PRP Diagnostic Imaging Pty Limited (in its capacity as trustee for the Pittwater Radiology Trust) & Ors v Pittwater Radiology Pty Limited

Alcatel Australia Ltd v Scarcella and others (1998) 44 NSWLR 349 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; [1998] 1 All ER 98 Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Meehan v Jones (1982) 149 CLR 571 CASES CITED : Overlook v Foxtel [2002] NSWSC 17 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 River Wear Commissioners v Adamson (1877) 2 App Cas 743 Ryan v Textile Clothing & Footware Union of Australia [1996] 2 VR 235 Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 State of New South Wales v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tymshare Inc v Covell 727 F2d 1145 (1984) Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Walford v Miles [1992] 2 AC 128 Zhu v Treasurer of the State of NSW (2005) 218 CLR 530

TEXTS CITED : Elisabeth Peden "Incorporation of Terms of Good Faith in Contract Law in Australia", (2001) 23 Sydney Law Review 222 RS Summers "Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code", (1968) 54 Va L Rev 195

PRP Diagnostic Imaging Pty Limited (First Plaintiff) PARTIES : The partners of the Pittwater Radiology Partnership as set out in Schedule 1 (Second Plaintiff) The partners of the Pittwater Radiology Partnership as set out in Schedule 2 (Third Plaintiff) Pittwater Radiology Pty Limited (Defendant)

COUNSEL : Mr TM Jucovic QC, Mr J Giles (Plaintiffs) Mr I M Jackman SC, Ms K Richardson (Defendant)

SOLICITORS : Deacons (Plaintiffs) Freehills (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50027/08 PRP Diagnostic Imaging Pty Ltd & Ors v Pittwater Radiology Pty Ltd

JUDGMENT The proceedings 1 These proceedings concern the joint venture contractual arrangements entered into between two groups of parties with the object of conducting the practice of radiology, nuclear medicine and related medical services at a number of clinics. 2 Either party was entitled to give a 24 months notice terminating the Agreement. The group representing the plaintiff parties gave such a notice on 8 November 2006 pursuant to which the joint venture is to terminate on 7 November 2008. 3 The parties are in dispute as to the proper construction of particular clauses in the Agreement and critically as to:

i. Whether the group representing the plaintiff parties are prevented by a clause of the Agreement from providing radiology services within 5 km of any of the existing Agreement Clinics from 8 November 2008 until 7 May 2009; ['the first issue']

ii. Whether the group representing the plaintiff parties are prevented by particular clauses of the Agreement from taking preparatory steps to perform radiology services from clinics located within 5 km of any of the existing radiology clinics between the present time and 7 November 2008. ['the second issue'] The plaintiff group of parties 4 The first plaintiff ("PRP") is trustee of the Pittwater Radiology Trust, and is the company through which the Pittwater Radiology Partnership ("the Partnership") provides radiology services together with the defendant. PRP was not a party to the anterior Independent Contractor Agreement ("ICA") referred to below.

5 The second plaintiffs were members of the Partnership when, on about 17 October 2005, the contract described as the "Pittwater Radiology Joint Venture Agreement" ("the Agreement") was entered into, and remain members of the Partnership.

6 The third plaintiffs are currently members of the Partnership, but were not members of the Partnership when the Agreement was entered into. The defendant

7 The defendant, Pittwater Radiology Pty Limited ("PRPL") owns a number of radiology clinics. 8 The defendant is a wholly owned subsidiary of Medical Imaging Australasia Limited (MIA). MIA is, in turn, a wholly owned subsidiary of I-MED Network Limited (I-MED). I-MED was until recently a wholly owned subsidiary of DCA Group Limited, but its parent now appears to be DIAC Holdings SARL. I-MED, which appears to provide facilities for the provision of various medical services, is not a party to the Agreement. The radiology clinics 9 Pursuant to the Agreement, PRP and the Partnership, together with the defendant, now operate 34 radiology clinics ("Agreement Clinics") in various parts of New South Wales: Sydney North and Peninsula, North West Sydney, the Central Coast and seven country sites. 10 To operate the Agreement Clinics, pursuant to the Agreement:

i. PRP provides the expert labour, the radiologists who are the partners of the Partnership and other radiologists who are employed or engaged by the Partnership: clause A3.

ii. The defendant provides the clinics, equipment, support staff and management functions, effectively the capital contribution necessary to operate radiology clinics: clause A3. The Evidence 11 The key issues in the proceedings involve the construction of the relevant terms of the Agreement. There were relatively few factual matters in dispute. 12 The evidence included affidavit and oral evidence from: i. Mr Michael William Jones: Chairman of the Partnership and director of PRP and Aegis Crowne [for the plaintiff]; and ii. Mr Mark Richard Schofield: Executive General Manager of I-MED Network in NSW and ACT [for the defendant]. 13 Where relevant, this evidence is referred to below.

Extrinsic evidence issues 14 Before the present Agreement came into existence, the relationship between some of the parties was regulated by an Independent Contractor Agreement ["ICA"] dated 8 March 2000. The ICA was between the members from time to time of the Partnership, of the one part, and the defendant on the other. As already noted, the first plaintiff (PRP) was not a party to the ICA. 15 In these circumstances some questions arise as to the extent, if at all, that the ICA may be characterised as admissible as an aid to construction, in terms of mutually known facts in the context of which the Joint Venture Agreement was entered into. Those questions were reserved for decision at the time when these reasons are delivered. The principles which inform the proper construction of commercial contracts 16 There was no serious issue between the parties as to the principles which may generally be understood to be well settled. The issue is always one of applying those principles to the particular actual situation. 17 The following propositions are unexceptional:

i. The Agreement is to be construed by ascertaining the objective intention of the parties, which is determined by reference to the terms of the Agreement and the relevant mutually known extrinsic facts [ Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11]]. Post-contractual conduct is inadmissible to construe a contract [See Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [26] per Heydon JA, Ryan v Textile Clothing & Footware Union of Australia [1996] 2 VR 235 at 238 per Brooking JA, 261-2 per Hayne JA (Tadgell JA agreeing); Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326-330 per Priestley JA (Meagher JA agreeing)].

ii. Where the language permits, a commercial contract such as the Agreement is construed to give it a commonsense or commercially workable meaning [ McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] per Gleeson CJ; Zhu v Treasurer of the State of NSW (2005) 218 CLR 530 at [82]].

iii. To the extent the Agreement, on its proper construction, involves an agreement to agree, the agreement to agree is illusory and gives rise to no enforceable obligation [ Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 92, Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 40-1; Walford v Miles [1992] 2 AC 128 at 136 to 138].

iv. A restraint of trade is against public policy and unenforceable unless shown to be reasonable. 18 The principles to be applied in construing the relevant restraint provisions were summarised by Santow J in Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 298-9:

i. in construing a contract which is in restraint of trade, the ordinary rules applicable to contracts are applied;

ii. the object is to discover and give effect to the contractual obligations that reasonable persons in the position of the parties would objectively have intended the document's language to create;

iii. the language of a term is generally assigned its natural and ordinary meaning, read in the light of the contract as a whole, but where it is ambiguous surrounding circumstances may be taken into account in assigning the presumed meaning. The surrounding circumstances include the matrix of mutually known facts, and the background, object, context and commercial purpose of the transaction, in the objective sense of what reasonable persons in the position of the parties would have had in mind;

iv. the consequences of alternative interpretations are not immaterial, and where the meaning of language in a contract is ambiguous, that interpretation will be preferred which avoids consequences which are in the circumstances capricious, unreasonable, unjust or not consonant with business efficacy. 19 While these general principles were uncontentious, the parties disagreed over how they should be applied to the interpretation of various clauses of the Agreement. These disputed clauses included a number of the restraint provisions and the express obligation of PRP and the defendant to act in good faith in relation to the "Business". The clauses in dispute [and a number of contextual provisions] are set out below. The material provisions of the Joint Venture Agreement 20 The material provisions of the Joint Venture Agreement included: A. 3. Contributions to joint venture · Company contributes the following: - Clinics, facilities (including IT), equipment, consumables and other materials (Facilities)

• Company staff (both medical staff and clinical support staff) - management functions (including administrative support, accounting, budgeting and business planning, cashflow policy management, fees collection, accounts payment, human resource management, recruitment, public relations) · Company owns/leases all Facilities · Trust contributes the following:

• Radiology services at the Clinics (performed by Partners and other medical staff employed or engaged by Partnership (Consultants)) as set out in Part C

