Sundararajah v Teachers Federation Health Ltd

CATCHWORDS : EQUITY - equitable remedies - injuntions - interlocutory injunctions - whether serious question to be tried. CONTRACT - implied terms - obligation of good faith - termination of contract.

Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 CASES CITED : Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Tomlin v Ford Credit Australia [2005] NSWSC 540 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Walker v ANZ Banking Group Ltd (No. 2) [2001] NSWSC 806

PARTIES : Dr Raahulan Sundararajah (Plaintiff) Teachers Federation Health Ltd (Defendant)

COUNSEL : P Arblaster (Plaintiff) S Philips (Defendant)

SOLICITORS : TressCox Lawyers (Plaintiff) Henry Davis York (Defendant)

• 13 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5726/09 DR RAAHULAN SUNDARARAJAH V TEACHERS FEDERATION HEALTH LTD JUDGMENT

1 The Plaintiff is a dentist who carries on practice at the Ashfield Dental Clinic in Ashfield. 2 On 5 August 2005 he entered into an agreement known as a HICAPS Provider Agreement with the Defendant. This agreement enables patients of a health care provider such as the Plaintiff to settle their health insurance claims by electronic means at the surgery. This is a considerable advantage over the ordinary system of settling accounts whereby the health service provider issues an invoice that is either paid and then a claim made on the health insurer or the invoice is submitted to the health insurer for payment. 3 From about 2005 onwards the Plaintiff in conjunction with the Defendant has built up his practice on the basis of a high proportion of clients who use the HICAPS system with the Defendant. Both he and the Defendant have marketed his practice on that basis. The proportion of clients who were members of the Defendant grew from about 10% at the end of 2005 to about 80% in August 2008. 4 The terms and conditions of the Agreement are in a standard printed form. Clause 7 of the Agreement relevantly provides: "7 Termination … 7.2 You or a Fund may end this agreement to the extent that it relates to the Fund immediately if: (a) the other party commits a material breach of its obligations under this agreement which breach is not remedied within 90 days of receipt of a notice in writing requesting the breach be remedied or is not remedied within that period to the satisfaction of the party giving the notice; or (b) an Insolvency Event has occurred in relation to that other party. 7.3 A Fund may also end this agreement o the extent that it relates to the Fund on the giving of 90 days' notice to You. …" 5 The Plaintiff had also entered into what was called a Preferred Provider Agreement on 20 December 2005. In short, that Agreement provided that the Plaintiff would agree to accept as full payment the Defendant's benefits for dental services provided by him and dentists in his practice. In return, the Defendant agreed to advise its members living or working in the Ashfield area and surrounding suburbs of the Preferred Provider Agreement. Pursuant to that arrangement, the Defendant sent out letters to its members which relevantly said: " Save on dental costs … In order to create further value for Members, Teachers Federation Health has an agreed pricing arrangement with a local dentist practice. Under this arrangement, Ashfield Dental will cover all general dental services with no out of pocket costs for members of Ancillary Cover. A significant number of major dental items will also be covered completely by fund benefits with some exceptions including crowns and bridges, endodontic services and dentures. Following other practice details: Ashfield Dental Dr Ray Sunda … Appointments are necessary - you will need your Membership Card for electronic claiming. …" 6 In about July 2007 the Plaintiff became aware that the Defendant was planning to set up a dental clinic in Parramatta. In November 2007 the Plaintiff received a letter from Mr Brad Joyce, the Chief Executive Officer of the Defendant, notifying him that the Defendant was terminating the Preferred Provider Agreement and giving him the 4 months requisite notice to do so. 7 Some little time later, one of the Plaintiff's patients handed him a copy of a letter from the Defendant dated 10 December 2007 which said this: "Teachers Federation Health has recently undertaken a review of its dental provider arrangements. As a result of this review Ashfield Dental Clinic will no longer be a preferred dental provider to the Fund.

Accordingly and as a previous user of dental services of Ashfield Dental Clinic, you should be aware that after 27 March 2008 the no gap arrangement for certain dental services with that Clinic will cease to be available to our members.

