5. Vitiating Factors

Question 1

What 3 categories do preliminary statements typically fall into?

Answer 1

Sales puff (i.e. extravagant sales talk that is not meant to be believed and so is not actionable if untrue)

A contract term (which will give rise to an action for breach if untrue)

A representation (which may be actionable as a misrepresentation)

Question 2

What are the are 2 ways for a false preliminary statement to be actionable?

Answer 2

The false preliminary statement must either amount to a term of the contract or otherwise be a misrepresentation

Question 3

What is the test to help decide between the different categories of preliminary statements?

Answer 3

The primary test is the common intention of the parties when they entered the contract

Question 4

What are some of the guidelines that the court will consider when deciding between the different categories of preliminary statements (if the parties intentions are not clear)?

Answer 4

1. Whether 1 party had greater skill/knowledge of the subject matter (e.g. if an expert makes a false preliminary statement to a non-expert it may well be a term. Conversely, if a non-expert made a false preliminary statement to an expert it’s more likely to be a representation)
2. Whether a statement made verbally was repeated in a written contract before it was agreed (if yes, definitely a term. If not, could be a representation)
3. Whether the recipient of the statement made it clear it was of vital importance (almost certainly a term)
4. Whether the statement maker invited the other party to verify it (if so, may just be a representation. If the statement maker told the other party not to bother checking it, the statement is more likely to be a term)
5. Whether there was a lapse of time between the statement being made and the contract being formed (the longer the time, the more likely it’s a representation)

Question 5

What is the definition of a misrepresentation?

Answer 5

An untrue statement of fact made by one party to a contract, by words or conduct, to the other contracting party, which induced the other to enter into the contract

Question 6

Which case illustrates an untrue statement by conduct?

Answer 6

Spice Girls v Aprilia World Service BV [2000] EMLR 748. The court held that, by participating in the filming of a TV commercial, Spice Girls represented that they did not know or have reasonable grounds to believe that any members intended to leave. However, 1 member had given notice of her intention to leave. The participation in filming amounted to a misrepresentation by conduct, and the sponsor who had relied on the misrepresentation when entering into the sponsorship contract was entitled to damages

Question 7

Do you have to disclose material facts before entering a contract?

Answer 7

No, but silence may amount to misrepresentation:

1. Where there is a fiduciary relationship between the parties (e.g. solicitor and client)
2. Where the contract is on of the utmost good faith (e.g. an insurance contract)
3. Where there has been a half-truth (tell the whole truth or nothing at all)
4. Where a statement of fact is true when made but a change in circumstances occurs before the contract is formed that makes it untrue (and it isn’t disclosed)

Question 8

Do all untrue statements count as ‘misrepresentation’?

Answer 8

No. The law requires that the statement be one of fact, rather than one of future intention or an opinion. However, if a party lies about their intention or otherwise states an opinion for which there are no facts on which it can reasonably be based, then these will be statements of fact. In the first, the maker of the statement is misrepresenting the state of their mind (which is a fact) and in the second case the statement maker is misrepresenting that they are in possession of facts on which their opinion can be reasonably formulated

Question 9

True or false: if the maker of an untrue statement is not a contracting party, there cannot be a claim for misrepresentation

Answer 9

True (although it may be possible to bring a claim in tort for negligent misstatement or deceit

Question 10

What’s another way of saying that the ‘representee must rely on the statement’

Answer 10

The fact that the statement must induce the representee to enter into the contract

Question 11

What are the different types of misrepresentation?

Answer 11

Fraudulent, negligent and innocent misrepresentation

Question 12

When is misrepresentation fraudulent?

Answer 12

If it is made with knowledge that it’s false or without belief in its truth or recklessly (not caring whether it’s true or false)

Question 13

What damages are been available for fraudulent misrepresentation?

Answer 13

Damages in the tort of deceit. The measure of these damages is how much the misrepresentee is out-of-pocket as a result of the misrepresentation and damages extend to all consequential losses

Question 14

True or false: remoteness of loss does not come into claiming damages for fraudulent misrepresentation

Answer 14

True

Question 15

Which case illustrates fraudulent misrepresentation?

Answer 15

East v Maurer [1991] 2 All ER 733. Involved a misrepresentation by the seller of a hair dressing salon. East had bought the salon based on the seller’s deliberate false assertion that he (Maurer) intended to stop working at his other hair salon in town. East’s businesses was unsuccessful (because of the unexpected competition) and was eventually sold at a loss.

