Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd

133 CLR 288
1 ALR 385

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(Judgment by: Gibbs J)

Amoco Australia Pty Ltd
v Rocca Bros Motor Engineering Co Pty Ltd

Court:

Judges: McTiernan ACJ
Menzies J
Walsh J
Gibbs J
Stephen J

Subject References:
Trade practices
Restraint of trade
Exclusive supply agreement
Whether restraint reasonable

Hearing date: ADELAIDE 25 September 1972; 28 September 1972
Judgment date: 11 October 1973

Melbourne

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Judgment by:
Gibbs J

The facts of this case are recited in the judgment of my brother Walsh, which I have had the benefit of reading. The first of the two questions stated by the learned trial judge and answered by the Full Court is whether the respondent company ("Rocca") is entitled to assert that the covenants contained in the underlease dated 19th May 1966 from the appellant company ("Amoco") to Rocca, or any of those covenants, are in restraint of trade and unenforceable. That underlease, of the land at Para Hills on which Rocca's service station is now constructed, was for a term of fifteen years (less one day) from 30th November 1964. It is relevant at this stage to refer to the provisions of certain of the covenants in the underlease. By cl. 3 (g) Rocca (called in the underlease "the Lessee") covenanted with Amoco (called "the Lessor") "to carry on and conduct in a proper manner in and upon the demised premises during all lawful trading hours the business of a petrol service station only and not to use same for any other business or purpose whatsoever and not during the continuance of this lease to cease to carry on the said business without the prior written consent" of Amoco. By cl. 3 (h) it covenanted "to purchase exclusively from the Lessor all petrol, motor oil, lubricants and other petroleum products required for sale on the demised premises and not directly or indirectly to buy, receive, use, sell, store or dispose of or permit to be bought, received, used, sold, stored or disposed of at or upon the demised premises or any part thereof any petroleum products not actually purchased by the Lessee from the Lessor provided that the Lessor is able to supply same". By cl. 3 (i) Rocca agreed "to purchase at least 8000 gallons of petrol and at least 140 gallons of motor oil from the Lessor in every month during the term of this lease". Amoco on its part agreed to sell to Rocca and to deliver to the demised premises at Amoco's "usual list prices to resellers at the time and place of delivery" Rocca's entire requirements of petroleum products (cl. 4 (a)). However, if Amoco is unable for any reason whatever which is, in the sole opinion of Amoco, beyond its control, to supply petroleum products as required, its obligation to supply is suspended and Rocca is at liberty to supply itself from other sources with sufficient petroleum products but only until such time as Amoco shall notify it that it is prepared to resume supply (cl. 4 (b)). There can be no doubt that the covenants of the underlease, if they are valid, will interfere with Rocca's liberty to carry on its trade in the manner which it considers most advantageous. The question is whether they create restraints whose validity is to be tested by the common law rules relating to restraint of trade.

It has been held, or assumed, in many cases, and is now clearly settled, that those rules apply to an agreement by which a trader undertakes to buy exclusively from one supplier all the goods of a particular kind that he needs for the purposes of his trade: Peters American Delicacy Co Ltd v Champion ^[F35] ; Foley v Classique Coaches Ltd ^[F36] ; Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd ^[F37] ; Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F38] . Similarly an undertaking by a producer to sell his whole output exclusively to one buyer can fall within the doctrine: McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society Ltd ^[F39] ; Heron v Port Huon Fruitgrowers' Co-operative Association Ltd ^[F40] . The doctrine is not rendered inapplicable by the fact that the restraint extends only to the use of a particular piece of land; it applies, for example, where a farmer agrees to sell all the produce of his farm to a particular buyer or where the proprietor of a petrol service station agrees to give to a particular oil company the exclusive right to supply him with petrol: Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F41] . Prima facie, therefore, the covenants in the underlease operated in restraint of Rocca's trade.

