The Facts

Two flower wholesalers merge their operations

Flower wholesaler B traded at the Sydney Flower Market in Flemington for many years up to 2002. In January 2003, wholesaler V acquired 50% of wholesaler B.

In 2013 a new company, jointly owned by B and V, commenced business and took over the market stalls previously operated by B. By 2018, the new company was operating ten market stalls.

Division of business and agreement on restraint of trade

Between 2017 and 2018, a dispute arose between the owners of wholesalers B and V. They decided to go their separate ways and divide the market stalls between their two companies.

As part of this arrangement, the owners of B and V made an agreement. V would not import or display flowers from South America at its market stalls. If wholesaler V wanted to buy or display South American flowers, it had to buy them from B.

In addition, V was restricted from displaying South American flowers unless it was for the purpose of fulfilling orders, and the profit had to be shared with B.

Wholesaler B had the same restrictions in regard to flowers from Kenya. The intention of the agreement was to ensure that B and V did not operate identical flower stalls in close proximity to one another.

B sues V for breaching terms of agreement

In July 2019, V began displaying South American flowers at its stalls, which had not been supplied by B.

In response, B began proceedings against V in the Supreme Court Equity Division, claiming that according to their agreement, V could not display or sell flowers imported from South America unless it bought them from B.

B argued that this restriction should continue indefinitely while B and V operated adjacent market stalls.

V denies existence of trade restraint agreement

V denied that such an agreement existed, claiming that it was merely a proposal on the part of B and had never become an agreement.

V claimed that even if there was a contract involving this agreement, it had been repudiated and that repudiation was accepted by V, or that otherwise it had been abandoned.

V also argued that the terms of the agreement breached public policy by restricting the freedom to trade.

The trial judge found that the parties did intend to enter legally binding arrangements. The court was not satisfied there was any repudiation or abandonment.

However, the court agreed with V that the restraint was unreasonable, unenforceable and contrary to public policy because it was anti-competitive.

B appeals on basis of Restraints of Trade Act

B appealed the court's decision.

B claimed that the trial judge was wrong in not applying section 4(1) of the NSW Restraints of Trade Act 1976 when deciding whether the restraint of trade was enforceable.

The question for the Court of Appeal was whether the restraint on V was void as an unreasonable restraint of trade.

case a - The case for wholesaler B

case b - The case for wholesaler V
  • The restraint was reasonable. There was no evidence that the restraint was against the public interest or public policy.
  • V obtained a valuable commercial benefit as part of the deal, including our agreement not to import flowers from Kenya.
  • V agreed to the restraint and so did we. We both perceived the restraint to be to our mutual benefit.
  • The restraint was not anti-competitive. There was no evidence to indicate that the restraint had an effect on the market for the purchase of South American or Kenyan flowers.
  • There was no evidence to indicate that the restraint worked against either party's interests.
  • There was no evidence that the restraint unreasonably restricted competition between other parties or other vendors.
  • There was no agreement. We did not agree to those terms.
  • Even if there was an agreement, B repudiated it by selling flowers from Kenya.
  • Alternatively, B abandoned the agreement, as shown by the conduct of B in selling Kenyan flowers that it did not buy from us.
  • The restraint was unreasonable and very restrictive to our trading patterns.
  • While it may have been seen by the parties as beneficial to have mutual restraints against competition, that does not mean the restraints were valid.
  • Just because there were mutual restraints which were freely bargained for doesn't mean the restraints were reasonable. In fact the restraints were unreasonable and breached public policy.

So, which case won?

Cast your judgment below to find out

Michael McHugh
Business disputes and litigation
Stacks Law Firm

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