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Pensions and the Restraint of Trade Doctrine

Published online by Cambridge University Press:  16 January 2009

Abraham Rosenthal  and
John Shand
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Extract

The legal status of contracts tainted by the restraint of trade rules is by no means clear. It has been judicially stated that such contracts are “not ‘illegal’, in the sense that a contract to do a prohibited or immoral act is illegal, [and] not ‘unenforceable’, in the sense that a contract within the Statute of Frauds is unenforceable for want of writing. These covenants lie somewhere in between. They are invalid and unenforceable. The law does not punish them. It simply takes no notice of them. They are void, not illegal.” This article discusses the legal position if a claim is made for the recovery of money paid or securities delivered under such contracts, in the particular context of pension rights.

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The Cambridge Law Journal , Volume 33 , Issue 2 , November 1974 , pp. 293 - 306
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Copyright © Cambridge Law Journal and Contributors 1974

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References

1 Bennett v. Bennett [1952] 1 All E.R. 413, 421.Google Scholar

2 Wyatt v. Kreglinger & Fernau [1933] 1 K.B. 793Google Scholar (followed in Bull v. Pitney-Bowes Ltd. [1966] 3 All E.R. 384Google Scholar. But see the doubtful decision in Bishop v. Kitchin (1866) 38 L.J.Q.B. 20, where the court refused to consider the unreasonable restriction as a valid defence. See also Thomas Cowan & Co. Ltd. v. Orme (1960) 27 M.L.J. 41Google Scholar (H.C. Singapore).

3 Mogul Steamship Co. v. McGregor, Gow & Co. [1892] A.C. 25, 39.

4 Nordenfelt v. Maxim Nordenfelt Co. [1894] A.C. 535.

5 Morris v. Saxelby [1916] A.C. 688, 706.Google Scholar

6 Parkinson v. College of Ambulance [1925] 2 K.B. 1, 14Google Scholar (italics added).

7 See, however, Evans v. Heathcote [1918] 1 K.B. 418Google Scholar, and discussion infra.

8 Branwhite v. Worcester Works Finance Ltd. [1969] 1 A.C. 552.Google Scholar

9 Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1974] A.C. 32, 64.Google Scholar

10 J. W. Wade (1947) 95 Univ. of Pa.L.Rev. 261, 302.

11 For the operation of the rules of unjust enrichment in a converse situation, see Heydon, The Restraint of Trade Doctrine, pp. 94–95.

12 Sweet v. Lee (1841) 3 M. & G. 452; Davey v. Shannon (1879) 4 Ex.D. 81.

13 (1853) 8 Exch. 425. See also Branwhite v. Worcester Works Finance Ltd. supra.

14 And see the cases dealing with contracts void for mistake, e.g., Scott v. Coulson [1903] 2 Ch. 249Google Scholar; cf. Solle v. Butcher [1950] 1 K.B. 671Google Scholar.

15 Here it means only the absence of coercion or other unlawful means.

16 On the other hand, a mistake of law as to the validity of the contract in restraint of trade will not give the plaintiff any cause for action for recovery (Bilbie v. Lumley (1802) 2 East 469); and, as the reasonableness of the restraint is a question of law and not of fact (Dowden v. Pook and Pook [1904] 1 K.B. 45Google Scholar), mistake concerning the reasonableness will be of no consequence.

17 That would, of course, be a most appropriate case for applying the rule in Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] 1 K.B. 65Google Scholar, provided that property has not passed, and on the other hand, that the consideration has entirely failed.

18 See Goff and Jones, The Law of Restitution, Chap. 20.

19 [1918] 1 K.B. 418.

20 Successfully, before Low J. in the King's Bench Division: [1917] 2 K.B. 336; but the judgment was reversed in the Court of Appeal: [1918] 1 K.B. 418.

21 At p. 425.

22 Pickford, Bankes and Scrutton L.JJ.

23 34 & 35 Vict. c. 31, ss. 3, 4; 39 & 40 Vict. c. 22, s. 16.

