Ashcoast Pty Ltd v Whillans

[1998] QCA 34

IN THE COURT OF APPEAL	[1998] QCA 034
SUPREME COURT OF QUEENSLAND

Appeal No. 4292 of 1997

Brisbane

[Whillans v. Ashcoast P/L]

BETWEEN:

MARK WHILLANS

(Defendant) Appellant

AND:

ASHCOAST PTY. LTD. ACN 010 990 753

(Plaintiff) Respondent

McPherson J.A
Davies J.A.

Moynihan J.

Judgment delivered 6 March 1998

Joint reasons for judgment of Davies J.A. and Moynihan J.; separate reasons of McPherson J.A. concurring as to the orders made.

APPEAL AGAINST DECLARATION AND RESTRAINING ORDER DISMISSED.
APPEAL AGAINST JUDGMENT ALLOWED ONLY TO THE EXTENT OF SETTING
ASIDE THE JUDGMENT FOR DAMAGES AND SUBSTITUTING A JUDGMENT FOR
$7,500 DAMAGES. RESPONDENT TO PAY ONE-THIRD OF THE APPELLANT'S

TAXED COSTS OF APPEAL.

CATCHWORDS:	CONTRACT LAW - Restraint of trade - whether restraint on carrying on the practice of a medical practitioner within seven kilometres for three years upon termination of employment was valid - whether patient records were confidential information of the respondent Medical Centre - whether damages assessed by trial judge for unauthorised use of confidential patient records were too high.
Counsel:	Mr. J. A. Griffin Q.C., with him Mr. P. J. Davis, for the appellant Mr. K. S. Howe for the respondent
Solicitors:	O'Keefe & Mahoney for the appellant Davoren Associates for the respondent
Hearing Date:	18 February 1998

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4292 of 1997

Brisbane

Before McPherson J.A.
Davies J.A.
Moynihan J.

[Whillans v. Ashcoast P/L]

BETWEEN:

MARK WHILLANS

(Defendant) Appellant

AND:

ASHCOAST PTY. LTD. A.C.N. 010 990 753

(Plaintiff) Respondent

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered 6 March 1998

I agree that this appeal should be allowed to the extent of reducing the award of damages to

the amount of $7,500 specified by Davies J.A. and Moynihan J. I also agree with the reasons of their

Honours, to which I wish to add only the following few observations of my own.

First, I have no doubt that the respondent had an interest in the Medical Centre sufficient to

sustain a contractual restraint of trade of the kind agreed to here. That interest comprised the customer

goodwill associated with the Centre, meaning by that the tendency of patients to revert to that place for

medical treatment or advice. The goodwill was no doubt partly personal, in the sense that some patients

who went to the Centre did so in order to receive the personal attention or ministrations of the appellant as medical practitioner; but it is impossible to doubt that in most, if not all cases, it also included an

element of local goodwill associated with or deriving from the convenience of attending for treatment

at that place and the facilities provided there. It would be difficult, if not impossible, in most instances

to separate the two elements with a view to determining which was dominant. It follows in my opinion

that the respondent was entitled to exact a covenant or agreement in restraint of trade, reasonable in

terms of area and duration, to protect that interest against its appropriation by the appellant to himself

exclusively.

There is no dispute that, in terms of area, the restraint agreed upon in the present instance was

and is reasonable. As to duration, a period of three years does not, on the face of it, seem unreasonably

long in the circumstances. To the decisions referred to by Davies J.A. and Moynihan J., I would add

only a reference to Routh v. Jones [1947] 1 All E.R. 758 and Lyne-Pirkis v. Jones [1969] 1 W.L.R.

1293; [1969] 3 All E.R. 738, from which it appears that restraints for five years are not uncommon in

the case of medical practitioners in England: see Heydon, The Restraint of Trade Doctrine, at 167.

No doubt much depends on local conditions and considerations; but it may be thought to suggest that

a period of three years is not considered unduly long by medical practitioners. I may add that that

impression is strengthened by the fact that the agreement in the present case did not authorise the

respondent to terminate the appellant’s licence to use the Centre, except under cl.5 in certain

circumstances after the first six months; or in the event of his failing to observe and conform to all laws

and customs of the medical profession; or in the event of his doing something likely to endanger the

safety or condition of the facilities at the centre. Further under cl.6(b), if the licence was terminated after

two years, the appellant was entitled to assign his interest to another medical practitioner. It was only if the licence was terminated within two years of its commencement that he forfeited any right to

goodwill.

