WPS Enterprises Pty Ltd v Radford [2009] HCATrans 223 (4 September 2009)

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WPS Enterprises Pty Ltd v Radford [2009] HCATrans 223 (4 September 2009)

Last Updated: 8 September 2009

[2009] HCATrans 223

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M23 of 2009

B e t w e e n -

W.P.S. ENTERPRISES PTY LTD (ACN 100 839 325)

Applicant

and

PETER FREDERICK RADFORD

Respondent

Application for special leave to appeal

HAYNE J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 4 SEPTEMBER 2009, AT 10.42 AM

Copyright in the High Court of Australia

MR P.J. HAYES: May it please your Honours, I appear with MR H.P. BOKELUND, for the applicants. (instructed by Creelman Lawyers)

MR M.J. STIRLING: If the Court pleases, I appear for the respondent. (instructed by Richmond & Bennison)

HAYNE J: Yes, Mr Hayes.

MR HAYES: Your Honours, might I start by simply going to the core elements of the restraint clause to remind your Honours of its essential ingredients. To that I take your Honours to application book pages 114 and 115, and your Honours will see at clause 14 of the application book that in the preamble to the restraint it states very clearly that the clause is:

to reasonably protect the goodwill of the business -

but then further goes on to say that -

Purchasers, they shall not whether directly or indirectly -

and we harness on the word “indirectly”. There is a five-year restraint covering the breadth of Victoria. That is not an issue before your Honours. Then the clause further descends down to the words:

carry on or be financially or otherwise engaged –

Again, your Honours the words we seize upon are the words “or otherwise engaged in”. Then your Honour will see what is a somewhat cumbersome attempt to describe those words at clause 14.2 and it says the words:

carry on or be financially or otherwise –

and then the word “interested” is inserted –

engaged in –

and then the words:

or concerned with –

are added. We would submit that the words “interested” or “concerned with” be ignored for the time being and I will come back to that, your Honours. Then the key proposition we then also – and we nail our colours to the mast again, your Honours, on the words “or otherwise engaged in”, and then descending further to the second of those dot points, we would again rely upon the words:

influencing a competitive business –

using the word “influencing”, then “through any association”, we rely upon “any association”, and then “with any person, relative”, and again we rely upon the word “relative”.

Now, having established the framework of the clause which the appellant relies upon, your Honours, the appellant in this case had paid an amount of $915,000 for the goodwill, which is specifically referred to in this restraint clause. Your Honours will see that that is specifically referred to in the contract at application book page 126. If I can take your Honours to application book 94 to 96, and the core facts in this case which are relied upon by the appellants are that over a period of four months during the period of the restraint - it was towards the end of the restraint period, your Honours, it was about three and one half years into it - between a period of February and June 2006 the vendor of the subject business, restrained by a restraint clause, rented out premises to his son, albeit at a market rental, and the court found that such tenancy was of the basis of a malevolent landlord.

Your Honours will also see that there was a $35,000 loan. We do not seek, for the purposes of this appeal, your Honours, to hold the vendor to all of that 35,000. Indeed the court’s finding was that $10,000 of that came from joint moneys. There were further aspects of undertaking by the vendor as to the establishment of the business, so-called “unsolicited voluntary research” I think were the words of the trial judge. There was a guarantee that was executed in support of an application for finance of critical equipment, albeit that guarantee was not proceeded with.

Finally, there was the approaching of customers, and in particular, a critical piece of evidence which was tendered at the trial, your Honours, by way of film, showed the vendor actually servicing a customer when an investigator dropped a wheel off to be serviced, and again we would seek to infer from that some level of influence over the business.

HAYNE J: Is that incident a high point of the evidence upon which you rely? What was the high point?

MR HAYES: The high point is all of the incidents viewed together, your Honour. We say that what the court should have done, and where their Honours fell into error, is what was advised by Justice Tadgell at page 148 of Transport Industries v Longmuir, and to use the words of Justice Tadgell - all of those Acts appear at application book 94 to 96 - and his Honour very eloquently states the proposition for circumstantial evidence in civil matters is that:

That aside, it should be said that, to assess the evidence in a case like this by reference to various individually-pleaded particulars, as though running through items on a check list, is apt to mislead. The evidence is to be evaluated as a whole in order fairly to consider whether the party bearing the onus of proof has established what is ultimately sought to be proved. The object of the exercise of evaluation is to discover whether the evidence paints a picture reflecting real life, rather than to place a tick or a cross against paragraph after paragraph of torpid pleading.

This is the important bit –

A true picture is to be derived from an accumulation of detail.

That is what we say, that where their Honours fell into error in this case, because what their Honours should have done is what Justice Tadgell suggested. They should have stood back and looked at the overall effect of the detailed picture and viewing it from a distance, and looking at all of those Acts, your Honours at application book 94 to 96, we would say, that they offend the spirit or the object of the clause.

Now, the object of the clause in this case, your Honours, is that the appellant paid a very handsome amount for the goodwill of the business. This case is a little bit different to other cases such as Cream v Bushcolt, and I will take your Honours to that in a moment, or indeed other cases where the courts, both in England and Australia, have touched upon the essence of restraints being to protect goodwill because in this case the goodwill is actually specifically described, not just in the restraint clause. So the object is actually there in the clause, but it is also, unlike Cream v Bushcolt, in terms of the consideration paid by the purchaser to the business, prescribed again in the contract and we are at an advantage in this case that we know specifically that the object of the clause is to protect the goodwill and we know specifically how much has been allocated towards that object and that was the amount of $915,000 which, on our submission, your Honours, is a significant amount.

