Epichealth Pty Ltd v Yang
[2015] VSC 516
•25 SEPTEMBER 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PRACTICE COURT
S CI 2015 04838
| EPICHEALTH PTY LTD | Plaintiff |
| v | |
| PENG-KUNG YANG | Defendant |
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JUDGE: | JOHN DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 22 SEPTEMBER 2015 |
DATE OF JUDGMENT: | 25 SEPTEMBER 2015 |
CASE MAY BE CITED AS: | EPICHEALTH PTY LTD v YANG |
MEDIUM NEUTRAL CITATION: | [2015] VSC 516 |
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RESTRAINT OF TRADE — Interlocutory injunction — Former employer seeking to restrain contractor from engaging in rival medical practice within area of alleged restraint — Whether a contract containing the alleged restraint of trade clause was made between the parties — Construction of the restraint clause in alleged contract — Whether serious question to be tried — Whether damages an adequate remedy — Balance of convenience —— Injunction granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | N Harrington | Hall and Wilcox |
| For the Defendant | CM White | Noh Lawyers |
HIS HONOUR:
Introduction and Summary.
The plaintiff operates a medical clinic at 230 Cranbourne-Frankston Road, Langwarrin, (the Langwarrin Clinic). The clinic is staffed by general practitioners employed by the plaintiff as independent contractors. The defendant is a qualified medical practitioner who is employed at the Langwarrin Clinic under a written contract dated 21 January 2013.
On 28 April 2015, the defendant gave, and the plaintiff accepted, six months’ written notice of termination of the contract. The defendant was to cease providing services to the plaintiff at the Langwarrin Clinic on 27 October 2015. On 22 August 2015, the defendant refused to attend at the Langwarrin Clinic and provide any further services under the contract. The contract between the parties includes a restraint clause.
On or about 1 August 2015, a medical clinic commenced operation at 25 McCormicks Road, Carrum Downs (the Carrum Downs clinic). That address is 6 kms from the Langwarren Clinic. The clinic is owned by a company of which the defendant is a director, as trustee of a trust of which the defendant is a beneficiary, and is staffed by one medical practitioner, the defendant. On 14 September 2015, the plaintiff issued this proceeding and a summons seeking an injunction restraining the defendant until 27 January 2016, or further order, or until the conclusion of the trial of the proceeding from providing any services associated with the carrying on of a general medical clinic, including as a medical practitioner, within a 10 kilometre geographical radius of the Langwarrin clinic.
The defendant opposed the relief sought.
Contractual terms
Under the contract between the parties, the defendant was an independent contractor. The contract defined the term ‘services’. After one year he could terminate, under clause 11.2(a), the contract by six months’ written notice. By clause 8, the defendant agreed to indemnify the plaintiff for all costs, expenses, charges, losses and damages suffered by it as a result of his non-performance or breach of his obligations under the contract. By clause 12, he warranted that no conflict of interest, restriction or impediment exists or is likely to arise that would prevent him from providing the services to the plaintiff or complying with his obligations under the contract. By clause 13(a), the defendant must keep secret and must not at any time (whether during or after this agreement) use for his own or another’s advantage, or reveal to any person, firm or company, any confidential information.
By clause 16(a), the defendant was restrained during the term of the contract from providing services to any person other than the plaintiff, without the prior written consent of the plaintiff. By clause 16(b), upon termination of the contract, the defendant was restrained from (among other things) providing services as a general practitioner within a 25 kilometre, alternatively 10 kilometre, alternatively 5 kilometre, radius of the Langwarrin Clinic during the term of his engagement and for 12 months, alternatively 6 months, alternatively 3 months, following the termination of the contract (clause 16(b)(i)).
As is common in contracts of this sort, for the purposes of the restraint clause the parties defined both the restricted geographical area and the restricted period by a cascading definition that applied a lesser restraint in the event that a court held the greater restraint to be unreasonable or invalid.
It is not in dispute that the defendant signed the contract. However, in his affidavit on this application the defendant asserted that prior to doing so, he took issue with the plaintiff’s representatives about the reasonableness of both the period of notice required to terminate the contract and the period and geographical area that defined the restraint. The defendant did not submit that he was not bound by the contract, but, rather, that the restraint by clause 16 was void.
Principles
The applicable principles that govern whether to grant an interlocutory injunction were identified by the High Court in Australian Broadcasting Corporation v O’Neill.[1]
[1](2006) 227 CLR 57, Gleeson CJ and Crennan J [19], Gummow and Hayne JJ [65]–[83]. See also Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 and Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, [8]–[13].
(a) The plaintiff must demonstrate a prima facie case. This requirement is to be understood as whether there is a serious question to be tried as to the plaintiff’s entitlement to relief, not whether it is more probable than not that the plaintiff will succeed at trial. The sense in which the test is understood is that the plaintiff must prove, prima facie, a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. In context, it must show that it has a putative legal or equitable right in respect of which final relief is sought which will justify the restraint sought. The requisite strength of the probability of ultimate success depends on the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.
