In Richmond v Moore Stephens Adelaide Pty Ltd 
SASCFC 147 (29 September 2015), a Full Court of the South
Australian Supreme Court rejected a claim that a restraint clause
included in a number of business sale agreements was
Factual Background. An accountant agreed to sell
his practices and its services over a four-year period. The
Business Sale and Service Agreements ("Agreements")
contained a cascading restraint clause which operated for four
years, three years, two years and one year after completion of the
sale within a 10-kilometre radius of the business. Such cascading
clauses allow employers to enforce a lower-level restraint if a
broader restraint is deemed too harsh, without the entire restraint
clause being unenforceable.
The accountant claimed that the purchaser, Moore Stephens, failed
to pay him an instalment of $600,980 for the purchase of the
business. The purchase price was dependent upon the level of
achieved fees over the first three years, and disputes had arisen
in relation to the amount of fees which had been achieved.
Legal Background. The accountant argued that the
restraint clause in the Agreements should not be enforced
Moore Stephens breached an essential
term of the Agreements by failing to pay him part of the purchase
price, meaning that the accountant was entitled to terminate the
the restraints were void for
uncertainty and because they constituted an invalid restraint of
Decision. Justice Blue, with whom Kourakis CJ and
Stanley J agreed, decided that while Moore Stephens was in breach
of the Agreements by failing to pay the correct amount for the
purchase, those breaches did not entitle the accountant to
terminate the Agreements. As such, the Agreements including the
restraint clauses remained on foot.
The accountant argued that the restraint, which prevented him from
soliciting the custom of or dealing with any person with whom he
had had '"direct or indirect dealings", was too
uncertain to be enforceable. However, Blue J was of the view that
that phrase had a clear connotation, even though an inquiry would
need to be conducted to determine whether the accountant had had
"direct or indirect dealings" with a client.
Justice Blue also decided that the scope of the restraint was
reasonable with regard to the interests of the parties. Evidence
had been given that the accountant had long-standing relationships
with his former clients and that two years were needed to build up
a relationship with a client. As such, restraints going beyond one
year were reasonable in the circumstances.
Lessons for Employers. This case emphasises that
the enforceability of restraints depends on the factors impacting
upon each individual business. To be enforceable, restraint clauses
need to be sufficiently specific and certain to allow the reader to
determine the scope of the restraint. Further, restraint clauses
will be enforced only to the extent that they are reasonable in the
circumstances with regard to the nature of the business (and the
business interests they seek to protect).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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