The recent decision of the full court of the Supreme Court of South Australian in Richmond v Moore Stephens Adelaide Pty Limited [2015] SASCFC 147 affirms that appropriately drafted and reasonable restraint clauses will be enforced by the courts.

In Richmond, an accountant had agreed to sell his practice to Moore Stephens with payment of the purchase price agreed occur over a 4 year period.

As is common in agreements for the sale of a business, the sale agreement contained restraints on the accountant. He was prevented from soliciting the custom of, or dealing with any person with whom he had had “direct or indirect” dealings.

Again, as is common, the restraint “cascaded”. That is to say, the restraint operated within a 10 kilometer radius of the accountant’s former business for a period of 4 years, 3 years, 2 years and 1 year. The cascading nature of the restraint allows the beneficiary of the restraint to enforce a lesser period, if the court holds a higher period to be unreasonable.

The accountant alleged that he was not bound by the restraint because;

1. the buyer had not paid the whole purchase price for the business; and
2. the restraints were uncertain and constituted an invalid restraint of trade.

The court rejected both of these arguments, stating that;

1. the fact that the purchase price had not been paid in full (there was an argument over the correct amount payable) did not give rights to terminate the agreement and accordingly the restraint remained on foot;
2. the restraints were not uncertain (though further inquiry would be needed to determine whether indirect contact had occurred) and the restraints were not more than was reasonably required to protect the interests of the buyer.

It is often thought that restraints are invariably so difficult to enforce that they are hardly worth the trouble of including them in contractual arrangements. Richmond serves as a useful reminder that the courts will uphold restraints, provided that the restraint is both certain such that its scope can be understood and no does no more than is reasonably required to protect the interests of its beneficiary.

For more information on this topic please contact ERA Legal.