Dr Angel-Honnibal v Idameneo

CATCHWORDS : TRADE AND COMMERCE - RESTRAINT OF TRADE - respondent purchased appellant's medical practice and required appellant to conduct practice from respondent's centre - restrictive covenant - appellant restrained from rendering medical services at rival centre for five years - whether restraint reasonably necessary to protect the respondent's goodwill - whether variation of sale contract unconscionable due to appellant's specific disabilities at time of negotiation - whether restraint void as a penalty - ND LEGISLATION CITED : Restraints of Trade Act 1976 (NSW), s 4(1) Trade Practices Act 1974 (Cth), s 87 Attorney-General (Cth) v Adelaide Steamship Co Ltd [1913] AC 781 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 77 ALJR 926; 197 ALR 153 CASES CITED : Bridge Pump Co Pty Ltd v Myles Southwest Fuel Supplies Pty Ltd (unreported, Supreme Court of Western Australia, 22 October 1997) Bull v Pitney-Bowes Ltd [1967] 1 WLR 273; [1966] 3 All ER 384 Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 Sherk v Horwitz [1972] 2 AR 451 PARTIES : Dr Teresa Angel-Honnibal (Appellant) Idameneo (NO 123) Pty Ltd (Respondent) FILE NUMBER(S) : CA 40029/03 COUNSEL : Ms J Baxter (Appellant) Mr R R J Harper (Respondent) SOLICITORS : Bolzan & Princi (Appellant) Minter Ellison (Respondent)

LOWER COURT Supreme Court JURISDICTION : LOWER COURT SC 3149/02 FILE NUMBER(S) : LOWER COURT Palmer J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40029/03 SC 3149/02

McCOLL JA YOUNG CJ in EQ FOSTER AJA

Wednesday, 10 September 2003 DR TERESA ANGEL-HONNIBAL v IDAMENEO (NO 123) PTY LTD (A.C.N. 002 968 185) Judgment

1 YOUNG CJ in EQ: This is an appeal from Palmer J in a case involving a restrictive covenant in connection with a suburban medical centre. The basal facts are undisputed and are set out in his Honour's judgment and I will briefly summarise what his Honour said. 2 The plaintiff/respondent owns and operates a number of medical centres in the Sydney metropolitan area and elsewhere in New South Wales. It provides doctors and other allied health practitioners with the use of its premises and with various administrative services in return for which it charges a fixed percentage of the gross fees received by the doctors and others.

3 The way it goes about attracting doctors and others to its enterprise is to enter into an agreement with the doctors to pay them a substantial sum for the goodwill of their practices and thereafter enter into a service agreement. 4 In pursuance of this policy the plaintiff/respondent and defendant/appellant entered into agreements on 25 May 2001. Under an agreement called the Sale of Practice Contract the respondent agreed to purchase the appellant's medical practice for $240,000, $239,000 apportioned to goodwill and the balance to the purchase of chattels.

5 The price was payable as to $100,000 on completion and $140,000 at a future event. Indeed, at the time of the execution of the Sale of Practice Contract the respondent paid $100,000 to the appellant.

6 The parties also entered into a Practitioner Contract in which the appellant agreed that she would render medical services exclusively from the respondent's Leichhardt premises for at least five years from the commencement date of the Practitioner Contract.

7 Clause 10 of the Sale of Practice Contract contains a restraint. 10.1 reads: "The parties agree, that given the Purchaser is acquiring the goodwill of the practice, that the Doctor is to render medical services from the New Premises, and the objective in Clause 3, as a reasonable protection for the business of the Purchaser, the Doctor must not during the restraint period: (a) render medical services at any base within the radius of 8 kilometres of the Old Premises; or (b) render medical services at any place within a radius of 8 kilometres of the New Premises … 10.2 reads: "The restraint period under the preceding Clause is the period from completion until the later to occur of: (a) the 5th anniversary of completion; or (b) the 3rd anniversary of the day on which the Practitioner Contract terminates for whatever reason." 10.4 reads: "For each time the Doctor renders a medical service in breach of Clause 10.1(a) or Clause 10.1(b) he must pay to the Purchaser, as agreed and assessed damages, 50% of the gross fee payable to the Doctor in respect of that medical service."

