Dental Corporation Pty Ltd v Hungki (Mathew) Lee

[2016] NSWSC 1859

Supreme Court

New South Wales

Medium Neutral Citation:	Dental Corporation Pty Ltd v Hungki (Mathew) Lee and Anor [2016] NSWSC 1859
Hearing dates:	29 November 2016 & 1 December 2016
Date of orders:	14 December 2016
Decision date:	14 December 2016
Jurisdiction:	Equity
Before:	Rein J
Decision:	See [72]
Catchwords:	CONTRACT- The plaintiff purchased assets of dental practice from defendants, then licensed continuation of practice by 1st defendant at premises owned by 2nd defendant and leased to purchaser. 1st defendant terminated license, purchaser terminated lease of premises. Plaintiff claims 1st defendant in breach of purchase agreement by being employed by third party at the premises (and by soliciting business), and 2nd defendant in breach by leasing premises to the third party- issue of whether practice conducted under license closed or moved- issue of whether restraint has any operation after termination of plaintiff’s lease and or closure of the licensed practice- the nature of the goodwill the subject of protection by the restraint clauses considered. CONTRACT- Observations (obiter) on proof of damage where breach of restraint clauses alleged. EQUITY – equitable remedies – injunctions – injunction in aid of restraint of trade- where plaintiff seeks injunction to prevent 1st defendant from continuing current employment or practicing within a certain radius for a period and soliciting business - where plaintiff seeks to injunct 2nd defendant from leasing out premises to 3rd party as a dental practice; HELD- Restraint of trade clauses have not been breached -to infringe the restraint clauses the 1st defendant would have had to have been employed by a practice in competition with the practice purchased by the plaintiff- the practice purchased by the plaintiff had ceased to exist and therefore there was no competing practice-restraint of trade clauses not intended to protect plaintiff’s other businesses or interests.
Cases Cited:	Airservices Australia (formerly Civil Aviation Authority) v Monarch Airlines Ltd (1998) 152 ALR 656 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation (2008) 173 FCR 359; [2008] FCA 1951 Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605 De Marco v Chief Commissioner of State Revenue (2013) 83 NSWLR 445 Electricity Generation Corp v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corp (2014) 251 CLR 640; [2014] HCA 7 Howe v Teefy (1927) 27 SR (NSW) 301 Idameneo (No 123) Pty Ltd v Dr Teresa Angel-Honnibal [2002] NSWSC 1214; (2003) ATPR 41-918 John Alexander Clubs v White City (2010) 241 CLR 1; [2010] HCA 19 Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd [2014] NSWSC 1016 NCON Australia Limited v Spotlight Pty Ltd [2012] VSC 604 Taormina v Culicchia 355 SW 2d 569 at 573 (Texas Civ App 1962) Traders Prudent Insurance Co Ltd v The Registrar of the Workers' Compensation Commission of New South Wales [1971] 2 NSWLR 513 Victims Compensation Fund Corp v Brown (2003) 201 ALR 260 Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852
Texts Cited:	Heydon’s The Restraint of Trade Doctrine (3rd ed 2008, LexisNexis Butterworths) Pearce and Geddes’ Statutory Interpretation in Australia (8th ed 2014, LexisNexis Butterworths) I. Tregoning, “The meaning and nature of goodwill in the tax context” (2010) 29 AT Rev 123
Category:	Principal judgment
Parties:	Dental Corporation Pty Ltd (Plaintiff) Hungki (Mathew) Lee (1st Defendant) Yein Pty Ltd (2nd Defendant)
Representation:	Counsel: C. Cochrane, D. Harris, L. McGovern (Plaintiff) D. O’Connor, F. Bustos- McNeil (Defendants) Solicitors: Minter Ellison (Plaintiff) HIS Lawyers (Defendants)
File Number(s):	2015/368727
Publication restriction:	Nil

Judgment

1. In these proceedings the plaintiff, Dental Corporation Pty Ltd (“DCPL”), for whom Ms C. Cochrane, Mr D. Harris and Ms L. McGovern of Counsel appear, claims that the defendants Dr Mathew Lee (“Dr Lee”) and Yein Pty Ltd (“Yein”) for whom Mr D. O’Connor and Ms F. Bustos- McNeil of Counsel appear, have breached what are commonly called “restraint of trade clauses” in a contract entered into between DCPL, Dr Lee and Yein in 2010.

2. Dr Lee is a registered dental practitioner who, until July 2010, practiced at a surgery at unit 3, 14 Ethel Street Eastwood (“The Ethel Street premises”) under the name “Dr Mathew Lee and Associate Dental Surgery.”

3. The Ethel Street premises are, and at all relevant times were, owned by the second defendant Yein.

4. In 2010 Dr Lee and Yein entered into negotiations with DCPL which led to two agreements being concluded. One agreement is known as the Dental Practice Acquisition Agreement (Exhibit A2 p.315) dated 2 July 2010, (“the Acquisition Agreement”) and the other is known as the Facilities and Services Agreement (entered into about the same time)- “the FSA.”

5. By the Acquisition Agreement, DCPL agreed to buy the assets of the business conducted by Dr Lee which assets included the goodwill, the business name under which Dr Lee practiced, stock, equipment, records and other items of the dental practice operated by Dr Lee. Yein, which leased the premises to Dr Lee was a party to the Acquisition Agreement. The total consideration which DCPL agreed to pay was $2.1 million of which $1,661,925 was paid to Dr Lee and $438,000 paid to Yein. Approximately $2 million of the total consideration was expressed to be paid for goodwill. The total figure was arrived at by applying a multiple of 5 to the stated earnings of Dr Lee in the financial year 2009/2010 i.e. $420,000.

6. The restraint clause in the Acquisition Agreement (clause 19 see p.344 Exhibit A1) was in the following terms:

19. Restraint

19.1 Definitions

In this clause 19:

engage in means to carry on, participate in, provide finance or services, or otherwise be directly or indirectly involved as a shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier.

Prohibited Person means:

(a)   the Vendor;

(b)   the Practice Principal (where he or she is not a Vendor); and

(c)   any related body corporate of the Vendor.

19.2 Covenants

Each of the Vendor and Practice Principal undertake to the Purchaser that the Prohibited Persons will not:

(a)   engage in any business, activity or services which:

(i) are the same or similar to the whole or any part or parts of the Practice or the Dental Practice or Dental Endeavour to be conducted in accordance with                    the Dental Practice Obligations under the Facilities and Services Agreement; and

(ii) are in competition with the Practice, the Dental Practice or Dental  Endeavour or any material part of any of them;

(b)   solicit, canvass, approach or accept any approach from any person who was at any time prior to the Completion Date a customer of the Practice with a                     view to obtaining the custom of that person in a business that is the same or similar to the Practice and is in competition with the Practice, the                                     Dental Practice or Dental Endeavour;

(c)   interfere with the relationship between the Practice, the Dental Practice or Dental Endeavour and their customers, employees or suppliers; or

(d)   induce or assist in the inducement of any employee of the Purchaser to leave that employment.

