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Thread: Restraint of trade agreements: the basics you need to know

  1. #1
    Diamond Member Vanash Naick's Avatar
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    Restraint of trade agreements: the basics you need to know

    Hi guys,
    I have noticed many posts about restraint of trade agreements. I’m hoping that the following will help to answer some questions:
    1.There are two parties to a restraint of trade agreement: the covenantee(the person in whose favour the restraint of trade agreement serves) and the covenantor( the person whose activities are restricted by the agreement;
    2.A restraint of trade agreement falls within the ambit of the ‘law of contract”
    3.Onus of proof when going to court: you guys are probably all aware of the rebuttable presumption of innocence of an accused in criminal proceedings(locus classicus) i.e an accused is presumed to be innocent until proven guilty. A similar rebuttable presumption exists with restraint of trade. The onus of rebutting the presumption that a restraint of trade agreement is prima facie(on the face of it) enforceable is on the coventor who wants the court to provide an order that this enforcement is against public policy.(Magna alloys decision, sunshine records v Frohling);
    4.To this end the court will consider two things: 1:whether public interest requires parties to comply with their contractual obligations even if these are unreasonable or unfair. 2: all persons should in the interests of society be allowed as far as is possible to trade or pursue a profession
    5.Reasonableness is of great importance but NOT conclusive. Reasonableness comes from the “reasonable man concept of law” "By reasonable man is meant an ordinary, normal, average person. In terms of case law, in Mbombela 1933 AD 269 273 the Court described the reasonable man as “the man of ordinary knowledge and intelligence. He is neither, on the one hand, an exceptionally cautious or talented person(Van As 1976 (2) SA 921 (A) 928), nor, on the other, an underdeveloped person, or somebody who recklessly takes chances. The reasonable person remains an ordinary flesh and blood human being whose reactions are subject to the limitations of human nature.”(UNISA 2009),
    6.The parties original bargaining position: The courts have favoured restraint of trade agreements entered into by the parties, if when this agreement was entered into were in a equal bargaining position e.g the parties are two members of a cc. the courts donot favour agreements between parties who when it was entered into were in unequal bargaining positions eg I apply for a job at a satellite company as a technician(I’m the begger, the company is the chooser, I will say or do anything just to get the job!!!..unequal bargaing position.
    7.The covenantee’s interest: There must be an interest entitled to protection
    In considering whether a restraint is enforceable , each individual case is considered on it’s own merits
    For more info, download the following cases:
    Bassoon v chilwan and others 1993 3 sa 742 (a); sunshine records v frohling and others 1990 4 sa (a)
    Last edited by Vanash Naick; 19-Dec-11 at 05:22 PM.

  2. Thank given for this post:

    AndyD (19-Dec-11), Dave A (19-Dec-11), wynn (20-Dec-11)

  3. #2
    Bronze Member
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    Very interesting, thanks viny
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