• Partner and Consultant participation in Business development activities: see Part B.5 · Company and Trust both participate in management of the Business: see Part B. A.4. Joint venture relationship · Company and Trust will act in good faith in relation to the Business. However, joint venture relationship does not make them partners, or mean that either owes fiduciary duties to the other. · Trust provides radiology services as Company's agent (but is not authorised to legally bind Company). Neither Trust nor Partnership is an employee of the Company. · Subject to JVA [Joint Venture Agreement], Company and Trust each have full control and management responsibility over their respective assets and affairs. This includes responsibility for travel and accommodation and insurance (including worker's compensation insurance (see Part C.4)). B.1. Practice Group management · Practice Group Committee comprises:

• up to 3 or more Partners appointed by the Trust from time to time - up to 4 or more members appointed by the Company from time to time… · All decisions of the Practice Group Committee will be by simple majority. Executive Chairman does not have a casting vote… Practice Group Committee is responsible for managing relationship between Company and Trust (the Practice Group) in relation to the Business (at all of the Clinics, including Norcoray and Orana Clinics) and at North Shore Radiology (but only if the radiology fee paid to the Partnership from North Shore is materially increased)…

B.5 Business Development · Trust, Partnership and Company will cooperate to develop new Business opportunities that they consider are suitable for the Business C.1 Services · Trust must provide the Radiology services at each Clinic (either on-site or via teleradiology) from time to time (excluding nuclear medicine at the Castle Hill Clinic) including on-call services after hours (Services). · Trust must ensure that Partners and Consultants devote sufficient time, attention and skill to providing Services at the Clinics to meet Service levels outlined below. · Trust must ensure Partners and Consultants perform Services:

• in a professional, competent and efficient manner

• to College-approved quality standards or equivalent. · Trust must ensure Partners and Consultants participate in performance reviews. D.1 New Partners and Consultants …. · Trust must not, and must ensure Partnership does not, approach (or target recruitment efforts at) medical staff employed by the Company or engaged by another I-MED Network practice group without Company's consent. · Company must not approach (or target recruitment efforts at) medical staff employed by the Partnership or engaged by a Partnership entity without Trust's consent… E.1 Termination for serious default · Trust may terminate immediately if Company commits one of the following serious defaults:

• conduct likely to materially injure the reputation of the Business, Trust or Partnership

• material breach of JVA that not remedied within 14 days

• the disposal of the Company's business, or the Company no longer being a member of the I-MED Network, or if a third party acquires control over the Company or its interest in the Business. For these purposes 'control' refers to direct control (and, for example, does not apply to a person acquiring control of the Company through acquiring control of I-MED or DCA). · If such termination occurs, no restraints will apply to Trust, Partnership, Partners or Consultants. · Company may terminate immediately if Trust or Partnership commits one of the following serious defaults:

• conduct likely to materially injure the reputation of the Business, the Company or the I-MED Network (including breach of confidentiality)

• material breach of JVA that not remedied within 14 days

• the disposal of the Trust's or Partnership's interest in the Business (to an entity not controlled by the Trust Partnership) or a third party acquiring control over the Trust or Partnership or its interest in the business. For the avoidance of doubt, the Trust or Partnership can sell its interest in businesses that are not part of the Business. E.2. Termination for dispute · If the parties cannot resolve a dispute referred to mediation (see Part F.2 below) within 60 days of referring it to formal mediation, either party may terminate the JVA on 12 months notice. E.3. Consequences of termination

· After termination, the Company will continue to maintain patient records, and continue to provide access to those records in accordance with Part C.7 including in the event of termination of the Company's involvement in Radiology. E.4. Confidentiality · Trust must not, and must ensure Partnership, Partners, Consultants (and any other staff either it or Partnership may have) do not, disclose confidential information (in relation to the Business) or use that information in a manner that may damage the Business, Company or I-MED Network.

E.5 Restraint · During the term of the JVA, Trust must not, and must ensure Partnership, Partners and Consultants, do not provide Services to any other person or engage in any other activity that may give rise to a conflict to the Trust's obligations under the JVA, or the I-MED Network business, without the consent of the Company which cannot be unreasonably withheld. · The Restricted Area will be a radius of 5 km from each Clinic and hospital to which the Business provided Radiology services. · The Restraint Period while Partners are working in the Business and:

• if a Partner leaves the Business - up to 6 months after the Partner leaves the Business; and

• if Company terminates the JVA for serious default by Trust or Partnership under Part E.1 - up to 6 months after termination. · If Trust terminates the JVA for serious default by Company under Part E.1 the Restraint Period terminates on termination · Trust must not, and must ensure Partnership and Partners do not:

• be involved (whether as employee, investor or otherwise) any competitive business in any of the Restricted Areas during the Restraint Period

• practice Radiology in, or report on diagnostic images at any premises, in any of the Restricted Areas during the Restraint Period, except for pre-existing arrangements described in Attachment 3, or as approved by the Company, from time to time. · Trust must not, and must ensure Partnership and Partners do not: - solicit clients of the Business to cease or reduce the business they provide to the Business during any of the Restraint Periods

• accept from clients of the Business, any business that is part of the Business's ordinary activities during any of the Restraint Periods

• represent themselves as being involved with the Business of I-MED Network (after they cease working at the Business) · Trust must not, and must ensure Partnership, Partners and Consultants do not: - induce any I-MED Network staff involved in the Business to terminate their employment with the I-MED Network during any of the Restraint Periods

• employ any I-MED Network staff who have confidential information about the Business during any of the Restraint Periods · Company must not:

• induce any Partners or Consultants involved in the Business to terminate their partnership or appointment with the Trust or Partnership during any of the Restraint Periods

• employ any Partners or Consultants who have confidential information about the Business during any of the Restraint Periods · The restraints on the Partners do not apply to the following activities:

• Providing Radiology services under the JVA or any agreement with any other member of the I-MED Network

• The Partnership (or Partners) providing Radiology services at a new clinic in any of the Restricted Areas, or under a hospital contract with a hospital in any of the Restricted Areas, where: - the Partnership first refers the new opportunity to the Company (to pursue as part of the Business); and - either: - the Company decides that the Business should not pursue the new opportunity (for these purposes, if the Company does not make a decision within 30 days of being notified by the Partnership, it will be taken to have decided not to pursue the opportunity); or - the Company decides that the Business should pursue the new opportunity but for reasons outside the parties' control (eg, ACCC restrictions), the Company cannot pursue the opportunity. · Trust or Partnership may decide what (if any) geographic restraints and client restraints should apply to Consultants. F.1. Dispute resolution - clinical matters · The following process applies where the JVA provides for a matter in relation to clinical and professional matters for Partners, Consultants or Company staff to be referred to dispute resolution (except where the JVA expressly provides otherwise). · The Practice Group Committee must use best endeavours to resolve the dispute within a reasonable period. · If the Practice Group Committee is unable to resolve the dispute, the Chairman of the Partnership and the I-MED Network CEO must meet and use their respective best endeavours to resolve the dispute both acting reasonable and in good faith. · If the Chairman of the Partnership and the I-MED Network CEO cannot resolve the dispute within 15 days of the dispute being referred to them, either party may refer the dispute to determination by a sub-committee of the I-MED Chairman's Committee (Chairman's Subcommittee). The Chairman's Subcommittee will consist of 3 members of the MED/MIA Chairman's Committee agreed by the parties and if the parties cannot agree, then chosen at random (excluding the Chairman of I-MED, the Executive Chairman and any member of the committee who is on leave at the relevant time). The Chairman's Subcommittee's decisions will be binding on both parties. F.2. Dispute resolution - general · The following process applies where the JVA provides for a matter to be referred for dispute resolution, any breach by the Company, Trust or Partnership of this JVA and any other disputes between the Company, Trust and/or Partnership (other than disputes in relation to professional and clinical matters covered by Part F.1) · The parties must use informal dispute resolution techniques (including mediation etc) to resolve the dispute). · If the parties cannot resolve the dispute within 7 days, either may refer the dispute to formal mediation by an external mediator in accordance with relevant mediation rules. F.5. Other matters · Parties will be restricted from transferring any rights or obligations under the JVA… · JVA will include standard provisions dealing with GST, giving notice, consents, governing law, enforceability, waivers, variation, parties' rights, attorneys, interpretation, etc. · The parties will use their best endeavours to complete a long form version of this JVA as soon as is practical. · By signing this JVA it will legally bind the Company, Trust and Partnership on any interim basis until the earlier of the date a long-form Joint Venture Agreement is finalised and executed by all applicable parties, and the expiry of 3 months after the JVA date… · The Company and Partnership agree to terminate the current Independent Contractor Agreement between Pittwater Radiology Pty Limited and Pittwater Radiology Partnership dated 8 March 2000 (ICA) effective from the date the long-form Joint Venture Agreement is executed by all parties, and to suspend the operation of the ICA for the period while this JVA is binding (see 'Legally binding' above). · The parties to discuss an extension for another 3 months if the long form agreement has not been completed. Construing the Agreement 21 It is important to remember that the Agreement which was entered into was intended to be replaced by a long form Joint Venture Agreement. Hence the Agreement is not as felicitously drafted as possible. 22 During the hearing both parties repeatedly focused upon the 10 bullet points which make up clause E 5 which is called "Restraint". Internal dictionary

