NE Perry Pty Ltd v Judge

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 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 Competition
The 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.”
The contract was for three years expiring on 31 October 2001. In early October 2001 Dr Judge told Dr Perry that he did not intend to seek a further contract appointment. At about this time AMJ established a practice at another address in Whyalla. Dr Judge began to practice there in 2001. This led to the proceedings in the District Court.
Who is the Contractor?
The Judge found that AMJ was the Contractor. That conclusion is challenged on appeal.
Mr White QC, counsel for NEP, submits that the contract is in a form appropriate for execution by an individual, and that this in combination with the words “Allan Judge trading as …” leads to the conclusion that Dr Judge is the contracting party.
The identity of the Contractor is to be determined by considering the statements and actions of the relevant persons, as they would be understood by a reasonable person. In the present case that directs attention mainly to the terms of the contract and the manner in which it was executed.
The Chiropractors Act 1991 (SA) permits a company to be registered as a chiropractor: s 18(2). AMJ was entitled to practise as a chiropractor, and there was no legal obstacle to it being appointed the Contractor. Indeed, as I have already mentioned, NEP conducted the chiropractic practice, and presumably was also a registered chiropractor. I agree that the contract is drafted in terms that contemplate a natural person as the Contractor. But cl 18(d) provides, somewhat awkwardly, that a reference to a person includes a corporation. There is no difficulty in giving effect to the contract if the Contractor is a body corporate. The affixing of the common seal of AMJ strongly suggests that AMJ is the contractor.
I agree with the Judge’s conclusion. In the circumstances outlined above, no other conclusion is open.
The restraint on practice
The contract is not a contract of employment. AMJ is an independent Contractor. However, cl 10 imposes a restraint on AMJ practising as a chiropractor. I see no reason why the common law principles relating to covenants in restraint of trade should not apply to the contract. The impact of the covenant on the interests of the parties and on the public interest does not appear to me to be affected by the fact that the contract is not a contract of employment.
It was not disputed that NEP had an interest that it was entitled to protect by imposing a restraint on AMJ.
When NEP contracted with AMJ, it introduced AMJ and Dr Judge to an existing group of patients at the Clinic. The connection between those patients and the Clinic is a form of goodwill of undoubted value to NEP. The contract enabled AMJ and Dr Judge to establish a connection with the patients of the Clinic such that AMJ and Dr Judge were in a position to take patients from the Clinic, were they to practise elsewhere. The nature of the interest that NEP was entitled to protect was conveniently identified by Latham CJ in Lindner v Murdock’s Garage (1950) 83 CLR 628 at 636. Although Latham CJ was in dissent, what his Honour said correctly states the position. He said:
“Where an employee is in a position which brings him into close and personal contact with the customers of a business in such a way that he may establish personal relations with them of such a character that if he leaves his employment he may be able to take away from his former employer some of his customers and thereby substantially affect the proprietary interest of that employer in the goodwill of his business, a covenant preventing him from accepting employment in a position in which he would be able to use to his own advantage and to the disadvantage of his former employer the knowledge of and intimacy with the customers which he obtained in the course of his employment should, in the absence of some other element which makes it invalid, be held to be valid. Reference has already been made to the right of an employer to protect his ‘trade connection’ – a right recognised in cases in which covenants were held to be invalid because they went beyond what was reasonably necessary to protect such a connection.”
It is also relevant to note that AMJ and Dr Judge were the only practitioners in the practice, and the practice was located in a country town with a fairly settled population. This serves to emphasise the vulnerability of NEP’s goodwill to the connection that would develop between the Contractor and patients of the Clinic.
The issue for the Judge was whether the restraint on competition, in the form of a covenant not to practise within Whyalla, was an unreasonable restraint of trade and unenforceable. The legal principles to be applied are well established. The difficulty lies in their application to the facts of the case.
The basic principle is that being a restraint of trade, the restriction is unenforceable unless reasonable in reference to the interests of the parties concerned and reasonable in reference to the interests of the public: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565 Lord Macnaghten. As Gibbs J said in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315-316:
“The requirement that the restriction be reasonable in the interests of the parties has been explained as meaning that the restraint ‘must afford no more than adequate protection to the party in whose favour it is imposed’ (Herbert Morris Ltd. v. Saxelby [1916] A.C. 688, at p.707), or in other words, ‘does the restriction exceed what is reasonably necessary for the protection of the covenantee?’ (McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society Ltd. [1919] A.C., at p.563).”
Gibbs J went on to make two further points that are relevant to the present case. He said (at 316-317):
“Nevertheless the fundamental rule remains that the restraint must be reasonable in the interests of the contracting parties, and it would not be in the interest of a covenantor to subject himself to any restraint unless he received some advantage by so doing. In my opinion it is permissible, in asking whether a restraint is reasonable in the interests of the parties, to consider, as part of the circumstances of the case against which the question of reasonableness is to be decided, the quantum of consideration received by the covenantor and the effect of the agreement on the position of the covenantor:
…
Analogous to the rule that the court is not entitled to concern itself with the adequacy of the consideration is the further principle that has been stated and restated in the authorities, with more or less emphasis, that where the parties to a contract have been in a position to bargain on an equal footing they should be treated as the best judges of what is reasonable in their own interests:
…
The fact that the parties have bargained from a position of equality is therefore one of the circumstances to be considered in determining whether the covenants were reasonable, but it does not save from invalidity a covenant found to be unreasonable or contrary to the public interest ….” (citations omitted).
As to the first of these points, the arrangement for remuneration as between NEP and AMJ appears reasonable. AMJ was to receive a minimum of 50 per cent of the gross takings, NEP meeting substantially all of the outgoings of the practice. Although the Court has no information about rates of remuneration within the chiropractic profession, there does not seem to be any basis for regarding the consideration received by NEP as unreasonable, or for regarding the impact on AMJ as in any way unreasonable. The evidence shows that the actual remuneration earned by AMJ was substantial.
It is also relevant to bear in mind that NEP and AMJ appear to have made their bargain on an equal footing. There is no suggestion in the evidence that AMJ was under any pressure of any kind to enter into the contract. The position at Whyalla was attractive to Dr Judge, no doubt in part because his wife could also obtain employment there. It is common knowledge that it is often difficult to find trained professionals willing to live and work in country towns. While the Judge made no finding about this, there is nothing before the Court to suggest that NEP was in a stronger bargaining position.
