Having rejected, as I do, the argument that there is a special class of contract relating to land which is outside the scope of the doctrine of restraint of trade, I come now to the question whether the covenants in question here are reasonable either in the private interests of the contracting parties or in the public interest. There might be thought to be some risk of proceedings being taken in certain cases of a nuisance character where the restraint of trade is readily justifiable on the basis of long established practice in a particular sphere, such as the brewery cases upon which the Appellants rely, but I cannot see any practical way of hedging about the right of a party to a contract to attack it on the ground that it has been entered into in unreasonable restraint of trade. After all, a man who freely enters into a bargain will, normally, expect to be held bound by it, and I do not anticipate a spate of litigation in which contracts of, say, " sole agency " will be assailed. In the case of agreements between commercial companies for regulating their trade relations the parties are usually the best judges of what is reasonable. In such a case, as Lord Haldane said in North Western Salt Company Limited v. Electrolytic Alkali Company Limited [1914] AC 461 at 471, "the law still looks carefully to the " interests of the public, but it regards the parties as the best judges of what " is reasonable as between themselves."
My Lords, so far as the tie in the Mustow Green Garage is concerned, I am in agreement with the judgments given in the Court of Appeal, that the vital question is whether the length of the period for which the agreement is to last is unreasonable. There is a need for the protection of continuity of outlets for the company's petrol in the area in which the station is. This is a justification of the tying covenant to which the compulsory trading and the continuity covenants are complementary, as Diplock, L.J. pointed out. Without them the tying covenant would be insufficient for its purpose. They, therefore, stand together. I should add that I reject the argument of the Appellants that the " keep open " clause in the agreement falls short of a compulsory trading clause.
I have, however, reached the conclusion that the five-year tie is not unreasonable. It is true that there does not appear to have been evidence specifically directed to this question, but I have been influenced by the number of reported cases of like nature to these, particularly from Common- wealth courts, when five years has been considered reasonable ; compare also Biggs v. Hoddinott [1898] 2 Ch 307 , where a five-year tie was con- tained in a mortgage deed. The recommendation of the Monopolies
18
Commission, ordered to be printed on the 28th July, 1965, was that solus agreements should not normally exceed five years. Harman, L.J. pointed out that the period of four years and five months in Action 259 was reached, as it were, by accident without the parties directing their minds to the reasonableness of the period, but I am not deterred by that feature of the case from reaching the conclusion that the period chosen, being less than five years, is not unreasonable. I would, therefore, reverse the order of the Court of Appeal so far as the Mustow Green Garage is concerned.
In the Corner Garage there was not only a solus agreement but also a mortgage as security for a loan granted by the Appellants to the Respon- dents. The mortgage was irredeemable for 21 years and was part and parcel of the tying agreement and the compulsory trading agreement, so that unless ties contained in a mortgage are outside the doctrine of restraint of trade the period of 21 years is so long as to be unreasonable in the absence of evidence to justify it. I see no reason why a tie in a mortgage is to be treated in a special way. The point was considered in Horwood v. Millars Timber & Trading Co. Ltd. [1917] 1 K.B. 305, although this was not a case of mortgage of land, and the court held that a covenant in restraint of trade contained in a mortgage deed was bad. Reliance was placed on Knightsbridge Estates Trust Ltd. v. Bryne [1939] Ch. 441 and page 457 for the proposition of Sir Wilfred Greene, M.R., that " equity does " not reform mortgage transactions because they are unreasonable. It is " concerned to see ... that oppressive or unconscionable terms are not "enforced ". The Master of the Rolls was not dealing with covenants in restraint of trade. These must be tested by the same criterion, whether they are contained in mortgages or not, unless there is some exception in relation to land. I have already expressed the view that there is no such exception. I agree, therefore, with the opinion of the Court of Appeal that the tying covenant and the compulsory trading covenant are unenforceable. These are so closely linked with the provision that the mortgage is to be irredeem- able for 21 years that I would hold that they all fall together so that the Respondents are entitled to redeem. Finally, I should add that I do not accept the special argument based on section 85 of the Law of Property Act, 1925, which is based on the conception that under the Act, for conveyancing purposes, a mortgage is treated as if it were a lease.
I would rest my decision on the public interest rather than on that of the parties, public interest being a surer foundation than the interest of private persons or corporations when widespread commercial activities such as these are concerned.
So far as the Corner Garage is concerned I would affirm the order of the Court of Appeal.
Lord Pearce
MY LORDS,
On the assumption that the solus agreement relating to the Mustow Green Garage comes within the ambit of the doctrine of restraint of trade and that its reasonableness is a matter which the Courts must decide, I am of opinion that it is reasonable.
The period of five years has been approved as a reasonable period for agree- ments of this nature in Canada (British American Oil Co. v. Hery, 1941 4 D.L.R. 725 ; McColl v. Avery, 1928 34 Ontario Weekly Notes 275 ; Great Eastern Oil v. Chafe [1956] 4 W.L.R. 2nd Series 310) and in South Africa (Shell Company of South Africa Ltd. v. Gerran's Garages Ltd., 1954 4 S.A.R. 752). In the courts of this country there is nothing which suggests that five years is an unreasonable length of time for a tie of this kind in a trade of this kind. In some cases the matter has passed subsilentio. And although the point was not relevant in Strick v. Regent Oil ( [1966] AC 295 ) the language there used (per Lord Reid at 324D and Lord Upjohn at 345E) seems to suggest that, had the question been raised or relevant, five years would not
19
have been considered unreasonable. So, too, in the cases of Mobil Oil Australia, Ltd. v. Commissioner of Taxation of the Commonwealth of Australia ( [1966] AC 275 at 293A) and B.P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia ([1966] A.C. 244 at 265C and 267E). The facts set out in the report of the Monopolies Commission and its conclusions support this view.
