Brief Summary

Interdict — Non-solicitation and confidentiality — Applicant sought interdicts against former CEO to prevent solicitation of customers and disclosure of confidential information post-termination of employment — First respondent had signed a contract containing non-solicitation and confidentiality clauses — Court assessed evidence under the Plascon-Evans rule, finding no grounds to dismiss the first respondent's version as untenable — Interdicts granted to protect applicant's legitimate business interests and confidential information.

Comprehensive Summary

Summary of Judgment

1. Introduction

The matter was an application in the Western Cape Division of the High Court, Cape Town, in which the applicant, Coyne Healthcare (Pty) Ltd (“Healthcare”), sought final interdictory relief against the first respondent, Mr Kevin Geoffrey Coyne, and (in related respects) against the second respondent, Natroceutics SA (Pty) Ltd (“Natroceutics”). The interdictory relief ultimately pursued on the papers was confined to the restraints sought in paragraphs 6 and 7 of Part B of the notice of motion, namely a non-solicitation interdict operative until 28 January 2023, and an interdict restraining the use or disclosure of confidential information.

The procedural history included that Healthcare had initially sought interim relief in Part A, but that interim application was struck from the roll for lack of urgency with costs in November 2021. By the time of the hearing of the Part B relief, Healthcare did not persist with other substantive relief originally sought in the notice of motion (including relief relating to alleged interference with third-party contracts and the return of a laptop), save insofar as those issues were mentioned in the papers.

The general subject-matter of the dispute concerned post-employment restraints in an employment context. Healthcare relied on restraint-like provisions in Mr Coyne’s earlier written employment terms (including a non-solicitation clause and confidentiality provisions), contending that Mr Coyne’s subsequent role at a competitor (Natroceutics) and certain developments in the market justified interdictory protection.

Because the relief sought would have had final effect, the court approached factual disputes on affidavit in accordance with the Plascon-Evans rule.

2. Material Facts

Healthcare operated in the complementary and alternative medicine sector and was ultimately owned by a Swiss entity, Phytoceutics International AG (“PIAG”). Mr Coyne had been active in the relevant industry since 2005, had developed products and conducted consultancy activities through Coyne Consulting CC, and had been involved in establishing Healthcare (initially as a close corporation in 2013 and later as a company in 2016).

Following Healthcare’s conversion into a company, PIAG acquired all the shares in Healthcare from Mr Coyne’s wife and mother-in-law. Mr Coyne became Chief Executive Officer of Healthcare and remained in that role until the termination of his appointment on 28 January 2021, after serving a six-month notice period following his resignation in July 2020.

The operative contractual framework relied upon by Healthcare included a letter of appointment dated 25 July 2016, which contained a non-competition and non-solicitation clause (clause 27) and an extensive confidentiality clause (clause 17). In 2019, with the knowledge and consent of PIAG’s controlling personnel, a salary review occurred, resulting in a substantial remuneration increase for Mr Coyne. A new written contract was drawn up and countersigned by Mr Coyne’s mother-in-law as a director of Healthcare, intended (on its terms) to replace and supersede the 2016 letter of appointment.

A central factual feature was that the 2019 contract did not contain a non-solicitation clause, although it did contain a differently worded confidentiality provision. Healthcare contended that the 2019 contract was invalid because it had not been approved as required by section 75 of the Companies Act 71 of 2008, given the circumstances in which it was concluded. Mr Coyne initially contended that Healthcare was estopped from relying on invalidity because it had implemented the 2019 contract in practice (including paying remuneration in accordance with it and holding him to its notice provisions), but that reliance on estoppel was abandoned at the hearing.

After leaving Healthcare, Mr Coyne became CEO of Natroceutics, which operated as a competitor in the same broad sector, supplying products to retail pharmacy chains (including Clicks and Dis-Chem), health shops, and medical practitioners. The evidence accepted for purposes of the application indicated that products in this sector were commonly generic in nature with variations, and that competition occurred through branding and price, with multiple manufacturers’ products stocked side-by-side.

Healthcare pointed to the termination of its distribution agreement with BetterYou as indicating solicitation or improper conduct. On Mr Coyne’s version (which the court held had to be accepted on the papers), BetterYou’s representative approached him after he had moved to Natroceutics; he took advice and directed that the inquiry be handled by others at Natroceutics, did not attend the meeting with BetterYou, and BetterYou ultimately terminated its agreement with Healthcare on the basis of a contractually contemplated change in management. The court recorded that, in the months between Mr Coyne’s move and the institution of proceedings, Healthcare was unable to identify any customer lost to Natroceutics.

