Illegal and void contracts

Question 1

Fenton v Scotty’s Car Sales Ltd

Answer 1

purchaser entered into a hire purchase agreement for a used motor vehicle. He paid and drove the car, decided it was mechanically defective and returned it to the Vendor. Claimed that although the sale contract was legal, the vendor acted illegally by selling without a WOF.
held: claim failed as the statute did not expressly say ‘illegal’

Question 1

Attwood v Lamont

Answer 1

Plaintiff carried on a business at Kidderminster. Defendant was employed and agreed in the contract that he would not carry on the trade or business within 10 miles of Kidderminster. Defendant set up a business otside the limit but obtained and executed orders from within.
Held: the covenant for protection of plaintiff’s entire business could not be severed.

Question 1

Wyatt v Kreglinger and Fernau

Answer 1

Plaintiff had worked for defendants for many years, was given a pension upon retirement, with the catch that he couldn’t enter into the wool trade or cause detriment. Defendants stopped paying and held no agreement existed.
Held: the contract was in restraint of trade thus void.

Question 1

contracts in restraint of trade

Answer 1

Contracts that limit a person’s freedom to carry on a trade or profession in terms of nature of activities, geographical area and/ or time frame.
At common law, such contracts are void for infringing personal liberty and depriving society of the skills.

Question 1

Reasonableness of restraint

Answer 1

The restraint must be no greater than what is necessary to protect the legitimate interests. Should not be imposed over an unrestricted geographical area or unrestricted time frame.

Question 2

Contracts for employment

Answer 2

Imposing restrictions on an employee’s freedom to work after the termination of their employment.
To determine if the restraint is reasonable, need to determine if the employer has some legitimate interest to protect and is reasonable in terms of subject matter, locality and time

Question 3

Legitimate interest to protect

Answer 3

must establish they have some ‘proprietary rights’ to protect such as trade secrets or employer’s trade connections. Protection from competition is insufficient.

Question 4

Trade secrets

Answer 4

These are things not commonly known or used by competitors. They can validly be restrained if they can prove:
- information is a trade secret
- employee has sufficient knowledge to exploit it
- employee acquired the knowledge in the course of employment.

Question 5

Broadcasting Corp of NZ v Neilsen

Answer 5

Neilsen had been employed for 21 years and wanted to work elsewhere. The employment contract contained a restraint of trade for confidential information. Neilsen argued since the contract was cancelled for other reasons, he was not bound.
The court held it was effective and that a 6 month restraint was reasonable.

Question 6

Herbert Morris Ltd v Saxelby

Answer 6

Defendant has been in plaintiff’s employment for 12 years. The contract contained a covenant that he could not work for 7 years in the same country and industry. Defendant left for a competitor and plaintiffs sued.
held: the restraint was void and unenforceable as his “secrets” were no more than general skill.

Question 7

Employer’s trade connections

Answer 7

cover information such as the customer list. The employer is entitled to enforce this protection but must prove:
- the ex employee has been in a position of influence to the customers
- influence was gained in the course of employment

Question 8

Landzeal Group Ltd v Kyne

Answer 8

The restraint in trade clause was enforceable but reduced to only 6 months.

Question 9

Reasonableness of restraint clause

Answer 9

In determining the reasonableness of the restraint clause:
- relationship between employee and customers
- nature of the work
- nature of the business and employee
- areas of restraint and area of the business
- duration of the restraint
- public interest

Question 10

Fletcher Aluminium Ltd v O’Sullivan

Answer 10

Fletcher Aluminium Ltd bought Mr O’Sullivan’s intellectual property from him with an agreement he would work for them. The contract contained a restraint preventing him from being involved with competitors. O’Sullivan terminated his employment and applied to the court that the restrictive covenant was unenforceable.
Held: it was unreasonable but the company appealed to the CoA. They found it could be enforced to protect their legitimate interest.

Question 11

s83 of the Act

Answer 11

Unreasonable provisions may be severed in a contract and the remaining will be enforced, if possible to do so.

Question 12

H & R Block Ltd v Sanott and another

Answer 12

Defendant was employed by plaintiff company. Contract contained a restrictive covenant for 25 miles and 5 years after termination. They terminated him and he set up a competing business and materials derived from his employment. Plaintiff sued.
Held: clause was too wide. Modified down to 3 years and 5 miles.

Question 13

Brown v Brown

Answer 13

Two brothers carried on a business, one agreed to sell the other their interest. Sale agreement required him to not work for any business of a similar nature across all of NZ for 20 years.
Held: Lack of any evidence for the scope so was reduced to 12 years and northern part of North Island.