At the applications book, your Honours will see that the reasons are essentially summarised at pages 96 to 97. Justice Buchanan, who wrote the lead judgment, said that the clause:

‘was designed to catch something more than casual assistance with respect to an insignificant portion of a competing business’ and ‘was not intended to catch acts which were not helpful but far from essential in the establishment of a competing business. Clause 14 forbade establishing a competitive business. It did not in terms proscribe assisting in establishing a competitive business

He also held that:

it is [not] permissible to lump together all of the acts of the respondent established by the evidence and invite the Court to conclude that they all contribute to the conclusion that the respondent breached the agreement.

We say not only was it permissible, and this is where his Honour fell into error, his Honour held that even if they were considered together they would not formulate a breach and we say that his Honour fell into error that when you consider the totality of those acts, when you consider the very vice that was sought to be restrained by the clause, namely that the vendor of the business not influence his son to set up a competing business, especially over a critical period of time in the infancy of a business and during its establishment and having regard to the goodwill of that business, then not only is it permissible to construe the clause as a whole and in an expansive sense, but also to look at all of those acts together.

Indeed, my friend would say, and indeed has said, in his submissions that this proposition is nothing new, it is simply traversing a well-settled law of the Court so far as construction of contracts is concerned in Toll v Alphapharm. We would say it is Toll v Alphapharm and more, because what it requires is, in this case, restraint clauses are different and what it requires in this case is to look at the surrounding circumstances which is what Toll v Alphapharm stands as authority for, as your Honours are aware, and the surrounding circumstances in this case is the goodwill and that clearly comes into play.

What makes it, on one view, your Honours, important is that your Honour Justice Heydon in your recent text on restraint of trade makes reference to page 213 of which your Honour will recall that:

There have been suggestions that the more that is paid for goodwill, the slower the court will be to set the covenant aside, that validity may be inferred from a large consideration, and that the existence of goodwill may be inferred from the substantial nature of the consideration. It is submitted that these suggestions are erroneous so far as they distract the court from analysing what interest is being protected and whether the covenant is more than is reasonably necessary to protect it.

What we would say is what has happened since that passage has appeared in your Honour’s book is that in this case, this is a very different case to many of the cases which might have gone beforehand where the actual object of the clause, namely the protection of the goodwill, is referred to in the contract, as is the amount of consideration allocated to that goodwill.

Now, without troubling your Honours as to the specific decisions, there is a recent decision, certainly in Victoria - Justice Hollingworth in 2008 in the case of TSV Holdings v Evans looked at the question of goodwill impacting on restraint of trade clauses. Likewise, in the Northern Territory in the case of Extraman v Blenkinship, again that has started to creep in in terms of looking at the extent to which goodwill can inform the meaning of the restraint of trade clause. Certainly in the Northern Territory case, there is New Zealand authority which says indeed, that one should - in the case of Brown v Brown, of which no doubt your Honours are aware.

We say in this case, your Honours, that the collective acts of the respondent certainly offend the spirit of the clause, especially the influencing of Mr Radford’s son, if one takes those matters referred to at applications book 94 to 96 in the establishment of the business. We say certainly in this case, he should be held to his bargain, that is, that he not influence his son in establishing a competitive business. We also say that Justice Neave, while she agreed with Justice Buchanan, went on to say - one can see that she was somewhat troubled by the acts of Mr Radford that were referred to at applications book 94 to 96, where at application book 97, and I have lifted it out of the judgment for your Honours, she says:

the combined effect of the respondent agreeing that his wife would lend seed capital to the business from [their] joint pension fund, the grant of a lease to the business on favourable terms and the respondent’s involvement in collecting and delivering wheels to customers –

and these are the important words –

came very close to establishing a breach of the covenant not to ‘otherwise engage’ in any undertaking which carries on a business competitive with that of the appellant.

She then helpfully adds:

The fact that the business could have obtained a lease from another landlord, or borrowed money from a different lender, does not necessarily detract from that conclusion.

We would say again, your Honours, that Justice Neave should have fallen on the other side of the precipice and held that those acts cumulatively did establish a breach and, indeed, when one look at those acts, not only do they offend the spirit of the clause, and certainly the very thing that was trying to be protected so far as the purchaser’s goodwill was concerned, but the very thing that was being protected was the expertise and resources that Mr Radford could have indirectly applied to the business or deployed to the business, namely his son, in establishing or even influencing his son in establishing a competitive business.

It is those resources and that expertise - even if it is indirectly applied - we say that the conclusion should be that that at the very least influenced the establishment of a competitive business and falls foul of the provision of the clause. Certainly, your Honours, when read as a whole and when one looks back to the object and intent of the clause to protect the goodwill, the very thing that Mr Radford has done is the very injury that has been sustained by the appellant so far as the purchaser is concerned, and effectively, those acts of Mr Radford have depreciated the very thing that has been sold to the purchaser, which is the goodwill, by influencing his son.

Your Honours, I will move on just very briefly. Finally, we say that in addition to looking at, if we can say, the construction point and also the evidentiary point on the aggregation of evidence, your Honours, we say also that those discrete acts of the respondent, in any event, they certainly were acts that, at the very least, in this case – and the words “not to be otherwise engaged in” should not be limited as having a financial interest or a pecuniary interest in the business. We simply say that Hunt v Pascoe and Pioneer v Galli do not fence off those words, your Honours. They do not certainly quarantine that words “being interested in”, or “influenced in” or “otherwise engaged in” have to be an interest that is one of a financial nature. We say it is much broader than that. Subject to any questions of your Honours, those are the submissions of the appellant.

HAYNE J: Thank you very much, Mr Hayes. We will not trouble you, Mr Stirling.

An appeal to this Court would enjoy insufficient prospects of success to warrant a grant of special leave to appeal. Special leave is accordingly refused. It must be refused with costs.

The Court will adjourn to reconstitute.

AT 10.58 AM THE MATTER WAS CONCLUDED