Delpin Pty Ltd v Nargol Holdings Pty Ltd - [2002] NSWSC 422

No judgment structure available for this case.

Reported Decision:
(2002) Aust Contract Reports 90-147

New South Wales

Supreme Court

CITATION: Delpin Pty Ltd v Nargol Holdings Pty Ltd [2002] NSWSC 422

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 3815 of 1997

HEARING DATE(S): 20-22, 25-28 February; 1, 4-8, 13-14 March 2002

JUDGMENT DATE: 16 May 2002

PARTIES :

Delpin Pty Limited (1st Plaintiff/1st Cross Defendant)
Donna Burgess (2nd Plaintiff/ 2nd Cross Defendant)
Robert A Chow (3rd Plaintiff/3rd Cross Defendant)
Robert Elliott (4th Plaintiff/4th Cross Defendant)
Joe Gangemi (5th Plaintiff/5th Cross Defendant)
Peter Hay (7th Plaintiff/6th Cross Defendant)
George Hayunga (8th Plaintiff/7th Cross Defendant)
Steven Lee (9th Plaintiff/8th Cross Defendant)
Barbara McDonald (10th Plaintiff/9th Cross Defendant)
Geoffrey Raymond Morgans (11th Plaintiff/10th Cross Defendant)
Ismail Motala (12th Plaintiff/11th Cross Defendant)
John Whyte (13th Plaintiff/12th Cross Defendant)
Frank Vella (14th Plaintiff/13th Cross Defendant)
Nargol Holdings Pty Limited (1st Defendant/Cross Claimant)
Bronte Douglass (2nd Defendant)
PHLM Pty Limited (14th Cross Defendant)
Castle Hill Medical Centre (NSW) Pty Limited (15th Cross Defendant)

JUDGMENT OF: Windeyer J at 1

COUNSEL : Mr J T Gleeson SC with him Mr C Moore (Plaintiffs/Cross Defendants)
Mr P M Biscoe QC with him Mr S W Climpson (Defendants/Cross Claimant)

SOLICITORS: Manion McCosker (Plaintiffs/Cross Defendants)
Hendersons (Defendants/Cross Claimant)

CATCHWORDS: CONTRACTS - terms discussed at meetings between parties - whether agreement reached on terms - whether additional terms required - whether necessary consensus to form binding contract without formalization - MISLEADING AND DECEPTIVE CONDUCT AND ESTOPPEL - whether representations if made and if relied upon resulted in damage to person to whom made - whether letter of commitment created obligation to enter agreement for lease - whether obligations under agreement arose from representations - FIDUCIARIES - contracts between individual doctors and company providing services including premises to these doctors - contractual provision requiring doctors to act in utmost good faith towards manager - whether fiduciary relationship established - PASSING OFF - name and telephone number associated with the centre - whether centre manager had property in the name as goodwill of business - doctors at centre continuing to use name after management agreements ended - whether centre manager had established any reputation for the business in that name - no evidence of reputation - EQUITY - REMEDIES - PASSING OFF - no claim for injunction - whether account of profits available if no injunction sought

LEGISLATION CITED: Business Names Act 1962
Fair Trading Act 1987, s42
Health Insurance Act 1973
Trade Practices Act 1974 s52
Ashburner's Principles of Equity 2nd Ed p40
Meagher Gummow & Lehane Equity Doctrines and Remedies 3rd Ed 2504

CASES CITED: A G v Blake [2000] 4 All ER 385
Bailey v Taylor [1829] 1 Russ & M 73; 39 ER 28
Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd 91996) 40 NSWLR 63
Draper v Trist [1939] 3 All ER 513
Fletcher Challenge Limited v Fletcher Challenge Pty Ltd [1981] 1 NSWLR 196
Rolin v Steward [1854] CB 595
Smith v The London and South Western Railway Company [1854] Kay 408; 69 ER 173

DECISION: See paragraph 71

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY 16 MAY 2002

3815/97 DELPIN PTY LIMITED & ORS V NARGOL HOLDINGS PTY LIMITED

JUDGMENT

Outline

1 This case concerns the Castle Hill Medical Centre at 269-271 Old Northern Road, Castle Hill (No. 269). The plaintiffs other than Delpin Pty Limited (Delpin) were doctors practising at No. 269 in 1997. Delpin was a company formed by five of the doctors in 1997 to take a lease of premises at No. 269 on the expiry of another lease in September 1997. The defendant, Nargol Holdings Pty Limited (Nargol) is a company of which Dr Bronte Douglass is the driving force and managing director. The original claim of the plaintiffs, commenced in August 1997, sought injunctions restraining Nargol from terminating their right to occupy and practise from No. 269 and to restrain Nargol from using the name “Castle Hill Medical Centre” and the telephone number connected to those premises. The plaintiffs failed to obtain interlocutory relief as to termination of occupation, but did obtain such relief in respect of the name and telephone number. At the time the matter was pleaded there were claims for permanent injunction damages and accounts. The proceedings on the plaintiff’s claim have been concluded by consent orders made at the commencement of the hearing before me, partly as a result of Nargol no longer seeking to obtain the name and telephone number.

2 By cross claim now pleaded by further amended cross claim filed on 8 February 2002 Nargol claims against some of the doctors and Delpin for damages or equitable compensation for breach of contract, breach of fiduciary duty, and misleading and deceptive conduct; and against all of the doctors, damages or account of profits for passing off and misleading and deceptive conduct. The last claim incorporates the claim for damages on the undertaking as to damages given by the doctor as to the price of obtaining their interlocutory injunction. All claims concerned a proposal under which Nargol, as manager of the medical centre, and some of the doctors would move from No 269 to new premises at Barwell Avenue, Castle Hill owned by a company Lawton Pty Ltd (Lawton) controlled by a Mr Pickford. Nargol entered into an agreement to lease those premises but with the exception of one of the doctors then practising at No. 269, the doctors did not move across and continued to practice at the premises at No. 269. The claims of breach of contract, misleading and deceptive conduct, estoppel and passing off, all relate to this failure to move and the continuing in business at the old premises under the old name with the advantage of the telephone number.

Parties and names

3 Delpin Pty Limited (Delpin) the first cross-defendant was formed in 1997 for the purposes of taking a lease commencing 29 September 1997 from Vahaban Pty Limited (Vahaban), the owner of premises No. 269. The cross defendant doctors, who are shareholders and directors of Delpin are Doctors Elliott, Hay, Lee, Morgans and Motala. They were regularly referred to in evidence as the “Delpin doctors” and for clarity I will continue to use that description.

4 Towards the end of 1995, the Delpin doctors arranged to acquire or form a company Thackerie Pty Limited (Thackerie) as a result of which they were on some occasions referred to in evidence as the “Thackerie doctors” but they are the same people. There was a Dr. Miller involved at one time, but he is not a party to these proceedings and his participation at an earlier stage is of no relevance. Thackerie was formed as part of the negotiations to move premises, the intention being that Thackerie would obtain premises, or deal with Nargol in obtaining premises, and that it would arrange with other of the doctors located at No. 269 to move across to the new Barwell Road premises. The rights of those doctors and terms of their occupation of the new premises were to be subject to arrangements with Thackerie rather than Nargol. On 14 April 1997, Thackerie changed its name to Castle Hill Medical Centre (NSW) Pty Limited, that company being the fifteenth cross defendant. I will continue to refer to it as Thackerie.

5 PHLM Pty Limited (PHLM) the fourteenth cross defendant, is or was a company with which Drs. Hayunga, Lee, Morgans and Motala were associated prior to 1987. Either that company provided services for the doctors or they provided their services to it and it provided the services to the patients. Nothing really turns on this and no further attention needs to be paid to PHLM as a company. Its position after 1987 was not made clear, but certainly the four doctors maintained some loose joint arrangement so far as their separate practices were concerned at No. 269. Prior to 1998 the PHLM doctors practised at 246 Old Northern Road, Castle Hill.

6 In 1970 the Castle Hill Medical Centre was registered as a business name under the Business Names Act 1962 as a medical practice being conducted at 263 Old Northern Road, Castle Hill. There were three partners, one of whom was Dr Nelson-Marshall. There were various registered changes between 1970 and 1987. Dr Hay became a partner in 1985. By 1987 the partners were Drs Nelson-Marshall, Hay, Percy and Barbour. A statement of change of particulars dated 20 October 1987 recorded the place of business as being moved from 263 Old Northern Road, Castle Hill to 269-271 Old Northern Road, Castle Hill on 29 September 1987. Dr Percy retired in 1993. A change in particulars signed in July 1997 shows Drs. Barbour, Nelson-Marshall and Hay ceasing to carry on business at the address and Delpin commencing to do so.

