Presfire Pty Ltd v Rezk [1999] NSWSC 161

New South Wales Supreme Court CITATION : Presfire Pty Ltd v Rezk [1999] NSWSC 161 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 5095/98 HEARING DATE(S) : 2; 3 March 1999 JUDGMENT DATE : 3 March 1999

PARTIES : Presfire Pty Limited (Plaintiff) Manal Rezk (Defendant) JUDGMENT OF : Young J

COUNSEL : Plaintiff: Marcus S Jacobs QC Defendant: A R Moses SOLICITORS : Plaintiff: Rita Hanna & Associates Defendant: Tress Cocks & Maddox CATCHWORDS : Contracts [6]; Uncertain promises; Restrictive covenant; Verbal contract; Covenant never precisely formulated; Not a term of the contract; Trade & Commerce [22]; Restraint of trade; Medical centre and doctor; No contract of employment; Good restriction to protect centre's goodwill; Whillans v Ashcoast Pty Ltd (Q'ld C/A 6.3.1998) followed DECISION : Proceedings dismissed

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

YOUNG, J

WEDNESDAY 3 MARCH 1999

5095/98 - PRESFIRE PTY LTD V MANAL REZK

JUDGMENT 1 HIS HONOUR : These proceedings were listed as an application for interlocutory injunction before the Duty Judge yesterday. As a result of the settlement of the case in my list, when the proceedings were transferred to me, with the consent of both parties, the claim for injunction was heard on a final basis. 2 The plaintiff is the service company of a medical centre at Mount Druitt. The defendant is a registered medical practitioner. 3 The arrangement between the plaintiff and the defendant is not one which can easily be classified within traditional categories. The evidence shows that the plaintiff is a company whose sole shareholders and directors are Dr Nihal Hanna and her husband Mr Nabil (Bill) Hanna. They service a medical centre which at all material times is the workplace for four doctors. However, there is no evidence that there is any contractual or other relationship between those doctors inter se. The doctors are not employees of the plaintiff, in the sense that none of them receive wages, but the overall centre is organised by the plaintiff, without, it would seem, any control by those doctors. There is at least consensus amongst the officers of the plaintiff and the doctors as to the hours the doctors will work and the amount of annual leave received. 4 The evidence shows that the area in question, which is centred in Mount Druitt, is attractive as a place of residence to people who are of Egyptian or Sudanese background and particularly members of the Coptic Church. Dr Hanna, Mr Hanna and the defendant, Dr Rezk, are people who are in the former category. 5 Dr Hanna recruited Dr Rezk when the latter had just finished her training. Dr Hanna said that she asked Dr Rezk whether she would be interested in coming to work for the plaintiff's medical centre. She says that she told Dr Rezk: "Your income will be in accordance with the number of patients you see. You will be paid 45 percent of your gross income every two weeks. The Centre takes the other 55 percent and in return it provides you with all of your facilities, such as advertising, paperwork, administration, staff, medical equipment, disposables, etc." 6 Dr Rezk said she was happy with that arrangement and after clarifying some details as to initial remuneration Dr Rezk said that she would like to work in the medical centre, that she would be staying in the area and did not intend to open up on her own; she went to the local church, and her whole family lived in the area. Dr Hanna said she then replied: "If you ever want to leave the centre you will have to give us 4 weeks' notice, and of course you will not be able to open your own practice within a radius of 3 kilometres for a year". Dr Rezk simply replied "Yes". 7 Mr Hanna says that he introduced himself to Dr Rezk shortly after she commenced work at the centre. Mr Hanna is what might be described as the chief executive officer of the plaintiff, who performs or supervises the necessary administrative work to keep the centre working smoothly. He says that shortly after the defendant commenced he said to her: "Doctor , I am pleased that you will be with us for a long time. I do however want to make it clear that if you want to leave at this stage you will not be able to set up practice within a radius of 3 kilometres of the medical centre for a period of 1 year. You needn't worry about this, as you state that you will be here with us for a long time, but I want to make this clear. You live close and I want to make sure that you have no intention of opening up your own surgery in the area." 8 He says that the defendant replied: "I have no intention of opening. I am not into business. I am just happy to come and work here." 9 The defendant commenced working six days a week at the plaintiff's centre in September 1996 and continued there until 8 November 1998. 10 The defendant's husband is a dentist and from 9 November 1998 the defendant and her husband opened a clinic at Luxford Court, Mount Druitt, which would appear to be approximately 1.2 kilometres from the plaintiff's medical centre. The lease of the clinic in which the defendant and her husband now practise is in the name of a company, Medical Dental Pty Ltd, of which it would appear they are both directors. 11 I should infer from the evidence that the defendant practises from the Luxford Court premises, but whether on her own behalf or as an employee of a company, or otherwise, is something that I will have to return to later. 12 The plaintiff asks for an injunction or, alternatively, damages to prevent the defendant from setting up a practice within the three kilometre exclusion zone up to 8 November 1999. 