Business laws - Solved Assignment

Running Head: BUSINESS LAW
BUSINESS LAW
Name of the Student:
Name of the University:
Author Note

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Issues:
In the given scenario the issues that have identified are enumerated below:
 Whether the restraint of Trade clause incorporated in the contract would have any effect
 What impacts will the representations that had been made to Hardy prior to the sale have
 What remedies are available to Laurel in relation to the facts of the scenario
Law:
It can be stated that employers are often worried about protecting the interests of their
after their employees leave to work for their competitors. Restraint of Trade can thus be defined
as a doctrine which relates to the enforceability of contractual restrictions on the freedom of
conducting business. The definition of restraint of trade clause had been first provided in
Nordenfelt v Maxim, Nordenfelt Guns and Ammunition Co [1894] AC 535. Restraint of
Trade intends to protect proprietary interests or trade secrets of a business. However it can be
stated that Restraint of trade clauses are only enforceable as long as it is not contrary to public
policy or it is reasonable to the party against whom the restraint of trade clause is made. It can be
mentioned that for a restraint of trade clause to be valid, it is essential for both the parties to
provide consideration. The common law doctrine of restraint of trade clause continues to operate
in Australia as long as such clause does not contradict with the statutory provisions of the
Competition and Consumer Act 2010. It can be stated in accordance with section 4M of the
Competition and Consumer Act 2010 that this act does not affect the operation of:
 Law which is related to the restraint of trade as long as such law operates
concurrently with the provisions of act
 Law which is related to the breach of confidence

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However section 51 provides the exceptions in relation to Restraint of Trade Clause. It has been
provided in section 51(2) that in order to determine whether the provisions of the this part has
been contravened other than sections 45D, 45DA, 45DB, 45E, 45EA or 48 no consideration will
be paid to the following:
 Any act done in relation to the arrangement or making the contract which particularly
relates to the work hours, conditions of employment, working conditions of employees
and remuneration to be paid to the employees
 Any provision of a contract which imposes restriction of freedom on any person and such
restriction is accepted by the employee. Such restriction can be in relation to the conduct
of employees that such employees may engage during or subsequent to the termination of
the contract.
Common law provisions also relate to the restraint of trade clause.
All restraints of trade clauses are considered to be void unless:
 Such restraint clause is in the best interest of the public
 Such restraint of trade clause is in the best interest of the parties to the contract.
As held in the case of Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 a
wide range of elements are considered by the courts in order to assess legitimate interest of the
parties. It can be stated that when assessing the reasonableness of the legitimate interest, the
courts assess whether the restraint does more than what it is necessary to protect the interest of
the parties. In accordance with the judgment of the case Vancouver Malt and Sake Brewing v
Vancouver Breweries [1934] AC 181 it can be stated that mere protection against competition
does not constitute legitimate interest. Further in accordance with the judgment of the decision

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Adamson v New South Wales Rugby League Ltd, it can be stated that the time for assessing
the reasonableness of the restraint of trade clause, the date when the restraint was imposed would
be considered and not the date on which the restraint is sought to be imposed.
In this given scenario the parole evidence is of significant importance. The parole evidence rule
states that in case of a written contract which is signed by the parties, such parties to the contract
would not be allowed to alter the terms of the contract. The parole evidence rule is generally
applied by the courts to give effect to the written terms and disregard any other oral agreements
between the parties. However, there are certain exceptions to the parole evidence rule where
courts consider oral agreements between. Examples of such exceptions are:
 Collateral contract
 Promissory estoppel
Collateral contract can be defined as a contract which is separate from the main contract. The
consideration for the collateral contract is the making of the main contract. Thus by the definition
of the collateral contract it can be inferred that for the establishment of a collateral contract it is
essential to prove that the statement provided by the party for entering the main contract was
promissory in nature, the promise was followed by a statement and that there was consistency
between the collateral and the main contract. The case De Lassalle v Guildford can be
illustrated as a good example in which a collateral contract existed.
The next exception to the parole evidence rule is the doctrine of promissory estoppel.
Promissory estoppel can be defined as a doctrine which is equitable in nature and which prevents
a party from going back on his promise which is not supported by consideration as held in the

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case of Hughes v Metropolitan Railway (1876-77) L.R. 2 App. Cas. 439. However to establish
promissory estoppel it is necessary to prove
 a pre contractual or legal relation existing between the parties as held in the case Combe
v Combe [1951] 2 KB 215
 a clear and unambiguous promise given by the promisor as held in the case Woodhouse
A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd. [1972] AC 741
 Change of position of the parties as held in the case of Alan v El Nasr [1972] 2 WLR
800
 Inequitable to let the promisor to go back on the promise as held in the case of D & C
Builders v Rees [1966] 2 WLR 28
To identify whether a statement made during the negotiation of a contract is a term of the
contract of a mere representation. It is important to identify a statement as a term or a
representation as such identification can determine the appropriate cause of action in case of
breach of such statement. The factors to be taken into consideration while determining whether a
statement is a term or representation are:
 Parole evidence rule- In case of written contracts the terms that are provided in writing
will be considered to be the terms any verbal statements will be considered to be
representations.
 Relative expertise- It can be stated that in circumstance in which the representor has
greater knowledge any statement provided by him would be considered to be a
contractual term as held in the case of Oscar Chess v Williams [1957] 1 WLR 370.

