SUPREME COURT OF NORFOLK ISLAND
Sheridan v Tavener [1999] NFSC 5
RESTRAINT OF TRADE – sale of business – construction of covenant – reasonableness of restraint – whether breach occurred – whether business of a “similar kind”.
WORDS & PHRASES – “similar kind”.
Heydon, Restraint of Trade, 2nd ed.
Macquarie Dictionary, 2nd ed.
Clarke v Newland [1991] 1 All ER 397 – referred to
Drew v Guy [1894] 3 Ch 25 - applied
Butt v Long (1953) 88 CLR 476 - considered
Geraghty v Minter (1979) 142 CLR 177 - cited
Peters (W.A.) Ltd v Petersville Ltd [1999] FCA 1245 - considered
C & S Constructions Pty Ltd v Dawson (1991) ATPR 41 – 148 – considered
Nordenfelt v Maxim-Nordenfelt Guns & Ammunition Co Ltd (1894) AC 535 - considered
T.W. Cronin Shoe Pty Ltd v Cronin (1929) VLR 244 - applied
Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 – applied
Anchor Electric Co v Hawkes 50 NE 509 (SC Mass, 1898) - considered
Fitz v Iles [1893] 1 Ch 77 - applied
ROBERT IAN SHERIDAN AND TRACY ANN SHERIDAN v JAMES MAURICE TAVENER AND ALEXIS LOUISE TAVENER
SC 6 of 1999
CORAM: BEAUMONT CJ
DATE: 2 NOVEMBER 1999
IN THE SUPREME COURT )
) SC 6 of 1999
NORFOLK ISLAND )
BETWEEN: ROBERT IAN SHERIDAN
First Plaintiff
AND TRACY ANN SHERIDAN
Second Plaintiff
AND: JAMES MAURICE TAVENER
First Defendant
AND ALEXIS LOUISE TAVENER
Second Defendant
ORDERS
BEAUMONT CJ:
2 NOVEMBER 1999
THE COURT ORDERS THAT:
1. Declare that cl 6 of the agreement for sale between the defendants as vendors and the plaintiffs as purchasers, dated 8 January 1999, is valid and enforceable in accordance with its terms.
2. Order that the defendants be restrained for a period of five years from 8 January 1999 from owning, participating or being employed in, operating, engaging in (directly or indirectly, whether on the defendants’ own account or in partnership or as shareholders in a company or by joint venture) a four-wheel drive tour business in Norfolk Island, or a business of a similar kind.
3. Reserve costs. Liberty to apply for costs by written submissions filed and served within 21 days.
4. Stand over the plaintiffs’ claim for any further relief for directions at a date to be fixed.
) SC 6 of 1999
NORFOLK ISLAND )
BETWEEN: ROBERT IAN SHERIDAN
First Plaintiff
AND TRACY ANN SHERIDAN
Second Plaintiff
AND: JAMES MAURICE TAVENER
First Defendant
AND ALEXIS LOUISE TAVENER
Second Defendant
REASONS FOR JUDGMENT
BEAUMONT CJ:
2 NOVEMBER 1999
INTRODUCTION
1 This is the final hearing of a claim for an injunction to enjoin the alleged breach of a negative covenant in restraint of trade.
2 By their statement of claim dated 25 May 1999, the plaintiffs, Mr and Mrs Sheridan, claim as follows:
· Mr and Mrs Sheridan carry on the business of providing guided tours of Norfolk Island by motor vehicle under the name “Jimbo’s 4-WD Tours” (“the Business”). (Mr Sheridan is known on the Island as “Sam”.)
· On 8 January 1999, the parties entered into the sale agreement in writing (“the Agreement”).
· Prior to the sale of the Business on 8 January 1999 to Mr and Mrs Sheridan by the defendants, Mr and Mrs Tavener, the defendants carried on the Business. )Mr Tavener is known as “Jim” or “Jimbo” Tavener.)
· It was an express term of the Agreement (cl 6) that the vendors, Mr and Mrs Tavener, “shall not, within a period of 5 years from the date of completion, own, participate or be employed in, operate, engage (directly or indirectly, whether on the Vendors’ own account or in partnership or as a shareholder in a company or by joint venture) a 4-WD tour business in Norfolk Island, or a business of a similar kind to the Business”.
· In breach of cl 6, Mr and Mrs Tavener have commenced a tour business called “Advance Group Charter Tours” (“Advance Tours”) in Norfolk Island; further, contrary to the terms of the Agreement, in particular cl 6, Mr and Mrs Tavener have been actively soliciting business from tour wholesalers and others for the new tour business, which they own and operate.
3 Mr and Mrs Sheridan then claim a permanent injunction and damages. The injunction sought would enjoin Mr and Mrs Tavener until 7 January 2004 from participating, or being employed in or operating or engaging (directly or indirectly, whether on their own account or in partnership or as a shareholder in a company or by joint venture or otherwise) in a four-wheel drive tour business on Norfolk Island, or in any business of a similar kind to the said business, including, but not limited to, the conveying of persons for reward for the purpose of conducting guided tours by motor vehicle in Norfolk Island.
THE PROVISIONS OF THE AGREEMENT
4 By para 1 of the Agreement, it is stated, by way of introduction –
“1. The Vendor owns and carries on the business known as Jimbo’s 4WD Tours (“the Business”), comprising the carriage of passengers for reward on tours within Norfolk Island and by ‘gentlemans agreement’ the fish catering for clifftop fish fries for Pinetree Tours.”
5 (For present purposes, it appears that the reference to the fish catering activity is of little more than peripheral significance.)
6 The material substantive provisions of the Agreement are cll 1, 4, 6 and 7. Clause 6, which is central to this litigation, is set out above. Clauses 1, 4 and 7 are as follows:
“1. The Vendor shall sell to the Purchaser, and the Purchaser shall buy from the Vendor, the business as a going concern for a total price of $135,000.00, which shall be payable in full at completion.
...
