Case Study - Restraint of Trade - EzyDVD v Lahrs - Jun 8, 2010

EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd & Ors [2009] QSC 227

In this case, the franchise agreement was terminated after the franchisee had operated the franchise business for a year and a half. The franchisee (using a different corporate entity), immediately commenced operating a similar business from the same premises. The franchisor sought to enforce the restraint of trade clauses in the franchise agreement.

The restraint of trade clause

• provided that the franchisee would be restrained from operating a similar business for 6 months after the termination of the franchise agreement within a radius of 5km from the franchise business premises, and 1km from any other EzyDVD store.

• stated that the purpose of the restraint was to protect the confidential information and intellectual property provided by the franchisor to the franchisee during the course of the franchised business.

The franchise agreement also contained provisions dealing with the confidentiality of the franchisor's information, and the protection of the franchisor's intellectual property on termination of the franchise agreement. The franchisee had complied with these provisions.

The Court found that it was not reasonable for the franchisor to enforce the restraint of trade provisions given that

• the restraint provisions identified that the purpose of the restraint was to protect the franchisor's confidential information and intellectual property, and

• the franchisee had already complied with the provisions contained in the franchise agreement dealing with the confidentiality of the franchisor's information and the protection of the franchisor's intellectual property.

If the restraint provision had referred to the need to protect the franchisor's goodwill the decision in this case may have been different.

This case highlights the need to draft restraint of trade clauses carefully taking into account the individual circumstances of each case.

If you need assistance in drafting a restraint of trade clause or if you need advice in relation to a restraint of trade clause call us on 08 8410 8788 and speak to one of our franchise lawyers.