The development of British competition law. A complete overhaul and harmonization

I.

The Common Law

Until 1948 the United Kingdom’s competition law was provided exclusively by the

common law, that is to say judge-made case law. During the 18

th

 and 19

th

 Centuries

the judges developed what came to be called the common law doctrine of undue

restraint of trade. Indeed, on the other side of the Atlantic, the common law doctrine

was a source of inspiration of the US Sherman Antitrust Act of 1890. The doctrine

still remains part of UK law.

The primary application of the doctrine has always been to –

-

contracts of employment and partnership contracts that impose

restrictions on the activities in which the employees and partners may

engage after the termination of their employment or partnership

relationship; and

-

contracts for the sale of a business that impose restrictions on the

activities in which the seller may engage after the transfer has been

completed.

But the doctrine is also applicable to other contractually imposed restrictions on

competition such as –

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-

cartels and

-

solus petrol ties.

Unless such contractual restrictions are reasonable in the interests of the parties and

are not unreasonable in the public interest, they are not enforceable in legal

proceedings. Hence, the period for which and geographical area within which a

restriction operates and the kind of activities to which it applies must all be shown to

be no more than reasonably related to the legitimate business interests of the person

in whose favour the restriction operates or the restriction will be unenforceable by

legal proceedings.

The sole legal sanction provided by the doctrine is the unenforceability of

unreasonable restrictions. The consensual operation of such restrictions by the

parties is not, as such, unlawful either as a crime or as a tort (an unerlaubte

Handlung) so the doctrine provides no legal remedy for third parties who suffer loss

as a result of the operation of restrictions, however unreasonable they may be.

The contractual unenforceability of „covenants 

[contractual undertakings] in undue

restraint of trade“ reflects a laisser faire philosophy subject to the provision of a

reasonable degree of protection for the legitimate commercial interests of employers,

buyers of businesses and so on. The absence of positive legal remedies for third

parties injured as a result of the operation of such restraints reflects the

unwillingness of the judiciary to become involved in disputes about the economic

rights and wrongs of restrictions of competition and the related social and political

issues: the training and experience of the judges simply did not equip them to decide

such disputes.

Because of the development in the second half of the 20

th

 Century in the United

Kingdom of statute-based competition law, the practical importance of the common

law doctrine is now largely confined to the traditional areas of its primary

application – contracts of employment and the like and contracts for the sale of a

business. However, the doctrine retains an importance, especially for individuals and

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small firms, precisely because the restrictions of competition to which the doctrine

applies are often of so little overall economic importance that, for that reason, more

modern competition law may often not apply to them.

At the same time, the common law doctrine did not and does not in itself provide an

adequate basis for a modern competition law. In particular: -

-

the doctrine does not apply to abuse of economic power as such; it applies

only to cases where restrictions have been accepted under agreements

between the parties;

-

the application of the common law doctrine depends entirely on the parties

to the relevant agreement invoking it;

-

the only „sanction“ provided by the doctrine is unenforceability of offending

contractual terms.