Carsal and Associates Pty Ltd t/a Triggerpoint Natural Health Centre v Crozier

Supreme Court of NSW|2023-10-04|Before: Robb J

JUDGMENT

The plaintiff in these proceedings is Carsal and Associates Pty Ltd, which trades as Triggerpoint Natural Health Centre (Triggerpoint).
Triggerpoint engages in the business of providing chiropractic and other non-medical health services, such as massages, to its clients from premises at 154 Gordon Avenue, Hamilton South, a suburb of Newcastle.
The defendant is Natalie Crozier, who is a chiropractor by profession.

Contractual restraint of trade

The relief sought by Triggerpoint was to enforce the contract between Triggerpoint and Ms Crozier, which was made on 24 December 2016 and extended on a number of occasions, and which contained the following provisions: 16. NON-COMPETE … 16.3 The Contractor agrees that in consideration of the contract and remuneration provided under this Agreement, during the Term and when the Term ends, it will not as a sole trader, partner, manager, employee, director, consultant, advisor, shareholder, unit holder, trustee or with any other entity in which the Contractor may at any time have any direct or indirect interest do any of the following: (a) compete with the Principal's business, enter into business arrangements, advise, work for, consult with, provide services to, or in any way assist a competitor of the Principal; (b) directly approach, canvass or solicit with any client or customer of the Principal with whom the Contractor had business contact with during the Term of the Agreement (who were clients or customers at the date of termination of the Agreement or within the 12 months prior); … 16.4 Duration and Geographical Reach of Restrictive Covenant This clause applies for: (a) twelve (12) months, or (if that duration is held by a court to be unreasonable); (b) six (6) months, or (if that duration is held by a court to be unreasonable); (c) three (3) months, in: (d) the State of New South Wales, or (if that geographical area is held by a court to be unreasonable); (e) the Hunter Valley, or (if that geographical area is held by a court to be unreasonable); (f) the Newcastle and Lake Macquarie Local Government areas. … 16.6 Reasonable Covenant: The Contractor acknowledges that this clause is reasonable in terms of its extent and duration and goes no further than is reasonably necessary to protect the interests and confidential information of the Principal. The Contractor also agrees that this clause does not unreasonably restrict the Contractor's right to carry on his or her profession or trade.
Clause 10 obliged Ms Crozier to protect the secrecy of Triggerpoint's Confidential Information, and clause 15.6(a)(iii) obliged Ms Crozier immediately upon the termination of the contract to return to Triggerpoint all Confidential Information and Intellectual Property in her possession. Confidential Information and Intellectual Property were defined in clause 25.1.
As I understand Triggerpoint's case, it has ultimately sought to enforce the obligation on Ms Crozier in clause 16.3(a) of the contract for the period in clause 16.4(a), for the geographical area in clause 16.4(f).
In opening, counsel for Triggerpoint said at T 2.16 that clause 16.3(b) "deals with solicitation but that's a very minor part of the case. So I won't deal with clause 16.3(b). I'll concentrate on 16.3(a), which is the prohibition against competition." Counsel for Ms Crozier correctly observed in his closing written submissions that clause 16.3(b) is not relevant to these proceedings at all. Prayer 2 of the summons may have been based on clause 16.3(b), but that claim was impliedly abandoned when prayer 2 was not repeated in the statement of claim, to which I will come below. In any event, no evidence was brought to the Court's attention that was relevant to this issue.

Termination of the contract

Ms Crozier terminated the contract by a formal letter of resignation dated 13 November 2020. The parties are, however, agreed that Ms Crozier continued to work under the terms of the contract until 21 December 2020, and it is that date that is to be treated as the date of the termination of the contract. Consequently, the 12 month period referred to in clause 16.4(a) of the contract expired on 21 December 2021.
Triggerpoint's claim in the summons for orders restraining Ms Crozier from operating in breach of the restraint in clause 16 of the contract was not prosecuted to judgment before the 12 month period expired.

Relief claimed at hearing

On 3 March 2022, Triggerpoint filed a statement of claim. The only relief claimed in the statement of claim was an award of damages against Ms Crozier.
The hearing of the claim took place on 3 and 4 October 2023. At the hearing, Triggerpoint sought the relief set out in a document handed to the Court by counsel for Triggerpoint called "Plaintiff's Schedule of Damages", which became MFI 1. The relief sought was: DECLARATION SOUGHT The Court declares that the defendant, Natalie Crozier, breached the agreement she made on 24 December 2016 with the plaintiff, Carsal and Associates Pty Ltd trading as Triggerpoint, by providing chiropractic services trading as Awakening Chiropractic from premises identified as 3/10 Williams Street Adamstown in the period 16 June 2021 to 23 December 2021. CALCULATION OF DAMAGES 133 CLIENTS OF WHICH 86 WERE TAKEN IN 2021 EACH CLIENT WOULD HAVE NETTED TRIGGERPOINT $20 PER VISIT ASSUMING $60 PER VISIT EACH CLIENT WOULD HAVE RECEIVED TREATMENT 12 TIMES A YEAR FOR 5 YEARS. THEREFORE: $20 (PROFIT) X 12 (PER YEAR) X 86 (CLIENTS) X 5 (YEARS) = 103,200 RETENTION 70% = $72,240.
Attached to MFI 1 was a list called "List of clients removed from calculation". The list contained the names of 27 clients against the number in Triggerpoint's schedule called "Carsal lost income calculation" which became MFI 2. That schedule set out the basis of Triggerpoint's original damages claim and will be referred to further below.
The retention of 70% was intended to make allowance for Triggerpoint's estimate that if Ms Crozier had not breached the restraint, Triggerpoint would only have retained 70% of the clients that it asserted had been lost by Triggerpoint as a result of Ms Crozier's breach.
Counsel for Triggerpoint informed the Court at the hearing that the primary relief sought by Triggerpoint was the declaration set out above, because Triggerpoint took the view that it was crucial to the viability of its business that it enforce restraints such as the restraint in the contract with Ms Crozier, and that it be known to Triggerpoint's contractors that it was prepared to take proceedings to enforce its rights.

