Restraint of Trade

Question 1

What did early 19th century influences of F.O.C and E.Q.B cause?

What were courts reluctant to do?

Answer 1

Courts adopted a Laissez Faire approach

Become involved even if a contract turned out to be unfair to one party

Question 2

What does the courts support?

What will courts reluctantly do?

Answer 2

The absolute concept of F.O.C

Intervene in a contractual relationship

Question 3

How has a restraint of trade been judicially defined?

Who said this?

Answer 3

“One in which a party agrees… to restrict their own liberty in the future or to carry on trade with other persons not parties to a contract”

Diplock LJ

Question 4

What did Charman Say?

Answer 4

It is saw that restraint of trade concern clauses in a contract which attempt to restrict the freedom of the other contracting party to enter into future contracts after the termination of the original contract

Question 5

What are the two grounds the court will adopt the presumption that contracts in restraint of trade are prima facie void?

Answer 5

1. Courts are reluctant to endorse an arrangement whereby one party gives up his right to live his livlihood as a requirement to the stronger party to the contract
2. Judges are reluctant to see the public deprived of that parties skill or expertise

Question 6

How has the doctrine of restraint of trade been justified historically? (2)

Answer 6

Against the public interest

Necessary to protect the weaker party against the stronger

Question 7

Where does modern law on restraint derive from?

Answer 7

H.O.L decision in Nordenfelt v Maxim Nordenfelts Guns and Ammunition

Esso v Hoppers Garage

Question 8

What are 3 prepositions of law put forward by these cases?

Answer 8

All restraints of trade, if there is nothing more, are contrary to public policy, and therefore void

Restraints of trade may be justified and allowed as exceptions by special circumstances

It is the only justification to allow a restraint of trade if the restriction is reasonable - Reasonable in interests of parties and reasonable in the interests of the public

Question 9

Burden of proof

Who must prove that the restraint clause is in the interest of both parties?

Who must prove that restraint clause is against public interest?

Answer 9

Party who imposes clause

Party subject to clause

Question 10

Propriety interest

What is there a different test for?

What is more likely to be heard reasonable?

Answer 10

Agreements between businesses

A seller restraint than an employer restraint

Question 11

Prima facie agreements that prevent seller of a business competing unfairly with the purchaser are void as the aim it to? (2)

Why are these restraints more likely to be held reasonable by the courts?

Answer 11

• Prevent an individual negotiating away his livelihood
• Prevent the public from losing a valuable benefit where one party s prevented from trading by another

Because the bargaining strength of the parties is more likely to be equal

Question 12

Effects of a clause in restraint of trade

What are 3 types of effect?

Answer 12

Severence

The blue pencil

European Law

Question 13

What is severence?

What does this not mean?

When will courts sever the clause from the contract?

Answer 13

If a restraint clause is held to be unreasonable, then it will be void as far as it is against public policy

The whole contract is void

If the offending clause can be removed totally without damaging the essential meaning of the contract

Question 14

The Blue Pencil

What may a court delelte?

In doing this what will they remove?

What do they put a blue pencil through?

Answer 14

An unfair/unreasonable restriction in a clause while allowing others if the rest f the contract can stand and make sense

All that they consider unlawful

The offending element

Question 15

European Law

What should be noted?

Answer 15

That European law makes void any practices that adversely effect competition within the EU

Question 16

Duration and time/Protecting client base

MS Draper v Reynolds (1957) (3)

Answer 16

D, a collector salesman entered the employment of a firm of credit drapers

He bought with him the connection of customers acquired in previous employments

He entered a restrictive covenant that he would not for 5 years, following the termination of his service, canvass or solicit orders in no way of the business of a credit draper from anyone who had during 3 years immediately preceding been a customer, who he had called in his duties for the firm

Question 17

What was held in MS Draper v Reynolds? (2)

What did Morris LJ say?

