Symbion Pathology Pty Ltd v Healthscope Pty Ltd
[2006] VSC 191
•24 May 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 2011 of 2006
| SYMBION PATHOLOGY PTY LTD (ACN 007 190 043) | Plaintiff |
| v | |
| HEALTHSCOPE LTD (ACN 006 405 152) | First Defendant |
And
HEALTHSCOPE (TASMANIA) PTY LTD (ACN 082 134 245) Second Defendant
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 May 2006 | |
DATE OF JUDGMENT: | 24 May 2006 | |
CASE MAY BE CITED AS: | Symbion Pathology v Healthscope | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 191 | |
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Injunctions – restraint of trade clause in lease – sale of premises – whether restraint clause binds purchaser – balance of convenience – Conveyancing Act 1919 (NSW) s. 118(1) – Restraints of Trade Act 1976 (NSW) s. 4(1) – balance of convenience – application for interlocutory injunction refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Anastassiou SC and Dr M Collins | Mallesons Stephen Jaques |
| For the Defendants | Mr D Collins SC and Ms M Dib | Allens Arthur Robinson |
HIS HONOUR:
The plaintiff (“Symbion”) seeks an interlocutory injunction restraining the first defendant (“Healthscope”) from engaging in certain conduct through its related company Davies Campbell & de Lambert Pty Ltd (“DCL”). The dispute concerns the right of Healthscope and DCL to provide pathology services to patients of a private hospital in New South Wales known as the Hills Private Hospital (“the hospital”). The dispute arises in the following way.
The hospital is located in a building (“the building”) located at 499 Windsor Road, Baulkham Hills, New South Wales. The building has been subdivided into a number of separate stratum titles. The hospital is located in an area of the building comprising a number of these separate titles (“the hospital premises”).
The building also contains a number of consulting suites on separate stratum titles which are owned or occupied by doctors who provide services to patients at the hospital (“the consulting suites”).
Symbion operates a pathology collection centre (“the Symbion collection centre”) and a pathology testing laboratory (“the Symbion laboratory”) at other premises in the building (“the Symbion premises”). The Symbion premises occupy another separate stratum title.
Since May 1989, Symbion has conducted the following businesses at or in the vicinity of the hospital and the Symbion premises:
(1)A collection service business. In the conduct of this business, trained Symbion employees visit patients and take blood and other human tissue samples which are then delivered to the Symbion laboratory for testing. This collection service involves taking samples from in-patients at the hospital, at Symbion collection centres at and in the vicinity of the hospital, at a doctor’s surgery or at home.
(2)A collection centre business. This business involves Symbion operating a centre to which patients are referred by doctors to have pathology samples taken. These persons include out-patients of the hospital and patients referred by doctors in the vicinity, including doctors in the consulting suites. At present, Symbion operates the Symbion collection centre at the hospital and nine other collection centres in the vicinity of the hospital.
(3)A laboratory business. This business involves the operation by Symbion of the Symbion laboratory, where pathology samples are tested and reported upon to doctors.
Symbion is a major participant in the market for the provision of pathology services in metropolitan Sydney. Symbion and two other major providers of pathology services account for approximately 90 to 95 per cent of the private pathology testing market in metropolitan Sydney. The remaining five to 10 per cent of the market is serviced by a number of smaller operators, including DCL.
On 1 November 2003, Symbion leased the Symbion premises from HCoA Operations (Australia) Pty Ltd (“HCoA”) (“the lease”). The lease is for a period of five years, expiring on 1 August 2009. There are three options for further terms of five years each. At the time of the lease, HCoA was the owner of the hospital and the Symbion premises and owned and conducted the business of the hospital.
Clause 20.1 of the lease provides:
“Subject to the terms of cl. 20.02, the Landlord must not during the term of this lease or any extension, renewal or overholding of this Lease:
(a)carry on or be concerned, engaged, interested or employed directly or indirectly in a trade, business or calling similar to that conducted by the Tenant in the Premises at the Commencement Date;
(b)grant a lease, licence or any right to occupy any part of the Building to any person other than the Tenant for any trade, business or calling similar to the use to which the Premises are put by the Tenant or such other trade, business or calling conducted by the Tenant in the Premises,
PROVIDED THAT...” (The proviso is of no relevance.)