However, on behalf of Amoco it was submitted that the doctrine of restraint of trade has no application to the present case for two reasons. In the first place, it was said that during the moment of time between the grant of the lease by Rocca to Amoco and the grant of the underlease by Amoco, Rocca no longer had any right to possession of the land or any right to trade on it, so that when Rocca took possession subject to the covenants in the underlease it gave up no existing right to trade but rather acquired a qualified right to trade. Secondly, it was said that on 19th June 1964, the date of the agreement to grant the lease and to accept the underlease, Rocca was not in business as a service station proprietor and, from a practical point of view, had little chance of getting the supplies necessary to enable it to conduct such a business unless it was prepared to bind itself to take all its requirements of petrol from one oil company. For this reason, it was said, Rocca was not prevented from exercising any right or freedom to trade, but was in truth enabled to trade by the agreement which it made with Amoco.

Both of these submissions were founded upon some of the speeches in the House of Lords in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F42] and upon the later decision of the Court of Appeal in Cleveland Petroleum Co Ltd v Dartstone Ltd ^[F43] . In Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F44] their Lordships, in discussing the argument that the doctrine of restraint of trade does not apply to a restraint on the use of a particular plot of land, drew a distinction between the case before them, in which the covenantors, before they made the agreement, were in possession of the land and entitled to use it as they chose, and the situation of a purchaser or lessee of land who takes possession for the first time subject to a restrictive covenant. It was said that the doctrine has no application to the latter case: see per Lord Reid ^[F45] , per Lord Morris of Borth-y-Gest ^[F46] , per Lord Hodson ^[F47] , and per Lord Pearce ^[F48] . The reason for this was expressed as follows by Lord Reid ^[F49] :

"Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had. A person buying or leasing land had no previous right to be there at all, let alone to trade there, and when he takes possession of that land subject to a negative restrictive covenant he gives up no right or freedom which he previously had."

Lord Morris of Borth-y-Gest ^[F50] and Lord Hodson ^[F51] expressed similar views. The Court of Appeal in Cleveland Petroleum Co Ltd v Dartstone Ltd ^[F52] referred to these remarks as dicta but followed and applied them on an interlocutory application.

I have, with respect, no difficulty in sharing the opinion of Lord Pearce that "It would be intolerable if, when a man chooses of his own free will to buy, or take a tenancy of, land which is made subject to a tie (doing so on terms more favourable to himself owing to the existence of the tie) he can then repudiate the tie while retaining the benefit" (see Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F53] ). However, I do not find it necessary to consider whether an unjust repudiation by a purchaser or lessee in such circumstances should be prevented by holding that a transaction of that kind is not subject to the doctrine of restraint of trade or by treating it as subject to the doctrine and upholding the covenant as reasonable. In the present case it is unnecessary to decide whether the scope of the doctrine is limited in the manner suggested by Lord Reid, Lord Morris of Borth-y-Gest and Lord Hodson in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F54] . Assuming that the principle stated in the passages to which I have referred is accepted as correct, it does not in my opinion follow that the covenants in the underlease in the present case lie outside the doctrine.

The present is not a case in which a covenantor accepts a lease of land of which he had never been in possession and on which he had never previously had a right to trade. Here, pursuant to the agreement made between the parties on 19th June 1964, Rocca, on 19th May 1966, granted to Amoco a lease of land which Rocca owned and of which it had possession and on the same day took an underlease of the land from Amoco for the term of the lease less one day. Clearly the execution of the lease and the underlease formed part of one transaction. It was intended that Rocca, which had possession, should, if not retain it, at least regain it after the lapse of a mere moment of time. This is not to say that the transaction was a sham - it was not; there was a genuine lease under which Amoco acquired an interest in the land and a real underlease to Rocca: cf. Strick (Inspector of Taxes) v Regent Oil Co Ltd ^[F55] . Nevertheless the effect of the transaction was that Rocca subjected itself to restrictions as to the use which it could make of land which it was previously free to use as it pleased. In truth and substance Rocca did fetter a right to trade which it previously had. The application of the doctrine of restraint of trade does not depend "on legal niceties or theoretical possibilities" (Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F56] ) but is to be determined "by reference to the practical working of the restraint, irrespective of its legal form" (Pharmaceutical Society of Great Britain v Dickson ^[F57] ). The practical effect of the agreement, and of the covenants in the underlease made pursuant to the agreement, was to limit Rocca's pre-existing freedom to trade, and the agreement and the underlease were both within the doctrine of restraint of trade. Further, the positive agreement by Rocca to carry on the business during all lawful trading hours throughout the period of the underlease (cl. 3 (g)) might in itself have been regarded as a restraint of Rocca's trade - cf. Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F58] .

