Question 3
Law
An agreement in restraint of trade is one in which a person's liberties to practice his or her
profession, trade, or business is restricted. There are two type of situation that usually arises
the restraint of trade. Firstly, an employee who, upon leaving his job, agrees not to compete
with his former employer by starting a similar business or joining a rival company. The
second one is a seller of a business with goodwill agrees not to compete with the purchaser of
a business in any way. Section 28 of the Contract Act of Malaysia contains the law on
restraint of trade. This section was borrowed from the Draft Civil Code of the State of New
York, according to the legislative history. Therefore, the position restraint of trade under
Section 28 of Contract Act is different from the common law. This is because under common
law it is stated that all re strain are prima facie avoid subject to a test of reasonableness.
In example the case Bulldogs Rugby League Club & Anor v Williams & Ors [2008]
NSWSC 822 presented the situation to the court for consideration of the common law
doctrine of restraint of trade and the Restraints of Trade Act 1976. Sonny Bill Williams is the
first defendant signed up a contract for five years with the plaintiff which is Bulldogs Rugby
League Club Ltd in 2007. By signing the contract, William agreed to the subclause 3.1 that
stated the player is prohibited from participating in any other football games of any code
without the Bulldogs' prior written consent. However, Williams and the second defendant
(Toulon Rugby Club) agreed that Williams would represent this French club in the
competition for the 2008/2009 season in July 2008. Following into that, on 8 th August 2007
William played for Toulon in trial game. Therefore, the plaintiff sought an injunction to
prevent the first defendant, who represented Toulon, from playing. The major issue for the
court to consider in determining whether this injunction could be granted is whether the
restraint was effective and necessary to protect the interests of those parties who supported
the restrictions. Therefore, the court held that restriction of trade would be reasonable and
enforceable if it protected the legitimate interests of employers and was not injurious to the
public interest.
Restraint of trade can be view as Common law position and Statutory position which
is by section 28 of Contract Act 1950. Under common law position, the Clause restraint on a
person's freedom is prima facie void, but it is enforceable if reasonable. The contract is not
illegal because the law simply ignores the clause unless the party imposing the restraining
order can indicate that the restriction is reasonable in the interests of the parties and
reasonable in the interests of the public. The reasonable in the interest of the parties is more
to not uncontrolled and protects a genuine interest while the reasonable in interest of public
means it is not damaging the general public as example the public shall not suffer as result of
the restraint.
In the Nordenfelt v Maxim Nordenfelt Guns and Ammunitors Co Ltd [1894] AC
535 has laid down the principle and policy of reasonable in the interest of the parties and
reasonable of the interest of the public. In this case, Nordenfelt was the owner of a global
company that manufactured firearms and ammunition. When he sold his company, he agreed
not to engage in the business of manufacturing guns and ammunition anywhere in the world
for the next 25 years, and he agreed not to compete with any company in any way. According
to the House of Lords, the restraint on not to be engaged in manufacturing guns and
communication was valid even though it was global since the business saw was worldwide.
However, there is a clause in restraint stated “…liable to compete in any way with the any
other company…” was unreasonable and void. This is because since the purchaser is only
untitled to protect the business purchased and not his other business. For restraint of trade to
be valid, it must not be excessive in restraining the area time and scope.
However, in the Singapore case of Thomas Cowan & Co Ltd v Orme [1961] 1 MLJ
41 the court stated the restraint was reasonable in between the parties and it was void and
unreasonable in the reference to the interests of the public. In the contract between the
plaintiff and defendant there is dictate the contract of service provided that the defendant
cannot carry on the business of White Ant Exterminator or Fumigator anywhere in the
Singapore also cannot take employment on the business of White Ant Exterminator or
Fumigator until the time of the three years has expired from the date of the leaving the
service of the employer. In Singapore the plaintiff company is the only fumigator company.
Therefore, despite the fact that the covenant was reasonable and necessary for the protection
of the plaintiff's business in terms of space and time, as well as the nature of the defendant's
employment, the court held that there should be more than one firm of fumigator in
Singapore and it would be unreasonable in reference of the interests of the public for prevent
the defendant to work as fumigator.