In considering the reasonableness of the restraint the Judge treated the area of the restraint as being the town of Whyalla. Although the distance of 30 kilometres referred to in cl 10 extended further than that, very few people lived outside the town and within a 30 kilometre radius of the practice. The Judge said that the area of the restraint was reasonable, and that was not challenged on appeal.
The Judge described the test to be applied as follows:
“The question here is, what is the time required for a new chiropractor to commence practice at the Whyalla Clinic and to demonstrate his or her effectiveness to patients of the Clinic.”
Mr White criticised this approach. He said that the proper test was not the period of time required for a new chiropractor to demonstrate his or her effectiveness to patients, or to establish himself or herself in the eyes of patients, but the period of time required to break the connection between Dr Judge and the patients whom he treated.
Although the contract was with AMJ, I agree that it is appropriate for these purposes to take account of the connection that would exist between Dr Judge and patients. It would be unrealistic to do otherwise.
I agree with the submission advanced by Mr White. The manner in which he put the matter is the manner in which it has been expressed in a number of cases: see, for example, Iraf Pty Ltd v Graham [1982] 1 NSWLR 419 at 429. That approach also seems to me to be more consistent with principle. NEP was entitled to protect itself against the exercise of or impact of the connection between Dr Judge and patients of the Clinic.
However, having agreed with the submission, I add that I do not consider that much weight can be put on this point. The fundamental issue is whether the restriction is reasonable in the interests of the parties, or whether it affords no more than adequate protection to NEP. On the assumption that NEP would replace AMJ with another chiropractor, and continue its practice, the period of time within which a replacement chiropractor would have an opportunity to demonstrate his or her effectiveness to patients at the Clinic may well be much the same as the period of time required to sever the connection between Dr Judge and patients of the Clinic. However, I agree that it is safer to focus on the period of time reasonably required to break the connection with AMJ and Dr Judge, rather than the period of time within which there would be an opportunity for NEP to establish a new connection.
There can be no precision in this. The strength of the connection between Dr Judge and a patient of the Clinic is likely to depend on a number of factors, including the number of times that the patient has been treated by Dr Judge. It is likely that there would be some patients who would prefer to be treated by Dr Judge, and who would seek him out, if the need for treatment arose many years after they last saw Dr Judge. At the other extreme there are likely to be patients who are indifferent to the identity of the person treating them, and who for one reason or another would simply return to the practice where they have been treated before. It seems to me that all the Court can do is consider the period of time reasonably required to sever or to substantially erode the connection between Dr Judge and most of the patients, recognising in doing so that the strength of that connection in any particular case cannot be measured. Recognition of the fact that NEP had an interest in goodwill which it was entitled to protect requires the Court to bear in mind that the connection between Dr Judge and some patients might be quite strong and might endure for some time. On the other hand, one of the purposes of the common law principles is, presumably, to ensure that in the interests of the parties the protection that is obtained is no more than is adequate, and is no more than is reasonable taking into account the interests of NEP in protecting its goodwill and the interests of AMJ and Dr Judge in their ability to practise freely their profession as chiropractor.
The Judge made the point that there was virtually no evidence about the pattern of attendance of patients at the Clinic, or about the frequency of attendance of patients. In particular, there was no evidence about the frequency with which, or the period of time over which, patients returned to the Clinic for further treatment. Nor, the Judge noted, was there any evidence about what was usual or common in the profession when restraints were entered into.
The Judge concluded that the restraint was not reasonable. He said:
“The question whether the period is reasonable is, in the end, a matter for the Court. The duration of the restraint is reasonable only if it is no longer than necessary to enable a new chiropractor to have the opportunity to demonstrate his or her effectiveness to patients. I have reached the conclusion that the period is too long. As I stated earlier, although the evidence is limited, it does suggest that many of the patients received more than one treatment when consulting for a specific ailment. In these circumstances a period of one year would seem a reasonable time for the new chiropractor to demonstrate his or her effectiveness to patients. What evidence there is suggests that with the repeat patients the repeat visit or visits would occur within a short period of time and certainly well within a period of one year. If it could have been demonstrated that the practice involved only sporadic visits by patients, similar to an accountant’s practice where the contact with the client may only be once or twice a year, then a longer period than one year may have been justified. In circumstances such as that a longer period would be required to demonstrate effectiveness. (see: Smith v Ryngiel (1988) 1 Qd.R 179). The onus was on the plaintiff to prove that a two year period was reasonable. The evidence does not enable the Plaintiff to satisfy that onus.”
As I have already said, I consider that the Judge should have focused attention on the period of time required to sever the connection between Dr Judge and patients, but I acknowledge that the approach that the Judge took was not far removed from that. I note also that the Judge makes no reference in this part of his reasons to the fact that the parties appear to have bargained on an equal footing, to the fact that no criticism was made that the arrangement was in any sense unfair or unbalanced, and to the fact that AMJ was introduced to an existing patient base when it entered into the contract.
But having said that, the question remains whether NEP’s interest reasonably required the degree of protection that it secured for itself. The correlative of that protection was the exclusion of AMJ from practising in Whyalla for a period of two years. It is also relevant to bear in mind, as the Judge pointed out, that NEP did not lead evidence about patterns of patient attendance or about what was usual by way of restraint in the chiropractic profession. I am not confident that evidence about patterns of patient attendance would have led anywhere in particular, bearing in mind the issue to be decided by the Court. But if NEP had shown that it was not uncommon for a patient to return to the Clinic after an interval of more than one year, that would have supported an argument in favour of a restraint exceeding one year. The Judge’s impression from the evidence was to the contrary. I would be surprised if evidence established any clear pattern or custom in relation to the duration of restraints in the chiropractic profession.

This is not a case in which the challenge to the Judge’s decision depends upon challenges to findings of fact. The decision that the covenant was not reasonable is a decision on a question of law. As Gibbs J said in Amoco at 318:
“…[B]ut his decision that the covenants were reasonable is not a decision of fact and an appellate court in reviewing such a decision inquires not whether it has been shown to be wrong, but simply whether it is right. Although a trial judge enjoys no special advantages in deciding such a question, the reasons given for his decision are of course entitled to due consideration.”
