Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak

[2006] NSWSC 844

Reported Decision: 67 NSWLR 569

New South Wales

Supreme Court

CITATION:	Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 844
HEARING DATE(S):	13/6/06-16/6/06,4/7/06-6/7/06
JUDGMENT DATE :	13 September 2006
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Booking sheets belong to proprietor of medical practice. Pathology reports belong to patient, but proprietor of medical practice has rights as bailee at will concerning them, and a superior right to possession of them to that of a doctor working in the practice. The failure to hand over all copies of booking sheets and pathology reports was breach of a particular contract for sale of a medical practice. Doctor working in medical practice owes obligation of confidentiality to proprietor of the practice, concerning patient names and addresses and telephone numbers contained in what is in substance a list. Obligation of confidentiality is assignable by the proprietor of the medical practice to a purchaser of that practice. Assignee of a contractual obligation of confidentiality can recover only for those damages which the assignor could have recovered for breach of the obligation. No such damages proved. Alternatively, no loss suffered by the assignee proved. Assuming account of profits would be available, allowance for expenditure of time skill and effort would need to be made, and after the making of that allowance no money would be recoverable. A decision of the Court of Appeal, which has been affirmed by the High Court, for reasons different to those adopted by the Court of Appeal, is not binding as a matter of law on first instance judges.
CATCHWORDS:	PERSONAL PROPERTY - ownership and possession - ownership of medical records relating to patient treatment - ownership of pathology reports obtained by a medical practitioner for patients - rights to possession of pathology reports obtained for patients - MEDICINE - medical practitioners - ownership of records relating to patient treatment - ownership of pathology reports obtained for patients - rights to possession of pathology reports obtained for patients - role of medical practitioner in ordering pathology report - CONTRACTS - PARTICULAR PARTIES - Principal and Agent - role of medical practitioner in ordering pathology report for patient - MEDICINE - medical practitioners - manner of operation of bulk billing system in Medicare - CONTRACTS - GENERAL CONTRACTUAL PRINCIPALS - implication of terms - tests for implication in an informal contract - implication of obligations of confidentiality on medical practitioner working in another’s practice - MEDICINE - medical practitioners - obligations of confidentiality of persons working in a medical practice - EQUITY - obligations of confidence arising in equity’s exclusive jurisdiction - obligations of confidentiality of medical practitioner working in another’s practice - EQUITY - assignments in equity - whether as a matter of construction a contractual obligation of confidentiality has been agreed to be assigned - whether a contractual obligation of confidentiality is inherently assignable - rights of an equitable assignee of a contractual obligation - for what damages an assignee of the benefit of a contractual obligation can sue - PRECEDENT - whether a decision of the Court of Appeal, which has been affirmed in the High Court, for reasons different to those adopted by the Court of Appeal, is binding as a matter of law on first instance judges - EQUITY - equitable remedies - account of profits - principles for computation - allowance for expenditure of time effort and skill
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) Conveyancing Act 1919 Health Insurance Act 1973 (Cth) Health Insurance (Professional Services Review) Regulations 1999 (Cth) Maintenance, Champerty and Barratry Abolition Act 1993 Native Title Act 1993 (Cth) Privacy Act 1988 (Cth) Privacy Amendment (Private Sector) Act 2000 (Cth)
CASES CITED:	Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 Ashcoast Pty Ltd v Whillans [2000] 2 Qd R 1 Askew v Seventh Granite Pty Ltd (Olney J, Federal Court of Australia, 1 September 1995, unreported) Automobile Carriage Builders Ltd v Sayers (1909) 101 LTR 419 Baines v Geary (1887) 35 Ch D 154 Balabel and another v Air-India [1988] Ch 317 Benwell v Inns (1857) 24 Beav 307; 53 ER 376 Re Bethel [1970] 3 OR 745 Bluebottle UK Ltd & Ors v Deputy Commissioner of Taxation (2006) NSWSC 706 Boardman v Phipps [1967] 2 AC 46 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266; (1977) 16 ALR 363; (1977) 52 ALJR 20 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Breen v Williams (1996) 186 CLR 71 Re Budd; Budd v Budd (1958) 112 DLR (2d) 783 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Canada Permanent Trust Co v MacFarlane [1972] 27 DLR (3d) 480 Chapman v Luminis Pty Ltd (No 4) (2001) 123 FCR 62 Cock v Aitken (1911) 13 CLR 461 Cock v Smith (1909) 9 CLR 773 Commissioner of Taxation (Cth) v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 336 Coulthard v State of South Australia (1995) 63 SASR 531 Re Cox [1951] OR 205 In re Cox, dec’d; Edwin G Baker v National Trust Co Ld and others [1955] AC 627 Davies v Davies (1887) 36 Ch D 359 Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437; [1955] 2 All ER 561 Don King Productions Inc v Warren [2000] Ch 291 Duke of Queensberry v Shebbeare (1758) 2 Eden 329; 28 ER 924 Dwyer v Derek [2004] 1 Qd R 371 E I Du Pont de Nemours Powder Company v Walter e Masland 244 US 100, 37 S Ct 575 (1917) Ellis v Torrington [1920] 1 KB 399 Elves v Crofts (1850) 10 CB 241; 138 ER 98 Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 Federal Commissioner of Taxation of the Commonwealth of Australia v Murry (1998) 193 CLR 605 Foster and Others v Mountford and Rigby Ltd (1976) 14 ALR 71 Fraser v Evans [1969] 1 All ER 8 García v National Australia Bank Ltd (1998) 194 CLR 395 Green v Folgham (1824) 1 Sim & St 398; 57 ER 159 Hack v London Provident Building Society (1883) 23 Ch D 103 Hadley v Baxendale (1854) 9 Ex 341 Health Services for Men Pty Ltd & Ors v D’Souza & Others (2000) NSWCA 56; (2000) 48 NSWLR 448 Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 17 Hunter v Mann [1974] QB 767 at 772 Jacob v Utah Construction and Engineering Pty Ltd (1966) 116 CLR 200 Jacoby v Whitmore (1883) 49 LT 335 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 Johns v Australian Securities Commission (1993) 178 CLR 408 Jones v T Eaton Co (1973) 35 DLR (3d) 97 Kadian v Richards (2004) 61 NSWLR 222 In Re Keene [1922] 2 Ch 475 L/M International Construction Inc (now Bovis International Inc) and another v The Circle Ltd Partnership (1995) 49 Con LR 12 Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512 Magic Menu Systems v AFA Facilitation Ltd (1997) 72 FCR 261 Martell v Consett Iron Co Limited [1955] Ch 363 Re Massey [1959] OR 608 Mense and Ampere Electrical Manufacturing Company Pty Ltd v Milenkovic [1973] VR 784 Millwell Holdings Ltd v Johnson (1988) 12 IPR 378 Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory v Indofurn Pty Ltd, Bethune, King & Rylands (1994) 54 FCR 240; (1994) 130 ALR 659 MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 Moorgate Tobacco Co Ltd v Philip Morris Ltd (1982) 64 FLR 387 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Morison v Moat (1851) 9 Hare 241; 68 ER 492 Mulkern v Lord (1879) 4 App Cas 182 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; [1940] 3 All ER 549 NP Generations Pty Ltd v Feneley (2001) 80 SASR 151 O Mustad & Son v Dosen [1963] RPC 41; [1964] 1 WLR 109; [1963] 3 All ER 416 O’Brien v Benson’s Hosiery (Holdings) Ltd [1980] AC 562; [1979] 3 All ER 652 Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd and others (1930) 31 SR (NSW) 347 Pearson v The Arcadia Stores, Guyra, Limited (1935) 53 CLR 571 Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 R v Diggines; ex parte Rahmani [1985] QB 1109 R v Secretary of State for the Home Department, ex parte Al-Mehdawi [1989] 1 All ER 777 Rahmani v Diggines [1986] AC 475 Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 Robb v Green [1895] 2 QB 1 Roux v Australian Broadcasting Commission [1992] 2 VR 577 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 Silkdale Pty Ltd v Long Leys Co Pty Ltd (1995) 7 BPR 14,414 Re Simpson [1927] 4 DLR 817 Re Simpson Estate [1928] 3 DLR 773 Smith Kline & French Laboratories (Aust) Ltd & Ors v Secretary, Department of Community Services & Health (1990) 22 FCR 73 Smith v Cock [1911] AC 317 Spathis v Hanave Investment Co Pty Ltd & Anor [2002] NSWSC 304 Stevens v Keogh (1946) 72 CLR 1 Surveys & Mining Ltd v Morrison [1969] Qd R 470 Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 Re Tosich Construction Pty Limited (1997) 73 FCR 219 Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 Townsend v Jarman [1900] 2 Ch 698 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 TS&B Retail Systems Pty Ltd v 3fold Resources Pty Ltd and Others [2003] FCA 371; (2003) 57 IPR 530 United States v Grossman 843 F.2d 78 (2nd Cir. 1988) Warman International Limited & Another v Dwyer & Others (1995) 182 CLR 544 Re Wedge (1968) 67 DLR (2d) 433 Weldon & Co v Harbinson [2000] NSWSC 272 Welstead v Hadley (1904) 21 TLR 165 Western Australia v Ward (2002) 213 CLR 1 Western Wagon and Property Company v West [1892] 1 Ch 271 Re William Felton Co Pty Ltd (1998) 28 ACSR 228 Wolfe v Shelley (Shelley’s Case) (1581) 1 Co Rep 936; 76 ER 206 Young v Bristol Aeroplane Co Ltd [1944] KB 718
PARTIES:	The Mid-City Skin Cancer & Laser Centre Pty Ltd - First Plaintiff Ali Zahedi-Anarak - First Defendant Idameneo (No 123) T/as Sydney Medical Centre - Second Defendant L W Kernot Pty Ltd - Third Defendant Laurence William Kernot - Fourth Defendant
FILE NUMBER(S):	SC 2863/02
COUNSEL:	R D Marshall; P K Bruckner - Plaintiff J Downing - First Defendant G Lucarelli - Second Defendant R D Wilson; A Eastman (13/6/06-16/6/06) - Third and Fourth Defendants A Tibbey (4/7/06-6/7/06) - Third and Fourth Defendants
SOLICITORS:	Kelvin Solari - Plaintiff Yeldham Lloyd Associates - First Defendant Kennedys - Second Defendant Hancock Alldis & Roskov - Third and Fourth Defendants

INDEX

Paragraph No.
Nature of the Case	1
PART A – FACTS
Basis on which Dr Zahedi Worked at the Clinic	8
Manner of Operation of the Clinic	24
Patient Cards	37
Pathology Reports	39
Waiting Room Rules	49
Instruction Concerning the Third Pathology Report?	58
Pre-Contractual Communications Between Plaintiff and Dr Kernot	65
The Contract For Sale to the Plaintiff	70
Dr Zahedi’s Actions Concerning the Sale	81
Documents Held by Dr Zahedi	95
Dr Zahedi Contacts Former Patients	100
PART B – PROPERTY RIGHTS IN DOCUMENTS
Ownership of Booking Sheets	107
Ownership of the Pathology Reports	114

PART C – EXISTENCE AND BREACH OF OBLIGATION OF CONFIDENCE?

Was Dr Zahedi Under a Contractual, or an Equitable, Obligation of Confidence to the Kernot Company?	132
Implied Term of Confidence?	133
Breach of Implied Term?	148
Equitable Obligation of Confidence?	155

PART D – OBLIGATION OWED BY DR ZAHEDI TO THE PLAINTIFF?

