Brunswick Family Dental Pty Ltd v Dr Enegd
[2014] VSC 325
•8 July 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PRACTICE COURT
S CI 2014 2980
| BRUNSWICK FAMILY DENTAL PTY LTD (ACN 163 627 549) | Plaintiff |
| v | |
| DR BOUCHRA ENEGD | Defendant |
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JUDGE: | MACAULAY J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 June 2014 | |
DATE OF JUDGMENT: | 8 July 2014 | |
CASE MAY BE CITED AS: | Brunswick Family Dental Pty Ltd v Dr Enegd | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 325 | |
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RESTRAINT OF TRADE — Interlocutory injunction — Former employer seeking to restrain contractor from engaging in rival dental practice within area of alleged restraint — Whether an agreement containing the alleged restraint of trade clause was made between the parties — Construction of the restraint clause in alleged agreement — Whether serious question to be tried — Whether damages an adequate remedy — Balance of convenience — In light of other factors, insufficient probability of success at trial to warrant interlocutory injunction — Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Alexander | Blue Rock Law |
| For the Defendant | Mr N Evans | P & B Law |
HIS HONOUR:
Introduction and summary
For about 14 years until May 2013, Dr Helen Arabatzis conducted a dental practice, trading as Brunswick Family Dental Surgery, at 44 De Carle Street, Brunswick. The practice was incorporated in May 2013 as the plaintiff company, Brunswick Family Dental Pty Ltd (‘BFD’). In about 2008, Dr Arabatzis had engaged Dr Bouchra Enegd, the defendant, as a subcontractor. Dr Enegd worked as a dentist at the practice until May 2014. In May 2014, Dr Enegd left the practice to set up her own dental practice at 492 Rathdowne Street, North Carlton — a distance of about 3 kilometres from the BFD practice address.
In this application, BFD seeks an interlocutory injunction to restrain Dr Enegd from practising as a dentist within 5 kilometres of 44 De Carle Street, Brunswick. It relies upon a restraint of trade clause that formed one of the terms of a contract that it claims to have made with Dr Enegd in August 2013. Dr Enegd denies the existence of the contract that BFD asserts and she opposes its application.
Without setting out its full terms, the alleged restraint clause (clause 17) provided that the contractor, during the currency of the agreement and during the ‘Restraint Period’,[1] must not—
[1]The greater of 12 months, 6 months or 3 months after the contractor’s engagement ended. Clause 17.4 stipulates that the maximum period a court determines is reasonable and enforceable shall apply.
(a)conduct, carry on or promote (whether on its own account, in partnership, in joint venture or an employee agent or contractor of, or manager for, anyone);
(b)be concerned or interested in (directly or through any interposed body corporate, trust or partnership) as trustee, principal, agent, shareholder, unitholder, independent contractor, consultant, adviser or in any other capacity; or
(c)provide financial assistance to any entity in which the Contractor or any Third Party has a direct or indirect equity interest which assists that entity to engage in,
a Restrained Business [as defined] within the Restraint Area[2] … (clause 17.1)
[2]Defined as a cascading series of possibilities, the least of which was anywhere within a radius of 5 kilometres of premises where BFD conducted its business. Clause 17.4 stipulates that the maximum area a court determines is reasonable and enforceable shall apply.
Recently, the Court of Appeal approved[3] a statement of applicable principles with respect to such a clause as set out by Sifris J in Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett, [4] as follows:
[3]Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett [2013] VSCA 24 [14].
[4]Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett [2012] VSC 82 [50] (citations omitted).
The principles applicable to the enforceability of contracts in restraint of trade are not for the most part in dispute. They are well settled:
(a) a contractual provision in restraint of trade is, prima facie void.
(b)The presumption can, however, be rebutted and the restraint justified by the special circumstances of a particular case, if the restriction is reasonable by reference to the interests of the parties.
(c)The validity of the covenant in a contract is to be judged as at the date of the Employment Agreement.
(d)A stricter view is taken of covenants in restraint of trade in employment contracts than those contained in contracts for the sale of a business.
(e)The onus of proving the special circumstances justifying the restraint is on the person seeking to enforce the covenant.
(f)So far as the parties’ interests are concerned, the restraint must impose no more than adequate protection to a party in whose favour it is imposed. If the court is satisfied that the restraint confers greater protection than can be justified, there is no further issue of reasonableness.
