Business Law Assignment: Nordenfelt vs. Maxim Case - Legal Analysis

This business law assignment analyzes the landmark case of Nordenfelt vs. Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535. The report summarizes the facts of the case, which involved a dispute over a restrictive covenant, and the decision by the House of Lords. It examines the legal principles of restraint of trade, the 'Blue pencil doctrine', and the judicial opinion of Lord Macnaghten. The assignment discusses how the case would likely be decided today, considering its importance in the evolution of contract law and competition law. The report also explores the implications of trade restrictions in employment agreements and the importance of fairness in such agreements. The analysis provides a comprehensive overview of the case's significance and its impact on contemporary legal practices.

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Business Law Assignment
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Introduction
Nordenfelt vs. Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 is an
English case, which was decided by the House of Lords in the 19th century. The conflict
concerned trade restriction, and the judgment determines when such restraint (which is prima
facie void) might become legitimate. The case also laid down the ‘Blue pencil doctrine’ as a
mechanism for determining if contractual obligations can be partly imposed when there is an
aspect of illegality in the duty as written in the contract (Goodman 2006). This case has great
importance in the English legal system. This paper mainly focuses on the discussion of the facts
and decision of the case, the judicial opinion given by Lord Macnagthen. In all the cases, the
facts, decision and judicial opinion will be given summarily. Finally, the paper aims to assess in
which way this case would be decided in today.
Discussion
The Nordenfelt vs. Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 case
is important in today’s law of Contract. It helps to change the views of public regarding
contractual obligations. The various aspects of this case are discussed below:
Summary of the facts and decision
The facts of the Nordenfelt vs. Maxim Nordenfelt Guns and Ammunition Co Ltd [1894]
AC 535 case are given below:
1. The plaintiff, namely, Thorsten Nordenfelt, was a producer of Swedish guns with a
valuable trade worldwide.
2. The business had been sold by him to a firm, namely, Hiram Stevens Maxim, the
defendant.

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3. Both of them decided to enter into an agreement of restrictive covenant not to work in a
limitless geographical zone for any type of competing business for a duration of 25 years.
4. After entering into such an agreement, the plaintiff violated it and later joined a
competing company and worked there.
5. In consequence, a suit had been lodged by the defendant for inunction in order to
implement the agreement.
Finally, the case was brought before the House of Lords. Basically, two issues had been arrived
by this case, such as:
 The plaintiff contended that the provision was related to a business clause restriction, and
therefore it had to be fair to uphold. It was also contended by him that there was an unfair
universal geographical constraint; and
 The defendants contended that in order to defend themselves, the restriction was only as
required.
The House of Lords stated that the restriction in the benefits of the parties was appropriate.
The court also highlighted that the 200,000 Euro had earned by Thomas Nordenfeldt as the full
value for his sale. Restriction of business contracts were prima facie null under the provisions of
the Common law, but it may be considered to be lawful if three situations are fulfilled:
 The terms aim to safeguard legitimate interests;
 From the viewpoint of the parties concerned these words are fair in nature; and
 From a public policy point of view, these conditions are fair in nature.
The concern regarding severability was whether the fair limitation could be imposed in the
identical contract as an unfair and unenforceable limitation (Cabrelli and Floyd 2010). The test

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had been used by the court in order to determine whether striking out conditions with the help of
a blue pencil that included unfair clauses would leave a contractual responsibility that was still
sensible. If it has been done, the revised deal must be enforced by the court.
The unfair restriction was severable in this case, and the court imposed the revised
arrangement that Nordenfelt would not produce weapons or bullets anywhere in the world for the
duration of subsequent 25 years, thereby allowing him to run business in those very things in
straight competition with Maxim, demonstrating the restricted applied utility of the law under its
strike-out only strictness.
Summary of the judicial opinion of Lord Macnaghten
A land mark judgment had been given by Lord Macnaghten in Nordenfelt vs. Maxim
Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 case. The general rule of law is that
any intervention with the freedom of an action in business of an individual, and all business
restrictions themselves, if nothing else exists, are opposing to public policy and hence invalid
(Davis and Pelc 2017). However, there are some exceptions of this rule. It is fair for the benefits
of the contractual parties and the public where appropriate because the area of restraint will
usually parallel to the area where security is essential (Marshall 2008).
The viewpoint of Lord McNaughton in regard to the restriction of business contracts was
that, it was prima facie unconstitutional to have a provision by which someone confines
themselves from carrying out his business. It was an English law and the fundamental principle
of this law is that every exchange should be open. Nevertheless, if someone who has constructed
a valuable trade and did not sell it in order to get advantage out of this, it would be considered to