Allegations in statement of claim

Relevantly, Triggerpoint made the following allegations in its statement of claim: … 5. On or about 28 December 2016, the plaintiff and the defendant recorded the terms of their agreement in writing (the Agreement). 6. It was a term of the Agreement (Clause 16) that the defendant upon termination of the Agreement, would not provide chiropractic services for the period of 12 months in the Newcastle and Lake Macquarie local government areas. 7. On 13 November 2020, the defendant terminated the Agreement by way of formal letter of resignation. 8. From 21 December 2020, the defendant has provided chiropractic services to persons in the Newcastle and Lake Macquarie local government areas. Particulars From a date in December 2020, the defendant commenced providing chiropractic services from 3/10 William Street, Adamstown, an address within the Newcastle local government area. The extent of the breach will not be known until discovery is ordered. 9. The defendant in providing chiropractic services to persons in the Newcastle and Lake Macquarie local government areas breached the Agreement. 10. By reason of the breach, the plaintiff has settled us [sic] some damage. Particulars The plaintiff did not service clients which would have been seen to [sic] by the defendant and has lost the profit margin on these clients for 12 months. The clients followed the defendant to her new practice. The plaintiff did not obtain new clients at the rate it normally did in the 12 month period because new clients went to the defendant. A method of calculating the loss is the profit derived by the defendant in the 12 month period, as the plaintiff would have derived that profit if the defendant did not breach the Agreement.
It will be noted that the conduct of Ms Crozier that Triggerpoint alleges was a breach of clause 16.3(a) of the contract was narrower than what that term purported to prohibit. The declaration sought by Triggerpoint relates to "providing chiropractic services" at a particular address for a period of about six months in 2021. The particulars to par 8 of the statement of claim are expressed in similar terms. I will consider the significance of the width of the prohibition in clause 16.3(a) below.
Notwithstanding the allegation in par 8 of the statement of claim that Ms Crozier breached the restraint in the contract from 21 December 2020, as appears from the declaration sought by Triggerpoint at the hearing, it only sought to prove that the breach occurred between 16 June 2021 and 23 December 2021.

Ms Crozier's defence

Ms Crozier filed her defence on 30 March 2022. In par 2, she admitted that, from around June 2021, she had operated a business providing chiropractic services from premises in Adamstown, New South Wales, through Life Rhythm Pty Ltd trading as Awaken Chiropractic.
Ms Crozier admitted the contract was made by written agreement dated 24 December 2016, and pleaded that the contract was for a term expiring on 28 March 2017, which was extended from time to time, the latest renewal being 22 January 2020.
Ms Crozier pleaded in par 10(b) "that any diminution in the Plaintiff's trade during the relevant period was not caused by competition generated by the Defendant, but other chiropractic businesses and the impacts of the COVID-19 pandemic on demand for face-to-face services like chiropractic services." Ms Crozier did not prosecute this defence at the hearing.
Ms Crozier denied that Triggerpoint had suffered loss or damage, and then alleged: 11. In answer to the entirety of the Plaintiff's claim the Defendant: says that clause 16 of the Agreement is invalid as contrary to public policy, and that the restriction it imposes is unreasonable; says that she is entitled to relief under section 4(3) of the Restraints of Trade Act 1976 (NSW) in the circumstances.
Section 4(3) of the Restraints of Trade Act 1976 (NSW) empowers the Court in certain circumstances to "on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit". Although Ms Crozier did submit at the hearing that the restraint of trade in clause 16.3(a) of the contract was entirely invalid at common law, she did not make any separate submissions based upon s 4(3) of the Restraints of Trade Act.

