FEDERAL COURT OF AUSTRALIA

Australian Capital Territory v Munday [2000] FCA 653

RESTRAINT OF TRADE – common law restraint – grant by occupier of land of exclusive licence to carry on particular trade on land – other persons permitted to enter on terms prohibiting the carrying on of that trade – whether doctrine of restraint of trade applies – whether “pre-existing freedom” or “structure of trading society” test

North Western Salt Company Limited v Electrolytic Alkali Company Limited [1914] AC 461 mentioned

Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 applied

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 discussed

Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260 discussed

Quadramain Pty Ltd v Sevastapol Investments Pty Ltd (1976) 133 CLR 390 discussed

Thompson v Harvey (1689) Comb 121 at 122 mentioned

Pharmaceutical Society of Great Britain v Dickson [1970] AC 403 at 431 mentioned

Bartsch v Avtex Air Services Pty Ltd (Full Court of the Federal Court, unreported, 27 August 1993) mentioned

Greenhalgh v Composite Buyers Limited (Full Court of the Federal Court, unreported, 31 May 1995) mentioned

Peters (WA) Ltd v Petersville Ltd [1999] ATPR 41-714 discussed

McGuigan Investments Pty Ltd v Dalwood Vineyards Pty Ltd [1970] 1 NSWR 686 at 693 mentioned

Fisher v GRC Services Pty Ltd (1998) ATPR (Digest) 46-180 mentioned

Aloha Shangri-La Atlas Cruises Pty Ltd v Gavan [1970] Qd R 438 at 445 mentioned

ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 7640 at 673 mentioned

Hollywood Premier Sales v Faberge Australia (Pty) Ltd (1976) 11 ALR 18 at 22 mentioned

Adamson v NSW Rugby League (1991) 31 FCR 242 mentioned

Robinson v Golden Chips (Wholesale) Ltd [1971] NZLR 257 mentioned

Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538 at 550 mentioned

Stephens v Gulf Oil Canada Ltd (1975) 25 CPR 2d 64 mentioned

Woolworth v Hudsons Bay Company (1985) 61 NBR (2d) 403 mentioned

Cleveland Petroleum Co Ltd v Dunstone Ltd [1969] 1 WLR 116 mentioned

Panayiotou v Sony Music Entertainment (UK) Ltd (1994) 13 Tr L 532 at 548 mentioned

Instone v A Schroeder Music Publishing Co Ltd [1974] 1 All ER 171 mentioned

Donovan v Pennsylvania Company 199 US 279 (1905) discussed

Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd [1985] 1 All ER 303 mentioned

Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487 at 507,511 mentioned

Buckley v Tutty (1971) 125 CLR 353 mentioned

Forbes v New South Wales Trotting Club Ltd (1979) 143 CLR 242 discussed

Nagle v Feilden [1966] 2 QB 633 mentioned

United States v Addyston Pipe & Steel Co 86 F 291 (1898) mentioned

AUSTRALIAN CAPITAL TERRITORY v LEONARD GEORGE MUNDAY

A 20 of 2000

MILES, O’CONNOR AND HEEREY JJ

19 MAY 2000

MELBOURNE (HEARD IN CANBERRA)

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY

DISTRICT REGISTRY

A 20 of 2000

On appeal from the Supreme Court of the Australian Capital Territory

BETWEEN:	AUSTRALIAN CAPITAL TERRITORY Appellant
AND:	LEONARD GEORGE MUNDAY Respondent
JUDGES:	MILES, O'CONNOR AND HEEREY JJ
DATE OF ORDER:	19 MAY 2000
WHERE MADE:	MELBOURNE (HEARD IN CANBERRA)

THE COURT ORDERS THAT:

1. The appeal is allowed.

2. The order of 23 February 1999 is set aside.

3. In lieu thereof it is ordered that the respondent’s motion by notice dated 23 September 1998 is dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY

DISTRICT REGISTRY

A20 of 2000

On appeal from the Supreme Court of the Australian Capital Territory

BETWEEN:

AUSTRALIAN CAPITAL TERRITORY

Appellant

AND:

LEONARD GEORGE MUNDAY

Respondent

JUDGES:	MILES, O'CONNOR AND HEEREY JJ
DATE:	19 MAY 2000
PLACE:	MELBOURNE (HEARD IN CANBERRA)

REASONS FOR JUDGMENT

MILES J:

1 I have had the advantage of reading a draft of the reasons for judgment of Heerey J. I agree with his Honour’s conclusions and proposed orders. I agree with his Honour’s reasoning in relation to the issue of restraint of trade.

2 However, I consider that there is considerable force in the appellant’s contention that the issue is one that should not have been entertained by the Supreme Court. It is not to be overlooked that the doctrine may be invoked in order to defeat, on public policy grounds, a claim under a contract which is otherwise lawful and enforceable. It is well recognized that courts should tread warily before declaring contracts unenforceable on public policy grounds, especially where the parties have not raised that issue. In North Western Salt Company Limited v Electrolytic Alkali Company Limited [1914] AC 461, Viscount Haldane LC said at 469:

“…… it is no doubt true that where on the plaintiff’s case it appears to the Court that the claim is illegal, and that it would be contrary to public policy to entertain it, the Court may and ought to refuse to do so. But this must only be when either the agreement sued on is on the face of it illegal, or where, if facts relating to such an agreement are relied on, the plaintiff’s case has been completely presented. If the point has not been raised on the pleadings so as to warn the plaintiff to produce evidence which he may be able to bring forward rebutting any presumption of illegality which might be based on some isolated fact, then the Court ought not to take a course which may easily lead to a miscarriage of justice. On the other hand, if the action really rests on a contract which on the face of it ought not to be enforced, then, as I have already said, the Court ought to dismiss the claim, irrespective of whether the pleadings of the defendant raise the question of illegality.”

3 In the present matter there were no pleadings to speak of. Indeed the nature of the proceedings in the Supreme Court is obscure. The respondent’s notice of motion of 23 September 1998 appears to have been regarded as a continuation of proceedings commenced by originating application filed on 13 May 1998 in respect of which the primary judge had made various findings and given various rulings on 8 July 1998. The statement of claim endorsed on the originating application of 13 May 1998 complains only of harassing conduct on the part of officers of the ACT Department of Urban Services. As far as we were made aware, no defence has been filed to that statement of claim. The notice of motion of 23 September 1998 did not make clear whether the injunction sought was a permanent or interlocutory injunction. A declaration, which was the form of relief granted by the primary judge, would not have been available on an application for interlocutory relief. To the extent that we were made aware of the nature of the hearing on 6 October 1998 it seems that it was conducted as if it were a summary trial on application by the plaintiff, the present respondent. Summary trial procedure is available under O 15 of the Supreme Court Rules where a statement of claim has been filed. If summary trial is to take place on issues other than those raised in the statement of claim, that should be made clear on the record.

4 The factual material available at the hearing on 6 October 1998 provided a very unsatisfactory basis on which to decide whether the relevant conditions of entry to the Mugga Lane Tip should be declared unenforceable on the grounds of public policy. For that reason alone, the present case must be of very little value as a precedent. However, the appellant was unable to point to any objection taken in the Supreme Court either to the summary trial procedure or to the later introduction of the issue of restraint of trade. No doubt the primary judge was concerned to assist the respondent, then the moving party, to the extent that was proper and appropriate. Those representing the appellant at that stage no doubt considered that there would be a saving in costs and time in the procedure that was in fact followed. In view of the appellant’s acquiescence in that procedure, unsatisfactory as it was, I do not think that the appellant can successfully complain at this stage that the hearing was unfair. I would dismiss the appeal on this ground also.