Has There Been an Assignment of the Benefit of the Contractual Term to the Plaintiff?	159
Is there a Contract to Assign this Chose in Action to the Plaintiff?	162
Consideration	172
Inherently Unassignable Chose in Action?	173
Principles Concerning Unassignable Choses in Action
Identity of Assignor Important to Content of Obligation	176
Relevance of Assignment of Only Part of the Contractual Obligations?	181
An Instructively Wrong Argument	183
Manner of Operation of Equitable Assignment of Legal Obligations	185
How to Calculate the Assignor’s Damages for Breach of Confidentiality Covenant	191
Unassignable Because it is a Bare Right to Litigate?	194
Conclusion – Benefit of Covenant in Principle Assignable	195

Authority Relevant to Assignability of Obligations of Confidence

Judgments Favouring Assignability	196
Judgments Against Assignability	215
Proper Parties to an Action by the Assignee?	239
Assignability of an Equitable Obligation of Confidence	240
PART E – PLAINTIFF’S REMEDIES AGAINST DR ZAHEDI
Can the Plaintiff Recover Damages from Dr Zahedi?	244
Can the Plaintiff Receive an Account of Profits from Dr Zahedi?	270
PART F – THE CASE AGAINST IDAMENEO	283

PART G – THE CASE AGAINST DR KERNOT AND THE KERNOT COMPANY

Reasonable Efforts to Perform the Contract?	292
Measure of Damages for Breach of Contract by the Kernot Company	297
Orders	299
APPENDIX	300
Hack	302
Al-Mehdawi	306
Re Massey	312
Re Budd	319
Matters of Principle	321
Distinguishing Cock & Aitken	326
Conclusion	327

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

13 SEPTEMBER 2006

2863/02 THE MID-CITY SKIN CANCER & LASER CENTRE PTY LTD v ALI ZAHEDI-ANARAK & ORS

JUDGMENT

HIS HONOUR:

Nature of the Case

1 Of recent years there has been a phenomenon known as corporatisation in medical practice. Formerly, a medical practitioner of entrepreneurial bent might own, at most, usually two or three medical practices, in which other medical practitioners would be employed. Now, there is a much wider tendency for an entrepreneurial proprietor of medical practices to engage other practitioners to work in that practice on the basis that they are to be independent practitioners, each with their own practice, but with all the facilities for the conduct of that practice provided by the entrepreneur or a corporation controlled by the entrepreneur. Frequently, the entrepreneur's fee is calculated as a percentage of the billings of the doctor who works in the practice. Under this type of arrangement, some entrepreneurial medical practitioners have come to control a very large number of practices. This judgment explores some of the issues which arise concerning ownership and right to possession of medical records, and the owing of obligations of confidentiality, in such a corporatised practice.

2 Dr Laurence William Kernot set up a medical practice in 1991 specialising in the identification, diagnosis, removal and treatment of skin cancers and growths. At the times relevant to this litigation he conducted it through his company LW Kernot Pty Ltd. I will refer to that company as “the Kernot Company”. Dr Ali Zahedi-Anarak (who is known as Dr Zahedi) came to work in that practice.

3 The plaintiff is a company controlled by Dr David Lindsay. Dr Lindsay is also a medical practitioner specialising in skin cancer. The plaintiff purchased from the Kernot Company certain assets connected with the practice which Dr Kernot had set up.

4 Dr Zahedi and Dr Lindsay were not able to reach agreement on terms on which Dr Zahedi could continue to work in the practice which the plaintiff had purchased. Later, Dr Zahedi came to carry on practice at medical centres operated by Idameneo (No 123) Pty Ltd (“Idameneo”). Dr Zahedi took with him, to one of Idameneo’s medical centres, certain documents which contained patient contact details and patient treatment details, being documents which he had used in the course of carrying on practice at the clinic which Dr Kernot had begun. Dr Zahedi used some of those documents to contact former patients.

5 The plaintiff alleges that Dr Zahedi is in breach of an obligation of confidence in so doing. The plaintiff also alleges that Idameneo has assisted Dr Zahedi in so doing, with knowledge or notice of the plaintiff’s claim of confidentiality, and that both Dr Zahedi and Idameneo have derived profits through the wrongful use of confidential information of the plaintiff.

6 Alternatively, the plaintiff sues Dr Kernot and the Kernot Company, alleging that they have breached various warranties in the agreement for sale of the assets connected with the practice.

7 The trial was one on all issues on the pleadings, save for quantum of any damages which might be payable, but on the express basis that that exception did not preclude the need for the plaintiff to establish that some damage had been sustained to obtain an inquiry as to damages.

PART A - FACTS

Basis on which Dr Zahedi Worked at the Clinic

8 The practice which Dr Kernot started was known as “Sydney Skin Cancer Clinic”. I will refer to it as “the Clinic”. At all relevant times it operated from leased premises on the third floor of Dudley House, a building at 468 George Street, Sydney. Dr Kernot worked in the Clinic himself, and as well, over the years around 15 different doctors worked there at different times.

9 Dr Lindsay had worked there for about four years up to the later part of 1996, after which Dr Lindsay caused the plaintiff to start its own skin cancer practice, at 403 George Street, Sydney. Dr Kernot required Dr Lindsay to cease working at the Clinic after Dr Kernot came to the view that Dr Lindsay had been taking home patient records with a view to setting up a practice in opposition, and had been making enquiries about suitable premises. Dr Lindsay denies that he had taken any patient records home. It is not necessary for present purposes to decide whose evidence on this topic is correct. However, it is relevant for present purposes that Dr Lindsay had signed some sort of an agreement not to enter into competition with the Clinic, and that soon after he left, Dr Lindsay set up his own practice less than one city block away from the Clinic. When Dr Lindsay set up his own practice Dr Kernot

“…sought some advice about it from the AMA and I was advised that these issues, and that it was virtually impossible to get the things to stick and I would get involved in a lot of messy litigation if I tried to do something about it. So I did nothing about it. So when I employed Dr Zahedi, shortly after I said to Dr Zahedi: This is what Dr Lindsay has done. I know I cannot stop you practising in opposition if you want to, so I am not trying to stop you starting up in practice but I would ask you as a personal thing and as an ethical thing not to set up in opposition but there is no legal restriction on you.”

I accept that evidence.

10 In an affidavit sworn on 27 April 2006 Dr Kernot gave evidence that at the initial meeting he had with Dr Zahedi in about September 1997 he said to him words to the effect of “all patients are patients of the practice. However where a patient wants to see a particular doctor we will try and arrange this.” That evidence was not controverted in affidavit form by Dr Zahedi, even though Dr Zahedi swore an affidavit on 12 June 2006. When it was put to Dr Zahedi in cross-examination that Dr Kernot had told him that patients were patients of the practice and not of the doctors, Dr Zahedi’s answer was “No, I don’t remember”. The cross-examination went on:

“Q. Is this the case, that you don’t recall there being any discussion at the meeting with Dr Kernot as to who owned the patients; was that discussed at all?
A. Not at all.

Q. Thank you. You don’t recall any such discussion?
A. Not at all.”

11 Thus, even at that stage Dr Zahedi did not deny that the topic of “ownership” of the patients had been discussed between them.

12 I accept Dr Kernot’s evidence on this topic. Indeed, in any circumstances where there is a conflict between the evidence of Dr Zahedi and Dr Kernot, I prefer the evidence of Dr Kernot.

13 At that meeting Dr Kernot also said “I expect to be passing on my practice to the doctors in the next few years”. However, nothing he said warranted the interpretation that this “passing on” would be without payment.

14 The Clinic is one in which all, or nearly all, of the fees charged to patients were bulk billed to Medicare. Before Dr Zahedi started working, Dr Kernot explained to him that he would be paid an advance at the rate of $50 per hour on a weekly basis, that Dr Kernot (or his company) would actually receive the Medicare payments, and that after money had been received from Medicare there would be an adjustment at the end of each month for any difference between the $50 per hour advance, and an amount of 50% of the fee received from Medicare, which Dr Zahedi would be entitled to keep. Dr Kernot said that Dr Zahedi would be provided with a dermatoscope, and all instruments and consumables. Dr Kernot also explained that the system concerning pathology reports was that the pathologist,

“… provides us with three copies of patient pathology reports. I would like to receive one copy at home for my own interest and statistics. One copy will be given to the doctors for their own reference and filing. One copy will be kept in the clinic for quick reference.”

15 Though it was not expressly discussed between them, it was their common assumption that it would be Dr Kernot or his company who would provide the consulting room, waiting room, office staff and other ancillary facilities to enable Dr Zahedi to provide medical services to patients.

16 Dr Zahedi gave evidence, which Dr Kernot did not dispute, that at the initial meeting, after Dr Kernot had explained the system involving receipt of three copies of a pathology report, the conversation went:

ZAHEDI: “I have always been very close to my patients and would like to follow them up on long term basis as well, and this is going to facilitate this.”
KERNOT: “I’m happy to hear this.”

17 I do not accept that Dr Kernot’s apparent acquiescence in using the pathology reports to follow up patients on a long term basis involved a consent to the use of the pathology reports, after Dr Zahedi had left the practice, to follow up patients who Dr Zahedi had first come to treat at the Clinic. This is because, while the two doctors did not expressly state how long the arrangement they were negotiating might last, it was not an arrangement which was restricted to the short term. The possibility of the doctors working in the Clinic taking over the practice in a few years was also explicitly discussed. It would have been possible for Dr Zahedi to use reports to follow up patients on a long term basis while still working at the Clinic.

18 In the course of the discussion there was no specific discussion, beyond what is implicit in the findings I have already made, about whether, if Dr Zahedi were to cease working at the Clinic and go elsewhere, he could take with him patients he had treated at the Clinic, or any documents relating to patients.

19 Dr Zahedi began to work at the Clinic on a part-time basis in October or early November of 1997. He began to work full-time or nearly full-time at the Clinic in about 2000.

20 Dr Kernot’s daughter, Tanya McDonald, provided some administrative services in connection with the Clinic. In about February 1998, she handed Dr Zahedi a document, and requested that he sign it. It appears to be a standard form document, on a letterhead entitled “Sydney Skin Cancer Clinic”. The standard form had on it the names of Dr Kernot and of another doctor, in a way which would lead the reader to believe that it was Dr Kernot and that other doctor who carried on the Sydney Skin Cancer Clinic, but on the copy given to Dr Zahedi the name of the other doctor was crossed out. The form said:

“I, the undersigned, HEREBY ACCEPT a temporary contract offered to me by SYDNEY SKIN CANCER CLINIC PARTNERSHIP trading as SYDNEY SKIN CANCER CLINIC pursuant to which I hereby agree to provide services to the best of my knowledge, skill and professional expertise as qualified medical practitioner to the company.
I acknowledge that in doing so I am a contractor to the company and I agree that the partnership shall not be responsible for and not be required to provide any of the following benefits:
1. Superannuation contribution
2. Workers compensation insurance
3. Professional Indemnity insurance
4. Any other emolument or benefit which would normally be required to be paid by the partnership in the event that I was acting as an employee of the partnership.
I further acknowledge that the partnership shall not be required to deduct any tax from any of the contract fees payable to me and that I shall pay and bear and be responsible for the payment of my own taxation.”

21 Dr Zahedi signed the form, and gave it back to Ms McDonald. That is the only written agreement relating to the terms on which Dr Zahedi was providing services at the Clinic. With its references to the “partnership” it was quite unsuitable for the arrangement Dr Zahedi had actually entered. Nothing was done concerning the form, until Ms McDonald gave it back to Dr Zahedi after the Clinic had been sold. I do not accept that anything in it alters the terms which had been discussed before Dr Zahedi started work.

22 Dr Zahedi negotiated a change in his remuneration in April 2000, so that he came to be entitled to keep 55% of the Medicare fee. Around September 2001 he negotiated another change, so that he was entitled to keep 57.5% of the Medicare fee.

23 By the end of 2001, Dr Zahedi was by far the largest fee earner in the practice. During the year ended 30 June 2001 four doctors had worked in the Clinic, including Dr Kernot. Dr Zahedi had earned nearly 73% of the total fees generated in the Clinic. That percentage was even higher in the quarter from July to September 2001.

