Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 844 | Case summary | Zoe

NSWNSWSC

Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak

[2006] NSWSC 844

Supreme Court of NSW|2006-09-13|Before: Campbell J, Olney J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2006-09-13

Before

Campbell J, Olney J

Source

Original judgment source is linked above.

Judgment (84 paragraphs)

[1]

CITATION : Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak [2006] NSWSC 844

[2]

DECISION : Booking sheets belong to proprietor of medical practice. Pathology reports belong to patient, but proprietor of medical practice has rights as bailee at will concerning them, and a superior right to possession of them to that of a doctor working in the practice. The failure to hand over all copies of booking sheets and pathology reports was breach of a particular contract for sale of a medical practice. Doctor working in medical practice owes obligation of confidentiality to proprietor of the practice, concerning patient names and addresses and telephone numbers contained in what is in substance a list. Obligation of confidentiality is assignable by the proprietor of the medical practice to a purchaser of that practice. Assignee of a contractual obligation of confidentiality can recover only for those damages which the assignor could have recovered for breach of the obligation. No such damages proved. Alternatively, no loss suffered by the assignee proved. Assuming account of profits would be available, allowance for expenditure of time skill and effort would need to be made, and after the making of that allowance no money would be recoverable. A decision of the Court of Appeal, which has been affirmed by the High Court, for reasons different to those adopted by the Court of Appeal, is not binding as a matter of law on first instance judges.

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Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 Ashcoast Pty Ltd v Whillans [2000] 2 Qd R 1 Askew v Seventh Granite Pty Ltd (Olney J, Federal Court of Australia, 1 September 1995, unreported) Automobile Carriage Builders Ltd v Sayers (1909) 101 LTR 419 Baines v Geary (1887) 35 Ch D 154 Balabel and another v Air-India [1988] Ch 317 Benwell v Inns (1857) 24 Beav 307; 53 ER 376 Re Bethel [1970] 3 OR 745 Bluebottle UK Ltd & Ors v Deputy Commissioner of Taxation (2006) NSWSC 706 Boardman v Phipps [1967] 2 AC 46 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266; (1977) 16 ALR 363; (1977) 52 ALJR 20 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Breen v Williams (1996) 186 CLR 71 Re Budd; Budd v Budd (1958) 112 DLR (2d) 783 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Canada Permanent Trust Co v MacFarlane [1972] 27 DLR (3d) 480 Chapman v Luminis Pty Ltd (No 4) (2001) 123 FCR 62 Cock v Aitken (1911) 13 CLR 461 Cock v Smith (1909) 9 CLR 773 Commissioner of Taxation (Cth) v St Helen's Farm (ACT) Pty Ltd (1981) 146 CLR 336 Coulthard v State of South Australia (1995) 63 SASR 531 Re Cox [1951] OR 205 In re Cox, dec'd; Edwin G Baker v National Trust Co Ld and others [1955] AC 627 Davies v Davies (1887) 36 Ch D 359 Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437; [1955] 2 All ER 561 Don King Productions Inc v Warren [2000] Ch 291 Duke of Queensberry v Shebbeare (1758) 2 Eden 329; 28 ER 924 Dwyer v Derek [2004] 1 Qd R 371 E I Du Pont de Nemours Powder Company v Walter e Masland 244 US 100, 37 S Ct 575 (1917) Ellis v Torrington [1920] 1 KB 399 Elves v Crofts (1850) 10 CB 241; 138 ER 98 Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 Federal Commissioner of Taxation of the Commonwealth of Australia v Murry (1998) 193 CLR 605 Foster and Others v Mountford and Rigby Ltd (1976) 14 ALR 71 Fraser v Evans [1969] 1 All ER 8 García v National Australia Bank Ltd (1998) 194 CLR 395 Green v Folgham (1824) 1 Sim & St 398; 57 ER 159 Hack v London Provident Building Society (1883) 23 Ch D 103 Hadley v Baxendale (1854) 9 Ex 341 Health Services for Men Pty Ltd & Ors v D'Souza & Others (2000) NSWCA 56; (2000) 48 NSWLR 448 Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 17 Hunter v Mann [1974] QB 767 at 772 Jacob v Utah Construction and Engineering Pty Ltd (1966) 116 CLR 200 Jacoby v Whitmore (1883) 49 LT 335 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 Johns v Australian Securities Commission (1993) 178 CLR 408 Jones v T Eaton Co (1973) 35 DLR (3d) 97 Kadian v Richards (2004) 61 NSWLR 222 In Re Keene [1922] 2 Ch 475 L/M International Construction Inc (now Bovis International Inc) and another v The Circle Ltd Partnership (1995) 49 Con LR 12 CASES CITED : Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512 Magic Menu Systems v AFA Facilitation Ltd (1997) 72 FCR 261 Martell v Consett Iron Co Limited [1955] Ch 363 Re Massey [1959] OR 608 Mense and Ampere Electrical Manufacturing Company Pty Ltd v Milenkovic [1973] VR 784 Millwell Holdings Ltd v Johnson (1988) 12 IPR 378 Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory v Indofurn Pty Ltd, Bethune, King & Rylands (1994) 54 FCR 240; (1994) 130 ALR 659 MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 Moorgate Tobacco Co Ltd v Philip Morris Ltd (1982) 64 FLR 387 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Morison v Moat (1851) 9 Hare 241; 68 ER 492 Mulkern v Lord (1879) 4 App Cas 182 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; [1940] 3 All ER 549 NP Generations Pty Ltd v Feneley (2001) 80 SASR 151 O Mustad & Son v Dosen [1963] RPC 41; [1964] 1 WLR 109; [1963] 3 All ER 416 O'Brien v Benson's Hosiery (Holdings) Ltd [1980] AC 562; [1979] 3 All ER 652 Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd and others (1930) 31 SR (NSW) 347 Pearson v The Arcadia Stores, Guyra, Limited (1935) 53 CLR 571 Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 R v Diggines; ex parte Rahmani [1985] QB 1109 R v Secretary of State for the Home Department, ex parte Al-Mehdawi [1989] 1 All ER 777 Rahmani v Diggines [1986] AC 475 Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 Robb v Green [1895] 2 QB 1 Roux v Australian Broadcasting Commission [1992] 2 VR 577 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 Silkdale Pty Ltd v Long Leys Co Pty Ltd (1995) 7 BPR 14,414 Re Simpson [1927] 4 DLR 817 Re Simpson Estate [1928] 3 DLR 773 Smith Kline & French Laboratories (Aust) Ltd & Ors v Secretary, Department of Community Services & Health (1990) 22 FCR 73 Smith v Cock [1911] AC 317 Spathis v Hanave Investment Co Pty Ltd & Anor [2002] NSWSC 304 Stevens v Keogh (1946) 72 CLR 1 Surveys & Mining Ltd v Morrison [1969] Qd R 470 Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 Re Tosich Construction Pty Limited (1997) 73 FCR 219 Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 Townsend v Jarman [1900] 2 Ch 698 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 TS&B Retail Systems Pty Ltd v 3fold Resources Pty Ltd and Others [2003] FCA 371; (2003) 57 IPR 530 United States v Grossman 843 F.2d 78 (2nd Cir. 1988) Warman International Limited & Another v Dwyer & Others (1995) 182 CLR 544 Re Wedge (1968) 67 DLR (2d) 433 Weldon & Co v Harbinson [2000] NSWSC 272 Welstead v Hadley (1904) 21 TLR 165 Western Australia v Ward (2002) 213 CLR 1 Western Wagon and Property Company v West [1892] 1 Ch 271 Re William Felton Co Pty Ltd (1998) 28 ACSR 228 Wolfe v Shelley (Shelley's Case) (1581) 1 Co Rep 936; 76 ER 206 Young v Bristol Aeroplane Co Ltd [1944] KB 718

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2863/02 THE MID-CITY SKIN CANCER & LASER CENTRE PTY LTD v ALI ZAHEDI-ANARAK & ORS JUDGMENT HIS HONOUR: Nature of the Case 1 Of recent years there has been a phenomenon known as corporatisation in medical practice. Formerly, a medical practitioner of entrepreneurial bent might own, at most, usually two or three medical practices, in which other medical practitioners would be employed. Now, there is a much wider tendency for an entrepreneurial proprietor of medical practices to engage other practitioners to work in that practice on the basis that they are to be independent practitioners, each with their own practice, but with all the facilities for the conduct of that practice provided by the entrepreneur or a corporation controlled by the entrepreneur. Frequently, the entrepreneur's fee is calculated as a percentage of the billings of the doctor who works in the practice. Under this type of arrangement, some entrepreneurial medical practitioners have come to control a very large number of practices. This judgment explores some of the issues which arise concerning ownership and right to possession of medical records, and the owing of obligations of confidentiality, in such a corporatised practice. 2 Dr Laurence William Kernot set up a medical practice in 1991 specialising in the identification, diagnosis, removal and treatment of skin cancers and growths. At the times relevant to this litigation he conducted it through his company LW Kernot Pty Ltd. I will refer to that company as "the Kernot Company". Dr Ali Zahedi-Anarak (who is known as Dr Zahedi) came to work in that practice. 3 The plaintiff is a company controlled by Dr David Lindsay. Dr Lindsay is also a medical practitioner specialising in skin cancer. The plaintiff purchased from the Kernot Company certain assets connected with the practice which Dr Kernot had set up. 4 Dr Zahedi and Dr Lindsay were not able to reach agreement on terms on which Dr Zahedi could continue to work in the practice which the plaintiff had purchased. Later, Dr Zahedi came to carry on practice at medical centres operated by Idameneo (No 123) Pty Ltd ("Idameneo"). Dr Zahedi took with him, to one of Idameneo's medical centres, certain documents which contained patient contact details and patient treatment details, being documents which he had used in the course of carrying on practice at the clinic which Dr Kernot had begun. Dr Zahedi used some of those documents to contact former patients. 5 The plaintiff alleges that Dr Zahedi is in breach of an obligation of confidence in so doing. The plaintiff also alleges that Idameneo has assisted Dr Zahedi in so doing, with knowledge or notice of the plaintiff's claim of confidentiality, and that both Dr Zahedi and Idameneo have derived profits through the wrongful use of confidential information of the plaintiff. 6 Alternatively, the plaintiff sues Dr Kernot and the Kernot Company, alleging that they have breached various warranties in the agreement for sale of the assets connected with the practice. 7 The trial was one on all issues on the pleadings, save for quantum of any damages which might be payable, but on the express basis that that exception did not preclude the need for the plaintiff to establish that some damage had been sustained to obtain an inquiry as to damages. PART A - FACTS Basis on which Dr Zahedi Worked at the Clinic 8 The practice which Dr Kernot started was known as "Sydney Skin Cancer Clinic". I will refer to it as "the Clinic". At all relevant times it operated from leased premises on the third floor of Dudley House, a building at 468 George Street, Sydney. Dr Kernot worked in the Clinic himself, and as well, over the years around 15 different doctors worked there at different times. 9 Dr Lindsay had worked there for about four years up to the later part of 1996, after which Dr Lindsay caused the plaintiff to start its own skin cancer practice, at 403 George Street, Sydney. Dr Kernot required Dr Lindsay to cease working at the Clinic after Dr Kernot came to the view that Dr Lindsay had been taking home patient records with a view to setting up a practice in opposition, and had been making enquiries about suitable premises. Dr Lindsay denies that he had taken any patient records home. It is not necessary for present purposes to decide whose evidence on this topic is correct. However, it is relevant for present purposes that Dr Lindsay had signed some sort of an agreement not to enter into competition with the Clinic, and that soon after he left, Dr Lindsay set up his own practice less than one city block away from the Clinic. When Dr Lindsay set up his own practice Dr Kernot "…sought some advice about it from the AMA and I was advised that these issues, and that it was virtually impossible to get the things to stick and I would get involved in a lot of messy litigation if I tried to do something about it. So I did nothing about it. So when I employed Dr Zahedi, shortly after I said to Dr Zahedi: This is what Dr Lindsay has done. I know I cannot stop you practising in opposition if you want to, so I am not trying to stop you starting up in practice but I would ask you as a personal thing and as an ethical thing not to set up in opposition but there is no legal restriction on you."

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Q. Thank you. You don't recall any such discussion? A. Not at all." 11 Thus, even at that stage Dr Zahedi did not deny that the topic of "ownership" of the patients had been discussed between them. 12 I accept Dr Kernot's evidence on this topic. Indeed, in any circumstances where there is a conflict between the evidence of Dr Zahedi and Dr Kernot, I prefer the evidence of Dr Kernot. 13 At that meeting Dr Kernot also said "I expect to be passing on my practice to the doctors in the next few years". However, nothing he said warranted the interpretation that this "passing on" would be without payment. 14 The Clinic is one in which all, or nearly all, of the fees charged to patients were bulk billed to Medicare. Before Dr Zahedi started working, Dr Kernot explained to him that he would be paid an advance at the rate of $50 per hour on a weekly basis, that Dr Kernot (or his company) would actually receive the Medicare payments, and that after money had been received from Medicare there would be an adjustment at the end of each month for any difference between the $50 per hour advance, and an amount of 50% of the fee received from Medicare, which Dr Zahedi would be entitled to keep. Dr Kernot said that Dr Zahedi would be provided with a dermatoscope, and all instruments and consumables. Dr Kernot also explained that the system concerning pathology reports was that the pathologist, "… provides us with three copies of patient pathology reports. I would like to receive one copy at home for my own interest and statistics. One copy will be given to the doctors for their own reference and filing. One copy will be kept in the clinic for quick reference." 15 Though it was not expressly discussed between them, it was their common assumption that it would be Dr Kernot or his company who would provide the consulting room, waiting room, office staff and other ancillary facilities to enable Dr Zahedi to provide medical services to patients. 16 Dr Zahedi gave evidence, which Dr Kernot did not dispute, that at the initial meeting, after Dr Kernot had explained the system involving receipt of three copies of a pathology report, the conversation went: ZAHEDI: "I have always been very close to my patients and would like to follow them up on long term basis as well, and this is going to facilitate this." KERNOT: "I'm happy to hear this." 17 I do not accept that Dr Kernot's apparent acquiescence in using the pathology reports to follow up patients on a long term basis involved a consent to the use of the pathology reports, after Dr Zahedi had left the practice, to follow up patients who Dr Zahedi had first come to treat at the Clinic. This is because, while the two doctors did not expressly state how long the arrangement they were negotiating might last, it was not an arrangement which was restricted to the short term. The possibility of the doctors working in the Clinic taking over the practice in a few years was also explicitly discussed. It would have been possible for Dr Zahedi to use reports to follow up patients on a long term basis while still working at the Clinic.

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18 In the course of the discussion there was no specific discussion, beyond what is implicit in the findings I have already made, about whether, if Dr Zahedi were to cease working at the Clinic and go elsewhere, he could take with him patients he had treated at the Clinic, or any documents relating to patients. 19 Dr Zahedi began to work at the Clinic on a part-time basis in October or early November of 1997. He began to work full-time or nearly full-time at the Clinic in about 2000. 20 Dr Kernot's daughter, Tanya McDonald, provided some administrative services in connection with the Clinic. In about February 1998, she handed Dr Zahedi a document, and requested that he sign it. It appears to be a standard form document, on a letterhead entitled "Sydney Skin Cancer Clinic". The standard form had on it the names of Dr Kernot and of another doctor, in a way which would lead the reader to believe that it was Dr Kernot and that other doctor who carried on the Sydney Skin Cancer Clinic, but on the copy given to Dr Zahedi the name of the other doctor was crossed out. The form said: "I, the undersigned, HEREBY ACCEPT a temporary contract offered to me by SYDNEY SKIN CANCER CLINIC PARTNERSHIP trading as SYDNEY SKIN CANCER CLINIC pursuant to which I hereby agree to provide services to the best of my knowledge, skill and professional expertise as qualified medical practitioner to the company. I acknowledge that in doing so I am a contractor to the company and I agree that the partnership shall not be responsible for and not be required to provide any of the following benefits: 1. Superannuation contribution 2. Workers compensation insurance 3. Professional Indemnity insurance 4. Any other emolument or benefit which would normally be required to be paid by the partnership in the event that I was acting as an employee of the partnership. I further acknowledge that the partnership shall not be required to deduct any tax from any of the contract fees payable to me and that I shall pay and bear and be responsible for the payment of my own taxation." 21 Dr Zahedi signed the form, and gave it back to Ms McDonald. That is the only written agreement relating to the terms on which Dr Zahedi was providing services at the Clinic. With its references to the "partnership" it was quite unsuitable for the arrangement Dr Zahedi had actually entered. Nothing was done concerning the form, until Ms McDonald gave it back to Dr Zahedi after the Clinic had been sold. I do not accept that anything in it alters the terms which had been discussed before Dr Zahedi started work. 22 Dr Zahedi negotiated a change in his remuneration in April 2000, so that he came to be entitled to keep 55% of the Medicare fee. Around September 2001 he negotiated another change, so that he was entitled to keep 57.5% of the Medicare fee. 23 By the end of 2001, Dr Zahedi was by far the largest fee earner in the practice. During the year ended 30 June 2001 four doctors had worked in the Clinic, including Dr Kernot. Dr Zahedi had earned nearly 73% of the total fees generated in the Clinic. That percentage was even higher in the quarter from July to September 2001. Manner of Operation of the Clinic 24 Once Dr Zahedi commenced work at the Clinic, he had made available to him a surgery room, and patients who came to see him were allowed access to the reception area, and other areas of the premises at 3rd floor, 468 George Street. He was supplied with all relevant surgery supplies, including stationery and medical consumables. A receptionist and administrative staff were provided. Patients who Dr Zahedi saw made bookings through the receptionist staff at the Clinic, were greeted by the receptionist staff on arrival, and were assisted by the receptionist staff in signing the relevant paperwork for payment for their consultations. All or nearly all of the patients were bulk-billed. While the Medicare benefit payable in connection with a consultation was payable to the medical practitioner who had provided the service, Dr Zahedi would assign to the Kernot Company the entitlement to collect those benefits. The Kernot Company would collect the benefits from Medicare, and would account to Dr Zahedi for 50% of the benefit received, minus the amount which had been paid as the $50 per hour payment on account. 25 At least in the period up to about 2000, the Clinic advertised from time to time, mostly in local area newspapers in the Sydney Metropolitan area. Nearly 30 such newspapers were used for advertisements. On at least one occasion an advertisement was displayed at Town Hall Station. Dr Kernot or his company paid for those advertisements. Individual doctors at the Clinic did not organise or pay for advertising of their own professional services. 26 The Clinic had no system whereby appointments to see a doctor could be made many months in advance. Nor was there any computerised system for recording appointments. Appointments were managed using a standard hard-copy form, called a booking list. If it was known that a particular doctor would be working at the Clinic on a particular day, a booking list would be drawn up for that doctor for that day. It showed the name, and telephone number, of each patient that the doctor was to see that day, and the time at which the patient was to be seen. Each day that Dr Zahedi attended the Clinic, the reception staff made and delivered to him a photocopy of the bookings list which showed his appointments for that day. The original of each doctor's booking list was kept by the receptionists, and the collection of booking lists for each doctor working in the Clinic was referred to as the "presentation book". For first-time patients, the staff also asked the patients how they learnt of the Clinic and recorded the answers in the presentation book. 27 Dr Zahedi kept the photocopy booking list which had related to any particular day's appointments for a time to assist in reconciling the correctness of the adjustment payment made to him at each month's end. Some photocopy booking sheets he kept even after they had fulfilled this accounting function, to provide a record of telephone numbers at which he could contact patients to remind them about the need for a follow-up appointment. 28 The usual practice was for copies of documents to be kept in the reception area until no longer relevant, and then shredded. That practice was applied concerning the photocopy booking sheets. There was, however, no systematic procedure for ensuring that every photocopy booking sheet which was no longer needed, was retrieved and shredded. Neither, however, was it the practice of the Clinic to allow doctors to take them home and keep them. 29 When a person contacted the Clinic to make an appointment, the Clinic's procedures provided that reception staff were to ask whether the person wanted to see a particular doctor. If the person answered "yes" and gave the name of a doctor, an appointment would be made with the named doctor. If the person did not have any preference for a particular doctor, the staff were to:

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(b) if the person did not wish to choose a doctor, the reception staff then chose one of the doctors who was available for the time and date requested and his name would be given to the person with details of the appointment. 30 When Dr Zahedi commenced practicing at the Clinic, most of the patients whose names appeared on his booking list were either patients who did not have any preference as to which doctor they wished to see, or else were patients who were new to the practice. As well, Dr Zahedi spent part of his time treating general practice patients at the Eastlakes Medical Centre, and sometimes those patients came to see him at the Clinic. It is not established that any of those patients continued to be patients of the Clinic in March 2002. 31 As time went on, patients began to request an appointment specifically with Dr Zahedi. By February 2002 nearly all of the patients who he attended at the Clinic were patients who he had seen before, and who had made their appointments through requesting him by name. 32 Skin cancer is a condition whereby, once a person has had one skin cancer, his or her risk of having more skin cancers is significantly increased. Thus, if a patient has had one skin cancer, proper treatment involves encouraging that patient to have follow-up appointments to check whether any other skin condition requiring treatment has developed. Depending on the seriousness of the cancer and other factors concerning the patient, follow-up appointments might be recommended from once every six or eight weeks, to once a year or once every two years. Partly because of the absence of any system for making long-term appointments, Dr Zahedi had a practice of telephoning patients to remind them when a follow-up appointment was needed. 33 Throughout the time that Dr Zahedi was working at the Clinic, no group tax deductions were made from the amounts he was paid, Dr Kernot and his company paid no superannuation for him, and Dr Zahedi was responsible for obtaining and paying all insurances necessary in connection with his provision of services to patients, including professional indemnity insurance. 34 During the time that he was working at the Clinic, Dr Zahedi determined the number of patients that he wished to see, and (within the hours during which support services were available at the Clinic) also determined the number of hours per day that he would see patients. He used his own professional judgement, without any specific direction from Dr Kernot, in deciding how to treat most patients. 35 However Dr Kernot asked Dr Zahedi to arrange for "any patients that he couldn't manage" to be seen by Dr Kernot. As well, Dr Kernot had experience in skin flap and skin graft surgery and sometimes Dr Zahedi assisted him in performing that type of surgery. Further, Dr Kernot read pathology reports relating to excisions performed by all doctors at the Clinic, including Dr Zahedi. Dr Kernot explained why he received a copy of every pathology report: "It was absolutely essential that I got a copy. I saw the clinic -- one of its major functions was to train general practitioners. A lot of them were very incompetent when they arrived and I had to look at their results to know whether they were doing it right or not. Whether they had done a complete excision and whether they were cutting, doing a lot of unnecessary excision and that their performance was improving as time went by." 36 As well, he used the reports "… for statistical purposes for assessing the progress of the doctors …". Patient Cards 37 A patient card was created concerning each patient who attended the Clinic. This recorded details of the name, date of birth, telephone number and address of the patient, the Medicare number of the patient, and the date of expiry of the patient's Medicare card. Those details were placed on the card by the receptionist staff, when the patient first attended the Clinic. Also on that card doctors wrote, in chronological order, notes of all attendances by the patient at the Clinic, regardless of which doctor at the Clinic the patient had seen. Thus, if a patient had seen four or five doctors at the Clinic over a period of years, the card would have notes on it made by those four or five doctors. 38 The cards were housed in the reception area of the premises. Each doctor working at the Clinic had his own slot in the reception area. When a patient presented to the receptionist, the receptionist would check against the booking sheets, find out which doctor the patient was booked to see, retrieve the patient card, and put the patient card into the slot for that doctor. The doctor would collect the card when he came to the waiting room to bring the patient into the consultation room, and at the time of the consultation would make on it such notes as he saw fit. After the doctor had finished the consultation with the patient, the patient card would be returned to the receptionist for filing. However, there was no obstacle placed in the way of doctors seeing the card relating to any patient at any time the doctor wanted. Pathology Reports 39 During the time he was working at the Clinic, it was always a matter for Dr Zahedi's own judgement whether to order a pathology report in the course of treating a patient. Pathology reports were ordered by a doctor completing a request form that was provided by the pathologist. When Dr Zahedi filled out a pathology request form, he wrote on it details of the patient's name and address, which he copied from the patient card. 40 In the year 2000, when it seemed as though there would be a shortage of pathology request forms supplied by the pathologist, Dr Zahedi drew up a form which could be used for requesting pathology tests. It was headed: " PATHOLOGY REQUEST Sydney Skin Cancer Clinic Phone: 9264 2155, Fax: 92642177"

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and, lower down the form, identified Dr Zahedi as being the "Requesting Doctor" . However, that form was never put into use, as the shortage of request forms from the pathologist did not eventuate. 41 As Dr Kernot had explained at the outset, in the ordinary course of things three copies of a pathology report were provided. The reception staff would distribute those three copies so that one copy went into a tray for Dr Kernot, the second would be placed with the patient's card until the patient returned, and the third went to the referring doctor. After the patient returned, the second copy was filed into a red concertina folder. Those reports were filed "alphabetically, hopefully". The effect of this was that there was no patient file containing all records relating to a particular patient. The pathology reports of all patients who had attended the Clinic were filed in a single alphabetical sequence, regardless of which doctor a particular patient had seen. 42 Each doctor maintained a ring binder folder containing third copies of pathology reports in their surgery. Sometimes the reception staff would file the third copies of pathology reports into those ring binder folders. 43 By the end of 2001 the Clinic had a facility whereby pathology reports could also be downloaded onto a computer. There was only one such computer, located in the reception area. It was not attached to a printer. There was no arrangement whereby individual doctors could access the pathology reports by computer from their homes. The advantage of computer access to the reports was that it enabled a doctor to find out the results of pathology tests somewhat sooner than if he waited for a mailed hard copy to arrive. 44 Dr Zahedi's practice, upon receipt of a pathology report, was to make relevant notes on both the report, and the patient card. For example, if he formed the view that a patient should be followed up in six months, he would make a note to that effect on the report, and also on the patient card. He used those notes to remind himself when patients should be telephoned and advised to make a follow-up appointment. 45 Dr Zahedi's usual practice upon receiving a pathology report included forming a view about whether the patient was high risk or low risk. The low risk patients were ones who had completed treatments, or who had cancers such as benign lesions that were unlikely to spread or require further treatments. The high risk patients were patients with melanomas, incomplete treatments, or biopsies which needed further treatment. Dr Zahedi kept the reports that were classified as high risk in a bundle on his desk, and reviewed them two or three times a week, so that he could telephone patients at an appropriate time to remind them of the need for a follow-up appointment. Low risk reports were periodically sorted by the administrative staff of the Clinic into alphabetical order, and filed in two blue binders, which were ordinarily in Dr Zahedi's room. Dr Zahedi took some of those low risk reports home once every three or four months, and stored them there. Neither Dr Kernot nor Ms McDonald was aware that he was taking these reports home. 46 Dr Zahedi gives the following evidence concerning Dr Kernot: "Q. He did not say to you "this is the third copy of the pathology report, it's yours for whatever you want to do with it"? A. He did tell me so.

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Q. Thank you? A. That is why this document was written up, to reinforce the oral discussions we had about this problem." 52 Dr Kernot, in an affidavit of 27 April 2006, annexed the Waiting Room Rules and stated that during the period of Dr Zahedi's employment it was circulated in the waiting room, and was available to both patients of the Clinic and to doctors, such as Dr Zahedi, who were working in the Clinic. Dr Zahedi did not dispute that statement in his affidavit of 12 June 2006. However, in oral evidence-in-chief he denied that he had seen the document before the proceedings began, or that it had been produced to him by Dr Kernot or anyone else. 53 Ms McDonald was cross-examined by Mr Marshall, counsel for the plaintiff (who on the topic of whether Dr Zahedi was aware of the Waiting Room Rules had a common interest with Dr Kernot, so I approach the results of that cross-examination with some caution). In that cross-examination she gave evidence that a copy of the Waiting Room Rules was to be found in the desk drawer at the front of the practice in the period 1997 to 2002. The receptionist staff and doctors had access to that drawer. While she had never seen Dr Zahedi open the drawer, she had told him about the existence of the Waiting Room Rules, and shown him a copy of them. 54 In response to cross-examination by Mr Downing, counsel for Dr Zahedi, she gave evidence that she had a definite recollection of providing the Waiting Room Rules to Dr Zahedi, and that those rules "were written partly because of Dr Zahedi". The cross-examination then turned to other topics, but immediately upon the conclusion of the cross-examination Mr Downing informed me that there may be a need to put on extra evidence. A brief adjournment was given after Ms McDonald's evidence had ended, so that he could obtain instructions. After that adjournment, Mr Downing tendered some documents, but did not make application to call Dr Zahedi again. 55 This gives rise to a general question about the weight to be placed on Ms McDonald's evidence. She swore an affidavit in July 2005, which principally went to the issue of whether all the patient files and pathology reports were handed over to Dr Lindsay. By that time, Dr Zahedi's affidavit of 6 July 2004 had made clear that a theme of his evidence would be that Dr Kernot provided him with the facilities of a medical serviced office, in which Dr Zahedi conducted a practice of his own, so that he had been entitled to take and keep any documents relating to the practice which he conducted. In that circumstance it is surprising that Ms McDonald's evidence was not sought concerning any dealings she had had with Dr Zahedi which bore upon the correctness of the stance Dr Zahedi was taking. If he knew about the Waiting Room Rules, that would be one factor tending against the correctness of his stance. However, I accept Ms McDonald's explanation of the late emergence of this evidence, that she was not asked about it. Overall, she struck me as a careful and honest witness, who on several occasions gave answers which were not helpful to her father's case. 56 Another doctor who worked at the Clinic from 2000 until it was sold, Dr Lim, gave evidence that he had never previously seen the Waiting Room Rules. However, Dr Lim's recollection of events was not very good, so I do not place much weight on his evidence. 57 The circumstances of the writing of the Waiting Room Rules, explained by Dr Kernot, and also alluded to by Ms McDonald, support a conclusion that the Waiting Room Rules were known to Dr Zahedi. Some slight confirmation also comes from the fact that one paragraph in Dr Zahedi's first affidavit contains a fairly close paraphrase of a part of the Waiting Room Rules. I conclude that he was aware of them. Instruction Concerning the Third Pathology Report? 58 In response to cross-examination by Mr Downing, Ms McDonald gave evidence that a specific direction had been given to doctors, orally, that the third copy was the property of the Clinic and must not go off the property. That this evidence had not previously been given on affidavit is, if anything, even more surprising than the failure to obtain an affidavit from Ms McDonald concerning the Waiting Room Rules. 59 In cross-examination she was reminded that she had sworn an affidavit in 2005. The cross-examination continued:

[31]

I accept that explanation. 60 In re-examination, Ms McDonald gave evidence that, when told that the pathology reports must not leave the premises, "Q. Do you recall any response from Dr Zahedi? A. He agreed. I don't know the exact wording but, yes, he agreed." 61 The adjournment, to enable Mr Downing to seek instructions about applying to call supplementary evidence, occurred after that evidence had been given. 62 A troubling aspect of Ms McDonald's evidence was that, according to her, it was only after Dr Zahedi began to work at the Clinic that the third copy of the pathology report began to arrive, and that Dr Zahedi was the person who had requested the pathology company to provide it, without any prior discussion with Dr Kernot or her. According to her, it was when the third copy started coming that she gave the instruction that the third copy was the property of the Clinic, and must not go off the property. 63 That the third copy only started arriving after Dr Zahedi began working at the clinic is contrary to the affidavit evidence of Dr Zahedi, with which Dr Kernot's affidavit did not take issue, that at their first meeting Dr Kernot explained that three copies of pathology reports were received in the practice. The evidence includes three pathology reports, bearing dates in October, November and December of 1997 respectively, addressed to Dr Zahedi at the Clinic, which Mr Downing tendered. The manner of addressing the reports does not cast light on how many copies of the report there were. Other pathology reports in evidence (eg Exhibit V") show that addressing the pathology report to the referring doctor continued to happen until February 2002. However, that Dr Zahedi had the three 1997 pathology reports at all is confirmatory of his obtaining a copy of reports even at that early stage. 64 In all these circumstances I am not persuaded that it is more likely than not that Dr Zahedi received the specific instruction of which Ms McDonald gives evidence. Pre-Contractual Communications Between Plaintiff and Dr Kernot 65 Towards the end of 2001 Dr Kernot decided to sell the Clinic. His health was not as good as it had previously been, the lease of the premises was due for renewal on 1 March 2002, and he was 70 years old. After trying unsuccessfully to interest two other practices, he telephoned Dr Lindsay. They had a conversation to the effect of: KERNOT: "Would you like to buy the clinic?" LINDSAY: "How much?" KERNOT: "$200,000" LINDSAY: "Sounds reasonable to me." 66 About two weeks later Dr Kernot called Dr Lindsay and enquired whether he wanted Dr Kernot to have an agreement drawn up. Many of the administrative tasks connected with the running of Dr Lindsay's practice are carried out by Dr Lindsay's mother, Ms Tallulah Glynne. She told Dr Kernot she would arrange for lawyers to prepare an agreement. 67 In late 2001 Dr Lindsay was working extremely hard in his practice. He worked over 60 hours a week, working 7.30 am to 6.30 pm without a lunch break, and working every Saturday. He saw on average 60 to 70 patients each day, using three consulting rooms simultaneously. He left the detail of the acquisition to his mother, his solicitor, and his accountant. 68 Ms Glynne and Dr Lindsay's accountants came to the Clinic, and were shown records relating to Medicare claims for September to November 2001. 69 Dr Lindsay's solicitor, Mr Henderson, prepared a draft agreement, which was sent to Dr Kernot. It was that draft which was eventually executed on 28 February 2002, without any alterations being made to it. The Contract For Sale to the Plaintiff 70 On 28 February 2002 a written agreement was entered between the Kernot Company (referred to as "the Vendor"), Dr Kernot (referred to as "Kernot") and the plaintiff (referred to as "the Purchaser"). It included a recital that: "The Vendor has for some time carried on the Business described in Part 1 of the Schedule under the name set out in Part 2 of the Schedule at the premises described in Part 3 of the Schedule (hereinafter called "the Premises" ) which Business is hereinafter called "the Business". 71 Part 1 of the Schedule read "Skin Cancer Clinic". Part 2 of the Schedule read "Sydney Skin Cancer Clinic". Part 3 of the Schedule read "Level 3, 468 George Street, Sydney". 72 The Agreement included the following clauses: "1.1 In this Agreement, unless the contract otherwise requires: 1.1.1 "Business" means, including, without limitation, the following assets:- (a) Plant; (b) Stock; (c) Goodwill; (d) Medical and Pathology records of all patients of the Business; (e) Phone numbers including (02) 92642155; (f) Fax numbers including (02) 92642177; (g) Post office box numbers. … 2.1 Subject to [a clause of no present relevance], the Vendor hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to buy from the Vendor the Business (including all the right title and interest of the Vendor therein and all the assets and goodwill thereof) for the purchase price specified in Clause 2.2 (hereinafter called "the Purchase Price" ). 2.2 The Purchase Price of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) shall be the aggregate of the values of the component parts of the Business shown opposite their respective descriptions in Part 7 of the Schedule including the Stock." 73 Part 7 of the Schedule was a standard form which made provision for allocation of a purchase price so that separate amounts were allocated to plant, fixtures and fittings, and goodwill. The form was not filled in to show those separate items, though the total amount of $200,000 was shown in Part 7. 74 The Agreement provided: "3.3 On Completion: 3.3.1 The Purchaser shall: 3.3.1.1 pay in cash to the Vendor or as the Vendor shall in writing direct such balance of the Purchase Price as is required by Part 8 of the Schedule to be paid on Completion; … 3.3.3 The Vendor shall deliver or cause to be delivered to the Purchaser; 3.3.3.1 the Plant; 3.3.3.2 the Stock; 3.3.3.3 the Certificates of Registration of the Business Names; 3.3.3.4 all other documents and things (being assets of the Business including, without limitation, the assets specifically described in the definition of "Business") required by this Agreement to be delivered by the Vendor to the Purchaser at Completion; 3.3.3.5 all other documents and things as are reasonably required by the Purchaser for putting the Purchaser in full possession of the Business and all rights, title and benefits thereof and thereto. 3.3.4 The Vendor shall do all such other things as are required by this Agreement to be done by the Vendor at Completion or are reasonably required by the Purchaser for vesting in the Purchaser the full possession and benefit of the Business. 3.4 The property in the Business and in all of the assets thereof hereby agreed to be sold shall pass to the Purchaser on Completion." 75 By Clause 6.1, each of the Vendor and Dr Kernot warranted that: "… each of the warranties contained in Part 12 of the Schedule is at the date hereof and will at Completion be completely true and accurate and not misleading in any way." 76 The warranties set out in Part 12 of the Schedule included: (i) All information which has been given by or on behalf of the Vendor to the Purchaser in the course of the negotiation leading to this Agreement is true and accurate in all respects. … (iv) As at Completion the Vendor will be the sole beneficial owner of the Business and of all of the assets comprising the same hereby agreed to be sold, with full right, title and interest therein, free from any mortgage, charge, lien, option, encumbrance or any adverse claim or interest whatsoever. (v) The assets hereby agreed to be sold are all of the assets owned by the Vendor and used in or in connection with the Business and such assets constitute all of the assets used in or in connection with and necessary for the continuing conduct of the Business." 77 Clause 12 of the Agreement included a restraint of trade covenant which restricted both the Vendor and Dr Kernot in their activities after completion, in a way which was acknowledged to be "reasonably to protect the goodwill of the Business". Dr Zahedi was not a party to the Agreement, and the Agreement said nothing about his activities after completion. 78 I have set out warranty (i) because when the hearing started it was part of the plaintiff's case that there had been a breach of that warranty. Even though an amendment to the Statement of Claim was made in the course of the hearing, which contracted the scope of claims made by the plaintiff, an allegation of breach of warranty (i) still remained on the pleadings after that amendment was made. In address, Mr Marshall specifically stated that he was making no submissions concerning breach of warranty (i). In those circumstances I shall give that warranty no further attention. 79 Completion of the Agreement occurred on 28 February 2002. $150,000 of the purchase price was paid then, and the remaining $50,000 has been paid since. On 2 March 2002 and the few days after it, Dr Lindsay and Ms Glynne collected from the premises of the Clinic at 468 George Street all the documents relating to patients which were in the premises. Those documents included a blue folder that had Dr Zahedi's name on it and contained many pathology reports. They also included the centralised files containing the second copies of patient pathology reports, and the patient record cards. 80 One category of document which was not handed to Dr Lindsay was the copies of pathology reports which Dr Kernot had retained for himself. These were shredded. The evidence does not enable a conclusion to be drawn about whether they were shredded before the Agreement was entered, or after. Failure to deliver those copies of pathology reports was not particularised as a breach that the plaintiff relied on. Even if it could be said that the brief questioning concerning those reports which occurred in Dr Kernot's cross-examination was conducting the trial on a wider basis than that pleaded and particularised, as a matter of construction the obligation to hand over pathology reports would relate to reports in existence at the date of the Agreement. It has thus not been shown that the failure to hand over the reports which Dr Kernot had kept for himself was a breach of the Agreement. Dr Zahedi's Actions Concerning the Sale 81 In late December 2001 Dr Zahedi saw a letter from a real estate agent at the Clinic, and became aware that the lease of the premises in which the Clinic was conducted was due for renewal in late February 2002. Between January and February 2002 he asked Ms McDonald on a number of occasions what was going to happen concerning the lease. He was not informed of any progress. In mid-January, as a reaction to finding out about the problem with the lease, he selected a bundle of pathology reports, which he estimates at about 80 in number, and took them home. In late January 2002 he asked Dr Kernot what was happening with the lease. Dr Kernot told him that he was going to sign an extension of the lease for two years. This calmed Dr Zahedi's concerns to some extent. 82 About two or three weeks before the Clinic closed, the landlord told Dr Zahedi that Dr Kernot had been given a document for a two-year lease, but that he had not signed and returned it. As Dr Zahedi saw it: "The practice was unstable, the message that, that I was getting from all round were telling me that the lease has not been signed, although the lease is provided to Dr Kernot it has not been signed." 83 In the course of his final week at the Clinic, Dr Zahedi cancelled the authority he had given for the Kernot Company to receive his Medicare fees. 84 The first Dr Zahedi knew definitely about the sale of the practice was on Friday 1 March 2002. Around 1:00 pm that day, Dr Kernot told Dr Zahedi that he had sold the practice and equipment to Dr Lindsay. Dr Kernot said that Dr Lindsay had agreed that Dr Zahedi and Dr Lim could continue to work for Dr Lindsay. 85 Dr Zahedi handed over his keys to the Clinic. That was the last day he worked there. His affidavit evidence was that when he left work that day, he did not take any medical records with him. However, by the time of this litigation he had approximately 95 pathology reports dated February 2002 at his home, which related to high risk patients. His affidavit evidence was that he did not recall when he took those reports home, nor why. When cross-examined about those 95 reports, he said: "… but I don't know in what procession I took them, whether there were ten of them the last hour or all ninety-five, or there were eighty of them. I cannot say that. I said that when I searched there were ninety-five related to that date, I cannot remember whether they all sitting, were sitting there until last minute or I took the procession of five goes or I don't know. Because the situation was very--