4. On completion the Vendor shall assign to the Purchaser agreements held with Pinetree Tours and Travel (including for the fish catering at their clifftop fish fries), and with travel agents, travel wholesalers and suppliers generally in relation to the business. On or before completion the Vendor shall provide to the purchaser full details of all such contracts and of all agreements with travel agents, travel wholesalers and persons who introduce customers to the business. The Vendor shall use their best endeavours to introduce (whether by telephone, letter or personally) the Purchaser to all of the Vendor’s sources of customers for the business.
...
7. Included in the sale, without further consideration, are:
2 x Toyota 4 wheel drive buses which are presently used in the operation of the business.
1 x catering trailer and catering equipment which is presently used to conduct clifftop fish fries.
All the stationary and records of the business.”
7 By consent, the only aspect of the plaintiffs’ claim dealt with at this stage is their claim for final injunctive relief. That is, the parties have agreed that the hearing of further issues, if any, be deferred.
8 For the purposes only of identifying the issues at this stage, it will be convenient to refer to the present description of the plaintiffs’ business provided in a colour advertising leaflet (Exhibit 1), the back of which reads:
“Join Sam and his Island staff – all direct descendants of the Bounty Mutineers; on an exciting 4 hour tour to points of Norfolk accessible only by 4WD. This back of beyond tour takes you through private properties & the national park featuring spectacular scenery, native flora & bird life. Enjoy delicious homemade cakes with tea & coffee at Sam’s Island home. Don’t expect a rough race through the scrub. Drivers are conscientious & knowledgable. All vehicles are comfortable modern 4WD’s. Great for all ages.”
9 The advertising leaflet then provides a schedule of prices. On the front of the advertising leaflet there are several photographs depicting two four-wheel drive vehicles which, it is common ground, can seat five or thirteen passengers respectively.
10 The defendant’s business, Advance Tours, is a tourist business which commenced in June 1999 and conducts a seven day “itinerary” (Exhibit F). It includes, amongst other things, an afternoon excursion (short orientation tour), a half day island tour, a Sunday roast and church service, an Island heritage tour, a progressive dinner, a tour of the gardens on the Island, a forest walk and clifftop BBQ breakfast, an old time music hall night, a scenic highlights tour, a clifftop island fish fry, a penal settlement historical tour, a mutineer’s night, and a “mystery” excursion. Other events are also listed in the itinerary, but are conducted by different organisations. More specific locations which are also listed in the itinerary (and which are alleged by the plaintiffs to be common between the businesses) are mentioned below. The tour is conducted in a bus that seats thirty-five people.
THE PLAINTIFFS’ CASE
11 Two witnesses gave evidence in the plaintiffs’ case, Mr Sheridan, and an expert, Mr Prentice. In order merely to understand the nature of the issues that fall for determination, it is proposed, without making any findings at this stage, to refer here to some of their evidence.
· Mr Sheridan
12 Mr Sheridan gave evidence describing the route which the Business’ tour regularly took, and which came to his knowledge when an employed driver, Michael Quintel, escorted him on a trip prior to the purchase of the Business. Mr Sheridan also gave evidence of the route taken by the tour conducted by the defendants’ business, Advance Tours.
13 Mr Sheridan was asked to mark (in red ink) on a tourist map of Norfolk Island (Exhibit E), the route which, he said, the Business’s tour took. His evidence was that the tour which the plaintiffs now conduct was different in only one respect from that of the defendants’ route (when they operated the Business) and that was the location of the afternoon tea stop. The difference was marked (in blue ink) on Exhibit E.
14 Mr Sheridan was shown a copy of the daily itinerary of the defendants’ tour. He marked on it those destinations which were in common with the plaintiffs’ tour. The document became Exhibit H. Following is a list of the sites which Mr Sheridan marked on Exhibit H, which, according to his evidence, were common:
Day 1 (Saturday)
· Mt Pitt Lookout
· Hollow Pine Tree
· Cascade
· Kingston with its convict buildings
Day 2 (Sunday)
· Mt Pitt
· St Barnabas’ Chapel
· All Saints’ Church
Day 3 (Monday)
· (Nothing in common – different type of activity: Island Heritage Tour; and Meet the Islanders Progressive Dinner)
Day 4 (Tuesday)
· Kentia Palm Nursery
· Music Valley
Day 5 (Wednesday)
· Forest Walk
· Puppy’s Point
Day 6 (Thursday)
· Ball Bay
· Bumboras
· Crystal Pool
· Captain Cook’s Monument
· Headstone Point
· Anson Bay
· Clifftop Island fish fry
Day 7 (Friday)
· Georgian buildings of Kingston, i.e. -
q The old gaol
q Commissariat store
q All Saints Church
q No. 10 Quality Row (and more)
Day 8 (Saturday)
· (Nothing in common – “Mystery” excursion)
15 Mr Sheridan was also asked in chief about the proportion of time that a vehicle was required to engage in four-wheel drive during the plaintiffs’ tour, as follows:
“MR MANNING: Now, are there roads which are inaccessible to, say, two wheel vehicles? When I use the word “two wheel vehicles”, they could be six wheels, seven or even eight wheels, but they’re not four wheel drive, as in the sense of terrain vehicles. Do you know if there are any roads that are inaccessible by two wheel vehicles? --- No.
Would you necessarily need to use a four wheel drive vehicle to cross National Parks? --- No.
There are occasions though do you engage a four wheel drive? --- Yes
And of your tour have you been able to estimate, of your total tour, what would roughly be a percentage you would engage a four wheel drive of these vehicles? --- I don’t think it would be 10 per cent.
What do you say makes the bulk of your tour, what is the bulk of your tour, what do you do? --- Just touring Norfolk.”
· Mr Prentice
16 Mr Prentice was called by the plaintiffs to give expert evidence. He has been involved in Norfolk Island tourism for over twenty years, including managing Pinetree Tours, a major tourist business on the island, and liaising with government tourist offices in developing the Norfolk Island tourist industry.
17 Mr Prentice said that the majority of roads on Norfolk Island were sealed roads, and generally speaking, vehicles, when touring Norfolk Island, would not, for any significant distances, depart from sealed roads. With respect to the plaintiffs’ four-wheel drive tours, he said that the tours were marketed and “sort of sold as – an image that you’re going, you know, bush, but maybe in Norfolk Island’s case you’re just going a few little places that the general tours may not go.”