24 Trade Union Act 1871, s. 4.

25 At p. 434.

26 Kennedy v. Brown (1863) 13 C.B.(n.s.) 677.

27 Rose v. Savory (1835) 2 Bing.N.C. 145.

28 Scadding v. Eyles (1846) 9 Q.B. 858.

29 At p. 431.

30 Quoting Mogul Steamship Co. v. McGregor. Gow & Co. [1899] 23 Q.B.D. 598.

31 The concluding words indicate that Bankes LJ. was thinking only of restraint of trade unreasonable as between the parties, as distinguished from unreasonable restraint prejudicial to the general public. See Morris v. Saxelby [1916] 1 A.C. 688Google Scholar; Attwood v. Lamont [1921] 3 K.B. 571.Google Scholar

32 But see Pickford L.J. at p. 426: “Such a contract is not illegal in the sense that it is an offence against the criminal law to enter into it but the law will not enforce it, and from the nature of the contract no valid claim can arise by virtue of it. I think it is correct to call such a contract void or, to use the words of Halsbury, Lord in Mogul Steamship v. McGregor, Gow & Co.Google Scholar … “so tainted that the law will not lend its aid to enforce.” Pickford L.J. here seems to agree with several of the conflicting theories as to the legal nature of contracts in restraint of trade.

33 See also the Privy Council decision, Kasumu v. Baba Egbe [1956] 3 W.L.R. 575.Google Scholar

34 Born of a recognition that, where at least the parties are of an equal bargaining status, it is extremely difficult to judge these transactions according to a public interest which cannot easily be circumscribed by workable legal criteria. See Texaco Ltd. v. Mulberry Filling Station Ltd. [1972] 1 W.L.R. 814Google Scholar; [1972] 1 All E.R. 513, 525, 526.

35 We need not expect to find any recognition of this in the reported cases, for this would be too overt an admission of judicial legislation in an area where Parliament has not chosen to enact precise penal sanctions. For a well-founded diffidence about the propriety of such civil sanctions see Devlin, The Enforcement of Morals, pp. 54–60.

36 Taylor v. Bowers (1876) 1 Q.B.D. 291; Tappenden v. Randall (1801) Bos. & P. 467. See also Grodecki, “In Pari Delicto” (1955) 71 L.Q.R. 254, 262.

37 Kearley v. Thomson (1890) 24 Q.B.D. 742, 747.

38 Kearley v. Thomson, supra. See also Tappenden v. Randall (1801) 2 Bos. & P. 467, 471, per Heath J. relief will only be given where the contract is not “too grossly immoral for the court to enter into any discussion of it.”

39 [1905] 2 K.B. 123, 133.

40 Attributed to Harman J. See Megarry in 67 L.Q.R. 506.

41 Per Lord Eldon in Vauxhall Bridge Co. v. Spencer (1821) Jacob 64, 66.

42 [1905] 2 K.B. 123.

43 At p. 135.

44 Arundel v. Trevillian (1634) 1 Ch.Rep. 87; Hall v. Potter (1695) Show.P.C. 76; Drury v. Hooke (1686) 1 Vern. 412; Smith v. Bruning (1700) 2 Vern. 392; Hermann v. Charlesworth [1905] 2 K.B. 123.Google Scholar See also Powell, “Marriage Brokage Agreements” (1953) 6 Current Legal Problems 254.

45 They were not very much tolerated in former centuries, as can be seen, e.g., from Lord Hardwicke's judgment in Cole v. Gibson (1750) 1 Ves.Sen. 503: “To be sure, this court has been extremely jealous of any contract of this kind … and has been justly so; nothing tending more to introduce improper matches.” The courts were concerned not only with the danger to the institution of marriage but with the unstabilising effect of social queuc-jumping.

46 See Cole v. Gibson, supra, where this is said, though not very clearly.

47 This explanation is equally applicable to other types of contract where equity has intervened to give relief, e.g., trafficking in public offices: Law v. Law (1735) Cas.t.Talb. 140; and frauds on settlements: Gay v. Wendow (1687) 2 Freeman 101.

48 There is a dictum of Mathew, J. in Hermann v. Charlesworth [1905] 2 K.B. 123Google Scholar, 136, that “we ought to be slow to apply to such contracts (marriage brokage contracts) the term turpis causa. There is nothing analogous to a contract in restraint of trade (sic) or a contract to stifle a prosecution.” But this dictum does not seem to be in accord with the view of the House of Lords on the matter. The orthodox view would appear to regard marriage brokage contracts more critically. See above.

