It is very well established that any contract or contractual stipulation which is in restraint of trade is prima facie
unenforceable unless it is reasonable having regard to the interests of the parties and of the public.
- Nordfeldt v Maxim Nordfeldt [1894]
Interests of the party
- If a contract is properly to be regarded as being in restraint of trade, the burden of establishing that the
restraint is no more than what is reasonable in the interests of the parties rests upon the person who seeks to
rely upon the contract.
Interests of the public
- Even if reasonableness in this sense can be established, a question may nonetheless arise as to whether it is
reasonable having regard to the interests of the public. On that issue, the burden rests upon the party
challenging the contract.
A contract or covenant in restraint of trade is an undertaking whereby one party agrees:
• to restrict his freedom to trade or conduct his profession or business (what)
• in a particular locality (where)
• for a specified period of time (when).
Chen-Wishart
What is restraint of trade?
-
- “An agreement in restraint of trade is one under which a person agrees to restrict his freedom to trade with
persons not a party to the contract or agrees to restrict his freedom to work.”
- Schroeder v Macaulay [1974] 3 All ER 616
- Lord Diplock
“All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing
more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: . . .
. [it] may be justified by the special circumstances of a particular case. It is a sufficient justification . . . if the restriction is
reasonable . . . in reference to the interests of the parties concerned and reasonable in reference to the interests of
public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at
the same time it is in no way injurious to the public.”
- Nordfeldt v Maxim Nordfeldt [1894]
Types of contract
i) employment: or post-employment most usually, e.g. restrictions on an employee using trade secrets in future
employment
(ii) sales of businesses: for instance, not setting up in direct competition right next door to a business you have just sold
(iii) exclusive dealing agreements:
They can be valid;
Mason v Provident Clothing [1913] AC 724: Agent employed to canvass for orders only in Islington. Restraint clause
covered a 25 mile radius of London. Held – excessive geographical breadth meant the clause was void.
unenforceable unless it is reasonable having regard to the interests of the parties and of the public.
- Nordfeldt v Maxim Nordfeldt [1894]
Interests of the party
- If a contract is properly to be regarded as being in restraint of trade, the burden of establishing that the
restraint is no more than what is reasonable in the interests of the parties rests upon the person who seeks to
rely upon the contract.
Interests of the public
- Even if reasonableness in this sense can be established, a question may nonetheless arise as to whether it is
reasonable having regard to the interests of the public. On that issue, the burden rests upon the party
challenging the contract.
A contract or covenant in restraint of trade is an undertaking whereby one party agrees:
• to restrict his freedom to trade or conduct his profession or business (what)
• in a particular locality (where)
• for a specified period of time (when).
Chen-Wishart
What is restraint of trade?
-
- “An agreement in restraint of trade is one under which a person agrees to restrict his freedom to trade with
persons not a party to the contract or agrees to restrict his freedom to work.”
- Schroeder v Macaulay [1974] 3 All ER 616
- Lord Diplock
“All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing
more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: . . .
. [it] may be justified by the special circumstances of a particular case. It is a sufficient justification . . . if the restriction is
reasonable . . . in reference to the interests of the parties concerned and reasonable in reference to the interests of
public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at
the same time it is in no way injurious to the public.”
- Nordfeldt v Maxim Nordfeldt [1894]
Types of contract
i) employment: or post-employment most usually, e.g. restrictions on an employee using trade secrets in future
employment
(ii) sales of businesses: for instance, not setting up in direct competition right next door to a business you have just sold
(iii) exclusive dealing agreements:
They can be valid;
Mason v Provident Clothing [1913] AC 724: Agent employed to canvass for orders only in Islington. Restraint clause
covered a 25 mile radius of London. Held – excessive geographical breadth meant the clause was void.
