Application of Restraint of Trade Clauses, Product Liability, and International Legal Conventions in Commercial Law

Commercial Law
Commercial Law
Author Name(s)
Class (Course)
Professor (Tutor)
School (University)
The City and State
The Date

Commercial Law 1
Issue
The main issue in this scenario regards the application of restraint of trade clauses.
Rule
In Australia, restraint clauses are void unless they do not contradict the Competition and
Consumer Act 2010 (CCA), and they are reasonable. In (Petrofina (Great Britain), Ltd. v. Martin,
[1965], p.180), Diplock LJ defined restraints of trade as clauses in which one party in a contract
accepts a limitation of its liberty in the expense of the other party, and this agreement regards the
promisor carrying out trade/employment with another person in whichever manner he may opt
to.
The restraints are invalid at common law except if their provisions are reasonable for the
interests of both parties and the public interests. Their invalidation is due to the fact that they
deny the employee a chance to earn a living (Turner, 2013, p.153). They also prevent the public
from benefiting from the employee’s skills (Turner, 2013, p.153). The law requires the restrains
to cover a reasonable geographical area mainly where the business operate (Christensen and
Duncan, 2009). There should be a time limit which is mainly between one to 12 months in
Australia and New Zeeland (Rudman, 2013, p.80). They should be protecting a particular
business interest such as trade secrets or goodwill . Skills acquired during an employment are not
trade secrets.
Application
In (Southern Cross Computer Systems Pty Ltd v Palmer (No 2), [2017], p.380), the court
severed the restraints that prevented the players from joining a different club. The clauses were
denying the prayer a chance to earn a living and preventing the public from benefiting from his

Commercial Law 2
skills. In (Southern Cross Computer Systems Pty Ltd v Palmer (No 2), [2017]), the Court upheld
the clause preventing a former IT specialist from working for a competitor for four years.
Importantly, the employee had already sold his 40% shareholding to the company so the
company needed to protect the goodwill. In (HRX Holdings Pty Ltd v Pearson, [2012]), Pearson
was a co-founder of HRX, had good knowledge of HRX interests such as the clientele, client’s
contacts, core knowledge, and experience HRX strategies. Pearson had also received
remuneration as compensation for the two years restraints.
In (Just Group Ltd v Peck, [2016]), the Court severed the restraints preventing a former
Chief of Finance from working for a competitor as the restraints were not protecting valid
business interests, were too broad, and a two-year period was too long.
Conclusion
The Knights Finance restraints would likely be severed due to the following reasons.
(i) The negotiation processes. Was there a power balance between Knights and
Shulee? Was Shulee provided with legal advice? If not, the clauses would be
unreasonable.
(ii) Was Shulee accessing the information the business wants to protect and to what
extent? Skills acquired during the employment should not be confused with
business interests as found in (Herbert Morris Ltd v. Saxelby, [1916]).
(iii) Did Shulee receive a renumeratin for the duration that the restraint would operate.
If not, the restraints would be unreasonable.
(iv) Duration. Four years would be too long for an employee as held in (Just Group
Ltd v Peck, [2016])