Reported Decision : (2004) ATPR (Digest) 46-257 New South Wales Court of Appeal CITATION : Idameneo P/L v Ticco P/L & 1 Ors [2004] NSWCA 329 HEARING DATE(S) : 18 August 2004 JUDGMENT DATE : 17 September 2004 JUDGMENT OF : Mason P at 1; Hodgson JA at 2; Santow JA at 9 DECISION : Appeal dismissed with costs. CATCHWORDS : CONTRACT - contractual interpretation of trade restraint clause in protection of goodwill on sale of a "business" to the appellant of respondent's medical practice. Whether vendor in breach of relevant contracts - whether vendor's breach amounted to a repudiation - purchaser instead of accepting alleged vendor repudiation continued to benefit from performance by vendor yet then withheld payment for his services - whether if the purchaser was then in breach that breach was absolved by vendor's prior breach and repudiation if such it were - whether that breach by the purchaser amounted to repudiation - whether when vendor then terminated invoking clause permitting purchaser to terminate on vendor's breach vendor entitled to do so if vendor earlier had repudiated - principles applicable - alternative basis in estoppel - need for nexus between any prior breach by vendor and subsequent breach by purchaser - no such nexus here. LEGISLATION CITED : Trade Practices Act s87 Austral Standard Cable Pty Ltd v Walker Nominees Pty Ltd (1992) 26 NSWLR 524 Bristol-Myers Squibb Pharmaceuticals Pty Ltd v Collins & Anor (1995) 31 IPR 488 Brothers v Park & Anor [2004] NSWCA 241 CASES CITED : Foran v Wight (1989) 168 CLR 358 Morris v Baron & Co [1918] AC 1(HL) Pioneer Concrete Services Ltd v Galli [1985] VR 675 Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 IDAMENEO (No. 123) PTY LIMITED (ACN 002 968 185) (Appellant) PARTIES : TICO PTY LIMITED (ACN 073 411 506) (First Respondent) IAN LESTER ORGAN-RAFTER (Second Respondent) FILE NUMBER(S) : CA 40606/03 COUNSEL : G K BURTON (Appellant) B RAYMENT, QC/ R EVANS (Respondents) SOLICITORS : Abbott Tout (Appellant) McKell's Solicitors (Respondents) LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 1738/02 FILE NUMBER(S) : LOWER COURT Bryson J JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40606/03 EQ 1738/02 MASON P HODGSON JA SANTOW JA 17 SEPTEMBER 2004 IDAMENEO (No 123) PTY LIMITED (ACN 002 968 185) v TICCO PTY LIMITED (ACN 073 411 506) & 1 Ors Judgment 1 MASON P: I agree with Santow JA. 2 HODGSON JA: I agree with the orders proposed by Santow JA, and subject to what I say below, substantially with his reasons. 3 For my part, I think that the evidence of Ms. Cannings and Ms. Becke, coupled with Dr. Rafter's signature to the application for registration of business name, very strongly supported an inference that he was a purchaser of the Macquarie Street practice; and I think that the evidence of Ms. Cannings strongly supported an inference that this purchase had been effected by about September 2001. Further, although it was not shown that any practice involving cosmetic surgery had commenced there prior to the end of February 2002, it seems clear that the existing medical practice at Macquarie Street continued after the purchase. 4 If the relevant inferences are drawn, then in my opinion it is established that Dr. Rafter was from about September 2001 in breach of cl.22.1(c) of the Sale Agreement, by being engaged in a business of the nature of that conducted by Idameneo, within the relevant area. 5 I recognise the weight to be given to findings of a trial judge, and the need for appropriate satisfaction that such findings are wrong before appellate intervention; but I am inclined to the view that in this case such intervention would be justified. It may be that the attention of the trial judge was not sufficiently drawn to the available inference that the existing medical practice at Macquarie Street continued after September 2001. 6 However, as pointed out by Santow JA, such a breach by Dr. Rafter did not entitle Idameneo to continue to require and accept performance by Dr. Rafter of his duties, and at the same time withhold payment for those duties. 7 The withholding of such payment might not of itself necessarily have amounted to a repudiation. If Idameneo had given reasons for withholding payment, and sought a resolution of the problems that led it to take such a course, I am inclined to think it would not have amounted to repudiation. 8 However, Idameneo did not do these things; and in any event cl.27.1 of the Sale Agreement entitled Ticco and Dr. Rafter to terminate, in the case of a remediable breach of contract, where such breach was not remedied within seven days of notice being given to Idameneo by Ticco and Dr. Rafter. Such notice was given by the letter of 19 February 2002, the breach was not remedied, and so Ticco and Dr. Rafter were entitled to terminate as they did on 28 February 2002. 9 SANTOW JA: INTRODUCTION This appeal poses two sets of contractual questions. This first requires contractual interpretation of a trade restraint clause in protection of goodwill on the sale of a "business" to the appellant, that being the respondent's medical practice. This is to ascertain if the vendor (a) was in breach of the relevant contracts and, if so, (b) whether that vendor's breach amounted to a repudiation. 10 If so, a second set of questions arise. They do so by reason of the fact that the purchaser, instead of accepting that alleged vendor repudiation, continued to benefit from performance by the vendor, yet then withheld payment for his services over at least two months. The vendor then terminated. He relied on the purchaser's breach in withholding payment, and invoked a specific clause permitting termination on breach. 11 The questions this poses are whether if the vendor had earlier repudiated the contract, did that unaccepted repudiation (a) mean the purchaser was entitled to withhold payment or at least was absolved from any breach in doing so, and in any event, (b) disentitled the vendor from terminating, even if the purchaser were then in breach. 12 The vendor successfully denied breach of the trade restraint at trial before Bryson J, so the trial judge did not have to determine whether that amounted to repudiation. The vendor also successfully contended that the purchaser was not only itself in breach of the contract but had thereby repudiated the contract. The vendor was therefore held entitled to terminate, either by accepting the purchaser's repudiation, or by invoking the express contractual right to terminate for any breach, whether or not the purchaser's breach amounted to repudiation. 13 The purchaser was Idameneo (No. 123) Pty Limited ("Idameneo"). It appeals against both these determinations by the trial judge in favour of the respondent vendors. They were respectively Dr Rafter and his practice company Ticco Pty Limited ("Ticco"). 14 To elaborate, the contract was part of a suite of contracts governing the sale and purchase of a medical practice and related matters. It contained restraints on competition purporting to bind the vendor doctor, Dr Rafter whose practice company Ticco guaranteed performance. Dr Rafter directly and through Ticco contracted his services to Idameneo. It agreed to pay him a lump sum for his practice and, for his continuing services, an agreed proportion (45%) of the fee income earned. The trial judge concluded that: (a) Dr Rafter was not in breach of the contractual stipulation precluding him from operating or being engaged in what is described as " business of the nature of the business conducted by the Purchaser at or from the New Premises " within an eight kilometre radius. This was principally on the basis that it had not been shown Dr Rafter was ever engaged in such a business or even that there ever was such a business and that any preparations to embark on a future such business were not in breach; (b) The withholding of payments by Idameneo to Dr Rafter while accepting his services constituted a breach by Idameneo that amounted to repudiation of the contracts and which entitled Dr Rafter to terminate the contracts; (c) Accordingly, Dr Rafter was entitled to and did bring the contracts to an end either by accepting Idameneo's repudiation, or by exercising the express contractual right to terminate upon any breach by Idameneo, whether or not amounting to a repudiation of the contract. 15 The trial judge's reasoning thus proceeded on the basis that Dr Rafter was not in breach. It also proceeded upon an alternative basis; that, even if he were in breach and even if such breach constituted repudiation, Idameneo had not accepted that repudiation prior to Dr Rafter exercising, as he was entitled to do, his right to terminate by reason of Idameneo's breach. That right to terminate was exercised either by invoking the express clause permitting this on breach by the purchaser in withholding payment or by accepting Idameneo's repudiation thereby occurring. 16 The appellant contends that the trial judge was in error in failing to conclude on the proper construction of the relevant restraint clause that the respondent was in breach of that restraint. This was on the basis that it had been sufficiently shown that Dr Rafter was involved in another medical centre in breach of that prohibition, contrary to the trial judge's finding. The appellant further contends that such involvement constituted a repudiation of the contract which, though not accepted by the respondent (a) precluded Dr Rafter from exercising any right to terminate the contracts, and (b) absolved the appellant from the consequences of any breach by it of the contracts. 