The Enforceability and Constitutionality of the Restraint of Trade clause in the South African Law of Contracts

2012
Author:
Leonard Rick Smith
[THE ENFORCEABILITY AND
CONSTITUTIONALITY OF THE RESTRAINT
OF TRADE CLAUSE IN THE LAW
CONTRACTS]

LR Smith 2007002534 Page 2
FOREWORD
The restraint of trade clause is one which has been a topic of serious discussion in many
legal systems and it appears that this clause is only being applied in the South African legal
system and has very little, if any, application in other legal systems, like the English, Roman-
Dutch and American legal systems. The problem, therefore, is one of enforceability, but also
acceptability, especially on the grounds of our very liberal constitution which is based on
freedom and equality. Surely then, we must ask the question as to whether a clause based
solely on restraining the individual’s right to free trade is a constitutional infringement or
not.
This research is a comparative descriptive study and the various sections of the Constitution
will be investigated by means of a right’s analysis. The workings of various legal writers will
be consulted in this study, especially regarding the enforceability of the restraint of trade
clause. Furthermore, the positions in the various legal systems, regarding the restraint of
trade clause, will be the backbone of the comparative systems’ analysis. Relevant case law
will also be consulted in the process.
The research contains both a personal value, but also a value to industry professionals who
find themselves in positions of restraint due to a contractual clause.
As a young attorney, my employment at a law firm will most probably be subject to a
restraint of trade clause - just like the situations that many acquaintances and friends have
found themselves in. The Constitution currently provides us with a right and the restraint of
trade clause appears to be infringing upon it, but the infringement of this right has to be
acceptable and justifiable in an open and democratic society which is supposed to be based
on the principles of freedom and equality.
The research is relevant in all spheres of employment and therefore the enforceability of
the restraint of trade clause is at issue and should be tested.
The question which is being asked regarding the enforceability and constitutionality of the
restraint of trade clause is thus not a fabricated idea nor does it fall within a redundant area
of law and therefore all aspects of it should be explored.

TABLE OF CONTENTS
FOREWORD
CHAPTER 1 HISTORICAL BACKGROUND OF THE LAW OF CONTRACTS 4
CHAPTER 2 A SOUTH AFRICAN PERSPECTIVE 7
CHAPTER 3 A COMPARATIVE ANALYSIS BETWEEN THE RESTRAINT
OF TRADE DOCTRINE IN SOUTH AFRICA AND ENGLAND 13
CHAPTER 4 THE RESTRAINT OF TRADE DOCTRINE AND THE
SOUTH AFRICAN CONSTITUTION 19
CHAPTER 5 CONCLUSION AND SUMMATION OF HYPOTHESIS
WITH GRAPHICAL ILLUSTRATIONS 21
APPENDIX 29

CHAPTER 1 HISTORICAL BACKGROUND OF THE LAW OF CONTRACTS
The Roman law perspective:
The Jolowicz perspective of the Roman Law history of the Law of Contracts:
A differentiation must be made between the growth of theoretical conceptions of general
rules and of classifications, from the development of the actual procedural possibilities,
which underlay the generalisations of theory.
At the end of the republic, the Romans were still comparatively backward. Obligation was
not yet a technical term – even in the classical period, when it did become technical, it did
not correspond to the Byzantine and modern conception.
Nexum had fallen into disuse, but a man who was ‘under an obligation’ might find himself
quite literally bound, if he did not discharge it – it must, however, have been a normal thing,
Towards the end of the Classical period, obligation was a purely civil law word – it did not
include the stipulation where a man was liable under praetorian action against him.
For us, as with the Byzantian meaning, ‘contract’ seems to be a fundamental conception
which denotes the formation of an obligation by agreement.
However, the Latin for agreement is convention or pactum and was by no means every
agreement which gave rise to an obligation.
Contractus is simply the verbal noun formed from contrahare, which literally means ‘to tie’,
and it is used elliptically for contractus negotii or obligationis, whether what we call a
‘contract’ was involved or not.
At the end of the Republic, there was still very little in the case of classification of
obligations into those arising from contract or delict, or of contracts according to their
different methods of formation.
We have no clear knowledge, for instance, of the origin of the stipulation (stipulatio), the
most important formal contract of the developed law, and even the time at which such a
vital contract as that of sale became actionable, is still a matter of dispute.

The main role-player, especially in the last century of the Republic, was the praetor. The
praetor granted actions where the civil law would have given none at all.
To a later theory, the action will appear one to enforce fulfilment of an agreement, and
borrowing (commodatum) will be regarded as what we call a contract.
The Watson perspective of the Roman Law history of the Law of Contracts:
Watson states that it will become apparent that although economic or social reasons
demanded the introduction of each type of contract, it was the legal tradition that
determined the nature, structure and chronology of every contract. The basic structure of
Roman contract law then remained long after there was any societal justification for the
divisions.
The inquiry for these purposes begins with the era shortly before the enactment of the
Twelve Tables, the earliest Roman codification, of approximately 451-50 B.C.
We shall tentatively define a contract as an agreement between two or more persons
whose main legal consequence is an obligation with a personal, rather than a real, effect.
We have to ask whether the Romans of old actually conceived the notion/idea/concept of
contract as we do? Probably not. They, as far as the texts and authors are concerned, had
no abstract concept of contract.
The tentative definition includes, of the institutions existing in the early fifth century B.C.,
the contract of stipulatio, but it excludes conveyances like mancipatio an in iure cession and
security transaction like nexum, even though these include elements of obligation based on
agreement.
Watson has three grounds for accepting the above tentative definition:
i. Our knowledge of the structure of the Twelve Tables is limited.
ii. The tentative definition allows us to include all the later obligations that the
Romans regarded as contractual and to exclude that which the later Romans
would not regard as contracts.