8 Unfortunately the appellant suffered a health problem and was admitted to hospital. In late February 2002 the respondent's manager rang the appellant and put a varied proposal to her. The appellant was still undergoing care at this time but on 15 April 2002 she went back to work and had a discussion with the manager about the terms of a letter varying her contracts. The manager agreed to some deletions but not to others. The appellant then signed the letter which was dated that day. The variations as to the time for payment of the balance of the consideration for goodwill and as to the percentage of fees to be charged by the appellant subject to a rebate remained unaltered. 9 On 17 April 2002 the appellant commenced practice at the respondent's Leichhardt premises. On 4 June 2002 she tendered her resignation notice effective from 9 June 2002. On 11 June 2002 the appellant commenced practice at a medical centre in Concord. The distance as the crow flies between the Concord medical centre and the Leichhardt premises is 5.7 kilometres and between the Concord medical centre and the respondent's Burwood premises is 1.5 kilometres give or take 200 metres. 10 Two days later, on 13 June 2002, the respondent commenced the present suit seeking an injunction restraining the appellant from rendering medical services within the area set out in the contract until 25 May 2006 and damages.

11 The case came on for trial before Palmer J who declined to give the respondent the full relief that it sought. His Honour found that on the evidence before him there was insufficient to establish that the contract contained a reasonable restraint of trade. However, he found that the case came within s 4(1) of the Restraints of Trade Act 1976 and he made an order that the appellant be restrained from rendering medical services from the Concord medical centre for the period of five years concluding on 25 May 2006.

12 He also made an order that the appellant pay to the respondent $58,710.91 being an agreed amount calculated in accordance with 10.4 of the contract. However, he said that was without prejudice to the appellant's liability in damages for such period as the appellant continues to practice within a proscribed area if her appeal is ultimately dismissed. 13 The appellant attacks the judgment on three principal grounds:

14 First, that in holding that a restraint was reasonably necessary to protect the respondent's goodwill the trial judge failed to have sufficient regard to the terms of the contract as varied and to the public interest.

15 Second, that the variation of April 2002 was unconscionable because of the specific disability of the appellant brought about by (a) her financial impoverishment, (b) the effect of her illness and (c) the fact that she had no legal advice.

16 Third, that his Honour should have held that the provision of 10(4) of the sale agreement was void as a penalty.

17 On this appeal Ms J Baxter appeared for the appellant and Mr R Harper for the respondent. It was obvious from the first that Ms Baxter had a very hard road to travel and I compliment her that she said absolutely everything that could be put in aid of the appeal, but, for the reasons I am about to give, she was unable to convince me that the appeal should be altered or that his Honour fell into appellable error.

18 Ms Baxter commenced with ground 2, that is, the unconscionability under the Trade Practices Act 1974 or a general law of the respondent relying on the variation of April 2002. She read us passages from the well known judgment of the High Court in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 77 ALJR 926; 197 ALR 153 about people with special disabilities. 19 There is no gainsaying of course that what was said there is the law. However, the problem in this case is more with the facts. 20 His Honour dealt with this matter at paras 94 to 99 of his judgment. As to the allegation that the appellant was in a precarious financial position his Honour said that there was really no evidence before him which indicates, further than the fact that when asked to repay the $100,000 the appellant said she could not because she had spent it, as to what was her position both as to capital and income and what her other liabilities were and his Honour pointed out that there was no evidence that the respondent had any knowledge of what the appellant's financial position was in either of these respects. His Honour found that he could not even find that the appellant's financial position was, indeed, precarious.

21 As to her health problem, the problem was such that the appellant needed to explain herself to the Medical Board in order to retain her registration to practise medicine. She had successfully explained this. The judge said that whilst the manager of the respondent knew about the health problem he also knew that the appellant had persuaded the Impaired Registrants' Panel of the New South Wales Medical Board that she was fit enough in all respects to resume medical practice subject only to certain set restrictions. Accordingly, it could not be said that a reasonable person in the position of the respondent must have known that she had some disability.