Evidence at the hearing

At the hearing, Triggerpoint relied upon affidavits affirmed by one of its directors, Sally Roberts, on 13 December 2021, 10 May 2022 and 16 May 2023.
Ms Crozier affirmed affidavits on 6 June 2022 and 17 March 2023, but those affidavits were not read at the hearing in Ms Crozier's defence. Ms Crozier relied upon documents tendered at the hearing.
Ms Roberts' 10 May 2022 affidavit annexed a series of correspondence between the parties' solicitors.
On 19 November 2020, Triggerpoint's solicitor wrote to Ms Crozier setting out the relevant terms of the contract and reminding her that she was obliged to comply with the restraint.
On 24 November 2020, Triggerpoint's solicitor advised Ms Crozier that Triggerpoint had no issue with Ms Crozier providing chiropractic services as a locum at a practice in Clarence Town. Ms Crozier provided those services for a period before, and possibly also after, she commenced to provide chiropractic services to clients from the address in Adamstown.
The parties' solicitors exchanged correspondence in relation to an assertion made by Ms Crozier that the chiropractic services that she wished to provide from the Adamstown address were in some way different to the chiropractic services provided by Triggerpoint, so that, in reality, Ms Crozier would not be competing with Triggerpoint in breach of the restraint in the contract. Ms Crozier's solicitor said in a 8 February 2021 letter to Triggerpoint's solicitor: "Our client likens the difference in the service to that of a "full-service hair salon versus a haircut from a barber". It is not necessary to consider this assertion further, as Ms Crozier did not attempt to establish at the hearing that the provision of chiropractic services at the Adamstown address was so different in nature from the chiropractic services provided by Triggerpoint that it did not involve a breach of clause 16.3(a) of the contract.
Ms Roberts explained the basis of Triggerpoint's damages claim in her 16 May 2023 affidavit. She said in par 1 that her affidavit was in response to Ms Crozier's affidavit on 17 March 2023. As that affidavit was not read, there is some difficulty in understanding the effect of Ms Roberts' affidavit.
Ms Roberts referred to an Annexure A to Ms Crozier's affidavit and made a brief comment on it. That evidence must be put aside as it is meaningless.
Ms Roberts then deposed: … 5. Annexed and marked "B" is excel spreadsheet which lists each client extrapolated from the business records of the defendant [corrected at the hearing to plaintiff] information concerning the client's treatment. Using the first client as an example: 6. a. He first became a client on 22 March 2019. b. Accordingly, he had been a client for 802 days up to 1 June 2021. c. 1 is the times per month he would attend. d. $60 is the amount he paid. 6. Using this information, I have assumed that he would have continued treatment once a month. 7. I have added up the total for each client how many times they would have attended in the six months of June to December 2021. 8. I have been the business owner since 1 September 2016. 9. I operate the business with a view that once a client becomes a client of the plaintiff, that person will stay a client and will receive treatment for an average of 5 years. I give this period of time because new and existing clients continue to come due to the professional relationship formed between Triggerpoint/practitioner and clients, long-term relationships are evident, as per the provided excel spreadsheet. From my experience clients of the plaintiff remain clients for 5 years. On average they receive treatment monthly. 10. When I had the defendant enter the Employment Agreement, I decided that a year's restraint was required to break the connection between a client and their treating chiropractor. 11. [Rejected]. 12. Had the defendant not breached his restraint, I estimate that 70% of the patients would have remained with the plaintiff. Our Chiropractors are familiar with the treatment needs of the clients in the spreadsheet, detailed notes are taken at each appointment enabling clear communication and direction for patient care transition. The estimate is based on my experience in running the business since 2016.
I will discuss the spreadsheet that is Annexure B to Ms Roberts' affidavit below when I deal with the issue of the quantification of the damages that should be payable to Triggerpoint, if it establishes that the restraint in the contract is valid insofar as it applies to the conduct of Ms Crozier that is alleged to be in breach of the contract. At this point, it should be noted that one effect of the spreadsheet is to further narrow Triggerpoint's case to a complaint that Ms Crozier, within the time period of the restraint, provided chiropractic services to clients for whom Ms Crozier had also provided chiropractic services to people who were clients of Triggerpoint during the term of the contract. Accordingly, Triggerpoint's complaint that Crozier had competed with Triggerpoint was limited to competition that consisted of providing chiropractic services to former clients of Triggerpoint to whom Ms Crozier had provided services during the period of the contract.
At the hearing, Ms Roberts was cross-examined by counsel for Ms Crozier. For reasons that need not be given in detail, the recording of the hearing in the transcript suffered difficulties that were not appreciated at the time, and, at least at the beginning of the transcript of the cross examination, some of Ms Roberts' answers are recorded as "(not transcribable)". After a short period, I realised that there may have been a problem and suggested adjustments in the manner in which the hearing was being conducted, which seem to have resolved the problem, as the balance of the transcript is almost entirely complete.
I am satisfied that the balance of the transcript of the cross-examination of Ms Roberts is adequate for the purpose of formulating these reasons for judgment.
This is a convenient time to record a separate problem with the transcript, which is that from T 37.44 to T 40.17, the transcript records exchanges between the Court and counsel for Ms Crozier, when it is clear from the context that the exchanges took place during Triggerpoint's final oral submissions and that the speaker was counsel for Triggerpoint.
Most of the cross-examination was directed at the reliability of the document that was MFI 2, which was provided to the Court to assist it in determining the quantum of Triggerpoint's damages claim. I will consider the effect of the cross-examination below when I deal with the issue of the quantum of damages.

