Not much wiggle room in a carefully drafted restraint of trade

A restraint of trade provides important protection for the purchaser of business. But only if it is enforceable.

In the recent decision of Feng v Liu the High Court considered the scope and enforceability of a restraint of trade against the vendors of a kitchen joinery business.

The vendors were the former shareholders and directors of the company that ran the kitchen joinery business. The restraint prevented the vendors from carrying on a kitchen joinery business within a 30km radius of the company after they had sold it.

The vendors attempted to use their wives and an associated company as a device to “get around” the restraint of trade.

 

The High Court considered it appropriate to grant an interim injunction enforcing the restraint of trade against the vendors because:

  • the agreement for sale and purchase had been negotiated over a month, and the parties had received independent legal and accounting advice in relation to it;
  • the purchaser had paid for control of the company;
  • the restraint of trade was not so unreasonable that it needed to be read down by the Court at such an early stage in the proceedings;
  • the restraint of trade extended to the vendors’ wives and the associated company.

 

To find out more, contact our Business Team.