Queensland Co-operative Milling Association Ltd v Pamag Pty Ltd [1973] HCA 24

High Court of Australia Menzies, Walsh and Stephen JJ. Queensland Co-operative Milling Association Ltd v Pamag Pty Ltd [1973] HCA 24

ORDER Appeal allowed with costs. Order of the Supreme Court of Queensland set aside and in lieu thereof order that (1) the defendant be and it is hereby restrained from purchasing any flour or wheatmeal which it may require in the conduct of its business at Moranbah from any person or persons in breach of the covenant in favour of the plaintiff contained in the bill of sale dated 7th June, 1971; (2) the defendant pay to the plaintiff the costs of the proceedings in the Supreme Court of Queensland.

Cur. adv. vult.

The following written judgments were delivered:—

Aug. 7 Menzies J.

The full facts of this case have been stated in the judgment prepared by Stephen J. which I have had the advantage of reading.

The question is whether a particular trade tie entered into between a flour miller ("the Association") and a baker ("Pamag") is void as an unlawful restraint upon the trade of the baker. The restriction upon the baker's trade was effected by a covenant by it to purchase all of its requirements of flour for a particular bakery from the manufacturer. This unquestionably restricted the buying freedom of a trader. To such a covenant I have no doubt that the doctrine of restraint of trade applies. It must, therefore, answer to the test of reasonableness having regard to the interests of both the parties and the public. In this case I do not consider that any more elaborate statement of the law to be applied is necessary.

The covenant was given as part of an arrangement highly advantageous to the baker. The baker wanted to establish a business at a newly established town in Queensland—Moranbah. It lacked the financial resources to do so and it could not borrow sufficient money either from its bank or from another flour miller ("Defiance"), with which those concerned with Pamag had as partners in Sarina Bakery ("Sarina partnership") been doing business in connexion with their bakery at Sarina. The Association offered to lend the baker and the Sarina partnership up to $108,000 with interest at 6½ per cent.—1¾ per cent. less than the ruling bank rate on long terms to provide finance for the Sarina partnership—including money to pay off existing loans made by Defiance—and to enable Pamag to set itself up in business at Moranbah. The covenant entered into and broken by Pamag was to last so long as any part of the loan was outstanding. The Association had the right to call up the outstanding balance of the loan at any time and Pamag had the right to pay it off by 30th April, 1978. Accordingly the tie would last seven years unless the loan was called up in the meantime by the Association. In fact only some $9,000 was advanced to Pamag and $13,000 to the Sarina partnership because the Sarina partnership sold the bakery at Sarina to Defiance at a handsome price within a few months of the making of the arrangement between Pamag and the Association. As part of the deal with Defiance, Pamag covenanted with Defiance to take three-quarters of its requirements of flour at Moranbah from Defiance. The baker, therefore, for its own advantage entered into two inconsistent trade ties. It now seeks to escape from the first in order to observe the second. The reality of the matter may therefore simply be whether the Association or Defiance gets the business of Pamag. The facts here—including the way in which business was done with Defiance—point unmistakably to the giving and taking of trade ties as part of the ordinary conduct of the business of selling and buying flour. Accordingly I do not share some of the reservations expressed by the learned trial judge about lack of information about the way in which business is done in the flour trade. The deal which Pamag made with the Association was the result of hard bargaining in which Pamag was at no disadvantage. It was of a kind in keeping with the practice of the trade. It did not prevent the baker from making or selling bread. Its only operation was to require Pamag to buy its requirements of flour from the Association at reasonable prices for so long as the loan made by the Association remained unpaid.