Anti-competitive settlement agreement unenforceable

Two business partners operated a number of stalls at the Sydney Flower Market.  In order to resolve a dispute, they agreed to divide the business into two, with Vinflora owning one part and Belfora owning the other part.  As part of the settlement, Vinflora agreed not to import flowers from South America, and Belfora agreed not to import flowers from Kenya.  Vinflora subsequently breached this agreement by importing flowers from South America, and Belflora commenced proceedings to enforce the agreement.  On appeal, the Supreme Court of NSW held that the agreement was unenforceable, on the ground that it was an unlawful restraint of trade.

At common law, restraints of trade are contrary to public policy and void unless they are (1) reasonably necessary to protect the interests of the parties, and (2) reasonable in the interests of the public.  The Court accepted that there may be circumstances where a restraint directed to maintaining a relationship with a supplier may be reasonable, but the purpose of the blanket restraint here was to restrict competition, not to protect any legitimate interest of Belfora.  The fact that there were mutual restraints, and that the agreement had been freely entered into to settle a dispute between the parties, did not assist Belflora. 

The Court declined to apply the Restraint of Trade Act (NSW), which permits the Court to enforce a restraint to the extent that it is not contrary to public policy. The Court also noted, without deciding the issue, that the relevant conduct may have contravened the cartel provisions of the Part IV of the Competition and Consumer Act.    

The case can be read here.