Student No 04*****

Contract and Legal Systems: Assignment 04-05

Assignment Guide

Students should write a word-processed essay on the following question.

The following rules should be strictly adhered to:

1. The minimum and maximum word limits for the question appears in bold at
the end of the question. These limits should be adhered to, otherwise the
student will be penalised. Each submission should include a word count.

2. Footnotes/endnotes should be included. A bibliography should appear at

the end of the coursework. The bibliography should contain all relevant
material consulted by the student, whether referred to in footnotes or not are
not and material in the bibliography should be arranged under the following
headings, if applicable:

Legislation
Case Law
Internet resources
Other resources

Words in footnotes and bibliography should not be included when taking into
account the word count.

3. Footnotes must be used for referencing and further reading only and should
contain as little text as possible.

4. The assignment answer must be submitted in one of the following ways,

prior to the submission deadline (see below):
(1) By e-mail to the postgraduate administrator, Tori Ratcliffe, to:
v.ratcliffe@rgu.ac.uk. or
(2) By submission to the fourth floor reception desk of the Faculty of
Management Building, Garthdee Road, Aberdeen marked for the attention of
Tori Ratcliffe or
(3) by placing it in the postgraduate coursework drop-box in the Georgina
Scott Sutherland library, Faculty of Management Building, Garthdee Road,
Aberdeen.

5. The assignment answer must be submitted with a fully completed

postgraduate coursework front sheet.

6. The assignment answer must be submitted by the following deadline:

Wednesday 15th December 2004 at 12.00 noon, UK time

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Extensions to this deadline may exceptionally be granted. Applications for an

extension should be sent, with full reasons, to the module tutor, Derek Auchie,
at d.p.auchie@rgu.ac.uk. Any extensions should be applied for as early as
possible and will be considered at the sole discretion of the module co-
ordinator. Applications close to the deadline should be avoided wherever
possible, and unless made at the earliest opportunity, are likely to be refused.
Please note that pressure of work, unless exceptional and verified, will not be
accepted as a valid extension justification.

Failure to submit the essay timeously or properly will result in the student
scoring zero for the coursework.

7. Any deviation from the above rules will be penalised, either by a zero score
or a lower mark.

Question

John is employed as a drilling contract manager for a large multi-national oil company based
in Aberdeen, Oil & Co. He was previously with another oil company but there his contract of
employment contained no restrictive covenant clause. He has taken many lucrative
customer contracts with him from his last employer. He also has gained a few since arriving,
as well as retaining all contracts in place with Oil & Co. once he arrives. He is the only person
in Oil & Co. who has regular contact with the companies who have drilling contracts with the
company: no one else deals with them at all. John only speaks English.

However, he becomes disillusioned with the working practices of Oil & Co. and after 6 months
he leaves to set up business on his own. The employment contract he has signed with Oil &
Co. contained a clause prohibiting him from working for an oil company in any role and from
setting up business on his own in any capacity within the oil industry, within a 50 mile radius of
Aberdeen, for 10 years following his termination of employment with Oil & Co.

He sets up his own business within the 50 mile radius referred to in his contract, but Oil & Co.
seek and obtain an interim interdict in the local Sheriff Court to prevent him from operating.
He seeks your advice on whether he will be able to challenge the interdict.

(a) On the above facts, what would be your advice and why? You should refer to any
relevant UK case law in this part of your answer.

(b) Assume that the clause only prohibited him from working as a drilling contract
manager, but that otherwise it was on the same terms as above, would this affect the
advice you give to John? You should refer to any relevant UK case law in this part of
your answer.

(c) John tells you, in passing, that he was not keen, at the time he started with Oil & Co.
on signing his contract containing such a clause. He was told by the Managing
Director that the clause was non-negotiable and that not only would he not get the
job if he did not sign, but his name would be ‘blackened’ in the oil industry, so he
would find it difficult to get another job. Would this information affect your advice?
Assume for the purposes of this part that Scots Law applies, but any equivalent English
case law can be referred to.

