Derma Med Limited & Anor v Dr Zack Ally & Ors

When deciding whether non-disclosure justifies discharging a without-notice injunction, the overriding consideration is the interests of justice. The court must assess the importance and culpability of the failure, maintain a sense of proportion and consider measures short of discharge.

Damages will generally be inadequate for breach of a lawful non-compete covenant where loss and causation would be difficult to prove. An injunction ordinarily gives effect to the negative bargain, although it remains discretionary. Any injunction protecting confidential information must define the protected information precisely enough for the restrained person to know what conduct is prohibited.

The claimants purchased an aesthetics business from the first and third defendants. The sale agreement included two-year non-compete covenants and obligations protecting confidential information. The first defendant remained associated with the business after the sale, but the claimants alleged that he dishonestly diverted clients and payments and concealed his activities.

Constable J granted a without-notice injunction restraining competition and misuse of confidential information and preserving evidence: [2023] EWHC 1555 (KB). On the return date, Bourne J found serious failures of full and frank disclosure, discharged most of that order and refused fresh relief because he considered damages adequate: [2023] EWHC 2788 (KB).

The central issues were whether the disclosure findings and discharge were sustainable, whether fresh interim relief should have been granted, and whether an alleged repudiatory breach of the sale agreement eliminated any serious issue to be tried.

1. Appeal allowed. The findings that the claimants had failed to disclose the absence of justification for seeking the non-compete relief without notice, and had failed to disclose the suspension letter, were not reasonably open to the judge. The claimants had identified the exceptional nature of without-notice relief and explained their reasons for seeking it. The suspension letter added little of substance to correspondence already disclosed: paras [39]–[48].

2. The uncertain definition of confidential information constituted a conceded disclosure failure of limited significance. Words extending the definition beyond listed information and requiring a judgment about what would reasonably be regarded as confidential left the restrained person unable to identify the full scope of the prohibition. The claimants also culpably failed to disclose that entitlement to a substantial earn-out payment had been accepted, that a no-set-off clause arguably applied and that no other defence had been identified. Neither failure was deliberate: paras [54]–[62].

3. The injunction should not have been discharged. Although discharge without renewal is commonly the starting point for substantial or deliberate non-disclosure, the overriding consideration is the interests of justice. Courts must maintain a sense of proportion and consider whether costs or another lesser measure can mark a non-deliberate failure. Here there was a strong prima facie case of concealed contractual wrongdoing, the restraint was an important part of the bargain and the established failures were relatively insubstantial: paras [64]–[69].

4. The refusal of fresh relief was wrong in principle. An assurance from a person against whom there was strong prima facie evidence of dishonesty carried little weight. Solvency alone did not make damages adequate. Breach of a non-compete covenant commonly creates grave evidential problems concerning diverted clients, causation, duration of loss and reputational damage: paras [74]–[79].

5. A lawful negative covenant will generally be enforced by injunction because the covenantee bargained for freedom from the prohibited conduct, rather than an uncertain damages claim. Injunctive relief nevertheless remains discretionary and may be refused in an exceptional case involving unconscionable hardship: paras [77]–[79].

6. The alleged repudiatory breach raised a triable issue unsuitable for summary determination. The court granted an injunction restraining competition until 24 March 2024 and restrained misuse of confidential information until trial. Lewis and Bean LJJ agreed with Males LJ: paras [80]–[84].

• Court of Appeal (Civil Division): The appeal was allowed. The court restored interim protection by restraining competition until 24 March 2024 and misuse of confidential information until trial: [2024] EWCA Civ 175.
• High Court, King’s Bench Division: On the return date, Bourne J found serious failures of full and frank disclosure, discharged most of the without-notice injunction and refused fresh injunctive relief: [2023] EWHC 2788 (KB).
• High Court, King’s Bench Division: Constable J granted the claimants a without-notice injunction restraining competition and misuse of confidential information and providing for preservation and forensic imaging of evidence: [2023] EWHC 1555 (KB).