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IPN Medical Centres Pty Ltd v Van Houten[2015] QSC 204

SUPREME COURT OF QUEENSLAND

CITATION:	IPN Medical Centres Pty Ltd v Van Houten & Anor [2015] QSC 204
PARTIES:	IPN MEDICAL CENTRES PTY LTD ACN 088 149 893 (plaintiff) v RONALD GRAYDON VAN HOUTEN (first defendant) AND SHARTRES PTY LTD AS TRUSTEE FOR THE M & G TRUST ACN 089 898 635 (second defendant)
FILE NO:	BS8317/13
DIVISION:	Trial Division
PROCEEDING:	Trial
DELIVERED ON:	23 July 2015
DELIVERED AT:	Brisbane
HEARING DATE:	15-21 October 2014
JUDGE:	Jackson J
ORDERS:	The judgment and order of the court is that: The defendants pay the sum of $428,275 to the plaintiff. The defendants pay the plaintiff’s cost of the proceeding to be assessed as if the proceeding had been started in the District Court. The parties have liberty to apply to vary the order for costs within 14 days of today by written submissions no longer than 5 pages.
CATCHWORDS	CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where the plaintiff carries on the business of operating medical centres – where the first defendant is a medical practitioner in general practice also practising in non-surgical cosmetic procedures – where the second defendant was a company carrying on business of providing practice services to the first defendant– where the plaintiff entered into a sales contract with the defendants to purchase the second defendant’s business – where the plaintiff entered into a related agreement for the plaintiff to provide practice services to the first defendant after completion of the sale agreement – where the first defendant commenced practice at a medical centre of the plaintiff – where the first defendant purported to terminate the service agreement alleging breaches of warranties and implied terms and misleading representations– where the defendants allege that a number of representations were made prior to entering the contracts – whether the representations were made - whether the representations if made were contractual terms –whether the alleged representations were misleading – whether the alleged warranties or implied terms were breached by the plaintiff CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – PENALTIES AND LIQUIDATED DAMAGES – GENERAL PRINCIPLES – where the sales contract contained a provision for payment of an agreed amount as damages for breach of contract by the first defendant resulting in termination of the service agreement –– whether the agreed damages clause is unenforceable as a penalty District Court of Queensland Act 1967 (Qld), s 68(1)(a) Trade Practices Act 1974 (Cth), ss 51A, 52 Uniform Civil Procedure Rules 1999 (Qld), rr 681, 698 Andrews & Ors v Australian and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30, cited Commonwealth Bank of Australia v Barker (2014) 312 ALR 356; [2014] HCA 32, cited Distant v Queensland Rail [2002] QSC 271, applied Downey & Anor v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199, applied Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133; [1919] HCA 64, followed Idoshore Pty Ltd v IPN Medical Centres (NSW) Pty Ltd [2007] FCA 1175, considered JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435; [1970] HCA 6, followed Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, followed NLS Pty Ltd v Hughes (1966) 120 CLR 583; [1966] HCA 63, applied Paciocco v Australia & New Zealand Banking Group Ltd [2015] FCAFC 50, followed Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 Secured Income Real Estate (Australia) Pty Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [2005] HCA 71 followed Watson v Foxman & Ors (1995) 49 NSWLR 315, applied
COUNSEL:	D Pyle for the plaintiff The first defendant appeared in person and the second defendant appeared by leave granted to its director.
SOLICITORS:	Henry Davis York for the plaintiff The defendant appeared on his own behalf

JACKSON J: A merger of businesses is usually intended and expected by the parties to operate for their mutual prosperity. Sometimes, the intentions and expectations are not met. The path taken together that they hoped would be paved with gold turns out to be rocky. Dispute follows, then dissolution of the relationship and litigation.

The Sale Contract

The plaintiff is a company that carries on business operating medical centres. It contracts with medical practitioners such as the first defendant to supply their services to patients at the centres. In the course of its business, inter alia, the plaintiff acquires existing medical practices with the aim of incorporating them into the plaintiff’s business structure or of moving the medical practitioner or medical practitioners to one of the plaintiff’s medical centres.

