Berry v Wong

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

JUDGMENT 1 HIS HONOUR: The parties are both duly qualified medical practitioners. By agreement which took the form of a deed called "Associate Contract", the plaintiff agreed to employ the defendant as an associate at a practice at 1020 Forest Road, Lugarno. That agreement was for three years, with a provision for holding over by agreement. The agreement, so far as is relevant, is as follows: "THIS DEED made the 19th day of August 1996, BETWEEN HERBERT ASHLEY BERRY of 1020 Forest Road, Lugarno, Medical Practitioner (the Proprietor) of the first part AND MARK HWEE MING WONG of 11 Tunbridge Place, Jannali 2226, Medical Practitioner (the Associate) of the second part WHEREAS the Proprietor is a Medical Practitioner conducting a medical practice at 1020 Forest Road, Lugarno (the Practice) AND WHEREAS the Proprietor proposes to employ the Associate as an Associate Medical Practitioner within the Practice on terms and conditions agreed upon by them and hereafter appearing NOW THIS DEED WITNESSETH ... (6) The Associate will not during the course of this Contract or any Holding Over Period or at any time after the termination hereof solicit, interfere with or endeavour to entice away from the practice any patient who was during the term hereof or any Holding Over Period a patient treated by either of the parties hereto or treated by any other medical practitioner at the practice. (7) The Associate will not at any time after termination of this Contract directly or indirectly and whether solely or jointly with or as director, manager, agent or servant of any person or corporation carry on or be engaged in or interested in any medical practice or permit the Associate's name to be used in connection with any such practice within the distance from the practice specified in item 2 of the schedule hereto for the period of time after termination of this Contract specified in item 3 of the schedule hereto and the Associate acknowledges that the covenant herein contained is no greater than reasonably required to protect the goodwill of the Proprietor's practice." 2 Item 2 of the schedule to the Associate Contract set out five different radii which were said to be "deemed to be separate, distinct and severable", namely 1km, 2km, 3km, 4km, 5km. Item 3 listed five periods with the same provision, namely two years, 18 months, one year, six months, three months. The plaintiff gave the defendant notice of termination of employment to expire on 3 August 2000. The defendant ceased work in fact on 27 July 2000. He now works with Dr Vas at 19A Letitia Street, Oatley. 3 The evidence is that as the crow flies the distance between the plaintiff's practice and Dr Vas' practice is about 3.2 km. By road it is 5.2 km according to the defendant; 4.7 km according to the plaintiff. It matters little because in such covenants the Court assumes that the parties have intended to refer to radius unless the covenant clearly specifies to the contrary. 4 The map of the area shows that Lugarno is on a peninsula projecting into the Georges River, which river is to the south. Oatley itself is on another peninsula projecting into the same river, which again is to the south. There is a further peninsula between Oatley and Lugarno. To drive from Lugarno to Oatley by road means driving north to Penshurst, then east to Mortdale and then south-east to Oatley. The crow would fly over two bays to get from Oatley to Lugarno. 5 The plaintiff issued the summons on 7 September 2000. He seeks an injunction to restrain the defendant from carrying on practice as a medical practitioner anywhere within a 5 km radius of 1020 Forest Road, Lugarno, for two years concluding on 2 August 2002. 6 The evidence is that the 5 km radius covers 78.6 square kilometres extending roughly from Punchbowl to the north, East Hills to the west, Hurstville to the north-east, Connells Point to the east, Jannali to the south-east and Menai to the south. There are 400 doctors working in that area, apart from doctors employed in hospitals. 7 The evidence is that in 2000 the plaintiff's practice attracts 6,572 patients, over half of which live in Lugarno or Peakhurst. However, 269 of the plaintiff's patients are from Oatley and going west and east respectively to the borders of the 5 km radius there are 122 from Riverwood and 46 from Blakehurst. However, the evidence is that the practice has significantly increased in size from the time when the covenant was taken in 1996 as Dr Berry has acted the entrepreneur and widely advertised his practice and installed computer systems to make it more efficient. 8 When one is judging the reasonableness of a covenant, one judges it as at the date the covenant was taken and the type of practice that was then in situ, of course taking into account future possibilities that the parties would then have reasonably foreseen: see Lindner v Murdock's Garage (1950) 83 CLR 268 at 653 and my judgment in Dalysmith Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd, unreported, 14 April 1997, where at pp 6-8 I summarise the basic principles applicable to this type of case. 9 As has been seen from the series of possible radii in the covenant in clause 7, if either the five or four kilometre radius is reasonable, that covenant will be a problem for the defendant, subject to the matters to which I will shortly refer. 10 As is well known, restrictive covenants with medical practices are usually "brass plate" covenants or covenants restricting a medical person from seeing a patient: see Lu v Lim (1993) 30 NSWLR 332. Clause 7 of the Associate Contract in the instant case seems to be a "brass plate" covenant as it is concerned with the place where the doctor has his office rather than the place where the doctor treats patients. 11 A problem in this case is that the evidence shows that the proprietor of the goodwill of the Lugarno practice is not the plaintiff. Mr Jackman and Mr Tyson for the defendant say that this means that the plaintiff has no goodwill to protect and as all restraints of trade are invalid unless reasonable, and they are usually only reasonable to protect goodwill, this covenant must fail. 12 They have another argument and that is that the contract in fact terminated on 18 August 1999, or perhaps 18 October 1998 and that if this latter contention is correct, the restraint period will expire some time this week and so would not be protected by injunction. 13 It is convenient to deal with these two collateral issues first as they may make consideration of the merits unnecessary. 14 I have already noted that the Associate Contract is by deed and that it contained a recital. There is a rule to the effect that where one has a recital in a deed which is clear and unequivocal, then in any action on the deed both parties are ordinarily estopped from denying the truth of that recital. The proposition appears in that relatively stark form in Carpenter v Buller (1841) 8 M & W 209, 212; 151 ER 1013, 1014. The principle is discussed by the House of Lords in Greer v Kettle [1938] AC 156, especially at pp 170 and following. 15 Mr McQuillen for the plaintiff says that estoppel by deed applies in the instant case. He says that the parties have proceeded on the common basis that the individual who is the plaintiff in this case and was the employer under the agreement was also the proprietor of the practice, to which the goodwill attached. 16 Mr Jackman and Mr Tyson on the other hand say that there are five reasons why the doctrine of estoppel by deed does not apply, namely:

(1) the doctrine does not apply in cases where a statement in a recital is patently untrue or based on a mistake of fact;

(2) estoppel by deed is no more than a rule of evidence and, as evidence was admitted from Dr Berry in cross-examination without objection that the practice was owned by the plaintiff's company H A Berry Pty Ltd ("the company"), the estoppel is waived or does not apply;

(3) estoppel by deed does not arise where it would hinder a party from asserting that a restraint of trade is unenforceable on grounds of public policy;

(4) an estoppel does not arise where the recital in the deed is intended to be a statement of one party only;

(5) estoppel by deed can only arise where the recital is unambiguous and the present recital is ambiguous. 17 Mr McQuillen replied to these arguments basically that:

(1) this principle is overstated by Messrs Jackman and Tyson. It is only where equity would grant rectification that one can short circuit the process and not allow the party to rely on the estoppel at law. Indeed, there are many cases where the Court declines to open up the parties' agreement to contract on a conventional basis and this is one of them;

(2) estoppel by deed is more than a rule of evidence, it is a rule of law.

(3) the proposition is not as wide as Messrs Jackman and Tyson would have it;

(4) whilst the proposition is true, on the true construction of this deed the estoppel was the statement of both parties; and

(5) whilst this proposition is true the recital is unambiguous. 18 I basically agree with Mr McQuillen on propositions (1), (4) and (5). 19 As to proposition (2), I find this rather difficult. I have not found a case where the party alleged to be estopped has been permitted to raise the case that there is a fact contrary to the estoppel and also to lead evidence that the relevant proposition is correct. 20 It must be said that the present proceedings are by way of summons. The issues accordingly do not clearly appear from the documents filed. When I read the affidavits it was quite apparent from annexure A to Dr Berry's affidavit of 5 October 2000 that there was a company involved which held the goodwill of the practice in recent times. This prompted me to ask Mr Jackman what were his defences and he straightaway raised the defence of the company, not the individual, having the goodwill. 21 Later on, evidence was given in answer to questions in cross-examination by Dr Berry that at all times since 1987 the company had been the proprietor of the practice. 22 It was only really when the full significance of these matters was being debated in closing addresses that the point about estoppel by deed was taken. 23 In the old days the estoppel had to be taken in the pleadings or else it was waived: see for instance Matthew v Osborne (1853) 13 CB 919, 944; 138 ER 1465, 1475. It seems to me that whether estoppel by deed is a rule of evidence or something more, if the point is not taken as soon as practicable after it is raised, it is waived. The Court now having in evidence what the true situation was and the point only being taken in closing addresses must mean that if there was any estoppel it has been waived. 24 I should add that Mr McQuillen submitted that estoppel by deed is a species of estoppel by convention. That is probably no longer the law even though there is some respectable authority in support of it. The more modern view appears to be that one should treat estoppel by deed as a form of estoppel in pais: see Cross on Evidence 4th Australian edition (Butterworths, 1991) para [5245] (the matter has been omitted from the 5th edition) and Caboche & Bond v Ramsay (1993) 119 ALR 215, 236. 25 The exception noted as proposition (3), is fairly narrowly stated in Wilken and Villiers, Waiver, Variation and Estoppel (John Wiley & Sons, Chichester, 1998) at p 230. However, Australian authorities do seem to go as far as the proposition put up by Mr Jackman and Mr Tyson: see Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432, 444 and 482 and the Privy Council decision in Amoco Australia Pty Limited v Rocca Bros Motor Engineering Co Pty Limited (No. 2) (1975) 133 CLR 331, 344. 26 The present situation is one where the question is what is in accordance with public policy and it seems to me that one cannot have an interparties estoppel by deed which would prevent the Court inquiring into what the real situation is. 27 Accordingly, even if the point had been taken earlier, it would not have made any difference in the result of this case because on either point the estoppel by deed could not succeed. 28 As I said earlier, a covenant will be unreasonable unless it protects goodwill. Mr McQuillen sought to escape from the problem in this case that the goodwill in the normal sense of the word was in the wrong person by relying on two further arguments, vis: (1) that Dr Berry himself had a personal goodwill; and (2) the principle in Trego v Hunt [1896] AC 7. 29 Whilst I commend these attempts I cannot see how either argument takes the matter very much further. It is true that goodwill is a nebulous concept and the best one can do is to say that it is the "attractive force which brings in custom": IRC v Muller & Co's Margarine Limited [1901] AC 217, 224. 