I am quite unable to accept the second argument advanced on behalf of Amoco, which would in my opinion give the statements of their Lordships in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd an application far wider than was intended. The argument was in effect that Rocca had no existing freedom to trade because it had no existing business as a retailer of petrol and, from a practical and commercial point of view, had probably no prospect of successfully commencing such a business unless it agreed to take its supplies exclusively from one oil company or another. However, that does not mean that Rocca had no choice but to tie itself to Amoco; it had the power to negotiate with other oil companies and, if it agreed to a tie, would not inevitably have bound itself for the same length of time and on the same conditions as are stipulated in the underlease. Rocca did have the right to trade on the land, although it had not previously exercised the right by conducting a service station. There is no justification in principle or in the authorities for excluding the doctrine of restraint of trade from cases where the covenantor is for practical or commercial reasons obliged to accept some restrictions on his freedom; perhaps it is in such cases that the doctrine is most likely to be needed to prevent the imposition of restraints which would be injurious to one of the parties or contrary to the public interest. In further support of this branch of Amoco's argument it was contended that Amoco, which had only recently commenced to trade in Australia, and Rocca, which was commencing business as a service station proprietor, stood in a relationship of mutual need and ought to be regarded as being engaged in a joint venture rather than as supplier and retailer. With all respect, I can see no reason why, if this were correct, the doctrine relating to restraint of trade should be inapplicable, but in any case the parties were in truth not joint venturers; Amoco was a supplier endeavouring to bind Rocca, when it commenced business as a retailer, to obtain its supplies exclusively from the one source.

For these reasons the Full Court was in my opinion correct in holding the doctrine of restraint of trade to be applicable and in answering the first question "Yes".

The second question raised for decision is whether the covenants contained in the underlease, or any of them, are an unreasonable restraint of trade and unenforceable. The test to be applied in determining the validity of a restraint of trade was stated by Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd ^[F59] , in a passage that has been cited with approval in many cases including, to name only recent decisions, Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F60] , and Buckley v Tutty ^[F61] . Lord Macnaghten said:

"All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public."

The requirement that the restriction be reasonable in the interests of the parties has been explained as meaning that the restraint "must afford no more than adequate protection to the party in whose favour it is imposed" (Herbert Morris Ltd v Saxelby ^[F62] , or in other words, "does the restriction exceed what is reasonably necessary for the protection of the covenantee?" (McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society Ltd ^[F63] ). The test thus stated suggests that it is not material to consider the effect of the contract on the covenantor. It is established that the court is not entitled to inquire into the adequacy of the consideration for a restraint, that is, the court may not weigh whether the consideration is equal in value to that which the covenantor gives up or loses by the restraint: Hitchcock v Coker ^[F64] ; Herbert Morris Ltd v Saxelby ^[F65] . Nevertheless the fundamental rule remains that the restraint must be reasonable in the interests of the contracting parties, and it would not be in the interest of a covenantor to subject himself to any restraint unless he received some advantage by so doing. In my opinion it is permissible, in asking whether a restraint is reasonable in the interests of the parties, to consider, as part of the circumstances of the case against which the question of reasonableness is to be decided, the quantum of consideration received by the covenantor and the effect of the agreement on the position of the covenantor: see Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F66] ; Fitch v Dewes ^[F67] ; Attwood v Lamont ^[F68] ; Heron v Port Huon Fruitgrowers' Co-operative Association Ltd ^[F69] ; Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd ^[F70] .