19.3   Duration of covenants

The undertakings in clause 19.2 are given for a period commencing on the Completion Date and ending on:

(a)   the third anniversary of the end of the Term;

(b)   the second anniversary of the end of the Term;

(c)   the first anniversary of the end of the Term;

(d)   the date that is six months after the end of the Term.

19.4   Geographic application of covenants

The undertakings given in clause 19.2 only apply if, after the Term, the activity prohibited under clause 19.2 occurs within:

(a)   a 10 km radius of the Premises;

(b)   a 7 km radius of the Premises;

(c)   a 5 km radius of the Premises; or

(d)   a 1 km radius of the Premises.

19.5   Interpretation

Clauses 19.2, 19.3 and 19.4 have effect together as if they consisted of separate provisions, each results from combining each undertaking in clause 19.2 with each period in clause 19.3 and combining each of those combinations with each separate area in clause 19.4. If any of those separate provisions is invalid or otherwise unenforceable for any reason, the invalidity or unenforceability shall not affect the validity or enforceability of any of the other separate provisions or other combinations of those separate provisions of clauses 19.2, 19.3 and 19.4.

19.6   Exceptions

Clause 19 does not restrict a Prohibited Person from:

(a)    conducting the Dental Practice or managing the Dental Endeavour in  accordance with the Dental Practice Obligations under the Facilities                              and Services Agreement; or

(b)   holding 5% or less of the shares of a listed company.

19.7   Acknowledgments of Vendor and Practice Principal

Each of the Vendor and the Practice Principal (where he or she is not a Vendor) acknowledge that:

(a) all the prohibitions and restrictions contained in this clause 19 are reasonable in the circumstances and necessary to protect the Goodwill;

(b) the prohibitions and restrictions in this clause 19 are provided in consideration for the Purchaser entering into this agreement and the Facilities and                Services Agreement.

(c) damages are not an adequate remedy if a Prohibited Person breaches clause 19; and

(e) the Purchaser may apply for injunctive relief if:

(i) a Prohibited Person breaches or threatens to breach clause 19; or

(ii) it believes a Prohibited Person is likely to breach clause 19.

19.8   Acknowledgments on Termination

(a) The Purchaser acknowledges that if the Practice Principal terminates the Facilities and Services Agreement under clause 13.3 of that                                    agreement, the prohibitions and restrictions in this clause 19 will cease to apply on and from the date the Facilities and                                                            Services Agreement is terminated.

(b) The Vendor and the Practice Principal (where he or she is not a Vendor) acknowledge that if the Purchaser terminates the Facilities and                                Services Agreement under clause 13.1 of that agreement, the prohibitions and restrictions in this clause 19 will apply as if                                                        that agreement continued until the end of the Term.

7. The following further relevant definitions are found in the Acquisition Agreement (clause 1.1 or by incorporation by the FSA):

1. “Assets” means:

(a)   Goodwill;

(b)   Business Name;

(c)   Plant and Equipment;

(d)   Stock;

(e)   Existing Property Lease;

(f)   Implant Stock;

(g)   Vendor IP;

(h)   Systems;

(i)   Statutory Licences;

(j)   Records; and

(k)   all other property, rights and assets of the Vendor used in the Practice;

but does not include the Excluded Assets.

2. “Goodwill” means the goodwill of the practice.

3. “Practice” means the dental practice business conducted by the Vendor at the date of this agreement [2 July 2010]  from the [Ethel Street] Premises using the Assets.

4. "Dental Practice" means the dental practice business to be conducted by the Practice Principal during the Term at the [Ethel Street] Premises in accordance with the Dental Practice Obligations.

5. "Dental Endeavor" means:

(a)   the Dental Practice;

(b)   all other dental practices operated by dentists other than the Practice  Principal [Dr Mathew Lee] at the [Ethel Street] Premises; and

(c)   all other related and supporting activities carried on at the [Ethel Street]  Premises

6. "Vendor" means the Practice Principal and the Service Company jointly and each of them severally.

7. "Premises" means unit 3, 14 Ethel Street Eastwood

8. In the Acquisition Agreement Exhibit A2 (p.320) Dr Mathew Lee is identified as the Practice Principal and Yein as the Service Company.

9. The FSA was entered into by DCPL and Dr Lee. By this agreement Dr Lee was to practice dentistry at the Ethel Street premises, and DCPL to provide facilities and services to him. The FSA provided for Dr Lee to utilise the goodwill that DCPL had acquired under the Acquisition Agreement and to manage the practice in accordance with the terms of the FSA. Dr Lee was to pay 60% of the practice earnings to DCPL. If Dr Lee was able to achieve above a particular target of earnings ($430,000) then he was to receive 60% of that excess. If he was not able to achieve another target ($410,000) then he was required to pay 60% of the shortfall to DCPL.

10. The FSA was expressed to operate for an initial period of five years with further automatic extensions but with an option to Dr Lee to end the agreement by giving notice of his intention to do so: see clause 2.2 of the FSA Exhibit A1 p.383.

11. It was part of the transaction that Dr Lee would enter into a lease with Yein and then assign his lease to DCPL.

12. DCPL paid the consideration due to Dr Lee and Yein under the Acquisition Agreement, Dr Lee assigned to DCPL the lease from Yein and the FSA continued in effect for five years. The practice at the Ethel Street premises after the commencement of the FSA became known as “the Eastwood Family Dental and Implant Centre” and I shall refer to the practice operated by Dr Lee under the FSA as “the Eastwood Family Dental Practice.” I shall refer to the practice operated by Dr Lee before the FSA as “the pre-sale practice.” Close to the end of the first five years, on 4 May 2015, Dr Lee advised that he would not be renewing the FSA: see Exhibit A2 p.488. DCPL then gave notice to Yein, as it was entitled to do under clause 7 of the lease (Exhibit A3 p.712), that the lease of the Ethel Street premises would terminate in August 2015.

13. The events of July and August 2015 are the subject of controversy and I shall return to deal with them later but what is not in dispute factually is that:

1. Yein in September 2015 entered into a new lease of the Ethel Street premises with Eastwood Medical Group Pty Ltd (“EMG”) as the tenant.

2. EMG on 14 September 2015 engaged Dr Lee as a dentist, and it would appear, all or much of the staff who had previously been working at the Ethel Street premises whilst Dr Lee was working there pursuant to the FSA.

