How long and how wide can a restraint on a Queensland business seller run?

Key Takeaways

• A restraint on the seller protects the goodwill the buyer paid for, so courts accept longer and wider restraints than against an employee, provided it goes no further than protecting that goodwill as it stood when the agreement was made.
• The onus is on the buyer to show the restraint is reasonable, and the period a court accepts follows what the seller was paid.
• A Queensland court cannot read a restraint down, so the definitions of business, area and period decide the case before any cascade does.
• Section 51(2)(e) of the Competition and Consumer Act 2010 (Cth) disregards a sale contract provision that is solely for the protection of the purchaser in respect of the goodwill of the business sold.
• The exposure draft non-compete ban is directed at employment arrangements, so a seller who stays on as an employee should have the restraint in the sale agreement, not the employment contract.

1. 1.Why is a restraint on the seller treated differently from an employee restraint?
2. 2.How long and how wide will a court accept?
3. 3.Cascading clauses and severance in Queensland
4. 4.Does competition law get in the way?
5. 5.Where does the proposed ban on non-competes leave a sale restraint?
6. 6.How is a sale restraint enforced?
7. 7.Drafting points
8. 8.What the agreement itself decides
9. 9.Frequently Asked Questions

A restraint on the seller of a business protects the goodwill the buyer has just paid for, and the courts judge it more generously than a restraint on an employee. The clause must still go no further than reasonably necessary, but the interest protected is purchased goodwill and the seller was paid for it. Astris Law in Brisbane sets out how long and how wide a sale restraint can run, how it is enforced and what has to come from the agreement itself.

Why is a restraint on the seller treated differently from an employee restraint?

A restraint of trade starts out void and is enforced only if the party relying on it shows that it is reasonable as between the parties, and it falls to the party resisting it to show that it is against the public interest. That test comes from a sale case, Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, where the seller's 25-year covenant not to make guns or ammunition anywhere in the world was upheld because the business sold was worldwide, and in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 the High Court confirmed that the onus is on the party enforcing a restraint to show it goes no further than its legitimate interests reasonably need.

An employer protects customer connections against a person who was paid wages. A buyer protects goodwill it bought at arm's length from a seller who took a capital sum for it and would otherwise be at liberty to take it back, so in Southern Cross Computer Systems Pty Ltd v Palmer (No 2) [2017] VSC 460 a four-year restraint on the seller of a 40 per cent shareholding sold for $3.5 million was enforced by injunction. The generosity scales with the bargain: in 2nd Chapter Pty Ltd v Sealey (No 2) [2024] VSC 672 five years failed against sellers holding under 0.1 per cent and 6.2 per cent, because nothing scaled the period to the size of each seller's stake.

How long and how wide will a court accept?

The measure is the goodwill of the business as it stood when the agreement was made: the area where it actually traded, the period a buyer reasonably needs to make the customer connection its own and the share of the price paid for goodwill. The Queensland example is the Supreme Court's pair of judgments in GBAR (Australia) Pty Ltd v Brown [2016] QSC 234 and GBAR (Australia) Pty Ltd v Brown [2020] QSC 14, which frame the question as whether the covenant is a vendor's or an employee's and whether it goes further than the goodwill requires.

Cascading clauses and severance in Queensland

Because a court will not rewrite a restraint, sale agreements commonly set out alternative periods and areas as separate covenants, so the widest can be struck and a narrower one kept. The Federal Court accepted the technique in Lloyd's Ships Holdings Pty Ltd v Davros Pty Ltd (1987) 17 FCR 505 even for 120 combinations, while warning that the more combinations there are, the less it looks as though anyone worked out what protection was needed.