At the end of 2007, the plaintiff purchased the business of a medical centre carried on by the second defendant. The business was situated at Suite 28, Cnr Fourth Avenue and Gold Coast Highway, Palm Beach at the Gold Coast. Curiously, it traded under the name “Fifth Avenue Medical Centre.” I will call it the “Palm Beach Practice”.

The first defendant is a medical practitioner who practises in general practice with additional skills in cosmetic procedures. Prior to the purchase, he practised from the Palm Beach Practice. The shares in the second defendant were held by the first defendant’s wife. In effect, the second defendant operated as a service company for the first defendant’s medical practice.

On 3 October 2007, the plaintiff entered into a contract in writing in the form of a deed with the first and second defendants to buy the business of the Palm Beach Practice (“Sale Contract”). The plaintiff was described as the buyer. The second defendant was described as the seller. The first defendant was described as the doctor.

By cl 2 of the Sale Contract, the second defendant, as beneficial owner, agreed to sell the business and assets of the Palm Beach Practice to the plaintiff. The assets were defined to be the business records, equipment, goodwill and intellectual property rights as defined in the Sale Contract. The purchase price was $320,000. It was allocated among the assets, including $145,000 for the intellectual property rights and $145,000 for the goodwill.

By cl 11.1 of the Sale Contract, the second defendant and the first defendant agreed and acknowledged that the first defendant’s entry into a second contract, described as the “Doctors Services Agreement”, and his commitment to comply with the terms of that contract were fundamental reasons for the plaintiff’s agreement to purchase the business under the Sale Contract. Perhaps this shows that the plaintiff considered that some or all of the goodwill was personal to the first defendant.

By cl 5.3 of the Sale Contract, the second defendant promised to ensure that the first defendant commenced to provide services from the business under the Doctors Services Agreement and delivered to the plaintiff a copy of the Doctors Services Agreement executed by the first defendant on completion.

However, that provision was not strictly accurate. It was expressly orally agreed between the parties that the first defendant would commence to practise at the “New Premises” identified in the Sale Contract, being the plaintiff’s Mermaid Beach Medical Centre at Mermaid Beach, Gold Coast.

Clause 11.3 of the Sale Contract provided that, except in circumstances that are not relevant, if the first defendant breached the Doctors Services Agreement and the plaintiff terminated the Doctors Services Agreement, then the second and first defendants must pay to the plaintiff, as agreed and assessed damages under the Sale Contract, a payment equal to $5,500 per month for the first 36 months of the Sale Contract and then $3,000 per month for the balance of the fixed term. I will call those amounts the “Agreed Damages”. The total of those amounts is $270,000. It represented slightly less than the total of the amount of purchase price allocated to goodwill ($145,000) and the amount of the purchase price allocated to intellectual property rights (also $145,000).

By cl 17.5 of the Sale Contract, the first defendant unconditionally and irrevocably guaranteed to the plaintiff the due and punctual performance by the second defendant of all its obligations under the contract, on demand. On its face, that would include the relevant amount of the Agreed Damages.

By cl 13.1 of the Sale Contract, the plaintiff gave a number of express warranties to the second defendant. None of them is presently relevant.

Clause 20.8 the Sale Contract provided:

“Entire Agreement

This document and the documents specifically referred to in it constitute the entire understanding and agreement between the Seller and the Buyer with respect to the sale of the Assets and the Business, and supersedes all negotiations, prior discussions, and preliminary agreements between the parties except as varied in accordance with this deed.”

Detailed provision was also made in the Sale Contract for warranties given by each of the first and second defendants to the plaintiff. None of them is presently relevant.

The Doctors Services Agreement

The Doctors Services Agreement was attached to the Sale Contract. It was made between the plaintiff as a provider of facilities and administrative services to facilitate general practitioners providing medical services to their patients and the first defendant as the doctor. Detailed standard form terms set out the parties key obligations to one another and provided for termination and other general terms. The Doctors Services Agreement was for a term of five years. It was agreed that the first respondent would work for 46 weeks per year and that he would work for 35 hours per week.

By cl 3.1, the plaintiff granted to the first defendant a non-exclusive licence to use the facilities and to receive materials, account services, business development services and information technology services for the purposes of conducting the first defendant’s practice.

