Idameneo (No 123) Pty Limited v Fox (No. 2)
[2014] NSWDC 209
•11 November 2014
District Court
New South Wales
Medium Neutral Citation: Idameneo (No 123) Pty Limited v Fox (No. 2) [2014] NSWDC 209 Decision date: 11 November 2014 Before: Neilson DCJ Decision: Verdict and judgment for the plaintiff
Catchwords: DAMAGES - Breach of contract - Defendant a former medical practitioner contracted to provide medical services at plaintiff's medical centre - Defendant failed to provide required number of hours of service - Substitute medical practitioners not available to mitigate plaintiff's loss Category: Principal judgment Parties: Idameneo (No 123) Pty Limited (Plaintiff)
David Anthony Fox (Defendant)Representation: Mr G Lucarelli (Plaintiff)
In person (Defendant)
File Number(s): 2014/185935 Publication restriction: No
Judgment
HIS HONOUR: The defendant is a former medical practitioner. He previously carried on practice at the Oxford Square Medical Centre in Oxford Street, Darlinghurst, New South Wales. On 11 December 2006 he sold that medical practice to the plaintiff for $500,000. At the same time, he executed a deed in which he agreed to work for the plaintiff as a contractor medical practitioner at the Darlinghurst Medical Centre at 213-219 Darlinghurst Road, Darlinghurst for a period of five years. The five years commenced on 11 December 2006 and finished on 10 December 2011.
The defendant agreed to work for the plaintiff on Mondays between 2pm and 8.30pm, on Tuesdays between 2pm and 8.30pm, on Wednesdays between 2pm and 10pm, on Thursdays between 2pm and 8.30pm, on Fridays between 2pm and 8.30pm, and on Saturdays between 2pm and 8.30pm. He also agreed to work one half of the Christmas and New Year period on a special roster which provided for five days on and five days off. He also agreed to work an equal share of any other public holiday period special roster with other practitioners at the Darlinghurst Medical Centre. The idea was that the Darlinghurst Medical Centre operate 24 hours a day for 365 days a year in an efficient manner. In short, the defendant agreed to work for the plaintiff for 40 hours per week for 48 calendar weeks each financial year.
In the period from 11 December 2006 to 30 June 2007 the defendant was expected to work for 1,063 hours but, in fact, only worked for 607 hours. During the financial year ending 30 June 2008 the defendant was required to work for the plaintiff for 1,920 hours but, in fact, only worked for 1,120 hours. During the period from 1 July 2008 to 17 December 2008 the defendant was required to work for 894 hours but only worked for 618 hours. During the first of those three periods the defendant's actual billing rate was $337 per hour. During the second period, that is, the financial year ending 30 June 2008, the defendant's actual billing rate was $314 per hour. In the final period, that is, from 1 July 2008 to 17 December 2008, the defendant's actual billing rate was $272 per hour.
The income lost by the defendant's not working the required number of hours was twice the sum of $239,869. The significance of that sum is that the defendant agreed to pay to the plaintiff half of his income as a medical practitioner in consideration of the plaintiff's providing to the defendant premises in which to practise and all necessary equipment, supplies, staff and all necessary support required for a medical practitioner carrying out his primary function of treating members of the community who needed medical or surgical attention.
On 19 December 2008 the Medical Tribunal of New South Wales ordered that the defendant's name be removed from the Register of Medical Practitioners and made an order refusing permission to the defendant to apply for his name to be restored to the Register of Medical Practitioners until 19 December 2011 which, of course, was after 10 December 2011 when the defendant's contract with the plaintiff terminated. The plaintiff has calculated that, in the period from 18 December 2008 to 10 December 2011, the plaintiff forewent the sum of $777,342, being half of what the defendant would have earned as a medical practitioner if he had worked the contracted hours and earned at an hourly rate of $272.
It can be seen, therefore, that the plaintiff has used the lowest hourly rate earned by the defendant when he was working for the plaintiff, being his hourly rate in the period from 1 July 2008 until 17 December 2008. The plaintiff could have averaged the defendant's earnings over the whole period from 11 December 2006 to 17 December 2008 in order to reach a higher hourly rate or, indeed, could have increased the hourly rate after 17 December 2008 by something such as indexation with the CPI or by consulting average earnings of medical practitioners and increasing the hourly rate of the defendant by increases in the hourly rates of other medical practitioners over the period from 18 December 2008 to 10 December 2011. However, the plaintiff did not do so.
Half the total of the sums that the defendant did not bill calculated on the basis to which I have referred is $1,017,211. From that, of course, had to be deducted the plaintiff's actual expenses in providing the service which it did to the defendant. In addition, the plaintiff's expert accountant has applied a discount rate of 9% per annum in calculating the present value as at 11 December 2006 of the loss of profits that the plaintiff would expect to obtain. Why such a discount was applied by the plaintiff's accountant I do not know. However, the defendant is happy to accept that discount rate.
