Sole agency and restraint of trade

Posted: 30th October 2015

HandcuffsSole agency agreements, just like employment contracts, must be reasonable to be enforceable and the courts will strike down provisions that seek to restrict personal freedom or fair competition. In one case, however, the Court of Appeal gave its seal of approval to a contract by which a salesman agreed to represent one company and none other.

The salesman had promised to work exclusively for the money remittance company and that he would not represent any competitor for six months after termination. However, the company later discovered that he was also working for a much larger rival in the same geographic area. The company launched a damages claim against both the salesman and the competitor.

The claim failed after a judge ruled that the exclusivity provisions in the contract were in unreasonable restraint of trade. Amongst other things, the judge noted that the contract enabled the company to terminate without notice in certain circumstances. There was also a lack of reciprocity in that the company was entitled to appoint another agent in the same area if it chose.

Allowing the company’s appeal against that decision, the Court found that the contract was unobjectionable. Many such agreements entitled principals to appoint multiple agents and the notice provisions were not so unbalanced as to be unreasonable. It was also clear on the evidence that the competitor had unlawfully induced the man to breach the contract.