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(minimum word limit - 3,000 words; maximum word limit - 4,000 words - students have
discretion as to word allocation between the three parts of the question)

CONTRACT AND LEGAL SYSTEMS ASSIGNMENT ANSWER

1.0 Section (a)

1.1 Background

1.1.1 The interim interdict granted by the local Sheriff Court followed an action by Oil & Co.
regarding an alleged breach by John of a restrictive covenant within his employment
contract.

1.1.2 Restrictive covenants fall within the wider common law doctrine of restraint on trade,
which also includes business sales, partnership agreements and exclusive dealing
arrangements. The established principles of restraint on trade are 1:

• A general policy they are unenforceable, being against the public interest.

• Exceptions to be judged on the circumstances of the individual case.

• To qualify as an exception, the restraint must be reasonable between the

parties and in the public interest, whilst offering the party benefiting from the
clause, no more than adequate protection.

1.1.3 Post employment restrictions have come under detailed scrutiny by the Courts. In
assessing whether a restrictive covenant clause is reasonable between the parties, the
Courts commonly test the respective clause against the following 2:

• The protection of a legitimate business interest.

• Geographic coverage must not be too wide.

• Restriction reasonable in length of time.

• Restriction reasonable in relation to the nature of the employment.

1 Thorsten Nordenfelt v The Maxim Nordenfelt Gunns & Ammunition Co [1894] A.C. 535
2 For example Office Overload Ltd v Gunn [1977] F.S.R. 39 and Scully UK Ltd v Lee [1998] I.R.L.R 259
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1.1.4 The above points are considered collectively and not in isolation, to establish whether
a clause is reasonable between the parties and in the public interest. For example, a
restriction that is unlimited in length of time may be considered reasonable if the
remaining elements of the clause are sufficiently specific 3.

1.1.5 The interim interdict is a temporary remedy, granted prior to a full hearing. Its purpose
is to prevent loss to Oil & Co. before actual damage occurs. Consequently John is
restricted from operating his new business and it is of paramount importance to him
that the interim interdict is recalled at the earliest opportunity. It would be a criminal
offence for John to breach the interim interdict.

1.1.6 In considering a recalling motion, the courts will consider whether the relevant clause
is prima facie enforceable and whether on the balance of convenience the interim
interdict is appropriate.

1.1.7 The reasonableness between the parties of the relevant components of the clause
with reference to relevant case law is considered below.

1.2 Protection of legitimate business interest

1.2.1 The business interest that an employer seeks to protect varies from case to case. The
Courts have recognised the protection of trade secrets 4, client base 5 and goodwill 6.
The nature of the business interest being protected has a fundamental impact on the
reasonableness of the remainder of the clause. For example, the protection of trade
secrets may justify an industry-wide restraint 7, whilst the protection of goodwill may
justify a longer time period8.

1.2.2 In respect of the subject case, John is the sole point of contact with Oil & Co’s drilling
contract clients. Oil & Co. would therefore appear to have legitimate concerns over
John canvassing their client base. Such a situation was recognised by Lord Moulton 9,
who stated “it would be reasonable for the employer to protect himself against the
danger of his former servant canvassing or collecting for a rival firm in a district in
which he had been employed”.

3 Fitch v Dewes [1921] 2 A.C. 158

4 Bluebell Apparrel Ltd v Dickinson [1980] S.L.T 157
5 Scottish Farmers Dairy Co (Glasgow) Ltd v M’Ghee [1933] S.L.T. 142 page 4
6 Fitch v Dewes [1921] 2 A.C. 158
7 Bluebell Apparrel Ltd v Dickinson [1980] S.L.T 157
8 Fitch v Dewes [1921] 2 A.C. 158
9 Mason v Provident Clothing & Supply Co Ltd [1913] A.C. 724
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1.2.3 The protection of an existing client base can be distinguished from preventing an
employee from setting up in competition. A master has no right to simply protect
himself from the competition of a former servant 10.

1.2.4 Oil & Co. have a legitimate business interest to protect. The question is whether the
clause goes beyond what is reasonably required to provide adequate protection.
Viscount Haldene LC stated, “such agreements are frequently insisted on but they are
invalid if they go beyond what is necessary for the protection of the rights of the
employer” 11.

