Idameneo (No.123) Pty Ltd v Deady

[2013] VSC 740

Revised
IN THE SUPREME COURT OF VICTORIA		Not Restricted

AT MELBOURNE

PRACTICE COURT

No. 6202 of 2013

IDAMENEO (No.123) PTY LTD (ACN 002 968 185)	Plaintiff
v
JOHN DEADY	Defendant

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JUDGE:	T FORREST J
WHERE HELD:	Melbourne
DATE OF HEARING:	11 December 2013
DATE OF RULING:	11 December 2013
CASE MAY BE CITED AS:	Idameneo (No.123) Pty Ltd v Deady
MEDIUM NEUTRAL CITATION:	[2013] VSC 740

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INJUNCTIONS – Application for an injunction enforcing restraint of trade – Clause restrained the defendant Doctor from providing medical services within 10 km of the plaintiff’s medical practice – Doctor provided medical services 800m from the plaintiff’s medical practice – Strong claim for injunctive relief – Balance of convenience – Whether damages an adequate remedy – Likely plaintiff would suffer financial harm that would be difficult to quantify – Balance of convenience favoured granting of interlocutory injunction – application granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr PJ Jopling QC with Mr DJ Fahey	Herbert Smith Freehills
For the Defendant	Mr J Tsalanidis	Moraw & Agnew

HIS HONOUR:

1. The plaintiff carries on a business operating and managing medical services throughout the country.  One such centre is the Epping Plaza Medical & Dental Centre in Epping Victoria.  The defendant is a general practitioner who, until recently, practised at the Epping Plaza centre. 

1. The plaintiff has issued a writ dated 28 November 2013 complaining, inter alia, that the defendant has breached the restraint clause contained within a contract known as the 'Sale Deed' executed by the plaintiff and the defendant on 2 October 2007. 

1. In substance, the defendant alleges that it paid the plaintiff the sum of $650,000 in 2007 for his existing medical practice.  This assertion is not in dispute. 

1. The defendant agreed, in a separate but related contract (the Practitioner Contract) to commence work with the plaintiff rendering medical services from the plaintiff's new premises at the Epping Plaza Centre.  The defendant was to pay to the plaintiff 50 per cent of all moneys received by the defendant for the provision of medical services during the term of this separate contract.

1. Thus, in return for a lump sum in 2007, the defendant sold his practice and tied himself to the plaintiff's new Epping Plaza business.  A term of the Sale Deed is the restraint clause.  It reads as follows. 

1. RESTRAINT

5.1      Given that:

(a)       the Purchaser is acquiring the goodwill of the practice; and

(b)       the Doctor is to render medical services from the New Premises,

The parties agree that as a reasonable protection for the business of the Purchaser, the Doctor must not during the restraint period:

(i)        render medical services at any place within a radius of 10 kilometres of the Old Premises; or

(ii)       render medical services at any place within a radius of 10 kilometres of the New Premises.

Note 1: In this Clause “render medical services” is not restricted to setting up, or being part of, a medical practice, and includes rendering a medical service to one patient.

Note 2: the parties considered what a reasonable restraint was in the light of a number of matters, but primarily relevant population figures, patient following, and demand for medical services.

5.2      The restraint period under the preceding Clause is the period from completion until the later to occur of:

(a)       the 5^th anniversary of completion; or

(b)       the 3^rd anniversary of the date on which the Practitioner Contract terminates for whatever reason.

5.3      The restraint in Clause 5.1 is suspended from time to time:

(a)       to the extent, and in accordance with, any specific written permission given by the Purchaser; or

(b)       so as to permit the Doctor to render urgent medical attention in circumstances where the failure to do so might reasonably be regarded as unprofessional conduct under the Act; or

(c)       so as to permit the Doctor to enter into and carry out the terms of the Practitioner Contract.

5.4      For each time the Doctor renders a medical service in breach of Clause 5.1 the Doctor must pay to the purchaser, as agreed and assessed damages, 50% of the gross fee payable to the Doctor in respect of that medical service.

1. The restraint period under clause 5.2 was the period from the completion of the sale contract until either five years from that date or the third anniversary of the date on which the defendant terminated the contract for whatever reason.  The later event was to be the operative event from the commencement of the restraint period.

1. Some amendments were made to the practitioner contract in June 2013 but the sale contract, and in particular the restraint clause that I have set out above remained intact.

