Restraint of trade clauses

The general rule is that all restraint of trade clauses are unenforceable at common law. However, the Court will enforce such clauses if they are considered reasonable with reference to the interests of the parties and do not breach the public interest in free trade. So if this does go to court then it will be messy. The clauses in the contract must be no more than is necessary to protect the legitimate interests of the party relying upon it. No one is allowed to restrict competition just for the sake of it. However, the Court will not look into the adequacy of consideration, i.e. the court will not consider whether the party that has been restrained hasbeen paid enough for that restraint. It will be for the Claimant to prove on a balance of probabilities that the clause is protecting their legitimate interests.

Much of this will depend on who is prepared to ‘ go all the way’ because most of it will be based on court law. The court may take into consideration such things as the respective bargaining power between the parties and the impact of the restraint clause on the restrained party. The court will also look at industry practice and other ‘typical’ contracts within the industry. If the court is satisfied that there is a legitimate interest it will often find that the clause is reasonable between the parties. If the clause is considered reasonable between the parties it would then fall on the defendant to prove that it is not in the public interest to enforce the clause.

We will therefore have to go through quite a delicate balancing act if we are sued and it will be messy and dependent on case law and legal argument.

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