The facilities are defined in cl 3.3 to be space or room in a location within the centre specified by the plaintiff, namely Mermaid Beach Medical Centre, which was to be reasonably sufficient to allow the first defendant to provide medical services to his patients during the operating hours. In the first defendant’s case, he was entitled to an exclusive use room. Because of that, the plaintiff agreed to make a room available for his use during business hours at the centre.

Clause 10 of the Doctor Services Agreement provided for termination. The first defendant was required to give 14 days notice in writing to the plaintiff of a breach by the plaintiff of any provision of the Doctors Services Agreement. If the plaintiff failed to remedy the breach within 14 days the first defendant was empowered to terminate the agreement.

By Appendix B to the Doctors Services Agreement, the first defendant acknowledged and agreed that the plaintiff had relied upon the representation from him that his expected practice billings during the term should be approximately $525,000 per annum in entering in to the agreement and that the commercial terms of the Doctors Services Agreement were dependant on him achieving at least that level of practice billings each year of the term. I will call that “the Appendix B Representation and Agreement”.

Completion to termination

By 14 November 2007, the Sale Contract was completed. The plaintiff paid the purchase price to the second defendant and acquired the business and the assets. However, the plaintiff did not continue the business of the Palm Beach Practice. The medical centre at that location was closed.

On or around 14 November 2007, the first defendant started to practise from the Mermaid Beach Medical Centre under the Doctors Services Agreement.

From 14 November 2007 to 22 May 2008 the first defendant practised medicine from the Mermaid Beach Medical Centre.

On 23 May 2008, the first defendant ceased practising from the Mermaid Beach Medical Centre. He did not give any notice of his intention to do so.

On 2 June 2008, the first defendant’s solicitors sent a letter to the plaintiff purporting to terminate the Doctor Services Agreement. By the letter, the first defendant alleged misrepresentations and breaches of collateral contractual warranties made to him by the plaintiff. The substance of the complaints was that there were fewer patients for the first defendant to see at the Mermaid Beach Medical Centre than expected and that representations or warranties made to him about advertising his practice at Mermaid Beach and promoting and supporting his cosmetic medicine practice had not been fulfilled.

On 13 June 2008, the plaintiff’s solicitors responded. The plaintiff alleged breaches of the Doctor Services Agreement by the first defendant. One alleged breach was failure to attend for the agreed minimum number of consulting hours per week (35 hours). The plaintiff also relied on the first defendant’s failure to give notice of any alleged breach by the plaintiff before termination as required by cl 10 of the Doctor Services Agreement.

The plaintiff relied on all the alleged breaches as breaches of essential terms and repudiation of the Doctor Services Agreement by the first defendant and purported to terminate the Doctors Services Agreement.

As well, the plaintiff demanded repayment of $226,000 under cl 11.3(a) of the Sale Contract, being the relevant amount of Agreed Damages.

That is, all parties allege that the Doctors Services Agreement was terminated from a date in the first half of June 2008. If neither the first defendant nor the plaintiff was entitled to terminate, it would follow that they abandoned the Doctors Services Agreement by their conduct.

Claim and counterclaim

By the amended statement of claim (“ASOC”), the plaintiff claims $231,500 pursuant to cl 11.3(a) as the relevant amount of Agreed Damages and interest at 12 per cent per annum under cl 11.3(c) of the Sale Contract.

Those provisions are as follows:

“11.3Breach of Doctors Services Agreement

The Seller and the Doctor must pay to the Buyer, as agreed and assessed damages under this agreement, a payment equal to the amount specific in Item 8 of the Schedule for each whole month remaining until the term of the expiry of the Doctor Services Agreement at the time of the termination.

…

Interest shall be payable on any amounts unpaid in accordance with this clause at the rate of 12% per annum, calculated monthly; …”

The calculation of the amount claimed by the plaintiff under cl 11.3(a) is the sum of $5500 multiplied by 29, being the number of whole months remaining from the first 36 months of the fixed term of the agreement, plus $3000 multiplied by 24, being the number of months in the balance of the fixed term.

