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

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

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

Melbourne

Judgment by:
Stephen J

In my view the doctrine of restraint of trade is not applicable to the facts of this case. I would allow this appeal and restore the judgment of Wells J.

My reasons for this conclusion may be stated quite shortly but the considerations which I regard as supporting those reasons require some greater elaboration.

I regard the doctrine of restraint of trade to be inapplicable because the respondent ("Rocca"), in its arrangements with the appellant ("Amoco"), and which were arrived at after hard bargaining between parties neither of whom was disproportionately lacking in bargaining power, did not subject itself to restraints upon any existing ability to trade as the proprietor of a service station business. On the contrary, by its arrangements with Amoco it acquired, for the first time, the ability to enter into its intended business as a service station proprietor. But for those arrangements, or others of a similar nature which it might have been made with another supplier but which it regarded as less favourable to its own interests, Rocca's entry into the trade and its use of its vacant land as the site for a service station would not have been possible. Those arrangements were not restrictive of its trade but, on the contrary, have been productive of that trade.

The arrangements which were concluded certainly contained stipulations restricting Rocca's freedom of action once it began its trade and dictating the manner in which that trade might be conducted. The fact that such restrictions are imposed is not however of itself, enough to require application of the doctrine; in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd ^[F91] , their Lordships, while not all agreeing upon any one test to determine the precise width of application of the doctrine of restraint of trade, were in substantial agreement that there were extensive fields in which the doctrine did not apply despite the existence of restraints imposed upon liberty to trade as one wished. It is not, therefore, every restriction, viewed in isolation from context and circumstance, that attracts the doctrine.

The doctrine of restraint of trade seeks to give effect to, and at the same time to reconcile, two important and apparently conflicting aspects of public policy; on the one hand, the preservation of the freedom of the individual to employ his talents and industry in any lawful activity and, on the other, the preservation both of his freedom to contract and of his ability to enforce by legal process those contracts into which he may enter. It is the function of the doctrine to maintain a balance between these two; with changes of emphasis in the community upon the relative importance of each, the point of balance has shifted over the years and will no doubt continue to do so. But any suggested application of the doctrine which gives effect to neither of these policies but is, on the contrary, destructive of the one without promoting the other seems to me to be a mistaken application.

The judgment of Lord Macclesfield in Mitchel v Reynolds ^[F92] has long been regarded as of the highest authority in this field; in Herbert Morris Ltd v Saxelby ^[F93] Lord Shaw described it as, of all the decisions "the most outstanding and helpful authority". Lord Macclesfield's statement of the reasons lying behind past decisions on voluntarily accepted restraints of trade and his reconciliation of "the jarring opinions" ^[F94] of the past is illuminating since it provides a sound indication of the scope of the doctrine by reference to its purpose in promoting those public policies whose instrument it is. There were, he said ^[F95] , four reasons to be discerned from the cases for the application of the doctrine; the mischief to the covenantee involved in threatened loss of his livelihood, the mischief to the public by depriving it of a useful member, the tendency of such voluntary restraints to foster abuses either by tending towards a monopoly, thus reducing trade into as few hands as possible, or by injuring the interests of apprentices and, lastly, and especially in the case of general restraints, the infliction of hardship on the covenantor while not benefiting the covenantee, who required no such width of restraint for his adequate protection.

If such were the reasons why the common law discouraged the acceptance of voluntary restraints on trade it can hardly be that the public policies which gave rise to the doctrine are properly effectuated by an application of the doctrine which, far from relieving against these evil consequences, has rather the opposite effect. Where no ends of public policy are attained by the application of the doctrine that is a sound reason for not applying it; otherwise the result may be "to miss the substance of the rule in a blind adherence to its letter": per Lord Herschell L.C. in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co ^[F96] .

In the present case a marked contrast exists, at each point, between those evil consequences at which Lord Macclesfield found the doctrine to be aimed and the consequences of the transaction here in question. By accepting the present contractual restraints Rocca was able to engage for the first time in a trade instead of being debarred from it, so that nothing equivalent to any loss of livelihood is present; as a result of its arrangement with Amoco Rocca's services were made available to the community rather than the public being deprived of a useful member; as a further consequence the total number of service stations serving the community has been increased rather than reduced; and from the arrangement Rocca has obtained considerable benefits while Amoco obtained protection useful to itself.

My reasons for concluding that the doctrine of restraint of trade does not apply in the present case may, then, be summarized as follows: to apply it to the present facts seems to me to run counter to each of those reasons associated with the upholding of a public policy in favour of the individual's freedom to engage in trade, which is one component of the doctrine, while at the same time disregarding entirely that other component, freedom of contract. Moreover I know of no authority which compels me to a contrary view to that which I have formed, in light of the particular facts of this case.

The courts have, of course, over the years provided a number of descriptions of the doctrine and on occasions definitions of what is a relevant restraint have been given; some of these are referred to by their Lordships in the Esso Case ^[F97] , always accompanied by a warning against any too literal application of them ^[F98] . As Lord Wilberforce says ^[F99] , the doctrine is one "to be applied to factual situations with a broad and flexible rule of reason" and in the Nordenfelt Case Lord Watson ^[F100] distinguished between the binding authority of decisions dealing with and formulating principles which are purely legal and those decisions, such as the precedent cases here in question, "based upon grounds of public policy".