Since the war there has been a world-wide re-organisation of the petrol industry. The old haphazard distribution has, in the interests of economy, efficiency and finance been converted into a distribution by the respective petrol producers through their own individual (and as a rule improved and more efficient) outlets. Vast sums have been spent on refineries, the improve- ment of garages and the like. Hand-to-mouth arrangements are no longer commercially suitable to the industry and considerable planning (involving inter alia the geographical spacing of the outlets) is obviously necessary. The garage proprietors were not at any disadvantage in dealing with the various competing producers of petrol. To hold that five-year periods are too long for the ties between the producers and their outlets would, in my opinion, be out of accord with modern commercial needs, would cause an embarrass- ment to the trade and would not safeguard any public or private interest that needs protection. I would, however, regard 21 years as being longer than was reasonable in the circumstances.
It is important that the court, in weighing the question of reasonableness, should give full weight to commercial practices and to the generality of con- tracts made freely by parties bargaining on equal terms. 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. If a man wishes to tie himself for his own good commercial reasons to a particular supplier or customer it may be no kindness to him to subject his contract to the arbitrary rule that the courts will always reserve to him a right to go back on his bargain if the court thinks fit. For such a reservation prevents the honest man from getting full value for the tie which he intends, in spite of any reservation imposed by the courts, to honour. And it may enable a less honest man to keep the fruits of a bargain from which he afterwards resiles. It may be in this respect similar to imposing on a trader the fetters of infancy ; and many an upstanding infant who wishes to trade or buy a house or motorcar has found difficulty and frustration in the rule which the court has imposed for his protection. Where there are no circumstances of oppression, the court should tread warily in substituting its own views for those of current com- merce generally and the contracting parties in particular. For that reason, 'I consider that the courts require on such a matter full guidance from evidence of all the surrounding circumstances and of relevant commercial practice. They must also have regard to the consideration. It is clear that the question of the consideration weighed with Lord Macnaghten in the Nordenfelt case [1894] AC 535 at 574). And although the court may not be able to weigh the details of the advantages and disadvantages with great nicety it must appreciate the consideration at least in its more general aspects. Without such guidance they cannot hope to arrive at a sensible and up-to-date conclusion on what is reasonable. That is not to say that, when it is clear that current contracts (containing restraints), however wide- spread, are in fact a danger and disservice to the public and to traders, the court should hesitate to interfere.
The onus is on the party asserting the contract to show the reasonable- ness of the restraint. That rule was laid down in the Nordenfelt case (supra) and in Herbert Morris Ltd. v. Saxelby ([1916] A.C. 688).
When the court sees its way clearly, no question of onus arises. In a doubtful case where the court does not see its way clearly and the question of onus does arise, there may be a danger in preferring the guidance of a general rule, founded on grounds of public policy many generations ago, to the guidance given by free and competent parties contracting at arm's length in the management of their own affairs. Therefore, when free and competent parties agree and the back- ground provides some commercial justification on both sides for their
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bargain, and there is no injury to the community, I think that the onus should be easily discharged. Public policy, like other unruly horses, is apt to change its stance; and public policy is the ultimate basis of the courts' reluctance to enforce restraints. Although the decided cases are almost invariably based on unreasonableness between the parties, it is ultimately on the ground of public policy that the court will decline to enforce a restraint as being unreasonable between the parties. And a doctrine based on the general commercial good must always bear in mind the changing face of commerce. There is not, as some cases seem to suggest, a separation between what is reasonable on grounds of public policy and what is reason- able as between the parties. There is one broad question: is it in the interests of the community that this restraint should, as between the parties, be held to be reasonable and enforceable?
The rule relating to restraint of trade is bound to be a compromise, as are all rules imposed for freedom's sake. The law fetters traders by a particu- lar inability to limit their freedom of trade so that it may protect the general freedom of trade and the good of the community. And, since the rule must be a compromise, it is difficult to define its limits on any logical basis.
The court's right to interfere with contracts in restraint of trade (by with- holding its enforcement, which is the ultimate sanction of contracts and to which the parties are normally entitled) has been put in very wide words. Those words, though adequate and appropriate to the particular cases in which they were uttered, were not directed towards an exact demarcation of the line where the court will have a right to investigate whether a bar- gain is reasonable and will decline to enforce it if it is not. The famous passages from the opinion of Lord Macnaghten in the Nordenfelt case (supra) and the opinion of Lord Parker of Waddington in the Adelaide Steamship Case [1913] AC 781 at 793 are not expressly limited in any way. Since any man who sells the whole, or even a substantial part, of his services, his output, his custom or his commercial loyalty to one party is thereby restraining himself from selling them to other persons, it might be argued that the court can investigate the reasonableness of any such contract and allow the contracting party to resile subsequently from any bargain which it considers an unreasonable restraint upon his liberty of trade with others. But so wide a power of potential investigation would allow to would-be recalcitrants a wide field of chicanery and delaying tactics in the courts. Where, then, should one draw the line?
It seems clear that covenants restraining the use of the land imposed as a condition of any sale or lease to the covenantor (or his successors) should not be unenforceable. 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. I do not accept Mr. Templeman's argument that such transactions are subject to the doctrine, but will never as a matter of fact be held unreasonable. In my view, they are not subject to the doctrine at all. Certainly public policy gives little justification for their subjection to it. This view would accord with the brewers' cases in which (after an earlier unfavourable protest by Lord Ellenborough, C.J. in Cooper v. Twibill 3 Camp. 286 at 287) the law has, for many years past, been firmly settled in allowing covenants tying the publican (as lessee or purchaser) to a particular brewer (e.g. Clegg v. Hands 44 C.D. 503). In one case, however, in 1869 (Catt v. Tourle 4 Ch. App. 654) a perpetual tie on a sale of land was subjected to scrutiny and was held to be reasonable. But to allow a permanent tie is not very different from holding it exempt from scrutiny.
It may be, however, that when a man fetters with a restraint of land which he already owns or occupies, the fetter comes within the scrutiny of the court.
