Selling parts for cars is a different market segment to a dealership selling cars, the Court of Appeal observed when ruling Tim Gordon was not in breach of a restraint of trade when selling aluminium products after his earlier $1.92 million sale of office fit-out specialist Trans-Space Industries.
When selling Trans-Space in 2019, Mr Gordon agreed not to compete against his former business for the next three years. Trans-Space specialised in manufacturing and installing complete fit-outs for the likes of schools, hospitality venues and commercial offices. Within months, Mr Gordon bought partition supplier then known as Autex PSL. Trans-Space purchasers promptly got a High Court order aimed at stopping Mr Gordon in his tracks. He was setting up in competition, in breach of the agreed restraint of trade, they claimed.
Generally, courts frown on restraints of trade; they limit competition. Restraints on future business activity are acceptable if they protect a property right. On purchase of a business, that property right frequently is goodwill, paid to protect an existing customer base; the vendor is paid extra in return for a promise not to turn around and immediately poach previous customers.
There was no dispute that a restraint of trade was legally acceptable when Mr Gordon sold Trans-Space. Terms of this restraint came under forensic examination in the Court of Appeal.
Mr Gordon agreed not to operate a rival business for: ‘the manufacture … distribution … of …partitioning systems or door systems.’ The court ruled Mr Gordon’s new business was not involved in ‘manufacture’ or ‘systems.’ It supplied components to building contractors who then completed a fitout to client instructions. His business held only four items in its product line, most selling for less than one hundred dollars each. In contrast, Trans-Space manufactured components for bespoke fitouts, at an average value of $20,000.
Mr Gordon was not in breach of the agreed restraint of trade when immediately buying Autex PSL, the Court of Appeal ruled.
Gordon v. Christensen & Purdon Family Trusts – Court of Appeal (12.04.22)
22.074