Acubra Pty Ltd v Manningham Medical Centre Pty Ltd
[2008] FMCA 1246
•5 September 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ACUBRA PTY LTD & ANOR v MANNINGHAM MEDICAL CENTRE PTY LTD | [2008] FMCA 1246 |
| TRADE PRACTICES – Misleading representations – reliance on them as inducement to enter into lease – burden of proof – failure to satisfy burden – breaches of contract – assessment of loss – failure to properly quantify loss. |
| Trade Practices Act 1974: sections 51A & 52 |
| Cedric Constructions Pty Ltd v Elders Finance & Investment Co Limited & Anor [1988] FCA 201 Futuretronics International Pty Ltd v Gadzihis [1992] 2 VR 217 Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd & 2 Ors – BC200801980 Lyons and Another v Kern Konstructions (Townsville) Pty Ltd and Another (1983) 47 ALR |
| Applicants: | ACUBRA PTY LTD & HEALTH WEB PTY LTD t/a VIMY HOUSE CONSULTING |
| Respondent: | MANNINGHAM MEDICAL CENTRE PTY LTD |
| File Number: | MLG 745 of 2007 |
| Judgment of: | O’Dwyer FM |
| Hearing dates: | 14, 15, 16 & 17 April 2008 and 11, 12 & 13 June 2008 |
Last Written Submission: 21 July 2008
| Delivered at: | Melbourne |
| Delivered on: | 5 September 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Carew |
| Solicitors for the Applicant: | Collins House Legal |
| Counsel for the Respondent: | Mr Morgan |
| Solicitors for the Respondent: | Richmond & Bennison |
ORDERS
The application filed on 1 June 2007 is dismissed with costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 745 of 2007
| ACUBRA PTY LTD & HEALTHWEB PTY LTD t/a VIMY HOUSE CONSULTING SUITES |
Applicants
And
| MANNINGHAM MEDICAL CENTRE PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
In this proceeding the Applicants claim compensation for financial loss occasioned, in the alternative, by breaches of contract, and pursuant to Section 52 and 51A of the Trade Practices Act 1974 (the Act) for representations that proved to be deceptive and misleading, or made without reasonable grounds.
The Respondent leased space to the Applicants in the Manningham Medical Centre (the Centre) with the clear understanding that the Applicants would then sublet space to specialist medical practitioners.
There are three alleged representations the Applicants say they relied on that induced them to enter into the lease. They are:
·in the Centre the Respondent would ensure for the Applicants exclusivity for identified specialist services (one such speciality being plastic surgery);
·that in the Centre there would be during normal business hours 15 full-time equivalent (FTE) general medical practitioners (GPs); and
·there would be a defined level of referrals from GPs within the Centre to the medical specialists who had leased space from the Applicants.
The Applicants assert that in breach of those representations there was not exclusivity provide by the Respondent (specifically, at the commencement of the lease a plastic surgeon continued to occupy space and practice from the Centre), there were not 15 FTE GPs and the level of referrals never reached the level specified.
The lease between the parties incorporated, in broad terms, references to all of these representations.
Background
The two corporate Applicants were the structures by which the two principal players, Mr Howard Webster, plastic surgeon, and Mr Andrew Currie, medical services entrepreneur, sought to prosecute this venture. Both men come with considerable experience and knowledge of the medical services industry. Both men also have an association with, and interest in, a private hospital, Vimy House Private Hospital (Vimy House) located in Studley Park in Victoria. Vimy House provides the facility for specialist surgeons to operate on and treat patients.
Vimy House's commercial viability depends upon the level of use by specialist surgeons who, in turn, depend upon referrals from GPs to them of patients requiring their services.
The Respondent is the lessor of a purpose-built medical centre located in Doncaster in Victoria. At the time these parties entered into negotiations, and at the time of executing the lease, the Centre was reasonably new and was looking to fill its then previously unoccupied space. The Centre was designed to draw from local disparate medical practices, a group practice (the General Practice) under the one roof. It was also designed to provide specialist medical services by attracting specialists to occupy space within the Centre. In short, the building was to be, in effect, a one-stop medical centre incorporating GPs, a chemist, pathology and non-intrusive medical investigative procedures, and specialist services.
The Applicants assert that they were induced into entering into the lease and relied upon the representations made by the Respondent as set out above.