As regards the information abstracted from the computer at the Centre, and later used by the

appellant to entice patients to his new practice, I have no doubt that it was, in the relevant sense,

confidential to the respondent. Even if the names of all the patients were in fact known to the

respondent by reason of his having treated them, the critical feature was the combination of those names

with the addresses of the patients, and their compilation or collection in a single, simple and readily

accessible form. The fact that those details were obtained by the appellant not openly, but

surreptitiously, is perhaps the clearest indication that they were confidential and that he considered them

to be so. To that extent, the case is indistinguishable from Robb v. Green [1895] 2 Q.B.1; affd. [1895]

2 Q.B. 315, and other well known decisions concerning customer lists.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4292 of 1997

Brisbane

Before McPherson J.A.
Davies J.A.
Moynihan J.

[Whillans v. Ashcoast P/L]

BETWEEN:

MARK WHILLANS

(Defendant) Appellant

AND:

ASHCOAST PTY. LTD. ACN 010 990 753

(Plaintiff) Respondent

JOINT REASONS FOR JUDGMENT - DAVIES J.A. AND MOYNIHAN J.

Judgment delivered 6 March 1998

The appellant is a medical practitioner. The respondent is a company which owns and operates

the Highland Park Medical Centre which provides services to medical practitioners at Alexander Drive,

Highland Park. On 11 January 1994 the parties entered into an agreement in writing under which the

respondent licensed to the appellant the use of its medical facilities until termination of the agreement in

accordance with its terms.

The Highland Park Medical Centre consisted of a purpose built building housing, in all eight to

nine practitioners, medical equipment and secretarial and accounting facilities including staff. For the

use of those premises, equipment and facilities the agreement provided that the appellant would pay the respondent 50 per cent of receipted income generated by him during the period of the agreement, this

to be paid by the respondent retaining that amount from fees processed by it pursuant to the agreement.

The agreement could be terminated by the appellant at any time on giving six months notice. After an

initial period, during which the respondent could terminate it if it decided that its best interests or those

of the other medical practitioners in the Centre would not be served by the continuing utilization of the

facilities by the appellant, the respondent could terminate the agreement only upon breach of specific

provisions of it by the appellant. After a period of two years, but not before, it was agreed that the

appellant could assign his interest under it to another medical practitioner.

The agreement contained a restraint of trade clause in the following terms:

"The Medical Practitioner shall be able to practice outside of the facilities provided however that such aspects of the Medical Practitioner's practice cannot be conducted with the facilities, unless otherwise arranged with the Company.

(a) Except with the consent of the Company the Medical Practitioner shall not for a period of three (3) years after the termination of this Agreement either alone or in partnership with any other person or persons carry on the practice of a Medical Practitioner or act as a locum tenens within seven (7) kilometres from the premises PROVIDED that this prohibition shall not apply in the event of the Medical Practitioner practising medicine within such area on a part-time basis or acting as a short term locum tenens;

(b) For the purposes of this Clause 'part-time basis' shall mean practising medicine within the said area for less than fifteen (15) hours per week and 'short term locum tenens' shall mean acting as a locum tenens for a period not exceeding one (1) month within any three (3) month period."

The above agreement was in a standard form in which the respondent had entered into

agreements with each of the other medical practitioners occupying the Highland Park Medical Centre.

On 10 September 1996 the appellant terminated the licence agreement as from 7 November

1996. In fact the appellant commenced practising at the Carrara Family Medical Centre about 1.8

kilometres from the Highland Park Medical Centre on or about 2 October 1996. Prior to his departure he had extracted from the respondent's computers patient lists, including addresses of 178 patients

whom he had seen during the term of the licence agreement. In consequence of this, 76 patient files

were, either at the request of patients or of the Carrara Medical Centre, forwarded to the Carrara

Medical Centre.

The respondent sought and obtained, in the District Court, a declaration that the agreement was

binding and enforceable and that cl.7 was enforceable against the appellant; an injunction restraining

the appellant for a period of three years in terms of cl.7; and judgment for damages for $15,000 for

breach of confidence. The appellant appeals from the whole of that judgment.

The appeal against the declaration and injunction with respect to cl.7 is on the basis only that

the duration of the restraint was unreasonable between the parties. Notwithstanding that he concluded

that the appellant's bargaining position was "significantly weaker" than that of the respondent, the learned

trial Judge held the duration of the restraint to be reasonable. His reasons for concluding that the

appellant's bargaining position was significantly weaker than that of the respondent were as follows:

"He stood to gain greatly from the execution of the agreement. He was not required

to find capital normally necessary for setting up a medical practice. He had immediate

access to and use of a fully established medical practice with already existing lists of

patients and goodwill. In return for his full and free use of the extensive facilities

provided by the plaintiff he had merely to contribute 50% of the fees generated in the

practice he conducted within the Centre."

