ABSTRACT
This chapter deals with an area of law which under classical contract theory brought two principles into direct conflict. On the one hand, classical theory endeavoured to promote ‘freedom of contract’ – it is the parties who determine their obligations, and the courts should only intervene in exceptional circumstances. On the other, underlying classical theory was an acceptance that the ‘free market’, in which competition takes place between those seeking to make contracts, is the ideal economic framework for the operation of exchange transactions. What happens when the freedom to contract is used to restrict competition? The answer of the common law was limited. A range of contracts or contractual provisions which were regarded as being ‘in restraint of trade’ were treated as being ‘illegal’, on grounds of public policy, and therefore unenforceable. The main use of this approach, however, as will be seen below, was in relation to restrictions contained in contracts of employment or in contracts for the sale of a business, purporting to limit the economic activity which the employee or the seller could engage in after leaving the employment or selling the business.1 The broader problems of ‘anti-competitive’ practices, and in particular the problems arising from situations of monopoly or nearmonopoly in a particular market, were never tackled by the common law. There is now, however, extensive statutory intervention to control this area, with much of the current law being shaped by the rules applicable in the European Economic Community.