General facts

7 The medical centre came into existence as a result of discussions between Hospital Corporation Australia Pty Limited (HCA) and various groups of doctors practising in the Castle Hill district. The scheme was that HCA would acquire premises by lease and that the doctors would transfer their practices to those premises. It is not necessary to go into this in great detail. HCA took a lease from Vahaban of the premises No. 269 for ten years commencing 29 September 1987. There was an option to renew. About the time of entering into the lease HCA entered into agreements with some of the doctors or their groups such as PHLM. These agreements generally expired on 30 June 1997 or 28 September 1997. All were terminable after three years on twelve months’ notice. The practitioners’ agreements recited that HCA proposed to provide them with certain premises as a medical centre and undertook to supply certain services, supplies and equipment to the practitioners. They provided for a committee of participating practitioners to oversee that management. HCA undertook certain prescribed duties including the provision of premises, staff, maintenance of premises and “the provision of telephone and other necessary public utilities to the premises”. The doctors agreed to show the utmost good faith and to use their best endeavours to promote the interest and welfare of the medical centre and not to reveal any confidential information in relation to the medical centre or its finances. The name under which the centre was to operate is not mentioned in any of the agreements.

8 It was intended that other health related professionals would be located in the leased premises and this in fact happened. There were a chemist, a dentist, a podiatrist, a dietician and a physiotherapist - among others. The arrangement between HCA and the doctors was that the HCA would be paid forty percent of the total billings of each doctor up to $150,000 and thereafter twenty six percent of such billings. This was subject to indexation, although the evidence does not show that indexation ever took place.

9 Prior to their entering into the agreement with HCA, the Nelson-Marshall group and other groups of doctors got together on quite a number of occasions to discuss the proposals. The negotiations on behalf of HCA were conducted by Dr. Sheridan and Dr Adler. Dr. Hay said that at one of the early meetings one of those doctors said:

We want you to move your practices to a larger site. We will act as a manager so that you will have more time to spend on treating patients. You will retain all of your goodwill. We have no interest in the Edelsten model of medical centres (i.e employing doctors). I want to use the name Castle Hill Medical Centre. Will you allow that?

Yes provided we retain ownership of the name if the centre folds or we move elsewhere.

I am happy with that.

You will be able to use the name “Castle Hill Medical Centre”, however, we the four owners of the name have decided to keep the registered name as theirs [sic], in case the centre does not continue for some reason or other.

I am able to reaffirm what Bob Sheridan said to you – that is the name Castle Hill Medical Centre and the phone number 634 5000 are a part of the doctors goodwill – we would like to use them in the interests of everybody as the name and the phone number are both simple and easy to remember – if there are any problems with the centre and it folds or you leave then you may take them with you.

10 The telephone number used by the Nelson-Marshall group at their practice at 263 Old Northern Road, was 634 5000. Dr Hay said that he was present at a meeting between his group and Dr. Sheridan when Dr Nelson-Marshall said:

We offer you our telephone number provided that we are able to transfer if either the centre folds or we move elsewhere after the expiry of our agreement.

I think 634 5000 would be an excellent number – we were trying to get another number from Telecom but this number sounds much better. I will ask all the other medical practitioners if they are in agreement and then if they say yes then I accept your offer and promise that if the conditions or situation that you have outlined occur then the phone number (and the name) is yours to take.

11 While I held that this evidence, or at least some of it, was not admissible until there was a specific pleading which directly raised the question of retaining ownership of the name and telephone number, it had in fact appeared in affidavits sworn some years ago and therefore was of no surprise to Dr Douglass or Nargol. It was at least supported by a letter from Dr. Barbour to Dr Douglass which is in evidence dated 9 May 1996 and a letter dated 26 April 1996 from Dr Nelson-Marshall to Dr Douglas (Exhibit 1 p 31). An amended defence to cross-claim was filed and the evidence allowed in. No evidence to the contrary was adduced and there was nothing to show that Dr Sheridan or Dr Adler could not have been called. Some criticism is made that there was no corroboration of the evidence by any of the Nelson-Marshall group of doctors, but in the absence of evidence to the contrary there was really no need for this. I accept that evidence. HCA in fact did put up a sign above the medical centre with the name “HCA Castle Hill Medical Centre”.

12 After about three years HCA wished to withdraw from this type of operation in Australia. The doctors then made contact with Dr Douglass with a suggestion that he might be able to take over the management of the centre from HCA. After some discussions he agreed to do so.

13 By agreement dated 19 February 1990, HCA agreed to sell and Nargol agreed to buy the business of administration and management of the Castle Hill Medical Centre. Dr Douglass guaranteed the obligations of Nargol under this agreement. The purchase price was $325,000 apportioned with directed to $240,520 to fixed assets and $84,480 to goodwill and other assets. The agreement provided for a sub-lease of the premises from HCA to Nargol with an option for Nargol to require assignment of the lease. Nargol was required to remove the letters “HCA” from all signs. Nargol was to take over by assignment or a new contract all the contracts with thirteen doctors and the contracts with the health professionals. The agreement provided for HCA to cancel the telephone service to enable Nargol to apply for it. The letters HCA were removed from the sign under circumstances where there is not agreement but it does not matter because it was a contractual requirement. New contracts were not entered into with the doctors and Nargol prior to settlement of the sale between HCA and Nargol, and therefore the rights of HCA under those agreements were assigned to Nargol. That is it seems because the doctors were not prepared to agree to some of the clauses required for a new agreement.

14 The agreement was for the sale by HCA to Nargol of the business of managing the Castle Hill Medical Centre. The business meaning “the business of administration and management of the centre and the assets and the goodwill attached to the centre”. There was nothing in that agreement about the name and on its face it is really a transfer of the management contracts and rights under the lease and sub-leases.

15 There is some contested evidence by Dr Hay that in 1991 Dr Douglass asked that the name be transferred to Nargol and that he refused this, saying that it had always been owned by his group of doctors. One of the difficulties about this matter is that neither Dr Douglass nor any of the doctors presented themselves as perfectly believable witnesses. Each side had a real interest in presenting the evidence which was given. Nevertheless I accept the evidence of Dr Hay as to this conversation. There was a reason for its taking place and I accept that it did.

16 The medical centre business from the point of view of Nargol was able to operate quite successfully in 1990. In 1991, however, there were changes to the Health Insurance Act 1973, the effect of which was that Nargol could no longer collect fees which amounted to somewhere between $180,000 and $200,000 per annum for providing what was called a pathology facility at the premises. As a result of this, Nargol decided to exercise its rights to terminate the agreements with the doctors on twelve months’ notice and in fact it did so. This brought about negotiations between Dr Douglass and the doctors, whereby it was agreed that the agreements would continue on a month to month basis and that each of the associate doctors would pay an additional $600.00 per month to Nargol over and above the forty percent proportion of fees charged. From about this time on also there seem to have been disputes between Nargol and Vahaban as to amounts payable under the lease. To some extent, according to Dr Douglass, the problem arose because HCA did not exercise some rights which it had on review and Nargol suffered as a result of this. There were, however, other disagreements as to outgoings and the like, Dr Douglass saying that moneys were owing to Nargol and Vahaban claiming that moneys were owed to it.

17 By the end of 1994, Dr Douglass and the other doctors were beginning to consider their future as Dr Douglass had told them that it seemed that he would not be able to arrange any acceptable lease with Vahaban after 28 September 1997. About this time, a group of doctors, subsequently the Delpin doctors, joined together to discuss relocation of practices. During 1995 there were some discussions with Dr Douglass and other discussions with Mr Pickford of Lawton Pty Limited, the owner of the premises in Barwell Avenue. A Franklins store operated on part of those premises. In another part various specialist practitioners conducted their practices. By “specialist” I mean not general practitioners. There were various discussions involving Mr Gould a chartered accountant engaged by the Delpin doctors as to structures and proposals. None of these discussions came to fruition and, as a result, it seems the Delpin doctors decided that they would not have the resources to purchase a building themselves and might have difficulties in incurring liabilities as personal lessees. Dr Lee oversaw the negotiations with Pickford over the Barwell Avenue property.

Better practice payments

18 It became possible in 1995 for general practitioners to obtain from the Health Commission payments which were called “better practice payments” as a result of conducting the practice in certain recognised and approved ways. The doctors made an application on behalf of Castle Hill Medical Centre without informing Nargol. A bank account was opened or already existed under that name and the application requested payment to that bank account. The payment was eventually received. I find it had been the intention of the doctors to appropriate the full amount of this payment to themselves, but after protests from Dr Douglass it was agreed that the moneys would go to Nargol and would be distributed in the ordinary way, namely forty percent to Nargol and sixty percent to the associate doctors. There were other doctors who practised at the Centre from time to time who were called assistant doctors and their arrangements were somewhat different. Further better practice applications were made and moneys received, into the bank account of Nargol, rather than the bank account of the Castle Hill Medical Centre, controlled by the doctors. None of this is very significant, apart from the fact that attempts were subsequently made by the doctors to redirect the last payment to themselves by false statements to the Health Department claiming that previous payments had been directed away from them without their consent. This was not true and nor were the various allegations made in the statement of claim and its amendments from time under which it was pleaded that the sixty-forty sharing agreement did not apply to the better practice payments, which were excluded from it. Each of the Delpin doctors had some difficulty in coming to terms with and accepting that they had made false statements to the Health Department and false claims in their pleadings. Nevertheless in the long run they reluctantly accepted that they had done so. It really has little to do with the case apart from its bearing on the question of credit and therefore whether or not other statements made by them in evidence in the case should be accepted as true and perhaps relevant to the issue of breach of the duty of good faith.

