Associated Dairies Ltd v Baines (MD Foods Plc (formerly Associated Dairies Ltd) v Baines)

Under section 9(3) of the Restrictive Trade Practices Act 1976, the substance rather than the linguistic form of an agreement determines whether a term relates exclusively to goods supplied under it. A restriction covering both supplied goods and other goods must be disregarded to the extent that it concerns the supplied goods. The remainder is then assessed under the Act and its exemptions.

A contractual “term” need not be a linguistically discrete provision. Registrability cannot rationally depend on whether substantively identical restrictions are expressed in one clause or several clauses.

A milk roundsman entered into a five-year agreement requiring him to obtain all milk for his business from the supplier and not to retail milk to the supplier’s customers. After he began buying cheaper milk elsewhere, the supplier obtained an interlocutory injunction. The roundsman contended that the agreement’s restrictions were void because it had not been registered under the Restrictive Trade Practices Act 1976.

Sir John Vinelott held that the agreement was exempt from registration: [1995] I.C.R. 296. The Court of Appeal reversed that decision and ordered an inquiry into damages under the cross-undertaking: [1996] I.C.R. 183.

The central issue was whether section 9(3) permitted a single restriction to be disregarded in part according to its substantive application, although the clause was not linguistically divided between goods supplied under the agreement and goods obtained elsewhere.

1. Appeal allowed unanimously. Lord Nicholls of Birkenhead delivered the leading speech. Lord Goff of Chieveley, Lord Mustill, Lord Hoffmann and Lord Clyde agreed with his reasons. The order of the Court of Appeal was set aside and Sir John Vinelott’s order was restored.

2. Per Lord Nicholls, section 9(3) of the Restrictive Trade Practices Act 1976 requires the substance of an agreement’s content to be examined. In every agreement for the supply of goods, the part of its content relating exclusively to goods supplied under the agreement is left out of account. The remaining content is then tested under the Act.

3. A restriction applying both to goods supplied under the agreement and to other goods must therefore be divided by reference to its substantive operation. It is disregarded so far as it relates to the supplied goods. Its application to other goods remains subject to the statutory scheme. Section 9(7) requires the exemptions in Schedule 3 to be applied on that footing.

4. The word “term” in section 9(3) is not confined to a linguistically discrete clause. It may denote a contractual obligation contained within a larger, indivisible formulation. That construction is necessary because the Act applies to agreements however made, including oral and implied agreements, and to express or implied restrictions.

5. Registrability could not depend upon drafting form. Substantively identical restraints could otherwise receive different treatment merely because one was expressed in a single clause and another in separate clauses. Although the statutory registration test is mechanistic and does not turn on the economic significance of a restriction, the Act does not elevate form over substance when identifying restrictions or applying exemptions.

6. On that construction, the restriction concerning milk supplied by the company was disregarded. Its remaining operation in relation to milk obtained elsewhere fell within paragraph 2(b) of Schedule 3. The agreement was consequently exempt from registration. Lord Nicholls disapproved the contrary passing observation of Stamp J in Registrar of Restrictive Trading Agreements v Schweppes Ltd (No 2) (1971) L.R. 7 R.P. 336.

1. House of Lords: The supplier’s appeal was allowed unanimously. The order of the Court of Appeal was set aside and the order of Sir John Vinelott was restored: [1997] UKHL 7; [1997] AC 524.

2. Court of Appeal: The court reversed the Chancery Division, held that the agreement was registrable and ordered an inquiry into damages sustained under the injunction: [1996] I.C.R. 183.

3. High Court, Chancery Division: Sir John Vinelott determined the issue under R.S.C., Ord. 14A, held that the agreement was not registrable and declined to discharge the interlocutory injunction: [1995] I.C.R. 296.