COVENANTS IN RESTRAINT OF TRADE: A SYNTHESIS OF TRADITIONAL, COMMON LAW AND CONSTITUTIONAL APPROACHES

Abstract

It seems as if cases dealing with covenants in restraint of trade will forever proliferate in the law reports. The reason for this phenomenon is simply that restraint clauses are by their very nature rather onerous contractual provisions in that they entail the curtailment of commercial activity and thus potentially hold grave consequences for the covenanter. Often the enforcement by the covenantee of such a contract is contested by the covenanter. When the enforcement of a restraint is sought two contractual values come into play: the principle of sanctity of contract (pacta sunt servanda) which holds the maintenance of agreements freely entered into, including limitations of future economic activity, as paramount, and the principle of freedom of trade which stresses the right of an individual to engage without restriction in economic activity. Although inter-related, there is an uneasy tension between these principles linked to the question of which of the two should be afforded preference in the circumstances. Other factors have further caused the South African law on restraint to be somewhat tumultuous, having been applied in terms of English and later Roman-Dutch law, and potentially influenced by the interim and final constitutions. Some recent provincial case law stresses the constitutional aspect of restraints while other decisions display a preference for the common law approach. The crisp question which this note seeks to address in light of the various forces which have been brought to bear on this area of the law of contract is whether at this stage a uniform resolution to the issue is apparent.