BusinessThe current structure of our acquisitive society has given rise, both in England and in Europe, to a basic assumption that it is imperative to foster free economic enterprise by encouraging competition. Yet there is a paradox here. One man's freedom may remove another man's incentives. To take a simple example: if, upon leaving my employment, my employee is at liberty to take advantage of knowledge he has acquired during his employment, and contacts he has made with my customers, he will be free to bankrupt the business and to leave it with no incentive to carry it on. Thus the creditor's interests require to be protected for the very same reason that his do - namely the general interest in free enterprise. So economic considerations themselves demand that justice should strike a precarious balance between freedom to compete on the one hand and restriction of competition on the other.
ContractsThat is the problem here. It is for the courts to seek a reasonable equilibrium which will best promote the general interest in freedom of enterprise. What we now have to consider is how the courts strike this balance. Being courts, they do it by the formulation of rules. The first rule is that when a contract in restraint of trade falls to be considered it is to be regarded as 'prima facie void'. This phrase tends to be misleading. It does not mean that every such contract is necessarily void from the start. If that were so, as will shortly appear, the countryside would be littered with void contracts involving public houses and petrol stations. Of course, if carefully framed, so as to be reasonable, these contracts are as valid as any others.
'Prima facie void' means only then when their validity if challenged in court the court is to proceed upon the assumption ('presumption') that they are void. But the economic balance has to be struck. So the next rule is that the party who seeks to persuade the court that the contract is valid must establish that, in all the circumstances, it is no more than a necessary and reasonable protection of his interests (eg the case of the employer and his employee) and that, for that reason, it should be upheld.
CourtsThe accepted formula at this stage is that the court must be satisfied that the restraint is reasonable 'as between the parties': but again, for a reason that need not detain us, this formula is misleading. The interest to be considered is that of the person who seeks to impose the restraint. If the court is persuaded that the protection thus afforded by the contract is reasonable, it will conclude that the restraint is to be declared valid. Yet, in this convoluted process there is still another possible step. It may then, if he can do so, be up to the party seeking to rid himself of the restraint to persuade the law firm that, though it has thus been established that it is reasonable, the contract should yet be declared void as being inimical to public policy.