17 That last conclusion depends first on upsetting the trial judge's conclusion that Dr Rafter was not in breach of the restraint clause. It then depends on establishing the application of (a) or (b) above, notwithstanding that instead of accepting Dr Rafter's repudiation Idameneo took advantage of Dr Rafter's services knowing of the (alleged) breach, yet withheld payment for his services. SALIENT FACTS 18 The salient facts are essentially not in dispute. It is convenient first to set out in uncontroversial fashion the dramatis personae: DRAMATIS PERSONAE and ENTITIES Ticco Pty Limited (ACN 002 968 185)Incorporated Medical Practice (IMP) company through which Dr Rafter carries on medical practice, it has 2 shares held respectively by Dr Rafter and Ms Lemmik who are its sole directors. Dr RafterMedical practitioner, director and 50% shareholder of Ticco Pty Ltd Ms LemmikMedical Practice Manager, erstwhile business partner of Dr Rafter; director, Company Secretary and 50% shareholder of Ticco Pty Ltd; owner and director of the company owning the 'Chase Medical Centre' from September 2001 Idameneo (No.123) Pty Limited (ACN 002 968 185)Part of the 'Primary Health Care Group', controls a number of medical practices in the Sydney Metropolitan area. Dr BatemanPrincipal of the 'Primary Health Care Group', and director of Idameneo (No.123) P/L Mr DuffChief Financial Officer and Company Secretary of Idameneo (No.123) P/L Dr MonkMedical practitioner, employed by Idameneo (No.123) P/L as Executive Medical Director of the 'Primary Health Maroubra Medical Centre' Dr GrechMedical practitioner, employed by Idameneo (No.123) P/L as Medical Director of the 'Primary Health Darlinghurst Medical Centre' 'Chase Medical Centre'Business name for medical practice carried on at 139 Macquarie St, Sydney, and owned by Macquarie Street Medical Centre Pty Ltd aka Lamofern Pty Ltd. Mr Keen Mr AtgemisOwners of the 'Chase Medical Centre' until late September 2001. Ms CanningsMedical Practice Manager, employed at the 'Chase Medical Centre' from 1 July 1996 to 16 September 2001 19 In August 2000, Dr Rafter had been conducting a general practice under the business name of 'Corner of Bay Medical Centre' at 298 New South Head Rd, Double Bay ('the Double Bay practice') for about 2 ½ years. 20 The Primary Health Care Group of which Idameneo is part carries on business in the following way: (a) Idameneo acquires or sets up medical practices and provides management and logistical services to doctors and medical staff who work in the practices it owns; (b) The doctor and his IMP contract with Idameneo for Idameneo to provide support services and logistic services (including paramedical, nursing, billing, accounting services); (c) The doctor acts as Medical Director for the practice owned by Idameneo; (d) Charges are made to patients by the doctor himself, but fees when paid are received by Idameneo which retains 55% (+GST) and pays 45% (–GST) to the doctor/IMP. 21 On 25 August 2000 after protracted negotiations Idameneo and Ticco/Dr Rafter entered a series of written documents, the net effect of which was: (a) The Double Bay practice was sold to Idameneo; (b) Dr Rafter was to carry on practice within the Primary Health Care Group. 22 The interrelated agreements between the parties comprised (with key provisions excerpted): (a) Sale of Practice Agreement whereby Ticco sold the Double Bay practice to Idameneo for $730,000. Cl 17.2(a) and (b) created practice obligations on Ticco to procure Dr Rafter to render medical services only from the Primary Health premises for 5 years AND to render medical services for no less than 70 hours p.w. Cl 17.7(c) provided for a "pro-rata repayment" if Ticco otherwise breached cl 17.2(a) other than as a result of termination of the Practitioner Contract under cl 10.1 of that contract Cl 18 – creates duties on the Doctor Cl 22 – creates duties on the IMP and the Doctor not to render medical services within 8km of the business premises, or be engaged with any like business in any capacity Cl 27 – deals with termination of the Deed and Cl 28 – provides that a due termination of the Deed terminates the Practitioner Contract under its cl 10 (and vice versa) (b) Practitioner Contract whereby Idameneo covenanted to provide services and facilities to Ticco and Ticco obligated itself to conduct its incorporated medical practice as defined by Idameneo in the contract and procure that Dr Rafter attends and renders medical services Cl 7 – provides for the remuneration arrangements (referred to above), with Idameneo to remit to Ticco 45% of monies referable to Dr Rafter's services on a bi-monthly basis. Cl 10 – provides for termination mechanism. (c) Performance Guarantee whereby Dr Rafter covenanted to procure that Ticco carries out its obligations under the Practitioner Contract; (d) Restraint Deed whereby Dr Rafter covenanted not to "carry on or be engaged, concerned or interested, directly or indirectly (in any way) in the business of providing medical centre services to any medical practitioner for 5 years anywhere within the Sydney or Melbourne metropolitan areas; (i) This is additional to the restraint cl 22 in the Sale of Practice Agreement (e) Double Bay Medical Director Contract whereby Dr Rafter was engaged as medical director of the Double Bay Centre (including such other premises nominated by Idameneo) for 5 years with specified duties and no remuneration. Cl 7 provided that a due termination of this contract was a due termination of the Practitioner Contract under its cl 10 and vice versa (f) Assignment of Contractual Rights whereby Ticco conveys its property and interest in property in an annexed schedule (which is absent). 23 The arrangement between Dr Rafter and Primary Health Care Group was not a happy one and by early 2002 had broken down irretrievably. On 28 February 2002, Dr Rafter purported to terminate the arrangement after a series of communications in which both sides complained that there had been breaches of agreement. That sequence was as follows: 2 August 2001 Mr Duff alleged in a letter that Dr Rafter had not banked certain sums appropriately and threatened to withhold mid-month and month-end payments until this was remedied. 18 September 2001 Dr Bateman alleged in letter that Dr Rafter was in continuing breach of significant contractual obligations. 11 December 2001 Dr Rafter indicated to Dr Bateman he may prefer to leave. After that, for the months of January 2002 and February 2002, certainly, no more payments on account of his income were paid to Dr Rafter by Idameneo. 4 January 2002 Dr Bateman by letter calls for compliance by Dr Rafter with performance obligations. 19 February 2002 McKells, solicitors for Dr Rafter write to Mr Duff giving notice of certain breaches by Idameneo including in particular non-payment. 26 February 2002 Abbott Tout for Idameneo reply asserting, groundlessly as the trial judge held, that no proper particulars of breach had been given and that until they were Idameneo was unable to take any steps to remedy them. 27 February 2002 Fax from McKells disputing the letter of 26 February. 28 February 2002 Notice of Termination sent by Dr Rafter/Ticco to Idameneo referring to failure to rectify breaches set out in earlier letter. 24 Idameneo issued proceedings claiming Dr Rafter's termination was not valid because he breached/repudiated the contract in the following ways (Red, 32K-33O): (a) Dr Rafter did not do the work he contracted to do, did not work enough hours, and failed to participate appropriately; (b) Dr Rafter did not conduct himself harmoniously and perform satisfactorily as Medical Director or otherwise in relationships within Primary Health; These alleged breaches are not pressed on appeal. (c) Dr Rafter acquired an interest in or was otherwise inappropriately engaged in a rival organisation, the 'Chase Medical Centre' (i) Ms Cannings gave evidence that she showed Dr Rafter around the Chase Medical Centre in July 2001 and that on 9 August 2001, she was called into a meeting between Mr Keen, Mr Atgemis, Ms Lemmik and Dr Rafter, where she was apprised that the business was to be sold. (ii) Ms Lemmik had lodged a Registration of Business Name form signed by Dr Rafter in respect of "Macquarie Street Cosmetic Clinic and Healthy Aging" dated 24 January 2002. The business was to commence on 17 February 2002 at 139 Macquarie St Sydney. This alleged breach is pressed on appeal. 25 Idameneo sought certain declarations, payment of liquidated damages under cl 17.7 of the Sale of Practice Agreement and final injunctions restraining Dr Rafter from providing medical services within 8km of the Primary Health medical centres at Double Bay, Darlinghurst, Maroubra and Brookvale. Interlocutory injunctions were obtained in March 2002. 26 Dr Rafter and Ticco cross-claimed, claiming they validly terminated the contract and were no longer liable to perform any obligation under the agreement, and claimed specifically: (a) Idameneo breached the contract by failing to pay Dr Rafter, justifying his termination; (b) The restraint of trade clause in the Sale of Practice and the Restraint Deed are void and should be read down (an allegation which failed before the trial judge and of no present relevance); (c) Section 87 of the Trade Practices Act rendered the whole or part of the arrangements void (an allegation likewise of no present relevance). Dr Rafter/Ticco sought appropriate declarations, damages for loss of bargain and an account or inquiry as to amounts allegedly owed by Idameneo. Judgment at first instance 27 The trial judge entered judgment for Dr Rafter and Ticco on the claim and made certain orders in their favour on the cross-claim, and ordered the case be referred to a Master for inquiry with further orders to follow the Master's report. 28 The trial judge made certain findings of credit. He concluded that Dr Bateman and Dr Rafter should be treated as not being objective witnesses, as both showed indications of strong feelings and engagement in the controversy (Red, 17B-H). Therefore when deciding whether to accept the evidence of one or other of them when they were in conflict, regard is had to the inherent probability of facts asserted, the capacity of the party to adduce evidence of them and the onus of proof (Red, 17H-K). Dr Rafter's explanations of his involvement with a business name were unclear and unsatisfactory (Red, 49E-50R). Dr Bateman has a strong personal antipathy for Dr Rafter and sought to make the most of every grievance (Red, 55T-U). 29 He also concluded that Abbot Tout's letter of 26 February 2002 claiming that Idameneo did not have sufficient particulars of alleged breaches to remedy them was not a serious good faith attempt to deal with the issue (Red, 38G-L), on the following grounds: (a) Idameneo had not for many weeks paid over money belonging to Dr Rafter/Ticco which it was Idameneo's duty to pay and this was a deliberate decision by Dr Bateman (Red, 38O-Q); (b) By 26 February 2002, Idameneo was not willing to meet its part of the complex arrangements with Ticco and Dr Rafter on the basis of good faith and honesty by paying over money due to them or by explaining it was not prepared to do so and giving reasons (Red, 38S-W). 30 The trial judge made the following findings regarding Dr Rafter's alleged breaches of contract: (a) Idameneo's case is based on repudiation, it cannot be based on termination in accordance with the contract machinery. It claims to have accepted a repudiation constituted by Dr Rafter/Ticco's purported termination of 28 February 2002 (Red, 80U-Y); (b) There is insufficient evidence to support the inference that Dr Rafter breached the contract by some sort of ownership or practice connection with the Chase Medical Centre (Red, 50Q). 