(g)The meaning of the restraint clause may be construed by reference to the factual matrix, documentary context and surrounding circumstances.
In addition, on an application for an interlocutory injunction the plaintiff is, as a first step, required to establish a prima facie case (often referred to as a serious question to be tried) in the sense described by Gummow and Hayne JJ in Australian Broadcasting Corporation v O’Neill.[5] The second consideration (often combined with the third) is whether or not damages would be an adequate remedy. The third consideration is what is usually called the balance of convenience, but has been expressed by the Court of Appeal in Victoria in terms of where the lowest risk of injustice lies:
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[6]
[5]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 81 [65].
[6]Bradto v State of Victoria [2006] 15 VR 65 [35].
BFD argued that it entered an ‘Independent Contractor Agreement’ with Dr Enegd on or about 13 August 2013 when Dr Enegd orally accepted the terms of a written agreement that BFD had presented to her. Alternatively, it contends that Dr Enegd’s acceptance was constituted by her continuing to provide dental services at the practice after being given a letter, with the copy of the draft contract, telling her that such conduct would amount to deemed acceptance of its terms and conditions. As a further alternative, BFD argues that, in the circumstances that occurred, Dr Enegd is estopped from denying that the terms of the written contract, including the restraint of trade clause, governed their relationship.
Dr Enegd denies each of BFD’s propositions and denies that her engagement was governed by the written agreement. Further, she argued, even if the written contract did govern their relationship, properly construed, the restraint of trade clause does not prohibit Dr Enegd from providing dental services to those patients to whom she provided services before August 2013 at the practice. Moreover, so she said, an important part of the restraint clause remained incomplete and it must fail for that reason.
Dr Enegd also argued that BFD will be unable to prove that the restraint clause is no wider than is reasonably necessary to protect its legitimate interests, as it must do. Finally, she argued that the restraint is unenforceable because any contract she had with BFD was terminated by her acceptance of its repudiation, and that the restraint of trade clause does not survive such termination.[7]
[7]Bond & Anor v Rees Corporate Advisory Pty Ltd & Anor [2013] VSCA 13 [46]–[47] (Maxwell P and Tate JA).
Each party argued that the balance of convenience favoured them, and that damages would either be an inadequate (said BFD) or adequate (said Dr Enegd) remedy.
For the reasons that follow, I have not been persuaded that it is appropriate to grant the injunction that BFD seeks and so I refuse the application.
Prima facie case
BFD does not begin with the advantage of having an executed contract containing the critical restraint. To get to first base, it will first need to prove the existence of the relevant agreement. The agreement itself is staunchly contested.
I will not rehearse all of the evidence set out in the rival affidavits, but, in essence, they reveal the following:
•In about May 2013, Dr Arabatzis incorporated her practice and decided to require her contractors to enter either employment agreements or independent contractor agreements, there not having been any previous written contracts.
•After obtaining legal and accounting advice, on 4 June 2013 she presented to staff at the practice, including Dr Enegd, copies of two draft agreements (incomplete as to any name or individual’s details): one, an independent contractor’s agreement, and the other an employment agreement. In each case the agreement was to be with the company. Staff were asked to take the forms of agreements away and get advice. In sum, Dr Arabatzis wanted each member of staff to decide which form of engagement they individually wanted to take up.
•Various differences exist about what was said at the meeting, but a critical difference lay in whether or not Dr Arabatzis gave to staff, and in particular to Dr Enegd, a template letter accompanying the agreements which stated in the last line:
Please sign and return the Agreement to our office [Insert Date] or if you continue to independently contract with us, you will be deemed to have accepted the terms and conditions of the Agreement.
Dr Arabatzis claims it was given to staff at the meeting; Dr Enegd denies she was given one and said that the first time she saw it was as an exhibit to Dr Arabatzis’ affidavit in this application.
•Additionally, Dr Arabatzis instructed her administrative staff to email copies of the agreements, and a further copy of the template letter, to the practice staff. The text of the email, dated 29 June 2013, indicates that the contracts were sent to ‘Bouchra’, presumably Dr Enegd. The writer notes that the attached contracts are ‘draft only and the final contracts are to follow’. There is no evidence, however, that the template letter was attached.
