PROTECTING YOUR CLIENTS’ BUSINESS:

Contractual Restraints of Trade

The Starting Point

All contractual restraints of trade are presumed to be void for

reasons of public policy

The public have an interest in every person's 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.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd

[R]estraints of trade and interferences with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, 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, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd

The Onus of Proof

Reasonable as between the parties

Onus is on the promisee Injurious to the public Onus is on the promisor

A Word of CautionThere can of course be a problem with excessive reliance on decided cases. The question of validity of a covenant in restraint of trade (including, in this, a covenant against solicitation of the covenantee’s customers or clients) is not really a question of law. Decided cases state the relevant principles, and may prove useful, indeed valuable, guidance as to their application in particular factual circumstances. But the validity of a covenant in restraint of trade is to be assessed having regard to the terms of the particular covenant and the facts of the particular case.Stacks/Taree Pty Ltd v Marshall [No 2]

Employees – Existing Rights

Fiduciary duties Corporations Act 2001 Implied duties Equitable protection of

confidential information

Employees – Restraint Covenants

Legitimate interest of employer Circumstances of the employee Extent of restraint

Employees – Restraint Covenants

Restraint from Competing/Working for Competitor

Restraint against Poaching Employees

Restraint against Poaching Customers

Restraint against using information

Business VendorsThe goodwill of a business is immune from the danger of the owner exercising his personal knowledge and skill to its detriment, and if the purchaser is to take over such goodwill with all its advantages it must, in his hands, remain similarly immune. Without, therefore, a covenant on the part of the vendor against competition, a purchaser would not get what he is contracting to buy, nor could the vendor give what he is intending to sell.Herbert Morris Ltd v Saxelby

Business Vendors – Restraint Covenants Identify goodwill Geographical restraints Temporal restraints Other restraints

Drafting Issues Identify Legitimate Interests Consider Activities to be Restrained Identify Elements with Precision Severance Cascading Clauses Acknowledging Reasonableness In Addition to Other Rights