[33]

On this topic I prefer the evidence he gave in cross-examination. 87 In the afternoon of Friday, 1 March 2002, the next day, and on Monday, 4 March 2002 Dr Zahedi had some discussions with Dr Lindsay about the basis upon which he might work at Dr Lindsay's practice. 88 In an affidavit sworn on 22 May 2002 Ms Glynne gave evidence that on 1 March 2002 she met Dr Zahedi and Dr Lim after they had initially spoken to Dr Lindsay. Her evidence continues: "During the course of that conversation [Dr Zahedi] said, "I have pathology reports of the patients at home and want to keep them there, and the reports of my patients in this practice, as I have a right to retain those reports. I also want the patient pathology records to be downloaded to my computer at home." Dr Lim also indicated that he too retained reports at home and I said, to both of them. "You have no right to them except in a medico/legal situation. However, we won't have a problem with you taking them home for review for patient purposes and any other matters relating to the Sydney Skin Cancer Centre or Mid City Skin Cancer Centre. They must only be used for medical/legal purposes only. Otherwise the reports and files should be returned and kept at our premises. We will not be downloading any records to your computers at home." 89 Dr Zahedi, in an affidavit sworn on 6 July 2004, agrees that he met Ms Glynne that day, but denies that the conversation which she deposed to took place. He says that he did not have any substantial discussions with her that day. 90 This evidence of Ms Glynne was sworn to less than three months after the events to which it relates. Dr Zahedi's oral evidence of his state of mind straight after Dr Kernot told him that the practice was being closed down was: "… I was so distressed. I learned unemployed in one hour. I had mortgage. I didn't know what to do. I became depressed. … I didn't know how to survive. I was getting drowned." 91 This understandable emotional upset would not have assisted the accuracy of his recollection, more than two years later when he swore his affidavit, of the events of that afternoon. As well, the words which Ms Glynne attributes to Dr Zahedi were truthful insofar as he is alleged to have said "I have pathology reports of the patients at home". The balance of the words which Ms Glynne attributes to Dr Zahedi accurately reflect the desires and opinions he had at the time. There is no inherent improbability about his having been frank about these matters. In cross-examination, Ms Glynne substantially repeated the account she had given in her affidavit (T 194-5). Nothing in her cross-examination made me doubt her truthfulness as a witness. Concerning the conversation set out at para [88] above, I accept her evidence. 92 Dr Lindsay had assumed that Dr Zahedi would start work at his practice on Monday, 4 March. In some fashion, arrangements had been made for patients who had been booked to see Dr Zahedi at the Clinic to attend Dr Lindsay's practice. However, Dr Zahedi and Dr Lim were not prepared to see patients at Dr Lindsay's rooms that day unless agreement had been reached about the basis on which they would be working there, or unless they were engaged as locums. Dr Lindsay was not prepared to engage them as locums. 93 In the course of negotiations on 4 March 2002 Dr Zahedi and Dr Lim told Ms Glynne that they would not work unless they had an undertaking from Dr Kernot that they could work in the CBD. Ms Glynne arranged for her solicitor to draft documents. In the course of the morning she asked Ms McDonald to sign on behalf of Dr Kernot, two letters, one addressed to Dr Zahedi and the other addressed to Dr Lim. Those letters said: " Dr LW Kernot Pty Limited and LW Kernot trading as Sydney Skin Cancer Centre This notice serves as normal confirmation that:- 1. On Friday 1 March 2002, we disposed of the business of Sydney Skin Cancer Centre as conducted from premises at 468 George Street, Sydney 2. The purchaser of that business was The Mid City Skin Cancer & Laser Centre Pty Limited (Dr David Lindsay) 3. You are released from any contractual arrangement with Sydney Skin Cancer Centre. 4. You have permission to enter into contractual arrangements with Dr Lindsay of the Mid City Skin Cancer Centre Pty Limited 5. We undertake to settle all accrued entitlements due to you following calculation and receipt of requisite benefits from Health Insurance payments. 6. All Pathology results or medical records (cards) and all other reports remain the property of Sydney Skin Cancer Clinic as required under the Privacy Amendment (Private Sector) Act 2000. " (emphasis added) 94 Ms Glynne handed faxed copies of signed versions of those letters to Dr Zahedi and Dr Lim, but they were still unwilling to see patients until they had a contractual arrangement with Dr Lindsay. Ms Glynne asked them to go away, write down what they wanted, then come back and the negotiations could continue. Dr Zahedi and Dr Lim left, and returned a short time later with a handwritten document which reads: "1. 4 weeks notice after 3 months of working otherwise 2 week notice until then. 2. Weekly payments based on an agreed percentage. Billing to start with then adjusted to the money received from Medicare. 3. No limitation on practicing area until 2 years of practicing here (Mid City SCC) which we will agree on long term agreement then. 4. The clinic will accept responsibility to provide me with enough patient during my shifts and if the number of patient booked for me drops below a certain number per hour (for more than one week) I will have every right to seek alternative employment anywhere else. 5. I accept that Mid City Skin Cancer Centre will have the rights to the patients notes and their pathology forms seen by me at their clinic. [emphasis added] 6. I am happy to work short term as a locum until we settle."

[34]

Soon after this document was given to Ms Glynne the negotiations for Dr Zahedi and Dr Lim to work at Dr Lindsay's practice broke down, and never resumed. Documents Held by Dr Zahedi 95 When his relationship with the Clinic came to an end, Dr Zahedi had at his home various pathology reports. He had the approximately 80 pathology reports which he took home in mid-January 2002 (para [81] above). As well, he had approximately 95 pathology reports dated February 2002, which related to high risk patients (para [85] above). He also had a collection of low risk reports which, in accordance with his usual practice, he had taken home (para [45] above). When he produced pathology reports to the Court in response to a Notice to Produce, they filled three boxes. In cross-examination he accepted there were more than a thousand of them. 96 As well, he had at his home approximately 165 of the photocopied patient booking sheets. At a conservative estimate, the booking sheets would contain on average 20 or more patient names and telephone numbers per page. There may have been some duplication of names and telephone numbers within those booking sheets. 97 Booking sheets state on their face the date to which they refer, but without stating the year. Dr Zahedi accepted in cross-examination that the booking forms he had in his possession most likely referred to the years 2001 or 2002. He accepted it was not accidental that he took the booking sheets home. 98 He had no patient record cards immediately after ceasing to work at the Clinic. He has since obtained some patient record cards, when Dr Lindsay released those cards at the request of the patients concerned. 99 Five particular patients who Dr Zahedi had seen at the Clinic contacted the plaintiff in about April 2002 and sought the transfer of their medical records to Dr Zahedi. Those patients are named in Exhibit B. It is not necessary to reproduce the names in these reasons for judgment. Given the limitation on issues at the trial, I make no finding about whether any more than those five patients contacted the plaintiff and sought the transfer of their medical records to Dr Zahedi. Dr Zahedi Contacts Former Patients 100 For approximately six weeks from early March 2002 Dr Zahedi worked as a locum at various practices. At one stage in March he contemplated leasing the premises the Clinic had formerly occupied, but that notion did not proceed. On 17 April 2002 he entered into two written agreements with Idameneo, pursuant to which he agreed to work exclusively at Idameneo's medical centres at 580 George Street, Sydney, Maroubra and Chatswood for a period of five years. There, he carried on both work involving the treatment of skin cancer, and general practice. 101 He began working at Idameneo's clinic at 580 George Street, on 22 April 2002. Commencing a day or two before he started work at 580 George Street, Dr Zahedi produced, using as source material pathology reports which he had obtained while working at the Clinic, a list of patient's names and addresses. That list consisted of 20 pages, and related to around 650 patients. The list was created a few pages at a time, over a number of days - Dr Zahedi estimates seven to ten days. As the pages of the list were created, Dr Zahedi photocopied the page, cut or tore the photocopied page lengthwise so as to remove the patient names, and provided the resulting list of patient addresses to the receptionist at 580 George Street. Thirteen such photocopied pages containing patient addresses were provided to the receptionist, containing 429 names and addresses. Dr Zahedi was very careful to get those cut or torn pages back promptly after the receptionist had finished with them - though one page, only half completed, escaped his attention and stayed with the receptionist until after these proceedings had been commenced. 102 Dr Zahedi caused to be produced, on a letterhead identifying the letter as coming from "Skin Cancer Clinic 580 George Street (Cnr Bathurst), SYDNEY" a letter which said: "Dear Patient, I take this opportunity to let you know that I have recently moved to the Skin Cancer Clinic at Sydney Medical Centre. All patients will be bulk billed, and appointments will also be available. I look forward to being of assistance to you should you require further follow up. Kind regards DR ALI ZAHEDI" 103 Dr Zahedi signed an original of that document. The receptionist at 580 George Street made photocopies of that signed original letter, and posted them, at Idameneo's expense, to the addresses shown on the list of addresses which Dr Zahedi had produced. The envelopes were prepared by the receptionist, but the addressee of the envelope was identified only as the "patient". By adopting this procedure, not even the receptionist came to be told the names written down on the list which Dr Zahedi produced. 104 A total of 429 patients had that letter posted to them. Of those, 149 patients subsequently came to see Dr Zahedi at 580 George Street. Some came more than once; indeed, some came many times in the course of Dr Zahedi's first year of practicing at 580 George Street. 105 No one from Idameneo requested Dr Zahedi to prepare these lists, or indeed any patient lists. A person who had oversight of the clerical staff at 580 George Street, Angela, authorised the receptionist to assist in sending out the letters. 106 As well, Dr Zahedi reviewed pathology reports he had kept from the Clinic to identify high-risk patients. Using about 15 of the booking lists, he constructed another list, of the names and telephone numbers of high risk patients. It was necessary to use both the pathology reports and the booking lists to create this list because, while the pathology reports recorded the name and address of a patient, many of them did not record the telephone number. There were between 50 and 60 names and telephone numbers on that list. That list was constructed over the same time period as the list of patient names and addresses which I have earlier mentioned. Dr Zahedi did not supply that list to anyone. He attempted himself to telephone all of the patients on the list of high risk patients. He told them he would not be able to follow them up as the Clinic had been sold and moved, and he was not working for the new owner. He told them his address, and also informed them that they could seek alternative treatment. Twenty seven of those patients subsequently saw Dr Zahedi at 580 George Street. PART B - PROPERTY RIGHTS IN DOCUMENTS Ownership of Booking Sheets 107 Health Services for Men Pty Ltd & Ors v D'Souza & Others (2000) NSWCA 56; (2000) 48 NSWLR 448 related to whether the doctors who worked in a practice, or the proprietor of that practice, had title to certain medical records. One such medical record in question was an "examination sheet" which was a form upon which a doctor made notes in the course of a consultation with a patient. The modus operandi of that particular practice involved extensive advertising, which encouraged prospective patients to ring a particular telephone number, upon which the patient would be asked a series of questions, the answers to which decided at which clinic an appointment would be made for that particular prospective patient. The treatment was ongoing, requiring the patient to return from time to time. Different doctors working at the clinic might have seen the patient on different visits, and each made notes on the examination sheet. In that context, Sheller JA (with whom Mason P and Priestley JA agreed) took as his starting point, at [42] 458: "It must be accepted that the stationery used for the examination sheet was the appellants'. The question is whether the property in the stationery was alienated by its transfer to the doctor or by the doctor's writing notes upon it." 108 After considering aspects of the facts of that case, his Honour concluded, at [44], 458: "… I can see no basis upon which it could be inferred that the appellants and the doctors intended that the documents, namely the examination sheets provided by the appellants to the doctors for completion, become the property of the doctors. Nor could any such intention be implied as a matter of contract." 109 In the present case, the stationery upon which the booking lists were created, and the paper onto which a completed booking list was photocopied, each was purchased by the Kernot Company. Thus, it would still retain title to them, unless that title has been transferred in some fashion to Dr Zahedi. 110 Mr Downing relies upon various factual features of the present case, as showing an intention of Dr Kernot and Dr Zahedi that it would be Dr Zahedi (as opposed to the Clinic) who provided the treatment, and an intention that property in the booking sheets would be transferred. The factors to which he points include:

[49]

Q. The patient having paid for the pathology service, I take it if the patient requested the pathology report the patient would be entitled to have it? A. In my opinion, the person with the first right to the pathology report is always the patient and I think they should be given a copy of the report when it is given so they can take it to another doctor if they want a second opinion. It is always my practice to make a copy of the report and hand it to my patients." 115 There is a sound legal basis for that evidence. Under the Health Insurance Act 1973 (Cth) section 3, an "eligible person" includes an Australian resident, and a "professional service" includes: "(d) a pathology service that is rendered by or on behalf of an approved pathology practitioner pursuant to a request made in accordance with subsection 16A(4) by: (i) a treating practitioner; or (ii) another approved pathology practitioner to whom the treating practitioner has made a request for the service." 116 Section 10(1) provides: "Where, on or after 1 February 1984, medical expenses are incurred in respect of a professional service rendered in Australia to an eligible person, medicare benefit calculated in accordance with subsection (2) is payable, subject to and in accordance with this Act, in respect of that professional service." 117 Section 16A sets certain prerequisites for a Medicare benefit to be payable in respect of a pathology service that has been rendered to a person. The prerequisites relevant to the present case are that the service was determined to be necessary by a practitioner whose patient the person was (section 16A(1)(a)), that the service has been rendered pursuant to a request made to the approved pathology practitioner by the treating practitioner (section 16A(3)), and that that request was made in writing or confirmed in writing within 14 days after being made (section 16A(4)). 118 Under section 20(1) a Medicare benefit in respect of a professional service is payable "to the person who incurs the medical expenses in respect of that service". It will be a question of fact in each case who has incurred the medical expenses in respect of the service. If a patient of full capacity requests that a medical service be given to themselves, it will be that patient who ordinarily incurs the medical expenses in respect of the service. However, if one person (who I will refer to as the "Liable Non-Patient") requests that medical services be rendered to another (as happens, for instance, when a parent requests their child be treated) it would ordinarily be the Liable Non-Patient who would incur the medical expenses. 119 Section 20A permits the person who incurs the medical expenses to agree, in accordance with an approved form, that the right to payment of the Medicare benefit be assigned to the practitioner, and that the practitioner accept the assignment in full payment of the medical expenses incurred. It is the entering of agreements of this type which underlies the practice of bulk billing. 120 When a treating doctor requests a pathologist to provide a pathology service to a patient, the treating doctor is, by that request, not only fulfilling the prerequisite under section 16A(3) and (4) for a Medicare benefit to be paid concerning the pathology service, but is also acting as the agent of the patient or Liable Non-Patient, in offering to enter a contract with the pathology provider, whereby the pathology provider will render the pathology service. In the ordinary case, that offer is accepted when the pathology provider actually provides the service. When payment for the pathology service is bulk billed, the pathologist is agreeing, in accordance with section 20A(1), to accept the Medicare benefit in full payment of the amount which the patient (or Liable Non-Patient) is obliged to pay under that contract. The referring doctor is not a party to the contract. Indeed, it would be a matter of some importance to the referring doctor that he or she not be a party to the contract, otherwise he or she could have a personal liability to pay the pathologist's fees. 121 If nothing to the contrary was stated, if a patient or Liable Non-Patient requested or acquiesced in a treating doctor's obtaining a pathology report, there would be implicit consent to the treating doctor receiving the results of the pathology investigation. Indeed, it is hard to see how a treating doctor could determine that a pathology service was necessary (as section 16A(1)(a) requires), unless the treating doctor had reason to believe that the results would be evaluated by himself or some other competent person, and that evaluation used in the ongoing treatment of the patient. Similarly, there would be no practical point in the patient or Liable Non-Patient having the pathology service carried out unless the patient or Liable Non-Patient had reason to believe that the results would be evaluated by the treating doctor or some other competent person, and used for the ongoing treatment of the patient. If the results took the form of a written report, the consent of the patient or Liable Non-Patient would extend to the treating doctor receiving that report. 122 In all these circumstances, the property in the pathology report lies in the patient, though if the pathology report is sent to the referring doctor either the proprietor of the practice at which the referring doctor works, or the referring doctor, also has rights, at least in the nature of being a bailee at will, in the pathology report. 123 In the present case, where there is no evidence of anything being said or done to take the ordering of any of the pathology reports which Dr Zahedi requested while working at the Clinic out of the ordinary course, I conclude that the patients had title to all those pathology reports, but that either the Kernot Company or Dr Zahedi had rights as a bailee at will in the reports. 124 To decide which of the Kernot Company and Dr Zahedi had the better title to possession of the copy of the pathology report, one looks to the terms of the contract between them, and the course of dealing which they adopted. The course of dealing is relevant because the various practices and procedures which they both adopted can cast light on their mutual intentions. 125 The express statement before Dr Zahedi began work at the Clinic that "all patients are patients of the practice" (para [10] above), reinforced by the heading of the Waiting Room Rules (para [49] above) is the only verbal indicator of their intention. 126 When Dr Kernot, and the Waiting Room Rules, talked of the patients belonging to the practice, they were clearly not intending to be talking about slavery. What was meant, it seems to me, by both that phrase and the statement that the patients were "patients of the practice" was that it would be the practice which would have ongoing legal rights to the custom of the patients, so far as the doctors working in the practice were concerned. And, as "the practice" was not an entity with legal personality, what was meant was that it would be the entity which conducted the practice, namely the Kernot Company, which would have those rights. Those rights were qualified, however, by Dr Kernot's statement that there would be no legal restriction on Dr Zahedi setting up practice in competition if he were to chose to leave. That express statement of the absence of a legal restriction on competing after Dr Zahedi left the practice did not bring with it, however, a permission to take and use, in the course of that competition, documents to which the Kernot Company had title, or had a better right to possession than Dr Zahedi had, or information the Kernot Company was entitled to keep confidential. 127 So far as indications derived from the course of dealing is concerned, the patients who Dr Zahedi saw at the Clinic were ones who, the evidence suggests, were initially attracted there by its advertisements or reputation, though with many of them it would have been Dr Zahedi's skills and way of dealing with patients which kept them coming back. Even though Dr Zahedi had a wide discretion about the way in which he treated any individual patient, it was the Kernot Company who organised his working day for him, and provided all of the administrative and business structure within which he treated patients. A significant aspect of his professional work, that involving surgery, was subject to the quality control which Dr Kernot provided by checking pathology reports. In those respects, Dr Zahedi's position was no different to that of an employed doctor. The pathology reports by themselves were of extremely limited use as medical records - the medical records of a patient needed to include both the patient card and a copy of any pathology report obtained in connection with that patient. The copy of the pathology report that was maintained in the central filing system of the practice as a whole filled that function. The intention, I would infer, of Dr Kernot and Dr Zahedi, was that the centrally filed copy of the pathology report would be one which Dr Kernot's Company would have the better right to keep. I see nothing in the purpose for which the third copy of the pathology report was provided to Dr Zahedi to suggest they had any different intention concerning it. 128 All these factors lead, in my view, to the conclusion that the Kernot Company had the better right to possession of the third copy of the pathology report. That conclusion is consistent with other working documents of the practice, like the booking sheets, and the patient cards (to the ownership of which a similar analysis would apply as that which I have already given concerning the booking sheets) being the property of the Kernot Company. 129 This conclusion is consistent with the view expressed by Dawson and Toohey JJ in Breen v Williams (1996) 186 CLR 71 at 88: "The appellant did not claim ownership of the actual documents comprising her medical records. It is understandable that she did not do so, because they do not include any documents obtained on her behalf and paid for by her, such as x-ray photographs or pathology reports, the ownership of which she may well be able to claim. As we have said, for all practical purposes they comprise the written notes of the respondent and with respect to these there can be no doubt that they are the property of the respondent. The duty of the respondent, both in contract and tort, was to exercise reasonable care and skill in giving treatment and advice and it was in carrying out this duty that the respondent compiled the records. In doing so the respondent did not act as agent for the appellant and the documents were his property alone. The general principle is that documents brought into existence by an agent while in the employ of a principal belong to the principal and not to the agent. Of course, sometimes in a relationship between a professional and a client, the professional may act as an agent in the course of providing services in which case documents brought into existence may be the property of the client." 130 In D'Souza the documents in question included pathology reports. Sheller JA said, concerning them, at [49], 460: "The pathology report falls into a different category. At the time it was prepared by the pathologist, the document was the property of the pathologist. It may be that when such a document was sent to and received by a practitioner in private practice, who had requested the report, it became the property of that practitioner. Even if that were so in the case postulated, in the present case the circumstances for like reason point to the pathology report being the property of the clinics and not the property of the treating doctor who worked in the clinic." 131 Because of the words "It may be" at the start of the third sentence in that paragraph, his Honour was not making a positive finding about who had title to the pathology report. This paragraph in D'Souza does not detract from the conclusion I have reached about who has title and right to possession of the pathology reports involved in the present case. PART C - EXISTENCE AND BREACH OF OBLIGATION OF CONFIDENCE? Was Dr Zahedi Under a Contractual, or an Equitable, Obligation of Confidence to the Kernot Company?