(b) The balance of convenience must favour the granting of an injunction. The balance of convenience requires a consideration of the relevant matters favouring or militating against the granting of an injunction and will necessarily involve a consideration of the strength of the plaintiff’s claim assuming that a serious issue has been identified. In Victoria, this consideration is further clarified by the decision of the Court of Appeal in Bradto Pty Ltd v Victoria.[2] The court must, in determining whether to grant an interlocutory injunction, “take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial”.[3]
(c) The injury which the plaintiff is likely to suffer must be one for which it would not be just to confine the plaintiff to a remedy in damages, commonly expressed that damages will not provide an adequate remedy. This issue is often considered in conjunction with the balance of convenience. However, when the adequacy of damages as a remedy is unclear, this consideration may be relevant to each of the prima facie case and balance of convenience considerations, which of themselves may be interdependent and are not to be considered in isolation.[4]
(d) There may be other discretionary considerations which militate against the grant of the injunction.
[2](2006) 15 VR 65.
[3]Bradto Pty Ltd v Victoria (2006) 15 VR 65, 70[26]; See also Magna Alloys and Research Pty Ltd v Coffey [1981] VR 23.
[4]Samsung Electronics Limited v Apple Inc (2011) 286 ALR 257, [61],[62][67].
In considering whether the plaintiff has demonstrated a prima facie case that the defendant ought to be restrained from practising as a medical practitioner, it is convenient to refer to the recent statement of principle by Sifris J[5] as set out by the Court of Appeal in Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett.[6]
[5]Wallis Nominees (Computing) Pty Ltd v Pickett [2012] VSC 82 [50] (citations omitted).
[6][2013] VSCA 24 [14].
The principles applicable to the enforceability of contracts in restraint of trade are not for the most part in dispute. They are well settled:
(a)a contractual provision in restraint of trade is, prima facie void.
(b)The presumption can, however, be rebutted and the restraint justified by the special circumstances of a particular case, if the restriction is reasonable by reference to the interests of the parties.
(c)The validity of the covenant in a contract is to be judged as at the date of the Employment Agreement.
(d)A stricter view is taken of covenants in restraint of trade in employment contracts than those contained in contracts for the sale of a business.
(e)The onus of proving the special circumstances justifying the restraint is on the person seeking to enforce the covenant.
(f)So far as the parties’ interests are concerned, the restraint must impose no more than adequate protection to a party in whose favour it is imposed. If the court is satisfied that the restraint confers greater protection than can be justified, there is no further issue of reasonableness.
(g)The meaning of the restraint clause may be construed by reference to the factual matrix, documentary context and surrounding circumstances.
Background facts
On 24 December 2012, the plaintiff offered the defendant an engagement to provide services as a general practitioner at its Langwarrin Clinic. The letter specified limited patient consultation and contact of 40 hours per week and a notice of termination period of six months. The defendant started work at the clinic immediately. On 21 January 2013, the defendant executed the contract. The defendant contended that when he was provided a copy of the contract he only had a short time to read it and was not given the opportunity to take it away and seek independent legal advice before signing it. However, when he did read it, he had immediate concerns about the restricted geographical area and the notice period.
There is documentary evidence that might persuade a trial judge that the defendant had a copy of the contract for 14 days before agreeing to its terms by signing it on 21 January 2013. Further, the plaintiff’s chief executive officer Ms Ridgway, who swore an affidavit on the application, disputes that the defendant raised any concerns about the notice period with the plaintiff. She states that the defendant agreed that a restricted geographical area of 10 kilometres was reasonable. The defendant also stated that he considered ‘the Australian standard’ for notice of termination to be no more than three months. The defendant deposes that Ms Ridgway represented that the clauses of the contractual agreement that caused the plaintiff concern, particularly the termination notice period and the definitions of Restricted Geographical Area and Restricted Period would be reviewed by her ‘so that we can both achieve a satisfactory solution’. Ms Ridgway denies making this statement.
The defendant signed the contract, which included an acknowledgement by him that the restraints on his provision of services other than in accordance with the contract were fair and reasonable in terms of their extent and duration, and did not unreasonably restrict his right to carry on the services or similar services to those he provided to the plaintiff and go no further than what is necessary to protect the goodwill and interests of the plaintiff.
It appears that the conversations to which the defendant deposes were irrelevant pre-contractual negotiations. The defendant’s counsel informed me that the serious question to be tried in the proceeding concerns the validity of the restraint clause, and it would not be contended that the contract is not enforceable against the defendant either in equity or by reason of conduct in breach of the Australian Consumer Law.
In due course, the defendant expressly gave six months’ notice of termination, without the review of the notice period, or geographical area and restricted period, having occurred since its inception. For the purposes of this application, I prefer the evidence of Ms Ridgway that the plaintiff did not express any intention to review these clauses because the defendant’s termination notice was an express acknowledgement that he was obliged to give that period of notice.
During the course of the contract, the defendant negotiated with the plaintiff to reduce the hours he provided services to the Langwarrin Clinic. He sought such variation to his contractual obligations by asserting various grounds including fatigue, poor health, his pursuit of surgical experience, the poor health of his parents and, in particular, that he was assisting ‘a friend’ in need in his new clinic at Carrum Downs. I do not accept, for reasons I will explain, that these assertions were always truthful or complete.
