Case Analysis

 

 Nordenfelt v maxim Nordenfelt 1894

Case details:

Citation(s): [1894] AC 535

Court: House of Lords

Judge(s) sitting: Lord Macnaghten, Lord Watson Lord Herschell, Lord AshbourneLord Morris

Facts of the case:

The defendant in this case, Nordenfelt, was a citizen of Sweden. For £2,87,500, he sold the plaintiff Company his quick-firing gun company in exchange for the following two covenants or restrictions: Facts of the situation:

1. That, for a period of 25 years, he would only work on behalf of the corporation in a related industry (i.e., manufacturing quick-firing firearms). (In plain English, for a period of 25 years, refrain from engaging in comparable activity unless on behalf of the corporation.) and

2. That he would not do any business that would compete in any way with the company's operations (not to engage any business, which may complete in any way with the plaintiff Company.

Issue at Hand:

In the present situation, there were the following issues:

1. Was the defendant bound by the two restrictions (conditions/covenants) mentioned above?

2. Did the restraints have any validity?

Given that the defendant had sold the actual business of making weapons for a sizable sum of money, the defendant was required to abide by the first condition/covenant with regard to the first question. The defendant was exempt from the second stipulation, which prohibited him from running any other rival businesses, nonetheless.

Regarding the second query, a covenant is void if it restricts trade generally and applies to the entire region. The second covenant in the current situation is therefore null and void.

A general restraint, however, is not always void; rather, it may be valid if it is determined to be reasonable for both the parties and the public at large. Due to the fact that the plaintiff Company paid a significant number of money to acquire the firm, which the defendant thereafter gave away, the first constraint is acceptable to both parties. Given that an English Company was benefiting from a Swedish National's creation, the first requirement is also justifiable from the perspective of the wider public. Thus, the first covenant is enforceable (not void).

Judgement:

Given that the defendant had sold the company for a significant sum of money and received the injunction, the court found the first condition (covenant) to be reasonable.

However, the second stipulation, which forbids the defendant from operating any additional rival businesses, was deemed inappropriate since it would not safeguard the plaintiff Company's proprietary interests.

 

 

Reference:

 https://law.adelaide.edu.au/ua/media/503/alr-36-2-ch02-dent.pdf

 https://www.australiancompetitionlaw.org/cases/nordenfelt.html