Is one also to place mortgages in the class of cases from which the doctrine is excluded? Mr. Megarry for the Appellants relies inter alia on the tech- nical argument that under the mortgage he has in law a demise of 3,000
21
years with cesser on redemption; that this should not be regarded as a mere notional technicality; that he is a lessee for all purposes (see Regent Oil Co. Ltd. v. Gregory [1966] Ch. 402); that the mortgagor is a lessor in pos- session ; and that, therefore, the covenant should bind him as on a lease, But the technicalities of the position where the mortgagor has no subdemise and is only notionally a lessor in possession put it on the wrong side of the line and the mortgagor cannot, therefore, come into the class of lessees to whose covenants the doctrine has no application.
Then, on broader grounds, does the mere fact that a restraint is embodied as an obligation under a mortgage exclude it from critical scrutiny and prevent its being unenforceable if it would have been so apart from the mortgage? I think not. In Biggs v. Hoddinott [1898] 2 Ch 307 the point was not raised and the case is, therefore, of little guidance. The court of equity which declines to enforce the terms of a mortgage, if as a matter of conscience they are harsh and oppressive, cannot be less conscientious with regard to ties which as a matter of public policy the common law courts from earliest times, and thereafter courts of equity, have consistently refused to enforce in contracts. And the court has rightly applied the doctrine against restraint of trade to a tyrannous mortgage of future earnings in Norwood v. Millar's Timber & Trading Co. Ltd. [1917] 1 K.B. 305.
But on the question whether a restraint is reasonable, the fact that it is contained as a term in a mortgage may be a determining factor in its favour. The object of a mortgage is to provide fair security for the lender. And a restraint may be reasonably necessary to protect the security when it would not have been reasonable without that object. Moreover, it seems usually reasonable for the tie to subsist as long as there is a loan outstanding which the borrower is unable or unwilling to repay. It may be that even so there must be a limit; but, if so, I would not regard 21 years as necessarily excessive since ex hypothesi that length of time was commercially necessary for the borrower to have the benefit of the loan for his business. If, there- fore, there had been in the mortgage of the Corner House Garage a right to redeem either when the mortgagor wished or at any time after a reason- able term of years, say five or seven years, and thereby to terminate the tie I would not have regarded the tie as unreasonable, in view of the amount of the loan. But here there was no such right to redeem. Nor did the tie add anything to the protection of the security. Here even in the most unlikely event of a shortage of petrol supplies the supplier has a discretion not to supply if his own sources of supply fail or go short. And in any other set of circumstances I cannot think that a tied garage would be more valuable than, or even as valuable as, a free garage. Moreover, if the mortgagees entered on their security they would have to treat it as a free garage and account on that basis. If one regards the mortgage as a whole, the prolonged fetter on the right to redeem seems to have been inserted merely to prolong the tie. In this case, therefore, the existence of the mort- gage neither removes the tie from the area to which the doctrine of restraint of trade applies nor, in the particular circumstances, does it assist the Appellant on the question whether the tie was reasonable.
Mocatta J. in his clear and careful judgment held that neither tie was in restraint of trade since it was merely restrictive of the trading use to be made of a particular piece of land so that the doctrine of restraint of trade had no application. I feel the force of his reasoning, but I do not feel able to accede to it. Had the garage proprietor had no obligations to carry on his garage I might have been persuaded otherwise. But here there was a positive obligation to carry on the business (or to find a transferee who must do likewise) and to purchase from none save Esso. The practical effect was to create a personal restraint. Although the covenant affected only petrol sold on the particular land it did affect the proprietor with an obliga- tion which he or his agents could not by mere abstention avoid. Both the English Hop Growers' case ([1928] 2 K.B. 174) and Foley & Classique Coaches ([1934] 2 K.B. 1) in both of which the restraint was regarded as reasonable and McEllistrim's case, ([1919] A.C. 540) where it was not, lend some support to this view.
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Finally, there is the important question whether this was a mere agree- ment for the promotion of trade and not an agreement in restraint of it.
Somewhere there must be a line between those contracts which are in restraint of trade and whose reasonableness can, therefore, be considered by the courts and those contracts which merely regulate the normal commercial relations between the parties and are, therefore, free from the doctrine. The present case seems near the borderline, as was the case of Servais Bouchard v. Prince's Hall Restaurant 20 T.L.R. 574, where the learned Master of the Rolls held that the doctrine did not apply while the other two Lords Justice apparently held that it did apply but that the restraint was reasonable.
One of the mischiefs at which the doctrine was aimed originally was the mischief of monopolies. But this was dealt with by legislation and the execu- tive has from time to time taken efficient steps to prevent it. Indeed, in the case of petrol ties there has now been exacted (we are told) from the petrol producers an undertaking which in practice limits these ties to five years.
When Lord Macnaghten said in the Nordenfelt case (supra), at page 564 that " in the age of Queen Elizabeth all restraints of trade whatever they " were, general or partial, were thought to be contrary to public policy and " therefore void " he was clearly not intending the words " restraints of trade " to cover any contract whose terms, by absorbing a man's services or custom or output, in fact prevented him from trading with others; so, too, the wide remarks of Lord Parker of Waddington in the Adelaide case (supra) at page 794. It was the sterilising of a man's capacity for work and not its absorption that underlay the objection to restraint of trade. This is the rationale of Young v. Timmins 148 E.R. 1446 where a brass foundry was during the contract sterilised so that it could only work for a party who might choose not to absorb its output at all but to go to other foundries, with the result that the foundry was completely at the mercy of the other party and might remain idle and unsupported.
The doctrine does not apply to ordinary commercial contracts for the regulation and promotion of trade during the existence of the contract, pro- vided that any prevention of work outside the contract viewed as a whole is directed towards the absorption of the parties' services and not their sterilisation. Sole agencies are a normal and necessary incident of commerce and those who desire the benefits of a sole agency must deny themselves the opportunities of other agencies. So, too, in the case of a film-star who may tie herself to a company in order to obtain from them the benefits of stardom (Gaumont British Picture Corporation Ltd. v. Alexander [1936] 2 A.E.R. 1686). See, too, Warner Brothers Pictures Incorporated v. Nelson [1931] K.B. 209). And partners habitually fetter themselves to one another.