The plaintiff’s investigations following its discovery of the Carrum Downs Clinic were that the defendant, or entities under his control, from about May 2014 –
(a)purchased the property at 25 McCormicks Road, Carrum Downs on which the clinic now stands;
(b)incorporated Yang Family No 2 Pty Ltd, the directors of which are the defendant and his parents and which is the owner of the property at McCormicks Road;
(c)registered, on 20 October 2014, the entity ‘the trustee for Yang’s Medical Discretionary Trust’ trading as McCormicks Road General Practice with an Australian business number;
(d)obtained, on 8 December 2014, a building permit for conversion of the dwelling at McCormicks Road to a medical centre with alterations and demolitions;
(e)recruited, in late May 2015, a medical receptionist formerly employed by the plaintiff to work at the Carrum Downs clinic; and,
(f)established a Facebook page for the Carrum Down clinic which stated that the practice was officially open for business on 1 August 2015.
In September 2014, the defendant failed to meet his contracted patient consultation hours and in February 2015, he requested that the plaintiff temporarily reduce his consultation obligations because he needed to get ‘some rest and recuperate’. The plaintiff agreed to a temporary reduction in the defendant’s hours until Easter 2015. It would seem that during this period the Carrum Downs clinic as a development project was underway. The defendant failed to increase his consultation hours after Easter and, as I have noted, gave formal notice of termination of his engagement on 28 April 2015. That notice was accepted by the plaintiff on 8 May 2015 and the plaintiff confirmed that the defendant’s last working day at the Langwarrin Clinic would be 28 October 2015, and the defendant was reminded of his obligation to increase his patient consultation hours to 40 hours per week.
The defendant contended that his notice of termination specified that he would only work a maximum of six months or until a replacement contractor was engaged, whichever was the lesser. He asserted that within weeks of his notice of termination the plaintiff hired a replacement contractor. Ms Ridgway disputed this assertion stating that the employed doctor was not hired as a replacement for the defendant, but was employed to fill an existing vacancy. The defendant was expected to work out his notice, albeit at a reduced weekly rate. Notwithstanding these disputed conversations, I am satisfied that the terms of his contract were both clear to, and understood by, the defendant.
The defendant immediately responded that he could not increase his hours because he was seeking opportunities to engage in surgical assistance at different private hospitals. The plaintiff accepted this explanation as surgical assistance was not a service that competed in any way with the plaintiff’s business, but there was no evidence on the application of the defendant having engaged in any surgical assistance at different private hospitals.
There were ongoing negotiations between the parties as the plaintiff attempted to persuade the defendant to increase his patient contact hours. The defendant was avoiding working at the Langwarrin clinic during usual business hours and was offering to work after-hours, apparently to avoid conflict with surgery shifts at private hospitals. Ms Ridgway states that at no time did the plaintiff have any reason to disbelieve the defendant’s explanations.
Then, on 29 July 2015, Ms Ridgway discovered that the defendant had a Medicare provider number for a medical clinic located at Carrum Downs that had been active since 1 June 2015. This clinic was the Carrum Downs clinic. As an internationally trained medical graduate, the defendant can only obtain a provider number for a specific practice location in areas designated by the Department of Human Services as a ‘district of workforce shortage’ (DWS) area.
Upon discovering this fact, Ms Ridgway spoke with the defendant explaining her concern that the Carrum Downs Clinic was within the restricted geographical area under the contract. The defendant insisted that he needed to continue to provide medical services at the Carrum Downs Clinic because a close family friend had opened this clinic as a new clinic, was short staffed, and needed his assistance to establish a reliable after-hours service. The defendant accepts that Ms Ridgway’s version of the conversation is substantially correct. What is significant is that the defendant’s explanation, which Ms Ridgway accepted at the time, was false. The defendant added that during the conversation he disputed the reasonableness of the restricted geographical area and expressed his opinion that the Carrum Downs Clinic was sufficiently distant from the Langwarrin Clinic to adequately protect the plaintiff’s interests. Ms Ridgway did not accept that the defendant disputed the restraint clause at this time.
Because the defendant would not agree to cease providing services to the Carrum Downs Clinic ‘operated by his friend’, Ms Ridgway agreed that he could continue to do so subject to strict conditions. Ms Ridgway informed the defendant that strict conditions were required because working at the Carrum Downs Clinic was in breach of the restraint in clause 16 of the contract and posed a risk to the plaintiff’s business and patient base. She reminded the defendant that, when entering into the contract, he had agreed that the restraint area of 10 kilometres was reasonable. As I have noted above, the defendant now disputes that he made this observation when discussing the terms of the contract prior to its execution. Ms Ridgway states that the defendant agreed with her that patients could travel to Carrum Downs from Langwarrin and that if the defendant was less available to work at Langwarrin because of his employment commitment at Carrum Downs, a conflict of interest would arise. However, according to Ms Ridgway, the defendant stated that he would not stop working at the Carrum Downs Clinic because of his promise to his family friend. Ms Ridgway had no reason to disbelieve the defendant’s stated reason. The defendant does not assert that he raised in this conversation that Ms Ridgway had agreed when the contract was signed to review the terms of the restraint.