Since the execution of the lease, Healthscope has purchased the hospital premises and the Symbion premises from HCoA and is currently the operator of the hospital. The contract of sale by which Healthscope purchased the hospital premises and the Symbion premises (“the contract of sale”) provided that Healthscope purchased the hospital premises subject to the lease. The following terms are relevant:
“42.5With effect from completion, the vendor assigns its rights and interests (whether or not they touch and concern the land) in and under every Tenancy to the purchaser.
42.6From completion the purchaser must (and must ensure that its successors in title and assigns) perform all of the vendor’s obligations under the Tenancies, whether or not they touch and concern the land, including in relation to any option to renew, option to purchase or right of first refusal.”
Since purchasing the hospital premises and the Symbion premises, Healthscope has also purchased all of the shares in three companies which together owned all of the shares in DCL. Healthscope has a business plan to operate the DCL business in conjunction with the business conducted by it at the hospital, and at other hospitals in which it is interested, and to take advantage of the benefit of the synergies between owning and operating both hospitals and a pathology service provider to those hospitals.
DCL owns and operates pathology collection services, pathology collection centres and pathology testing laboratories in competition with Symbion in the Sydney metropolitan area. Since January 2001, it has collected pathology specimens from the hospital for testing at an offsite DCL laboratory. However, the numbers of specimens collected for testing have not been large and, until now, virtually all of the pathology tests ordered by doctors for patients of the hospital have been placed with Symbion. In this regard, it is relevant to note that the hospital includes an emergency centre dealing with acute injuries. This often necessitates the obtaining of urgent pathology test results, which an on-site testing laboratory is in the best position to deliver.
Healthscope employs about six doctors as staff at the hospital. There are approximately 300 visiting medical officers who work as independent consultants at the hospital. It is the doctor who selects the pathology service provider, not Healthscope as the operator of the hospital. However, as the operator of the hospital, Healthscope obviously has some capacity to influence doctors employed by it and who consult at the hospital in relation to their choice of pathology service provider.
In April 2006, DCL substantially increased the provision of a collection service to doctors and patients at the hospital. Correspondence and memoranda to doctors and staff at the hospital notified them that Healthscope had agreed to allow DCL staff to be present at the hospital on a continuous basis throughout the day and to offer a ward collection service. There are currently two mobile collection staff of DCL present at the hospital on weekdays from 6 am to 6 pm and after hours mobile collectors are on call. In addition, DCL provides a collection service on Saturday and Sunday mornings. Currently, the DCL staff do not have a base at the hospital.
DCL intends to lease one of the consulting suites which is not owned by Healthscope. Although the lease may not yet be operative, I will refer to these premises as “the DCL premises”. The owner of the DCL premises is, and has for some time prior to the execution of the lease been, Specialist Oncology Property Pty Ltd. This company has no connection with Healthscope or DCL. When this lease commences, DCL intends to immediately open a collection centre and, thereafter, to establish a testing laboratory at these premises. Mobile collection staff of DCL will also use the DCL premises as a base.
Symbion seeks to restrain Healthscope, through DCL, from engaging in the conduct and proposed conduct which I have described. It seeks orders which would have the effect of preventing DCL:
(1)from continuing to operate its mobile on-site pathology collection service, in the systematic way that it has expanded that service since April 2006;
(2)from collecting pathology samples from patients at the hospital for delivery to any collection centre or pathology testing laboratory established by DCL at the DCL premises (collectively “the DCL conduct”).
Serious Question to be Tried
Symbion contends that there is a serious question to be tried as to its entitlement to injunctive relief restraining Healthscope, for the period of the lease and any renewal thereof, from permitting DCL to engage in the DCL conduct. Symbion contends that:
(1)Healthscope is bound by the restraint contained in cl. 20.1(a) of the lease (“the restraint clause”);
(2)the restraint clause is, although broadly expressed, not void as an unreasonable restraint of trade;
(3)whether or not the restraint clause binds Healthscope, there is an implied good faith obligation in the lease which has been breached by Healthscope in permitting or threatening to permit the DCL conduct.
The first issue is whether Healthscope, as purchaser of the Symbion premises subject to the lease, is bound by the restraint clause. On this question, a number of alternative submissions were put on behalf of Symbion.
The first and principal argument relied upon was based upon the provisions of cll. 42.5 and 42.6 of the contract of sale. It was submitted that, by these clauses, Healthscope expressly accepted an obligation, enforceable by Symbion, to comply with all of the provisions of the lease, including the restraint clause. It was submitted that this was so whether or not those provisions touch and concern the land constituting the Symbion premises and thus bind Healthscope, as purchaser of the reversionary estate, by virtue of s. 118(1) of the Conveyancing Act 1919 (NSW).
