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Nordenfelt v The Maxim Nordenfelt Guns & Ammunition Co Ltd

[1894] AC 535



Nordenfelt had a machine gun manufacturing business. He (effectively) sold the business the Maxim Nordenfelt. He entered into a restrictive covenant by which he could not engage in the trade of manufacturing guns, explosives or ammunition or engage in any competing business for a period of 25 years. Nordenfelt later entered into an agreement with another gun company



History of Restraint of Trade

In the age of Queen Elizabeth 1st all ROT's were void as contrary to public policy. This was relaxed to focus only on general restraints.


The current (1894) view is that:

General rule: ‘All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary to public policy and therefore void’ – as a general rule

Exceptions: if justified because it is reasonable having regard to interests of the parties and the public – generally ‘area of restriction should correspond with the area in which protection is required’

Lord Macnaghten (emphasis added; footnotes omitted)

]565] "The true view at the present time I think, is this:  The public have an interest in every person's carrying on his trade freely: so has the individual.  All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary to public policy, and therefore void.  That is the general rule.  But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case.  It is sufficient justification, and indeed it is the only justification, if the restriction is reasonable-reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.  That, I think, is the fair result of all the authorities.  … For a long time exceptions were very limited.  … [566] ... The doctrine that the area of restriction should correspond with the area within which protection is required is an old doctrine.  But it used to be laid down that the correspondence must be exact, and that it was incumbent on the plaintiff to shew that the restriction sought to be enforced was neither excessive nor contrary to public policy.  Now the better opinion is that the Court ought not to hold the contract void unless the defendant "made it plainly and obviously clear that the plaintiff's interests did not require the defendant's exclusion or that the public interest would be sacrificed" if the proposed restraint was upheld: Tallis v. Tallis. …"

[566] "When the question is how far the interference with the liberty of an individual in a particular trade offends against the interest of the public, there  is not much difficulty in measuring the offence and coming to a judgement in question. The difficulty is much greater when the question of public policy is considered at large and without direct reference to the interests of the individual under restraint.  It is a principle of law and of public policy that trading should be encouraged and the trade should be free; but a fetter is placed on trade and trading is discouraged if a man who has built up a valuable business is not permitted to dispose of the fruits of his labours to the best advantage.  It has been said that if the restraint must be general "the whole of the public is restrained" - a phrase not, I think, particularly accurate, or perhaps particularly [567] intelligible.  It has been said that when a person is debarred from carrying on his trade within a certain limit of space he will carry it on elsewhere, and thus the public outside the area of restriction will gain an advantage which may be set off, as it were, against the disadvantage resulting to the public within the limited area.  That is, perhaps, a just observation in a case of apprenticeship and cases of that sort; but it is, I think, rather a fanciful way of looking at the matter in the case of a sale of goodwill.  Applied to that sort of case, it seems to me to be just one of those unrealities which tend to confuse this question.  What has the public to hope in the way of future service from the man who sells his business meaning to trade no more?  Is it likely that he will begin the struggle for life again working at his old trade or profession in some remote place where he has no interest and no connections?  Is the possibility that he may do so a factor to be taken into consideration?  Now, when all trades and businesses are open to everybody alike, it is not very easy to appreciate the injury to the public resulting from the withdrawal of one individual.  When Lord Kenyon was pressed with an argument as to the injury to the public in Thetford that would result from denying them the services of a particular surgeon, he answered that the public were not likely to be injured by an agreement of this kind.  "Every other person," he added, "is at liberty to practise as a surgeon in this town":  Davis v. Mason.  Then I cannot help thinking that there is a good deal of common sense in the way in which Lord Campbell looked at this question.  …"


[574] My Lords, for the reasons I have given, I think the only true test in all cases, whether of partial or general restraint, is the test proposed by Tindal C.J.: What is a reasonable restraint with reference to the particular case?  I think that the restraint in the present case is reasonable in every point of view, and therefore I agree that the appeal should be dismissed."

Applied in this case

The restraint was reasonable in the interests of the parties

Nordenfelt obtained full value for his sale

Lord Macnaghten (emphasis added)

[573] "… in the present case it was hardly disputed that the restraint was reasonable, having regard to the interests of the parties at the time when the transaction was entered into.  It [574] enabled Mr. Nordenfelt to obtain the full value of what he had to sell; without it the purchasers could not have been protected in the possession of what they wished to buy.  ..."

The restraint was reasonable in the public interest

No injury in fact that person is ‘prevented from carrying on a trade in weapons of war abroad’. Also no injury in fact that N can no longer earn a living

Macnaghten LJ could not conceive of how anyone could get rid of £200,000 so thought it far-fetched to suggest he might become a public burden"

[574] "... Was it reasonable in the interests of the public?  It can hardly be injurious to the public, that is, the British public, to prevent a person from carrying on a trade in weapons of war abroad.  But apart from that special feature in the present case, how can the public be injured by the transfer of a business from one hand to another?  If a business is profitable there will be no lack of persons ready to carry it on.  In this particular case the purchasers brought in fresh capital, and had at least the opportunity of retaining Mr. Nordenfelt's services.  But then it was said that there is another way in which the public may be injured.  Mr. Nordenfelt has "committed industrial suicide," and as he can no longer earn his living at the trade which he has made peculiarly his own, he may be brought to want and become a burden to the public.  My Lords, this seems to me very far-fetched.  Mr. Nordenfelt received over £200,000 for what he sold.  He may have got rid of the money.  I do not know how that is.  But even so, I would answer the argument in the words of Tindal C.J.: "If the contract is a reasonable one at the time it is entered into we are not bound to look out for improbable and extravagant contingencies in order to make it void": Rannie v. Irvine." (emphasis added)