Courts don’t really like them because they are anti competitive agreements this is because if an employer can’t keep a valuable employee then maybe his business deserves to suffer, also why should a person who just sold his business at a large profit be prevented from starting a new business in the same trade or profession. They may yes be used to protect legitimate business interests such as trade secrets, designs for new products, manufacturing processes; business expansion plans investments and customers or other connections such as –
- Employment contracts
- Contracts involving the sale of business
- Solus ( exclusive supply) and franchise agreements
- Agreements between trade associations and their members
But also anti competitive agreements may well breach the provisions of the competitions act 1998, and the EU competition policy articles 81 & 82 of the treaty of Rome. Rule of thumb for one wishing to enforce a Restrictive covenant is not to put unruly excessive terms and to do no more than necessary to protect legitimate business interests but Scottish courts will determine what is reasonable. If worthy then court will issue an interdict to prevent employment in rival business or owner may win to prevent a former business owner setting up competition just down the road. The individual must show that they are taking legitimate measures to protect his position so courts need to do a balancing act for employer’s right to protect legitimate business interests such as trade secrets, and employee’s right to see profitable work. The things that need to be considered are:
- Challenges – if restraint is unreasonable and nothing more than a blatant attempt to stifle competition by preventing an employee from seeking alternative employment.
- The length is unreasonable – last for longer time than absolutely necessary
- The geographical area of restraint is unreasonable – UK, EU and global is far too much
- The restraint is not in the public interest – can restrict consumer choice
If it may be seen as anti competitive and abusive it can be removed or severed as null or void, it also may not be able to be redrafted into a clause if this is found so the employer, or business may be left completely unprotected, and in some case of employment a court will not prevent an individual from using their skills or information.
As for piers the courts may see the EU as too far geographically and a period of 18 months maybe too long, it also depends on Piers skills and information he could use.
Relevant case
Faccenda Chicken ltd v Fowler (1986) – Fowler was employed in a position of sales manager with Faccenda chicken ltd. He worked for the company for 7 years and played a prominent role in the creation and expansion of the company refrigerated poultry selling operations. The company operated a fleet of refrigerated vans which travelled around various retailers and wholesalers in the local area selling products directly to these individuals. He decided to leave his employment with Faccenda and set up his own business which completely competed directly with his former employer and he had also persuaded former colleagues at Faccenda to come work for him. Faccenda became alarmed at this and attempted to obtain damages alleging he had breached his contractual duty in not to use confidential information in a way that harmed the interests of his former employer.
In the English court of appeal stated that Faccenda’s attempt to sue fowler for damages be dismissed. The confidential information (customers) was widely known so no way could the information be described as a trade secret. Faccenda had no one else to blame but himself for the failure to include restraints in his employment contract.
Bluebell Apparel v Dickenson (1978) – Dickenson was a management trainee who worked for a subsidiary of an American company that was involved in making Wrangler Jeans. As a management trainee Dickenson had access to trade secrets and info about business connections and customers. A clause in Dickenson’s employment contract was that if he left the company he would not seek employment with any business rival of his employer anywhere in the world for a period of two years. Dickenson left his employment and in breach of his contract restriction accepted the offer of employment with Levi Strauss & Co also involved in the global business manufacturing of denim jeans. Dickenson’s former employer sought out an interdict to prevent him continuing to work for Levi Strauss.
The Restriction was seen as in reasonable terms of time and geography and that Dickenson’s former employer was seen as taking reasonable steps to protect his legitimate business interests. Court granted an interdict to Dickenson’s former employer and he had to give up his job with Levi Strauss.
Scottish Dairy farmers company (Glasgow) v McGhee (1933) and Home Counties Dairies v Skilton (1970) – the employees in question were both milkmen and were successfully restrained from approaching the customers of their former employers. McGhee and Skilton had left their previous employers to go work for rival dairies. So both employees were in a strong position to approach the ex-employers customers and persuade them to use the services of their new employers, this is known as poaching. McGhee and Skilton had both set out to commit a deliberate breach of contract by approaching the customers of their former employers in complete defiance of the restriction to which they both voluntarily agreed to and signed.
