Private Law 8 Flashcards
What case shows that restrictive covenants which are prima facie void can sometimes be upheld?
Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd.
Business sold to Maxim and a restrictive covenant implying no engagement in the manufacturing of guns and ammunition anywhere in the world for 25 years was signed.
The court held the restrictive covenant was enforceable and reasonable.
What can be considered when determining if a restrictive covenant is valid?
- Nature of restriction (geographical scope, duration and activity).
- Nature of employment (junior or senior).
- Bargaining position.
What case upholds the same purpose as Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd?
Bridge v Deacons
What case is an example of a restrictive covenant which is prima facie void which is not upheld?
Herbet Morris v Saxebly (employed as an engineer).
Herbet Morris hired Saxebly and signed a restrictive covenant stating he would not work for a similar business for 7 years if he left the company.
The court held the restrictive covenant was unenforceable as it was too broad and went beyond protecting the employer’s legitimate interests.
What are the 3 requirements of a restrictive covenant (From Nordenfelt) ?
Is the covenant …
* necessary to protect legitimate interests?
* reasonable between the parties?
* In the public interest?
What case demonstrates trade secrets and confidential information in relation to restrictive covenants?
Bluebell Apparel Ltd v Dickinson (Levis Jeans).
Dickinson was employed by Bluebell, he signed a restrictive covenant preventing him from working for a competitor for 2 years if he left the company.
The court held the restrictive covenant was necessary and enforceable as Dickinson has access to confidential information and trade secrets.
What case demonstrates a restrictive covenant in a business sale?
Stewart v Stewart (photographic business in Elgin).
Stewart employed his brothers to help manage business. After one of the brothers was released from prison he was forced to sign a restrictive covenant which stated he would not open up an oppisition business.
The court held the restrictive covenant was enforceable too protect the son’s interests.
What is a liquidated damages clause and are they enforceable?
A clause in a contract that provides in money terms
what is payable where a party breaches a contract.
Enforceable clauses.
What is a penalty clause and are they enforceable?
A clause in a contract that provides in money terms what is payable where a party breaches a contract, but one which involves an element of penalty for the breach.
Unenforceable clauses.
Are penalty clauses unenforceable in all parts of the UK?
No.
In Scots Law, a penalty clause might be modified by the court to remove the penalty element and render it enforceable.
What is the saying for the rule of damages?
Compensatory not Punitive.
What case is an example of an effective liquidated damages clause?
Clydebank Engineering & Shipbuilding v Castenda (Spanish Government).
Contract to build 4 torpedo boats included a clause stating there was a £500 penalty for each week of delay.
Court held the liquidated damages clause could be upheld as it was agreed upon by both parties.
What is an example of a second case which involves a liquidated damages clause?
Cavendish Square Holding BV v Talal El Makdessi (interests sold in a marketing company).
What was the previous approach to liquidated damages based on?
- Terms used not conclusive
- Punishment v genuine pre-estimate of loss
- Nature of clause to be judged at time contract made
What is the current approach to liquidated damages based on?
- Does the ‘wronged’ party have a legitimate interest to protect? Other interests, beyond compensation, may be protected.
- Is the amount specified exorbitant?
- Is it a Primary / Secondary obligation?
- Primary – key to the contract – directing the parties’ performance = cannot be a penalty clause.
- Secondary – operative on a breach of the contract – 1 and 2 above apply ie does the clause “impose a detriment out of all proportion to any legitimate interest of the innocent party”? - What constitutes a penalty? Sum of money, transfer of property or withholding sum due to the contract breaker.
