''Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd''

894 __NOTOC__ Year 894 ( DCCCXCIV) was a common year starting on Tuesday (link will display the full calendar) of the Julian calendar. Events By place Byzantine Empire * Byzantine–Bulgarian War: Stylianos Zaoutzes, leading minister and ...

AC 535 is a 19th-century English case decided by the

House of Lords The House of Lords, also known as the House of Peers, is the Bicameralism, upper house of the Parliament of the United Kingdom. Membership is by Life peer, appointment, Hereditary peer, heredity or Lords Spiritual, official function. Like the ...

. The dispute was about

restraint of trade Restraints of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. It is a precursor of modern competition law. In an old leading case of '' Mitchel v Reynolds'' (1711) Lord S ...

, and the judgment declares when 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.

Facts

Thorsten Nordenfelt Thorsten Nordenfelt (1 March 1842 – 8 February 1920), was a Swedish inventor and industrialist. Career Nordenfelt was born in Örby outside Kinna, Sweden, the son of a colonel. The surname was and is often spelled Nordenfeldt, though Thorsten ...

, 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 restraint was reasonable in the interests of the parties. They placed emphasis on the £200,000 that Thomas Nordenfeldt had received as full value for his sale.

AC 535 Lord Macnaghten said the following:

Significance

Following ''Nordenfelt'' restraint of trade clauses were ''prima facie'' void at common law, but they may be deemed valid if three conditions are met: * the terms seek 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 Public policy is an institutionalized proposal or a decided set of elements like laws, regulations, guidelines, and actions to solve or address relevant and real-world problems, guided by a conception and often implemented by programs. Public p ...

. The question on

severability In law, severability (sometimes known as salvatorius, from Latin) refers to a provision in a contract or piece of legislation which states that if some of the terms are held to be illegal or otherwise unenforceable, the remainder should still apply ...

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 Blue pencil may refer to: * Blue pencil (editing), a pencil traditionally used by an editor or sub-editor to show corrections to written copy * Blue pencil doctrine, a legal concept in common law countries See also * George Pirie Thomson ...

) 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. An unreasonable restraint is 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 " thus permitting him to trade in those very items in direct competition with Maxim, illustrating the limited practical utility of the rule under its strike-out only stricture.

Notes

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External links

NSW Law Reform Commission. Working Paper 4 (1969) - Covenants in Restraint of Trade
1894 in case law 1894 in British law English contract case law House of Lords cases