The inner house of the Court of Session in McGhee and English Court of Appeal in Skilton’s found in favour of the employers. Neither restriction has excessive terms of time limit and the employers were only protecting legitimate business interests and also the geographical area was not unreasonable. Although the Skilton employee would be allowed to approach ex customers who had ceased to be customers and it was to be after 6 months of the termination of the employment contract.
C) This case is under the postal rule; this is a special rule where offers and acceptance are sent using the post office. It was first used in an English Case Adams v Lindsell (1818) – as was introduced as a matter of convenience. Normally the thought would be valid if the letter of acceptance was sent in response to a letter of an offer and would only be valid if it actually reached the offeror.
When the offeror posts letter with proof with the offer for the offeree then a contract will be formed as soon as offeree responds to the offer by placing his letter of acceptance in the post box on the other end or handing it over to a post office employee such as a counter clerk who is authorised to forward the letter for posting. This is in spite of it taking a day or two to arrive and the offeror is ignorant of the offeree’s decision but it is never the less a contract formed. If acceptance is accepted by post then a contract is immediately formed.
If the offeror decided to withdraw the offer then to ensure that the withdrawal is effective, the offeror would have to put this in place for a letter to reach the offeree before they have the chance to post the acceptance on the other end and thus form a contract. So if the offeree decided they wanted to cancel the acceptance they would have to make sure the cancellation reached the offeror before the other letter or call to cancel. Before it reached the offeror.
If a letter is missing in the post then as long as the sender has a receipt of posting acceptance it will still be valid and the contract will still stand. For it not to stand then the letter of offer must state that it does not apply to the postal rule so it does not apply to the dealings of any contract.
Relevant case
Jacobson v Underwood (1894) – on the 2nd of March Underwood sent a letter containing an offer to Jacobson using the royal Mail. Underwood’s letter stated offer must be accepted by the 6th March. On the 6th of March Jacobson posted his letter of acceptance to Underwood but it did not reach him until 7th March. The contract was held as the postal rule had applied that the offer had been accepted on time by being posted on the 6th March. In order to have protected himself Underwood should have stated that the acceptance would not be valid until physically reached him and so expressively exclude the postal rule in his dealings.
Thomson v James (1855) – James contacted Thomson by letter on the 26th November offering to sell him a piece of land. Thomson sent a letter of acceptance to James on the 1st December but in the meantime James had 2nd thoughts about the original offer of the 26th November and on the 1st December sent a letter to Thomson which contained a withdrawal of his earlier offer. James withdrawal letter and Thomson’s letter of acceptance had crossed in the post. Both letters arrived on the 2nd of December. So did James have a contract with Thomson? – In order for James letter of withdrawal to be effective it would have had to have reached Thomson before Thomson had posted his letter of acceptance. Unfortunately James’s withdrawal had arrived on the 2nd December after Thomson had posted his acceptance 1December and therefore a contract had been formed.
D) this is a counter offer – when Rummenigge’s offered the £60,000 this was the original offer so when Hermione instead offered not £60,000 but £50,000 this then cancelled the original £60,000 offered so it had disappeared and was no longer capable of accepting . So when she was informed that her offer was rejected there was no contract formed. With the Germans not responding it was that they were not interested in her offer and it was no longer available. Qualified acceptance of the offer does not result in the creation of a contract because the offeree has in fact rejected the original offer and replaced it with a new offer of their own in the offeror may or may not choose to accept and in this case did not accept.
Then again just because someone requests more information about an offer does not necessarily mean it is a counter offer. All they are doing is clarifying the terms of the offer not rejecting it or trying to offer another offer. But great care will have to be taken by the offeree in that his request for clarification should not be viewed as a rejection of the offer.