Negotiations for new premises

19 By the end of 1995 the doctors had introduced Dr Douglass to Mr Pickford, various draft documents had been produced which might have been available to show to the non-Delpin doctors and Mr Pickford was arranging for preliminary plans to be produced for his proposed new premises. There is no doubt that at least at one of these meetings, the question of a rent free period was brought up and it was made clear that Nargol intended, if possible, to vacate the premises at No 269 two months before the expiry of the sub-lease, presumably so that there would be a gap in occupation at No. 269 so that any new doctors who went there would not be able to get the benefit of patients approaching a staffed centre, as opposed to one which was empty. This may indicate the parties all considered there was some goodwill attached to location but not necessarily to name.

20 In the early part of 1996 Dr Lee was taking an interest in plans of the premises. Both he and Dr Douglass had received from Pickford a document called a draft intent letter. Further discussions involved the Delpin doctors obtaining advice from a financial adviser and having an architect look at the plans together with the purchase of Thackerie as a shelf company through Mr Gould. Even at that stage there was some suggestion that Thackerie could enter into the lease if the doctors considered that was the appropriate course of action. During April correspondence between the doctors and Nargol contained continuing suggestions of various options as to the future after 29 September 1997 and there was also correspondence between Nargol and the Nelson-Marshall group as to the name. This correspondence provoked a letter from Dr Barbour stating that Nelson-Marshall group was entitled to the name. There was no final agreement arrived at in any of the discussions during April 1996 and whatever the position with Lawton and Mr Pickford there could be no suggestion that anything said by any of the Delpin doctors amounted to a representation of future conduct which would be the preliminary foundation of some claim for misleading and deceptive conduct or for an estoppel claim. In the beginning of May, Pickford said that if the building was to be completed in time, he would need a letter of intent from the doctors and from Dr Douglass. We then come to the vital meeting.

Meeting on 14 May 1996

21 Dr Douglass claims that there were two important meetings in May between himself and the Delpin doctors and Mr Gould, who he says was at least at one of those meetings. He says that these meetings took place on 6 May 1996 and 14 May 1996, the first being at Dr Hay’s house at Cheltenham and the second being at the centre at Castle Hill. The Delpin doctors and Mr Gould all state that there was only one meeting at which any agreement was made, if indeed one were made and that this occurred at Dr Hay’s on 14 May 1996. It seems to me that the evidence is overwhelming that there was only meeting, that being on 14 May. Dr Douglass appears to have come to his view about two meetings by accepting a mistake in Mr Gould’s evidence as to a meeting being on 6 May. This was explained by Mr Gould and I accept that explanation as being clearly correct. There was only one meeting. Even at the end of the case in reply Dr Douglass stuck to his version of there having been two meetings when the evidence against this was quite overwhelming.

22 The purpose of the meeting was to try to come to some agreement as to securing the doctors’ future and the part that Nargol was to take in this, if any. Mr Gould was firm in his evidence that his instructions were to get the doctors separated from Nargol as they wished, if possible, to be able to go their own way. He said that at the end of the meeting this was achieved and he was very pleased by it. According to Dr Douglass, at the first meeting on 6 May, it was agreed that Nargol would take a lease on the Barwell Avenue premises; the Thackerie doctors would commit to going to that centre for three years; that the sharing would be forty percent to Nargol and sixty percent to the Thackerie doctors; Thackerie would ensure that there were sufficient other doctors available to service the new centre properly and that it would make arrangements with those doctors as to the sharing so that Nargol would get forty percent of their fees, but that Thackerie might take something to itself out of the remaining sixty percent. He said that the doctors had asked for an option to take over the lease and management after three years, but that this was not agreed and he said that on 14 June when it was raised again he rejected any such proposal. He did claim to have said that if Nargol was not able to continue after three years, the doctors could take over the lease. The fact that there was no meeting on 6 May makes one more inclined to accept the evidence of the doctors rather than the evidence of Dr Douglass as to what was said at the meeting and what, if anything, was agreed. There is no dispute about the statement that Nargol would take up the lease from Lawton for seven years, and that the doctors would commit themselves to the new centre for three years, with the fees shared as set out. It is also accepted that Thackerie was obliged to use its best endeavours to have sufficient doctors at the centre to make it as effective as possible and could arrange the rates at which those doctors were remunerated rather than their having a direct agreement with Nargol. The dispute is about whether there was an agreement reached that the doctors would be entitled to take over the management themselves after three years and would be entitled to take over the lease from Nargol and there is a further question as to whether or not any final agreement was reached at all.

23 While Mr Gould in his second affidavit was uncertain as to the date of the meeting, he was certain that he was only at one at which Dr Douglass was present and in the long run it became clear this must have been a meeting at the house of Dr Hay on 14 May. I accept that to be the case. In his affidavit evidence he said that after various discussions about taking over management and lease from Dr Douglass after three years, the following was said by one of the doctors present:

We have agreed in principal to move to the Pickford site on the corner of Barwell Avenue and Cecil Street, Castle Hill and rent those premises from Nargol, but we need to see all the terms. After three years of our moving, however, this agreement may terminate with the doctors taking over the lease previously held by Nargol from the landlord as well as their management from Nargol.

OK, we’ve got an agreement. I agree with you, the doctors can stay for three years at Pickford’s premises at Barwell Avenue. At the end of three years you can terminate the arrangement and take over responsibility for the lease as well as the management if Nargol doesn’t perform to your satisfaction. This will be a back-to-back agreement.

I undertake to put in writing all that has been agreed and you should have that within seven days.

24 On 15 May 1996 Lawton sent a letter setting out proposed lease terms which were a little different from those set out in the letter of 3 Mary 1996. Although some significance seemed to be attached to that at the hearing I do not think that anything turns on it. The significance was said to be that the doctors had not approved the terms set out in the subsequent letter but in any event it was accepted that whatever arrangement was made the lease had to be approved by the doctors. On 15 May Lawton also sent to Dr Douglass a sample letter of intent which Pickford said he required urgently so that he could notify existing tenants of the termination of their lease and for construction to proceed. On 21 May Dr Douglass signed a letter on the letterhead of Nargol Holdings Pty Limited a letter to Mr Pickford in the following terms:

CNR BARWELL AVE AND CECIL AVE, CASTLE HILL

I have received the amended layout plan for both the video portion and the medical centre portion of the Barwell avenue street level floor of this building, as discussed and agreed to by myself.

In changing the layout in line with out intention to focus on a second major entry to the North, I acknowledge that some minor changes shall have to be made to the documents to adequately reflect those intentions.

I, Bronte Douglass, on behalf of Nargol Holdings Pty. Limited of 219 Blaxland Road, Ryde N.S.W. 2112 (A.C.N. 003 364 903) as the Managers of the Medical Centre at 269-271 Old Northern Road, Castle Hill and of its Doctors, agree to you proposal dated 15th May, 1996 and its attachments and will sign a Deed of Agreement to Lease reflecting that 15th May, 1996 offer. We recognise that you have submitted an earlier Deed of Agreement to Lease and ask that you amend it according to our mutually agreed 15th May, 1996 offer.

As discussed the principal Doctors will be signing an agreement with Nargol Holdings Pty. Limited such that this long established practice will continue in the new premises, thus providing security for yourself and as discussed I am prepared to provide a personal guarantee for the obligations under the lease.

Yours sincerely,

25 From the date of the meeting on 14 May until towards the end of August there is no evidence of any progress being made in discussions. Dr Douglass could give no reason for his not having provided documents setting out what was said to have been agreed on 14 May. He accepted he was to do so. There was conflicting evidence as to requests for this and the response, but it does not matter because the summary was not provided and there was no response.

Negotiations with Elsom

26 After the meeting on 14 May and just after the letter of commitment was signed, Dr Douglass was approached by Vahaban through an agent, Mr Elsom, acting for it with suggestions for the re-opening of negotiations for the continued occupation at the Old Northern Road premises. These negotiations would go to show that Dr Douglass considered that he was at liberty to make whatever arrangements he thought were most beneficial to Nargol and to himself and that he was in no way bound to Lawton or Pickford. His explanation of this was that he was assisting a friend who had referred Elsom to him and that he was pretending that he might be able to put some business in his way. I do not accept that. It is perfectly clear that Dr Douglass would have entered into an agreement with Vahaban had it suited him. It did not suit him because an appropriate rental could not be agreed at that stage. He said that Dr Lee was part of the deception. Dr Lee denied this. The negotiations did not come to an end until about 20 June 1996 well after the letter of commitment had been signed.

