Week Eight Flashcards
What is a restrictive covenant?
A contractual term restricting the activities of a former employee or seller of a business.
What is restraint of trade?
Limits to ensure fair competition and protection of business interests.
What balance must be ensured in restrictive covenants?
Ensuring the covenant is fair between public interest and individual rights.
What is an example of an activity restriction in a restrictive covenant?
“You may not practice as a solicitor.”
What is an example of a geographical limit in a restrictive covenant?
“You may not practice as a solicitor within 20 miles.”
What is an example of a time limit in a restrictive covenant?
“You may not practice as a solicitor within 20 miles within the next five years.”
Are restrictive covenants initially enforceable?
No, restrictive covenants are prima facie void and unenforceable.
What case establishes exceptions for restrictive covenants?
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
What are the three requirements for a restrictive covenant to be justified according to the Nordenfelt case?
Is the covenant necessary to protect legitimate interests?
Is it reasonable between the parties?
Is it in the public interest?
What considerations are important for the reasonableness and adequacy of a restrictive covenant?
Nature of restriction (activity, geographical extent, duration)
Employment level (junior or senior)
Bargaining position
What case states that enforceability is independent of whether a party willingly signed a covenant?
Sundolitt v Addison [2017] CSIH 15.
What are the ground rules for enforcing a restrictive covenant according to Sundolitt v Addison?
Valid incorporation of the term.
Imposition of restriction by one party on another.
Justification for enforcement of the restriction.
What case supports upholding restrictive covenants for protecting property rights in the sale of a business?
Bridge v Deacons [1984] 2 WLR 837.
What case requires different considerations for restraints on earning a livelihood?
Herbert Morris v Saxelby [1916] AC 688.
What are legitimate interests that restrictive covenants aim to protect?
Protecting confidential information, trade secrets, business methods.
What is an example case involving a 2-year worldwide restriction?
Bluebell Apparel Ltd v Dickinson 1978 SC 16.
What is an example case involving a 2-year 1-mile radius restriction?
Scottish Farmers Dairy Co v McGhee.
What case introduced the ‘blue pencil test’ for enforceability?
Tillman v Egon Zehnder Ltd [2019] UKSC 32.
What was the restriction in Stewart v Stewart?
Photography business restriction within 20 miles of Elgin.
What is the discussion point for Stewart v Stewart?
Reasonability to protect business.
What was the restriction in Dallas McMillan & Sinclair v Simpson?
Partnership agreement, 20-mile restriction for 5 years.
What is the discussion point for Dallas McMillan & Sinclair v Simpson?
Appropriateness of restriction
What was the restriction in Prosoft Resources v Griffiths?
Employment restriction involving confidential information.
What was the court decision in Prosoft Resources v Griffiths?
Refusal to enforce interdict.
What is the discussion point for Prosoft Resources v Griffiths?
Court’s reasoning for decision.
What is the focus of liquidated damages and penalty clauses?
Limits on parties regarding stating the amount of damages in a contract for breaches.
What are some examples of liquidated damages and penalty clauses?
Delay in delivery by a manufacturer incurs a fixed daily fee.
Late payment allows contract rescission and interest on overdue amounts.
What are the purposes of liquidated damages and penalty clauses?
To simplify damage recovery without proving actual damage.
Avoid risk of under-compensation due to rules of remoteness.
Assurance for the promisee regarding promise fulfillment.
What do liquidated damages clauses specify?
Monetary compensation for contract breaches.
Are liquidated damages clauses enforceable
Yes, they are enforceable.
How do penalty clauses differ from liquidated damages clauses?
Penalty clauses include a punitive element.
Are penalty clauses enforceable?
No, they are unenforceable (Scots Law: could be modified to remove the penalty element).
What is the aim of compensation in the measure of damages?
To restore the injured party to pre-breach status (A/B Karlshamns Oljefabriker v Monarch Steamship Co Ltd).
Are damages compensatory or punitive?
Compensatory, not punitive.
What case involved a penalty for late delivery?
Clydebank Engineering & Shipbuilding Co Ltd v Castaneda.
How is the nature of a clause assessed?
By examining the clause’s nature at contract inception.
What case differentiated between punishment and genuine damage estimate?
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd.
What factors are considered in this differentiation?
Extravagance, payment requirements, and breach consequences.
How would you evaluate if a £50,000 fee for painting a shed the wrong color is a penalty?
By assessing if the fee is punitive or a genuine pre-estimate of loss.
What cases are key in the current approach to liquidated damages?
Cavendish Square Holding v Talal El Makdessi; ParkingEye Ltd v Beavis.
What considerations are made in the current approach?
Legitimate interests beyond compensation.
Whether the amount is exorbitant.
Distinguishing between primary (performance) and secondary (breach) obligations.
What was the issue in Cavendish?
Non-competition clause with payment forfeiture.
What considerations were made in Cavendish?
Legitimate interest and proportionality.
What was the issue in Parking Eye?
Fee for overstaying in a car park
What considerations were made in Parking Eye?
Legitimate interest and proportionality.
What was the issue in Indigo Park?
Charge for not displaying a valid ticket.
What considerations were made in Indigo Park?
Enforcement costs and proportionality.
How would you re-evaluate the example with Andy and Sara to assess penalty considerations?
By considering if the £50,000 fee is punitive or a genuine pre-estimate of loss, and if it serves a legitimate interest and is proportionate.