When a contract only ties the parties during the continuance of the con- tract, and the negative ties are only those which are incidental and normal to the positive commercial arrangements at which the contract aims, even though those ties exclude all dealings with others, there is no restraint of trade within the meaning of the doctrine and no question of reasonableness arises. If, however, the contract ties the trading activities of either party after its determination, it is a restraint of trade, and the question of reason- ableness arises. So, too, if during the contract one of the parties is too unilaterally fettered so that the contract loses its character of a contract for the regulation and promotion of trade and acquires the predominant character of a contract in restraint of trade. In that case the rationale of Young v. Timmins comes into play and the question whether it is reasonable arises.
The difficult question in this case, as in the case of Servais Bouchard, is whether a contract regulating commercial dealings between the parties has by its restraints exceeded the normal negative ties incidental to a positive commercial transaction and has thus brought itself within the sphere to which the doctrine of restraint applies. If Esso had assured to the garage proprietor a supply of petrol at a reasonable price, come what may, in return for the garage proprietor selling only Esso petrol, it might be that the con- tract would have come within the normal incidents of a commercial transac- tion and not within the ambit of restraint of trade. But Esso did not do this. They hedged their liability around so that they had an absolute discretion
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in the event inter alia of a failure in their own sources of supply, whether or not Esso should have foreseen it, to withhold supplies from the garage pro- prietor (leaving him the cheerless right in such a situation to seek supplies elsewhere); and then at a later stage it would seem, if and when they were prepared to supply him once more, they could hold him to his tie with them. And the price was to be fixed by Esso. And for the duration of the contract he owed them a contractual obligation to continue to keep his garage open (or find a successor who would do so on like terms). When these contracts are viewed as a whole the balance tilts in favour of regarding them as contracts which are in restraint of trade and which, therefore, can only be
enforced if the restraint is reasonable.
I do not here find help in the well known phrases that a man is not entitled,
to protect himself against competition per se or that he is only entitled to protect himself if he has an interest to protect. It is clear that a restraint which merely damages a covenantor and confers no benefit on a covenantee is as a rule unreasonable. But here Esso had a definite interest to protect and secured a definite benefit. They wished to preserve intact their spaced network of outlets in order that they could continue to sell their products as planned over a period of years in competition with the other producers. To prevent them from doing so would be an embarrassment of trade, not a protection of its freedom. If all the other companies owned garages and Esso were trying for the first time to enter the market it would stifle trading com- petition rather than encourage it if Esso were prevented from being able to enter into a binding solus agreement for a so'e outlet in order to compete with the others. And in a doctrine based on the wide ground of public policy the wider aspects of commerce must always be considered as well as the narrower aspect of the contract as between the parties.
Since the tie for a period of four years and five months was in the circum- stances reasonable, I would allow the appeal in respect of the Mustow Green garage. Since the tie for a period of 21 years was not in the circumstances reasonable, I would dismiss the appeal in respect of the Corner Garage.
Lord Wilberforce
MY LORDS,
The main features in the solus agreements entered into by the Respondent Company with Esso are that the Respondent agreed to purchase from Esso the whole of its requirements of motor fuel for resale at the relevant service stations, accepted a resale price maintenance clause, agreed to operate the relevant service stations in accordance with the Esso Dealer co-operation plan which included a provision that the service station should be kept open at all reasonable hours for the sale of Esso petrol and oil and, lastly, agreed that, before completing any sale or transfer of the relevant service station, the Respondent would notify Esso and procure the intended successor to assume the Respondent's obligations under the agreement.
In the case of the Mustow Green Garage, the agreement, dated 27th June, 1963, was expressed to operate for four years and five months from 1st July, 1963, this being the residue of a longer period which was taken over by the Respondent from a previous operator of the station.
In the case of the Corner Garage at Stourport-on-Severn the agreement, dated 5th July, 1962, was expressed to operate for 21 years from 1st July, 1962. In addition to this solus agreement, the Respondent entered into a mortgage of this station, dated 6th October, 1962, by which the station was charged to Esso to secure a sum not exceeding £7,000 with interest. The principal sum was repayab'e—and only repayable—by instalments over 21 years from 6th November, 1962. There were certain special provisions in the mortgage deed which I need not specify at the present stage.
The first main issue is whether these agreements are to be regarded as agreements in restraint of trade so as to be exposed to the tests of reasonable- ness stated in the Nordenfelt case. It is the Appellant's contention that they
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are not, mainly on the ground that they relate to the use of the Respondent's land, and that covenants, or contracts, which so relate are by their nature incapable of being regarded as in restraint of trade. This contention has made it necessary to consider how a covenant or contract in restraint of trade is to be defined or identified.
The doctrine of restraint of trade (a convenient, if imprecise, expression which I continue to use) is one which has throughout the history of its subject-matter been expressed with considerable generality, if not ambiguity. The best known general formulations, those of Lord Macnaghten in Nordenfelt [1894] A.C. page 565 and of Lord Parker of Waddington in Adelaide [1913] A.C. 793-7, adapted and used by Diplock L.J. in the Court of Appeal in the Petrofina case [1966] Ch. 146, 180, speak generally of all restraints of trade without any attempt at a definition. Often we find the words " restraint of trade " in a single passage used indifferently to denote, on the one hand, in a broad popular sense, any contract which limits the free exercise of trade or business, and, on the other hand, as a term of art covering those contracts which are to be regarded as offending a rule of public policy. Often, in reported cases, we find that instead of segregating two questions (i) whether the contract is in restraint of trade, (ii) whether, if so, it is " reasonable ", the courts have fused the two by asking whether the contract is in " undue restraint of trade " or by a compound finding that it is not satisfied that this contract is really in restraint of trade at all but, if it is, it is reasonable. A well-known text book describes contracts in restraint of trade as those which " unreasonably restrict" the rights of a person to carry on his trade or profession. There is no need to regret these tendencies: indeed, to do so, when consideration of this subject has passed through such notable minds from Lord Macclesfield onwards, would indicate a failure to understand its nature. The common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken, even if it were possible, to try to crystallise the rules of this, or any, aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason.