They entered into a lease dated 24 November 2004, but pursuant to clause 13.1, terminated that lease after only 11 months because the level of referrals did not reach the specified level set out in that clause (which clause incorporated a letter dated 16 July 2003 from the Respondent that set out the level of patient turnover and patterns of referral to specialists that could be expected from the GPs at the Centre). It is to be noted that the original term of the lease was for 5 years, with 3 further options of 5 years each. Potentially the Applicants could have had a significantly long business relationship with the Respondent.
It is not contested by any of the parties that specialist medical practitioners are dependent upon referrals from GPs, and in order for the specialists to be assured of a necessary number of referrals for a viable specialist practice, there needed to be a base pool of GPs to ensure the likelihood of an adequate number of referrals. It is also accepted by the parties that in order to get to a viable number of referrals, it is more probably achieved through a greater number of GPs than a lesser number (as a general principle).
The Applicants' representation of exclusivity
Under the lease the Respondent was to provide exclusivity, within the Centre, for various specialty medical services from the commencement of the lease (clause 4.12 and Special Condition 13.4). One was in relation to plastic surgery. Contrary to that provision, there is unchallenged evidence that a plastic surgeon continued to operate at the Centre beyond the commencement date. That plastic surgeon remained operating from the Centre for the period late November 2004 until February 2005.
The Applicants base their claim in this regard on both contract and s.52 of the Act.
The Respondent's answer to the Applicants' contract claim is twofold. First, the Respondent submits that the exclusivity was itself contingent upon the Respondent ensuring the attendance of specialists, which they did not do. I don’t accept this for the reasons set out in the Applicants’ submissions on this point. Secondly, the Respondent contents that notwithstanding an apparent breach of contract, the consequent damages to flow have not been quantified; that there is no capacity for me to do so on the evidence, and accordingly the Applicants’ claim in this regard must fail. The Respondent says if the Respondent has committed a breach in this regard, then the measure of damage that flows is to be calculated by the demonstrative loss occasioned by the continued operation of the plastic surgeon from the Centre. There was no evidence produced by the Applicants as to that loss and the outcome that the Respondent asks of me is that the claim under this head should be dismissed. I am in agreement with the Respondent on this point.
The alleged breach of section 52 of the Act in respect of the representation as to exclusivity, I find, must also fail. The lease did create a "right" to exclusivity in respect of plastic surgeons, which right was not impinged upon by the continued occupation and practice from the Centre by the plastic surgeon. The Respondent reacted to the continued occupation by that plastic surgeon in an appropriate and, in my view, a timely manner, by securing his vacation and cessation of practice. The right was acknowledged and enforced. The representation in that regard was not misleading or deceptive.
The Applicants’ representation about 15 FTE GPs
The lease incorporated a provision that "a minimum of the equivalent of 15 full-time general medical practitioners … will operate from the Centre during normal business hours" (clause.11.2(a)).
The Applicants contend that the Respondent failed to maintain 15 FTE GPs and a significant part of the hearing revolved around this issue. The submissions by the Applicants went into some detail as to the law applying and the effect of a breach of this provision. However, those submissions are predicated on the understanding that there was, indeed, a breach of that provision. The onus of proving such a breach falls squarely on the Applicants. For the following reasons, I find that they have failed in that onus. I find that no breach of this particular clause has been proved.
The reasons are:
(i)The evidence given by Mr Frost, the present manager of the General Practice, was very persuasive. Although he was not the manager at the time negotiations took place leading up to the lease, nor in the early stages of the term of the lease, he nonetheless, in my view, was able to give probative evidence as to the situation existing both now and at the time pertinent to the issue in this case. He is able to do so from his familiarity with and understanding of the systems employed now and at the pertinent time. From his examination of the records and systems at the pertinent time, he was able to give evidence of the level of GPs operating. His conclusion was that there were 15 FTE GPs in the General Practice. He was also able to give evidence of the definition of "normal business hours" he applied to the calculation. The lease does not define "normal business hours". A lease, however, that the General Practice has with the Respondent does define it and provides context to calculating what would be the amount of time in attendance for a full-time GP. He was also able to confirm that normal business hours are not limited, as implied by the Applicants, to 8.00 am to 4.00 pm or 9.00 am to 5.00 pm, but included evenings and Saturday mornings. Also, any suggestion by the Applicants that it was necessary to have the 15 FTE GPs in attendance during hours that specialists attended the Centre in order to ensure referrals is untenable. Clearly, a GP, no matter what hours he or she may work, is able to make referrals to specialists and is not restricted to referrals that take effect immediately after consultation with a GP. The Applicants sought to impugn Mr Frost’s evidence because of his association with the General Practice which stood (or at least the 5 founding GPs did) to gain a $600,000 relocation bonus if there was a consistent argument that there were 15 FTE GPs. Whilst this is an observation properly made, I was impressed by Mr Frost as a witness, and I have no reason to believe his evidence was untruthful and designed to support, without any basis, the 5 members of his employer group vis-a- vis their dispute with the Respondent (see below).