Manner of Operation of the Clinic

24 Once Dr Zahedi commenced work at the Clinic, he had made available to him a surgery room, and patients who came to see him were allowed access to the reception area, and other areas of the premises at 3rd floor, 468 George Street. He was supplied with all relevant surgery supplies, including stationery and medical consumables. A receptionist and administrative staff were provided. Patients who Dr Zahedi saw made bookings through the receptionist staff at the Clinic, were greeted by the receptionist staff on arrival, and were assisted by the receptionist staff in signing the relevant paperwork for payment for their consultations. All or nearly all of the patients were bulk-billed. While the Medicare benefit payable in connection with a consultation was payable to the medical practitioner who had provided the service, Dr Zahedi would assign to the Kernot Company the entitlement to collect those benefits. The Kernot Company would collect the benefits from Medicare, and would account to Dr Zahedi for 50% of the benefit received, minus the amount which had been paid as the $50 per hour payment on account.

25 At least in the period up to about 2000, the Clinic advertised from time to time, mostly in local area newspapers in the Sydney Metropolitan area. Nearly 30 such newspapers were used for advertisements. On at least one occasion an advertisement was displayed at Town Hall Station. Dr Kernot or his company paid for those advertisements. Individual doctors at the Clinic did not organise or pay for advertising of their own professional services.

26 The Clinic had no system whereby appointments to see a doctor could be made many months in advance. Nor was there any computerised system for recording appointments. Appointments were managed using a standard hard-copy form, called a booking list. If it was known that a particular doctor would be working at the Clinic on a particular day, a booking list would be drawn up for that doctor for that day. It showed the name, and telephone number, of each patient that the doctor was to see that day, and the time at which the patient was to be seen. Each day that Dr Zahedi attended the Clinic, the reception staff made and delivered to him a photocopy of the bookings list which showed his appointments for that day. The original of each doctor’s booking list was kept by the receptionists, and the collection of booking lists for each doctor working in the Clinic was referred to as the “presentation book”. For first-time patients, the staff also asked the patients how they learnt of the Clinic and recorded the answers in the presentation book.

27 Dr Zahedi kept the photocopy booking list which had related to any particular day’s appointments for a time to assist in reconciling the correctness of the adjustment payment made to him at each month’s end. Some photocopy booking sheets he kept even after they had fulfilled this accounting function, to provide a record of telephone numbers at which he could contact patients to remind them about the need for a follow-up appointment.

28 The usual practice was for copies of documents to be kept in the reception area until no longer relevant, and then shredded. That practice was applied concerning the photocopy booking sheets. There was, however, no systematic procedure for ensuring that every photocopy booking sheet which was no longer needed, was retrieved and shredded. Neither, however, was it the practice of the Clinic to allow doctors to take them home and keep them.

29 When a person contacted the Clinic to make an appointment, the Clinic’s procedures provided that reception staff were to ask whether the person wanted to see a particular doctor. If the person answered “yes” and gave the name of a doctor, an appointment would be made with the named doctor. If the person did not have any preference for a particular doctor, the staff were to:

(a) provide the person with the names of the available doctors and ask the person to choose one of the doctors; or

(b) if the person did not wish to choose a doctor, the reception staff then chose one of the doctors who was available for the time and date requested and his name would be given to the person with details of the appointment.

30 When Dr Zahedi commenced practicing at the Clinic, most of the patients whose names appeared on his booking list were either patients who did not have any preference as to which doctor they wished to see, or else were patients who were new to the practice. As well, Dr Zahedi spent part of his time treating general practice patients at the Eastlakes Medical Centre, and sometimes those patients came to see him at the Clinic. It is not established that any of those patients continued to be patients of the Clinic in March 2002.

31 As time went on, patients began to request an appointment specifically with Dr Zahedi. By February 2002 nearly all of the patients who he attended at the Clinic were patients who he had seen before, and who had made their appointments through requesting him by name.

32 Skin cancer is a condition whereby, once a person has had one skin cancer, his or her risk of having more skin cancers is significantly increased. Thus, if a patient has had one skin cancer, proper treatment involves encouraging that patient to have follow-up appointments to check whether any other skin condition requiring treatment has developed. Depending on the seriousness of the cancer and other factors concerning the patient, follow-up appointments might be recommended from once every six or eight weeks, to once a year or once every two years. Partly because of the absence of any system for making long-term appointments, Dr Zahedi had a practice of telephoning patients to remind them when a follow-up appointment was needed.

33 Throughout the time that Dr Zahedi was working at the Clinic, no group tax deductions were made from the amounts he was paid, Dr Kernot and his company paid no superannuation for him, and Dr Zahedi was responsible for obtaining and paying all insurances necessary in connection with his provision of services to patients, including professional indemnity insurance.

34 During the time that he was working at the Clinic, Dr Zahedi determined the number of patients that he wished to see, and (within the hours during which support services were available at the Clinic) also determined the number of hours per day that he would see patients. He used his own professional judgement, without any specific direction from Dr Kernot, in deciding how to treat most patients.

35 However Dr Kernot asked Dr Zahedi to arrange for “any patients that he couldn’t manage” to be seen by Dr Kernot. As well, Dr Kernot had experience in skin flap and skin graft surgery and sometimes Dr Zahedi assisted him in performing that type of surgery. Further, Dr Kernot read pathology reports relating to excisions performed by all doctors at the Clinic, including Dr Zahedi. Dr Kernot explained why he received a copy of every pathology report:

“It was absolutely essential that I got a copy. I saw the clinic -- one of its major functions was to train general practitioners. A lot of them were very incompetent when they arrived and I had to look at their results to know whether they were doing it right or not. Whether they had done a complete excision and whether they were cutting, doing a lot of unnecessary excision and that their performance was improving as time went by.”

36 As well, he used the reports “… for statistical purposes for assessing the progress of the doctors …”.

Patient Cards

37 A patient card was created concerning each patient who attended the Clinic. This recorded details of the name, date of birth, telephone number and address of the patient, the Medicare number of the patient, and the date of expiry of the patient’s Medicare card. Those details were placed on the card by the receptionist staff, when the patient first attended the Clinic. Also on that card doctors wrote, in chronological order, notes of all attendances by the patient at the Clinic, regardless of which doctor at the Clinic the patient had seen. Thus, if a patient had seen four or five doctors at the Clinic over a period of years, the card would have notes on it made by those four or five doctors.

38 The cards were housed in the reception area of the premises. Each doctor working at the Clinic had his own slot in the reception area. When a patient presented to the receptionist, the receptionist would check against the booking sheets, find out which doctor the patient was booked to see, retrieve the patient card, and put the patient card into the slot for that doctor. The doctor would collect the card when he came to the waiting room to bring the patient into the consultation room, and at the time of the consultation would make on it such notes as he saw fit. After the doctor had finished the consultation with the patient, the patient card would be returned to the receptionist for filing. However, there was no obstacle placed in the way of doctors seeing the card relating to any patient at any time the doctor wanted.

Pathology Reports

39 During the time he was working at the Clinic, it was always a matter for Dr Zahedi’s own judgement whether to order a pathology report in the course of treating a patient. Pathology reports were ordered by a doctor completing a request form that was provided by the pathologist. When Dr Zahedi filled out a pathology request form, he wrote on it details of the patient’s name and address, which he copied from the patient card.

40 In the year 2000, when it seemed as though there would be a shortage of pathology request forms supplied by the pathologist, Dr Zahedi drew up a form which could be used for requesting pathology tests. It was headed:

“ PATHOLOGY REQUEST
Sydney Skin Cancer Clinic
Phone: [phone], Fax: [phone]”

and, lower down the form, identified Dr Zahedi as being the “Requesting Doctor” . However, that form was never put into use, as the shortage of request forms from the pathologist did not eventuate.

41 As Dr Kernot had explained at the outset, in the ordinary course of things three copies of a pathology report were provided. The reception staff would distribute those three copies so that one copy went into a tray for Dr Kernot, the second would be placed with the patient’s card until the patient returned, and the third went to the referring doctor. After the patient returned, the second copy was filed into a red concertina folder. Those reports were filed “alphabetically, hopefully”. The effect of this was that there was no patient file containing all records relating to a particular patient. The pathology reports of all patients who had attended the Clinic were filed in a single alphabetical sequence, regardless of which doctor a particular patient had seen.

42 Each doctor maintained a ring binder folder containing third copies of pathology reports in their surgery. Sometimes the reception staff would file the third copies of pathology reports into those ring binder folders.

43 By the end of 2001 the Clinic had a facility whereby pathology reports could also be downloaded onto a computer. There was only one such computer, located in the reception area. It was not attached to a printer. There was no arrangement whereby individual doctors could access the pathology reports by computer from their homes. The advantage of computer access to the reports was that it enabled a doctor to find out the results of pathology tests somewhat sooner than if he waited for a mailed hard copy to arrive.

44 Dr Zahedi’s practice, upon receipt of a pathology report, was to make relevant notes on both the report, and the patient card. For example, if he formed the view that a patient should be followed up in six months, he would make a note to that effect on the report, and also on the patient card. He used those notes to remind himself when patients should be telephoned and advised to make a follow-up appointment.

45 Dr Zahedi’s usual practice upon receiving a pathology report included forming a view about whether the patient was high risk or low risk. The low risk patients were ones who had completed treatments, or who had cancers such as benign lesions that were unlikely to spread or require further treatments. The high risk patients were patients with melanomas, incomplete treatments, or biopsies which needed further treatment. Dr Zahedi kept the reports that were classified as high risk in a bundle on his desk, and reviewed them two or three times a week, so that he could telephone patients at an appropriate time to remind them of the need for a follow-up appointment. Low risk reports were periodically sorted by the administrative staff of the Clinic into alphabetical order, and filed in two blue binders, which were ordinarily in Dr Zahedi’s room. Dr Zahedi took some of those low risk reports home once every three or four months, and stored them there. Neither Dr Kernot nor Ms McDonald was aware that he was taking these reports home.

46 Dr Zahedi gives the following evidence concerning Dr Kernot:

“Q. He did not say to you “this is the third copy of the pathology report, it’s yours for whatever you want to do with it”?
A. He did tell me so.

Q. If he said anything to you it was “this is the third copy of the pathology report for use on servicing the patient”, or something like that, isn’t it?
A. Not at all. It wasn’t necessary because we had the one copy on site with easy access. The third copy, it wouldn't have been have been necessary for the doctors on site, it would be necessary for the doctors off site.”

47 I do not accept that evidence.

48 The policy of shredding documents which had become redundant was sometimes applied to the third copies of pathology reports. However, as with the booking sheets, there was no procedure for systematically ensuring that each third copy of the pathology report was eventually returned and shredded.

Waiting Room Rules

49 At some stage, there was circulated at the Clinic amongst staff a document entitled “Waiting Room Rules”. It opened by saying, in bold, large capitals:

“ ALL PATIENTS BELONG TO THE CLINIC NOT THE DOCTOR!”

50 It gave instructions to receptionists about the manner of dealing with patients, but as well contained some statements which are more in the nature of directions to doctors, namely:

“At no time should a doctor approach a patient in the waiting room to ask if they would like to see them, as this compromises the patient’s position.
Patient swaps for any other reason should be organised between the doctors involved. At no time should any pressure be put on reception staff to move any patients from one doctor to another. ”

51 Dr Kernot gives evidence that the document containing the Waiting Room Rules:

“… was put on the doctors’ desks, the subject was talked about frequently with me and the practice manager.”

He says the document was created:


“… because there was conflict between the doctors which had become a significant problem by 1997, whereby one doctor would come out and pick a patient out of the waiting room and choose to take that patient because it was an older patient with lot of sun damaged skin and he thought they would be a better patient to see than the young person waiting to be seen first. Then another doctor would come out and say, “You can’t see that patient; that one is my patient”. This sort of thing went on and became quite a major problem.