For the purposes of this application I prefer Ms Ridgway’s version of events. What is significant is that the defendant accepts that he provided false information to the plaintiff as to his reason for working at the Carrum Downs Clinic and that he did not tell Ms Ridgway of his involvement in establishing the Carrum Downs clinic for his own benefit. It is common ground that the restraint clause was discussed in the conversation and the defendant said nothing to Ms Ridgway about his acquisition of the property and that he was in the process of setting up his own medical clinic. It is reasonable to infer that, on the defendant’s version of this conversation, he understood that his activities in setting up the clinic and in working at it would constitute a breach of the restraint in clause 16 of the contract and for that reason he did not disclose the true reasons for his unwillingness to work his expected level of patient contact hours.
Having misled Ms Ridgway in this way, the defendant secured her agreement to continue working at the Carrum Downs Clinic subject to giving certain undertakings to the plaintiff. These undertakings were that –
(a)the defendant would not tell any of the plaintiff’s patients, staff or any people in the Langwarrin community that he practises in Carrum Downs or encourage anyone to see him at that practice;
(b)if the defendant happened to see a patient of the Langwarrin Clinic at Carrum Downs he must encourage them to return to the Langwarrin Clinic;
(c)the defendant must offer to help out the Langwarrin Clinic with clinic coverage first before accepting shifts at the Carrum Downs Clinic until the completion of his notice period under the contract or agreement;
(d)the defendant must only work in the after-hours time periods that he had indicated.
The defendant told Ms Ridgway that he accepted these conditions. Ms Ridgway deposes that had she then known what she now knows about the Carrum Downs Clinic, the plaintiff would not have offered any conditions and would have insisted on strict compliance with the terms of the contract.
The defendant did not, either in his affidavit or in his counsel’s written submissions offer any undertakings to the court as a consideration relevant to the balance of convenience. When prompted by me in argument as to whether there were any relevant undertakings that the defendant was prepared to give, he stated that he would be prepared to continue to abide by these conditions as undertakings. In that context, it is relevant to assess the extent to which the defendant has observed those conditions since he agreed to them, a matter to which I will come in due course.
By 17 August 2015, the plaintiff was increasingly concerned that the defendant was failing to provide his services at the Langwarrin Clinic for 20 hours per week. The defendant explained that he was committed to performing surgeries at private hospitals and in providing services at the Carrum Downs Clinic. On this occasion, the defendant complained to the plaintiff that the period of six months for termination of the contract was unfair. The defendant complained that he was fatigued and could only work after hours and on weekends. He told Ms Ridgway that he must do one evening shift at Carrum Downs per week.
Ms Ridgway expressed to the defendant her concerns about the proper functioning of the Langwarrin clinic and told the defendant that his Carrum Downs work already created a substantial conflict which was putting the plaintiff’s business at risk. She expressed her concern that the strict conditions that had been agreed were not being followed by the defendant. In particular, she asserted that many patients at the Langwarrin Clinic seemed to know that he was working at the Carrum Downs Clinic. However, Ms Ridgway states that she again accepted the defendant’s explanation, there being no reason not to.
Then, on 20 August 2015, Ms Ridgway emailed the defendant setting out the shifts that he would be required to work, which equated to an average of around 14 hours per week. She stated that this arrangement was intended to take into account his personal circumstances, but the reduced patient consultation hours schedule was being offered on the basis that the defendant extend his notice period until 28 February 2016. The plaintiff was at that time short staffed at the Langwarrin Clinic and concerned about its capacity to service its patient base.
As I have noted, the defendant had not performed any services at the Langwarrin Clinic since 13 August 2015 and would not return. During the period until 13 August 2015, the defendant had full access to the plaintiff’s patient database for the Langwarrin Clinic (and the Mornington Clinic), which gave him the opportunity to access the addresses and other information of all patients, not just those he was treating. The defendant denies that he has exercised that opportunity for access to the database.
On 31 August 2015, Ms Ridgway first learned that the defendant owned the Carrum Downs Clinic at which he was working. She also learned that he had purchased the property in May 2014 and had been renovating it since that time, and that a former employee of the plaintiff was working at the clinic. When she conducted an internet search, Ms Ridgway learned that the clinic had ‘officially opened’ on 1 August 2015. She then made further inquiries and discovered the defendant’s involvement in the purchase and renovation of the clinic and in establishing companies and trusts through which the clinic is conducted.
Ms Ridgway asserts, and in my view having regard to the defendant’s affidavit, asserts correctly, that she was misled by the defendant as to the reasons for his need to scale back or reduce his service hours under the contract with the plaintiff. The defendant clearly withheld material information, made false assertions and gave other information which was plausible, but not verified. On the material before the court, the plaintiff did not become aware that it had been misled by the defendant until 31 August 2015. Much of the plaintiff’s conduct towards the defendant prior to 31 August 2015 should be understood in this context.