I certify that the preceding four (4) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Miles.

Associate:

Dated: 19 May 2000

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY

DISTRICT REGISTRY

A20 of 2000

On appeal from the Supreme Court of the Australian Capital Territory

BETWEEN:

AUSTRALIAN CAPITAL TERRITORY

Appellant

AND:

LEONARD GEORGE MUNDAY

Respondent

JUDGES:	MILES, O'CONNOR AND HEEREY JJ
DATE:	19 MAY 2000
PLACE:	MELBOURNE (HEARD IN CANBERRA)

REASONS FOR JUDGMENT

O’CONNOR J:

5 I agree with the reasons for judgment given by his Honour Justice Heerey and with the orders proposed.

I certify that the preceding paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice O’Connor.

Associate:

Dated: 19 May 2000

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY

DISTRICT REGISTRY

A20 of 2000

On appeal from the Supreme Court of the Australian Capital Territory

BETWEEN:

AUSTRALIAN CAPITAL TERRITORY

Appellant

AND:

LEONARD GEORGE MUNDAY

Respondent

JUDGES:	MILES, O'CONNOR AND HEEREY JJ
DATE:	19 MAY 2000
PLACE:	MELBOURNE (HEARD IN CANBERRA)

REASONS FOR JUDGMENT

HEEREY J:

6 The appellant is the lessee from the Commonwealth of Australia of land at Mugga Lane in the Australian Capital Territory. On the land the appellant operates a rubbish dump and landfill area known as “the Tip”.

7 The appellant appeals from a judgment of the Supreme Court of the Australian Capital Territory which declared that those parts of the terms of entry to the Tip which

(a) prohibit entrants from trading, bargaining for or soliciting for materials, goods or waste within the Tip;

(b) require entrants only to approach the Tip face to dump items and then to depart forthwith or immediately; and

contravene the common law doctrine of restraint of trade and are accordingly void and of no effect.

Background

8 The Tip is open to the public during designated hours to enable them to approach an area designated for the dumping of domestic waste and other unwanted materials. This area is referred to as the Tip face.

9 During 1994 the appellant introduced fees for entry to the Tip face.

10 In August 1996 the appellant sought expressions of interest for the exclusive right to salvage recyclable materials from ACT landfill sites, including the Tip. The respondent and others formed a consortium which put in a bid but a company called Revolve Limited was successful. Revolve had already been operating recycling operations at the Tip for about two years. The appellant and Revolve entered into an agreement in writing dated 26 February 1997. The agreement extends for a period of three years from 1 January 1997 subject to extension for a further two years at the option of the appellant. By the agreement Revolve is given a non-exclusive right to enter and use the Tip (cl 3.1) and an exclusive right to salvage materials from the Tip face (cl 5.1). Revolve has established a depot and recycling area in part of the Tip. Entrance to this area remains free.

11 Prior to the commencement of litigation between the respondent and the appellant signs erected at the entrance to the Tip stated:

“All material deposited at this landfill is the property of the Territory.

Domestic and commercial customers whose Tip fees are not up-to-date will not be permitted to enter or dump at this landfill.

Revolve has exclusive rights to salvage material from the Tip face. Anyone found removing material from the Tip may be prosecuted.”

12 The respondent has for a number of years engaged in scavenging at the Tip face. He has collected discarded goods and either kept them for his own use or resold them at trash and treasure markets held at various sites in the Canberra region.

Proceedings in the Supreme Court

13 On 13 May 1998 the respondent commenced a proceeding in the Supreme Court seeking an injunction to restrain officers of the appellant’s Department of Urban Services (“the Department”) from interfering with his scavenging activities.

14 In a judgment given on 8 July 1998 his Honour concluded that the appellant may, as against persons licensed to enter the Tip face area, assert control over goods abandoned there for the benefit of Revolve. However his Honour construed the terms of the contractual licence for entry to the Tip contained in the signs as not prohibiting licensees from dealing with one another so as to transfer items of property whilst at the Tip, although the terms did prohibit the scavenging of goods already abandoned.

15 As a consequence of this judgment the appellant altered the conditions of entry to the Tip with the purpose of prohibiting trading in goods. At the entrance a new sign stated:

“Conditions of entry to Mugga Lane landfill are that entrants must obey all signs & directions by staff and must not trade, salvage, scavenge, bargain for or solicit for materials, goods or waste within the landfill unless within the premises of Revolve, Corkhill Bros, Metalcorp.”

16 Another sign stated:

“Conditions of entry into the tip area are that entrants must

· pay the relevant determined fee

· obey all signs and directions by staff

· proceed directly from the weighbridge to the tip face, upon arrival at the tip face tip any materials, goods or waste and then immediately leave the area

· not loiter within the tip area

· not trade, salvage, scavenge, bargain for or solicit for materials, goods or waste within the tip area.”

17 The terms referred to in the last mentioned notice were also contained on the back of tickets given to persons paying their entry fee. In addition the new conditions were published in the Canberra Times of 29 August 1998. It was not in dispute that the new terms of entry had been brought to the respondent’s attention.

18 On 23 September 1998 the respondent issued a notice of motion seeking amongst other things injunctions to restrain officers of the Department from preventing members of the public giving “recyclables” to himself and others and preventing himself and others from “lawfully soliciting for goods” at the Tip. A hearing took place on 6 October 1998. At all times in the proceedings in the Supreme Court the respondent was not legally represented. He was however represented by counsel on the hearing of the appeal before this Court.

19 Having reserved his decision, the learned primary judge on 30 October 1998 wrote to the appellant’s solicitor and to the respondent stating that in the course of his consideration his attention had been drawn to a number of named authorities. His Honour continued:

“Those cases raise a question as to whether the terms relied on by the Territory to limit the plaintiff’s activity on the Tip at Mugga Lane are invalid by reason of being in restraint of trade.

If the doctrine of restraint is applicable, then the further issue would be whether the restraint was reasonable viz-a-viz both the parties and the public.

I would like to extend to the parties the opportunity to make submissions on these issues. The List Clerk of the Court advises that the next available time to hear the matter would be in the next motions list for me being on Friday 13 November 1998. Please contact the Clerk to confirm your availability on that date.”

20 A further hearing took place before his Honour on 20 November 1998 and he delivered judgment on 23 February 1999.

Judgment of the primary Judge

21 His Honour set out the background already referred to. He then related evidence of an incident at the Tip on 20 September 1998. The respondent asked a person throwing away plastic bottles at the Tip if he could have them. When the person agreed and gave the respondent about twelve of the bottles, a Tip attendant told the respondent that if he put the bottles in his car that was soliciting and the police would arrest him. Police were called. Apparently the respondent kept the bottles. Some remaining bottles abandoned by the other person had already been bulldozed into the ground.

22 His Honour noted that the appellant was not free to impose whatever conditions it chose for entry to the Tip. The conditions had to be lawful. The appellant was, in licensing persons to have access to the Tip on payment of a fee, engaging in trade or commerce. His Honour found that on the evidence there was a market for goods which were about to be or which had been abandoned at the Tip. To permit only one of the competitors for such materials to have access to them substantially lessened competition for such goods. However his Honour noted that the Trade Practices Act 1974 (Cth) (“TPA”) does not prohibit conduct or agreements merely because the effect thereof is to lessen competition, even if it does so to the extent of conferring a monopoly. There was nothing in the TPA which prevented the appellant from granting exclusive rights to persons to salvage at the Tip.