Validity of restraint of trade

Ms Crozier submitted that the restraint of trade in clause 16.3(a) of the contract is void at common law because the width of the restraint, in the sense of the activity on Ms Crozier's part that it prohibits, as well as the duration, are unreasonable, as they go further than is necessary to protect any legitimate commercial interest in Triggerpoint that is recognised by the law as warranting protection by the imposition of a restraint of trade on a former contractor.
Ms Crozier submitted that, on the facts of this case, given the nature of Triggerpoint's business and the services provided by Ms Crozier under the contract, the only legitimate interest that Triggerpoint was entitled to protect by a restraint of trade in the contract was the connection between Triggerpoint and its clients that it had built up over time and which it was at risk of losing by reason of the fact that it had contracted the provision of its services to Ms Crozier, who was thereby enabled to develop a separate personal connection to Triggerpoint's clients in a way that created the ability in Ms Crozier to usurp the benefit of the customer connection, if she continued to provide chiropractic services to the clients with which she had formerly dealt with after the termination of the contract.
That being the case, Ms Crozier submitted, the extensive prohibition against any form of competition in clause 16.3(a) was too wide and so was unreasonable.
Furthermore, Ms Crozier submitted that the reasonableness of the restraint in clause 16.3(a) had to be assessed in conjunction with the existence of the restraint in clause 16.3(b), which is a wide non-solicitation prohibition. As clause 16.3(b) prohibited Ms Crozier from soliciting clients of Triggerpoint with whom she had had contact by way of the provision of chiropractic services during the term of the contract, where those clients had been clients within 12 months from the date of termination of the contract, Triggerpoint had a substantial measure of protection of its client connection, so that the superadded general prohibition against competition in clause 16.3(a) for the same period as the prohibition in clause 16.3(b) was unnecessary and unreasonable.
As I understand Ms Crozier's submissions, her final position was that, even if there was some residual reasonable justification for the restraint in clause 16.3(a), the concurrent existence of the non-solicitation restraint in clause 16.3(b) had the result that, even if the latter restraint was valid for a period of 12 months, that validity had the effect that the duration of the restraint in clause 16.3(b) could only be justified for a period of no more than six months.
Ms Crozier noted that, even though there was evidence that she had provided chiropractic services to 15 clients who had been clients of Triggerpoint during the first three month period covered by clause 16.3(c), she had provided those services for no fee.
The legal principles that are applicable in the determination of this case are not in issue. At common law, a contractual provision that is in restraint of trade, such as clause 16.3(a), is prima facie void for being contrary to public policy, unless it can be justified as "reasonably necessary for the protection of the parties concerned and reasonable in the interests of the public": Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 at [59] (per Gleeson JA, Bathurst CJ and Beazley P agreeing).
The common law position is modified by s 4(1) of the Restraints of Trade Act, which provides that 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 effect of s 4(1) is that, even if the operation of the restraint in accordance with its terms is not justifiable at common law, it may still be enforced insofar as it applies to the specific breach alleged. The question is "whether the restraint, so far as it applies to that breach, is contrary to public policy": Isaac v Dargan Financial Pty Ltd at [61]. Consequently, if the restraint is reasonable in the context of the particular circumstances that are alleged to constitute the breach, s 4(1) will permit the restraint to be enforced, even if the period of the restraint, its area or the conduct restrained as expressly stated in the term are unreasonable: Woolworths Ltd v Olson [2004] NSWCA 372 at [45] (per Mason P, McColl and Bryson JJA agreeing).
As I understand it, Ms Crozier does not assert that the restraint in clause 16.3(a) of the contract is void because all of the cascading areas of its operation in clauses 16.4(d) to (f) of the contract are unreasonably wide. Given the nature of chiropractic services, there is superficially a strong argument that the areas in all of clauses 16.4(d) to (f) are unreasonably wide; even the least extensive area being the Newcastle and Lake Macquarie Local Government areas. However, I understand that Ms Crozier accepts that in this case, in fact, s 4(1) of the Restraints of Trade Act will have the effect of preserving the territorial validity of the restraint in clause 16.3(a), as it applies in respect of the locations at which Triggerpoint and Ms Crozier have provided their services to clients.
Exhibit P1, which is a printout from Google Maps, shows the position of Triggerpoint's premises at 154 Gordon Avenue, Hamilton South and the position of the premises from which Ms Crozier has been operating since about June 2021 at 10 Williams Street, Adamstown. The exhibit shows that there are three ways of driving between the two locations with distances of 3.8, 4.0 and 4.2 km. The driving time in the first two cases at the time Exhibit P1 was prepared, was seven minutes, and it was eight minutes in the case of the third route. As I understand it, there is no issue between the parties that the locations of the two businesses are sufficiently close that the provision by Ms Crozier of chiropractic services at her location is capable of taking advantage of the client connection that Ms Crozier formed when she provided services to clients of Triggerpoint under the contract.
The evidence led by Triggerpoint was limited and general and did not in any detailed way engage with the need to establish facts that would enable the Court to find that the restraint against competition in clause 16.3(a) was not unreasonably wide as to the conduct that it prohibited or unreasonably long in duration.
As I understand Triggerpoint's case, it asks the Court to infer that because the nature of Triggerpoint's business is to provide various non-medical health services to its clients, and the principals of Triggerpoint have established its business on the basis that they are not personally, professionally able to provide all of the health services offered by Triggerpoint, it operates by entering into contracts with non-medical service providers such as chiropractors and massage therapists. Triggerpoint's business involves the establishment of goodwill with clients who need the services that it provides, but those services are actually provided by contractors, who have regular face-to-face contact with the clients, and are therefore in a position to establish relationships with clients that could put the goodwill of Triggerpoint at risk. Triggerpoint's purpose in including restraints in its contracts with its service providers is to ensure that Triggerpoint's goodwill with its clients is not put at an unfair risk by reason of the fact that its business model gives its service providers the opportunity to usurp Triggerpoint's relationships with its clients.
That may be accepted by the Court as a matter of general principle, but it does not go far in justifying the reasonableness of the restraint of trade in clause 16.3(a) as to the extent of the competition that is prohibited or its duration.
