Bradley v Carritt [1903] AC 253

Facts

• The dispute arose from a contract for the sale of shares in a tea company.
• Carritt (the seller) agreed to transfer his shares to Bradley (the buyer) but retained a right to receive a portion of the company's future profits.
• This profit-sharing arrangement was intended to compensate Carritt for the goodwill and business connections he had established.
• The arrangement created an indefinite obligation on the buyer and restricted their freedom in managing the company.

Issues

1. Whether the retention of a collateral advantage, specifically a continuing right to share in future profits, constituted an unreasonable restraint of trade and was thus unenforceable.
2. Whether such a contractual term unduly restricted the buyer's freedom to manage the company and engage in commercial activities.
3. Whether the collateral advantage contravened public policy by fettering free competition and commercial autonomy.

Decision

• The House of Lords held the profit-sharing arrangement created an impermissible collateral advantage.
• The arrangement imposed an undue and indefinite burden on the buyer, restricting their ability to manage the company.
• The contract term was found to be an unreasonable restraint of trade and therefore void.
• The judgment affirmed that contracts must not restrict the freedom of parties to engage in trade beyond what is necessary for the primary agreement.

Legal Principles

• The doctrine of restraint of trade prohibits contractual terms that unduly restrict a party’s ability to conduct a lawful business.
• A collateral advantage—an ancillary benefit to the main contract purpose—is permissible only if it is reasonable in scope and duration and does not unduly burden the other party.
• Restrictions must serve a legitimate business interest and not be excessive; indefinite collateral benefits are likely to be struck down.
• Courts will scrutinize contractual arrangements to ensure they do not contravene public policy or impede competition and commercial fairness.
• Contractual freedom is not absolute and is subject to the overriding concern for public interest and economic freedom.

Conclusion

The House of Lords in Bradley v Carritt [1903] AC 253 held that the profit-sharing right retained by the seller after the sale of shares was an unenforceable collateral advantage, amounting to an unreasonable restraint of trade, and reiterated the importance of balancing contractual freedom with public policy considerations to safeguard the integrity of commercial transactions.