1.3 Geographic coverage

1.3.1 Whether a geographic restriction is too wide, will depend upon the circumstances of
the case. A worldwide restraint was held to be enforceable in relation to the arms
industry and reflecting that consideration had been paid for goodwill 12. In contrast,
any geographical restriction to a business primarily undertaken over the telephone
has been held to be invalid 13.

1.3.2 The circumstances of the case in hand are:

• Aberdeen is the capital of the UK oil industry.

• UK opportunities for a drilling contract manager outside Aberdeen are

restricted.

• John only speaks English, which limits opportunities to work overseas.

• John is the only person at Oil & Co. to have contact with drilling contract
customers.

1.3.3 The purpose of the 50 mile restriction would appear to be to prevent John from
canvassing Aberdeen based drilling contract customers. A 50 mile radius would be
excessive, if a restriction to Aberdeen alone would have provided the same level of
protection. Accordingly the extent of the geographic coverage provides John with a
further defence against the interim interdict, although this is not the strongest element
of John’s case.

10 Attwood v Lamont [1920] 3 K.B. 571

11 Mason v Provident Clothing & Supply Co [1913] A.C. 724
12 Thorsten Nordenfelt v The Maxim Nordenfelt Gunns & Ammunition Co [1894] A.C. 535
13 SW Strange Ltd v Mann [1965] All E.R. 1069
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1.3.4 Such a defence would be weakened if Oil & Co. were to successfully contend that
the purpose of the clause was to protect trade secrets such as pricing policy. The
Court of Session has held a UK-wide geographic restraint to be appropriate in respect
of protecting confidential business information 14. Accordingly the type of business
interests that Oil & Co. are seeking to protect and the nature of the oil industry are of
importance in determining whether the geographic restriction goes beyond
adequately protecting their business interests. The fact that the clause does not
specify which business interests they are seeking to protect is a further indication that
the clause is too wide.

1.4 Length of time

1.4.1 Long time restrictions have been justified to protect goodwill. A 25 year time limit was
enforced in respect of the sale of an arms business 15, whilst a five year restriction was
enforced in respect of a senior partner retiring from a firm of solicitors 16.

1.4.2 Where the purpose of a post employment restriction is to protect the goodwill of the
employer’s business, a long or indefinite time restriction may be enforced subject to
the reasonableness of the remainder of the clause 17. However, in post employment
situations where the purpose of the restraint is to protect either a client base or trade
secrets, then the Courts are less tolerant of long time restrictions. In this regard a three
year restriction has been considered excessive 18.

1.4.3 The reasonableness of the time limit will be determined by the facts of the individual
case and in the context of the relevant industry standards.

1.4.5 In respect of John’s case ten years seems excessive and provides a strong case to
defend the interim interdict. The defence in this regard would be weakened, if for
example, John had joined Oil & Co. as a partner and had been paid consideration in
respect of the goodwill of his existing client base.

1.5 Reasonable in relation to nature of employment

1.5.1 John was the only person to have dealings with Oil & Co.’s drilling contract customers.
Where an employee is the only person within a company to have direct customer
contact it has been stated, “a covenant which is directly restrictive of competition

14 A & D Bedrooms Ltd v Michael [1984] S.L.T. 297

15 Thorsten Nordenfelt v The Maxim Nordenfelt Gunns & Ammunition Co [1894] A.C. 535
16 Bridge v Deacons PC (HK) Priviy Council (Hong Kong) [1984] A.C. 705
17 Fitch v Dewes [1921] 2 A.C. 158
18 Mason v Provident Clothing & Supply Co [1913] A.C. 724
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may be the only effective means of protecting the master’s legitimate interest in this
business” 19.

1.5.2 However, in the same case it was further stated that such a clause would be
enforceable if “ it is only designed to protect the employer’s business for a reasonable
time and within the usual trading area from injury arising out of the information and
facilities which the servant has acquired while in his employment. Anything which
goes beyond that and amounts to a restraint against fair trading is held to be pactum
illicitum which cannot be enforced” 20.