Q. Thank you?
A. That is why this document was written up, to reinforce the oral discussions we had about this problem.”

52 Dr Kernot, in an affidavit of 27 April 2006, annexed the Waiting Room Rules and stated that during the period of Dr Zahedi’s employment it was circulated in the waiting room, and was available to both patients of the Clinic and to doctors, such as Dr Zahedi, who were working in the Clinic. Dr Zahedi did not dispute that statement in his affidavit of 12 June 2006. However, in oral evidence-in-chief he denied that he had seen the document before the proceedings began, or that it had been produced to him by Dr Kernot or anyone else.

53 Ms McDonald was cross-examined by Mr Marshall, counsel for the plaintiff (who on the topic of whether Dr Zahedi was aware of the Waiting Room Rules had a common interest with Dr Kernot, so I approach the results of that cross-examination with some caution). In that cross-examination she gave evidence that a copy of the Waiting Room Rules was to be found in the desk drawer at the front of the practice in the period 1997 to 2002. The receptionist staff and doctors had access to that drawer. While she had never seen Dr Zahedi open the drawer, she had told him about the existence of the Waiting Room Rules, and shown him a copy of them.

54 In response to cross-examination by Mr Downing, counsel for Dr Zahedi, she gave evidence that she had a definite recollection of providing the Waiting Room Rules to Dr Zahedi, and that those rules “were written partly because of Dr Zahedi”. The cross-examination then turned to other topics, but immediately upon the conclusion of the cross-examination Mr Downing informed me that there may be a need to put on extra evidence. A brief adjournment was given after Ms McDonald’s evidence had ended, so that he could obtain instructions. After that adjournment, Mr Downing tendered some documents, but did not make application to call Dr Zahedi again.

55 This gives rise to a general question about the weight to be placed on Ms McDonald’s evidence. She swore an affidavit in July 2005, which principally went to the issue of whether all the patient files and pathology reports were handed over to Dr Lindsay. By that time, Dr Zahedi’s affidavit of 6 July 2004 had made clear that a theme of his evidence would be that Dr Kernot provided him with the facilities of a medical serviced office, in which Dr Zahedi conducted a practice of his own, so that he had been entitled to take and keep any documents relating to the practice which he conducted. In that circumstance it is surprising that Ms McDonald’s evidence was not sought concerning any dealings she had had with Dr Zahedi which bore upon the correctness of the stance Dr Zahedi was taking. If he knew about the Waiting Room Rules, that would be one factor tending against the correctness of his stance. However, I accept Ms McDonald’s explanation of the late emergence of this evidence, that she was not asked about it. Overall, she struck me as a careful and honest witness, who on several occasions gave answers which were not helpful to her father’s case.

56 Another doctor who worked at the Clinic from 2000 until it was sold, Dr Lim, gave evidence that he had never previously seen the Waiting Room Rules. However, Dr Lim’s recollection of events was not very good, so I do not place much weight on his evidence.

57 The circumstances of the writing of the Waiting Room Rules, explained by Dr Kernot, and also alluded to by Ms McDonald, support a conclusion that the Waiting Room Rules were known to Dr Zahedi. Some slight confirmation also comes from the fact that one paragraph in Dr Zahedi’s first affidavit contains a fairly close paraphrase of a part of the Waiting Room Rules. I conclude that he was aware of them.

Instruction Concerning the Third Pathology Report?

58 In response to cross-examination by Mr Downing, Ms McDonald gave evidence that a specific direction had been given to doctors, orally, that the third copy was the property of the Clinic and must not go off the property. That this evidence had not previously been given on affidavit is, if anything, even more surprising than the failure to obtain an affidavit from Ms McDonald concerning the Waiting Room Rules.

59 In cross-examination she was reminded that she had sworn an affidavit in 2005. The cross-examination continued:

“Q. You understood then that an important issue in this case was the ownership and use to be made of pathology records?
A. No, I didn’t have a lot to do with the case then, no.”

I accept that explanation.

60 In re-examination, Ms McDonald gave evidence that, when told that the pathology reports must not leave the premises,

“Q. Do you recall any response from Dr Zahedi?
A. He agreed. I don’t know the exact wording but, yes, he agreed.”

61 The adjournment, to enable Mr Downing to seek instructions about applying to call supplementary evidence, occurred after that evidence had been given.

62 A troubling aspect of Ms McDonald’s evidence was that, according to her, it was only after Dr Zahedi began to work at the Clinic that the third copy of the pathology report began to arrive, and that Dr Zahedi was the person who had requested the pathology company to provide it, without any prior discussion with Dr Kernot or her. According to her, it was when the third copy started coming that she gave the instruction that the third copy was the property of the Clinic, and must not go off the property.

63 That the third copy only started arriving after Dr Zahedi began working at the clinic is contrary to the affidavit evidence of Dr Zahedi, with which Dr Kernot’s affidavit did not take issue, that at their first meeting Dr Kernot explained that three copies of pathology reports were received in the practice. The evidence includes three pathology reports, bearing dates in October, November and December of 1997 respectively, addressed to Dr Zahedi at the Clinic, which Mr Downing tendered. The manner of addressing the reports does not cast light on how many copies of the report there were. Other pathology reports in evidence (eg Exhibit V”) show that addressing the pathology report to the referring doctor continued to happen until February 2002. However, that Dr Zahedi had the three 1997 pathology reports at all is confirmatory of his obtaining a copy of reports even at that early stage.

64 In all these circumstances I am not persuaded that it is more likely than not that Dr Zahedi received the specific instruction of which Ms McDonald gives evidence.

Pre-Contractual Communications Between Plaintiff and Dr Kernot

65 Towards the end of 2001 Dr Kernot decided to sell the Clinic. His health was not as good as it had previously been, the lease of the premises was due for renewal on 1 March 2002, and he was 70 years old. After trying unsuccessfully to interest two other practices, he telephoned Dr Lindsay. They had a conversation to the effect of:

KERNOT: “Would you like to buy the clinic?”
LINDSAY: “How much?”
KERNOT: “$200,000”
LINDSAY: “Sounds reasonable to me.”

66 About two weeks later Dr Kernot called Dr Lindsay and enquired whether he wanted Dr Kernot to have an agreement drawn up. Many of the administrative tasks connected with the running of Dr Lindsay’s practice are carried out by Dr Lindsay’s mother, Ms Tallulah Glynne. She told Dr Kernot she would arrange for lawyers to prepare an agreement.

67 In late 2001 Dr Lindsay was working extremely hard in his practice. He worked over 60 hours a week, working 7.30 am to 6.30 pm without a lunch break, and working every Saturday. He saw on average 60 to 70 patients each day, using three consulting rooms simultaneously. He left the detail of the acquisition to his mother, his solicitor, and his accountant.

68 Ms Glynne and Dr Lindsay’s accountants came to the Clinic, and were shown records relating to Medicare claims for September to November 2001.

69 Dr Lindsay’s solicitor, Mr Henderson, prepared a draft agreement, which was sent to Dr Kernot. It was that draft which was eventually executed on 28 February 2002, without any alterations being made to it.

The Contract For Sale to the Plaintiff

70 On 28 February 2002 a written agreement was entered between the Kernot Company (referred to as “the Vendor”), Dr Kernot (referred to as “Kernot”) and the plaintiff (referred to as “the Purchaser”). It included a recital that:

“The Vendor has for some time carried on the Business described in Part 1 of the Schedule under the name set out in Part 2 of the Schedule at the premises described in Part 3 of the Schedule (hereinafter called “the Premises” ) which Business is hereinafter called “the Business”.

71 Part 1 of the Schedule read “Skin Cancer Clinic”. Part 2 of the Schedule read “Sydney Skin Cancer Clinic”. Part 3 of the Schedule read “Level 3, 468 George Street, Sydney”.

72 The Agreement included the following clauses:

“1.1 In this Agreement, unless the contract otherwise requires:
1.1.1 “Business” means, including, without limitation, the following assets:-
(a) Plant;
(b) Stock;
(c) Goodwill;
(d) Medical and Pathology records of all patients of the Business;
(e) Phone numbers including [phone];
(f) Fax numbers including [phone];
(g) Post office box numbers.
…
2.1 Subject to [a clause of no present relevance], the Vendor hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to buy from the Vendor the Business (including all the right title and interest of the Vendor therein and all the assets and goodwill thereof) for the purchase price specified in Clause 2.2 (hereinafter called “the Purchase Price” ).
2.2 The Purchase Price of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) shall be the aggregate of the values of the component parts of the Business shown opposite their respective descriptions in Part 7 of the Schedule including the Stock.”

73 Part 7 of the Schedule was a standard form which made provision for allocation of a purchase price so that separate amounts were allocated to plant, fixtures and fittings, and goodwill. The form was not filled in to show those separate items, though the total amount of $200,000 was shown in Part 7.

74 The Agreement provided:

“3.3 On Completion:
3.3.1 The Purchaser shall:
3.3.1.1 pay in cash to the Vendor or as the Vendor shall in writing direct such balance of the Purchase Price as is required by Part 8 of the Schedule to be paid on Completion; …
3.3.3 The Vendor shall deliver or cause to be delivered to the Purchaser;
3.3.3.1 the Plant;
3.3.3.2 the Stock;
3.3.3.3 the Certificates of Registration of the Business Names;
3.3.3.4 all other documents and things (being assets of the Business including, without limitation, the assets specifically described in the definition of “Business”) required by this Agreement to be delivered by the Vendor to the Purchaser at Completion;
3.3.3.5 all other documents and things as are reasonably required by the Purchaser for putting the Purchaser in full possession of the Business and all rights, title and benefits thereof and thereto.
3.3.4 The Vendor shall do all such other things as are required by this Agreement to be done by the Vendor at Completion or are reasonably required by the Purchaser for vesting in the Purchaser the full possession and benefit of the Business.
3.4 The property in the Business and in all of the assets thereof hereby agreed to be sold shall pass to the Purchaser on Completion.”

75 By Clause 6.1, each of the Vendor and Dr Kernot warranted that:

“… each of the warranties contained in Part 12 of the Schedule is at the date hereof and will at Completion be completely true and accurate and not misleading in any way.”

76 The warranties set out in Part 12 of the Schedule included:

(i) All information which has been given by or on behalf of the Vendor to the Purchaser in the course of the negotiation leading to this Agreement is true and accurate in all respects.
…
(iv) As at Completion the Vendor will be the sole beneficial owner of the Business and of all of the assets comprising the same hereby agreed to be sold, with full right, title and interest therein, free from any mortgage, charge, lien, option, encumbrance or any adverse claim or interest whatsoever.
(v) The assets hereby agreed to be sold are all of the assets owned by the Vendor and used in or in connection with the Business and such assets constitute all of the assets used in or in connection with and necessary for the continuing conduct of the Business.”

77 Clause 12 of the Agreement included a restraint of trade covenant which restricted both the Vendor and Dr Kernot in their activities after completion, in a way which was acknowledged to be “reasonably to protect the goodwill of the Business”. Dr Zahedi was not a party to the Agreement, and the Agreement said nothing about his activities after completion.

78 I have set out warranty (i) because when the hearing started it was part of the plaintiff’s case that there had been a breach of that warranty. Even though an amendment to the Statement of Claim was made in the course of the hearing, which contracted the scope of claims made by the plaintiff, an allegation of breach of warranty (i) still remained on the pleadings after that amendment was made. In address, Mr Marshall specifically stated that he was making no submissions concerning breach of warranty (i). In those circumstances I shall give that warranty no further attention.

