INTRODUCTION The facts of the matter at hand are that Edward purchased the Royal Hotel from George

on a condition that George would not for a period of two years from the date of the transfer of ownership engage, either indirectly or directly in the business of hotelier or restaurateur within ten kilometres of the Royal Hotel. And in another case Edward also covenanted with harles who he engaged as a trainee barman to work in the cocktail bar of the hotel that harles would not work as a barman in any hotel, restaurant, club or public house within two kilometres for a period of one year after the termination of his employment. This course work will thus endeavour at advising Edward as to whether he can enforce the restraints against George and harles. !n order to achieve this, the law on restraint of trade will be e"amined and then apply it on the two cases at hand. THE LAW ON RESTRAINTS OF TRADE IN CONTRACTS A contract in restraint of trade was defined in the case of Esso Petroleum v Harper's Garage Stourport! Lt" #as one in which a party $the covenantor% agrees with any other party $the covenantee% to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses.& Therefore, the covenants between Edward and George and that between Edward and harles can be said to be contracts in restraint of trade. Restraint of trade is said to be a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. !n an old leading case of #$t%&ell v Re'(ol"s', (ord )mith ( said, "it is the privilege of a trader in a free country, in all matters not contrary to law, to regulate his own mode of carrying it on according to his own discretion and choice. If the law has regulated or restrained his mode of doing this, the law must be obeyed. But no power short of the general law ought to restrain his free discretion.*+
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The learned author Richard )tone7 asserts that contractual provisions which attempt to restrict the ways in which one of the parties may do business, or earn a living, have at different times been treated by the common law as being prima facie void, or prima facie valid. He further states that the current position derives from the House of (ords8 decision in Nor"e()elt v #a*$m Nor"e()elt Gu(s a(" Ammu($t$o( Co Lt"+, where the plaintiff, Thorsten 9ordenfelt had established a valuable business in the manufacture of machine guns, operating in )weden and England. His customers included most national governments across the world. He sold the business to a company, which then transferred it to :a"im 9ordenfelt. At that time Thorsten 9ordenfelt entered into an agreement with :a"im that he $Thorsten% would not for a term of &7 years engage in the manufacture of guns, e"plosives, etc, other than on behalf of the company. Thorsten broke this covenant, alleging that it was unenforceable as being in restraint of trade. The House of (ords affirmed the decision of the ourt of Appeal that the covenant, though operating as a world;wide ban, was not wider than was necessary to protect the interests of :a"im 9ordenfelt. (ord :acnaghten stated the House8s view of the correct approach to contracts of this type is that the public have an interest in every person8s carrying on his trade freely so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. <ut there are e"ceptions, restraints of trade and interference with individual liberty of action may be =ustified by the special circumstances of a particular case. !t is a sufficient =ustification, and indeed it is the only =ustification, if the restriction is reasonable, reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public. Richard )tone4 also echoed (ord :acnaghten sentiments by stating that the current presumption is, therefore, that contracts or provisions within a contract which are in restraint of trade are unenforceable. <ut he went further to say that that presumption can, be rebutted by proving that the restraint is >reasonable8, both as between the parties and in relation to the

Stone.,R.(2011). The modern law of contract (9 ed).NewYork Ro!tlad"e. ,#/-+0 A 7'7.