I add that, in my opinion, the issue for the Court is not the minimum period required to protect NEP. The issue is whether the period for which NEP stipulated is no more than adequate protection. As the answer to the question before the Court is very much a matter of judgment, and cannot be based on any precise findings of fact, due weight must be given to the fact that the parties freely negotiated for the restraint in fact given, and weight must also be given to the fact that it cannot be demonstrated that a one year restraint would suffice, and that a two year restraint is too long. What I mean by this is that the Court must make a judgment on a matter which is beyond clear and precise proof.
I consider the matter to be very finely balanced. Like the Judge, I have no difficulty accepting that a twelve month restraint is reasonable. The subjective nature of the assessment involved makes me cautious about concluding that two years is unreasonable and provides more than adequate protection. But in this respect it is relevant to take into account the fact that, from a practical point of view, the restraint would make it difficult, and perhaps impossible, for Dr Judge, at least while employed by and a director of AMJ, to continue to live in Whyalla. For the period of the restraint it may well be necessary for him to live elsewhere. I remind myself that the courts have taken a stricter approach to restraints found in employment contracts. That approach applies to a contract of the type in question here. Having reflected on the matter, I am not persuaded that a two year restraint is reasonable in the interests of the parties, and affords no more than adequate protection to NEP. In the end, the onus was on NEP to prove that it was reasonable.
For that reason I agree with the Judge’s conclusion that the restraint is unenforceable.
That makes it unnecessary to consider whether the restraint was reasonable in the interests of the public. However, had NEP satisfied me that the restraint was reasonable in the interests of the parties, I can see no reason to conclude that it is not reasonable in the interests of the public.
I add that I agree with the reasons given by Bleby J for deciding that the fact that the contract could be terminated on three months’ notice is not a reason to treat the restraint as unreasonable.
Restraint on inducement
The same principles apply in considering the validity of the restraint contained in the second sentence of cl 10.
However, in considering the reasonableness of this restraint, it is relevant to bear in mind two matters in particular. First, this restraint is unlimited as to area. It prohibits AMJ from inducing a client of the Clinic to become a client of AMJ, wherever that inducement may take place. To my mind that does not argue to any significant degree against the validity of the restraint. The restraint on inducement should be interpreted as referring to a restraint against inducement of persons who were patients at the Clinic while AMJ was the Contractor. While the concept of inducement is not a precise concept, I consider that it involves conduct which, viewed objectively, can be said to be directed at patients of the Clinic. It is significant that this restraint contains a reference to the “client list relating to the Clinic.” Read in context, the restraint is against making use of the names and addresses of patients of the Clinic, and against making use of information about those patients that might be used to persuade them to follow AMJ or Dr Judge. I recognise that inducement would extend beyond the personal solicitation of a client of the Clinic. It could include advertisements directed towards patients of the Clinic in particular, or advertising material making use of information about the needs of those patients that was gained from the “client list”. On the other hand, a consideration of cl 10 overall requires one to conclude that inducement would not be made out merely by proving that Dr Judge practised in Whyalla as a chiropractor, or merely by proving that he advertised the fact that he was practising. It would be unwise to try to identify in advance conduct that would amount to inducement. On the other hand, it should be recognised that the concept of inducement embraces a limited range of conduct. The prohibition on practising is a relatively blunt instrument, the effect of which is to prevent patients following AMJ or Dr Judge (while a director or employee of AMJ) to a new place of practice, the price from AMJ’s point of view being that it cannot practise at all for the period of the prohibition (if enforceable). The prohibition on inducement does not prevent patients from following AMJ or Dr Judge. It prevents AMJ and Dr Judge on its behalf from activities (if amounting to inducement) aimed at persuading patients to follow AMJ or Dr Judge to a new place of practice.
It follows that while the reasonableness of this restraint is to be determined by reference to the same principles as those already referred to, the Court is concerned here with a restraint unlimited in area, but narrower in terms of its impact upon the ability of AMJ and Dr Judge to practise the chiropractic profession.
The Judge concluded that this restraint was not reasonable. He said:
“The reasons I expressed in concluding a two year period was not reasonable with respect to the ‘no‑practising’ restraint of trade are equally applicable here. In my opinion a period of one year would be adequate protection for the plaintiff. This would be a reasonable time for the in-coming chiropractor to prove his or her effectiveness to the patients of the practice.”
I respectfully disagree. In my opinion the narrower reach of the restraint is a significant factor. As well, inducing clients of the Clinic to become a client of the former contractor seems to me to strike more directly at NEP’s goodwill, than does the mere setting up of a competing practice in the same town. Inducement will embrace activities which are intended to revive or play on the connection between Dr Judge and a patient of the Clinic. Bearing that in mind, NEP could reasonably look for a more lengthy protection than would be reasonable when the activity prohibited involves no element of persuasion or influence, but merely the fact of being available to be followed if the patient wishes to follow a competitor.
I therefore conclude that in that respect the Judge erred.
Was AMJ in breach of the restraint on inducement?
The Judge concluded that no breach of the restraint covenant had been proved.
The first group of alleged breaches arose out of alleged conversations between Dr Judge and certain patients towards the end of his time at the Clinic. There is no reason to disturb the Judge’s findings of fact in this respect. The Judge’s conclusion was that the statements that he found Dr Judge had made were appropriate, having regard to his professional relationship with the patients. In effect, the Judge found that it was professionally appropriate for Dr Judge to inform the patients that he was leaving the Clinic. In all the circumstances, I agree that this did not amount to a breach of the restraint on inducement.
The second alleged breach was based on the fact that AMJ had set up a rival practice in Whyalla. Under the circumstances, as I have previously indicated, that could not amount to a breach of the restraint on inducement.
Further allegations of breach were made based on certain advertisements placed in local newspapers. One of the advertisements related to Clinics conducted by Dr Judge in towns some distance from Whyalla. This advertisement made no reference to the fact that Dr Judge had previously practiced at the Clinic conducted by NEP. It was nothing more than an advertisement informing the reader that Dr Judge would consult at the named towns on certain days. In my opinion a general advertisement of that kind cannot be regarded as an inducement for the purposes of cl 10.