22 It is quite clear that the appellant did not have legal advice, but there was no evidence that she told the manager of this or, indeed, that in negotiating out the variation of 15 April there was any pressure or problem in her negotiating and, indeed, it would appear that in some respects she was successful. In other words, the learned judge rejected the proposition that the appellant was in fact under any disability on the facts and that finding was well within his mandate. There is no appellable error here.

23 Even if there was some error and even if we set aside the variation under the Trade Practices Act that would just mean that the contract as originally made was enforceable and the injunctions would flow just the same. Ms Baxter did say to us that under s 87 there are a host of remedies available to the Court including setting aside the whole contract. It is certainly true that there are, as has been described in one case, a smorgasbord of remedies available under the statute, but there must be some reason for making them. There is no ground even if there had been some unconscionability in negotiating out the variation to set aside the whole contract or to vary the restrictive covenant and, indeed, if there was to be any restitution it may be that the appellant should refund her $100,000 rather than there be some restitution the other way. Accordingly, this ground of appeal fails. 24 I turn now to ground 1. The main attacks were that the evidence before his Honour was insufficient to discharge the onus of proof that the restraint was reasonably necessary to protect the respondent's goodwill. Ms Baxter says that his Honour did not sufficiently consider the precariousness of the variation, the fact that the appellant was not to receive as many benefits as his Honour thought and that his Honour did not give sufficient weight to the public interest that a multi-lingual female doctor in the area in question in the public interest must be permitted to practise in Concord.

25 She also put that it is rather odd that his Honour found that there was not enough evidence to show that there was a reasonable restraint under the contract yet his Honour was able to find that the restraint against the appellant practising at the Concord medical centre was reasonable within the Restraints of Trade Act. She also complains that there was little evidence as to the reasonability of time or area before his Honour at all.

26 However, it is quite clear that in accordance with authority his Honour gave due consideration to the fact that the restriction here as to time and area was one which had been agreed to between both parties. There is also considerable authority that when a judge has to apply s 4(1) of the Restraints of Trade Act he or she is entitled to apply broad brush knowledge of the area in question and direct his or her mind to the simple question: Is the place where the respondent is practising one which would reasonably infringe the goodwill owned by the respondent in all the circumstances of the case. It does not seem to me that there was an error here.

27 As to making her skills available to the public generally Ms Baxter referred us to Bull v Pitney-Bowes Ltd [1967] 1 WLR 273; [1966] 3 All ER 384. This really is no authority for the proposition. Of more use are cases like Sherk v Horwitz [1972] 2 AR 451, 454-6. Again, the onus of proving unreasonableness in the public interest is a very difficult one once it has been shown that reasonableness in the covenantee's interest has been proved, as Ms Baxter acknowledges was the gravamen of the decision of the Attorney-General (Cth) v Adelaide Steamship Co Ltd [1913] AC 781, 797, even though more recent cases may have modified that view to an extent. Ms Baxter was unable to cite to us any Australian cases I think for the good reason that they do not exist.

28 His Honour said on this at paras 77 and 78 of the judgment: "The Defendant submits that the restraint is void because it would be contrary to the public interest that the Defendant be deprived thereby of the ability to provide her services to the public generally and to her established patients in particular, and that the public be deprived of its freedom of choice of doctors.

In my opinion, the Defendant has not discharged her onus of making good this submission on the evidence. To restrain the Defendant from carrying on her medical practice at the Concord Medical Centre would not prevent her from conducting a practice elsewhere, as long as she did not thereby breach the covenants in Clause 10 of the Sale of Practice Contract. There is no evidence that her services are irreplaceable as far as any of her existing patients are concerned, and that they will be at risk in some way if their needs are attended to by some other doctor at the Concord Medical Centre or elsewhere." 29 Again, that was well within his Honour's mandate. 30 As to the submission that cl 10(4) was a penalty his Honour said commencing at [106] of his judgment: "Whether a stipulation for payment upon breach of contract is a penalty or liquidated damages is a question of construction of the contract to be decided upon its terms and the inherent circumstances of each particular contract as at the time when the contract was made, not at the time when the breach occurred. The party asserting the invalidity of a contractual provision as being a penalty rather than liquidated damages bears the onus of making good that assertion."