13 The primary defence of the defendant is to deny that there was any agreement as to a three kilometre exclusion zone, but if that be found against her then she has various subsidiary defences as to why that exclusion should not be enforced against her. 14 The defendant says that there was no mention of any restriction until November 1998, when she told Mr Hanna that she and her husband were setting up rooms at Luxford Court. She says that there was then a conversation in which Mr Hanna said to her, "You can't operate so close to us." She said, "What is too close?" to which Mr Hanna replied: "I'm not sure. It is about 3 or 5 kilometres. That's the business law." 15 The defendant said, "You never mentioned this to me before" to which Mr Hanna replied, "No I didn't. But that's the business law." 16 There is some corroboration of the defendant's evidence from the evidence of her husband. 17 However, the witnesses on the plaintiff's side say that there was indeed mention of a restriction of three kilometres and one year over a considerable period of time. Apart from Dr and Mr Hanna there was some evidence from a nurse, Ms Drew, and another doctor who worked at the centre Dr Naeem Hanna. The latter said that when he came to work at the centre in 1994 he was told that it was a condition of all doctors working at the centre that should a doctor decide to leave the centre he or she would not be allowed to work as a doctor on their own in competition with the plaintiff's medical centre within a radius of three kilometres for one year after termination. 18 In both the affidavits of Dr Hanna and Mr Hanna the alleged restriction is set out in virtually identical words. I have set out the words earlier, that is, that the doctor leaving the centre is not able to set up a practice within three kilometres for one year. 19 In the evidence before the court, however, that formula was not always followed. If one looks at the cross-examination of Mr Hanna he claims he said to the defendant ( p 4 of the transcript): "If she was ever to leave us she cannot practice within three kilometres for a year." Though later on the same page he was asked: "I want to put to you that you never said to Dr Rezk that if she were to leave at that stage she would not be able to set up a practice within a radius of three kilometres ..." To which Mr Hanna said, "Not true". 20 Counsel then asked Mr Hanna whether he kept a record of that discussion where he said "She could not operate for a period of a year within a three kilometre radius" to which he simply said "No". 21 At page 9 he was asked whether the restriction applied no matter who terminated the agreement and he said: "It applies if the doctor, after working leaves the centre, they cannot open within three kilometres or for a year... restricts that doctor from setting up his or her own practice for three kilometres for a period of a year ... it means that they cannot set up a practice or open a surgery within three kilometre radius for a period of one year, just like it said. It is plain English, really. I can't simplify it more than that. Simple as can be". 22 In cross-examination Dr Hanna said at p 17 of the transcript that the actual words that she used to Dr Rezk were: "When you decide to leave us I need that you give me four weeks' notice and not to start your practice within a three kilometre radius for a period of one year." 23 She said that most of the doctors entered into such a restriction, though she later amended that to all the doctors. She said that three kilometres was chosen because most of the patients that attended the centre live around the area and that they do not see very many people from further away. 24 When the plaintiff asked a person, who is supposedly an expert accountant, to give evidence as to damages, its controllers or its solicitors must have given the accountant a history. The accountant, Mr Hawthorne, at para 9 of his affidavit, said that he was instructed that: "Dr Rezk's employment contract prohibited her from practising as a doctor within a 3 kilometre radius of the Company's medical centre on termination of her employment with the Company." 25 He was further instructed that the doctor was an employee of the medical centre. Someone must have told him that because the affidavit was filed by the solicitors for the plaintiff and solicitors do not file affidavits which contain statements which they do not intend to stand by. 26 The next significant matter is that the plaintiff, when it came to understand that the defendant was leaving, instructed solicitors who trade under the name of Janus Lawyers. It would seem that a Mr Assi is the sole proprietor of that firm. 27 On 27 October 1998 he wrote to the defendant a letter saying that: "In consideration of our client accommodating you in the Mt Druitt Health Care Medical Centre you agreed to supply your medical services in the centre. We are further instructed that as part of the contract you agreed to not open a medical practice in competition with the medical centre." 28 The letter then went on to indicate that the plaintiff hoped that good relations could continue, but if they could not the plaintiff "will take legal proceedings to prevent you from opening your practice". 29 This was met by a letter from a firm of solicitors instructed by the defendant, which is again a rather strange letter. It acknowledges that Dr Rezk commenced employment with the plaintiff (which was probably not true). It says that after about eight months E.R. Pty Ltd commenced supply of medical services and that neither party ever discussed the question of a restraint, but recently Mr Hanna had requested Dr Rezk to enter into a deed of restraint, which she naturally refused to do. That statement again is not borne out by any of the evidence, and it is rather hard to see how those solicitors got that impression, unless a fairly confused outline had been given to them on behalf of the defendant. 