23 In endeavouring to assist the reader it may be appropriate in terms of an internal dictionary to describe three of the more important E5 restraints as follows:

It is an express term [E5 bullet point 1] that during the term of the Agreement, the Trust must not, and must ensure that the Partners and any consultants do not:

a) provide any Services (as defined in the Agreement) to any other person; or

b) engage in any other activity that may give rise to a conflict to the Trust's obligations under the Agreement, or the I-MED/MIA Network business

It is an express term of the Agreement [E5 bullet point 5] that the Trust must not, and must ensure that the Partnership and Partners do not:

a) be involved (whether as employee, investor or otherwise) in any competitive business in any of the Restricted Areas during the Restraint Period; or

b) practise Radiology in, or report on diagnostic images at any premises, in any of the Restricted Areas during the Restraint Period, except for pre-existing arrangements described in Attachment 3, or as approved by the Company, from time to time.

It is to be noted that it is a further express term of the Agreement[E5 bullet point 6] that the Trust must not, and must ensure that the Partnership and Partners do not:

a) solicit clients of the Business to cease or reduce the business they provide to the Business during any of the Restraint Periods;

b) accept from clients of the Business, any business that is part of the Business's ordinary activities during any of the Restraint Periods.

24 It is common ground that the first restraint only stipulates for a restriction which will continue for the term of the Agreement. 25 It is also common ground that the second and third restraints also continue for the duration of the restraint period: i.e. for the term of the Agreement and, in some circumstances, for an additional 6 month period. 26 The restraint period is defined in bullet point 3 as follows:

The restraint period (sic) whilst partners are working in the business and:

• if a partner leaves the business - up to six months after the partner leaves the business; and

• if Company terminates the JVA for serious default by trust or partnership under part E 1 - up to six months after termination. 27 Bullet point 4 reads as follows:

If trust terminates the JVA for serious default by company under part E 1 the restraint period terminates on termination. The first issue - does the Restraint Period apply up until 7 May 2008? The sundry strands to the defendant's contentions 28 The first critical issue concerns whether the "restraint period" [described above] extends beyond the termination of the contract on 7 November 2008 for an additional 6 month period. If this were the case, then the second restraint would prevent the plaintiffs from providing radiology services within 5 km of any existing Agreement clinics [the 'Restraint Area'] up to 7 May 2009. 29 The defendant's case relies upon the first integer of bullet point 3, which states that the restraint period applies for 6 months after a partner leaves the business. The defendant contends that this provision applies in circumstances where all partners leave the business simultaneously, and therefore covers the circumstance which obtains when either party gives notice terminating the entire Agreement on 24 months notice [pursuant to Part A 2]. 30 The defendant mobilised a number of arguments to sustain their contention. Each of these arguments requires to be closely treated with. Naturally they range through degrees of reliance upon particular provisions in the Joint Venture Agreement. Importantly they include a contention as to the meaning of the term "Business": the contention is that this term was intended to mean the business operated by the defendant at the Clinics. 31 The approach taken by these reasons takes into account the whole of the provisions in the Joint Venture Agreement and deals with each of the strands of the defendant's submissions.

The issue concerning the proper construction of the definition of "Business" 32 The term "Business" is defined in A1 as follows:

"to conduct the practice of radiology, nuclear medicine and related medical services (collectively referred to as Radiology) at the clinics operated by PRPL, including clinics that PRPL operates as joint ventures (the Clinics and the Business). The defendant's construction 33 The defendant contended that the meaning of the term "Business" is central to the proper construction of the restraints in clause E5 of the Agreement. 34 The defendant contended that, reading the Agreement as a whole, it is plain that the "Business" is the business operated by PRPL at the Clinics. This contention was sought to be supported by the following propositions:

i. First, that the definition of "Business" in clause A1 is said to make plain that PRPL is the central party as the operator of the Clinics the subject of the Business. It is observed that by contrast, the definition does not nominate who will provide the medical services at those Clinics.

ii. Secondly, that the parties agreed that the Trust provides radiology services as PRPL's "agent" (clause A4).

iii. Thirdly, that the parties agreed that PRPL would own or lease all Facilities (premises and equipment) (see clause A3, first dash point). Further, the parties also agreed that the Company owns all patient records and all intellectual property in the patient records (see clause C7). Likewise, that clause C8 provides that the Company owns all other intellectual property generated by Partners while working in relation to patients in the Business. Thus, the Agreement is said to make it clear that all the assets of the Business would remain with the Business if the Partners were to leave the Business (even though records and intellectual property may have been generated by the Partners). [I interpolate to note that, as the plaintiffs have observed, this overstates the effect of the Agreement and confuses ownership of physical assets with the 'Business' carried on as a joint venture. Goodwill is not vested in the defendant by the Agreement. The plaintiffs had an interest in the goodwill of the Business as they were participating in the joint venture, as had the defendant. As in most, if not all, professional services, the goodwill attaches to the individual professionals.]

iv. Fourthly, that clause E4 of the Agreement provides that the Partners cannot disclose confidential information in relation to the Business. That no such restraint is imposed on the Trust/Partnership is said to be consistent with the fact that the confidential information generated in the Business is owned by PRPL and will be used in relation to the Business even if the Partners leave the Business.

v. Fifthly, that the second and third restraints [the fifth and sixth bullet points in clause E5] only impose a restraint on the Trust/Partnership and do not impose a restraint on PRPL. Again, this is said to be consistent with the Business being the business conducted by PRPL at the Clinics [as it would not make sense to be restrained from competing with one's own business]. It is common ground the second and third restraints can operate post-termination [eg. if PRPL terminates for the serious default of the Trust/Partnership]. Thus, the second and third restraints contemplate that even though the Partnership is no longer involved in the Business, the Business continues and the Trust/Partnership are restrained from taking certain actions which would damage the Business.

vi. Sixthly, that the "permitted activities" section of clause E5 - which provides an exception to the general restraints that apply to the Partners - is said to be significant in the same way. It is common ground that the general restraints [in relation to which this exception is provided] could apply in the post-termination period depending on the circumstances under which the Agreement came to an end. This exception is said to presuppose that the Business is that business conducted at the Clinics by PRPL and that the Business survives termination of the Agreement. The proposition is that this must be so because the exception requires the Partnership to bring a new opportunity to the attention of PRPL and then PRPL has a first right of refusal in relation to pursuing that opportunity.

vii. Seventhly, that the only interest of the Trust [and through it the Partnership] in the Business was a right to receive fees for services provided. Those services were radiology services and business development services [clause A3]. The proposition is that unlike PRPL, the Trust and Partnership did not have any interest in the Business that would survive termination of the Agreement. 35 In treating specifically with the defendant's construction of the word "Business", the following matters constitute indicators that the defendant's above construction is inconsistent with the use of "Business" in the Agreement:

i. Clause A1, second bullet point, which provides that an objective of the joint venture is to " develop and, where the [defendant and PRP] consider appropriate, expand the Business ". I accept that it is objectively and commercially unlikely that the plaintiffs decided to participate in achieving an objective of developing and expanding the defendant's business. It is also unlikely that the parties intended PRP to have a role in deciding whether expanding the defendant's business was appropriate. Conversely, it is consistent with the plaintiffs' construction of " Business ", the business jointly carried on by PRP and the defendant and provided for by the Agreement, that an objective of the joint venture be to expand that business and that PRP and the defendant each have a role in deciding whether to expand that business. Similarly, see the fourth last sub-bullet point on page 4 of the Agreement [Court Book page 85].

ii. If " Business " had the meaning for which the defendant contends, clause A3 most naturally would have referred to the defendant contributing the Business. Instead the clause makes clear the parties' respective contributions to the " Business ", to the exclusion of anyone else.