This is a case the relevant facts of which appear to me to distinguish it from the relatively few other decided cases where the doctrine has been applied outside its traditional spheres of master and servant, vendor and purchaser of goodwill and its less frequently applied, but nevertheless acknowledged, application in cases of combination to fix prices or restrict output.

The general facts of the case appear adequately from the judgments of other members of this Court and it suffices, for my purpose, to confine myself to that area of fact which is concerned with Rocca's entry into the petrol retailing trade and which provides the important distinction between this case and precedent decisions.

The evidence of the state of the trade in South Australia at the relevant time is all one way and is not in dispute, it discloses that virtually all reseller outlets were tied to one or other of the relatively few marketers of petroleum products, conveniently described as oil companies, and were required to enter into trade ties with them ensuring exclusive supply rights. Representatives of Amoco described it as a fact of life within the industry that any new service station would be one which was "tied" to a particular oil company, the method of petrol distribution through service stations contractually "tied" to a particular oil company being by then firmly established throughout South Australia. The members of the Rocca family were well aware of this situation. Mr Vincenzo Rocca, who led the negotiations on behalf of the Rocca family and its company, knew that he would have to "do a deal" with an oil company if he were to open a service station on the proposed site, as did his son, Mr. G. G. Rocca, to whom it was obvious "that we needed an oil company" and that to come to terms with an oil company would involve an arrangement for exclusive dealing with it. His other son, Mr. P. A. Rocca, also knew that to build a service station it would be necessary to make an arrangement with an oil company and that all service stations were then operating as one-brand service stations.

It was upon the footing of this evidence that Wells J. said in his judgment that the Roccas realized "that it was, to all intents and purposes, impossible to set up a service station unless they could interest one of the major oil companies in becoming their supplier" ^[F101] . His Honour thus concluded that "for the Roccas, the chance of establishing a service station business that was capable of surviving and developing in the current commercial situation was almost non-existent, unless they were prepared to submit to a substantial trade tie" ^[F102] .

The doctrine of restraint of trade being designed to give effect to broad concepts of public policy it must be to the commercial realities of the situation that attention is to be directed. As Lord Reid said in the Esso Case ^[F103] :

"As the whole doctrine of restraint of trade is based on public policy its application ought to depend less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it is the policy of the law to protect."

and see Pharmaceutical Society of Great Britain v Dickson, per Lord Wilberforce ^[F104] .

It seems consistent with such an approach to the doctrine, based as it is upon public policy, to have regard to the practical choice which confronted Rocca, when it contemplated entry into the service station business.

That choice consisted either of making an arrangement with an oil company, a term of which would be that it should be its exclusive supplier of petroleum products, or of refraining altogether from entry into the trade of service station proprietor.

It follows that Rocca, in seeking to make its first entry into its chosen trade, was not accepting a restriction upon any pre-existing trade which it carried on or upon its ability to earn profits in that trade. It had at that time no such trade nor any such ability.

Throughout the precedent cases concerned with voluntary contractual restraints of trade there is to be found the concept that it is the acceptance by a trader of a restraint upon the carrying on of "his" trade that is the evil to be guarded against. Lord Macnaghten, in his notable judgment in the Nordenfelt Case , begins his much cited statement of "the true view at the present time" by saying ^[F105] : "The public have an interest in every person's carrying on his trade freely: so has the individual." Later, his Lordship describes the leading principle laid down in Mitchel v Reynolds ^[F106] as being "that the public have an interest in every person carrying on his trade freely" ^[F107] . In Attorney-General (Cth) v Adelaide Steamship Co Ltd ^[F108] , Lord Parker spoke of the doctrine as prohibiting interference with another's "free exercise of his trade or business", and from this Diplock L.J. took his definition of restraint of trade in Petrofina (Gt. Britain) Ltd v Martin ^[F109] when he said that it concerned a restriction upon an individual's liberty "in the future to carry on trade with other persons". In the Esso Case ^[F110] Lord Morris refers to the many centuries during which the law has set itself against restraint of trade and, after referring to monopolies, gives as a reason for its application to wider fields the fact that "restraints which would result in preventing a man from pursuing his trade and earning his living may be injurious to the man himself and ... detrimental to the public interest". Lord Hodson cites a number of passages from earlier cases where the prevention of the existing trade of the individual is emphasized ^[F111] . In the Pharmaceutical Society Case Lord Wilberforce describes the proposed new rule of the society there in question as being plainly in restraint of trade because aimed at the trading side of the profession of a pharmacist the restraint being "of a trade actually and legitimately carried on" ^[F112] .

The use of the word "restraint" in the title of the doctrine, descriptive of an enforced deprivation or diminution of personal liberty or freedom of action, in itself illustrates how central to the doctrine is this concept of the acceptance of a diminution of an existing freedom to engage in trade.