31 There was insufficient evidence to support the inference that Dr Rafter has or had a close personal relationship with Ms Tiina Lemmik (Red, 40F-G). Ms Lemmik was Dr Rafter's founding practice partner and had a 50% ownership interest in the Double Bay practice, which was unexplained. She worked there until September 2001. 32 Moreover, there was no substantial evidence that any sale transaction ever took place between Messrs Keen and Atgemis, and Ms Lemmik and Dr Rafter (Red, 45S). 33 Likewise there was no substantial evidence that Dr Rafter ever participated in a purchase of the business in any capacity, or did anything to work in the business, or to manage it, or acted as if he was an owner of it, or otherwise involved himself in business at 139 Macquarie Street. (Red, 45S-W). 34 Regarding Ms Cannings' evidence, which was not the subject of cross-examination, the trial judge concluded that Dr Rafter's evidence should be accepted that he spoke to Dr Monk (who worked at the Darlinghurst practice) about what other persons were going to do and that his attendance at the inspection and meeting at the Chase Medical Centre at 139 Macquarie Street related solely to an intention of Ms Lemmik to open a cosmetic surgery and healthy aging clinic (Red, 45X-46C). 35 The trial judge noted that there was no evidence of purchase of a business or involvement therein by Dr Rafter tendered by Idameneo, and that it was not put clearly to him in cross-examination what his involvement was supposed to be (Red, 46R-T). 36 The trial judge concluded that Dr Rafter's explanation of his conversations with witnesses such as Dr Monk and Ms Lemmik was not improbable, and cross-examination did not discredit him (Red, 47Z-48C). 37 Dr Rafter was unable to give any clear or acceptable explanation of the events in which he signed the Registration of Business Name form, and he did probably take part in obtaining registration of that name (Red, 50G, O), but this did not establish a breach of contract. Thus the evidence was consistent with but did not prove that Dr Rafter was taking steps preparatory to starting a practice soon to be established, and even if they did so prove, that breach could not justify termination or be considered repudiatory (Red, 50V-Z). 38 The trial judge found that Idameneo had not shown that Dr Rafter substantially breached his obligations regarding work performance such as to justify termination and he did not display any repudiatory intention (Red, 68Z-69). Nor did Idameneo purport to terminate the contracts or accept any repudiation for such cause: (a) Dr Rafter had an obligation under cl 17.2(b) of the Sale of Practice Agreement to render medical services for no less than 70 hours per week for 48 weeks per financial year; (b) The best evidence on the subject is Dr Rafter's evidence that he worked an average of 65 hours per week with some additional work writing up reports (Red, 68X); (c) To the extent that Dr Rafter dealt irregularly with cash, the problems were overcome by 7 September 2001 and could not be treated by Idameneo as repudiatory or justifying termination in 2002 (Red, 66N). (d) There is no substance to Idameneo's case that Dr Rafter behaved inharmoniously or offensively; there was only Dr Bateman's evidence, nor were such matters put clearly to Dr Rafter in cross-examination (Judgment [118]). 39 We are left with these findings regarding Idameneo's breaches of contract: (a) It has not been established that in early January 2002, Dr Rafter had decided to leave Idameneo in some way (Red, 52W) and any discussions about ending their relationship were inconclusive (Red, 56B); (b) Idameneo's conduct was repudiatory of the Sale practice Agreement, the Provision of Services Agreement and the ancillary agreements (Red, 81B-D): (i) Dr Bateman decided to stop payments without any actual or asserted contractual justification (Red, 56C-D); (ii) Idameneo breached the contract by withholding payments from Dr Rafter/Ticco, and this breach did justify termination by Dr Rafter/Ticco (Red, 5C-U); (iii) Unless and until Idameneo validly terminated the contract using the contractual machinery, it had no justification for withholding monies owing to Dr Rafter/Ticco; (iv) Idameneo's behaviour in stopping the money, which was of central importance to Dr Rafter/Ticco's participation in the arrangement, without any indication of circumstances in which it was prepared to return to compliance, was repudiatory and activated the contractual termination mechanisms (Red, 51V-52I); (v) The repudiatory intention was emphasised by the letter from Abbot Tout of 26 February 2002 (Red, 57F); 40 Thus the trial judge concluded that Dr Rafter was entitled to terminate the contract when he did on 28 February 2002, regardless of whether he followed the contractual machinery, although he in fact did follow it in accepting the repudiation (Red, 56L-M). Thereafter Idameneo was not entitled to further performance of any contractual obligations and in particular the liquidated claim under cl 17.7(i) does not survive termination (Red, 61Z-62C), 41 The trial judge rejected any basis for set-off from the $510,000 repayable upon termination by Idameneo, were that payable, but concluded that in any event it was not payable. 42 At [93-4] and [139] the trial judge concluded that the conduct of Idameneo was repudiatory of the relevant agreements. Importantly he also concluded that Dr Rafter and Ticco "did all that was required to bring about an effective termination in accordance with the contractual machinery" (cl 27.1 of Sale Agreement and cl 10.2 of Practitioner Contract, quoted under "Disposition" below). Grounds of Appeal 43 These are summarised as follows: Ground 1 Error in not finding that Dr Rafter/Ticco breached: (a) Sale of Practice Agreement, cl 17.2(a) and 22.1 (b) Practitioner Contract, cl 6.1 by reason of Dr Rafter's involvement in a medical centre at 139 Macquarie Street, Sydney, or, in the alternative; That such involvement constituted a repudiation of the Sale Agreement and the Practice Agreement. Ground 2 Error in not finding that Dr Rafter's involvement in the medical centre at 139 Macquarie Street was established on: (a) The uncontradicted evidence of Ms Cannings and Beck and the evidence of Dr Grech and Dr Monk; (b) The evidence concerning ownership in Dr Rafter's name of a business name for a clinic at that address. Ground 3 Error in giving weight to the fact that the clinic at 139 Macquarie Street had not commenced business as at February 2002. Ground 4 Error in not finding that by reason of the foregoing breach or repudiatory conduct, Idameneo was entitled to terminate the Sale Agreement under cl 27.1 and the Practitioner Contract under cl 10.2. Error in not finding that Idameneo was thereby entitled to repayment of a liquidated sum under cl 17.7(iii). Ground 5 Error in finding that the withholding of payments under the Sale Agreement was a repudiation by Idameneo, or otherwise entitled Dr Rafter/Ticco to terminate the arrangement. DISPOSITION 44 I start with the question of construction and the factual finding which underlies it. Was the trial judge in error in not finding that Dr Rafter/Ticco was in breach of what I have referred to in broad terms as the restraint clause? The relevant provisions consist of clauses 17.2(a) and 22.1 of the Sale of Practice Agreement and to the extent relevant, clause 6.1 of the Practitioner Contract. The factual finding that is then challenged concerns the trial judge's failure to conclude that Dr Rafter was involved in the medical centre called the "Chase Medical Centre" at 139 Macquarie Street, Sydney notwithstanding evidence to the contrary (see ground 2). It is also contended that the trial judge was in error in failing to conclude that such involvement constituted a repudiation of the Sale Agreement and Practitioner Contract. 45 Ground 3 bears upon the construction issue, insofar as it seeks to find error in the trial judge "giving weight to the fact that the clinic at the said address had not commenced business as at February 2002". In argument on appeal, Mr Burton as counsel for the appellant, embraced the suggestion that the clinic had commenced business as at February 2002, though not the prospective business of cosmetic surgery as was said to have been contemplated by Dr Rafter. 46 Ground 4 is based on the premise of breach by reason of Dr Rafter's involvement in the medical centre at 139 Macquarie Street. Breach of clauses 17 and 22 of Sale Agreement? 47 Clauses 17 and 22 are, so far as relevant, quoted below: " 17.2 Performance The Vendor agrees with the Purchaser that it will, under the Practitioner Contract, conduct its incorporated medical practice and procure the Doctor to: (a) render medical services from the New Premises for at least 5 years from the Commencement Date under the Practitioner Contract. The Vendor agrees with the Purchaser that it will conduct its incorporated medical practice, and procure the Doctor to render medical services, only from the New Premises during that period. This requirement extends the restraint in Clause 22.1 . The only exceptions to this are: (i) where the rendering of the medical services is in accordance with any prior specific written permission of the Purchaser given at any time; or (ii) it is the rendering of urgent medical attention as referred to in section 36 of the Act; (b) render medical services from the New Premises, during those 5 years, for no less than 70 hours per week for 48 weeks per financial year. …." " 22.1 Restraint The parties agree, that given that the Purchaser is acquiring the goodwill of the Business (and the other medical goodwill of the Vendor developed through the Doctor), that the Doctor is to render medical services from the New Premises, and the objective in Clause 19 , is a reasonable protection for the business of the Purchaser, each of the Vendor and the doctor must not during the restraint period: (a) render medical services (or in the case of the Vendor, conduct an incorporated medical practice) at any place within a radius of 8 kilometres of the Business Premises; or (b) render medical services (or in the case of the Vendor, conduct an incorporated medical practice) at any place within a radius of 8 kilometres of each of the New Premises at which the Doctor has rendered medical services at any time during the 2 years prior to the termination of the Practitioner Contract for any reason; or (c) operate or be engaged within a radius of 8 kilometres of the Business Premises either on own account, or in partnership with, or as agent, manager or servant for any other person or entity, or as a shareholder, in any business of the nature of the business conducted by the Purchaser at or from the New Premises; or (d) operate or be engaged within a radius of 8 kilometres of each of the New Premises at which the Doctor has rendered medical services at any time during the 2 years prior to the termination of the Practitioner Contract for any reason, either on own account, or in partnership with, or as agent, manager or servant for any other person or entity, or as a shareholder, in any business of the nature of the business conducted by the Purchaser at or from the New Premises. 