Lord Macmillan:-

The appellants challenge in these proceedings the validity of an agreement in writing which they made with the respondents on 5th December 1927. Having been advised that the agreement was not binding upon them, they intimated to the respondents that they proposed to act in disregard of it, whereupon the respondents brought the present action in the Supreme Court of British Columbia claiming a declaration that the agreement was valid and subsisting and enforceable by them against the appellants and an injunction restraining the appellants from acting in contravention of its terms. The appellants in their statement of defence pleaded that the agreement was

“contrary to public policy illegal, void and unenforceable as being [inter alia] an unreasonable and unnecessary restraint of trade in respect of the manufacture and sale of articles of commerce."

This defence, and others which were stated by the appellants but which need not be detailed here, failed before D. A. McDonald, J., who granted the declaration sought and also an injunction though in less wide terms than claimed. His judgment was affirmed by a majority of the Court of Appeal (Macdonald, C.J.A., and Martin, Galliher and M.A. Macdonald, J.J.A.; McPhillips, J.A., dissenting). Hence the present appeal to His-Majesty in Council.

The material facts are not in dispute. In 1923 the appellants were incorporated under the Companies Act of British Columbia as a private limited company under the name of the Vancouver Malt and Sake Brewing Company, Limited. The objects of the company as set out in the memorandum included the carrying on of, “the business of brewers and maltsters in all their branches " At the date of the agreement in question the appellants held a licence under that Dominion. Excise Act authorising them "to carry on the trade or business of a brewer of malt liquors" in their premises in Vancouver. By virtue of the definitions contained in S.5, Excise Act, this licence authorised them to manufacture beer, ale, porter, lager beer and all other fermented liquor made in whole or in part from malt, grain or any saccharine matter. In point of fact however they had never brewed any liquor other than sake, a Japanese liquor made from rice, and their plant was adapted to the manufacture of this liquor only. Their business was apparently confined to the Province of British Columbia, where the only permitted customer within the Province was the Government Liquor Control Board. Export trade was unrestricted, but the appellants did not engage in it. The respondents, Vancouver Breweries, Limited, who were incorporated in 1912 under the British Columbia Companies Act, also held a brewer's licence and carried on the business of brewers in Vancouver, but they brewed beer only. They had some, but not much, export business with China, and the beer which they manufactured was for the most part disposed of within the Province to the Government Liquor Control Board. According to the evidence the only breweries in operation in the city of Vancouver in 1927 were those of the appellants and the respondents.

There were a few breweries operating in other parts of the Province. In 1927 negotiations were entered into between the respondents and the appellants, who were then apparently not very prosperous, the outcome of which was the agreement now in question. In the agreement the appellants are called “the Vendor" and the respondents "the Purchaser." The terms of it, which it is necessary to set out at length, are as follows :

''whereas the Vendor is the holder of a brewer's licence under the Excise Act and is engaged in the manufacture of sake in the Province of British Colombia.

And whereas the Purchaser is desirous of purchasing from the Vendor the good-will of the said brewer's license and any renewal or renewal thereof so far as the same relates to the manufacture and sale of bear, ale, porter, or larger beer."

''Now therefore this agreement witnesseth that in consideration of