NE Perry Pty Ltd v Judge - [2002] SASC 312

N E PERRY PTY LTD v JUDGE & ANOR
[2002] SASC 312
Full Court: Doyle CJ, Bleby and Besanko JJ

DOYLE CJ: N E Perry Pty Ltd (“NEP”) conducted a chiropractic practice at Whyalla, a town in South Australia, from 1991. NEP entered into a written agreement dated 22 July 1998, appointing a Contractor to provide chiropractic services to patients at NEP’s practice, referred to as “the Clinic”. The contract contained a clause restricting the Contractor, for two years after the termination of the contract, from practising in Whyalla or from inducing any client of the Clinic to become a client of the Contractor.
NEP brought proceedings in the District Court to enforce these restraints. The first issue that the Judge had to decide was whether the Contractor was the first defendant Dr Judge, or the second defendant A M J Chiropractors Pty Ltd (“AMJ”), a company of which Dr Judge was a shareholder and director. The Judge held that AMJ was the Contractor. The Judge then had to decide on the validity of the restraints. The Judge held that they were invalid at common law.
NEP now appeals to this Court against the Judge’s findings.
Facts
The Judge’s findings about the background facts were not challenged. What follows is taken from his reasons.
Dr Perry controls NEP. She practised as a chiropractor at Whyalla in partnership with two other chiropractors from 1984. In 1991 NEP acquired the practice.
Whyalla is on the western coast of Spencer Gulf. It has a population of about 22,000 people. There are no other significant population centres close by. There were two other chiropractic practices in Whyalla. Most of NEP’s patients came from Whyalla.
Dr Perry had an interest in chiropractic practices in Adelaide as well. From about 1990 the Whyalla practice of NEP was conducted by employed chiropractors. Dr Judge was working as a chiropractor at a practice conducted by NEP in Adelaide. In early 1998 he heard that NEP was looking for a chiropractor to conduct the Whyalla practice. The position was attractive to Dr Judge. One factor was that his wife, who was also a chiropractor, could obtain employment in another practice at Whyalla.
AMJ was incorporated in February 1998. It appears that Dr Judge incorporated AMJ at the suggestion of Dr Perry. There were tax advantages in practising through an incorporated company.
In July 1998 Dr Perry sent to Dr Judge the written contract that was ultimately executed. NEP had already executed the contract by affixing its common seal. According to the Judge there were some quite limited negotiations over the terms of the contract.
The contract provided for the appointment of “The Contractor as an independent Contractor” to “perform all usual Chiropractic services for the patients of the Clinic and attend to all the needs and requirements of the patients of the Clinic.” Broadly, NEP was to provide premises, support staff, plant and equipment all at NEP’s cost. The Contractor was to provide chiropractic treatment to patients. The Contractor…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] SASC 312
Decision Date: 3 October 2002

CaseChat Overview and Summary

In the case of NE Perry Pty Ltd v Judge, the appeal was brought against findings made by Judge, concerning a contract for chiropractic services and a subsequent restraint of trade clause. The Court of Appeal was tasked with reviewing the enforceability of the restraint of trade provisions contained within the contract. The appeal centred on whether the restraint of trade clauses, prohibiting the contractor from practising within a 30km radius of the clinic for two years and from soliciting the clinic’s clients for two years, were reasonable and enforceable.

The Court of Appeal found that the restraint on practice was unenforceable due to its unreasonableness. The Court determined that the period of the restraint was too long, as the connection and influence established by Dr Judge could still impact NE Perry’s interests even after the period of restraint had lapsed. The Court noted that the purpose of a restraint of trade is to protect the proprietary interest of the covenantee, but it cannot be an insurance against competition indefinitely. Additionally, the Court held that the restraint against inducing clients to switch practices was enforceable, as it was reasonable in the circumstances to protect NE Perry’s interests.

The Court of Appeal allowed the appeal, set aside the judgment of the District Court dismissing the plaintiff’s claim, and remitted the matter to the District Court for further consideration. The Court held that NE Perry must prove that it suffered any loss attributable to the proven breach of the restraint on inducement. Furthermore, the Court considered it appropriate for the District Court to decide whether an injunction or a declaration regarding the validity of the restraints should be granted.

In conclusion, the Court of Appeal found the restraint on practice to be unenforceable due to its unreasonableness, while the restraint against inducing clients to switch practices was enforceable. The case was remitted to the District Court for further consideration of the appropriate remedy and the potential for an injunction or declaration.