79 Completion of the Agreement occurred on 28 February 2002. $150,000 of the purchase price was paid then, and the remaining $50,000 has been paid since. On 2 March 2002 and the few days after it, Dr Lindsay and Ms Glynne collected from the premises of the Clinic at 468 George Street all the documents relating to patients which were in the premises. Those documents included a blue folder that had Dr Zahedi’s name on it and contained many pathology reports. They also included the centralised files containing the second copies of patient pathology reports, and the patient record cards.

80 One category of document which was not handed to Dr Lindsay was the copies of pathology reports which Dr Kernot had retained for himself. These were shredded. The evidence does not enable a conclusion to be drawn about whether they were shredded before the Agreement was entered, or after. Failure to deliver those copies of pathology reports was not particularised as a breach that the plaintiff relied on. Even if it could be said that the brief questioning concerning those reports which occurred in Dr Kernot’s cross-examination was conducting the trial on a wider basis than that pleaded and particularised, as a matter of construction the obligation to hand over pathology reports would relate to reports in existence at the date of the Agreement. It has thus not been shown that the failure to hand over the reports which Dr Kernot had kept for himself was a breach of the Agreement.

Dr Zahedi’s Actions Concerning the Sale

81 In late December 2001 Dr Zahedi saw a letter from a real estate agent at the Clinic, and became aware that the lease of the premises in which the Clinic was conducted was due for renewal in late February 2002. Between January and February 2002 he asked Ms McDonald on a number of occasions what was going to happen concerning the lease. He was not informed of any progress. In mid-January, as a reaction to finding out about the problem with the lease, he selected a bundle of pathology reports, which he estimates at about 80 in number, and took them home. In late January 2002 he asked Dr Kernot what was happening with the lease. Dr Kernot told him that he was going to sign an extension of the lease for two years. This calmed Dr Zahedi’s concerns to some extent.

82 About two or three weeks before the Clinic closed, the landlord told Dr Zahedi that Dr Kernot had been given a document for a two-year lease, but that he had not signed and returned it. As Dr Zahedi saw it:

“The practice was unstable, the message that, that I was getting from all round were telling me that the lease has not been signed, although the lease is provided to Dr Kernot it has not been signed.”

83 In the course of his final week at the Clinic, Dr Zahedi cancelled the authority he had given for the Kernot Company to receive his Medicare fees.

84 The first Dr Zahedi knew definitely about the sale of the practice was on Friday 1 March 2002. Around 1:00 pm that day, Dr Kernot told Dr Zahedi that he had sold the practice and equipment to Dr Lindsay. Dr Kernot said that Dr Lindsay had agreed that Dr Zahedi and Dr Lim could continue to work for Dr Lindsay.

85 Dr Zahedi handed over his keys to the Clinic. That was the last day he worked there. His affidavit evidence was that when he left work that day, he did not take any medical records with him. However, by the time of this litigation he had approximately 95 pathology reports dated February 2002 at his home, which related to high risk patients. His affidavit evidence was that he did not recall when he took those reports home, nor why. When cross-examined about those 95 reports, he said:

“… but I don’t know in what procession I took them, whether there were ten of them the last hour or all ninety-five, or there were eighty of them. I cannot say that. I said that when I searched there were ninety-five related to that date, I cannot remember whether they all sitting, were sitting there until last minute or I took the procession of five goes or I don’t know. Because the situation was very--

Q. Five goes? You would have only had one go wouldn’t you, you were told to leave in an hour?
A. I mean in days before, weeks before.”

86 And:

“Q. What occurred: you got notice by Dr Kernot, you then gathered up all the pathology reports on your desk that were urgent and then took them home, isn't that right?
A. Possibly.”

On this topic I prefer the evidence he gave in cross-examination.

87 In the afternoon of Friday, 1 March 2002, the next day, and on Monday, 4 March 2002 Dr Zahedi had some discussions with Dr Lindsay about the basis upon which he might work at Dr Lindsay’s practice.

88 In an affidavit sworn on 22 May 2002 Ms Glynne gave evidence that on 1 March 2002 she met Dr Zahedi and Dr Lim after they had initially spoken to Dr Lindsay. Her evidence continues:

“During the course of that conversation [Dr Zahedi] said,
“I have pathology reports of the patients at home and want to keep them there, and the reports of my patients in this practice, as I have a right to retain those reports. I also want the patient pathology records to be downloaded to my computer at home.”
Dr Lim also indicated that he too retained reports at home and I said, to both of them.

“You have no right to them except in a medico/legal situation. However, we won’t have a problem with you taking them home for review for patient purposes and any other matters relating to the Sydney Skin Cancer Centre or Mid City Skin Cancer Centre. They must only be used for medical/legal purposes only. Otherwise the reports and files should be returned and kept at our premises. We will not be downloading any records to your computers at home.”

89 Dr Zahedi, in an affidavit sworn on 6 July 2004, agrees that he met Ms Glynne that day, but denies that the conversation which she deposed to took place. He says that he did not have any substantial discussions with her that day.

90 This evidence of Ms Glynne was sworn to less than three months after the events to which it relates. Dr Zahedi’s oral evidence of his state of mind straight after Dr Kernot told him that the practice was being closed down was:

“… I was so distressed. I learned unemployed in one hour. I had mortgage. I didn't know what to do. I became depressed. … I didn’t know how to survive. I was getting drowned.”

91 This understandable emotional upset would not have assisted the accuracy of his recollection, more than two years later when he swore his affidavit, of the events of that afternoon. As well, the words which Ms Glynne attributes to Dr Zahedi were truthful insofar as he is alleged to have said “I have pathology reports of the patients at home”. The balance of the words which Ms Glynne attributes to Dr Zahedi accurately reflect the desires and opinions he had at the time. There is no inherent improbability about his having been frank about these matters. In cross-examination, Ms Glynne substantially repeated the account she had given in her affidavit (T 194-5). Nothing in her cross-examination made me doubt her truthfulness as a witness. Concerning the conversation set out at para [88] above, I accept her evidence.

92 Dr Lindsay had assumed that Dr Zahedi would start work at his practice on Monday, 4 March. In some fashion, arrangements had been made for patients who had been booked to see Dr Zahedi at the Clinic to attend Dr Lindsay’s practice. However, Dr Zahedi and Dr Lim were not prepared to see patients at Dr Lindsay’s rooms that day unless agreement had been reached about the basis on which they would be working there, or unless they were engaged as locums. Dr Lindsay was not prepared to engage them as locums.

93 In the course of negotiations on 4 March 2002 Dr Zahedi and Dr Lim told Ms Glynne that they would not work unless they had an undertaking from Dr Kernot that they could work in the CBD. Ms Glynne arranged for her solicitor to draft documents. In the course of the morning she asked Ms McDonald to sign on behalf of Dr Kernot, two letters, one addressed to Dr Zahedi and the other addressed to Dr Lim. Those letters said:

“ Dr LW Kernot Pty Limited and LW Kernot trading as Sydney Skin Cancer Centre
This notice serves as normal confirmation that:-
1. On Friday 1 March 2002, we disposed of the business of Sydney Skin Cancer Centre as conducted from premises at 468 George Street, Sydney
2. The purchaser of that business was The Mid City Skin Cancer & Laser Centre Pty Limited (Dr David Lindsay)
3. You are released from any contractual arrangement with Sydney Skin Cancer Centre.
4. You have permission to enter into contractual arrangements with Dr Lindsay of the Mid City Skin Cancer Centre Pty Limited
5. We undertake to settle all accrued entitlements due to you following calculation and receipt of requisite benefits from Health Insurance payments.
6. All Pathology results or medical records (cards) and all other reports remain the property of Sydney Skin Cancer Clinic as required under the Privacy Amendment (Private Sector) Act 2000. ” (emphasis added)

94 Ms Glynne handed faxed copies of signed versions of those letters to Dr Zahedi and Dr Lim, but they were still unwilling to see patients until they had a contractual arrangement with Dr Lindsay. Ms Glynne asked them to go away, write down what they wanted, then come back and the negotiations could continue. Dr Zahedi and Dr Lim left, and returned a short time later with a handwritten document which reads:

“1. 4 weeks notice after 3 months of working otherwise 2 week notice until then.
2. Weekly payments based on an agreed percentage.
Billing to start with then adjusted to the money received from Medicare.
3. No limitation on practicing area until 2 years of practicing here (Mid City SCC) which we will agree on long term agreement then.
4. The clinic will accept responsibility to provide me with enough patient during my shifts and if the number of patient booked for me drops below a certain number per hour (for more than one week) I will have every right to seek alternative employment anywhere else.
5. I accept that Mid City Skin Cancer Centre will have the rights to the patients notes and their pathology forms seen by me at their clinic. [emphasis added]
6. I am happy to work short term as a locum until we settle.”

Soon after this document was given to Ms Glynne the negotiations for Dr Zahedi and Dr Lim to work at Dr Lindsay’s practice broke down, and never resumed.

Documents Held by Dr Zahedi

95 When his relationship with the Clinic came to an end, Dr Zahedi had at his home various pathology reports. He had the approximately 80 pathology reports which he took home in mid-January 2002 (para [81] above). As well, he had approximately 95 pathology reports dated February 2002, which related to high risk patients (para [85] above). He also had a collection of low risk reports which, in accordance with his usual practice, he had taken home (para [45] above). When he produced pathology reports to the Court in response to a Notice to Produce, they filled three boxes. In cross-examination he accepted there were more than a thousand of them.

96 As well, he had at his home approximately 165 of the photocopied patient booking sheets. At a conservative estimate, the booking sheets would contain on average 20 or more patient names and telephone numbers per page. There may have been some duplication of names and telephone numbers within those booking sheets.

97 Booking sheets state on their face the date to which they refer, but without stating the year. Dr Zahedi accepted in cross-examination that the booking forms he had in his possession most likely referred to the years 2001 or 2002. He accepted it was not accidental that he took the booking sheets home.

98 He had no patient record cards immediately after ceasing to work at the Clinic. He has since obtained some patient record cards, when Dr Lindsay released those cards at the request of the patients concerned.

99 Five particular patients who Dr Zahedi had seen at the Clinic contacted the plaintiff in about April 2002 and sought the transfer of their medical records to Dr Zahedi. Those patients are named in Exhibit B. It is not necessary to reproduce the names in these reasons for judgment. Given the limitation on issues at the trial, I make no finding about whether any more than those five patients contacted the plaintiff and sought the transfer of their medical records to Dr Zahedi.

Dr Zahedi Contacts Former Patients

100 For approximately six weeks from early March 2002 Dr Zahedi worked as a locum at various practices. At one stage in March he contemplated leasing the premises the Clinic had formerly occupied, but that notion did not proceed. On 17 April 2002 he entered into two written agreements with Idameneo, pursuant to which he agreed to work exclusively at Idameneo’s medical centres at 580 George Street, Sydney, Maroubra and Chatswood for a period of five years. There, he carried on both work involving the treatment of skin cancer, and general practice.

101 He began working at Idameneo’s clinic at 580 George Street, on 22 April 2002. Commencing a day or two before he started work at 580 George Street, Dr Zahedi produced, using as source material pathology reports which he had obtained while working at the Clinic, a list of patient’s names and addresses. That list consisted of 20 pages, and related to around 650 patients. The list was created a few pages at a time, over a number of days – Dr Zahedi estimates seven to ten days. As the pages of the list were created, Dr Zahedi photocopied the page, cut or tore the photocopied page lengthwise so as to remove the patient names, and provided the resulting list of patient addresses to the receptionist at 580 George Street. Thirteen such photocopied pages containing patient addresses were provided to the receptionist, containing 429 names and addresses. Dr Zahedi was very careful to get those cut or torn pages back promptly after the receptionist had finished with them – though one page, only half completed, escaped his attention and stayed with the receptionist until after these proceedings had been commenced.