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132 The remedies which the plaintiff claims against Dr Zahedi and Idameneo are damages or equitable compensation, and an account of profits. It is important to know whether any obligation to respect confidentiality in the patient names and addresses which Dr Zahedi owed to the Kernot Company is one that arose as a matter of contract, or as a matter of equity's exclusive jurisdiction. This is both because the tests by reference to which the existence of a contractual obligation of confidence is held to exist can differ from those by reference to which an equitable obligation of confidence is held to exist, and also because the remedies for breach of the two different types of obligation may be different. In particular, equity offers remedies of an account of profits, and delivery up of documents, which the common law does not offer. Sometimes, though, equity will grant a remedy in its auxiliary jurisdiction in aid of enforcement of a common law right, as when an injunction is granted to restrain repetition or continuance of a breach of a contractual obligation of confidence. In some circumstances whether a remedy of, for instance, account of profits is available might depend upon whether it was being sought in aid of an equitable obligation of confidence, or in the auxiliary jurisdiction as a remedy for a breach of a contractual obligation of confidence. Implied Term of Confidence? 133 As Heydon JA pointed out in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [28], 164, terms may be implied in contracts in one of four ways, namely: "(i) Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown (1928) 40 CLR 540 at 553-4. (ii) Implications from the "nature of the contract itself" as expressed in the words of the contract: see Liverpool City Council v Irwin [1977] AC 239. (iii) Implications from usage (for example, mercantile contracts). (iv) Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337." 134 In Byrne v Australian Airlines Ltd (1995) 185 CLR 410, at 422, Brennan CJ, Dawson and Toohey JJ said: "Further, as Deane J has observed, the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings have been applied in this Court are cases in which there was a formal contract, complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. And the test to be then applied was in a later case formulated by Deane J in these terms: "The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties."" 135 Thus, in the present case, when Dr Zahedi entered no formal written contract with Dr Kernot or the Kernot Company, the use of the criteria in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266; (1977) 16 ALR 363; (1977) 52 ALJR 20 to decide whether there is any implied obligation of confidentiality would not be appropriate. In my view, however, an obligation of confidentiality is implicit in both the express term of the contract that the patients "are the patients of the practice", and in the nature of the contract itself. 136 It is a consequence of the meaning of the term that the patients "are the patients of the practice", as I have explained it in para [126] above, that the Kernot Company would have such legal rights as were needed to have ongoing legal rights to the custom of the patients. 137 The particular features of the nature of the contract itself upon which I rely are that it was a contract whereby Dr Zahedi was commencing to work in an established medical practice, in the course of which he would be treating patients who had initially been attracted to the Clinic by its advertising and reputation, using support facilities provided entirely by the Clinic, and in the course of which he would come across and use documentation which was the property of the Clinic, or alternatively (like the third copies of the pathology reports) documents to which the proprietor of the Clinic had a better title than he had. In the course of operating the practice, an obligation of confidentiality was owed to the patients. Any treating doctor is under a duty not to voluntarily disclose, without the consent of his or her patient, information which the doctor has gained in his or her professional capacity, save in very exceptional circumstances: Hunter v Mann [1974] QB 767 at 772. I identified some of those "very exceptional circumstances" in Kadian v Richards (2004) 61 NSWLR 222 at [45], 240. However, no such exceptional circumstances are shown to apply in the present case. 138 A similar duty of confidentiality would, in my view, be owed to the patient by everyone who worked at the practice and in the course of their work came across information which had been provided by the patient for the purpose of medical consultation. That obligation extends, it seems to me, to details of the patient's name, address and telephone number. There are enough people who would not wish it to be known, save to people to whom they chose to disclose the information, that they are receiving medical treatment at all to justify the inclusion of the patient name and address in the information concerning which the obligation of confidentiality is owed. To test that proposition, one only need ask what the response of a court would be to a receptionist in a medical practice who sold a list of patient names, addresses and telephone numbers to a direct marketing company. 139 While that particular obligation of confidentiality is one which is owed to the patient, the proprietor of a medical practice has a clear interest in conducting the practice in such a way that confidential information disclosed by patients in the course of the practice remains confidential. It would be bad for business if a medical practice was known as one which leaked patient details. As well, the proprietor of the practice would owe an obligation of confidentiality to the patient concerning confidential information the patient gave to professional and clerical employees of the practice, and could perform that obligation only by ensuring that the practice was operated in such a way that all people who came across the information in the course of the practice were bound by a similar obligation of confidence. For the law to regard it as an ordinary incident of being engaged in the work of a medical practice that the person so engaged has an obligation to the proprietor of the practice to maintain this patient confidentiality is a proper way of ensuring that this interest of the proprietor of the practice is protected, and also provides a more effective way of ensuring that the obligation of an individual medical practitioner to the patient is adhered to. United States v Grossman 843 F.2d 78 (2nd Cir. 1988) at 86, [5] held that a law firm had a right, as against an employee of the law firm, to the confidentiality of information disclosed to members of the firm by a client. The position with a medical practice seems to me to be analogous. 140 As well, quite independently of the fact that the Kernot Company conducted a medical practice, the same factors which have led to the customer lists of any business being regarded as confidential, and persons working in that business being obliged, by an implied term in their contract of employment to recognise the confidentiality of those lists, apply here. See, eg, Robb v Green [1895] 2 QB 1 affd [1895] 2 QB 315 and cases cited in para [148] below 141 The pathology reports each had a customer name and address at the top. Together, they constituted a customer list. Further, that name and address got onto the pathology report by the pathology company copying them from the pathology referral form, onto which the patient name and address had been copied from the patient card. If, as in my view it was, the name and address on the patient card was information concerning which Dr Zahedi owed an obligation of confidentiality to the Kernot Company, the patient names and addresses on the pathology reports could not be in any better situation. An obligation of confidence can arise by this route regardless of who had the better right to possession of the pathology reports. If a person who owes an obligation of confidentiality concerning certain information copies it onto a piece of paper he already owns, that does not remove or lessen the obligation of confidentiality. 142 In all these circumstances, Dr Zahedi was under, in my view, an implied obligation no different in content, so far as the use he could make of confidential information encountered in the course of the practice was concerned, to the obligation of fidelity which an employee owes to his employer. 143 Ashcoast Pty Ltd v Whillans [2000] 2 Qd R 1 supports this conclusion. In that case, the Queensland Court of Appeal held that a medical practitioner, who had the use of serviced premises for which he paid 50% of the fees he generated, had breached an obligation which he owed to the operator of that centre by copying and taking with him to another place of practice certain records recording patient names and addresses. Davies JA and Moynihan J said, at 4:

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"As regards the information abstracted from the computer at the Centre, and later used by the appellant to entice patients to his new practice, I have no doubt that it was, in the relevant sense, confidential to the respondent. Even if the names of all the patients were in fact known to the respondent by reason of his having treated them, the critical feature was the combination of those names with the addresses of the patients, and their compilation or collection in a single, simple and readily accessible form. The fact that those details were obtained by the appellant not openly, but surreptitiously, is perhaps the clearest indication that they were confidential and that he considered them to be so. To that extent, the case is indistinguishable from Robb v Green [1895] 2 QB 1; affd. [1895] 2 QB 315, and other well-known decisions concerning customer lists." 145 Robb v Green [1895] 2 QB 1 involved a contract of employment, and turned upon finding that the employee was subject to an implied term obliging him not to use, to the detriment of the employer, information to which he had access in the course of his service. 146 The conclusion to which I have come is also consistent with the conclusion of WB Campbell J in Surveys & Mining Ltd v Morrison [1969] Qd R 470 at 476, that a consulting geologist, who worked part-time for a corporation and was paid by fees and reimbursement of expenses, owed a contractual duty of fidelity to that corporation, which required him to maintain the confidentiality of confidential information he had acquired in the course of that work. 147 Mr Marshall at one stage submitted that the National Privacy Principles, promulgated under the Privacy Act 1988 (Cth), and extended to parts of the private sector, including medical practices, by the Privacy Amendment (Private Sector) Act 2000 (Cth), had a bearing on whether a term requiring confidentiality to be observed in relation to patient names and addresses should be either implied at law, or imposed in equity's exclusive jurisdiction. He accepted, however, that there was no evidence showing that there was no approved privacy code binding the doctors who worked at the Clinic. Thus, for the reasons I gave in Kadian v Richards (2004) 61 NSWLR 222 at 241-3; [49]-[60] it has not been shown that the National Privacy Principles apply in any way to the practice conducted at the Clinic. Breach of Implied Term? 148 An employee is entitled, once his employment is over, and in the absence of an express and valid contractual restriction on his doing so, to canvass former customers of his employer, to the extent that he has the names and addresses of those customers in his memory as a result of the ordinary carrying out of his duties as an employee: Ormonoid Roofing and Asphalts Ltd v Bitumenoids Ltd and others (1930) 31 SR (NSW) 347 at 354-6 (Harvey CJ in Eq); Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117 at 136; Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 at 240 (McLelland J); Weldon & Co v Harbinson [2000] NSWSC 272 at [68] - [72] (Bryson J). The restriction on a person in the position of Dr Zahedi using patient names he learned at the Clinic could not be any more extensive than the restriction he would have been under had he been an employee. If anything, Dr Zahedi's position in that respect would be assisted by Dr Kernot's having expressly declined to require from him a covenant restricting his activities after he left the Clinic. 149 However, in compiling the lists of patients who he contacted or arranged to be contacted after he started working at Idameneo's premises he was not using client names which he carried in his memory. Instead, he was using documents which were the property of the Kernot Company and documents to which the Kernot Company had a better right to possession than he had, which he had taken home without the knowledge or consent of the Kernot Company during the time he was still engaged by that company. 150 The use that Dr Zahedi made of the customer names, addresses and telephone numbers was for a purpose different to that for which he had originally been given that information. In my view compiling the list of patients and contacting them, or arranging to contact them, was a breach of the implied term. 151 I mention here that Dr Kernot gave the following evidence when cross-examined by Mr Lucarelli, counsel for the second defendant:

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Q. And so long as the third copy of the pathology report was used for the purposes of patient care such use would have your complete blessing, correct? A. Yes." 152 That evidence, which Mr Lucarelli relied on strongly, was in general terms. It was not put to Dr Kernot that his "complete blessing" upon the third copy of the pathology report being used for the purposes of patient care, extended to it being used for patient care other than in connection with the ongoing practice of the Clinic, and I do not regard his answers as extending to any use of the third copy of the pathology report other than in connection with the practice of the Clinic. 153 Even though Dr Kernot provided Dr Zahedi, on 4 March 2002, with a release from various of Dr Zahedi's contractual obligations (para [93] above), that release was on the express term that pathology results and other reports remained the property of the Clinic. Thus assuming, without deciding, that the release was otherwise effective to release contractual obligations which Dr Zahedi owed to the Kernot Company, it did not free him from any contractual obligation relating to pathology results and other reports. 154 I recognise that the Kernot Company consented to Dr Zahedi obtaining the third copy of the pathology report. However, even if a listing of the customers of a business has been compiled or obtained by an employee in the course of his or her employment for a legitimate purpose connected with that employment, it can still be a breach of the obligation of confidentiality to use that list, after the employment was terminated, for a purpose different to the purpose for which the employee originally obtained or compiled it: NP Generations Pty Ltd v Feneley (2001) 80 SASR 151 at 157. The same applies to a non-employee in the position of Dr Zahedi. Equitable Obligation of Confidence? 155 If I were wrong in concluding that Dr Zahedi was bound by that implied contractual obligation, Dr Zahedi would be bound by an obligation arising in equity's exclusive jurisdiction relating to the use which could be made of patient names, addresses and telephone numbers. I adopt the formulation of the requirements for an equitable obligation of confidence advanced by Gummow J in Smith Kline & French Laboratories (Aust) Ltd & Ors v Secretary, Department of Community Services & Health (1990) 22 FCR 73 at 87: "(i) the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question, and must be able to show that (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge), (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence, and (iv) there is actual or threatened misuse of that information, without the consent of the plaintiff." 156 Here, the information alleged to be confidential is identified with specificity, namely the patient names, addresses and telephone numbers contained in the pathology reports and booking sheets which Dr Zahedi retained. 157 The patient names and addresses were ones which had, it seems to me, the necessary quality of confidence, and were imparted in circumstances importing an obligation of confidence. Both these matters arise from the factors which I have referred to at para [135] ff above as being ones which led to the implication of a contractual term. That information was not information which Dr Zahedi was authorised to use for the purposes of conducting a practice other than a practice that used the facilities of the Clinic. In using it to contact patients after he had left the Clinic, Dr Zahedi had misused it, without the consent of the Kernot Company. 158 If it were the case that the only restriction to which Dr Zahedi is subject, concerning the patient names, addresses and telephone numbers, is an equitable obligation, it would, in my view, have the same limits as the implied common law obligation concerning the limits of the restriction upon Dr Zahedi's use of patient names, addresses and telephone numbers upon leaving the practice. Both the common law and equity take into account, in formulating the extent of obligations they impose in a situation like the present, the public interest that there is in people who have acquired skills and knowledge while working in one situation, such that those skills and that knowledge is part of the mental equipment they carry around with them, being able to use those skills and that knowledge when they take up a later situation. For the same reasons as apply concerning the implied common law obligation, those limits upon the obligation of confidentiality concerning patient names, addresses and telephone numbers do not prevent the conclusion that Dr Zahedi has breached his obligation, in the present case. PART D - OBLIGATION OWED BY DR ZAHEDI TO THE PLAINTIFF? Has There Been an Assignment of the Benefit of the Contractual Term to the Plaintiff? 159 No dealings between the plaintiff and Dr Zahedi led to any contractual obligations arising directly between them. Thus, the plaintiff will have standing to sue Dr Zahedi for breach of the term relating to confidentiality in the contract between Dr Zahedi and the Kernot Company only if the benefit of that contractual obligation has been assigned to it. For convenience I will refer to that contractual obligation as a covenant, even though it is only an implied term. 160 The benefit of that covenant was a legal chose in action, in the hands of the Kernot Company. There is no document which counts as an "absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only)" of that legal chose in action. That is a sufficient reason why there has not been an effective assignment at law, pursuant to section 12 of the Conveyancing Act 1919, of that chose in action. Any assignment of it could therefore only be an equitable assignment. 161 Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th edition, para [6-050] says: "… a contract, for value, to assign legal property, effects an equitable assignment when the consideration is paid or executed; this is a case where equity regards as done that which ought to be done: Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999; [1861-73] All ER Rep 414; Tailby v Official Receiver (1888) 13 App Cas 523; [1886-90] All ER Rep 486; FCT v Betro Harrison Constructions Pty Ltd (1978) 20 ALR 647 at 650-1; and see the analysis of McPherson J in Re Androma Pty Ltd [1987] 2 Qd R 134 at 148-50 (or Re Anroma Pty Ltd: it is highly probable that the case is wrongly headed in the report.)" Is there a Contract to Assign this Chose in Action to the Plaintiff? 162 In my view there is a contract for the Kernot Company to assign the benefit of Dr Zahedi's covenant to the plaintiff. The Contract for Sale dated 28 February 2002, Clause 1.1.1, includes both goodwill, and medical and pathology records of all patients of the Business, in the definition of "Business". Clause 2.1 is an agreement to sell "the Business (including all the right title and interest of the Vendor therein and all the assets and goodwill thereof)". The "right title and interest of the Vendor" in the Business includes the benefit of contractual covenants from people working, or who have worked, in the Business. That is one way in which there is an agreement to assign the benefit of the covenant. 163 As well, in construing the agreement to sell "all the assets and goodwill thereof" one must bear in mind that the Business is not an entity with legal personality, capable of owning assets or goodwill. Giving a commercially realistic construction to that phrase results in it being construed as "all the assets and goodwill used in connection with the Business". The benefit of Dr Zahedi's covenant is such an asset. This provides a second way in which there is an agreement to assign the benefit of the covenant. 164 In Federal Commissioner of Taxation of the Commonwealth of Australia v Murry (1998) 193 CLR 605 Gaudron, McHugh, Gummow and Hayne JJ said, at 608-609: "Goodwill is inseparable from the conduct of a business. It may derive from identifiable assets of a business, but it is an indivisible item of property, and it is an asset that is legally distinct from the sources - including other assets of the business - that have created the goodwill."