The Court of Appeal had to consider was what could be claimed in damages to represent the loss of profit suffered. It was decided that tortious principles should be used to calculate it - meaning the innocent party should be put into the position he would have been in, had the misrepresentation had not been made. East would not have bought that salon, but a similar one. So East was awarded damages representing the difference between the profit he made and the profit he would have made with a similar business.

This is different to that which is used when determining damages under ordinary breach of contract principles. There, the aim of damages is to put the innocent party, so far as money can do it, into the position they would have been in had the contract been properly performed. In this case, that would have meant a sum representing the difference between profit he actually made and the profit he would have made had the statement been true

Question 16

What is negligent misrepresentation?

Answer 16

Concerns statements that are made carelessly

Question 17

What governs negligent misrepresentation?

Answer 17

s 2(1) of the Misrepresentation Act (MA) 1967

Question 18

What does s 2(1) of MA 1967 state?

Answer 18

That the misrepresentor should be liable to pay damages where, although the belief in the truth of the statement was honestly held, it was not held on reasonable grounds. It reverses the normal burden of proof of who has to prove the belief was held reasonably; it requires the misrepresented to prove they made the statement on reasonable grounds - the claimant only has to establish misrepresentation and loss

Question 19

What case illustrates the difficulty in discharging the burden of proof (in the case of negligent misrepresentation) under s 2(1) of MA 1967?

Answer 19

Howard Marine & Dredging v Ogden [1978] 2 All ER 1134 (CA). A representative of the owner of a barge (the defendant) told a potential charterer that it’s capacity was about 1600 tonnes. He based this on recollection of the relevant entry in the Lloyd’s Register, which stated that the capacity was 1800 tonnes. The capacity was in fact much less, and the representative would have discovered this had he consulted the ship’s documents. The charterers later sought to claim damages under s 2(1) of the MA 1976 and succeeded.

The defendant failed to prove that its representative had had reasonable grounds to believe in the truth of the statement - he had only consulted Lloyd’s register, not the ship’s documents

Question 20

How are damages assessed for negligent misrepresentation?

Answer 20

Same as for fraudulent misrepresentation cases Damages in the tort of deceit. The measure of these damages is how much the misrepresentee is out-of-pocket as a result of the misrepresentation and damages extend to all consequential losses

Question 21

What’s an innocent misrepresentation?

Answer 21

When the misrepresentor can establish that they had reasonable grounds to believe their statement was true, even if it wasn’t

Question 22

Are there any damages for innocent misrepresentation?

Answer 22

No. However, the misrepresentee may still be able to rescind the contract, if rescission is not barred

Question 23

If a statement is determined to have been misrepresented, can the misrepresentee rescind the contract?

Answer 23

Yes. They can choose to affirm or rescind (set aside) the contract (misrepresentation does not make a contract void per see)

Question 24

If a statement has been misrepresented, can the contract be rescinded as well as awarding damages?

Answer 24

Yes

Question 25

What happens, when misrepresentation has occured, if the misrepresentee chooses to rescind the contract?

Answer 25

There is a mutual restoration of all benefits received, in order to place both of the parties, as far as money can do it, back in their pre-contractual positions

Question 26

Is rescission of a contract based on a misrepresentation an equitable remedy?

Answer 26

Yes

Question 27

When is there a bar to rescission (in the case of a misrepresentation)?

Answer 27

1. Affirmation
2. Undue delay
3. Where an innocent purchaser has acquired an interest in the subject matter of the contract before purported rescission of the contract
4. Where it is impossible substantially to restore goods or property

Question 28

What case illustrates undue delay as a bar to rescission (in the case of misrepresentation)?

Answer 28

Leaf v Interactional Galleries [1950] 2 KB 86. The claimant bought a painting that had been described to him as an original. 5 years later he discovered it was not. As a result, the claimant sought to rescind the contract, but his action failed due to lapse of time.

The claimant had the chance to examine the picture within a few days of purchase, a delay of 5 years meant that he could not rescind the contract

I.e. the court does not necessarily look at when the misrepresentation was actually discovered but when it should have been discovered (unless it was a fraudulent misrepresentation, then it is from when it is actually discovered)

Question 29

What case illustrates when an innocent purchaser acquires an interest in the property as a bar to rescission (in the case of misrepresentation)?