The plaintiff’s inquiries have identified that, in a period of six weeks at the most, nine patients from the Langwarrin Clinic have become patients of the defendant at the Carrum Downs Clinic. The plaintiff has suspicions that a further nine patients are now attending the Carrum Downs Clinic and Ms Ridgway expresses her fear that more patients will cease attending the Langwarrin Clinic and commence attending at the Carrum Downs Clinic. Ms Ridgway states that unless a request is made for a patient’s records, it is very difficult for the plaintiff to determine if, when, or why a patient has decided to cease attending the Langwarrin Clinic.
The defendant submits that the plaintiff has made ‘a generalised rolled up allegation’ and has not identified any particular patient who has left Langwarrin for Carrum Downs. He denies that he has taken or otherwise solicited away any patient from the plaintiff. The defendant asserts that he has not ‘hung a shingle’ outside the Carrum Downs Clinic or in any other way advertised either that it is his or that he is the attending medical professional.
I am not persuaded to accept the defendant’s assertions for the purposes of this application. There are many ways in which customer solicitation can occur and the defendant’s specific denials fail to cover the field. Word of mouth can be very effective. Moreover, the confidentiality of the doctor/patient relationship precludes any inquiry into what might have been said during consultations between the defendant and patients at the Langwarrin Clinic. It was incumbent on the defendant to demonstrate he had honoured the conditions stipulated by Ms Ridgway which he told her were acceptable to him, save for one qualification that is not presently relevant.
In view of the defendant’s failure to engage with Ms Ridgway’s allegations that up to 18 patients may have transferred to the Carrum Downs Clinic in a period of approximately one month, I am not persuaded that the defendant observed the conditions in the past or that he is likely to do so in the future. The defendant’s want of frankness in his dealings with the plaintiff, particularly his failure to disclose his true role in the Carrum Downs Clinic, is further reason to discount the offer of undertakings. As I have noted, the issue of extending these conditions as undertakings only arose during the hearing and was not addressed by the defendant in his affidavit. The defendant also offered an undertaking to maintain proper practice records that would enable identification of those of his patients who had formerly been patients of the Langwarrin Clinic.
The defendant submitted that the plaintiff knew of and acquiesced in his work at the Carrum Downs Clinic, cognisant of the location of the clinic within the geographical exclusion zone under the contract. He emphasised in his submission that the plaintiff knew that he was working at the Carrum Downs Clinic and permitted him to continue to do so. It is plain that the plaintiff’s knowledge and consent was based upon false, misleading or incomplete information provided by the defendant and I accept for the purposes of this application that had Ms Ridgway been told the true position she would not have accommodated the defendant and would have insisted on a more strict performance of the contract.
Prima facie case
It was accepted by the parties that there is a serious question for trial in the proceeding as to whether the plaintiff can discharge the onus of proving that the restraint is reasonable.
The plaintiff contended that the defendant has breached the contract during his term in that he acted during the term of the contract in a manner that created a conflict of interest. He failed to complete the notice period of six months. He established, worked in, and continues to work in, a medical practice during the term of the contract that is less than 10 kilometres from the Langwarrin Clinic. These issues of breach raise the issue of whether the restraint clause is valid.
The defendant contended that a 10 kilometre radius in suburban Melbourne that prevents a doctor from engaging in medical practice work is an unreasonable restraint and that it would be against public policy to enforce it. In particular, the defendant notes that the geographical restraint area is within an Australian Government categorised DWS area. He contends that this circumstance demonstrates a public policy militating against restraints of trade affecting medical practice work within the categorised DWS area. The defendant asserts, and the plaintiff does not suggest otherwise, that within a 10 kilometre distance by road of the Langwarrin Clinic, other than the Carrum Downs Clinic there are 23 other medical clinics providing the same medical services.
In a sense, these submissions are contradictory but that is a matter that can be resolved at trial. The plaintiff does not submit that there is not a serious question for trial. Rather, it contends, and I accept, that it has a strong argument that the restraint is valid. It submits, and I agree, that the strength of its prima facie case is a relevant consideration when assessing the balance of convenience.
The plaintiff’s application is that the defendant be restrained for a period of approximately four and a half months until 27 January 2015, being a period of three months following the termination of the contract by the defendant’s notice. The defendant contends that he repudiated the contract by refusing to work at all at the clinic on and from 13 August 2015, and that, by its conduct, the plaintiff accepted the defendant’s repudiation of the contract as terminating the contract. The submission does not identify the precise conduct that constituted acceptance of the repudiation or the date when that occurred. Against that submission, the plaintiff contends that it did not accept the admitted repudiation as terminating the contract and all of the conduct to which the defendant might point, which might constitute acceptance of, consent to, or acquiescence in, the defendant’s repudiatory conduct is stained by the misleading or deceptive conduct engaged in by the defendant.
Although there are matters of contested fact for resolution at trial, for the reasons I have already expressed and for my present purposes, I accept the plaintiff’s submission. I consider the plaintiff has strong grounds to contend at trial that the date of termination of the contract is 27 October 2015. The plaintiff seeks to restrain the defendant for a period of three months beyond that date to 27 January 2016. The contractual basis for seeking restraint to that date is found in clause 16, set out above. Subject to establishing its validity, by this clause the defendant has agreed with the plaintiff that he will not provide services or similar services in the restricted geographical area during the term of the contract and, after the termination of the contract, for the restricted period. As I have noted, the restricted period is defined by a cascading definition that creates a minimum term of three months. The plaintiff only seeks restraint for the minimum period open to it under the contract. Confining the relief it seeks to this minimum period is relevant when assessing where the lesser risk of injustice lies should it later transpire that the plaintiff was not entitled to any injunction.