14. There are a number of undisputed facts which need to be recited to give context to Dr Lee’s decision not to continue with the FSA:

1. The annual earnings of the practice, in comparison to the earnings for 2009/10 of $420,000 and on which the payment to Dr Lee and Yein had been based, were:

1. $358,354 Financial Year (“FY”) 2010/11

2. $251, 302 FY 2011/12

3. $64,903 FY 2012/2013

4. $107,369 FY 2013/14

5. $136,668 FY 2014/15

(see Exhibit A2 p.410, 422, 434, 465 and 591)

2. As a consequence DCPL was entitled to claim back from Dr Lee a significant amount of money.

3. Dr Lee did not pay all of the amounts demanded of him by DCPL and DCPL obtained a default judgment against Dr Lee for approximately $130,000 following which Dr Lee declared himself bankrupt and a trustee was appointed to administer his bankrupt estate.

15. It was a term of the FSA that Dr Lee conduct the Dental Practice and manage the Dental Endeavour personally during the term of the FSA: clause 4.1 (a). Dr Lee together with his wife Dr Jessica Lee opened a practice known as “World-Citi Medical” in George Street in the city and Dr Lee commenced working there on, he says, a casual basis: Dr Lee’s affidavit of 21 September 2016, paras 21 and 24 at Exhibit A1 p.167.

16. I have referred to paragraphs of Dr Lee’s affidavit. There were filed affidavits from Dr Lee, Dr Jessica Lee, and Mr Youn Chou the solicitor for Dr Lee and Yein. At the commencement of the defendants’ case Mr O’Connor announced that he would not be reading any of the defendants’ affidavits. Ms Cochrane then sought to tender various portions of those affidavits which I permitted her to do. Ms Cochrane however had no opportunity to cross-examine Dr Lee and his wife.

17. Dr Lee, in his affidavits, offered no explanation for the rather remarkable downturn in earnings from the practice. A significant part of the downturn may have been attributable to his working for World-Citi, but these proceedings are not brought against Dr Lee for breach of the FSA for failing to manage the practice or failing to devote all of his time to that practice, but rather are limited to enforcement of the restraint clauses of the Acquisition Agreement and a claim for damages for breach of those clauses. DCPL has previously consented to not making any claim for damages against Dr Lee given his status as a bankrupt.

18. There is another matter of background which needs to be explained in order to understand the events following Dr Lee’s notice of his intention not to renew the FSA beyond 30 June 2015. In November 2009, well prior to its entry into the Acquisition Agreement and the FSA, DCPL had entered into an agreement to purchase another practice in Eastwood, that of Dr Jeanne Won and Dr James Won. That was a practice to which DCPL provided dental facilities and services: see para 12 of Mr Darcy Rendalls’ affidavit of 3 June 2016, and it was located at Suite 6, 79-81 Rowe Street Eastwood and operated as “Eastwood Dental” (see para 17 of Mr Rendalls’ affidavit). I shall refer to it as “the Rowe Street Practice.” It is some 140 metres by foot from the Ethel Street premises. Dr Jeanne Won and Dr James Won are, like Dr Lee, of Korean background and speak Korean. There was no dispute that a significant number of the residents in and near Eastwood are of Korean background.

19. I turn now to what occurred after Dr Lee gave notice to DCPL that he would not be continuing the FSA after 30 June 2015:

1. DCPL placed a sign on the window/door of the Ethel Street premises which said:

“SORRY, WE HAVE

CLOSED

Eastwood Family Dental & Implant Centre is no longer operational. Please refer to Eastwood Dental, Which is located at:

Suite 6, 79-81 Rowe Street,

Eastwood, NSW 2122

[phone]”

(a map to Eastwood Dental was included thereunder)

(the emphasis of the words “is no longer operational” has been added)

2. DCPL, very likely, placed a recorded message on the phone number of the practice saying:

“Thank you for calling Eastwood Family Dental and Implant Centre, the practice has closed down. If you would like to leave a message please leave your name and phone number after the beep. Thankyou!!”

         (emphasis added)

        (para 56 of Mr Rendalls’ affidavit).

3. DCPL placed an announcement on its website of Eastwood Family Dental (a website owned and managed by DCPL- see Mr Rendalls’ affidavit para 52) saying:

“Important announcement for Eastwood Family Dental & Implant Centre Patients

Dr Matthew Lee is no longer practicing at Eastwood Family Dental and the practice has permanently closed. Our patients have moved into the care of Eastwood Dental with Dr James Won (BDS Sydney University, 1985), Dr Jeannie Won (BDS Sydney University 1986) and Dr Jane Na (BDS. Melbourne University, 2007) which is also a Bupa Members First practice.

With Eastwood Dental, your continued care will be in the hands of experienced considerate staff. You'll also enjoy more modem facilities and equipment. Upon your request, your dental record will be made available to any practice of your choosing.

The entire team at Eastwood Family Dental would like to take this opportunity to personally thank you for the continued support you have shown our practice in the past

6/79-81 Rowe St, Eastwood NSW 2122

(D2) 9874 9900

Parking and Public Transport

Eastwood Station (3 mm walk)

Commuter car park (4 min walk)

Council car park (5 min walk)”

         It also contained a map.

         (emphasis added)

4. DCPL wrote to the persons listed as patients (3,717) of the practice at Ethel Street in both English and Korean:

“Dear [Patient],

The entire team at Eastwood Family Dental & Implant Centre would like to take this opportunity to personally thank you for the continued support you have shown our practice in the past.

We regret to inform you that Dr Matthew Lee has made the difficult decision to pursue new opportunities within his career and Eastwood Family Dental will no longer be operational as of Monday, July 20, 2015. We apologise for any inconvenience this creates for you and your family. While Dr Lee is excited for the future, he is also deeply saddened to say goodbye to his patients.

However, your continued care is of paramount importance to us, which is why we are referring all patients to Dr James Won (BDS. Sydney University; 1986). Dr Jeannie Won (BDS. Sydney University; 1986) and Dr Jane Na (BDS. Melbourne University; 2007) at Eastwood Dental:

Suite 6, 79-81 Rowe Street,

Eastwood, NSW 2122

[phone]

With Eastwood Dental, your continued care will be in the hands of experienced, considerate staff. You'll also enjoy more modem facilities and equipment. Upon your request, your dental records will be made available to any practice of your choosing.

We are more than happy to discuss any questions or concerns you may have!