Although cl 11.3(c) refers to interest being “calculated monthly”, that is not alleged to provide for a compound interest calculation. Accordingly, interest calculated in accordance with cl 11.3(c) would be simple interest over the period from 2 June 2008 until the second day of the last month before judgment. The calculation up to 2 July 2015 is the product of the principal, rate and time (expressed below in years), as follows:

Principal	$ 231,500
Rate	.12
Time	7.0833
Interest	$ 196,775

The total amount claimed, by addition of the principal and interest is $428,275.

As an alternative to the claim for the Agreed Damages and interest, the plaintiff claims damages for breach of contract. The alternative damages claim is calculated on the hypothesis that the plaintiff’s loss is measured by the earnings it would have made from the first defendant carrying on practice at the Mermaid Beach Medical Centre if he had performed the Doctors Services Agreement until the end of the agreed term. The alleged amount is $396,130 calculated as losses suffered progressively over the years up to 2012, together with interest under the statutory power now contained in s 58 of the Civil Proceedings Act 2011 (Qld). Without calculating the interest on the various claimed amounts from the dates on which they were alleged to have been suffered, it can be seen that claim would exceed $428,275.

There are significant disputes over the factual bases and assumptions made by the plaintiff in support of the alternative claim for damages for breach of contract.

By the further amended defence and counterclaim (“FADC”), the defendants set up a number of grounds of defence to both of the alternative claims. One ground is that the second defendant was entitled to terminate the Doctor Services Agreement for breach of contract. The breaches of contract alleged are based on alleged oral contractual warranties given at the time of making the Sale Contract and the Doctors Services Agreement, or implied terms to a similar effect.

Second, the defendants set up the alleged oral warranties as misrepresentations or misleading or deceptive conduct within the meaning of s 52 of the Trades Practices Act 1974 (Cth) (“TPA”) justifying the first defendant’s termination of the Doctors Services Agreement.

Third, the defendants allege that cl 11.3(a) of the Sale Contract is unenforceable as a penalty.

Further, on the same grounds, the second defendant claims $368,267.60 as damages for breach of the Sale Contract and the first defendant claims $109,678 as damages for breach of the Doctor Services Agreement. Alternatively, those amounts are claimed as damages under ss 82 or 87 of the TPA.

Alleged contractual warranties and implied terms

Paragraphs 17 and 18 of the FADC allege that the representations pleaded in par 14 were oral warranties by the plaintiff under the Doctors Services Agreement or there was a collateral agreement between the plaintiff and the first defendant as part of the consideration for entering into the Doctors Services Agreement that the plaintiff promised to fulfil each of the representations pleaded in par 14.

Paragraph 14 of the FADC alleges the following representations:

“(a)the Plaintiff would take all steps to ensure a smooth transition of the Palm Beach Practice to the Mermaid Beach Clinic; (Palm Beach Practice Transition Representation)

the First Defendant would generate in excess of $500,000 in gross fees per year ‘without any problem’; (Gross Fees Representation)”

the First Defendant could build up the cosmetic medicine practice at the Mermaid Beach Clinic, with the Plaintiff’s assistance; (Cosmetic Medicine Practice Representation)

to assist the First Defendant build up the cosmetic medicine practice at the Mermaid Beach Clinic, the Plaintiff would –

undertake newspaper, brochure and internet advertising;

commission specific signage for the Mermaid Beach Clinic; and

hold an official launch of the First Defendant’s cosmetic medicine practice at the Mermaid Beach Clinic;

to market the First Defendant as a provider of cosmetic medicine services; (Cosmetic Medicine Marketing Representation)

the Mermaid Beach Clinic would have a specific section at the back of the premises for the First Plaintiff to practise cosmetic medicine as soon as he commenced practising at the Mermaid Beach Clinic, including having all necessary equipment operational; (Cosmetic Medicine Premises Representation)

the First Defendant would have all the support that he needed, including –

the assistance of a nurse who had worked with cosmetic and plastic surgeons;

administrative staff who were suitably trained to receive telephone inquiries in relation to cosmetic medicine services; (Cosmetic Medicine Assistance Representation)

the First Defendant would, initially, be the only doctor at the Mermaid Beach Clinic practising cosmetic medicine until the cosmetic medicine workload at the Mermaid Beach Clinic increased to the point where other doctors would be required to meet the demand for cosmetic medicine services; (Cosmetic Medicine Exclusivity Representation)

thereafter, the First Defendant would –

be the head of cosmetic medicine at the Mermaid Beach Clinic;

train other doctors at the Mermaid Beach Clinic in cosmetic medicine techniques. (Cosmetic Medicine Seniority Representation)”