23 His Honour then went on to consider the applicability of s 47(1) and (9) of the TPA which prohibit exclusive dealing. However his Honour considered there was no evidence on which he could find that restriction of competition was “substantial”, although he did find that it was arguable that the terms imposed on entrants to the Tip restricted or reduced competition for goods which otherwise would be dumped at the Tip, that competition being between Revolve and persons such as the respondent.

24 His Honour then discussed whether the terms of the licence were invalid as being an unreasonable restraint of trade at common law. The first issue dealt with by his Honour was whether the doctrine of restraint of trade applied at all. As will be discussed more fully subsequently, one of the suggested criteria for excluding the doctrine is that the impugned restraint is not a restraint on a pre-existing freedom to trade. His Honour held that even if it was essential that a restraint be of such a character before the doctrine applied, that requirement would be satisfied on the evidence before him. His Honour said (at pars 76-78):

“76. It was common ground that, prior to the grant of sole scavenging rights to Revolve, persons, including the plaintiff, would scavenge over the Tip area and take and sometimes resell items they found there. They would bargain between themselves, and with persons seeking to abandon goods, for the right to have them. That freedom has been curtailed by the actions of the Territory in imposing restrictions on the activities of persons entering upon the Tip. It is unrealistic, in my view, to look at each licence as if it bore no relationship to any other. Restraint of trade is, as the authorities disclose, to be viewed broadly.

77. Further, a consideration of the terms of a licence to be upon land is quite a different matter from the transfer of an enduring interest in it. The right of entry onto the Tip area is, as Mr Erskine [counsel for the appellant] conceded, little different to permitting patrons to enter and view a sporting event. It would, no doubt, be reasonable for a sporting promoter of that event to licence, say, food and drink vendors and lend value to such licences by limiting unauthorised competition. However, that does not mean that the test of reasonableness has no application. Rather it will readily be perceived to have been passed by such an arrangement.

78. It does not seem to me that the arrangement between the Territory, Revolve and persons entering the Tip area to dump unwanted items, is so much part of the structure of a trading society as to be exempt from, or to automatically satisfy, the doctrine of restraint of trade.”

25 As will be seen, the expression “structure of a trading society” is a reference to another suggested criterion for the exclusion of the doctrine.

26 His Honour then went on to deal with the question of reasonableness. He held that there were two relevant restraints of trade in the terms of entry. The first was the restraint upon the obtaining of abandoned goods by scavenging. His Honour held that this restraint was reasonable. The second restraint was upon trading at the Tip with other licensees before they abandoned their goods. His Honour held that this restraint was not demonstrated to be reasonable. Prior to abandonment of the goods by such other persons no right of Revolve was infringed. Thus he held that the terms mentioned at the outset of this judgment were void but could be severed from the other terms of entry.

Does the restraint of trade doctrine apply?

27 As his Honour appears to have accepted, before the reasonableness of a restraint is considered there is the anterior question as to whether the doctrine applies at all to a transaction of the kind in question. This issue has important practical consequences. If the doctrine does not apply, no question of reasonableness arises and the party seeking to justify the restraint does not have the burden of going into evidence. It may be appropriate to try the issue as a separate question under O 29 r 2 of the Federal Court Rules, or its equivalent in other jurisdictions, with a consequent saving of time and cost.

28 In the present case the restraint took the form of contractual terms of a licence under which the respondent was permitted to enter the appellant’s land (there being for present purposes no relevant distinction between freehold ownership and the appellant’s possession as lessee under a lease). The appeal proceeded on the assumption that the respondent carried on a trade, namely the trade of scavenging, that is to say acquiring abandoned goods and selling them at trash and treasure markets and the like. It is said the contractual terms in question restricted the respondent’s ability to carry on that trade because they shut off a potential supply of stock and also prevented him from disposing of stock by sale or exchange with other scavengers at the Tip. Humble though it may be, the respondent’s occupation can legitimately be called a trade. That aspect is not in issue. What the appellant argues however is that the learned trial judge erred in holding that the doctrine had any application. If this contention is correct it will not be necessary to consider his Honour’s findings as to reasonableness.

29 I turn now to the authorities, and in particular the decision of the House of Lords in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 and the trilogy of High Court cases conveniently collected in volume 133 of the Commonwealth Law Reports: Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260, Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 and Quadramain Pty Ltd v Sevastapol Investments Pty Ltd (1976) 133 CLR 390.

Esso

30 The respondent owned two service stations. It entered into solus agreements with Esso under which it covenanted to take all its petrol supplies from Esso for a specified period, four years and five months in the case of one service station and twenty-one years in the case of the other. When cheaper petrol became available the respondent commenced to buy from such sources and ceased selling Esso petrol. Esso sought injunctions to restrain the respondent from buying other than from Esso any petrol for resale at the service stations in question. The respondent counter-claimed for declarations that the covenants were invalid. In the House of Lords R E Megarry QC argued on behalf of Esso that the doctrine did not apply because the restrictive covenants affected land and thus imposed a burden on the land rather than on a person. The doctrine had no application to restrictions regulating how the covenantor may use a plot of land owned by him (at 276, 289).

31 All members of the House rejected this argument. Their Lordships held that the doctrine did apply and that the twenty-one year covenant was invalid but the shorter one was not. Different tests were propounded for determining whether the doctrine applied. Before going into detail it can be observed that, given the result, the restraints did not meet the exclusionary test, however it be formulated.

32 The first test is the pre-existing freedom test. It was adopted by Lord Reid, Lord Morris of Borth-Y-Gest, Lord Hodson and Lord Pearce. Lord Reid said (at 298):

“It is true that it would be an innovation to hold that ordinary negative covenants preventing the use of a particular site for trading of all kinds or of a particular kind are within the scope of the doctrine of restraint of trade. I do not think they are. Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had. A person buying or leasing land had no previous right to be there at all, let alone to trade there, and when he takes possession of that land subject to a negative restrictive covenant he gives up no right or freedom which he previously had.”

33 See also per Lord Morris of Borth-Y-Gest (at 309) and per Lord Hodson (at 316).

34 On this basis the critical fact was that the respondent was already trading at the two sites when it entered into the covenants. Had it purchased or leased the stations from Esso and at the same time entered into the covenants, the doctrine would not have applied.

35 Lord Pearce (at 325) thought it clear that covenants restraining the use of the land imposed as a condition of any sale or lease to the covenantor or his successors should not be unenforceable but

“when a man fetters with the restraint land which he already owns or occupies, the fetter comes within the scrutiny of the Court.”

36 Thus Lord Pearce also adopted the pre-existing freedom test. However his Lordship went on to propound another test which looks at the nature of the performance required by the contract rather than the surrender of freedom at the contract’s inception. His Lordship said (at 328, citations omitted):

“The doctrine does not apply to commercial contracts for the regulation and promotion of trade during the existence of the contract, provided that any prevention of work outside the contract, viewed as a whole, is directed towards the absorption of the parties’ services and not their sterilisation. Sole agencies are a normal and necessary incident of commerce and those who desire the benefits of a sole agency must deny themselves the opportunities of other agencies. So, too, in the case of a film-star who may tie herself to a company in order to obtain from them the benefits of stardom. And partners habitually fetter themselves to one another.

When a contract only ties the parties during the continuance of the contract, and the negative ties are only those which are incidental and normal to the positive commercial arrangements at which the contract aims, even though those ties exclude all dealings with others, there is no restraint of trade within the meaning of the doctrine and no question of reasonableness arises. If, however, the contract ties the trading activities of either party after its determination, it is a restraint of trade, and the question of reasonableness arises. So, too, if during the contract one of the parties is too unilaterally fettered so that the contract loses its character of a contract for the regulation and promotion of trade and acquires the predominant character of a contract in restraint of trade.” (Emphasis in original)

37 This test can be referred to as the sterilisation of capacity test.

38 A third test is to be found in the speech of Lord Wilberforce. It can be referred to as the trading society test. His Lordship observed (at 331-332):

“The common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken, even if it were possible, to try to crystallise the rules of this, or any, aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason.