ibid

public interest. :uch of the case law in this area is concerned with deciding what is >reasonable8 in this conte"t. Thus Edward can only enforce the restraints against George and harles if it can be proved that the restraints are reasonable both between the parties and in relation to the public. RE-UIRE#ENTS FOR RESTRAINTS TO .E /ALID The two types of the restraint which are been looked at here, include a restraint in the ontract of Employment such as a restriction on a sales representative from soliciting the customers of a former employer, and a restraint on the sale of business, for e"ample, a restriction on the seller of a business from setting up in competition to the buyer./ According to Richard )tone-, for the two types of restraints mentioned above to be valid there are three re?uirements which must be fulfilled, these are1 $#% there must be a valid interest which the party imposing the restraint is trying to protect@ $&% the restraint must be no more e"tensive than is reasonable to protect that interest@ and $'% the restraint must not be contrary to the public interest. Thus getting back to the cases at hand, it can be said that for the restraints against George and harles to be valid, the three re?uirements above must be fulfilled. Therefore each of these re?uirements needs to be considered separately. #UST HA/E A /ALID INTEREST (ooking at the first of these re?uirements, an employer will have a legitimate interest in restricting the activities of a departing employee, where that employee has either ac?uired trade secrets, or has gained influence over the employer8s customers, either because they rely on the employee8s skill and =udgment, or because they have dealt e"clusively with that employee. As was made clear by the House of (ords in Her0ert #orr$s Lt" v Sa*el0' 12, it is not sufficient simply that the employee may compete with the former employer, or use >skill and knowledge ac?uired by the employee in his employer8s business8.##
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Thus in the case of the restraint against only be viewed to be legitimate if

harles, the interest been protected by Edward can

harles had ac?uired trade secrets of the wide range of

unusual cocktails which the bar serves, or has gained influence over Edward8s customers, either because they rely on harles8s skills and =udgement or they have dealt e"clusively with him. <ut as said above, it is not sufficient that ac?uired in Edward8s business. According to Richard )tone, e"amples of the cases where a restraint on an employee has been held to protect a legitimate interest include a hairdresser, #& a sales representative#' and a tailor.#+ !n relation to the sale of a business, the interest which the buyer is trying to protect is likely to be the >goodwill8 in the business, that is, the e"isting trade which has been built up by the seller. The buyer will probably have paid a substantial sum as part of the purchase price for the benefit of taking over the >goodwill8. !n that conte"t, the buyer has a legitimate interest in preventing the seller from setting up a business which will attract all the old customers. Thus in the case of the restraint placed on George not to engage either directly or indirectly, in the business of hotelier or restaurateur within ten kilometres of the Royal Hotel which he sold to Edward for a period of two years can be said to be a valid interest because what Edward bought from George was not only the buildings of the Hotel but also the >goodwill8 of the business. The courts have been prepared to recognise that the categories of legitimate interest are not closed. Bor instance, in Gre$g v I(sole,#7 which concerned restrictions placed on professional cricketers by the cricketing authorities, )lade C recognised that there might be a public interest that the game of cricket should be properly organised and administered. Dn the facts, however, the restraint was in any case unreasonable. !n East&am v Ne3%astle U($te" Foot0all Clu0 Lt",#.however, 6ilberforce C was unable to find a legitimate interest in relation to restrictions on freedom of transfer for professional footballers. !t seems then that, harles may use the skill and knowledge he

