WCP Ltd v Gambotto

In *WCP Ltd v Gambotto and Anor* [1993] NSWCA 285, the New South Wales Court of Appeal considered a dispute between WCP Ltd and two individuals, Gambotto and another. The core of the disagreement concerned the enforceability of certain restrictive covenants contained within a contract for the sale of a business.

The primary legal issue before the Court of Appeal was whether the restrictive covenants, which sought to prevent the vendor from engaging in a competing business within a specified geographical area and for a defined period after the sale, were void as being contrary to public policy. The Court was required to assess the reasonableness of these restraints in light of the legitimate interests of the purchaser to protect the goodwill of the business acquired.

The Court reasoned that while the protection of goodwill is a legitimate interest justifying restrictive covenants, such covenants must be no wider than is reasonably necessary to protect that interest. Applying established principles of contract law concerning restraints of trade, the Court examined the scope of the restrictions in terms of geographical area and duration. The Court found that the covenants, as drafted, were wider than reasonably necessary to protect the goodwill of the business and were therefore void as being contrary to public policy.

Consequently, the Court of Appeal allowed the appeal, finding that the restrictive covenants were unenforceable.