The use of this expression justifies re-statement of its classic exposition by White C.J. in Standard Oil Co. of New Jersey v United States 221 US 1 (1910) at 63. Speaking of the statutory words ‘every contract in restraint of trade’ (Sherman Act, 1890), admittedly taken from the common law, almost contemporaneous with Lord Macnaghten’s formula [in Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 at 565] and just as wide, he said:

‘… as the acts which may come under the classes stated in the first section and the restraint of trade to which that section applies are not specifically enumerated or defined, it is obvious that judgment must in every case be called into play in order to determine whether a particular act is embraced within the statutory classes, and whether if the act is within such classes its nature or effect causes it to be a restraint of trade within the intendment of the Act …’

And he goes on to say that to hold to the contrary would involve either holding that the statute would be destructive of all right to contract or agree or combine in any respect whatsoever, or that, the ‘light of reason’ being excluded, enforcement of the statute was impossible because of its uncertainty. The right course was to leave it to be determined by the light of reason whether any particular act or contract was within the contemplation of the statute. One still finds much enlightenment in these words.

This does not mean that the question whether a given agreement is in restraint of trade, in either sense of these words, is nothing more than a question of fact to be individually decided in each case. It is not to be supposed, or encouraged, that a bare allegation that a contract limits a trader’s freedom of action exposes a party suing on it to the burden of justification. There will always be certain general categories of contracts as to which it can be said, with some degree of certainty, that the ‘doctrine’ does or does not apply to them. Positively, there are likely to be certain sensitive areas as to which the law will require in every case the test of reasonableness to be passed: such an area has long been and still is that of contracts between employer and employee as regards the period after the employment has ceased. Negatively, and it is this that concerns us here, there will be types of contract as to which the law should be prepared to say with some confidence that they do not enter into the field of restraint of trade at all.

How, then, can such contracts be defined or at least identified? No exhaustive test can be stated – probably no precise non-exhaustive test. But the development of the law does seem to show that judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations. That such contracts have done so may be taken to show with at least strong prima force that, moulded under the pressures of negotiation, competition and public opinion, they have assumed a form which satisfies the test of public policy as understood by the courts at the time, or, regarding the matter from the point of view of the trade, that the trade in question has assumed such a form that for its health or expansion it requires a degree of regulation. Absolute exemption for restriction or regulation is never obtained: circumstances, social or economic, may have altered, since they obtained acceptance, in such a way as to call for a fresh examination: there may be some exorbitance or special feature in the individual contract which takes it out of the accepted category: but the court must be persuaded of this before it calls upon the relevant party to justify a contract of this kind.”

39 Lord Wilberforce then went on to note (at 333-334) the historical process whereby various types of contracts

“initially regarded with suspicion [had] later come to be accepted as not, or no longer, calling for justification.”

40 First there were the cases concerning clauses in public house leases tying the lessee to acquire the lessor’s beer.

“… [B]y 1850 they had become current; the attrition of negotiation and competition may be taken to have worn down to an acceptable shape and in Catt v Tourle (1869) 4 Ch App 654 the Court of Appeal in Chancery not only accepted that such covenants were outside the doctrine of restraint of trade, but was prepared to extend the exclusion to the case where the servient house was sold instead of leased. I quote Selwyn LJ’s words:

‘… with respect to this particular covenant, it seems to me that the court cannot but take judicial notice of its being extremely common.

…

We should be introducing very great uncertainty into a very large and important trade if we were now to suggest any doubt as to the validity of a covenant so extremely common as this is.’”

41 Similarly excepted from the doctrine were covenants in leases not to carry on a particular trade. This had become “accepted doctrine” by 1689: Thompson v Harvey (1689) Comb 121 at 122. Likewise in regard to dispositions of freehold, Lord Wilberforce (at 335) noted that for over 100 years it has been “part of the normal technique of conveyancing” to impose and accept covenants restricting the use of land for particular trades or for trade generally.

42 Lord Wilberforce’s conclusion, and the source of the trading society test, appears in the following passage (at 335):

“One may express the exemption of these transactions from the doctrine of restraint of trade in terms of saying that they merely take land out of commerce and do not fetter the liberty to trade of individuals; but I think once can only truly explain them by saying that they have become part of the accepted machinery of a type of transaction which is generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society. If in any individual case one finds a deviation from accepted standards, some greater restriction of an individual’s right to ‘trade,’ or some artificial use of an accepted legal technique, it is right that this should be examined in the light of public policy.”

43 Before leaving Esso it can be observed that the pre-existing freedom test was formulated by the majority in terms expressly applicable to the purchase or lease of land. Since the primary argument of the appellant was that any covenant affecting land was outside the doctrine, it is understandable that the response of the majority was to say that the doctrine was only excluded when a purchaser or lessee acquired the land and, at the same time, entered into the covenant. The case was concerned with covenants affecting land.

44 But, as will be discussed later, the public interest can be adversely affected by anti-competitive arrangements which do not concern land, just as much by those which do. Lord Wilberforce’s trading society test takes account of this.

Pamag

45 This case concerned a trade tie between a baker and a flour miller contained in a bill of sale securing a loan by the latter at favourable interest rates. The baker was seeking to set up a bakery at a newly established mining town in Queensland. All members of the court, (Menzies, Walsh and Stephen JJ) accepted that the doctrine applied but held the restraint was reasonable. Menzies J (at 263) had “no doubt” that the doctrine applied. Walsh J referred (at 267) to the pre-existing freedom in Esso as dicta and remarked that it had no application to the facts of the present case. Stephen J suggested (at 282) the possibility that the doctrine may not be applicable where the restraint was confined to the covenantor’s source of raw materials rather than as to the sale of its products. His Honour also commented (at 284) that it may be illusory to speak of any exclusionary criteria and that, adopting the remarks of Lord Hodson in Pharmaceutical Society of Great Britain v Dickson [1970] AC 403 at 431 it was not possible to segregate

“any particular class of case so as to exclude it from the ambit of the doctrine although there are of course many cases where it is futile to raise it”.

46 Turning to what his Honour regarded as a different aspect, that is not so much the nature of the covenant as the circumstances under which the covenantor entered into it, Stephen J considered (at 284) that there was now “much authority” for the pre-existing freedom test (at 284). This may extend not merely to sale and purchase of land but to cases where other original assets are acquired. His Honour said (at 285):

“When, in equipping oneself for a trade, it happens that the only source of finance is a trade supplier and part of the price of that finance is a trade-tie, it then positively encourages trade that that tie should be valid and enforceable, else entry into the trade by those without independent sources of finance will be prevented; those engaging in the trade will be the fewer and competition the less.”

Amoco

47 Rocca owned land near Adelaide. It entered into an agreement with Amoco by which it was provided Rocca would erect a service station. On completion Rocca would lease the land to Amoco for fifteen years at a nominal rent and Amoco would grant to Rocca an underlease for fifteen years less one day, again at a nominal rent. The underlease contained a covenant by Rocca to acquire all its petroleum supplies from Amoco.