iii. The modern perspective preserved in the definition is a continuation of the
ideas that the Romans came to develop.
It is often said that the Romans never developed a system of contract, but only individual
contracts.
The Roman-Dutch view as expressed by Grotius
Additional historical aspects as expressed by Van Der Heever J in the case of Drewtons (Pty)
Ltd v Carlie1
:
”Before dealing with the facts it would be as well to look at the law applicable in view of
decisions in other Divisions of late that have tended to upset apple-carts previously
regarded as stable. In the past similar matters have usually been determined after reference
to English law and decided cases on restraints of trade. It seems to me that a proper
approach would be to determine whether this Full Bench is prevented by stare decisis from
applying the principles of Roman Dutch law appertaining to contracts and in particular such
as may apply to contracts in restraint of trade and, if not, what those principles of Roman
Dutch law are.
I agree with Christie Contract at 353 that:
"it is better to come clean with DE BEER AJP in Katz v Efthimiou 1948 (4) SA 603 (O)
at 610 and admit that 'The doctrine that contracts in restraint of trade are generally
to be considered as being in conflict with public policy is entirely foreign to the
Roman and Roman-Dutch systems of law. However, the doctrine has been engrafted
into our system of law...'"
The engrafting, if there has been an engrafting of a legal principle, occurred only in the
Provincial Divisions. The Appellate Division in Van de Pol v Silbermann and Another 1952 (2)
SA 561 accepted, without deciding, that the "doctrine" applied here; save that it did not
accept that our law is to the effect that contracts in restraint of trade are in certain
circumstances suspect. VAN DEN HEEVER JA concurred in Van de Pol's judgment, and would
1
1981 (4) SA 305 (C)

not, I think, have done so had he regarded it as importing or confirming the importation of
English law on the topic. In a series of articles in the SALJ of 1941 - 3 (under the nom-de-
plume "Aquilius") he deals with "Illegality and Immorality in Contract" and points out that
the Roman-Dutch law is clear: where a contracting party stipulates for a performance which,
if made, would violate a decree of the State peremptorily binding on all subjects, or would
be detrimental to the interests of the community at large, the promisee cannot invoke the
State's assistance in enforcing such contracts. But morality and public policy are not static
concepts.
Between the fall of the Republic and the death of Justinian tremendous changes took place
in the Roman concept of morality and in many respects our notions as to good and bad
differ even more from those of Cato or Justinian than these differ from each other. Ferrero,
in his brilliant essay on 'corruption', has shown that practically everything which we regard
as progress the Republican Roman stigmatised as corruption. In Justinian's time a Roman
producer could not contract an actress effectively, such a contract being contra bonos
mores (C1.4.33); we, on the other hand, knight our comedians and worship our stars. Their
contracts are firm and binding. But we are not concerned with Roman morals. We received
the Roman law in regard to the incidence of morals on contract, not Roman or Byzantine
ethics. What is immoral is a factual not a legal problem...
A contract against public policy is one stipulating a performance which is not per se illegal or
immoral but which the Courts, on grounds of expedience, will not enforce, because
performance will detrimentally affect the interests of the community."2
CHAPTER 2 A SOUTH AFRICAN PERSPECTIVE
The most popular approach followed in many South African judgements is that an
agreement in restraint of trade is prima facie invalid or unenforceable and this approach
stems from English law and not our common law, which doesn’t contain such a rule at all.
The stance in our law, especially during the 1980’s, is that each agreement should be
examined with regard to its own merit and circumstances so as to establish whether the
2
Drewtons (Pty) Ltd v Carlie 1981 (4) SA 305 (C)

enforcement of the agreement would be contrary to public policy, in which case it will be
unenforceable. Public policy does not only require that agreements freely entered into
should be honoured, but it also requires that everyone should be free to seek economic and
business fulfilment.3
It then stands that an unreasonable restriction of a person’s freedom
of trade would also probably be contrary to public policy if it were to be enforced.
Acceptance of public policy as the criterion means that, when a party alleges that he is not
bound by a restrictive condition to which he had agreed, he bears the onus of proving that
the enforcement of the condition would be contrary to public policy. The Court would have
to have regard to the circumstances obtaining at the time when it is asked to enforce the
restriction. In addition, the Court would not be limited to a finding in regard to the
agreement as a whole, but would be entitled to declare the agreement partially enforceable
or unenforceable.4
There are various aspects to be considered and reasons for the implementation and
inclusion of a restraint of trade clause in a contract. One such reason could be intended to
protect the goodwill of parties by curtailing the freedom of one of the parties who wishes to
leave or retire from the current workplace or business from then starting a similar business
or to be involved in such similar business. This agreement may then further regulate the
conduct of the persons in the same industry so as to restrict competition. This results in the
rights of both existing and prospective competitors and employees being limited or
restricted. To illustrate this consider the following: a partnership dissolves and the
dissolution contract prohibits the retiring partner from starting a similar type business in
competition or where an employee leaves his employment, but is restrained from divulging
his employers trade secrets on termination of his service. In the employee’s case, however,
it also extends further than merely divulging trade secrets, but the restraint clause could
also contain a prohibition against going into the employ of its main business rivals.5
These
types of contractual restrictions are not seen to be unconstitutional.
3
Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)
4
5