18 During cross-examination by Senior Counsel for the defendants, Mr Prentice gave the following evidence:
MR COOK: … you see what I wish to find out is if people come on the group charter tours, they are not precluded from taking the speciality tours are they? --- I beg your pardon.
If people come on the group charter tours --- ? --- No but in some cases if they were to take the Advance Charter they wouldn’t need to go on a four wheel drive tour because they include similar places.
You say though ---
HIS HONOUR: Sorry, because they --- ? --- Include similar places that the four wheel drive tour goes to such as Bumborus, Captain Cook Monument the hollow pine tree.
MR COOK: Well you see let us just talk about Captain Cook Monument. You see that track is often closed to buses is it not because of weather conditions on the road? --- Only under very extreme circumstances if there has been a washout or something like that, it is closed to all vehicles not just tour vehicles and that might be just for a couple of days until they can getthe grader in or something like that.
I see and do you claim that the buses would be – of Advance Group Tours, the 35 seater buses would travel out on the Captain Cook Road in adverse weather conditions? --- Not when the Parks and Wildlife Ranger deems it closed, no but most of the time which would be 95 per cent, 98 per cent of the time it was open for all vehicles.”
THE DEFENDANTS’ CASE
19 Both Mr and Mrs Tavener gave evidence. Again, it will be convenient to refer to some of it, not for the purposes of making any findings of fact at this point, but rather with a view to identifying the real issues in the dispute.
· Mrs Tavener
20 In her evidence in chief, Mrs Tavener described the tour itinerary of the Business prior to the sale as follows:
“We would pick up the groups from hotels or from Pinetree Tours office, wherever they were – we were advised that they would be, and we would take them from the town centre straight out to the forestry area which is the pine nursery, which goes on dirt road. From behind the pine nursery we would go down through the valleys, across to the other side and though the gum forest and meander through the gum forest and come out above the top of Captain Cook’s monument there, back down the ridge. Then we would travel from there, sort of past Puppy’s Point around to – heading to Bumboras, along the roads to that way. We would go from Bumboras cross country through my uncle’s land and then my land to get to Crystal Pool. From Crystal Pool we would drive to – back through Kingston heading to Steele’s Point, to our property, where we would go out on to our own land and right out to the back of the valleys towards Cutter’s Corn, then come back there for morning tea. If it was very wet we would do Simon’s Water, which is another private property out that way, and then we would go from there to Garnet Point, which is a private property not accessible except to the four wheel drives, usually go down through the valley unless it was very wet and come back up to the top where they have spectacular views of Kingston, then back to town.
MR COOK: Now, necessarily moving from place to place that you have described to his Honour, it would require you to move on the sealed roads of Norfolk Island, passing from place to place of interest? --- That’s right. You have to travel on the sealed roads to get to the private properties and the speciality – the highlights of the tour, the speciality areas.
What do say, you talk about the highlights of the tour, what do you say to his Honour, so far as your involvement in the operation of the business and driver, what was the particular focus or the direction of tour towards? --- With – well, without a doubt the - the focus or the highlights of the tour was the area in the forestry and national park, and also Garnet Point, because those areas you can’t get into by any other means, and a lot of emphasis is given on the rear forest station to the Island and the plants and the way that the environment is protected here on the Island.
So, I take it that people go, when you were involved in this work, did it involve the drivers such as yourself explaining various features and various matters to the persons on the tour? --- That’s right. There was a constant commentary.
…
Could you tell us of such things briefly? --- We gave details on the national park and the running of the national park. The – for example, the rat eradication program, the way that the Forestry Department manages the gums out there and the reason for the gum forest being here, the family lands of my own out through the whole Rocky Point area, Garnet Point where it was a tracking station in – in years gone by, and so on, and our own family land where it came through – through the different families, how things were inherited and so on. Also the division of land, how the land was apportioned when the Pitcairners came here.
So, these explanations you have said, or commentaries took place to inform people and provide them with information that normally was available or unavailable on other tours? --- We – we strove to give detail – or to give information that they didn’t get in other tours, that wasn’t covered by your general run of the mill tours. The Steele’s Point area is not covered in any other tours, and Garnet Point is not covered and neither is those areas of the forestry and national park.”
21 Asked in cross-examination about the itinerary of the Business prior to its sale, and whether the four-wheel drive vehicles attended the sites, Mrs Tavener gave answers to the following effect:
· Puppy’s Point – “On occasion, yes as a passing back from Anson Bay”
· Ball Bay – “No, never was included”
· Bumboras – “Yes”
· Crystal Pool – “Yes”
· Captain Cook Monument – “No”
· Headstone Point – “Past it, just drove past it”
· Anson Bay – “Yes, drove past it”
· Georgian buildings – “Drove past, yes”
· Old gaol at Kingston – “No never”
· All Saints’ Church – “[D]rove past it, yes”
· No. 10 Quality Row – “[N]o”
· Convict cemetery – “[N]o, never”
22 When asked, in cross-examination, whether she agreed with the markings made by Mr Sheridan on Exhibit E, Mrs Tavener responded “we didn’t go to Cascade or Cockpit Waterfall. And Captain Cook Monument was only a last resort place if there was nowhere else to go. And the mountain was since the road was closed, so it was a late addition”. Apart from these, Mrs Tavener agreed that Exhibit E otherwise represented the route of the Business.
23 In being asked, in cross-examination, to compare Advance Tours’ itinerary with that of the Business, Mrs Tavener gave the following evidence:
“MR MANNING: … your tour, called Advance Group Charter Tours, buses would intend to attend Mount Pitt lookout, is that correct? --- Originally it was thought that the road would be reopened to bus traffic and we’ve been advised by National Parks it will not be open to large buses from now on.
And if it was open to large bus traffic, you could go there could you not? --- Well, if it was, yes.
Now, the Hollow Pine Tree, I put it to you that you go to there? --- If it was open to traffic, anyone could drive there.