Kind regards,

The Team at Eastwood Family Dental & Implant Centre”

          (the letter included a map showing how to walk to Eastwood Dental)

          (emphasis other than the address and phone number added)

5. The telephone line used at the Ethel Street premises was redirected to the mobile phone of the receptionist at the Rowe Street Practice: Mr Rendalls’ affidavit para 55, Exhibit A1 p. 52

6. Consumables and dental equipment, including an autoclave and a microscope, were collected from the Ethel Street premises by the dentists practicing at the Rowe Street Practice and moved to the Rowe Street Practice.

7. Patients’ records were moved from the Ethel Street premises to the Rowe Street Practice.

20. There is no dispute that only 184 patients from the Ethel Street premises became patients at the Rowe Street Practice in and after July 2015.

21. In September 2015, EMG took up a lease of the Ethel Street premises and commenced operating a dental practice at those premises. The dental practice is known as World-Citi Eastwood and employs Dr Lee and some, at least, of the other dentists who had previously worked for Eastwood Family Dental: see Exhibit A3 p.736. Dr Jessica Lee controls Yein and has done so since she and Dr Lee divorced. There is, according to DCPL, a connection between Dr Lee, Dr Jessica Lee and EMG beyond the fact that Yein rents the Ethel Street premises to EMG and EMG employs Dr Lee. DCPL alleges that the interpositioning of EMG as a tenant of Yein and the purported employment arrangement is a sham. An allegation to that effect was pleaded by the reply filed by DCPL. That contention is said to be relevant to a submission that the defendants set up arrangements “designed to circumvent the restraints in the Acquisition Agreement” (Plaintiff’s Schedule para 9 ).

22. DCPL claims that Dr Lee and Yein have breached the Acquisition Agreement and the FSA by Dr Lee working for EMG in the Ethel Street premises and in the case of Yein by leasing the Ethel Street premises to EMG. DCPL seeks to injunct Dr Lee from continuing his employment with EMG or anywhere in a 10 kilometre radius of the Ethel Street premises for 3 years from the date of termination of the FSA- i.e until 1 July 2018. Alternatively DCPL seeks to injunct Dr Lee for a lesser period and a more limited geographical exclusion in accordance with the cascading terms of clauses 19.3 and 19.4 of the Acquisition Agreement. Similarly DCPL seeks to prevent Yein from leasing the Ethel Street premises to EMG for the purposes of a dental practice until 1 July 2018.

23. There is no dispute between the parties that the FSA came to an end on 1 July 2015, or that the lease by DCPL of the Ethel Street premises came to an end on 30 August 2015.

24. DCPL contends that it moved the practice conducted at Ethel Street to the Rowe Street premises. The defendants contend that that is not what occurred and rather what occurred is that DCPL closed the Ethel Street practice.

25. DCPL claims that by reason of Dr Lee and Yein’s breaches of contract it has suffered loss and damage because patients of the Ethel Street practice attended at the World-Citi Eastwood Practice at the Ethel Street premises. DCPL contends that of the 3,700 persons who were listed as patients of the Ethel Street premises when Dr Lee operated the practice pursuant to the FSA, only 184 have become patients at the Rowe Street Practice because Dr Lee has a strong connection with his patients, and the fact that he now practices at the Ethel Street premises in breach of his contractual obligations has discouraged patients from moving to the Rowe Street Practice. It also claims that he has solicited business by advertising and other means. Dr Lee claims that he personally has not solicited any business from his former patients.

26. DCPL claims that Dr Lee having received the $1.6 million for goodwill has not met his contractual obligations and that Yein has received $400,000 for goodwill but not met its contractual obligations.

27. Mr O’Connor contends that the goodwill which DCPL purchased was goodwill “inextricably connected” to the Ethel Street premises by the terms of the Acquisition Agreement. The business for which DCPL obtained protection was the business conducted at the Ethel Street premises- when DCPL terminated the lease it no longer had an interest in the Ethel Street premises or any business at those premises. The second argument advanced by Mr O’Connor is that even if the business which DCPL was seeking to protect was not inextricably tied to the Ethel Street premises the business formerly operated by Dr Lee had to continue to run in some meaningful sense and it in fact did not continue to run but rather was permanently closed by DCPL. Thus he contends, since the business with which Dr Lee and Yein had promised they would not compete had ceased to exist nothing they did was in competition with that business or in a breach of the restraint clause.

28. Counsel for the parties were in agreement as to the general principles relating to restraints of trade and both Ms Cochrane and Mr O’Connor agreed that the summary of the law by Brereton J in Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 [10]-[11] and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 [47] encapsulate the relevant principles.

29. The issues which need to be determined are these:

1. Did DCPL close the Ethel Street practice and what is the consequence of that fact and the undisputed termination of the lease of the Ethel Street premises?

2. What does the restraint clause prohibit and were Dr Lee and Yein acting in breach of the clause?

3. If otherwise effective is the restraint clause too wide on public policy grounds?

4. Assuming, in favour of DCPL, that the restraint clauses are effective and were breached, to what damages, if any, is DCPL entitled?

30. An additional issue arose in the course of the hearing namely whether if injunctive relief was otherwise available against Yein, the fact that EMG (the lessee of the Ethel Street premises) is not a party presented a problem: see John Alexander Clubs v White City (2010) 241 CLR 1; [2010] HCA 19. Mr O’Connor submitted whether or not EMG should be joined is a matter for DCPL since it is the party seeking to injunct Yein. DCPL submitted that EMG was well aware of the proceedings and that EMG did not need to be a party to the proceedings.

The Closure Issue

31. There was a dispute as to whether the evidence established that ‘the practice’ was moved. I have referred in [19] above to what occurred in respect of Eastwood Family Dental. Those steps, coupled with the termination of the Ethel Street premises lease, amount, in my opinion, to a closure of Eastwood Family Dental as a practice. In his affidavit (para 39) Mr Rendalls, the only witness called by DCPL on the topic and who was in 2015 the Senior Area Manager- Practice Development Analyst, spoke of moving the dental practice from Ethel Street to Rowe Street. I set out the cross-examination of Mr Rendalls at T70.30 –T70.39:

“A. I managed putting the sign together. I didn't put it together. The marketing team put the sign together.

Q. If you'll excuse the apparent perhaps obviousness of the question, but closed means closed. It doesn't mean moved, does it?

A. It means that premises had closed, yes.

Q. So Eastwood Family Dental and Implant Centre was no longer operational. That's a true statement.

A. Yes.”

and T71.24 –T72.05:

“Q. Can you turn to page 558?

A. Okay, yes. The letter - the patient letter?

Q. Yes.

A. Yep.

Q. Did you draft that letter?

A. No.

Q. But you're familiar with it.

A. Yes.

Q. Can I take you to the second paragraph? Again, I apologise if the question seems a little bit obvious, but it says, "We regret to inform you that Dr Matthew Lee has made the difficult decision to pursue new opportunities within his career and Eastwood Family Dental will no longer be operational as of Monday, 20 July 2015." So the statement is not inaccurate. The business really did close down on that day, didn't it?