27 I should add that most of this probably irrelevant. It was not ever suggested by counsel for Nargol in argument that Nargol was bound by the letter of intent to enter into the agreement for lease. Dr Douglass said he was morally bound not legally bound. However, the Elsom negotiations also suggest there was no binding commitment at that stage between Nargol and the Delpin doctors or Thackerie.

28 On 26 August 1996 the five Delpin doctors, purporting to be acting on behalf of Thackerie wrote to Dr Douglass in the following terms:

We wish to confirm the agreement reached between Thackerie P/L and Nargol P/L in or around June 1996.

· Nargol agrees to secure premises at Barwell Avenue Castle Hill for a new Medical Centre, to commence in or around September 1997, and to sign a head lease with Lawton P/L.

· Nargol agrees to provide management, equipment and reception and nursing staff for the new Medical Centre.

· Thackerie agrees to remunerate Nargol at a rate of 40% of receipts from all medical income at the new Medical Centre. (With the exception of previous arrangements made with Dr G. Morgans.)

· Thackerie may take up the option on the lease after three years, if agreed by all parties.

· Thackerie agrees to endeavour to provide sufficient Medical Practitioners to adequately staff the new Medical Centre.

· Thackerie has an option to take over the management of the Medical Centre after three years.

· Thackerie confirms that we are prepared to continue with the present unsatisfactory situation, on the basis that arrangements between Thackerie and Nargol will be formalised in the near future.

Yours sincerely,

29 This letter was prepared by Dr Elliott with the help of Mr Gould. The other doctors all gave various evidence about the circumstances in which they signed it and whether they read it or did not read it and what it meant. This letter had gone through some previous drafts at the hands of Mr Gould and Dr Elliott which are shown in Exhibits 27 and 28. The drafts have some significance in that the first handwritten draft sets out an agreement of Thackerie to take over the lease if Nargol is unable to continue, then crosses out that sentence. It also includes the following: “? Thackery’s [sic] option to take over management after three years.” The typed draft more or less coincides with the handwritten draft plus amendments, but includes the last paragraph as it appears on the letter which was finally sent. The last paragraph might tend to indicate that the Delpin doctors did not think there was any binding final agreement.

30 This letter produced an immediate written response from Nargol dated 28 August. Nargol said that if Thackerie was to be owner of the medical practices of the Delpin doctors then Nargol was keen to finalise an agreement with Thackerie to provide management for the practice; that Nargol had pursued the lease for the premises and was close to agreeing a form of lease which would be submitted to Thackerie for final comment prior to Nargol signing it; that the forty percent share of receipts was acceptable “subject of course to our securing the premises on acceptable terms and subject to the resolution of a number of matters which would need to form part of any agreement”. The letter went on to say that while Nargol would be prepared to hand over management and assign the lease if it were unable to provide those services, there would have to be a basis agreed for such handover in view of the significant relocation costs and other costs, which would be incurred by Nargol in the move to the new premises.

31 Following this letter a meeting of the Delpin doctors and Dr Douglass took place on 1 September. There were minutes of this agreement prepared by Dr Morgans, and apparently forwarded immediately after the meeting. This letter under a heading “Heads of Agreement” set out four matters as follows:

(1) That Nargol agreed to use its best endeavours to secure the Barwell Avenue premises to commence around September 1997 and to sign a head lease with plans and terms and conditions acceptable to all parties, that is Lawton, Nargol and Thackerie.

(2) Nargol agreed to provide management and equipment, reception and nursing staff for the medical centre and to maintain the equipment that is acceptable for a modern medical centre.

(3) As to special arrangements with Dr Morgans for external work.

(4) The agreed sixty percent to forty percent sharing of receipts.

Termination of Agreement:

There will be no termination of agreements between Nargol and Thackerie within a period of 3 years. We will quantify and qualify by agreement the relocation costs, written down value of equipment and double rent and these will be depreciated at a rate which is acceptable by each party on a yearly basis over the term of the first lease down to zero. These costs will be payable to Nargol if Thackerie terminates their agreement with Nargol and takes over the management and lease of the medical centre and the area occupied on the ground floor of Barwell Avenue (excluding the video shop). The quantity of the exact cost of the above will be determined as at September or October 1997 and will be agreed to by both Nargol and Thackerie by reference for receipts of the above costs.

Out Clause

Nargol may give 6 months notice after 3 years to end their contract with Thackerie. Thackerie will undertake under these circumstances to pay Nargol a cost of the equipment supplied at the centre agreed from a written-down price minus any depreciation.

32 There was some cross-examination of the Delpin doctors as to whether or not those items under “Heads of Agreement” were the only matters agreed and the other items merely discussed, but I find that not to be the position. That does not necessarily decide the matter one way or the other. According to Dr Morgans, Dr Douglass rang him the day after the meeting and asked him to hold the distribution of the minutes of the meeting, but he said they had already gone out. Dr Douglass denied this, but I accept it. On 13 September 1996 Dr Douglass for Nargol, wrote to Thackerie referring to the minutes of the minutes and the item as to termination. The letter stated that Nargol could not allow Thackerie “to contemplate this low cost means of acquiring its business and its assets …”. The commencement of the letter indicates second thoughts by Dr Douglass.

33 The next day Dr Douglass wrote to Mr Pickford saying that Nargol and Thackerie remained committed to the lease, but that following a meeting on 15 September they had not been able to agree upon a relationship between the two companies. The letter stated that Thackerie had expressed a desire to lease the premises direct but with Nargol as manager and that Nargol would not interfere with this if Lawton wished to proceed direct with Thackerie, but if Thackerie was not prepared to do this then Nargol would honour its commitment by proceeding with an agreement to lease.

34 There were then some negotiations between the Delpin doctors and Mr Pickford about entering into a lease direct, but nothing came of this and Mr Pickford, after about a month, became dissatisfied with the inaction of the Delpin doctors and Thackerie.

35 Slightly earlier in September or at the end of August, Vahaban began corresponding with the doctors, it having come to its attention that the doctors might be moving to the Barwell Avenue premises. The letter stated that Vahaban planned to continue “a large and viable medical centre” at 269 and that Mr Ian Ridden had been appointed to run it. It is clear that the Delpin doctors commenced discussions with Mr Ridden about that time.

36 In the middle of October 1996 after Mr Kennedy who was the Delpin doctors’ agent in their dealings with Pickford for a new lease, stated that agreement could not be reached, Lawton Pty Limited stopped construction work on the site. The result of this was that if construction stopped for any length of time the building would not have been completed by September 1997 which had the potential to place Nargol and all the doctors in a difficult situation with no premises available to them. According to Mr Pickford, Drs Lee and Hay told him that they would move to Barwell Avenue. Nargol signed an agreement for lease on 25 October 1996 with the terms of the lease attached. The terms had not been finally approved by the Delpin doctors. Nevertheless, those doctors were always aware that there was no clause in the lease giving some absolute right of assignment which might support an agreement that the Delpin doctors could take over the lease on behalf of Thackerie after three years if they wished to do so.

37 After the agreement for lease had been signed and exchanged Nargol wrote to all the doctors on 31 October informing them that it had signed the agreement to lease and that Nargol’s fees would increase to fifty percent from 1 November 1996, but that the $600 per month would be foregone. On 6 November in a letter signed by all the Delpin doctors, Thackerie responded by saying that there was no contract in place with any of the doctors although they would continue negotiations. Nargol responded to this assertion about there being no contract saying, “we reserve our rights”. Dr Douglass said that by then he regarded the Delpin doctors as having repudiated the May agreement.

38 Mr Ridden was the manager of a company, Medico International Pty Limited, which had been contracted by Vahaban to manage the medical centre at 269 whether or not the doctors stayed. In November, Vahaban was writing to the doctors encouraging them to stay. At the same time, Nargol was writing to them stating that unless they agreed to the fifty percent arrangement then they would have to leave the premises by the end of December. In the same letter Nargol said that it would submit a new contract for Barwell Avenue by the end of the month: it never did so. During this time Nargol was endeavouring to settle a dispute with HCA about amounts due for rent and outgoings on a basis involving a sale back to HCA of the business Nargol had purchased from HCA in 1990.