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And at 611: "… goodwill is really a quality or attribute derived from other assets of the business. Its existence depends upon proof that the business generates and is likley to continue to generate earnings from the use of the identifiable assets, locations, people, efficiencies, systems, processes and techniques of the business. As Dixon CJ, Williams, Fullagher and Kitto JJ pointed out in Box v Federal Commissioner of Taxation (1952) 86 CLR 387 at 397, "[g]oodwill includes whatever adds value to a business, and different businesses derive their value from different considerations."" 165 In accordance with this analysis, the benefit of Dr Zahedi's covenant is not itself a part of the goodwill, but rather is one of the complex of assets from which the goodwill of the Business springs. On that analysis, the agreement in Clause 2.1 to sell the goodwill of the Business is consistent with the benefit of the covenant being transferred pursuant to the other parts of Clause 2.1 which I have been discussing, but does not provide a third way in which the benefit of the covenant is agreed to be transferred. 166 I note that some cases have treated a covenant to assign the goodwill of a business as sufficient, without more, to assign the benefit of a restrictive covenant which protects the goodwill of that business: Jacoby v Whitmore (1883) 49 LT 335; Townsend v Jarman [1900] 2 Ch 698, at 702. It is not necessary to decide whether those cases can co-exist with the account the High Court has given in Murry of the nature of goodwill -- one way or another, the Kernot Company has agreed to assign the benefit of Dr Zahedi's confidentiality obligation. 167 While the benefit of Dr Zahedi's covenant is not a "document", I have considered whether it is a "thing" within the meaning of Clause 3.3.3.4 and Clause 3.3.3.5 of the Agreement. Being incorporeal property, the benefit of the covenant is not capable of being physically delivered. On balance, it seems to me that the preferable construction of the Agreement is that Clause 3.3.3 sets out the obligations of the Kernot Company to hand over items which are capable of physical delivery, while Clause 3.3.4 requires the vendor to do activities, other than the delivery of physical objects. Thus, Clause 3.3.3 does not contain a requirement to transfer the benefit of Dr Zahedi's covenant at Completion. 168 Clause 3.3.4 requires, it seems to me, the Kernot Company to do things, other than delivery of physical objects, (a) which the Agreement itself requires the Vendor to do at Completion, or (b) which the Purchaser reasonably requires for vesting in the Purchaser the full possession and benefit of the Business. 169 There is no evidence that the plaintiff expressly required (whether reasonably or not) that the benefit of a covenant given by Dr Zahedi be transferred to it. However, in my view the preferable construction of the second limb of Clause 3.3.4 is not that it is triggered only if there is some express requirement whereby the purchaser asks for some asset to be transferred to it, but rather that it has the shade of meaning of referring to things which the purchaser reasonably needs to have the full possession and benefit of the Business vested in it. On that construction, there is an obligation on the Kernot Company to transfer the benefit of Dr Zahedi's covenant at Completion. 170 Even if I am wrong in reading the second limb of Clause 3.3.4 that way, Clause 3.4 is a provision whereby, because the benefit of Dr Zahedi's covenant is one of the assets of the Business, the property in that covenant is to pass to the plaintiff on Completion. The first limb of Clause 3.3.4 requires the Kernot Company to do whatever it needs to do to effect a transfer of that covenant on Completion. 171 Thus, there is not only an agreement to assign the benefit of the covenant to the plaintiff, there is an agreement to do so upon Completion. Consideration 172 The consideration of $200,000 payable under the Agreement has been paid. Thus, the conditions identified at para [161] above for an effective assignment in equity of the benefit of the covenant have been satisfied. Inherently Unassignable Chose in Action? 173 There is a miscellaneous collection of contractual covenants which are inherently unassignable. It is necessary to consider whether Dr Zahedi's implied covenant requiring confidentiality is inherently unassignable. 174 Considered independently of authority and legal principle, there can be little doubt about the practical importance in commerce of obligations of confidentiality. Many a business enterprise owes a significant part of its success to confidential information which is turned to account in the course of the business. For such a business, protecting the ongoing capacity of the business to earn requires the proprietor to be able to obtain effective remedies to enforce the obligations of confidence. Businesses which have confidential information, and rights to protect the confidentiality of that information, as important practical elements in the business are frequently sold. Sometimes, there is an express term requiring the assignment of the confidential information and rights to protect the confidentiality of the information. It would be a serious limitation on the usefulness of the law to give effect to transactions which business people think are important if the law did not permit the purchaser of such a business to exercise any right to protect the confidential information which is, in commercial terms, an important asset of the business. If the proprietor of such a business was a natural person who died, is his legal personal representative unable to protect the value of that business by preventing breaches of confidence by people who have been entrusted with the confidential information used in the course of the business? If a natural person who is the proprietor of such a business becomes bankrupt, is his trustee in bankruptcy likewise unable to protect the confidentiality, or to realise by sale the full value the business had had while conducted by the bankrupt? 175 I have concluded that neither principle nor authority shows the law to have these inconvenient consequences. In showing how I arrive at that conclusion I will consider first some general principles concerning assignability of choses in action, and then turn to authority which bears upon the assignability of a right to have information kept confidential. Principles Concerning Unassignable Choses in Action Identity of Assignor Important to Content of Obligation 176 Meagher, Gummow & Lehane, op cit, para [6-445] say: "… the benefit of a contractual obligation cannot be assigned in cases where the identity of the person for whom it is to be discharged is a matter of importance to the party on whom the obligation rests. Or, as Sir Richard Henn Collins MR explained it in Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668: … the special right of ignoring altogether the consent of the person upon whom the obligation lies to the substitution of one person for another as the recipient of the benefit would seem in principle and in common justice to be confined to those cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it."" 177 In accordance with this principle, it has been held that the benefit of contracts of service cannot be assigned: Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; [1940] 3 All ER 549; Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437 at 443; [1955] 2 All ER 561 at 562-3; O'Brien v Benson's Hosiery (Holdings) Ltd [1980] AC 562 at 572; [1979] 3 All ER 652 at 655; Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 267; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 527; Don King Productions Inc v Warren [2000] Ch 291 at 319. 178 That result of the principle is readily understandable where the contract of service was still on foot at the time of the purported assignment. It is an incident of contracts of employment that the employee will carry out the lawful instructions of the employer concerning tasks of the type which the employee has been engaged to perform. In other ways as well, co-operation and interaction between employer and employee is involved in the carrying out of the contract. The identity of the employer is capable of having a significant influence on the content of those obligations of the employee. One can readily see that the substance of the obligation, if it could be effectively assigned, could be substantially different in the hands of the new employer to what it had been in the hands of the old employer. 179 If one considers the contract between Dr Zahedi and the Kernot Company, it has now come to an end, so far as either side having ongoing obligations to provide services is concerned. However, the contractual obligation continues whereby lists of patient names and addresses which Dr Zahedi obtained from the Kernot Company cannot be disclosed, and cannot be used except for the purposes of the Kernot Company. The obligations of Dr Zahedi under that term of the contract do not require any personal interaction with the person to whom the obligation is owed, and the content of the obligation is not influenced by any action or decision of the person to whom the obligation is owed. It is not an obligation requiring Dr Zahedi to do things - it is an obligation requiring him not to do things. Dr Zahedi can perform it perfectly by total inaction. In my view, for these reasons no analogy can be drawn with the reasons whereby the benefit of a contract of service is unassignable. 180 It is well established that a covenant in restraint of trade continues to be enforceable even after the person who has its benefit has ceased to carry on the business which the covenant protects: Elves v Crofts (1850) 10 CB 241 at 260, 138 ER 98 at 105-6 (for reasons including that if it could not be enforced "the saleable quality of goodwill -- which, according to all the recent authorities, is deserving protection, -- would be affected"); Jacoby v Whitmore (1883) 49 LT 335 at 337. It is also well established that the benefit of a valid covenant in restraint of trade can be assigned to the purchaser of the business to which that covenant relates, provided that there is nothing in the content of the covenant itself which shows that it is intended to be inherently personal, and that such a purchaser can obtain an injunction to enforce the covenant: Benwell v Inns (1857) 24 Beav 307 at 311, 53 ER 376 at 378; Jacoby v Whitmore (1883) 49 LT 335 at 338 per Brett MR, 338 per Cotton LJ, 338 per Bowen LJ; Baines v Geary (1887) 35 Ch D 154, at 159; Townsend v Jarman [1900] 2 Ch 698, at 702; Automobile Carriage Builders Ltd v Sayers (1909) 101 LTR 419 at 420; Welstead v Hadley (1904) 21 TLR 165 at 166; Pearson v The Arcadia Stores, Guyra, Limited (1935) 53 CLR 571 at 583 (per Rich, Dixon, Evatt and McTiernan JJ); cf Davies v Davies (1887) 36 Ch D 359 at 388, 394, 399. I see no reason why an obligation of confidentiality which someone working in a business owes to the proprietor of that business is any more personal than an obligation not to compete which an employee owes to the proprietor of the business in which he or she works, or the vendor of a business owes to the purchaser of that business. Relevance of Assignment of Only Part of the Contractual Obligations? 181 Nor does it matter that the obligation relating to confidentiality is one term of a contract closely analogous in some respects to a contract of employment, and that the benefit of that contract as a whole could not have been assigned when it was on foot. As Lightman J said in Don King Productions Inc v Warren & Others [2000] Ch 291 at 319: "The benefit of some obligations of a party under one contract may be assignable while at the same time others under the same contract may not: assignability is not a matter of all obligations arising under a contract or none at all." 182 Indeed, equity has long recognised that a part of even a single chose in action can be assigned: Meagher Gummow & Lehane, Equity Doctrines & Remedies, 4th ed, para [6-175]. An Instructively Wrong Argument 183 I gave consideration to a different way in which the general principle, that the benefit of a contract cannot be assigned if the identity of the person to whom the obligation is owed makes a substantial difference to the content of the obligation might be argued to apply. That argument concerns what are the consequences of breach of the obligation of confidentiality. I set the argument out in the following paragraph. 184 When the contractual obligation first arose, the consequence of Dr Zahedi breaching it would be that he would be liable for damages, measured in accordance with the rule in Hadley v Baxendale (1854) 9 Ex 341, suffered by the Kernot Company in consequence of any breach. The type of damage which is predictable as arising, in the ordinary course of things, from him using lists of patient names and addresses for a purpose other than the conduct of the Clinic is the loss of custom of some of those patients. The measure of the damages which would be predictable, in the ordinary course of things, as arising from that breach, is the loss of profit suffered by the Clinic in consequence of that loss of patronage. The quantum of that loss of profit would be significantly influenced by factors peculiar to the business of the Kernot Company. The loss of profit which might be sustained by an assignee, if the benefit of the promise could be effectively assigned, and the assignee were to lose patronage as a consequence of a breach of the term, would be influenced by factors peculiar to the business of the assignee. The difference between these two ways of quantifying the damage arising from breach, when the covenant is in the hands of the Kernot Company, and when it is in the hands of an assignee, are sufficiently significant to make the identity of the person to whom the obligation is owed a matter of substance. The argument recognises that the content of the obligation, in the sense of what Dr Zahedi is required to do to perform it, is identical regardless of whether the benefit of the covenant has been assigned. However the argument also assumes that the fundamental principle by reference to which assignability of choses in action is decided is not limited to considering what it is that performance of the contract requires. The benefit of a contract is assignable "where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it" (supra para [176]). The fact that peculiarities of the business of the person to whom the obligation is owed will affect the quantum of damages arising under the first limb of Hadley v Baxendale shows, according to this argument, that the assignment infringes that principle. Manner of Operation of Equitable Assignment of Legal Obligations 185 That argument is fatally flawed, because of the way in which equitable assignments of legal choses in action for consideration operate. Meagher, Gummow & Lehane, op cit, para [6-050] state: "The effect of a valid equitable assignment of a legal interest in property after payment or execution of the consideration is to constitute the assignor a trustee of the property for the benefit of the assignee: Cator v Croydon Canal Co (1843) 4 Y & C Ex 593 at 594; 160 ER 1149 at 1150; Fulhan v M'Carthy (1848) 1 HLC 703 at 722; 9 ER 937 at 945." 186 In consequence, "The right of an equitable assignee of a chose in action being one against the assignor rather than the debtor, the equitable assignee cannot exercise a contractual right against the debtor." (per Sheller JA (with whom Priestley and Meagher JJA agreed), Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512 at 11,518. 187 As Giles J put it in Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561, concerning a purported assignment of the benefit of an option: "The equitable assignee could not exercise the option because, absent a legal assignment, it was not in a contractual relationship with the grantor of the option and could not exercise a right given by the contract - all it could do was require the assignor to exercise the right….

[59]

… While an assignment at law substitutes the assignee for the assignor as contracting party with the opposite party, an equitable assignment operates between the assignor and assignee. In the absence of notice of an assignment, the opposite party looks only to the assignor; with notice of an assignment, the opposite party may be unable safely to deal with the assignor (see William Brandt's Sons & Co v Dunlop Rubber Co [[1905] AC 454] (at 462), but his agreement is still with the assignor and it is the assignor rather than the assignee who has the contractual right to exercise the option." 188 Statements to similar effect are found in Silkdale Pty Ltd v Long Leys Co Pty Ltd (1995) 7 BPR 14,414 at 14,422 (Young J), Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 at [31], 716 (Santow J), and Dwyer v Derek [2004] 1 Qd R 371 at [16], 377 (McMurdo J, recognising an exception, not applicable in the present case, whereby it could be expressly agreed between initial contracting parties that an equitable assignee of one of them could exercise a particular contractual power). 189 In the case of an assignment of a debt, one can readily understand how an equitable assignment operates - the assignor is still owed the debt at law, and if it sues to recover the debt (or the assignee sues in the assignor's name, or in an action to which the assignor is joined) the assignor's right to be paid the debt is converted into a judgment debt by the success of the action, and that judgment debt, being held on trust for the assignee, is one which equity will order be paid direct to the assignee. In so doing equity is using its power to devise remedies which avoid circuity of action. 190 To take another example, the benefit of a covenant to repair leased premises can be assigned along with the lessor's interest in those premises: Ellis v Torrington [1920] 1 KB 399. One can understand how, if the assignor were to sue for damages for breach of the covenant to repair, the measure of damages recoverable under the first limb in Hadley v Baxendale would be either the cost of repair or the loss in value of the reversion. Damages measured in that way can be held upon trust for an equitable assignee or, pursuant to equity's procedural device aimed at avoiding circuity of action, ordered to be directly payable by the tenant to the assignee. There is thus no difficulty in permitting the assignee to sue to recover the self same damages which the assignor could have recovered, if the assignor had sued. How to Calculate the Assignor's Damages for Breach of Confidentiality Covenant 191 Concerning a covenant to keep information confidential, it will be a question of fact in each case whether the assignor has suffered any damage at all in consequence of a breach of the covenant, and whether any such damages fall within the principles concerning remoteness of damage for actions in contract. 192 It is readily conceivable that the fact of the assignment itself might change the circumstances within which the assignor conducts any business operations it might still have. It will be a question to be resolved, concerning the facts of each case, whether any such change in circumstances is such as to make the assignor's damages suffered in consequence of the breach too remote to be recoverable. I have discussed in para [184] above the sort of damages recoverable under the first limb in Hadley v Baxendale. Damages are recoverable, under the second limb in Hadley v Baxendale for breach of a contractual term in relation to a consequence of breach which is not the usual sort of consequence of a breach of that type only if, at the time of entering the contract (not at the time of its breach) the party in breach knows of circumstances, out of the usual, which will probably result in the other party suffering damage if that term is breached: Spathis v Hanave Investment Co Pty Ltd & Anor [2002] NSWSC 304 at [174]-[181] and cases there cited. The law of contract operates that way because contracts are a device for allocation of risk, and it is only if a contracting party knows of such special circumstances at the time of entering the contract that he or she can be regarded as having undertaken the risk that a breach of contract, coupled with such special circumstances, will cause damage to the other contracting party. If in accordance with these principles of remoteness of damage the assignor can recover any damages for the breach, the assignor will hold those damages on trust for the equitable assignee. 193 The flaw in the argument which I set out at para [184] above is that it assumes that an equitable assignee of a covenant to keep information confidential can sue to recover its own loss suffered in consequence of a breach. Given the way that equitable assignments operate, the equitable assignee can do no such thing -- all it can ever do, so far as common law damages are concerned, is receive the benefit, held on trust for it, of any damages for breach of contract which the assignor might be able to establish: cf L/M International Construction Inc (now Bovis International Inc) and another v The Circle Ltd Partnership (1995) 49 Con LR 12 at 22-23 per Staughton LJ, 30-31 per Millett LJ, 35-36 per Ward LJ concerning damages recoverable after a legal assignment by way of mortgage of a chose in action. Thus that argument does not provide a reason for rejecting the assignability of a covenant to keep information confidential. Unassignable Because it is a Bare Right to Litigate? 194 Though sometimes an assignment of a chose in action is ineffective when it is an assignment of a bare right to litigate, the basis of that restriction on assignability is the law concerning maintenance and champerty: Ellis v Torrington [1920] 1 KB 399 at 406 (Bankes LJ), 408 (Warrington LJ), 410 (Scrutten LJ). In circumstances like the present case, where the right assigned is an attribute of an ongoing business which is also assigned, the assignee has a legitimate interest in the enforcement of the right. Even before the liberalisation of the law relating to maintenance and champerty by the Maintenance, Champerty and Barratry Abolition Act 1993, there was no maintenance or champerty when the person bringing or financing the action had such a legitimate interest in it: Stevens v Keogh (1946) 72 CLR 1; Trendtex Trading Corporation v Credit Suisse [1982] AC 679; Magic Menu Systems v AFA Facilitation Ltd (1997) 72 FCR 261 at 267; Roux v Australian Broadcasting Commission [1992] 2 VR 577 at 607; Martell v Consett Iron Co Limited [1955] Ch 363; Re Tosich Construction Pty Limited (1997) 73 FCR 219; Re William Felton Co Pty Ltd (1998) 28 ACSR 228 at 232, and see Tolhurst, The Assignment of Contractual Rights (Hart Publishing, 2006) at [6.59]-[6.62], 189-203. Since the enactment of the Maintenance, Champerty and Barratry Abolition Act 1993 the restrictions on assignability of choses in action because they are bare rights to litigate cannot be more extensive than they were before that Act was introduced. The covenant concerning confidentiality in the present case is, in the words of Bankes LJ in Ellis v Torrington at 408 "a right incidental to property, a right … which theoretically is part of the property [the plaintiff] has bought.". Thus, the covenant to maintain confidentiality is not unassignable on that account. Conclusion - Benefit of Covenant in Principle Assignable 195 No other basis upon which the covenant might be unassignable has been put to me, and none occurs to me. I conclude that principle suggests that the benefit of the covenant to maintain confidentiality should be assignable. Authority Relevant to Assignability of Obligations of Confidence Judgments Favouring Assignability 196 There is some authority which has assumed the assignability of a right to enforce an obligation of confidence. Because the considerations which affect whether a legal obligation of confidentiality is assignable are the same as those which affect whether an equitable obligation of confidentiality is assignable, I shall consider both types of obligation together. 197 Duke of Queensberry v Shebbeare (1758) 2 Eden 329; 28 ER 924 is early authority for the assignability of an equitable obligation of confidence. It concerned an unpublished manuscript, written by Lord Clarendon. The defendant asserted that the manuscript had been given by Lord Clarendon to a Mr Gwynne, "that he might take a copy thereof, and make use of the same as he should think fit …". From there, it had come into the hands of the defendant, who had caused it to be printed. The plaintiffs were the legal personal representatives of Lord Clarendon, who by the time of the action had died. They obtained an injunction against publication of the manuscript, which Sir Robert Henley, Lord Keeper, continued to the hearing. His reasoning (at 330 of Eden, 925 of ER) was brief: " … that it was not to be presumed that Lord Clarendon, when he gave a copy of his work to Mr Gwynne, intended that he should have the profit of multiplying it in print; that Mr Gwynne might make every use of it, except that."