A. Well, the premises closed, yes, but we were - as it goes further down, we were saying that we wanted all of those patients to move across.

Q. No, I agree with you. Sorry, I'm not trying to trip you up. I'm not suggesting that you weren't trying to entice those customers to another premises - another business‑‑

A. Yeah.

Q. ‑‑but this particular business had shut.

A. Yes.

Q. So you were referring them to another business that Dental Corporation had interest in.

A. Yes.

32. Mr Rendalls indicated that it was not he but Ms Annie Bryce who was the senior employee involved in decision making concerning the Ethel Street premises and the practice conducted there: T69. Ms Bryce actually swore the affidavit verifying the Reply (Exhibit A1 p.21) and she is the Group Commercial Manager of DCPL but she was not called as a witness by DCPL. Nor was Mr Rendalls making the decisions in relation to marketing at the end of the FSA- that was a Mrs Guilfoyle: see T70.42- T71.4, who also was not called as a witness by DCPL.

33. Mr Rendalls also gave evidence that DCPL did not market itself to the public- the patients of any of the practices which DCPL has purchased have no knowledge of DCPL’s identity or involvement. Mr Rendalls refers to the name Eastwood Family Dental and Implant Centre in para 28 of his affidavit as the name under which Dr Lee practiced during the FSA and which name was a registered business name owned by DCPL but says nothing more about the name or any steps taken to utilise or protect it, although that is the name appearing on the website, and in the letter and the closure notice.

34. Ms Cochrane contended that Mr Rendalls was too junior an employee to make admissions on behalf of DCPL that the business had closed. Given that Mr Rendalls (who is no longer employed by DCPL) was the only person called by DCPL to give evidence on this aspect of the matter (and was authorised by DCPL to do so: para 2 of Mr Rendalls’ affidavit) that is a rather surprising assertion to make. Ms Cochrane in defending the absence of any person more senior contended that the only relevant evidence was what was in fact done by DCPL not what employees thought they had done. In focusing on what employees of DCPL did (and also on the absence of evidence that they did other things) what they said to patients of Eastwood Family Dental in signs and letters and on the Eastwood Family Dental website is very significant. Mr Rendalls’ agreement that the Eastwood Family Dental business was shut down was corroborative of what appears from the cumulative effect of the other individual items of evidence to be the case in any event.

35. There is no evidence that DCPL sought to protect the business name “Eastwood Family Dental” or do anything with that name after it received notice from Dr Lee in May 2015- there was no suggestion made to patients that Eastwood Family Dental would be relocating to other premises, or that it and the Rowe Street Practice would be merged. Ms Cochrane contended that Korean speaking patients may have had difficulty understanding the nuance of such matters but the letters sent were written in Korean as well as English, and there is no reason why all the material sent, displayed or recorded could not have been translated into Korean if it had been regarded as important.

36. In my view the evidence, as it stands, points, on the balance of probabilities, to DCPL having decided not only to terminate the lease of the Ethel Street premises but to close the Eastwood Family Dental practice, move patient records and equipment to the Rowe Street Practice in which it had an interest and to encourage patients of the closed practice to become patients of the Rowe Street Practice. If it had not so decided that is the objective effect of what it did.

The Construction Issue

37. The first question is one of construction- what was it that Dr Lee (and Yein) promised they would not do.

38. In the Plaintiff’s Closing Submissions (“PCS”) paras 49-53, some general principles relevant to the construction of commercial contracts are set out which I summarise:

1. the need for commercial contracts to be given a business like interpretation: Electricity Generation Corp v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corp (2014) 251 CLR 640; [2014] HCA 7,

2. the Court should consider the context, that is the surrounding circumstances known to both parties and have an appreciation of the commercial purpose including the market in which parties are operating Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184,

3. where the language of a contract is open to more than one equally plausible construction the Court will prefer that construction which avoids an unreasonable or inconvenient result Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at p.109.

4. if one construction would render the contract valid and one would not the former is to be preferred: Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation (2008) 173 FCR 359; [2008] FCA 1951.

Mr O’Connor did not challenge any of these statements of principle and I take them    into account.

39. DCPL also contends that there is no special rule of construction that requires restraint of trade to be construed narrowly where the restraint is imposed following the sale of a business (as opposed to cases where the restraint is imposed on an employee), Mr Heydon in his text The Restraint of Trade Doctrine (3rd ed 2008, LexisNexis Butterworths) supports this approach and in final submissions Mr O’Connor did not seek to put a contrary view.

40. Focusing on Dr Lee for present purposes and breaking down the restraint clause what he promised not to do, inter alia, was to not be employed, within a stated geographical area for a stated period of time in any business which:

1. was the same or similar to:

1. the dental practice conducted by him at the Ethel Street premises prior to sale (i.e. “the pre-sale practice”)

2. the dental practice which was to be conducted by him at the Ethel Street premises (which became known as Eastwood Family Dental & Implant (i.e. “the Eastwood Family Dental Practice”)

3. the practice of other dentists at the Ethel Street premises presumably both in the pre-sale and the Eastwood Family Dental Practice (i.e. “the Ethel Street Other Dentists’ practice”)

          and

2. was in competition with the pre-sale practice, the Eastwood Family Dental Practice or the Other Dentists’ Practice.

41. The Acquisition Agreement makes it clear that DCPL was keen to protect the goodwill of the pre-sale practice and of the Eastwood Family Dental practice (including the Ethel Street Other Dentists’ practice): see the definitions in clause 1.1 and see clause 19.7 (a).

42. Mr O’Connor submitted that both conditions (1) and (2) set out in [40] had to be met for Dr Lee and Yein to be in breach. Ms Cochrane submitted that the use of ‘and’ did not impose a second cumulative condition.

43. I think it is important to bear in mind what goodwill is. The High Court in Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605 at 615 ([23]-[24]) described goodwill as:

“…an asset of the business because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is the right    or privilege to make use of all that constitutes “the attractive force which brings in custom.…

The goodwill of a business is the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it. In Federal Commissioner of Taxation v  Williamson [(1943) 67 CLR 561 at 564], Rich J described the goodwill of a business as referable “in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, many customers being no doubt actuated by mixed motives in conferring their custom……

…..goodwill is a quality or attribute that derives inter alia from using or applying other assets of the business.”

and also said at pp.608-609:

“goodwill is inseparable from the conduct of a business.”

44. Importantly, the plurality said at [36] that two fundamental premises of the law of goodwill are:

“that goodwill has no existence independently of the conduct of a business and that goodwill cannot be severed from the business which created it.”