Cascade? --- Cascade is public road, yes.
Kingston, with convict buildings? --- Yes, same, public road though.
…
… St Barnabas’ Chapel? --- St Barnabas Chapel has never been part of the four wheel drive tour, to my knowledge. But, yes, we would definitely visit it.
All Saints Church, Kingston? – --- Yes, for the church service.
The Kentia Palm nursery? --- Yes.
And the Music Valley? --- Yes.
I will take you to Wednesday, day 5, Forest Walks? --- Yes.
And Puppy’s Point? --- Yes.
You would agree with me that you can go to all of those sites in what is known as a two wheel drive vehicle – that is, one that is not a four wheel drive vehicle could you? --- That’s correct.
You could go in a car, you could in a four wheel drive vehicle could you? --- That’s correct.
You could go in a 35-seat bus? --- That’s right.
You could go to all of those? --- That’s right.
You would agree with me also that you can drive into the pine forest in one of those buses that you are operating can you not?--- Which pine forest?
…
Yes? --- Pine Nursery, but that is all.”
24 Later, in cross-examination, Mrs Tavener agreed that most tourist sites did not require four-wheel drive vehicles for access:
“MR MANNING: Your business does have a permit to drive into some of the forests? --- Yes, to Palm Glen and to Hundred Acre Reserve.
So you would agree with me that someone conducting a tour, regardless if it was a four wheel drive tour or a bus or a bus the same size as a four wheel drive vehicle but not four wheel drive, would be able to attend most sites on Norfolk Island, would they not, by road? --- Public roads areas, yes.
Yes, they go to just about – roughly as a guess – 80 per cent of the sites available? --- Possibly, yes.”
25 Mrs Tavener, during cross-examination, also said this:
“MR MANNING: So the four wheel driving that would be done would be fairly sedate would it not? --- It is taken very slowly, yes.
So it is not a rough and tumble up and down trip? --- No, the focus is on information.
You can drive a bus to Puppy’s Point to look over the cliff can you not? --- Yes, that’s right.
…
You do not purport to take these buses off road driving? --- No.
But you would drive these buses on the unsealed road to Puppy’s Point, is that correct? --- Yes.
And you do go on other unsealed roads, do you not? --- Only – possibly Captain Cook’s Monument.”
· Mr Tavener
26 During his evidence-in-chief, Mr Tavener, asked about the proportion of the tour spent off-road, said:
“Well, we would spend an hour in the nursery, the eucalypts on the western side of the National Park. You would spend a period driving from there to – you went from Crystal Pool to – through Louise, my wife’s , property, through to Bumboras. You would spend probably – between that area there you’d spend three quarters of an hour, that’s from travelling from – from the western side of the National Park of which I’ve heard earlier you passed the St Barnabas’ Chapel. You don’t stop. You don’t give a commentary on the chapel because that’s normally a stop for half an hour or three quarters of an hour on a bus tour. We go straight past and we go straight to Crystal Pool, get out, get a photo and keep on going down through Louise’s private property. It’s a – it’s a track. It’s literally a track and the four wheel drive vehicle just cleared the limbs – because we had to trim the limbs back. We went across a wooden bridge that I constructed to go across the creek to go into Bumboras …”.
27 In cross-examination, Mr Tavener gave evidence to the following effect with respect to the tour itinerary when he owned and managed the Business:
· Mt Pitt lookout – “Only when the road was closed to normal buses … [y]es”
· The Hollow Pine Tree – “Sometimes”
· Cascade – “No”
· Cockpit waterfall– “Occasionally”
· Convict buildings at Kingston– “Yes, we did transfers past in the four wheel drive”
· St Barnabas’ Chapel – “Yes”
· All Saints’ Church, Kingston – “Yes”
· Music Valley – “No”
· Kentia Palm Nursery – “[D]rive past it … yes”
· Puppy’s Point – “Yes”
· Captain Cook Monument – “In extreme wet conditions, yes”
· Ball Bay – “No”
· Bumboras – “Travelling through, yes”
· Crystal Pool – “Yes”
· Headstone Point – “Yes”
· Anson Bay – “Went past there”
· Branka House – “Probably”
28 Mr Tavener gave evidence that Advance Tours now includes Branka House as a destination on its itinerary; that buses do quite regularly travel into national parks on the island; and that, in general, the sites in the Advance Tour itinerary (Exhibit H) did overlap with the tour itinerary of the Business, to the extent that those sites were visited, or at least driven past, by the four-wheel drive vehicles used in the plaintiffs’ business.
THE PLAINTIFFS’ SUBMISSIONS
29 The plaintiffs submit that the tour currently conducted by the defendants is essentially the same as the tour conducted by the plaintiffs. The similarities which the plaintiffs allege between the two tours are:
(i) both use passenger motor vehicle buses with coach seats;
(ii) both carry passengers for reward on a guided tour of the environs of Norfolk Island;
(iii) both tours travel on the roads of Norfolk Island to attend points of interest and historical sights;
(iv) both tours provide the tourist with the opportunity to view, photograph and attend various sights on Norfolk Island;
(v) both tours either attend or view these common sights:-
(a) Mt Pitt (when accessible).
(b) Kingston (convict buildings).
(c) St. Barnabas’ Chapel.
(d) All Saints’ Church.
(e) Puppy’s Point.
(f) Bumboras.
(g) Headstone Point.
(h) Viewing of historic sights.
30 These areas of commonality, it is submitted, make it clear that substantial proportions of both businesses overlap, so that the tour offered by Advance Tours is therefore in direct competition with the plaintiffs’ business.