22.2 Restraint period The restraint period under the preceding Clause is the period from Completion until the later to occur of: (a) the 5th anniversary of Completion; or (b) the 3rd anniversary of the date on which the Practitioner Contract terminates for whatever reason. 22.3 Suspension of restraint The restraint in Clause 22.1 is suspended from time to time: (a) to the extent, and in accordance with, any specific written permission given by the Purchaser; or (b) so as to permit the Vendor to enter into and carry out the terms of the Practitioner Contract; or (c) so as to permit the Doctor to carry out the terms of the Practitioner Contract where the Vendor is required to procure the Doctor to comply with those terms. 22.4 Breach of restraint For each time the Doctor renders a medical service in breach of either Clause 22.1(a) the Doctor must pay to the Purchaser, as agreed and assessed damages, 50% of the gross fee payable to the doctor (or the Vendor, as the case may be) in respect of that medical service. 22.5 Due date for payment Each payment due under the preceding Clause must be made within one month of the relevant breach and interest is payable on the amount due, at the rate of 8% per annum, as from the expiry of that month." 48 It is appropriate first to consider clause 22, being the restraint of trade clause itself, since though clause 17.2 is expressed as extending the restraint in clause 22.1 there is no suggestion that, should the relevant circumstances fall outside clause 22, they would nonetheless be caught by clause 17.2. 49 The other preliminary matter to note is that there is no dispute on appeal concerning the validity of clause 22 as an 8 kilometres restraint. Nor, I should add, is it pressed that Dr Rafter was otherwise in breach of the relevant agreement. 50 The restraint of trade clause is a typical covenant taken on the sale of a business, in order to preserve the goodwill thereby purchased. The "business" is the practice previously carried on by Dr Rafter which Ticco sold to Idameneo for the substantial price of $730,000. As such, the interests capable of protection are generally given a more generous interpretation than applies to an employer seeking to bind his employee to a covenant against future competition; "The Restraint of Trade Doctrine" by J D Heydon (Butterworths, 1999) at 154-5 and the cases there cited. I refer particularly to the South African case involving as here the sale of a medical practice in which the vendor was bound by an area covenant not to compete. Van Winsen J said: "In the present type of case where the avowed object of the purchaser of the goodwill is to protect himself against the future competition of the vendor, one is not concerned only with the persons who are the patients of the practice at the time of the sale, but with potential patients … while the area in which the practice is distributed as at the date of the sale affords a useful guide as to the area within which the vendor's competition is likely to enure to the injury of the purchaser, I do not think it serves to mark the confines of that latter area … It is a matter of common experience that a satisfied patient living in (say) Kenilworth does recommend his or her medical attendant to his or her friends living in the neighbourhood and in that fashion the practice tends to spread. It seems to me legitimate for the purchaser to want to secure for himself an area within which to develop the practice free of the vendor's competition." Weinberg v Mervis 1953 (3) SA 863 at 870 (CPD; see also Pioneer Concrete Services Ltd v Galli [1985] VR 675 at 695. 51 There is no suggestion that it has been established that Dr Rafter, in breach of Clause 22(1)(a) or (b) had actually rendered medical services or actually conducted an incorporated medical practice at 139 Macquarie Street. The real question is whether Dr Rafter was in contravention of paragraphs (c) or (d), insofar as these are predicated on the wider notion of being "engaged" within the 8 kilometre radius "either on own account or in partnership with, or as agent, manager or servant for any other person or entity, or as shareholder, in any business of the nature of the business conducted by the Purchaser at or from the New Premises". Paragraphs (c) and (d) also are predicated in the alternative upon operating such a business of medical practice. But, insofar as the evidence supports any inference, it does not go so far as to support so active an involvement on Dr Rafter's part. 52 The trial judge at paragraphs [60] to [82] concluded on the evidence that it had not been shown that Dr Rafter was so "engaged" in the practice at 139 Macquarie Street. Because this is a matter of inference, an appellate court is in as good a position as the trial judge in determining whether such inference should be drawn, save and so far as the inference depends upon assessment of credibility. Here the inference was grounded in part upon the trial judge's assessment of various witnesses. It was also grounded upon the proposition, correct in my opinion in the context of this restraint of trade, that there is a distinction between preparatory steps preceding the establishment of the business and actually being engaged in its commencement. That distinction was the essential basis of Pioneer Concrete Services Ltd v Galli [1985] VR 675 at 706-7 (a case on the protection of goodwill) and was subsequently followed by Hedigan J in Bristol-Myers Squibb Pharmaceuticals Pty Ltd v Collins & Anor (1995) 31 IPR 488. The question here is whether the evidence, contrary to the finding of the trial judge, established more than merely preparatory steps preceding the establishment of a business and in particular whether those steps amount to actually engaging in the business at 139 Macquarie Street. 53 The appellant attempted to challenge the trial judge's finding by reference to (a) what is described as Ms Cannings' unchallenged evidence (Blue, 29), she being an employee of 139 Macquarie Street as a Practice Manager, (b) the unchallenged evidence of Natalie Becke contained in her affidavit of 5 March 2002 as to a conversation about his "opening up a cosmetic surgery in Macquarie Street", she being a receptionist at the Darlinghurst Medical Centre, and (c) evidence of conversations with a Dr Monk in his affidavit of 1 March 2002 at para 10 Blue, 6. 54 In addition to that evidence, the appellant relies upon an application for registration of the business name (Exhibit V), which nominated Dr Rafter as the applicant, the lodging party as Ms Lemmik, and upon the Certificate of Registration of Business Name which issued in the name of Dr Rafter as proprietor. That business name was "Macquarie Street Cosmetic Clinic and Healthy Ageing". Dr Rafter appeared under the heading "Registered Proprietors" with its sub-heading "Person(s) carrying on Business (current)". The nominated "start date" was 1 February 2002 while the lodgement date was 25 January 2002. Termination only occurred about a month later, namely on 28 February 2002. The trial judge preferred the evidence given by Dr Rafter himself on this matter, despite reservations about his credit in so far as the business name was concerned. Thus the trial judge observed: (a) "Dr Rafter's evidence about the registration of the business name and his part in it was not internally consistent, and was not clear or comprehensible" (at [80]), and (b) "Dr Rafter did not at any point give a clear and acceptable explanation of the events in which he signed exhibit V [the application for business name] and am not able to find that he signed exhibit V in blank or that he did not know its contents." (at [81]) 55 Turning first to Ms Cannings' evidence, she was as I have said an employee of 139 Macquarie Street as a "Practice Manager". Her evidence is first of the visit made in or about July 2001 where she says the following in her affidavit: "5. I was first introduced to the Second Defendant [Dr Rafter] when he attended the Macquarie Street Medical Practice in or about July 2001. I had received a phone call from Mr Atgemis during the course of which Mr Atgemis said to me words to the following effect: Mr Atgemis said: "Ann, a Dr Rafter will be coming into the Centre today to have a look around. Could you please show him the consultation rooms and facilities of the practice?" 6. I recall that when the Second Defendant arrived, I showed him each consultation room, the procedure room and the other facilities of the practice. During the course of his attendance at the Centre, the Second Defendant asked me a number of questions relating to the business of the practice, such as how many doctors worked there; how many staff were employed by the practice; what procedures were undertaken in the procedures room; what the opening hours of the practice were; whether the practice was open on weekends; and what the daily patient turnover was. 7. As a result of the matters deposed to above, it was my understanding the Second Defendant was a prospective purchaser of the business of the Macquarie Street Medical Centre." 56 Thus far the evidence is simply consistent with Dr Rafter being a prospective purchaser of the business. But the appellant then relies upon the conversation on 9 August 2001 where Dr Rafter was quoted as saying that he wished to keep Ms Cannings on but yet on 3 September 2001 received a letter terminating her employment signed by Ms Lemmik. I quote the relevant paragraphs below: "8. On 9 August 2001 I was called into a meeting between Mr Keen, Mr Atgemis, the Second Defendant and a lady who was introduced to me as Tiina Lemmik. I recall that during the course of the meeting Mr Atgemis was discussing in general the doctors' working arrangements, staff hours and pay and retention of staff etc. I was brought into the discussion at that point and told the meeting what the current arrangements regarding the staff were. I then said words to the following effect: I said: "Well obviously the business has been sold or is about to be sold?" Mr Atgemis said: "Yes it's about to be." I said: "When is this to take place?" Mr Atgemis said: "The twentieth of this month." I then looked at the Second Defendant and said to him words to the following effect: I said: "Well, where do I stand?" The Second Defendant said: "We wish to keep you on. We want you to stay." I said: "That's good as I need a job." Mr Atgemis said: "The doctors will be staying and you will be staying but the practice will be gearing towards cosmetic surgery. The general practice will, however, remain. [emphasis added] 9. …………. 