Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd
| Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd | |
|---|---|
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| Court | House of Lords |
| Citation(s) | [1894] AC 535 |
| Keywords | |
| Restraint of trade, competition law, illegality | |
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 is a 19th-century English case decided by the House of Lords. The dispute was about restraint of trade, and the judgment declares when a such a restraint (which is prima facie void) may become valid.
The case also established the "Blue pencil doctrine" as a method for deciding whether contractual obligations can be partially enforced when the obligation as drafted in the contract has an element of illegality.
Contents
Facts
Thorsten Nordenfelt, a manufacturer specialising in armaments, had sold his business to Hiram Stevens Maxim. They had agreed that Nordenfelt ‘would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way for a period of 25 years’.
Judgment
The House of Lords held that:
- The provision prohibiting Nordenfelt from making guns or ammunition was reasonable, as he had been paid a very substantial sum.
- The provision banning competition 'in any way' was an unreasonable restraint of trade and therefore invalid.
The case establishes as a general rule that restraint-of-trade-clauses are prima facie void at common law, but they may be deemed valid if three conditions are met:
- the terms seeks to protect a legitimate interest; &
- the terms are reasonable in scope from the viewpoint of the parties involved; &
- the terms are reasonable in scope from the viewpoint of Public Policy.
The question on severability was whether the reasonable restriction could be enforced when it was in the same contract as an unreasonable and unenforceable restriction. The court used the test of whether striking out (with a blue pencil) words containing unreasonable provisions would leave behind a contractual obligation that still made sense. If it did, then the amended contract would be enforced by the court.
In this case, the unreasonable restraint was severable, and the court enforced the amended agreement that Nordenfelt "for the next 25 years, would not make guns or ammunition anywhere in the world , and would not compete with Maxim in any way ."