The other advertisement gave notice of the fact that Dr Judge would be consulting at a specified address in Whyalla. For the same reasons, no complaint can be made of the fact that Dr Judge advertises the fact that he is in practice in Whyalla. However, in this advertisement Dr Judge describes himself as “formerly of Better Back”, that being the name of the practice conducted by NEP and of the Clinic at which he had previously practiced. The Judge appears to have taken the view that this addition, that is the publication of the link between Dr Judge and “Better Back”, did not constitute a breach of the restraint.
This is a matter on which minds are likely to differ. In my opinion the inclusion of the reference to “Better Back” draws attention to the fact that Dr Judge was previously involved in that Clinic, and this is something likely to be of significance to, and only to, clients of that Clinic. Just as a telephone call from Dr Judge to a former client, doing no more than informing the former client of Dr Judge’s new place of practice, would, in my opinion, be an inducement, so is a general advertisement placed by Dr Judge which informs the relevant reader that he is the Dr Judge who formerly practised at “Better Back”. I consider that the purpose and effect of the information is to make use of the link between Dr Judge and the “Better Back” clinic, and the most obvious use is to encourage former patients of the clinic to follow Dr Judge.
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.
In the case of a chiropractor, there will be patients undertaking a course of treatment, say, weekly or bi-weekly, when the covenantor leaves the practice. It will probably not take long for the connection with the covenantor to weaken if the covenantor is not available for continuing that course of treatment. The patient will necessarily form an attachment with someone else, be it in the covenantee’s or some other practice.
There will be those patients who, although not being treated at the time that the covenantor leaves the practice, return for a course of treatment after an interval. It will take longer for those patients to lose the connection with the covenantor, the length of time depending largely on the frequency of their return for a course of treatment.
There will be other patients who merely seek single treatments intermittently. The same will apply to them.
It is therefore of some importance in a case like this to lead evidence of the frequency and nature of such return visits for different classes of patients if one is to develop a helpful picture of how long it might take for the covenantor’s influence to wane.
There will be yet another group of people who have never been patients of the practice who require chiropractic services for the first time or for the first time since the covenantee has established the practice. Proper protection of the covenantee’s goodwill will also involve preservation of the covenantee’s ability to attract new patients. However, the damage to be prevented does not result from these new patients being attracted to the covenantor by virtue of any direct connection or influence which the covenantor might have had on them, nor is it by virtue simply of the covenantor setting up practice for the first time. It is by virtue of the covenantor’s general reputation in the area, established through his working for the covenantee and his continuation in practice in the area.
The covenantee cannot be protected against any loss of new patients to another practitioner, such as when a new practitioner sets up practice for the first time in the area. The covenantee’s protection can only extend to damage caused by the continued presence in the area of the covenantor as a practising chiropractor. One would expect the extent of the covenantor’s general reputation in the area to grow during an initial period of employment, and then to remain reasonably constant after having reached its established level. That reputation would not necessarily be related to the number or frequency of repeat patients of the practice. For the ability to attract new patients, it is only the influence by way of that reputation that needs to be ameliorated to the point where the covenantee’s goodwill would not be unduly damaged by the covenantor continuing to practise in the area.
I make these fairly obvious points for several reasons. In the first place, there will need to be an understanding of the type of business, the goodwill of which is to be protected by a valid restraint of trade clause.
Secondly it demonstrates that the period of restraint has nothing to do with the period necessary for a “new” practitioner in the NEP’s practice to demonstrate his or her effectiveness to patients of the clinic. That was the test adopted, in my opinion erroneously, by the trial Judge. Its adoption may well lead to an incorrect conclusion, although, as it happens, it did not in this case.
In the third place, it shows that the reasonableness of the period will necessarily be governed by the nature of the practice and particularly, in a case like the present, by the number of “repeat” patients compared with the number of “new” patients. If there is a large number of repeat patients, the period will largely be influenced by how frequently those patients return to the practice. The greater the number of repeat patients and the more frequently they return, the less time it will normally take to ameliorate the defendant’s influence. If there is a large number of “first time” or “non-repeat” patients, the period might well be longer simply because of the continuing reputation of the covenantor, usually by word of mouth, throughout the community.
Finally, the duration or expected duration of the contract may have some bearing on the reasonableness of the restraint. It may not take long for a practitioner to establish the expected degree of rapport with a large number of frequently repeating patients. On the other hand, the establishment of a reputation in the community may well take longer. The reasonableness of a restraint may therefore depend, in those contrasting circumstances, on the expected duration of the contract. I will return to that question to consider whether it affects this contract and the reasonableness of the restraint clause.
As has been pointed out in many cases, the onus is on the plaintiff to prove the reasonableness of the restraint. In a case like this a plaintiff should lead some evidence of the nature of the practice and the consulting habits of its patients in order to establish the reasonableness of the covenant. A plaintiff will take a substantial risk if it does not lead such evidence, as without it, the court will have no satisfactory information against which to assess the reasonableness of the restraint, and the plaintiff will fail to discharge the onus of proof.
There was no such evidence in this case other than in the most rudimentary form. There was some evidence as to the number of advance bookings for periods of one, two and three weeks ahead, but that did not assist in determining the frequency of repeat visits. By reference to the number of consultations undertaken by Dr Judge per day, it was possible to conclude that the practice conducted about 12,000 consultations per year in a town of about 22,000 people. At the time there were two other chiropractic clinics in Whyalla. There is no evidence of the proportion of the population generally or in Whyalla that requires chiropractic treatment. I expect that it would be relatively small. All that tends to indicate that in the course of a year there would be a very large number of repeat patients attending the clinic. As I have said, this would tend to reduce rather than increase the period necessary to sever the connection and influence of Dr Judge. It does not help NEP which, in any event, bore the onus of establishing the reasonableness of the restraint by reference to the nature of the practice. In my opinion, such evidence as there was merely tended to confirm the conclusion reached by the trial Judge that the restraint was unreasonable. There was no other evidence relating to the nature of the practice which would justify the reasonableness of the restraint. The other factors referred to by the Chief Justice were also insufficient to discharge the plaintiff’s onus.

