Contracts in Restraint of Trade in Kenya: Understanding the Law

Contracts in restraint of trade refer to agreements that restrict a party`s trade or profession in some way. In Kenya, these types of contracts are governed by the common law and the Contracts Act, which provides for the enforceability of such agreements if they are reasonable and necessary to protect a legitimate interest of the party seeking to enforce the restraint.

The Contracts Act defines a contract in restraint of trade as any agreement that restricts a person from carrying on a lawful profession, trade, or business of any kind. The law prohibits such contracts if they are deemed to be unreasonable or against public policy.

Enforceability of Restraint of Trade Contracts

To be enforceable, restraint of trade contracts in Kenya must meet certain criteria. The restrictions must be considered reasonable and necessary to protect a legitimate interest of the party seeking to enforce the restraint. The interest may include the protection of trade secrets, confidential information, goodwill, and customer relationships.

Further, the restraint must be limited in time, scope, and geographical area. For example, if the restraint is intended to protect trade secrets, the contract must specify the nature of the secrets, and the duration of the restraint must be reasonable. The geographical extent of the restriction must not be excessive or unreasonable.

Additionally, the party seeking to enforce the restraint must have an interest that is worth protecting. The restraint must not be imposed for the sole purpose of eliminating competition or preventing a party from pursuing their profession or trade.

Void Restraint of Trade Contracts

Contracts in restraint of trade can be challenged and declared void if they are considered unreasonable or against public policy. The Court will consider factors such as the reasonableness of the restrictions, the extent of the restraint, and the impact on the affected party`s livelihood.

If a restraint of trade contract is found to be unreasonable, it will be declared void. The Court may also order the party seeking to enforce the restraint to pay damages to the affected party for any losses suffered as a result of the restraint.

Conclusion

Contracts in restraint of trade in Kenya are enforceable if they are reasonable and necessary to protect a legitimate interest of the party seeking to enforce the restraint. The restrictions must be limited in time, scope, and geographical area, and the party seeking to enforce the restraint must have an interest that is worth protecting.

However, the Court may declare such contracts void if they are unreasonable or against public policy. It is, therefore, essential to ensure that any restraint of trade contract is drafted carefully and reviewed by a legal expert to avoid any potential legal challenges.