iii. The final bullet point of clause A3 provides that the defendant and PRP " both participate in management of the Business ". Part B then provides for the functions and responsibilities of PRP and the defendant in managing the " Business ". I accept as correct the proposition it is unlikely, and un-commercial, that the parties objectively intended that PRP have a significant role in managing a business which was solely the defendant's business. Joint management of the " Business " is provided for in the Agreement as the " Business " is the business carried on by the plaintiffs and the defendant.

iv. Clause A4 requires the defendant to act in " good faith in relation to the Business ". Objectively that term is unnecessary if the " Business " is the defendant's business.

v. Clause A5, third bullet point, provides for the defendant to pay PRP a portion of the gross profit of the " Business ". If the " Business " is other than the business carried on under the Agreement that term is likely to have significant consequences adverse to the defendant. A percentage of all income from the defendant's clinics would be required to be paid to PRP, regardless of whether the plaintiffs had any part in earning that income. As the plaintiffs have contended, objectively that un-commercial consequence is unlikely to be the intention of the parties.

vi. Clause A5, second bullet point [third sub-bullet point] on page 3 of the Agreement [Court Book page 84], makes provision for the use of the defendant's services and " Facilities " by the plaintiffs outside the Business, a concept which has content on the plaintiff's construction of " Business ". If the defendant's argument as to the proper construction of " Business " was correct, that clause would have no content as there are no " Facilities " (or probably services) outside the defendant's business. Clause A5 is expanded on by clause B7, which would also be without content if the defendant's construction were correct, but which has meaning on the plaintiff's construction.

vii. The final sub-bullet point to the third bullet point on page 3 of the Agreement (Court Book page 84) refers to the " Business's hospital contracts ". The defendant's definition of " Business " does not allow for that concept. However, the plaintiff's construction does. The Agreement expressly refers to the plaintiffs performing work at hospitals: for example the last sub-bullet point of Permitted Activities on page 13 of the Agreement (page 94 of the Court Book). See also clause C2, second and third bullet points.

viii. Clause E1 third bullet point defines " serious default " by the plaintiffs. One " serious default " is the disposal by the plaintiffs of their " interest in the Business ". On the defendant's construction the plaintiffs have no interest in the " Business ". On the plaintiff's construction the plaintiffs do have an interest in the " Business " which is capable of being disposed of. Clause E1 demonstrates that the defendant's construction of " Business " is incorrect. Similarly, see the first bullet point of each of clauses F3 and F4. 36 Notably the defendant also relies on clause C7 and C8 of the Agreement. These clauses provide full ownership of intellectual property and patient records. I accept as correct the plaintiff's proposition that these clauses do not inform the proper construction of "business". The clauses provide that the supplier of capital, the defendant, owns assets produced through the capital being deployed. That is a commercial and unsurprising position for the parties to agree, but as the plaintiffs observe, is irrelevant to the proper construction of "Business". 37 Further the fact that PRP is the defendant's agent also does not inform the proper construction of "Business". First, the conclusion drawn by the defendant does not follow from the premise of agency. For example, partners are agents of each other and jointly own the partnership business. Second, the agency is of a special and limited type, as PRP cannot bind the company. 38 Nor do I accept that the defendant's reliance on the restraints only being imposed on PRP (or of the plaintiffs) and not on the defendant does otherwise than to reflect the commercial relationship which the parties reached, as opposed to informing the definition of Business. Decision 39 I accept as of substance the plaintiffs' analysis which correctly points out that the third bullet point of clause E5 provides for a restraint in three limited circumstances:

i. First, " while Partners are working in the Business ". Business is defined in clause A1 and has two limbs which reflect that, under the Agreement, PRP provides the skilled labour and the defendant provides the capital and management. The Business is the combination of (a) " the practice of radiology, nuclear medicine and related medical services " (which is PRP's contribution) (b) " at the clinics operated by the [defendant]" (the defendant's contribution). As the Partners were already, pursuant to the Independent Contractor Agreement, providing radiology (and related) services at the clinics operated by the defendant when the Agreement commenced [By clause A2 deemed to be 1 July 2005, three and a half months before the Agreement was signed] the first restraint operated from the commencement of the Agreement. The first restraint ceases when the Partners cease working in the Business, which will be on 7 November 2008 when the Agreement terminates. The defined Business, involving both limbs of the clause A1 definition, ceases on that date.

ii. Second, there is a restraint " if a Partner leaves the Business " which is for a period of " up to 6 months after the Partner leaves the Business " [emphasis added to both quotes]. It is plain that the second restraint relates only to an individual Partner leaving the Business, not to the present situation where the Agreement will terminate. That is the language used, which refers to one Partner, and not the Partnership or PRP, leaving the Business. The restraint applies to a departing Partner on each occasion a Partner leaves the Partnership. The language also only refers to a Partner leaving the Business, not PRP leaving the Business. The restraint is premised on the relationship, provided for in the Agreement, between PRP and the defendant, by which PRP through the Partnership provides radiological services at clinics owned by the defendant, continuing. That is not the present circumstance. Further, the Business, defined by reference to the services provided by PRP (by the Partners) at the defendant's clinics ceases on termination of the Agreement: no-one leaves the Business. The commercial intention behind the second restraint is clear: It is to protect the goodwill of the business carried on by PRP and the Partnership and the defendant by preventing a departing partner from carrying on or being involved in a competing radiology business within a 5 kilometre radius of the Agreement Clinics for a period of six months. It is a traditional post-employment type restraint. That construction is consistent with the limited period of the restraint and the limited area of the restraint. In construing the Agreement the parties are assumed to know the law [ Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11]], and on that assumption it is clear that the second restraint is drafted in limited terms to preserve the validity of a post termination of employment type restraint.

iii. Third, if the defendant terminates the Agreement for serious default by PRP or the Partnership there is a 6 month restraint. The third restraint is plainly not attracted. However, the third restraint demonstrates that the defendant's construction of clause E5 is inconsistent with clause E5. If there was a restraint on termination of the Agreement the third restraint would be unnecessary. 40 Hence the correct construction requires one to recognize that what I have called "the first integer" was never intended to cover the situation where either party gives to the other 24 months notice terminating the entire Agreement pursuant to Part A2. That was simply because it was totally unnecessary for the parties to regulate any restraint to obtain after the Agreement, in accordance with its terms, had been validly terminated: there were not to be any such restraints. 41 This approach reflects the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably been available to the parties in the situation in which they were at the time of the contract (Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 citing Lord Hoffmann, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114; Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114 at [66 et seq]. The proper inference is the parties clearly contemplated there was not to be any continuance of the restraint period after the term of the Agreement had ended. 42 That there is no restraint if either party exercises the clause A2 right to terminate the Agreement by giving 24 months notice is commercially sensible. The long notice period operates in lieu of any restraint. During that period each party has time to arrange its own business so that, separately, the parties can continue on their own business affairs post termination of the Agreement. That is a commercially sensible arrangement and one the parties, which operate independent businesses which will continue post termination, are seen to have objectively intended. It is consistent with the fourth bullet point of E5 (also second bullet point of E1) which provides for the only occasion where there is neither notice of termination nor a restraint. Returning to the situation if contrary to these findings, the word "business" has the meaning for which the defendant contends 43 In that circumstance the second E5 restraint ['if a partner leaves the Business'] is not triggered by the plaintiffs termination of the Agreement under clause A2. The restraint has its natural meaning. It refers to and is triggered by a Partner leaving the Business while the Partners are working in the "Business". That is the natural meaning of the term. 44 The example adopted by the defendant during the hearing [of all but one or two Partners resigning], is not a useful example. PRP is a party to Agreement, but is not referred to in the example. Under the Agreement PRP is required to provide services to all Agreement Clinics, of which there were 39 and are now 36. If all but one or two Partners left the Business, PRP would be unable to perform the Agreement and would be in serious default: clause E1 third bullet point. The defendant could then terminate the Agreement and a 6-month restraint would apply: clause E5 third bullet point. The Agreement, on the plaintiffs' construction, provides what the defendant bargained for which is radiologists to provide services at the Agreement Clinics. 45 Further, the example is remote from these facts. Finally, the restraint is apt to apply to a series of individual Partners leaving the Partnership. Application of the restraint to the partnership? 46 During the hearing a question arose as to whether the restraint applied to the partnership. 47 The plaintiffs contended that the restraint only bound PRP. 48 The defendant contended that in relation to each of the restraints, the phrase "Trust must not, and must ensure that the Partnership and Partners do not" cannot be read to mean the Partnership is not directly bound by the restraint: the proposition was that although the expression is elliptical, it is plain that the parties intended that Partnership be directly bound [see clause E1 2nd bullet point; see clause E5 ninth bullet point]. The defendant also drew attention to other parts of the Agreement said to also make references to parties interchangeably [e.g. clause A3 (4th bullet point) with clause B5]. 49 Here again the plaintiffs' contentions are accepted as of substance. 50 The form of restraint, for example in the fifth bullet point of E5, is that PRP "must not, and must ensure the Partnership and Partners do not" engage in identified conduct. I accept that those words should be given their natural meaning, and not merely treated as infelicitous drafting. The draftsman clearly took into account the changing composition of the Partnership and adopted a form of covenant to cope with that difficulty. One simply cannot eschew the deliberate drafting technique to be found in the clause E5 restraint provisions:

Bullet point 1 : ' Trust must not, and must ensure Partnership, partners and Consultants do not…'

Bullet point 5 : ' Trust must not, and must ensure Partnership and Partners do not…'

Bullet point 6 : ' Trust must not, and must ensure Partnership and Partners do not…'

Bullet point 7 : ' Trust must not, and must ensure Partnership, partners and Consultants do not…' 51 The finding is that the restraint only binds PRP. That is the plain meaning of E5. It is also a meaning consistent with the admissible extrinsic material. The parties knew that the constitution of the Partnership would change. The parties dealt with that fact by agreeing a restraint that imposed obligations only on PRP. That is not a failing of the drafting of the Agreement [notably the Agreement also does not purport to bind the defendant's parent companies which carry on business, with other radiologists, in providing radiology services both in New South Wales and throughout Australia]. The Agreement deliberately and in a limited way imposed obligations on only those persons who were and would remain over time, party to the Agreement. The Independent Contractor Agreement 52 Before going further it is appropriate to observe that in construing the Joint Venture Agreement, the ICA may only be taken into account for very limited purposes. 53 It is trite that for the purpose of construing a contract, evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively of the "aim" of the transaction is admissible:

"The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti-literal, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v Adamson (1877) 2 App Cas 743, 763 provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. …." [ Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 per Mason J at 349] 54 The real difficulties which arise in endeavouring to construe the Joint Venture Agreement by poring over the terms of the ICA are obvious:

i. firstly the ICA was far more detailed and contained a number of provisions which were in starkly differing form to those provided for in the Joint Venture Agreement;

ii. Secondly the simple fact is that [save for seeing what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view], the Court can only construe the Joint Venture Agreement, essentially as a stand-alone instrument [intended to be replaced at an appropriate time by a fuller instrument];

iii. Thirdly and as has already been observed, the Joint Venture Agreement for the first time included the first plaintiff as a party. 55 One only example of the problems in endeavouring to make too much of the terms of the ICA is immediately to be found in the fact that the latter [in clause 4.3] included the following term:

"Contractor [vide the Partnership] will not, during the term of this Agreement, provide Services to any person or take any action which is preparatory to providing services…" 56 Clearly enough there is no similar restraint in the Joint Venture Agreement. And there is no principled basis upon which the Court may rely to infer that there was an error or oversight in the drafting of the restraint provisions of the Joint Venture Agreement rather than to infer that the narrowing of the restraints demonstrates a commercial compromise. 57 Clearly the Restraint provisions to be found in clause 8 of the ICA differed from the Restraint period provisions in the Joint Venture Agreement. 58 In the result I have come to the view that the ICA is likely inadmissible save insofar as the Court is able to discern what the circumstances were with reference to which the words in the Joint Venture Agreement were used, and the object, appearing from those circumstances, which the person using them had in view. In that regard the particular connection between the two agreements is simply to be found in the fact that the Joint Venture Agreement provided a term as follows:

"The company and Partnership agree to terminate the current Independent Contractor Agreement…effective from the date the long form Joint Venture Agreement is executed by all parties, and to suspend the operation of the [Independent Contract Agreement] for the period while this [Joint Venture Agreement] is binding…) 59 Notwithstanding the above finding in terms of the limited admissibility of the ICA to assist in the proper construction of the Joint Venture Agreement, as these proceedings may well reach an appellate court it seems appropriate for the record, to note certain of the terms of the ICA. I proceed accordingly. 60 The ICA was entered into in March 2000. The parties were:

i. the defendant [described as 'the Company'] in its capacity as trustee Pittwater Radiology Unit Trust;

ii. the Pittwater Radiology Partnership [described as "the contractor"]. 61 The ICA included the following recitals:

A. The Company carries on the business of providing radiological, nuclear imaging and other related services through its Service Centres.

B. The Contractor is a partnership of specialist medical practitioners and consists of the persons names in Part A of Schedule 1 and any other specialist medical practitioners admitted as partners in accordance with the provisions of the Partnership Agreement.

C. The Company is desirous of utilising the expertise of the Contractor to further the Business.

D. The Contractor has agreed to provide to the Company radiological, nuclear imaging and other related services in the Service Centres upon the terms and conditions set out in this Agreement. 62 The ICA was to continue for a period of seven years unless extended by a particular provision or terminated by either party by other particular provisions. 63 Clause 4.2 was in the following terms:

No partnership or joint venture (a) Each of the parties undertakes that in exercising their rights and performing their obligations under this Agreement, they will act in good faith;

(b) Notwithstanding subclause (a) above, nothing in this Agreement shall be construed as giving rise to a relationship of partnership or joint venture between the Company and the Contractor and the parties acknowledge that no fiduciary obligations between them arise by virtue of them entering into this Agreement or performing their obligations under this Agreement. 64 Clause 4.3 commenced with the following words:

"Contractor will not, during the term of this Agreement, provide Services to any person or take any action which is preparatory to providing services…" The definition of Services to be found in Part C of schedule 1 was as follows: The Contractor will provide the following services to the Service Centres: 1. Professional Radiological Services

3. Attending professional and Company committee meetings

6. Maintaining existing business and developing new work and business for the Service Centres

7. Any services incidental to and necessary for the performance of the above. 65 Clauses 8.1-8.5 were in the following terms:

Neither the Contractor nor any Partner will during the term of this Agreement and for a period of 24 months after the termination of this Agreement (for any reason in accordance with this agreement), directly or indirectly within a five (5) kilometre radius of any Service Centre in the Sydney Metropolitan Area or within a twenty (20) kilometre radius of any Service Centre outside the Sydney Metropolitan Area:

(a) attempt to encourage or persuade any of the Company's clients, suppliers and customers, including without limitation referring doctors and patients, with whom the Contractor or any of the Partners has dealt pursuant to this Agreement, to terminate or restrict their trade or contractual relations with the Company;

(b) except as contemplated by this Agreement, attempt to engage, solicit or contract with any of the Company's clients, suppliers and customers, including without limitation referring doctors and patients, with whom the Contractor or any of the Partners has dealt pursuant to this Agreement;

(c) provide Services to, solicit business relating to Services from, or have any other business association with any person or entity who is a competitor of the Company or was within the twelve (12) months immediately preceding termination a competitor of the Company; or

(d) procure, counsel or otherwise assist any person do (sic) any of the acts referred to above;

Provided that: (i) where a Partner ceases to be a Partner prior to the termination of this Agreement in accordance with clause 3.7, that Partner's obligations shall only apply for a period of 24 months after he ceases to be a Partner; and (ii) this clause 8.1 does not prevent a Partner from continuing to provide Services to any person or entity to which he is providing Services on the Operative Date, provided that these Services are provided at the same or a lower level as they are provided at the Operative Date.

In the event that the period of restraint after the termination of the Agreement described in clause 8.1 is held by a Court of competent jurisdiction to be unenforceable, it shall be reduced to a period of:

(b) or if the restraint in 8.2(a) is held by a Court of competent jurisdiction to be unenforceable, to a period of 6 month(s).

In the event that the geographic radius of the restraint after the termination of the Agreement described in clause 8.1 is held by a Court of competent jurisdiction to be unenforceable, it shall be reduced to a radius of:

(b) if the restraint in 8.3(a) is held by a Court of competent jurisdiction to be unenforceable, to a radius of 1km.

Clauses 8.1, 8.2 and 8.3 will have no application in circumstances where the Contractor terminates this Agreement pursuant to clause 6.2 or where the Agreement is terminated following a request by the Contractor to extend the Term and a refusal of that request by the Company. Clauses 8.1, 8.2 and 8.3 will have no application in respect of the Service Centres which the Company has notified under clause 6.3 as being terminated under this Agreement.