1. It is undisputed that the defendant gave notice of his intention to terminate the practitioner contract on 10 October 2013 and the plaintiff accepted that notice.  It follows that the restraint clause will operate until 23 October 2016. 

1. The plaintiff alleges that some time in or about October 2013, the defendant commenced rendering medical services at Willandra Medical Clinic, also located in Epping and half a kilometre from the plaintiff's pre‑2007 practice address and 800 metres from the Epping Plaza address. 

1. Willandra is clearly enough well and truly within the restraint zone.

1. As I have said, in his writ, the plaintiff claims a breach of the restraint clause that I have set out earlier in these reasons.  The plaintiff claims to be entitled to damages in the sum of 50 per cent of the gross fees payable to the defendant in respect of medical services rendered by the defendant at the Willandra Medical Clinic pursuant to clause 5.4 of the sale deed or, in the alternative, and I quote: 

Loss of fees the plaintiff would have received had the defendant complied with the restraint clause.

I consider that this alternative claim for damages attempts to address the financial cost to the Epping Plaza Centre that is consequent upon the defendant setting up practice a few hundred metres away.

1. The defendant has filed an affidavit in these proceedings that sets out his previous practice experience, the circumstances that surrounded the purchase of his practice by the plaintiff, his entering into the sale deed, his work at the Epping Plaza Medical Centre and how that centre operated, how he was remunerated for same, an investigation by Medicare in 2010, patient care at the centre and various criticisms about issues that he had with the administration, management and culture at the centre, negotiations that surrounded a variation to his remuneration package in an amendment to the contracts deed and the events that led to his resignation.

1. The defendant conceded that he has worked at Willandra since 11 November 2013.

1. In this application, the plaintiff, by summons, seeks an interlocutory injunction restraining until the trial of the proceeding the defendant from rendering medical services, save to his friends and family, at (a) the Willandra Medical Clinic or, (b) any place within a ten kilometre radius of the old premises or the Epping medical centre.

1. At this stage I am comfortably satisfied that there is a serious question to be tried.  I am so satisfied for the following reasons: 

(a)Dr Deady was paid $650,000 by the plaintiff for the goodwill of his existing practice in October 2007.  This is a substantial sum and reflects Dr Deady's strong personal following.

(b)A restraint clause was part of the consideration under the sale of practice deed that accompanied that sale.  I have recited that clause earlier in these reasons.

(c)I accept that upon Dr Deady's resignation on 24 October 2013 the restraint clause became operative and it will remain so until 23 October 2016.

(d)In prima facie breach of the restraint clause, Dr Deady has commenced practice at the Willandra Medical Clinic approximately 800 metres from the plaintiff's medical centre.

(e)I accept that the restraint clause was inserted into the sale deed to protect the plaintiff's economic interests, it having purchased the goodwill attaching to Dr Deady's existing practice.

1. Whilst a contractual provision that acts in restraint of trade is, prima facie, void that is a rebuttable presumption if the restriction is reasonable by reference to the interests of the parties. [1] The restraint provision is within the Sale Deed and, in my view, for the reasonable purpose of protecting the plaintiff's $650,000 investment.  I consider also that the ten kilometre coverage contained within the restraint is reasonable given Epping's demography, geographic characteristics and the location of the medical centre to other medical centres in the area. I should observe that Dr Deady lives approximately 15 kilometres from the Epping Place Medical Centre and within one month of terminating his practice there he set up practice only 800 metres away.

   [1]See, Wallis Nominees (Computing) Pty Ltd v Matthew William Pickett [2013] VSCA 24 at [14]

1. These factual findings have been reached largely from the material contained within the affidavits of Messrs Bateman and Monk that have been filed on behalf of the plaintiff in these proceedings.  I consider that the plaintiff has a relatively strong claim for injunctive relief.

Balance of Convenience

1. Mr Tsalanidis, who appeared for Dr Deady, submitted with some force that damages would be an adequate remedy and that the justice of the case required that the plaintiff be confined to that remedy.  He submitted that I should adopt the same approach as was taken by McDougall J in Idameneo (No.123) Pty Ltd v Butterworth.[2]

   [2][2013] NSWSC 356 at [15], (‘Butterworth’).