31 His Honour cited Robophone Facilities Ltd v Blank [1966] 1 WLR 1428, 1447 which was applied by the Western Australian Full Court in Bridge Pump Co Pty Ltd v Myles Southwest Fuel Supplies Pty Ltd (unreported, Supreme Court of Western Australia, 22 October 1997). His Honour said that the appellant made no attempt either by evidence or in submissions to discharge the onus of making good her proposition. Indeed, what evidence there was before him showed that there was a demonstrated co-relation between the payment stipulated for liquidated damages in cl 10.4 of the Sale of Practice Contract and the amount paid by the respondent for the purchase of the appellant's goodwill. Accordingly, his Honour found that the clause was enforceable.

32 Ms Baxter says that his Honour gave no consideration to the fact that it was not every single patient who might have followed the appellant to her new practice or that the respondent had a duty to mitigate its damage by securing the services of another medical practitioner. However, as can be seen from what I have quoted, his Honour found that the appellant on the evidence before him had not made good her proposition that the clause was a penalty in all the circumstances. 33 I should add that even if the clause was struck down as being a penalty and even though there has been some confusion when the law of penalties became part of the common law as distinct from being part of equity the general rule is that the old equity rule has been taken over to common law. That rule is, that a clause is only set aside as a penalty if the person who has broken his or her contract pays the damages actually suffered by the breach which are assessed by the Court. Thus, even if there had been success on this particular point there still would need to have been a reference to the Master to work out what damages which the respondent had in fact suffered.

34 Accordingly, despite Ms Baxter's arguments the only result I can reach is that the appeal should be dismissed with costs. However, it may be that some alteration may have to be made to order 2 if the appellant has continued to practise at the Concord Medical Centre because of some stay pending the appeal, a matter to which I have not really given any consideration. 35 MCCOLL JA: I agree with Young CJ in Eq. 36 FOSTER AJA: I also agree. 37 MCCOLL JA: The orders of the Court therefore will be appeal dismissed with costs.

38 HARPER: Can I just address on the last issue his Honour, Young CJ in Eq raised, there will need to be some additional evidence about what the doctor has earned since the stay came into force and today's date. So, with respect, it might be advisable to send it back to his Honour to list it on a date for that to be dealt with.

39 YOUNG CJ IN EQ: So we should dismiss the appeal with costs, but refer the final form of order back to his Honour for re-consideration?

40 HARPER: Yes, we would embrace that, your Honour. 41 BAXTER: I have no submissions about that, but I have another submission to make. 42 MCCOLL JA: Very well, then in relation to Mr Harper's submission on which Ms Baxter didn't wish to be heard that aspect of the matter of order 2 will be remitted to his Honour, Palmer J, to take into account the evidence to which Mr Harper referred.

43 BAXTER: I was just going to ask the Court for a short stay to consider the Court's judgment. There is already a stay in place at the moment. The stay I'm asking for being a period of five days just to consider the Court's judgment.

44 HARPER: I am instructed to oppose that. There is no basis proffered for it. I realise it's a short period of time but there has been a stay where the doctor has been working in this 1.5 kilometre range now since February of this year and it should be borne in mind by the Court that his Honour, Palmer J, gave his reasons for judgment in December of last year and stood over the making of the final orders which have reached you by way of appeal today for a period of six weeks to effectively allow the doctor to get her affairs in order. It was only at that point, after the six weeks, that she applied for the stay which is now in force.

45 YOUNG CJ IN EQ: Well, she will need a couple of days, will she not, to sort of pack up?

47 YOUNG CJ IN EQ: So I would have thought that it would be hard to oppose till midnight Friday.

48 HARPER: I don't make any other submission about that.

49 BAXTER: The doctor had appointments for this afternoon not knowing how long this was going and--

50 YOUNG CJ IN EQ: Well, I was just having mercy on you by suggesting that we might do midnight Friday for that very problem.

52 MCCOLL JA: Very well. Despite what Mr Harper said the Court will grant a stay of its orders until midnight on Friday, 12 September 2003.

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