Restraint of trade clauses in commercial contracts

A restraint of trade occurs where one party (Covenantor) agrees with another party (Covenantee) to restrict their liberty in the future to carry on trade with other persons who are not parties to the contract see: Petrofina (Gt Britain) Ltd v Martin [1966] Ch 146 at 180.

Restraints of trade clauses are prima facie void, however, the presumption can be rebutted if the restraint is justified because it is reasonable in the circumstances.    Note that there is a significant divide between restraints in commercial contracts and those in employment contract with the latter being widely accepted as only being enforceable for a far shorter period of time. [Read more…]

Restraint of trade in commercial contracts – towards a systemic understanding

Part 1

The restraint of trade doctrine has a long history with the judiciary resting somewhat uneasily between protecting the public’s right to free trade, verses an employer’s right to protect Legitimate Business Interests[1] (LBI).  Restraint of trade cases present an unusual mix of employment law and intellectual property issues for the courts to adjudicate.

The general rule unfortunately is that a restraint of trade clause in an employment contract is contrary to public policy and prima facie void unless it can be justified by the special circumstances of the particular case.[2]

Because of the evolution of the case law on this issue and the different commercial contracts in which a restraint of trade clause can be used, the circumstances where a restraint of trade clause is enforceable vary widely.  Compounding the issue is the apparent widespread misunderstanding about the enforceability and subsequent lack of a consistent nomenclature for describing the elements of such clauses.

The aim of this article it is address these issues in our first “multipart article”. [Read more…]

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