To the advantages gained by the appellant from the agreement his Honour could have added

the fact that, after an initial period of six months, the appellant could terminate the agreement without

cause, upon one month's notice, whereas the respondent could terminate it only for specified breaches.
With great respect to his Honour we do not think the fact that entering into the agreement

represented a good bargain for the appellant meant that his bargaining position was unequal. Indeed one

would have thought generally that the contrary is the case; that some evidence that it was a poor

bargain may go to show that his bargaining position was weaker. The facts stated by the learned trial

Judge in the above passage were in our view correct but they did not show inequality of bargaining

position. Nor in our view did any other evidence show that. The appellant was no doubt free to choose

to practice pursuant to an arrangement such as this or to work as an employed doctor or to set up in

practice on his own or possibly even seek a partnership with another practice. That this presented the

best bargain on offer does not show that his bargaining position was unequal. Once it is accepted, as

we think it must, that the parties were in an equal bargaining position, the fact that they chose a three

year period of restraint is evidence, indeed good evidence, of its reasonableness between them on the

basis that they should be treated as the best judges of what is reasonable in their own interests.[1]

[1]          Amoco Australia Pty. Ltd. v. Rocca Bros. Motor Engineering Co. Pty. Ltd. (1973) 133

The relationship between the parties in the present case is somewhat analogous to that between

doctors in partnership. As the learned trial Judge implied in the passage which we have quoted, the

establishment of the building and its facilities and the occupation of it by a number of doctors itself

generated goodwill which it was in the interests of all medical practitioners who signed agreements such

as the present one to maintain. For that reason it was in the interests of all such medical practitioners,

including the appellant, that each of the others should be effectively restrained from taking patients from

the Highland Park Medical Centre by setting up in the same locality during a period in which there is a

real possibility of him or her doing so by taking from the Centre goodwill generated by or at the Centre.

It is also plain that the respondent also had a substantial financial investment which it was entitled

to protect by such a restraint. The evidence was that it had expended approximately $1M in
establishing the Centre.

Analogous cases are of some help in assessing the reasonableness of the restraint in this case.

In Orton v. Melman [1981] 1 N.S.W.L.R. 583 the Supreme Court of New South Wales considered

a three year restraint between medical practitioners in partnership to be reasonable. The learned trial

Judge in that case rightly took into account the potential strength of the doctor-patient relationship in

considering the reasonableness of the period of restraint. See also Macfarlane v. Kent [1965] 1

W.L.R. 1019, Clarke v. Newland [1991] 1 All E.R. 397 and Lu v. Lim (1993) 30 N.S.W.L.R. 332

in which restraints of three years duration in medical partnership agreements were, in somewhat similar

circumstances, upheld. These cases tend to support the reasonableness of the term of the restraint here.

For all of the above reasons the appeal against the declaration and restraining order must be

dismissed.

The appellant attacked the judgment for damages on two bases. First it was submitted that the

patient records which the appellant admittedly took were not those of the respondent but of the

appellant himself. Alternatively it was submitted that the award of damages was too high.

In making the first submission the appellant described this case as analogous to one in which a

doctor employs a secretary or at least where he engages secretarial services from an independent

contractor. It was submitted that the relevant information was collected by the respondent for the

appellant. That submission is inconsistent with the factual findings of the trial Judge as to the true

relationship between the parties. Although, in terms, the respondent was obliged to provide only the

premises and certain services and equipment, the existence of the premises in that location itself

generated patients and goodwill so that, in effect, the respondent provided to the appellant and the other

medical practitioners at the Centre a pool of patients which, no doubt, their respective skills and

manners helped keep. In that relationship which, as we have said, is somewhat analogous to a partnership, the division of responsibility between the appellant on the one hand and the respondent on

the other was medical care by the appellant and administration of patients' accounts by the respondent.

In those circumstances, it is plain, that the records maintained by the respondent for the purpose of the

administration of those accounts were the records of the respondent. The appellant had no need to

possess them or see them or even know of them. The information contained in them was therefore

confidential information of the respondent for the unauthorized use of which it was entitled to damages.

In our view the appellant is on stronger ground in the second basis of its attack on the award

of damages. The evidence did not permit the learned trial Judge to arrive at any precise estimate of the

respondent's loss and it was appropriate for him, in the circumstances, to fix a round sum. However

the respondent's records show that, of the patients whose records were requested either by themselves

or by the Carrara Medical Centre, only 15 did not return to the Highland Park Medical Centre. Whilst

it is true, as Mr. Howe for the respondent contends, that there may have been more than that because

the appellant may have contacted some patients orally (the respondent had records only of written

requests), unless the correct estimate is substantially more than that, then in our view the award of

damages is manifestly excessive. As there is no basis for concluding that there were substantially more

than that, even making some allowance for a figure somewhat higher than that we think that an

appropriate award would have been $7,500.

We would therefore allow the appeal only to the extent of setting aside the judgment for

damages and substituting a judgment for $7,500 damages.

As the appellant won on only one of three issues argued and lost on the substantial issue of the

restraint we would order the respondent to pay one-third of the appellant's taxed costs of appeal.

C.L.R. 288 at 316.