Reconstructing Restraint of Trade

Abstract

The doctrine of restraint of trade is a strange beast. Its role in contract law is traditionally understood to be that of denying validity to contracts that unduly restrain the freedom of one or both of the contracting parties. The doctrine appears to place non-procedural limitations on freedom of contract and, moreover, to place these limitations because of a concern for the contracting parties' freedom. A concern for freedom is being used, it appears, to limit freedom. Seen in this light, it is not entirely surprising that restraint of trade law has been, as one judge delicately put it, 'the subject of observations which are by no means easy to reconcile'.' The main disagreements relate to four issues. The first issue is which contracts, if any, should be excluded from scrutiny under the doctrine-a question which, Lord Pearce once observed, could not be answered 'on any logical basis'.2 The second issue is how to define those interests which contracting parties may legitimately use restraints to protect-a definition so relaxed in recent decisions that a company's desire to sell 'as large a quantity of their ... products as they can' appears to satisfy it.3 The third, and perhaps most important, issue is the significance of procedural and substantive fairness, or, more generally, 'inequality of bargaining power' in assessing restraints. In Schroeder v Macauley,4 Lord Diplock gave great weight to these factors, going so far as to describe the main aim of restraint of trade law as that of giving relief for abuse of bargaining power. Yet other judgments entirely ignore procedural and substantive fairness and in one recent judgment it was held that concern for substantive fairness was 'a novel and dangerous doctrine' of which there was 'no trace' in modem cases.' The final issue is the significance of the 'public interest' requirement in assessing the validity of a restraint. In Esso Petroleum v Harper's Garage, Lord Hodson stated that 'the basis of the doctrine of restraint