Analogous to the rule that the court is not entitled to concern itself with the adequacy of the consideration is the further principle that has been stated and restated in the authorities, with more or less emphasis, that where the parties to a contract have been in a position to bargain on an equal footing they should be treated as the best judges of what is reasonable in their own interests: North Western Salt Co Ltd v Electrolytic Alkali Co Ltd ^[F71] ; English Hop Growers Ltd v Dering ^[F72] ; Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd ^[F73] ; Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F74] ; Texaco Ltd v Mulberry Filling Station Ltd ^[F75] . Lord Pearce, in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F76] , gave cogent reasons for the proposition which he there stated that "Undue interference, though imposed on the ground of promoting freedom of trade, may in the result hamper and restrict the honest trader and, on a wider view, injure trade more than it helps it." Nevertheless these statements, authoritative as they are, cannot mean that where the parties have been in an equal position of bargaining the question of reasonableness is entirely for the parties to decide. If that were so, the rule stated in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd ^[F77] and constantly approved would be given quite a limited application, and the many cases in which agreements entered into between parties contracting on an equal footing have been held to operate unreasonably in restraint of trade could only be explained on the ground that the restraint was unreasonable in the interests of the public - a ground which in most of those cases was not in fact given for the decision. The truth is, I think, that, as Dixon J. pointed out in Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd ^[F78] , there are two principles of policy that work in opposition - the policy of securing ample freedom of contract and enforcing contractual obligations, and that of preserving freedom of trade from unreasonable contractual restriction. As Dixon J. went on to say ^[F79] :

"The opposition has been resolved by the adoption of a clear rule making it necessary to justify all contracts in restraint of trade as reasonable in the interests of both the parties and by applying the test of reasonableness according to the situation the parties occupy and so recognizing the different considerations which affect employer and employee and independent traders or business men, particularly vendor and purchaser of the goodwill of a business."

The fact that the parties have bargained from a position of equality is therefore one of the circumstances to be considered in determining whether the covenants were reasonable, but it does not save from invalidity a covenant found to be unreasonable or contrary to the public interest (see also Creamoata Ltd v Rice Equalization Association Ltd ^[F80] ).

In Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd , Lord Hodson said ^[F81] :

"It has been authoritatively said that the onus of establishing that an agreement is reasonable as between the parties is upon the person who puts forward the agreement, while the onus of establishing that it is contrary to the public interest, being reasonable between the parties, is on the person so alleging: see Herbert Morris Ltd v Saxelby ^[F82] ."

However, the question of reasonableness is a question of law for the decision of the judge: Mason v Provident Clothing and Supply Co Ltd ^[F83] ; Attorney-General (Cth) v Adelaide Steamship Co Ltd ^[F84] ; North Western Salt Co Ltd v Electrolytic Alkali Company Ltd ^[F85] ; Herbert Morris Ltd v Saxelby ^[F86] ; Lindner v Murdock's Garage ^[F87] . The judge's findings as to the circumstances of the case, of course, stand on appeal in the same position as any other finding of fact made by a judge, but his decision that the covenants were reasonable is not a decision of fact and an appellate court in reviewing such a decision inquires not whether it has been shown to be wrong, but simply whether it is right. Although a trial judge enjoys no special advantages in deciding such a question, the reasons given for his decision are of course entitled to due consideration. It is right to say, with all respect, that the reasons of the learned trial judge in the present case were very full, careful and helpful, as indeed were the reasons of the learned judges who constituted the Full Court.

It has been held that the validity of a restraint must be decided as at the date of the agreement imposing it: Lindner v Murdock's Garage ^[F88] ; Commercial Plastics Ltd v Vincent ^[F89] . It was conceded by the parties in the present case that the question whether the restraint was reasonable should be decided in the light of the circumstances as at June 1964. I am not entirely satisfied that this concession was correct. There would in my opinion be much to be said for the view that the relevant date for the purposes of the inquiry as to the validity of the underlease - the instrument sought to be enforced - was 19th May 1966, notwithstanding that the underlease was executed pursuant to the agreement made in 1964. The provisions of cl. 3 (i) (requiring the purchase of the specified minimum number of gallons of petrol and oil) had been struck out of the agreement made in 1964 but they formed part of the underlease executed in 1966. It would be somewhat anomalous to consider whether that requirement, made in the light of the knowledge available in 1966, was reasonable by reference only to the circumstances existing in 1964. Moreover, I should add that although it appears to be settled that the validity of the restraint must be decided as at the date of the agreement, it would seem to me that facts that have occurred since that date would not necessarily be irrelevant; such facts might throw light on the circumstances existing at the relevant date and might, for example, absolve the Court from the necessity of speculating as to the value of the consideration agreed to be furnished by the covenantee when, at the date of the litigation, it might be possible to quantify that consideration exactly. However, these matters, which might in other cases be of vital importance, are not crucial in the present case.

