In the recent decision of Devil Dog Pty Ltd v Cook
 WASC 27, the Supreme Court of Western Australia granted an
interim injunction to prevent a former employee from competing with
his former employer's business. The decision is a timely
reminder on the importance of carefully drafting and considering
restraint of trade clauses in commercial agreements.
The defendant, Mr Cook, was the owner of "Matchtec
Hydraulics", a business that manufactured, serviced, and
repaired hydraulic cylinders. In 2014 Mr Cook sold the business to
the plaintiff, Devil Dog Pty Ltd (Devil Dog), for
$650,000, $588,700 of which was attributed to the goodwill of the
As part of the purchase agreement between the parties, Mr Cook
agreed to continue working for the business for a year. Mr Cook
also signed a Deed of Restraint that prevented him from engaging in
any business that was similar to Matchtec Hydraulics, accepting any
business from Matchtec Hydraulics' clients, or interfering with
Devil Dog's relationship with Matchtec Hydraulics' clients
for a period of 10 years within Western Australia. Mr Cook did not
pay attention to the terms of the Deed of Release and did not
receive legal advice about the Deed because he was planning to
return to the United Kingdom at the end of 2016.
Mr Cook worked for Devil Dog until 30 June 2016. In July 2016 Mr
Cook began working in a competing hydraulic engineering business.
Devil Dog applied for an injunction against Mr Cook preventing him
from engaging in any hydraulic engineering business, soliciting or
accepting business from any of Matchtec Hydraulics' clients, or
interfering with the relationship between Devil Dog Pty Ltd and
Matchtec Hydraulics' clients.
Justice Tottle found that Devil Dog had established a prima
facie case that the clauses in the Deed of Restraint were
reasonable. The Court accepted the plaintiff's evidence that
Matchtec Hydraulics' clients were located in regional WA as
well as the Perth metropolitan area and reached the conclusion that
Devil Dog had a prima facie case that Western Australia was a
reasonable area to restrain Mr Cook.
The Court also accepted, on an interlocutory basis, that Devil
Dog had a prima facie case that 10 years was a reasonable period of
time to restrain Mr Cook, for 3 reasons. Firstly, the Court noted
that 90% of the purchase price was attributed to Matchtec
Hydraulics' goodwill, which suggested that the business had the
benefit of repeat business from its customers and enjoyed some
degree of customer loyalty. Secondly, the Court concluded that Mr
Cook had a strong personal connection with Matchtec Hydraulics'
customers. Thirdly, the Court noted that the parties, bargaining at
arms' length, had negotiated and agreed upon a 10-year
restraint period. This was after all in the context of a commercial
sale of business, for which courts will more readily uphold
restraints than in mere employment contracts.
Despite finding in Devil Dog's favour for the interim
injunction, the Court expressed significant reservations about the
reasonableness of the 10 year restraint and noted that this
appeared to be "at the outer edge of what may be
considered to be reasonable." It remains to be seen
whether this period will ultimately be held to be reasonable and
therefore enforceable if the matter goes to a final judgment.
There are two important lessons from this decision:
For businesses seeking to protect their commercial interests
through restraint of trade clauses in commercial agreements, for
example, in purchase agreements or employment contracts, it is
important that these clauses are carefully drafted to ensure that
they are enforceable. Just because the other party agrees to the
clause at the time of the agreement will not mean that the clauses
For businesses or individuals subject to a restraint of trade
clause, for example, as a vendor selling a business or as an
employee, it is very important that you consider and take advice on
these clauses before signing any agreement. These clauses can
seriously limit your ability to be employed or do business in your
industry and breaching these clauses can result in you having to
defend expensive legal proceedings.
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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