Duhaime's Law Dictionary

Nordenfelt Test Definition:

A legal test against which restrictive covenants are judged as either acceptable or not.

Related Terms: Restrictive Covenant

Also spelled Nordenfeldt.

A judicial test in terms of the reviewing of restrictive covenants named after the 1894 case in which the test was first articulated, Nordenfelt v Maxim Nordenfeldt Guns and Ammunition Company. According to the House of Lords, a 25-year, worldwide restrictive covenant not to compete in the arms business was an enforceable bargain. One of the parties to such a contract was therefore entitled to enjoin a breach of the agreement by another party. If such common-law relief should be granted by a state court in a comparable situation, and if the plurality's interpretation of the statute were accepted, a federal court would be powerless to interfere with state proceedings to enforce such a judgment.1

In Nordenfelt, Justice Macnaughten wrote:

"The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule."

Justice Rothstein of the Supreme Court of Canada wrote, in Shafron v. KRG Insurance Brokers, and relying on the above quotation from the Nordenfelt decision:

"Restrictive covenants give rise to a tension in the common law between the concept of freedom to contract and public policy considerations against restraint of trade. In In the seminal decision (of) Nordenfelt v. Maxim Nordenfelt Guns and Ammunition, this tension was explained. At common law, restraints of trade are contrary to public policy because they interfere with individual liberty of action and because the exercise of trade should be encouraged and should be free."

Tamra Alexander wrote:

"To balance ... competing interests, an exception to the general rule against restraints of trade or restrictive covenants, has developed. Exception has become known as the Nordenfeldt test: if the restriction is reasonable in view of the interest of the parties and reasonable in view of the public interest, it will be justified and, therefore, enforceable.

"In determining the reasonableness of the restriction, the covenant must be examined in the context of the clause, the agreement in which it is found in all of the surrounding circumstances. further, the reasonableness of the restriction is considered in reference to the time at which the covenant was made."

As a further indication of the entrenchment and continuing impact of the Nordenfelt test in the common law, note this summary of the law of Madam Justice Ballance of the Supreme Court of British Columbia in Belron Canada Incorporated v. TCG International Inc., at ¶64-66:

"A restrictive covenant is only enforceable if it is reasonable as between the parties and with regard to the public interest. The competing tensions are between promoting the freedom of contract and endorsing open competition in the marketplace. Because there is a strong public interest in maintaining commercial competition, provisions that restrain trade are generally regarded by the law with hostility: Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd.

"Public policy considerations inform the interpretation of a restrictive covenant. Accordingly, even where a restrictive covenant accurately reflects the contracting parties’ intentions, it may still be found unenforceable if it offends public policy. Apart from these special policy features, the interpretation of a restrictive covenant is to be approached in the same way as any contractual provision.

"As a general proposition, a restrictive covenant is to be interpreted strictly against the party seeking to enforce it."



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