•Dr Enegd states that, at that time, she had decided there were particular clauses she would never agree to and that therefore she would not be signing the contacts as presented. She had already obtained legal advice. One clause she objected to concerned the ownership of intellectual property. Another was the restraint clause. By July/August 2013, she had already decided she wanted to establish her own practice. She had privately discussed doing so with her dental nurse and another professional colleague. Indeed, as Dr Arabatzis was not to discover for another 10 months, on 24 June 2013 Dr Enegd’s dental nurse lodged an application with the City of Yarra for a planning permit to use 492 Rathdowne Street, North Carlton as a dental practice.
•Dr Enegd claims that she told Dr Arabatzis on several occasions that she wanted to talk about the agreements, as there were aspects with which she did not agree. The first occasion was around the end of July in a brief face‑to‑face encounter. On another occasion, so Dr Enegd alleges, she told an administrative staff member of the practice that she would not sign any agreement until she met with Dr Arabatzis. On 9 August, Dr Enegd sent Dr Arabatzis a text message stating she wanted to be paid as an employee that month in order to assess the pay difference between the two forms of engagement. She added, ‘I would like to discuss the contracts at some stage also with you in more detail.’ Dr Arabatzis replied that would be no problem. They finally met on 13 August.
•By that date most staff had not yet made their election, including Dr Enegd. Because Dr Arabatzis wanted the decisions made, she advised staff that they would not be paid until they made their choice. A major difference lies in the two dentists’ accounts of what happened in the meeting between them on 13 August. According to Dr Arabatzis, on that occasion she showed Dr Enegd two spread sheets revealing the remuneration differences between the two forms of engagement after which Dr Enegd said she wished to be an independent contractor. Further, she maintains that she handed Dr Enegd an independent contractor agreement, printed with Dr Enegd’s details, and Dr Enegd thanked her and said she would get it back to her shortly. By contrast, Dr Enegd denies she received another copy of the agreement. Instead she alleges that she told Dr Arabatzis she was not willing to make a decision at that time and she was not going to sign either contract. According to her, Dr Arabatzis was comfortable with that position and their conversation was limited to how she wished to be paid at that time.
•No agreement was signed and no further discussion about the matter occurred at all for another nine months. As had been the case since 2008, Dr Enegd continued to be paid as an independent contractor, only now by the company and not by Dr Arabatzis.
•On 5 May 2014, Dr Arabatzis learned of Dr Enegd’s planning permit application for the North Carlton premises. Again, different accounts are given about what occurred thereafter.
•According to Dr Enegd, a further copy of the independent contractor agreement was given to her, apparently on 6 May on Dr Arabatzis’ instructions, ahead of a further staff meeting to take place on 8 May.
•Dr Enegd claims that, at the staff meeting on 8 May, Dr Arabatzis told all the assembled staff:
… some of you have signed and some of you haven’t, but I absolutely need you all to sign by the end of the financial year, June 30th 2014 ...[adding] … if you still need to gather information, you still have a bit more time
Dr Enegd maintains that she told Dr Arabatzis, openly in front of the other dentists who worked at the practice, that she could not sign the contracts because a lot of the clauses ‘will clash with my future business ventures’. There were further statements made between her and Dr Arabatzis in the meeting, after which the two women met privately. In their private meeting, there was an angry debate about whether Dr Enegd was entitled, as a contractor with BFD, to work at other locations or was faced with a choice of either contracting with BFD or working elsewhere.
•Dr Arabatzis gave an account only of a private confrontation between them. She alleged that they met in a consulting room and that she asked Dr Enegd about her plans to work at another practice. In substance, she claims that Dr Enegd was evasive about her plans.
•On Sunday 11 May, Dr Arabatzis wrote an email to Dr Enegd asserting that by opening a practice at North Carlton she would be ‘in breach of the independent contractor agreement’. Dr Arabatzis wanted confirmation whether Dr Enegd intended ‘to participate with a competitive dental practice in North Carlton’ and requested her not to attend the practice until she had responded to the email.
•Dr Enegd did not return to work at the practice. BFD did not pay Dr Enegd for the services she had already performed at the practice in April 2014, so her solicitor wrote to BFD’s solicitor claiming to accept BFD’s repudiation of the ‘oral agreement’ that allegedly governed their arrangement. Her solicitor claimed that the terms of that oral agreement were limited to an agreement that Dr Enegd would provide dental services at an agreed rate, to be paid on the first date of the month following the month work was carried out.