102 Dr Zahedi caused to be produced, on a letterhead identifying the letter as coming from “Skin Cancer Clinic 580 George Street (Cnr Bathurst), SYDNEY” a letter which said:

“Dear Patient,
I take this opportunity to let you know that I have recently moved to the Skin Cancer Clinic at Sydney Medical Centre.
All patients will be bulk billed, and appointments will also be available. I look forward to being of assistance to you should you require further follow up.
Kind regards
DR ALI ZAHEDI”

103 Dr Zahedi signed an original of that document. The receptionist at 580 George Street made photocopies of that signed original letter, and posted them, at Idameneo’s expense, to the addresses shown on the list of addresses which Dr Zahedi had produced. The envelopes were prepared by the receptionist, but the addressee of the envelope was identified only as the “patient”. By adopting this procedure, not even the receptionist came to be told the names written down on the list which Dr Zahedi produced.

104 A total of 429 patients had that letter posted to them. Of those, 149 patients subsequently came to see Dr Zahedi at 580 George Street. Some came more than once; indeed, some came many times in the course of Dr Zahedi’s first year of practicing at 580 George Street.

105 No one from Idameneo requested Dr Zahedi to prepare these lists, or indeed any patient lists. A person who had oversight of the clerical staff at 580 George Street, Angela, authorised the receptionist to assist in sending out the letters.

106 As well, Dr Zahedi reviewed pathology reports he had kept from the Clinic to identify high-risk patients. Using about 15 of the booking lists, he constructed another list, of the names and telephone numbers of high risk patients. It was necessary to use both the pathology reports and the booking lists to create this list because, while the pathology reports recorded the name and address of a patient, many of them did not record the telephone number. There were between 50 and 60 names and telephone numbers on that list. That list was constructed over the same time period as the list of patient names and addresses which I have earlier mentioned. Dr Zahedi did not supply that list to anyone. He attempted himself to telephone all of the patients on the list of high risk patients. He told them he would not be able to follow them up as the Clinic had been sold and moved, and he was not working for the new owner. He told them his address, and also informed them that they could seek alternative treatment. Twenty seven of those patients subsequently saw Dr Zahedi at 580 George Street.

PART B – PROPERTY RIGHTS IN DOCUMENTS

Ownership of Booking Sheets

107 Health Services for Men Pty Ltd & Ors v D’Souza & Others (2000) NSWCA 56; (2000) 48 NSWLR 448 related to whether the doctors who worked in a practice, or the proprietor of that practice, had title to certain medical records. One such medical record in question was an “examination sheet” which was a form upon which a doctor made notes in the course of a consultation with a patient. The modus operandi of that particular practice involved extensive advertising, which encouraged prospective patients to ring a particular telephone number, upon which the patient would be asked a series of questions, the answers to which decided at which clinic an appointment would be made for that particular prospective patient. The treatment was ongoing, requiring the patient to return from time to time. Different doctors working at the clinic might have seen the patient on different visits, and each made notes on the examination sheet. In that context, Sheller JA (with whom Mason P and Priestley JA agreed) took as his starting point, at [42] 458:

“It must be accepted that the stationery used for the examination sheet was the appellants’. The question is whether the property in the stationery was alienated by its transfer to the doctor or by the doctor’s writing notes upon it.”

108 After considering aspects of the facts of that case, his Honour concluded, at [44], 458:

“… I can see no basis upon which it could be inferred that the appellants and the doctors intended that the documents, namely the examination sheets provided by the appellants to the doctors for completion, become the property of the doctors. Nor could any such intention be implied as a matter of contract.”

109 In the present case, the stationery upon which the booking lists were created, and the paper onto which a completed booking list was photocopied, each was purchased by the Kernot Company. Thus, it would still retain title to them, unless that title has been transferred in some fashion to Dr Zahedi.

110 Mr Downing relies upon various factual features of the present case, as showing an intention of Dr Kernot and Dr Zahedi that it would be Dr Zahedi (as opposed to the Clinic) who provided the treatment, and an intention that property in the booking sheets would be transferred. The factors to which he points include:

(a) the limited advertising conducted by the Clinic, and the absence of evidence that any particular patients attended the Clinic as the result of advertising;

(b) the evidence that by 2001 Dr Zahedi was seeing most of the patients, a significant number of whom were repeat patients;

(c) the ongoing nature of the treatment provided;

(d) the practice of providing each doctor with the third copy of the pathology report;

(e) the extent of independence which individual doctors had in making decisions about patients’ treatment;

(f) some evidence of Dr Kernot which, Mr Downing submitted, showed that he regarded the doctors working at the Clinic as running their own practices;

(g) the fact that Dr Zahedi’s arrangements permitted him to retain a higher percentage of the Medicare fee than did the arrangements of other doctors working at the Clinic;

(h) that in D’Souza about 85% of the practice operator’s income came from medication and equipment sales with consultation fees making up the remaining 15%, and as well the practice proprietor kept approximately 78% of the Medicare rebate. In comparison, at the Clinic there were no medication and equipment sales, and the doctors received a much higher proportion of the Medicare fee; and

(i) individual doctors working at the Clinic would each owe a tortious duty of care to the patients he treated.

111 The evidence referred to in item (f) in this list was evidence from Dr Kernot that at his initial meeting with Dr Zahedi in September 1997 he said “I have had doctors who have worked and built up their practices”. However, in cross-examination Dr Kernot corrected that evidence, saying:

“Q. You agree you said words to the effect: I think the doctors who have worked and built up their practices --?
A. Actually I said: I think doctors who worked and built up their ability to do skin cancer treatment.

Q. In your affidavit you used the words “built up their practices”, they are the words you used, are they not?
A. Oh, okay, I should have been more specific about that. They did not build up their practices in the sense they built up their practices, they built up their knowledge from Sydney Skin Cancer Clinic’s practice that they could use elsewhere when they left the clinic. All I was doing was training them.

Q. Are you suggesting that the words you used in that paragraph are in error?
A. Yes, if you interpret it that way, yes, they are in error.”

I accept this evidence given by Dr Kernot in cross-examination. That removes the factual basis for item (f).

112 The fact referred to in item (g) in this list was that, while Dr Zahedi succeeded in negotiating an increase in the percentage of the Medicare fees he retained, first to 55%, then to 57.5%, other doctors working in the practice continued to receive 50% of the Medicare fee for the patients they treated.

113 Merely pointing to factual differences between the present case and D’Souza’s case is insufficient to establish that, in the present case, title to the booking sheets became vested in Dr Zahedi. Title would become vested in him only if there was a transaction by which title to a corporeal chattel can be transferred. In the present case, there was no gift, no sale, and no contract which had as one of its terms that title would be transferred. Nor was there a declaration of trust, or other transaction which could effect an assignment in equity of a chattel. I conclude that the photocopy booking sheets remained the property of the Kernot Company.

Ownership of the Pathology Reports

114 Patients who obtained pathology services through the Clinic were bulk billed. Dr Kernot gave evidence as follows:

“Q. But the actual fee in relation to the pathology was a fee paid wholly to the pathology company?
A. It was.

Q. That was something that was bulk billed and the patient would assign their right to payment to the pathology company?
A. That is correct.

Q. So in that sense the relationship, as far as the payment of the pathology service went, was between the patient and the pathology company?
A. Definitely.

Q. The patient having paid for the pathology service, I take it if the patient requested the pathology report the patient would be entitled to have it?
A. In my opinion, the person with the first right to the pathology report is always the patient and I think they should be given a copy of the report when it is given so they can take it to another doctor if they want a second opinion. It is always my practice to make a copy of the report and hand it to my patients.”

115 There is a sound legal basis for that evidence. Under the Health Insurance Act 1973 (Cth) section 3, an “eligible person” includes an Australian resident, and a “professional service” includes:

“(d) a pathology service that is rendered by or on behalf of an approved pathology practitioner pursuant to a request made in accordance with subsection 16A(4) by:
(i) a treating practitioner; or
(ii) another approved pathology practitioner to whom the treating practitioner has made a request for the service.”

116 Section 10(1) provides:

“Where, on or after 1 February 1984, medical expenses are incurred in respect of a professional service rendered in Australia to an eligible person, medicare benefit calculated in accordance with subsection (2) is payable, subject to and in accordance with this Act, in respect of that professional service.”

117 Section 16A sets certain prerequisites for a Medicare benefit to be payable in respect of a pathology service that has been rendered to a person. The prerequisites relevant to the present case are that the service was determined to be necessary by a practitioner whose patient the person was (section 16A(1)(a)), that the service has been rendered pursuant to a request made to the approved pathology practitioner by the treating practitioner (section 16A(3)), and that that request was made in writing or confirmed in writing within 14 days after being made (section 16A(4)).

279 Dr Zahedi’s contractual arrangements with Idameneo included a lump sum payment of $300,000 made to him on 17 April 2002. The contractual documentation stated that that payment was the purchase price for (on the true construction of the agreement) the goodwill of a practice which Dr Zahedi had formerly conducted. However, Dr Monk, the Executive Medical Director of Idameneo, and the man with whom Dr Zahedi negotiated his contractual arrangements with Idameneo, was aware that Dr Zahedi was a doctor who was working at a clinic which was not Dr Zahedi’s own clinic. Dr Monk wanted a GP who was prepared to work after hours. As well as selling the goodwill of his non-existent practice, Dr Zahedi entered an agreement to provide his services exclusively for five years to Idameneo. I accept the evidence given by Dr Bateman and Dr Monk, to the effect that Idameneo’s pressing need, at the time Dr Zahedi entered a contract with it, was for doctors who could provide general practice services, that Dr Zahedi’s experience in skin cancer was not of particular interest to them, but that, as Dr Zahedi was anxious to continue skin cancer work, they agreed to him doing a certain amount of that type of work. Dr Zahedi’s agreement with Idameneo sets out that the hours he shall work in the skin cancer clinic are on a Monday, Tuesday and Wednesday from 9:00 am to 3:00 pm, while his work as a general practitioner is to be done from 4:00 pm to 9:00 pm on Mondays, 4:00 pm to 10:00 pm on Wednesdays, 4:00 pm to 8:00 pm on Thursdays, and 3:00 pm to 10:00 pm on Fridays.

280 I accept Dr Monk’s evidence, that:

“If Dr Zahedi said to me that I would only work two evenings a week and no weekends I wouldn't be interested in giving him $300,000. If he said I only want to do skin work we won't give him anything. He committed a large number of after hours and for that reason - and, you know - and for that commitment and for that ability to practice that's why we made the negotiations.”

281 Under these circumstances, the payment of the $300,000 would not enter into any calculation of profits concerning which an account was ordered.

282 Thus, I decline to order that the plaintiff receive an account of profits made by Dr Zahedi.

PART F – THE CASE AGAINST IDAMENEO

283 The plaintiff’s solicitor, Mr Kelvin Solari, faxed a letter to Dr Zahedi on Friday, 26 April 2002. That letter made demands concerning both the use of the name “City Skin Cancer Clinic” at 580 George Street, and also the use of confidential information. Insofar as it dealt with the latter topic, it said:

“I confirm that I am the solicitor acting for The Mid-City Skin Cancer & Laser Centre Pty Limited (“my client”).
My client … purchased the business of the “Sydney Skin Cancer Clinic” on 1 March 2002 from L W Kernot Pty Limited.
I am instructed that you were engaged to provide medical services for the Sydney Skin Cancer Clinic up to the purchase of that business by my client.
I am further instructed that:
1. You are now engaged by the Sydney Medical Centre to provide medical services for them;
…
3. You are contacting, or causing to be contacted, former patients of the Sydney Skin Cancer Clinic and using records retained by you, including pathology reports of those former patients.
…
In respect of the matter referred to in 3. above please note the following:
a. the confidential information you are using belongs to my client;
b. all records of the Sydney Skin Cancer Clinic retained by you or by the Sydney Medical Centre are to be immediately returned to my client’s premises at Ground Floor, HCF House, 403 George Street, Sydney (as you discussed employment with my client after its purchase of the said business, there is no reason why you would not be aware of the location of my client’s premises);
c. your use of that confidential information is improper and is causing my client damage.
d. you are hereby advised to immediately cease using that confidential information and my client requires receipt of your personal undertaking in that regard (forwarded to me) by close of business on Friday 3 May 2002.
You are further hereby put on notice that in the event that any of the matters referred to above are not attended to by close of business on Friday 3 May 2002, proceedings may be instituted against you and others without further notice to you (or those others) seeking, inter alia, damages and injunctive relief.
I await your advices.”

