Lloyd's Maritime and Commercial Law Quarterly
IN RESTRAINT OF RESTRAINT OF TRADE
William Day *
This article considers the spate of recent Supreme Court cases on the restraint of trade doctrine. Taken together the cases show a narrowing of the doctrine, not only at the jurisdictional stage and in the substantive test, but also in a greater willingness to validate a restraint of trade clause by construing it purposively and by applying the “blue pencil” on severance more liberally. However, some of these recent developments are problematic. The new jurisdictional test seems fraught with difficulty. And, while we now know that “legitimate interest” goes beyond the strict contractual terms, we still do not have a proper understanding of what that concept actually means in the context of restraint of trade.
Contract law must strike a balance between enforcing the bargain struck by the parties and giving parties some freedom to depart from that bargain later on. The scales are invariably tilted towards the former, not the latter. In Printing and Numerical Registering Co v Sampson,1 Sir George Jessel MR famously said:
“if there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice. Therefore, you have this paramount public policy to consider—that you are not lightly to interfere with this freedom of contract.”
In Sampson, the Master of the Rolls recognised that there could be countervailing public policies for preferring freedom after contract to freedom of contract. He had illegality and immorality particularly in mind as reasons for not holding people to their bargains. But he made clear that he would be “sorry to extend” such doctrines “much further”,2 and declined to do so in respect of the assignment agreement at issue in that case.
More recently, in Cavendish Square Holding BV v Makdessi,3 the Supreme Court adopted the same attitude to penalty clauses. As a matter of public policy, a contractual penalty disproportionate to the legitimate interest of the right holder in the associated primary obligation cannot be enforced. As the Justices made clear in Makdessi, respect for freedom of contract means that courts will usually be reluctant to find a penalty to be disproportionate.4
* Downing College, Cambridge. I am grateful to comments from Paul Davies and Sarah Worthington on a draft. All remaining errors are my own.
1. (1875) LR Eq 462 (Ct of Ch), 465.
2. Ibid, 465.
3.  UKSC 67;  1 Lloyd’s Rep 55;  AC 1172.
4. See further W Day, “Disproportionate Penalties in Commercial Contracts”, in PS Davies and M Raczynska (eds), Contents of Commercial Contracts: Terms Affecting Freedoms (Oxford, 2020).
In restraint of restraint of trade
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