Restraint Of Trade Clauses And Defense To Product Liability In Australia

Restraint of Trade Clauses

The main issue in this scenario regards the application of restraint of trade clauses.

Rule

In Australia, restraint clauses are void unless they do not contradict the Competition and Consumer Act 2010 (CCA), and they are reasonable. In (Petrofina (Great Britain), Ltd. v. Martin, [1965], p.180),  Diplock LJ defined restraints of trade as clauses in which one party in a contract accepts a limitation of its liberty in the expense of the other party, and this agreement regards the promisor carrying out trade/employment with another person in whichever manner he may opt to.

The restraints are invalid at common law except if their provisions are reasonable for the interests of both parties and the public interests. Their invalidation is due to the fact that they deny the employee a chance to earn a living (Turner, 2013, p.153).  They also prevent the public from benefiting from the employee’s skills (Turner, 2013, p.153). The law requires the restrains to cover a reasonable geographical area mainly where the business operate (Christensen and Duncan, 2009). There should be a time limit which is mainly between one to 12 months in Australia and New Zeeland (Rudman, 2013, p.80). They should be protecting a particular business interest such as trade secrets or goodwill . Skills acquired during an employment are not trade secrets.

Application

In (Southern Cross Computer Systems Pty Ltd v Palmer (No 2), [2017], p.380), the court severed the restraints that prevented the players from joining a different club. The clauses were denying the prayer a chance to earn a living and preventing the public from benefiting from his skills. In (Southern Cross Computer Systems Pty Ltd v Palmer (No 2), [2017]), the Court upheld the clause preventing a former IT specialist from working for a competitor for four years. Importantly, the employee had already sold his 40% shareholding to the company so the company needed to protect the goodwill. In (HRX Holdings Pty Ltd v Pearson, [2012]), Pearson was a co-founder of HRX, had  good knowledge of HRX interests such as the clientele, client’s contacts,  core knowledge,  and experience HRX strategies.  Pearson had also received remuneration as compensation for the two years restraints.  

In (Just Group Ltd v Peck, [2016]), the Court severed the restraints preventing a former Chief of Finance from working for a competitor as the restraints were not protecting valid business interests, were too broad,  and a two-year period was too long.

Rule

Conclusion

The Knights Finance restraints would likely be severed due to the following reasons.

• The negotiation processes. Was there a power balance between Knights and Shulee? Was Shulee provided with legal advice? If not, the clauses would be unreasonable.
• Was Shulee accessing the information the business wants to protect and to what extent? Skills acquired during the employment should not be confused with business interests as found in (Herbert Morris Ltd v. Saxelby, [1916]).
• Did Shulee receive a renumeratin for the duration that the restraint would operate. If not, the restraints would be unreasonable.
• Four years would be too long for an employee as held in (Just Group Ltd v Peck, [2016])
• The Geographical coverage of the restraint is too large (Australia and Newzeeland)

Scenario 2: Mark’n’Mark Pit Masters Ltd. (MMP)

Issue

The main issue in this scenario regards product liability. As it is the manufacturer I am supposed to advice, the issue specifically deals with defense to product liability.

Rule

Injuries to an individual

In section 138, subsection 1, the law provides that the manufacturer would compensate any person who suffers injuries due to safety defects of the product, and subsection 2 provides for the injured person to recover the loss or damages caused. The provisions hold manufacturer liable for the actual loss suffered by the consumer resulting f of injuries sustained.

Injuries to other persons other than the individual

Section 139 deals with liability for any loss or damages caused to another person apart from the injured individual. The subsection 1(c) (d)   allows the injured person to recover loss or damages suffered due to the injuries, or when the individual dies due to the injuries. Subsection 1(e) allows recovery even when there is no business or professional tie between the person claiming and the individual.

These provisions allow the persons who are qualify to be the dependents of the injured consumer to recover loss or damages. However, this excludes commercial relationships or professional relationships such as employer-employee relationships. In other words, it allows for the recovery of damages or loss for secondary victims as described However when determining liability between defendant and secondary victim from the theory developed in (White v. Chief Constable of South Yorkshire Police, [1999])

Loss to Other Goods

Section 140 provides for the recovery of damages or loss caused by the manufacturer’s defective products. Subsection 1(c) (d) imposes responsibility on the manufacturers where their defective products cause damage to personal, household, or domestic goods or other goods intended for consumption.  Subsection 1(e) provides for the recovery of loss due to destruction caused by the defective product. Subsection (2) provides for the actions against the manufacturers for recovery of the actual amount of loss or damage incurred by the injured persons.