31 On behalf of the plaintiffs, reliance is placed, inter alia, on some of the definitions in cl 6 of the Agreement. It will be recalled that the Business was referred to in these terms:
“… the business known as Jimbo’s 4WD Tours …comprising the carriage of passengers for reward on tours within Norfolk Island …” (Emphasis added)
32 Reliance is placed upon the words emphasised as a indication of the scope of the activity the subject of the contractual restraint; in other words, the argument runs, the restraint is not limited to four wheel drive activity. Consistently with this submission, the plaintiffs now seek a final injunction in the following terms:
An injunction restraining until 7 January 2004 the defendants and each of them by themselves, their servants or agents or otherwise from participating or being employed in or operating or engaging (directly or indirectly, whether on their own account or in partnership or as a shareholder in a company or by joint venture or otherwise) in a Four Wheel drive tour business on Norfolk Island, or any business of similar kind to the said business, including but not limited to the conveying of person/s for reward for the purpose of conducting guided tours by motor vehicle in Norfolk Island.”
THE DEFENDANTS’ ARGUMENTS
33 Senior Counsel for the defendants submits that the whole of the contract and the “factual matrix” relating to the formation of the contract should be used to determine the essential meaning of words and phrases used in the contract; this issue requires consideration of what constituted the Business at the time of the sale, that is, 8 January 1999; and when considering whether the respective businesses are of a “similar kind”, the defendants contend that there are material differences. It is submitted that Advance Tours is different in at least the following respects:
· The provision of commentaries and explanation, both historical and personal, of flora and fauna, and of measures taken for the conservation and protection of the environment;
· The exploration and visiting of otherwise inaccessible and private places of beauty and remoteness.
34 Senior Counsel for the defendants further submits that the plaintiffs have failed to discharge their onus of proof in relation to proving that the restraint of trade covenant was, in the circumstances, reasonable. It is further submitted, in this connection, that the agreement for the sale of the Business was signed by the defendants without legal advice, and cl 6 would readily be interpreted, in an objective sense, as pertaining to four-wheel drive tourist operations. The defendants, it is submitted, have no intention of operating a four-wheel drive tourist operation.
CONCLUSIONS ON THE CLAIM FOR INJUNCTION
35 The first question for determination is the true construction of the relevant provisions of cl 6.
36 A modern statement of the rules of construction is:
“(1) [T]he question of construction should be approached in the first instance without regard to the question of legality or illegality;
(2) … the clause should be construed with reference to the object sought to be obtained;
(3) … in a restraint of trade case the object is the protection of one of the partners against rivalry in trade …
(4) … the clause should be construed in its context and in the light of the factual matrix of the time when the agreement was made.”
37 (See Clarke v Newland [1991] 1 All ER 397 per Neill LJ at 402; Heydon, Restraint of Trade, 2nd ed. at 104.)
38 The context of cl 6, as appears from the language of the Agreement, and from the evidence previously mentioned, is the sale of a four-wheel drive tour business carried on in Norfolk Island; and, as it likewise appears, the object sought to be achieved is the protection of that business from competition. When so read, cl 6 means, in my opinion, that the activity restrained is engaging etc. in a four-wheel drive business on the Island, or engaging etc. in a business of a similar kind there. The underlying objective which is inherent in cl 6 is, I think, the restriction, for five years, of competition with a business of that kind.
39 That this approach is appropriate here is, in my view, well illustrated in the decision of the English Court of Appeal in Drew v Guy [1894] 3 Ch 25.
40 The background to the decision, which is, in my view, most significant for present purposes, is sufficiently explained in the headnote as follows:
“The Plaintiffs granted a lease to the A. B. Company containing a covenant that the tenants would not carry on the business of a restaurant similar to that carried on by R., another tenant of the Plaintiffs. R. was an hotel-keeper who had a restaurant on licensed premises connected with his hotel. The A. B. Company carried on a restaurant at which they sold tea, coffee, cocoa, pastry, and cold meat, but not any hot meat except beef pies, and this was not objected to. The A. B. Company having assigned their lease to the Defendant, he proceeded in his restaurant to sell hot meat and other things not sold by the A. B. Company. The Defendant had not a license for the sale of intoxicants, nor a victualler’s license; his establishment was on a much smaller scale than that of R., his premises were of an inferior class to those of R., and his prices were much lower:-
Held, by Kekewich, J., that the Defendant’s business of a restaurant was not similar to that of R. and that there had been no breach of the covenant:
Held, on appeal, that the test whether the Defendant’s business was similar to that of R. was whether it was sufficiently like it to compete with it, and that, judging by this rule, although there were considerable differences between R.’s business and that of the Defendant, the Defendant’s business was similar to that of R., and that an injunction must be granted in the terms of the covenant, with a proviso that it was not to prevent the Defendant from selling any of the articles in which the A. B. Company had dealt.”
41 Lindley LJ said (at 28 – 29):
“The question, then, is whether the business of a restaurant carried on by the Defendant is similar to that carried on by Raven. There are considerable points of dissimilarity between them: the Defendant has no license to sell alcoholic drinks, and no license which enables him to keep his premises open to a late hour in the evening. Do these differences prevent the Defendant’s business from being similar to that of Raven’s? There is an important degree of similarity between the two businesses. The Defendant claims the right to carry on a business which will seriously compete with Raven’s business. I do not think that the question of similarity is to be determined by considering whether both of the establishments sell ale, or whether the houses in which they are carried on are similar in appearance, but by the consideration whether the Defendant’s restaurant is so like that of Raven as seriously to compete with it. I think that the business of the Defendant as he proposed to carry it on would seriously compete with Raven’s. I cannot look at the exhibit T W G 2, containing the Defendant’s bill of fare, and at his circular to his customers, without seeing that the Defendant is desirous of carrying on the general business of a restaurant without a license. He must be restrained in the terms of the covenant; but we shall add to the order the statement that this is not to restrain him from selling any of the articles which, in the affidavit of the manager of the Aërated Bread Company, are stated to have been sold by that company. We do not mean to say that he is confined to these, but anything else that he sells must be at his own risk.”
