The enforceability and reasonableness of restraint of trade clauses have been well established and tested. But what happens to such clauses or rights where parties have entered into a deed of settlement and release in relation to a restraint dispute? A party may fall into a trap of thinking the inclusion of a restraint of trade in a settlement agreement will reestablish the same hurdles for the party seeking to enforce same.
Read more about restraint of trade clauses and what they are here in our previous blogs:
In a recent NSW Court of Appeal case, Creak v Ford Motor Company of Australia Ltd [2023] NSWCA 217, the Court considered whether the restraint of trade doctrine applies to restraints included in settlement agreements – i.e. are they unreasonable and void in the first instance, or is there a shift in the onus of proving whether the restraint is reasonable?
Briefly, the restraint of trade doctrine operates to protect an individual’s freedom to trade, enter into business or engage employment whilst protecting the legitimate interest of the party seeking to enforce same. Whilst the Court of Appeal held that the doctrine applies to settlement agreements (or deeds), it is somewhat modified, shifting the question away from “who bears the onus of proof as to the reasonability of the restraint” to considering “what is the legitimate interest of a party who relied on the certainty provided by from resolving the dispute by including a restraint of trade”. Restraints which form part of settlement agreements still require justification, but may well survive scrutiny by the Courts where its inclusion was a legitimate and reasonable measure to resolve an earlier dispute.
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