Damages to Buildings, Land, or Fixtures

Damages to buildings, land or fixtures can be recovered from the manufacture under the provisions of section 141. However, there is a limit for only those building, land or fixtures that were acquired for only personal use. Therefore, this section does not provide for damages on commercial premises.

Defenses to defective goods

Application

          Section 142 sets out the difference avenues for defense that the manufacturer could rely on in action of a defective product.  

(i) Defect never existed

Subsection 1 (a) allows the manufacturer to raise a defense on the fact that the alleged safety defect in the products never existed when the product was supplied, or when electricity was generated for cases dealing with electricity.

 (ii) compliance with a mandatory standard

Subsection 2 (b) allows the manufacture to raise a defense on the fact that he was complying mandatory standards. An extension of this defense is provided in section 148 where manufacturer can raise a defense on the fact that he was complying with Commonwealth mandatory standards. Subsection 1 require the manufacturer to notify commonwealth if he raises such a defense. Subsection 2 makes a party to the case (defendant) after the notification.  Subsection 3 makes commonwealth liable for the damages if it becomes true that compliance with its mandatory standards caused the defects.

(ii) State of the art

Subsection 1 (c) allows a defense in situation where there was no or limited scientific or technical knowledge during the development of the product.

(i)  Goods comprised due to other goods

Subsection 1 (c) allows a defense where goods were comprised due to other goods that were introduced later after manufacturing.

Conclusion

Both Shulee and Mandy would recover damages resulting from the Injuries. The damages would include medical expenses, earning lost during the time for recovery, lost profit, material damage for the goods destroyed. Mandy would be compensated for the lost job. Dependents such as Neil would recover costs due to psychiatric disorder. Since the defects resulted from compliance with mandatory standards of commonwealth, the commonwealth would be liable for the damages.

Scenario 3: MMP and Tongy

Issue

Application of international legal conventions in relation to the sale of goods.

Rule

The section 68 of Schedule 2 of CCA provides for the application United Nation’s Convention on Contracts for the International Sale of Goods (CISG). The provisions apply where both the contracting parties operate in countries which have ratified the application of CISG or where the laws applied are from a country which has ratified CISG. The paragraph 1, article 3 states that contracts made for supplying goods intended for manufacturing or production be classified as contracts for sale (Burnett and Bath, 2009, p.9).

However, this rule is exempted where the party making the request provides a substantial part for the production. Under Article 5, CISG does rule on seller’s liability in deaths or personal injuries resulting from the goods, but the liability may be claimed under applicable international laws in the domestic law (Honnold and Flechtner, 2009, p.71). The Section II of article 35, 2(a) requires that the seller must provide goods that are ‘fit for the purpose.’  This means that the goods should conform with the buyer’s description.

Application

In  (Noma [Buyer] v Misa Sud Refrigerazione S.p.A. [Seller], [2004]) the court affirmed that contract manufacturing are sale of goods contracts under CISG provisions. In  (RJ & AM Smallmon/Transport Sales Limited and Grant Alan Miller, [2011]), the court ruled that the seller was not obliged to supply goods that were in conformity with public laws in buyer’s country.

Conclusion

The contract for custom BBQs would be handled as contract for sale of goods under CISG. CISG might not rule the liability for injuries, but the application of domestic laws would provide rule in case the BBQ are defective. The BBQ manufactured must conform with the buyer’s description.

References

Burnett, R. and Bath, V., 2009. Law of International Business in Australasia. Federation Press.

Christensen, S.A. and Duncan, W.D., 2009. Sale of Businesses in Australia. Federation Press.

Herbert Morris Ltd v. Saxelby [1916] AC 1 1916.

Honnold, J. and Flechtner, H.M., 2009. Uniform law for international sales under the 1980 United Nations convention. 4th ed. Alphen aan den Rijn?: Frederick, MD: Kluwer Law International?; Sold and distributed in North, Central, and South America by Aspen Publishers.

HRX Holdings Pty Ltd v Pearson [2012] FCA 161.

Just Group Ltd v Peck [2016] VSC 375.

Noma [Buyer] v Misa Sud Refrigerazione S.p.A. [Seller] [2004] [2001/AR/1679].

Petrofina (Great Britain), Ltd. v. Martin [1965] Ch. 1965.

RJ & AM Smallmon/Transport Sales Limited and Grant Alan Miller [2011] C A545/2010 [2011].

Rudman, R., 2013. New Zealand Employment Law Guide (2013 edition). CCH New Zealand Limited.

Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460.

Turner, C., 2013. Unlocking Employment Law. Routledge.

White v. Chief Constable of South Yorkshire Police [1999] AC 2 1999.