It was submitted that cll. 42.5 and 42.6 of the contract of sale gave rise to a serious question to be tried that Healthscope holds the lease subject to Symbion’s rights under the restraint clause. It was submitted that this obligation on the part of Healthscope arises because, in all the circumstances, it is arguable that Healthscope is a trustee for Symbion of the benefit of the restraint clause in the lease.
Reliance was placed upon certain statements made by the High Court in Bahr v Nicolay (No 2)[1]. The facts are conveniently set out in the head note:
“In order to raise funds to develop his land, the registered proprietor sold it to another who leased it back to him for three years. The contract provided that upon the expiration of the lease the vendor would enter into a contract to repurchase the land for $45,000 payable by a deposit of 10 per cent and the balance within 30 days. The land was subsequently sold under a contract which contained a provision by which the purchaser acknowledged the existence of the repurchase provision of the earlier contract. The purchaser became registered as proprietor. He then told the original owner that he ‘recognised’ the repurchase clause and would agree to sell the land for $45,000 with a deposit of 10 per cent. The original owner later paid the deposit, but the registered proprietor refused to sell the land.”
[1](1988) 164 CLR 604.
Because the purchaser had become registered as proprietor, the case concerned whether his indefeasible title could be challenged on the ground of fraud in connection with securing his registration as proprietor of the land. Mr Collins SC, who appeared with Ms Dib on behalf of the defendant, seized upon this context and submitted that the case has no relevance to one such as the present. He submitted that the case concerned only a priority dispute between a registered proprietor and the holder of a prior equitable interest in the land.
On behalf of the plaintiff, it was submitted that the judgments in Bahr v Nicolay support a wider principle, to the effect that parties to a contract may confer a benefit on a third party in circumstances where the intention to create a trust of that benefit, or promise, should be inferred. Reliance was placed upon the statement by Mason CJ and Dawson J in Bahr v Nicolay (No 2) where, after referring to the traditional reluctance of courts to infer a trust relationship in the absence of the manifestation of a clear intention to create a trust, they said:
“On the other hand Fullagar J. stated a contrary view in Wilson v Darling Island Stevedoring & Lighterage Co Ltd. ‘It is difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases.’ His Honour was referring to contracts whereby a benefit is promised to a third party. We agree with his Honour’s comment. If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred.”[2] (Emphasis added.) (Citations omitted.)
[2](1988) 164 CLR at 618-9.
Wilson v Darling Island Stevedoring & Lighterage Co Ltd[3] was not a priorities case like Bahr v Nicolay (No 2). It concerned privity of contract. The statement by Fullagar J[4] quoted by Mason CJ and Dawson J in Bahr v Nicolay(No 2) contains discussion in general terms of the circumstances in which equity may intervene, by treating a person as a trustee of a promise made for the benefit of a third party and allowing the third party to enforce that promise.
[3](1956) 95 CLR 43.
[4](1956) 95 CLR 43 at 67.
In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd[5], the High Court considered the concept of a trust of a promise in favour of a third party contained in an insurance policy. In this context, Dawson J quoted the joint statement by Mason CJ and Dawson J in Bahr v Nicolay (No 2) which I have quoted above and continued:
“The future development of this approach in facilitating recovery by a third person under a contract to which he is not a party must await other cases.”[6]
[5](1988) 165 CLR 107.
[6](1988) 164 CLR 604 at 156-7
The authors of Cheshire and Fifoot’s Law of Contract (8th Australian ed) have suggested that the principle in Bahr v Nicolay (No 2) “might be used in any case where someone has unconscionably reneged on a third party obligation that he or she has agreed to in a contract.”[7]
[7]At para [8.53].
JW Carter and DJ Harland in Contract Law in Australia (4th ed) also refer to Bahr v Nicolay (No 2) in the context of discussing the circumstances in which a court might find an intention to create a trust of a promise in favour of a third-party and note that “it seems that courts will be much more willing than in the past to find an intention to create a trust in favour of the third party.”[8]
[8]At para [922].
In my view, it is arguable that by cll. 42.5 and 42.6 of the contract of sale Healthscope expressed an intention to confer on Symbion the benefit of the restraint clause. The express assumption by Healthscope of “all of the vendor’s obligations under the Tenancies, whether or not they touch and concern the land”, is capable of supporting an inference of an intention by Healthscope to hold its interest as lessor of the Symbion premises subject to the restraint clause whether or not the restraint clause runs with the reversionary estate.