39 By the end of December it was clear that the Delpin doctors had come to the conclusion that they would be better off remaining in the existing premises if possible. Correspondence with Mr Ridden discussed appropriate arrangements and the importance of securing the business and the premises which I am satisfied meant securing the premises up until the end of September 1997. It is not necessary to go into this in great detail. Contrary to what the Delpin doctors seemed to be trying to say in evidence it is clear that they set about doing whatever was possible to maintain their occupation of the existing centre until the end of lease between Vahaban and HCA. By this time arrangements had been made under which HCA had released its option for a further lease which, presumably, Dr Douglass could have required be assigned to him, although it is doubtful whether or not he would have done so. On 8 January 1997 Dr Douglass met with some of the centre doctors, including the Delpin doctors (other than Morgans). The Delpin doctors, except perhaps Dr Motala, say that Dr Douglass agreed that they could continue in occupation until the end of the lease and that on that basis they agreed to the new arrangements for sharing the income which they earned. Dr Douglass said that he agreed that they could continue in occupation until he moved to the new premises. On this aspect of the case I accept the evidence of Dr Douglass. He never intended to remain in occupation of 269 until the end of September. All his arrangements to move to Barwell Avenue were predicated on the desirability of leaving the old premises vacant for some time to ensure that all patients transferred to the new centre. If he did agree to this then he was tricked into it, but I find that he did not agree. Dr Motala accepted that he did not do so. All the Delpin doctors were so intent upon saying that they were not making advance arrangements for their continued occupation, which was clearly untrue, that I think they were prepared to give incorrect evidence about what was said at the meeting on 8 January. I should add that none of this has any bearing on the case apart perhaps from the passing off and the claim for breach of fiduciary duty and breach of the doctors’ agreements with HCA. Thus, although a great deal of attention was given to it, for the most part it only goes to the credit of the Delpin doctors. Between February and July (and perhaps later) Mr Ridden on behalf of the Delpin doctors, carried out considerable work to ensure that arrangements for the new lease were in place, that staff from the existing centre were retained under the new management, that medical records of patients could be retained by means of authorities signed by those patients and that the name and telephone number could be retained. By March Nargol was aware that the doctors were making arrangements under which they might stay at the new premises, although Douglass was not formally told about this until June. In May Nargol entered into an agreement with Lawton to take some additional space on the first floor of Barwell Avenue. There were negotiations under which the existing agreement for lease was cancelled and a new agreement entered into encompassing the new area. The doctors were not consulted about this. On 3 June 1997 Delpin entered into an agreement for lease of No 269 from Vahaban Pty Limited from 29 September 1997. On 10 June 1997 Dr Douglass was advised of this. On 30 July Nargol gave notice to each doctor of termination of agreement at the expiration of one month, namely 30 August 1997. This caused considerable consternation but nevertheless it was not until 29 August that the plaintiffs filed a summons and sought ex parte injunctive relief to prevent their being put out of the Old Northern Road premises. Orders were made up to 2 September 1997, on which date there was an interlocutory hearing before Bryson J who ultimately refused to restrain Nargol from interfering with the doctors’ use and occupation of the premises but did make orders restraining Nargol from using the name “Castle Hill Medical Centre” or using the telephone number, other than with the agreement of the doctors.

Passing off and misleading and deceptive conduct under s52 of the Trade Practice Act and s42 of the Fair Trading Act

40 The cross-claimants plead that the Nelson-Marshall group was registered under the Business Names Act 1962 as carrying on a medical practice as Castle Hill Medical Centre, that they came into the new centre under agreement with HCA and thereupon ceased to carry on practice under the name Castle Hill Medical Centre, that HCA traded under the name HCA Castle Hill Medical Centre at 269, provided staff and entered into agreements with the doctors, that Nargol purchased the medical centre business from HCA and entered into a sub-lease of 269 and had assigned the agreements between HCA and the doctors and upon HCA terminating the telephone service applied for that service after completion, that from 1990 until 1997 Nargol carried on the medical centre business as Castle Hill Medical Centre with the knowledge and consent of the plaintiffs, displaying the name at the premises, on its letterhead, accounts, receipt and cheques and operated its bank account under the name Nargol Pty Limited trading as Castle Hill Medical Centre, that it promoted the medical centre, maintained the patients’ records and arranged billing, and that the name “Castle Hill Medical Centre” became known to the general public as signifying exclusively the medical centre business which was being carried on and operated by Nargol and Nargol acquired a substantial reputation and goodwill with the general public in relation to the use of that name. I point out that the name Nargol did not appear on any document any patient would see. As to the telephone number it is pleaded that HCA operated the telephone service 634 5000, allowed the doctors and other health professionals to have access to that number, paid the cost of providing the service and promoted the telephone number in connection with the business and that after its purchase from HCA the telephone number and subsequently 9634 5000 became known to the general public in the same way as the name and that Nargol acquired a reputation and goodwill in the use of that number. It is pleaded that the doctors, upon giving the usual undertaking as to damages, obtained an interim injunction restraining Nargol from using the name Castle Hill Medical Centre or from using or advertising the telephone number; that the doctors asserted in the amended statement of claim that the name and the number became known to the public as signifying exclusively the medical practice conducted by the doctors and that they had the reputation in the name and that in using the name and telephone number the doctors are passing themselves off as carrying on the medical centre business of Nargol and are engaged in misleading and deceptive conduct pursuant to s52 of the Trade Practices Act 1974 and s42 of the Fair Trading Act 1987 respectively.

Breach of fiduciary duty and agreement by Delpin doctors

41 This claim is made in respect of the term of the agreement between HCA and the doctors, the benefit of which was assigned from HCA to Nargol, that the Delpin doctors would show the utmost good faith to Nargol and would use their best endeavours to promote the interest and welfare of the medical centre. It is alleged the Delpin doctors requested Nargol to secure the new premises at Barwell Avenue and participated in meetings and negotiations for this purpose, that the Delpin doctors requested Dr. Douglass on behalf of Nargol to sign a letter of intent and/or to enter into a lease at Barwell Avenue as new premises for the medical centre and that at meetings in February and May 1996 the Delpin doctors advised Dr Douglass that they would come across to the Barwell Avenue premises when completed and would ensure sufficient practitioners to staff the centre could come across with them; that Nargol relying on this conduct by the letter of 21 May 1996 agreed to enter into an agreement for lease and on 28 October 1996 entered into such agreement and that the Delpin doctors were aware of this, but that acting in breach of their fiduciary duty and in breach of the agreements the Delpin doctors incorporated Delpin Pty Limited for the purpose of taking over the medical centre business and entered into negotiations for the new lease, secured staff of Nargol to terminate their employment and enter into a new contract with Delpin; caused Delpin to become registered as proprietor of the business name Castle Hill Medical Centre, and encouraged the non-Delpin doctors to join with them to assert ownership in the name and the telephone number and to commence the injunction proceedings and sought authorities from patients to ensure their files remained with the doctors; represented to the Commonwealth that better practice payments had been made without their authority as a result of which breaches of fiduciary duty and breaches of agreements Nargol has suffered damage through the loss of its business, though the restraining orders as to the name and telephone number, by loss of the opportunity to enter into agreements with the non-Delpin doctors to move to Barwell Avenue and because Nargol became bound by the lease from Lawton. It is also claimed that there was breach of the confidentiality obligations through disclosure to Delpin and Thackerie of the finances and transactions of the centre. As those companies were controlled by the Delpin doctors this was really a hopeless claim not much pressed.

42 The facts in respect of which breach of fiduciary duty and breach of agreement are pleaded also form the foundation of the claim for misleading and deceptive conduct it being claimed that Nargol relied on that conduct, in agreeing to enter into the lease in May 1996 and agreeing to permit the doctors to remain in possession until Nargol left the premises and proceeding to make arrangements for the transfer of the medical centre business to the Barwell Avenue premises causing substantial loss and damage.

Estoppel and unjust enrichment

43 Next it is pleaded that, by reason of the facts giving rise to the aforesaid claims, the Delpin doctors are estopped from denying that Nargol is entitled to the goodwill of the name and entitled to the telephone number.

44 The unjust enrichment claim is pleaded in the alternative but based upon the same facts. No separate argument was addressed to this.

Conspiracy

45 This is a claim made against the Delpin doctors based on the pleaded facts which I have set out, alleging that the Delpin doctors conspired together with the intention of harming Nargol’s economic interests. There was no evidence of such intention. What the Delpin doctors were doing was pursuing their own interests; their conduct was not motivated by some intention to harm Nargol. This claim fails.

Breach of contract

46 The final pleaded claim of Nargol was made by amendment filed at the beginning of the hearing, but occupied most of the hearing time. This was a claim for damages for breach of contract. The facts pleaded are that on or about 14 May 1996 the Delpin doctors and Thackerie Pty Limited agreed with Dr Douglass on behalf of Nargol that:

(a) Nargol would lease the Barwell Avenue premises to commence in about August 1997;

(b) The Delpin doctors would commit to the new centre for a minimum of three years;

(c) That Nargol would provide the same services to doctors and health professionals at the new centre as it had been at the old;

(d) That Nargol would receive forty percent of all medical fees at the new centre;

(e) That the Delpin doctors and Thackerie would ensure there were sufficient medical practitioners to adequately staff the new centre;

(f) That in reliance on the agreement Nargol by letter dated 21 May agreed to enter into an agreement for lease and on about 28 October 1997 did so;

(g) That the agreement constituted a contract and that the Delpin doctors and Thackerie are estopped from denying that the agreement constituted a contract. I interpolate here that no facts were pleaded to support the estoppel. There was a binding contract or there was not;

Relief Sought

47 Nargol did not pursue a number of the orders sought in the further amended cross claim. It did not seek orders for assignment of the name or the telephone number or that the Delpin doctors and the other doctors be restrained from using the name or the telephone number. It did however, seek declarations that the right, title and interest in the name and in the telephone number was the sole property of Nargol, but that order was not strongly pressed as the court is unlikely to make such declaration as neither an assignment of such rights in the name or telephone number nor an injunction was sought. In the long run the cross claimant’s claims for relief were limited to monetary claims for an account of profits made by the doctors although for what period was not certain, for equitable damages and for damages at law and damages or other relief under the Trade Practices Act. It was accepted that any claim for damages on the undertaking as to damages would require the passing off claim to succeed and would not give rise to any relief separate from that which would be obtained under an account for profits or damages for passing off. The Nargol claim was that it had exclusive property in the name and number, not that no one did.