In A Bekker & Co (Pty) Ltd v Bekker and Others6
the seller and the purchaser concluded a
contract which contained rather extensive provisions, but the “Restraint of trade” provision
read as follows:
“Clause 12
(b) The seller and Becker do each hereby warrant and undertake that for a period of five
years reckoned from the effective date and within the Republic of South Africa (as defined
in para (c) of this clause) they will not nor will any one of them, directly or indirectly, either
personally or through any nominee:
(i) carry on any business in competition to the business sold in terms of this
agreement or any wholesale or manufacturing jewellers business (all or any
of which businesses are hereinafter referred to in this clause as 'the
restrained business');
(ii) be in any way employed in any restrained business;
(iii) be in any way interested in any restrained business whether as principal,
partner, shareholder, director, adviser, general financier, representative,
contractor or otherwise howsoever;
(iv) be in any way associated with or engaged in or in any way interested or
concern themselves in any restrained business or solicit custom for any
restrained business.
Each of the said restraints is a separate and distinct restraint divisible from the
others.”
What was also in issue in this case was the fact that the goodwill, in the form of patrons and
reputation, was sold as an intangible asset and the appellant, after the expiration of the 5
year restraint period moved to solicit his old customers. It was, however, that the goodwill
and the restraint clause are two completely separate issues and the goodwill was not
subject to the restraint clause as it was not contained therein. The restraint was not so
much in dispute, but rather the nature of the restraint and what the purchaser assumed to
6
1981 (3) SA 406 (A)

be part of the restraint, was in fact not. the inclusion of this case is twofold, firstly it serves
to illustrate and elucidate that the restraint of trade clause is a numerous clauses in the
contract in which it is included and doesn’t contain any implied or assumed provisions as
this would lead to an endless list of possible disputes and issues to be raised by the
purchaser in the contract; secondly, Bekker serves as an ideal example of the restraint of
trade clause that could be included in a contract.
Another case to be explored is Drewtons (Pty) Ltd v Carlie7
which deals with the enforceable
nature of the restraint of trade clause and upon whom the onus rests to, in fact, enforce it.
An issue in this case is not so much regarding whether a court would be prepared in carving
out a new and valid contract for the parties, but rather that it is prepared to lend its muscle
to one of the parties in regard to only one or some of the areas or purposes falling within
the terms of the agreement. The problem, however, comes in where the restraint in the
contract is very wide. How does a court enforce a restraint that entails preventing trade
with 736 names and addresses, all of which fall under the definition of customer? These
were not only the names of their customers, but also those of the people who reside at the
same addresses.
What appears in this case is a clear indication of the different approach followed preceding
the implementation of the Constitution. It was suggested that unreasonable restraints of
trade were invalid as being immoral.8
This seemed to be based on the principle that they
prevented a person bound by them from earning a livelihood. It has however become rather
difficult to dress an ‘unreasonable’ restraint of trade as immoral in our current economic
conditions in South Africa.
The issue will also then be raised as to pacta sunc servanda and as King J very cleverly
states:
“if a contract is invalid at one point of time but valid at another point in time the
contracting parties would be like tennis players playing a game of tennis according to
the rules of the game but with a constantly moving base line.”
7
1981 (4) SA 305 (C)
8
Allied Electric (Pty) Ltd v Meyer 1979 (4) SA 325 (W)

Upon returning to the Drewton issue, one will come to the view that the court will not
enforce certain contracts, not because they are void ab initio, but on the grounds of
expedience because performance will detrimentally affect the interests of the community.
The Court may then also decide that it is prepared to lend its muscle to one of the parties
with regards to the contract to only one or certain areas or purposes falling within the terms
of their agreement, as opposed to carving out a new and valid contract for said parties.
Based on the above, it was clear that the appeal would succeed. Carlie concluded a contract
which he at one stage intended on honouring. Proving the immorality or contras bonos
mores on a balance of probabilities failed on Carlie’s part.
Lastly, with specific regard to the question of onus, it was suggested that the onus lies on
the promisee, vis-à-vis the person seeking enforcement of a restraint clause, to establish its
reasonableness.
In Magna Alloys9
, the view at that time was that the public have an interest in every
person’s carrying on his trade freely. Any and 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 are for that reason, void. That was the general rule. But, as it would
be, there are exceptions to this. Restraints of trade and interference with individual liberty
of action may be justified by the special circumstances of a fastidious case. It would be
sufficient justification, and also the only justification, if the restriction is reasonable;
reasonable vis-à-vis the interests of the parties concerned and reasonableness in reference
to the interests of the public, accordingly framed and thus guarded, so as to afford ample
protection to the party whose favour it has imposed, whilst at the same time not being
injurious to the public.
Lord Morris in his judgement in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd
1968 AC 269 said the following:
“It has been authoritatively said that the onus of establishing that an agreement is
reasonable as between the parties is upon the person who puts forward the
9