48 Rocca argued that the doctrine did not apply because Rocca obtained possession of the land by the underlease which included the restraint and therefore there was no surrender of a pre-existing freedom. This argument got short shrift in the High Court from the majority (McTiernan ACJ, Menzies, Walsh and Gibbs JJ). Accepting that the lease and the underlease were not shams, nevertheless in substance Rocca was never out of possession of the land (per Menzies J at 293, per Walsh J (with whom McTiernan ACJ agreed) at 304-5, per Gibbs J at 313-4). Their Honours displayed little enthusiasm for the validity of the criterion itself. Walsh J said (at 304):

“It is not necessary to examine closely the correctness of the principle stated in the passages in some of the speeches in Esso on which Amoco relies. I should be reluctant to accept that principle as a valid ground for treating the restraint of trade doctrine as necessarily inapplicable.”

49 Menzies J (at 293) accepted that the doctrine could have application where the covenantor was starting a new business and the restraint was given in relation to future trading. Gibbs J held (at 313) that it was unnecessary to decide whether the doctrine was limited by the pre-existing freedom test. Stephen J (dissenting) held that the doctrine was not applicable. His Honour applied both the sterilisation of capacity test (at 328) and the pre-existing freedom test (at 329).

Quadramain

50 The owner of two pieces of adjoining land transferred one lot subject to a covenant in favour of the other that the land transferred would not be the subject of an application for a liquor licence. The original covenantor transferred the burdened land to one of the defendants who leased it to the other defendant. The benefited land had been transferred to the plaintiff. Thus the dispute as to enforcement was not between original covenantor and covenantee.

51 Barwick CJ, McTiernan, Gibbs, Stephen and Mason JJ (Jacobs and Murphy JJ dissenting) held that the doctrine of restraint of trade did not apply to restrictive covenants given by a person purchasing or leasing land. Barwick CJ stated (at 394) that Esso supported the conclusion that an existing covenant to which the purchaser of the land subject to the covenant is not a party or privy is not a contract in restraint of trade. He preferred the reasoning of the majority in Esso. His Honour held (at 394) that no restraint of trade was involved because the plaintiff and defendant were not the parties to the restrictive covenant noted on the Certificate of Title. His Honour considered that Esso supported

“the conclusion that an existing covenant, to which the purchaser of the land subject to the covenant is not a party or a privy, is not a contract in restraint of trade.”

52 McTiernan J’s judgment was essentially to the same effect. His Honour said (at 396-397):

“It is not in doubt, on the authority of Tulk v Moxhay (1848) 2 Ph 774, 41 ER 1143, that a covenant between vendor and purchaser, on the sale or lease of land, that the purchaser or his assigns shall use or abstain from using the land in a particular way, will be enforced in equity against persons who were not parties to the original covenant or agreement if they take with notice. In the present case the covenant was noted on the certificate of title.

In my opinion the covenant in question – a Tulk v Moxhay type of covenant – is not invalid by reason of the doctrine of restraint of trade.”

53 Gibbs J also held that the doctrine did not apply. After noting that the categories of restraint of trade are not closed, and that the doctrine is not confined to contractual restraints but applies to all restraints however imposed, his Honour referred to the adoption of the pre-existing freedom test by the majority in Esso. His Honour then commented (at 401) that Lord Wilberforce’s trading society test was “a more flexible test which may in time come to be preferred”. He continued (at 402):

“It is unnecessary, for present purposes, to consider whether either of these statements of principle correctly defines the limits of the doctrine. The conclusion that the rules relating to restraint of trade do not apply to restrictive covenants given by a person purchasing or leasing land should be accepted as correct, at least as a general rule. The doctrine of restraint of trade is based on public policy. When a purchaser, with a view to obtaining a particular piece of land, which he could not otherwise acquire, or could acquire only on paying a greater price, freely gives to the vendor a covenant, for the benefit of other land of the vendor, that he will not use the land purchased for the purpose of trade generally or for the purpose of a particular trade, there is, speaking generally, no possible reason of public policy that would require such a covenant to be invalidated. The same is true where a purchaser or lessee chooses to buy or lease land already subject to a restrictive covenant. Indeed, as Lord Pearce said in [Esso], ‘It would be intolerable if, when a man chooses of his own free will to buy, or take a tenancy of, land which is made subject to a tie (doing so on terms more favourable to himself owing to the existence of the tie) he can then repudiate the tie while retaining the benefit’. Where the public policy has no possible operation, the rules founded on it have no application.”

54 His Honour went on to note the observation in Esso that there had been many cases in which it appears to have been assumed that the rules relating to restraint of trade have no application to restrictive covenants given by purchasers and lessees. His Honour noted Australian and New Zealand authorities to the same effect.

55 Stephen J (at 405) and Mason J (at 406) agreed with Gibbs J. Jacobs J dissented in the result. But he expressed a preference for the trading society test. His Honour said (at 416) after quoting from Lord Wilberforce’s judgment (at 333):

“I take these words to mean that the doctrine of restraint of trade is always there, waiting to be applied if necessary; but the courts by a line of decision which may still properly be applied to contemporary conditions make proof that the restraint is not contrary to public policy unnecessary in the particular case. I would respectfully adopt this approach but would expressly limit the application of it to covenants imposed in the context of a trading purpose. I do not think that Lord Wilberforce intended otherwise.”

56 Murphy J (at 421) agreed with Jacobs J.

Effect of High Court authorities

57 In both Pamag and Amoco the doctrine was held applicable. The restraint in question was found to be reasonable in the former case but not in the latter. In Quadramain the majority held the doctrine did not apply.

58 In none of the three cases was it held that the doctrine was inapplicable because the restraint did not affect a pre-existing freedom. The most that can be said is that such an argument was run in Amoco, but rejected on the facts.

59 Nor has the trading society test been determinative, although in Quadramain the entrenchment in law and legal practice of a particular kind of transaction, a Tulk v Moxhay covenant, was accepted as excluding the doctrine.

60 The sterilisation of capacity test was considered by Stephen J in Amoco (at 328) but not elsewhere.

61 It therefore cannot be said that there is binding High Court authority mandating any one of the Esso tests, although by the time of Quadramain a distinct preference for Lord Wilberforce’s trading society test appears to be emerging.

62 Importantly for the present case however, it can be said that

(i) However elusive definition may be, the common law does have criteria which exclude particular categories of transaction from the doctrine. The proposition that the doctrine is of universal application, but as a matter of fact is not raised in some cases because the restraint is obviously reasonable, appears no longer tenable;

(ii) the fact that the restraint affects the use of a particular piece of land does not of itself exclude the doctrine; and

(iii) the acquisition of a right in relation to land which right is, the time of acquisition, subject to the restraint, may be outside the doctrine.

63 In many cases a restraint will satisfy all of the Esso exclusionary tests, so it is not necessary to choose between them. As will be discussed later, the present case probably does require a choice.

Federal Court authorities

64 Discussions of three Full Courts of the Federal Court have touched on this issue, although in no case was an interest in land involved. In Bartsch v Avtex Air Services Pty Ltd (Gummow, French and Heerey JJ, unreported, 27 August 1993) the Court was concerned with an exclusive licence in perpetuity to use a system of pilot training in the Sydney area. It was argued that pre-existing freedom restriction was part of the common law and applied in the instant case.

65 The Full Court noted that the primary judge (107 ALR at 559) preferred not to consider whether what had been said in Esso was confined to the case of leases. The Full Court said (at par 52) that in the absence of full argument they should take the same course. Their Honours went on to hold that the restraint was reasonable.

66 In Greenhalgh v Composite Buyers Limited (Davies, Einfeld and Sackville JJ, unreported, 31 May 1995) the Court held invalid a restraint requiring a supermarket owner to acquire 90 per cent of its stock from one supplier for a period of 80 years. The Court did not discuss the Esso tests and proceeded in the implicit assumption that the doctrine was applicable.