(ii)The Applicants' reliance upon the facsimile forwarded by an employee of the General Practice immediately before the termination of the lease, that set out hours of attendance of a number of doctors, in my view, does not carry the day and does not persuade me that it is a statement from which an accurate calculation can be made as to the number of FTE GPs working from the Centre during normal business hours. The objections taken to this document by Counsel for the Respondent are objections based upon hearsay and based upon what weight that ought to be given to this document. The document was clearly obtained in anticipation of litigation by the Applicants, but without informing the creator of the document of its intended purpose. I can have no confidence that the creator of the document applied the amount of diligence and knowledge that is needed, was fully informed of its purpose, nor can I be assured of its accuracy having regard to the fact that the author of the document did not give evidence in this hearing and was not subjected to cross-examination. In the circumstances, the facsimile cannot be given that weight which the Applicants seek to ascribe to it and the conclusion sought based upon it; namely that it is confirmatory evidence that there were not at that time 15 FTE GPs. The document is the cornerstone of the Applicants' case on this point and with its rejection as to its probative value, so too comes the rejection of the Applicants' case in this regard.
(iii)
However, it must be noted that there was evidence to the effect that the Respondent had maintained, in unrelated proceedings against the 5 founding GPs of the General Practice, that the General Practice had failed, as they were required to do under their own separate agreement, to ensure at least 15 FTE GPs at the relevant time. The background to this is that the Respondent had, as an inducement to the disparate general practices in the area to come under the one practice operating from the Centre, promised that a payment of $600,000 would be made to the five founding GPs. However, before that payment was to be made, the founding GPs had to ensure that there were 15 FTE GPs operating from the Centre during normal business hours.
This requirement and dispute predated the involvement of the Applicants, and dates back to 2003. The clear evidence, which I accept, of Mr Frost is that at the time pertinent to this case, there were 15 FTE GPs operating during normal business hours at the Centre. Disputation has ensued between the founding GPs and the Respondent on whether there were 15 FTE GPs in 2003, with the Respondent asserting that their obligation was not met at that time under the separate agreement between the Respondent and the founding GPs. Consequently the promised inducement payment has not been made. In mediation in an attempt to resolve this dispute, a position statement recently provided by the Respondent, stated and maintained that there still was not 15 FTE GPs operating from the Centre.
This manifestly is a contradictory position on the part of the Respondent vis-à-vis the two disputes. The Respondent explains the position statement away as "posturing" and that it does not reflect the reality of the situation applying at the pertinent time in this case. Whilst I have some anxiety about the Respondent, both in respect of the posturing and to the approaches adopted in the two separate disputes, I am nonetheless satisfied, on balance, that the Applicants have failed in meeting the onus on them to prove that, indeed, there were not 15 FTE GPs working at the Centre at the pertinent time.
For the above reasons, the Applicant’s claim centred on the issue of the 15 FTE GPs must fail.
The representation about the level of referrals
This was the crux of the Applicants' case. In summary, the Applicants' case is that the Respondent, in order to induce the Applicants into taking space in the Centre, represented to them that they would achieve a certain level of referrals. The Applicants say that the issue of the level of referrals was vital to the viability of the venture and it was a pivotal issue to them in deciding whether or not to enter into the lease and take the amount of space they did.
The Applicants further state that, as confirmation of the representation made in this regard and confirmation of their reliance upon its accuracy, they included in the terms of the lease the letter dated 16 July 2004 which set out the level of patient turnover activity the GPs could expect and the level of referrals that would flow from the GPs to specialist medical practitioners.
It is beyond issue that the level of referrals from the General Practice to the specialists in the Centre did not come anywhere near those referred to in the letter.
Both Mr Webster and Mr Currie gave evidence of their reliance upon the accuracy of these figures in order for them to have been induced into taking space in the Centre, and indeed, the amount of space they did.
The Respondent's position was that the incorporation of the letter into the lease was merely the establishment of a trigger mechanism by which, if certain levels of referrals were not achieved from the GPs in the Centre, the Applicants had a formula to follow; to first negotiate a reduction in rent and, if unsuccessful in that regard, to terminate the lease. The Applicants indeed pursued the formula set out in the lease. They were unsuccessful in negotiating a reduction in rent and subsequently availed themselves of the provision to terminate the lease.