Answer 29

Car & Universal Finance v Caldwell [1964] 1 All ER 290. A rogue bought a car as a result of misrepresentation and then disappeared. As soon as the innocent party (the seller) discovered he had been tricked he notified the police, and that had the effect of immediately transferring ownership of the car back to him. Following notification to the police, the rogue had sold the car to an innocent third party. The court had to decide which innocent party (original seller or innocent buyer) should get the car, and which should be left to sue the rogue for his loss. As the original seller was deemed to have rescinded the contract before the sale to the innocent buyer, the court found in favour of the original seller.

Had the rogue sold the car to the innocent buyer before the police had been notified, rescission would have been barred

Question 30

What case illustrates when it is impossible for a party substantially to restore goods or property as a bar to rescission (in the case of misrepresentation)?

Answer 30

Crystal Palace FC (2000) Ltd v Iain Dowie [2007] EWHC 1392 (QB). The claimant had entered into a compromise agreement with the defendant (its former manager) releasing him from his employment contract. Under this contract, the defendant had been required to pay the club £1m compensation if he left prematurely to work for a premiership club. The compromise agreement released him from this obligation. Very shortly after entering this compromise agreement, the defendant was appointed manager of a premiership club.

The court held that the defendant had deceived the claimant, but the court refused an order for rescission. If the compromise agreement had been rescinded, it would have revived the original employment contract. The claimant had in the meantime appointed another manager, and the defendant was managing another club himself. The defendant could not perform 2 contracts at the same time. Practical justice meant the making of appropriate orders for damages but not an order for rescission

Question 31

Is a contract voidable if it was made under duress?

Answer 31

Yes

Question 32

What is the remedy for a contract made under duress and undue influence?

Answer 32

The only remedy is rescission, no damages

Question 33

What is the difference between duress to the person and threats to a person’s economic interests?

Answer 33

Duress to the person include threats of violence to the person. Threats to a person’s economic interests are more common.

Question 34

What must the threat be for it to be classed as economic duress?

Answer 34

Improper or legitimate threat (like a threat to breach a contract or commit a tort). This is opposed to legitimate commercial pressure (e.g. a threat to take business elsewhere or sell to a competitor)

Question 35

What case sets out what must be proved in order to establish that economic duress has been present?

Answer 35

Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1. There must be pressure:

1. Whose practical effect is that there is compulsion on, or lack of practical choice for, the victim
2. Which is illegitimate
3. Which is a significant cause inducing the claimant to enter the contract

Question 36

What will the court take into account when determining whether there has been illegitimate pressure?

Answer 36

1. There has been an actual or threatened breach of contract
2. The threat was made in good or bad faith
3. The victim protested at the time

Question 37

What is a voidable contract?

Answer 37

On that is a valid, binding contract unless, and until, it is rescinded by the innocent party

Question 38

What was the result of North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705?

Answer 38

Involved the construction of a ship called ‘The Atlantic Baron’. Building started but the shipbuilders demanded more money and threatened to stop work. The claimants agreed to pay the money as they had no practical choice.

8 months later they asked for repayment of the extra money on the grounds of duress. The court held that it was economic duress but they refused to rescind on the basis of affirmation and delay. When the claimants paid the money, they were no longer under any threat, there was no danger that the building would not be complete. The action of the claimants in paying appeared to be an affirmation of the variation. The bar of delay also applied, as they left it 8 months before asking for the money back

Question 39

What case illustrates economic duress?

Answer 39

Atlas Express v Kafco [1989] 1 All ER 641. Claimants were a road haulage company. The defendants were a small firm of manufactures. The claimants agreed to transport the defendants’ goods (in cartons) to various Woolworths stores. The defendants agreed to pay £1.10 per carton, the contract did not specify how many cartons would supply per load.

The first load consisted of 200 cartons, the claimants had expected 400-600. The claimants refused to make more deliveries until the defendants agreed to a minimum of £400 per load. The defendants were a small business, and would have found it difficult to find a new company to deliver on time. They agreed to pay the extra amount, but in the event did not do so and that is why they were sued. Kafco raised economic duress as a defence and succeeded

Question 40

What is the link between economic distress and consideration?

Answer 40

The general principle is that performance of an existing contractual duty owed to the other party is not consideration for a promise of extra money. But the courts now take a more practical approach to variations of commercial contracts, and performing an existing obligation can be good consideration for a promise of more money provided the person promising the money obtains a practical benefit in return (Williams v Roffey). If, however, notwithstanding a practical benefit, the promise to may more was only made under duress then the variation (promise to pay more) will be voidable (the original contract will not be rescinded, just the variation)

Question 41

What is undue influence?