The use of this expression justifies re-statement of its classic exposition by Chief Justice White in the Standard Oil Case (U.S. v. Standard Oil (1911) 221 U.S.(1)). Speaking of the statutory words "every contract in restraint of "trade", (Sherman Act 1890), admittedly taken from the common law, almost contemporaneous with Lord Macnaghten's formula and just as wide, he said:
" As the acts which may come under the classes stated in the first " section and the restraint of trade to which that section applies are not " specifically enumerated or defined, it is obvious that judgment must " in every case be called into play in order to determine whether a " particular act is embraced within the statutory classes, and whether " if the act is within such classes its nature or effect causes it to be a " restraint of trade within the intendment of the Act . . ." (ibid page 63).
And he goes on to say that to hold to the contrary would involve either holding that the statute would be destructive of all right to contract or agree or combine in any respect whatsoever, or that, the " light of reason " being excluded, enforcement of the statute was impossible because of its Uncertainty. The right course was to leave it to be determined by the light of reason whether any particular act or contract was within the con- templation of the statute. One still finds much enlightenment in these words.
This does not mean that the question whether a given agreement is in restraint of trade, in either sense of these words, is nothing more than a question of fact to be individually decided in each case. It is not to be supposed, or encouraged, that a bare allegation that a contract limits a trader's freedom of action exposes a party suing on it to the burden of justification. There will always be certain general categories of contracts as to which it can be said, with some degree of certainty, that the " doctrine " does or does not apply to them. Positively, there are likely to be certain sensitive areas as to which the law will require in every case the test of reasonableness to be passed: such an area has long been and still is that
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of contracts between employer and employee as regards the period after the employment has ceased. Negatively, and it is this that concerns us here, there will be types of contract as to which the law should be prepared to say with some confidence that they do not enter into the field of restraint of trade at all.
How, then, can such contracts be defined or at least identified? No exhaustive test can be stated—probably no precise non-exhaustive test. But the development of the law does seem to show that judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations. That such contracts have done so may be taken to show with at least strong prima force that, moulded under the pressures of negotiation, competition and public opinion, they have assumed a form which satisfies the test of public policy as understood by the courts at the time, or, regarding the matter from the point of view of the trade, that the trade in question has assumed such a form that for its health or expansion it requires a degree of regulation. Absolute exemption for restriction or regulation is never obtained: circumstances, social or economic, may have altered, since they obtained acceptance, in such a way as to call for a fresh examination: there may be some exorbitance or special feature in the individual contract which takes it out of the accepted category: but the court must be persuaded of this before it calls upon the relevant party to justify a contract of this kind.
Some such limitation upon the meaning in legal practice of " restraints " of trade " must surely have been present to the minds of Lord Macnaghten and Lord Parker. They cannot have meant to say that any contract which in whatever way restricts a man's liberty to trade was (either historically under the Common Law, or at the time of which they were speaking) prima facie unenforceable and must be shown to be reasonable. They must have been well aware that areas existed, and always had existed, in which limitations of this liberty were not only defensible, but were not seriously open to the charge of restraining trade. Their language, they would surely have said, must be interpreted in relation to commercial practice and common sense.
Any attempt to trace historically the development of the common law attitude towards " restraints " of different kinds would be out of place here, and generalisations as to it are hazardous. But a few examples of com- paratively modern origin show how some such rule of action, however imperfectly I have expressed it in words, has been operated. In some cases the process can be seen whereby a type of contract, initially regarded with suspicion, has later come to be accepted as not, or no longer, calling for justification.
First, there are the brewery cases. Contractual clauses tying a leased public house to the lessor's beers have been known, and commonly current, at least since the early 19th century (for an early case see Hartley v. Penall (1792) Peake 178). In the form which they then assumed (commonly providing that if the tying covenant was broken there should be an increased rent recoverable by distress) we find them encountering some judicial criticism (Cooper v. Twibill (1808) 3 Camp. 286 (n) per Lord Ellenborough, C.J.). But by 1850 they had become current; the attrition of negotiation and competition may be taken to have worn them down to an acceptable shape and in Can v. Tourle (1859) L.R. 4 Ch. 654 the Court of Appeal in Chancery not only accepted that such covenants were outside the doctrine of restraint of trade, but were prepared to extend the exclusion to the case where the servient house was sold instead of leased. I quote Selwyn, L.J.'s words: —
" With respect to this particular covenant, it seems to me that the " Court cannot but take judicial notice of its being extremely common. " Every Court of justice has had occasion to consider these brewers' " covenants, and must be taken to be cognisant of the distinction between " what are called free public houses and brewers' public houses which
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" are subject to this very covenant. We should be introducing very " great uncertainty into a very large and important trade if we were " now to suggest any doubt as to the validity of a covenant as extremely " common as this is." (I.c. page 659) and
Giffard, L.J. added " it does not go beyond the ordinary brewers' covenant" (ib. page 662). Neither of the Lords Justices, it will be seen, puts his decision upon the ground (simple and decisive if he had thought it appropriate) either that the covenant related to the use to be made of land, or that it was imposed on a disposition of land. That it was too late to subject such tying covenants to the test appropriate in restraint of trade was stated in 1889 by Bristowe, V.C. (Clegg v. Hands 44 Ch. D. 503), and the issue was not even debated in the Court of Appeal.
