BYOF Holdings Pty Ltd v Bencho Ltd – The High Court considers the reasonableness of a restraint of trade

In BYOF Holdings Pty Ltd v Bencho Ltd the High Court confirmed that a restraint of trade cannot be wider than what is necessary in the circumstances.

This case involved a PONZ's New Zealand directors buying out their Australian business partner and including a restraint of trade preventing the Australian partner, his Australian companies, their past and future affiliates, from re-entering the New Zealand market forever

The High Court ruled that this restraint was unreasonable.  The HC shortened the restraint of trade to a period of six years and held it was only enforceable against those who had been involved with PONZ.  In reaching its decision the Court considered the following key factors:

  1. At the time of signing, all parties understood the restraint was critical to protect the goodwill of PONZ;

  2. There was no commercially sensitive information involved;

  3. PONZ's purchasers had experience in the market and did not need extra protection;

  4. PONZ's market was constantly evolving and its entry barriers were low;

  5. It was unreasonable to extend the restraint on parties who had not managed PONZ;

  6. At the time of signing, the New Zealand directors had refused to negotiate the duration of the restraint.  Its unlimited duration was not a product of careful consideration.