It is well-established that it is against public policy for competition to be prohibited per se: Stenhouse Australia Ltd v Phillips [1973] 2 NSWLR 691; [1974] AC 391 at 400 and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 at [47] per Brereton J (as his Honour then was).
Customer connection can be a legitimate basis for a restraint of trade, at least where the contractor's responsibilities involve "close and personal contact" with the clients of the principal: Jardin v Metcash Ltd [2011] NSWCA 409; (2011) 285 ALR 677 at [97]. Given the physical nature of the provision of chiropractic services, it may be accepted that there will have been a relatively intense close and personal contact between Ms Crozier and at least those clients of Triggerpoint that she personally serviced. As the object of the service is to protect the health of the client, it is also probable that Ms Crozier would have been able to establish a relationship whereby she would enjoy the loyalty of the clients that she serviced. The strength of this client connection was likely to be enhanced by the use of the detailed notes that were taken at the time of each appointment with clients for the provision of chiropractic services.
Clause 16.3(a) prohibits all competition with Triggerpoint's business, not only by Ms Crozier but also by any other competitor who may be assisted by Ms Crozier in one of the extensive and loosely defined ways set out in the chapeau to clause 16.3(a). That provision is tantamount to a blanket prohibition against competition and I conclude that it is unreasonable and invalid if considered from the perspective of its application to the full extent of its literal meaning.
I accept Ms Crozier's submission that clause 16.6 of the contract should be given no weight in this case. It is entirely artificial, and cannot logically stand in the face of the fact that the cascading provisions for duration and territorial extent in clause 16.4 are triggered "if that duration [or geographical area] is held by a court to be unreasonable". Clause 16.6 cannot be a genuine agreement as to what was reasonable when the premise of clause 16.4 is that at least the longer periods and wider areas might be held to be unreasonable.
However, in the manner that I have explained above, the breach of clause 16.3(a) that is alleged against Ms Crozier in this case has been limited to that competition with Triggerpoint that has involved Ms Crozier in providing chiropractic services to persons who were clients of Triggerpoint in the 12 months before the termination of the contract and for whom Ms Crozier personally provided the services. That claim for relief based upon the breach of the restraint in clause 16.3(a) is capable of being preserved by the operation of s 4(1) of the Restraints of Trade Act, provided that that restraint is found to be a reasonable protection of a legitimate interest of Triggerpoint - in this case, its client connection.
Ms Crozier submitted that s 4(1) of the Restraints of Trade Act should not avail Triggerpoint in this case because the presence of clause 16.3(b) in the contract provides sufficient protection of Triggerpoint's client connection, with the result that no restraint against competition is necessary or can be justified: see, for example, Smith v Ryngiel [1988] 1 Qd R 179 at 186 per Ryan J.
A covenant against solicitation for a reasonable period will not always provide the principal with adequate protection of its client connection: see, for example, Stacks/Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 at [63]-[64] per McDougall J. No doubt, the prevention of solicitation will be advantageous to the principal as it will prevent the contractor from actively seeking to usurp the principal's client connection. But it would not protect Triggerpoint in relation to former clients who transferred their custom to Ms Crozier without her engaging in solicitation. It must be remembered that the prohibition in clause 16.3(b) is expressed in terms of "directly approach, canvass or solicit with any client or customer of the Principal". There may be scope for debate about how active and directed conduct must be before it constitutes solicitation, but in the case of this term, the use of the word "directly" suggests that the prohibition only extends to conduct that involves a positive connection between Ms Crozier and clients of Triggerpoint, where the connection is actively initiated by Ms Crozier, and does not prohibit the provision of services to clients who have sought out Ms Crozier, for instance, by having learned of the address of her practice, or by word-of-mouth.
There is therefore, in my opinion, scope for s 4(1) of the Restraints of Trade Act to preserve the effectiveness of clause 16.3(a) of the contract, insofar as it applies to the specific conduct of Ms Crozier that has been alleged to be a breach of the restraint in this case.
The question therefore becomes whether the duration of the restraint as limited in its effect by s 4(1) of the Restraints of Trade Act is reasonably justified. It is not necessary to consider the reasonableness of the three month or six month periods in clauses 16.4(b) and (c), because those periods elapsed before Ms Crozier commenced her practice at Adamstown (save for the provision of chiropractic services to clients for 20 visits, 15 of which were for free). In any event, the declaration sought by Triggerpoint in its Plaintiff's Schedule of Damages only sought relief for the period after 16 June 2021. The issue is whether a period of operation of the restraint for 12 months was reasonable.
Historically, there has been some difference of judicial opinion about whether the object of the enquiry is to assess the period necessary to "sever" the former contractor's connection to the clients of the principal, or whether the enquiry is as to the time that would be required for a competent replacement contractor to establish an effective rapport with the principal's clients (assuming that it is realistic in a particular case to establish a real difference between these approaches). I take the issue to be governed by the following statement of principle by Allsop P (as his Honour then was) in Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267; (2010) 202 IR 420 (Hodson JA and Handley AJA agreeing): [42] The appellant said that the primary judge erred by not adopting the test in Stacks and by not concluding that there was inadequate evidence led to form any conclusion as to how long it would take for the connection to lapse. Thus, it was said, OAMPS had not discharged the burden of proof. [43] I disagree. There is no legally required test in these circumstances. The use of one test or another depends on the facts and the evaluation of the approach that is reasonable. The judge is required to evaluate the evidence about connection and adopt an appropriate approach to assessing what is required to protect reasonably the connection of the former employer. The proper approach was described in Stenhouse Australia Ltd v Phillips [1974] AC 391 at 400 set out by Hodgson JA in Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [36]-[37], as follows: [36] In my opinion, there is no precise rule on the basis of which the period for which an employer is legitimately entitled to protection can be determined. I would not endorse the statement by Young J in Daly Smith [Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (Supreme Court of NSW, Young J, 14 April 1997, unreported)] at 13 that "a restraint that enures after the time taken for a reasonably competent new employee to master the job and be able to demonstrate to the customer that he or she is effective and efficient will be too long". [37] I would respectfully adopt the general statement of principle by the Privy Council in Stenhouse at 400: The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man's improving ability and