10. On 3 September 2001 I received a letter terminating my employment with the Macquarie Street Medical Centre and signed by Ms Lemmik. 11. On 16 September 2001 I ceased working at the Macquarie Street Medical Practice and took up a position as Practice Manager of the Cosmetic Surgicentre at St George Private Hospital, Kogarah. 12. On a number of occasions subsequent to my ceasing working at the Macquarie Street Medical Centre I sent correspondence to Ms Lemmik requesting payment of termination payments due to me by the Macquarie Street Medical Centre. I received no response from Ms Lemmik to that correspondence and, on 10 December 2001 I forwarded copies of that correspondence by facsimile to the attention of Dr Rafter. All arrears due to me by the Macquarie Street Medical Centre were paid within 48 hours thereafter." 57 The significance of the assurance, taken on its own, is that it suggests that, prior to Dr Rafter terminating his arrangements with Idameneo he had considered himself as having sufficient influence over the prospective business, as to be able to give an assurance to the effect that Ms Cannings would stay in the business. But it was an assurance that later proved to be at odds with Ms Lemmik's termination of her employment. Thus, even if accepted, that evidence by itself is equivocal. Indeed it might be said that Ms Lemmik's termination was equally consistent with Ms Lemmik being the principal owner of the business with Dr Rafter being merely someone with an undoubted association with Ms Lemmik, though not necessarily a partnership, that in the event did not suffice to enable him to influence the outcome. Or again it might merely mean that he never meant to honour the assurance he gave, though he could have done. Thus while the conversation provides some support for the inference sought to be drawn of that "engagement" in the practice, it is by itself not strong support. 58 I should observe at this point that Dr Rafter in his affidavit of 14 March 2002 admits to recalling attending the premises at the request of Ms Lemmik early one morning in June/July 2001. However, he disputes Ms Cannings' version of the conversation in paragraph 8, substituting as the words he claims to have said "I think Tiina wants to keep you on and you will have to discuss details with her", or words to that effect. That would be more consistent with the eventual outcome being not in his hands. 59 Significantly, Dr Rafter does not dispute the conversation where Mr Atgemis said "the doctors will be staying and you will be staying but the practice will be gearing towards cosmetic surgery. The general practice will, however, remain". 60 There is some significance in the fact that the business here in contemplation by way of medical practice, was both the existing general practice and the proposed practice "gearing towards cosmetic surgery". It thus would be an over-simplification to contend that the business here in prospect was solely cosmetic surgery with the general practice ceasing, such that one could credibly contend that only a future practice was here in question. Thus had the ownership of the existing general practice passed to Dr Rafter directly or indirectly, prior to his terminating his contract, this suggests what he acquired would not be ownership of a business that had ceased or was intended to cease, in order to be wholly replaced by a different and future business, namely cosmetic surgery. Rather it would still include the existing general practice, but at a lesser level compared to the introduced cosmetic surgery. I should refer here to the passage of cross-examination of Dr Rafter in Black, 1/137W-138J where Dr Rafter's evidence was to the effect that the general practitioners there would not have been carrying out cosmetic medicine: "Q. Is it your evidence that she employed or the entity controlling that business employed other doctors or contracted with other doctors to operate at that address? A. Just repeat the question? Q. Yes I will. Is it your evidence that Ms Lemmik contracted via directly or by the entity controlling the business other doctors to operate or carry out procedures or practice at that address? A. Only insofar as general practice is concerned. Q. Only insofar as general practice is concerned? A. Correct. Q. You would agree would you not that general practitioners conduct cosmetic medicine at times? A. But she's since sold that clinic and it's remained closed. Q. I'm sorry, could you just answer my question. Would you agree that general practitioners conduct cosmetic medicine at times? A. Certain general practitioners can only if they have the qualifications to do so. Q. Do you have any knowledge whether the general practitioner or general practitioners contracted with Ms Lemmik at that address carried out cosmetic medicine procedures? A. No, they didn't." 61 I turn next to the evidence of the receptionist Ms Becke who, in her affidavit of 5th March 2002, recounts the following alleged conversation with Dr Rafter: "3. On occasion, the Second Defendant also worked in the evenings and he would often give me a lift to Taylor Square in his car so that I wouldn't have to walk up Darlinghurst Road at night. On a number of occasions when the Second Defendant gave me a lift he said to me words to the following effect: The Second Defendant said: 'I'm opening up a cosmetic surgery in Macquarie Street.' " 62 That conversation is not sourced to a particular precise point of time but clearly related to the period when Dr Rafter was still employed at Darlinghurst. 63 Later in her affidavit he states that "I also recall that during the course of the journey from Darlinghurst Medical Centre to Taylor Square the Second Defendant [Dr Rafter] again said to me words to the following effect … 'I'm opening up a cosmetic surgery in Macquarie Street" 64 This conversation is sourced to a particular time, namely the evening of 27 February 2002. That date has some significance, since it was on 28 February 2002 that the Notice of Termination was sent by Dr Rafter and Ticco to Idameneo. The effect of the quoted conversation on 27 February 2002 is to suggest a future step, one still to occur, namely "I'm opening up a cosmetic surgery in Macquarie Street". That is consistent with Dr Rafter's account and the trial judge's acceptance of this aspect of his evidence, to the effect that any intent in relation to being engaged in a medical practice was in relation to the future after the termination of Dr Rafter's contract with Idameneo. That, however, would still leave open the possibility that Dr Rafter had already an interest in the existing general practice, one that would necessarily pre-date the prospective cosmetic surgery practice and was in the restraint period. 65 That leads next to Dr Monk's evidence in his affidavit of 1 March 2002. Dr Monk is an Executive Medical Director in the employ of Idameneo. The conversation was said to have been in the following terms: "10. I recall that one Sunday in or about August 2001 I was working at the Maroubra Medical Centre with the Second Defendant and we had a conversation to the following effect: The Second Defendant said: 'I don't really have to do this. I shouldn't be here. There is a group of surgeons from Melbourne who wanted to do something with the premises next door to the Double Bay Medical centre to turn them into a cosmetic surgery. But we're going to do something in Macquarie Street now." I said: 'Which one? The Chase Medical Centre?' The Second Defendant said: 'Yes.' I said: 'What's going to happen with the doctors already there?' The Second Defendant said: 'We're getting rid of them and changing it to a full cosmetic clinic.' I said: 'Maybe I should go and visit the doctors to see if they would like to practice out of one of our medical centres?' The Second Defendant did not make any comment in answer to my question. 11. In or about September 2001 I attended the Chase Medical Centre at 139 Macquarie Street, Sydney to speak to the doctors. I recall that Ms Lemmik was working there and appeared to be the practice manager. I had separate conversations with two (2) female doctors and two (2) male doctors. Each of those conversations was to the following effect: I said: 'My name is Dr Monk. I work with Primary Health. Are you aware that this practice has been sold?' The doctor said: 'Yes.' I said: 'Has it been purchased by a Dr Rafter? Ian Rafter?' The Doctor said: 'I'm not sure. I have heard the name Rafter mentioned, but I don't know what his exact role is.' I said: 'I would like to offer you the opportunity to practice at our new medical centre to be opened in George Street, Sydney.' The Doctor said: 'I'm going to stay here and see what happens.' 12. A few days after I had visited the Chase Medical Centre I had a conversation with the Second Defendant to the following effect: The Second Defendant said: 'You shouldn't have gone to speak to the doctors at the Chase Medical Centre. You've caused some problems. I never gave you permission to speak to them.' I said: 'Well, you said that you were going to be getting rid of them.' The Second Defendant said: 'I never said anything like that.' I said: 'Well, who owns it then?' The Second Defendant said: 'Some guys from Melbourne.' I said: 'Well, I saw your wife Tiina working there.' The Second Defendant said: 'She's not my wife. I have a wife in Melbourne. I visit her every month.' I said: 'Then, your girlfriend.' The Second Defendant said: 'She's not my girlfriend. She's the Practice Manager.' " 66 Dr Rafter's response to that affidavit evidence is contained in his affidavit of 14 March 2002. 