chs . pe CATCHWORDS CONTRACT - restraint of trade clause - challenge to validity on grounds of uncertainty, public policy and unreasonableness - specialised business - limited market - protection of goodwill integral part of transaction - whether restraint reasonably necessary to protect the interests of the covenantee - whether applicants defeated by delay laches and acquiescence - equitable relief under principle in Trego v. Hunt £18961 A.C. 7. CONTRACT - purported rescission of deed of settlement - breach of deed admitted - whether clause a condition - whether breach remedied by subsequent payment - effect of rescission on restraint of trade clause. DEFAMATION - representations made in United States as to the financial position of the applicants - whether representations amounted to defamation, injurious falsehood or misleading or deceptive conduct. TRADE PRACTICES - consumer protection - misleading or deceptive conduct - passing off - sale of shipbuilding business known as "Lloyds Ships" - restraint of trade clause - subsequent carrying on by respondents of the business of shipbuilding in close proximity by reference to similar names - alleged representations of continuity of and a connexion with the business sold - specialised business of luxury motor vessels - limited market - whether conduct constitutes contraventions of s.52 of the Trade Practices Act 1974. Trade Practices Act 1974 Bounty (Ships) Act 1980 12/2 oo Amoco Australia Pty. Limited v. Rocca Bros. Motor Engineering Co. Pty. Ltd. (1972-3) 133 C.L.R. 288. Herbert Morris, Limited v. Saxelby £19161] 1 A.C. 688. Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. £19681 A.C. 269. Hawkesbury Bakery Pty.Ltd. v. Moses £19651 N.S.W.R. 1242. The Queensland Co-operative Milling Association v. Pamag Pty. Limited (1973) 133 C.L.R. 260. Austra Tanks Pty. Ltd. v. Running C1982] 2 N.S.W.L.R. 840. J.0.A.T. Pty. Limited v. Storm (unreported, Full Court of the Supreme Court of Queensland, 4 July, 1986). Davies v. Davies (1887) 36 Ch.D. 359. Peters Ice Cream (Vic.) Ltd. v. Todd £1961] V.R. 485. Mason v. Provident Clothing and Supply Company Limited £19131 A.C. 724. Attwood v. Lamont £1920] 3 K.B. 571. Butt v. Long (1953) 88 C.L.R. 476. Australia and New Zealand Banking Group Ltd. v. Beneficial Finance Corporation Ltd. (1983) 57 A.L.J.R. 352. Associated Newspapers Limited v. Bancks (1951) 83 C.L.R. 322. Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. C1982] Q.B. 133. Trego v. Hunt £1896] A.C. 7. Taco Company of Australia Inc. v. Taco Bell Pty. Ltd. 42 A.L-.R. 177. Global Sportsman Pty. Ltd. v. Mirror Newspapers Ltd. 55 A.L.R. 25. Bridge Stockbrokers Ltd. v. Bridges 57 A.L.R. 401. Fletcher Challenge Ltd. v. Fletcher Challenge Pty. Ltd. £1981] 1 NSWLR 196. Joseph Rodgers & Sons Ltd. v. W.N. Rodgers & Co. (1924) 41 R.P.C. 277. Parker Knoll Limited v. Knoll International Limited (1962) R.P.C. 265. LLOYD'S SHIPS HOLDINGS PTY.LTD. & ANOR. v. DAVROS PTY.LTD.& ORS. QLD. G17 of 1986 SPENDER J. BRISBANE 6 MARCH 1987. r IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QLD. G17 of 1986 GENERAL DIVISION BETWEEN : LLOYD'S SHIPS HOLDINGS PTY. LTD. First Applicant AND: QUEENSLAND MERCHANT HOLDINGS LIMITED Second Applicant AND: DAVROS PTY. LID. First Respondent AND: LLOYD CORPORATION (a firm) Second Respondent AND: KEITH BERNIE LLOYD Third Respondent AND: LLOYD'S EXCLUSIVE CHARTERS PTY, LTD. Fourth Respondent DATE JUDGMENT DELIVERED: 6 MARCH 1987 COUNSEL: for the applicants Mr. Drummond Q.C. with Mr. A. J.H. Morris for the respondents Mr. Davies Q.C. with Mr. H.B. Fraser THERESE MACDERMOTT ASSOCIATE TO SPENDER J. IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) QLD. G17 of 1986 ) ) GENERAL DIVISION BETWEEN : LLOYD'S SHIPS HOLDINGS PTY. LTD. First Applicant AND: QUEENSLAND MERCHANT HOLDINGS LIMITED Second Applicant AND: DAVROS PTY. LTD. First Pespondent AND: LLOYD CORPORATION (a firm) Second Respondent AND: KEITH BEPNIE LLOYD Third Respondent AND: LLOYD'S EXCLUSIVE CHARTERS PTY. LTD. Fourth Respondent SPENDER J. BRISBANE 6 MARCH, 1987. REASONS FOR JUDGMENT: In November, 1984, a shipbuilding business was sold by the first respondent (then called "Seavad Industries Pty. Ltd."), the third respondent and other parties, to the first applicant, (then called "Q.M.H. Resources Pty. Ltd."). The business has operated from premises in Byron Street, Bulimba, Brisbane, since the early 1970s, originally being known as "Striker Boats Australia". In 1980, the business was acquired by the first respondent, of whom the third respondent, Keith Lloyd is a principal. Thereafter, the business became widely known as "Lloyd's Ships" and established a reputation for the construction of luxury motor vessels. The sale agreement, dated 16 November 1984, provided for the acquisition of the goodwill of the business and the exclusive right to use the names ""Seavad Industries", "Lloyds Ships", "Lloyds Marine", and "Striker Boats Australia". Provision was made also for the acquisition of land and certain other property associated with the business, work in progress, and bounty pursuant to the Bounty (Ships) Act, 1980. To protect the goodwill of the business, the six vendors, which included the first and third respondents, entered into a restraint of trade clause, the validity of which has been challenged in these proceedings. The purchase price of the business was $4,500,000. The sale agreement also provided for the purchaser (Q.M.H. Resources Pty. Ltd.) to expend $1.5m towards the construction of a vessel known as the "Trade Ship", and to use its best endeavours to complete certain specified work on it within eighteen months from the date of settlement, which was 21 December 1984. In essence, the business was purchased for $6,000,000. The second applicant, Queensland Merchant Holdings Limited, entered a written guarantee on or about 16 November, 1984 of the first applicant's obligations under the agreement. In eéarly 1985, disputes arose between the parties concerning the payment of bounty, profits received up to settlement, and work on the "Trade Ship". Proceedings were commenced in the Supreme Court of Queensland. Negotiations occurred to resolve this litigation, culminating ina deed of settlement dated 16 October 1985. That deed provided - by cl.2, that upon execution thereof, the parties shall be bound by the provisions of the deed and shall perform their respective obligations thereunder, in a manner and at the times prescribed, which performance 15 therein referred to ag "the settlement". The date of execution by the last party to do so is referred to in the deed as "the settlement date"; by cl.6(a) that on settlement "the Trade Ship" (as defined in cl.6(b) of the deed) to the extent it is completed as at that date, shall be forthwith delivered to the vendors named in the deed (which included the first and third respondents) and/or Tradeship Pty.Ltd. and that delivery shall be effected by the first respondent and/or the second respondent floating the "Trade Ship" and having the same available for collection on the settlement date; by cl.6(c) that the first applicant and the second applicant "thereby warrant and it is a condition hereof that the Trade Ship and materials thereon or to he utilised therewith will have been completed to the stage (labour and materials), as at the settlement date, ina manner not less than the stage as represented in Schedule 1 hereto PROVIDED THAT nothing in sub-clause (c) shall derogate from the requirement to hand over the Trade Ship, in accordance with the terms thereof, completed to the extent achieved since the 10th April 1985, up to settlement". Clause 14 of the deed is also of central importance. It relevantly provided:- "The parties hereto ... hereby acknowledge and agree that the terms of this Deed and the due and proper performance thereof by the parties shall be deemed to discharge and satisfy each and every obligation in the Agreement, with the exception of the terms and covenants set out in Clause 39 of the Agreement, Which shall, subject to the following provisions of this Clause 14, survive and remain operative notwithstanding execution, completion, performance or satisfaction, in whole or in part of any or all of the terms of this Deed. The rights, obligations and covenants contained in Clause 39 of the Agreement shall not merge upon completion of any of the rights, ebligations or covenants of this Deed. The parties ... agree that Clause 39 as aforesaid shall have no operation or application in respect of completion of construction and fitting our {sic) of the Trade Ship." The settlement deed was executed on 16 October 1985. The obligations of the applicants under the deed included the payment of $800,000.00, the acceptance of a transfer of the shares 1n a company, Blipteed Pty. Ltd., and the delivery of the "Trade Ship". The transfer of the shares in Blipteed Pty. Ltd. effectively involved the assumption of a debt in the order of U.S.$1.7m which that company owed to Natwest Finance Ltd.. A preliminary settlement at the office of the respondents' solicitors occurred, and the "Trade Ship" was delivered. However, a dispute arose concerning the non-delivery of a quantity of aluminium which had been delivered to the first applicant for use in the construction of the Trade Ship. By letter dated 24 October 1985, the respondents' solicitors purported to rescind the deed on the basis that the non-delivery of the aluminium amounted to a breach of clause 6(c) of the settlement deed. Correspondence ensued between solicitors about the non-delivery of the aluminium. The applicants tendered certain amounts in purported satisfaction of the respondents' claims. However, the respondents, through their solicitors asserted that they had rescinded the deed, were not bound by the restraint of trade clause, had accepted the tendered sums as part of their damages, and otherwise reserved their rights. By letter dated 23 December 1985, the respondents' solicitors advised the applicants' solicitors "one or more of our clients are proceeding with the sale and building of ships". It is admitted on the pleadings that since 16 October 1985, the first respondent has carried on the business of shipbuilding, and that between 16 October 1985 and on or about 14 March 1986, carried on the business of a ship and boat builder from premises at 41 Oxford St., Bulimba under the name "Keith Lloyd's Ships" and, during that period, Mr. Lloyd caused the premises to be advertised under the name "Lloyd Corporation". The premises at 41 Oxford Street, Bulimba are within 1,500 metres of the premises of the first applicant at Byron St., Bulimba. In December 1985, the first respondent applied for registration as a shipbuilder for bounty purposes. On 9 January 1986, the third respondent registered the business name "Keith Lloyd Ships". In January and February 1986 the third respondent travelled to Europe and America where, amongst other things, he sought contracts to build vessels. Certain conversations involving the third respondent in the United States of America are alleged to have defamed the first and second applicants and to have constituted conduct in breach of s.52 of the Trade Practices Act 1974, A dispute exists about the date upon which the applicants first became aware that the respondents were engaged in ship or boat building. This application was commenced on 10 March 1986. A number of contested interlocutory hearings occurred, and then the action quickly came to trial. By consent, the trial of questions of damages and account of profits was adjourned sine die. The affidavit material filed on the questions of liability was voluminous. Some deponents were cross-examined during the six days of the hearing. Much of counsel's submissions was in writing. The Issues Raised by the Pleadings Paragraphs 10, 10A and 11 of the amended Statement of Claim allege that the respondents have carried on the business of a ship or boat builder in 1986 under various names from premises at 41 Oxford Street, Bulimba, Queensland, within 1500 metres of the first applicant's premises at Byron Street, Bulimba. As indicated above, the amended defence admits that between 16 October 1985 and 14 March 1986, the first respondent carried on the business of a ship and boat builder at 41 Oxford Street, under the name "Keith Lloyd's Ships" and that the third respondent advertised those premises under the name "Lloyd Corporation", Until 24 March 1986, the first respondent is said to have carried on a ship and boat building business at 41 Oxford street, under the name "Keith Lloyd International", and since 14 March 1986 to have carried on a shipbuilding business under its own name from those premises. From 24 March 1986, the fourth respondent 15 said to have carried on business under the name "Keith Lloyd International". Paragraphs 12 and 13 of the Amended Statement of Claim state:- "12. The conduct of the First and/or Second and/or Third and/or Fourth Respondents referred to in paragraphs 10, l10A and 11 hereof 1s intended by them and likely to cause members of the public to:- (a) Confuse the First and/or Second and/or Third Respondents with the First Applicant; (b) Confuse the business of the First and/or Second and/or Third Respondents with that of the First Applicant; and (c) Assume that the business or businesses (or some one or more of them) referred to in paragraphs 10 and 10A hereof is or are the game business as and/or carried on in continuation of the business the subject of the Agreement referred to in paragraph 5 hereof. 