talents which lies at the root of the policy of the law regarding this type of restraint. Leaving aside the case of misuse of trade secrets or confidential information (which is separately dealt with by clause 3 of the agreement and which does not arise here), the employer's claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee may have contributed to its creation. For while it may be true that an employee is entitled - and is to be encouraged - to build up his own qualities of skill and experience, it is equally his duty to develop and improve his employer's business for the benefit of his employer. These two obligations interlock during his employment: after its termination they diverge and mark the boundary between what the employee may take with him and what he may legitimately be asked to leave behind to his employers. [44] Hodgson JA also said at [41] in that case, that minds may differ about what is a reasonable protection and about the balance between the connection that properly belongs to the former employer and the right to practise a trade or profession of the former employee. [45] Regard should also be had to what the Privy Council said in Stenhouse at 402: … The question is not how long the employee could be expected to enjoy, by virtue of his employment a competitive edge over others seeking the clients' business. It is, rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and who were not bound to the employer by contract or by stability of association. This question … their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge, after informing himself as fully as he can of the facts and circumstances relating to the employer's business, the nature of the employer's interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not. An opinion as to the reasonableness of elements of it, particularly of the time during which it is to run, can seldom be precise, and can only be formed on a broad and common sense view.
Noting the observation of the Privy Council referred to by Allsop P at [45] that the issue cannot "advantageously form the subject of direct evidence", it is nonetheless the case that it should be possible for the principal, who seeks to enforce the restraint of trade, to tender objective evidence concerning the nature of the principal's business and the means that are available to the principal to secure its client connection following the departure of a contractor, to assist the Court to make a rational and fair judgment concerning the duration of the restraint that is reasonably justifiable. For example, the principal ought to be able to demonstrate the practice that it adopts in introducing its clients to a new contractor, and the steps that it takes to facilitate the development of a bond between the new contractor and the client. A factor that is likely to be objectively significant is the number of times that the new contractor will have the opportunity to provide the relevant service to clients during any particular period of the restraint of trade. The assessment of what is a reasonable duration must assume that the principal will employ a new contractor who is reasonably equivalent in attractiveness to clients as was the former contractor. All other things being equal, it should be the case in relation to the provision of services that are as close and personal as those provided by chiropractors that it should not take a substantial number of instances during the period of the restraint for the new contractor to establish on behalf of the principal an enduring connection with the existing clients. If it should be that individual clients have a personal preference for the former contractor that cannot be replaced by the new one, that is simply a fact of life.
Triggerpoint's evidence did not engage with this issue, save to the extent that Ms Roberts said in par 10 of her 16 May 2023 affidavit: "…I decided that a year's restraint was required to break the connection between a client and their treating chiropractor". No basis for this broad opinion was given.
As will be seen when the issue of the quantum of damages is considered, Triggerpoint's case is that, on average, most clients seek Triggerpoint's chiropractic services on a monthly basis. Ms Roberts made a bare assertion to that effect in par 9 of her 16 May 2023 affidavit, and it was the basis of Triggerpoint's calculation of its damages as set out in the document called "Plaintiff's Schedule of Damages". There is some doubt about the accuracy of this assertion, as a generality in relation to all clients. However, it was Triggerpoint's claim that most clients are seen monthly by its chiropractors.
If that is the case, then Triggerpoint would have had the opportunity of appointing a new contract chiropractor to provide services to its clients following the end of the contract with Ms Crozier about six times in the first six-month period. If in that period, clause 16.3(a) prevented Ms Crozier from servicing those clients' needs, then the new contractor would have multiple opportunities to form a professional bond with the clients, unless they chose to take their business elsewhere.
Triggerpoint did not lead any evidence to explain why, as at the date of the contract, there was reason to believe that this number of treatments would be insufficient to give it a reasonable opportunity to retain its client connection with its clients through a new contractor. There was no evidence, for example, that contract chiropractors are hard to find and Triggerpoint would be unlikely to be able to replace Ms Crozier quickly. It must also be borne in mind that, as stated by Hodgson JA in Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25; (2009) 201 IR 1 at [36] (as extracted from the judgment of Allsop P above), the determination of the duration of the restraint of trade that is to be accepted as reasonable assumes "a reasonably competent new employee".
Although I have declined to accept Ms Crozier's argument that the existence of the restraint of trade in clause 16.3(b) of the contract justifies a conclusion that the restraint in clause 16.3(a) is entirely unreasonable, I consider that the former restraint is material to determine the reasonable duration of the restraint in clause 16.3(a), given that its validity is dependent on the operation of s 4(1) of the Restraints of Trade Act. By this, I mean no more than to say that the Court should require some positive justification for the duration of the preserved restraint.
In the circumstances, the Court cannot give any real weight to the bare assertion by Ms Roberts that a duration of 12 months for the restraint is reasonably necessary.
This is all in the context that chiropractic is a profession engaged in by individual persons, who will need to earn income from the provision of their services at places that are reasonably convenient to the location of their residence.
In these circumstances, I am not satisfied that s 4(1) of the Restraints of Trade Act could preserve the validity of clause 16.3(a) of the contract for any period greater than six months.
In reaching this conclusion, I accept the submission made by Ms Crozier that the decision of the Full Court of the Supreme Court of South Australia in NE Perry Pty Ltd v Judge (2002) 84 SASR 86; [2002] SASC is distinguishable from the present case. There, the Full Court found that, in a contract for the provision of chiropractic services in circumstances much like the contract in the present case, a restraint period of 12 months was reasonable. However, in that case the restraint related to the provision of chiropractic services in the town of Whyalla, which had a population of 22,000 people, and where there were only two other chiropractic practices in the town.
Consequently, an order will be made dismissing Triggerpoint's claim against Ms Crozier.