Paragraph 15 of the FADC alleges the following further representations:

“Further, in the premises of the matters pleaded in paragraphs 10, 11, 12 and 14 herein, Pryce, on behalf of the Plaintiff, represented impliedly that:

if the Second Defendant sold the Palm Beach Practice to the Plaintiff; and

the First Defendant practised at the Plaintiff’s Mermaid Beach clinic; then:-

the Plaintiff would ensure that the First Defendant was provided with sufficient patients to enable him to generate gross billings of $500,000 per year (Patient Allocation Representation); and, or alternatively,

the Plaintiff would ensure that the First Defendant earned $250,000 by way of annual net income. (Assured Income Representation)”

At the time it was allegedly made, each of the representations would have been a prediction or statement as to a future matter.^[1] Whether such a prediction or statement as to a future matter and any representation of grounds for the prediction or statement amounts to a promise and contractual warranty is a matter ascertained according to the common law of contract. Not every representation made in the course of pre-contractual negotiations takes effect as a contractual warranty. The law on this point is well settled, even where the contract is relatively informal, where the representation in question is not a “promissory expression” or “unequivocal promise” but “an expression of opinion” or “an expectancy”.^[2]

Additionally, there is a question whether some of the representations that are set up as oral contractual warranties and as terms of a collateral contract, are sustainable in law, even if the alleged representation was made, and it possessed the required promissory character.

The starting point is that the Doctors Services Agreement is an agreement in writing. The “prima facie presumption” is that the intention of the parties is that the terms of the contract are wholly contained in the writing. The force of the presumption will vary according to a variety of circumstances, as summarised by McPherson J in Nemeth v Bayswater Road Pty Ltd.^[3]

Both the Sale Contract and the Doctors Services Agreement were negotiated between the parties with the assistance of lawyers. Drafts of amendments proposed to the standard forms of contract were exchanged and agreed upon. A particular variation applicable to the first defendant’s Doctors Services Agreement is set out in the Appendix B Representation and Agreement. Other provisions or variables specific provisions to that agreement are set out in Appendix A and the Schedule of Commercial Terms.

As previously stated, the Doctors Services Agreement itself was attached to the Sale Contract. It was a condition of the Sale Contract that the Doctor Services Agreement was entered into before completion of the Sale Contract. Further, the parties to the Sale Contract expressly agreed that entry into the Doctors Services Agreement was fundamental to the plaintiff’s agreement to purchase the business under the Sale Contract.

Accordingly, when cl 20.8 of the Sale Contract provided that the Sale Contract “and the documents specifically referred to in it” constitute the entire understanding and agreement between the plaintiff and the second defendant, it might have been thought that the parties intended that the Doctors Services Agreement incorporated the entire understanding and agreement between the plaintiff and the first defendant. However, cl 20.8 does not say so.

The plaintiff did not allege that cl 20.8, property construed, had that effect.

Nevertheless, from the presumption that the parties to a contract reduced to writing intend that the writing is the “exclusive record of their contractual rights and obligations”,^[4] it usually follows that there are no oral terms of the written contract. Sometimes, that presumptive result may be avoided where the parties enter into a collateral contract where, in consideration of the terms of the oral contract, they enter into the written contract. This is the sense in which the defendants allege oral warranties as terms of a collateral contract in the present case.

The Palm Beach Practice Transition Representation alleged by the defendants, as set out above, requires some unpacking for proper analysis as a possible collateral warranty. The Palm Beach Practice was the business operated by the second defendant and purchased by the plaintiff under the Sale Contract. After completion, that practice and business were closed. The second defendant had been paid for the purchase of the business and the assets. From that time, with the exception of a few clauses intended to operate after completion, the contractual relationship of the plaintiff and the first defendant was that the plaintiff would supply or provide the facilities and administrative services to the first defendant to facilitate the first defendant as a general practitioner providing medical services to patients under the Doctors Services Agreement. The detailed provisions of the Doctors Services Agreement made no provision for transition of the Palm Beach Practice to the Mermaid Beach Medical Centre.