agreement, while the onus of establishing that it is contrary to the public interest,
being reasonable between the parties, is on the person so alleging.”
As well as:
“The reason for the distinction may be obscure, but it will seldom arise since once
the agreement is before the Court it is open to the scrutiny of the Court in all its
surrounding circumstances as a question of law.”
Unreasonableness between the parties will almost consistently be the basis for the decision
of the Court, but it is ultimately on the ground of public policy that the Court will decline or
enforce a restraint as being unreasonable between the parties. Policies based on the
general commercial good must always bear in mind the changing face of commerce. What
becomes clear is that there is not a separation between what is reasonable based on
grounds of public policy and what is reasonable between parties. One broad question
emerges: is it in the interests of the community that the restraint should, as between the
parties, be held to be reasonable and enforceable?10
The Advtech Resourcing11
case is an excellent illustration of the next phase in South African
law with regards to the Constitution. As has been mentioned, at common law a restraint of
trade was prima facie valid and the party seeking to avoid the restraint bore the onus to
prove its unreasonableness by showing that it was contrary to public policy. The doctrine of
pacta sunt servanda clearly enjoyed supremacy over competing policy considerations.
No longer can enforceability, in terms of its reasonableness, be based on boni mores alone
as the Constitution has created rights which, unless they are fairly limited in terms of the s
3612
Limitation Clause, cannot be infringed upon.
As stated in The Advtech case, in the context of the s 2213
right to freely choose one’s trade,
occupation or profession and the s 1014
right to dignity, it becomes clear that the position
has become such that the employer bares the onus of proving the reasonableness of the
10
11
Advtech Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn and Another 2008 (2) SA 375
12
Constitution of the Republic of South Africa, 1996
13
14

restraint. In addition to this, the concept of Ubuntu has also started playing an important
role in the law, even though it wasn’t a deciding factor in the particular case in question.
What has come to be an important factor behind the inevitability for restraint of trade
clauses is the potential divulgence of confidential and secret information by employees who
are leaving the employ of the covenantee. With this it has become necessary to distinguish
between risk of divulgence of confidential information and the attempt to prevent a person
from making use of his own business and trade proficiencies.15
In this regard Botha JA said:
“A man's skills and abilities are part of himself and he cannot ordinarily be precluded
from making use of them by a contract in restraint of trade.”
CHAPTER 3 A COMPARATIVE ANALYSIS BETWEEN THE RESTRAINT
OF TRADE DOCTRINE IN SOUTH AFRICA AND ENGLAND
A starting point would be with the English mother doctrine. It’s trite law that the modern
day doctrine of restraint of trade plays its most significant role in the area of negotiated
contracts, but during its development in English law it responded to three further problems
as well, vis-à-vis where private individuals attempted to interfere to profit from the supply
of food, guilds attempting to regulate the affairs of their members, particularly their
economic affairs and lastly the granting of monopolies by the Crown.
With particular regard to the English history of restraint of trade, Pollock remarked the
following:
“a singular example of the common law, without aid from legislation and without
any manifest discontinuity, having particularly reversed its older doctrine in
deference to the changed conditions of society and the requirements of modern
commerce.”16
15
16
Pollock, Principles of Contract (10
th
Edition, 1936)

There are two important cases which depict the English restraint of trade doctrine in its
development and necessity.
The earliest reported case vis-à-vis contracts in restraint of trade is Dyer’s case17
where
Defendant entered into a bond not to trade as a dyer in a specific town for half a year.
Defendant pleaded that there was no breach and Hull J ruled in his favour on the basis that
the bond was illegal:
“By God, if the plaintiff were here he should go to prison until he paid a fine to the
King.”
The seemingly vigorous approach by Hull J had a rather strong influence on the law,
especially in the sixteenth and seventeenth centuries. Some writers18
were of the view that
Hull J felt that the restraints should be illegal, with regards to bonds, as they tend to be
more oppressive than other contracts, which is why he struck it down. The distinction
between contracts and bonds was, however, rejected on the grounds of irrelevance in
Mitchell v Reynolds19
. Not that the distinction would have had influence Hull J in his
decision.
Another strong point of view is that Dyer’s Case does not depend on:
“any special vice in the bond, but reflects a general medieval view that any restraint
upon the freedom of a man to carry on his trade or profession was completely
void”.20
The facts of the case are based on serious hardship. Where a man gives a bond not to work
and then, not being able to earn a living when the necessities of his family and the cries of
his children start calling, advantage should be taken of the forfeiture. It is, as Parker CJ
states, “such villainy as is hard to find a name for”.21
What can be gathered from the learned
judges is that public policy was a consideration, albeit not specifically so named in the cases
and commentaries.
17
(1414)
18
Sanderson and Letwin
19
(1711)
20
Gare
21
Mitchell v Reynolds (1711)