Quantification of Triggerpoint's damages

It will be necessary, however, for the Court to determine the quantum of the damages that would have been ordered in favour of Triggerpoint if it had succeeded on the issue of liability, and the Court had accepted that a period of 12 months was reasonable for the restraint in clause 16.3(a) of the contract.
As I have explained above, MFI 2 was partly superseded by Triggerpoint's "Plaintiff's schedule of damages", which removed the names of 27 of the clients listed in MFI 2. It appears that MFI 2 was prepared upon the basis of an assumption that the statements made by Ms Roberts in her 16 May 2023 affidavit concerning the frequency of visits by clients and the length of their association with Triggerpoint were correct. MFI 2 does not appear to have been prepared on the basis of a detailed analysis of the records of Triggerpoint and Ms Crozier on a client by client basis as to when clients attended Triggerpoint, which chiropractors provided services to them, how often they attended Triggerpoint, whether and, if so, when they attended Ms Crozier, and how often they did so.
Ms Roberts stated in cross-examination that MFI 2 was prepared by Triggerpoint's accountant. The result of the cross-examination of Ms Roberts suggests that Triggerpoint and its legal representatives did not cross-check MFI 2 against the underlying records. Ms Roberts was cross-examined about 13 of the clients who remained part of Triggerpoint's damages case, after clients named in the document were removed by the "Plaintiff's schedule of damages". Ms Roberts was candid and straightforward in her responses to the questions of counsel. She was cross-examined on the basis of the information contained in MFI 3 and the records that underlay it. MFI 3 was an analysis prepared on behalf of Ms Crozier that analysed the relevant records in relation to the clients, primarily to identify the dates they sought her chiropractic services, the cost per visit, and contained notes concerning the significance of the timing of the visits. The document recorded the number of times that clients who had formally attended Triggerpoint had been serviced by Ms Crozier during particular intervals in the year after the termination of the contract.
It is sufficient to note that Ms Roberts agreed that in respect of eight of the clients listed in MFI 2, the evidence showed they continued to attend Triggerpoint for chiropractic and other services at relevant periods after the termination of Ms Crozier's contract. One of the clients had never been treated by Ms Crozier. Other clients were not treated monthly, as Ms Roberts had assumed. Ms Roberts agreed that these clients ought not to have been included in MFI 2.
It is not necessary for the Court to consider the validity of MFI 2 in detail. The cross-examination of Ms Roberts clearly undermined the accuracy of the document. More importantly, the inaccuracies in the document undermined to a degree the validity of the assumptions made on the basis of the assertions in Ms Roberts' affidavit.
In final oral address, counsel for Triggerpoint effectively abandoned the basis for the assessment of damages that Triggerpoint had claimed in opening. Triggerpoint formulated its new claim using MFI 3, which was the spreadsheet prepared for Ms Crozier on the basis of her records of when she provided chiropractic services to clients who she had serviced under her contract with Triggerpoint. MFI 3 established that Ms Crozier had seen clients for 15 visits in the first three months after the termination of the contract but charged no fee. She saw clients for a further five visits in the second three months and charged a total of $115.11. In the last six months, Ms Crozier saw clients for 380 visits for a total fee of $23,209.85. As the schedule to the contract provided that Ms Crozier was entitled to receive 60% of the fees charged to clients, Triggerpoint would have received 40% of this sum, if the clients had all continued to obtain chiropractic services from Triggerpoint, and those services had been provided by a different contractor on the same terms as the contract between Triggerpoint and Ms Crozier.
Rounding his figures somewhat, counsel for Triggerpoint submitted that, on the basis that Triggerpoint's share of the income would have been about $9,600 for services that were largely performed by Ms Crozier over six months in 2021, the Court should start by assuming that Triggerpoint would have received twice that amount each year for two years, being $9,600 plus $38,400, which gives $48,000. On the basis of Ms Roberts' evidence (in the form of an assertion made by her in par 12 of her 16 May 2023 affidavit), counsel submitted that the total should be multiplied by 70% to account for the proportion of the clients that would have been retained by Triggerpoint, which gives a damages claim of $33,600.
I make the following notes about this calculation. The process for calculating the damages suggested by counsel for Triggerpoint is set out at T 38.25 to T 41.29. A number of the figures stated in the transcript are different to those I have included in the previous paragraph. I do not know whether that is because the transcript is not accurate, whether there are arithmetical errors in the calculation, or whether I have produced errors because I do not understand the process. At T 41.25, counsel for Triggerpoint said as the final step in his explanation of the calculation of the damages: "… Then you multiply that figure by 0.7 to come to 25,536, which is rounded, $35,000"! I note also that 40% of the total amount received by Ms Crozier in the 12 month period, as stated in MFI 3, was $9,329.98, not $9,600.
Counsel justified the three year period for the calculation of damages at T 41.3 on the basis that it is normal to adopt a multiplier of three years income in the valuation of a business.
Counsel also acknowledged at T 94.47: "In terms of loss of opportunity going forward, it's correct my clients haven't done a client-by-client analysis, because there's 90 clients, and the quantum is not that large…"
The difficulty with this basis for calculating damages, other than that it was apparently made up on the spot, is that there is no objective evidence to support it. Triggerpoint's case ultimately was that it was fair to assume that multiplying Triggerpoint's 40% share of the fees earned by Ms Crozier during 2021, in an effective period of six months, by a factor of two and allowing for an additional two years' income, was a reasonably accurate approximation of what Triggerpoint would have earned if Ms Crozier had not provided any services to the former clients of Triggerpoint in the 12 months after the termination of the contract. The basis for this approximation has not been established by evidence. If Ms Crozier had waited until the end of the 12 month period, she would have been free to service any of the former clients of Triggerpoint. The issue is whether the fact of her providing services before the end of the 12 month period decreased Triggerpoint's chance of securing the continued custom of those clients, and whether Ms Crozier improved her chances that the clients would continue to seek her services after the end of the 12 month period.
Triggerpoint did not perform a detailed analysis of its own or Ms Crozier's client attendance and payment records to determine what happened between 18 December 2021 (which was the relevant date in MFI 3) and the commencement of the hearing on 3 October 2023. That was apparently done consciously on the basis of a cost benefit analysis. The Court cannot know whether objective evidence of the data after 18 December 2021 would have provided an objective basis for the Court to make a rational assessment of the quantum of the damages that Triggerpoint suffered, assuming that the 12 month restraint of trade had been valid.