Defences

48 The claims alleging passing off incorporating the undertaking as to damages are the only claims made against the non-Delpin doctors. All cross-defendants deny that Nargol obtained the property in the name and telephone number and any goodwill or reputation in such name and telephone number. The Delpin doctors deny any breach of fiduciary duty and breach of any terms of the agreements between the doctors and HCA assigned by HCA to Nargol; Delpin also deny that by the letter of 21 May 1996 Nargol agreed to enter into an agreement for lease and deny any breach of fiduciary duty or breach of agreement in taking the actions which they took to arrange their affairs after 29 September 1997. They deny any misleading and deceptive conduct or any reliance by Nargol on the conduct complained of. They deny the agreement claimed to have been made on 14 May was made, and said if were made it was not intended to be binding without execution of formal documentation. They say that if the agreement was made it was repudiated by Nargol by certain letters indicating that it was not in existence and further state if there were any agreement made that one of its terms was that Thackerie would have an option to terminate the services of Nargol after three years and take over the management and the lease. The Delpin doctors claim that this requirement was agreed by Nargol and subsequently repudiated or was a matter upon which the parties could not reach agreement. It is also alleged that any agreement entered into was abandoned by the parties’ conduct and further that as the agreement was not terminated by Nargol for breach so that it remained on foot, Nargol is not entitled to damages because it was not ready, willing and able to perform its obligations.

49 Finally, so far as passing off is concerned, all doctors say that on the proper construction of the agreement for sale between HCA and Nargol, Nargol did not acquire ownership of the name or the telephone number; that HCA did not have ownership of the name or telephone number and therefore was unable to sell it to Nargol, it being stated in particulars that the doctors entitled to the name permitted HCA to use the name and the number on the express oral agreement that HCA would not thereby acquire ownership in the name or number; and that Nargol established no reputation in the name.

Contract claim

50 It is convenient to deal with this claim first although it was only added by amendment at a late stage. First it should be pointed out that the Delpin doctors, although they have alleged terms of agreement different from those claimed by Dr Douglass, have never sought to enforce that agreement. I have set out the terms of the agreement pleaded by Nargol. Those five terms are not disputed as matters which were agreed between the parties, apart from the fact that the Delpin doctors said they agreed to use their best endeavours to provide sufficient medical practitioners at the centre rather than that they would ensure there were sufficient practitioners; that was, in any event, accepted by Nargol. The dispute is as to whether it was also agreed at the meeting on 14 May that the Delpin doctors could take over the management of the centre from Nargol after three years and take over the lease at the same time. The other question is whether or not any binding agreements were made at that date, even if these particular matters were agreed as part of the negotiations.

51 It is not possible to accept the evidence of Dr. Douglass on this because he insisted on maintaining his stance that there were two meetings, namely one on 6 May and one on 14 May, the latter being at the medical centre. He claimed that it was at the meeting on 6 May that the doctors proposed that they should have the option to take over the management and the lease after three years and that he refused to agree to this. He said the request had been made again on 14 May then he would have resisted it as well on that date, because he never had any intention of agreeing to such a proposal. As I have said, his evidence about the two meetings came about because he was relying upon the evidence of Mr Gould as to the date of the first meeting, and relying upon a note he made in preparation for setting out what was agreed at the meeting for his understanding that there was a meeting on 14 May. The difficulty with all of this was that at the end of the trial, when he was giving some additional evidence, he maintained the position that there had been two meetings and by that time it is perfectly clear that there had been one only. I have come to the conclusion that no binding agreement was made on 14 May. Dr Douglass was to prepare a note of what was agreed but he failed to do so. That does not in any way indicate some concluded binding agreement but rather perhaps the parties had reached agreement on some matters. The Delpin doctors all gave somewhat conflicting evidence about what happened at the meeting. Dr Elliott said that at the meeting Mr Gould said that any agreement to move to Barwell Avenue was subject to the doctors having the opportunity to review the lease. He said he asked whether the documents would be sent in a few days and Dr Douglass said he would forward the documentation. Dr Lee said that he thought that the agreement reached was that the Delpin doctors could take over the management and the lease after three years. He was not able to explain why the letter of 26 August was written as it was. He accepted that after the meeting, when not all the persons present at the meeting were there, he had agreed that Dr Douglass should go ahead with the letter of intent he said because they had an agreement. Dr Morgans was in some ways the most unsatisfactory witnesses on the side of the Delpin doctors. He insisted that the letter of 26 August was in the terms agreed because he said that both the management and the lease were subject to being taken over after three years and there was no question of agreement of all parties to either. In an endeavour to explain the letter he stated that he had not read it properly. He gave the following evidence at page 313 of the transcript:

Q Going back to the meeting in May 1996. What do you say was said and by whom which bears on any agreement that was reached?
A. There was discussion between Dr Lee, Vanda Gould, and Dr Douglass. Dr Douglass said words to the effect that he would like to recoup some of his losses. Dr Lee said words to the effect how long would this take. There was afterwards a long discussion, which I am only vague about. But, at the end of that discussion, a concept of a three-year period was decided, and I do not know whether that was decided by Dr Douglass or Dr Lee; it was one of them. One of them came up with this three-year concept. I recall that there was discussion with Vanda, Steven Lee, and Dr Douglass about how it would be, that it was going to be on a 60/40 basis, where the Thackerie doctors were going to get 60 per cent and Nargol were going to get 40 per cent. Basically, at that point in time, it was Vanda - sorry, it was Dr Lee who had had numerous altercations--

Q. Just tell us what was said?
A. Dr Lee said something like: "We don't want an Eddie Bird style of management. We would like the ability to take over management after three years." Dr Douglass agreed to that.

I remember Dr Douglass said, "Hopefully, our style of management is going to be beyond three years and you would be happy with that style of management to continue." He then asked, "What do you want us to do with the Pickford contract?" We said, "Well, go and speak to him about terms and conditions and get back to us, so that we can negotiate, regarding the terms and conditions." He said he would get a contract to us by the end of the week. Basically, then we would be able to talk about the terms and conditions of the contract. In other words, he was going to get a contract between Nargol and Thackerie.

I remember I went through the same verbal thing myself, in the room, because this was a statement which was originally worked out just before he left the room. Dr Douglass was told about this and he reiterated the terms, because I was sitting at the end of the table, I said, "Let me get this right, so I have got it in my head", because to be truthful, I didn't want Nargol to take over the management.

52 In an affidavit sworn 12 October 2000 he said, commencing at paragraph 16:

“What we want is the option of being able to take over the complete running of the Centre if we are unhappy with Nargol”.

17. There was then a lengthy discussion about that idea, although I cannot recall the details of that discussion. I do recall Mr Gould participating in that discussion. At the end of the discussion Douglass said something to the effect:

“We’ll go into an agreement where we will sign a back to back arrangement with the doctors so that Thackerie can take over the management and the lease at the end of three years if it wishes to. I’ll get you a draft contract by the end of the week. Should I fix up the letter of intent with Pickford?”

18. At the end of the meeting one of the doctors said to Dr Douglass:

“Delay him until we have fixed up our agreement. See what the best deal is that you can achieve and get back to us with the details so we can approve it.”

19. As to paragraph 53, I did not know that Dr Douglass had signed the letter of intent for at least a month after 21 May, 1996. It is clear from the minutes of the business meeting of 30 July 1996, that by then, I knew that Dr Douglass had signed the letter of intent.

53 Dr Hay gave little useful evidence on the topic, but he did say at T614 that at the meeting when Mr Gould outlined that the doctors wanted to take back control, Dr Douglas had replied about an option of a three year back to back arrangement “

… so that we could take over the management if we were unhappy with the way the place was managed after three years we would have the right to take the management over …

Q. And you say do you that there was simply an agreement that you could take it over after three years with no provision for any compensation to Dr Douglass?

A. At the meeting in May we did not discuss that. At a subsequent meeting after the letter we wrote in -

Q. I am asking you about May.

A. No, there was not.

Q: Was that surprising to you?