•Dr Enegd deposed that her plans to set up her own practice germinated in 2009. By 2012, she and her dental nurse were talking about it seriously. In April 2013, she established her own company to run any future practice. By August 2013, she had signed a lease on the North Carlton premises and building works were undertaken between then and March 2014. It was not until 10 June 2014 that phone lines and internet connections were established. The North Carlton premises has two treatment rooms. The practice currently engages Dr Enegd and one other staff member, although there are plans for another dentist to visit to provide oral surgery services.
•As at May 2014, BFD’s practice had 5 treatment rooms. It engaged 8 dentists, 4 dental hygienists, and 11 nursing and administrative staff. Three osteopaths were also engaged using 2 further rooms.
Unless it proves an agreement between itself and Dr Enegd on the terms of the independent contractor agreement, or at least that Dr Enegd is estopped from denying such an agreement, BFD has no basis for establishing a restraint of trade limitation upon Dr Enegd. There was no pre‑existing restraint under the arrangement as it existed between 2008 and mid‑2013. So the first question is whether BFD has established a prima facie case that Dr Enegd is precluded by the restraint of trade clause from working in a dental practice within 5 kilometres of BFD’s practice.
In my view, BFD has established a prima facie case that it made an agreement with Dr Enegd containing the disputed restraint clause, or that Dr Enegd is estopped from denying it. Having said that, and judging only from the presently available evidence, in order to succeed at trial it will need to overcome a series of hurdles each of which poses a real threat to that success. It is not appropriate at an interlocutory stage that I attempt to evaluate the prospects of success too closely. But, for the purpose of explaining the view I ultimately take in this matter, and without attempting to be comprehensive, I will briefly summarise what I regard to be some of those hurdles.
First, the oral agreement is denied and its existence will depend on a ‘word on word’ contest. There is little if any objective, contextual evidence to support it. Instead, the contemporaneous evidence indicates that Dr Enegd was, at the relevant time, somewhat advanced in her plans to commence her own practice. So it may be unlikely (although, of course, not impossible) that, in those circumstances, she would agree to accept an agreement containing a restraint of trade clause. Further, the attempts by Dr Arabatzis in May 2014 to again get staff — and in particular Dr Enegd — to execute the written agreements previously presented in June 2013 would tend against a conclusion that Dr Enegd had already agreed.
Secondly, the implied agreement relies upon a finding that the conduct of Dr Enegd, post‑August 2013, of working at the practice and taking payment as an independent contractor, denotes an acceptance of the terms of the proffered contract. Yet such conduct may be equally consistent with Dr Enegd simply continuing her engagement on the pre‑existing terms. Proof that Dr Enegd received the template letter seems to face difficulties so that any support to be derived from its terms is uncertain.
Thirdly, as to the estoppel, although Dr Enegd’s continued work at the practice is capable of amounting to a representation that she had agreed to the terms of the proffered contract, for reasons already given her conduct is by no means unambiguous. Further, if Dr Enegd’s version of the various oral statements she allegedly made about not intending to sign the agreement is accepted, it would of course undermine the claim. Finally, the establishment of BFD’s detrimental reliance upon any such representation would not be assisted if it was found, as Dr Enegd alleges, that Dr Arabatzis again tried to get staff (including Dr Enegd) to execute the written agreements in May 2014. That aspect of the evidence was not contradicted in the affidavits before the court on the application.
Fourthly, Dr Enegd maintains that, even if the contract BFD relies on was made between the parties, the construction of the whole restraint of trade clause is not without difficulty. Indeed, Dr Enegd argues that, on its face, the clause appears to permit Dr Enegd seeing former clients of BFD at the North Carlton practice following the termination of the BFD contract.
Her argument has some attraction, although it was not fully argued before me. I set out above most of the terms of clause 17.1, headed ‘Non‑compete’. Clause 17.2 is headed ‘Non‑solicitation and non‑interference’ and, as the heading suggests, is a clause aimed at restraining the former contractor from soliciting clients of the BFD practice or inducing its employees to leave their employment with BFD. Clause 17.3 then provides:
The Practice agrees that if any Former or Related Clients are also Clients, and those Former or Related Clients seek the professional services of the Contractor or any Third Party after this agreement ends, that the restraint set out in clause 17.1 will not apply.