Answer 41

1. Influence that goes beyond what is regarded as acceptable
2. Where one party is in a position to influence another and takes unfair advantage of that position

Question 42

Who has to prove duress?

Answer 42

The innocent party

Question 43

What is presumed undue influence (as opposed to actual undue influence)?

Answer 43

As well as actual undue influence (which has been proved on the facts) there is presumed undue influence. It is presumed when there is a fiduciary relationship (or a relationship of trust and confidence) and a transaction occurs that calls for explanation

Question 44

What case is an example of actual undue influence?

Answer 44

Daniel v Drew [2005] EWCA Civ 507. Mrs Drew was an elderly lady who intensely disliked confrontation and was afraid of her nephew and the prospect of going to court. So when he told her to sign the contract under the threat of taking court action, she had felt unable to refuse.

Note: unlike duress, the threat may be entirely legal

Question 45

Between what people is there considered a relationship of trust and confidence?

Answer 45

Solicitor and client, doctor and patient, parents and children (under 18), religious advisors and followers. NOT between husband and wife, so the innocent party would have to prove this

Question 46

What case shows a relationship of trust and confidence?

Answer 46

O’Sullivan v Management Agency Ltd [1985] QB 428. The relationship of trust and confidence was between Gilbert O’Sullivan, a young, unknown singer, and his manager. Mr. O’Sullivan succeeded in having a number of agreements set aside for undue influence. Undue influence has been a common argument in the music industry when new talent entering into agreements have later regretted their agreements once they have had commercial success

Question 47

Aside from a relationship of trust and confidence, what else has to exist for presumed undue influence?

Answer 47

A transaction that calls for an explanation

Question 48

What is a transaction that calls for an explanation?

Answer 48

E.g. where a party enters a contract that is not for their benefit of exposes them to risk

Question 49

Is the presumption of undue influence rebuttable?

Answer 49

Yes, e.g. it could be rebutted if there was evidence to show that the innocent party had taken independent advice

Question 50

If there is not actual undue influence proved on the facts, what pathways exist for proving undue influence?

Answer 50

There has to either be a relationship of trust and confidence presumed as a matter of law or based on facts. If this is the case, the transaction must ‘call for explanation’. Following this, the presumption raised must not be rebutted. Then undue influence can be proven.

Question 51

What case is the leading authority in undue influence and the position of third parties?

Answer 51

House of Lords decision in Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449. The wife successfully argued that the bank had constructive notice of her husband’s undue influence and so should not get possession of the house. The House of Lords stated that a creditor will have constructive notice if:

1. It ought to have been put on inquiry
2. It did not take reasonable steps to ensure the surety (I.e. a person who gives security for the debts of another) was aware of the implications of what they were signing

Question 52

What does it mean for the creditor to be put on inquiry?

Answer 52

The creditor is put on inquiry where the transaction is financially disadvantageous to the surety and there is a substantial risk that some wrongdoing may have been committed by the debtor in procuring the surety’s consent to the transaction

Question 53

Once a creditor has been put on inquiry, what are the reasonable steps it should make to make sure the surety is made aware, in a meaningful way, of the legal implications of what he/she is signing?

Answer 53

The creditor should have a private meeting with the surety to explain the risks and advise them to take independent advice. The creditor may well pay for the advice in the knowledge that once it has a certificate from a solicitor saying that the surety has been properly advised then the security it has taken will be upheld

Question 54

What case did not involve a husband and wife, but the creditor still failed to advise the surety to get independent advice to avoid undue influence?

Answer 54

Credit Lyonnais Bank Nederland v Burch [1997] 1 All ER 144. The case involved an employer (who owned the business) and a junior employee. The employee re-mortgaged her flat to secure the unlimited liabilities of the employer’s business in which she had no financial interest. The court decided that there was a presumption of undue influence and the bank was stopped from enforcing the security. Even though several attempts to invite the employee to take independent advice were made, she did not do so.

Question 55

Can a creditor still have an action against the debtor if it is stopped from enforcing its security?

Answer 55

Yes, but the financial situation may make this difficult

Question 56

What are the three pathways in which a lender can enforce a surety agreement?