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It is fair to say that the right of the legal personal representatives to bring the action was assumed, rather than decided, but even so it was an assumption necessary for the decision. On the other hand, as an interlocutory decision it might not have the same standing as a decision on a final hearing. I say "might not" because, these days, a decision to grant an interlocutory injunction requires the Court to be satisfied that there is a serious question to be tried and that the balance of convenience favours the grant of the injunction. Hence, these days, unless the judge has decided to determine a question of law for the purpose of the interlocutory decision, a decision to grant an interlocutory injunction does not involve the deciding of any question of law. It is not apparent from the report whether this approach was adopted in Duke of Queensberry v Shebbeare . 198 Morison v Moat (1851) 9 Hare 241; 68 ER 492 concerned an unpatented medicine made according to a secret formula. The formula was one invented by James Morison. James Morison entered a partnership with Thomas Moat, which was found to be a partnership for the marketing and sale of goods produced in accordance with the formula, but which did not have the formula itself as partnership property. James Morison disclosed the formula to Thomas Moat, subject to a bond which required Thomas Moat not to divulge or communicate the secret to anyone. James Morison introduced two of his sons into the partnership, died, and by his will left those sons the recipe and prescription for preparing the medicine. Those sons were the plaintiffs in the action. It appears that the sons were not his executors, as the will required those sons to enter into a bond with his executors to keep the secret (247 of Hare, 495 of ER). Meanwhile, Thomas Moat had, in what was found to be a breach of his obligations under the bond, disclosed the secret to his son, the defendant. The defendant began manufacturing and marketing medicine in accordance with the formula. The Vice-Chancellor, Sir George Turner, restrained the defendant (at 267 of Hare, 503 ER) " … from making or compounding any medicines according to the secret in, &c, and from in any manner using the secret of compounding the said medicines or any part thereof." 199 His Lordship described the action of the defendant as "availing himself of the breach of faith and contract" (267 of Hare, 503 of ER) because it was Thomas Moat, not the defendant, who had entered into a contract not to disclose the secret. The important thing for present purposes is that the decision to grant the injunction at the suit of the plaintiffs would not have been possible if the right to bring an action to enforce an obligation of confidentiality was not something which could be devised by will. Again, however, it seems from 267 of Hare, 503 of ER that this decision was given after an interlocutory hearing. It is not apparent from the report whether the Vice-Chancellor was deciding any matters finally, for the purpose of that interlocutory decision. 200 O Mustad & Son v Dosen (decided in the House of Lords in 1928, but reported in [1963] RPC 41, [1964] 1 WLR 109 and [1963] 3 All ER 416) involved a skilled workman who acquired from his employer confidential information concerning a process for the manufacture of fish hooks. He entered a written agreement not to disclose "to anybody information of which he might get an insight in consequence of his work". The employer went into liquidation. The plaintiff purchased, from the company in liquidation, "the business including the benefit of the trade secrets and the pledges of secrecy." (110 of WLR, 417 of All ER). While the case turned on whether the plaintiff could obtain an injunction against use of that information after the information had been published in a patent specification, the House of Lords (Lord Buckmaster, Viscount Dunedin, Lord Phillimore, Lord Blanesburgh, and Lord Warrington of Clyffe) assumed, without expressly saying so, the standing of the plaintiffs to sue. The injunction involved in this appeal was a final injunction, not an interlocutory one. 201 Mense and Ampere Electrical Manufacturing Company Pty Ltd v Milenkovic [1973] VR 784 involved a disclosure to a die manufacturer of confidential information by an inventor, who was the first plaintiff. The die manufacturer was a partnership of two men. Later, the first plaintiff sold his business "together with all the plant equipment, stock, goodwill, confidential information and trade secrets of the business" (785) to the second plaintiff. Later again, the die manufacturer used the information to make a product which competed with a product manufactured by the second plaintiff. By that time, the two die manufacturers had taken their wives into the partnership, and all of the members of the partnership were defendants in the suit. McInerney J at 801-2 held that the die manufacturer had been bound by both an implied contractual term restricting the use of the information, and an equitable obligation to similar effect. At 801-802 McInerney J said: " … I have … referred to the obligation of confidence [as] resting on "the defendants" and [as] as enuring for the benefit of "the plaintiffs". I have done so having regard to the fact that the trial was conducted on the basis that if there was an obligation of confidence imposed, in the first instance, on the first two defendants it also bound the other two defendants, and that if the obligation enured originally only for the benefit of the plaintiff, Mense, it was now enforceable by the plaintiff company also. Of course, insofar as the obligation of confidence arises in contract, the obligation arose between the plaintiff, Mense, and the first two defendants only, but is, in my view, now enforceable also against the third and fourth defendants also." (italics added; obvious typographic errors in first paragraph quoted altered in square brackets to likely intended reading.) 202 While his Honour did not come to a final view about relief, his tentative view, at 804, was that the plaintiffs would be entitled to damages in respect of the continuing breach of confidence, an injunction against all defendants from future breaches, and an account of profits made by the defendants by reason of the breaches. 203 In Foster and Others v Mountford and Rigby Ltd (1976) 14 ALR 71 Muirhead J, in the Supreme Court of the Northern Territory, granted an ex parte injunction to restrain publication of a book which included secret information which Aboriginal people had disclosed to the defendant Mountford, an anthropologist, some 35 years previously. His Honour found that that information was given "by people, and on occasions which perhaps cannot now be identified, save in terms of general community, and in terms of period." (at 74). The plaintiffs were members of an unincorporated body known as the Pitjantjara Council. While some of them remembered the anthropologist's visit 35 years previously, they did not claim to have personally been the ones who had disclosed the secrets to him. The concern of the plaintiffs was (at 73): "… that the revelation of the secrets to their women, children and uninitiated men may undermine the social and religious stability of their hard-pressed community … there is still urgent desire in these people to preserve those things, their lands and their identity…" 204 His Honour quoted, at 75, the words of Denning LJ in Fraser v Evans [1969] 1 All ER 8 at 11, that in an action for breach of confidence: " … the party complaining must be the person who is entitled to the confidence and to have it respected. He must be a person to whom the duty of good faith is owed." 205 His Honour went on to say, at 75: "I have considered whether the plaintiffs are entitled to proceed in this action, suing or claiming as members of the council, rather than in a relator action, but they sue on their own behalf, not merely as members or representatives of the Pitjantjara people, if they can be so identified. They allege that they, as individuals are threatened with damage - it is not a case where they seek only to prevent a public nuisance, or to restrain interference with a public right. It is not, in my view, a claim that can only be pursued by a relator action brought in the name of the Attorney-General (see Boyce v Paddington Borough Council [1903] 1 Ch 109; R v Commissioner of Police; Ex parte Blackburn [1968] 2 QB 118 ; [1968] 1 All ER 763; and Attorney-General v Independent Broadcasting Authority [1973] 2 WLR 344 ; [1973] 1 All ER 689, so without at this stage having heard argument on this, I consider the plaintiffs are entitled to bring this action in its present form." 206 The process of reasoning in Foster is, with all respect to his Honour, not fully articulated. It is evident from his Honour's decision that, in accordance with the relevant practices of the Pitjantjara people, the plaintiffs had come to be people who were entitled to know the relevant secrets. There are two possible ways in which the conclusion that the plaintiffs had standing might have been arrived at. One is that that entitlement to know the secrets brought with it an entitlement to sue to protect them. The second is that it is enough, for a plaintiff to have standing to sue, that the plaintiff will suffer significant damage as a consequence of a breach of an obligation of confidence, no matter to whom that obligation of confidence might be owed. Given that his Honour quoted the principle I have set out at para [204] above, it does not seem that he was relying on the second way of reaching the conclusion. The second way of reaching the conclusion would, in any event, have involved a significant change in the law as previously understood. 207 In Foster any obligation of confidence arising between Dr Mountford and the people who originally disclosed the secrets to him would have been an equitable one - there was no suggestion that there was any contract at all between them. Nor was there any hint that there had been an assignment of the benefit of any obligation of confidence by any formal conveyancing means. In that way, Foster accepts a wider basis, for the standing of a plaintiff seeking to enforce an obligation of confidence, than the plaintiff in the present case needs to have title to sue. 208 While the decision was an ex parte one, it has been referred to several times by judges without any hint of disapproval, both first instance judges (Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory v Indofurn Pty Ltd, Bethune, King & Rylands (1994) 54 FCR 240 at 247; (1994) 130 ALR 659 at 664; Chapman v Luminis Pty Ltd (No 4) (2001) 123 FCR 62, at 136) and in the Full Court of the South Australian Supreme Court (Coulthard v State of South Australia (1995) 63 SASR 531 at 546 per Debelle J). More significantly, it has also been referred to in the High Court: Johns v Australian Securities Commission (1993) 178 CLR 408 at 460 per Gaudron J; Western Australia v Ward (2002) 213 CLR 1 at [61], 85. The latter reference, in the joint judgment of Gleeson CJ, Gaudron, Gummow and Hayne JJ, is of particular significance. Their Honours, having decided that a particular claim made by Aboriginal plaintiffs to a right to maintain, protect and prevent the misuse of cultural knowledge, going beyond a right to deny or control access to land or waters, was beyond the claims permitted by the Native Title Act 1993 (Cth), continued: "That is not to say that in other respects the general law and statute do not afford protection in various respects to matters of cultural knowledge of Aboriginal people or Torres Strait Islanders. Decided cases apply in this field the law respecting confidential information, copyright and fiduciary duties." 209 Foster was cited as authority for the second sentence just quoted. I do not believe that their Honours would have proceeded in that way had they thought that Foster contained a fatal flaw because on a proper analysis the plaintiff in Foster had lacked standing. While that use of Foster in the High Court's decision in Western Australia v Ward was not part of the ratio decidendi, it is of considerable persuasive force. 210 Millwell Holdings Ltd v Johnson (1988) 12 IPR 378 was a decision of Gault J in the High Court of New Zealand. It was an application by the purchaser of the assets and goodwill of a company which had gone into receivership, seeking to restrain an alleged breach, by former promoters, directors and employees of and consultants to the company, of an equitable obligation of confidence they had owed to the company (391). His Honour granted an interlocutory injunction, saying, at 384: "Such rights as may be found to exist seem to be assignable: O Mustad & Son v Dosen [1963] RPC 41". 211 Askew v Seventh Granite Pty Ltd (unreported, Federal Court of Australia, Olney J, 1 September 1995) was an action brought seeking to enforce a term in a product distribution agreement requiring the distributors to keep certain information confidential. Olney J struck it out, on the ground that the applicants had become bankrupt, and " …any property rights which they may have had in respect of the trade secrets at the respective dates of their bankruptcies had vested in their respective trustees in bankruptcy and that any trade secret which came into existence after they became bankrupt thereupon vested in their trustees." 212 His Honour relied upon the decision in In Re Keene [1922] 2 Ch 475, which had held that a debtor who had become bankrupt was bound to disclose to his trustee in bankruptcy certain secret formulas, used in a business in which the debtor was a partner, because the formulas were part of the goodwill and assets of the business. In Re Keene dealt with entitlement to the secret information itself - it did not deal with whether any choses in action entitling the bankrupt to enforce an obligation of confidence had vested in the trustee in bankruptcy. Even so, Olney J treated those rights as flowing to the trustee in bankruptcy as well as the right to be informed of the confidential information itself. He did that on the basis that section 116(1) Bankruptcy Act 1966 (Cth) makes divisible amongst the creditors

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and that the rights which the applicants in that case were seeking to enforce did not fall within any of the exemptions, contained in section 116(2), to that general vesting of property and powers. 213 While Askew is a clear decision that the right to take proceedings to enforce a contractual obligation of confidence is something which vests in a trustee in bankruptcy, it does not necessarily answer the question of whether such rights are assignable outside the context of vesting of the property of a bankrupt. I say that because statute can sometimes achieve the effect of a transfer or variation of rights which is not possible under the general law. 214 All the decisions I have considered in paras [196]-[213] tend to favour an obligation of confidentiality being sometimes assignable, and all except Duke of Queensberry v Shebbeare and Foster decide or assume the assignability of an obligation to keep confidential information acquired in and for the purposes of a business. However because they all either come from different court hierarchies to that of which the Supreme Court of NSW is part, or are dicta in the High Court, none of them is binding on me as a matter of law. They do, however, provide some degree of comfort that judges, when confronted with a practical situation in which a plaintiff can succeed only if an obligation of confidentiality has been assigned, have decided that that plaintiff should succeed. Judgments Against Assignability 215 There are two judgments which expressly state that such a right is not assignable. One of them is a judgment in the New South Wales Court of Appeal, Moorgate Tobacco Co Ltd v Philip Morris Ltd (1982) 64 FLR 387. That case involved an attempt by Moorgate to stop Philip Morris from marketing a cigarette under the name "Golden Lights". Moorgate relied on several different legal principles, one of which was that use of that name would involve a breach of an obligation of confidence. There had been an original licence agreement whereby Lorillard granted to Godfrey Phillips a licence of trademark rights relating to Kent cigarettes. There were various assignments and novations, one of which resulted in Loew's Theatres Inc becoming the licensor. Then, Loew's Theatres Inc entered an assets purchase agreement, under which Moorgate became the licensor. There were some discussions between Loew's Theatres Inc and the licensee, before that asset purchase agreement was entered, about the possibility of launching "Kent Golden Lights" in Australia. At 404-5 Hope JA (with whom Moffitt P at 391, and Glass JA at 413 agreed on this point) said that those discussions provided only "a slender basis" for a case based on confidential information to restrain the use of the name, and continued: "However, in my opinion, even if some obligation of confidentiality was imposed on the respondents, the submission made on behalf of the respondents that any rights which the appellant's predecessor may have had in the matter were not transferred to the appellant is correct. That knowledge is not property seems clear enough: Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525 , at pp 534-536; Brent v Federal Commissioner of Taxation (1971) 125 CLR 418 , at p 426; Federal Commissioner of Taxation v Sherritt Gordon Mines Ltd. (1977) 137 CLR 612 , at p 630. There is in my opinion no relevant way in which, in the circumstances, Loew's Theatres Inc. could have transferred any potential rights it may have had to restrain a breach of confidence on the part of the respondents to the appellant; nor did it purport to do so. If there was a right, it was a right personal to Loew's Theatres Inc, and it was not one which could be or was vested in the appellant so as to entitle it to the relief which it seeks." 216 That passage clearly involves decisions both that (1) Loew's did not purport to transfer any potential right it had to restrain a breach of confidence to Moorgate, and (2) even if there had been a right to such a restraint, it was personal to Loew's Theatres Inc, and could not have been transferred to Moorgate, even if Loew's had purported to do so. 217 Even though this judgment is a judgment of the NSW Court of Appeal, I have come to the conclusion that it does not dictate the result which should be arrived at in the present case. 218 The judgment of the Court of Appeal in Moorgate was the subject of an appeal to the High Court. Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 438-439 upheld the decision of the Court of Appeal, that the law of confidential information gave no right to Moorgate. However Deane J (with whom Gibbs CJ, Mason Wilson and Dawson JJ agreed) did so, at 439, solely on the ground that the information was not confidential. This was a ground that Hope JA was inclined to think was correct, but had not actually decided was correct. Deane J said nothing about the other reasons of Hope JA for denying the confidentiality claim. 219 The account of the argument in the High Court in Moorgate shows (156 CLR at 418) that counsel for the appellant expressly put a submission that "the right to have a fiduciary duty and a confidence respected is a right of property capable of assignment". The High Court chose not to decide the correctness of that submission. The account of the argument for the respondents, at 156 CLR 419-421, shows no trace of a submission about whether the right to keep information confidential was assignable. In other words, not only did the High Court not support the other reasons of Hope JA for denying the confidentiality claim, counsel who had succeeded in the Court below did not argue in favour of the correctness of those other reasons. 220 In my view, when the Court of Appeal has reached a conclusion on two grounds, where either of those grounds would be a sufficient reason for reaching that conclusion, and where the High Court affirms the decision of the Court of Appeal on a different basis, the two grounds relied on by the Court of Appeal are not binding on judges below the Court of Appeal in the appellate hierarchy. By "binding" I mean that it would involve an error of law on the part of a first-instance judge not to apply those two grounds. As the reasons for reaching that conclusion are somewhat lengthy, and a diversion from the main thread of the argument in these reasons for judgment, I set them out in an appendix, in paras [300] ff below. 221 A separate reason why the Court of Appeal's decision in Moorgate is not binding on me is that, even if I am wrong in the view I have just expressed concerning the law of precedent, the decision of the Court of Appeal in Moorgate is either one which has no discernable ratio decidendi, or else any ratio is inextricably bound up with the facts of that particular case. That is so because the decision on both of the points I have identified as (1) and (2) at para [216] above is to some extent dependent upon the facts of the particular case. This is recognised expressly by Hope JA, in the penultimate sentence quoted at para [215] above, including the words "in the circumstances". The reasons for judgment do not explain what the facts relevant to either of the conclusions are. It is for that reason that the account I have given in para [215] above of the facts of the case lacks precision. At 392, Hope JA had said: "As a result of a number of assignments and novations which it is not necessary to describe in detail the appellants became the licensor under these agreements. The last of these transactions was what has been called an assets purchase agreement signed on 22 June 1977, to which the appellant and the then licensor, Loew's Theatres Inc were parties."

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No fuller account of the assignment was given. Thus the reader cannot see why the conclusion was arrived at , that Loew's did not purport to transfer any potential right it had to restrain a breach of confidence to Moorgate. One suspects that it had something to do with the terms of the "assignments and novations" , but cannot tell what aspects were the relevant ones. Further, there is only a very sketchy account (at 392-393) of the circumstances in which the alleged confidential information was disclosed, and precisely what it was. In these circumstances, one cannot tell for what reason Hope JA reached the conclusion that any right concerning confidentiality would be a personal right which was inherently unassignable. Thus, I can find no ratio decidendi in the case which is applicable in the present case. 222 A possible third reason - and it is only a "possible" third reason because it might merely be an aspect of the second reason - is that the present case is distinguishable from Moorgate, in that it lacks the particular "circumstances" upon which Hope JA relied in Moorgate. 223 Even if the portion of the judgment of the Court of Appeal in Moorgate which I have quoted at para [215] above is not binding (in the sense that it would be an error of law for a court below the Court of Appeal in the appellate hierarchy to not follow it) any judge below the Court of Appeal in the appellate hierarchy would depart from that aspect of the decision only if there were sound reason for doing so. In the present case, however, because one cannot follow the steps by which the conclusion was arrived at, it is not possible for a trial judge to know whether he or she is departing from the reasons of the Court of Appeal's decision. 224 There is one way in which any statement in a judgment of the Court of Appeal has "persuasive authority", in one sense of that expression. It is that, whether or not the judgment is binding as a matter of law on a judge of first instance in this Court, any appeal from such a judge will go to the Court of Appeal, and the first instance judge is well advised to consider the prospects of the Court of Appeal following its previous judgment, whether that judgment is binding as a matter of law on the Court of Appeal or not. But there is another type of "persuasive authority". That concerns whether the reasoning of the previous judgment of the Court of Appeal actually persuades, and that in turn depends upon both the inherent logic of its reasoning, and the extent to which the previous judgment of the Court of Appeal accords with principle. If a previous judgment of the Court of Appeal is not binding as a matter of law, and does not persuade, in that sense, and if the first instance judge is of the view that that previous judgment is contrary to principle, it seems to me that the duty of the first instance judge is to decide the case in accordance with correct principle. 225 There is one particular aspect of the reasoning of the Court of Appeal in Moorgate which is not persuasive, in the second sense I have mentioned. Insofar as the second sentence which I have quoted at para [215] above is part of the reasoning, even if one assumes for the sake of the argument that it is undoubtedly correct that knowledge is not property, it still does not follow, in my respectful view, that a right to prevent the disclosure or use of certain knowledge save for certain specified purposes is not property. 226 More importantly, this part of the decision of the Court of Appeal has been subject to some particularly significant criticism, which goes to a fundamental matter of principle. Meagher, Gummow & Lehane's Equity Doctrines & Remedies, 4th edition, para [41-070] says: "What if the defendant indubitably owes a duty of confidence to X and the plaintiff claims standing by dint of an assignment to him by X of the benefit of the defendant's duty of confidence? In Moorgate Tobacco Co Ltd v Philip Morris Ltd (1982) 64 FLR 387 at 404-5 Hope JA, in the New South Wales Court of Appeal, suggested that an obligation of confidence, not having "property" as its subject matter, was not something the benefit of which may be transferred. The correct position would appear to be that many obligations of confidence are unassignable; thus it hardly is to be contended that the plaintiff in Duchess of Argyll v Duke of Argyll [1967] Ch 302; [1965] 1 All ER 611 could have assigned the benefit of the duty owed her by her former husband to keep secret details of their life together. Confidences of this character appear as equitable choses in action unassignable in equity for reasons analogous to those which lead equity to treat as unassignable the benefits of contracts involving the reposing of personal confidence by one party in the other: see [6-440] ff. On the other hand, there is no such inhibition against assignment in equity of a trade secret such as a formula or recipe used in commercial operations. Indeed, it is not uncommon for such information to be dealt with by sale as an object of commerce, so that those who (for example, as "licensees") owed a duty of confidence to the transferor in respect of the trade secret could now be restrained at the suit of the transferee." 227 That paragraph in Meagher Gummow and Lehane is one which has stood in substance unchanged from the second edition of 1984. The preface to that second edition is dated 1 November 1983, so it is likely the text was written by that date. Mr Meagher QC and Mr Gummow (as their Honours then were) had, in 1982, been the counsel who had succeeded in the Court of Appeal in Moorgate Tobacco Co Ltd v Philip Morris Ltd (1982) 64 FLR 387. The paragraph contains a disavowal of the argument they had apparently put, which Hope JA had accepted, and by which their client had succeeded in the Court of Appeal, so far as assignability of any obligation of confidentiality was concerned. Mr Meagher QC and Mr Gummow were also the counsel for the respondent in the appeal to the High Court in Moorgate, and who apparently failed, when the High Court appeal was argued in November 1983, to put any argument in the High Court in support of the portion of Hope JA's judgment which I have quoted at para [215] above. 228 There are several reasons why I regard that criticism as particularly significant. One is its inherent persuasiveness and accordance with principle. A second is the reputations of the authors and editors. Concerning that, it is relevant that one of the original authors of the passage (Gummow J) is now a judge of the High Court, and that one of the editors of the 4th edition (Heydon J) is another judge of the High Court. A third is that the criticism is not merely the product of an academic commentator -- it is the product of people who had the most intimate knowledge of and involvement in the decision being criticised. 229 The last two sentences in this quotation from Meagher, Gummow & Lehane specifically contemplate that, in a situation like the present, an assignment of the benefit of the obligation of confidentiality could be effective. I respectfully agree with the learned authors that the correct way of deciding whether the benefit of an obligation of confidence can be assigned is by inquiring whether it is an inherently unassignable chose in action. I also respectfully agree with their conclusion that there is no legal prohibition against assignment in equity of a trade secret. The considerations of principle I have set out at paras [176]-[195] above lead to that conclusion. I see no reason for differentiating between a trade secret, and other obligations of confidence, such as that attaching to customer lists, which arise in the course of a commercial dealing such as that between the Kernot Company and Dr Zahedi. 230 The second decision that holds that an assignee of confidential information cannot sue to enforce rights concerning that information is TS&B Retail Systems Pty Ltd v 3fold Resources Pty Ltd and Others [2003] FCA 371; (2003) 57 IPR 530. Finkelstein J there dealt with an application by the purchaser of a business (including its intellectual property and proprietary rights) for an interlocutory injunction to restrain certain former employees from using in competition certain drawings and information, which they had come across while in the employ of the previous operator of the business. While His Honour granted the injunction, he did so only in relation to information concerning which there was a serious question to be tried of breach of copyright. His Honour's reasoning concerning the claim, insofar as it was based upon confidential information is at [23]-[26], 536-538. That reasoning should be set out in full: "[23] This part of the case raises an interesting question in relation to confidential information. I will assume for the moment that the information which is said to be confidential satisfies the requirements which must be established in order to warrant protection by the court. The information was brought into existence by TS & B and perhaps its predecessors. The receivers purported to assign that information to the applicant as part of the assets which the applicant purchased for $650,000. The applicant contends that this assignment gives it standing to bring an action to protect the information as confidential information.