The Contractor accepts that this restraint of trade is fair and reasonable due to the high degree of strategic knowledge involved in the provision of the Services. Second issue - whether Aegis Crowne Pty Limited can take steps preparatory to carrying on a radiology business prior to 8 November 2008 66 Having established that the restraint provisions of the Agreement will come to an end on the termination of the Agreement [on 7 November 2008], it is necessary to deal with the defendant's second contention. The defendant claims that the plaintiffs have taken, and propose to take steps prior to 7 November 2008, which are in breach of various contractual obligations under the Agreement. The conduct allegedly in breach of the Agreement 67 Through the trustee of a different trust, Aegis Crowne, the second and third plaintiffs propose to carry on business providing radiology services in various locations in NSW [including within 5 kilometres of some of the Agreement Clinics] from 8 November 2008. The Dalcross Clinic 68 PRP and the Partnership admit that they have been involved in negotiations with Dalcross Holdings Pty Ltd (Dalcross), which is developing a hospital as a joint venture with Macquarie University. The opportunity being negotiated is for the Partnership, through Aegis Crowne, to provide radiology services at a radiology and nuclear medicine clinic at the new hospital (the Dalcross Clinic). 69 It is common ground that the Dalcross Clinic will not come into operation until some time after 8 November 2008. On the plaintiffs' evidence, the Clinic will be unlikely to commence operation prior to December 2009. 70 Nonetheless, the plaintiffs admit that Aegis Crowne, with the knowledge of the plaintiffs, intends to take steps preparatory to carrying on that business prior to 8 November 2008. These steps include actions such as leasing premises, installing equipment or recruiting staff, which will further the establishment of clinics, both at Dalcross and elsewhere, and potentially allow the plaintiffs to begin providing services on or shortly after 8 November 2008. The North Gosford Clinic 71 Initially, these proceedings also involved allegations that the plaintiffs were in negotiations to acquire a radiology practice at North Gosford Private Hospital ("North Gosford Clinic"). Unlike the Dalcross Clinic, this clinic was anticipated to commence operation sometime prior to November 2008. 72 These allegations were ultimately not pursued, as the parties agreed to pursue this business opportunity together. The facts surrounding this Clinic therefore did not found any freestanding allegation. The defendant sought, however, to use the circumstances relating to the North Gosford Clinic as a contextual indicator of the plaintiffs' intent [during the relevant period] to pursue business opportunities outside of the Agreement prior to 8 November 2008, and as an indirect indicator of the suitability of other, similar business opportunities for pursuit under the joint venture. The terms of the Agreement which are alleged to have been breached 73 The defendant appears to rely in its pleading on four clauses of the Agreement to support its submission that the second and third plaintiffs are liable to be restrained from engaging in conduct preparatory to carrying on a business of supplying radiology services prior to 8 November 2008. Those clauses are E5, C1, B5 and A4. 74 The defendant submits that, by being involved in negotiations to establish a competitive business, the Trust and the Partnership have breached their obligations:

i. to act in good faith in relation to the Business [Part A4 and an implied obligation]; and

ii. to cooperate to develop new business opportunities for the Business [Part B5]. 75 The defendant also submits that the plaintiffs' preparatory steps are in breach of a number of the restraint clauses, particularly the first and second restraints [E5 bullet points 1 and 5]. These restraints [as established above] bind the plaintiffs only until the termination of the Agreement on 7 November 2008. With respect to the restraint clauses contained in E5, the defendant claims that the PRP has breached, and intends to breach, its obligations:

i. to ensure that the Partnership and Partners do not "provide Services [as defined in C1] to any other person or engage in any other activity that may give rise to a conflict with the Trust's obligations under [the Agreement], or the I-MED Network business, without the consent of the Company, which cannot be reasonably withheld" [E5 bullet point 1]; and

ii. to ensure that the Partnership and Partners do not "be involved (whether as employee, investor or otherwise) [sic] any competitive business in any of the Restricted Areas…" [E5 bullet point 5] except where they have referred the opportunity to the defendant under the "Permitted Activities" exception [E5 bullet point 9]. Dealing with the breach cases pursued by the defendant 76 In determining the whether the plaintiffs' actions in engaging in conduct preparatory to carrying on a business constitute a breach of any of the above contractual terms, it is necessary to take into account a number of contextual considerations. These include:

i. The fact that in contrast to clause 4.3 of the Independent Contractor Agreement, undertaking preparatory steps is not prohibited by clear words in the Agreement.

ii. An appreciation that the effect of the defendant's construction is to impose a de facto restraint on the second and third plaintiffs. It is obvious, and must have been obvious to the parties when they entered into the Agreement, that radiology clinics take quite some time to set up. Premises must be located and leased. Specialised equipment must be sourced. Staff must be engaged. Many months are likely to pass between starting the preparatory steps and clinics being opened.

iii. An appreciation that the plaintiffs, as contemplated by the Agreement, provide radiology services outside the Agreement. They are not required to expend all working time providing services together with the defendant.

iv. An appreciation that clauses A4 and E5 only impose an obligation on PRP and not on the Partnership. Construing the material provisions 77 Clearly enough the defendant's breach cases first require the Joint Venture Agreement to be construed. The first restraint - E5 bullet point 1 78 The first restraint obliges the Trust to ensure that the Partnership and partners do not do three things during the term of the agreement without the defendant's consent: i. provide Services [described in clause C1 as 'radiology services'] to any other person; ii. engage in any other activity that may give rise to a conflict with the Trust's obligations under [the Agreement]; or iii. engage in any other activity that may give rise to a conflict with the I-MED Network business. 79 Of these three limbs, the first is not relevant, as there is no evidence that the plaintiffs intend to commence providing radiology services before the termination of the agreement on 7 November 2008.

The second limb - conflict with the Trust's obligations 80 The defendant submits that negotiating to set up a rival clinic within the Restricted Area during the term of the Agreement is plainly to "engage in an activity that may give rise to a conflict to the Trust's obligations under the Agreement", and is therefore prohibited by the second limb of the restraint. 81 Ultimately, this submission is rejected. The defendant has not established that the plaintiffs' conduct is in any way likely to conflict with the Trust's obligations under the Agreement. The defendant claims that the plaintiffs' conduct gives rise to a conflict with a number of the Trust's obligations under the Agreement. Obligations which the defendant seeks to rely upon include: the obligation of good faith, the obligation to cooperate to develop suitable business opportunities and the obligation to comply with the relevant restraints during the restraint period. To the extent that such obligations are enforceable [as to which see the reasons which follow], these obligations are examined closely below. As will appear from these reasons, the plaintiffs' conduct does not give rise to a conflict with any of the applicable obligations. The third limb - conflict with I-MED Network business 82 There is no breach of the third limb of clause E5 for each of the following reasons: i. First, the meaning of the concept of engaging in an activity which may give rise to a conflict with the I-MED Network business is ambiguous. ii. Secondly, it is objectively most unlikely, and not commercially realistic, that PRP and the Partnership agreed to a restraint that prevented them from taking steps preparatory to competing with I-MED's business. A restraint to that effect would be broader than the more clearly expressed restraints in the Agreement. A restraint to that effect is of uncertain content as the I-MED Network business is unknown. iii. Thirdly, there is a textual inconsistency with the defendant's construction. The defendant's broad construction leaves the first limb of the restraint in the first bullet point of clause E5 with no operation as the second limb covers the field of potential activity. iv. Fourthly, the defendant must identify the conduct that PRP or the Partnership has or will engage in which will " conflict " with the I-MED Network business. The conduct proposed to be engaged in is that admitted in paragraph 39 of the plaintiffs' response to the cross summons. The defendant has not proved the I-MED Network business. It has not proved the conflict parameter. On the evidence, the proposed conduct is not in " conflict " with the I-MED Network business. There will be no competition prior to 8 November 2008. 83 In the alternative, if the restraint prevents the proposed conduct the restraint is void as an unreasonable restraint of trade [See discussion of the relevant principle in Peters (WA) Limited v Petersville Limited (2001) 205 CLR 126 at [14]-[39] and Maggbury at [54]-[57]]. The construction contended for by the defendant imposes a restraint of trade on PRP and the Partnership. The clause is consequently against public policy and unenforceable unless it can be justified by the defendant as being reasonable. A restraint is void as being contrary to public policy unless it is shown by the party seeking to uphold the restraint to be reasonable. 84 The restraint is not reasonable. It is a restraint by reference to the business of I-MED, which is not a party to the Agreement. I-MED has no legitimate right to protection from competition. I-MED has not built up good will in trading together with PRP and the Partnership which it is entitled to protect. The clause, as construed by the defendant, is a bare restraint of trade for the protection of a potential competitor which is not a party to the Agreement and which has contributed nothing requiring protection. A business investment is insufficient to render a restraint enforceable [Vancouver Malt & Sake Brewing Co Limited v Vancouver Breweries Limited [1934] 1 AC 181 at 189-190; ICT Pty Limited v Sea Containers Limited (1995) 39 NSWLR 640 at 671]. The I-MED Network business restraint, if construed as the defendant contends it is to be construed, is unenforceable. The second restraint - E5 bullet point 5 85 The second restraint requires the Trust to ensure that the Partnership and Partners do not "be involved (whether as employee, investor or otherwise)" in any competitive business in any of the Restricted Areas. 86 The defendant maintains that preparatory steps to set up a rival clinic in a Restricted Area constitute involvement in a competitive business, even if this business will not commence operation prior to the termination of the Agreement. It asserts that a business may be 'competitive' before it opens its doors to begin receiving patients. It may, for instance 'compete' in trying to attract staff. 87 Here, the crucial issue involves the natural meaning of "Competitive Business" [as used in bullet point 5 of Clause E5]. 88 The natural meaning of "competitive business" is a business that competes for customers. A business which is competitive with the defendant's business is one that supplies services which are substitutable for the defendant's services. 89 Properly construed, the words the words "any competitive business" in the fifth bullet point of Clause E5 does not include the taking of steps preparatory to commencing a competitive business [whether or not when it begins in operation it will be seen to be a business that competes for resources]. 90 The proper construction is to regard the parties as having intended the relevant restraint to be a restraint from carrying on a competitive business. To do so would also be to engage in an activity that may give rise to a conflict with the Trusts relevant obligations, which [absent the consent of the company being unreasonably withheld], would constitute a breach of both the first as well as the fifth of the bullet points.