1.5.3 The subject clause restricts John from “working for an oil company in any role and
from setting up business on his own in any capacity within the oil industry”. This is an
extremely wide ranging clause which goes beyond John’s job description as a drilling
contract manager. This wording prevents John from working in the oil industry in a
completely unrelated capacity that in no way competes with Oil & Co. for a period of
ten years. This wording fundamentally undermines the validity of the clause.

1.5.4 The Courts have enforced a clause preventing an employee from performing “any
services for any business entity in competition with” his employer 21. In that instance
there was a specific and clear intention to protect trade secrets. Accordingly such
circumstances can be distinguished from the subject clause where the business
interests that Oil & Co. are seeking to protect are not specified and relates to the
“entire oil industry for ten years”.

1.5.5 John has taken many lucrative deals with him to Oil & Co. An employer is not entitled
to prevent an employee from utilising his own skills/experiences gained from previous
employment. Lord Moulton referred to the protection of knowledge acquired in the
master’s service, which can then be used to the master’s prejudice 22.

1.5.6 Preventing John from using the skills and contacts that he gained in his previous
employment, goes beyond what is reasonable between the parties to protect and
provides an appropriate defence for John. However, such a defence is open to
challenge. John had access to Oil & Co.’s existing clients and also established new
clients whilst in their employment. The Courts have shown a reluctance to distinguish
between which clients can and cannot be approached, even in circumstances when

19 Scottish Farmers’ Dairy Co (Glasgow) Ltd v M’Ghee [1933] S.L.T. 142 page 4
20 Ibid page 5
21 Bluebell Apparell Ltd v Dickinson [1980] S.L.T. 157
22 Attwood v Lamont [1920] 3 K.B. 571
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clients have stated that they no longer wish to deal with the employer 23.

1.5.7 The proportion of John’s existing contacts, in comparison to Oil & Co.’s client base,
may ultimately influence whether such a defence is successful. For example, it was
legitimate for the employer to protect a business interest, where 90% of the defender’s
potential business came from the employer’s client list 24.

1.5.8 Determining the relevant proportion of potential business attributable to John’s own
client base would require the production of further evidence, which may form part of
any subsequent hearing. For the purpose of a recalling motion, the court would not
necessarily have to reach a final decision on this point. In establishing whether there is
a prima facie case against John, there is a lower standard of proof than would be
required at a full hearing 25.

1.5.9 The fact that John is prevented from using the experience and contacts that he had
gained in a previous employment, indicates that the clause goes beyond what is
reasonably necessary. This provides a strong case for recalling the interim interdict on
the balance of convenience.

1.5.10 John has only been with Oil & Co. for six months. In Fitch v Dewes 26 it was relevant
that the employee had worked for the employer for 15 years. During that time his
career had progressed and he had built up considerable client contacts / goodwill.
John’s career progression cannot solely be attributed to Oil & Co. It is evident that he
had considerable client contacts and experience prior to joining Oil & Co.

1.6 Prima Facie Case

1.6.1 By there nature restrictions on trade are against the public interest 27. The general
presumption is that such clauses are unenforceable and that the burden of proof lies
with the party seeking to rely on the restriction 28.

1.6.2 As previously stated the various elements of the subject restrictive covenant must be
considered collectively. On balance, taking into account the short six month period
of John’s employment, his previous experience with other employers and the industry
wide restriction for ten years, the clause goes considerably beyond what is reasonable

23 John Michael Design plc v Cooke [1987] F.S.R. 402

24 Office Overload Ltd v Gunn [1977] F.S.R. 39
25 For an example of a similar situation see The Centre for Maritime & Industrial Safety Technology Ltd v Crute [2003]
http//www.scotcourts.gov.uk
26 [1921] 2 A.C. 158
27 Thorsten Nordenfelt v The Maxim Nordenfelt Gunns & Ammunition Co [1894] A.C. 535
28 Attwood v Lamont [1920] 3 K.B. 571
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between the parties to protect the legitimate business interest of Oil & Co.