In relation to confidentiality, Healthcare’s concerns (as inferred from the founding papers) related to Mr Coyne’s knowledge of customer and trade connections, pricing structures, and product composition. The respondents disputed misuse or disclosure. The court assessed whether the information relied on by Healthcare was truly confidential and whether misuse had been shown.

3. Legal Issues

The central legal questions the court was required to determine were whether Healthcare had established a basis for final interdictory relief restraining Mr Coyne from soliciting customers and restraining him from using or disclosing Healthcare’s confidential information.

The dispute required the court to determine issues of application of law to fact under the evidentiary constraints applicable to final relief on motion, including the resolution of material factual disputes under Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A).

A further legal issue concerned the effect of the 2019 employment contract on the enforceability of the 2016 non-solicitation clause, including whether the 2019 contract was invalid for want of statutory compliance under section 75 of the Companies Act 71 of 2008, and whether any remedial doctrine (in particular estoppel) could overcome non-compliance with statutory validity requirements. Although estoppel was not pursued, the court also addressed (and rejected) the suggestion that it should validate the 2019 agreement in the exercise of a discretion under section 75(8).

In respect of confidential information, the legal question was whether Healthcare had proved the requirements for an interdict protecting confidential information, including whether the information had the requisite quality of confidentiality and whether improper use or threatened misuse had been shown on the evidence.

4. Court’s Reasoning

The court began by emphasising that the relief sought in paragraphs 6 and 7 would have final effect, which required the evidence to be evaluated under the Plascon-Evans approach. Accordingly, where disputes of fact existed, the application had to be decided on the respondents’ version unless it was so far-fetched that it could be rejected on the papers.

On the non-solicitation restraint, the court dealt first with the contractual foundation. Mr Coyne argued that the 2016 non-solicitation clause had been displaced by the 2019 agreement, which superseded prior agreements and omitted any equivalent restraint. Healthcare’s response was that the 2019 agreement was invalid because it had not been approved in compliance with section 75 of the Companies Act 71 of 2008 in the circumstances. The respondents’ earlier reliance on estoppel was abandoned after reference to authority stating that statutory formalities required for validity cannot generally be overcome through estoppel, and the court proceeded on the basis that estoppel did not assist.

The court also rejected an invitation to validate the 2019 agreement by exercising discretion under section 75(8). The court’s reasoning focused on the shareholder-protective purpose of the statutory regime and considered it inappropriate to validate a replacement contract that removed a restraint provision without properly informing the shareholder. The court accepted that communications may have left the shareholder’s directors with the understanding that the material change was confined to remuneration, and that validating the agreement in those circumstances would undermine the objective of shareholder protection.

Having reached the position that the 2016 non-solicitation clause remained relevant, the court nevertheless held that Healthcare had not established that Mr Coyne breached it, nor that there were reasonable grounds to apprehend a breach warranting an interdict. The court accepted the respondents’ explanation of the nature of competition in the sector and the retail environment, noting that chains stock multiple brands and that the “ultimate customer” is the high-street shopper, such that it did not follow that stocking a competitor’s products would entail ceasing to purchase Healthcare’s products.

The BetterYou episode was specifically assessed through the Plascon-Evans lens. The court held that Mr Coyne’s version—that BetterYou approached him, that he directed the inquiry away from himself after taking advice, and that he did not attend the relevant meeting—was not inherently improbable and could not be rejected on the papers. On that accepted version, the court concluded that no actionable infringement of the non-solicitation clause had been demonstrated. The court added that, even if an argument could be made that clause 27(a) might be implicated by BetterYou’s appointment of Natroceutics as distributor while Mr Coyne was its CEO, the court would in any event be unwilling to enforce it in that context because it would operate as a purely anti-competitive measure not justified by any demonstrated need to protect proprietary rights.

On the confidentiality interdict, the court noted the breadth and uncertainty in the notion of “confidential information” and referred to established discussions in the case law, as well as to Amler’s formulation of the essential characteristics of confidential information and the elements required for interdictory relief. The court distilled the requirements that needed to be met, including that the applicant must show a protectable interest in information that is not public knowledge, is of economic value, and is subject to a duty of confidence, together with improper possession or use.