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although in theory the categories of interest are open, the courts are likely to be very cautious in finding new interests. RESTRAINT #UST .E REASONA.LE The reasonableness or otherwise of the restraint must be looked at in the conte"t of the interest which is being protected. There are three main factors to consider1 $#% the geographical area covered@ $&% the length of time involved@ and $'% the scope of the activities covered.#4 Bor instance, if a business is sold in one town, a restriction preventing the opening of a similar business anywhere in the country would be unlikely to be regarded as reasonable. !n the case of #aso( v Prov$"e(t Clot&$(g Co14, a canvasser who had been employed to sell clothes in !slington was restrained from entering into similar business within &7 miles of (ondon. This was held to be too wide.#!n the case of George8s restraint not to engage either directly or indirectly in the hotelier or restaurateur business within ten kilometres of the Royal Hotel can be said to be not too wide thus reasonable. And in the case of harles8s restraint not to work as a barman in any hotel, restaurant, club or public house within two Filometres can also be said to be reasonable. 6ith regard to time, Richard )tone&A argues that it will again depend on the type of contract. !n many employment cases, a restraint of one or two years at most will be all that is reasonable. !n the case of F$t%& v De3es,&# however, a lifelong restraint on a solicitor8s managing clerk was upheld. The =ustification was that the business was one to which clients were likely to return over a long period. The facts of the case are that the defendant was employed as a managing clerk of the plaintiff8s solicitors8 practice in Tamworth. His contract contained a clause that purported to restrict his work if he left the practice. He was not to work in a solicitor8s office within seven miles of Tamworth for a period that could be e"tended to the rest of his life. Bollowing the termination of his employment, the defendant intentionally committed a breach of the covenant to test its validity. The House of (ords held that the clause did not e"ceed what was reasonably necessary to protect the plaintiff8s business. The =ustification was that the business was one to which clients were likely to return
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over a long period. And in the case of .e%5ett I(vestme(t #a(ageme(t Group Lt" v Hall, the ourt of Appeal held that a #&;month restraint on a financial adviser, who had left the claimants8 firm to set up his own business, was reasonable, though indicated that anything longer would probably not have been.&& Richard )tone&' also asserts that the type of activity restrained must also be related to the interest being protected. A clause restraining someone who had been employed as a chiropodist from working as a hairdresser would be unlikely to be regarded as reasonable. He further argues that at one time, the approach of the courts was to take clauses literally in assessing their reasonableness. Thus, if no area were specified, the restriction would be taken to be worldwide. <ut in the cases of L$ttle3oo"s v Harr$s67 and Clar5e v Ne3la("68, the ourt of Appeal have suggested a different approach, re?uiring the restraint to be limited by the >factual matri"8 within which it was imposed. The facts of the case of L$ttle3oo"s v Harr$s6,, are that an employee who had been employed solely in connection with the plaintiffs8 mail order business was made sub=ect to a restraint which, on its face, covered all aspects of the plaintiffs8 wide ranging business activities. The ourt of Appeal, however, held that the relevant clause should be interpreted as being intended only to apply to the mail order business in the Gnited Fingdom. Dn that basis, it was reasonable. )imilarly, in Clar5e v Ne3la("69, a broad agreement by a doctor >not to practise8 was held to mean >practise as a general medical practitioner8 $rather than, for e"ample, in a hospital% since that was the role in which the defendant had previously been employed. PU.LIC INTEREST There is some controversy as to whether the public interest part of the rules concerning enforceable restraint of trade does in fact e"ist. !f it does, then it means that even if a restraint satisfies the other conditions $that is, of legitimate interest and reasonableness%, it may still be struck down as being contrary to the public interest. This might be the case, for instance, in relation to a restraint on the work of a leading artist, playwright, doctor or scientist, whose
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work might well be for the public benefit. The principle was stated in W'att v :regl$(ger a(" Fer(au.&/ The plaintiff8s pension was made contingent upon his not taking any part in the wool trade. The ourt of Appeal held that this stipulation was void, irrespective of whether it was reasonable as between the parties, because it was contrary to the public interest. This was followed in the similar case of .ull v P$t(e' .o3es.&- !t seems difficult, however, to find later authorities that have applied the principle, though (ord Henning supported it in relation to a solicitor in Os3al" H$%5so( Coll$er ; Co v Carter Ru%5<=2 !n the subse?uent cases, such as Dea%o(s v .r$"ge=1 and :err v #orr$s,'& the courts have refused to apply the principle to the circumstances before them, while not denying its e"istence. APPLICATION OF THE LAW TO THE FACTS !t is clear to infer from the facts of the cases at hand and from what has been established above, that the restraints which Edward placed on George and harles are contracts in restraint of trade as defined in the case of Esso Petroleum v Harper's Garage Stourport! Lt"== above, and that a contract in restraint of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. And it has been established above that the enforceability of the contractual restraints of trade depends on whether or not the restraints can be proved to be reasonable both between the parties and in relation to the public. Thus Edward can only enforce the restraints against George and harles if it can be proved that the restraints are reasonable both between the parties and in relation to the public. <ut the reasonableness both to the parties and the public can only be proved by establishing whether or not the restraints conform to the three re?uirements mentioned above by Richard )tone which are1 $#% there must be a valid interest which the party imposing the restraint is trying to protect@ $&% the restraint must be no more e"tensive than is reasonable to protect that interest@ and $'% the restraint must not be contrary to the public interest.