The working of the same principle can be seen even earlier in relation to covenants restricting trade in leases generally. In the normal exploitation of property, covenants are entered into, by lessee or lessor, not to trade at all or not to carry on particular trades. In 1614 (Rogers v. Parry 2 Bulst. 136) the issue, whether a covenant in a lease for 21 years not to exercise a particular trade was in restraint of trade, was still susceptible of debate, but Coke C.J. and the judges of the King's Bench upheld its validity. By 1689 this seems to have become accepted doctrine, for in Thompson v. Harvey (Comb. 121) Holt C.J. was able to say "it was usual to restrain a lessee " from such a trade in the house let" giving as the reason " because I will " choose whether to let or not". (cf. in relation to chattels, United Shoe Machinery Co. of Canada v. Brunei [1909] AC 330 , 343).
The same has come to be true of dispositions of the freehold: for over 100 years it has been part of the normal technique of conveyancing to impose and to accept covenants restricting the use of land, including the use for trades or for trade generally, whether of that conveyed or of that retained. A modern example of this is Newton Abbott Cooperative Society v. William- son & Tread gold Ltd. [1952] 2 Ch. 286.
One may express the exemption of these transactions from the doctrine of restraint of trade in terms of saying that they merely take land out of commerce and do not fetter the liberty to trade of individuals; but I think one can only truly explain them by saying that they have become part of the accepted machinery of a type of transaction which are generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society. If in any individual case one finds a deviation from accepted standards, some greater restriction of an individual's right to " trade ", or some artificial use of an accepted legal technique, it is right that this should be examined in the light of public policy. An example of this process in a lease (a lessor's covenant as to trading) may be found in Hinde v. Gray (1840) 1 M & Gr. 195, and, in a conveyance, in the Scottish case of Aberdeen Varieties Ltd. v. Donald [1939] S.C. 788.
Then there is the well known type of case where a man sells his business and its goodwill and accepts a limitation on his right to compete. Here too we can see the period of scrutiny in the 17th century. That, on the sale of the goodwill of a business, a promise might validly be given not to carry on the relevant trade was established, after debate, in Broad v. Jolliffe (1620) Cro. Jac. 596—the covenant held void—reversed in the King's Bench 2 Roll. Rep. 203, where Dodderidge J. said that it was the usual course of men in their old age to turn over their trade to another; general recognition was given to this type of covenant by Lord Macclesfield in Mitchel v. Reynolds (1711) 1. P. Wms. 181, 191. So the rule has become accepted that, in the interest of trade itself, restrictions may be imposed on the vendor of good- will provided that they are fairly and properly ancillary to the sale: if they exceed this limit the " doctrine " may be applied (see Leather Cloth Co. v. Lorsont (1869) L.R. 9 Eq. 345 where James V-C. excepted "natural" covenants from the "doctrine").
The line of thought that restrictions may in some contexts be imposed, and upheld, where they have become part of the accepted pattern or structure of a trade, as encouraging or strengthening trade, rather than as limiting
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trade, is I think behind the Courts' acceptance of exclusivity contracts and contracts of sole agency. So. in Servais Bouchard v. Princes Hall Restaur- ant Ltd. (1904) 20 T.L.R. 574, the contract was for exclusive purchase of burgundy for the defendant's restaurant for an indefinite period. The judgments of the Lords Justices are based on different grounds and it was held, in any event, that the covenant was reasonable; but the judgment of Collins M.R. is instructive. He thought that the case did not come within the principle by which restraints of trade were held to be invalid as being contrary to public policy. Contracts of the same class as that now in question viz. contracts by which persons bound themselves for good consideration to supply their customers with goods obtained from a particular merchant exclusively, were for the benefit of the community. There was need for contracts of this kind and the Court must have regard to the fact that con- tracts for sole agency were matters of every day occurrence (see too W. T. Lamb & Sons v. Goring Brick Co. Ltd [1932] 1 K.B. 710 where the agree- ment was not challenged: British Oxygen Co. v. Liquid Air Co. [1925] Ch. 383, 392: in the Adelaide case an agreement for exclusive purchase of a more comprehensively restrictive character was held to be in restraint of trade [1913] AC 781 , 806-8).
Lastly (though this is still an uncertain field) certain contracts of employ- ment, with restrictions appropriate to their character, against undertaking other work during their currency may be acceptable (cf. Warner Pictures Inc. v. Nelson [1937] 1 K.B. 209; Gaumont British Picture Corporation v. Alexander [1936] 2 A.E.R. 1686). But here too if it is found that the restric- tion is purely limitative or sterilising, it may be subject to examination (see Gaumont British Picture Corporation v. Alexander u.s. page 1692 per Porter J. and compare the facts in Young v. Timmins (1831) 1 Cr. & J. 331: the decision was mainly based on inadequacy of consideration).
These illustrations are sufficient to show that the Courts are not lacking in tools which enable them to select from the whole range of those contracts which in one way or another limit freedom in trading, segments of current and recognisably normal contracts which are not currently liable to be subjected to the necessity of justification by reasonableness. Such contracts may even be listed, provisionally, in categories (see Gare, The Law Relating to Covenants in Restraint of Trade (1935) ; Cheshire & Fifoot, Law of Contract 6th Ed. (1964) pp. 324, 329 ff.) but the classification must remain fluid and the categories can never be closed.
I turn now to the agreements. In my opinion, on balance, they enter into the category of agreements in restraint of trade which require justification. They directly bear upon, and in some measure restrain, the exercise of the Respondent's trade, so the question is whether they are to be treated as falling within some category excluded from the " doctrine " of restraint of trade. The broad test, or rather approach, which I have suggested, is capable of answering this. This is not a mere transaction in property, nor a mere trans- action between owners of property : it is essentially a trade agreement between traders. It is not a mere agreement for exclusive purchase of a commodity, though it contains this element: if it were nothing more, there would be a strong case for treating it as a normal commercial agreement of an accepted type. But there are other restrictive elements. There is the tie for a fixed period with no provision for determination by notice: a combination which McEllistrim's case shows should be considered together ([1919] A.C. 565): and there is the fetter on the terms on which the station may be sold. Admittedly Harpers could liberate themselves by finding a successor willing to take their place : admittedly, too, being a limited company, they could trade in several places simultaneously, so that even if they remained tied to these sites, and obliged to continue trading there, they could in theory set up business elsewhere. But just as in McEllistrim's case (u.s.) the reality of the covenantor's restraint was considered more relevant than his theoretical liberty to depart, so here, in my opinion, addition of all the ingredients takes the case into the category of those which require justification. Finally the agreement is not of a character which, by the pressure of negotiation and competition, has passed into acceptance or into a balance of interest between
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the parties or between the parties and their customers; the solus system is both too recent and too variable for this to be said.