45. In Taormina v Culicchia 355 SW 2d 569 at 573 (Texas Civ App 1962) cited by Mr Heydon (supra) at p.192 a jury were instructed that goodwill was:

“….the advantage or benefit which is acquired by an establishment beyond mere value of the capital stock, funds or property employed therein, in consequence of general public patronage and encouragement which it receives from constant and habitual customers on account of its local position, or common celebrity, or reputation for skill, or influence, or punctuality, or from other accidental circumstances or necessities, or even from ancient partialities or prejudices ”

46. In Idameneo (No 123) Pty Ltd v Dr Teresa Angel-Honnibal [2002] NSWSC 1214; (2003) ATPR 41-918 (Idameneo) a case concerned with the purchase of a medical practice and use of a similar structure to that used by DCPL Palmer J said:

“[37] As is clear from the Sale of Practice Contract and the Practitioner Contract themselves, the Plaintiff itself does not carry on a medical practice nor does it employ doctors. All that it does is to provide premises and administrative services whereby doctors are able to conduct their practices for their own account, paying a prescribed percentage of their fees to the Plaintiff in consideration of the premises and the services. Obviously, it is in the interests of the Plaintiff to attract doctors to its medical centres and to retain them there. It attracts doctors to its centres by offering to “purchase” the goodwill of their practices but it is a very artificial kind of purchase because the Plaintiff, as a corporation, does not, and cannot, itself carry on the medical practices the goodwill of which it has purchased.

[38] In substance and effect, the purchase by the Plaintiff of a doctor’s goodwill is the purchase of his or [her] promise that, in return for a substantial consideration, he or she will transfer the conduct of his or her practice to a specified medical centre of the Plaintiff, will continue to practise there for a specified minimum time and will not, for a specified time after ceasing to practise in the centre, compete with the other medical practices being conducted in the centre. All this, of course, is in aid of the enhancement of the Plaintiff’s medical centres as places in which doctors will find it desirable to conduct their practices: they receive a substantial “up front payment” as an inducement to move into the medical centres; they stand to get “flow-on” patients from other doctors practising in the centre, and their own practices will not be at risk of erosion when other doctors in the centre relocate.

[39] In short, the restraint of trade covenants in the Sale of Practice Contract and the Practitioner Contract are to be seen as primarily for the purpose of creating and protecting the drawing power of the centres themselves as places in which doctors wish to practise, to the commercial benefit of the Plaintiff.

[50] Whether a covenant in restraint of trade is no more than is reasonably necessary for the legitimate protection of the covenantee’s interests is to be tested as at the time that the covenant was entered into and by reference to what the covenant requires or entitles the parties to do rather than by reference to what they intend to do or have actually done: Curro v Beyond Productions Pty Ltd at 344C.

[52] Accordingly, while the Court gives weight to the fact that the parties have agreed upon the terms of a restraint, the party seeking to enforce the restraint still bears the onus of showing, by sufficiently persuasive evidence, that the protection of the covenant is no greater than is reasonably necessary between the parties. In discharging that onus, that party must do more than merely point to the existence of a bargain; it must justify the restraint by reference to the circumstances of the particular case.

[53] For example, where a restraint of trade covenant is obtained to protect the goodwill of a medical practice it will be relevant to know what is the type of practice conducted and what are the characteristics of the locality in which it is conducted. If the practice having the benefit of the covenant is a general practice, a restraint wide enough in terms to prohibit the covenantor from establishing practice nearby as a neurosurgeon or as an anaesthetist may well be wider than is reasonably necessary because a specialist of that type does not see patients directly, as does a doctor, but only upon a referral from a general practitioner so that, in truth, there is no real likelihood of competition between the specialist and the general practitioner for the same patients: see e.g. Routh v Jones [1947] 1 All ER 758.”

47. Mr Heydon (supra) at p.197, of his book makes the point that the covenants obtained on a sale of a business are for the protection of goodwill of the business sold not the goodwill of the businesses already owned by the purchaser.

48. Sources of goodwill in a medical and dental practice are the identity and standing of the practitioner and his associates, the business name under which the practice operates and the premises themselves which might be described as “personal goodwill,” “name goodwill,” and “site goodwill” see: “The meaning and nature of goodwill in the tax context” (2010) 29 AT Rev 123 p.125 by I. Tregoning. The fourth category mentioned in that article, “monopoly goodwill” which arises for example, where the business has the benefit of a statutory licence, is not relevant here.

49. The critical question in this case is the question of whether, with the closure of Eastwood Family Dental, the restraint had any remaining operation. Ms Cochrane emphasises the important fact that DCPL had in 2010 paid approximately $2 million to Dr Lee and Yein for goodwill. Mr O’ Connor does not dispute that significant money was handed over to his clients but he submits that it was for DCPL to decide what to do with the goodwill for which it had paid. It could, for example, have continued to lease the Ethel Street premises.

50. Ms Cochrane referred to what she described as a ‘time machine problem’ in the defendants’ arguments: see PCS 55-56. The defendants, it is put, contend that the Dental Practice is fixed in place and time, whereas in fact the Acquisition Agreement and the FSA contemplated the protection of goodwill of the practice to be conducted under the FSA not just the pre-sale practice.

51. Mr O’Connor points out that all of the definitions such as Practice, Dental Practice and Dental Endeavour are all linked to the Ethel Street premises and he contends therefore that when the lease ended there ceased to be any practice, irrespective of whether DCPL “moved” the Eastwood Family Dental practice as opposed to closed it. The restraint, he submits in effect, is to protect “ the drawing power of the premises” see [39] of Idameneo cited at [46] above. Whilst the definitions clearly are linked to the Ethel Street premises, and whilst it was contemplated that DCPL could continue to licence a practice at those premises even if Dr Lee did not renew the FSA, the close linkage does not of itself necessarily mean that DCPL had not obtained a promise from Dr Lee and Yein not to compete if DCPL decided to lease premises elsewhere in Eastwood. The Acquisition Agreement and the FSA clearly intended to give protection to DCPL for the pre-sale practice goodwill and the goodwill of the practice under the FSA. In my view the Acquisition Agreement must be seen as recognising that once the FSA commenced whatever pre-sale goodwill existed would be taken up in the practice conducted under the FSA. DCPL could act to protect what might be called the conglomerated goodwill- which would also include the goodwill generated by the other dentists practicing at the Ethel Street premises.

52. Clause 19.7 does record that the parties have agreed that the prohibitions and restrictions in clause 19 are necessary to protect the goodwill of the practice which is defined as the practice conducted at Ethel Street.