67 Dr Rafter in his affidavit in reply denied that parts of the quoted conversations occurred while agreeing that a conversation did occur in or about August 2001. Thus in paragraph 10 and the conversation there claimed to have taken place, Dr Rafter denied that he said the words "But we're going to do something in Macquarie Street now". He also denied that he said, "Which one? The Chase Medical Centre" and denied that the Second Defendant said in reply "Yes". As to paragraph 11 his statement is that "I'm not aware, I do recall Tiina Lemmik advising me Dr Monk had attended the premises". As to paragraph 12 the conversation is denied as to the first part down to, presumably, the words "some guys from Melbourne". As to the balance of those conversations he admitted "a conversation similar to the one deposed by the defendant took place". 68 Before referring to the cross-examination of Dr Rafter on these matters, I need to refer again to the Certificate of Registration of Business Name and the earlier application made by Dr Rafter for it. The application was made on 2 January 2002 by Dr Rafter. The Certificate of Registration of the Business Name shows that the business name was registered on 25 January 2002 with the date commenced at 1 February 2002. Those dates need to be correlated with the later date that Dr Rafter terminated his contract with Idameneo. That date, as I have said, was 28 February 2002. Significantly, under the heading "Registered Proprietors" the person carrying on business was described as "Rafter, Ian Lester (as of 01-Feb-2002)". 69 In cross-examination (Black, 2/145X-146K) the following questions and answers were given. These were to the effect that Dr Rafter had agreed at the behest of Ms Lemmik to have the business name registered in his name because she could not have it registered in her name as it had to be in the name of a doctor: "Q. To your understanding what was the reason she gave you this document, the certificate of registration? A. In the beginning of Ticco Pty Ltd of which she was a director with me, she herself registered the name Corner of Bay Street Medical Centre which now is owned by Idameneo. She personally moved to the Department of Business and Department of Fair Trading and registered the name. Although she is not a doctor she was able to register the name of a medical centre. She went to the same department about January of that year you referred to to register the name Cosmetic Clinic & Healthy Aging Macquarie Street, thinking she had registered it in her own name but in fact some legislation had changed and only a medical name could be in the name of a doctor, although that name doesn't look like a medical name to me, could be a non-medical name. For that reason she put my name forward which I was not happy about and since has been cancelled. Q. When was it cancelled? A. I have that in my bag. Last week, I think it was. Q. So it was after this document was brought to your attention. A. Correct. Q. On the third day of the hearing? A. Yes." 70 Dr Rafter gave similar answers when pressed in cross-examination. 71 The trial judge declined to conclude that it had been established from the earlier conversations or from the registration of the business name that Dr Rafter "was ever involved in the business on the ground floor 139 Macquarie Street Sydney called Macquarie Street Cosmetic Clinic and Healthy Ageing, or that there ever was such a business". At [77] the trial judge concludes, concerning the various conversations: "[77] Several witnesses attribute to Dr Rafter that he made statements, never in any detail, indicating that he had or might have some association with another medical centre. The evidence of Natalie Beck was that he said to her "I'm opening up a cosmetic surgery in Macquarie Street." This was given in evidence as a statement in isolation, not part of a conversation with any context which would explain why Dr Rafter might have felt called upon to explain his future course to Ms Beck, who was a part-time Medical Receptionist. Ms Cannings says that in the conversation of 9 August 2001 Dr Rafter spoke in terms as if he was one of the persons who wished her to be kept on in employment after the business was sold; Dr Rafter disputes that he spoke as if he was a principal. Dr Monk also gave evidence, dealing with the conversation at Maroubra Medical Centre in August, of Dr Rafter speaking as if he was going to be a principal of the Chase Medical Centre. Dr Monk said that in a conversation a few days later (which Dr Rafter denies) Dr Rafter spoke to him as if he had some interest or concern about Dr Monk's visit to 139 Macquarie Street. (Dr Monk refers to 139 Macquarie Street as the Chase Medical Centre; Dr Rafter says that a practice under that name closed some years earlier.) The plaintiff's evidence of an association between Dr Rafter and some other practice never rose above slight or passing and incomplete references on occasions of which it is difficult to see what would have moved Dr Rafter to make a statement, adverse to his own interest, about his private or business intentions. The explanations which he gave of the conversations with these witnesses do not seem to me to be in any way improbable. He was cross-examined on the conversations and I do not regard this cross-examination as having discredited his evidence." 72 Then at [82] the trial judge having earlier commented that Dr Rafter "did not at any point give a clear or acceptable explanation of the events in which he signed Exhibit V", and that "I am not able to find that he signed Exhibit V in blank or that he did not know its contents" concluded as follows at [82]: "[82] Nonetheless it remains the case that there is no evidence that, apart from signing the form, he was ever involved in a business on the Ground Floor, 139 Macquarie Street Sydney called Macquarie Street Cosmetic Clinic and Healthy Aging, or that there ever was such a business. Exhibit V on its face appears to show, and it is probably true, that on 24 January 2002 Dr Rafter took part in obtaining registration of that business name, purportedly the name of a business of which he was to be the principal, which was to be established soon afterwards. These facts do not establish any of the breaches which the plaintiff alleges. Exhibit V and the terms of Dr Rafter's various explanations of it, which are unclear, show him in a bad light and are adverse to his credit. The plaintiff's counsel said of this evidence that it showed that Dr Rafter was beginning the process leading to medical practice or beginning the establishment of a practice, alternatively that he owned the practice that was being acquired and renovated to commence at some near date. In my finding, Exhibit V and its circumstances are consistent with but do not prove some such state of facts, and do not establish a breach of contract. Even if they did, the breach could not justify termination, and could not be considered repudiatory." 73 The trial judge at [73] concluded that the statements attributed to Dr Rafter by Dr Monk and Ms Cannings were really statements about what Dr Rafter was to do in the future in some transaction and commented: (a) on the failure of the plaintiff to call as witnesses the owners of 139 Macquarie Street, Messrs Keen and Atgemis and also Ms Lemmik whom he treated as not being in Dr Rafter's "camp" (at [74] and [78], and (b) there was no attempt to obtain production of the documents that should have existed were the business to have been sold to Dr Rafter (at [74]). Conclusion 74 The question is whether that inference should be disturbed on appeal. I confess to finding a number of indications supporting the contrary inference, namely that Dr Rafter was "engaged" in the business as agent for Ms Lemmik, though none of these, as I have said, clinch the matter. She, whatever their personal relationship, indubitably was associated with him as a co-director of Ticco since March 1996 and as equal shareholder, as well as Practice Manager. That is why, with respect, I would unlike the trial judge, treat her as in Dr Rafter's "camp". However, in the absence of documentation indicating a change of ownership or evidence, as must have been readily available from the relevant principals, it was open to the trial judge to conclude that Idameneo, on whom the onus rests, had not done enough to establish that Dr Rafter had actually acquired an interest in the medical practice at 139 Macquarie Street prior to his terminating the contract with Idameneo or been otherwise "engaged" in the practice, in the sense of paras (c) and (d) of cl. 22.1. In particular, it was open to the trial judge to conclude that proof fell short of showing positively that Dr Rafter did other than merely take the preparatory steps to acquiring an interest in such a business (whether as owner or in some capacity of agency) in circumstances where it is critical to identify that he was actually engaged in the business during the currency of the sale agreement containing the restraint; see Pioneer Concrete Services v Galli (supra). Nonetheless the circumstances certainly lend suspicion. A conclusion to the contrary was open, particularly given Ms Lemmik's long association with Dr Rafter. Perhaps the strongest reason for not disturbing the trial judge's conclusion is that the opportunity to establish the matter beyond doubt, by calling Messrs Keen and Atgemis, even if not Ms Lemmik, was never pursued. Nor was there any attempt to obtain production of their documents pertaining to the sale of the business. Where a contrary inference is equally available, that is not sufficient justification for upsetting the trial judge's conclusion, though I find the matter very close to the line. 75 The above conclusion suffices to defeat the appellant's claim as plaintiff, since the appellant does not now press any other potential breaches by Dr Rafter or Ticco. 76 However, there remains to be considered the question of whether Dr Rafter and Ticco were entitled to terminate the deed by reason of breach by Idameneo in withholding payment, either by invoking clause 27.1 or by accepting what amounted to repudiation by Idameneo. This is either on the basis that the foregoing conclusion was correct that there was no extant earlier breach by Dr Rafter of the relevant agreements, or if wrong, on the basis that Dr Rafter and Ticco were nonetheless entitled to terminate the deed even though each were in earlier breach of it, as any repudiation had not yet been accepted by Idameneo at the time of Dr Rafter's purported termination. 77 Clause 27 is in these terms with clause 27.1 being directly relevant: "2 7 TERMINATION OF DEED 27.1 Termination by Vendor and Doctor The Vendor and the Doctor may terminate this Deed by notice in writing to the Purchaser if the Purchaser commits any breach of any provision of this Deed other than a breach which (being capable of being remedied) is remedied within 7 days of notice given to the Purchaser by the Vendor and the Doctor. 