1.6.3 At any future hearing Oil & Co. may produce evidence to support their case, for
example demonstrating that John has knowledge of trade secrets such as pricing
policy and / or that their client list will form a significant proportion of John’s potential
business irrespective of his previous experience / contacts.

1.6.4 Taking into account the extremely wide ranging nature of the clause and the
information to hand, Oil & Co.’s case against John is weak and prima facie is not
enforceable.

1.7 Balance of Convenience

1.7.1 Having determined whether prima facie there is a case to answer, the granting /
recalling of an interim interdict, which is discretionary, will be based on the balance of
convenience between the parties. In making such a judgement, it is appropriate to
take into account each party’s remedy in damages 29.

1.7.2 It is appropriate to take into account the immediate financial impact that the interim
interdict would have on the parties. In determining the balance of convenience the
potential future loss to a large corporate organisation weighed against the immediate
financial loss to an individual can count in the individual’s favour 30. However, where
there is a strong prima facie case that the clause is enforceable the balance of
convenience is more likely to rest in the employer’s favour irrespective of the financial
position of the parties 31.

1.7.3 Taking into account that:

• Prima facie Oil & Co. have an extremely weak case against John;

• Oil & Co.’s potential future loss weighed against the immediate financial loss
being imposed on John;

The balance of convenience should be determined in John’s favour.

1.8 Remedy

29 American Cyanamid Cp v Ethicon Ltd

30 For an example see The Centre for Maritime & Industrial Safety Technology Ltd v Crute
http//www.scotcourts.gov.uk
31 For example see HSBC Gibbs Ltd v Torrance http//www.scotcourts.gov.uk

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1.8.1 As time is critical I recommend that John immediately seek a recalling motion to have
the interim interdict recalled by the local Sheriff Court.

1.8.2 It would also be appropriate to bring an action for damages at this time. The principle
head of claim for damages will be for loss of profit for the period that John has been
restricted from trading. Any loss of profit must not be too remote and accordingly the
type of loss must have been reasonably foreseeable between the parties 32.

1.8.3 If the local Sheriff court does not recall the interim interdict then any appeal would
either be to the Sheriff Principal or to the Court of Session. However, any such appeal
would lead to a further time delay, which would be critical and may ultimately put
John out of business.

32 Victoria Laundry (Windsor) Ltd v Newman Ltd [1949] 2 K.B. 528

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2.0 Section (b)

2.1 Background

2.1.1 For the reasons stated in section (a), the original clause goes beyond what is
reasonable between the parties.

2.1.2 It is necessary to consider whether the revised wording is reasonable and if so whether
it can be severed from any remaining unreasonable elements.

2.2 Restriction to Drilling Contract Manager

2.2.1 One of principle failings of the original clause was that it prevented John from working
in the oil industry in any capacity. The revised wording narrows the restriction to John’s
specific field of operation. A covenant restricting an individual from working for a
“trade competitor” has been enforced 33. A restriction preventing a milkman from
being a “cowkeeper, milkman, milk seller, or milk carrier” has also been enforced 34. In
both of these instances the time restriction was reasonable.

2.2.2 The revised subject clause, relating to the area of business within which John is
restricted from operating, is more likely to satisfy the courts in determining whether
prima facie John has a case to answer.

2.2.3 However, the clause must be considered in its entirety. The revised wording does not
rectify the excessive period of ten years nor does it lift the restriction on John from
using the skills and contacts that he built up in his previous employment. In its totality
the clause remains unreasonable between the parties.

2.3 Severance

2.3.1 Where one element of a clause is reasonable and the remainder unreasonable, the
question of severance arises.

2.3.2 In Goldsoll v Goldman 35 the parts of the clause that went beyond protecting the
plaintiff’s business were severed, in order to enforce the remainder of the clause. In
that instance the offending parts of the clause related to geographic restrictions and
a type of business that had not formed part of the sale contract.

