Restraint of trade

The interruption of the free movement of goods in commerce.

It can be said that restraint of trade is a practice which limits the scope of trade or commerce, the intention being to restrict free trade or commercial practice. These practices can effectively eliminate or restrict the growth of healthy competition. For example an agreement between a seller and buyer by which the seller agrees not to sell goods to anybody else other than the buyer or his associates is prima facie a contract in restraint of trade. 

Further examples might include restrictions in an employment contract which prevents a party trading after his or her employment has ceased or agreements which restrict fair competition in contracts dealing with the disposal of a business.

In the leading case of Mitchell v Reynolds (1711) Lord Smith LC on the matter of restraint of trade said:  "it is the privilege of a trader in a free country, in all matters not contrary to law, to regulate his own mode of carrying it on according to his own discretion and choice. If the law has regulated or restrained his mode of doing this, the law must be obeyed. But no power short of the general law ought to restrain his free discretion."

Agreements which are in restraint of trade are illegal agreements on public policy grounds unless, on examination, they are seen to be reasonable in the interests of the public at large as well as both contracting parties.

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