The test, suggested by the Appellants, seems, my comparison, artificial and unreal. The covenant, they say, is not in restraint of trade because is relates to the use of the Respondent's land. Not only does it require an effort of mind to regard the covenant in this way, but the comment is obvious that an opposite result would be produced by a so slight an adjustment as by relating the covenant to an area of land instead of to a specific property.
The view which I would take of the agreements, moreover agrees, as that suggested by the Appellants does not, with those reported cases which have been cited as bearing most directly upon the present.
In McEllistrim's case ([1919] A.C. page 548) this House decided that the obligation imposed on a farmer to sell all his milk to the Respondent society, a co-operative, was in restraint of trade and unreasonable on the ground that he was thereby prevented from trading both in a wide area in Western Ireland and (effectively) elsewhere and that he had no means open to him to withdraw from the agreement. I find it impossible to extract from the case, even by an argument ex silentio, any inference that had the Respondent's obligations been limited to specified land of his, the restrictions would have been exempted from the doctrine. I should be much more inclined to read into it a willingness to accept normal co-operative selling schemes and a rejection of the relevant rule because it was an unusual and excessive fetter on the farmer's personal liberty. English Hop Growers v. Dering [1928] 1 K.B. 174 was another instance of co-operative selling. It is one of those cases to which I have referred in which the decision was a compound one— that the agreement was not in unreasonable restraint of trade. It being apparent that the agreement was both of a normal type (according to Romer, J., similar agreements were entered into by 95 per cent, of the hop growers) and Inter partes reasonable, it is natural enough that the members of the Court of Appeal based their judgments in different degrees on both these factors. Again one may add that the case lends no support to the Appellants' suggestion that the decision was based on the personal character of the agreement or that it would have been any different, or differently expressed, had the agreement related more specifically to the Respondent's land. Then there is Servais Bouchard v. Princes Hall Restaurant Ltd. (u.s.): I have already referred to this case; I need add here only that the decision, upholding the agreement, is not related in any way to the fact that the contract concerned the use to be made of land.
Lastly there is Foley v. Classique Coaches [1934] 2 K.B. 1 where on a sale of land the purchaser agreed to take all the petrol he needed for his coaching business from the vendor. Scrutton, L.J. (page 11), with whom the other Lords Justices agreed, described the contract as an ordinary one to purchase petrol from a particular person and held there was no " undue restraint of " trade ", a compound finding, but the ordinary commercial character of the agreement was clearly a strand in it. The fact that the agreement related (as it plainly did) to the use of the defendant's land played no part in the decision.
On this view of the agreements it becomes necessary to subject them to the test of reasonableness. As regards the two solus agreements, having had the benefit of reading the opinions which precede mine, I am content to say that I am in concurrence with them in the view that the Mustow Green agreement does, and that the Corner Garage agreement does not (on account of its long duration), satisfy the test of reasonableness in the interests of the parties. I would only add two observations. The first relates to the ground, I think the main ground, on which the Court of Appeal held that even the 4 years and 5 months for which the Mustow Green agreement was to last was too long. They were faced with the difficulty (which faces us) that there was very little evidence at the trial, and because of the course the trial took, no finding by the judge, of facts which would support a tie for any particular period. So the Court of Appeal, which had to decide the question of reasonableness for the first time, devised a special and more concrete
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test of their own. They asked themselves the question, how long it would take Esso to find an alternative site if the Respondent's site were liberated from the tie, and Lord Denning M.R. arrived at a period of 3 years certain and thereafter subject to 2 year's notice. Diplock, L.J., while not committing himself to any firm period, thought that evidence might have justified a period of 2 years or so, or an indefinite period subject to 2 years' notice. I do not feel able to accept this way of dealing with the matter. The parties have contracted in relation to a particular site and no other: who can say what features of it they considered relevant or significant? How can one judge what site, or whether any site, would be an ' alternative' or to what lengths Esso ought to go to find one? What degree of continuity at one place is Esso entitled to expect, or, conversely, how often may Esso be expected to move its outlets without losing goodwill or profits? None of these ques- tions can, in my opinion, be answered with certainty and the question to be answered is a different question. For what the Court is endeavouring to ascertain is whether it is unreasonable for Esso, in relation to Esso's interest in selling petrol on this location, to bind Harpers to it in the way that Harpers is bound for the period of the tie; or whether, in the public interest of preserving liberty of action to Harpers Ltd., they ought not to be held in the fetters which they have accepted. There appears to me to be enough in the evidence to show that, on Esso's side, to secure a tie for this period was a legitimate commercial objective : and that as regards Harpers, no public policy objection existed against holding them so long bound. On this point it is I think legitimate to draw support from a number of decisions in various jurisdictions where restrictions of various kinds, over com- parable periods, have been upheld: (see British American Co. v. Hery (5 years) 1941 4 D.L.R. 725; Peters American Delicacy Co. Ltd. v. Patricia's Chocolates & Candies Property Ltd. (3 years) 1947, 77 C.L.R. 574; Ampol Petroleum v. Mutton (3 years) 1952, 53 S.R. N.S.W. 1 ; Shell (S.A.) v. Gerrans Garage (5 years) 1954, 3 S.A.R. 752 ; Great Eastern Oil Co. v. Chafe (5 years) 1956 4 D.L.R. 310). I should add that I must not be taken either as suggesting that the periods mentioned are maximum periods, or as expressing any opinion as to the validity of ties for periods intermediate between 5 years and 21 years such as, for example, existed in the Petrofina case (12 years) (1966) Ch. 146.