There is no doubt that Amoco had commercial interests which it was reasonable to protect by making agreements with the owners of service stations under which those owners would agree, in exchange for certain benefits offered by Amoco, to take their supplies exclusively from Amoco. For Amoco to trade successfully it was necessary for it to obtain secure outlets for the sale of its petrol over a period of time. Agreements of the kind mentioned - solus agreements, as they are sometimes called - would serve Amoco's interests by enabling it to maintain or increase the volume of its sales and to effect the distribution of its products in an efficient and economical way. Indeed, the sale of petrol through one-brand service stations was the normal way in which most of the oil companies in Australia conducted their business and Amoco could not have entered the field of trade unless it had been able to ensure that a sufficient number of service stations would sell only its brand of products. It is not suggested by Rocca that agreements of this kind were in themselves unreasonable but rather that the restraints in the present case exceeded what was reasonably necessary for the protection of Amoco's admitted interests.

Amoco had the further interest of ensuring that its investment of the moneys outlaid for the benefit of Rocca proved secure and profitable. The cost to Amoco of providing and installing equipment at the service station during 1964 was about $7,775. (For purposes of comparison it may be mentioned that the cost to Rocca of building the service station was about $24,000, but since members of the Rocca family did much of the work themselves the real cost was greater.) In 1968 Amoco, at Rocca's request and in return for an agreement to extend the lease and underlease for five years, spent substantial additional sums in improving the service station. What occurred at that time was not done in pursuance of any obligation imposed by the underlease and it would not seem possible to regard it as part of the consideration given in exchange for the restraints now sought to be enforced. However, if it were assumed in Amoco's favour that it is permissible to consider the whole of the financial outlay made by Amoco - which totalled $18,955 to the end of 1969 - the ultimate result would not in my opinion be altered. Further, in May 1964 Amoco agreed to include the service station at Para Hills in its "sales promotions and sales aid activities" and it did in fact provide Rocca with some assistance of this kind. However, there is no evidence which enables the value of these services to be expressed in terms of money. The remaining benefit of a financial kind which Rocca derived from the transaction was the rental which under the lease Amoco was obliged to pay for the demised premises. This rent was fixed at one pound per year, plus a sum equal to three pence (2.5 cents) per gallon on all petrol delivered by Amoco to the demised premises for sale. This sum, although described as rental, was intended to be a rebate on the wholesale price of the petrol and the parties so regarded it. In 1968, when the parties agreed to the extension of the lease and underlease, the rebate was increased to four cents per gallon.

There are certain other circumstances that must be considered in deciding upon the reasonableness of the restraints. Amoco and Rocca negotiated on an equal footing - Rocca was not under pressure to agree to Amoco's suggestions. It was in Rocca's interests to enter into an agreement with some oil company ensuring supplies for the service station. An arrangement effected by means of a lease and an underlease is not an uncommon way for an oil company to obtain a tie over a service station and, generally speaking, the terms of the underlease were not unusual. Some difficulty may have been created in the selection of an appropriate term for the tie by the fact that the area in which the service station was established was not fully developed and the volume of business which the service station was likely to attract was to some extent in doubt.

