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Restraint of Trade in Sports Contracts

Under Malaysian law, restraint of trade refers to agreements that restrict a person's freedom to practice their profession or business. There are two common situations: when an employee agrees not to compete with a former employer, and when a seller agrees not to compete with the buyer of their business. Section 28 of Malaysia's Contract Act governs restraint of trade and differs from the common law approach. Under common law, restraints are considered void unless deemed reasonable. The case of Bulldogs Rugby League Club & Anor v Williams considered whether a player's contract restricting play for other teams was an enforceable restraint of trade. The court held restraints are valid if they reasonably protect legitimate business interests without harming the public.

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34 views2 pages

Restraint of Trade in Sports Contracts

Under Malaysian law, restraint of trade refers to agreements that restrict a person's freedom to practice their profession or business. There are two common situations: when an employee agrees not to compete with a former employer, and when a seller agrees not to compete with the buyer of their business. Section 28 of Malaysia's Contract Act governs restraint of trade and differs from the common law approach. Under common law, restraints are considered void unless deemed reasonable. The case of Bulldogs Rugby League Club & Anor v Williams considered whether a player's contract restricting play for other teams was an enforceable restraint of trade. The court held restraints are valid if they reasonably protect legitimate business interests without harming the public.

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Syasya Sahira
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Question 3

Law

An agreement in restraint of trade is one in which a person's liberties to practice his or her
profession, trade, or business is restricted. There are two type of situation that usually arises
the restraint of trade. Firstly, an employee who, upon leaving his job, agrees not to compete
with his former employer by starting a similar business or joining a rival company. The
second one is a seller of a business with goodwill agrees not to compete with the purchaser of
a business in any way. Section 28 of the Contract Act of Malaysia contains the law on
restraint of trade. This section was borrowed from the Draft Civil Code of the State of New
York, according to the legislative history. Therefore, the position restraint of trade under
Section 28 of Contract Act is different from the common law. This is because under common
law it is stated that all re strain are prima facie avoid subject to a test of reasonableness.

In example the case Bulldogs Rugby League Club & Anor v Williams & Ors [2008]
NSWSC 822 presented the situation to the court for consideration of the common law
doctrine of restraint of trade and the Restraints of Trade Act 1976. Sonny Bill Williams is the
first defendant signed up a contract for five years with the plaintiff which is Bulldogs Rugby
League Club Ltd in 2007. By signing the contract, William agreed to the subclause 3.1 that
stated the player is prohibited from participating in any other football games of any code
without the Bulldogs' prior written consent. However, Williams and the second defendant
(Toulon Rugby Club) agreed that Williams would represent this French club in the
competition for the 2008/2009 season in July 2008. Following into that, on 8 th August 2007
William played for Toulon in trial game. Therefore, the plaintiff sought an injunction to
prevent the first defendant, who represented Toulon, from playing. The major issue for the
court to consider in determining whether this injunction could be granted is whether the
restraint was effective and necessary to protect the interests of those parties who supported
the restrictions. Therefore, the court held that restriction of trade would be reasonable and
enforceable if it protected the legitimate interests of employers and was not injurious to the
public interest.

Restraint of trade can be view as Common law position and Statutory position which
is by section 28 of Contract Act 1950. Under common law position, the Clause restraint on a
person's freedom is prima facie void, but it is enforceable if reasonable. The contract is not
illegal because the law simply ignores the clause unless the party imposing the restraining
order can indicate that the restriction is reasonable in the interests of the parties and
reasonable in the interests of the public. The reasonable in the interest of the parties is more
to not uncontrolled and protects a genuine interest while the reasonable in interest of public
means it is not damaging the general public as example the public shall not suffer as result of
the restraint.