Applying these principles, the court concluded that Healthcare had not identified confidential information of the required character and had not shown misuse. It was not persuaded that Healthcare’s customers constituted confidential information, given that they were discernible from publicly available sources and could be observed through ordinary retail distribution channels. The court was likewise not persuaded that any personal relationships with buyers had cognisable economic significance in the given market setting, particularly in the absence of evidence of any customer losses.

Similarly, the court rejected the proposition that the suppliers of raw materials were confidential, accepting evidence that such suppliers were well-known internationally and openly marketed themselves in trade contexts. With respect to pricing structures, the court held there was no evidence of disclosure or misuse, and considered that such information is time-sensitive and, if protectable at all, would primarily be valuable as a short-term “springboard”; by the time of the hearing, any such springboard utility had in any event elapsed because Mr Coyne had already been employed by Natroceutics for about a year.

As to alleged “trade secrets” in product composition, the court reasoned that the products appeared to be variations of generic alternative medicine products made by many manufacturers, that Healthcare had not shown copying, and that in any event labelling laws required disclosure of components, undermining any claim to confidentiality in the formulation.

Finally, the court explained that other relief in the notice of motion (relating to alleged unlawful interference with contracts and return of a laptop) had become unnecessary to determine. The applicant accepted that interference relief would require referral of disputes to oral evidence, but indicated it would not pursue such referral if unsuccessful on paragraphs 6 and 7, which was the outcome.

5. Outcome and Relief

The application for interdictory relief in terms of paragraphs 6 and 7 of the notice of motion was refused. The court dismissed the application in its entirety.

The court ordered that the application was dismissed with costs, including, in respect of each respondent, the fees of two counsel.

Cases Cited

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A).

Philmatt (Pty) Ltd v Mosselbank Developments CC [1995] ZASCA 154 (29 November 1995); 1996 (2) SA 15 (SCA); [1996] 1 All SA 296 (A).

Van Castricum v Theunissen and Another 1993 (2) SA 726 (T).

Meter Systems Holdings Ltd v Venter and Another 1993 (1) SA 409 (W).

Telefund Raisers CC v Isaacs and Others 1998 (1) SA 521 (C).

Legislation Cited

Companies Act 71 of 2008, section 75 and section 75(8).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, because the interdictory relief sought would have final effect, disputes of fact on affidavit fell to be determined under the Plascon-Evans approach. On that basis, Healthcare failed to establish, on the acceptable version of the facts, that Mr Coyne had breached the non-solicitation provisions in the 2016 employment terms or that an interdict was justified on an apprehension of breach.

The court further held that Healthcare failed to establish a protectable claim to confidentiality in the information relied upon, and in any event failed to show improper use or disclosure by Mr Coyne. The identity of customers and suppliers was not shown to be confidential in the market context described, pricing information was not shown to have been misused and was in any event time-sensitive, and product composition was not established as confidential given the generic nature of products and legally required disclosures.

The application was dismissed with costs, including the fees of two counsel for each respondent.

LEGAL PRINCIPLES

The judgment applied the principle that where final relief is sought on motion and material factual disputes arise, the matter must be decided on the respondents’ version unless that version is so far-fetched or untenable that it can be rejected on the papers, as articulated in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A).

The judgment accepted the principle, drawn from Philmatt (Pty) Ltd v Mosselbank Developments CC [1995] ZASCA 154 (29 November 1995); 1996 (2) SA 15 (SCA); [1996] 1 All SA 296 (A), that where a statute prescribes formalities for validity, a failure to comply with those formalities cannot generally be cured through estoppel. Although estoppel was abandoned, the judgment proceeded in line with that proposition.

In relation to section 75 of the Companies Act, the judgment proceeded on the basis that statutory provisions designed for shareholder protection should not be undermined by validating conduct where material contractual changes were made without properly informing the shareholder, and it declined to validate the relevant agreement under section 75(8) in the circumstances presented.

For the protection of confidential information by interdict, the judgment applied the established requirements that the applicant must demonstrate a protectable interest in information with the necessary quality of confidentiality, a duty of confidence, knowledge (in the relevant sense) on the part of the respondent, and improper possession or use. It also endorsed the core characteristics of confidential information in this context as being useful in trade, not public knowledge but limited to a restricted class, and objectively of economic value to the claimant, and it evaluated the claimed information against those characteristics on the evidence.

Coyne Healthcare (Pty) Ltd v Coyne and Others (18586/2021) [2022] ZAWCHC 54 (19 April 2022)