The defendant contended that an interlocutory injunction in these terms would effectively determine the entire dispute. I do not agree. Although the debate at trial will now be confined to the minimum term of the restricted period in respect of the plaintiff’s justification for the interlocutory injunction, the plaintiff’s claim for damages will turn on the findings at trial as to the validity of the contractual restraint. I take the defendant’s submission in this respect into account in assessing whether the requisite strength and probability of ultimate success for the plaintiff in establishing the validity of the restraint is sufficient to justify in the circumstances the preservation of the status quo pending trial. I also bear in mind that the plaintiff will be required to give the usual undertaking as to damages. I am satisfied that the strength of the plaintiff’s prima facie case is a fact that supports the preservation of the status quo - meaning observance, rather than breach, of the contract - pending trial.
Adequacy of damages
The plaintiff submits that, when considering whether damages would be an adequate remedy, the proper question is whether it is just in all the circumstances that the plaintiff should be confined to a remedy in damages.[7] As Edelman J noted in Emeco International Pty Ltd v O’Shea:[8]
It has often been said, in the context of injunctive relief for apprehended breach of a restrictive covenant that 'where what is involved is the enforcement by injunction of a contractual negative stipulation, it is a rare case in which relief will be declined on the basis that damages are a sufficient remedy'.
The reasons why damages are often inadequate in these cases includes (i) the difficulty of detection of breaches of the obligations; (ii) the difficulty of establishing causation between any loss of business with customers and any actions of the ex-employee; and (iii) the difficulty of the calculation of the quantum of any damage arising from loss of business.[9]
(Citations omitted)
[7]Tullet Preborn (Aust) Pty Ltd v Purcell [2008] NSWSC 852 [97] and the cases there cited.
[8][2012] WASC 282, [20]. See also Sidameneo (No 456) Pty Ltd v Plint [2015] WASC 243 [60].
[9]See also Idameneo (No 123) Pty Ltd v Deady [2013] VSC 740.
I agree.
The defendant submitted that the plaintiff had not shown why damages would not be an appropriate remedy. The defendant principally relied on the efficacy of the proffered undertakings which I have already discussed. I am not persuaded that in this case the undertakings are likely to be observed or, if they are, are likely to solve the difficulties identified in Emeco International. The nature of a medical practice and the characteristics of customer loyalty in a medical business are complex. Inevitably the courts will be required to make the best possible assessment on evidence that may be characterised by a degree of uncertainty and there is no doubt, as Macaulay J observed in Brunswick Family Dental Pty Ltd v Enged,[10] that damages have often been assessed by courts for the loss sustained by the wrongful transfer of custom from one business to another. That is why the issue of the adequacy of damages is best understood as a question of the remedy to which the plaintiff ought justly be confined in the circumstances. In the present case, this is a consideration that favours the plaintiff when considering the balance of convenience.
[10][2014] VSC 325 [26].
A further consideration is that the evidence suggests that the only asset that the defendant may have is his loan account with Yang Family No 2 Pty Ltd, which is discussed below and it is not readily apparent that the defendant would be able to meet an order to pay damages were he to fail at trial.
The defendant submitted that precisely the same issues would arise if the defendant succeeded at trial and was to be compensated under the plaintiff’s usual undertaking as to damages. I do not agree. First, it has not been suggested that the plaintiff would be unable to meet an order to pay damages assessed on the undertaking. Secondly, the submission misconceives the proper basis of the undertaking which is not contractual but based on different considerations. As the High Court said in Air ExpressLimited v Ansett Transport Industries (Operations) Pty Ltd,[11] an enquiry should be directed, and the defendant will be entitled, to recover the loss which is the natural consequence of the grant of the injunction. The causal connection between the damage and the injunction is to be identified from the purpose for which the undertaking as to damages is designed to serve. That object is to protect a party from damage sustained in the event that it emerges that the plaintiff is not entitled to the relief sought. Its purpose is not to protect the defendant from damage otherwise sustained.
[11](1981) 146 CLR 249 (Aickin J) [266], approved on appeal (1981) 146 CLR 306, 309-310, 312-313, 318-319, 324-325. See also European Bank Limited and Robb Evans of Robb Evans & Associates [2010J HCA 6, (2010) 240 CLR 432, 439.
Balance of convenience
To consider where the balance of convenience lies, further facts emerging from the affidavits must be set out. First, the defendant claimed that he had made a very significant investment in the Carrum Downs Clinic, a claim that warrants careful analysis.