A contractual promise that the plaintiff would ensure a smooth transition of the Palm Beach Practice to the Mermaid Beach Medical Centre would operate inconsistently with the written contractual provisions for the sale by the second defendant to the plaintiff of the business of the Palm Beach Practice.

In Hoyt’s Pty Ltd v Spencer^[5] the High Court considered the operation in law of an oral collateral contract when parties negotiate an agreement by parol and subsequently reduce it to writing. As Knox CJ said:

“… the writing constitutes the contract, or at any rate is conclusive evidence of its terms subject, of course, to the right of either party to proceed for its rectification or recession on sufficient grounds. …. A distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneous with the main agreement, is valid and enforceable even though the main agreement be in writing, provided the two may consistently stand together so that the provisions of the main agreement remain in full force and effect notwithstanding the collateral agreement.”^[6] (footnotes omitted)

In my view, the Palm Beach Practice Transition Representation is inconsistent with the express provisions of the Sale Contract and Doctors Services Agreement and cannot, therefore, operate as a contractual term by way of collateral contract.

Second, the alleged Gross Fees Representation is that the first defendant would generate in excess of $500,000 in gross fees per year without any problem. The key obligations of the plaintiff under the Doctor Services Agreement are set out in cl 3. Clause 2.2 of the Doctors Services Agreement contains a number of provisions consistent with it being the first respondent’s responsibility to attempt to obtain a relevant dollar value of the services fees. Those clauses do not contain any promise by the plaintiff as to the gross fees that will be generated.

As well, the Appendix B Representation and Agreement expressly provided that the first defendant acknowledged and agreed that the plaintiff had relied upon the representation from him that his expected practice billings during the term should be approximately $525,000 per annum in entering into the agreement and that the commercial terms of the Doctors Services Agreement were dependant on him achieving at least that level of practice billings each year of the term.

In my view, the Gross Fees Representation is inconsistent with the express provisions of the Doctors Services Agreement and cannot, therefore, operate as a contractual term by way of collateral contract.

The plaintiff also relied upon Idoshore Pty Ltd v IPN Medical Centres (NSW) Pty Ltd,^[7] where Conti J said of a contract broadly similar to the Sale Contract that:

“… although it would have been open to the parties to have stipulated in the Agreement explicitly to the effect that the operation of any collateral warranties and representations extrinsic to the Agreement was excluded, in the formation of the Agreement it did not do so explicitly, nevertheless, the comprehensive and detailed stipulations of the Agreement carried in my opinion an implicit operation to that effect. In other words, the Agreement by implication reasonably and necessarily to be imputed should be construed to have covered the field of the arrangements made relevantly between the parties and in relation to which contractual force and effect alone was mutually intended. Material to the basis for that finding is that each of the corporate parties to the proceedings was legally represented in relation to the preparation and execution of that very comprehensive Agreement.”^[8]

However, it is not necessary to reach that conclusion to decide the other issues as to alleged collateral warranties or implied terms in this case.

Other alleged implied terms

Paragraphs 21 and 22 of the FADC allege implied terms of the Doctors Services Agreement and the Sale Contract.

First, par 21 alleges that it was an implied term of the Doctors Services Agreement that the plaintiff would act in good faith towards the first defendant and second defendant and do all things reasonably necessary to enable the first defendant to have the benefit of the Doctors Services Agreement.

The second part of the alleged implied term is uncontroversial. That is, an implied contractual obligation to do all things reasonably necessary to enable the first defendant to secure performance of the Doctors Services Agreement is uncontroversial. It is sometimes described as the implied duty of cooperation.^[9] But the matters that may constitute a breach of the implied duty of cooperation are not unlimited. They must have the effect of denying the innocent party the benefit of the consideration promised by the contract breaker.