Relevant cases
Wolf & wolf v Forfar Potato Co Ltd (1984) – this was a Scottish company which sent a telex to a Dutch company offering to sell a quantity of potatoes. It was a condition of the offer that it had to be accepted by 5 pm the next day. The following morning the Dutch company sent a telex which appeared to be an acceptance of the offer but which contained new conditions. The Scottish company advised by telephone that these conditions were unacceptable and the Dutch company sent another telex still within the time limit which accepted the original offer. The Scottish company totally ignored the second telex and Dutch company raised an action for damages for breach of contract. The court did no hold this as it held that there was no contract been formed. The first telex was a counter offer which had the effect of the original offer being cancelled therefore the second acceptance was sent there was no offer to accept.
Hyde v Wrench (1840) – this is when Hyde offered to sell his farm for £1000, but wrench offered £950. On rejection of Wrench’s offer he later advised Hyde that he would accept the original offer of £1000. Wrench’s offer of £950 constituted a counter offer which cancelled out Hyde’s original offer. Accordingly Hyde’s original offer was no longer open for acceptance.
Nowadays though you have emails and all forms are printed with the companies own terms and conditions and terms which may cover issues in law which will govern the contract e.g. Scottish or English law. So it is unlikely that the pre printed forms will agree with the other companies or match so a counter offer may unknown be made, so in results will reject the original offer so in these situations courts have to now be flexible in their approach.
Case study three
This case study will go under remedies for breach of contract and limitation of actions. A breach means that one of the parties has broken the agreement in some way. Or failed to have carried out their side of the bargain. The victim is the innocent party and can approach courts and request a remedy. A remedy for a breach should hopefully be capable of putting the victim in the position he would have been should the breach not taken place. Examples would be
- Seller supplying goods which were not satisfactory quality.
- Buyer wrongfully refusing to accept goods
- Buyer not paying for goods on agreed payment date
- Seller failing to deliver goods on the agreed delivery date.
Some breaches will be regarded as material, so serious they completely destroy it. Some will be not so serious so consequences are less severe, i.e. late delivery of goods, may or may not be material breach of contract. The courts will look and draw up own conclusions and will decide the proper remedy for award. There are four possible remedies:
- Damages – most common type normally awarded to compensate the pursuer not to punish the defender. For egg, seller fails to deliver goods on time, but buyer is able to purchase elsewhere at no extra cost. Nominal damages (small amount) which is breach is minor, you have general which is a direct result of defenders breach of contract so for loss caused in ordinary way of things and you have special which is when defended causes abnormal loss but the pursuer needs to have informed the defender about these special circumstances and the loss it will cause.
- Specific implement – will only be granted to pursuer if court thinks it is appropriate, pursuer is asking court to make an order (decree)to force defender to carry out contractual obligation E.g. ask court to force builder to finish a half finished job. But can’t get this if, award of damages is more than adequate remedy; defender owes pursuer money, and then should sure for damages. It is more or less a decree of specific implement is a court order, and failure to comply would mean contempt of court could mean that defender could face imprisonment., but civil debt imprisonment no longer available in courts in Scotland
- Retention and lien (lien as known in England) allows an innocent party to suspend his contractual duties as a result of a breach of contract by the other party to the agreement. Although not freed from the contract. It just means that innocent party can keep anything belonging to the contract breaker until they carry out side of agreement. (Property, goods, money) for e.g. a solicitor can refuse to hand over documents till client pays bill or a hotel can refuse to hand over luggage till guest pays bill. But the property must be safe guarded. Keeping such things can be a big inconvenience to the contract breaker so makes the defender keep to his side of the bargain.
- Rescission is a remedy when the defender has committed a material breach of contract which is a serious breach that goes to the roots of the agreement and totally undermines it. The effect is that pursuer wishes the court to cancel the contract. Minor breaches rarely allow this and damages will be granted as an alternative. But with a material one will allow innocent party to apply for this. Section 15b (2) (a) sales of goods act 1979 is any breach of the seller as to quality or fitness for purpose shall be seen as a material breach. But the section 15B (1) (b) of the act allows the buyer to reject goods and treat contract as cancelled or repudiated.