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(b) In Boardman v Phipps [1967] 2 AC 46, while there are the expressions of opinion of Lord Cohen and Lord Upjohn to which his Honour referred, Lord Hodson at 106-7 and Lord Guest at 115 were of the view that knowledge and information can be trust property. Viscount Dilhorne expressed himself more indirectly saying at 89 - 92 that he was prepared to accept that information can sometimes be property, but holding that the information involved in that particular case was not property of the trust "in the same way as shares held by the trust were its property" . 235 Fourth, I do not, with the greatest respect, draw the same conclusion as does his Honour from Deane J's remark concerning the equitable obligation of confidence in Moorgate Tobacco that "its rational basis does not lie in proprietary rights". What I take Deane J to mean is that it is incorrect to say (a) that it is because confidential information is a kind of property which exists quite independently of a legally recognised right to keep the information confidential, that the law recognises a right to keep the information confidential, and (b) that the law gives remedies concerning confidential information as a way of enforcing or vindicating that property right. Rather, I take Deane J to say, the legal right to have the information kept confidential springs from a source different to property, namely a requirement of conscionable dealing. I take Deane J to be expressing a similar thought to the frequently quoted statement of Holmes J in E I Du Pont de Nemours Powder Company v Walter e Masland 244 US 100, 37 S Ct 575 (1917) at 102, 576: "The word 'property' as applied to trademarks and trade secrets is an unanalyzed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith. Whether the plaintiffs have any valuable secret or not the defendant knows the facts, whatever they are, through a special confidence that he accepted. The property may be denied, but the confidence cannot be. Therefore the starting point for the present matter is not property or due process of law, but that the defendant stood in confidential relations with the plaintiffs, or one of them."

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However, recognising that it is conscionable dealing rather than some pre-existing property right which is the basis for the equitable rights and remedy does not lead to any conclusion about whether the legal right to keep information confidential, once recognised, is a type of property. 236 Fifth, having reread the decision in O Mustad & Son v Dosen, I can see nothing to suggest that in that decision their Lordships assumed either (i) that the only thing of relevance which the plaintiff had purchased was the trade secrets, or (ii) that the confidential information purchased was "property". Rather, Lord Buckmaster, at [1964] 1 WLR 110 states that what the plaintiffs had purchased was "their business including the benefit of the trade secrets and the pledges of secrecy" (emphasis added). Thus, it seems to have been in their Lordships' mind that there had been a purported assignment of a chose in action, namely the obligation to keep the information confidential. 237 Sixth, in my respectful view, if a fuller quotation than Finkelstein J made is made from para [41-070] of Meagher Gummow and Lehane's 4th edition one does not derive from it the message set out in the last sentence of para [25] of TS&B Retail Systems. Rather, one derives the message that whether a particular obligation of confidence is assignable depends on the type of obligation of confidence it is, and that some obligations of confidence are inherently assignable while others are not. 238 It is for these reasons that I have concluded that neither principle nor authority requires the benefit of a contractual obligation to keep information confidential to be unassignable. On the contrary, the general considerations of principle which I have set out at paras [176]-[195] lead to the conclusion that there has been an effective equitable assignment to the plaintiff of the benefit of the implied obligation of confidentiality owed by Dr Zahedi to the Kernot Company. Proper Parties to an Action by the Assignee? 239 For an equitable assignee of a legal chose in action to sue on the chose in action, it is usually necessary for the assignor to be a party to the action: Meagher, Gummow & Lehane, op cit, para 6-520 and cases there cited. That requirement is satisfied in the present case, where the Kernot Company is a defendant. In that circumstance it is not necessary for me to enter into any debate about whether joinder of the assignor is always necessary: cf G J Tolhurst "Equitable Assignment of Legal Rights: A Resolution to a Conundrum" (2002) 118 LQR 98; Bluebottle UK Ltd & Ors v Deputy Commissioner of Taxation (2006) NSWSC 706 at [72]-[77]. Assignability of an Equitable Obligation of Confidence 240 If, contrary to the view I prefer, Dr Zahedi's obligations to maintain confidentiality concerning patient names and addresses arose only in equity's exclusive jurisdiction, a different analysis is needed to decide whether it has been effectively assigned to the plaintiff. 241 It is not necessary to enter into the controversy about whether confidential information is property for the purpose of this judgment. On the hypothesis I am adopting for this section of the judgment, there was an equitable obligation owed by Dr Zahedi to the Kernot Company restricting the use and disclosure of the patient names and addresses. That obligation is an equitable chose in action. The question upon which the plaintiff's title to sue depends is not whether the information comprising the patient names and addresses has been assigned to the plaintiff. Rather, it is whether this particular equitable chose in action has been assigned to the plaintiff. 242 The same reasoning process which led me to conclude that the agreement for sale of business was an agreement for sale of the legal chose in action which restricted Dr Zahedi's use of the patient names and addresses (para [162]-[172 above)] can be applied to the equitable chose in action now under consideration. It leads to the conclusion that that Agreement made on 28 February 2002 is an agreement for the transfer of the equitable chose in action which I am now considering, and that the consideration for that assignment has been performed. 243 There is no reason why any different considerations should apply to whether an equitable obligation of confidence is assignable to those which apply to whether a contractual obligation of confidence is assignable. Thus, I conclude that any equitable obligation of confidence has been effectively assigned, in equity, to the plaintiff. PART E - PLAINTIFF'S REMEDIES AGAINST DR ZAHEDI Can the Plaintiff Recover Damages from Dr Zahedi? 244 I have explained earlier, at para [190] what rights an equitable assignee of a contractual covenant has to recover damages if there is a breach of that covenant. If the Kernot Company were to sue Dr Zahedi for breach of the implied term requiring confidentiality, its measure of damages would be the loss of profits it had sustained by reason of the breach. 245 However, at the time the breach occurred, the Kernot Company had ceased to carry on any business, and could not and would not have made any profits if the breach had not occurred. Thus, there is nothing which, pursuant to the assignment, it could hold on trust for the plaintiff, if it were to sue Dr Zahedi for the breach. While equity's jurisdiction to avoid circuity of action permits the plaintiff to sue Dr Zahedi, the amount which the plaintiff can recover as damages cannot be any different to the amount which the Kernot Company could have recovered, if it had sued Dr Zahedi itself: Western Wagon and Property Company v West [1892] 1 Ch 271 at 277; Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 17 at 21, 25, 36. Thus, the plaintiff has established no entitlement to damages for breach of contract against Dr Zahedi. 246 In case the Court of Appeal finds I am wrong in taking the view that an equitable assignee of a legal chose in action can recover only such damages as the assignor could have recovered, I turn now to consider whether the plaintiff has established that it has suffered any damage in consequence of Dr Zahedi's breach of covenant. I am not satisfied that the plaintiff has established any such damage. 247 Even before the agreement for sale of the Clinic was completed, Dr Lindsay was working extremely hard - para [67] above. He was the only doctor then working in the plaintiff's practice. He clearly expected that more than one doctor would need to be working in the plaintiff's practice, to handle the combined patient list of his own practice and the Clinic - hence his negotiations to employ Dr Zahedi and Dr Lim. However, when negotiations with Dr Zahedi and Dr Lim fell through on Monday, 4 March 2002, he made no other arrangements for the plaintiff to obtain extra professional assistance. 248 The plaintiff had a full set of the medical records relating to every patient of the Clinic, including a copy of every pathology report relating to every patient and the telephone number which the Clinic had formerly used was diverted so that it rang at the plaintiff's practice. 249 Neither Dr Lindsay nor Dr Kernot arranged for a mail-out to patients of the Clinic informing them that the practice of the Clinic had been sold. 250 On Monday 4 March 2002 the plaintiff's practice had made arrangements for Dr Zahedi to have a full day of appointments booked. However, Dr Zahedi saw non of the patients who had been booked on that day. That day, Dr Lindsay had over 80 patients to deal with. 251 It was necessary for the plaintiff's practice to telephone all the patients who had been booked to see Dr Zahedi in following days, and make arrangements to reschedule the appointments of those that Dr Lindsay could not attend to along with his own previously arranged commitments. 252 After the acquisition of the Clinic, Dr Lindsay was "busy as anything". "Initially because I had to see all those patients we had to transfer those bookings over to us and we had no doctors to see them so I was seeing what was previously their workload initially." 253 By the end of March or early April in 2002: "I was busy, yes. I found a lot of untreated patients so I had to make a commitment to them so I wasn't allowed to stop for months or to ease up until that settled down.

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Q. If you don't do 20 days of 80 patients-- A. You still get audited." 257 Dr Lindsay admits to exceeding the 80 patient limit on occasions, but explains: "You probably wouldn't charge them and you record it in your notes. You wouldn't charge them because you have a restriction." 258 Thus, even if Dr Lindsay saw more than 80 patients in a day, he would not necessarily charge them. In relation to any such patients the plaintiff would make no profit. 259 Mr Downing submits that there are other reasons, besides any breach of an obligation on Dr Zahedi's part, for patients transferring their custom to Dr Zahedi. 260 At the time that Dr Zahedi began working at 580 George Street there was already a skin cancer clinic established there. It operated under an unregistered business name "City Skin Cancer Clinic", had a distinctive logo, and had engaged in some advertising. When 580 George Street is within two city blocks of where the Clinic had been, and within three city blocks of where the plaintiff's practice was located, it would not be surprising if some former patients of the Clinic went to 580 George Street, on the ground of its location, and regardless of whether Dr Zahedi was there. 261 Since he has been there, Idameneo has advertised Dr Zahedi's practice at 580 George Street in local newspapers, particularly in the eastern, south-east and inner western suburbs. He has had business cards printed. In May 2002 he gave a few to a patient (whom he had first treated at the Clinic) who he came across, and whom was a union member in a railway union. Around the end of April 2002 he visited the head office of a particular Australian government instrumentality, as he recalled that that was the work place of a number of his high risk patients from the Clinic. He gave the receptionist some business cards, and a document which stated his new address. 262 There is a barber at 468 George Street, Sydney, with whom Dr Zahedi has left approximately 60 business cards. He left those business cards on three separate occasions, on each of which he left approximately 20 cards. He also left with the barber a poster which stated Dr Zahedi's new address and telephone number. Ms Glynne found a copy of that poster on the door of the premises which the Clinic had formerly occupied on 7 June 2002. No such poster had been on the door on Monday, 3 June 2002. 263 There is evidence from one former patient of the Clinic, Mr Wilksch, that he was told by the barber at 468 George Street that the Clinic had moved to 580 George Street. 264 All these means of attracting custom are, Mr Downing submits, ones that Dr Zahedi could engage in without breaching any obligation he had owed to the Kernot Company. I accept that that is so. 265 Mr Downing invites me to find, on the basis of having seen Dr Lindsay in the witness box, that some patients would be likely to find his manner such that they did not wish to deal with him. Mr Downing also relies on evidence which Dr Lindsay gave in cross-examination that he receives "orchestrated complaints" about his practice (which he regards as a criminal conspiracy), and that: "A. I am the most investigated doctor I have been told in the history of the HCCC but I am actually innocent."

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The "HCCC" referred to in that evidence is the Health Care Complaints Commission, a body established under New South Wales legislation. 266 Mr Downing also points out that one patient, identified at transcript 255, was on the list of patients who Dr Zahedi telephoned. He came to see Dr Zahedi after he had seen Dr Lindsay. "He stated to me that he saw Dr Lindsay, yes; and was unhappy." 267 While I do not go so far as the finding which Mr Downing invites me to make, I recognise that whether any patient continues to see any particular doctor is influenced by the personal relations between them, and that sometimes a patient will chose to go elsewhere if he or she feels that the personal relationship is not what the patient would like. Dr Lindsay would not be immune from this risk. 268 The plaintiff has not established that the cause of all or any patients transferring their custom to Dr Zahedi at 580 George Street was the breach by Dr Zahedi of his obligation of confidence, rather than other matters which could quite legitimately have led the patients to transfer their custom. Neither, however, have Dr Zahedi or Idameneo tried to disentangle the various possible causes why patients may have transferred custom. In that situation I choose to place no reliance on those possible alternative causes of transfer of custom, in deciding whether the plaintiff has adequately proved loss. 269 For the reasons given in paras [247]-[258] I am not satisfied that the plaintiff has established it has sustained any loss in consequence of Dr Zahedi's breach of covenant. Can the Plaintiff Receive an Account of Profits from Dr Zahedi? 270 There are difficulties of principle concerning whether an account of profits is available as a remedy, in equity's auxiliary jurisdiction, concerning a breach of contract: Gleeson and Watson, "Account of Profits, Contracts and Equity" (2005) 79 ALJ 676. I have expressed the view that even if an account of profits is sometimes available in circumstances where there has been a breach of contract, something more than a mere breach of contract is needed to demonstrate the appropriateness of awarding the equitable remedy: Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 at [83]. 271 An argument might be open that, if the relationship between contracting parties is such that if there had been no term in the contract imposing an obligation of confidence, equity would have imposed an obligation in its exclusive jurisdiction which was no less onerous than the parties by their contract have agreed to, that is a sufficient justification for the award of an account of profits in relation to a breach of the contractual obligation of confidence. It is clear law that if an equitable obligation imposed in the exclusive jurisdiction is breached, the remedies available include whichever the plaintiff elects of equitable compensation, and an account of profits. That equity allows that choice of remedy concerning a breach of an obligation of confidence in its exclusive jurisdiction might be argued to be a reason why it would regard the common law remedy of damages for breach of a contractual obligation of confidence as inadequate in a situation where it would have imposed an obligation of confidence if the parties had not agreed on such an obligation. 272 I will not decide the correctness of those arguments in this judgment. Rather, I shall assume, without deciding, that an account of profits is a remedy which would have been available to the Kernot Company, and that by virtue of the equitable assignment it is also a remedy which is available to the plaintiff. 273 The onus is on any plaintiff who seeks an inquiry as to profits to persuade the Court that it is appropriate to make such an order. Whenever an account of profits is ordered in relation to a breach of an equitable obligation, where that breach has resulted in the person in breach receiving money in consequence of both the breach of the obligation, and his or her own expenditure of time effort and skill, an allowance is ordinarily made for the value of that time, effort and skill: Green v Folgham (1824) 1 Sim & St 398 at 406; 57 ER 159 at 162; Boardman v Phipps [1967] 2 AC 46 at 104, 112; Warman International Limited & Another v Dwyer & Others (1995) 182 CLR 544 at 562. 274 In the present case, when Dr Zahedi was seeing former patients of the Clinic at 580 George Street, the only thing which he offered them was his time, skill and expertise. It would be inappropriate for a remedy to be imposed which did not make allowance for the value of the time, skill and expertise expended in seeing those patients. 275 There are three pieces of evidence which relate to the value of Dr Zahedi's time, skill and expertise in treating skin cancer patients. One is the arms length contractual relationship he negotiated with the Clinic, under which he retained 57.5% of the fees for service actually received. The second is the terms of the contract he negotiated at arms length with Idameneo. Under it, he retains 50% of all fees received. 276 The third is his negotiations with the plaintiff, in March 2002, about the basis on which he might come to work for the plaintiff. Evidence of an unaccepted offer to buy the very thing whose value is in question in litigation is admissible as evidence of the value of that thing: MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167 at [84]-[100], 182-185 per Spigelman CJ (with whom Mason P and Hodgson JA agreed). I accept the evidence of Dr Lindsay that in those negotiations Dr Zahedi originally asked for 65% of earnings, and that after some haggling the highest offer which Dr Lindsay made was 57.5% of earnings, together with a prospect that if all went well Dr Zahedi "may be looking at a share in the business". 277 On the basis of this evidence, I conclude that the proper allowance to be made to Dr Zahedi for his time, skill and expertise lies somewhere in the range of 50% to 57.5% of the fees he generates. 278 When an allowance at that rate is made to Dr Zahedi, nothing remains, of the periodical payments he receives from Idameneo, which could be accounted for pursuant to an order for account of profits. 279 Dr Zahedi's contractual arrangements with Idameneo included a lump sum payment of $300,000 made to him on 17 April 2002. The contractual documentation stated that that payment was the purchase price for (on the true construction of the agreement) the goodwill of a practice which Dr Zahedi had formerly conducted. However, Dr Monk, the Executive Medical Director of Idameneo, and the man with whom Dr Zahedi negotiated his contractual arrangements with Idameneo, was aware that Dr Zahedi was a doctor who was working at a clinic which was not Dr Zahedi's own clinic. Dr Monk wanted a GP who was prepared to work after hours. As well as selling the goodwill of his non-existent practice, Dr Zahedi entered an agreement to provide his services exclusively for five years to Idameneo. I accept the evidence given by Dr Bateman and Dr Monk, to the effect that Idameneo's pressing need, at the time Dr Zahedi entered a contract with it, was for doctors who could provide general practice services, that Dr Zahedi's experience in skin cancer was not of particular interest to them, but that, as Dr Zahedi was anxious to continue skin cancer work, they agreed to him doing a certain amount of that type of work. Dr Zahedi's agreement with Idameneo sets out that the hours he shall work in the skin cancer clinic are on a Monday, Tuesday and Wednesday from 9:00 am to 3:00 pm, while his work as a general practitioner is to be done from 4:00 pm to 9:00 pm on Mondays, 4:00 pm to 10:00 pm on Wednesdays, 4:00 pm to 8:00 pm on Thursdays, and 3:00 pm to 10:00 pm on Fridays. 280 I accept Dr Monk's evidence, that: "If Dr Zahedi said to me that I would only work two evenings a week and no weekends I wouldn't be interested in giving him $300,000. If he said I only want to do skin work we won't give him anything. He committed a large number of after hours and for that reason - and, you know - and for that commitment and for that ability to practice that's why we made the negotiations." 281 Under these circumstances, the payment of the $300,000 would not enter into any calculation of profits concerning which an account was ordered. 282 Thus, I decline to order that the plaintiff receive an account of profits made by Dr Zahedi. PART F - THE CASE AGAINST IDAMENEO 283 The plaintiff's solicitor, Mr Kelvin Solari, faxed a letter to Dr Zahedi on Friday, 26 April 2002. That letter made demands concerning both the use of the name "City Skin Cancer Clinic" at 580 George Street, and also the use of confidential information. Insofar as it dealt with the latter topic, it said: "I confirm that I am the solicitor acting for The Mid-City Skin Cancer & Laser Centre Pty Limited ("my client"). My client … purchased the business of the "Sydney Skin Cancer Clinic" on 1 March 2002 from L W Kernot Pty Limited. I am instructed that you were engaged to provide medical services for the Sydney Skin Cancer Clinic up to the purchase of that business by my client. I am further instructed that: 1. You are now engaged by the Sydney Medical Centre to provide medical services for them; … 3. You are contacting, or causing to be contacted, former patients of the Sydney Skin Cancer Clinic and using records retained by you, including pathology reports of those former patients. … In respect of the matter referred to in 3. above please note the following: a. the confidential information you are using belongs to my client; b. all records of the Sydney Skin Cancer Clinic retained by you or by the Sydney Medical Centre are to be immediately returned to my client's premises at Ground Floor, HCF House, 403 George Street, Sydney (as you discussed employment with my client after its purchase of the said business, there is no reason why you would not be aware of the location of my client's premises); c. your use of that confidential information is improper and is causing my client damage. d. you are hereby advised to immediately cease using that confidential information and my client requires receipt of your personal undertaking in that regard (forwarded to me) by close of business on Friday 3 May 2002. You are further hereby put on notice that in the event that any of the matters referred to above are not attended to by close of business on Friday 3 May 2002, proceedings may be instituted against you and others without further notice to you (or those others) seeking, inter alia, damages and injunctive relief. I await your advices." 284 Dr Zahedi arranged for a copy of that letter to be provided to Idameneo very promptly. As well, Mr Solari faxed a letter to Idameneo on 26 April 2002, enclosing a copy of the letter to Dr Zahedi, and saying: "You are hereby likewise put on notice of the matters referred to in that enclosed letter. In the event of those matters not being attended to as requested, including you also giving the undertakings requested, the proceedings referred to in that letter may be instituted against you without further notice." 285 Dr Edmund Bateman, a director of Idameneo, wrote back on Tuesday 30 April 2002 declining to give the undertakings, and saying: "Dr Zahedi has not used any records which are the property of your Client and furthermore has no records or other property belonging to your Client. Dr Zahedi has the goodwill of a number of patients not "owned" by your Client, nor has your Client purchased their goodwill. It would appear your Client has the problem in that he has purchased a business which would appear to be a service provider to the professionals but he has failed to attract those professionals to the business. The aim of your letter appears to be to limit legitimate competition which we provide." 286 The plaintiff's case against Idameneo was put as depending upon Idameneo having assisted in the mail-out after it acquired notice, on 26 April 2002, that to do so "was adverse to the rights of the owner of the relevant information." 287 The present proceedings were commenced by summons on 24 May 2002. On 31 May 2002 both Dr Zahedi and Idameneo gave undertakings not to initiate contact with any person by the use of any patient list prepared in the business of the Clinic in the period in which that business was owned by the Kernot Company, any pathology reports or copies of pathology reports prepared at the request of the Clinic in the same period, any patient records prepared by the Clinic in the same period, or any notes with respect to treatment of patients by the Clinic prepared in the same period. That undertaking was initially given for a limited period of time, but has come to be given until further order. The plaintiff does not contend that the undertaking has been breached. Thus, the period in which it asserts assistance in the mail-out occurred was from 26 April 2002 until 31 May 2002. 288 Dr Zahedi entered his agreement with Idameneo on 17 April 2002, and began working there on 22 April 2002. Dr Zahedi began compiling the list of patients a few days before he began to work for Idameneo, and its compilation occurred over a period he puts, fairly vaguely, at about 7 to 10 days. In accordance with that timeframe, and given that the practice was that he would provide a few pages of the lists to the receptionist as soon as they were completed, it is a possibility that all of the letters which were sent out were sent out before Mr Solari's letter of 26 April 2002 had been received. 289 Doctor Zahedi gives some evidence, which I accept, that at some stage the staff were told to stop mailing out any more letters, and that that instruction came following an event which had some sort of legal significance ("… somebody told me that there is an injunction or some sort of legal term, that we shouldn't mail out any more."). When he was cross-examined specifically about what happened immediately after receipt of the letter concerning the mail out, he gave the following evidence: "Q. So as far as you were aware there was no problem at that stage with you continuing with the mail out, isn't that right? A. I was accumulating still but the mail out I think stopped some more. Q. Why? A. Because - I don't know, I mean that's what, if I'm correct from my memory, that was the function that they instructed the system, I think. Because that's when the mail out was stopped I guess. I'm not sure. Q. You're not sure when the mail out stopped? A. I'm not sure. I know that the receptionist were instructed not to mail out."

