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Dissolution of Partnerships & Restraints of Trade

Breaking apart a business relationship is a difficult time, and it is good practice to ensure that you have a written agreement in place that details how that transition is to play out.

Author: Clarissa Sempel

8 September 2021

If you have a business partner leaving or you are splitting a business 50-50 due to a breakdown in relationships, you may ask for a “Restraint of Trade” to prevent competition or solicitation of employees and clients.

The Court approaches a Restraint of Trade cautiously and usually look to what is reasonable and whether a restraint is in the public interest.

A Restraint of Trade for a business split was considered in Beflora Pty Ltd -v- Vinflora Pty Ltd [2021] NSW CA178.

The Court of Appeal of NSW heard an appeal by the Applicant, Belflora Pty Ltd.  Belfora had been in a business with the director of Vinflora and in or around 2017 and 2018, disputes emerged between the two partners where they ultimately agreed to divide the business between themselves and go their separate ways.

At the time of this agreement, Vinflora Pty Ltd was restrained from importing flowers from South America and displaying such flowers on its stands and was only permitted to purchase South American flowers from Belflora.  The agreement also had a similar restraint for Vinflora’s favour in relation to Kenyan flowers.

In the first instance, the primary Judge found that the restraint was unreasonable and this is the decision which has appealed by Belflora in the NSW Court of Appeal.

The Court of Appeal considered that the restraint went “well beyond” any legitimate interest that Belflora would be entitled to protect, deciding that the restraint itself was unreasonable and it was unreasonable in the public interest. Therefore, the restraint was void.

Importantly, it was noted that even though the agreement was freely negotiated between the parties, it was not a sufficient reason for the restraint of trade to apply.

The team at ALG can help you navigate the dissolution of a partnership or the exit of a business partner in an effective manner.  If you would like to speak to a member of the ALG team, please contact us on 02 4220-7100 or by email at lawyers@alg.com.au to arrange your initial consultation.