… We are very pleased to announce at this time the opening of our new expanded Teachers Eyecare premises in Parramatta, located at 68 Macquarie Street. …" 8 On 31 March 2009 the Plaintiff received a letter from the Defendant telling him that a review was to be made of his clinical records and accounts as part of a standard business practice. Subsequently, a Mr Michael Kenney, a consultant for the Defendant, came to the dental practice to conduct the review. At the conclusion of Mr Kenney's visit, the Plaintiff asked him if everything was okay and Mr Kenney said "Yes, it is all fine". The Plaintiff asked if he could have a copy of his findings in writing but Mr Kenney said he was not able to do that because there were privacy issues with the Fund. He said he would have a letter written and sent to the Plaintiff. The Plaintiff subsequently received no correspondence from Mr Kenney. 9 On 8 September 2009 the Plaintiff received a letter from the Defendant which said this: "In the course of a recent dental claims review our analysis revealed a dramatic increase in the average services per patient at your practice. … Our policy in cases like this is to terminate our members' access to HICAPS at the practices in question. In accordance with this policy, I am writing to inform you of our intention to terminate the HICAPS excess as of 21 September 2009. …" 10 The Plaintiff subsequently rang the author of the letter, Donna Mccarthy, to explain why there had been an increase in the services at the practice. Subsequently he engaged TressCox solicitors to correspond with the Defendant on his behalf. In a letter of 16 September 2009 TressCox requested copies of material obtained at the review that had been conducted by Mr Kenney and in particular the policy referred to in Ms McCarthy's letter. 11 In response, the Defendant wrote denying the request for the information saying that it was commercial in confidence and went on to say: "The termination of Teachers Federation Health ("TFH") contributors' access to HICAPS at your client's practice will remain in force until the outcome of the review of apparent anomalies in the billing of TFH dental patients by your client is completed." 12 Subsequent correspondence ensued including a letter from TressCox to the Defendant's solicitors, Henry Davis York, of 24 September 2009 which relevantly said: "As you are no doubt aware, pursuant to the provision of the HICAPS Provider Agreement, your client may only terminate the HICAPS Provider Agreement without notice in the event that a material breach of the agreement is not remedied within 90 days of receipt of notice advising of the breach and requesting remedy of the breach (clause 7.2(a)) or in the event of an Insolvency Event (as defined) (clause 7.2(b)). Alternatively, your client may terminate the HICAPS Provider Agreement by providing our client with 90 days written notice of its intention to do so.

Your client's termination of the HICAPS Provider Agreement is in breach of the terms of the agreement.

…" 13 On 29 September 2009 the Defendant wrote to the Plaintiff saying: " Notice of termination of the HICAPS Provider Agreement Terms and Conditions between Dr Sundararajah and Teachers Federation Health Ltd ("Agreement")

In accordance with clause 7.3 of the Agreement, we hereby give 90 days notice of our termination of the Agreement. Please note that we have restored your access to HICAPS for the duration of the 90 day notice period.