Answer 56

1. If there was no undue influence the surety agreement can be enforced
2. If there was undue influence and the lender did not have actual notice of it, if the relationship between the debtor and the surety is commercial, then the surety agreement can be enforced
3. If there was undue influence and the lender did not have actual notice of it, if the relationship between the debtor and the surety is non-commercial then the lender is on inquiry and must take reasonable steps for the agreement to be enforceable

Question 57

What are the 3 different kinds of mistake in contract law?

Answer 57

Common (identical or shared) mistake, cross-purpose mistake and unilateral mistake. In all cases the mistake must precede the contract and have induced it

Question 58

What is a common mistake?

Answer 58

Where both parties have made the same fundamental mistake

Question 59

What is a cross-purpose mistake?

Answer 59

Where the parties are literally at cross-purposes about some crucial aspect of the contract (one or other party may assert that a contract exists, each on terms favourable to that party, objectively it is impossible to resolve the ambiguity over what was agreed. The only possible conclusion is that there was no contract)

Question 60

What is a unilateral mistake?

Answer 60

Where only 1 party is mistaken

Question 61

What are the strict limitations on the operation of a common mistake?

Answer 61

1. It will not operate if 1 party is at fault
2. The contract must not make express provision on the matter
3. The mistake must be fundamental (it must render the performance of the contract impossible or radically different)

Question 62

What case illustrates a mistake that was not deemed fundamental to the contract?

Answer 62

Bell v Lever Bros [1932] AC 161. Bell and another were made executive officers of a subsidiary of Lever Bros. The subsidiary was closed down and Lever Bros entered into a contract terminating their service contracts in return for substantial compensation. It was then discovered that they had previously breached their service contracts and so could have been dismissed without compensation. It was accepted that they had forgotten about the earlier breaches when they entered their settlement agreements with Lever Bros.

Lever Bros sued them for the return of their compensation payments (on the bases that the settlement agreements were void for mistake). The House of Lords said the mistake was not fundamental enough to render the settlement agreements void.

Question 63

What case illustrates a cross-purpose mistake?

Answer 63

Raffles v Wickelhaus (1864) 2 Hurl & C 906. It concerned a contract to sell cotton ‘ex Peerless from Bombay’ (i.e. cotton from the ship named ‘Peerless’ that had sailed from Bombay. In the event there were two ships named ‘Peerless’ that sailed from Bombay - one in October and one in December. The seller brought an action against the buyer for failing to take delivery of the cotton from the ship that had sailed in December. The buyer argued there was an ambiguity in the contract and they believed the ship in the contract was the other one. On an objective analysis there was no way to resolve the ambiguity so the court found for the buyer, i.e. the contract was void

Question 64

What kind of mistake is relied upon when there has been a mistake as to the identity of the other contracting party?

Answer 64

Unilateral mistake

Question 65

What case illustrates a situation where the identity of the other party was mistaken and considered crucial?

Answer 65

Cundy v Lindsay (1878) 3 App Cas 459. A contract was concluded by written correspondence. A rogue set up business under the name ‘Blenkarn’ at 37 Wood Street. A reputable company Blenkiron and Co traded at 123 Wood Street. The rogue ordered goods from the plaintiffs making his signature look like ‘Blenkiron’. The plaintiffs sent the goods to Blenkiron and Co at the rogues address. Before the rogue paid, he sold them to innocent purchasers. The plaintiff’s only hope to recover the goods, was to argue mistaken identity on the basis that they intended to deal specifically with Blenkiron and Co and not the firm from 23 Wood Street. Their argument succeeded and the contract was held void

Question 66

Why couldn’t the plaintiff in Cundy v Lindsay (1878) 3 App Cas 459 rely on misrepresentation?

Answer 66

Rescission was barred as the goods had been sold to innocent purchasers (bona fide purchasers). If the first contract is void for mistake, it is as if the mistaken party never sold the goods to the rogue, so the mistaken party still owns it

Question 67

What are the options available to the 2 innocent parties in the situation where goods were mistakenly sold to a rogue who them sells them only an innocent buyer?

Answer 67

One of them will be entitled to the goods, the other will be left suing the rogue (if he can be found) for damages. The mistaken party’s damages claim would be for breach of an express term and/or misrepresentation. The innocent buyer’s claim would be for breach of the statutory implied condition in contracts for the sale of goods that the seller has title to the goods that he can pass on (SGA 1979, s 12 in relation to business-to-business contracts and CRA 2015, s 17 in relation to business-to-consumer contracts

Question 68

What case illustrates how a mistake to an attribute is not fundamental enough to invalidate a contract?