I accept the observation made by Hayne J in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768 at [37]-[38], to the effect that a plaintiff must prove matters relevant to the assessment of damages "on the balance of probabilities and with as much precision as the subject matter reasonably permit[s]", but that the mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them "as best it can". These principles do not justify a plaintiff in omitting to analyse available records to provide objective assistance to the Court merely because of a judgment that the exercise will not be cost-effective. The Court has to be reasonable and realistic, and be open to the possibility that a plaintiff will prove that an objective analysis of available evidence is unwarranted having regard to the utility of the result. But the Court is not required to take a 'stab in the dark' to pick a figure for damages, when it is aware of the existence of business records that are likely to provide useful guidance, but the plaintiff has simply elected not to make use of them.
In this respect, it is not to be forgotten that Triggerpoint initially claimed an entitlement to what appears to be damages over a five year period of $356,580, based upon $60 per visit and a retention rate of 70% as stated in MFI 2. This calculation does not appear to allow for the fact that Triggerpoint would only have received 40% of the income. More importantly, the calculation was based upon Ms Roberts' assertion that 70% of Triggerpoint's clients would have continued to seek Triggerpoint's services once per month for five years.
The highest amount of damages that Triggerpoint could have established is the $9,329.98 for the 400 visits established by Ms Crozier's MFI 3, reduced by 30% on the basis that Ms Roberts' evidence of a 70% retention rate should be applied against Triggerpoint, giving, say, $6,500.
I add that the nominal damages that may have been suffered by Triggerpoint on the basis that the restraint in clause 16.3(a) was valid for the first six months after the termination of the contract would, applying the approach set out above for the second six months, be 70% of $115.11, being $80.58. Not only is that amount trivial, but as 15 of the visits were for no fee, I would not infer without evidence that the clients would have paid a fee to Triggerpoint, if they had not been attended by Ms Crozier, and the number of visits for which a fee was paid was so low that in the absence of evidence I would not make any assumption as to whether those clients would have paid a fee to Triggerpoint. In any event, as I have noted above, the declaration as to breach of clause 16.3(a) sought by Triggerpoint at the hearing was only for the six month period after 16 June 2021.
As I have not accepted that Triggerpoint has established its case that Ms Crozier breached the contract, it is not necessary for the Court to make an order for damages. I should note that the Triggerpoint accounting records that recorded the dates of appointments with its clients, the names of the persons providing the service and the type of service provided, since (as I understand it) the first time Triggerpoint provided a service to the client were admitted into evidence as Exhibit P2. On my count, the exhibit contains Triggerpoint's records for about 114 clients. All of the records were printed out on 11 February 2023. However, there was no direct evidence about the criteria for selection of the data to be printed out. In particular, it was not made clear whether there was a cut-off date for the attendances recorded, or whether the exhibit covered all attendances up to 11 February 2023.
As Exhibit P2 was part of the evidence, I have examined it for the purpose of preparing these reasons for judgment. As Triggerpoint did not provide a detailed analysis of the data, I consider that the Court should be hesitant to act upon any conclusions based upon its own analysis of the data, given that no analysis was proffered by Triggerpoint and Ms Crozier has consequently not been given a proper opportunity to respond to any such analysis.
Accepting that my own analysis may not be entirely accurate, as it has not been verified by the parties, it appears that 49 clients serviced by Ms Crozier did not seek further chiropractic services from Triggerpoint after the end of Ms Crozier's contract, seven did so but only for a massage, 26 returned for one or two chiropractic sessions and then ceased to use Triggerpoint's services, and 32 returned for multiple chiropractic sessions. A number of the clients who did not return at all had ceased to use Ms Crozier's services before the end of her contract, and a number of the clients who did return to Triggerpoint ceased to use its services after multiple attendances.
I audited the information in Exhibit P2 to see whether it provided any objective assistance in relation to the quantification of the damages claimed by Triggerpoint. I compared the information in the exhibit with the information concerning the provision by Ms Crozier of her services to former clients in MFI 3. I started with the first 10 clients in the exhibit who had been provided with chiropractic services by Ms Crozier up until the date of the termination of her contract who did not return to Triggerpoint at all. Nine of those clients saw Ms Crozier on various dates in 2021, most on multiple occasions. While those attendances would have constituted breaches by Ms Crozier of the restraint of trade, if it had been valid, the fact that none of the clients returned to Triggerpoint at all casts significant doubt on its claim that, if Ms Crozier had not provided chiropractic services to these clients, they would have continued to be clients of Triggerpoint on a monthly basis for a number of years. There was no evidence of any agreement between Ms Crozier and these clients that they would continue to use her services rather than those of Triggerpoint, and in five of the cases there was a gap of more than six months before the client visited Ms Crozier.
I then reviewed Exhibit P2 and MFI 3 in relation to the first 15 former clients of Ms Crozier who did return to Triggerpoint on at least one occasion. Notwithstanding that all of these clients were provided with chiropractic services by a Triggerpoint contractor in 2021, 11 of them also attended Ms Crozier to receive multiple chiropractic services in 2021, in all cases after mid-August. Evidently, Triggerpoint had the opportunity to confirm its client connection with these clients, but the attempt was unsuccessful. It is notable that in some cases the client was a woman and the new chiropractor was a man.
My only purpose in recording the result of this relatively superficial comparison between the information in Exhibit P2 and MFI 3 is that it confirms the conclusion that I have reached that it would not be valid to quantify the damage suffered by Triggerpoint, if it had established a breach of contract by Ms Crozier, on the basis of some loose 'rule of thumb' approach, rather than a proper analysis and careful consideration of the data in the evidence that was available.

Orders

The orders of the Court are: 1. Order that the plaintiff's claim is dismissed. 2. Order the plaintiff to pay the defendant's costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 February 2024

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