A: It was such a preliminary discussion, no it was not surprising.

Q: When you say it was such a preliminary discussion, I thought you had indicated to the court you thought an agreement had been reached and it was a very important occasion?

A: It was discussing heads of agreement so yes in principal, but there was no fine detail, no one whatsoever.

54 In affidavit evidence, Dr Elliott claimed that, at the meeting, Mr Gould said that any agreement to move to Barwell Avenue was subject to the doctors having the opportunity to review the terms of the lease and the proposed service agreement and that Dr Douglass said that he would send the documents in a few days. Dr Elliott and Mr Gould were responsible for the letter of 26 August. While he said that it represented the agreement, Dr Elliott gave the following evidence at page 687:

55 The evidence of Dr Motala, at least in cross-examination, was even less certain. In relation to the option to take over the management, he said that Dr Douglass knew of the doctors’ intention.

56 Whatever could be said about all of this, it is in my view, clear that it could never be said that a binding agreement had been entered into or that a binding agreement had been entered into on some terms to which other terms would be added. The arrangement was far too complicated to allow a conclusion to be reached that the parties considered themselves bound by an agreement reached on 14 May. I am satisfied the discussions were not limited to the points claimed by Dr Douglass. The evidence of the Delpin doctors is not clear as to what agreement was reached and it is not clear that even if Dr Douglass did agree that the Delpin doctors should have the right to take over the management after three years no compensation was to be payable. There was no consensus at all about what a “back-to-back agreement” meant. Even if there had been no further discussions I think it clear that there was no agreement reached as pleaded on 14 May. There was limited consensus but none amounting to a binding contract as explained in Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1996) 40 NSWLR 63.

57 This conclusion is supported by the behaviour of both sides after 14 May. As I have said Dr Douglass was in negotiation with Mr Elsom until the end of June as to a new lease of No 269 so he obviously did not think that he was committed to a move to Barwell Avenue, and his letters to the doctors and to Mr Pickford make it clear that he had been unable to come to any final agreement with the Delpin doctors. So far as the doctors are concerned, their varying versions of the agreement said to have been reached and their letter of 26 August 1996 in the last paragraph, clearly indicate that there was no binding agreement. It was not suggested by the Delpin doctors that after they received the reply to their letter of 26 August in the letter from Dr Douglass of 28 August and at the meeting of 1 September and later meeting on 15 September, they were negotiating some amendments to a binding agreement. If any agreement as to terms was reached then it was reached at that subsequent meeting and the terms set out in the minutes prepared by Dr Morgans, but neither party is seeking any relief in respect of some agreement made at that meeting and Dr Douglass certainly indicated that he was not prepared, I think after consideration, to proceed on what was agreed at that meeting. All of this only shows, I think, that the arrangements which needed to be entered into by the parties for the matter to proceed required far more precise formulation and articulation than had taken place at any stage, prior to any binding agreement being come to. In those circumstances it is not necessary to address the defences of abandonment.

Breach of fiduciary duty and breach of the doctors’ contracts

58 The duty to show the utmost good faith does not in itself give rise to some fiduciary duty. I do not consider that there was a fiduciary relationship between Nargol and the Delpin doctors. They were engaged in a commercial enterprise. There was, however, a contractual relationship.

59 The doctors were under no obligation to act in the interests of Nargol after their agreements came to an end. As I have said, some of them came to an end on 30 June and some at a later date. Unless they were bound to go to Barwell Avenue, any duties must have come to an end at the date upon which Nargol terminated their right to continue to occupy the premises at 269. As I have said, I do not accept the doctors’ claim that they had an agreement with Nargol which entitled them to stay there until the end of the HCA lease. Nargol had no property in the various health professionals who occupied part of the premises at 269. There was no duty preventing Delpin from endeavouring to make arrangements with those health professionals to stay at 269 after the HCA lease came to an end. More concerning are the somewhat clandestine negotiations with members of the staff, and the endeavour to make new employment contracts appear to have been brought about purely as a result of advertisements being placed in the local paper by Mr Ridden. Had this been done openly, then in my view there would have been no problem. I do not think that the Delpin doctors were obliged to inform Nargol of their intention to continue at No. 269 until it was in their interests to do so. The only claim could have been for damages for breach of contract. No damages are shown to have been suffered as a result of Nargol employees terminating their employment with Nargol and entering into employment contracts with the Delpin doctors or their companies from 29 September 1997. Consequently, the only damages which could be awarded for breach would be nominal. However, I do not consider it a breach of contractual duty to act in the utmost good faith to promote the interests of the medical centre, to make arrangements for staffing for the time after which the doctors’ agreement with Nargol came to an end. Thus I find the claimed breach of agreement not made out.

Misleading and deceptive conduct

60 This claim as pleaded is based on the duty of good faith and paragraphs 21 and 24 of the further amended cross claim. I think that it was probably intended to rely upon paragraph 22 as well, which is the reliance claim, but nothing turns on that. Paragraph 21 is the allegation that the Delpin doctors, between September 1995 and May 1996, requested Nargol to secure new premises as Barwell Avenue and represented that they, with other doctors, would move to the new premises. Particulars of conduct were given under that paragraph relating to events during 1995 and early 1996 when there were negotiations about the securing of new premises, negotiations by the Delpin doctors in the presence of Dr Douglass with Mr Pickford, the commissioning of plans and the like. Dr Douglass conceded that so far as the signing of the letter of commitment was concerned, he did not rely on any statements or conduct prior to 14 May 1996. He later gave some additional evidence when he said that while that was true, the earlier actions had some bearing on the matter. Nevertheless I think it clear that his signing of the letter of intent came about partly through pressure from Mr Pickford and partly as a result of Dr Lee or Dr Elliott telling him that in view of what was decided on 14 May he should go ahead to fix up the letter. Paragraph 22 appears to plead that in reliance on this Nargol not only signed the letter of intent but entered into the agreement for lease. It was clearly not the position because by that time Dr Douglass was aware that he had no agreement with the doctors to go across to the new premises and in fact told Mr Pickford that.

61 Once again the real question is whether, assuming that Nargol did act in reliance upon the statements made after 14 May meeting in signing the letter of intent, anything flows from that. Clearly, in my view, Dr Douglass did not think that there was anything binding about the document given his continuing negotiations in respect of a new lease from Vahaban of No 269. No damages resulting from reliance could be established unless, as a result of the letter of intent, Nargol was bound to enter into the agreement for the lease which it did and would not have done so otherwise. Mr Pickford, acting on behalf of Lawton, did not appear to consider that they were so bound as he was happy to negotiate with the Delpin doctors to take the premises as lessee themselves. When there was doubt as to whether a lease would be signed by Nargol or the Delpin doctors he decided to stop work on the project. It was not argued that there was a binding agreement to enter into an agreement for lease. It was accepted that for the doctors to be bound they must approve the lease. It was not suggested they did so. If there was no binding agreement between them when and if Nargol relied upon the stated request to proceed with the letter of intent, no damage flowed from such reliance. Dr Douglass agreed that there was nothing more than a moral obligation to proceed. I find he did not consider, when he signed the letter of intent that he had the agreement with the doctors he claimed to have.

Unjust enrichment

62 No argument was addressed to this claim and for that reason it can probably set aside. The claim would have to rely on the passing off claim in any event.

Estoppel

63 No clear argument was addressed to this. As pleaded, against all the doctors, this claim seems to be estoppel by conduct alleged to give rise to the passing off claim as to ownership of property in the name. I do not understand how it takes the matter further. As against the Delpin doctors, the facts relevant to passing off and breach of fiduciary duty and of misleading and deceptive conduct, are said to give rise to some additional estoppel. In written submissions that seemed to be based on unconscionable conduct. This was not pleaded and should be set aside.

Passing off and s52 of the Trade Practices Act or s42 of the Fair Trading Act

64 This is perhaps the most difficult part of the action. It is based upon Nargol carrying on the medical centre business under the name Castle Hill Medical Centre and acquiring the right to use that name under its purchase agreement with HCA. Nargol continued to use that name on the letterhead, accounts, receipts, and cheques issued by Nargol in its management functions and its bank account under the name of Nargol Pty Ltd trading as Castle Hill Medical Centre. Lastly, Nargol promoted the name to the public, paid the telephone accounts and made arrangements for entries in the telephone book under the name Castle Hill Medical Centre, together with, from time to time, the names of the individual doctors. It is claimed, as a result, that the name “Castle Hill Medical Centre” became known to the general public as signifying exclusively the medical centre business which was carried on by Nargol. Nargol is therefore said to have acquired a substantial reputation and goodwill with the general public in the use of that name. The same claim is made about the telephone number, namely that Nargol continued and used the telephone service and number in the running of its business and that the number became known to the general public as signifying the number by which the medical centre business could be contacted, Nargol thereby acquiring a reputation and goodwill in the use of that number, which has been denied to it by the plaintiffs obtaining the interim injunction on 4 September 1997, to which I have referred. It is claimed that the doctors by using the name and phone number are passing themselves off as carrying on the medical centre of Nargol and are engaging in misleading and deceptive conduct in so doing.

