Principles of Restraints of Trade

Bulldogs Rugby League Club Ltd & anor v Williams & ors gave the Court another opportunity to consider the principles of Restraints of Trade and review the right of employers to enforce employee restraints. The following case analysis will discuss the Court’s decision and its significance in the legal and commercial contexts.

Facts

On 16 May 2007, Sonny Bill Williams (the first defendant) entered into a five-year contract with the Bulldogs Rugby League Club Ltd (the first plaintiff) which was due to commence on 1 November 2007 and entitled Williams to an annual salary of $400,000 per season and remunerations. By signing the contract, according to clause 3.1(t) of the contract, Williams agreed to “not, without the prior written consent of the Club… participate in any football match of any code” other than certain matches specified in the contract.

However, the Bulldogs became aware that Rugby Club Toulonnais SA (“the Toulon Rugby Club”), a public company in professional sports based in France (and the second defendant), had commenced negotiations with the first defendant from about June 2008 regarding the first defendant playing for it in the 2008-2009 top 14 competition in France. Newspaper reports showed that the first defendant had signed a contract with the second defendant and that he was also due to represent the second defendant in a trial match on 8 August 2008.

As a result, the Bulldogs brought proceedings in the New South Wales Supreme Court to seek, among other things, an injunction to restrain the first defendant from playing for the second defendant.

Issues

In order to decide whether to grant the injunction, the court also had to consider the reasonableness and enforceability of the restraint clause. Accordingly, Austin J identified several questions that needed to be answered:

Did the alleged breach by the first plaintiff infringe the terms of the restraint properly construed?

Did the first plaintiff have a legitimate protectable interest?

Did the restraint go any further than what was necessary to protect that interest.

Was the contract between the first plaintiff and the first defendant for a provision of special services?

Ratio Decidendi

In determining the validity of the restraint clause, Austin J initially examined the general principle at common law that “a restraint of trade is contrary to public policy and void unless it is justified by the special circumstances of the particular case”. In addition, as the contract between the first plaintiff and the second plaintiff was governed by New South Wales, Austin J also referred to the Restraints of Trade Act 1976 (NSW) s4(1) in which “a restraint is valid to the extent to which it is not against public policy, even if not in severable terms”.

In considering “whether the restraint goes any further than is reasonably necessary to protect the interests of the person in whose favour the restraint operates”, Austin J followed the approach of Idameneo (No 123) Pty Ltd v Angel-Honnibal relating to the consideration that the parties had bargained at arm’s length and on equal footing before signing the contract. Moreover, the judge also applied the principle drawn from Doherty v Allman that where there are no fraudulent, misleading or deceptive conduct or circumstances, “a considered obligation undertaken by contract should be enforced against the person who undertakes it”. Besides, taking account of the distinction between covenants that operate only during the term of employment and covenants that extend beyond the termination of the employment period, Austin J addopted the observation of Crockett J of the Victorian Supreme Court in Buckenara v Hawthorn Football Club Ltd that only in “very unusual” circumstances would a restraint that operates exclusively during the term of employment be found to be unreasonable. This was also supported by the case Curro v Beyond Productions Pty Ltd where the restraints operated during the course of employment were found not unreasonable and therefore upheld.

Furthermore, in determining the availability of an injunction enforcing the restraint clause, Austin J followed the principle of Lumley v Wagner that “if the contract is a contract for the provision of special services, the promise not to work for a competitor will be enforced”. This rule was also applied in other cases on rugby league football such as Australian Rugby Football League v Cross, Buckenara v Hawthorn Football Club Ltd and Hawthorn Football Club Ltd v Harding.

Critical Analysis and Evaluation

The court unanimously found that Mr Comninos was in fact a wholly independent contractor [1] . This is consistent with precedent which can be traced back to Quarman v Burnett. The majority noted that although engaging another party to the first party’s advantage is often a necessary requisite, it is insufficient to establish vicarious liability [2] .

The court then applied the test from Hollis [3] emphasising differences in control over the manner in which work and financial matters are conducted control over the workers presentation to the public, provision of training and equipment, as well as the degree of skill required to perform the work [4] .

Attention was then turned to the matter of whether Comninos was a representative/agent of Boylan per the Colonial Mutual Life exception [5] .

The application of the multiple indicia test to determine whether the mechanic was an employee is consistent with the approach taken in previous cases. The approach was authoritatively established in Stevens [6] and confirmed by the High Court in Hollis [7] . In Hollis the facts revealed that the bicycle couriers had to maintain their own bicycles,

Furthermore, observing the ‘totality of the relationship’ it was noted that Comninos operated his own business, provided his own tools and equipment including his own van, was not paid a salary and to the public was not presented as an emanation of the respondent. [8] Furthermore, the usage of the term ‘our mechanic’ was seen as ambiguous [9] . Thus, it was correctly concluded that

.” [10] In Sweeney the majority suggests that terms such as ‘representative’ and ‘agent’ are ambiguous and obscure what the relationship between the parties is. [11] The majority follow an orthodox approach where the principle of vicarious liability relies on rigid dichotomy between ‘independent contractors’ and ‘employees’. [12] However, this approach as argued by McHugh fails to capture the changing and diverse work relationships in society that no longer ‘based on medieval concepts of servitude.’ [13] Furthermore, the approach represents a very limited interpretation (or even inconsistent interpretation) of CML [14] decision in which ‘an independent contractor acting as a ‘“principal’s agent” uttered slanders to persuade the third party to make an agreement’ resulting in the principal being held vicariously liable.’ [15] Thus, in Kirby’s dissenting judgement where it is suggested that the employee-independent contractor dichotomy should be coupled with a category of ‘representative agents’ appears to be the more consistent with the CML decision and more reflective of current workplace relations.

Whilst it may not have been a favourable outcome, [16] the decision of Sweeney was certainly in keeping with the history and judgments of this area of case law. The case of CML has never been overruled [17] and it has been upheld and reflected in numerous cases since. [18]

According to Lindgren J, [19] the generally accepted principle in Australia is that where an agent is appointed to influence another to enter into a contract with the principal, the principal will be held liable if the agent makes tortious statements.” [20] The decision of Sweeney therefore is in keeping with this principle as it fails to satisfy this standard.

In Alphapharm the argument that the respondent should not be bound by signature was a direct challenge of the classic principle of signed contracts established by L’Estrange. The ratio of the Court supported L’Estrange and further strengthened its presence in modern Australian contract law by exploring its limitations.

Playing on the benefits of legal consistency, the Court examined numerous cases decided on the L’Estrange principle. It also highlighted how it similarly extends to non-contractual such as Wilton v Farnworth [21]

Additionally, the Court noted that provisions regarding the strict application of this rule can be enacted thanks to legislation allowing some form of equity to be achieved.