I said I would return to the question of duration of the contract. The term of the contract provided for in clause 14 and schedule 5 of the contract was a period of three years ending in November 2001. However, clause 13 provided:
“This agreement can be terminated by either party giving not less than 3 months written notice to the other party that the Agreement will be terminated from a date at least 3 months from the service of such notice on the other party.”
In theory, the contract could have been terminated after a little over three months. The reasonableness of the restraint is to be assessed at the time when the contract is made: Amoco Australia Pty Ltd v Rocca Bros (1973) 133 CLR 288 per Gibbs J at 318. Does the ability to terminate on three month’s notice render unreasonable a restraint of two years on practice in the area? In my opinion it does not, as the reasonableness of a restraint in a contract of this nature will depend upon the expectation of the parties at the time the contract was entered into, and not merely the ability to terminate the contract on short notice.
In McPherson v Moiler (1920) 20 SR (NSW) 535 a restraint clause for a period of five years was held unreasonable by virtue of its area of operation. It was nevertheless severable, and held valid for that period in a lesser area. The contract was terminable on one month’s notice. Harvey J held that it was reasonable notwithstanding the provisions relating to termination. He considered that it was proper to take into consideration “what was probable as to the intention of the parties as to the length of the engagement” (at 541). A similar view was taken by Holmes JA in Pyle v Sharpe Bros Ltd [1968] 2 NSWR 511 at 523.
In Lindner v Murdock’s Garage (1950) 83 CLR 628 at 651 - 652, Fullagar J summed up the relevant authorities as follows:
“In Haynes v Doman [1899] 2 Ch 13 at p 26, where the agreement was terminable for a fortnight’s notice on either side, Lindley M.R. said: ‘Possible cases in which the restriction would not be reasonable are suggested. One would have arisen if the defendant had left the plaintiff’s employ within a very short time after entering it, and before the defendant could have acquired or carried away with him any knowledge of the plaintiff’s mode of conducting his business. Such an event has not happened, and clearly was not contemplated. This objection, if sound, would invalidate all agreements of the sort determinable on short notice, unless some words were introduced excluding their application to cases never contemplated. Another case to which the restriction could not be reasonably applied would have arisen if the defendant had left business altogether, or had had no dealings with the plaintiff’s rivals for twenty or thirty years, and had then resumed business and assisted them’. Romer L.J. [1899] 2 Ch at 30 agreed with the above observations of the Master of the Rolls. The case of Haynes v Doman was decided before Mason v Provident Clothing & Supply Co Ltd [1913] AC 724 and Herbert Morris Ltd v Saxelby [1916] 1 AC 688 but, when all the circumstances are regarded, I think that the decision is quite in line with Dewes v Fitch [1920] 2 Ch 159 which was decided after the two leading cases in the House of Lords and in which a very similar covenant was held valid. In McPherson v Moiler (1920) 20 SR (NSW) 535 at p 541; 37 WN 162 at pp 163, 164 where the agreement was terminable by a month’s notice on either side, Harvey J said: ‘I cannot altogether put out of consideration the fact that on the face of the agreement there was no security of employment for more than from month to month, though exactly what weight has to be given to that it is not easy in the present state of judicial authority to pronounce with any definiteness. The judgment of Lindley LJ in Haynes v Doman and the judgment of Eve J in Dewes v Fitch both show that the Court may to a certain extent take into consideration what was probable as to the intention of the parties as to the length of the engagement…. Although the master has the power almost immediately to dismiss the employee, one has to look at the surrounding circumstances to see whether that was seriously in the contemplation of the parties as being likely to happen in this case’…. I do not think that the fact that the agreement was terminable by twenty-one days’ notice on either side affords any sufficient ground for differing from the view taken by Napier CJ.”
It is true that Fullagar J was in dissent in the result by holding that the particular restraint was valid. However, implicit in the statement of the law by Latham CJ (also in dissent), with whom Webb J (in the majority) agreed, was that the reasonableness of the restraint was dependent upon the expectation of the parties at the time of entering into the contract. The relevant expectation was as to the role and function of the covenantor and the covenantee’s business and his expected involvement with customers of the business. That plainly imports a time element as well as an assessment of the qualitative nature of the work.
Kitto J decided that the restraint was unreasonable by virtue of its area, and did not comment on its duration. Nevertheless, he cited with approval (at 653) a passage from the judgment of Salter J in Putsman v Taylor [1927] 1 KB 637 at 643:
“The question is not whether experience gained during the service has shown the restriction to have been excessive or insufficient. The question is whether the covenant was a reasonable one for the parties to agree to at the outset of the service on the best estimate which they could then make of the future.” (Emphasis added).
Consistent with that approach, Kitto J observed, at 658:
“It is said that the restrictive clause should be regarded as combining two severable restrictions, one in respect of the Crystal Brook area and the other in respect of the Wirrabara area. But even if the clause had been confined to one of those areas, its validity would have had to be decided in the light of the fact that at the date of the agreement it was not known whether the appellant would be working in that area during such a period preceding the termination of his employment that his knowledge of and relation with customers in that area might, in the absence of a restraint, cause injury to the respondents’ business.”
I have little doubt that if Kitto J were in a position to infer that the expectation of the parties was that the covenantor would work only at Crystal Brook, his conclusion would have been different.
McTiernan J, in deciding that the restraint was unreasonable, did (at 644) place considerable weight on the fact that the employee could be dismissed on three weeks’ notice. Not only did that fact create an unreasonable restraint, but it acted in terrorem against the employee, should he wish lawfully to terminate his contract of employment. He cited in support of his views a speech of Lord Shaw in Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 at 741. Nevertheless, Mason’s Case was very different from this one, and indeed different from the facts in Lindner v Murdock’s Garage. It was a case of an employee employed as one of about 1,000 canvassers employed at various offices in London, the covenantor being attached to the Islington branch office and being employed exclusively in that district. His contract was terminable on two weeks’ notice. He was subject to a restraint, held to be invalid, on being employed for three years after termination of employment in the employ of any person, firm or company carrying on or engaged in a business the same as or similar to that of the plaintiff “within twenty-five miles of London aforesaid where the company carry on business”. Although Lord Shaw (at 741) seems to have relied upon the fact that the period of service under the contract might only have been two weeks, Viscount Haldane did not appear to rely on that fact. Lord Moulton did not mention the issue, and Lord Dunedin agreed with Viscount Haldane. The important distinguishing feature, however, is that this was a contract of employment and, as Viscount Haldane pointed out, at 731, it was not the case of an agreement made to protect the sale of goodwill or to guard against the disclosure of special trade secrets. The former was the very essence of this contract between NEP and AMJ.