Answer 17

• Covenant was unreasonably restrictive
• Large proportion of customers covered by covenant were persons who had formed no salesman connection before he entered his firms employment

“I do not consider that restriction would necessarily be held to be unreasonable merely becasue it could be shown possibly to extend one or two cases beyond the range of contemplated protection”

Question 18

Duration and time

Esso v Harpers Garage (1968) (2)

What was Held?

Answer 18

D ran two garages under sales agreement with the plaintiffs who complained when the defendant began to purchase petrol from cheaper alternative sources

H.O.L was asked whether the sales agreement would be regarded in law as an agreement in restraint of trade

Held:
An agreement in restraint of trade is not generally unlawful if a party chooses to abide by it, it is only unenforceable if a party chooses not to abide by it.

Question 19

Duration and time/Trade secrets

Foster v Sugget (1918)?

Held? (2)

Answer 19

A glass manufacturer in the contracts of employees who were skilled glass blowers contained a clause that prevented them from working for any competitors on leaving their employment with him

Skill was so specialist at the time of the case that it was held a trade secret

Was reasonable in circumstances and clause was upheld

Question 20

Duration and time

Plewman v Ash (1964)?

Held?

Answer 20

D was a sales representative who was restrained for 2 years from termination from soliciting any farmer or market gardener who had been a customer of his employees at any time during his employment

Court rejected argument that clause was too wide because it was not confined to customers known to the defendant

Question 21

Area/Duration and time

Fitch v Dewes (1921)? (2)

Held (2)?

Answer 21

• An assistant solicitor had already worked for his employer in humbler status for many years
• Aged 27 he signed a covenant restricting his acting in competition with his employer within 7 miles of Tamworth Town Hall for an unlimited time

Held:

• Restrictive covenant upheld by Lord Birkenhead
• In public interest because otherwise solicitors carrying on their business without a partner would be extremely chary of admitting competent young men to their offices…

Question 22

Nordenfelt v Maxim Nordenfelt (1894)? (2)

Held? (2)

Answer 22

• Nordenfelt, a manufacturer specialising in armaments had sold his business to maxim for £287,500
• They had agreed that Nordenfelt would not make guns or ammunition anywhere in the world and would not compete with Maxim in any way for a period of 25 years

Held:

• H.O.L held that provision prohibiting Nordenfelt from making guns or ammunition was reasonable as he was been paid a very substantial amount
• Provision banning competition ‘in any way’ was an unreasonable trade and therefore invalid

Question 23

What did Nordenfelt case establish?

What are 3 conditions?

Answer 23

As a general rule restraint of trade clauses are prima facie void at common law but are valid if 3 conditions are met

• Terms seek to protect a legitimate interest
• Terms are reasonable in scope from the viewpoint of parties involved
• Terms are reasonable in scope from viewpoint of public policy

Question 24

Activity

Home Counties Daries v Skilton (1970) (2)

Held? (2)

Answer 24

Clause 12 in milkman’s employment contract restricted him from any employment connected with dairy business

Clause 15 provided that he should not work as a roundsman or serve any existing customer for a period of one year after leaving the employment

Held:
Clause 12 was far too wide to be reasonable due to how vast potential areas of employment in dairy industry were

Clause 15 was successful since it protected legitimate interest and was only for a short period

Question 25

Activity

Eastham v Newcastle United FC (1964)? (2)

Held?

Answer 25

George eastham, a well known footballer at the time, challenged the rules of the FA on the legitimacy of the transfer system that then existed

FA rules meant that a club could retain a players registration even after his contract had ended and could effectively prevent him from playing again

Held:
Those rules did account to an unfair restraint of trade and were unenforceable

Question 26

Office Angels v Rainer-Thomas (1991)? (3)

Held?

Answer 26

• Area covenant attempted to stop defendants who worked in the Bow Lane, Lodon office, from working within 3000 meters of their office
• Also prevented D from opening an office within 1.2 square miles of their old office
• This included most of the city of London

Held:
- Covenant struck down by CofA because it was not appropriate or necessary