13. The conduct of the First and/or Second and/or Third Respondents aforesaid constitutes:- (a) Conduct that is misleading and deceptive or which is likely to mislead or to deceive; (b) The passing-off by the First and/or Second and/or Third Respondents of themselves and their business as and for the business of the First Applicant; and (c) A breach by the First and/or Third Respondents of the terms of the Agreement referred to in paragraph 5 hereof. The terms of the Agreement referred to in paragraph 5 include the restraint of trade clause (clause 39). The Amended Defence denies that the respondents' conduct was intended or likely to cause the alleged confusion, or that it amounted to misleading or deceptive conduct, passing off, ora breach of contract. Further, paragraph 6 of the Amended Defence asserts that clause 39 of the Agreement is void:- (a) as an unreasonable restraint of trade; or (b) for uncertainty; or (c) as contravening public policy. Paragraph 7 of the amended Defence recites certain provisions of the settlement deed of 16 October 1985, including the applicants' obligations under clause 6 to deliver the partly completed "Trade Ship" and the material to be utilised on it. Paragraphs 8 and 9 of the Amended Defence allege breaches of clause 6, and that by its solicitors' letter of 24 October 1985, the respondents have rescinded the settlement deed. Paragraph 5 of the Amended Reply admits the breach of clause 6, and states that the breach has been remedied by the payment and acceptance of certain amounts of money totalling $45,149.69. Paragraph 6 of the Amended Reply denies that the respondents' purported rescission was justified in law. Paragraphs 15 to 22 of the Amended Statement of Claim allege that, on specified dates in February and March 1986, the third respondent, on behalf of the first respondent, and in the course of international trade, made certain untrue and defamatory representations concerning the first and second applicants to certain persons in the United States of America. Those representations were sald to constitute injurious falsehoods, defamations and conduct that was misleading and deceptive, or likely to mislead or to deceive. Following certain rulings which I made on the admissibility of some evidence, the allegations contained 1n paragraphs 18 and 19 were not persisted in. The defences raised to the remaining claims and the manner in which these claims were litigated will be considered later in these reasons. The applicants seek extensive relief, including injunctive relief. Apart from denying the applicants' claim to any relief, the Amended Defence contends that the injunction should be refused because of delay, laches and acquiescence by the applicants. The issues raised by the pleadings may be summarised as follows:- 1. 10. Is the restraint of trade clause void: (a) for uncertainty; (b) as contravening public policy; (c) as an unreasonable restraint of trade. If the restraint of trade clause is valid, did it come to an end upon rescission. This, in turn, involves two questions: (a) Were the respondents entitled to rescind; (b) If so, what was the effect of rescission on the sale agreement and, in particular, the effect of rescission on the restraint of trade clause. If the restraint of trade clause is valid, and still operates, are the applicants prevented by any delay, laches and acquiescence from relying upon it. If the restraint of trade clause is void, are the applicants entitled to limited relief upon the peinciple in Trego v. Hunt £18961 A.C. 7. Did the conduct of the respondents in carrying on the business of ship and boat building constitute: (a) conduct that 1s misleading or deceptive or which 1s likely to mislead or deceive; (b) passing off; (c) a breach of contract. If the conduct of the respondents constituted conduct under 5(a), (b) or (¢c), are the applicants prevented by any delay, laches and acquiescence from relying upon it. Did the representations made by the third respondent to persons in the United States constitute:- {a) ainjurious falsehoods; (b) defamations; (c) conduct that was misleading and deceptive or likely to mislead or deceive. If so, are those actions defensible. il. The Validity of the Restraint of Trade Clause The approach to be adopted is clear. Gibbs J., as he then was, in Amoco Australia Pty.Limited v. Rocca Bros. Motor Engineering Co. Pty. Ltd. (1972-3) 133 C.L.R. 288, said at 315:- "The test to be applied in determining the validity of a restraint of trade was stated by Lord Macnaghten in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. £1894] A.C.535, at p.565, in a passage that has been cited with approval in many cases including, to name only recent decisions, Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. £1968] A.C. at pp.299, 307, 318, and Buckley v. Tutty (1972) 125 C.L.R. 353, at p.396. Lord Macnaghten said:- 'ALL aunterference with individual liberty of action in trading, and all restraints of trade of themselves, if there 18 nothing more, are contrary to public policy, and therefore void. That 1s the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction 1s reasonable - reasonable, that 1s, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party 1n whose favour it 1s imposed, while at the same time it is in no way injurious to the public.' " The onus of establishing that the Agreement is reasonable as between the parties is upon the applicants, while the onus of establishing that it is contrary to the public interest, being reasonable between the parties, is on the respondents: Herbert Morris, Limited v. Saxelby £19161 1 A.C. 688 at 7 (Stourpor 12. 00, 707-8; Esso Petroleum Co.Ltd. v. Harper's Garage t) Ltd. £19681 A.C. 269, per Lord Hodgson at 319. The time for examining the reasonableness of restraint Minter (1 per Gibbs the is the time of entering into the contract: Geraghty v. 979) 142 C.L.R. 177, per Barwick C.J. at 179 and 181; J. at 188; Robin M. Bridge v. Deacons £19841 A.C. at 718; Amoco v. Rocca (supra) at 318. Clause 39 of the Sale Agreement provides: "39. (a) In consideration of the Purchaser entering into this Contract and to reasonably protect the goodwill of the business the Vendor, the Second Vendor, the Third Vendor, the Fourth Vendor, the Fifth Vendor and the Sixth Vendor and each of them do jointly and severally agree with the Purchaser that subject to Clause 39(b):- (1) This Clause shall have etfect as 1f 1t were several separate covenants consisting of each separate covenant set out in sub-clause (il) of this Clause 39(a) combined with each separate period of time set out in sub-clause (111) of this Clause 39(a) and of each such separate combination combined with each separate area set out in sub-clause (iv) of this Clause 39(a) and if any of the said several separate covenants shall be or become invalid or unenforceable for any reason then such invalidity or unenforceability shall not affect the validity or enforceability of any of the other separate covenants: (i1) The Vendor, the Second Vendor, the Third Vendor, the Fourth Vendor, the Fifth Vendor and the Sixth Vendor and each of them will for the period and within the area hereinafter specified without the prior written consent of the Purchaser whether directly or indirectly by themselves or jointly with or on behalf of any other persons or corporation or trust on any account or pretext by any means whatsoever or though (sic) an agent or independent contractor:- (a) (b) (c) (1lii) The are: (a) (b) (c) (d) Ce) (f£) (g) Ch) (i) (7) 13. carry on or be engaged in or concerned with directly or indirectly (whether as proprietor, employer, servant, agent, principal, partner or in any other capacity whatsoever ) or otherwise engage in the business of ship building of any description or any other business of a similar nature; or procure or solicit or encourage any other pergon to procure or solicit the custom of any former customer of the business; or hold or beneficially own whether directly or indirectly and whether absolutely or contingently or hold options over shares in or be an adviser to any corporation doing any of the things referred to in 39(a)(ii)(a) or 39(a)(i1)(b) above. periods of time hereinbefore referred to during the period of ten (10) years from and after completion; during the period of nine (9) years from and after completion; during the period of eight (8) years from the after completion; during the period of seven (7) years from and after completion; during the period of six (6) years from and after completion; during the period of five (5) years from and after completion; during the period of four (4) years from and after completion; during the period of three (3) years from and after completion; during the period of two (2) years from and after completion; during the period of one (1) year from and after completion, 14. (iv) The areas hereinbefore referred to are:- (a) within the United States, Canada, Australia and/or New Zealand; (b) within Australia; (c) within the East Coast of Australia. 39. (b) Nothing in sub-clause 39(a) shall prevent the Sixth Vendor from representing to any interested person or persons that he acts on behalf of the Purchaser in pursuance of the commission agency agreement referred to in Clause 40 hereof." The legal principles dealing with restraint of trade to which reference has been made, at first blush, seem to sita little oddly with the commercial implications of the present case. The difficulty may be illustrated by the following scenario: a vendor of business sells it, aincluding the goodwill. He knows that a substantial amount of the purchase price 1s for the goodwill of the business: he believes the restraint of trade clause, by which he purports to be bound, is teo wide and unenforceable. Having received the benefit of the price, he submits to the court that he can have the consideration for the promise to be bound and to be unbound. A successful challenge by the vendor might seem to be a regrettable result. Such a view is not unknown in the context of restraint of trade cases: see the comments of Pearson L.J. in Commercial Plastics Ltd. v. Vincent (19653 1Q.B. 623 at 647, and the note of that case by Professor Goodhart at (1965) 81 L.Q.R. 5, at p.6. 15. In this case, the business sold was a very specialised one, in a very limited market. The consideration of the sale of the business clearly indicates that the protection of goodwill wags an integral part of the transaction. The taxation return prepared for Davros Pty.Ltd. for the year ending 30 June 1985 indicates a consideration for the goodwill of the shipbuilding business at §1,176,517. No reasonable purchaser would purchase such a business without a restraint clause to protect the goodwill so expensively purchased. On the question of whether the restraint is reasonable as between the parties, the quantum of consideration received by the covenantor is relevant: Amoco v. Rocca (supra) per Gibbs J. at 316, and the cases there referred to. The agreement for the purchase of the business was negotiated at arms length by experienced men of business on both sides, each with legal and commercial advice of the top rank. The facts of this case highlight the conflict between the policy of securing freedom of contract between parties of equal bargaining position and enforcing obligations assumed in its exercise, and the policy of preserving freedom of trade by imposing a test of reasonableness on contractual restraints of trade. These opposing principles of policy were referred to by Dixon J., as he then was, in Peters American Delicacy Company Limited. v. Patricia's Chocolates and Candies Proprietary Limited (1947) 77 C.L.R. 574 at 590. The cases show that a much wider range of restraints will be valid where aman sells his business and his goodwill than is the case where a restriction is imposed on a former 16. employee; Bridge v. Deacons (supra) at 713; Geraghty v. Minter (supra) at 185. In this case, Mr. Lloyd, prior to entering into the contract of November, 1984, adverted to the view of his legal advisors that it was unreasonably wide. Many aspects of his conduct after that time are consistent with the conclusion that he believed he could have his cake, in the form of the payment for goodwill, and eat it too, by setting up in competition with the purchasers in close proximity to them, and soliciting former customers of that business. On 12 November 1984, the solicitors for the respondents, wrote to the solicitors for the applicants, and said inter alia:- "Restraint of Trade contained in Clause 39 15 far wider and for a longer period of time than our client had anticipated or 1s reasonable but has indicated that in the interests of goodwill they will accept the clause as drafted." Mr. Lloyd says that he believed that the restraint of trade was unreasonably wide but, "as I then had no intention of commencing a new shipbuilding business, I was happy to sign the agreement". The correctness of his statement needs to be examined against the background of the events which occurred. The shipyard established by the respondents at Oxford Street, Bulimba, is on land, various parcels of which were acquired in 1985. By a contract dated 18 April 1985, 4 acres of waterfront land was agreed to be purchased for $1.i5m. Mr. Lloyd 17. says that the land originally acquired was for a marina development, and the surrounding houses were purchased to enlarge the holdings for the marina development. In fact, a company associated with Mr. Lloyd, Loufagg Pty.Ltd., contracted to purchase a 26 perch parcel of land on 24 May 1985 for $55,000, a 22 perch parcel of waterfront land on 16 July 1985 for $155,000, a 40 perch parcel of land with some water frontage for $150,000 on 17 July 1985, and on 19 August 1985, a 16 perch parcel of land for $80,000.) He was asked:- "You only intended to go into shipbuilding after the breach of the deed; is that true? To which he replied:- "Yes, yes that 1s correct." This 15 to be contrasted with a statement in his affidavit, "when I determined to go into the shipbuilding business, [I then acquired the surrounding houses to enlarge the area". Mr. Lloyd says this statement is not true. In June 1985, Mr. Lloyd made application to the Bounty Office for registration of a shipyard at Oxford Street. He says that, by April 1985, he set about getting back into the business of shipbuilding. He says he was forced back into shipbuilding for the purpose of completing the Trade Ship. However, on 19 April 1985, he wrote a letter to an American yachtbroker, Mr. Stephens, in these terms:- 18. "This letter serves to confirm the appointment of Caribbean-Pacific Marine Inc, as sole international representative for Lloyd's International Yachts and Ships, excluding Australia. It is further agreed that Lloyd's International will be the only Australian ship builder that your company will represent for a period of 3 years from this date, at which this agreement will be mutually reviewed. Tt is further agreed that your company will advertise, promote and sell our company products with your high degree of integrity at all times in a competent, professional manner. Lloyd's International agrees to pay your company a commission of 10% of the base price of each vessel on which we right(sic) a building contract, (excluding accessories, optional equipment and change orders etc), or as otherwise agreed." In May 1985, Mr. Lloyd had negotiations for a U.5.