53. One way of viewing clause 19 is that it identifies the practice by reference to where it has been, and where it is intended it will be conducted, rather than as limiting the practice to be protected as one that is conducted at those particular premises. On this approach if DCPL had leased premises in the next street and had moved Eastwood Family Dental practice to those new premises there is nothing in clause 19 which, in terms, ends Dr Lee’s promise not to carry on practice within the geographically defined area. Having regard to the extensive payment made to the defendants and the fact that neither the Acquisition Agreement nor the FSA expressly requires the practice contemplated by the FSA to be conducted at the Ethel Street premises, I am not persuaded that termination of the lease of and by itself brings an end to Dr Lee’s or Yein’s obligations but the point made is nevertheless linked to the second argument.

54. It is not without significance that Dr Lee, and not DCPL, was operating Eastwood Family Dental. The only sources of goodwill attaching to Eastwood Family Dental were Dr Lee, probably reinforced by the goodwill generated by his earlier years in the pre-sale practice, the other dentists and staff, the premises and the name Eastwood Family Dental. When Dr Lee left the Eastwood Family Dental practice and DCPL terminated the lease without establishing or seeking to establish the Eastwood Family Dental practice in another location and advised patients that the practice was no longer operational or was closed there then ceased to be any practice. Not only did DCPL terminate the lease and advise patients that the practice had closed there is no evidence that it sought to retain or maintain use of the name Eastwood Family Dental. It sought rather to enhance the business of another practice- the Rowe Street Practice. Mr O’Connor pointed out that there were several commercial reasons why DCPL may have decided to take this course- the poor performance of the practice in the five years of the FSA being one. The fact that DCPL already had an interest in the Rowe Street Practice is another. No-one was called from DCPL to explain management’s thinking on these matters.

55. There was, as I have mentioned, some focus on the question of whether ‘and’ in clause 19.2 was to be seen as requiring two conditions to be met for the restraint to be breached i.e. that the business which Dr Lee promised not to engage had to be:

1. the same or similar to the pre-sale practice or Eastwood Family Dental (or any part of them),

and

2. in competition with those practices.

56. Ms Cochrane contended that the ‘and’ did not impose a second requirement- describing the issue as one of hendiadys. Hendiadys is a grammatical term to describe the expression of a single idea in two words with the conjunction ‘and:’ see Statutory Interpretation in Australia Pearce and Geddes (8th ed 2014, LexisNexis Butterworths) [4.44]. The term is usually applied in cases of statutory interpretation rather than contract interpretation but since it is a grammatical term it may well be apt to describe a contractual term as well.

57. In Airservices Australia (formerly Civil Aviation Authority) v Monarch Airlines Ltd (1998) 152 ALR 656 Beaumont J, with whom Wilcox J agreed, held that the words of s. 67 of the Civil Aviation Act 1988 (Cth):

“the amount or rate of a charge shall be reasonably related to the expenses incurred or to be incurred by the Authority in relation to the matters to which the charge related and shall not be such as to amount to taxation”

did not impose two requirements- one that the charge shall be reasonably related to expenses and a second that it should not amount to taxation. Beaumont J said at p.680:

“In my opinion, if either limb of s 67 had stood alone, the meaning of each would, as has been seen, have been tolerably clear, notwithstanding that the application of either limb could, in some circumstances, be a difficult exercise. It could not, however, be said that compliance with either limb imposed an unreasonable burden upon the Authority. At the same time, given my interpretation of the four key concepts incorporated in s 67, I can see no inconsistency between the two limbs. Indeed, each is, in substance, saying the same thing, especially given my construction of ``reasonably related'’, of ``expenses'’ and of the character of ``taxation'’ in the present context. In other words, I would read the word ``and'’ where it appears between the two limbs to mean ``so that [it]”; or, to similar effect, I would read s 67 as if the word ``accordingly'’, or something to that effect, were inserted after ``and'’. That is to say, I would give the provision a purposive interpretation. It should be read so as to reflect one ultimate end, to ensure that the Authority's charges for its services are not excessive. Section 67 can achieve this object or purpose by requiring that an appropriate nexus be established between the fee and the service provided, on the footing that it will necessarily follow that, if this nexus is maintained, the payment of the fee will not amount to taxation. In my view, s 67 reflects this one, fundamental, consideration.”

58. A similar approach was taken by Hope J (as his Honour then was) in Traders Prudent Insurance Co Ltd v The Registrar of the Workers' Compensation Commission of New South Wales [1971] 2 NSWLR 513 at p.521 (“promptly cooperate with the committee and assist it to carry out its duties under this section”) and by Basten JA in De Marco v Chief Commissioner of State Revenue (2013) 83 NSWLR 445 at 449, where his Honour held that ‘use and occupation’ should be treated as hendiadys precluding the need to consider “use” and “occupation” separately. However in Victims Compensation Fund Corp v Brown (2003) 201 ALR 260 at 269 the High Court rejected the claim that the phrase “symptoms and disability” should be read as a “composite or portmanteau” phrase.

59. The learned authors of Statutory Interpretation in Australia note that it will often be difficult for a Court to determine whether or not the use of ‘and’ is a hendiadys.

60. In AirServices Beaumont J approved of what had been said in an earlier edition of Statutory Interpretation in Australia:

“if one part of a provision taken by itself imposes an unreasonable obligation on a person, the provision may be construed as if it were hendiadys. But if the two parts can each reasonably stand on their own, they may be construed separately” pp.679-680.

61. In PCS 77 Ms Cochrane contends that both limbs of the subclause are in fact satisfied and in PCS 78 she contends that:

“clause 19.2 (a) describes a concept- being similar, competing activity- to which restraint is directed.”

Put that way the issue of hendiadys seems to become a non-issue since if it is accepted that the activity in question must be a competing activity then there is no disagreement between the parties.

62. Mr O’Connor in any event resisted the contention that “in competition with” was superfluous he contended that the author of the clause had very likely been astute to include a reference to competition because of a concern that a restraint which was not designed to protect the practices purchased by Dr Lee and to be run by Dr Lee under the FSA would be offensive to the limits of reasonable protection of DCPL’s interests.

63. If the words “in competition with” add nothing to the first limb then the first limb must carry the notion of competition within it. If they do then DCPL’s argument does not assist it. If the first limb does not carry the notion of competition then the second limb does have work to do. Further I agree with Mr O’Connor that the use of the phrase “in competition with” was designed to establish the bona fides of the restraint within established principle, and I do not regard the two limbs of the clause as saying precisely the same thing.

