Restraint of Trade
Restricting Liberty To carry On Trade With Others
The doctrine of ‘restraint of trade’ is found within the common law. As such, the concept of a restraint of trade is not defined within the Competition and Consumer Act 2010 (Cth) (“the Act”).
The doctrine of ‘restraint of trade’ was defined by Lord Diplock in the case of Petrofina (Great Britain) Ltd v Martin  Ch 146, 180, as:
“A contract in restraint of trade is one in which a party (the convenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other persons not party to the contact in such manner as he chooses.”
‘Reasonableness’ of the Restraint of Trade
The onus to prove that the restraint of trade clause is reasonable in the interest of the parties lies with the person seeking to rely on the clause. However, it is the responsibility of the person seeking to void the restraint of trade clause that it is not reasonable in the interest of the public.
A court will usually assess some common factors when determining whether the restraint of trade is reasonable:
Whether there is a ‘legitimate interest’ that requires protection – common interests include:
Whether the restraint of trade does more than what is necessary to protect that interest – if it creates an unnecessary burden on one party, then a Court may not consider the restraint of trade to be reasonable.
Severance of a Restraint of Trade
If a Court finds that the restraint of trade in unreasonable, then it may be the case that the restraint is void in its entirety. However, there are circumstances where a Court may only ‘sever’ a certain part of the restraint of trade.
In NSW, section 4(1) the Restraint of Trade Act 1976 (NSW) defines the extent to which a restraint of trade clause is held to be valid:
By extension, subsection 3 also states:
This means that a Court may choose to enforce the restraint of trade and ‘read down’ the restraint to the extent that it is not unreasonable.