Restraint of trade clauses in joint venture agreements
Restraint of trade clauses in joint venture agreements

The following Commercial guidance note provides comprehensive and up to date legal information covering:

  • Restraint of trade clauses in joint venture agreements
  • Scope of restraint of trade clauses
  • Types of agreement and public policy considerations
  • Restraints of trade in joint venture agreements

Scope of restraint of trade clauses

When one participant leaves a joint venture but the joint venture business continues, the remaining participants may be keen to prevent the leaver from taking advantage of any knowledge and contacts it has obtained during its membership of the venture. They may do this by including a clause in their joint venture agreement that prevents the leaver from setting up in competition with the joint venture business. Such a clause typically contains a number of separate components. The leaver usually agrees not to:

  1. carry on a business in competition with the joint venture business within a specified geographical area for a specified period after it has left the business

  2. solicit certain key employees from the joint venture (or from any of the participants) for a specified period, or

  3. solicit certain customers with which the leaver had contact during its involvement in the joint venture

Such restrictions are obviously in restraint of trade, and they are thus unenforceable unless they protect a legitimate business interest and can be shown to be reasonable in the interests of the parties and in the public interest, as summarised by Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co:

‘All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there