67 In Peters (WA) Ltd v Petersville Ltd [1999] FCA 1245 (French, Kiefel and R D Nicholson JJ) the Court considered a restraint contained in an agreement for the sale of a business where there were ongoing licensing arrangements. Their Honours referred to an argument based on Lord Pearce’s sterilisation of capacity test. Their Honours said (at par 15) that the question whether a covenant amounted to a restraint was one of fact, citing Esso at 332. Having just quoted a passage from Lord Pearce’s speech, their Honours presumably meant not just the question whether there was a restraint, but whether that restraint was within the doctrine. However the reference to Esso at 332 is to Lord Wilberforce’s speech. This does not provide support for the proposition that the question whether a restraint of a particular type is within or outside the doctrine is merely a question of fact: see the passage in question quoted at par 38 above.

68 In any event their Honours decided (at par 23) that the restriction “amounted to a restraint”, essentially because it was too wide; it extended to manufacture distribution and sale of the relevant products to anyone anywhere in the world. (Query whether this fact goes to the reasonableness of the restraint rather than the anterior question as to whether the doctrine applies.) Their Honours then went on to find the restraint not reasonable.

69 Their Honours applied Lord Pearce’s test without discussing the pre-existing freedom or trading society tests.

Other Australian authorities

70 In McGuigan Investments Pty Ltd v Dalwood Vineyards Pty Ltd [1970] 1 NSWR 686 at 693 Hope J said:

“… I do not regard (Esso) as authority for the proposition that the doctrine of restraint of trade is inapplicable to covenants in gross simply because they restrict the use of a particular parcel of land; indeed I regard it as authority that the doctrine is applicable in such a case except in the special cases of leases and covenants the benefit of which is annexed to other land, though in the latter case the doctrine may be applicable where the covenant is not given upon the original acquisition of the land and possibly in other cases also.”

71 Some cases have adopted one of the Esso tests, without referring to the other approaches. The “pre-existing freedom” test has been adopted and applied in circumstances unrelated to land (see eg Fisher v GRC Services Pty Ltd (1998) ATPR (Digest) 46-180, Muir J, Supreme of Queensland). Other cases have referred to and applied Lord Pearce’s sterilisation of capacity test (see eg Aloha Shangri-La Atlas Cruises Pty Ltd v Gavan [1970] Qd R 438 at 445; ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 7640 at 673). The tests in Esso are not always seen as competing approaches, and some cases have discussed and considered all three tests (see eg Hollywood Premier Sales v Faberge Australia (Pty) Ltd (1976) 11 ALR 18 at 22; Petersville Ltd v Peters (WA) Ltd (1999) 160 ALR 359 at 365-369).

72 Other cases have discussed Esso only in the context of whether a restraint is reasonable (see eg Adamson v NSW Rugby League (1991) 31 FCR 242).

73 There does not appear to be any Australian decision which explicitly prefers one of the Esso tests above the others. Nor is there any authority which explicitly holds that such a choice is unnecessary.

New Zealand

74 In Robinson v Golden Chips (Wholesale) Ltd [1971] NZLR 257 North P, with the concurrence of other members of the New Zealand Court of Appeal, discussed the Esso tests but did not find it necessary to choose between them. His Honour said (at 265):

“It is I think plain that in the opinion of their Lordships the necessities of modern commercial life have called for a reappraisal of the kinds of cases to which the Nordenfelt principle should apply. With respect, I consider that we too in this country should draw a distinction between what I have described as ‘naked’ covenants and covenants which arise out the sale of land.

…

I see no reason why any distinction should be drawn, in principle, between the sale of freehold and the sale of a leasehold interest such as this.”

75 In Thomas Borthwick & Sons (Australasia) Ltd v South Otago Freezing Co Ltd [1978] 1 NZLR 538 at 550 the Court of Appeal noted that the decision in Esso had “… brought out the flexibility and vitality of the restraint of trade doctrine”.

Canada

76 In Stephens v Gulf Oil Canada Ltd (1975) 25 CPR 2d 64 the Ontario Court of Appeal applied the pre-existing freedom test. Delivering the judgment of the court Howland JA said (at 82):

“… the House of Lords drew a fundamental distinction between a situation where a person accepts restraints on property that he already owns, and one where he purchases land which is already subject to restrictions. Only in the former case can the contract be in restraint of trade. Whilst the opinions of the Law Lords that the restrictions imposed on a purchaser when he buys a property are not in restraint of trade were obiter, in my view they were correct.”

77 In Woolworth v Hudsons Bay Company (1985) 61 NBR (2d) 403 the New Brunswick Court of Appeal held that restrictive covenants in shopping centre leases were provisions which

“… by the pressure of negotiations and competition has passed into acceptance or into a balance of interest between the parties and their consumers.”

Thus in substance Lord Wilberforce’s trading society test was adopted.

United Kingdom

78 In Cleveland Petroleum Co Ltd v Dunstone Ltd [1969] 1 WLR 116 the Court of Appeal on an interlocutory injunction application followed the pre-existing freedom test in the case of an oil company tie.

79 In Panayiotou v Sony Music Entertainment (UK) Ltd (1994) 13 Tr L 532 at 548 Parker J considered (at 548) that it was significant that Lord Reid, Lord Morris of Borth-Y-Gest, Lord Pearce and Lord Wilberforce in Esso

“… all approach the question ‘Where is the line to be drawn?’ by considering which contracts (being contracts in restraint of trade in ordinary parlance) do not attract the doctrine of restraint of trade, rather than by considering which of such contracts do attract the doctrine.

That being so, it follows, in my judgment, that the right approach for the Court, once it is satisfied that the contract before it is a contract which is (in ordinary parlance) in restraint of trade, is to consider whether in all the circumstances sufficient grounds exist for excluding the contract from the application of the doctrine.”

80 His Lordship thought that there was no formula applicable to all cases:

“… this appears to me to be no more than a reflection of the fact that the doctrine itself is not of its nature susceptible of that degree of analysis. Esso establishes that the doctrine is not to be applied in a mechanistic or formulistic way. Such an approach would, as it seems to me, be the antithesis of the approach required by the ‘rule of reason’.”

81 In Instone v A Schroeder Music Publishing Co Ltd [1974] 1 All ER 171 the Court of Appeal disagreed with Lord Pearce’s test on the grounds that the classification of covenants in this way would pre-empt the decision on reasonableness. The Court said (at 177):

“Rather than attempt to classify some situations involving restrictions on trade as restraints of trade and some situations as not, we would prefer a general approach to all situations.”

United States

82 In Donovan v Pennsylvania Company 199 US 279 (1905) the plaintiff company was the owner of a railroad station and depot in Chicago. The plaintiff was concerned to protect passengers from extortion and annoyance by “local hackmen, expressmen and hotel runners congregating about its station and noisily soliciting the patronage of passengers”.

83 The plaintiff entered into an arrangement with another company to give it exclusive rights to provide a cab service for passengers arriving at the station. The plaintiff charged a conspiracy amongst the defendants, who were hack drivers, from continuing to solicit incoming passengers and baggage in a “loud and boisterous voices and manner”. In answer, the defendants alleged a legal right to have their vehicles in the public street in front of the station and to go into the station as well for the purpose of soliciting business. Giving the judgment of the United States Supreme Court Harlan J noted earlier authorities which established that property of a railroad corporation, although private, was devoted to uses of a public nature.

