What is Restraint of Trade?

Restraint of trade refers to the contract ties the trading activities of either party after its determination. Restraint of trade clauses are ordinarily tied with positive arrangements within employment contracts while the aim of the contract is only the positives [2]. In Bulldogs Rugby League Club Pty Ltd v Williams the High Court was required to distinguish the validity of restraint of trade.

Facts

This is a personal service contract (‘the contract’) between Bulldogs Rugby League Club Ltd and Sonny Bill Williams. Williams entered into a contract with Rugby Club Toulonnais SA which raised the issue of potentially violating the terms “Subclause 3.1(s) not play the Game with any person, team or organisation save for the Club or in a Representative Match or matches in the Related Competitions except with the prior written consent of the Club [3] ; 3.1(t) not, without the prior written consent of the Club, which the player acknowledges will only be given with the consent of the NRL, participate in any football match of any code other than matches referred to in 3.1(s)’ of ‘the contract [4] .” Bulldogs Rugby League Club Ltd sought interlocutory injunction in relation to William’s alleged breach of contract.

Issue

Is there a serious question to be tried [5] ?

Would applicant suffer irreparable harm which damages would not be adequate compensation [6] ?

Does balance of convenience weighs in favour of the granting of relief [7] ?

Ratio decidendi

In answering issue 1), a relevant issue is whether the restraint of trade applies.

In NSW, a restraint is valid to the extent to which it is not against public policy [8] .

Whether the restraint is against public policy depends on two main questions: first, does the employer have a legitimate protectable interest and secondly is the restraint no more than reasonable for the protection of that interest. The validity of a restraint is judged as at the time at which the contract is made [9] .

In addressing issue 2), regards must be given to the special circumstances relating to the loss to a rugby club of a star attraction. This is seen as a pecuniary loss which is necessarily incapable of even approximate quantification [10] .

There are two critical issues in determining the balance of convenience; possibility of hardship of the defendant and the difficulties arising from the defendant being overseas.

Court will place little or no weight on hardship suffered by defendants where they are the authors of their own misfortunes [11] .

If a person is properly served in accordance with the court’s exorbitant jurisdiction that person is in the same position as a person who is within the territorial jurisdiction [12] .

Judgement and Analysis

The court found that in clause 18.2(c) of the contract that there was no doubt that Williams was well-aware of independent legal and financial advice before signing the contract [13] . In addition, both the Bulldogs and Williams had bargained before the contract was formed, thus it could be demonstrated as they were at arm’s length and on an equal footing [14] .

The fact of Bulldogs [15] were said to distinguish from Doherty [16] where the simple idea of sanctity of contract is to be another consideration. If a person who undertakes the enforcement of a contract without any fraudulent or misleading should consider an obligation [17] .

The significant point said by the court was “the covenant in question operates only during the course of the contract” which indicated that the restraint clause could be enforced during the life of Williams’ employment contract which is until 2012 when the validity of the contract terminates, not beyond the termination of this period [18] .

Another matter of application in this case is that the star rugby league player can be referred as an entertainer and the performance done by an entertainer work under special services contracts [19] . The court found that it was crystal-clear which the contract between Williams and Bulldogs was for special services [20] . As it was tested from Lumley [21] , courts cannot restrain entertainers to positive covenants in their contracts but they are able to restrain them from negative covenants not to perform their special services to competitors while a breach of contract occurs [22] .

Allied to the application mentioned above, Williams, the star rugby player has a significant star attraction among the club, thus if the irreparable damage to the Bulldogs occurs by the departure of Williams, which would not have an incapable pecuniary remedy that the Bulldogs could exchange for their loss [23] .

The Court mentioned that the injunctions ordered by the courts may or may not have efficacy outside of Australia, thus the Court should not contemplate whether defendant’s who are abroad would be obeyed or disobeyed by its orders [24] .

Commercial Implications

It is possible that as a result of Bulldogs [25] , any other entertainers including sports players would be cautious on their contracts whether they have any restraint of trade clauses for their own or not. It is believed that many employees who are bound to the special service contract would take this case as a lesson and try not to breach the contract.

Conclusion

The major conclusion made on the case Bulldogs Rugby League Club Ltd v Williams is likely to promote commercial certainty in the area of interlocutory injunction under the law of restraints of trade. By referring to the facts of the special service contract, the promise not to work for a competitor is likely to be enforced by the High Court [26] .

Reference Lists

J. Catanzariti & S. Gavin., 2009, ‘Workplace Relations Insights’, Clayton Utz, [Online] Available:

http://www.claytonutz.com/publications/newsletters/workplace_relations_insights/20090326/restraining_the_bulldog_bulldogs_rugby_league_club_ltd_v_williams.page

A.A Robinson, 2008, ‘Workplace Relations Publication’; [Online] Available:

http://www.aar.com.au/pubs/wr/fowraug08.htm

K. Strang, ‘Sonny Bill’s star attraction’ (2008) Human Resource Brief [Online] vol.3 pp.3-5 Available: http://www.kempstrang.com.au/site/upload/newsletter_hr_sept08.pdf

Case Lists

Bulldogs Rugby League Club Ltd & anor v Williams & ors [2008] NSWSC 822

Doherty v Allman [1878] 3 App Cas

Humane Society International Inc v Kyodo Senpaku Kaisha Limited [2005] 232 ALR 478

John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995

Lumley v Wagner [1852] 1 De GM&G 604

St George District Rugby League Football club Ltd v Tallis, Santow J, 28 June 1996 BC9602844