42 Lopes CJ said (at 29 – 30):
“The terms of the covenant clearly allow the lessee to carry on the business of a restaurant, but not so that it shall be similar to that of Raven. What is meant by similar? I should say so like that of Raven as to compete with it. There are substantial elements of dissimilarity between the two: one is alcoholic, the other is not, and there are many other points of difference. Raven’s premises are superior in appearance, and would attract a higher class of customers – his prices also are higher; but all that appears to me not enough. If the Defendant supplies hot joints, chops, &c., a person wanting a hot dinner would very likely go to the Defendant rather than to Raven, the Defendant’s lower scale of charges being an inducement. A person who wanted a hot dinner would not have gone to the Aërated Bread Company, but to Raven. If the Defendant carries on his business in the way he is seeking to do, a person may as well go to him as to Raven. I think, therefore, that the business the Defendant is seeking to carry on is substantially similar to that of Raven. I think that the Defendant is not at liberty to supply hot joints. He may sell whatever the Aërated Bread Company sold; but anything beyond that may give room for contest.”
43 In my opinion, this reasoning, and this approach, are equally apposite in the present case.
44 I reject the plaintiffs’ contention that by virtue of the words in cl 1, the prohibition in cl 6 should be construed so as to extend to any form of carriage of passengers for reward for tours within the Island. Those words in cl 1 must also, I think, be read in their context. Clause 1 is a provision describing, but in a general way only, the four-wheel drive tour business sold. The generality of that description in cl 1 cannot (except by an impermissible strained and artificial process) be transposed into cl 6 so as to widen substantially the ordinary and natural meaning of the words used in cl 6, and to alter the plain objective to which the clause is directed, namely, the restraint of competition with the business sold (and not the restraint of competition with a business carrying passengers for reward of any kind). No rationale or justification appears for importing into cl 6 a restraint of such width. On the contrary, it is legitimate to have regard to the nature of the business in fact being carried on at the time of the making of the contract. As Fullagar J observed in Butt v Long (1953) 88 CLR 476 (at 490):
“To do so is merely to refer to surrounding circumstances in order to ascertain the meaning of an expression which the parties have actually used, and this is always permissible and often necessary.”
45 A similar approach was taken by Gibbs J in Geraghty v Minter (1979) 142 CLR 177 (at 186).
46 Given the construction of cl 6 that I have adopted, the next question is the reasonableness of the trade restraint. That is to say, is the trade restraint unduly wide? Is the area or scope of the restraint unduly wide? Is the duration of the restraint unduly long? At common law, a restraint will only be enforceable if it is reasonable, both in the interests of the contracting parties and in the interests of the public.
47 The general principles in this area were recently considered by a Full Federal Court in Peters (W.A.) Ltd v Petersville Ltd [1999] FCA 1245. French, Kiefel and R D Nicholson JJ noted (at para 8) that – “…to be valid the restraint had to be reasonable in the interests of both parties: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288, 305-6, Peters American Delicacy Co Ltd v Patricia’s Chocolates & Candies Pty Ltd (1947) 77 CLR 574, 590; Adamson v NSW Rugby League Ltd (1991) 103 ALR 319, 341.” Their Honours continued (at para 24 and following):
“It was accepted in argument that for the restraint to be held valid, the Court must be able to conclude that it was both reasonable in the interests of both parties (Amoco at 306; Peters American Delicacy Co Ltd v Patricia’s Chocolates at 590) and reasonable having regard to the public interest. They are separate questions.
Save in a case where there is no question of there having been some unfair advantage taken of a party, it should be difficult for a contracting party to assert that the bargain it negotiated was not seen by it as beneficial: Esso [Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269] at 300, 305, 324; Amoco at 294, 308, 316. In some cases where such advantage is taken, the Courts might grant relief to the party the subject of the restraint. Given that, and that the basis for the doctrine of restraint of trade is public policy [Amoco, 307], it may be open to question whether the Courts need be concerned with the parties’ positions (see Esso, Lord Hodgson, 321). In any event, the cases show that the Courts do not assess its value or benefit.
The reasonableness of a restraint inter partes is not adjudged and concluded from the viewpoint of the value a party derives from it. Menzies J in Amoco (294-5) expressed the view that the important question was what the person who accepts the tie expects to gain from it, but his Honour was in the minority. Nevertheless, the cases show that the Courts will look at aspects of the bargain in order to determine whether it is reasonable, but that the parties’ views of it could not decide the question (Amoco, 306-8; 317-7; 318). An example given by Walsh J in that case (306) was the consideration paid for the restraint, as relevant to the length of its term. …
The critical question, in [our] view, is not whether AUF has received sufficient consideration nor whether it had good reason for entering into the whole agreement, but a matter which PWA’s submissions addressed extensively, whether the restraint affords any more than adequate protection to PWA. The issue of reasonableness as between the parties is concerned with the protection of the interests of the party receiving the benefit of the restraint: Amoco, 315-6; applying Herbert Morris Ltd v Saxelby [1916] 1 AC 688, 707.”
48 In assessing reasonableness, the nature of the parties’ relationship is significant. In C & S Constructions Pty Ltd v Dawson (1991) ATPR 41 – 148, Waddell CJ in Eq. said (at 53,105):
“In assessing the reasonableness of the area and duration of the restraint in this case, it is necessary to keep in mind the fact that it appears in a contract for the sale of a business rather than an employment contract. In Nordenfelt v Maxim-Nordenfelt Guns & Ammunition Co Ltd (1894) AC 535 at 566 per Lord Macnaghten:
‘To a certain extent, different considerations must apply in cases of apprenticeship, and cases of that sort, on the one hand, and cases of the sale of a business or dissolution of a partnership, on the other … there is obviously more freedom of contract between buyer and seller than between master and servant, or between an employer and a person seeking employment.’
See also Mason v Provident Clothing and Supply Co Ltd (1913) AC 724 at 731; Herbert Morris Ltd v Saxelby (1915) 2 Ch 57 at 77.”
49 The first issue here is as to the parameters of the trade restrained (see Heydon, op. cit. at 158 – 160). As has been said, upon its proper construction, cl 6 in my view restrains the activities of engaging in (etc.) (1) a four-wheel drive tour business in Norfolk Island; or (2) a business of a similar kind in Norfolk Island.
50 In my opinion, restriction (1) is, beyond any argument, reasonable as it seeks to do no more than protect the very subject matter of the sale, viz. the goodwill of the vendors’ business.
