South African case law has overtime considered important policy considerations and legal principles in the enforcement of Restraints of Trade.
These include:
- Contracts freely entered into by parties with capacity to do so are to be enforced (Pacta Sunt Servanda).
- The importance of competition in our economy.
- Section 225 of the Constitution of the Republic of South Africa Act 108 of 1996 which protects a person’s freedom to choose a trade, profession or occupation.
In the case of Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 4 SA 874 (A) it was held:
- contracts in restraint of trade are on the face of it enforceable.
- ‘where the restriction places an unreasonable restraint on an individual’s freedom to do business, in all likelihood it is contrary to the public interest and is therefore not enforceable’.
- the person alleging the unfairness of a restraint has the onus of proving same.
- the courts should have reference to the circumstances prevailing at the time at which the restraint is sought to be imposed.
- the courts can hold a restraint to be partially or fully enforceable.
In the case of Basson v Chilwan 1993 3 SA 742 (A) it was held, inter alia:
- It would be unreasonable to enforce a restraint on an individuals’ freedom to do business if the party seeking to enforce same has no protectable proprietary interest which it is seeking to enforce.
- This proprietary interest and the infringement of same must be weighed up against the freedom of the other party to be economically active.
In each instruction to draft a restraint of trade or to advise a client on the enforcement of same, there will be numerous factors to consider such as:
- The relationship between the parties i.e. employer and employee; franchisor and franchisee; a seller and purchaser of a business as a going concern; a shareholder selling their shares in a company.
- The proprietary interest being sought to be protected.
- The ambit, duration and territory within which the restraint is to be enforced.
- Unequal bargaining power between the parties. – Consideration payable.
It is imperative, in drafting a restraint of trade the person drafting same, understands the manner in which South African case law has addressed restraints of trade over time, the enforceability of same with special reference to the reasonableness of the restraint and the proprietary interests same seeks to enforce.
Sources:
Agreements in Restraint of Trade in South African Law (Author: John Saner MA cum laude LLB (Wits))
Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 4 SA 874 (A)
Basson v Chilwan 1993 3 SA 742 (A)
Article by Lisa Boogaard
Boogaard Attorneys
19 February 2019