1. Butterworth is a similar but not identical case in which the same plaintiff as in the current case sought to injunct a 75‑year‑old doctor who was the subject of an identical restraint clause to the current case.  Mr Tsalanidis argued carefully that the parties have stipulated a remedy for a breach of restraint in clause 5.4 and that this court, like McDougall J in Butterworth, ought be slow to substitute its own judgment that some other remedy is appropriate. 

1. Mr Tsalanidis submitted that undertakings given to Cavanough J by the defendant on 3 December 2013 to retain various records were sufficient to protect the plaintiff's interests without resort to injunctive relief. 

1. I was referred to Dr Deady's affidavit and his expressed preference to work at Willandra, doing home visits and seeing WorkCover patients and preparing reports on their behalf.

1. Mr Tsalanidis submitted that the Epping community ought not be deprived of the very worthwhile services performed by the defendant through the imposition of a restraint, particularly given its relatively low socio‑economic base and the large number of young and migrant families in that area.

1. I am not satisfied that it would be just, in all the circumstances, that the plaintiff in this matter be confined to its stipulated remedy in damages.  Put another way, I am positively satisfied that damages may not be an adequate remedy to the plaintiff.  I am satisfied that Dr Deady is a caring, highly competent and popular practitioner.  Over a period of five years, 78 per cent of his patients requested him specifically.  I accept that his departure to Willandra will cause commercial damage to the plaintiff's business that cannot easily be calculated.  I consider it highly likely, over time, that many existing patients of Dr Deady at the plaintiff's medical centre will transfer to his care at Willandra.  In my view, this is likely whether Dr Deady solicits those patients or not.  Word of mouth is a powerful influence.

1. I am unable to quantify the number of patients likely to change nor the economic impact to the plaintiff of losing those patients.  It may be that the 50 per cent of gross fees breach provision in clause 5.4 of the sale deed may be sufficient to cover damages.  But equally, it may be entirely insufficient.

1. On the material before me, I am positively satisfied that there is a chance, and not a fanciful one, that the liquidated damages provision in clause 5.4 will be insufficient to cover the actual economic damage to the plaintiff's business.  Even if the liquidated damages can be precisely calculated, this resolves only one factor differently the defendant’s favour. In my view it does not mean that it is any more just that the defendant can avoid his clear contractual obligation.

1. Mr Jopling, for the plaintiff, referred me to Tullett Prebon (Australia) v Simon Purcell and in particular to the following passage from Brereton J's decision: 

In the present case, the relevant damage will largely pertain to TPAust’s goodwill and customer connection, and it may not be easy to quantify how many transactions TPAust would lose due to Mr Purcell’s employment by a competitor, their value, and the impact on TPAust’s market share. Such damage is not reasonably capable of precise quantification. Mr Rushton SC submitted that, even without clause 10.4, a conventional analysis could be undertaken of business records to calculate what profit TPAust lost by reason of Mr Purcell accepting employment elsewhere [cf Tradition Australia Pty Ltd v Gunson, [31] (Barrett J)], but such an analysis would require assumptions to be made, which TPAust would have to prove, as to what business Mr Purcell would have retained and secured for TPAust – which is not necessarily the same as the business he would gain for BGC – and such matters are not easily proven. In these circumstances, compensation for a breach is plainly an inferior remedy to prevention of the breach. While the fact that there is a “liquidated damages” provision arguably removes one factor which would otherwise tell in favour of the inadequacy of damages – namely, difficulty of calculation – it does not make it any more just that Mr Purcell should be able to escape from his contractual obligations at the price of paying damages. Equity holds parties to their agreements, rather than allowing them to escape from them at the price of damages (my emphasis). [3]

[3]           Tullet Prebon (Australia) v Simon Purcell [2008] NSWSC 852 at 102.

1. I accept that if I grant this injunction it will cause Dr Deady inconvenience but I do not accept it will cause any significant lasting economic impairment.  Dr Deady lives in Templestowe and can practice anywhere in Melbourne provided that he is not within ten kilometres of Epping. 

1. As I observed in discussion with counsel, Melbourne is a big city.  It covers a vast area and I consider that Dr Deady is eminently and immediately employable in most of that vast area.  It is true that he will have to leave Willandra if I accede to this application, but he is hardly one of their long‑term employees.

1. In his affidavit he did not suggest that he may experience difficulty in finding geographically suitable work. 

1. In all the circumstances I am persuaded that the balance of convenience lies in favour of a grant of interlocutory relief and I propose to make orders in those terms.