33 A&D Bedrooms Ltd v Michael [1984] S.L.T. 297

34 Scottish Farmers Dairy Co (Glasgow) Ltd v M’Ghee [1933] S.L.T. 142
35 [1915] 1 Ch 292
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2.3.3 Attwood v Lamont 36 provides further clarification on severance, “ a contract can be
severed if the severed parts are independent of one another and can be severed
without affecting the meaning of the remaining part”. It was further clarified that
where parts of the same clause are expressed in such a way that they amount to
separate covenants then severance can be applied.

2.3.4 Severance will only be permitted where the obligation being severed is truly a
separate obligation to that which is being enforced. If the obligations are in any way
interdependent then severance will not be permitted 37.

2.3.5 In respect of the subject clause, the various elements are interdependent. The
restriction from working as a contract drilling manager applies to the geographic area
and the time restriction. If the geographic restriction and the time limit are severed
then the remaining restriction, i.e. not to work as a contract drilling manager would be
open ended in both time and area. This clearly does not leave a clause that is
reasonable between the parties.

2.3.6 The courts will in some instances imply terms out of “business necessity” to make a
contract work 38. However the courts will not imply terms simply to make a contract
fairer or more reasonable between the parties 39.

2.3.7 In conclusion the revised clause is neither capable of being severed or enforced by
the addition of implied terms. In respect of the prima facie case against John, the
balance of convenience and the available remedies, the recommendations remain
the same as in section (a).

36 [1920] 3 K.B. 571

37 Scully Uk Ltd v Lee [1998] I.R.L.R 259
38 The Moorcock [1889] 14 PD 64
39 Liverpool City Council v Irwin [1977] AC 239
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3.0 Section (c)

3.1 Background

3.1.1 The Managing Director (MD)’s comments bring into question whether the contract is
voidable on the basis of inducement. The relevant grounds are considered below.

3.2 Force and Fear

3.2.1 Economic duress (force and fear in Scotland) results when a party uses his superior
economic power in an illegitimate way to gain an advantage. This is a developing
area of law, having only been recognised in the UK since 1976 40.

3.2.2 The following principles apply to economic duress 41:

• Whether the pressure being brought is illegitimate.

• Whether such pressure completed the victim into a course of action or left him
with no practical alternative.

• Did the victim protest at the time of the pressure?

• Has the victim subsequently affirmed the contract?

3.2.3 If the MD had limited his comments to the clause being non-negotiable, then this
would have been no more than a refusal to contract. There was no compulsion on
the MD to give John a job and as no contract had been formed, both parties were
free to walk away at that point.

3.2.4 However, The MD’s comments, regarding John’s name being blackened if he did not
sign, are a different matter.

3.2.5 Pressure is illegitimate if it includes a threat to commit a crime or delict 42. The MD’s
threat could amount to a criminal offence of blackmail / extortion or an action in
delict for either slander or negligent misrepresentation. The comments clearly satisfy
the requirement of being illegitimate.

40 Occidental Worldwide Investment Corporation v Skibs a/S Avanti (The Siboen and The Sitbotre [1976] 1 lloyds’ Rep
293)
41 DSDN Subsea Ltd v Petroleum Geo –Services ASA [2003] B.L.R. 530
42 Universe Tankships of Monrovia v International Transport Workers Federation [1983] 1 A.C. 366
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3.2.6 The fact that John protested against the terms of the restrictive covenant, indicate
that he did not voluntarily enter into the contract and was possibly induced by the
threat.

3.2.7 The respective bargaining positions of the parties at the time of entering into the
contract is also of relevance 43. In the circumstances of the case we have the large
corporate Oil & Co., bargaining against an individual, John. Under the threat of
having his name blackened by Oil & Co., it could be contended that John had an
extremely weak bargaining position in respect to Oil & Co.

3.2.8 The fact that John worked for six months without raising the matter may at first sight
indicate that he affirmed the contract. However the affirmation is to take place after
the economic duress has ended. A delay of eight months between the economic
duress ending and making a claim has had the effect of affirming a contract 44.

3.2.9 Determining whether John has affirmed his contract in the subject case is dependent
upon when the illegitimate pressure ended. If John worked under this threat for the
full six months then he has grounds to contend that the contract was not affirmed, as
the economic duress had not ended.