65 The remedy claimed is not an injunction restraining the use of the name but damages or an account of profits as a result of their doing so. Whether an account of profits can be ordered without injunctive relief I will discuss shortly; there would be no closed period and it was not suggested the account should be unending. However there is no doubt damages could be awarded. It was accepted that these would have to be established at this trial, but it was agreed the plaintiff could elect at a later date for an account of profits if that were available in the circumstances. No other matters remained for reference.

66 There is no doubt that the doctors and particularly the Delpin doctors went to considerable lengths to ensure that they retained the name, at least by registration under the Business Names Act and the subsequent transfer of the name to Delpin. There is also no doubt that they took steps with Telstra directed to retaining the telephone number and these steps were taken prior to September 1997. Nargol did the same thing so far as the telephone number is concerned.

67 Registration under the Business Names Act is not conclusive one way or the other. I am satisfied, however, that HCA did not become entitled to the name on its own account by use and reputation but rather became entitled to use it by arrangement with those doctors who had the proprietary interest in the name. I am satisfied that the same applied to the telephone number so that HCA had the use of name and number as licensee rather than any proprietary interest in name and number. Unless HCA was entitled to ownership of the name it could not sell it to Nargol whatever the true construction of the sale agreement. On the wording of the sale agreement the name was not transferred unless it was part of the goodwill of the business sold. In any event the named used by HCA was not “Castle Hill Medical Centre” but “HCA Castle Hill Medical Centre”.

68 While Nargol could not have acquired the goodwill and reputation in the name and number through its purchase from HCA, there would remain a question as to whether or not it built up a reputation in name which became known to the general public as signifying the medical centre business which was being carried on by Nargol. Nargol knew of no agreement with HCA. The doctors knew that for some purposes Nargol was using the name and the doctors with the registered business name were making little if any use of it. There is no evidence of reputation. There is no evidence from any member of the general public. There is some evidence as to patient loyalty or lack of loyalty to particular doctors but that does not seem to me to carry the day. There is no evidence that any patients attending the centre had ever heard of Nargol or thought that it carried on the medical centre, although I accept that knowledge of the existence of the actual person conducting a business with a reputation is not necessary. There is no evidence that any customers of the pharmacy business or patients of the health professionals in the centre had any recognition of the name at all - as opposed to their going there to see the particular health professional at the centre. There is no evidence that patients attending that centre went there because of its name or that the business of management of the centre was associated with the name rather than because of the reputation of the doctors practising at that centre or the knowledge that there were a number of doctors there. There is no evidence that any members of the public regarded the business of the management and administration of the medical centre as something separate from the services provided by the doctors or that the name was associated with such management and administration. Proof of reputation is essential to the action: Fletcher Challenge Limited v Fletcher Challenge Pty Ltd [1981] 1 NSWLR 196 at 204. There does not seem to me to be any basis upon which the passing off claim or the associated claim of misleading and deceptive conduct has been proved. One might test this by looking at the position had Nargol carried on business at Barwell Avenue under the name. It is, I think, certain that patients would have expected to find the doctors they knew were at 269 at the new premises. The claim was based on exclusive entitlement – that is ownership – to the goodwill attached to the name. It is, I think, clear that had Nargol put up the name at Barwell Avenue it would have been passing itself off as something it was not, namely the centre with the doctors but at a new location. This is merely a test and is not otherwise relevant. The subsumed claim for damages on the undertaking was accepted to arise only if the passing off claim succeeded. It was not argued there was some halfway house with neither party having established reputation and ownership in the name. If Nargol was not entitled to the name it was not entitled to the telephone number, which was certainly associated with the doctors as well as the name.

69 Although it is not necessary to consider the question of an account of profits, if it were, I would hold that as orders for permanent injunctions are not sought an order for account of profits would not be ordered. In other words this would have been a case where the ordinary election was not available. Courts of Equity grant an account as ancillary or incidental to an injunction not otherwise: Bailey v Taylor 1 Russ & M 73; 39 ER 28; Smith v the London and South Western Railway Company [1854] Kay 408; 69 ER 173; A.G. v Blake [2000] 4 All ER 385 at 392; Ashburner’s Principles of Equity 2nd Ed. p 40; Meagher Gummow & Lehane Equity Doctrines and Remedies 3rd Ed. 2504.

70 It follows that had the claim for passing off succeeded, Nargol would have been restricted to damages for relief. In passing off, it would be entitled to damages without proof of damage, as that would be assumed. There was no evidence which would show what loss, if any, arose from the doctors retaining the name and number which would justify an award of any significant sum. However, in such a case if the decision in Draper v Trist [1939] 3 All ER 513 is correct and the plaintiff is not limited to nominal damages but is entitled to “such temperate damages as (the Court) judges would amount to reasonable compensation for the injury (Nargol) must have sustained from the (interference with the goodwill)”: Rolin v Steward [1854] CB 595 at 599, then it would have been necessary for me to somehow fix that figure.

71 In all the circumstances the cross-claim must be dismissed. The cross claimant will have to pay the costs of the cross claim. I will hear any argument on costs on the plaintiff’s claim and the interlocutory proceedings.

Last Modified: 05/17/2002

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Delpin Pty Ltd v Nargol Holdings Pty Ltd [2002] NSWSC 422

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CITATION:	Delpin Pty Ltd v Nargol Holdings Pty Ltd [2002] NSWSC 422
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 3815 of 1997
HEARING DATE(S):	20-22, 25-28 February; 1, 4-8, 13-14 March 2002
JUDGMENT DATE:	16 May 2002
PARTIES :	Delpin Pty Limited (1st Plaintiff/1st Cross Defendant) Donna Burgess (2nd Plaintiff/ 2nd Cross Defendant) Robert A Chow (3rd Plaintiff/3rd Cross Defendant) Robert Elliott (4th Plaintiff/4th Cross Defendant) Joe Gangemi (5th Plaintiff/5th Cross Defendant) Peter Hay (7th Plaintiff/6th Cross Defendant) George Hayunga (8th Plaintiff/7th Cross Defendant) Steven Lee (9th Plaintiff/8th Cross Defendant) Barbara McDonald (10th Plaintiff/9th Cross Defendant) Geoffrey Raymond Morgans (11th Plaintiff/10th Cross Defendant) Ismail Motala (12th Plaintiff/11th Cross Defendant) John Whyte (13th Plaintiff/12th Cross Defendant) Frank Vella (14th Plaintiff/13th Cross Defendant) Nargol Holdings Pty Limited (1st Defendant/Cross Claimant) Bronte Douglass (2nd Defendant) PHLM Pty Limited (14th Cross Defendant) Castle Hill Medical Centre (NSW) Pty Limited (15th Cross Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr J T Gleeson SC with him Mr C Moore (Plaintiffs/Cross Defendants) Mr P M Biscoe QC with him Mr S W Climpson (Defendants/Cross Claimant)
SOLICITORS:	Manion McCosker (Plaintiffs/Cross Defendants) Hendersons (Defendants/Cross Claimant)
CATCHWORDS:	CONTRACTS - terms discussed at meetings between parties - whether agreement reached on terms - whether additional terms required - whether necessary consensus to form binding contract without formalization - MISLEADING AND DECEPTIVE CONDUCT AND ESTOPPEL - whether representations if made and if relied upon resulted in damage to person to whom made - whether letter of commitment created obligation to enter agreement for lease - whether obligations under agreement arose from representations - FIDUCIARIES - contracts between individual doctors and company providing services including premises to these doctors - contractual provision requiring doctors to act in utmost good faith towards manager - whether fiduciary relationship established - PASSING OFF - name and telephone number associated with the centre - whether centre manager had property in the name as goodwill of business - doctors at centre continuing to use name after management agreements ended - whether centre manager had established any reputation for the business in that name - no evidence of reputation - EQUITY - REMEDIES - PASSING OFF - no claim for injunction - whether account of profits available if no injunction sought
LEGISLATION CITED:	Business Names Act 1962 Fair Trading Act 1987, s42 Health Insurance Act 1973 Trade Practices Act 1974 s52 Ashburner's Principles of Equity 2nd Ed p40 Meagher Gummow & Lehane Equity Doctrines and Remedies 3rd Ed 2504
CASES CITED:	A G v Blake [2000] 4 All ER 385 Bailey v Taylor [1829] 1 Russ & M 73; 39 ER 28 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd 91996) 40 NSWLR 63 Draper v Trist [1939] 3 All ER 513 Fletcher Challenge Limited v Fletcher Challenge Pty Ltd [1981] 1 NSWLR 196 Rolin v Steward [1854] CB 595 Smith v The London and South Western Railway Company [1854] Kay 408; 69 ER 173
DECISION:	See paragraph 71