In deciding upon the reasonableness of the restraint it is not possible to regard the length of the tie apart from the provisions of the covenants - all must be considered together. Perhaps it should be said that some covenants found objectionable in other similar cases do not appear in the present case. For example, there is no covenant giving Amoco the right to fix the price at which Rocca might sell its products. Further, it is expressly provided (by cl. 4 (a)) that Amoco will sell to Rocca at its usual list prices. It is true that Amoco if so minded might sell at a discount to a competing retailer and it is also true that cl. 4 (b) gives Amoco power to suspend supply in certain circumstances, but I do not regard these provisions as of cardinal importance. The covenants which seem to me most to require further mention, apart from cl. 3 (h) which binds Rocca to buy exclusively from Amoco, are the following. The obligation cast on Rocca by cl. 3 (i) to purchase a specified minimum gallonage of petrol and motor oil would not have been unreasonable had it enured only for a short period, since the evidence shows that the gallonage fixed (at least that of petrol) was by no means excessive. However, if over a long term the business of the service station declined, the covenant could impose an unreasonable burden on Rocca. However, the most onerous of the covenants in the underlease is cl. 3 (g) which requires Rocca to carry on the business of a petrol service station for the whole period of fifteen years unless Amoco releases it from this obligation. Perhaps cl. 3 (e), which prevents Rocca from assigning, subletting or otherwise parting with possession of the demised premises, should be mentioned in this connection. It may be assumed that Amoco's consent to an assignment or sublease could not be unreasonably withheld, but there might be practical difficulties in finding a person willing to take an assignment or sublease on terms which included cl. 3 (g), particularly if the business got into difficulties. It is true that provisions in the form of cl. 3 (g) are not uncommonly inserted in leases of various descriptions. However, as I have already indicated, the clause was not inserted in the present case by an owner of land to protect his interests when he leased it, but for the purpose of imposing a restriction on the owner itself. Moreover, the long period of the underlease renders the possible operation of the clause unduly harsh. During the period of fifteen years, trade at the service station could become quite unprofitable for a variety of reasons, including some of those mentioned by Diplock L.J. in Petrofina (Gt. Britain) Ltd v Martin ^[F90] : "Better or cheaper products may be discovered. New or improved highways may divert the motor traffic from passing the filling station, other filling stations may be opened in the vicinity - even by the appellants themselves". However, Rocca is obliged to carry on the business even if it is trading at a loss. It was said that in practice Amoco would be likely to release Rocca from its obligation if in fact the business became unprofitable, but the interests of Amoco might well be served by maintaining the service station as an outlet for its products as long as it could, notwithstanding that Rocca was making an inadequate profit or even trading at a loss.

After full consideration of all the circumstances, I have reached the conclusion that it has not been shown that a tie for fifteen years on the terms of the underlease was reasonably necessary to protect the interests of Amoco. On the one hand, the great changes that might occur in the space of fifteen years could render the covenants intolerably burdensome on Rocca and the effect of inflation during that period might well greatly reduce the value of the fixed rebate which formed an important part of the consideration receivable by Rocca. On the other hand, there is nothing whatever to show that a tie for fifteen years was necessary to ensure for Amoco the stable outlet and economical system of distribution at which it was entitled to aim. Further, it was not shown that Amoco's outlay - even taking it as $18,955 - could not be recouped with profit in a shorter period.

Finally, it is necessary to make brief mention of the evidence relating to a document referred to as "Determination of Profitability Index" which was prepared for Amoco on 28th September 1964 and was in effect a feasibility study which purported to show that a tie for a period of fifteen years was necessary to render the venture sufficiently profitable for Amoco. In my opinion this document was no evidence that a tie for a period of fifteen years was reasonable. It is unnecessary to go into the details of the calculations set out in the Profitability Index. The final result depended on the adoption of a figure of 72,000 U.S. gallons (60,000 Australian gallons) as representing the gallonage that it was estimated would be sold at the service station in the fourth year of its operation. The evidence showed that in fact the officers of Amoco had in 1964 estimated that the gallonage sold in the fourth year would reach 96,000 Australian gallons but for some reason which was inadequately explained the figure was reduced for the purposes of the calculations. The estimate of 96,000 Australian gallons was proved in the event to have been conservative - in fact that figure was considerably exceeded in the second year of operations (1966) and in all years thereafter. It is clear that if, for the purposes of the calculations, a considerably larger figure than 72,000 U.S. gallons had been taken, the profitability index arrived at would have been greater, and the study would not have supported the conclusion that the venture would only be profitable if conducted over a period of fifteen years. No doubt Amoco, for its own purposes, was entitled to make a study of the profitability of its operations on whatever basis it chose. However, the circumstances mentioned indicate that the Profitability Index cannot be relied upon as any guide to the question how long it was necessary to bind Rocca to its covenants in order that the transaction should be profitable to Amoco.

For the reasons I have given, I have reached the conclusion that the Full Court correctly answered the second question in the affirmative. It was not reasonably necessary for the protection of Amoco's interests to bind Rocca to the covenants of the underlease for a period of fifteen years. Since the restraints in the underlease were not reasonable in the interests of the parties it is unnecessary to consider the further question whether they were reasonable in the interests of the public.

I would dismiss the appeal.