BYOF Holdings Pty Ltd v Bencho Ltd – The High Court considers the reasonableness of a restraint of tradeIn 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:
- At the time of signing, all parties understood the restraint was critical to protect the goodwill of PONZ;
- There was no commercially sensitive information involved;
- PONZ's purchasers had experience in the market and did not need extra protection;
- PONZ's market was constantly evolving and its entry barriers were low;
- It was unreasonable to extend the restraint on parties who had not managed PONZ;
- 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.