Not only was this contract a contract for the protection of NEP’s goodwill, but the parties reasonably had an expectation that the contract would run for its full term of three years, notwithstanding the ability to terminate on three months notice. Dr Judge, with his wife, had moved from Adelaide to Whyalla to take up the appointment. The expectation is borne out by the fact that the agreement conferred on the Contractor an option to extend the contract for a further period of two years. So long as the expectation was fulfilled, as it was, there was no reason to hold that the restraint was unreasonable by virtue of the ability to terminate the contract earlier. The right to terminate the contract on three months notice does not, in the circumstances of this case, carry any weight in reaching my conclusion that the restraint is unreasonable.
Clearly, some weight must be given to the fact that, as parties to a contract in similar bargaining positions, they reached an agreement as to the terms of the restraint clause, and negotiated the remuneration package reflected in the agreement on conditions which included the restraint clause, and which included some knowledge of the nature of the practice. While it is appropriate to give some weight to that, the freedom to contract cannot override what is the policy of the law in this area to protect contracting parties and the community from unreasonable restraint of trade. I am not persuaded that the parties’ freedom to contract should, in this case, override the conclusion that the restraint is unreasonable.
The restraint on inducement
I agree that this clause attracts different considerations. It stands apart from the restraint on practice, and can still operate notwithstanding the invalidity of the restraint on practice. I agree with the Chief Justice that this restraint was reasonable for the reasons that he gives. I also agree that NEP has proved one breach of the provision. In view of that breach I agree with the orders proposed by the Chief Justice.
BESANKO J: This is an appeal against a decision of a Judge of the District Court. The Judge dismissed the plaintiff’s action against the defendants.
The plaintiff’s claim was based on alleged breaches of a contract the plaintiff asserted was between it and the first defendant (Dr Judge), or in the alternative, the second defendant (AMJ Chiropractors Pty Ltd). AMJ Chiropractors Pty Ltd is a company operated by Dr Judge and his wife.
A full statement of the facts is set out in the reasons of the Chief Justice which I respectfully adopt. I will repeat the facts only in so far as it is necessary to do so for the purpose of explaining my reasons.
For the reasons given by the Chief Justice I agree that the trial Judge was correct in concluding that the parties to the contract were the plaintiff and AMJ Chiropractors Pty Ltd (“AMJ”).
The essential features of the contract between the plaintiff and AMJ were as follows:
1AMJ agreed to provide chiropractic services at the “Better Back” Clinic (“the clinic”) at “Bunyarra”, Nicholson Avenue, Whyalla, for a period of three years from November 1998 to November 2001 with the option of a further two year term. I note that the location of the clinic was changed during the term of the contract, but that fact was not relevant to any of the issues in the action.
2The relationship between the plaintiff and AMJ was not to be one of partners, employer and employee, or master and servant.
3During the term of the contract, AMJ was to use its best endeavours to promote and extend the goodwill of the clinic.
4The remuneration under the contract was calculated by reference to the number of patients who visited the clinic.
5The plaintiff was to provide non professional staff and other services at the clinic.
6Clause 10 placed various restraints on AMJ during the contract and after it came to an end. It provides:
“10 NON COMPETITION
The 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 at 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 two years within the township of Whyalla, or within a 30 km radius of the said practice in Schedule 4 (the Clinic).”
7Clause 13 provided that either party could terminate the contract upon giving three months written notice to the other party. It was therefore possible at the time the contract was entered into that the term of the contract may be for as short a period as approximately three months.
The plaintiff sought relief in the nature of an injunction and an account of profits in relation to an alleged breach of what I will call the non practising covenant and alleged breaches of the non inducement covenant.
In relation to the non practising covenant there was no dispute that AMJ had established a chiropractic practice shortly after the contract had come to an end. The only question for the trial Judge was whether the restraint against practising for two years was invalid because it was an unreasonable restraint of trade. The trial Judge took the view that the restraint was reasonable as between the parties in terms of the activities prohibited and the geographical area, but that it was not reasonable as between the parties in terms of the duration of the restraint. The trial Judge would have upheld a restraint for a period of one year, but a restraint for a period of two years was unreasonable as between the parties. The trial Judge did not consider it necessary to reach a conclusion as to whether the covenant was reasonable in the interests of the public or, to put it another way, injurious to the public.
The trial Judge reached similar conclusions in relation to the validity of the non inducement covenant. However, he did go on to say that in any event there were no breaches of the non inducement covenant.
The Covenant against Practising as a Chiropractor
In Lindner v Murdock’s Garage (“Lindner”)[1] the High Court considered the validity of a restraint imposed on a motor mechanic in an employment contract between the motor mechanic and his employer. The contract was not for a fixed period and either party was able to terminate the contract by giving 21 days notice to the other. The geographical area of the restraint covered two country towns in South Australia, and it was in relation to the issue of the geographical area of the restraint that the High Court was divided. I do not think there was any disagreement between the members of the Court as to the relevant legal principles, and the case is a good starting point for the resolution of the issues in the present appeal.
[1] (1950) 83 CLR 628.
The validity of a restraint is to be decided as at the date it is imposed. Subsequent experience under the contract is not to be taken into account. The question is,
“Whether the covenant was a reasonable one for the parties to agree at the outset of the service on the best estimate which they could then make of the future.[2]”
[2] Putsman v Taylor [1927] 1KB 637 at 643; Cited with approval by Kitto in Lindner at 653.
It has been said many times that to be valid a covenant must afford no more than adequate protection to the party in whose favour it is imposed.[3] In order to determine what is no more than “adequate protection”, it is necessary to consider what it is for which protection is required, and what it is against which protection is required.[4]
[3] Herbert Morris v Saxelby [1916] 1AC 688 per Lord Parker at 708; Lindner, above n. 1 per Kitto J at 654.
[4] Herbert Morris v Saxelby, above n.3 per Lord Parker at 708.