$5m travelling lift crane; he says that a Mr. Barry Richardson handled the dealing on his behalf. A telex by Mr. Richardson to Mr. Stephens of 28 May 1985, (which later refers to the purchase by Lloyd of the crane), commences:- "ATTENTION JOSEPH STEPHENS: RE MR. ROBERTS - EUROPE. KEITH CAN BUILD HIS YACHT AS PER PLANS FOR MAXIMUM 3 MILLION U.S. DOLLARS. IF HE IS PREPARED TO PUT PURCHASE PRICE IN ESCROW IN AUSTRALIA AND PAY A SUBSTANTIAL DEPOSIT, THEN THE BALANCE COULD HE PAYABLE ON COMPLETION. PLEASE ADVISE - WE'RE READY." It was put to Mr. Lloyd:- "|. the position is that in May 1985 Mr. Richardson was actively soliciting shipbuilding work for you; that is so, is not it?" He answered:- "No. He was an independent broker and he was testing the market." 19. Finally, on this aspect, Mr. Frost, the chairman of directors of each applicant, deposes that in late August or early September, 1985, at the boardroom of the applicants, he asked Mr. Lloyd:- "We have been hearing rumours that you are going back into shipbuilding. What are you doing?" Concerning that conversation, this question to and answer by Mr. Lloyd appears: "At that meeting did you tell him something to the effect that, no, you had had enough of ship building; that what you intended doing was importing a small speed boat from Italy, that you were not going to do any building; you were simply going to market this imported Italian boat? Yes." I do not accept the account by Mr. Lloyd that he was forced back unto shipbuilding only because of the failure of the applicants' in respect of the "Trade Ship". His second application for registration as a shipbuilder for bounty purposes, on 20 December 1985, iuncluded:- "Davros Pty. Ltd. is a wholly owned subsidiary of Keith Lioyd Ships Pty. Ltd. which was formerly known as Lloyds Ships Pty. Ltd. Lloyd's Ships Pty. Ltd. was the former holding company which operated the Lloyd's Shipbuilding Group's ship construction activities until the end of 1984 at Byron Street, Bulimba. eee During 1984 an offer was made by a public company, QO.T.L. Ltd., for the Lloyd's Shipbuilding Group's shipbuilding business. In response to that offer the bountiable vessels under construction at the Byron Street, Bulimba site were sold in December, 1984 together with the shipyard premises. Excluded from the sale was a 42 metre vessel under construction. This vessel remained the property of Davros Pty. Ltd. as it is intended for use as a 20. demonstration vessel. The partly constructed vessel is now located at Keith Lloyd Ships Pty. Ltd.'s new premises at 41 Oxford Street, Bulimba where construction is continuing. At the time of the sale Lloyd's Ships Pty. Ltd. was considering acquiring a larger site for its shipyard. Acquisition of a site suitable for Lloyd's long term aspirations in the shipbuilding industry proved to be difficult and it was not until June 1985 that a 8x acre waterfront site in Oxford Street, Bulimba was acquired from Rheem Australia. It is this site for which registration is now sought. Because of the sale of the Byron Street premises and the vessels under construction at those premises 1t was appropriate that the structure of the Lloyd's Shipbuilding group be reviewed. Asa result of that review the following structure was developed - Lloyd's Ships Pty. Ltd. became Keith Lloyd Ships Pty. Ltd. Seavad Industries was renamed Davros Pty. Ltd. and would continue as the ship construction company. Loufagg Pty. Ltd. was formed for the purpose of acquiring ownership of the new shipyard site which it leases to Davros Pty. Ltd." His account in this document and his sworn testimony are quite inconsistent. In my opinion, his self interest at any particular time determines what he says. No confidence can be reposed in the worth of his testimony. I much prefer to rely on the evidence of the contemporaneous documents. Consequently, while I am unable to conclude that, at the time of the sale of the business of "Llioyd's Ships", Mr. Lloyd intended to continue shipbuilding, I believe that he was of that mind, (and this was not restricted to completion of the "Trade Ship"), at least by the middle of 1985. 21. I have dealt with the question of Mr. Lloyd's attitude ta the effect of the restraint of trade clause because of the submission that more weight than might otherwise be appropriate should be given to the policy that commercial men should be held to their contracts when assessing the reasonableness of the restraints. I do not think it right to accept this submission. It is true that:- ",.,in cases involving the sale of a business the courts have given significant weight to the opinions of avendor and purchaser as to the provision which is necessary 1n order to protect the subject-matter of the sale." (Hawkesbury Bakery Pty. Ltd. v. Moses C1965] N.S.W.R. 1242, at p. 1246.) To the same effect 18 the observation by Gibbs J., as he then was, in Amoco v. Rocca (supra) at 316, where he refers to the principle that:- ".,.wWhere the parties to a contract have been ina position to bargain on an equal footing they should be treated as the best judges of what is reasonable in thelr own interests." However, as Gibbs J. later (at 317) noted:- ",.ethese statements, authoritative as they are, cannot mean that where the parties have been in an equal position of bargaining the question of reasonableness is entirely for the parties to decide. If that were so, the rule stated in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co.Ltd. (£18941 A.C.535 and constantly approved would be given quite a limited application,..." Walsh dg. in The Queensland Co-operative Milling Association v. Pamag Pty. Limited (1973) 133 C.L.R. 260 at 268 summarised what I perceive to be the true position:- 22. "Where, as in the present case, the parties have not been on unequal bargaining terms and there has not been any deception or overbearing of one of them by the other, the Court will give considerable weight, in deciding whether or not the restraint is reasonable between the parties, to the fact that they have been willing to agree upon the restrictions imposed by it. But the Court cannot regard that fact as conclusive. There are many cases in which covenants, upon which the parties bargaining upon equal terms have agreed, have been held to be unreasonable having regard to the interests of the parties in that they have imposed a greater degree of restraint than was reasonably necessary to protect the relevant interests of the covenantee." It follows that, in my view, the validity of the restraint of trade clause is to be assessed by determining the true construction of the clause and applying the tests set out above. Subjective assessments of the motives or credit of Mr. Lloyd do not impinge on these questions. The fact that Mr. Lloyd agreed to it, believing that it did not bind him, does not influence the question of whether the clause is valid. If the clause 1s invalid, it is because it 1s uncertain or imposes a greater degree of restraint than is reasonably necessary to protect the covenantee or the covenantor, or is contrary to the public interest. The sale of the goodwill of the business provides the justification for and the measure of enforceability of the restraint: Esso Petroleum v. Harper's Garage (supra); Geraghty v. Minter (supra) at 184-5, 186. The character of the business sought to be protected must be considered: ibid and see Routh v. Jones £19471 1 All1.E.R. 758; and Lyne-Pirkis v. Jones £1969] 1 W.L.R. 1293. 23. I turn to the clause itself. Two preliminary observations should be made about the wording of this clause. In cl.39(a)(ii), the word "not" has been inadvertently omitted. Clearly, the clause is intended to prohibit the vendors from engaging in the specified conduct and the clause should be read as if the word "not" appears after the word "will" in that sub-clause. The second preliminary matter concerns the wording of the cl.39(a)(iv)(a). This sub-clause describes one of the areas as "within the United States, Canada, Australia and/or New Zealand". The use of the words "and/or" rather than the word "and", was argued by the applicants to be a mistake. I accept that submission. The scheme intended by cl.39(a) was to generate numerous combinations of conduct, time and area. When the combinations of conduct and time were to be combined with the areas set out in sub-clause (iv), it was intended that the combinations of conduct, time and area produced were to he reducing in area. In other words, the first series of combinations would involve an area of the United States, Canada, Australia, and New Zealand. The second series of combinations would involve the area of Australia. The third series of combinations would involve the area of the East Coast of Australia. The inclusion of the words "and/or" in c1.39(a)(iv)(a) introduces a disjunctive element where none was 24. intended. I conclude that the expression "/or" was included in error, and may be disregarded in accordance with the dicta of Dixon C.J. in Fitzgerald v. Masters (1956) 95 C.L.R. 420 at 426-7. Clause 39 contains three variables as to conduct, ten variables as to time and three variables as to area. On the view I take of it, c1.39(a)(i) envisages initially a number of combinations consisting of the conduct described in sub-cl.(i1) and the period of time set out in sub-cl.(iii), thereby creating 30 combinations with no restraint as to area. In addition to those 30 combinations, the sub-clause then generates a further 90 combinations by combining the 30 combinations as to conduct and time with the 3 variables as to area contained in sub-cl.(iv). The result is that cl.39 generates 120 sub-clauses, 30 of these not being defined by area and effectively creating a worldwide restraint. The remaining 90 consist of restraints defined by area; the first 30 being an area consisting of the United States, Canada, Australia and New Zealand, the second 30 being within Australia, and the final 30 being within the east coast of Australia. The respondents submit that ¢1.39 is void for uncertainty (or expressed in a different way, is not a concluded agreement ) in providing for a large number of various combinations, in that it does not stipulate that the application of any one of the variables is to have priority over the application of the others. Reference was made to the judgment of Wootten J. in Austra Tanks Pty.Ltd. v. Running £19821 2 25. N.S.W.L.R. 840, which involved a challenge toa restraint of trade clause contained in & contract for the sale of a business. The clause in that case provided "Running shall not for the stipulated period engage in the business of the Partnership or any aspect thereof in the stipulated area". The following clause of the deed defined the meaning of "engage", "the business of the Partnership", "the stipulated area" and "the stipulated time". Some of these matters were defined through a series of variables which involved inquiries as to what was enforceable. Wootten J. at pp.843-4 alluded to the possible existence of a judicial policy against defining an obligation through a series of inquiries as to what is enforceable. However, the matter having been argued on the question of uncertainty, nis Honour concluded that it was impossible to reach a sufficiently certain definition of the restraint imposed by pursuing the inguiries laid down by the covenant. The clause envisaged inquiries into whether, for example, a restraint in respect of a particular area was enforceable. But this inquiry was to be undertaken in isolation, without regard to the conduct to be restrained or the time period of the restraint. It was impossible to make such an inquiry in relation to each variable. The clause therefore was invalid because the inquiry for which the clause called did not lead toa sufficiently certain result. His Honour stated that, even if contrary to a literal reading of the clauses, they called for the examination of all possible combinations (which numbered 982,152), then a large number may have been enforceable. But the agreement contemplated only one covenant. The problem could not be solved by saying 26. that the widest enforceable covenant was intended because, in the absence of any statement as to the priority of application of the variables, it was not possible to say which covenant was the widest. His Honour rhetorically asked at p.845, "Does a 100 kilometre radius for one year give a wider covenant than a 10 kilometre radius for five years?" Wootten J. cited passages from Davies v. Davies (1887) 36 Ch.D. 359 to the effect that it is impermissible for parties to leave the Court to define the area and length of a restraint. His Honour observed that the covenant gave the covenantor no clear guide as to his obligations. Accordingly, the covenant was declared void for uncertainty. In J.Q.A.T. Pty.Limited. v. Robert Fraser Storm (unreported, Full Court of the Supreme Court of Queensland, 4 July, 1986), the restraint clause in a contract of employment was in these terms:- "6.2 In the event that his Employment hereunder 1s terminated the Employee shall not, without the prior written consent of the Company, from the date of such termination for the period hereinafter specified be as principal interested, engaged or employed or act as an adviser or consultant in, or be an employee, agent or officer of, or an adviser or consultant to, any person, firm or corporation interested or engaged in: (a) (1) the provision of personnel /Human Resource services; (11) any activity of a like or similar kind to that in which the Employee was interested or engaged during the course of his employment hereunder; 27. (111) any business of a like or similar kind to that engaged in by the company; (b) (i) for a period of one (1) month; (ii) for a period of two (2) months; (iil) for a period of three (3) months; (c) (1) in the State of Queensland (ii) in the State of New South Wales. 