CLEGG v HENWOOD and ANOR [1998] NSWCA 60

CLEGG v HENWOOD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MASON P, MEAGHER and STEIN JJA 12 March 1998, 17 April 1998 [1998] NSWCA 60

Sale of Business — standard form of contract — construction special condition in contract to protect goodwill.

FACTS

The appellants were purchasers of a business from the respondents. The sale agreement contained, inter alia, cll3 which sought to protect the goodwill of the business by the Vendor's agreeing they would not open another business in competition to that business the subject of this sale. The Vendor's subsequently acted to create competition to the appellant's business. At first instance, cll3 was construed as effecting the conferral of goodwill, not as affecting its scope.

HELD

1. By Meagher JA, Mason P and Stein JA agreeing: The general law prevents the active solicitation of former customers: Trego v Hunt [1896] AC 7. It permits the vendor to open in competition with his purchaser. It is this itself which cl13(b) is aimed at restricting. It prohibits behaviour which would otherwise be lawful. It increases the protection which the general law gives to the purchaser. In this regard, acting to create competition to a next-door business must be a breach of that promise.

Mason P I agree with Meagher JA.

Meagher JA This is an appeal from Bryson J by the disappointed purchaser of a business (Mrs Clegg, the appellant).

For many years before July 1986 Mr and Mrs Henwood (the respondents, the vendors) were the owners of certain commercial premises situate on the Hume Highway in the village of Berrima, in New South Wales. Those premises consisted of a complex of four shops. From one of those shops (shop three) and Mrs Henwood conducted a business of retailing jams and preserves under the business name "Mrs Oldbucks Pantry". It was the only specialist jam shop business in Berrima.