Applying the costs incurred by the plaintiff and the 9% discount, the plaintiff's accountant, Mr Gower, has calculated that, in the period when the defendant was actually working for the plaintiff, the plaintiff forewent the sum of $188,488, and during the period when the defendant was unable, as a matter of law, to work for the plaintiff, the plaintiff forewent the sum of $490,310. The total of those sums is $678,798, which is the sum claimed by the plaintiff.
In addition, the plaintiff claims interest; however, it only claims interest on the total sum from 15 January 2009 when the plaintiff formally terminated its contract with the defendant and on a simple interest basis, not a compound interest basis. The total interest calculated in the lump sum of $678,798 is, according to MFI 3, $312,765.52. The total of the lump sum and the interest amounts to $991,563.52.
The objection which could be taken but has not been taken is that the plaintiff could have engaged another medical practitioner to replace the defendant and thereby would have lost no money. However, there is a wealth of evidence before me that there is a shortage of general practitioners and it is difficult to obtain staff to join the workforce at the Darlinghurst Medical Centre and similar medical centres established by the plaintiff, and that the more medical practitioners there are at any particular medical centre, the more members of the public attend upon that centre to seek treatment. For example, in his affidavit of 5 November 2014, Mr Timothy Charles Ruer, the chief financial officer of the plaintiff, says this:
"Based on my experiences with Idameneo and my knowledge of its operations, Idameneo does not open, nor does it operate, small scale medical centres. If Idameneo decides to open a medical centre, Idameneo endeavours to ensure that at least approximately eight - ten GPs are rendering medical services from the day the centre is opened. Once Idameneo opens a new medical centre, Idameneo endeavours to recruit as many GPs as it can and place those GPs at the new medical centre."
In the following paragraph of his affidavit Mr Ruer attests that, in his experience, when more general practitioners are recruited to one of the plaintiff's medical centres, more patients end up attending that medical centre. In the same paragraph Mr Ruer attests to this:
"What makes the Idameneo model work is getting 15 to 25 GPs to work at a medical centre, and then getting additional service providers, such as dentists, specialists, pharmacists and X-ray services to work there also, which further [increases] patient numbers."
There is also affidavit evidence from Fiona Jane Ward, the chief operating officer of the plaintiff, who has worked there since May 2009. In her affidavit Ms Ward says this:
"Idameneo identifies GPs practising within the local area and beyond. When Idameneo opens a new medical centre it endeavours to contract with approximately eight - ten GPs to render medical services from the opening of the centre since the centre will operate with extended hours and be open 365 days a year. Over time, Idameneo then tries to recruit additional doctors to render medical services at the centre and, typically, the number of GPs practising at most centres operated by Idameneo is about 15. Several of Idameneo's larger medical centres have about 20 GPs rendering medical services...The Darlinghurst Medical Centre located at 213-219 Darlinghurst Road, Darlinghurst, New South Wales, 2010 ('The Darlinghurst Medical Centre') is no exception. In my experience of overseeing medical centres, the more doctors there are working at the centre, the bigger the practice grows. In my experience working for Idameneo, I have not encountered a situation where Idameneo has had to reduce the number of doctors practising from a centre owing to a lack of demand for doctors."
The affidavit goes on to tell me that, at the Darlinghurst Medical Centre, there are 14 rooms in which 16 general practitioners can render medical services. At the time of swearing her affidavit, namely, 6 November 2014, there were 12 full time general practitioners and two part time general practitioners working at the Darlinghurst Medical Centre. It is to be recalled that the centre is open for 24 hours per day so, even with 12 full time general practitioners and two part time general practitioners, the centre would not ever be fully staffed.
Commencing at par 11 of her affidavit Ms Ward tells me that there are five methods predominantly used by Idameneo to recruit medical practitioners. I need not cite them. In the following paragraph she says this:
"As part of my employment at Primary [the parent company of the plaintiff] I have liaised with recruiters engaged by, or on behalf of, Idameneo for the purpose of recruiting GPs to render medical services in its medical centres. In my interactions with recruiters, I have observed that securing the services of a GP is difficult for a number of reasons, including:
(a) the fact that there is a general shortage in the supply of general practitioners relative to patient demand;
(b) some GPs do not wish to change the nature of their practice, such as working public holidays, weekend hours or evenings during the week which is generally necessary for GPs rendering medical services from Idameneo's medical centres so that the centres can operate at extended hours, 365 days a year; and
(c) it is impossible to control where general practitioners wish to work making it difficult to recruit general practitioners in certain areas."
I hazard the observation that there are many local councils in rural New South Wales which make the same observation as last made by Ms Ward.
In the succeeding paragraph of her affidavit Ms Ward said this:
"In order to attract GPs to work at the Darlinghurst Medical Centre, Idameneo has had to offer large capital upfront payments generally in the range of $250,000 and $750,000 for a GP to agree to sell their existing medical practice and render medical services from the Darlinghurst Medical Centre for a minimum period of time. I have checked the business records of Idameneo and I have observed that Idameneo has never been able to successfully attract a GP to sell his or her medical practice and relocate to the Darlinghurst Medical Centre for less than an upfront purchase price payment of $250,000."