The second important case in the development of the English doctrine is Mitchel v
Reynolds22
which addresses the issue of voluntary and involuntary restraints. Involuntary
restraints would be those imposed by charters, custom or by-laws. Charters from the Crown
were generally void, apart for grants for the ‘sole use of a new art’, and even then it was
only for 14years23
. Restraints with regards to customs were given a simple caveat; “all
customs that restrain liberty of trade must be clear and plain, and not doubtful.”24
The
customs would thus be valid if they benefited the larger community. The third class of
involuntary restraint took the form of by-laws, which were seen to be valid if they were
supported by a reasonable custom to the same effect, or if “made to restrain trade, in order
to better government and regulation of it.” The by-laws were mostly seen as ‘restraints of
monopolies’, rather than the creators of monopolies.
Parker CJ, in Mitchel v Reynolds, examines voluntary restraints with far fewer problems and
challenges. The reason for this is simply due to the fact that voluntary restraints would be
based on agreements in contracts. The question of reasonableness – what is proper and
useful - was for the judge to decide, not the jury; this is in itself a paradox as reasonableness
should usually be seen as a question of fact, but it has never been one the jury could easily
decide upon. This rule has rarely been contested.25
According to Parker CJ, involuntary restraints were dire because of the law’s aversion to
infringements of liberty. The golden thread of upholding freedom is of utmost importance,
as illustrated throughout voluntary and involuntary restraint. A comparison is made by
Henderson J with regards to freedom to work and freedom to worship and said the
covenantor “might as well bind himself that he would not go to church”.26
Furthermore, the
Magna Carta27
prevented free men from being dis-seized of their freehold, which was
accepted to extend to the freedom of trade.28
22
(1711)
23
Darcy v Allen (1602)
24
Colchester Corporation v Goodwin (1667)
25
Dendy v Henderson (1855)
26
Claygate v Batchelor (1602)
27
Magna Carta is also known as the “Great Charter of the Liberties of England” issued in 1215 to protect
the privileges of the subjects and to limit the powers of the King.
28
Nullus liber homo capiatur vel imprisonetur, aut desseisitur de aliquot libero tenement suo vel
liberitatibus vel liberis consuetudinibus suis... nisi per legale judicium parium suorum vel per lege
terre.

Moving over from involuntary to voluntary restraints, Parker CJ says that Magna Carta is
irrelevant as the law on voluntary restraint has a far different basis. Although, it can also be
noted that Magna Carta was in fact relied on in some earlier cases of voluntary restraint.29
He then went on to comment that Magna Carta is irrelevant as a man may voluntarily put
himself out of his freehold and may then, as a result, restrict his liberty for a valuable
consideration. Parker CJ mentions that these reasons are merely taken in general instances
and he then laid down four reasons why the law truly frowned upon voluntary restraints:
Firstly, such a contract results in the covenantee losing his livelihood and it thus brings
anguish to his family. Secondly, it deprives the public of a valuable and practical worker.
Thirdly, these contracts can easily be abused to provide the covenantee with some sort of
unfair advantage.30
Fourthly, such restraints can quite often be rather excessive which will
cause unquestionable hardship to the covenantee. The most honest question asked, though,
was what concern is it of a tradesman in London, what another does in Newcastle?31
From the facts of Mitchell v Reynolds, as Parker CJ pointed out, it is quite clear that public
interest was never at issue. The issue was the reasonableness of the contract of restraint.
The dispute was therefore about who would be the local baker; there would be a baker
regardless of the outcome.32
From this view stressed in Mitchell v Reynolds, it became standard practice to use the test
of reasonableness and that to delve into public interest was merely a secondary
consideration. This was because the public interest just concerned the covenantee himself
and not the greater society, and so it was found that there was simply no need to argue
public interest as a separate issue. Individual concerns and the opinions of the community
were not factors as they would be in our modern day society where individual rights are
indeed a matter of public interest.33
From the off, we have to bear in mind that simply because a principle in restraint of trade
exists in English law it doesn’t mean that it automatically applies in South African law.34
29
Claygate v Bachelor (1602), Jelliet v Broad (1621) : 143
30
City of London’s Case (1610) : 8
31
The Restraint of Trade Doctrine (1971) : 16, JD Heydon
32
The Restraint of Trade Doctrine (1971) : 17, JD Heydon
33
U.S. v Addyston Pipe & Steel Co. (1898)
34
Federal Insurance Corp of SA Ltd v Van Almelo (1908) 25 SC 940 at 943

However, some courts have in the past simply brought forward the notion that the doctrine
of restraint of trade was taken over by South Africa verbatim. This assumption is very wrong
in that, yes, it may have been taken from English law, but it was borrowed with due
consideration and reference to systematic contemplation and contextual harmonisation. 35
What made South Africa’s approach from the foundational aspects of how the restraint of
trade doctrine was incorporated into the law was that it would be based on the Roman-
Dutch notion of public policy.36
What truly cemented the doctrine in South Africa was the Roman-Dutch principle that
contracts which are contrary to public policy are illegal, albeit contemporary public policy
values.37
An important case in the development of the public policy front was that of Drewtons38
in
which Hefer J contended that issues surrounding public policy was merely factual and she
thus refused to accept that there were general principles and policies, the basis of which,
were used to adjudicate restraint of trade cases.39
On that note, she expressed the view that
there is actually not a need for the restraint of trade doctrine:
“I can think of no reason why what is and should remain a factual inquiry should be
elevated to a rule of law”.
Drewtons, being one of the first cases in this regard, isn’t supported at all, although there
aren’t any explicit judicial rejections of this decision. It is however clear that Hefer J’s
approach was not followed by any other courts. She also did not refer to any authority to
substantiate her views.40
The movement to harmonise the doctrine with what was regarded as South African public
policy culminated in the watershed Magna Alloys case.41
The first issue that was
acknowledged was that some restraints are indeed illegal.42
The court in this judgement did
35
Katz v Efthimiou 1948 (4) SA 603 (O), the criticism by Kerr
36
The Law and History Review (1993) : 1
37
The Principle Pacta Servanda Sunt in Roman and Roman-Dutch Law with Specific Reference to
Contracts in Restraint of Trade (1984) : 641, Coenraad Visser
38
Drewtons v Carlie 1981 (4) SA 305 (C)
39
Drewtons v Carlie 1981 (4) SA 305 (C) : 311
40
Kahn : 393
41
Magna Alloys and Research(SA)(PTY) Ltd v Ellis 1984 (4) SA 874 (A)
42
Magna Alloys and Research(SA)(PTY) Ltd v Ellis 1984 (4) SA 874 (A) : 891