30 The only witness whose evidence I have not heretofore summarised is that of Ms Drew. She says that she is a nurse/receptionist at the plaintiff's centre, and that she was on duty on a Saturday at the close of business when she overheard Mr Hanna say to the defendant that there was a verbal agreement that she could not open a practice within three kilometres of the medical centre and that a verbal agreement was as binding as a written agreement. Again on the following Monday she heard the defendant say, in connection with a conversation about the restriction, "It's got to be on paper for it to be legal" and Mr Hanna replied "A verbal agreement is the same as a written agreement". 31 In her own evidence Dr Rezk mounted quite a considerable attack on Ms Drew; that she was a false witness and that she in fact was not on duty on the night in question. Mr Jacobs QC, for the plaintiff, cross-examined as to why she had not mentioned that in her affidavit. I arrogantly thought that I knew the answer to that, and that was that this surprise information was going to be used as a bombshell in cross-examination. 32 However, when the cross-examination came, none of these matters were in fact put to Ms Drew at all and, indeed, the defendant's counsel, Mr Moses, in his submissions took the view that it did not really matter whether Ms Drew's evidence was accepted or not. That is true to an extent, but the fact that Dr Rezk went out to attack Ms Drew, saying that she could prove that the evidence was false, and then did not, as Mr Jacobs QC submits, throws doubt on the credibility of Dr Rezk's evidence. 33 All the witnesses were cross-examined before me. I must confess that I had some doubt as to some of the material that was given to me. So far as the evidence of the defendant and her husband is concerned, I found it very difficult to accept the evidence that was given. The defendant was one of those witnesses who just kept talking and unfortunately, as often happens, the more she talked the more she put her foot in it. She displayed some of the indicia of an unreliable witness such as volunteering that something could not be right and she could prove it, yet she had capable lawyers and they never attempted to prove it. Her evidence was in direct conflict with Ms Drew. She said that Ms Drew was not working the night Ms Drew said she overheard the conversation, and Dr Rezk said she could prove it. There was no attempt to do so. 34 Dr Emad Rezk, the defendant's husband, was also most unimpressive. He spoke quickly and repeated over and over again the same things, often not responding to the question, and if his evidence were accepted a very illogical position would emerge. 35 However, as I pointed out to Mr Jacobs QC during addresses, the mere fact that I do not place much reliance on the defendant's evidence does not necessarily mean that his client succeeds. The fact that there was reliance by the defendant in her evidence and in the evidence of her husband (which I have not accepted) that there was no mention of the restriction until after the announcement that the defendant was leaving, and that the plaintiff had said that the restriction was a matter of business law rather than an agreement, does make it easier for me to find that the plaintiff's case was correct. Otherwise the plaintiff's case must stand or fall on its own strength. 36 I must confess that I did not find anything to criticise in the evidence of Dr Hanna. I was not completely convinced of the reliability of Mr Hanna because it did seem, with respect, that he did not quite understand what he was talking about and that that was part of the reason for slightly different versions being given on various occasions. 37 Dr Naeem Hanna was rather unimpressive but, on the other hand, his evidence was not too important, though his version of the covenant is significant. I think that I must accept Ms Drew's evidence, but having rejected the defendant's version it does not matter very much. 38 There is no doubt at all in this case that there was some sort of contract, at least initially, between the plaintiff and the defendant. The contract was that the plaintiff would supply all the necessities for a medical practice, including the patients; that the doctor would bill, usually Medicare; the plaintiff would collect the moneys that flowed in from Medicare and account for 45 percent to the defendant and 55 percent to itself. 39 There are also other terms of the contract that must have been applicable. Unfortunately, this is an oral contract where the focus has been on a particular clause as to a restraint of trade the details of which are very sketchily filled out. The evidence of Mr Hanna was that the oral agreements with the various doctors reflect their services, their hours, their remuneration, leave and notice, but just how far these were binding contractual terms, and how far they were understandings, is left a bit nebulous. 40 Although I am summarising rather than quoting, Mr Moses puts that there were a number of factors which make it unlikely that the term which is mentioned in the amended summons was a term of the oral agreement. 