3.2.10 To render the contract voidable, the MD’s comments must have been a “significant
cause” of John entering into the contract 45. Under Scots law, following the principles
of undue influence (see below) it could be contended that the illegitimate pressure
not only has to be “a” significant cause but “the” significant cause for entering into
the contract.

3.2.11 In establishing whether the pressure caused John to enter into the contract it is
necessary to look at the individual circumstances:

• Did John protest at the time? Yes he did, thus indicating that he did not enter
into the restrictive covenant willingly.

• What were the respective bargaining positions? John was undoubtedly in the
weaker position in light of the threat made by Oil & Co.

• Did John have any alternative options? Arguably not, if the only other options
were to seek other employment or set up on his known under the risk of having

43 A Schroder Music Publishing Co Ltd v macaulay [1974] 1W.L.R 1308

44 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd and another [1979] QB 705
45 See Dimskal Shipping Co SA v International Transport Workers Federation (The Evia Luck) [1992] 2 A.C. 152 165
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his name blackened.

• Did John affirm the contract? If he continued to work under the continued
illegitimate threat, then he did not affirm his contract.

3.2.12 I therefore consider that John has a strong case under the principles of economic
force and fear, the remedy for which is rendering the contract voidable 46. This will
have the effect of bringing the contract to an end with John having a claim for
damages.

3.3 Undue Influence

3.3.1 The principle requirements of undue influence were set out in Gray v Binny 47 as
summarised below:

• The existence of a special relationship of trust and confidence.

• A material and gratuitous benefit given to the prejudice of the granter.

• The granter took no independent advice.

3.3.2 These principles are still applied by the Scottish courts today 48.

3.3.3 The MD obtained a material benefit by securing the terms of the restrictive covenant
within John’s contract. John has been prejudiced as he is no longer free to work in
the industry. The contentious area of brining an action under undue influence is
whether there existed a relationship of trust and confidence between the parties at
the time the contract was made.

3.3.4 Common law implies a relationship of trust and confidence in employer / employee
relationships 49 and the term is “presumptively present in any contract of
employment” 50. The courts do not follow a defined list of relationships where trust
and confidence is implied 51 and indeed to establish trust and confidence it is firstly
necessary to establish that any form of relationship existed.

46 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd and another [1979] QB 705
47 [1879] 7 R 332
48 Mrs Joyce Heather Horne and George Alexander Bryson v Kynoch [2003] http//www.scotcorts.gov.uk
49 Malik v BCCI [1997] I.R.L.R. 462
50 Peter King v University Court of The University of Saint Andrews [2002] http//www.scotcorts.gov.uk
51 Honeyman’s Executors v Sharp [1978] S.C. 223
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3.3.5 At the time that the MD persuaded John to accept the restrictive covenant there
was no employer / employee relationship as the contract at that point had not been
agreed.

3.3.6 As there was no prior relationship between the MD and John, a challenge of the
validity of the contract on the grounds of undue influence is likely to fail.

3.3.7 Undue influence cases are often run in tandem with a case on the grounds of facility
and circumvention. The evidence for the two challenges are likely to be similar 52.
The advantage to John of taking such an action is that facility and circumvention
does not require the existence of a relationship between the parties. Circumvention
will be implied if facility of mind and detriment are proven 53. However, facility of
mind must first be proven on a factual basis 54. On the facts of the subject case, it will
be extremely difficult to demonstrate that John’s mind was sufficiently weakened by
the threat that he then entered into the contract.

3.4 Conclusion

3.4.1 Taking into account the MD’s comments I would recommend that John continues
with the recalling motion set out in sections (a) and (b), together with a claim for
damages and that he also contends that the contract is any event voidable on the
grounds of economic duress (force and fear).

Word Count (excluding paragraph numbers) 3,942

52 Horne and Kynock v Whyte and Others [2203] http//www.scotcourts.gov.uk

53 MacGilvary v Gilmartin [1986] S.L.T. 89
54 MacKay v Campbell [1967] SC 53
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Internet Sources
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Other Sources
McKendrick, E. Contract Law Text Cases and Materials, Oxford university Press, 2003

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