The evidence establishes that the Carrum Downs Clinic was established by Yang Family No 2 Pty Ltd as trustee of the defendant’s family trust. The family trust was borrowed $700,000 for the purchase of the property from the defendant’s parents, who are with the defendant the directors of Yang Family No 2 Pty Ltd. In addition, the defendant loaned approximately $70,000 to cover costs and taxes in connection with the acquisition. The defendant has loaned to the trust approximately $300,000 to cover the cost of renovations and construction works. The terms of these loans are not in evidence and I infer, in the absence of detail and in the context of the evidence of the defendant about how he services these loans, that the loans are informal. I also infer that the trust has liabilities in its loan accounts of approximately $1,000,000 and assets in the form of a property that has been renovated for use as a medical clinic. The property is apparently unencumbered and there is no evidence of its current market value. Provided it is supported by its directors and shareholders, Yang Family No 2 Pty Ltd may be solvent.
It does not appear that the defendant strictly observes the division between legal entities. The defendant deposed to an agreement that his parents receive fortnightly repayments of $1,200 in respect of the loan of the purchase price for the land, presumably to be paid by Yang Family No 2 Pty Ltd from income it receives from the defendant in the conduct of a medical practice in its clinic. The defendant deposes that in the medical practice’s first month of operation, August 2015, revenue of $12,204.05 was generated against outgoings and running costs totalling $5,981.67 leaving a gross income of $6,222.38. It is difficult to draw any conclusions from the operation of the clinic during its first month as it is clearly in its infancy. The defendant stated that he currently gives his parents irregular payments of varying amounts to assist their financial needs.
Beyond these assertions, there is no evidence of the financial position of Yang Family No 2 Pty Ltd, the trust, or the personal financial position of any of its directors, including the defendant. The precarious income position of the clinic apparently precludes recourse to bank finance as neither the defendant nor Yang Family No 2 Pty Ltd is able to satisfy the bank’s serviceability requirements for a loan and the company is reliant on the defendant’s financial support to meets its outgoings. I am invited to accept that each of the defendant and his parents has invested all of their available capital in the clinic. I am not persuaded to do so. There is not a sufficient base in the evidence for that inference. Another reason is that the defendant’s capacity for incomplete disclosure is demonstrated by his dealings with the plaintiff, which I have already discussed. Another reason is that the defendant lives in Glen Waverley with his parents but gives no information about any other assets including the house in Glen Waverley. He does not assert that he and his parents live in rented accommodation.
I accept that each of the defendant’s parents is suffering from significant ill health and that neither is fit to work. Some medical records confirming that the defendant’s parents are not in good health were produced. Both of his parents are dependent upon the defendant making financial provision for them and providing other assistance. I am not persuaded that these matters are of any particular significance in assessing the balance of convenience.
The defendant asserts that he will be unable to find suitable employment in the immediate future and for a period of four months if the injunction was granted. He asserts that, as a consequence, Yang Family No 2 Pty Ltd and the trust will lose an investment of over $1,000,000.
On careful assessment of this claim, I am not persuaded that this is a factor of any great significance in favour of the defendant on the balance of convenience. I am prepared to accept that if the defendant is restrained from participating in the operation of the Carrum Downs Clinic, some fixed costs will necessarily continue to be incurred, although I am not in a position to estimate the likely quantum of those costs. I do not accept that there is a serious risk that Yang Family No 2 Pty Ltd will lose an investment of over $1,000,000. If related party loan accounts are ignored, the company appears to be largely debt free and asset rich. The level of income necessary to support its fixed costs does not appear to be substantial and would be, I infer, within the defendant’s income capacity provided he was able to find alternative employment if restrained from conducting the clinic.
The plaintiff disputed the submission that the defendant would not be able to find any suitable employment in the near future for a short period of time. Ms Ridgway deposes to conducting an internet search that in less than half an hour, in respect of one job site for general practitioners, discovered 13 available positions for a trained doctor outside of the restricted geographical zone. However, it is not clear whether any or all of those positions would be available to the defendant bearing in mind the restrictions upon his Medicare provider number.
The defendant’s opportunities for employment are not limited to a permanent general practitioner position. He could obtain short term work as a locum GP, as a Medibank phone line GP, or he could continue to perform, as he has done in the past, hospital surgical procedures. While it is likely that the defendant may face some financial hardship if restrained from any involvement with the clinic, I am not persuaded either that he faces significant capital losses or that he would be unable to obtain short term employment to cover his expenses and provide appropriate support for his parents. In so concluding, I have been reluctant to generously draw inferences in favour of the defendant on the untested affidavit evidence because, as I have set out above, I am not persuaded that the defendant has been frank and thorough in his disclosures in his dealings with the plaintiff and I am not persuaded that he has been frank and thorough in his disclosures in his affidavit. I consider that the defendant would be able to absorb the financial consequences of being unable to operate the clinic for 4 months, albeit with some financial hardship. It is likely that the clinic would then commence operation but on a basis that gives the plaintiff a reasonable opportunity to fairly preserve its patient base. If I am wrong in that assessment, the defendant will be able to call on the plaintiff’s undertaking to pay damages.
The defendant also submitted that he is a single practitioner operating a fledgling business and the plaintiff has a substantially stronger balance sheet and is better placed to absorb losses should it transpire at trial that an injunction should not have been granted. The plaintiff’s balance sheet is not in evidence and the defendant invites this inference by comparison of the size of the patient base of the two clinics.