6.3 The preceding sub-clause 6.2 of this Clause 6 shall be construed and have effect as if 1t were the number of separate sub-clauses which results from combining the commencement of sub-clause 6.2 with each sub-paragraph of paragraph (a) and combining each such combination with each sub-paragraph of paragraph (b) and combining each such combination with each sub-paragraph of paragraph (c), each such resulting sub-clause being severable from each other such resulting sub-clause, and it 1s agreed that if any of such separate resulting sub-clauses shall be invalid or unenforceable for any reason, such invalidity or unenforceability shall not prejudice or in any way affect the validity or enforceability of any other such resulting sub-clause." At first instance, Moynihan J. was of the view that the clause contemplated a single restraint but fa1rled to specify the criteria by which to choose which combination of variables was to apply. Adopting the reasoning of Wootten J. in Austra Tanks (supra), he held the clause was void for uncertainty. The Full Court, (Connolly, Williams and Ambrose JJ.) was not persuaded that the intention of the parties was that only one of the eighteen possible sub-clauses should operate. Austra Tanks was therefore able to be distinguished. 28. Each member of the Full Court rejected the submission that the eighteen possible sub-clauses were inconsistent with one another. Connolly J. ainstanced a restraint of specified activities in New South Wales for three months anda restraint against the same activities in the same state for one month. In his Honour's opinion, these restraints were not inconsistent. Roth restraints operated for the first month and the longer for the balance of the three months. Williams J. stated that the fact that there may have been some overlapping between the sub-clauses, did not mean that there was "inconsistency such as would create uncertainty". Ambrose J. derived assistance from the test of inconsistency under s.109 of The Constitution, in concluding that each of the eighteen covenants were "susceptible of simultaneous compliance." The judgments of the Full Court inJ,Q0.A.T. v. Storm (supra) suggest that a threshold question in determining the certainty of a restraint of trade clause of the kind now before me, 1s whether the clause contemplates a single covenant to operate from the numerous combinations of conduct, time and area which are generated. If the clause contemplates a single covenant, then the covenant must provide a means by which to choose which of the combinations 1s to apply; otherwise the clause is void for uncertainty. A clause which contemplates a single covenant, being the widest restraint that is enforceable, will be uncertain "because in the absence of any statement as to 29. the priority of application of the variables, it is not possible to say which covenant is widest" (Austra Tanks (supra) at p.845). Such a clause may be open to separate public policy objection that the parties have left the Court to fix the measure of the restraint. If, however, the clause contemplates all of the combinations applying with severence of those found to be an unreasonable restraint of trade, then no uncertainty exists. The clauses operate cumulatively, with any overlap between the obligations thereby imposed not being regarded as an inconsistency of the kind discussed by Bowen L.J. in Davies v. Davies (supra) at p.393. In this case, cl.39(a)(i) expressly states that the clause 1s to have effect as if it were several separate covenants consisting of the combinations. The intention of the parties was for all of the combinations to apply, subject to the severance of any of them which become invalid or unenforceable for any reason. The covenants impose consistent and cumulative obligations, although some of these obligations overlap. For the reasons discussed by the Full Court of Queensland in J.Q.A.T. v. Storm, the obligations cannot be said to be uncertain. The respondents are subject to all of them, subject to the possibility of having some of them severed as unreasonable restraints of trade, severance being anticipated by the clause itself. 30. The respondents argue, in the alternative, that clause 39 is vold because it does not attempt to fix a term by reference to the covenantee's need for protection, but requires the Court to fix it. Reference is made by the respondents to the form of relief sought in the Statement of Claim, which includes restraints upon the first and third respondents from carrying on the business of ship or boat building during a ten year period (or for such lesser period as the Court thinks fit) and within the United States, Canada, Australia and/or New Zealand, (or within such lesser geographical area as the Court thinks fit). The clause is said to be void and the relief said not to be open because the applicants seek the Court to determine the appropriate limits of the restraint. Reliance is placed upon the Court of Appeal decision in Davies v. Davies (supra), which involved a covenant not to compete with a partnership "so far as the law allows". At p.387, Cotton L.J. observed:- "T£ parties wish to ask the Court to assist them in restraining those with whom they are dealing from breaking a limited covenant against carrying ona trade they must, in my opinion, themselves fix the limits within which there is to be no carrying on of the trade, and then they do it at their peril. The law will determine whether that limit isa good one, or whether it is one which is so unreasonable that the covenant must fail ... There is no definite fixed rule as to the limits within which trade can be restrained. That must depend upon the circumstances of each case; and in my opinion it is wrong to make a covenant in this form, and wrong for the Court to enforce it,..." After noting that there could be a number of reasonable limits placed upon the covenantor, his Lordship continued:- 31. " ,..are we again and again to have this question to arise on the covenant, where the parties have left the covenant entirely indefinite and have sought to get the Court, without risking the validity of their covenant, from time to time, to say whether a particular space and a particular time is within the limits?" At p.388, Cotton L.J. concluded that, there being no limits fixed by law which could be regarded as having been introduced into the covenant, it was indefinite and would not be enforced. Bowen L.J. at p.392 stated that the parties were asking the law todo for them what they had not made up their minds about themselves. At p.393, his Lordship, in a passage which 1s relied upon in the context of the certainty of such clauses, observed: - ".. Supposing the law will allow certain restrictions, there may be twenty different restrictions, all of which might serve the purpose of the parties; all of which would be absolutely inconsistent with each other; all of which the law would allow. How are we to know which of those particular restrictions the parties intended to impose? They leave it absolutely uncertain, and for the best of all reasons, because they had not made up their own minds." The dicta of the Court of Appeal in Davies was applied in Peters Ice Cream (Vic.) Ltd. v. Todd £1961] V.R. 485 in respect of a covenant not to sell certain products "within a reasonable distance" from the defendant's present place of business for a period of five years. At p.490, Little J. stated:~ 32. "In this case, however, the parties have not, in my opinion, by the use of the imprecise language employed, defined the promisor's obligation, or defined it in sucha way that the Court can determine whether it exceeds or does not exceed the protection to which it may find the promisee wag in fact entitled. They have, I think, left to the Court the task of making their contract for them, and of carving out from time to time a distance which, within the restraint of trade doctrine, is reasonable. It is not for the court, however, to determine what protection could have been validly agreed upon between the parties. The function of the Court is to determine whether a protection agreed upon between the parties is in law valid. The clause is, therefore, in my opinion, void." In Austra Tanks Pty.Ltd. v. Running (supra) Wootten J. based his decision upon the fact that the "malevolent" covenant with which he was concerned was uncertain. However, at p.843 he sald:- "The present case is one in which the contract seeks to define the obligation through a series of inguiries as to what is enforceable. It may be that there 15 an overriding judicial policy that makes this an unacceptable way of defining a proposed restraint of trade." The policy of invalidating restraint of trade clauses which define obligations in terms of enforceability or reasonableness recognises' the vice of forcing covenantors, especially employees, to litigate the validity of a covenant in order to determine their obligations. Contrary to the submission of the applicants, I do not accept that the policy against such covenants applies only to employer-employee restraints, although the "terror and expense" of litigation is especially severe for covenantors who lack the 33. resources to challenge the validity of such a covenant (Mason v. Provident Clothing and Supply Company Limited £1913] A.C.724 at 745). The policy applies also to restraint of trade clauses in contracts for the sale of businesses. Clause 39, unlike the clauses in Davies v. Davies (supra), Peters Ice Cream (Vic.) Ltd. v. Todd (supra), and Austra Tanks Pty. Ltd. v. Running (supra), does not expressly define the covenantors' obligations according to what 1s enforceable or reasonable. One might ask, however, whether a clause which envisages the severance of those out of very many separate covenants which are held to be unenforceable as an unreasonable restraint of trade, 1s any less objectionable than a clause which defines an obligation in terms of reasonableness or enforceability. In J.Q.A.T. v. Storm (supra), Connolly J. rejected a submission by the respondent in that case that clauses 6.2 and 6.3 in effect asked the Court to choose which combination was permissible and then to apply it. His Honour reiterated his view that the clauses operated cumulatively, subject to questions of unlawful restraint of trade. He observed (at p.6):- "However, should the Court be of the view that in any respect there is an unlawful restraint of trade, the parties have agreed that severance of the illegal features will not make a new contract for them and that they will be bound by so much of the covenants as remains." 34. The judgment of Connolly J. suggests that, provided the parties have agreed to sever those covenants that constitute an unreasonable restraint of trade, then the paring down of the covenantor's obligation to what the court determines to be not unreasonable, does not amount to having the court fix the limits of the restraint. That conclusion may have the merit of not permitting a covenantor to escape its obligations in a case such as J.Q.A.T. v. Storm (supra), where the total restraint imposed by the eighteen combinations involved a three month restraint in Queensland and New South Wales on the specified conduct. It seems to me to be very much a question of degree and dependent on the parameters of each such attempt, whether in truth the court 1s being asked to choose the extent of the restraint. In my opinion, the question whether a technique of defining covenants in restraint of trade by combining different variables of conduct, time and space, and providing that each of the covenants so 'generated' 1s subject to severance, is successful in defining enforceable restraints or is unsuccessful in so doing, comes down to whether the exercise amounts toa genuine attempt to define the covenantee's need for protection, with the agreement as to severance as a precaution against the "all or nothing" nature of the Court's tests for reasonableness, or whether the exercise is simply one where the parties have left to the Court the task of making their contract for them. 35. One might think the more numerous the variables, and the more mechanical and indiscriminate the combinations of variables, the more likely would be a conclusion that the exercise is of the latter kind. English courts have been reluctant to adopt a wide doctrine of severance. According to the learned author Heydon, The Restraint of Trade Doctrine (1971) p.285, one justification for the court's refusal to adhere to a wide doctrine of severance is the "basic view that it is for the parties to make their contracts, not the courts". Another justification appears in the judgment of Lord Moulton ain Mason v. Provident Clothing and Supply Company Limited (supra). That case involved a successful challenge to a covenant contained ina contract of employment. The respondents before the House of Lords argued that, even 1f the covenant was, as a whole, too wide, the Court might enforce restrictions