The Respondent has maintained throughout that clause 13.1 is a procedural term which provided the mechanism by which the parties would address an event that both parties acknowledged was possible (i.e. a lack of referrals). No issue has been taken by the Respondent concerning the exercise of that right under the lease by the Applicants and, indeed, the Respondent acknowledges readily that that was not an inappropriate course of action to take having regard to the terms of the lease. The Respondent contends that it is only when the promise cannot be enforced that a promisee can return to the original promise and argue that when it was made it was misleading and deceptive (Futuretronics International Pty Ltd v Gadzihis [1992] 2 VR 217 at 239).
A pivotal element in the successful prosecution for a claim under this head is for the Applicants to persuade me that the Applicants were indeed reliant upon the representation made concerning referrals.
I have no hesitation in finding that they were not. Both Mr Webster and Mr Currie have extensive experience in the provision of medical services, and in particular, the peculiarities and vagaries of the development of specialist medical services and associated practices. They both acknowledged in evidence that they queried and did not believe the level of referrals suggested in the letter would come to them should they take space in the Centre. They were cognisant of the fact that established GPs had preferred specialists to whom they would refer and that it was often difficult to attract them away to new specialists.
It was the inclusion of the “get out clause” in clause 13.1 that gave comfort to the applicants in entering the lease precisely because they knew no guarantee could be given with respect to referral patterns. Both Mr Webster and Mr Currie gave evidence that they “found comfort” in the inclusion of clause 13.1, which by incorporation made use of the referral figures in the letter of 16 July 2004 as the trigger by which to either renegotiate the rental or terminate the lease. Why did they find comfort in the clause? Simply put, in my view, as conceded by them, the Respondent could not “provide” or “ensure” referrals. The letter provides only an assumption of total referrals to specialists and makes no reference to the number that would be referred from the General Practice to specialists in the Centre. At best it contains a prediction not an assurance which cannot be characterised as a representation (Lyons and Another v Kern Konstructions (Townsville) Pty Ltd and Another (1983) 47 ALR at 123). The letter of 16 July 2003 in itself, in my view, contains no representation and is merely aspirational (Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd & 2 Ors – BC200801980 at paragraph 64). I accept the Respondent’s contention that the number of referrals to the specialists in the Centre is not relevant as clause 13.1 does not “ensure” any level. If there is any representation in the letter of 16 July 2003, which I find there is not, it can only be in respect to the level of referrals to specialists generally given, as the letter states itself, the parties all understood the Respondent could not direct where referrals would go.
In my view, knowing full well that they could not have a realistic expectation of referrals at the level suggested in the letter, they nonetheless took occupancy in the hope that they would be able to generate referrals to a sufficient degree to make the venture viable in the long run, or, as I find, they were prepared to sustain loss in order to obtain a level of referrals to Vimy House. They acknowledged that they expected it not to be viable in the first year, but hoped to build up to a break-even situation thereafter. They denied that the venture was designed to be a feeder for referral surgery work to Vimy House to provide a source of funding for that private hospital and that they were prepared to suffer a loss at the Centre to recoup, so to speak, with referrals to Vimy House. They stated, as said, that they intended to have this venture stand alone as a profitable and viable business.
I am not persuaded that was indeed their intention, both at the outset and at the time of executing the lease. In that regard, it is clear that they employed Mr Chamula to act on their behalf, in the initial negotiating phase, with the clear intention that the venture be a source of referrals to Vimy House. Mr Chamula was convinced that that was always the position of the Applicants. Mr Chamula presented as a very credible and trustworthy witness and I see no reason to doubt his evidence in that, or any, regard.
In further support of the general contention that the venture was to act as a source of referrals to Vimy House there was evidence, which I accept, that when the Respondent organised an independent review of the situation at the Centre concerning the General Practice and referrals to specialists within the Centre, it was said and confirmed on behalf of the Applicants that part of the intention of the Applicants was to get referrals to Vimy House. A letter tendered by the Applicants states in part “It is acknowledged and understood by you that the major reason for us to establish Vimy House rooms at MMC was to increase our hospital patient numbers at Vimy House and Linley Clinic”. This letter was signed by Howard Webster and Andrew Currie and is inconsistent with their evidence about their position at the time of its writing.
To the extent that the Applicants deny their aspiration for referrals to Vimy house, their credibility comes into issue.
The issues of Vimy House referrals also has implications for the calculation of any loss occasioned by the Applicants (see below).