30 One can pare down that attractive force and indeed in Whiteman Smith Motor Co Limited v Chaplin [1934] 2 KB 35 at 42, goodwill is classified according to "cat, dog, rat and rabbit" goodwill depending on why a person comes to a particular business. The cat will go always to the old place of business no matter who is there; the dog will tend to follow the person who serves him; the rat has no attachments and is purely casual and the rabbit will go to the closest place. However, in the instant case whilst it is quite clear that Dr Berry himself has patients and he has dog-type goodwill in those patients, that goodwill does not support the present covenant which is to benefit the practice generally and to make sure that the proprietor of the practice, having invested in the equipment that Dr Wong has used, and the advertising of the practice is not damaged by Dr Wong leaving and practising in competition. Dr Berry's personal dog-type goodwill is not sufficient to support this. 31 Again, the Trego v Hunt principle does not in my mind operate. Essentially that principle is that there is an implied term in any contract of this nature that neither party will act to the detriment of the goodwill of the proprietor. Even if it can be stretched to this sort of a situation, the basal problem still is there that the company is the proprietor of the goodwill. 32 The defendant's second attack was that the Associate Contract said that Dr Wong was to receive a certain percentage of billings. That was at least once, if not twice, reduced by Dr Berry though perhaps once with the approval of Dr Wong. The proposition basically is that when the remuneration was changed there must have been rescission of the Associate Contract and commencement of a new contract, and that the new contract did not contain clauses 6 and 7. 33 That sort of argument may have succeeded 100 years or so ago but the modern approach to commercial contracts, as set out in the judgment of McHugh JA when a judge of the New South Wales Court of Appeal in Integrated Computer Services Pty Limited v Digital Equipment Corp (Aust) Pty Limited (1988) 5 BPR 11,110 at 11,117, is that one expects with commercial contracts in this century that once a contractual regime exists parties will be constantly changing some of the vital terms of their agreement as their contractual regime steers its course through the various pot holes of business life. 34 I do not think that these days one lightly infers that even if there is a unilateral forcing of another party to accept a changed term, that that necessarily means that the contract is at an end and there is a new contract. Even if there is, one would have thought that ordinarily the Court would imply the same terms in the new contract as in the old. 35 Accordingly, I would reject this second argument. 36 There is an allied point which I do not need to decide, but perhaps should state in case this matter goes further, and that is that the Associate Contract is drawn in at least one respect in a strange way. It ordinarily would have come to an end in 1999 but, as I have noted, it could carry on by agreement between the parties for a holding over period. In the instant case there was no explicit agreement, but as the parties both continued to work together on the same basis, such an agreement might be implied. However, clause 6 refers to something happening after the termination of the contract or the holding over period, whereas clause 7 does not refer to the holding over period. It may be that the two years in clause 7 dates from the end of the contract rather than the end of the holding over period. As I say, I do not have to decide this. 37 I should note, however, that clause 6 is probably bad in any event because it is for an indefinite duration. Clause 7, on the other hand, is for a definite amount of time. 38 It is accordingly unnecessary to deal with the merits of the case. I will, however, just say that there were arguments directed by way of analogy to other decided cases, as to whether five kilometres and two years were appropriate in this sort of case. In particular reference was made to Corbin v Stewart (1911) 28 TLR 98 and to the decision of the Queensland Court of Appeal in Ashcoast Pty Limited v Whillans [2000] 2 Qd R 1. Although it is useful to cite these comparable cases, they are of only marginal significance as unless one knows, and I suppose, strictly speaking, has evidence of, the areas, the topography and the demography of the various places involved it is sometimes unwise to draw comfort from them. 39 All I should say is that two years in this sort of covenant is usually considered not to be unreasonable in a covenant involving professional people and even in a closely settled area, five kilometres is something that will usually pass muster, but there would be, without evidence in the instant case, some problems because of the lack of connection between the various areas concerned. However, the evidence did show that in 2000 there was probably sufficient connection with Oatley to protect the practice's goodwill. Unfortunately, there was no evidence, apart from what one could extrapolate backwards, to show what the situation was in 1996 in a situation where we know from the evidence that the practice had greatly expanded. 40 In the end, the case does not support the restraint and the proceedings must be dismissed. 41 The defendant has asked for costs. Costs usually follow the event. However, when a professional man takes advantage of another professional man and makes promises to him, then breaches those promises and goes to trial without indicating before the trial that he is relying on a technical defence, it is not a situation, to my mind, where he should get any costs. 42 Accordingly, the proceedings must be dismissed with no order as to costs. 43 The exhibits should remain.

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