In the Esso Case ^[F113] , as in the other petrol re-selling cases of the recent past, the defendant was already engaged in trade as a retailer of petrol, it had had an existing trade and had accepted a restraint upon that trade. There Lord Reid regarded the doctrine as based upon the giving up of an existing freedom, saying ^[F114] : "Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had."

Lord Morris indicated the ambit of the doctrine when he said ^[F115] : "There is a clear difference between the case when someone fetters his future by parting with a freedom which he possesses and the case where someone seeks to claim a greater freedom than that which he possesses or has arranged to acquire."

He thus distinguished between the taking of a lease subject to a restriction as to trading and the case before him in which "Harper's had their garages" and by the agreements "agreed for periods of years to limit and restrict their trading activity". Lord Hodson when dealing with the argument as to restraints imposed on the use of land, pointed out that all land dealings were not in the same category and said: "the purchaser of land who promises not to deal with the land he buys in a particular way is not derogating from any right he has, but is acquiring a new right by virtue of his purchase" ^[F116] and continued by saying if one subjected oneself to "... restrictions as to the use to be made of your own land so that you can no longer do what you were doing before, you are restraining trade ..." ^[F117] .

Lord Pearce drew a similar distinction ^[F118] . Both he and Lord Wilberforce refer to the concept of sterilization of a man's capacity for work; Lord Pearce contrasts it with the absorption of that capacity and says that it was its sterilization and not its absorption that underlay the objection of the common law to restraint of trade ^[F119] ; Lord Wilberforce says that in the case of contracts of employment it is the limitative or sterilization nature of a restriction that may make such a contract subject to the doctrine ^[F120] .

Where, as here, there is neither sterilization of any pre-existing ability to trade nor any shackling of a pre-existing freedom to engage in trade there should, in my view, be no reluctance on the part of a Court to enforce contractual obligations solemnly entered into after free negotiation between parties at arms length, at least when the obligations which are in question are reasonably referable to the trade which is to be entered upon and are confined, as they are here, to the period of the contract. There is much authority for the view that a restriction imposed only during the period while contractual obligations remain to be performed on both sides may, in the context of the doctrine of restraint of trade, be viewed in a different light from a restriction which operates after the other party's obligations have come to an end: Pilkington v Scott , per Rolfe B. ^[F121] ; Hartley v Cummings , per Creswell J. ^[F122] ; William Robinson & Co Ltd v Heuer ^[F123] ; Rely-a-Bell Burglar & Fire Alarm Ltd v Eisler ^[F124] ; Warner Bros. Pictures Inc. v Nelson ^[F125] . In the Esso Case Lord Pearce referred to this aspect ^[F126] and Lord Reid ^[F127] and Lord Morris ^[F128] also mentioned it, as did Lord Wilberforce ^[F129] .

It may be that there would be room for the doctrine to operate had the price of entry into the trade included, in this case, the acceptance of some restraint operating after the contractual obligations of Amoco to supply Rocca had come to an end or if some restraint were imposed which could not be seen as reasonably related to Rocca's trade as a retailer of Amoco's petroleum products. Any such restraint could perhaps be said to form no integral part of the commercial arrangement which, by providing Rocca with supplies of the products in which it was to trade and with associated facilities, made it possible for it to engage in its chosen trade. No such considerations arise in the present case.

If a rationale for my view of the application of the doctrine is to be sought it may lie in this; where an existing freedom is surrendered the courts will examine the circumstances and will refuse to enforce that surrender if it be not reasonable; where, however, viewed as a practical question and apart from legal forms or theoretical possibilities, it appears that there has not been any surrender of a pre-existing right nor any acceptance of a restraint operating after the commercial relationship between the parties has ended or otherwise unconnected with that relationship, the doctrine of restraint of trade will have no application.

There may perhaps be thought to be social or economic evils involved in a state of affairs which permits entry into a particular trade to be denied to those who will not conclude some exclusive supply agreement with a distributor. That is not, however, of itself any reason for the application of the doctrine of restraint of trade although some may view the situation as calling for legislative intervention or for the application to it of appropriate existing legislative measures. It cannot of course be assumed that the situation which prevailed in South Australia at the relevant time was one which relied for its existence upon trade ties which, if the doctrine were to be applied to them, would be unenforceable; from the evidence it appears that in many cases the distributors were themselves the owners of retail sites, as to the rest the trade ties involved might, for all the evidence discloses, in each case be upheld as reasonable if subjected to individual scrutiny.

The learned trial judge, Wells J., after a minute examination of the evidence and an exhaustive analysis of the authorities, concluded that the argument of counsel for Amoco that the doctrine was inapplicable was both logical and attractive; he inclined, he said, to the view that it correctly represented the law and I respectfully agree with that conclusion. For reasons stated by his Honour he nevertheless went on to decide the case in favour of Amoco upon the footing that the doctrine did apply.

I would allow this appeal for the reason that the doctrine of restraint of trade upon which Rocca relies is inapplicable. However if, contrary to my own view, the doctrine is properly applicable to the facts of this case I would agree with the reasons for judgment of Menzies J., which I have had the advantage of reading, and would then, for those reasons, allow this appeal.