51 With respect to (2), it is true that this necessarily goes further, in its potential operation at least, than (1). The operation of (2) depends upon the process of characterising a business activity as something “similar” to (1).
52 The primary dictionary (Macquarie Dictionary, 2nd ed.) meaning of “similar” is “having likeness or resemblance, esp. in a general way”. (Emphasis added)
53 In the present context, Heydon, op. cit. (at 159) cites the following observations of Van Winsen J in Weinberg v Marvis (1953) (3) SA 863 at 868:
“What the purchaser is entitled to do is to protect himself against the seller’s future competition in regard to activities normally falling within the confines of the type of business bought by the purchaser.”
54 (See also Pioneer Concrete v Galli (1985) VR 675 at 695.)
55 Heydon observes (at 159):
“Sometimes, the covenant may appear wider than necessary in the sense that it may cover more activities than the business actually carried on, but it may be held valid because no narrower covenant which gives adequate protection can be devised.”
56 I agree.
57 Heydon cites, in this connection, the decision of a Full Court of the Supreme Court of Victoria (Irvine CJ, Cussen J) in T.W. Cronin Shoe Pty Ltd v Cronin (1929) VLR 244. In an agreement for the sale of a shoe-manufacturing business, one of the vendors covenanted “not [to] … be engaged … in the business of a shoe-manufacturer … within one hundred miles of the said leasehold premises…”.
58 Irvine CJ said (at 248):
“… we feel that it would be difficult to frame any less general expression, and still more difficult to set out any exhaustive enumeration of particular employments or functions prohibited, which would be sufficient to safeguard the goodwill which was purchased. In these circumstances it does not appear unreasonable that business men meeting and discussing this question, and intending to give the fullest protection to the goodwill, should come to the conclusion that they could not effectively protect the goodwill which is purchased from damage or injury from competition otherwise than by using the very wide language which is here adopted.”
59 In my view, this reasoning is equally applicable here, so far as concerns the scope of the business activities inhibited by cl 6. As I have construed it, there is nothing in it, in my opinion, which goes beyond affording reasonable protection to the goodwill sold by the defendants.
60 Nor, in my view, is there any basis for suggesting that the scope of the area to which the restraint applies is more extensive than the business sold. As I construe it, the operation of cl 6 is confined to activities on Norfolk Island: the first limb of the restraint is explicit in this respect; and the second limb should, I think, be read as operating in a similar area, i.e. on the Island.
61 Finally, on the issue of the reasonableness of the restraint, I turn to its duration, viz. five years from completion of the sale.
62 In Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505, Spender J said (at 525):
“As to duration, ordinarily a time restraint is to permit sufficient time for the former owner’s connection with customers to fade away. In this case, repeat business was rare, and the purpose of a time restraint was to shut the prior owner out of competing for potential new customers. Given the size of the possible market, and the time frame and capacity for construction, a ten year restraint would seem reasonable.”
63 I respectfully agree with his Honour’s approach. In my opinion, a restraint of five years’ duration was within reasonable parameters if the goodwill sold were to be adequately protected.
64 Turning next to the question of reasonableness in the public interest (an issue in which the defendants bear the onus), it is well settled that, upon the sale of goodwill, a reasonable covenant is permissible, as Lord Watson explained in the Nordenfelt Case (at 552):
“… it is to the advantage of the public to allow a trader who has established a lucrative business to dispose of it to a successor by whom it may be efficiently carried on. That object could not be accomplished if, upon the score of public policy, the law reserved to the seller an absolute and indefeasible right to start a rival concern the day after he sold. Accordingly it has been determined judicially, that in cases where the purchaser, for his own protection, obtains an obligation restraining the seller from competing with him, within bounds which having regard to the nature of the business are reasonable and are limited in respect of space, the obligation is not obnoxious to public policy, and is therefore capable of being enforced.”
65 See also Heydon, op. cit. at 150 – 151.
66 It is true that cl 6 extends to a business of a “similar” character. But restraints, though wider than the business sold, may be valid if the kinds of conduct in question are so intermingled that one cannot be protected without including the other (Heydon, op. cit. at 158 – 159). Heydon cites in this connection Anchor Electric Co v Hawkes 50 NE 509 (SC Mass, 1898) where Knowlton J, after discussing Nordenfelt, said (at 511):
“The plaintiff corporation carried on different, but closely connected, departments of the electrical business, and the different departments were so related to each other that sometimes it would be difficult, if not impossible, to distinguish between competition with one department and competition with another.”
67 In my opinion, the restraint in cl 6 was reasonable as between the parties, and in terms of the public interest. It will be declared valid and enforceable in accordance with its terms.
68 The next issue is whether a breach of cl 6 has occurred. This is a question of mixed fact and law, and essentially one of characterising the present activities of the defendants.
69 In this connection, apart from the making of the Agreement itself, a fact not in issue, I make the following findings of fact:
· The area of the Island is approximately thirty-four square kilometres.
· Access to tourist sites is by sealed and unsealed roads. Sealed sections of roads total about 160 kilometres.
· There is a limited number of tourist attractions.
· The plaintiffs’ tour (which is essentially that conducted at the time of the sale) travels off-road at some stages, but the tour also includes attendance at sites accessible by sealed and unsealed road.
· The plaintiffs’ tour incorporates visits to the following sites or locations:
q Mt Pitt
q Hollow Pine Tree
q Gum and Pine Forests
q Bumboras
q Crystal Point
q Mr & Mrs Sheridan’s home (for morning tea)
q Anson Bay
q Headstone Point
q Puppy’s Point
q Some off-road driving
· The plaintiffs’ tour is largely on sealed roads. The driver engages in four-wheel drive between ten to twenty per cent of the duration of the tour.
· The plaintiffs’ tour is conducted by two four-wheel drive vehicles, with thirteen passenger seats in one vehicle, and five in the other. (As has been seen, the Agreement refers to them as “2 x Toyota 4 wheel drive buses which are presently used in the operation of the business”.)
· The defendants’ tour uses a thirty-five seat touring bus.