91 On the defendant's construction the restraint is potentially extraordinarily wide and ambiguous. Taking the staff example, the restraint contended for by the defendant would prohibit involvement in any business, by any of the plaintiffs, which may seek to employ clerical staff: Schofield 23 May at paragraph 56(a)(i), including receptionists: Schofield 23 May at paragraph 65. Objectively that is not a construction that the parties would likely have intended.

92 As previously observed, the Court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of a contract in order to give effect to that which the parties may be seen to have bargained for. But always it is to the words of the document that the court must attend, looking in that regard to the whole of the document to discern the parties' intent. 93 Aegis Crowne will not carry on a business which supplies services substitutable for the defendant's services until Aegis Crowne commences trading, which will be after 7 November 2008. That is the natural meaning of "competitive business" and objectively the meaning likely intended by the parties. 94 Finally with the exception of staff, there is no evidence that there is any relevant competition in relation to the activities Aegis Crowne proposes to undertake. The obligation of good faith - clause A4 and alleged implied term (Commercial List Cross Claim Statement paragraphs 10 and 11) 95 As has already been noted the defendant contended that it is an express term of the Agreement that the defendant and the Trust act in good faith in relation to the Business: Part A 4 of the Agreement. 96 Relevantly the defendant pleaded as follows:

It is an implied term of the Agreement that the Partners and the Partnership act in good faith in relation to the Business.

1. the nature of the Agreement as a joint venture between the Cross-Claimant, the Trust and the Partnership;

2. the fact that the Trust is required to act in good faith in relation to the Business and the Trust's contribution to the Joint Venture consists of:

• radiology services at the clinics performed by the Partners and other medical staff employed or engaged by the Partnership (Consultants); and - Partner and Consultant participation in Business development activities; 3. the fact that the Trust is required to act in good faith in relation to the Business and each of the directors of the Trust (being Uday Ahluwalia, Peter Carr, James Christie, Philip Lucas, Richard Perry, Michael Jones, Michael Lannan and Andrew Solomons) are Partners. 97 The plaintiff group of parties disputed the contention that the suggested good faith term should be implied. Overview of the principles governing implication of terms 98 In State of New South Wales v Banabelle Electrical Pty Ltd (2002) 54 NSWLR 503 I set out an overview of the principles governing implication of terms. It is unnecessary to repeat the analysis there given at [40] - [46] which is adopted as correct for present purposes. Dealing with the issue Good Faith 99 As a general proposition, the current state of the law in New South Wales is that there will usually be implied by law into commercial contracts made between parties at arms length, a term requiring the exercise of good faith in the performance of such contracts. Such a term takes its place alongside the implied obligations: · to do all such things as are necessary to enable the other party to have the benefit of the contractual promise; · not to hinder or prevent the fulfilment of the purpose of express promises made in the contract. [ Alcatel Australia Ltd v Scarcella and others (1998) 44 NSWLR 349, Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187] 100 Presently of course the parties ensured that the issue was covered by an express term and the real questions become:

i. Whether or not to imply a term extending the obligation of good faith in relation to the business to cover an obligation, not only of the Trust, but also of the Partners and the Partnership;

ii. Regardless of whether or not the additional term be implied, what is the content of the obligation to act in good faith in the particular circumstances of the subject Agreement. Collapsing the distinction between an implied term of good faith and an implied term of reasonableness 101 The decision of the New South Wales Court of Appeal in Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 includes some particular focus upon the implied term of reasonableness, making the point that the Australian authorities make no distinction of substance between that term and the implied term of good faith. The close association of ideas between the terms 'unreasonableness', 'lack of good faith' and 'unconscionability' is emphasised in Burger King at para 170 and para 171 where the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263 and 265 is cited. 102 In Burger King, the Court said at paragraph 171:

'Rolfe J observed that in Alcatel, Sheller JA at 369 appeared to equate the notions of "reasonableness" and "good faith". Whilst Sheller JA did not say that in terms, his review of the case law and academic and extra-judicial writings on the topic, clearly support the proposition." 103 The nature and extent of the duty was recently considered by Barrett J in Overlook v Foxtel [2002] NSWSC 17:

"[63] But what are the content and effect of such an implied term? This question was the subject of discussion by the Court of Appeal in Burger King . Sheller, Beazley and Stein JJA referred to the observation of Sir Anthony Mason in his 1993 Cambridge Lecture (see now (2000) 116 LQR 66 at 69) that the concept "embraced no less than three related notions", being: "(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself); (2) compliance with honest standards of conduct; and (3) compliance with standards of conduct which are reasonable having regard to the interests of the parties."

[64] There is some overlap here with the terms implied by law as referred to in Peters (WA) Ltd . Sir Anthony's duty of "loyalty to the promise itself" may well include the duties not to hinder fulfilment of the promise's purpose and to do everything necessary to enable the other party to have the benefit of the promise. The more substantial and separate content of the duty of good faith itself would therefore seem to lie in the second and third limbs of Sir Anthony's formulation - that is, adherence to standards of conduct which are honest, as well as being reasonable having regard to the parties' interests.

[65] If adherence to such standards of conduct is the predominant component of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become), in words used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410, "nugatory, worthless or, perhaps, seriously undermined". This seems to me to be the principle emerging from para 172 to para 177 of the joint judgment in Burger King where the various authorities are collected and discussed.

[66} Dr Elisabeth Peden of the University of Sydney has characterised the effect of the good faith requirement in contractual performance as follows (" Incorporation of Terms of Good Faith in Contract Law in Australia ", (2001) 23 Syd L Rev 222): "Most basically, by using the obligation to perform in good faith as a principle of construction the courts are merely required to ensure that the parties have genuinely adhered to the bargain which they entered into. This will require an examination of the whole contract and the underlying intentions. Strict rights may not be adhered to, if in the context of the contract as a whole, this would subvert the character of the contract. Most cases that discuss the concept do so in terms of negatives, that is, what is not in breach of good faith. This makes sense, since it is the context of the contract read as a whole that will indicate what is appropriate and what is not."

[67] Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms.

[68] In many ways, the implied obligation of good faith is best regarded as an obligation to eschew bad faith. This is borne out by the following succinct statement by Lord Scott of Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170, a case concerning the duty of good faith in the insurance context: "Unless the assured has acted in bad faith, he cannot, in my opinion, be in breach of a duty of good faith, utmost or otherwise."