27.2 Termination by Purchaser The Purchaser may terminate this Deed on the happening of any of the following events: (a) either the Vendor or the doctor commits any serious breach of any provision of this Deed and the Vendor or the Doctor has failed to remedy that breach within 7 days of receiving a notice from the Purchaser calling for that breach to be remedied; or (b) in the reasonably held opinion of the Purchaser either the Vendor or the Doctor has committed an act which if true would, in the opinion of the Purchaser, adversely affect the reputation or business of the Purchaser conducted from the New Premises; or (c) either the Vendor or the Doctor is guilty of any wilful neglect or misconduct; ore Doctor is guilty of any wilful neglect or misconduct; or (d) the Doctor is partly or fully disqualified under the Health Insurance Act; or (e) the Doctor ceases to be recognised under the Health Insurance Act as a specialist surgeon; or (f) the registration of the doctor under the Act lapses, is cancelled or suspended; or (g) a petition for the winding up of the Vendor is presented." 78 Nowhere is the vendor and the Doctor's right to terminate qualified by any requirement that they themselves not be in breach. 79 To that clause I should add reference to a separate agreement headed "Provision of Services to Incorporated Medical Practitioner". I refer in particular to clause 7 which is the source of an obligation on Idameneo to remit to Dr Rafter's company Ticco twice monthly 45% of monies banked pursuant to the earlier clause 5.2, being "any money received by the IMP [Ticco] (whether from a patient, Medicare, medical benefit fund or otherwise) which appears to be in payment … for medical services rendered by the Doctor [Dr Rafter] or other person either from the Premises or to persons elsewhere but who constitute the practice based at the Premises …". 80 It is in relation to that 55%/45% split (with GST adjustment) that the trial judge held, and as is not challenged on this appeal, that there were successive failures on the part of Idameneo to make the payments required of it to Ticco pursuant to clause 7.2. This occurred in at least two months, namely January and February 2002. Such contravention was rendered a breach of the other related agreements by a cross-default clause. 81 The relevant invoices were contained in Exhibit V. Calculation of the amount which was withheld was concededly around $23,000; T, 10, 18 August 2004. 82 By Ground of Appeal 5, the appellant contends that the trial judge erred in finding that the withholding of payments under the Sale Agreement was a repudiation by Idameneo, or otherwise entitled Dr Rafter/Ticco to terminate the arrangement. This Ground does not in terms challenge the finding that the withholding was a breach of the relevant agreements. Nor was there any suggestion that the terms of the relevant agreement permitted any setoff of the amount payable pursuant to the abovementioned clause 7 against monies payable by way of clawback pursuant to clause 17.7 ($12,166 for each month). 83 The appellant in particular takes issue on whether repudiation by Dr Rafter and Ticco should have been found in the circumstances. That is, given the context of perceived serious misconduct by Dr Rafter and his company Ticco in engaging in competition in breach of the restraint covenant, the appellant contends that in those circumstances there was every basis for an accounting between the parties. This was because such misconduct would amount to a breach or repudiation by Dr Rafter and his company. Reliance is also placed on and "the small amount of funds withheld"; written submissions of appellant at Orange, 7. 84 I turn to the findings of the trial judge. Significantly, there is no finding that the withholding was based on Dr Bateman's dissatisfaction actuated by breach of the restraint covenant, a matter of some significance to which I will return. The reasoning of the trial judge starts at [83]. There he rejects the contention by the appellant that Dr Rafter and Ticco owed the plaintiff $510,000, when that money was not even arguably payable unless and until the contract was validly terminated and then only in the manner provided for in the Agreement. The trial judge concluded that "the view that it is not a serious breach to withhold the revenue of the defendants is completely wrong. In any event, within clause 10.1 and clause 27.1 that breach did justify the defendants' termination, whatever Dr Bateman's reasons were for deciding to commit the breaches" at [83]. 85 The trial judge at [84] reaches the following conclusion for reasons later elaborated: "[84] Until there was a termination the parties were obliged to act on the assumption that the contract was to continue, yet Dr Bateman treated himself as in a position to stop the flow of money to which the defendants were entitled when he was dissatisfied. The sums are significant and the mechanism for making payments twice a month was obviously of central importance for the defendants' participation. The plaintiff did not tell the defendants that it had decided to stop the flow of money or explain its having done so, or indicate any circumstances in which payments would resume. Dr Bateman reinforced his complaints and dissatisfaction with the defendants by using a form of pressure which was unauthorised, unscrupulous and severe. This continued for many weeks, not for a short time. Behaving in this way, without any indication of circumstances in which the plaintiff was prepared to return to compliance, was plainly repudiatory. It also activated the contractual termination machinery. In my opinion the defendants were fully justified in terminating the agreement." 86 The trial judge then referred to Dr Bateman giving oral evidence of his reason for giving instructions in early January 2002 not to make a mid-monthly or end-of-month payment to Dr Rafter, quoting the reasons Dr Bateman gave as follows: "A: It was due to a number of factors. The major factor was that Dr Rafter appeared to have terminated his contract or breached his contract or was leaving us in some manner and in order to arrive at our normal calculations of what people pay the company, we need to know the full facts of the work that has been billed and the income that has come in and there was, I was aware that Dr Rafter was doing some work at his centre that he had set up in Macquarie Street...Additionally I understand that Dr Rafter had taken some records away with him from the centre and I had been told that these were for medical report reasons and which I had no reason to understand there had been any accounting for it at that time. In addition to that, there were, an additional sort of sense of I no longer had any trust in Dr Rafter or anything that Dr Rafter did so it was that combination of factors that made me decide I should stop payment until we knew, a proper balancing out of accounts that were due or not due." (Black, 54) 87 The trial judge at [86] discounts these reasons and in particular refutes there being any nexus between breach of the covenant restraining competition, were it breached, and Idameneo's failure to make the relevant payments. I add that in this appeal any of the other claimed breaches could no longer be relevant, as no other of the claimed breaches are pressed on appeal, having been rejected by the trial judge. Thus I quote what the trial judge says at [86] and [87]: "[86] It has not been established that, in early January 2002, Dr Rafter had decided to leave the plaintiff in some manner. There was no need for an elaborate calculation to establish what was to be paid to him in January. It was not the case that he was doing work at Macquarie Street or that he had set up a centre at Macquarie Street. Doctor Bateman knew of only one occasion when he was told that Dr Rafter had removed medical records to make medical reports (t55); that event did not happen until late in February, and in January 2002 Dr Rafter had not taken records away. No basis has been shown for thinking that Dr Rafter was charging for medical reports in some way which did not involve the plaintiff. Dr Bateman's sense that he no longer had any trust in Dr Rafter or anything that Dr Rafter did, did not justify a decision to stop making payments which the plaintiff had an explicit contractual obligation to make, out of a stream of revenue which had been earnt by the defendants and had been directed to the plaintiff for purposes which included its further payment on. [87] Doctor Bateman explained his statement that he could not trust Dr Rafter by saying that it was not based on the suspicion that he was involved in another practice , but (t69, l.28): "A. What I had noticed is almost from the beginning there was a dose of dishonesty with anything that he either said or did in relationship from the word - the negotiations up until the time of his departure." As an instance of this he said to the effect that Dr Rafter had said during negotiations that he worked 90 hours a week, they agreed on a reduced number of hours that he wished to work but "When it came to actually doing the hours, he didn't do the hours that he contracted to do which is really a very important part of what it is about." [emphasis added] 88 The emphasised portion was based on an earlier question and answer which is of particular importance and I quote it below: "Q. When you say you could not trust Dr Rafter, did you have a suspicion that he was involved in another practice, that is at the time you were speaking of at the end of 2001? A. That was not the basis of my lack of trust. HIS HONOUR: Q. Can you deal with the question whether you had that suspicion? A. I did. EVANS: Q. Did that influence you in your attitude to his continuance with Idameneo? A. No. Q. What was it that you did not trust? A. It was a succession of things that had happened since initial negotiations up until the time of his leaving rather than any one particular thing." (Black, 68X-69G) 89 One may therefore put to one side the breach complained of concerning whether he was working the necessary number of hours, as did the trial judge at [88], this being not now a breach still pressed. That may have been a cause of distrust but that has no particular relevance. 90 Other causes of distrust were recited and dismissed by the trial judge, such as whether Dr Rafter had failed to tell Dr Bateman during their negotiations that he had a relationship with Ms Lemmik who was the Practice Manager of his practice, if he indeed had such a relationship: Judgment at [39]. Another source of Dr Bateman's dissatisfaction was cited as Dr Rafter not getting accreditation as a day surgery; Judgment at [90]. 