Restraint of Trade in Business Contracts: Analysis and Application

This document provides an analysis of the Restraint of Trade Act 1976 and its implications in business contracts. It discusses the factors that determine the enforceability of a restraint clause and provides a case study on the unreasonable restraint of trade in a business sale contract. The document is relevant to legal studies related to business or accounting.

Legal studies Related to business or
accounting

TABLE OF CONTENTS
Questions..........................................................................................................................................3
REFERENCES................................................................................................................................8

Questions
Q1. (a)
Q2. (d)
Q3. (a)
Q4. (a)
Q5. (d)
Q6
Issue: The purchaser of the business Hellendra has issued a restraint clause in the sale of
business contract which restricts the seller, Sheree, from trading the similar business for 5 years
with the 25 km radius of the premises in Freemantle. This clause has created the problem for
Sheree.
Law: The restraint of trade in Australia is the common law which excepts New South Wales is
governed by the Restraint of Trade Act 1976. This law prevents a party through the way of
restricting the ability of the other party for engaging in the similar trade or employment which is
possible in the case of it is demonstrated that the restraint is reasonable and also it is in the
interest of the parties (Chia and Ramsay, 2016). There are certain important points or the factors
that is required to determine whether the clause is enforceable or not.
 Whether the previous employer of the organization or the business is having interest that
requires to be protected. This clause cannot simply protect the employer from the
competition as it requires to have the serious business interest in it that needed to be
protected which includes trade connections, confidential information, strong influence on
the previous clients, secret processes and so forth.
 To make sure that the stated activities are reasonable to be restricted. The restriction
should not be unreasonable preventing the employees in generating earnings in their area
of interest.
 The time period pertaining to the restraint needed to be reasonable which mainly last for
few months and it can be extended to 12 months which is unusual to be termed

reasonable but there are certain exception to it. The court may decide the whether the
restricted period is reasonable or not.
 Also, the restraint can be put in respect to the population as well limited to certain area or
group (Carrigan and Radan, 2020). For instance, it can limit the employee from working
within the range of 175 km radius or conducting trade.
 It also depends upon the reason why employee's job is put to end. In case, the employee
has been unjustifiably removed, then under such circumstances the restraint of trade
clause will not be applicable. In the opposite situation, the clause will be applicable
which will be dependent upon the wordings of it.
 It also accounts for whether the fair consideration is been granted or offered to the
employee or the seller.
As per the Restraint of Trade Act 1976, if the given clause is unreasonable then the Employment
Relations Authority (ERA) or the employment court can state that the restraint trade clause
cannot be implemented (Mupangavanhu, 2017). Therefore, indicating that the seller or the
employee is not required to comply with the same. Along with the same, the court may also
modify the contracts in order to make the restraint clause reasonable.
Application: The given case is about the Sheree who is the leading importer of the spicy foods
in Freemantle and the surrounding areas. She decides to sell out its business and with the help of
the sales agent she found the potential buyer for the buyer for the business whose name is
Hellendra. On the part of negotiating the contract of sales the issue occurred in respect to the
restraint of trade clause which states that Sheree will not engage in the similar business activities
for the period of 5 years within the radius of 25 km in the business premises in Freemantle. As
per the law stated above, it is considered to be unreasonable for putting restriction on the trade
for a period exceeding 12 months. Also, there are certain exemptions to it and the power of it lies
with the court in respect to extending the restraint trade period but for 5 years is nearly
impossible as it affects the interest of the former owner in generating better living.
Conclusion: Based on the above analysis, it can be inferred that the Restraint of Trade Act 1976
which regulates the law pertaining to the restraint of trade. On the basis of what the law states it
can be concluded that Hellender cannot impose the restraint on trade for 5 years and if he desires
to then he is required apply the same in the court and the court will make decision on account of
the reasonableness of the restraint time period. If the court deems fit, it can also make changes in

the terms of contract in order to make it reasonable. Therefore, the assumption of including court
is removed then it the terms of contract written under the contract of sales is not applicable or
enforceable by the Sheree because it is unreasonable as it is also affecting the interest of the
seller.
Q7. (d)
Q8.(c)
Q9. (c)
Q10. (d)
Q11. (b)
Q12. (d)
Q13. Examining under what circumstances an innocent party must obtain remedy for
misrepresentation.
Issue: A misrepresentation is referred to as the false statement associated with the
material facts which has been made by one party and also largely influence the other part's
decision while agreeing to a contract. Misrepresentation can results in void of contract and
eventually leads to the breach of contract. However, misrepresentation tends to apply only to the
key statement of facts and is not associated with the predictions and opinions (Boutron and
Ravaud, 2018). However, there are three key types of misrepresentation which includes innocent,
negligent and fraudulent misrepresentation. Innocent misrepresentation is considered to be as the
false statement related with the material facts by the defendant who in turn was completely
unaware at the time of signing of the contract that statement is untrue. However, the most
effective remedy for this situation is related with the cancellation and rescission of the contract.
The key constituents which are linked with the innocent misrepresentation are that someone who
are parties to the contract has made false misrepresentation. Moreover, the misrepresentation
must be material to the transaction and also other parties must also substantially rely upon