Having regard to my finding that there is a serious question to be tried at this level, it is unnecessary for me to consider whether the restraint clause binds the reversionary estate by virtue of s. 118(1) of the Conveyancing Act 1919 (NSW).
I turn next to consider whether there is a serious question to be tried as to the enforceability of the restraint clause. In my view, there is such a serious question.
The restraint clause is drawn in extremely wide terms. If construed literally, it would clearly be an unreasonable restraint of trade and void. It was submitted on behalf of Symbion that the restraint clause should be read down in a manner which would make it a reasonable restraint. However, having regard to the provisions of s. 4 of the Restraints of Trade Act 1976 (NSW), it is unnecessary to consider this further. That section provides:
“A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not.”
The operation of this statutory provision has been stated by the Court of Appeal in New South Wales, in the case of Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd[9] in the following terms:
“The operation of s. 4(1) of the Act is now relatively well settled. It does not permit the Court to remake the contract or a covenant in it, and although sometimes it is said that it allows the covenant to be read down or redrafted that is rarely an inaccurate description. The provision looks to the postulated breach, and permits the Court to enforce a covenant otherwise invalid as against public policy if the restraint in the covenant so far as it applies to the postulated breach is not contrary to public policy. The Court is given the capacity to enforce a reasonable restraint of trade falling within the expressed restraint although the expressed restraint is too widely stated.”
[9][2001] NSWCA 111 at [165], per Giles JA (Priestley and Meagher JJA agreeing).
Although Symbion has had difficulty in precisely formulating the form of interlocutory relief which it seeks, it does seem to me that, if Symbion can establish at trial that it is entitled to the benefit of the restraint clause, there is a serious question to be tried as to whether the restraint, as it applies to at least some of the DCL conduct, is not contrary to public policy. Whether or not this is so is a matter for trial, upon full evidence as to the relevant facts and circumstances against which the reasonableness of the injunctive relief sought can be judged.
Balance of Convenience
I turn to consider the balance of convenience. In my view, the balance of convenience does not favour the grant of any form of interlocutory injunctive relief as sought by Symbion.
In the first place, Symbion is a very substantial company which has a very large share of the overall market for pathology services in metropolitan Sydney. The business conducted by it at the Symbion premises is not dependent upon referrals from doctors in respect of patients at the hospital. The Symbion collection centre also accepts referrals from doctors in the consulting suites and general practitioners in the general vicinity. Further, the laboratory testing provided by Symbion at the Symbion premises is in respect of nine other collection centres operated by it in the general vicinity of the hospital. I do not accept that, if Symbion is successful at trial in obtaining some form of injunctive relief, it will suffer any irreparable or permanent damage in the meantime by reason of the DCL conduct.
Secondly, I am of the firm view that damages will be an adequate remedy for any loss which Symbion may suffer by reason of the DCL conduct in the period between now and the determination of the proceeding. Any such damage will be capable of ascertainment with little difficulty. Symbion has an established business and cash flow. The extent to which that business and cash flow is eroded by competition from DCL will be readily ascertainable. On the other hand, if interlocutory injunctive relief is granted, and DCL is not permitted to engage in the DCL conduct, its damages will be much more difficult to assess in the event that the interlocutory injunction is discharged at trial.
Thirdly, I am not satisfied that there is a real risk that, in the absence of an injunction, Symbion will lose valuable staff. As I have said, Symbion has a large business throughout metropolitan Sydney. It has the capacity to absorb any staff who might be under-utilised or become redundant as a result of competition from DCL in the short period between now and a trial of this proceeding. In that regard, I note that the Court will be able to accommodate a trial from 1 November 2005, if the parties can be ready for it. Having regard to Symbion’s own evidence that it is hard to obtain trained pathology staff, it is in my view most unlikely that Symbion would dismiss staff employed by it at the Symbion premises pending the determination of this proceeding.
Fourthly, I am not satisfied that there is any real risk of permanent damage to the relationship between Symbion and the doctors practising at the hospital who refer patients to Symbion for pathology tests. Symbion has been conducting business at the hospital since 1989 and has had a very long time to establish those relationships. Although some of those relationships may be lost or impacted by the DCL conduct, if final injunctive relief is granted to Symbion at trial I see no reason why those relationships will not be easily re-established.
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