41 1. As Dr Rezk herself said, she lived in the area and would not likely have agreed to a restriction that would have stopped her practising in her own town, especially when she was only to get 45 percent of her gross earnings; 2. The plaintiff did not specifically refer to the alleged agreement in early letters of demand by its solicitors; 3. The plaintiff's witnesses have given different versions of the restriction; 4. Mr Hanna first suggested that the restriction was a matter of business law rather than a matter of agreement (which I have rejected); 5. Dr Naeem Hanna's version of the "standard covenant" was different to that pleaded, ie not to work as a doctor; 6. The version that was given to Mr Hawthorne was different; 7. Ms Drew does not mention a one year restriction; and 8. The various versions of the so-called covenant were such that there could not be more than a vague general understanding. 42 Apart from these matters, there is the problem that the contract on behalf of the plaintiff appears to have been made by Dr Hanna with the defendant. The conversation with Mr Hanna, set out in paragraphs 27 and following of affidavit PA01, was after the defendant had started work. That conversation, accordingly, could not have had contractual effect, unless it was to settle an ambiguity that might have been inherent in the contract that had been made earlier by the plaintiff through Dr Hanna. 43 The conversation with Dr Hanna, as will be remembered, was: "Of course, you will not be able to open your own practice within a radius of 3 kilometres for a year". 44 Those words are not the words of promise, but rather that there is a general understanding. However, when the doctor gave evidence at page 17 of the transcript, as I have already indicated, the words "of course" are not there, so that one must be a little careful about being too precious about verbal formulae. 45 On the other hand, Mr Jacobs QC puts that the surrounding circumstances favour the inference that the restriction was a term of the contract. He points to various factors and again I summarise rather than quote. 46 First, the fact that the defendant said that she was not bound because there was nothing in writing, rather than that there was no agreement at all, tends to suggest that there was in fact some oral agreement. 47 Secondly, the evidence suggests that all the doctors (or perhaps almost all the doctors) entered into a similar restriction. 48 Thirdly, the restriction is the sort of restriction that one would expect in the situation where the plaintiff was at risk in handing on a plate to a young doctor all the capital facilities necessary for her to establish a practice, where there was no other protection; and 49 Fourthly, the lies that were told by the defendant and her husband should reinforce the remaining material to show that there was in fact such an agreement. 50 I have found this a very difficult matter to decide. The plaintiff bears the onus of proof and the plaintiff must make it clear on the balance of probabilities that there was a definite agreement in the terms set out in the prayers in the amended summons, or something close to that effect. 51 I feel confident on the evidence that there was mention between 1996 and 1998 of not being involved in the medical profession within three kilometres of the centre when a doctor left the centre. However, the differing versions that I have been given of the covenant, particularly the versions given by the controllers of the plaintiff to its accountant, and in the early affidavits, give me the impression, to use Mr Moses' expression, of "historical revisionism". 52 It seems to me that whilst there was from time to time mention that doctors who left were not to be involved within three kilometres of the centre, the exact terms of the restriction were never spelt out, let alone spelt out when the contract was initially made. It was a matter of "of course you will not operate within three kilometres". 53 Although these doctors do not appear to have had any legal advice, it is quite clear to anyone considering a covenant of this nature that it has to be put in fairly precise language because one must cover not only the question as to whether the covenant is a brass plate covenant, or a covenant against activity, but also whether the restriction is to cover not only present activity by the doctor, but also activity by any partnership or company or other entity with which she might be involved. 54 I am not able to find, on the balance of probabilities, that there ever was a sufficiently certain covenant that bound the defendant containing the restriction pleaded in the amended summons. 55 However, even if the plaintiff overcame this hurdle, there are other problems which would probably mean that it would not succeed. 56 It is common ground that between eight months and a year after the defendant commenced working, she said to the controllers of the plaintiff that her accountant had advised her that she should operate through a company E.R. Pty Ltd and asked that her remuneration be paid to E. R. Pty Ltd. This in fact happened. 57 Mr Moses puts that this had one of two consequences. First, the defendant must have terminated her "employment" at least a year ago, so that the time of the restriction is now spent. Alternatively, there has been a novation of the contract, so that the restriction now covers E. R. Pty Ltd and E. R. Pty Ltd is not a party to these proceedings. It seems to me that, although technical, there is a lot of strength in those particular submissions. 58 Mr Jacobs QC says that that is not so, that the defendant has to establish novation, which she has not done. Also there is no intention shown between the parties that the change in contracting parties had the effect of discharging the personal obligation of Dr Rezk not to compete after she left the practice. 