Enforcement of Restraint of Trade Clauses - Agency Fails to Enforce
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Originally published November 2006
In a society that promotes freedom of trade, it is no wonder that the law as
regards restraint of trade agreements provides only limited protection. Such
agreements are relatively common within agency agreements. Coming into effect
when the agency ends, they are normally used to prevent the agent from
soliciting former customers for a period of time.
The courts will only enforce such an agreement to the extent that it is
reasonably necessary to do so to protect a legitimate business interest. To be
enforceable, the agreement must be reasonable both in terms of time and
In a recent case the agency agreement specified that after its termination
the agent was not allowed, for a period of two years, to solicit ‘any person,
firm or company’ who had been a customer of the principal within the year prior
to termination of the agency agreement. This group included customers who had
had no dealings with the agent.
Although the two-year restriction was not thought to be objectionable by the
court, it found the clause to be too broad to be enforceable, especially as
there would be customers who had dealt directly with the principal who the agent
would not know were customers.
“The message for businesses seeking to rely on such clauses is to take care
that the wording is not too broad, or the court will render the agreement
unenforceable,” says Leigh Ellis, a solicitor with Gillhams. “We can assist in
the negotiation and implementation in these commercial agreements.”
About the Author
Gillhams Solicitors are contract
lawyers providing legal advice on business transactions with a view to striking a
balance so that restrictive covenants are legally enforceable.
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Article Published/Sorted/Amended on Scopulus 2007-06-01 20:17:41 in Legal Articles