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 Importance of reliance on the statement- If the representee indicates the representor the
importance of the statement given by him such statement would be considered to be a
term as held in the case Schawel v Reade [1913] 2 IR 81
 Timing- If a long time has passed between making the statement and the entering into
the contract such statement would be considered to be a representation.
Misrepresentation can e defined as a false statement of fact or law which has induced the
misrepresentee to enter into the contract as held in the case of Bisset v Wilkinson [1927] AC
177. However an opinion will not amount to actionable misrepresentation as held in the case of
Smith v Land & House Property Corp (1884) 28 Ch D 7. Inducement or reliance on the part of
the misrepresentee is an essential element of misrepresentation as held in the case Horsfall v
Thomas [1862] 1 H&C 90. Once misrepresentation has been established it is important to
categorize the misrepresentation as:
 Fraudulent misrepresentation- In the case of Derry v Peek, it had been held that any
statement made by a party knowing it to be false, without the belief in its truth ,
recklessly would not constitute fraudulent misrepresentation. The innocent party in case
of fraudulent misrepresentation has the right to rescind the contract and claim damages
 Negligent Misrepresentation- Negligent misrepresentation is made by any person who
gives a statement without the having reasonable grounds to believe the statement to be
true as held in the case of Howard Marine v Ogden [1978] QB 574. In case of
negligent misrepresentation the same penalty is imposed as fraudulent misrepresentation
 Wholly innocent misrepresentation- In case of innocent misrepresentation the
representor has reasonable grounds to believe the statement given by him to be true.
An innocent party can neither rescind the contract nor claim damages.

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It has also provided in section 18 of the Australian Consumer Law which has been provided
in schedule 2 of the Competition and Consumer Act 2010 that any person who engages in
trade or commerce must not indulge in misleading and deceptive conduct or any conduct
which is likely to mislead or deceive any consumer. The definition of a consumer has been
provided in section 3 of the ACL. Any person who consumes goods or services not
amounting 40,000 dollars for household, domestic or personal purpose would be called a
consumer.
Application
By analyzing the facts of the case, it can be stated that Mr Hardy had incorporated a
restraint of trade clause in the contract of sale of Oliver Bar and Bistro. It was provided in
the contract through the clause that subsequent to selling the Bar and the Bistro to Mr
Laurel, Mr Hardy and his family members would be restricted from operating any tavern,
bar, bistro or bottle shop within a radius of 10 kilometers of the same for a period of five
years. Whether this restraint of trade clause can be considered to be valid can be analyzed
by the application of the Vancouver Malt and Sake Brewing v Vancouver Breweries case.
In this case it had been provided that a restraint of trade cause would be considered to be
ineffective if it aimed to restrict or limit competition. The restraint of trade clause in the
contract between Mr. Laurel and Mr. Hardy aimed to restrict competition and thus would be
ineffective. Further, it can be stated that the restraint of trade clause in the given scenario is
not in the best interest of the parties or the public.
In has been further provided that Mr Hardy was unwilling to sign the contract due to
existence of the restraint of trade clause as he operated another liquor store within a radius

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of 10 kilometers. However it was assured by Mr. Laurel that he would not bring any action
against Mr. Hardy. Mr. Hardy relied on such promise and signed the contract. Therefore, it
can be stated that the parole evidence rule would not be applicable in the given scenario.
Thus by the application of the Hughes v Metropolitan Railway case, it can be stated that the
doctrine of promissory estoppel would be applicable in this scenario and this would restrict
Mr Laurel to bring any action against Mr. Hardy. Further it can be argued by Mr. Hardy
that he entered into the contract due to the promise due to the promise made by Mr. Laurel
and breach of this promise would result in the breach of the collateral contract by the
application of the De Lassalle v Guildford case.
However as it has been provided by the facts of the case, it can be stated that Mr. Hardy had
made misrepresentations about the financial prospects of the business of the Oliver Bar and
Bistro as per the decision of the Bisset v Wilkinson. Further, it can be stated that that the
misrepresentation in this case was fraudulent in nature as Mr. Hardy had knowledge about
the true financial standings of the business, however he provided a false statement to Mr.
Laurel. Thus by the application of the decision of the Derry v Peek case, it can be stated that
Mr. Hardy can rescind the contract as well as claim damages from Laurel. The rights and
guarantees as provided by the ACL would not be applicable in this scenario as Mr. Laurel
cannot be termed a consumer s per the provisions of section 3 of the ACL.
Conclusion
Thus, in conclusion it can be stated that
 the restraint of trade clause will be ineffective
 the representations made by Mr Hardy constituted fraudulent misrepresentation

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 Mr. Laurel will be entitled to rescind the contract as well as claim damages.

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Reference List:
Nordenfelt v Maxim, Nordenfelt Guns and Ammunition Co [1894] AC 535
Competition and Consumer Act 2010
Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242
Vancouver Malt and Sake Brewing v Vancouver Breweries [1934] AC 181
De Lassalle v Guildford
Hughes v Metropolitan Railway (1876-77) L.R. 2 App. Cas. 439
Combe v Combe [1951] 2 KB 215
Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd. [1972] AC 741
Alan v El Nasr [1972] 2 WLR 800
D & C Builders v Rees [1966] 2 WLR 28
Oscar Chess v Williams [1957] 1 WLR 370.
Schawel v Reade [1913] 2 IR 81
Bisset v Wilkinson [1927] AC 177
Horsfall v Thomas [1862] 1 H&C 90
Derry v Peek
Howard Marine v Ogden [1978] QB 574

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