261 / 448
GAZETTE
AUGUST/SEPTEMBER 1996
Restraint of Trade and
Competition Law in Ireland
by Marguerite Bolger, Barrister.
1. Introduction
Restrictive covenants have always been
a part of business, primarily in contracts
for the sale of a business, employment
contracts and property leases and are
designed to prevent unfair competition.
Ostensibly restrictive covenants are a
threat to competition, but are a necessary
part of commercial life and can be
justified provided certain criteria are
satisfied. In this article it is proposed to
examine the common law restraint of
trade doctrine, the extent to which the
doctrine has been affected by
competition law and the compatibility of
restrictive covenants with Section 4 of
the Competition Act 1991. It will be
seen that great care needs to be taken in
drafting restrictive covenants as it cannot
be assumed that the purchaser of a
business or an employer has unlimited
freedom to restrict the post contractual
activities of the other part of the
contract.
2. The Common Law Doctrine of
Restraint of Trade
The history of the doctrine of restraint of
trade lies in the medieval guild system
which depended on restricting trade to
guild members . In the watershed case of
Mitchel
-v-
Reynolds
2
Parker C.J. made
the vital distinction between general
restraints which were automatically
void, and limited restraints which might
be upheld if "good and useful". Thus
developed the requirement that a
restraint of trade must constitute some
benefit to the public in order to be valid.
Since the development of that
requirement, two other criteria have also
been established that must be satisfied
for a restraint of trade to be upheld.
Firstly, there must be a legitimate
interest to be upheld and secondly the
restraint must be reasonable
inter partes
as to time, space and subject matter.
Each of the three criteria will be
examined separately.
Marguerite Bolger
2(i) The interest to be protected
The traditional interests deemed by the
courts to merit protection via a restraint
of trade have been the sale of a business,
the employment relationship and
property leases, but these interests are
not exhaustive. Other interests may also
be protected although an express
covenant would probably be required
whereas the traditional interests of the
sale of a business or employment are, to
an extent, protected even without an
express covenant. The supply of petrol
outlets to the public , the exclusive
storage and sale of ice-cream products
and the sale of dairy produce have all
been accepted as legitimate interests
which may merit protection.
2(ii) The Restraint of Trade must be
reasonable inter partes.
A restraint of trade is a severe
encroachment of an individual's freedom
to contract and to do business. Thus, to
be deemed valid it must be no more than
is absolutely necessary to protect the
legitimate interest. What is necessary
will clearly depend on the circumstances
of each case, but as a general rule is
must be properly limited in time, space
and subject matter.
2(iii) Reasonable in the public
interest.
Whilst accepting public interest as a
relevant criteria, some UK judges have
demonstrated a reluctance to consider
the wider public issues that might be
relevant, such as proper allocation of
economic resources or potential effects
on inflation . By contrast, the Supreme
Court has broken new ground in their
consideration of the public interest. In
Eddie Mac ken -v- Reilly
the Court
examined a policy, which obliged Irish
show jumpers toride only Irish bred
horses, in the light of its impact upon the
horse breeding industry in Ireland. The
Court refused to strike down the policy
as an unreasonable restraint of trade.
The then Chief Justice said:
"The need for the rule in the first
instance and the object of maintaining
it was and is to build up the Irish half-
bred horse industry in the interests or
equestrian sport generally in the
country. It is the view of the
federation fairly and reasonably held,
that in doing so it is serving the
interests of the generality of young
riders of limited means and thereby
serving the general interests of
9
the public" .
Possibly, the law in Ireland diverges
somewhat from the position in the UK in
this area of public interest. The decision
in
Macken
seems to suggest a balancing
approach whereby the public interest can
justify a restraint of trade, even where
that restraint in unreasonable
inter
partes.
Thus, the criteria of public
interest is established as an independent
ground of validity which can save a
restraint of trade that goes beyond what
is reasonable in terms of time, space and
subject matter.
3. The Intervention of Competition
Law
Section 4(1) of the Competition Act
1991 states, inter alia, that
"all agreement between undertakings,
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