Dranez Anstalt & Ors v Zamir Hayek & Ors (2001)
The designer of a mechanical ventilator who was a former director and employee of the claimant companies was not guilty of passing off or misuse of trade secrets or confidential information by setting up a competing business. However, the investors in the claimant companies were entitled to enforce an undertaking given by him that he would not compete with them.
Action by the claimants ('the companies' and 'the investors') to restrain the first defendant ('H') and a company controlled by him ('Medivent') from competing with the companies in their business of developing, manufacturing and selling a mechanical ventilator for the treatment of patients with breathing disorders ('the Business'). The Business was conducted through the companies, which were owned and controlled equally by H and his two brothers. All three were directors and employees of the companies. H was a qualified paediatrician and the inventor of the ventilator. In March 1994 the investors made a substantial investment in the companies on the faith, inter alia, of a side letter in which H and his brothers agreed that they would not, for an undetermined period, compete with the companies in the Business. By further agreements in 1994 new investors joined who were not parties to the side letter. In March 1995 H's employment with the companies ceased in disputed circumstances. In late 1995 H set up Medivent to produce and sell ventilators. In 1997 the companies and the investors commenced this action in which they alleged that H had: (i) acted in breach of the side letter; (ii) misused and/or disclosed trade secrets and other confidential information to Medivent; and (iii) acted in breach of his fiduciary duty to the companies. They further alleged that H and/or Medivent had passed off Medivent's goods as those of the companies, and that Medivent had induced H to breach the side letter. By the time that the action came to trial the Business had virtually collapsed.
(1) There was no evidence that H had misused trade secrets or confidential information belonging to the companies. He had simply used the knowledge and skill that his medical training and practice had afforded to him. (2) There was no evidence of passing off, in that there was no evidence of misrepresentation by H and/or Medivent or confusion on the part of the public. (3) The claim in relation to alleged breach of fiduciary duty by H as a former director added nothing to the claim in relation to breach of confidence by H as an individual, and failed for the same reasons. (4) The absence of a fixed period was not necessarily fatal to restrictive covenants given pursuant to commercial bargains and it had been reasonable for the investors to require H to enter into the covenant against competition for so long as the companies were conducting that business. As against the new investors H was estopped from denying his obligation not to compete with the companies because they ought to have been informed that they were not privy to the restrictive covenants before they invested. (5) It followed that the investors, but not the companies, were entitled to relief against H. They were also entitled to similar relief against Medivent because it, owned and controlled by H, had procured his breach of the side letter. (6) An injunction would be an inappropriate remedy given the evidence that the Business had run into the ground. An injunction would destroy Medivent's flourishing business without benefiting the companies in which the investors had invested. The appropriate relief for the investors was damages.
View all cases