which it considered reasonable, even though they were not expressed in the covenant. Lord Moulton stated that although he did not doubt that in some cases the court will enforce a part of a covenant in restraint of trade, even though the whole of the covenant exceeds what is reasonable, severance should not be generally available. He stated at 745:- "It would in my opinion be pessimi exempli if, when an employer had exacted a covenant deliberately framed in unreasonably wide terms, the courts were to come to his assistance and, by applying their ingenuity and knowledge of the law, carve out of this void covenant the maximum of what he might validly have required. It must be remembered that the real sanction at the back of these covenants 36. is the terror and expense of litigation, in which the servant is usually at a great disadvantage, in view of the longer purse of his master." The existence of a narrow doctrine of severance in English law is therefore derived from the principle in Davies v. Davies (supra) that courts should not spend time adapting illegal covenants at the instance of those who seek to benefit from them. Applying these tests, in my opinion, cl1.39 1s not void as contrary to public policy. That 1s to say, I accept that the formulation of the clause was an attempt to fix the covenantee's need for protection, with the agreement as to severance a precaution against the possible invalidity of some of the covenants. The Reasonableness of the Restraint The business sold was one for the construction and sale of aluminium ships ranging in length from approximately 60ft. to 140ft. The capacity of the yard was for ships up to 145ft., and the "Trade Ship" was 140ft. long. In the period immediately before the sale, the business built only luxury aluminium motor vessels, but had in earlier times prior to the acquisition of it by Mr. Lloyd and his companies, constructed game fishing vessels, pilot boats, police and survey launches, fishing trawlers, and search and rescue vessels. Mr. Lioyd explained that, although during the years in which he conducted the business it only built luxury motor vessels, the business was prepared to build such commercial aluminium vessels. 37. I accept that, at the time of the sale, the Australian market was a very small one and that some steps had already been taken to develop a market in the United States. One of the vessels then under construction had been on-sold to an American company. While only tentative steps had been made in that direction, Mr. Lloyd acknowledged the probable accuracy of a quote attributed to him in an interview with "The Bulletin" in May 1983,:- "In Australia there is probably the market for another twenty boats like the "Lady Barbara". After that we've got to get into the American market. We've researched that market amd we can build at a better price. We win on production - we can get the job done in fewer hours." Despite the absence of any organised marketing strategy for the United States market at the time of acquisition in November 1984, the business had established a reputation and goodwill ain the United States amongst yacht brokers and the yachting community. In my view the United States market was important to the business, in the sense that the business's reputation for producing superior aluminium luxury motor vessels helped facilitate on sales of vessels to the American market which had been purchased by Australian customers with the prospect of such an on-sale firmly in mind. The United States market was also important to the medium term future of the business, ag indicated by Mr. Lloyd in his interview with "The Bulletin". JI accept the evidence of Mr. Frost that a significant 38. selling point of the business was its scope for future expansion in the United States market. The applicants hoped to achieve this expansion by a more organised marketing strategy than that undertaken by the respondents in the U.S. market. While the authorities establish that regard may be had "to such future extension of business as might reasonably be contemplated" (Williams v. Hurford £19181 5t.R.Qd. 164 at 167), no evidence was given of any proposed expansion of the business into the market in Canada. I prefer to regard Canada as part of the "American market". If I am wrong in this, then I would , relying on such cases as Goldsoll v. Goldman £19153 1 Ch. 292, limit the area by severing the reference to Canada. In my view 1t is reasonable to include New Zealand in the geographical area of restraint. Mr. Lloyd had, prior to the sale of the business in November 1984, lost a sale to George Harrison of the "Beatles" group, who purchased from a New Zealand manufacturer. The New Zealand Government gave subsidies for boatbuilding, and New Zealand boatbuilders could reasonably be regarded as competitors. I do not regard the geographical restraint comprehended by c1.39(a)(iv)(a), as properly construed, as too wide. As to duration, ordinarily a time restraint is to permit sufficient time for the former owner's connexion with customers to fade away. In this case, repeat business was rare, and the purpose of a time restraint was to shut the prior owner out of 39. competing for potential new customers. Given the size of the possible market, and the time frame and capacity for construction, a ten year restraint would seem reasonable. The primary challenge to the reasonableness of the restraint was directed at the width of the conduct restrained. The respondents submit that the covenant restrains them from engaging in "the business of shipbuilding of any description or any other business of a similar nature," and this would prevent them from engaging in activities which were never engaged in by the business sold. They further contend that no part of this phrase is severable. The words "of any description" are said to form part of the definition of "shipbuilding". They rely upon Attwood v. Lamont £19201 3 K.B. 571 in support of the proposition that severance 1s permissible only where there 1s in effect a number of different covenants and 1s not available where it would give the agreement a different meaning. The respondents further submit that subclauses 39(a)(11)(c) would prevent them from holding a few shares ina public company which, amongst other things, built ships. The applicants concede that the words of the restraint, read literally, may encompass any nature of shipbuilding, e.g. the construction of oil tankers and passenger liners. However, the applicants contend that such general words must be construed with reference to the nature of the business which was in fact carried on at the time when the restraint was agreed to. 40. The respondents reply that there is no process of construction by which the phrase "the business of shipbuilding of any description" can be taken to Mean "the business of shipbuilding of the description carried on at the date of sale". In Haynes v. Doman £1899] 2 Ch. 13 at 25, Lindley M.R., stated:- "Agreements in restraint of trade, like other agreements, must be construed with reference to the object sought to be attained by them. In cases such as the one before us, the object 15 the protection of one of the parties against rivalry in trade. Such agreements cannot be properly held to apply to cases which, although covered by the words of the agreement, cannot be reasonably supposed ever to have been contemplated by the parties, and which on a rational view of the agreement are excluded from its operation by falling, in truth, outside and not within its real scope." I have been referred to a number of cases in which the approach of construing restraint of trade clauses by reference to the objects sought to be attained by them has resulted in otherwise quite general restraints being limited to a restraint upon the kind of business undertaken by the covenantee. (Millis v. Dunham £18917 1 Ch. 576; Avery v. Longford (1854) 23 LU.J. Ch. 837; Hood v. Moore (1899) 81 L.T. 169; Woodville v. McConvill (1907) 26 N.Z.L.R. 1032; Plowman & Son Ltd. v. Ash £1964] 2 All E.R. 10). However, in two cases involving restraints on medical practitioners, the English Court of Appeal was not prepared to so limit the restraint as a matter of construction to a restraint only upon general practice. (Routh v. Jones (supra); Lyne-Perkis v. Jones (supra). 41. The authorities in this area are usefully reviewed by the learned author, Heydon, in The Restraint of Trade Doctrine, (1971) London, pp.122-136. More recently, in Littlewoods Organisation Ltd. v. Harris [19773 1W.L.R. 1472, a majority of the Court of Appeal was prepared to limit an employer-employee restraint clause both as to the activities to be restrained and the area of the restraint. Browne L.J., in dissent (at p.1493), regarded this process as ""re-writing the clause, and re-writing 1t so as to make enforceable that which would otherwise be unenforceable" The approach of Lord Denning in Littlewoods Organisation Ltd. v. Harris (supra) at 1481-2 is founded upon His Lordship's earlier judgments in Shell U.K.Ltd. v. Lostock Garage Ltd. (1976) 1 W.L.R. 1187 and Dunford & Elliot Ltd. v. Johnson & Firth Brown Ltd. (1977) 1 Lloyds Rep. 505. That approach was not adopted by the other members of the Court of Appeal in Littlewoods or in Dunford & Elliot. It 1S 1nconsistent with the judgments of the other members of the Court of Appeal in Lostock Garage Ltd. (Ormrod L.J. at 1202; Bridge L.J. at 1203). The leading Australian authority relied upon by the applicants is Butt v. Long (1953) 88 C.L.R. 476. That case involved the entry into a covenant in restraint of trade upon the dissolution of a partnership which had conducted the business of trans-shipping stock and goods from trucks of one railway system into trucks of the other at a town on the New South Wales/Queensland border. The covenants provided that the 42. appellants "shall not carry on the business of a trans-shipping agent for a period of five years ...". Before the High Court the appellants argued that the clause was unreasonably wider than was necessary for the protection of the trans-shipping branch of the business, which the evidence showed had been carried on solely at the town on the Queensland/New South Wales border. No limitation of area was expressed in the covenant, nor could any limitation of area be read into 1t. Dixon C.J. at p.487 observed that the words "business of a trans-shipping agent" literally described the business of effecting trans-shipment between seagoing vessels and motor vehicles as well as between railway trucks from one system to another. On the question of whether the clause extended to all of those forms of trans-shipment, his Honour observed:-— "An agreement in restraint of trade, like every other agreement, 1S to be construed with reference to its subject matter and descriptive words may be restricted in their operation by reference to the circumstances in which the parties contract." His Honour concluded that, in the circumstances in which the parties contracted, they were concerned only with carriage by land, and they did not have in mind the possibility of trans-shipment at some road transport terminal or depot from one motor vehicle to another. The only question on appeal then was whether, by interpretation, the covenant could be confined in 43. point of locality to Wallangarra. His Honour observed that other railway trans-shipping locations existed in Australia. He held that there was no sufficient ground to justify introducing words of limitation so as to limit the clause as to location. The other members of the court (Webb and Fullagar JJ.), in separate judgments, agreed that it was permissible to have regard to the nature of the business in fact being carried on at the time of the contract in order to ascertain the meaning of the words "the business of a trans-shipping agent". But, it was not permissible to confine the operation of the clause to the particular location in which the business had been carried on, when no such limitation had been expressed, In my opinion, Butt v. Long (supra) provides no assistance to the applicants. The case 1s authority for the proposition that a court may have regard to surrounding circumstances in order to ascertain the meaning of an expression which the parties have used. In that case it was permissible to have regard to the fact that the trans-shipping business conducted by the partnership was one concerned only with trans-shipping between railway trucks, yet no local limitation could be read into the contract, when no such limitation was expressed. The cases to which I have referred may have been of assistance to the appellants if c.39 had referred simply to "the business of shipbuilding", in that surrounding circumstances would have shown that this expression was taken by the parties to 44. mean the construction of aluminium hulled vessels of between 60ft. and 140ft. in length. However, the expression used in c1.39 is "the business of shipbuilding of any description or any other business of a similar nature". Assuming that the words "or any other business of a similar nature" may be severed, the fact remains that the parties have not simply described the conduct to be restrained as "the business of shipbuilding", which might allow the court to read down that expression to mean the business of shipbuilding actually carried on at the time the contract was entered into. The inclusion of the words "of any description" does not permit the reading down exercise referred to by the High Court in Butt v. Long (supra), and the English cases to which I have referred. Nor upon the conditions discussed by the English Court of Appeal in Attwood v. Lamont (supra) may the words "of any description" be severed. In my view, the rule of construction that a restraint of trade clause must be construed with reference to the circumstances in which the parties contract, so that descriptive words might be restricted in their operation, cannot