Queensland has no equivalent of s 4 of the Restraints of Trade Act 1976 (NSW), which lets a court read a restraint down. A Queensland court can only sever words or alternative covenants the drafting makes severable, and it will not add or alter words. In Perpetual Limited v Maglis [2025] QSC 71, an employment restraint, Bowskill CJ refused to read limiting words into a client definition or sever a phrase from it, so the cascade behind it never mattered. A vendor covenant is read less strictly, but the court still will not supply words the parties left out. The exposure draft Bill discussed below would prohibit cascading restraints in employment contracts, which is one more reason to keep the seller's restraint in the sale agreement.

Does competition law get in the way?

The cartel provisions in Part IV Division 1 of the Competition and Consumer Act 2010 (Cth) can reach a promise by one business to stay out of another's market. The answer for a genuine sale is s 51(2)(e), under which no regard is had to a provision of a contract for the sale of a business, or of shares in a company carrying on one, that is solely for the protection of the purchaser in respect of the goodwill of the business. The exemption turns on the word "solely": a restraint that also shelters the buyer's other businesses or allocates customers beyond the business sold falls outside it.

Where does the proposed ban on non-competes leave a sale restraint?

The exposure draft Competition and Fair Work Legislation Amendment (Banning Unfair Non-Competes) Bill 2026, released on 7 September 2026, would ban non-compete terms in employment arrangements for employees at or below the high income threshold. The draft explanatory materials say the definition is aimed at the employment relationship and that terms in sale and shareholder agreements are not caught. The draft is not yet before Parliament; our article on employee restraints sets out where it stands.

How is a sale restraint enforced?

The buyer's first remedy is an interlocutory injunction, decided on the test in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57: a sufficient likelihood of success to justify preserving the position until trial, injury that damages would not adequately compensate and a balance of convenience favouring the order. The applicant gives the usual undertaking as to damages under r 264 of the Uniform Civil Procedure Rules 1999 (Qld), and delay counts against it, as our guide to a restraint of trade breach explains. Damages at trial are measured by the loss caused, including the lasting reduction in the goodwill the buyer paid for. Either remedy rests on evidence kept from completion (the signed agreement, the price allocation to goodwill, a customer list as at completion) and on searches showing who is behind the new business and dated reports of approaches to customers.

Drafting points

• Define the restricted business, area and period by reference to the business as carried on at completion, whether bought as shares or assets, not the buyer's wider group or its plans.
• Add non-solicitation of customers who dealt with the business in a defined period before completion, non-interference with suppliers and non-solicitation of employees.
• Prohibit the seller from holding an interest in a competing business, with the usual carve-out for a small passive holding in a listed company.
• A restraint binds the people who gave it, so competition through a spouse, a child or a new company has to be proved as the seller's own breach. Draft the restraint to catch competition directly or indirectly and through any entity, take a covenant by the seller to procure that its associates do not compete and have the people and companies behind the seller sign as covenantors.
• Where the seller stays on as an employee or consultant, keep the restraint in the sale agreement, run it from completion and do not restate it in the employment contract, where it would meet the stricter standard applied to employee restraints and, if the seller earns at or below the high income threshold, the proposed ban.

What the agreement itself decides

How much of a restraint a court holds a seller to rests on three things no article can supply: what the business was when the agreement was signed, how much of the price was for goodwill and the words of the clause. A clause that would be struck out in one sale can be ordinary in another, and whether the one in front of you will hold is a question of those words, that price and what the seller has actually started doing. Call Jamie Nuich on (07) 3519 5616 with the agreement and the price allocation, before signing or as soon as a former owner starts trading again.

Frequently Asked Questions

How long can a restraint on the seller of a business last?

As long as is reasonably necessary to protect the goodwill the buyer paid for, which is a question of the business and the price rather than a standard number.

Can a Queensland court cut down a restraint that is too wide?

Only by severing words or covenants the drafting already makes severable. Queensland has no statute allowing a court to read a restraint down, and it will not add or alter words.

Does the proposed ban on non-competes apply to business sales?

On the exposure draft, no: the ban is directed at non-compete terms in employment arrangements, and the draft explanatory materials say sale and shareholder agreements are not caught. The draft is not law and may change.

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