[78]

I do not accept that making reasonable efforts to comply with the contract is sufficient. The contract for sale of the business of the Clinic was not one under which the Kernot Company promised to make reasonable efforts, or use its best endeavours, to transfer to the plaintiff the assets of the Clinic which were agreed to be sold. If the Kernot Company has failed to deliver and give good title to those assets of the Clinic which it agreed to sell, it does not matter (at least in circumstances where there is no allegation of frustration) whether the reason for that failure is an event which the Kernot Company did not expect, or could not reasonably have expected, would occur. 293 In my view, the Kernot Company was in breach of its contractual obligations in failing to deliver the third copies of the pathology reports, and those photocopied booking sheets which Dr Zahedi retained. Each of those types of document was an asset of "the Business", within the meaning of the agreement. 294 The only contractual liability which Dr Kernot has under the Agreement for Sale concerns the warranties, and the restraint of trade covenants which he gave (para [75]-[77] above). The plaintiff alleges only breach on his part of the warranties. 295 In my view, there has been no breach by Dr Kernot of the warranties. The only title which the Kernot Company had to the pathology reports was its interest as a bailee, but giving a commercial construction to Clause 2.1 all that the Kernot Company agreed to sell, so far as pathology reports were concerned, were its right, title and interest in them, and whatever rights in them it might have which could count as an asset of the Business. There were no assets which were used in the Business, and which on the true construction of the agreement the Kernot Company did not agree to sell. In these circumstances, Dr Kernot has not breached either of warranties (iv) or (v) in Part 12 of the Schedule. 296 The only breach of the agreement is that the Kernot Company did not deliver all the documents that it was contractually obliged to deliver. Measure of Damages for Breach of Contract by the Kernot Company 297 The measure of damages for this breach of contract is ascertained by the difference between the situation the plaintiff would have been in if the contract had been performed, and the situation it is in when the contract has been breached. The plaintiff had delivered to it a copy of every patient card and pathology report and booking sheet which was of current relevance to the operation of the practice of the Clinic. The breach of contract related only to the failure to deliver duplicates of some of the pathology reports and booking sheets. However, it was the failure to deliver those duplicates which gave Dr Zahedi the opportunity of contacting former patients. 298 For the reasons which I have earlier given at paras [246]-[269] concerning why the plaintiff had not demonstrated it had suffered any loss in consequence of Dr Zahedi's breach of contract, I also find that the plaintiff has not demonstrated it has sustained any loss in consequence of the breach of contract of the Kernot Company. Orders 299 The only order I make is to direct the parties to make, within 14 days of the date of delivery of these reasons, an appointment with my Associate for a date upon which Short Minutes can be brought in, and any argument concerning costs can occur.

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Appendix 300 The doctrine of precedent is one whereby every court is bound to follow the ratio decidendi of any case decided by a court above it in the judicial hierarchy (Cross and Harris, Precedent in English Law, 4th edition, 1991, p 6; Lockhart, "The Doctrine of Precedent -- Today and Tomorrow" (1987) 3 Aust Bar Rev 1 at 11; MacAdam & Pyke, Judicial Reasoning and the Doctrine of Precedent in Australia (Butterworths, 1998) p66). However, within the meaning of this principle, has the case been "decided" by the Court of Appeal if it then goes on appeal to the High Court, and is affirmed on different grounds to those of the Court of Appeal? 301 There is no room for doubting the obligation of a judge of first instance loyally to follow decisions of any court which is above the first instance judge in the appellate hierarchy, even if the judge of first instance thinks that decision is wrong: eg Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 at 177. The same applies if the judge of first instance thinks the decision is contrary to a trend of authority that has since developed in other appellate decisions: Jacob v Utah Construction and Engineering Pty Ltd (1966) 116 CLR 200 at 207; Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 403, [17]. The question which I am now concerned with is whether, in the particular circumstances, the remarks of Hope JA which I have quoted at para [215] above count, after the decision of the High Court in Moorgate, as a decision of a court which is above me in the appellate hierarchy. Hack 302 One judgment in England deals with this question directly. Hack v London Provident Building Society (1883) 23 Ch D 103 concerned whether a particular type of dispute between a building society and a member was one which was required, by the statute then governing building societies, to be referred to arbitration, rather than decided by the courts. Concerning earlier, and different, legislation on the same topic, both the Court of Appeal, and the House of Lords in Mulkern v Lord (1879) 4 App Cas 182 had held that a particular type of dispute between a building society and a member was not required to be submitted to arbitration. The trial judge in Hack, at 107, had stated that, if the case before him had been under the old statutes, "I should undoubtedly have been bound by the decision of the Court of Appeal in Lord v Mulkern, confirmed by the House of Lords", but that the change in legislation made a critical difference. While the Court of Appeal affirmed the decision of the trial judge in Hack, Jessel MR did not allow the trial judge's remark concerning precedent to escape unnoticed. Jessel MR said, at 112: "As regards the judgment of the Court of Appeal in that case [ie Mulkern ], I must say this, that the decision of the Court of Appeal was affirmed, but not the judgment, and that is a very important distinction. When the House of Lords affirm a decision on different grounds from those of the Court below, it is evidence, in fact proof, to those who know the practice of the House of Lords, that they do not agree with those grounds. Therefore a judgment so affirmed, so far from leaving the judgment of the Court of Appeal intact, shews the contrary, and that you are no longer bound by it. The mere affirmance of the decision is quite a different thing. You are bound by the decision, but not by the reasons given for it. It is not necessary, therefore, to examine very minutely the grounds on which the Court of Appeal decided Mulkern v Lord …' 303 I find the statement of principle in the first, fourth and fifth sentences of the passage quoted persuasive. The distinction there made, between affirming a decision, and affirming a judgment, seems to me to be a valid one. 304 Particular reasons which Jessel MR gave for reaching his conclusion, in the second and third sentences of the passage quoted, do not, however, seem to me to accord with current Australian practice. I doubt that the current practice of the High Court of Australia is that, whenever the High Court affirms the decision of a court below on different grounds to those relied on by the court below, the High Court is always positively deciding that it does not agree with those grounds. At least sometimes, the High Court affirms the decision of a court below on different grounds because the High Court can see a clear route to the solution of the case which does not require the High Court to decide whether or not the reasons relied on by the court below are correct. 305 Even so, the fact that the High Court has chosen a different route to the solution of the case leaves the reasons of the court below in a kind of limbo, where they have been considered by the High Court (as must necessarily happen in the course of the judges of the High Court reading the judgment of the court below, even if the reasons for judgment of the court below are not themselves explicitly considered in the reasons for judgment delivered by members of the High Court), and not adopted. Even if the reasons of the court below have been left in that kind of limbo, rather than positively disapproved by the High Court, one can still say that the decision of the court below has been affirmed, but not its judgment. Al-Mehdawi 306 Another English judgment tends in the same direction, namely the decision of the English Court of Appeal in R v Secretary of State for the Home Department, ex parte Al-Mehdawi [1989] 1 All ER 777. 307 To understand that decision one must first understand the course of the litigation in R v Diggines; ex parte Rahmani [1985] QB 1109. In Rahmani the Court of Appeal had overturned the rejection of an administrative appeal from a deportation decision, on the ground that there had been a denial of natural justice when the person involved in an administrative appeal did not attend the hearing through the negligence of her own immigration agents. In Rahmani v Diggines [1986] AC 475 the House of Lords had affirmed the decision of the Court of Appeal, but on a completely different ground, namely that the adjudicator had decided the case in purported exercise of a power which he did not have under the relevant statutory rules. The House of Lords had expressly stated, in the appeal in Rahmani ([1986] AC 475 at 478), that they were not indicating even a provisional view on the soundness or otherwise of the decision of the Court of Appeal. 308 R v Secretary of State for the Home Department, ex parte Al-Mehdawi [1989] 1 All ER 777 arose when an immigration adjudicator had dismissed an appeal against the decision of the Secretary of State to deport a student who had overstayed his visa. A primary judge had quashed that decision of the immigration adjudicator, relying on the decision of the Court of Appeal in R v Diggines; ex parte Rahmani [1985] QB 1109. 309 In the appeal in Al-Medhawi the Secretary of State argued that the primary judge had been mistaken in thinking he was bound by the decision of the Court of Appeal in Rahmani. Taylor LJ (with whom Nicholls and O'Connor LJ J agreed) held, at 781, that " … although the reasoning of the Court of Appeal in Rahmani 's case is of powerful persuasive influence, this court is not bound by it."

[80]

Taylor LJ at 781 regarded that proposition as supported by the decision of the Court of Appeal in Balabel and another v Air-India [1988] Ch 317 at 325-6, which had treated as obiter dicta the basis of a decision of the Court of Appeal which was reversed by the House of Lords. 310 I cannot overlook the fact that the decision of the English Court of Appeal in Al-Medhawi has some differences from the present case. Al-Medhawi concerned whether the Court of Appeal was bound by one of its own previous decisions that had been affirmed on a different ground in the House of Lords, and hence the reasoning was influenced by the English doctrine, expounded in Young v Bristol Aeroplane Co Ltd [1944] KB 718, about the circumstances in which the Court of Appeal can depart from its own decisions. In many circumstances the Court of Appeal has a greater freedom to depart from its own previous decisions than does a first instance judge to depart from a decision of the Court of Appeal. As well, the express disclaimer in the House of Lords, in Rahmani, of expressing any view about the correctness of the Court of Appeal decision in Rahmani has no analogue in the present case -- the High Court in Moorgate was simply silent about the reasons of Hope JA concerning the claim for relief based on confidentiality. 311 However, that Taylor LJ regarded the conclusion he had come to as supported by the fact that Balabel had decided that a decision of the Court of Appeal reversed by the House of Lords had no higher status than dicta suggests that his Lordship regarded the previous decision of the Court of Appeal in Rahmani as also dicta. If the decision of the Court of Appeal in Rahmani was all dicta, then its status as a binding precedent would be the same for a first instance judge as for a judge of the Court of Appeal. Re Massey 312 The question now before me has received direct consideration in Canada, in the judgment of Wells J in Re Massey [1959] OR 608. 313 To understand it, one needs to know the course of decisions relating to the will of the late Herbert Coplin Cox. Mr Cox had died leaving a will which, in essence, required the income of a fund to be paid in perpetuity "for charitable purposes only; the persons to benefit directly in pursuance of such charitable purposes are to be only" employees of certain companies and their dependants. At first instance, Wells J (who was also the trial judge in the Cox litigation) had held that the gift should be read down, so that it related to gifts for the relief of poverty only, in which case the gift was valid as falling within an analogy to the "poor relations" exception to the general requirement that a charitable trust be for the benefit of the public or a section of the public. 314 That decision was reversed in the Ontario Court of Appeal: Re Cox [1951] OR 205. In giving the decision of the Court of Appeal, Roach JA held, at 224, that, while the "poor relations" exception to the requirement of public benefit was too well established to be altered, trusts for the relief of poverty amongst a group of private individuals chosen by the donor by reason of type of personal relationship other than kinship should not be regarded as valid in Ontario. 315 Thereafter, the case went on appeal to the Supreme Court of Canada, and ultimately to the Privy Council: In re Cox, dec'd; Edwin G Baker v National Trust Co Ld and others [1955] AC 627. In each of those courts the decision of the Ontario Court of Appeal was affirmed. In the Privy Council, however, that affirmation was on the basis of a question of construction of the gift - that the gift could not be read down to being a gift for the relief of poverty, and hence, when in its terms it could be applied to all four species of charity, the attempt to restrict the benefit to employees made it invalid because, in relation to those heads of charity which did not involve relief of poverty, the requirement of public benefit would not be satisfied. 316 In Re Massey [1959] OR 608 Wells J had before him a trust which he construed as for the relief of poverty amongst former employees of a particular company, and certain members of the family of such employees. If the basis on which the Ontario Court of Appeal had decided Re Cox was binding upon him, Wells J would need to find that that trust was invalid. His Honour did not do so. He said, at 622:

[83]

"… did not, however, reverse nor overrule the finding of the Appellate Division, so that I am faced with the unanimous decision of that division that the rule is not in force in Alberta. This decision I consider binding upon me." 320 It might be commented that His Honour did not say whether he regarded that "binding" authority as being an authority which was binding as a matter of law, or as a matter of persuasive authority and comity. It might also be commented that he gave no reasons for reaching the conclusion he did concerning precedent status. The same criticism, of lack of reasons for the decision concerning precedent status, could, however, be made of the decision of Wells J in Re Massey. The existence of the decision in Re Budd means that the position in Canada is not clear-cut. Matters of principle 321 Several matters of principle support the view that the decision in Moorgate is not binding, in the sense I have explained. First, insofar as one of the objectives of the law of precedent is to ensure consistency between legal decisions, so that like cases are decided alike, the "case" is the dispute between the litigants. That dispute is only decided when the last of the courts of appeal to consider the matter has given its decision. If a dispute like the first dispute arises in the future, that new dispute will be decided in the same way as the legal system has decided the first dispute if the new dispute is decided in accordance with the ratio decidendi of the decision of the ultimate court of appeal in the first dispute. That consideration supports the view that the "decision" of a case, for the purpose of the binding nature of the law of precedent, is the decision given by the last appellate court which decides that case. 322 Second, one of the aims of ensuring consistency between legal decisions is to assist in the predictability of future legal decisions. If a decision of the Court of Appeal has been affirmed on different grounds by the High Court, the grounds adopted by the Court of Appeal have, it seems to me, been left in the sort of limbo which I have earlier explained at [305]. In that circumstance, a person seeking to predict a future decision of a court would not be justified in taking the view that those grounds will undoubtedly be followed in the future. The very fact that the High Court did not follow them is a demonstration of their uncertain status. Rather, it seems to me, a person seeking to predict a future decision would need to evaluate the persuasiveness and accordance with principle of those grounds, take into account that such grounds are undoubtedly a persuasive (though not binding) precedent for other judges, and form his or her own view on that basis about whether those grounds would be likely to be followed in the future. 323 Third, the effect of a reversing of a decision of the Court of Appeal is that it has no status as a binding precedent, even in relation to points on which the appeal was not taken: Commissioner of Taxation (Cth) v St Helen's Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 410; Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 at 379-80, [79] and cases there cited. The justification for that state of affairs can only be that, when there is an appeal to the High Court, it is the decision of the High Court which is the decision which decides the litigation, not the decision of the Court of Appeal. 324 Fourth, in his separate reasons for agreeing with the majority decision in García v National Australia Bank Ltd (1998) 194 CLR 395 at 417 Kirby J said: "it is fundamental to the ascertainment of the binding rule of a judicial decision that it should be derived from (1) the reasons of the judges agreeing in the order disposing of the proceedings; (2) upon a matter in issue in the proceedings; (3) upon which a decision is necessary to arrive at that order". 325 In the context in which these words appear, His Honour was there referring to the judges of the ultimate court which decided the matter who had agreed in the order disposing of the proceedings. That approach would result in the decision of the Court of Appeal in Moorgate not being binding upon me. Distinguishing Cock v Aitken 326 Sometimes commentators who deal with this general area of law refer to the High Court decision in Cock v Aitken (1911) 13 CLR 461. In that case, the High Court had previously, in Cock v Smith (1909) 9 CLR 773 made a decree which dealt with two completely independent causes of complaint concerning the administration of a deceased estate. A party affected by one of those causes of complaint had appealed, concerning that cause of complaint, to the Privy Council. The Privy Council had decided to allow that appeal: Smith v Cock [1911] AC 317. The Privy Council had taken the view that the order of the High Court was a single order, and so needed to be set aside in its entirety to enable the appeal to the Privy Council to succeed. Thereupon, those who had succeeded in the part of the High Court decree which had not been appealed against commenced fresh proceedings in the Supreme Court of Victoria asking for a declaration of their rights, in the same terms as the High Court had held them to be. Inexplicably, the Supreme Court judge before whom the proceeding was brought declined to make a similar declaration to that which the High Court had previously made. On appeal to the High Court Griffith CJ, at 470, followed the previous decision of the High Court. There is no discussion, however, of whether that earlier decision of the High Court was "followed" because it was a precedent which bound the High Court, or because it was a persuasive precedent which was right. Thus, the decision cannot cast light on the present questions concerning the standing of the decision of the Court of Appeal in Moorgate. Conclusion 327 In all these circumstances I conclude, though with some hesitation, that the preponderance of relevant court decisions, none of which bind me, and general considerations of principle, lead to the conclusion that the portion of the decision of the Court of Appeal in Moorgate which I have quoted at para [215] above is not binding on me. **********

Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak

At a glance

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Judgment (84 paragraphs)

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Legislation Cited (7)

Cases Cited (52)

Cited By (16)