In Lindner, Kitto J said at 654:
“The answer is that they needed protection for their business connection against the possibility of its being affected by the personal knowledge of and influence over the customers which the appellant might acquire in their employment.”
The interest that is protected is the goodwill of the covenantee’s business, and the conduct that the restraint protects against is the covenantor exploiting his connection with the patients/clients of the business to diminish that goodwill. Therefore, the question is how long does the restraint reasonably need to be in order to sever the connection between Dr Judge and his ex-patients. In one sense, the other side of the coin is the time it will take for a replacement chiropractor to build or create a connection with the patients of the clinic such that the connection with Dr Judge is severed.
The trial Judge applied a test formulated by Professor H M Blake in an article entitled “Employee Covenants Not to Compete”[5] in the following terms:
“… duration is reasonable only if it is no longer than necessary for an employer to put a new man on the job and for the new employee to demonstrate his effectiveness to the customers.”
[5] (1960) Harvard Law Review 625 at 627.
There are some difficulties with this test. First, it is not clear what is meant by the word “effectiveness”. The danger in the use of the word is that it may tend to focus attention on how long it is necessary for a chiropractor to prove that he can do the job, as distinct from how long a chiropractor needs in order to build up a relationship of trust and confidence with his or her patients. Secondly, the test focuses on what I have called the other side of the coin, rather than the correct test which focuses on how long it will take for the severing of the connection between Dr Judge and his ex-patients.
Having made these observations I should say that I do not think that the trial Judge’s adoption of Professor Blake’s test led him to identify and rely on any irrelevant matters, or to fail to identify relevant matters.
To my mind, the critical factual finding by the trial Judge is contained in the following passage from his reasons:
“As I stated earlier, although the evidence is limited, it does suggest that many of the patients received more than one treatment when consulting for a specific ailment. In these circumstances a period of one year would seem a reasonable time for the new chiropractor to demonstrate his or her effectiveness to patients. What evidence there is suggests that with the repeat patients the repeat visit or visits would occur within a short period of time and certainly well within a period of one year. If it could have been demonstrated that the practice involved only sporadic visits by patients, similar to an accountant’s practice where the contact with the client may only be once or twice a year, then a longer period than one year may have been justified. In circumstances such as that a longer period would be required to demonstrate effectiveness (see: Smith v Ryngiel (1988) 1 QD R 179). The onus was on the plaintiff to prove that a two year period was reasonable. The evidence does not enable the plaintiff to satisfy that onus.”
There was very little evidence before the trial Judge as to how frequently patients visited the clinic. Counsel for the appellant pointed to the following passages in the cross-examination of Dr Judge:
“QHow many people would you see generally a day when you were at Better Back?
AAbout 50.
QA day.
AYes.
QFive days a week.
AYes.
QI might sound incredulous. It just seems an enormous amount of patients.
AYes.
QThis is the sort of level of work you did at Better Back for, let’s say, the 12 months prior to 1 November 2001.
AYes
QSome of those would be repeat visits and some would not.
AThat’s correct.
QAre there circumstances where you might only see somebody for one visit only.
APossibly.
QIs that a regular occurrence.
AUsually people, who would be travelling around Australia, would call into the practice, have one visit, and then travel on. I think they’re called transitional patients. They had a name for them.
QI take it there is no pattern as to whether you see people two, or three, or four, or five times, it depends on the condition you’re treating.
A Depends, yes.”

It seems to me fair to assume that, in a broad sense, a similar pattern existed at the time the contract was entered into.
Clearly, some patients visited the clinic regularly while others visited the clinic on an infrequent basis. Leaving aside what was probably a small number of transitory patients, in my opinion if it was established by direct evidence or by inference that a reasonable number of the patients visited on an infrequent basis, for example, a couple of visits followed by a period of 12 to 18 months before the next visit, then the restraint would be reasonable as between the parties. The fact that there was also a reasonable number of the patients who visited regularly within a 12 month period would not, to my mind, lead to the conclusion that a two year restraint provided more than adequate protection.
In the case of an accountant or a solicitor, a court may be prepared to infer that by reason of the nature of the work they carry out, a reasonable proportion of their clients visit on an infrequent basis. It may not be necessary to call a great deal of specific evidence as to the visiting patterns of clients.
In the case of a chiropractor, it seems to me that it must be possible to call evidence of the visiting patterns of patients either by general evidence of a chiropractor’s practice and then applying that evidence to the specific case, or by calling detailed evidence of the visiting patterns of the practice in question.
The question here is whether the plaintiff’s failure to call evidence as to the visiting patterns of patients means that the plaintiff has failed to satisfy the onus of establishing that the restraint is reasonable as between the parties.
In my opinion the matter is finely balanced. As I have said, it is clear that some patients visited the clinic on a very regular basis and others visited on a less frequent or irregular basis. Furthermore, considerable weight should be given to the fact that the parties themselves agreed that a two year period was appropriate. There is no suggestion that either party was in a position of disadvantage in terms of its bargaining power. Of course, what the parties themselves agree is by no means decisive.[6] It is only a relevant consideration, but I think that in a close case it should be given considerable weight.
[6] Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 per Walsh J at 306 – 307; Gibbs J at 316 – 317.
Having said that, I note that there are about 22,000 to 23,000 people in Whyalla. As I understand it, at the relevant time there were two other chiropractic clinics operating in Whyalla, one at Whyalla Stuart and another at Whyalla Norrie.
On the basis of Dr Judge’s evidence, he carried out in the order of 12,000 consultations per year. This evidence, although very general, suggests a large number of Dr Judge’s patients were repeat patients who attended on a regular basis. This in turn suggests that a shorter period rather than longer period would be sufficient to break the connection between Dr Judge and his ex-patients.
Although this evidence is general and imprecise, it supports a conclusion that a one year restraint would be sufficient to provide adequate protection to the plaintiff.
A restraint against practising as a chiropractor within a defined area for a defined period is prima facie invalid. It may be upheld if the covenantor can establish that the restraint is reasonable as between the parties. Even if the covenantor can establish that the restraint is reasonable as between the parties, the restraint will be held invalid if the covenantee establishes that it is injurious to the public.
