The effect of a clause in restraint of trade
If a restraint of trade is found to be unreasonable, then it will be void as far
as it is against public policy. So this does not necessarily mean that the
whole contract is void. Severance may be possible, if the offending clause
can be removed without altering the essential meaning of the contract. The
court may be willing to strike out offending words, retaining the general
nature of the contract. This is known as the ‘blue pencil test’ – the court
takes a blue pencil and deletes part of the agreement that is found to be
unfair, leaving the rest intact and therefore enforceable. The courts
traditionally will not rewrite the contract in any way, but there is an apparent
slight relaxation of this strict approach, by interpretation of the offending
clause in a way that makes it reasonable – see Littlewoods v Harris (1978).
The effect of European law
It should be noted that European law has had a great impact on this area, as
it involves the principles of free competition and free movement within the
European Union. The Treaty of Rome makes void any practices that
adversely affect competition within the European Union.
Illegality 205Esso v Harper’s Garage (1968)
In two cases involving the same parties and various restrictions
including the agreement to only sell one brand of fuel, a restriction for
4 years was held valid, but another on a separate property for 21 years
was held to be unreasonable. Under European law the guideline is now
that a restriction for up to ten years would be reasonable.Figure 13.1