59 I think on balance what Mr Jacobs QC said is correct, but one of the problems is that when we have verbal contracts and novation of verbal contracts, and generally things are left vague, it is very, very difficult indeed for a court, when it is called upon to enforce them, to really know what the parties meant. Generally speaking, if parties mean to enforce contracts they must have them prepared with sufficient certainty. 60 However, even if there was a continuous obligation on Dr Rezk not to open a practice within three kilometres, the evidence really does not show that she has done so. There is no doubt at all that she has her name on the door of a practice 1.2 kilometres down the road, but the only evidence is that that practice is carried on in premises leased by Medical Dental Pty Ltd, and we do not know what the status is of Dr Rezk in that practice. 61 Although the evidence does not get to this degree of precision, the orders sought in the amended summons are that the defendant should not set up her own practice as a medical practitioner, or that she should cease practising in Luxford Court "which she has established in her own name as a sole practitioner". It seems, accordingly, that the breach complained of is that the defendant has established a medical practice in her sole name. The evidence is not sufficient to find that. 62 The next matter is whether if there was a contractual restraint it is valid. Normally restraints of trade are invalid unless they are reasonable and whether or not a restraint is reasonable needs to be judged in connection with the relationship between the parties. Usually such a covenant is only valid between an employer and employee, between partners or between vendor and purchaser. 63 However, the Queensland Court of Appeal in Whillans v Ashcoast Pty Ltd 6 March 1998, unreported, treated an arrangement between a doctor and a company, which operated a medical centre in the western suburbs of the Gold Coast and provided services to that doctor, as a contract analogous to that of a partnership under which the medical centre company had goodwill. That company was entitled to protect that goodwill by a covenant that was in fact wider than the covenant in the present case. 64 Mr Moses put that the present case is distinguishable from Whillans' case. There are always differences between two sets of cases, but I do not consider the differences are sufficiently wide for me not to follow it. 65 Mr Jacobs QC urges me to follow that decision and as the decision is that of a Full Court of one of the Australian States I do so. 66 Accordingly, had the covenant been proved I would have held it was valid and there appears to be no valid reason to say that a three kilometre and one year restriction is too wide. Indeed the material suggests that it is not too wide : (a) because that is what the parties agreed and normally they are the best judge; and (b) Dr Hanna's evidence, which I accept, that the patient drawing area of the practice is predominantly local. When one looks at the map, three kilometres from Mount Druitt roughly takes in St Marys on the west, Rooty Hill on the east and what are popularly called the new housing areas on the north, so that three kilometres would appear to be a fair enough restriction. 67 The next matter is whether, had I found there to be a valid restriction, I would have granted an injunction. There is, of course, the well-known passage in the judgment of the House of Lords in Doherty v Allman (1878) 3 AC 709, 720 that: "If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such a case the injunction does nothing more than give the sanction of the process of the Court to that which is already the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damages or of injury - it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves." 68 Mr Jacobs QC also says that that learning is reinforced by the fact that proving damages in this sort of case is a difficult matter and that parties are encouraged to make a commercial contract between themselves, which will avoid the necessity of having to prove damages by complex accountants' evidence, and to rely on the promises made. 69 As against that it could be said that the public is entitled to have the doctor of its choice available and that when one realises that, even if the covenant was enforceable, the doctor could practice only 3.1 kilometres away from the centre of Mount Druitt and might even be able to provide her own transport for patients, advertise and do house calls within the restricted area, the damages must be extremely small. 70 I consider that the probabilities would be that there is sufficient doubt about the assessment of damages in this case for it to be a case which, had the plaintiff succeeded, an injunction would go rather than the plaintiff be left to damages. 71 However, as things have turned out, the plaintiff is not entitled to relief and accordingly the proceedings should be dismissed. 72 My present feeling is that there should be no order as to costs for reasons which I have given informally. However, I have not yet come to a final determination on that matter. 73 Through no fault of his own, Mr Moses is not able to be here this afternoon. If I have not heard that the defendant wishes to argue the question of costs within seven days of my Associate certifying a copy of this judgment, I will dismiss the proceedings with no order as to costs. If I do get such an indication within that period of seven days then the matter can be listed before me on a Tuesday or Thursday at 9.30 am.