misrepresentation. The buyer must have caused actual harm associated with the transaction in
order to file a case or sue the other party.
Law: Misrepresentation are considered to be as the key civil offence within the civil
court. For the proper remedy, the person can effectively sue for the damages which leads
misrepresentation. In the case of Redgrave v Hurd (1881) within the english contract law mainly
constitute of misrepresentation. This specific case law mainly holds that, there seems to be stated
that the contract can be rescinded because of the innocent misrepresentation. Here the
representee has the chance to effectively verify for the false statement. Mr. Redgrave is one of
the elderly solicitor who has been advertised for the partner in order to buy accompanying house
and also join business. Mr. Hurd stated thta the practice has brought £300 p.a. When om the
other hand itb was only £200 p.a. However, Mr. Redgrave showed the summaries of the paper
which accounts for £200 p.a. And stated rest are borne by other papers. However, Mr. Hurd did
not inspect the papers. In theis case law, Mr. Redgrave sued to gain specific information nad
Mr. Hurd has also counterclaimed for recission related with misrepresentation. There are two
type of laws within which the company must effectively complky with are the English contract
law and misrepresentation in English law. Innocent misrepresentation within the contract claim
can evebtually give rise to the complex issues within the parties.
Application: There seems to be an appropriate set application for the English contract
law and misrepresentation in English law. Within the common law jurisdictions, there seems to
be a misrepresentation related with the misleading or untrue statemnts which in turn has been
made at the time of negotiation (Davies and Day, 2019). The misled party in turn might normally
rescind the contract. On the contracry, the English contract law is considerde to be as the key
body of law which regulated contract within Wales and england. A contract must always be
carried out in good faith and all the necessary information must be effectively disclosed. The
application of the misrepresentation acr 1967 which has amended the common law principles
inked with the misrepresentation. This act is highly significant in efefctively providing the action
by the effecticve way of contract law. This way it helps the person in putting back to the same
position as they were earlier. Wuithin the specific case sceanrio, Fry J’s decision has been
reversed and the contract has been rescinded on the grounds of innocent misrepresentation. The
recission is conisdrede to be as the normal remedy associated with the misrepresentation (Deuble
and et.al., 2016). Damages to the party has been effectively awarded within the lieu of recession.

It is highly significant in efefctively depicting whether the representee is effectively entitled to
the damages of specific event.
Conclusion: A misrepresentation which in turn has been made within the good faith and
also which has been believed to be true are knowlen as innocent misrepresentation. The innocent
misrepresentation must be material to the transaction. Another major constituent of the
misrepresentation is that, the buyer must have caused actual harm associated with the transaction
in order to file a case or sue the other party. Someone who are parties to the contract has made
false misrepresentation is also major constituent of misrepresentation. The key effective remedy
to the innocent misrepresentation is cancellation and rescission of the contract. English contract
law and misrepresentation in English law are the key effective laws associaed with the innocence
misrepresentation. As per the specific case law, the contract has been rescinded on the grounds
of innocent misrepresentation.
Q14. (d)
Q15. (c)
Q16. (c)
Q18. (d)

REFERENCES
Books and Journals
Boutron, I. and Ravaud, P., 2018. Misrepresentation and distortion of research in biomedical
literature. Proceedings of the National Academy of Sciences.115(11). pp.2613-2619.
Carrigan, F. and Radan, P., 2020. The Post-Employment Restraint of Trade Doctrine: A Critical
History. King's Law Journal. pp.1-24.
Chia, H. and Ramsay, I., 2016. Employment Restraints of Trade: An Empirical Study of
Australian Court Judgments. Australian Journal of Labour Law. 29(3). pp.283-304.
Davies, P.S. and Day, W., 2019. A Mistaken Turn in the Law of Misrepresentation. Lloyd's
Maritime and Commercial Law Quarterly.
Deuble, R.L and et.al., 2016. Using Fitts' Law to detect intentional misrepresentation. Journal of
Motor Behavior.48(2). pp.164-171.
Mupangavanhu, Y., 2017. The relationship between restraints of trade and garden
leave. Potchefstroom Electronic Law Journal/Potchefstroomse Elektroniese
Regsblad. 20(1).