not discuss the issues which made South African law different from English law; although
they did get to the point that public policy also formed part of the foundation of English law.
Public policy was stressed throughout, but very opaque references were made to the
policies used to determine the illegalities of the restraints in past cases.43
There are then also the underlying notions of an individual’s right or ability to earn a living
which have surfaced complimentarily to other principles. It stands to reason that one of the
most important, if not the most important, aspects of possessing work skills is to be able to
use those skills to earn a living. The cases that have been looked at show that the courts
intend to protect this right or ability, such as Dyer’s Case44
and Mitchel v Reynolds45
.
Here a very interesting comparison can be made between the approaches and principles
which underlie the thought processes followed by the courts in England and in South Africa.
It is thus clear that public policy with regards to restraint of trade in English law is but a
mere secondary issue to that of reasonableness based on the argument that the greater
society was never a concern in public policy considerations as the focus was just on the
covenantee. In South Africa public policy formed the basis of the restraint of trade doctrine
simply because of the Roman-Dutch roots in the law which emphasises the common law
principle that contracts contrary to public policy are illegal.
To return to the South African development we can see that there was then a rather lesser
approach to the restraint clauses as all consequences of the law of restraint seemed to flow
directly from public policy and the conservative46
natures of the courts at that stage caused
the development process to be a bit lethargic, but the courts had come to the realisation,
especially since Magna Alloys, that stare decisis will play a diminished role and that of public
policy will have to become the more prominent consideration. Du Plessis and Davis47
then
went on to highlight that stare decisis, having taken the back seat, will have to start playing
a prominent role in order for the new principles to be followed in future cases which is a
prime illustration of laissez-faire and interventionism within the sphere of public policy and
43
Magna Alloys and Research(SA)(PTY) Ltd v Ellis 1984 (4) SA 874 (A) : 892
44
(1414)
45
(1711)
46
National Chemsearch (SA) (Pty) Ltd v Borrowman 1979 (3) SA 1092 (T) : 1100-1109
47
Du Plessis and Davis : 91-98

the clear need for the law to be developed and interpreted with the courts’ mind set on the
changing circumstances in the South African legal-hermeneutical climate.48
CHAPTER 4 THE RESTRAINT OF TRADE DOCTRINE AND THE SOUTH
AFRICAN CONSTITUTION
A fundamental principle which now separates South African law from almost all other legal
systems in the context of restraint clauses is the Bill of Rights contained in S26(1) of the
Interim Constitution49
which provides that:
“Every person shall have the right to freely engage in economic activity and to
pursue their livelihood anywhere in the national territory”.
S26(1) is qualified by S26(2) and states that:
“Subsection (1) shall not preclude measures designed to promote the protection or
the improvement of the quality of life, economic growth, human development, social
justice, basic conditions of employment, fair labour practice or equal opportunity for
all, provided such measures are justifiable in an open and democratic society based
on freedom and equality.”50
Interestingly though, S22 of the Constitution is more limited than the previous S26 in that it
only states the following:
“Every citizen has the right to choose their trade, occupation or profession freely.
The practice of a trade, occupation or profession may be regulated by law.”
These sections are then also qualified by the S36 limitation clause which states that rights
can be limited if such limitation is reasonable and justifiable in an open and democratic
48
Du Plessis and Davis : 97-98
49
Constitution of the Republic of South Africa 200 of 1993
50
S26 of Constitution of the Republic of South Africa 200 of 1993 is currently regulated by S22 of the