The Applicants also acknowledge a number of other factors that contributed to a lack of referrals. The Applicants never developed a beneficial working relationship with the General Practice which was crucial to their success and something they acknowledged the Respondent had not and could not guarantee. The General Practice was not interested in referring to the Applicants’ specialists. It was critical to the business model of the Applicants that the General Practice referred to them. Put simply, it was no good having, for example, 50 FTE GPs if they didn’t refer to the specialists in the Centre.
The Applicants, in addition, could not for a variety of reasons attract specialists to the Centre to access referrals and those that were there did not attend often. The Applicants said their plan was to recruit up and coming specialists and “build them up”, and accepted that under this business plan they would suffer a loss in the first year. They stayed, however, only 11 months; that is, they did not follow their business plan.
The Applicants also did not provide services in all the agreed disciplines and accordingly could not benefit from referrals.
Reasonableness of representations as to future matters – Section 51A
There was some dispute between the parties as to whether the Applicants properly pleaded the contentions made under section 51A of the Act. I am not troubled by this issue for I find that the representations about the General Practice’s likely turnover of patients and the referral pattern to specialists were representations, in any event, as to a future matter that the Respondent had reasonable grounds for making.
The fact that an event did not transpire in the future does not, prima facie, make the representation misleading or deceptive for the purposes of the Act (Lawfund Australia Pty Ltd at 58, Sykes v Reserve Bank of Australia (supra, at 711, Cedric Constructions Pty Ltd v Elders Finance & Investment Co Limited & Anor [1988]FCA 201 at paragraph 47).
The Respondent need show only that it had good reason to believe what was contained in the letter of 16 July 2004 and that it was not reckless as to its content. The Respondent contends that the letter is simply an indication of trends and is heavily qualified. Mr Reichert of the Respondent gave evidence, which I find was cogent and acceptable, as to how the patient turnover figures were arrived at and how the referral pattern of the General Practice was determined. He had, in my view, reasonable grounds for this based upon the evidence provided by the 5 founding GPs of the General Practice. Accordingly, even if the letter of 16 July 2003 contained any representations in regards to patient turnover and referrals, there was a reasonable basis for making them.
The Applicants fail under this head as well.
Issues over quantum of loss
The Applicants claimed a loss arising out of the venture in the sum of $118,520 as evidenced by a Profit and Loss statement for the time they were at the Centre. The Respondent accepted the statement as an accurate Profit and Loss statement, but beyond that, did not accept that it properly reflected a loss attributable to alleged breaches of contractual terms or warranties, or the result of misleading and deceptive representations. The Respondent contended that the Applicants have failed to demonstrate a casual link to the loss claimed. In my view, the Respondent must succeed on this point.
Whilst there is no need for me to entertain the arguments concerning the quantification of loss because of my findings, it nonetheless is noted that the Profit and Loss statement cannot be a proper reflection of loss, even should liability have been proved.
Mr Currie accepted that the Profit and Loss statement had not been prepared for the purpose of demonstrating a loss made as a consequence of a contractual breach or for the purpose of demonstrating a casual link between a deceptive or misleading representation made.
When Mr Webster was cross-examined on the statement he conceded that some of the items purchased for the business claimed in the statement have been sold and some continue to be used. No detail of those items was provided, nor how these realities impacted on the quantum of the loss.
I also agree with the Respondent’s submission that if there was an intention to “feed” Vimy House, which I have found there was, then the evidence before me in respect of damages or loss is not sufficient for me to accurately define what the measure of damage or loss might be. There was evidence that a loss was anticipated, but no evidence as to how that loss was to be set off against anticipated referrals to Vimy House. Any predicted loss would need to be subtracted from that sought to be attributed to the Respondent. The Applicants have provided no basis on which I could assess the amount that ought to be subtracted.
In short, even should the Applicants have succeeded on the question of liability, there was insufficient evidence from which I could have made findings as to what the quantum of loss or damage was that was suffered by the Applicants. The Applicants have given no safe basis for assessing that loss. The Applicants’ case must fail in this regard.
Further, given the evidence about the relationship with the General Practice (a circumstance completely out of the Respondent’s control) and other factors, the Respondent rightfully, in my view, submitted that the Applicants have not satisfied their onus in demonstrating a casual link between the wrongful conduct alleged and the damage or loss said to have been suffered as a consequence.
Conclusion
For the various reasons set out above, the Applicants have failed to prove their case. Accordingly, their claim should be dismissed with costs.
I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of O’Dwyer FM
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