84 However the Court held (at 294) that the plaintiff was

“under no obligation to refrain from using its property to the best advantage of the public and of itself. It is not bound to so use its property that others, having no business with it, may make profit to themselves. Its property is to be deemed, in every legal sense, private property as between it and those of the general public who have no occasion to use it for purposes of transportation.”

What test should be adopted for exclusion of the doctrine?

85 The pre-existing freedom test, like any rule expressed in abstract and generalised terms, has to be applied to an infinite range of possible situations. Anomalies are inherently likely to occur, as is demonstrated by Heydon in “The Restraint of Trade Doctrine”, (Butterworths, 2nd ed, 1999, at 51-53). To take but one of the examples given by the learned author, if V owns two shops and sells one to P, with mutual covenants that neither shop will be used as a butcher’s shop, the doctrine will apply to V’s covenants but not to P’s. Yet the impact on competition is the same.

86 One might add that anomalies are not confined to hypothetical cases. In Esso the covenantor was giving up its pre-existing freedom to sell whatever brand of petrol it chose at its existing sites. The doctrine applied. In Pamag the covenantor was not giving up any such freedom. It was setting up a new bakery business at Moranbah. But the doctrine also applied. Stephen J points out (at 285) in a passage already quoted above (par 46) that there are good reasons why a trader setting up business may have special needs for trade supplies or finance which can only be obtained by giving trade ties. So one could mount a reasonable argument that the setting up of a new business should be encouraged by the law and thus the doctrine should not apply. The accessibility of a market to new entrants will go far towards determining the degree of competition in the market. But such an argument would be inconsistent with the decision in Pamag itself. Thus in the context of setting up a business the pre-existing freedom test seems to draw a distinction between restraints applicable to the acquisition of one kind of business asset (land) and all other forms of assets. The distinction is not logical in an age when knowledge and intellectual property are often more important than physical assets, including land. A new entrant, who necessarily is not giving up a pre-existing freedom, for that very reason ought to be the object of protection by competition law. So in this setting the pre-existing freedom test tends to work against competition principles.

87 Moreover, a generalised normative test lends itself to artificial attempts at evasion, such as occurred (albeit unsuccessfully) in Amoco and Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd [1985] 1 All ER 303.

88 Very often the result will be the same whichever of the Esso tests is applied. Counsel for a covenantor will argue that the restraint meets all tests and thus the doctrine applies. Counsel for the covenantee will argue the converse. Distinguishing between the Esso tests, or propounding a fresh one, is not seen as forensically useful. And so it happened in the present case.

89 However if the pre-existing freedom test is to be applied in the present case, there is substantial ground for an argument that the doctrine does apply.

90 It is true that in a strict sense the respondent had no pre-existing freedom to go on to the Tip. On each occasion his entry by licence was conditioned by the stipulated contractual terms. Subject to any express statutory prohibition such as anti-discrimination legislation, the appellant had the absolute right to determine who should enter upon its land and on what terms: Heatley v Tasmanian Racing and Gaming Commission (1977) 137 CLR 487 at 507,511.

91 However, this may be too confined a view. As the learned primary judge pointed out, it is unrealistic to look at each licence granted to the respondent and other scavengers as if it bore no relationship to any other. Moreover, the whole point of the doctrine of restraint of trade is that, where applicable, it overrides “absolute” rights, such as the right to enter into binding contracts. The doctrine may even override contracts to which the plaintiff is not a party: Buckley v Tutty (1971) 125 CLR 353.

92 The cases dealing with warning-off individuals from racecourses are instructive. In Heatley the High Court held that such a notice issued under a statutory power conferred on the respondent Commission was invalid as being in breach of the rules of natural justice. The Commission was not an owner or occupier of racecourses. In Forbes v New South Wales Trotting Club Ltd (1979) 143 CLR 242 the respondent club owned two racecourses itself but by contractual arrangements with other clubs effectively controlled all trotting in New South Wales. These arrangements included the “Rules of Trotting”. The respondent issued a notice under r 28 excluding Mr Forbes, a professional punter, from its two racecourses. By the time the case reached the High Court, it was accepted that the rules of natural justice were applicable and had been breached. The club however sought to support the expulsion by reliance on its rights as proprietor. Gibbs J (at 269) held that the effect of the rules was to impose restrictions upon the manner in which the club could exercise its proprietary rights. The rules provided that on race days only the stewards had the right to expel persons. His Honour said:

“An owner who uses his land to conduct public race meetings owes a moral duty to the public from whose attendance he benefits; if he invites the public to attend for such a purpose, he should not defeat the reasonable expectation of an individual who wishes to accept the invitation by excluding him quite arbitrarily and capriciously. The rules recognize the public nature of the race meeting by placing some restrictions on the rights of the owner of the course.”

93 Stephen J (at 272-3) and Aickin J (at 281) both thought an ineffective exercise of the r 28 power could not be saved by calling in aid the quite distinct power arising from the club’s status as owner and occupier. Aickin J (at 282) and Murphy J (at 274) pointed out that, because of the arrangements with other clubs, the warning off notice had effects much wider than exclusion from the club’s properties. Barwick CJ dissented.

94 One of the arguments advanced by Mr M H McHugh QC for the appellant was that the resolution of the club to issue the notice was in any event void, being against public policy as an unreasonable interference with the appellant’s right to work. The club had an effective monopoly over a large industry. Interference with the appellant’s capacity to invest money by betting attracted the doctrine of restraint of trade: Buckley v Tutty, Nagle v Feilden [1966] 2 QB 633.

95 Aickin J (at 282) thought it better to leave such questions “for an occasion which makes it necessary to examine them”. Two other members of the Court dealt with the argument. Murphy J accepted it. His Honour said (at 274-5):

“The respondent is not only an owner of land, it is registered under the Gaming and Betting Act, 1912 (N.S.W.), as amended, to conduct race meetings on the lands and, under the Totalizator Act, 1916 (N.S.W.), as amended, to permit tote betting on the lands. Because of this, the respondent exercises power which significantly affects members of the public, tens of thousands of whom go to watch the spectacles, many to bet as a hobby, and some, like the appellant, to try to make a living by betting. Many hundreds depend on it for their livelihood in occupations such as bookmaking, training and driving. The functions of the respondent in relation to the conduct of race meetings on its lands are qualitatively different from that of the ordinary householder exercising his private property rights. A householder, exercising his property rights, may do so against the public, and ordinarily this is sensibly regarded as the exercise of a private right and of private power, although the right stems from a public source and is ultimately enforceable through public administrative and judicial authorities. A householder exercising his property rights of exclusion is not in the same position as persons with licences to conduct public halls, restaurants, theatres or racecourses. From early times the common law has declined to regard those who conduct public utilities, such as inns, as entitled to exclude persons arbitrarily (see White’s Case (1558) 2 Dyer 1586, 73 ER 343). However, in Cowell v. Rosehill Racecourse Co. Ltd (1937) 56 CLR 605, the Court, in my opinion wrongly, dealt with exclusion from a racecourse as if the case were concerned with private rights only. That case differs from the present case in that there the person was removed from one meeting during its course; here the exclusion is from all meetings indefinitely.