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be as deter business. Therefore, if the clauses of the contract were fair, restriction of business
contracts would be sustained.
It was also held by Lord Macnaghten that, referred to the benefits of the contractual
parties involved and fair in relation to the welfare of the individuals, so outlined and so protected
that it provides satisfactory safeguard to the parties in the favour of whom it is executed,
whereas, at the identical time, it does not benefit the public in any way.
It was emphasized by Lord Macnaghten that in the current case it was barely contended
that the restriction was fair, taking into account the benefits of the contractual parties at the time
of the deal. This helped Mr. Nordenfelt to get the entire value of what he had to trade; without it
the buyers could not have been covered by what they wanted to buy. In fact, no injury prevents
the individual from running on a business in war arms out of the country. Lord Macnaghten was
unable to consider of how anybody could get free from 200,000 Euro, therefore he assumed it
unbelievable to propose that he might converted into liability to the public.
The present view of the Court regarding Restraint of business contracts
Trade Restriction is considered to be a doctrine of Common law regarding to the
imposition of restriction arising out of contract on liberty to run a business organization. It is
regarded as a forerunner of the contemporary Competition law of the UK. In the old landmark
case of Mitchel v Reynolds [1711] 1 P Wms 181 the court held that the businessman of a free-
country has the exclusive right to carry out and control his own business as per his own freedom
and preference. While doing so the businessman must keep in mind that the terms and conditions
of the business must not contrary to the statute and law of the land. It also has been held that
when the method of running the business has been governed or prohibited by statute or any law

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of the land, the law needs to be followed. Nevertheless, no power outside of the general law can
limit the free choice of the businessman (Flynn et al. 2013).
A contractual agreement that does not participate in business is considered to be null and
cannot be enforced against the promisor as opposing to the public policy of endorsing business,
unless the restriction of business is fair to safeguard the interests of the buyer of a trade (Dobson
2008). The same view had been given by Lord Macnaghten in Nordenfelt vs. Maxim Nordenfelt
Guns and Ammunition Co Ltd case. Trade restrictions may also occur on employment
agreements in post-termination preventive agreements.
Trade restriction aims to safeguard business secrets or business information but can only
be applied if it is fair with respect to the contractual party to which it is made, and if it is not
against the public policy (Ferris 2001). This view is upheld in the Nordenfelt vs. Maxim
Nordenfelt Guns and Ammunition Co Ltd case. The rule established by Lord Macnaghten that
while aparty to a restriction of business contract could validly pledge ‘not to make weapons or
bullets anyplace in the world’, it was a discriminating restriction to ‘not contest in any way with
Maxim’. The same approach was accepted by the House of Lords in Mason vs. The Provident
Supply and Clothing Co. [1913] AC 724 case in England. However, it can be said that this case
would be decided today in the same way as it was decided in 1894.
Conclusion
Therefore, from the above discussion it can be concluded that a trade restriction is
considered to be against to the public policy. The contemporary approach regarding restrictive
business practices is to be observed in the land mark case of Nordenfelt vs. Maxim Nordenfelt
Guns and Ammunition Co Ltd, where the House of Lords held that the restraint in the benefits of

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the parties was appropriate (Rodger and MacCulloch 2008). Restriction of business contracts
were prima facie null under the provisions of the Common law, but it may be considered to be
lawful if certain conditions are fulfilled. This case also influenced the decisions of some other
cases. Hence, the importance of this case cannot be ignored.

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Reference
Cabrelli, D. and Floyd, L., 2010. New light through old windows: restraint of trade in English,
Scottish, and Australian employment laws (-) emerging and enduring issues. International
Journal of Comparative Labour Law and Industrial Relations, 26(2), pp.167-192.
Davis, C.L. and Pelc, K.J., 2017. Cooperation in Hard Times: Self-Restraint of Trade
Protection. Journal of Conflict Resolution, 61(2), pp.398-429.
Dobson, P.W., 2008. Buyer-Driven Vertical Restraints. The Pros and Cons of Vertical
Restraints, p.102.
Ferris, J.S., 2001. Alternative Approaches to Vertical Restraints: Theoretical Models and Current
Practices. Unpublished Working Paper for the Canadian Competition Bureau, Ottawa.
Flynn, M., Upchurch, M., Muller-Camen, M. and Schroder, H., 2013. Trade union responses to
ageing workforces in the UK and Germany. Human Relations, 66(1), pp.45-64.
Goodman, A., 2006. The origins of the modern patent in the doctrine of restraint of
trade. Intellectual Property Journal, 19(2), p.297.
Marshall, K.S., 2008. The Unfair Trade Practice of Hiring Illegal Alien Workers. U. Pa. J. Bus.
L., 11, p.49.
Rodger, B. and MacCulloch, A., 2008. Competition Law and Policy in the EC and UK.
Routledge-Cavendish.