in the names of Mr Miller and Mrs Miller.
3.As at 28 May 2011 the persons carrying on the business BWB4x4 were Mr Miller since 6 April 2011 and Mrs Miller since 15 April 2011. I did not accept Mr Miller's explanation that when registering the business name BWB4x4 for his son Mr Clinton Fraser he put down his son's name, but the names of himself and his wife, their address and the shed in Smokebush Drive were entered on the form by some sort of clerical error. Mr Miller's evidence about that was implausible.
4.As at 12 September 2011 there was a change to the persons carrying on the business BWB4x4 to record that Mr Clinton Fraser was the current person carrying on the business since 5 April 2011 and the previous persons carrying on the business were Mr Miller from 6 April 2011 to 15 April 2011 and Mrs Miller from 15 April 2011 to 15 April 2011. I am satisfied that was done by Mr Miller and/or Mrs Miller to cover their tracks because the writ had been served in August 2011.
5.On the totality of the evidence I am satisfied that Mr Miller together with Mrs Miller registered and established the business BWB4x4.
6.Mr Miller as trustee for his trust as the lessee and guarantor of obligations under the lease by the lessee leased the premises at 7 Allnut Court for the business BWB4x4 for three years from 1 April 2011.
7.Mr Miller paid a third of the $10,000 security bond under the lease and Mr Clinton Fraser paid the balance.
8.Mr Miller established a bank account in April 2011 styled 'Mr Martin John Miller T/as Best Wrek Bunbury 4x4' for the business BWB4x4 that was open and in existence in March 2013. There was no documentary evidence that BWB4x4 had any other bank account although Mr Miller claimed Mr Clinton Fraser opened a second account.
9.Mr Miller had authority to sign cheques on the bank account for the business BWB4x4 before he relinquished that right to Mr Clinton Fraser.
10.Mr Miller purchased a forklift under a finance arrangement which he gave to the business BWB4x4. BWB4x4 then took over Mr Miller's finance obligations.
11.Mr Miller employed Mr Jones on behalf of the business BWB4x4. I also accepted Mr Jones' evidence that although he reported to Mr Clinton Fraser, Mr Miller and not Mr Clinton Fraser made the decisions. Mr Jones was a credible witness and I preferred his evidence to Mr Miller's evidence. Mr Miller's evidence was implausible in many respects.
12.Mr Miller paid for and converted a truck for the business BWB4x4.
13.Mr Miller breached the restraint of trade clause in the DofSofB by being concerned in the business BWB4x4 in competition with SWT&4x4D. I accept Mr Miller's explanation that he did that to assist Mr Clinton Fraser.
I made the following findings with respect to whether Mrs Miller breached the restraint of trade clause in the DofSofB:
1.Since 6 April 2011 BWB4x4 was carrying on the business of wrecking, dismantling and sale of used auto parts in respect of trucks and 4‑WDs in competition with SWT&4x4D.
2.Mrs Miller admitted in par 9.1 of her Defence that in or about April 2011 the business BWB4x4 was registered in the names of Mr Miller and Mrs Miller.
3.As at 28 May 2011 the persons carrying on the business BWB4x4 were Mr Miller since 6 April 2011 and Mrs Miller since 15 April 2011.
4.As at 12 September 2011 there was a change to the persons carrying on the business BWB4x4 to record that Mr Clinton Fraser was the current person carrying on the business since 5 April 2011 and the previous persons carrying on the business were Mr Miller from 6 April 2011 to 15 April 2011 and Mrs Miller from 15 April 2011 to 15 April 2011. I am satisfied that was done by Mr Miller and/or Mrs Miller to cover their tracks because the writ had been served in August 2011.
5.On the totality of the evidence I am satisfied that Mrs Miller together with Mr Miller registered and established the business BWB4x4.
6.On the totality of the evidence of Mr Jones and Mr Rickli, which was not challenged in many respects, I was satisfied that Mrs Miller assisted the business BWB4x4 by dealing with customers and handling the money. I was confirmed in that view by the evidence of the BWB4x4 business card and BWB4x4 invoice which carried Mrs Miller's email address. I did not accept Mr Miller's evidence that Mrs Miller was at the business premises to baby-sit. It was not suggested to Mr Jones or Mr Rickli, that on the occasions they saw Mrs Miller at the BWB4x4 business premises, she was babysitting.
7.Mrs Miller breached the restraint of trade clause in the DofSofB by being concerned in the business BWB4x4 in competition with SWT&4x4D. I accept Mr Miller's explanation that he and Mrs Miller did that to assist Mr Clinton Fraser.
In my opinion the evidence that Mr Miller and Mrs Miller were concerned in the business BWB4x4 in competition with the business SWT&4x4D was overwhelming. I was also satisfied on the totality of the evidence of Mr Lamberti and Mrs Lamberti that the breach of the restraint of trade clause in the DofSofB by Mr Miller and Mrs Miller caused Rynemma to suffer loss of goodwill and loss of profits from 6 April 2011.
Damages
The parties agreed, if there was a breach of restraint of trade by Mr Miller and/or Mrs Miller, that the quantum of loss and damages suffered by Rynemma was $20,000 for loss of goodwill and damages of $5,000 per month from 6 April 2011 for whatever period the court determined was a reasonable restraint of trade together with interest thereon from 6 April 2011 to judgment at the rate of 6% per annum.
As I have made findings that the breach of the restraint of trade commenced on 6 April 2011, six months into the restraint period; two years was a reasonable period for the business to establish itself; and the business commenced on or about 30 September 2010 which was the date of settlement, then the maximum period of loss and damages suffered by Rynemma was 18 months.
I have calculated interest on the loss of profits at the rate 3% to allow for the incremental accumulation of damages.
I calculated Rynemma's loss and damages plus interest as follows:
Loss of goodwill $ 20,000 Interest on loss of goodwill ($20,000 x 18 x 6%) $ 1,800 Loss of profits ($5,000 per month x 18) $ 90,000 Interest on loss of profits ($5,000 per month x 18 x 3%) $ 225 Total loss and damages $112,025 Interest at 6% per annum from 1 October 2012 to date of judgment ($112,025 x 16 x 6%) $ 8,962 Total loss and damages $120,987
Conclusion
I order Mr Miller and Mrs Miller pay Rynemma loss and damages plus interest of $120,987.
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