Cavendish Square Holdings BV v El Makdessi [2012] EWHC 3582 (Comm)
Citation:Cavendish Square Holdings BV v El Makdessi [2012] EWHC 3582 (Comm)
Rule of thumb: Are contracts which have a clause requiring an organisation to only use one supplier valid clauses? It depends – if they are reasonable & competitive then they might be, but, if they are well above market rates it may be able to be argued that they are invalid clauses.
Judgment:
"(vi) The law distinguishes between covenants in employment contracts and covenants in business sale agreements. There is more freedom of contract between buyer and seller than between master and servant, because it is in the public interest that the seller should be able to achieve a high price for what he has to sell: Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535, Mason v Provident Clothing (supra) and Attwood v Lamont[1920] 3 KB 571 : see also Ronbar Enterprises Ltd v Green [1954] 1WLR at 820 and at 821 per Jenkins LJ: "It is obvious that in many types of business the goodwill would be well-nigh unsaleable if it was unlawful for the vendor to enter into an adequate covenant against competition." The quantum of consideration may enter into the question of the reasonableness of the covenant: Alec Lobb Ltd v Total Oil (Great Britain) Ltd [1985] 1WLR 173 (CA) at 179, 191 (citing Nordenfelt (supra) at 565). (vii) Even in the business sale context, however, if a covenant goes further than is reasonably necessary to protect a legitimate business interest, it is void and will not be enforced:Nordenfelt (supra). (viii) The Court should be slow to strike down clauses freely negotiated between parties of equal bargaining power, recognising that parties are often the best judges of what is reasonable as between themselves: North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 471, Esso Petroleum Ltd v Harpers Garage Ltd [1968] AC 269 at 300, Allied Dunbar (supra) at paragraph 32, Dawnay, Day (supra) esp. at 1107 (CA), Emersub XXXVI Inc v Wheatley per Wright J (QB) at p. 13. However the court's deference to the parties is not absolute. The mere fact that parties of equal bargaining power have reached agreement does not preclude the court from holding the agreement bad where the restraints are clearly unreasonable in the interests of the parties: Kores Manufacturing Co. Ltd v Kolok Manufacturing Co. Ltd [1959] 1 Ch 108 (where the restraint was held to be "grossly in excess of what was adequate" (at 124))." Burton J at 5
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.