The second observation I would make is this: the case has been fought exclusively on the first limb of the Nordenfelt test of reasonableness (in reference to the interests of the parties) the Respondent explicitly disclaiming any reliance on the second limb (in reference to the interests of the public). The first limb itself rests on considerations of public policy: it must do so in order to justify releasing the parties from obligations they have voluntarily accepted. But in relation to many agreements containing restrictions, there may well be wider issues affecting the interests of the public, than those which relate merely lo the interests of the parties ; these may have been the subject of enquiry as in this case under statutory powers (Monopolies and Restrictive Practices (Inquiry and Control) Act, 1948) or the subject of a finding by another Court (Restrictive Trade Practices Act, 1956) or may be investigated by the Court itself. In the present case no separate considerations in this wider field have emerged which are inconsistent with the validity of the Mustow Green solus agreement—on the contrary such as have appeared tend to support it, but I venture to think it important that the vitality of the second limb, or as I would prefer to put it of the wider aspects of a single public policy rule, should continue to be recognised.
Finally it is necessary to deal separately with the mortgage on the Res- pondent's Corner Garage, which the Appellant contends falls in a separate category, not subject to the ' doctrine ' of restraint of trade at all. The submission is that, under accepted principles of equity, there is nothing to prevent a mortgage being made irredeemable for a period provided (and this is the only suggested limitation) that the terms of it are not harsh or unconscionable: for this the Appellant invokes the well known judgment of Lord Greene M.R. in Knightsbridge Estates Trust Ltd. v. Byrne [1939] Ch. 441. Indeed the Appellant's position is even stronger, it is claimed
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because the mortgage ranks as a debenture (ibid. [1940] A.C. 613) and so may legitimately be made completely irredeemable (Companies Act, 1948 sections 89, 455 (1) s.v. debenture). The steps in this argument are coherent once its foundation is made good—that mortgages as such and restrictions in them fall totally outside the ' doctrine' of restraint of trade. But is this foundation sound? I consider first the relevant authorities.
The best known of these is Biggs v. Hoddinott [1898] 2 Ch 307 , a brewery mortgage case. The decision is conveniently summarised by Lord Davey thus: first that a stipulation for the continuance of a loan for five years was valid, and secondly, that a covenant to take beer from the mort- gagee limited to the continuance of the security did not clog the equity of redemption (see Bradley v. Carritt [1903] AC 253 , 267). The issue as to restraint of trade was not raised. In Morgan v. Jeffreys [1910] 1 Ch 620 another brewery case, where the contractual right of redemption had passed, a provision against redemption before the expiry of 28 years, coupled with a tie, was held to exceed all reasonable limit, but again no question of restraint of trade was raised. Biggs v. Hoddinott was recently followed by Russell J. in Hill v. Regent Oil (reported in Estates Gazette Digest 1962 page 452) where there was a mortgage, coupled with a tie, for 20 years and it was held that this was not oppressive or unconscionable. The case again was decided purely on the classical principles of equity applicable to mortgages and the judgment makes no reference to restraint of trade. A similar decision was given in Ontario in Clark v. Supertest Petroleum Corp. (1958) 14 D.L.R. 2. 454. These authorities then establish, and to that extent I have no desire to question them, that as part of a transaction of mortgage, it is permissible, so far as the rules of equity are concerned, both to postpone the date of repay- ment and. at any rate during the period of the loan, to tie the mortgagor to purchase exclusively the products of the mortgagee. Such an arrangement would fall fairly within the principle I have earlier suggested, as coming within a recognised and accepted category of transactions, in precisely the same manner as a lease. But just as provisions contained in a lease, affecting the lessees' (or lessors') liberty of trade, which pass beyond what is normally found in and ancillary to this type of transaction and enter upon the field of regulation of the parties' trading activities may fall to be tested as possible restraints of trade, so, in my opinion, may those in a mortgage. The mere designation of a transaction as a mortgage, however true, does not ipso facto protect the entire contents of the arrangements from examination, however fettering of trade these arrangements may be. If their purpose and nature is found not to be ancillary to the lending of money upon security, as, for example, to make the lending more profitable or safer, but some quite independent purpose, they may and should be independently scrutinised. This scrutiny is called for in the present case: for it is clear, upon consideration of the mortgage both taken by itself and in its relation to the solus agreement which shortly preceded it, that so far from the tie being ancillary to a predominant transaction of lending money, the mortgage, as was the solus agreement, was entered into as part of a plan, designed by Esso, to tie the Corner Garage to its products for as long as possible. As Harman, L. J., put it, after a detailed examination of the terms of the mortgage which I forbear from repeating, " the mortgage was intended to bolster up the solus " agreement". It follows, in my opinion, that it must be judged by the test of reasonableness. If this is so, I think there can be little doubt, once a conclusion adverse to the restrictions is reached as to the solus agreement affecting the Corner Garage, that the same must follow as regards the mort- gage. I should add that the Appellant added to his main argument on this point a subsidiary contention that the stipulations in the mortgage should be regarded in the same legal light as if they had been contained in a lease. For this he referred to section 85 of the Law of Property Act 1925 and Regent Oil Co. v. Gregory [1966] Ch. 402. I cannot accept this esoteric argument. For if it be the case that inclusion of the relevant restrictions in a mortgage does not save them from examination, they surely cannot be saved because, for conveyancing purposes, the mortgage also bears the character of a lease. The relationship between the covenant and a lease of the garage site is too technical and notional to bring the case within the recognised
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exemption which, within limits which I have earlier stated, applies to actual leases of an accepted character.
In my opinion the appeal should be allowed as regards the Mustow Green garage and the judgment and order of Mocatta J. so far restored. As regards the Corner Garage it should be dismissed.
(31739) Dd. 196965 150 2/67 PA19/St.S.