Your brother owns a restaurant in Richmond, Victoria since 2014. He has been very successful in running his restaurant to date and is actively looking to open another one in Preston. He has explored quite a few options and has finally decided to buy an existing restaurant in Preston owned by Walter. Walter has been running that business successfully for the last ten years but is now planning to go on a world tour for a couple of years, so he has decided to sell his business. Walter’s restaurant is quite popular amongst its customers and has a seating capacity of more than 80. Your brother’s research showed that apart from the quality of food served at the restaurant, Walter is also quite famous amongst the customers who appreciate the presence of Walter in the restaurant. After a lot of negotiations, the contract was signed for the sale price of $500000 (which is a premium price for that business) but your brother also included a clause in the contract whereby he restricted Walter from opening a similar restaurant/business in the vicinity of 10 Kms of Preston for the next 3 years.

Within three months of the sale of a business, Walter returned from his world tour (as he was missing his business) and shared his desire to open a new restaurant just two streets away from his old business (within 1 Km of the old business). Walter also told your brother that the clause in the contract would not be enforceable as the clause has the effect of restricting Walter’s freedom to do business. Your brother is concerned that the return of Walter would prompt many of his former customers to go back to him, resulting in loss of sales for your brother’s restaurant. Worried about the situation, your brother has come to you for your advice.

(a) Advise your brother on the enforceability of the clause under question? Remember to support your advice with legal reasoning and one reference case.     

(b) Would your answer change if Walter wanted to open a toy business next to your brother’s restaurant? Justify your answer with legal reasoning.   

Answer rating: 100% (QA)

a The clause under the contract which restricts Walter from opening a similar restaurantbusiness in the vicinity of 10 Kms of Preston for the next 3 y... View the full answer