64. By paragraph 45 of the PCS, DCPL submits that “the goodwill” has value to DCPL “as a means of attracting dental practice businesses to the Dental Corporation’s Network. Dental Corporation markets itself to dentists” citing Mr Rendalls’ affidavit Exhibit A1 p.42 and T67.49-50. If ‘Dental Corporation Network’ has any identity or meaning it does not appear to be or relate to a protection of the goodwill of the business sold but rather of some other claimed goodwill of DCPL. The restraint in clause 19 was a restraint to protect the business that it bought from Dr Lee not DCPL’s other businesses and DCPL could not legitimately seek a restraint to stop Dr Lee from competing with the Rowe Street Practice, or protecting other businesses of DCPL and nor in my view did the Acquisition Agreement purport to do so. In accordance with what the High Court held in Murry the goodwill protected by the Acquisition Agreement could not be severed from the Eastwood Family Dental Practice and has no existence independently of it.

65. DCPL contended that Yein, by leasing the premises to EMG and receiving rent, was providing a service to EMG and was indirectly involved in the business as a beneficiary. There is a real question as to whether receiving rent is sufficient to meet either criterion but in any event the same arguments available to Dr Lee that I have already addressed are available to Yein as well.

66. I conclude that to infringe the restraint clause Dr Lee had to be employed by, or to solicit custom for, and Yein had to lease premises to, a business in competition with Eastwood Family Dental, and since Eastwood Family Dental (effectively also the successor of the pre-sale practice) had ceased to exist by reason of DCPL’s conduct there was no competing practice.

67. I therefore conclude that neither Dr Lee not Yein have breached the Acquisition Agreement.

68. Given my conclusion that Dr Lee and Yein have not breached the restraint clauses it is not necessary to consider whether the clauses are reasonable, whether injunctive relief against Yein is available when EMG, the lessee, has not been joined or whether DCPL has established an entitlement to damages. Whilst strictly unnecessary to do so I will however express my views on the issue of damages.

Damages

69. DCPL’s case on damages has these components:

1. Only 184 of the Eastwood Family Dental patients transferred to the Rowe Street Practice.

2. Dr Lee recommenced practice in the new Ethel Street practice from September 2015.

3. The dentists who had worked in the Eastwood Family Dental recommenced in the new Ethel Street practice.

4. There is evidence that normal dentistry was being practiced at the new Ethel Street practice (see evidence of Mr Streeter).

5. The Court should infer that had no surgery been run out of Ethel Street premises after June 2015 many of the patients would have migrated to the Rowe Street Practice operated by the Drs Won. I shall refer to the patients who would have migrated to the Rowe Street Practice as “the additional patients.”

6. Although it is difficult for the Court to make an assessment it must do its best: Howe v Teefy (1927) 27 SR (NSW) 301 and should choose between the 10% and 40% put forward by DCPL as the likely level of additional patients.

7. Having determined the number of additional patients the Court should determine the net earnings which would have been generated for the Rowe Street Practice by the additional patients.

8. Having determined the dollar value of net earnings that the Rowe Street practice would obtain from the additional patients the Court should apply 55% to that figure to ascertain what amount DCPL would have earnt.

70. In Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd [2014] NSWSC 1016 I made reference to NCON Australia Limited v Spotlight Pty Ltd [2012] VSC 604 and summarised the principles relevant to claims for damages in contract cases:

“[79] There are some basic principles in relation to the assessment of damages to which I need refer. In NCON v Australia Ltd v Spotlight Pty Ltd [2012] VSC 604 Robson J examined these authorities in this area in a comprehensive way and I shall summarise the essential principles outlined by his Honour and relevant to the present case, none of which seems to have been in issue in this case:

(1) The party who sustains a loss by reason of breach, is, so far as money can do so, to be placed in the same position with respect to damage as if the contract had been performed.

(2) Damage includes the profits that the plaintiff expects from the performance of the contract as well as the costs incurred in reliance on the contract.

(3) The plaintiff is not to be placed in a superior position to that which it would have been had the contract been performed.

(4) Mere difficulty in estimating damage does not relieve a court from the responsibility of estimating them as best it can.

(5) The plaintiff must establish that there has been an assessable loss resulting from the breach of contract complained of.

(6) In Howe v Teefy (1927) 27 SR (NSW) 301 at 305–206 Street CJ said:

The question in every case is: has there been any assessable loss resulting from the breach of contract complained of? There may be cases where it would be impossible to say that any assessable loss had resulted from a breach of contract, but, short of that, if a plaintiff has been deprived of something which has a monetary value, a jury is not relieved from the duty of assessing the loss merely because the calculation is a difficult one or because the circumstances do not admit of the damages being assessed with certainty.

[80] After having outlined the general principles Robson J went on in [286]–[294] of his reasons for judgments to detail the cases in which a court must do its best to quantify the loss even if “a degree of speculation and guesswork“ was involved, and at [295] his Honour said:

In my opinion, these authorities establish that the plaintiff is obliged to call such evidence as can be reasonably expected in the circumstances to establish the damages which the plaintiff claims. The Court’s obligation to estimate damage as best it can is only triggered where the circumstances are such that the plaintiff is unable to reasonably establish the damage. McGregor on Damages states that the word “reasonable“ is the controlling one, and the standard of proof only demands evidence from which the existence of damage can be reasonably inferred and which provides adequate data.”

71. There are a number of problems with DCPL’s damages case:

1. There is no information to establish that any of the patients of the new World-Citi Eastwood practice are the former patients of Eastwood Family Dental. If for example none of them are, there would be no causal connection between the absence of the additional patients from the Rowe Street Practice and the existence of the World-Citi Eastwood practice at the Ethel Street premises or Dr Lee’s employment there.

1. There is no evidence that the Rowe Street Practice had the capacity to meet any particular influx of patients from Eastwood Family Dental. Eastwood Family Dental had four chairs and Rowe Street three chairs. There is no evidence concerning whether the additional patients could be accommodated at the Rowe Street Practice by additional dentists and the addition of dental chairs.

2. When I raised the question of costs that might need to be expended on additional dentists to meet the additional patients Ms Cochrane explained that cost was not relevant to the calculation. That is because it was said, DCPL’s claim is based on the fact that had Rowe Street earnt, say another $100,000 net of laboratory costs from the additional patients, DCPL would have been entitled to 55% of those earnings. Quite apart from the question of whether the Drs Won would have been willing to expand their business in this way there is a fundamental evidentiary hiatus because DCPL has not put in evidence the agreement between itself and the Drs Won and there is therefore no evidence as to what percentage DCPL would have earnt from whatever increase in earnings might have been obtained at the Rowe Street Practice by the influx of additional patients.

Conclusion

72. DCPL has failed to make out its case for injunctive relief and damages and its Summons should be dismissed with an order that it pay the defendants’ costs as agreed or assessed..

Decision last updated: 19 April 2018