49 Labour and the Law, pp. 27–29.

50 Cf. Attwood v. Lamont [1920] 3 K.B. 571Google Scholar; Goldsoll v. Goldman [1915] 1 Ch. 292.Google Scholar

51 Mason v. Provident Clothing Co. [1913] A.C. 724Google Scholar, 745.

52 Texaco Ltd. v. Mulberry Filling Station Ltd. [1972] 1 All E.R. 513 at p. 525.Google Scholar

53 Grodecki, op. cit., at p. 273: “It should be removed from the legal lumber room, as it offers the flexibility which this branch of the law badly needs.” Cf. Goff and Jones, op. cit., p. 304: “It has been suggested that the relief granted in marriage brokage contracts should also be made available in the case of contracts in restraint of trade. That a doctrine so long dormant may now be so extended is unlikely.”

54 Per Ungoed-Thomas, J. in Texaco Ltd. v. Mulberry Filling Station Ltd., supra.Google Scholar It should be noticed that in Evans v. Heathcote [1918] 1 K.B. 418Google Scholar neither of the parties to the action was in a weaker bargaining position than the other. See discussion supra.

55 Attwood v. Lamont [1921] 3 K.B. 571.Google Scholar It may even be that the burden of proof will also rest on an employer alleging that a covenant is contrary to the public interest; see Hcydon, The Restraint of Trade Doctrine, p. 38.

56 See Palmolive Co. (of England) Ltd. v. Freedman [1928] Ch. 264, 271Google Scholarper Lord Hanworth M.R.

57 An example is Atkinson v. Danby (1862) 7 H. & N. 934; see also Smith v. Cuff (1817) 6 M. & S. 160, per Lord Ellenborough: “It can never be predicated as par delictum when one holds the rod and the other bows to it.”

58 Though very similar to it.

59 Although the doctrine of restraint of trade originally arose for the protection of the public from the injury of being deprived of the services of its members, and although recent decisions, such as that of the House of Lords in Esso Petroleum Co. Ltd. v. Harpers Garage (Stourport) Ltd. [1968] 1 A.C. 269Google Scholar have reiterated the importance of the public interest, it is submitted that practical limitations of what is justiciable will prevent further extension of this aspect of the restraint of trade doctrine. This has long been recognised. See Denman L.C.J. in Hitchcock v. Coker (1837) 6 Ad. and El. 438, 445: “It may indeed be said that all such agreements interfere to some extent with the public interest; and great difficulty may attend the application of that test, from the variety of opinions that may exist on the question of interference with the public interest which the law ought to permit.” See also the Texaco case, supra; and Heydon, The Restraint of Trade Doctrine, p. 38: “Most restraint of trade cases concern restraints on employees … in these cases the public interest has had only a small role to play and a finding of reasonableness between the parties has usually concluded the case”; and Stein and Shand, Legal Values in Western Society, pp. 244–251.

60 See Bonard v. Dott [1906] Ch. 740Google Scholar, which concerned the borrower's right to recover securities deposited to secure a loan illegal under Money Lenders Act; Grey v. Southhouse [1949] 2 All E.R. 1019Google Scholar, where the plaintiff recovered premium paid by himself. Cf. Sheridan v. Dickson [1970]Google Scholar 3 All E.R. 1049, where the Court of Appeal stopped short of enabling the tenant to sue for performance of a contract to pay him an illegal premium. See Goff and Jones, op. cit., pp. 292–295.

61 Op. cit., p. 172; see also Ibid., pp. 258–277 for a systematic analysis of interests.

62 [1933] 1 K.B. 793.

63 Per Greer L.J. at p. 808.

64 [1966] 3 All E.R. 384.

65 See 49 L.Q.R. 465 and the other materials discussed by Thesiger, J. in Bull v. Pitney-Bowes Ltd. [1966] 3 All E.R. at pp. 387–388.Google Scholar

66 E.g., Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. [1968] A.C. 269Google Scholar; Dickson v. Pharmaceutical Society of Great Britain [1967]Google Scholar Ch. 708; Nagle v. Feilden [1966] 2 Q.B. 633Google Scholar; Bull v. Pitney-Bowes Ltd. [1967] 1 W.L.R. 273.Google Scholar

67 See Shand, “Unblinkering the Unruly Horse” (1972) 30 C.L.J. 144.