society based on freedom and equality, and also granting that it does not negate the vital
aspects vis-à-vis the right.51
Two cases are of specific importance with regards to the implementation of S2652
, namely
Waltons53
and Kotze54
where the courts actually made a shift to the reliance on S26 and
noted that the principle elucidated in S26 is comparable to the principle which underlies the
restraint of trade doctrine, and most importantly that said principle was being undermined
by legislation. Both presiding judges in the respective cases decided that S26 was intended
to specifically target such undermining legislation.55
What thus flows from the above is that a contract of restraint of trade can be seen as
unconstitutional. However, neither the Constitution, nor the underlying restraint of trade
principles are absolute and each case should be dealt with whist appropriately bearing this
in mind. What flows from this is that one must determine whether the limits placed on ones
freedom of trade in terms of the doctrine of restraint of trade are justifiable vis-à-vis the
Constitution.56
Clearly, the restraint of trade doctrine is an expression of public policy and the Constitution
should be used to compliment this thought process and all public policy consideration since
the new Constitutional dispensation should be measured against the backdrop of the
Constitution. The Constitution may have a strong influence in the current state of affairs in
South Africa, but it is still not the only consideration and wont impact the doctrine directly.57
51
The Restraint of Trade Doctrine in England, Scotland and South Africa (1997) : 41, PS Sutherland
52
Constitution of the Republic of South Africa 200 of 1993
53
Waltons Stationary Co (Edms) Bpk v Fourie 1994 (4) SA 507 (O) : 510-514
54
Kotza & Genis (Edms) Bpk v Potgieter 1995 (3) SA 783 (C) : 786-790
55
The Restraint of Trade Doctrine in England, Scotland and South Africa (1997) : 41, PS Sutherland
56
Restraints of Trade in the New Constitution (1994) : 330-335, Tanya Woker.
57
Restraints of Trade in the New Constitution (1994) : 335, Tanya Woker.

CHAPTER 5 CONCLUSION AND SUMMATION OF HYPOTHESIS WITH
GRAPHICAL ILLUSTRATIONS
From the above chapters the following conclusions can be drawn with regards to the
enforceability and constitutionality of the restraint of trade doctrine in the Law of Contracts.
The following points will become clearer as the explanation unfolds.
There are a number of variable factors that contribute to this hypothesis:
1. Firstly, as would have been noted, in English law, PUBLIC INTEREST plays a secondary
role, but in South Africa it has come to play the major role in deciding on restraint
issues. It is therefore one of the major role-players in this explanation.
2. The second variable which is going to form part of the restraint of trade equation is
INDIVIDUAL INTEREST. This is the factor which the English law courts used as primary
determining factor. This is essentially the REASONABLENESS CRITERION. This
constitutes the second major role-player.
3. When discussing PUBLIC INTEREST, a very SUBJECTIVE NOTION is at play as the
particular public interest is dependent on demographics, geographics and the types
of contracts involved. SUBJECTIVITY in this regard is thus:
a. The right or ability to earn a living
b. The right to use your skill and the fulfilment of one’s self or individual
interests
c. Acquiring further skills
4. With regards to INDIVIDUAL INRTERESTS, we thus come to the view that more
OBJECTIVE notions are involved as the determining factors are ever so slightly more
set and determinable. OBJECTIVITY is thus deduced from:
a. The entitlement of society to the skills of the individual
b. The interest which society has in the ability of an individual to support
himself
5. Another variable to bear in mind is KNOWLEDGE of the parties. In other words, what
we can reasonably expect the parties to know. For the sake of this discussion we will
assume that both parties has some knowledge of contracting and then also of their

rights and freedoms. We will thus avoid the notion of ‘negative knowledge’.
KNOWLEDGE can also be linked with TIME.
The above variables are used to illustrate the restraint of trade doctrine visually on a
Cartesian plain.
Refer to Figures 1 to 6 and their corresponding explanations whilst bearing the above in
mind as the metaphorical ‘map-legend’ one would use to understand a map.

Subjectivity
Objectivity
Public Interest (Legality of contract etc) Knowledge
Individual Interest (Reasonableness criterion)
PUBLIC INTEREST is the main variable in the positive quadrant on the y-axis. PUBLIC
INTEREST as a Common Law concept is also concerned with the legality of contracts.
PUBLIC INTEREST is mainly influenced by the SUBJECTIVE notions of the community and its
many variations.
INDIVIDUAL INTEREST is the main variable in the negative quadrant on the y-axis.
INDIVIDUAL INTEREST is influenced by OBJECTIVE notions and views.
INDIVIDUAL INTEREST is thus the REASONABLENESS CRITERION.
We also assume that KNOWLEDGE has a positive inclination and it progresses with TIME
along the x-axis.
Figure 1:

Subjectivity
Objectivity
Restricted Party
Figure 2 has an addition of a curved line. This line illustrates the RESTRICTED PARTY to the contract,
thus the covenantee.
The line flows in the positive direction on the x-axis we are assuming that the OBJECTIVE and
SUBJECTIVE factors influence the individual such that his notions fluctuate towards both the positive
and negative extremes.
Figure 2:

Subjectivity
Objectivity
Restricted Party
Restricting Party
Figure 3 shows the addition of a second curved line which directly opposes the first line. The
second line is thus the RESTRICTING PARTY.
The line flows in the positive direction on the x-axis we are assuming that the OBJECTIVE and
SUBJECTIVE factors influence the individual such that his notions fluctuate towards both the positive
and negative extremes.
Figure 3:

Subjectivity
Objectivity
There will always be
similar type businesses.
Public not affected
directly.
The restriction of the
indiv. negatively affects
societies entitlement to
the indiv.’s skills
Parties have the
Freedom to enter into
Contracts at will, and
thus also NOT too.
Indiv. reasonably
contracts for sake of, for
example, ‘short-term’
employment reasons.
Restricted Party
Restricting Party
Figure 5 contains explanations for the crests or peaks of the curves.
Where the RESTRICTED PARTY’s curve peaks on the side of PUBLIC INTEREST it falls back to
the argument that where the individual contracts such that it negatively his own abilities it
can be argued that his inability to support himself is a definite SUBJECTIVE/PUBLIC INTEREST
factor.
Where the RESTICTED PARTY’s curve peaks on the side of INDIVIDUAL INTEREST and
REASONABLENESS it can be argued that the individual contracted in restraint for personal reasons,
which would more often than not be financial. It can also be argued that where an employee
contracts to his own restraint, he only did so for the sake of being employed in the first place.
Where the RESTRICTING PARTY’s curve peaks on the PUBLIC INTEREST side one can argue that the
public wouldn’t necessarily be affected by e.g. a baker not being allowed to run his bakery in a town
as there would most probably be at least one other baker who could satisfy their demands.
Figure 4:

Where the RESTRICTING PARTY’s curve peaks on the side of INDIVIDUAL INTEREST we can argue that
each individual has the freedom to contract as he wishes and does not have to enter into a contract
if he is of the view that it could affect him negatively.
Subjectivity
Objectivity
Restricted Party
Restricting Party
The converging lines
indicate a meeting of
the minds.
Figure 5 shows two important aspects.
Firstly, the points at which the RESTRICTING PARTY’s and the RESTRICTED PARTY’s curves
intersect or converge can be regarded as the contractual meeting of the minds. Those are
points of agreement between both parties to the contract.
Secondly, the circles of increasing sizes all have a mutual contact point, namely the origin.
This is to illustrate the levels of experience and KNOWLEDGE of the parties. Neither party
will ever have the same amount of KNOWLEDGE or experience; that is shown by the areas
covered by the circles. Each circle, as it increases in size and diameter, shows an increase is
KNOWLEDGE.
Figure 5:

Subjectivity
Objectivity
The ‘gap’ or nexus between the curve and
the x-axis is what causes the current
disparities in our law and this nexus
should be ‘closed’ or ‘narrowed’ by the
courts and possibly the Constitution.
Restricted Party
Restricting Party
The sixth and final Figure illustrates the crux of what should be strived towards in the law of
contracts regarding the doctrine of restraint of trade.
The arrows between the curves and the x-axis show the gaps, which in each case, are the
causes of the disputes between the contracting parties.
The goal should therefore for these gaps to be narrowed and eventually for them to
disappear completely. The only way that this can be done is with judicial intervention. The
onus thus rests on the Judges and the Courts to address this disparity between PUBLIC
INTEREST and INDIVIDUAL INTEREST.
The final consideration with regards to narrowing the disparity between the different
parties is the introduction and application of the Constitution. The Constitution is based on
notions of public interest, but at the same time it promotes and protects individual rights
and freedoms.
Figure 6:

APPENDIX
Books and Articles:
DUPLESSIS D AND DAVIS DM
1984. Restraint of Trade and Public Policy.
ESTHERHUIZEN JA
2009. Restraint of Trade Covenants in the Context of the Freedom to Trade. North-West
University.
HEYDON JD
1971. The Restraint of Trade Doctrine. London: Butterwoths
JOLOWICZ HF
1952. Historical Introduction to the study of Roman law. Virginia: University Press.
KAHN E
1968. The Rules Relating to Contracts in Restraint of Trade – Whence and Whither?
KERR AJ
1989. The Principles of the Law of Contract. Fourth edition.
KERR AJ
1982. Morals, Law, Public Policy and Restraints of Trade.
LUCKMAN PC
2007. Restraint of Trade in the Employment Context. Nelson Mandela Metropolitan
University.
SUTHERLAND JP
1997. The restraint of trade dotrine in England, Scotland and South Africa. University of
Edinburgh.
WATSON A
1991. Roman Law and Comparative Law. The University of Georgia Press.
WILBERFORCE ET AL

1966. The Law of Restrictive Trade Practices and Monopolies. Second Edition. London :
Sweet & Maxwell.
WOKER T
1994. Restraints of Trade and the New Constitution.
South African Cases
A Bekker & Co (Pty) Ltd v Bekker and Others 1981 (3) SA 406 (A)
Allied Electric (Pty) Ltd v Meyer 1979 (4) SA 325 (W)
Drewtons (Pty) Ltd v Carlie 1981 (4) SA 305 (C)
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd 1968 AC 269
Federal Insurance Corp of SA Ltd v Van Almelo (1908) 25 SC 940 at 943
Katz v Efthimiou 1948 (4) SA 603 (O)
Kotza & Genis (Edms) Bpk v Potgieter 1995 (3) SA 783 (C)
National Chemsearch (SA) (Pty) Ltd v Borrowman 1979 (3) SA 1092 (T)
Waltons Stationary Co (Edms) Bpk v Fourie 1994 (4) SA 507 (O)
English Cases
Colchester Corporation v Goodwin (1667)
City of London’s Case (1610)
Claygate v Batchelor (1602)
Dyer’s case (1414)

Darcy v Allen (1602)
Dendy v Henderson (1855)
Mitchell v Reynolds (1711)

The Enforceability and Constitutionality of the Restraint of Trade clause in the South African Law of Contracts

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Ähnlich wie The Enforceability and Constitutionality of the Restraint of Trade clause in the South African Law of Contracts

Ähnlich wie The Enforceability and Constitutionality of the Restraint of Trade clause in the South African Law of Contracts (17)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

The Enforceability and Constitutionality of the Restraint of Trade clause in the South African Law of Contracts