I therefore accept that it would be fallacious to reduce the plaintiff's claim because of an argument that the plaintiff could have engaged another medical practitioner to do the work which the defendant failed to do. Any additional recruiting would end up with there being additional clients attending the plaintiff's medical centres.
In addition, Ms Ward has annexed to her affidavit a list of patients who did not wait on any particular day of the week. I know from Mr Ruer's affidavit that, when each patient first attends one of the plaintiff's medical centres and asks to see a general practitioner, a time is recorded by the centre's computers. The same computer system also records the time at which a general practitioner first enters the patient's electronic patient notes and, therefore, when the consultation between the patient and the medical practitioner commences. The records annexed to Ms Ward's affidavit tell me that, on some days when the defendant was contracted to work for the plaintiff, a large number of patients left before seeing the general practitioner. For example, on 6 October 2010, 11 patients left prematurely; on 8 October 2010, 12 left prematurely; on 12 October 2010, 11 left prematurely; on 20 October 2010, 10 left prematurely; on 3 November 2010, 10 left prematurely; on 4 November 2010, 12 left prematurely; on 20 December 2010, 15 left prematurely; and on 22 December 2010, 15 left prematurely.
January 2011 was also a busy period with 24 leaving prematurely on the 4th, 14 on the 5th, 10 on the 11th, 17 on the 12th, and 12 on the 13th. Similar large figures were recorded in February, 19 on the 1st, 10 on the 3rd, 15 on the 4th, 27 on the 7th, 12 on the 9th, and 21 on the 10th. Again, that indicates that there was a need for more medical practitioners at the Darlinghurst Medical Centre who could have consulted with the defendant were he still working there. In addition, there must be people who attend at the clinic, ask how long the wait will be and, when told, leave without having their names recorded and, therefore, not being entered in the computer system.
I have just observed that I have made an error earlier in these reasons. The plaintiff's claim for interest does commence on 15 January 2009 but the amount claimed is on the whole sum. The interest must be recalculated, by halving the amount of interest claimed for the period until 1 January 2012.
In calculating damages it is always prudent to look at another method of calculating damages in order to check that the damages initially assessed are reasonable. I do know that in the approximately two year period when the defendant worked for the plaintiff the net sum paid to the plaintiff was $301,284.67. That indicates a net taxable income of about $150,000 per annum. For the three years not worked, one could calculate the sum of $450,000.
However, the defendant was not working the contracted number of hours. During the first period he only worked 57% of the time, during the second period he only worked 58% of the time, and during the third period he only worked 69% of the contracted time. If I average that out at 60% and look upon $450,000 as being 60% of what the defendant should have returned and increase that to 100%, I come to a figure of $750,000 which, of course, is less than the sum of $678,798 calculated by the plaintiff's qualified accountant. Applying that check, the sum claimed is, in my view, reasonable.
The interest claimed by the plaintiff has now been moderated by reducing the interest claimed prior to 1 January 2012 by half to account for the fact that the full sum claimed by the plaintiff was not, in fact, owed by the defendant to the plaintiff from 15 January 2009 but it did become fully payable to the plaintiff as at 10 December 2011. The interest must accordingly be reduced by $89,218.07, the interest then amounting to $223,547.45. That sum of interest added to $678,798 represents a lump sum of $902,345.45.
It cannot be objected that the sum claimed and proposed to be awarded to the plaintiff is greater than the statutory limit of this Court because interest is not taken into account in assessing the amount covered by the statutory jurisdiction of the Court. In other words, provided the primary debt is beneath $750,000 the plaintiff can recover interest thereon from the date on which it became payable. For those reasons I give verdict and judgment for the plaintiff against the defendant for $902,345.45. I order the defendant to pay the plaintiff's costs.
Any other orders sought?
LUCARELLI: No, your Honour, no other orders sought.
HIS HONOUR: There are some exhibits that have to be marked.
LUCARELLI: Perhaps if the exhibits can be returned, your Honour. They're usually kept for 28 days.
HIS HONOUR: I know the Registry hates keeping them because we don't have the room to store them. Mr Fox, we generally return exhibits to the party that tendered them.
DEFENDANT: Yes.
HIS HONOUR: The only reason for keeping them is if there is to be an appeal to the Court of Appeal. If you wish to appeal, you have to appeal within 28 days. Do you wish to appeal?
DEFENDANT: It's possible.
HIS HONOUR: Anything is possible, Mr Fox.
DEFENDANT: Thank you, sir.
HIS HONOUR: I need to know if it's likely.
DEFENDANT: Likely.
HIS HONOUR: Sorry, it is likely?
DEFENDANT: Mm.
HIS HONOUR: Exhibits to be retained for 28 days.
**********
Decision last updated: 08 December 2014
2
0
0