…" 14 In fact, the access to HICAPS was not at any stage terminated. 15 The Plaintiff obtained leave to serve short notice of a Summons and Affidavit filed 14 December 2009. The matter came before me yesterday for interlocutory relief, in particular, for an interlocutory injunction in terms of Prayer 3 in the Summons. The effect of that injunction would be to leave the HICAPS arrangement in place pending the final hearing of these proceedings. 16 During the hearing the Plaintiff tendered a printout from the Defendant's website headed "Teachers Dental Parramatta" setting out a range of dental procedures with no out of pocket charge to the Defendant's members with Extras cover, and other services which were said to be available to members at a very competitive price. 17 The issue at the hearing turned on clause 7.3 of the HICAPS Agreement, whether the Agreement contained an implied term that the Defendant would act in good faith when exercising a right of termination conferred by clause 7.3 and whether there had been a breach of such an implied term when the Agreement was purportedly terminated on 29 September 2009. There was a subsidiary but associated issue about whether the giving of the notice of the termination contravened s 51AC Trade Practices Act 1974. 18 I was referred to a very useful article written by McDougall J (writing extra-judicially) on the implied duty of good faith in Australian contract law. His Honour had usefully collected and analysed the significant cases particularly Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15, Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558. 19 He referred to the conclusion of Giles JA in Vodafone that "An obligation of good faith and reasonableness in the performance of a contractual obligation or the exercise of a contractual power may be implied as a matter of law as a legal incident of a commercial contract". However, such a duty could not stand in the face of an express provision or necessary implication negating it, and if the duty exists it must accommodate the particular terms of the contract. 20 The content of the duty of good faith is said to be equated to reasonableness (Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234), a duty not to act capriciously (Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 at 43,014), or seen from the opposite perspective, conduct which sought to prevent the performance of the contract or withholding its benefits or seeking to further an ulterior or extraneous purpose would indicate a breach of the obligation (Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228). 21 Mr Philips of counsel, who appeared for the Defendant, drew my attention to some particular passages in McDougall J's article where he warned that it was necessary to look at the particular contract to see what might be comprehended as a particular expression of the general concept of good faith, and then to enquire whether that particular term, or a term having that particular content, should be implied, or whether it is excluded by express terms or necessary implication. He also drew my attention to McDougall J's decision in Tomlin v Ford Credit Australia [2005] NSWSC 540 where his Honour held that a term of good faith would not be implied. One of the reasons for so holding was that there was a "whole of agreement" clause in the contract which was inconsistent with the implication of such a term (see at para [118]). 22 Mr Philips rightly accepted that there was no such provision in the HICAPS agreement. 23 Mr Phillips submitted further that where an agreement contained an express provision such as clause 7.3 which does not require the Defendant to have cause, or give reasons, for terminating the agreement there can be no implication of a duty of good faith because that would stand in the way of the Defendant exercising its express contractual right. 24 Austin J had to consider whether he should grant an interlocutory injunction in a matter not dissimilar from the present in Walker v ANZ Banking Group Ltd (No. 2) [2001] NSWSC 806. ANZ had provided electronic payment facilities to One-Tel including a facility that allowed One-Tel customers to pay their telephone accounts by means of direct debits from their bank accounts. 25 The Agreement contained a termination clause which provided: "ANZ may terminate your right to use the ANZ direct debit service at any time by way of immediate verbal advice to you and will confirm such advice in writing to your registered business address." 26 It similarly provided that One-Tel could terminate the use of the service by way of immediate verbal advice to ANZ with confirmation of that advice in writing. ANZ purported to terminate the facility arrangement. 27 Austin J accepted the Plaintiffs' evidence to the effect that if the facilities were not available for the collection of customer debts, voluntary compliance by customers would dramatically fall away and the debt recovery process would be substantially impaired. The most efficient manner of collecting customer debts was by aid of electronic banking facilities. The cancellation of the direct debit facilities by customers meant that the Plaintiffs were forced to use other less efficient collection methods to recover outstanding debts making some debts uncollectible in a practical sense. 28 The position in the present case is relevantly analogous. The Plaintiff gives evidence that if his patients cannot use the HICAPS system he will not be able to provide a minimum or no out of pocket expenses service to patients who are members of the Defendant's Fund. They will then have the burden of taking the steps necessary to lodge their claims manually. Moreover, with the presence of the Parramatta Dental Practice being run by the Defendant and promoted in the way I have mentioned it is likely that the Plaintiff will lose a number of his patients. 29 In Walker there was said to be a number of serious questions to be tried including these: "(c) the contract contained an implied term that the right of termination conferred by cl 10.1 would not be exercised unconscionably or contrary to good faith; (d) the defendant was under an equitable obligation not to exercise unconscionably the power of termination conferred by clause 10.1; (e) the defendant is in breach of any of the obligations referred to in (a) to (d) above; (f) the defendant by giving notice of termination of the agreement with instantaneous effect, as it purported to do, contravened s 51AC of the TP Act. 30 Austin J held that questions (c), (d), and (f) were serious questions to be tried (see at paras [87], [93]-[96]). He also said: "[ 98] The defendant submitted that these grounds are not available because any implied duty of good faith and any equitable imitation [scil. limitation] on the right to terminate would be subject to the express terms of the contract. … That is so, but where (as here) the power to terminate is simply a broad and unqualified power, there is room for implying contractual limitations or imposing equitable constraints, because the power does not expressly exclude those constraints." 31 The following matters seems to me to indicate that there are serious questions to be tried in the present matter:

(a) As a matter of general principle, the law of NSW implies an obligation of good faith into a contract.