In the Nordenfelt v Maxim Nordenfelt Guns and Ammunitors Co Ltd [1894] AC


535 has laid down the principle and policy of reasonable in the interest of the parties and
reasonable of the interest of the public. In this case, Nordenfelt was the owner of a global
company that manufactured firearms and ammunition. When he sold his company, he agreed
not to engage in the business of manufacturing guns and ammunition anywhere in the world
for the next 25 years, and he agreed not to compete with any company in any way. According
to the House of Lords, the restraint on not to be engaged in manufacturing guns and
communication was valid even though it was global since the business saw was worldwide.
However, there is a clause in restraint stated “…liable to compete in any way with the any
other company…” was unreasonable and void. This is because since the purchaser is only
untitled to protect the business purchased and not his other business. For restraint of trade to
be valid, it must not be excessive in restraining the area time and scope.

However, in the Singapore case of Thomas Cowan & Co Ltd v Orme [1961] 1 MLJ
41 the court stated the restraint was reasonable in between the parties and it was void and
unreasonable in the reference to the interests of the public. In the contract between the
plaintiff and defendant there is dictate the contract of service provided that the defendant
cannot carry on the business of White Ant Exterminator or Fumigator anywhere in the
Singapore also cannot take employment on the business of White Ant Exterminator or
Fumigator until the time of the three years has expired from the date of the leaving the
service of the employer. In Singapore the plaintiff company is the only fumigator company.
Therefore, despite the fact that the covenant was reasonable and necessary for the protection
of the plaintiff's business in terms of space and time, as well as the nature of the defendant's
employment, the court held that there should be more than one firm of fumigator in
Singapore and it would be unreasonable in reference of the interests of the public for prevent
the defendant to work as fumigator.

Common questions

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A restraint of trade clause is considered reasonable if it adequately protects the legitimate business interests of one party without being excessive in terms of time, geographical scope, or range of activities restricted. It must also consider not harming the public interest, ensuring that the public or marketplace is not unfairly impacted by diminished competition .

A court must consider whether the restraint is reasonably necessary to protect legitimate business interests, its proportionality in terms of time, area, and scope, and whether it aligns with public interest by not unduly restricting market competition or harming the consumer .

A restraint of trade is enforceable under common law if it is reasonable in protecting the legitimate interests of the parties involved and does not harm the public interest. This means it should not be excessive in terms of time, area, or scope, and should genuinely protect the interest of the business without unnecessarily restricting trade .

The analysis of restraint in trade requires ensuring the restriction does not harm public interest by limiting market competition or access to services, as seen in the case of Thomas Cowan & Co Ltd v Orme, where protecting market plurality outweighed private contractual agreements .

The court found the restraint enforceable because it was necessary to protect the legitimate business interests of Bulldogs Rugby League Club. The restriction against playing for another team without consent was reasonable to prevent conflicts of interest and ensure the player's commitment, aligning with the employer's interests .

The court held that the global restraint on manufacturing guns was valid because the business operated worldwide, thus the restraint was not excessive given the scope of the company's operations. However, a clause restricting competition with any company was deemed unreasonable, as the purchaser could only protect the business bought, not unrelated ventures .

In Bulldogs Rugby League Club v Williams, the court evaluated the restraint's necessity and reasonableness to protect the club's interests, deciding the restriction against playing for another team upheld these interests. This demonstrates applying reasonableness by balancing private contractual rights against wider public concerns .

The global restraint was deemed reasonable because it matched the worldwide nature of the business that was sold. In contrast, the part of the clause preventing competition with any other company was void as it extended protection beyond the specific business sold, thus considered too broad and detrimental to fair competition .

Under common law, any restraint on a person's freedom is prima facie void but can be enforceable if it is reasonable, protecting legitimate interests without harming public interest . Section 28 of the Malaysian Contract Act differs in that it provides statutory backing to certain restraints, as it was influenced by the Draft Civil Code of the State of New York, thus representing a blend of statutory and common law traditions .

The court found the restraint unreasonable in reference to public interest because it would effectively create a monopoly in fumigation, as the plaintiff company was the only fumigator in Singapore. This would harm the public interest by limiting competition, which outweighed the protection of the plaintiff's business interests .

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