91 Then there was said to be another basis for mistrust being a particular incident elaborated at Judgment [91]. Again no actual breach could be derived from that, even if the incident were true. 92 All this led to the trial judge concluding at [92] "In my finding the primary cause of Dr Bateman's dissatisfaction was that he believed that Dr Rafter was not working the contracted number of hours or attending at rostered times" with other bases for dissatisfaction described as "objectively slight or non-existent". The clear implication of that finding is that Dr Bateman's dissatisfaction had no valid basis under the contract, an implication with which I would concur. 93 Then at [93]-[94] the trial judge concludes not only that stopping the payments in the circumstances of there being "no actual or asserted contractual justification" for doing so was a breach, but "[T]his was plainly repudiatory behaviour on the part of the plaintiff". He concluded that Dr Rafter in the face of this repudiatory conduct was entitled to terminate the relationship when he did on 28 February 2002. Of particular importance is the following finding at [94]: "[94] The flow of money, at prescribed and regular intervals, being the income of Dr Rafter's professional work, was obviously of central importance to the whole continuing arrangement. Intervention in the flow of income occurred in a contractual context where Dr Rafter was restrained from working anywhere else. Whether or not the conduct was repudiatory has to be appraised in an assumed state of fact in which Dr Rafter went on working under the contract, and his opportunity to work elsewhere than in the restraint areas has no real significance. It could not possibly have been expected by the plaintiff, or by anybody else, that Dr Bateman could cut off the flow of money but that performance of professional services would continue for whatever indefinite period it took for Dr Bateman to take and specify steps or to come to some conclusion about the parties' financial relationship. He did not claim that he took any such steps, or that he told the defendants that payments would resume when any identified problem was solved. The suggestion that the moneys due from the income should be set off against $510,000 repayable on termination has a strong edge of absurdity as there had been no termination, and until there was, the potential for one could not have been sincerely regarded as a justification for withholding contracted payments. Messrs Abbott Tout's letter of 26 February 2002 serves to emphasise the plaintiff's repudiatory intention." 94 The reference to Abbott Tout's letter of 26 February 2002 was to a letter in response to Dr Rafter's solicitors in which Abbott Tout, wrongly as the trial judge correctly found at [57], asserted that proper particulars of the alleged breaches by Idameneo had not been provided. 95 Returning now to the question of whether Dr Rafter and Ticco were entitled to terminate the contract pursuant to clause 27.1 with its reciprocal provisions elsewhere and in particular clause 10.1 of the Provision of Services to Incorporate a Medical Practitioner agreement, one thing is clear. Whether or not the breach by Idameneo in withholding payment amounted to a repudiation of the relevant contract, the contractual power conferred by clause 27.1 upon Dr Rafter and Ticco to terminate the deed is predicated merely upon a breach by the purchaser, and this there undoubtedly was. There is no requirement that the breach be of such seriousness as to amount to repudiation. It follows that the right to terminate arose. This is unless (a) there be a constraint upon termination by reason of Dr Rafter and Ticco being already in breach by the agreement by reason of breach of them of the restraint of trade covenant in clause 22, contrary to the conclusion of the trial judge that there was no such breach, or (b) any such earlier breach absolved Idameneo from consequences of its later breach. 96 Accepting however for present purposes that there was such a breach of clause 22, and similarly accepting the evidence of Dr Bateman that he was suspicious that there was such a breach, nonetheless Dr Bateman still called for the continued services of Dr Rafter and his company working up to 70 hours per week yet he failed to pay for those services in the months of January and February 2002. He did this, rather than accepting Dr Rafter's earlier repudiation, if such it was by reason of breach of cl. 22.1. 97 The appellant stated the principle applicable to a contractual party seeking to terminate for alleged breach or repudiation when that party is itself in breach in these terms. A contractual party B is not permitted to terminate for alleged breach or repudiation by the other party A, when that party B is itself in breach of a condition, or of an intermediate term having a serious effect which gives rise to a right to terminate, or is engaged in conduct which is repudiatory, even if the other party A has not yet elected to terminate for breach or to accept B's repudiation, provided (a) there is a nexus between A's non-performance and B's breach or repudiatory conduct, and (b) A's conduct does not amount to an election to affirm the contract; see Morris v Baron & Co [1918] AC 1(HL) at 9; Carter "Breach of Contract" (loose-leaf ed) paras [35-240] to [35-260]; 2nd ed (1991) paras 1033-1037; Carter and Harland "Contract Law in Australia" 3rd ed (1996) paras 1945-1947. 98 Accepting that principle for present purposes, the earlier findings demonstrate that there was no nexus between the non-performance of Dr Rafter of the restraint clause, even assuming in favour of Idameneo that it was breached, and Idameneo's breach or repudiatory conduct in withholding payment. In those circumstances there was clearly no constraint upon Dr Rafter and Ticco in exercising the right to terminate and they validly did so. 99 I have already concluded that it was open to the trial judge to conclude that Dr Rafter and Ticco were neither of them in breach of the restraint clause 22; that at most there was conduct of a preparatory nature to engage in competition, once the contract was terminated. However, if there were a breach, first no notice was given by Idameneo requiring remedy of that breach in terms of clause 27.2(a) of the Sale Agreement. Rather there was at most an allegation of breach by letter dated 18 September 2001 (Blue, 2/280) namely that "you acquired an interest in a Medical Centre in Macquarie Street allegedly in your partner's name. This, I understand, is in breach of the contract in a number of respects". In that letter of 18 September 2001 whilst Dr Rafter is urged "to promptly correct, and maintain all your obligations under your contract". Yet, even if that allegation were correct, Idameneo right up until February 2002 when the contract was terminated continued without demur to take advantage of the services of Dr Rafter and Ticco. Thus not only was there no acceptance of such repudiation, if such it was, but any nexus between Dr Rafter's non-performance and Idameneo's own breach or repudiatory conduct in failing to make the payments required by the contract was severed. This severance occurred by accepting and indeed calling for continued performance of the 70 hour week. 100 That situation is very different from that in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235. In that case there was a direct nexus between the plaintiff buyers failing to nominate a vessel in Sydney as required by the contract and the defendant sellers' earlier (unaccepted) repudiation of the Sale of Goods Contract. This latter was when the seller foreshadowed that it could not supply oats FOB Sydney, but only in Melbourne, and then failed to do so at either place. The buyers were held not precluded from enforcing the contract in an action for damages by what would otherwise have been a breach by them in failing to nominate a vessel. In particular, the sellers' earlier statement of inability to supply dispensed with the nomination obligation in circumstances where there was that direct nexus between the failure to nominate and the sellers' statement and conduct. 101 There is no different result if the principle in Peter Turnbull were understood as founded in estoppel. In Foran v Wight (1989) 168 CLR 358 a number of the justices saw the principle as so founded; see per Mason J at 409–11, Deane J at 434, Dawson J at 448–9. In Austral Standard Cable Pty Ltd v Walker Nominees Pty Ltd (1992) 26 NSWLR 524 Clarke JA, with whom Kirby P relevantly agreed, said at 533 that since Foran v Wight the dispensation "should be regarded as firmly grounded in estoppel", its elements bring "intimation by one party that it would not perform its obligations thereby rendering nugatory any attempt by the innocent party to do so and an acting on that intimation by the innocent party to its detriment". As Giles JA explained in Brothers v Park & Anor [2004] NSWCA 241 at [79] "The term requiring fulfilment of the condition is not written out of the contract, but the party can not say that the condition has not been fulfilled". 102 Applying that here, there was no intimation by Dr Rafter that he would not comply with the restraint clause, or conduct unmistakeably betokening that, such as to be capable of inducing Idameneo to withhold payment. And even if Idameneo suspected such a breach, that was not its motivation for withholding payment. Conclusion 103 Dr Rafter and Ticco were entitled to terminate the relevant agreements by reason of the breach by Idameneo in withholding payment for the services it had requested of Dr Rafter and which Dr Rafter provided. Even if Dr Rafter and Ticco were shown to be in breach of the restraint of trade obligation, contrary to the conclusion that they had not, and even if such breach constituted an unaccepted repudiation, Dr Rafter and Ticco were not precluded from exercising their respective right to terminate the relevant agreements in the manner they did and in particular were not precluded by the fact of there being an unaccepted repudiation on their part. They were entitled to do so either by exercising their contractual right to terminate under cl. 27, or by accepting Idameneo's repudiation, and in fact did both. OVERALL CONCLUSION AND ORDERS 104 I consider that the appeal must fail on each of its grounds. I would propose orders as follows: (a) Appeal dismissed. (b) The appellant to pay the respondent's costs of this appeal. ********** Last Modified: 09/23/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.