be used to construe the words "the business of shipbuilding of any description" to mean "the business of shipbuilding carried on by the vendor at the time of sale". The inclusion of the words "of any description" indicates that the applicants sought to restrain the vendor-respondents from engaging in many forms of shipbuilding, including the construction of vessels which had never been built by Lloyds Ships, including any steel hulled 45. vessel, freighters, passenger vessels or sailing boats. Accordingly, in my opinion, the clause constitutes an unreasonable restraint of trade, as not being reasonably necessary to protect the interest of the covenantee. The question of rescission, and its consequences If, contrary to my view, clause 39 is a valid restraint of trade clause, then the question arises whether it came to an end upon the respondents' purported rescission on 24 October 1985. The first issue in this regard is whether the respondents were entitled to rescind. Paragraph 8 of the Amended Defence alleges breaches of clause 6 of the Deed of Settlement. Paragraph 5 of the Amended Reply admits that clause 6 was breached, but says that the breach was remedied by the payment of certain sums of money. One of the admitted breaches was a failure to deliver on the settlement date certain material for use on the "Trade Ship". The second admitted breach, and the one upon which the respondents contend they are entitled to rescind, was a breach of clause 6(c) of the Settlement Deed. Clause 6(c) provides:- "The Purchaser and Holdings hereby warrant and it is acondition hereof that the Trade Ship and materials thereon or to be utilised therewith will have been completed to the stage (labour and Materials), as at the settlement date, in a manner not less than the stage as represented in Schedule 1 hereto PROVIDED THAT nothing in this sub-clause shall derogate from the requirement to hand over 46. the Trade Ship, in accordance with the terms hereof, completed to the extent achieved since the 10th April, 1985, up to settlement." The respondents contend that, in describing clause 6(c), asa "condition", the parties stipulated that it was aterm, any breach of which entitled the vendors to rescind. Support for this contention is said to be derived from the evidence of the third respondent that the performance of clause 6(c) was important because, as the applicants knew, the first respondent intended to complete the construction of the "Trade Ship" in time for the America's Cup in Fremantle and that it was therefore imperative for the applicants to continue the construction of the Trade Ship in accordance with the schedule. The applicants reply that, in order for clause 6(c) to be a_ condition due to the importance to the respondents to have the "Trade Ship" ready for the America's Cup, 1t would be necessary for both the applicants and respondents to have known this at the time when the Deed was entered into on 16 October 1985. According to Mr. Hardie, at the time of the Settlement Deed the vessel could not have been completed in time to obtain a charter for the America's Cup. The position 1s said to have been that the respondents well knew that the "Trade Ship" would not be ready for the America's Cup, and had previously told the applicants so. 47. Reference is also made by the respondents to correspondence between the solicitors involved in the drafting of the Settlement Deed, in which the respondents' solicitors insisted upon the obligation contained in clause 6(c) being described as a condition. The admissibility of evidence of prior negotiations 1s reviewed in detail in the judgment of Mason J., as he then was, in Codelfa Construction Proprietary Limited v. State Rail Authority of New South Wales (1981-2) 149 C.L.R. 337 at 347-354, especially at 352. The evidence of the circumstances in which the deed of settlement came to be signed permits the conclusion that the parties reached a deliberate and informed agreement that clause 6(c) was to be a condition, with the consequence that any breach thereof entitled the respondents to rescission. The applicants contend that the use of the term "condition", even in the contract drafted by lawyers, does not necessarily mean that it is a term of fundamental importance (Australia and New Zealand Banking Group Ltd. v. Beneficial Finance Corporation Ltd. (1983) 57 A.L.J.R. 352 at 355; F.L. Schuler A.G. v. Wickman Machine Tool Sales Ltd. £19741 A.C. 235). They contend that the obligation contained in clause 6(c) is neither a condition nor a warranty, but is an intermediate or innominate term, capable of operating, according to the gravity of the breach, as either a condition or a warranty. 48. In support of this contention the applicants note the use of the word "warrant" in conjunction with the word "condition" in clause 6(c). However, in my view, the inclusion of the word "warrant" in the clause merely indicates that the applicants assumed an obligation to deliver the "Trade Ship". The express inclusion of the word "condition" in the clause favours the view that the parties expressly turned their attention to the effect of a failure to comply with the obligation to deliver. The applicants further contend that to construe clause 6(c) as a condition, leads to the umreasonable result that failure to deliver a small amount of aluminium would entitle the respondents to rescind the Deed. This 15 suggested to be such an unreasonable and unlikely result that the parties should not be taken to have intended it unless such an intention is abundantly clear. The accepted test in determining whether aterm isa condition appears in the judgment of by Dixon C.J. in Associated Newspapers Limited. v. Bancks (1951) 83 C.L.R. 322 at 337:- "The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promissor ... if the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight." 49. This test was recently approved of by the High Court in Shevill v. Builders' Licensing Board (1981-82) 149 C.L.R. 620. In my opinion, the evidence establishes that the respondents were unwilling to enter into a contract unless the obligation contained in clause 6(c) was made a condition of the contract. In my view, the express inclusion of the words "it is a condition hereof" in clause 6(c) makes clear the intention to make the obligation contained in clause 6(c) a condition of the contract, and that this intention was well known to the applicants. A further argument by the applicants as to why the term "condition" in clause 6(c) should not be given the = strict technical meaning of a fundamental term is that the proviso to clause 6(c) obliges the applicant to deliver the "Trade Ship", even though there has been a breach of the obligation contained in the earlier part of the clause. The applicants correctly submit that, under the general law, if a condition is breached and the innocent party elects to rescind, then both the innocent and guilty parties are discharged from further performance of the contract. (McDonald v. Dennys Lascelles Limited (1933) 48 C.L.R. 457 at 476-7). It was submitted for the respondents that the proviso to clause 6(c), contrary to the general law, does not relieve the applicants from the obligation to deliver the "Trade Ship", but imposes a continuing obligation in this regard. 50. In my view, the fact that clause 6(c) provides the respondents with rights in addition to their rights under the general law to rescind and claim damages, 1s not a ground upon which it should not be construed as a condition. Far from being &@ reason to not characterise clause 6({c) as a condition, the proviso to clause 6(c) emphasises the importance to the respondents of having the "Trade Ship" delivered. The juxtaposition of the words "warrant" and "condition" in clause 6(c), far from suggesting that the applicants merely warranted the performance of the obligation, suggests that the parties intended the obligation to be a condition. Clause 6(c) should be contrasted with other clauses which are expressed to be warranties (e.g. clause 11) and other obligations which might be regarded as innominate terms (e.g. clause 6(a)). For these reasons, I regard clause 6(c) as a condition, the admitted breach of which entitled the respondents to rescind. Paragraph 5(b) of the Amended Reply alleges that the breach of clause 6 of the Deed was remedied by the payment of certain sums. This matter may be shortly dealt with. The correspondence between solicitors indicates that the payments which were received by the solicitors for the respondents after the non-delivery of certain quantities of aluminium were accepted only in part payment of a claim for damages, and that throughout the respondents' reserved their rights. In any event, the tendered payments could only, at best, attempt to remedy the admitted breach of clause 6(a). The admitted breach of clause 51. 6(c) was incapable of being remedied, the obligation being failure to complete the "Trade Ship" to the stage specified in Schedule 1. The respondents submit that their rescission of the Settlement Deed put an end to their obligations under clause 14 of the Deed of Settlement to observe the restraint of trade clause (clause 39). They say that the obligations imposed by clause 39 survive only because of the terms of clause 14. This is said to appear from the words of the second sentence of clause 14. Accordingly, the respondents submit that rescission of the Settlement Deed put an end to the respondents' obligations pursuant to clause 14 to observe clause 39 of the Agreement. The applicants argue that this submission misstates the effect of clause 14. They contend that clause 14 provided that the due and proper performance of its terms was deemed to discharge and satisfy the obligations imposed by the Sale Agreement, but there was to be no such discharge of the restraint of trade clause, which was declared to survive and remain operative, notwithstanding performance in whole or in part of the terms of the deed. The Settlement Deed, having recited that disputes had arisen between the parties arising out of their obligations under the Sale Agreement provided in clause 14:- "The parties hereto ... hereby acknowledge and agree that the terms of this Deed and the due and proper performance thereof by the parties shall be deemed to discharge and satisfy each and every 52. obligation in the Agreement, with the exception of the terms and covenants set out in Clause 39 of the Agreement, which shall, subject to the following provisions of this Clause 14, survive and remain operative notwithstanding execution, completion, performance or satisfaction, in whole or in part of any or all of the terms of this Deed. The rights, obligations and covenants contained in Clause 39 of the Agreement shall not merge upon completion of any of the rights, obligations or covenants of this Deed. The parties ... agree that Clause 39 as aforesaid shall have no operation or application in respect of completion of construction and fitting our (sic) of the Trade Ship." Properly understood, the deed was an agreement of accord and satisfaction. It provided that the performance of the obligation under the Sale Agreement, save for the terms and covenants 1n the restraint of trade clause, would be discharged not by the mere accord, i.e. not by the giving of mutual promises on the signing of the Deed, but only by that accord plus satisfaction, i.e. only by performance of the promises themselves. Reference is made to the judgment of Dixon J. in McDermott v. Black (1940) 63 C.L.R. 161 at 183-4:- "The essence of accord and satisfaction 1s the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or 1t may be the act or thing promised. But, whatever 1t is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction 1s given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid andas important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one." At p.185, his Honour continued:- 53. "If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; 1f the performance, then there is no discharge unless and until the promise is performed." The observations of Dixon J., as he then was, were adopted by Dixon C.J. and Fullagar J. in Tallerman & Company Proprietary Limited Vv. Nathan's Merchandise (Victoria) Proprietary Limited (1957) 98 C.L.R. 93 at 114. In that case, a mere accord executory, when repudiated, relegated the parties to their position under the original contracts. In my view, on the proper construction of cl.14, the parties agreed that the obligations under the sale agreement, save the terms and covenants in cl.39 thereof, were liable to be discharged by the due and proper performance of the deed of settlement. The terms and covenants of s.39 of the sale agreement were not discharged by the performance of the respondents of their obligations under the deed of settlement nor, inmy opinion, was the obligation on the respondents in respect of the terms and covenants of cl1.39 dependent on cl.14 for its continued applicability, with the consequence that, on rescission of the deed of settlement, the respondents' obligation to observe the restraint clause ended. The deed of settlement was one of accord and satisfaction, but it was of accord and satisfaction of all obligations under the deed of sale except the terms of and obligations of cl1.39. This conclusion is reinforced by the express provision that "the terms and covenants set out in cl.39 shall... survive and remain operative notwithstanding 54. execution, completion, performance or satisfaction, in whole or in part of any or all of the terms of this Deed." The continued operation of cl.39 did not depend on the continued operation of c1.14. The applicants' breach of the Settlement Deed gave the respondents the option of accepting the repudiation of the settlement agreement and reasserting their original claims or affirming the settlement and suing upon it. (Foskett, The Law and Practice of Compromise, London 2nd Ed. (1985) at p.85). The respondents chose to rescind. This discharged both parties from further obligations under the Settlement Deed. In my opinion, 1t did not discharge the respondents from its obligations under cl1.39. Disqualifying conduct The submission by the respondents is that, if the restraint of trade clause was valid and survived against the respondents after the rescission of the deed of settlement, the applicants cannot rely on it because, with knowledge of the respondents' intention to build and sell ships, they stood by and took no action. Injunctive relief ought therefore be refused. The letter of rescission of 24 October 1985 contained the statement:- 55. "Tf the covenant in restraint of trade is not void or is otherwise binding in accordance with its terms (which is denied), it falls with your clients repudiation of the Deed and our clients consequent rescission." On 17 December 1985, Messrs. Hopgood and Ganim wrote, inter alia, ',.