The plaintiff asserts that the goodwill in its medical practice at the Langwarrin Clinic is dependent upon the size of its client base and the frequency with which its patients visit the clinic and utilise its services. Ms Ridgway deposes that although a patient will develop a personal connection with a treating medical professional, a connection with a conveniently located clinic with a number of competent and friendly health professionals is able to retain the patronage of patients when individual doctors depart. Over 87% of the Langwarrin Clinic patients live within 10 kilometres of the clinic which is the zone within which the Carrum Downs Clinic is located. Further, the clinic’s records show that 93% of the patients seen by the defendant during his engagement by the plaintiff live within 10 kilometres of the clinic. Many patients treated by the defendant were repeat patients, visiting on multiple occasions. It is, in part, these features of the plaintiff’s client base that gave rise to its perception of a need to protect the value of its business by requiring restraint clauses and minimum periods of termination notice in its agreements with its contractor doctors.
I pause to observe that the defendant’s evidence shows that a significant capital investment is necessary to establish a medical clinic at which a valuable business can be established. The plaintiff had made such an investment and established such a practice. The defendant came to the Langwarrin Clinic without any established practice and the contacts that he has established with patients that may well benefit the Carrum Downs Clinic may have been achieved through the use of the plaintiff’s capital assets and patient base.
The risk to the defendant’s investment in the fledging clinic cannot be ameliorated by permitting the defendant to draw on the plaintiff’s patient base. The plaintiff must, and plainly does, accept competitors, but that is not an appropriate description of a doctor employed by the plaintiff in its business and in the period of 3 months following termination of that contract with access to its patient base both through the plaintiff’s records and through personal contact in a doctor/patient relationship. That risk to the defendant’s family’s investment, if that be what is occurring, is not a relevant injustice or is not to be afforded great significance. It is a commercial risk that was accepted by the defendant with knowledge.
The defendant submitted that the enforcement of a post-contractual restraint frequently occasions hardship to persons who, in defiance of the restraint, act in a manner inconsistent with that obligation. So much can be readily accepted and I am satisfied that enforcing the restraint by injunction will occasion some hardship to the defendant and perhaps to his parents, who may be entitled to some sympathy for their predicament which is exacerbated by their ill health. However, although it is the experience of the courts that the enforcement of such restraints can occasion hardship, a contractor like the defendant who, fully cognisant of the terms and extent of the restraint, nonetheless sets up a competing business largely because it suits him to do so, could be thought to be the author of his own misfortune.[12]
[12]John Fairfax Publications Pty Ltd v Birt & Ors [2006] NSWSC 995 [49].
The defendant submitted that the plaintiff had delayed in asserting its rights, but I reject this contention. Like the suggestion of the plaintiff’s acquiescence to the defendant’s conduct, any suggestion of delay overlooks the inducement of the plaintiff to not strictly enforce its contractual rights by the defendant’s misleading conduct. The plaintiff discovered that its rights had been infringed on 31 August 2015. It cannot be said that it has delayed in seeking relief, rather it has acted promptly. I consider, on the material presently available, that at all times Ms Ridgway appears to have acted in good faith. On the other hand, the defendant cannot be characterised, for the relevant equitable doctrine, as having clean hands.
Conclusion
Bearing these considerations in mind, I return to the application of the relevant principle. In assessing the balance of convenience, I do so on the basis that to the extent that I am able to make an appropriate assessment on the material available for this application, I am persuaded that the plaintiff’s claim that the restraint which has been breached is valid and enforceable is not without merit and may be considered to be a strong claim. It is clear that there will be some financial hardship to the defendant, if restrained, and able to establish at trial that the restraint is unenforceable, but I am unpersuaded that the defendant will be unable to find employment and will be without income during the period of the restraint.
On the other hand, the plaintiff will be permanently deprived of the protection afforded to its business by the contract. I do not think that it would be just to confine the plaintiff to a remedy in damages. The defendant has deposed to the fact that he is under some financial stress and he does not identify any assets beyond his loan account with Yang Family No 2 Pty Ltd. Further, the plaintiff will be required to give the usual undertaking as to damages and it is not suggested that that undertaking would be of insufficient value to provide adequate protection to the defendant. I do not accept that the undertakings offered by the defendant would provide the plaintiff with adequate protection for its business if it later transpired that it was entitled to the injunction.
Bearing all of these considerations in mind, I am satisfied that the course that appears to carry the lower risk of injustice if it should turn out to have been wrong is to grant the plaintiff the relief that it seeks.
For these reasons, subject to any further submission from counsel on the form of the order or the question of costs, upon receiving the usual undertaking as to damages from the plaintiff’s counsel, I propose making the following orders.
(a) Until midnight on 27 January 2016 or further order, the defendant be and is restrained from providing, whether directly or indirectly and including by practising as a medical practitioner, any service associated with, or in furtherance of, carrying on -
(i) any general medical clinic within a 10 kilometre geographic radius of Epichealth Medical Clinic at 230 Cranbourne Frankston Road, Langwarrin, in the State of Victoria;
(ii) the McCormicks Road General Practice at 25 McCormicks Road, Carrum Downs, in the State of Victoria.
(b) Liberty to apply.
(c) The costs of the application are reserved.
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