284 Dr Zahedi arranged for a copy of that letter to be provided to Idameneo very promptly. As well, Mr Solari faxed a letter to Idameneo on 26 April 2002, enclosing a copy of the letter to Dr Zahedi, and saying:

“You are hereby likewise put on notice of the matters referred to in that enclosed letter.
In the event of those matters not being attended to as requested, including you also giving the undertakings requested, the proceedings referred to in that letter may be instituted against you without further notice.”

285 Dr Edmund Bateman, a director of Idameneo, wrote back on Tuesday 30 April 2002 declining to give the undertakings, and saying:

“Dr Zahedi has not used any records which are the property of your Client and furthermore has no records or other property belonging to your Client. Dr Zahedi has the goodwill of a number of patients not “owned” by your Client, nor has your Client purchased their goodwill. It would appear your Client has the problem in that he has purchased a business which would appear to be a service provider to the professionals but he has failed to attract those professionals to the business.
The aim of your letter appears to be to limit legitimate competition which we provide.”

286 The plaintiff’s case against Idameneo was put as depending upon Idameneo having assisted in the mail-out after it acquired notice, on 26 April 2002, that to do so “was adverse to the rights of the owner of the relevant information.”

287 The present proceedings were commenced by summons on 24 May 2002. On 31 May 2002 both Dr Zahedi and Idameneo gave undertakings not to initiate contact with any person by the use of any patient list prepared in the business of the Clinic in the period in which that business was owned by the Kernot Company, any pathology reports or copies of pathology reports prepared at the request of the Clinic in the same period, any patient records prepared by the Clinic in the same period, or any notes with respect to treatment of patients by the Clinic prepared in the same period. That undertaking was initially given for a limited period of time, but has come to be given until further order. The plaintiff does not contend that the undertaking has been breached. Thus, the period in which it asserts assistance in the mail-out occurred was from 26 April 2002 until 31 May 2002.

288 Dr Zahedi entered his agreement with Idameneo on 17 April 2002, and began working there on 22 April 2002. Dr Zahedi began compiling the list of patients a few days before he began to work for Idameneo, and its compilation occurred over a period he puts, fairly vaguely, at about 7 to 10 days. In accordance with that timeframe, and given that the practice was that he would provide a few pages of the lists to the receptionist as soon as they were completed, it is a possibility that all of the letters which were sent out were sent out before Mr Solari’s letter of 26 April 2002 had been received.

289 Doctor Zahedi gives some evidence, which I accept, that at some stage the staff were told to stop mailing out any more letters, and that that instruction came following an event which had some sort of legal significance (“… somebody told me that there is an injunction or some sort of legal term, that we shouldn't mail out any more.”). When he was cross-examined specifically about what happened immediately after receipt of the letter concerning the mail out, he gave the following evidence:

“Q. So as far as you were aware there was no problem at that stage with you continuing with the mail out, isn’t that right?
A. I was accumulating still but the mail out I think stopped some more.
Q. Why?
A. Because - I don’t know, I mean that’s what, if I'm correct from my memory, that was the function that they instructed the system, I think. Because that’s when the mail out was stopped I guess. I’m not sure.
Q. You’re not sure when the mail out stopped?
A. I’m not sure. I know that the receptionist were instructed not to mail out.”

While Dr Zahedi was in some respects a vague and unsatisfactory witness, he was not a dishonest witness.

290 In these circumstances, I am not satisfied that the plaintiff has established that Idameneo gave any assistance with the mail-out after it received Mr Solari’s letter of 26 April 2002.

291 In these circumstances, an essential factual basis of the case which the plaintiff presented against Idameneo is missing, and hence that claim fails. It is unnecessary to examine the legal basis upon which the claim was put.

PART G – THE CASE AGAINST DR KERNOT AND THE KERNOT COMPANY

Reasonable Efforts to Perform the Contract?

292 Ms Tibbey, counsel for Dr Kernot and the Kernot Company, submits that her clients did all that was reasonable to do in terms of protecting property in the practice in order to be able to sell it, and that they,

“ought not be held responsible for the rogue acts of a doctor who abused his position and surreptitiously kept confidential information and used confidential information without authority and in breach of his own contract with the practice.”

I do not accept that making reasonable efforts to comply with the contract is sufficient. The contract for sale of the business of the Clinic was not one under which the Kernot Company promised to make reasonable efforts, or use its best endeavours, to transfer to the plaintiff the assets of the Clinic which were agreed to be sold. If the Kernot Company has failed to deliver and give good title to those assets of the Clinic which it agreed to sell, it does not matter (at least in circumstances where there is no allegation of frustration) whether the reason for that failure is an event which the Kernot Company did not expect, or could not reasonably have expected, would occur.

293 In my view, the Kernot Company was in breach of its contractual obligations in failing to deliver the third copies of the pathology reports, and those photocopied booking sheets which Dr Zahedi retained. Each of those types of document was an asset of “the Business”, within the meaning of the agreement.

294 The only contractual liability which Dr Kernot has under the Agreement for Sale concerns the warranties, and the restraint of trade covenants which he gave (para [75]-[77] above). The plaintiff alleges only breach on his part of the warranties.

295 In my view, there has been no breach by Dr Kernot of the warranties. The only title which the Kernot Company had to the pathology reports was its interest as a bailee, but giving a commercial construction to Clause 2.1 all that the Kernot Company agreed to sell, so far as pathology reports were concerned, were its right, title and interest in them, and whatever rights in them it might have which could count as an asset of the Business. There were no assets which were used in the Business, and which on the true construction of the agreement the Kernot Company did not agree to sell. In these circumstances, Dr Kernot has not breached either of warranties (iv) or (v) in Part 12 of the Schedule.

296 The only breach of the agreement is that the Kernot Company did not deliver all the documents that it was contractually obliged to deliver.

Measure of Damages for Breach of Contract by the Kernot Company

297 The measure of damages for this breach of contract is ascertained by the difference between the situation the plaintiff would have been in if the contract had been performed, and the situation it is in when the contract has been breached. The plaintiff had delivered to it a copy of every patient card and pathology report and booking sheet which was of current relevance to the operation of the practice of the Clinic. The breach of contract related only to the failure to deliver duplicates of some of the pathology reports and booking sheets. However, it was the failure to deliver those duplicates which gave Dr Zahedi the opportunity of contacting former patients.

298 For the reasons which I have earlier given at paras [246]-[269] concerning why the plaintiff had not demonstrated it had suffered any loss in consequence of Dr Zahedi’s breach of contract, I also find that the plaintiff has not demonstrated it has sustained any loss in consequence of the breach of contract of the Kernot Company.

Orders

299 The only order I make is to direct the parties to make, within 14 days of the date of delivery of these reasons, an appointment with my Associate for a date upon which Short Minutes can be brought in, and any argument concerning costs can occur.

Appendix

300 The doctrine of precedent is one whereby every court is bound to follow the ratio decidendi of any case decided by a court above it in the judicial hierarchy (Cross and Harris, Precedent in English Law, 4th edition, 1991, p 6; Lockhart, “The Doctrine of Precedent -- Today and Tomorrow” (1987) 3 Aust Bar Rev 1 at 11; MacAdam & Pyke, Judicial Reasoning and the Doctrine of Precedent in Australia (Butterworths, 1998) p66). However, within the meaning of this principle, has the case been “decided” by the Court of Appeal if it then goes on appeal to the High Court, and is affirmed on different grounds to those of the Court of Appeal?

301 There is no room for doubting the obligation of a judge of first instance loyally to follow decisions of any court which is above the first instance judge in the appellate hierarchy, even if the judge of first instance thinks that decision is wrong: eg Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 at 177. The same applies if the judge of first instance thinks the decision is contrary to a trend of authority that has since developed in other appellate decisions: Jacob v Utah Construction and Engineering Pty Ltd (1966) 116 CLR 200 at 207; Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 403, [17]. The question which I am now concerned with is whether, in the particular circumstances, the remarks of Hope JA which I have quoted at para [215] above count, after the decision of the High Court in Moorgate, as a decision of a court which is above me in the appellate hierarchy.

Hack

302 One judgment in England deals with this question directly. Hack v London Provident Building Society (1883) 23 Ch D 103 concerned whether a particular type of dispute between a building society and a member was one which was required, by the statute then governing building societies, to be referred to arbitration, rather than decided by the courts. Concerning earlier, and different, legislation on the same topic, both the Court of Appeal, and the House of Lords in Mulkern v Lord (1879) 4 App Cas 182 had held that a particular type of dispute between a building society and a member was not required to be submitted to arbitration. The trial judge in Hack, at 107, had stated that, if the case before him had been under the old statutes, “I should undoubtedly have been bound by the decision of the Court of Appeal in Lord v Mulkern, confirmed by the House of Lords”, but that the change in legislation made a critical difference. While the Court of Appeal affirmed the decision of the trial judge in Hack, Jessel MR did not allow the trial judge’s remark concerning precedent to escape unnoticed. Jessel MR said, at 112:

“As regards the judgment of the Court of Appeal in that case [ie Mulkern ], I must say this, that the decision of the Court of Appeal was affirmed, but not the judgment, and that is a very important distinction. When the House of Lords affirm a decision on different grounds from those of the Court below, it is evidence, in fact proof, to those who know the practice of the House of Lords, that they do not agree with those grounds. Therefore a judgment so affirmed, so far from leaving the judgment of the Court of Appeal intact, shews the contrary, and that you are no longer bound by it. The mere affirmance of the decision is quite a different thing. You are bound by the decision, but not by the reasons given for it. It is not necessary, therefore, to examine very minutely the grounds on which the Court of Appeal decided Mulkern v Lord …’

303 I find the statement of principle in the first, fourth and fifth sentences of the passage quoted persuasive. The distinction there made, between affirming a decision, and affirming a judgment, seems to me to be a valid one.

304 Particular reasons which Jessel MR gave for reaching his conclusion, in the second and third sentences of the passage quoted, do not, however, seem to me to accord with current Australian practice. I doubt that the current practice of the High Court of Australia is that, whenever the High Court affirms the decision of a court below on different grounds to those relied on by the court below, the High Court is always positively deciding that it does not agree with those grounds. At least sometimes, the High Court affirms the decision of a court below on different grounds because the High Court can see a clear route to the solution of the case which does not require the High Court to decide whether or not the reasons relied on by the court below are correct.

305 Even so, the fact that the High Court has chosen a different route to the solution of the case leaves the reasons of the court below in a kind of limbo, where they have been considered by the High Court (as must necessarily happen in the course of the judges of the High Court reading the judgment of the court below, even if the reasons for judgment of the court below are not themselves explicitly considered in the reasons for judgment delivered by members of the High Court), and not adopted. Even if the reasons of the court below have been left in that kind of limbo, rather than positively disapproved by the High Court, one can still say that the decision of the court below has been affirmed, but not its judgment.

Al-Mehdawi

306 Another English judgment tends in the same direction, namely the decision of the English Court of Appeal in R v Secretary of State for the Home Department, ex parte Al-Mehdawi [1989] 1 All ER 777.