-your client has already had communicated to it notice of rescission of the deed based upon a breach of the condition and our client continues to reserve all of its rights. We have already communicated to you that because of, inter alia, the breach of the condition by your clients and the consequent rescission of the deed by ours, our clients do not consider themselves bound by the restraint of trade clause and one or more of our clients are conducting themselves accordingly. Representatives of your clients have also been previously informed in that regard by one or more representatives of our clients." The application, including a prayer for injunctive relief, was filed on 10 March 1986. The relevant principle is stated in Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. C1982] Q.B.133 at 151-2:- ",,.the application of the Ramsden v. Dyson, L.R. 1 H.L.129 principle - whether you call it proprietary estoppel, estoppel by acquiescence or estoppel by encouragement is really immaterial - requires avery much broader approach which is directed rather at ascertaining whether, in particular individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly, or unknowingly, he has allowed or encouraged another to assume to his detriment than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour." 56. The conduct complained of does not indicate any waiver by the applicants of their rights. The claim of laches by the respondents amounts to a plea that the conduct of the applicants is such as to make it unjust to grant an injunction. It is sufficient to say that, in my opinion, none of the alleged matters in the particulars of defence as constituting injustice make the grant of injunctive relief unjust. I do not accept that any of the alleged detriments flowed from, or had its cause in, any delay on the part of the applicants to commence proceedings. Mr. Lloyd was, in my view, well and truly embarked on his shipbuilding plans by the end of October 1985, and in my view nothing done or omitted to be done by the applicants thence gave him false encouragement in his shipbuilding activities. Limited Relief The applicants claim that, in the event that the restraint of trade clause is invalid (as, in my opinion, it 15s), they are entitled to the limited relief of the kind granted by the House of Lords in Anna Trego v. George Stratford Hunt [1896] A.C. 7. On the principle that persons are not at liberty to depreciate the thing which they have sold, the House concluded that, on the sale of the goodwill of a business (without further provision), the vendor may set up a rival business, but he is not entitled to canvass the customers of the old firm and may be restrained by injunction for soliciting any person who was a 57. customer of the old firm to continue to deal with the vendor, or not to deal with the purchaser. Lord Macnaghten said at p.25:- "It is not right to profess and to purport to sell that which you do not mean the purchaser to have; it is not an honest thing to pocket the price and then to recapture the subject of sale, to decoy it away or call it back before the purchaser has had time to attach it to himself and make it his very own." The form of injunction granted there was framed against personal solicitation: general solicitation of customers is not prohibited. (See per Lord Herschell at p.20.8; Lord Davey at p. 28.2.) Should even this narrow form of relief be granted? The respondents, by the agreement of November 1984, sold the goodwill of the business. The respondents say that any rights of the applicants to this form of relief 15s merged in cl.14 of the deed of settlement. They say that no breach of any express or implied obligation in the deed was or could be alleged so as to justify this kind of relief. I do not accept this submission. The decision in Anna Trego v. George Stratford Hunt (supra) rests in equity, and consistent with that principle, I think there is to be implied against the respondents the limited obligation not to 58. "specifically and directly appeal to those who were customers" of the previous business, nor to represent themselves "ta be the successor to or as carrying on a continuation of the old business". Misleading Conduct The applicants submit that the carrying on by one or other of the first three respondents of the business of a ship and boat builder at premises at 41 Oxford Street, Bulimba, within 1500 metres of the premises of the business sold by the respondents, under and by reference to the names "Lioyd Corporation", "Keith Lloyd Ships Pty.Ltd.", "Keith Lloyd Ships", "Keith Lloyd International", "Seavad Industries" and "Seavad Industries Pty. Ltd.", constitutes conduct that is misleading and deceptive, or likely to mislead or deceive. In Taco Company of Australia Inc. v. Taco Bell Pty.Ltd. 42 A.L.R. 177, Deane and Fitzgerald JJ. said at p.202:- "Irrespective of whether conduct produces or is likely to produce confusion or misconception, it cannot, for the purposes of s.52, be categorised as misleading or deceptive unless it contains or conveys, in all the circumstances of the case, a misrepresentation. ... whether or not conduct amounts to amisrepresentation is a question of fact to be decided by considering what is said and done against the background of all surrounding circumstances." 59. Evidence that relevant people have been led into error by the conduct in question is admissible, but it is not essential to prove that anyone was actually misled. Global Sportsman Pty.Ltd. v. Mirror Newspapers Ltd. 55 A.L.R. 25 at p.30 and Taco Company v. Taco Bell (supra) at p.202.8. The question whether the respondents' conduct is misleading or deceptive is not ilimited, as the respondents submit, simply to whether prospective purchasers of vessels are likely to be misled or deceived, although that 1s a relevant enquiry. While Part V of the Trade Practices Act 1974 (in which s.52 appears) is headed "Consumer Protection", the conduct proscribed by that section is not restricted to the protection of the interests of "consumers". I accept that, if conduct 1s likely to mislead or deceive agents or brokers or suppliers, then, provided that conduct is in "trade or commerce", that 15 sufficient. I accept tht the business which the applicants purchased was well known in Australia as "Lloyd's Ships", and under that name had some reputation in yachting circles in the United States. There are only a few builders of luxury aluminium vessels in the world. The respondents admit that, between 16 October 1985 until after this proceeding commenced, the first respondent carried on business in relatively close proximity to the applicants' business, under the name "Keith Lloyd's Ships", that Mr. Lloyd caused those premises at Oxford Street to be 60. advertised under the name "Lloyd Corporation", and that between 14 and 24 March 1986, the business of ship and boat builder at that address was carried on under the name "Keith Lloyd International" by the first respondent and that business under that name since that date has been carried on by the fourth respondent. It was only after this litigation commenced that the business of ship and boat builder was carried on under the name "Keith Lloyd International". Mr. Lloyd had, on 9 January 1986, registered in his name the business name "Keith Lloyd Ships". Some assistance as to the future possibilities, and the question of deception can be gained from passages in the evidence of Mr. Lloyd. After he had been questioned about the registration of the name "Keith Lloyd Ships" and his attention had been directed to a draft brochure using the name "Keith Lloyd Ships" which Mr. Lloyd had prepared, he was asked:- "Do you still intend to use the name Keith Lloyd Ships in the conduct of your business?" To which he answered, "Yes. I think there were several brochures made that were pro forma brochures. We did not adopt any of them. He was then asked, "But you do intend to continue to use the name Keith Lloyd Ships in the conduct of your shipbuilding business?" 61. He answered, "Yes, I do." This significant evidence was, not unnaturally, the subject of re-examination. He was asked:- "You were directed to paragraph 47 of your affidavit in relation to Keith Lloyd Ships and you were asked some questions about that. Is it your intention to continue to use the name Keith Lloyd Ships or the name Keith Lloyd International, or both?" To which he answered, "IT am sorry, I meant Keith Lloyd International. I might have said Keith Lloyd Ships, we intend to use the name Keith Lloyd International." On the question of whether the respondents have engaged in misleading or deceptive conduct, the respondents submit that the question of fact involved has to be determined by looking in a reasonable way at the effect of the conduct. Because there are so few builders of such ships in the world and the class of potential customers is sophisticated, they submit that the conduct in carrying on the shipbuilding business under the various names does not constitute misleading or deceptive conduct for the purpose of s.52. For my part, I think that the use, inthe context described by the evidence, of the names "Lloyd Corporation", "Keith Lloyd Ships Pty. Ltd.", and "Keith Lloyd Ships", clearly is likely to mislead or deceive people, including potential 62. customers, as well as brokers and suppliers, into thinking that the business conducted under any of those names is the same business as the business conducted under the name "Lioyd"s Ships" or as a continuation of that business. Each case, of course, depends on its own facts; however, some observations by Smithers and Woodward JJ. ain Bridge Stockbrokers Ltd. v. Bridges 57 A.L.R. 401 at p.408 are apposite:- "If one chooses a name so close to that of an operator already in the business that confusion is probable, there will be a recurring need in normal business for care and discrimination. Where the name of that party is such as, in various circumstances, to carry additional overtones, then one is entering the area of misrepresentation. The overtones in this name are that, in the stockbroking business, you will find 'Bridge' or 'Bridges' here and not elsewhere. To throw that unto the public arena where there are people with no duty or inclination to exercise a fine discrimination in the matter nor any feeling of necessity for so doing, creates a likelihood of it being understood as saying what it seems to say. Such persons would be unlikely to expect that the company would claim to be the 'Bridge' of the stockbroking world unless it was claiming also to be 'Bridges'." In the context of that case, I think it fair to say that persons comprising investors and potential investors, or other persons engaged in or in connexion with the stock market, are not an unsophisticated class of people, yet the close similarity in the proposed names (in my view, a matter pregnant with the likelihood of deception) was heid to contravene s.52 of the Trade Practices Act 1974. 63. The conduct sought to be impugned in the present case, in my opinion, similarly involves contravention of s.52. The position in relation to the name "Keith Lloyd International" is not as clear as it is in relation to "Lloyd Corporation", "Keith Lloyd Ships Pty.Ltd." and "Keith Lloyd Ships". On consideration of what has in fact been done and the evidence of Mr. Lloyd, I think, on balance, that in the present context, even the use of the name "Keith Lloyd International" is conduct which contravenes s.52. Passing off Pletcher Challenge Ltd. v. Fletcher Challenge Pty.Ltd. £19811 1 NSWLR 196 at p.204 identifies what a plaintiff must establish to succeed in an action for passing off:- (1) that his goods have, or his business has, acquired a certain goodwill or reputation; (ii) that the actions of the defendant have caused, or in all probability will cause, the ordinary purchasers of the plaintiff's goods, or the ordinary customers of the plaintiff's business, to believe that the defendant's goods are those, or that the defendant's business is that, of the plaintiff; (iii) that, in consequence, the plaintiff has suffered, or is likely to suffer, injury in his trade or business. Iam satisfied that the shipbuilding business sold by the respondents to the applicants was and continues to be known as "Lloyd's Ships" and that business, as described, had acquired both a national and international goodwill and reputation in the 64. market of luxury aluminium-hulled motor cruises. I am similarly satisfied that, to carry on a similar business in close proximity in the same Brisbane suburb under the name "Keith Lloyd Ships", an all probability would cause ordinary customers of that business to believe that the business was the applicant's business, that is to say, that there was an identity between the business known as "Lloyd's Ships" and the business, "Keith Lloyd Ships". As to whether carrying on the business under the name of "Keith Lloyd International" would amount to passing that business off as the business sold, Romer J. in Joseph Rodgers & Sons Ltd. v. W.N. Rodgers & Co. (1924) 41 R.P.C. 277 at p.291 said:- "Tt 1s the law of this land that no man 1s entitled to carry on his business 1n such a way as to represent that it is the business of another, or 1s an any way connected with the business of another; that is the first proposition. The second proposition is, that no man is entitled so to describe or mark his goods as to represent that the goods are the goods of another. To the first proposition there 1s, I myself think, an exception: a man, in my opinion, is entitled to carry on his business in his own name so long as he does not do anything more than that to cause confusion with the business of another, and so long as he does it honestly ... to the second rule, to which I have referred, I think there is no exception at all..." The House of Lords approved this decision in Parker Knoll Limited v. Knoll International Limited (1962) R.P.C. 265 at pp.276-277, 284, 287, and 291. 