· The defendants’ tour includes visits to historical sites and points of interest. The tour is guided, with commentaries.
· The defendants’ “itinerary” tour extends over a period of seven separate days, with some daily and nightly attractions as well.
· The following differences are revealed upon a comparison of the plaintiffs’ tour with the defendants’ tour:
(1) The defendants’ vehicle is of a different type and size.
(2) The defendants’ tour spends more time on sealed road.
(3) The defendants’ tour places more emphasis on historical sites.
(4) The defendants’ tour does not proceed off-road.
· Notwithstanding these differences, both tours visit the following sites:
(1) Mt Pitt (when road open)
(2) Kingston (convict buildings)
(3) St. Barnabas’ Chapel
(4) All Saints’ Church
(5) Puppy’s Point
(6) Bumboras
(7) Crystal Pool
(8) Headstone Point
(9) Kentia Palm Nursery
(10) Captain Cook Monument
(11) Anson Bay
70 On these facts, has a breach occurred? The question, a difficult one, is I think, to be viewed as one of overlap, or of degree or emphasis, real and apparent, in the orientation of the respective services offered.
71 Some illumination of the present question is, in my view, provided by the decision of the English Court of Appeal in Fitz v Iles [1893] 1 Ch 77. The defendants were bound by a covenant in the lease of their premises, not to use the premises as a coffee house. The defendants were dealers in tea, coffee and other groceries. They proposed, as ancillary to that business, and for the convenience of customers, to sell light refreshments consisting of cups of tea and coffee, bread and butter, pastry, ham sandwiches and pork pies, to be consumed on the premises. It was held that the sale of light refreshments amounted to the carrying on of the business of a coffee-house keeper, and was a violation of the covenant. An injunction was granted accordingly.
72 Lindley LJ said (at 81) that it was plain that the defendants were not using the premises exclusively for a coffee shop; but that it was equally plain that this class of business was calculated to injure the plaintiff. His Lordship said (at 82):
“We must use our common sense. I think this case is really one of degree, and the conclusion to which I have arrived is that in the fair meaning of this covenant the Defendants are carrying on two businesses, one of which is a grocer’s business and the other of which is a coffee-house business, though, perhaps, not a very extensive one. They do not sell everything which coffee-house keepers sell; a coffee-house keeper need not sell all sorts of meats and so forth. He may confine himself to light refreshments such as these. … I look upon this as really a new-fashioned coffee-house, but one to which the covenant is applicable.”
73 A L Smith LJ said (at 83 – 84):
“… I come to the conclusion that as class 1 would be a coffee-house business, so class 2 would be a coffee-house business, although ancillary, it may be, to a much larger business. The Defendants are going to carry on a coffee-house business to the extent of about £350 year, no mean figure, in direct competition with the Plaintiff in Bermondsey New Road. When once the conclusion is arrived at that this is a coffee-house business, … it does not render it any less a coffee-house business because it is carried on as ancillary to another business.”
74 In other words, a breach will occur notwithstanding that the businesses are not the same, if there is sufficient degree of overlap in their activities. In my opinion, that degree of overlap has been demonstrated on the facts of the present case; the consequence is that the defendants are thus engaging in a business of a kind similar to that sold.
75 Another, equally helpful, approach is, I think, indicated by the reasoning in Drew v Guy. There, it will be recalled, emphasis was placed upon the consideration that one business was so like the other that they would seriously compete. Notwithstanding substantial elements of dissimilarity, there were, as here, important degrees of similarity. In the present case, both these businesses will seriously compete, even if, in some respects, their orientations differ.
76 Another approach, leading to the same result, is to focus on the ordinary meaning of the language used, particularly the employment of the word “similar”. As has been noted, this word suggests an intention to restrict any activity which is like, or resembles, the plaintiffs’ tour, especially in a general way. In my opinion, notwithstanding some specific dissimilarities, the defendants’ tour does resemble the plaintiffs’ service in a general way.
77 It follows, in my opinion, that a breach occurred when the defendants thus engaged in a business of the similar kind mentioned.
78 Moreover, in my view, it is proper that the breach of this negative stipulation be enjoined so as to protect the goodwill sold. As has been noted, on behalf of the defendants, it is pointed out that they did not retain a lawyer to advise them in relation to the Agreement. But, the language used in cl 6 should have caused them no difficulty in comprehension: the words used were ordinary English words of extension (“similar”), and not technical language. In that sense, the defendants were not then disadvantaged.
79 It is appropriate, I think, that the injunction be in the terms of the contractual provision. It will be recalled that this was the course adopted in Drew v Guy, above, (at 29) where Lindley LJ enjoined the defendant in the terms of the covenant. I have considered, but rejected for the reasons given by Irvine CJ in Cronin, above, the possible grant of an injunction which enumerates specific and particular activities which may not be engaged in. In the necessary absence of foreknowledge of the full context in which a range of hypothetical activities might be pursued, it is not feasible to endeavour to lay down, as it were, a roadmap of activities that are permissible on the one hand, and those that are not, on the other.
ORDERS
80 I make the following orders:
1. Declare that cl 6 of the agreement for sale between the defendants as vendors and the plaintiffs as purchasers, dated 8 January 1999, is valid and enforceable in accordance with its terms.
2. Order that the defendants be restrained for a period of five years from 8 January 1999 from owning, participating or being employed in, operating, engaging in (directly or indirectly, whether on the defendants’ own account or in partnership or as shareholders in a company or by joint venture) a four-wheel drive tour business in Norfolk Island, or a business of a similar kind.
3. Reserve costs. Liberty to apply for costs by written submissions filed and served within 21 days.
4. Stand over the plaintiffs’ claim for any further relief for directions at a date to be fixed.
|
I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont. |
Associate:
Dated: 2 November 1999
|
Solicitor for the Applicant: |
Mr Brendan Manning of Tzovaras Yandell Lawyers |
|
|
|
|
Counsel for the Respondent: |
Mr Adrian Cook QC |
|
|
|
|
Date of Hearing: |
7, 8 September 1999 |
|
|
|
|
Date of Judgment: |
2 November 1999 |