Orders

Orders of the court

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Background

Background to the litigation

NEP now appeals to this Court against the Judge’s findings.Facts The Judge’s findings about the background facts were not challenged. What follows is taken from his reasons. Dr Perry controls NEP. She practised as a chiropractor at Whyalla in partnership with two other chiropractors from 1984. In 1991 NEP acquired the practice. Whyalla is on the western coast of Spencer Gulf. It has a population of about 22,000 people. There are no other significant population centres close by. There were two other chiropractic practices in Whyalla. Most of NEP’s patients came from Whyalla. Dr Perry had an interest in chiropractic practices in Adelaide as well. From about 1990 the Whyalla practice of NEP was conducted by employed chiropractors. Dr Judge was working as a chiropractor at a practice conducted by NEP in Adelaide. In early 1998 he heard that NEP was looking for a chiropractor to conduct the Whyalla practice. The position was attractive to Dr Judge. One factor was that his wife, who was also a chiropractor, could obtain employment in another practice at Whyalla. AMJ was incorporated in February 1998. It appears that Dr Judge incorporated AMJ at the suggestion of Dr Perry. There were tax advantages in practising through an incorporated company. In July 1998 Dr Perry sent to Dr Judge the written contract that was ultimately executed. NEP had already executed the contract by affixing its common seal. According to the Judge there were some quite limited negotiations over the terms of the contract. The contract provided for the appointment of “The Contractor as an independent Contractor” to “perform all usual Chiropractic services for the patients of the Clinic and attend to all the needs and requirements of the patients of the Clinic.” Broadly, NEP was to provide premises, support staff, plant and equipment all at NEP’s cost. The Contractor was to provide chiropractic treatment to patients. The Contractor was to be paid a percentage of the gross takings. The Contractor was to be paid 50 per cent of gross takings if patients were less than 150 patients per week, ranging to a maximum of 60 per cent of gross takings if patients were 200 or more a week. The restraint which NEP sued to enforce is in cl 10 of the contract. It is as follows:“Non CompetitionThe Contractor acknowledges that he/she will be introduced to the client list relating to the Clinic. The Contractor agrees that in consideration of this Agreement they will not use the information contained therein for their own benefit and will not seek to induce any client of the Clinic to become a client of the Contractor for a period of 2 years following the termination of this Agreement. The Contractor agrees that they will not practice for 2 years within the township of Whyalla, or within a 30 km radius of the said practice in Schedule 4 (the Clinic).” There can be no doubt that Dr Perry and NEP knew that “the Contractor” might well be a company, and not Dr Judge personally. The contract was returned to Dr Perry. The common seal of AMJ had been affixed adjacent to an execution clause. Dr Judge signed the execution clause above the word “Director”. Across the common seal of AMJ were written the words “Allan Judge trading as AMJ Chiropractors Pty Ltd”. Dr Judge’s signature also appeared below those words. Schedule 2 to the contract identified the Contractor as “Allan Judge, trading as AMJ Chiropractors Pty Ltd.”

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In this respect also I disagree with the conclusion reached by the Judge.Conclusion For those reasons I consider that the restraint on practice is unenforceable, but that the restraint against inducing a client of the Clinic to become a client of AMJ is enforceable. I conclude that a breach of that restraint has been proved. That leaves the question of the appropriate remedy. It does not follow as a matter of course that it is appropriate to grant an injunction against AMJ or against Dr Judge. Whether NEP has proved that any loss was caused to it as a result of the one proven breach of the restraint against inducement is unclear. The Judge did not deal with the issue. In my view the appropriate order is that the appeal be allowed, that the judgment of the District Court dismissing the plaintiff’s claim be set aside, and that the matter be remitted to the District Court for further consideration in light of these reasons. It is necessary to do this because unless NEP has proved some loss attributable to the one proven breach of the restraint on inducement, NEP is entitled to nothing other than nominal damages. It is appropriate for the District Court to consider, as well, whether there is any basis for the grant of an injunction and whether, in all the circumstances, it is appropriate to make a declaration as to the validity of the restraint on inducement and as to the invalidity of the restraint on practice. BLEBY J: I gratefully adopt the recital of the relevant facts by the Chief Justice. As a matter of convenience I will use the same abbreviations as he does. I agree with the Chief Justice, for the reasons that he gives, that the contracting party was AMJ. I have nothing to add to those reasons.Restraint on practice I also agree that the restraint on practice was unenforceable as being an unreasonable restraint by reference to the interests of the parties concerned. I agree with the Chief Justice that the trial Judge adopted an improper test, but that he nevertheless reached a correct conclusion as to the unreasonableness of the restraint clause. The purpose of a restraining covenant of this type is to protect NEP’s proprietary interest in the goodwill of the business from damage which might be caused by AMJ and Dr Judge using their connection with NEP’s patients, and by the influence thereby created by virtue of the fact of AMJ continuing in practice within the period and area of the restriction. See Lindner v Murdock’s Garage (1950) 83 CLR 628 per Latham CJ at 636. A delicate balance must be struck between the interests of the covenantee and those of the covenantor. In this case the area of the restriction is not in question. The period is. What is reasonable in the circumstances must be judged, in part, by the time it will take for the connection with and influence of the covenantor to ameliorate to the extent that, if AMJ and Dr Judge do resume practice in the area, NEP’s interests will not be unduly damaged thereby. It must be recognised that whatever the period of reasonable restraint, there will always be former patients of NEP who have had no need of a chiropractor during the period of the restraint, who may seek treatment from Dr Judge because of a connection and influence established by Dr Judge when he was working in the practice. Where that occurs, NEP can obviously have no redress. A covenant cannot be an insurance against competition for all time. However, the chance of that influence occurring and the strength of the connection lessens if, during the period of restraint, such patients do require chiropractic services and, because Dr Judge and AMJ cannot provide them, they are required to obtain them from NEP or from some other provider within the area. It follows that the frequency of treatment of repeat patients is of some importance. Generally speaking, the longer the gaps between treatments, the longer the justifiable period of restraint.

Ratio Decidendi

Legal Principle Established

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