307 To understand that decision one must first understand the course of the litigation in R v Diggines; ex parte Rahmani [1985] QB 1109. In Rahmani the Court of Appeal had overturned the rejection of an administrative appeal from a deportation decision, on the ground that there had been a denial of natural justice when the person involved in an administrative appeal did not attend the hearing through the negligence of her own immigration agents. In Rahmani v Diggines [1986] AC 475 the House of Lords had affirmed the decision of the Court of Appeal, but on a completely different ground, namely that the adjudicator had decided the case in purported exercise of a power which he did not have under the relevant statutory rules. The House of Lords had expressly stated, in the appeal in Rahmani ([1986] AC 475 at 478), that they were not indicating even a provisional view on the soundness or otherwise of the decision of the Court of Appeal.

308 R v Secretary of State for the Home Department, ex parte Al-Mehdawi [1989] 1 All ER 777 arose when an immigration adjudicator had dismissed an appeal against the decision of the Secretary of State to deport a student who had overstayed his visa. A primary judge had quashed that decision of the immigration adjudicator, relying on the decision of the Court of Appeal in R v Diggines; ex parte Rahmani [1985] QB 1109.

309 In the appeal in Al-Medhawi the Secretary of State argued that the primary judge had been mistaken in thinking he was bound by the decision of the Court of Appeal in Rahmani. Taylor LJ (with whom Nicholls and O’Connor LJ J agreed) held, at 781, that

“ … although the reasoning of the Court of Appeal in Rahmani ’s case is of powerful persuasive influence, this court is not bound by it.”

Taylor LJ at 781 regarded that proposition as supported by the decision of the Court of Appeal in Balabel and another v Air-India [1988] Ch 317 at 325-6, which had treated as obiter dicta the basis of a decision of the Court of Appeal which was reversed by the House of Lords.

310 I cannot overlook the fact that the decision of the English Court of Appeal in Al-Medhawi has some differences from the present case. Al-Medhawi concerned whether the Court of Appeal was bound by one of its own previous decisions that had been affirmed on a different ground in the House of Lords, and hence the reasoning was influenced by the English doctrine, expounded in Young v Bristol Aeroplane Co Ltd [1944] KB 718, about the circumstances in which the Court of Appeal can depart from its own decisions. In many circumstances the Court of Appeal has a greater freedom to depart from its own previous decisions than does a first instance judge to depart from a decision of the Court of Appeal. As well, the express disclaimer in the House of Lords, in Rahmani, of expressing any view about the correctness of the Court of Appeal decision in Rahmani has no analogue in the present case -- the High Court in Moorgate was simply silent about the reasons of Hope JA concerning the claim for relief based on confidentiality.

311 However, that Taylor LJ regarded the conclusion he had come to as supported by the fact that Balabel had decided that a decision of the Court of Appeal reversed by the House of Lords had no higher status than dicta suggests that his Lordship regarded the previous decision of the Court of Appeal in Rahmani as also dicta. If the decision of the Court of Appeal in Rahmani was all dicta, then its status as a binding precedent would be the same for a first instance judge as for a judge of the Court of Appeal.

Re Massey

312 The question now before me has received direct consideration in Canada, in the judgment of Wells J in Re Massey [1959] OR 608.

313 To understand it, one needs to know the course of decisions relating to the will of the late Herbert Coplin Cox. Mr Cox had died leaving a will which, in essence, required the income of a fund to be paid in perpetuity “for charitable purposes only; the persons to benefit directly in pursuance of such charitable purposes are to be only” employees of certain companies and their dependants. At first instance, Wells J (who was also the trial judge in the Cox litigation) had held that the gift should be read down, so that it related to gifts for the relief of poverty only, in which case the gift was valid as falling within an analogy to the “poor relations” exception to the general requirement that a charitable trust be for the benefit of the public or a section of the public.

314 That decision was reversed in the Ontario Court of Appeal: Re Cox [1951] OR 205. In giving the decision of the Court of Appeal, Roach JA held, at 224, that, while the “poor relations” exception to the requirement of public benefit was too well established to be altered, trusts for the relief of poverty amongst a group of private individuals chosen by the donor by reason of type of personal relationship other than kinship should not be regarded as valid in Ontario.

315 Thereafter, the case went on appeal to the Supreme Court of Canada, and ultimately to the Privy Council: In re Cox, dec’d; Edwin G Baker v National Trust Co Ld and others [1955] AC 627. In each of those courts the decision of the Ontario Court of Appeal was affirmed. In the Privy Council, however, that affirmation was on the basis of a question of construction of the gift - that the gift could not be read down to being a gift for the relief of poverty, and hence, when in its terms it could be applied to all four species of charity, the attempt to restrict the benefit to employees made it invalid because, in relation to those heads of charity which did not involve relief of poverty, the requirement of public benefit would not be satisfied.

316 In Re Massey [1959] OR 608 Wells J had before him a trust which he construed as for the relief of poverty amongst former employees of a particular company, and certain members of the family of such employees. If the basis on which the Ontario Court of Appeal had decided Re Cox was binding upon him, Wells J would need to find that that trust was invalid. His Honour did not do so. He said, at 622:

“I have anxiously considered the judgment of the Court of Appeal and with great respect I cannot convince myself that the basis upon which they reached their decision is the same as that reached by members of the Judicial Committee. The opinion which I have quoted of Roach JA therefore is a dictum which is, of course, as I have already stated, entitled to the greatest respect from me.”

317 Wells J went on to prefer certain decisions of the Court of Appeal in England, in accordance with which the trust was valid.

318 The decision in Re Massey, insofar as it decided whether there is a general exception to the requirement of public benefit for trusts for the relief of poverty, has been referred to without disapproval in Re Bethel [1970] 3 OR 745, and Re Wedge (1968) 67 DLR (2d) 433 (British Columbia Court of Appeal). It has been agreed with in Canada Permanent Trust Co v MacFarlane [1972] 27 DLR (3d) 480 (British Columbia Court of Appeal). Most significantly, in Jones v T Eaton Co (1973) 35 DLR (3d) 97 Spence J, giving the decision of the Supreme Court of Canada, agreed with it, describing it at [26] as “a very carefully considered judgment”. Those decisions did not need to consider the approach which Wells J had taken to the status as precedent of the decision of the Ontario Court of Appeal in Re Cox. Even so, it would be most odd for appellate courts – and particularly the Supreme Court of Canada – to simply follow Re Massey if a critical step in its reasoning was wrong.

Re Budd

319 A Canadian decision which appears to take a different view to the question of precedent is Re Budd; Budd v Budd (1958) 112 DLR (2d) 783, a decision of Egbert J in the Alberta Supreme Court. In 1927 the appellate division of the Supreme Court of Alberta had decided in re Simpson [1927] 4 DLR 817 that the rule in Wolfe v Shelley (Shelley’s Case) (1581) 1 Co Rep 936; 76 ER 206 was not part of the law of Alberta. That case was appealed to the Supreme Court of Canada ([1928] 3 DLR 773), which held that it was unnecessary to decide whether or not the rule was in force in Alberta because, even if it was in force, it would not apply on the facts of the case. When the issue was raised in Re Budd Egbert J held, in the course of a brief decision of only six paragraphs, at 784, that the decision of the Supreme Court of Canada in Simpson

“… did not, however, reverse nor overrule the finding of the Appellate Division, so that I am faced with the unanimous decision of that division that the rule is not in force in Alberta. This decision I consider binding upon me.”

320 It might be commented that His Honour did not say whether he regarded that “binding” authority as being an authority which was binding as a matter of law, or as a matter of persuasive authority and comity. It might also be commented that he gave no reasons for reaching the conclusion he did concerning precedent status. The same criticism, of lack of reasons for the decision concerning precedent status, could, however, be made of the decision of Wells J in Re Massey. The existence of the decision in Re Budd means that the position in Canada is not clear-cut.

Matters of principle

321 Several matters of principle support the view that the decision in Moorgate is not binding, in the sense I have explained. First, insofar as one of the objectives of the law of precedent is to ensure consistency between legal decisions, so that like cases are decided alike, the “case” is the dispute between the litigants. That dispute is only decided when the last of the courts of appeal to consider the matter has given its decision. If a dispute like the first dispute arises in the future, that new dispute will be decided in the same way as the legal system has decided the first dispute if the new dispute is decided in accordance with the ratio decidendi of the decision of the ultimate court of appeal in the first dispute. That consideration supports the view that the “decision” of a case, for the purpose of the binding nature of the law of precedent, is the decision given by the last appellate court which decides that case.

322 Second, one of the aims of ensuring consistency between legal decisions is to assist in the predictability of future legal decisions. If a decision of the Court of Appeal has been affirmed on different grounds by the High Court, the grounds adopted by the Court of Appeal have, it seems to me, been left in the sort of limbo which I have earlier explained at [305]. In that circumstance, a person seeking to predict a future decision of a court would not be justified in taking the view that those grounds will undoubtedly be followed in the future. The very fact that the High Court did not follow them is a demonstration of their uncertain status. Rather, it seems to me, a person seeking to predict a future decision would need to evaluate the persuasiveness and accordance with principle of those grounds, take into account that such grounds are undoubtedly a persuasive (though not binding) precedent for other judges, and form his or her own view on that basis about whether those grounds would be likely to be followed in the future.

323 Third, the effect of a reversing of a decision of the Court of Appeal is that it has no status as a binding precedent, even in relation to points on which the appeal was not taken: Commissioner of Taxation (Cth) v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 410; Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 at 379–80, [79] and cases there cited. The justification for that state of affairs can only be that, when there is an appeal to the High Court, it is the decision of the High Court which is the decision which decides the litigation, not the decision of the Court of Appeal.

324 Fourth, in his separate reasons for agreeing with the majority decision in García v National Australia Bank Ltd (1998) 194 CLR 395 at 417 Kirby J said:

“it is fundamental to the ascertainment of the binding rule of a judicial decision that it should be derived from (1) the reasons of the judges agreeing in the order disposing of the proceedings; (2) upon a matter in issue in the proceedings; (3) upon which a decision is necessary to arrive at that order”.

325 In the context in which these words appear, His Honour was there referring to the judges of the ultimate court which decided the matter who had agreed in the order disposing of the proceedings. That approach would result in the decision of the Court of Appeal in Moorgate not being binding upon me.

Distinguishing Cock v Aitken

326 Sometimes commentators who deal with this general area of law refer to the High Court decision in Cock v Aitken (1911) 13 CLR 461. In that case, the High Court had previously, in Cock v Smith (1909) 9 CLR 773 made a decree which dealt with two completely independent causes of complaint concerning the administration of a deceased estate. A party affected by one of those causes of complaint had appealed, concerning that cause of complaint, to the Privy Council. The Privy Council had decided to allow that appeal: Smith v Cock [1911] AC 317. The Privy Council had taken the view that the order of the High Court was a single order, and so needed to be set aside in its entirety to enable the appeal to the Privy Council to succeed. Thereupon, those who had succeeded in the part of the High Court decree which had not been appealed against commenced fresh proceedings in the Supreme Court of Victoria asking for a declaration of their rights, in the same terms as the High Court had held them to be. Inexplicably, the Supreme Court judge before whom the proceeding was brought declined to make a similar declaration to that which the High Court had previously made. On appeal to the High Court Griffith CJ, at 470, followed the previous decision of the High Court. There is no discussion, however, of whether that earlier decision of the High Court was “followed” because it was a precedent which bound the High Court, or because it was a persuasive precedent which was right. Thus, the decision cannot cast light on the present questions concerning the standing of the decision of the Court of Appeal in Moorgate.

Conclusion

327 In all these circumstances I conclude, though with some hesitation, that the preponderance of relevant court decisions, none of which bind me, and general considerations of principle, lead to the conclusion that the portion of the decision of the Court of Appeal in Moorgate which I have quoted at para [215] above is not binding on me.

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