(b) Where there is a broad and unqualified power to terminate as in clause 7.3 there is room for implying contractual limitations or imposing equitable constraints.

(c) That is the more so when the broad power to terminate is given to one party only. In Walker both sides had the right to terminate.

(d) There is nothing express or by necessary implication in the HICAPS agreement that prevents such an implication.

(e) The fact that the present agreement gives 90 days notice (Cf immediate notice in Walker ) does not make a qualitative difference to the broad general power to terminate by the Defendant.

(f) The use of clause 7.3 to bring the arrangement to an end must be seen in the light of: (i) the termination of the Preferred Provider Agreement,

(ii) the review of records, (iii) the letter of 8 September 2009 which, on its face, was a wrongful attempt to bring the agreement to an end,

(iv) the setting up of the dental clinic at Parramatta. 32 All of those matters raise a serious issue whether there has been a breach of the obligation of good faith when the termination under clause 7.3 was ultimately notified, particularly when the content of the duty (para 20 above) is considered. 33 The Defendant submitted that no interlocutory injunction should be granted because an injunction would not be granted at the final hearing and it was not apparent what other final relief would or could be sought by the Plaintiff. 34 It seems correct that the Plaintiff would not be able to obtain a permanent injunction restraining reliance by the Defendant on clause 7.3 at any time in the future. Indeed, Mr Arblaster of Counsel for the Plaintiff disavowed any attempt to do so although prayer 3 in the Summons was not expressed to be sought only on an interlocutory basis. However, the Summons claims a number of declarations concerning the implication of terms and equitable obligations together with declarations concerning breach of those obligations. More particularly, the Summons claims a declaration that the Notice of Termination dated 29 September 2009 is void and of no effect. 35 It seems to me that if the Plaintiff is successful at a final hearing in showing that the Notice of Termination under clause 7.3 was issued in breach of an implied obligation of good faith such a declaration may be made which would be of utility for the Plaintiff in restoring him to the position he was in prior to the Notice of Termination. Such a declaration would say nothing about how the agreement would be performed in futuro between the parties. 36 I turn now to consider the balance of convenience. 37 For the same reasons that Austin J gave in Walker at [104]-[105], there seems to me to be evidentiary difficulties in assessing damages in the present case. 38 The Defendant submits that the delay in approaching the Court after the Notice of Termination was given in September 2009 should result in the refusal of interlocutory relief. In my view, that delay has not been adequately explained but it is only one factor to be considered. The Defendant does not point to any prejudice it has suffered by reason of the delay. It simply says that if application had earlier been made it may have taken a different view about agreeing to an interlocutory injunction. That does not seem to me to be a matter which ought to be given much weight. 39 The balance of convenience favours the Plaintiff because if the HICAPS agreement comes to an end on 29 December 2009 and the facility is withdrawn it will have an immediate and detrimental effect on the Plaintiff's practice. In the absence of evidence of detriment to the Defendant it is difficult to see how the Defendant would be detrimentally affected by the status quo being maintained until a final hearing. 40 I make the following orders: (1) Upon the Plaintiff giving the usual undertaking as to damages, the Defendant, by itself, its servants or agents, is, until further order restrained from: (a) acting upon or implementing a Notice of Termination dated 29 September 2009 of the HICAPS agreement made between the Plaintiff and the Defendant on 5 August 2005 or from issuing any substitute notice; (b) treating the agreement as being at an end upon the expiry of the 90 day notice period referred to in the Notice of Termination.

(2) Grant leave to either party to file a Notice of Motion for expedition.

(3) Any such Notice of Motion together with any Affidavits in Support are to be filed and served on or before 5 February 2010.

(4) The Notice of Motion is to be returnable before the Expedition Judge on 19 February 2010.

(5) I stand the proceedings over to the Expedition List on 19 February 2010.

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