It is necessary to go to the various defined terms to make sense of this provision. I will not set them out or discuss them in any detail. It is not necessary to do so on this application. It suffices to say that those definitions are not easy to work through. In fact, Mr Alexander for BFD, in an apparent concession of the difficulty, suggested that the reference to clause 17.1 in clause 17.3 is plainly a mistake and that it must have been intended to refer to clause 17.2 (the non‑solicitation clause). He said that BFD would seek rectification of the agreement at trial. I am not so sure.
The definition of ‘Former or Related Clients’ seems to be a reference to clients that the contractor serviced before the agreement commenced as well as any family members or relatives of the contractor. But ‘Client’ is also a reference to current or former clients of the BFD practice. In my view, the clause does appear to have a potential application to the non‑competition provision. So understood, clause 17.3 might be construed to mean that a contractor may provide dental services at a new practice, to persons who were clients to whom Dr Enegd provided services before the Independent Contractor Agreement commenced, even if those persons are now current or former clients of the BFD practice. Further, the definition of ‘Former or Related Clients’ contemplates that a cap is to be applied to the number of people to whom the exception applies, but no number appears in the schedule for that purpose because the document is simply a draft. So, the agreement is incomplete in an important respect.
I agree with Dr Enegd’s submission that the issues of construction and enforceability of the restraint of trade clause, due to these reasons, materially undermine the strength of any probability that BFD will succeed at trial.
Fifthly, there is the law’s policy against restraint (see [4] above) and the onus cast upon BFD, as the party to seeking to enforce it, to establish that it is reasonable by reference to the legitimate interests of the parties. Relatively little evidence was offered by BFD at the interlocutory stage to establish the parameters of the protection that it may justifiably deserve, assessed at the date of the agreement.
I stress that what has influenced my conclusion on this application are, by definition, only somewhat speculative inferences drawn from the current, untested evidence. At trial, the evidence could look substantially different after processes of discovery and so on. But, the court can only make its assessment of the prima facie case and other factors based on present picture.
Adequacy of damages and balance of convenience
BFD says that Dr Enegd treated about 7500 of its 19 000 patients. I acknowledge the various difficulties that BFD may face if it does succeed at trial yet have to content itself with damages as its remedy if an injunction is not granted in the meantime. Those include the difficulty it would encounter in assessing those damages; in particular, the flow‑on effect in terms of transfer of client loyalty to Dr Enegd’s new practice and the true loss of profit to BFD. BFD also argued, as a matter of principle, and assuming there is a clear contractual obligation (not necessarily the case here), the obligation should be upheld and not, in effect, traded away for damages.[8]
[8]Idemeneo (No 123) Pty Ltd v Deady [2013] VSC 740 [25] (T Forrest J).
Nevertheless, it was not suggested that Dr Enegd would be unable to meet an order to pay damages were she to fail at trial. And, difficulties aside, damages have often been assessed by courts for the loss sustained by the wrongful transfer of custom from one business to another.
Dr Enegd has plainly invested some time, effort and money in establishing the North Carlton dental practice. At present it is in its relative infancy. According to BFD, that only proves how little prejudice Dr Enegd would suffer by being made to cease to practise there and, instead, resort to performing contractor services elsewhere, as she has been for BFD for a healthy weekly income.
BFD’s arguments seem to me to significantly underplay the prejudice to Dr Enegd were the court now to grant an interlocutory injunction restraining her from practising at the North Carlton premises. She has a minimum five‑year lease commitment of $2621 per month and has already drawn down $210 000 of a bank loan to pay for the establishment of the practice. She would face substantial risk of loss if she had to abandon, or cease using, those premises until the trial of the action.
The current evidence is that Dr Enegd is seeing only two to four patients per week. By contrast, BFD’s practice has seven other dental practitioners and a very substantial client base. There is, at least, an even chance that former clients of Dr Enegd at BFD will simply elect to be seen by other dentists at the BFD practice rather than transfer to Dr Enegd at North Carlton. I do not underestimate the possibility that there will be some flow of clients to her from the BFD practice, but, even allowing for gathering momentum it is likely to take some time before she make serious inroads into the 7500 clients to whom she apparently provided services while at BFD. And if she does, and she fails at trial, then the likelihood is that BFD will have a sufficient asset against which to recover any loss that it proves. It was not suggested otherwise.
In the result, I am not satisfied that BFD’s claim enjoys sufficient probability of success such that, having regard to the adequacy of damages as a remedy and the balance of convenience, I should restrain Dr Enegd from conducting her practice at North Carlton pending the trial of the proceeding.
BFD’s application is therefore refused.
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