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Thus under the first re?uirement stating that the interest being protected must be valid, looking at the two cases at hand, it can be said that in the case of the restraint against George, the interest Edward was trying to protect was that of the >good will8 of the Royal Hotel which he bought together with the buildings of the hotel. Thus the interest can be said to be valid. 6hile in the case of the restraint against harles, as already stated above, the interest been

protected by Edward can only be viewed to be valid if harles had ac?uired trade secrets of the wide range of the unusual cocktails which the bar served, or has gained influence over Edward8s customers, either because they rely on harles8s skills and =udgement or they have dealt e"clusively with him. <ut as said above, it is not sufficient that skill and knowledge he ac?uired in Edward8s business !t has also been established above that in determining the second re?uirement which states that the restraint must be reasonable, three main factors have to be considered. The first factor is the geographical area covered. Thus George8s restraint not to engage either directly or indirectly in the hotelier or restaurateur business within ten kilometres of the Royal Hotel can be said to be not too wide thus reasonable. And in the case of harles8s restraint not to work as a barman in any hotel, restaurant, club or public house within two Filometres can also be said to be reasonable. The second factor under the second re?uirement which was considered is the length of time involved. Thus looking at the two cases at hand, it was established above that the length of time $been two years for George and one year for harles% on both restraints are reasonable as it has seen above in the case of .e%5ett I(vestme(t #a(ageme(t Group Lt" v Hall , where the reasonable. And with regards to the third factor which relates to the scope of the activities covered. !t was argued above by Richard )tone that the type of activity restrained must also be related to the interest being protected. A clause restraining someone who had been employed as a chiropodist from working as a hairdresser would be unlikely to be regarded as reasonable as it has been seen in the cases of L$ttle3oo"s v Harr$s=7 and Clar5e v Ne3la("'7 above. ourt of Appeal held that a #&;month restraint on a financial adviser was harles may use the

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Therefore in the two cases at hand it can be said that the interest in both cases which Edward is trying to protect are related to the activities been restrained. 6ith regards to the third re?uirement which relates to public interest in enforcing restraint of trade, it has been stated above that there is a controversy as to whether this re?uirement e"ists and if it does then even if a restraint fulfils the first two re?uirements, it will not be enforceable on the basis that it is against public interest. <ut looking at the restraints against George and harles in the case at hand it can be said that they are not against any public interest and therefore they are enforceable. AD/ICE Having looked at what the law say on the restraints of trade and the facts of the two cases at hand, Edward can enforce the restraints against George and harles.

REFERENCES
.OO:S )tone.,R.$&A##%. The modern law of contract $- ed%.9eswIork@ Routladge. INTERNET RESOURCES http122www.insitelawmaga3ine.com2ch#'illegaility.htm1 accessed on #&2A'2#& CASE SITED Esso 5etroleum v HarperJs Garage $)tourport% (td ,#-./0 & A &.:itchell v Reynolds $#4##% # 5 6ms #/#
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9ordenfelt v :a"im 9ordenfelt Guns and Ammunition o (td ,#/-+0 A 7'7 Herbert :orris (td v )a"elby ,#-#.0 # A .// Greig v !nsole ,#-4/0 ' All ER ++Eastham v 9ewcastle Gnited Bootball lub (td ,#-.+0 h +#'@ ,#-.'0 ' All ER #':ason v 5rovident lothing o ,#-#'0 A 4&+ Bitch v Hewes ,#-&#0 & A #7/ (ittlewoods v Harris ,#-4/0 # All ER #A&. larke v 9ewland ,#--#0 # All ER '-4 6yatt v Freglinger and Bernau ,#-''0 # F< 4-' <ull v 5itney <owes ,#-..0 ' All ER '/+ Dswald Hickson ollier E o v arter Ruck ,#-/+0 A 4&A@ ,#-/+0 & All ER #7 Heacons v <ridge ,#-/+0 A 4A7@ ,#-/+0 & All ER #-

Ferr v :orris ,#-/40 h -A@ ,#-/.0 ' All ER &#4

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