Wai Po could be awarded general damages as she they would be what losses she would occur since Bob has not got the factory up and running and she has a clause in her agreement with him dealing with this, so yes Bob would have to pay this up as he agreed to it but since she never told him about the contract for the Marianne Westwood supply she cannot go for special damages as she never informed Bob about this deal with the customer when he was trying to finish the factory he had no knowledge of it until she began demanding the money off him.
Relevant case
Victoria Laundry v Newman Industries (1949) – a laundry had ordered a new boiler for the purposes of taking on new business. The boiler was delivered some 20 weeks late and a clear breach of contract by the defenders. The defenders were perfectly aware that the delivery time of the new boiler was a matter of urgency because at the time there was an extremely high demand for laundry services. The pursuers had hoped to benefit from this demand by having the use of the new boiler. The loss of the business was £16 per week and was reasonably foreseeable in the ordinary course of things and the pursuers were awarded general damages on this basis. The pursuers also claimed special damages for the loss of a special government contract which would have made them£262 per week they lost this because from a defender point of view was not reasonably foreseeable that their breach of contract would result in the loss of these special government contracts. They had never taken steps to warn the defenders that their breach would cause this abnormal loss and were in complete ignorance of these special contracts so not in a position to predict fully the consequences of their breach.
Hadley v Baxendale (1854) – pursuer owned a flour mill and the crank of the shaft from the mill had been broken and useless. The pursuer was asked a manufacturer in Greenwich to make him a new piece of machinery. The broken shaft had to be taken to Greenwich so could be examined in order to make this new piece. The hired a carrier to take the shaft but it was subject to reasonable delay caused by the negligence of the carrier. This meant that all operations of the mill ground to a halt and pursuer began to suffer financial losses. They raised action for loss of profits. The pursuers claim for damages was dismissed, this was because he had failed to inform the carrier about what he was carrying and the importance of the dependence of this new piece of machinery getting made and brought back ASAP. The carrier was entitled to assume that the mill had a replacement in case of emergency and the pursuer had not informed him of the urgency and the inconvenience it would cause
Case study four
This goes under impossibility, frustration and illegality. It is since the contract was formed the circumstances surrounding this have changed dramatically and may now be impossible to perform and also physical destruction of the subject matter of the contract operates to frustrate the agreement. In this case the contract was frustrated as the hall was completely destroyed in the fire.
Relevant case
Taylor v Caldwell (1863) – surrey Gardens and Music Hall was hired by the pursuers from the defenders for the purpose of holding four grand concerts and fetes. Before the first concert on 17 June 1862 could take place the hall was completely destroyed by fire. Neither party was responsible for this incident the pursuers had however brought an action for damages against the defenders in wasting advertising costs. The English high court said that it was clearly impossible for the contract to be performed because it had relied on the continuous existence of the venue. The pursuers claim was dismissed for damages on the grounds that the purpose of the contract had been frustrated.
Vitol SA v Esso Australia (1988) – a contract for petroleum was discharged on the grounds of frustration when both the ship and its cargo of petroleum was destroyed in a missile attack in the Persian Gulf during the Iran – Iraq War of the 1980’s. The sellers attempt to sue the buyers for the price of goods was dismissed.
Even with the cancellation of an event if the importance to identify the substance or purpose of the agreement was found. It can be frustrated if it is found that the material term of the agreement is cancelled and it is the whole reason why the contract took place in the first place. For e.g. if you hire a flat to look out over a precession and you told the land lord the only reason you are hiring it at this time for this reason and the precession is cancelled then it can be cancelled under frustration of contract. If the main reason had not been informed to the landlord then no would not be able to cancel it. It is important to identify the main purpose and substance of the agreement. It is also important to examine the terms of the agreement. It can only be used in situations where neither party is to blame, but where one party is to blame then it represents a breach of contract. Also just because something becomes more expensive to perform does not mean that it can be frustrated.