When rights are so aggregated that their exercise affects members of the public to a significant degree, they may often be described as public rights and their exercise as that of public power. Such public power must be exercised bona fide, for the purposes for which it is conferred and with due regard to the persons affected by its exercise. This generally requires that where such power is exercised against an individual, due process or natural justice must be observed. There is, [sic] of course, legislative and executive powers affecting individuals which traditionally have been treated as not being required to conform to natural justice. There is a difference between public and private power but, of course, one may shade into the other. When rights are exercised directly by the government or by some agency or body vested with statutory authority, public power is obviously being exercised, but it may be exercised in ways which are not so obvious. In my opinion, a body, such as the respondent, which conducts a public racecourse at which betting is permitted under statutory authority, to which it admits members of the public on payment of a fee, is exercising public power. It may not arbitrarily

exclude or remove such a person from the lands during a race meeting. It was conceded that there are ample powers to remove persons who misbehave. As the lands in question are used in this public way only during race meetings, the exercise of public power is confined to those times. In so far as the land reverts to a private use from which members of the public are excluded at other times, there is no reason why the respondent’s ordinary private rights may not be exercised at those times. Exercise of power to exclude persons not in the position of members of the public, that is, drivers or others who use the racecourse on other days, does not now call for consideration.”

96 Barwick CJ (at 260-261) rejected the argument. His Honour thought that the club’s resolution did not prevent Mr Forbes from betting; access to a course or courses was not indispensable to the pursuit of a punter’s activity. Moreover the law did not enforce a “right to work”, it only removed unreasonable impediments upon the capacity to work. Nagle v Fielden was distinguishable because in the instant case the club did not have the sole control of punting. And punting did not fall “within the area of trade or employment with which relevant public interest is concerned in connexion with restraint of trade”.

97 The argument in Forbes that public policy and the doctrine of restraint of trade may override the absolute rights of an occupier was accepted by one member of the High Court although rejected by another. A similar argument could be put in the present case, given the public nature of the appellant and the community function served by the Tip.

98 Moreover, persons coming onto land to carry on a trading activity might be said to have a legitimate expectation of being able to continue that activity. Exclusion by the owner may be subject to some external constraints, such as the rules of natural justice or the doctrine that restraints of trade be reasonable.

99 If the doctrine of restraint of trade is to be excluded in the present case, a more satisfactory basis is needed.

100 As already mentioned, Lord Wilberforce’s trading society test seems to have attracted on balance the approval of the High Court. If one might respectfully say so, it accords more satisfactorily with common law methodology and with the need for the law to adapt to methods of doing business which are constantly changing.

101 While acknowledging that the trading society test “has the great advantage of flexibility” Heydon (op cit, at 61 et seq) does point out some of its drawbacks. Public opinion may be incapable of seeing the evils of the restriction and commercial people may all be interested in keeping the system going. And will courts be able to apply the reverse process so as to bring within the doctrine a practice once seen as innocuous but now recognised as pernicious?

102 However, in Australia there is a substantial statutory competition law regime to be found in Parts IIIA, IV, VII, VIII, XIA, XIB and XIC of the TPA. (The common law is preserved: ss 4M, 51(2)(e)). Parliament regularly amends this legislation in the light of the changing needs of business and consumers and the fundamental importance of competition for the health of the economy. The legislative scheme is enforced by a powerful statutory body, the Australian Competition and Consumer Commission. The existence of such a legislative regime must mitigate the concern that the trading society test may be ineffective to meet changing business practices, or community views of them.

103 In any case, the common law doctrine necessarily leaves a large gap in the regulation of anti-competitive conduct. Parties to an agreement or arrangement in restraint of trade will, as long as they happen to find it mutually beneficial, be unaffected by the doctrine in any practical way. When one party does seek to invoke the doctrine it will usually not be for any lofty motives of public interest. It has not escaped the notice of courts that sometimes parties of relatively equal bargaining strength freely enter into a contract but later one finds a more attractive proposition elsewhere and seeks to be released: Pamag at 265, Amoco at 294.

104 Australian statutory competition law has thus supplemented the common law as did the Sherman Act 1890 in the United States. In United States v Addyston Pipe & Steel Co 86 F 291 (1898) Judge Taft, later to become Chief Justice of the Supreme Court, said (at 279):

“Contracts that were in unreasonable restraint of trade at common law were not unlawful in the sense of being criminal, or giving rise to a civil action for damages in favor of one prejudicially affected thereby, but were simply void, and were not enforced by the courts. Mogul Steamship Co. v. McGregor, Gow & Co., [1892] App. Cas. 25; Hornby v. Close, L.R. 2Q.B. 153; Lord Campbell, C.J., in Hilton v. Eckersley, 6 El. & Bl. 47, 66; Hannen J., in Farrer v. Close, L.R. 4 Q.B. 602, 612. The effect of the act of 1890 is to render such contracts unlawful in an affirmative or positive sense, and punishable as a misdemeanor, and to create a right of civil action for damages in favor of those injuried [sic] thereby, and a civil remedy by injunction in favor of both private persons and the public against the execution of such contracts and the maintenance of such trade restraints.”

105 The trading society test should be adopted.

Does the trading society test require the exclusion of the doctrine in the present case?

106 If one treats the appellant’s occupation of the land as relevant but not conclusive it is possible to apply the trading society test in a way which would satisfy the reasonable expectation of the community as well as the requirements of public policy.

107 A common, and important, way of deriving economic benefit from land is the grant of exclusive licences for the conduct of business thereon. Such licences are only of value because of the expectation that other persons will enter upon the land and be customers, but not competitors. So persons gaining admission to the Melbourne Cricket Ground who happen to be caterers would not expect to be able to set up a pie stall in competition with those who have been granted exclusive catering rights by the MCC. Nor would a television station expect to be able to send camera operators into the ground to transmit broadcasts in competition with the channel which has exclusive contractual rights.

108 It is true that Revolve’s contractual rights only extended to material left or abandoned at the Tip. His Honour reasoned that Revolve’s rights were therefore not infringed when the appellant persuaded entrants to hand over items to him rather than deposit them – as exemplified by the incident involving the plastic bottles. However, I think looking at the matter from a business viewpoint the ordinary and reasonable expectation of Revolve must have been that people taking rubbish to the Tip (and paying a fee for the opportunity to do so) would leave the material there. This would be, objectively speaking, the commercial genesis and purpose of the contract between Revolve and the appellant.

109 Thus in the context of the appellant’s contract with Revolve, I would hold that the doctrine of restraint of trade has no application to the contractual terms of licences under which the respondent and others are permitted to enter the Tip.

Alleged irregularity and unfairness

110 Counsel for the appellant advanced as an alternative argument that the way his Honour introduced and dealt with the restraint of trade issue amounted to a denial of procedural fairness. The appellant had by this stage conducted and closed its case without regard to any need to call evidence to establish the reasonableness of the restraint.

111 This argument must be rejected. Where the respondent was unrepresented, it was understandable that his Honour drew to the parties’ attention a legal issue, of which a layman could not be expected to be aware, and which moreover had a public interest element. The appellant had the opportunity to call evidence, or seek an adjournment for that purpose. That opportunity was not taken. Also, the appellant acquiesced in the undoubted irregularities pointed out by Miles J. I do not wish to be taken as suggesting such matters are unimportant. But the essential point in the passage from North Western Salt cited by his Honour is the unfairness in allowing an allegation of illegality to be raised where the other party has not had the chance of adducing rebutting evidence. That was not the case here.

Orders

112 The appeal should be allowed and the order of 23 February 1999 set aside. In lieu thereof it should be ordered that the respondents’ motion by notice dated 23 September 1998 be dismissed.

113 Counsel for the appellant intimated that in the event of the appeal succeeding no order for costs would be sought.

I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate:

Dated: 19 May 2000

Counsel for the Appellant:	P M Biscoe QC

Solicitor for the Appellant:	Australian Government Solicitor

Counsel for the Respondent:	I Nash

Date of Hearing:	17 February 2000

Date of Judgment:	19 May 2000

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