[69] The approach which regards a duty of good faith as a duty to eschew bad faith is also supported by United States jurisprudence to which resort may appropriately be had: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Burger King at para 147ff. Writing in 1968, Professor Summers described the duty of good faith imposed by the United States Uniform Commercial Code as an "excluder": R S Summers, "Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code ", (1968) 54 Va L Rev 195. Its operation and effect were stated as follows: "It is a phrase without general meaning (or meanings) of its own and serves to exclude a wide range of heterogeneous forms of bad faith. In a particular context the phrase takes on specific meaning, but usually this is only by way of contrast with the specific form of bad faith actually or hypothetically ruled out."

[70] In Tymshare Inc v Covell 727 F2d 1145 (1984), Scalia J concluded that: "The doctrine of good faith performance is a means of finding within a contract an implied obligation not to engage in the particular form of conduct which, in the case at hand, constitutes 'bad faith'."

[71] Scalia J went on to say that the contract itself will indicate the content of the duty in the sense that it is imbued or infused with the obligation not to engage in particular conduct." [emphasis added] 104 An important consideration, as Barrett J held in Overlook v Foxtel, is that the implied duty of good faith does not require a party to subordinate its contractual rights. Decision 105 In relation to the Joint Venture Agreement with which these present proceedings are concerned the following propositions hold good:

i. By clause A4 the parties have agreed to a limited good faith obligation.

ii. As McColl JA observed in Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114 at [69]: "If the words used [in a written contract] are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust …." [emphasis added]

iii. Hence in the current circumstances, notwithstanding that the parties intended to subsequently enter into a long form Agreement, the Court cannot presently remake the contract by implying the term that the Partners and a partnership were to act in good faith in relation to the business. The Court has no mandate to alter the express terms written into the document.

iv. That no term should be implied is further demonstrated as the alleged implied term would have the same effect as an order for rectification of clause A4 to add reference, in clause A4, to the Partners and the Partnership.

v. The alleged implied term would also be inconsistent with the express term agreed between the parties, Applying the well known principle stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347 the alleged term cannot be implied.

vi. The parties have demonstrated an objective intention that only PRP and the defendant be required to act in good faith: that obligation requiring the parties to so 'in relation to the Business'.

vii. Content must be given to the obligation in clause A4 that PRP " will act in good faith in relation to the Business ".

viii. In circumstances where PRP and the defendant are together carrying on the business of operating various radiology practices the content of A4 is that, in dealing with the undoubtedly numerous matters involved in running a business not specified in the Agreement, they act in good faith.

x. Clause A4 (and any implied term) does not require PRP (or the Partnership) to subordinate its own interests to those of the defendant Overlook Management BV v Foxtel Management Pty Ltd supra at [65] per Barrett J.

xi. PRP and the Partnership can advance their own interests provided that the defendant is not deprived of the benefit of the Agreement.

106 Ultimately even had it been the case that the Agreement should be construed to import the alleged implied term [that the Partners and the Partnership act in good faith in relation to the Business] as these reasons make clear, the defendant has not discharged the onus of proving that the term was breached by the partners or the partnership. 107 Aegis Crowne, in taking steps preparatory to conducting a business of providing radiology services, with PRP's and the Partnership's knowledge, in circumstances where the Agreement will terminate on 7 November 2008, is not participating in conduct inconsistent with PRP [and the Partnership] acting in good faith in relation to the Business.

108 There is no conflict between PRP's obligations under clause A4 of the Agreement [or an implied good faith term] and the conduct proposed to be engaged in by Aegis Crowne. 109 Even had the implied good faith term been upheld, there would not have been shown:

i. any conflict between PRP's, and the Partners' and partnership's obligations under such a term and

ii. the conduct proposed to be engaged in by Aegis Crowne. 110 In the result the first bullet point of clause E5 will not be breached by reason of the proposed conduct as the proposed conduct is not in conflict with PRP's or the Partnership's clause A4, nor with any implied term. Obligation to develop new business opportunities the parties consider are suitable for the Business - Clause B5 (Commercial List Cross Claim Statement paragraph 12) 111 Clause B5 provides that "[PRP], Partnership and [the defendant] will cooperate to develop new Business opportunities they consider are suitable for the Business". 112 As the plaintiffs have submitted there are a number of reasons why clause B5 has no relevant operation. It is an agreement to agree and is consequently unenforceable. Even if the good faith obligation is read into clause B5 it remains unenforceable cf Lang O'Rourke (BMC) Pty Ltd v Transport Infrastructure Development Corp [2007] NSWSC 723 at [48] per Hammerschlag J. 113 In truth the essential problem inheres in the fact that there is no readily ascertainable external standard to add flesh to the uncertain obligation to "cooperate": cf Coal Cliff Colliers Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 27 114 Further:

i. clause B5 does not impose on PRP or the Partnership an obligation to identify or bring opportunities to the defendant. Identifying new opportunities is the responsibility of the Practice Group: clause B1 ninth bullet point;

ii. the text of clause B5 provides that the parties are to cooperate only if " they " consider the opportunity suitable. All parties must consider the opportunity suitable for the Business. That is a sensible commercial construction. Otherwise clause B5 would have the effect of potentially committing a party to a new opportunity which it honestly did not consider suitable for the Business, which is a result unlikely to have been objectively intended by the parties. No opportunity which is considered by all the parties to be suitable for the Business has been identified in evidence;

iii. Mr Jones, the chairman of the Partnership and a director of both PRP and Aegis Crowne gave evidence that he formed the belief that the Dalcross Clinic was not a suitable project for the business for a number of reasons, including: · That the Trust/Partnership does not know what structure the Dalcross opportunity will take and there is no agreement with Dalcross; · Accordingly, the role that I-MED/PRPL would take in relation to any such structure is not clear; · The Dalcross Clinic would not be operational until after the termination of the Agreement and Dr Jones of the view that therefore there is no basis for going forth in business with PRPL in relation to the Dalcross Clinic; · Mr Carl Adams of Dalcross had taken the position that he did not want to deal with I-MED and accordingly the Trust/Partnership could not go forward to negotiate the opportunity with I-MED involved; and · Dalcross is an "exempt site" under the Agreement; iv. While it is not necessary for the Court to analyse in detail whether each of these reasons was in fact valid, the Court accepts Mr Jones' evidence that the executive committee did in fact form the subjective opinion that the Dalcross Clinic was not suitable for the business; v. Moreover, from an objective standpoint, the Court's finding is that [as the Agreement is to terminate on 7 November 2008] no opportunity which comes into operation after that date will be, or at least is likely to be, suitable for the Business. 115 The finding is that Clause B5 does not give rise to a conflict between the proposed conduct and PRP's or the Partnership's obligations under the Agreement. Obligation to provide services - clause C1 (Commercial List Cross Claim Statement paragraph 14) 116 I did not understand the defendant to press any submission by that there is a conflict between the plaintiffs' proposed conduct and PRP's obligations under clause C1. Other Restraints - clause E5 (Commercial List Cross Claim Statement paragraphs 15 and 16) 117 Aegis Crowne will only provide radiology services from 8 November 2008. Taking steps preparatory to providing those services is not a breach of any of the clause E5 restraints. The finding is that the taking of those steps does not constitute conduct competitive with the Business. Competition will only commence after 8 November 2008, which is not prohibited by the restraints. 118 Further, from 7 November 2008 the Business will have ceased and Aegis Crowne will be competing only with the defendant and whoever (if anyone) the defendant engages to provide radiology services from particular of the Agreement Clinics. Positive obligation to disclose? 119 The defendant's positive obligation case was not pleaded and may not be relied upon. It would in any event have failed. 120 The defendant relies on clause A4, the limited good faith obligation, as a basis for imposing that positive obligation of disclosure. 121 A similar argument was rejected by the West Australian Full Court in Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33. An obligation to act in good faith does not extend to an obligation of disclosure. 122 The defendant also relies on the "Permitted Activities" exception to clause E5. The exception is an exception to the restraints. It does not impose an obligation on the plaintiffs. It permits the plaintiffs, where the restraints are otherwise triggered, to in certain circumstances engage in conduct which would otherwise contravene the restraints.

Conclusion 123 Neither the restraint clauses nor clauses A4, B5 and C1 contain any enforceable prohibition on the plaintiffs or Aegis Crown undertaking the proposed conduct. 124 Had it been relevant, no injunction would have been granted requiring PRP to cause the Partnership/ Aegis Crowne to refrain from engaging in the proposed conduct. Short minutes of order 125 The parties are to bring in short minutes of order on which occasion costs may be argued.

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