The evidence does not warrant a finding that a restraint of two years was necessary to provide adequate protection for the plaintiff. No evidence was put before the Court below to support a finding that the visiting patterns of patients to the clinic was such that a two year period was required to break the connection between Dr Judge and his ex-patients. Such evidence as there was, suggested the contrary conclusion. The plaintiff bore the onus but it did not discharge that onus. The restraint was not reasonable as between the parties.
Although there is no need for me to consider if AMJ established that the restraint was injurious to the public, it seems to me that on the evidence there is no reason to find that the restraint was injurious to the public.
In my opinion, the restraint against practising as a chiropractor is invalid.
There is one other matter which I should mention lest it be thought that it has been overlooked. Is the fact that the contract might have been terminated after only three months relevant to a consideration of the reasonableness of the restraint as between the parties?
The trial Judge did not think that it was a factor that needed to be taken into account. He considered that it was most unlikely that the contract would have been terminated at the end of three months. That was a finding that was not only open to him on the evidence, but in my opinion the finding was correct.
It may be noted that it is likely that it will often be the case that a contract which involves the provision of personal services (albeit through a company) will contain a clause which will enable either party to terminate the contract after a period of notice.
There are judicial statements suggesting that the fact that the contract may be terminated after only a short period is always relevant to the assessment of the reasonableness of a restraint clause[7] and there are judicial statements suggesting that the fact is rarely relevant.[8]
[7] Lindner per McTiernan J at 644 – 645.
[8] Geraghty v Minter (1979) 142 CLR 177 per Gibbs J at 187; per Stephen J at 189 – 190.
I think it can be safely said that the fact is irrelevant (or a factor to be given little weight) if, as in this case, there is a finding of fact to the effect that early termination of the contract was not seriously in the contemplation of the parties as being likely to happen. In Lindner, Fullagar J said at 650 – 651:
“The only point which has caused me any difficulty is the fact that the contract of employment is made terminable on twenty-one days’ notice on either side. That the period of the employment may be a relevant matter in such cases as the present can hardly, I think, be doubted, but there is authority for saying that what must be taken to have been actually contemplated by the parties may be taken into consideration along with the actual terms of the contract itself. Moreover, it must always be borne in mind that an injunction is a discretionary remedy. In Haynes v Domain (1), where the agreement was terminable by a fortnight’s notice on either side, Lindley M.R. said: “Possible cases in which the the (sic) restriction would not be reasonable are suggested. One would have arisen if the defendant had left the plaintiff’s employ within a very short time after entering it, and before the defendant could have acquired or carried away with him any knowledge of the plaintiff’s mode of conducting his business. Such an event has not happened, and clearly was not contemplated. This objection, if sound, would invalidate all agreements of the sort determinable on short notice, unless some words were introduced excluding their application to cases never contemplated. Another case to which the restriction could not be reasonably applied would have arisen if the defendant had left business altogether, or had had no dealings with the plaintiff’s rivals for twenty or thirty years, and had then resumed business and assisted them”. Romer L.J. (2) agreed with the above observations of the Master of the Rolls. The case of Haynes v. Doman (3) was decided before Mason v. Provident Clothing & Supply Co. Ltd. (4) and Herbert Morris Ltd. v Saxelby (5) but, when all the circumstances are regarded, I think that the decision is quite in line with Dewes v. Fitch (6), which was decided after the two leading cases in the House of Lords and in which a very similar covenant was held valid. In McPherson v. Moiler (7) where the agreement was terminable by a month’s notice on either side, Harvey J. said: “I cannot altogether put out of consideration the fact that on the face of the agreement there was no security of employment for more than from month to month, though exactly what weight has to be given to that it is not easy in the present state of judicial authority to pronounce with any definiteness. The judgment of Lindley L.J. in Haynes v. Doman (8) and the judgment of Eve J. in Dewes v Fitch (6) both show that the Court may to a certain extent take into consideration what was probable as to the intention of the parties as to the length of the engagement … Although the master has the power almost immediately to dismiss the employee, one has to look at the surrounding circumstances to see whether that was seriously in the contemplation of the parties as being likely to happen”.
The best estimate of the future by the parties in this case was that the contract would run its full term. I think the approach taken by the trial Judge to this issue was correct.
The Covenant Against Inducing Clients
I turn now to the prohibition on seeking to induce clients. For the reasons given by the Chief Justice I agree that the covenant against non inducement is valid.
The question whether the placing of the advertisement in the “Whyalla News” constituted a breach of the non inducement clause is not an easy one. It is not always easy to draw the line between what constitutes inducement and what does not.[9] On the one hand, ex-patients of Dr Judge will know that he was formerly at the “Better Back” Clinic and no complaint can be made of the fact that Dr Judge advertises the fact that he is in practice in Whyalla. Furthermore, potential clients of the clinic who may be influenced by the advertisement are probably not within the scope of a restraint which refers to any “client” (ie., existing client) of the clinic.
[9] See, for example, the remarks of Lord Herschell in Trego v Hunt [1896] AC 7 at 20.
However, I think the conduct of AMJ, through Dr Judge, does fall within the concept of inducement because it draws, or attempts to draw, on the previous link between Dr Judge and the “Better Back” Clinic.
I agree with the Chief Justice that the plaintiff has established a breach of the non inducement covenant.
Conclusion
In my opinion, the covenant against practising for two years is invalid. The restraint against inducing clients is valid and enforceable. A breach of this restraint has been established.
I agree with the orders proposed by the Chief Justice.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
1(1950) 83 CLR 628.
2Putsman v Taylor [1927] 1KB 637 at 643; Cited with approval by Kitto in Lindner at 653.
3Herbert Morris v Saxelby [1916] 1AC 688 per Lord Parker at 708; Lindner, above n. 1 per Kitto J at 654.
4Herbert Morris v Saxelby, above n.3 per Lord Parker at 708.
5(1960) Harvard Law Review 625 at 627.
6Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 per Walsh J at 306 – 307; Gibbs J at 316 – 317.
7Lindner per McTiernan J at 644 – 645.
8Geraghty v Minter (1979) 142 CLR 177 per Gibbs J at 187; per Stephen J at 189 – 190.
9See, for example, the remarks of Lord Herschell in Trego v Hunt [1896] AC 7 at 20.

[2002] SASC 312

3 October 2002