Answer 68

Lewis v Averay [1972] 1 QB 198. The plaintiff advertised his car for sale. The man who turned up claimed to be the well-known actor Richard Greene. He signed a cheque ‘R. A. Green’ and produced photographic ID in the form of an official pass for Pinewood Studios. The plaintiff let him take the car and log book. The man then sold the car to an innocent buyer (the defendant). The cheque bounced and he turned out to be a fraudster. The only hope of getting the car back would be to establish mistake (as rescission for misrepresentation would be barred). But the court said the plaintiff had been more concerned about the creditworthiness of the man, rather than what he had called himself. So it was mistake as to an attribute (rather than identity) and as such was not fundamental enough to invalidate the contract

Question 69

What guidelines help to work out whether a contract is voidable (for misrepresentation) or void (for mistake)?

Answer 69

1. If the parties are dealing face-to-face there is a strong presumption that the innocent party intends to deal with the person in front of them (i.e. the rogue) rather than the person he is pretending to be. As such, the contract is unlikely to be declared void for mistake although it might be rescinded for misrepresentation
2. Where dealings are conducted exclusively in writing the above presumption does not apply. The written agreement must be construed to determine with whom the innocent party intended to contract. If it was someone other than the rogue, it might be void for mistake
3. The nature of the transaction may indicate to the rogue that it is vital he possess a particular attribute and if he doesn’t, the offer is not addressed to him. E.g. if someone orally commissions a portrait from an unknown artist passing himself off as a famous painter, the rogue could not accept the offer (there would be no contract with the rogue)
4. If the person who the rogue is pretending to be actually exists and is known to the mistaken party it suggests the offer is not addressed to the rogue. It would be void

Question 70

When is a contract illegal?

Answer 70

When its formation, purpose or performance involves the commission of a legal wrongdoing (e.g. breach of a statutory provision or violation of public policy)

Question 71

What case illustrates the defendants trying to use the illegal contract rule to avoid paying for goods shipped?

Answer 71

St John Shipping Corp. v Joseph Rank Ltd [1957] 1 QB 267. A statute made it an offense to load a ship to such an extent that the load line was below the water. The offense was punishable for a fine. When the plaintiff charterers committed this offence the defendants sought to withhold payment for the goods on the basis that it was not a legal contract. The court held that the statute did not prohibit contracts performed in breach of the load line rule. It was enough that they were fined

Question 72

When both parties are aware that performance was illegal, what position do the courts typically take?

Answer 72

Neither party should be entitled to enforce the contract, the contract is void

Question 73

What case illustrates both parties being aware of the illegality of a contract?

Answer 73

Ashmore, Benson, Pease & Co Ltd v AV Dawson Ltd [1973] 1 WLR 828. The defendants agreed to transport boilers owned by the plaintiffs and did so by carrying them on lorries that could not lawfully carry them. The plaintiffs knew this to be the case. The boilers were damaged in transit and the owner sued for damages. The claim was rejected on the basis that the owner had effectively participated in the illegality

Question 74

What Act renders unenforceable contracts that have the effect of restricting, preventing or distorting trade within the UK?

Answer 74

Competition Act 1998 (contracts illegal under statute)

Question 75

Will courts refuse to enforce some contracts at common law? What are some examples?

Answer 75

Yes, on the basis that they are contrary to public policy or morality. E.g. contracts that challenge the sanctity of marriage, contracts that are sexually immoral and contracts that seek to challenge the jurisdiction of the court

Question 76

What’s restraint in trade?

Answer 76

The principle that an individual should be free to follow his trade and use his skills without undue interference. The principle renders a contractual term purporting to restrict an individual’s freedom to work for others or carry out his trade or business (a restrictive covenant) void unless it is designed to protect legitimate business interests and no wider than reasonably necessary.

Question 77

When can restraints of trade be enforceable?

Answer 77

1. There is a legitimate business interest to protect (e.g. customers, employees and trade secrets) and;
2. The restraint is reasonable in terms of geographical area, duration and scope of prohibited activities

Question 78

If a restraint of trade is reasonable, then what can the party who imposed it apply for?

Answer 78

Injunctive relief to prevent or curtail a breach or otherwise apply for damages to compensate for loss suffered as a result of the breach