65. The right to the honest user by a man of his own name does not extend to using his name in combination with something else such as, in this case, "International". Moreover, in my view, having regard to what might be compendiously referred to as "the American evidence", I think it was and is the intention of Mr. Lloyd to arrogate the reputation and goodwill of the business he had previously conducted to the business that he now is concerned in at Oxford Street, Bulimba. Again, the matter 1s not as clear in my view as it is in relation to the names "Lloyd Corporation", "Keith Lioyd Ships Pty.Ltd.", and "Keith Lloyd Ships" but, on the balance of probabilities, I find that the carrying on of the shipbuilding business at 41 Oxford Street, Bulimba, under the name "Keith Lloyd International", not only is likely to cause potential customers and others to identify that business with the business known as "Lioyd's Ships", but ait is the intention of Mr. Lloyd that that should be so. The issues of s.52 conduct, defamation and injurious falsehood arising out of 'the American evidence'. The final category of issues relates to allegations concerning conduct of the third respondent in the United States of America in February and March, 1986. The applicants allege that statements made by him constitute contraventions of s.52 by the first respondent, for which he is also liable under the Trade 66. Practices Act 1974; that they constitute actionable defamation of the first and second applicants, and also that they constituted the commission of injurious falsehood concerning the business of the first and of the second applicants. The allegations in the Statement of Claim concerning these matters appear in paragraphs 15, 16 and 17, and are: that on or about 19 February 1986, in the course of a_ telephone conversation with one Mary Schultehenrich, Mr. Lloyd represented that the first applicant was in financial difficulty; that the board of directors of the first applicant had disappeared, and that he would prefer not to do business with the first applicant; it further alleges that on or about 12 March 1986, in the course of a conversation with Mr. Christian von der Heyde, he represented that the first applicant was in serious financial difficulties, that the second applicant had serious financial difficulties, that the chairman of the second applicant, because of those difficulties, had disappeared and could not be located, and that those matters had been the subject of reports in Australian papers. Both Ms. Schultehenrich and Mr. Christian von der Heyde were at the premises of a specialist paint company in Missouri at the relevant times. Next, it is alleged, on or about 28 February 1986, Mr. Lloyd, at a meeting with Messrs. Epstein and Gerould, represented that the first applicant was going out of business, that the second applicant had no money, the second applicant's funds were acquired on the basis of 110% borrowings, that most of the first applicant's employees had already left the first applicant to 67. join the third respondent's business, that the managing director of the second applicant was incapable of running a shipyard, and that Lloyd was likely "any day now" to gain control of the first applicant's shipyard. These conversations are said to have occurred in Florida. The respondents point to the incongruity of the applicants' claim that the respondents are passing off the business at Oxford Street, Bulimba, as that of the applicants, and their claim that Mr. Lloyd defamed the first applicant in serious respects in February and March 1986 in the United States. Dealing first with the allegations that these statements constitute contraventions of s.52 by the first respondent, as earlier indicated, if a statement for which a corporation is responsible 1s made in trade or commerce, and if the statement contains or conveys a misrepresentation, the making of it will constitute conduct which is misleading or deceptive or likely to mislead or deceive. The fact that the material is defamatory does not for that reason fall outside the operation of s.52, nor is ait brought within the operation of s.52 because it is defamatory; Global Sportsman (supra) at p.29. In relation to these allegations, the solicitors for the respondents, by letter of 15 April 1986, said:- "Our clients will consent to findings of fact in terms of paragraphs 15, 16 and 17 of the amended Statement of Claim. Our clients therefore do not require Messrs. Epstein, Gerould, Roscioli, Reoch and von der Heyde or Ms Schultehenrich to attend for cross~examination. 68. Qur clients are following this course because the litigation of these issues is likely to delay the resolution of the primary issues in the case. Further, our clients' view is that your clients will not be able to establish any damages flowing from the alleged conduct. In the circumstances, the cost and inconvenience of litigating these issues 15 unjustified." It was for these reasons that no American-based witness was called to give oral evidence. Mr. Lloyd in his evidence said that a number of the matters alleged in those paragraphs were not correct. He was asked concerning the contents of the letter of 15 April 1986 and the consent embodied in it, in this way:- "Q, The purposes of that letter, I suggest, was not to save time in the hearing, but to avoid having a series of American witnesses come into the witness box and say that you had told them things which you would deny you said them here. Was not that the purpose? A. No, that was not at all. I (was) led to believe that these people were offered - like Roscioli was offered $18,000 if he came to Australia - money that was owing to him, and a free, round-the-world trip, and I thought that air-fares and accommodation and the whole lot would be on my account if you proved that I said those things, and I am saying that I did say that Lloyds Ships Holdings, you know, did have financial troubles; I said that, so, you know, I mean, I just went along with that, to keep the cost down. Q. Mr. Lloyd, what, of this payment to Mr. Roscioli, did you think might be to your account? A. Not payment to Roscioli for coming out here, but his return air-fares and accommodation and so forth, 69. Q. Well, why did you think that you would have to pay the cost of his fares from the US to Australia and the accommodation here and back? A. Well, if - say, you know, the word was in Miami and Fort Lauderdale, ''We've got to stop Keith Lloyd going back into business, and you get a trip round the world if you sign affidavits,' and so if they could get enough people as agents over there to colluse on that point, I could not win against that; I could not win against it. They are all coached and ~- so you cannot win anyhow, so why do it; just agree to it and face the consequences of damages nd they will be $20,000 less, the damages, because they will not be able to charge all that on your account, and that was my uneducated view of it. Q. You thought that against this series of American witnesses, whose affidavits were in your hands, you could not win, on that particular point, is that right? A. Yes. Q. And 1t was in those circumstances that you gave your solicitors approval to write this letter, exhibit 1? A. Yes." Also relevant on this aspect are letters sent by Mr. Lloyd by priority airmail dated 10 April 1986 to the American witnesses. By way of example, Mr. Lloyd wrote to Mr. Epstein in these terms:- "As you are aware, I, and corporations under my control, are involved ina (sic) litigation in Australia. In that litigation you have signed an affidavit on the 2nd April, 1986 and have also adopted an affidavit by Mr. Gerould sworn on the same date, which has been filed with the Court and delivered to my Solicitors. Those affidavits make reference to me. 70. I really see no point into (sic) going into matters that are of clear conflict with my recollection of discussions I have had with you. However, 50 that you can be under no misapprehension, I enclose herewith the first four pages of an affidavit that Mr. Bryan Frost has filed in the litigation. As Mr. Frost has sworn to the truth of those matters, I would suggest that you can conduct yourself in reliance upon their truth. Accordingly, any misapprehension you may otherwise have had should now he satisfied, but if there 1s any further clarification you want, no doubt you will be in contact with me. Any contact with me should be in writing, for obvious reasons." The first four pages of Mr. Frost's affidavit traverse the allegations of fact contained in paragraphs 15-19 of the Amended Statement of Claim. In the light of the consent expressed in the letter of 15 April 1986, and the other circumstances referred to above, I think it right to make findings in terms of the facts alleged in Paragraphs 15(a) and 15(b), 16(a),(b), (c) and (d), and 17(a), (b), (d), (e) and (f) of the Statement of Claim. I do not make findings in terms of paragraphs 15(c) or 17(c) of the Statement of Claim. The correctness of the statements of the relevant American law deposed ta in an affidavit of Mr. Russell of Messrs. Clarke & Kann, the solicitors for the applicants, was accepted by the parties. One consequence of this is that the applicants concede that they cannot make out claims that Mr. Lioyd committed the wrong of injurious falsehood by reason of statements he made to the various American witnesses. 71. The respondents submit that the statements concerning the serious financilal difficulties of the first or second applicants were true and therefore constituted neither misleading conduct nor defamation. A great deal of accounting evidence was directed to the question of the financial health of both the first and second applicants. While the material was voluminous, its relevance to the question was, in my view, marginal. Some of it was singularly unhelpful. In particular, the evidence of Mr. White, whose firm was the auditor for the Queensland Merchant Holdings Group, was, I regret to say, duplicitous. The question of whether the statements constituted misrepresentations must be judged by considering what 1s said against the background of all the surrounding circumstances. The context of the statements is to be viewed in the light of what is deposed to by the American deponents in their affidavits and, in my view, is assisted by what 1s revealed from the cross-examination of Mr. Lloyd. Concerning his conversation with Mr. Epstein on the telephone, he said:- "A. I think I would have said that if he builta vessel with - from lLloyd's Ships Holdings, that I do not think they would be there at the end. Q. Did you tell him, in effect, that you did not think that they had the financial ability to complete a vessel for him? A. es. 72. Q. And did you say that also you thought they lacked the managerial ability to complete a vessel for him? A. Yes, I think I would have said that." And later, "0. I suggest that you contacted Mr. Epstein because you were keen to get his business? That is true. That is obvious, is not it? That 1s true. And you made a point, or you were aware that he was considering buying a vessel from Lloyd's Ships Holdings? Yes. And when you spoke with him, you made a point of running down Lloyd's Ships Holdings to try to ensure that you got the business and not Lloyd's Ships Holdings? A. No, 1t would not be just Lloyd's Ships O PW PY OD Holdings; it would be if - no matter who we were in competition with. It is sales puffery. You just - aif itis true and factual, well, you would say it." And later, "Q. ..-you said that, as you say, as part of sales puffery, with the antention of trying to persuade him to deal with you rather than Lloyd's Ships Holdings? A. Yes." In my view, the third respondent was quite prepared to, and did, represent that both the first and second applicants were so financially unsound that it would be foolish in the extreme to consider purchasing a vessel from them. This is quite a different question from whether the state of either the first or second applicant could, in an accounting sense, be described as "in financial difficulties" or 73. "in serious financial difficulties". While on the evidence, and in an accounting sense, some reservations might properly be entertained as to the financial health of each of the applicants, what was conveyed by Mr. Lloyd was self-serving, as was admitted, and was, in my opinion, calculated to poison the commercial prospects of the applicants. To the extent I have indicated, I am satisfied that there has been on the part of the first respondent, through the third respondent, 8.52 conduct and actionable defamation. What damage, if any, has resulted from such conduct 1s a matter for the future. I will hear counsel as to the form of the orders that should be made to give effect to these reasons. ' certify that this ono [A preceding Nages are a true copy of the reasons for tudgment herein of His Honour Mr Justice Spender <T Maclrd. wu 6(3/[s-/ Associate Dated <- =