The matters alleged by way of breach of that implied term are set out in par 19 of the FADC. There are 13 separate allegations. None of them, taken alone, was an act or omission that prevented the first defendant from having the benefit of the consideration promised by the plaintiff under the Doctors Services Agreement.

On the other hand, the first part of the alleged implied term is controversial. That is, a general implied contractual obligation of one party to act in good faith both towards the other party to the contract and to another person who is not a party to the contact is unusual. The first defendant was party to the Doctors Services Agreement but the second defendant was not. In my view, this was not a mistake.

Paragraph 23 of the FADC alleges that it was also an implied term of the Sale Contract that the plaintiff would do all thing necessary to enable the second defendant to have the benefit of the contract which included observance of the implied term of the Doctors Services Agreement.

Upon completion of the Sale Contract, the executory terms or obligations of the parties under it were limited. The plaintiff did not expressly make any promise as to the plaintiff’s future performance of the Doctors Services Agreement under the Sale Contract. That is consistent with the structure of the Doctors Services Agreement as a separate agreement between the plaintiff and the first defendant for provision of facilities and administrative services to facilitate the first defendant providing medical services to his patients. It operated only as between the plaintiff and the first defendant after completion of the Sale Contract.

In my view, there was no implied term of the Sale Contract that required observance of the Doctors Services Agreement by the plaintiff after the Sale Contract was completed. It is not “necessary” to imply the alleged implied term “to give business efficacy” to the Sale Contract. The alleged term in this instance can only be implied if that were the case.^[10]

Alleged breaches of contract

It is convenient to consider the allegations of breach of contract when deciding whether the alleged contractual warranties were made as a matter of fact. If there was no breach, it will be unnecessary to resolve the dispute about whether the relevant oral warranty was given or implied term existed.

Misleading representations

The defendants’ alternative case is that each of the representations was conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of s 52 of the TPA.

The defendants plead reliance on s 51A of the TPA. Because each of the alleged representations is a representation with respect to a future matter, if the plaintiff made a representation and did not have reasonable grounds at the time for making it the representation is “taken to be misleading”.^[11]

Further, if the plaintiff made a representation, unless the plaintiff adduces evidence to the contrary, the plaintiff shall be deemed not to have had reasonable grounds.^[12]

In a number of instances, the plaintiff did adduce evidence of that kind.

So far as the onus of proof is concerned, I proceed on the footing that it lies on the defendants on the balance of probabilities on the question whether a representation was made but if it was made the same onus lies on the plaintiff on the question whether the plaintiff had reasonable grounds.^[13]

Patient and File Records

As to the Palm Beach Practice Transition Representation alleged in par 14(a) of the FADC, that there would be a smooth transition from the Palm Beach Practice to the Mermaid Beach Medical Centre, it is unnecessary to decide whether or not the representation or promise was made. That is because even if it was made there was no breach. However, in any event, neither Dr Van Houten nor Mrs Van Houten gave evidence of a representation or promise made by Ms Pryce to Mrs Van Houten to the effect that the plaintiff would take all steps to ensure a smooth transition of the Palm Beach Practice to the Mermaid Beach Medical Centre.

Ms Pryce gave evidence that she did not say those words, although she did say that the plaintiff would put up a sign in the window of the old practice, would do a mail out to all the patients of the old practice and would have signs for Dr Van Houten in the Mermaid Beach Medical Centre welcoming him as a new doctor.

Accordingly, in my view, the defendants have not proved that the Palm Beach Practice Transition Representation was made to Mrs Van Houten.

On the contrary assumption, the defendants allege that the plaintiff did not ensure that all of the patient files and records from the Palm Beach Practice were brought over to, and stored at, the Mermaid Beach Medical Centre. The patient files from the Palm Beach Practice were paper files. After settlement of the Sale Contract they were stored initially at the plaintiff’s premises at Highland Park. The patient files at the Mermaid Beach Medical Centre were stored electronically.

Dr Van Houten gave no evidence in support of this allegation. His evidence was that there was a smooth transition and no reason to terminate the contract because of the transition. However, it is clear from other evidence that a question as to the files was raised in late November 2007.

Mrs Van Houten said that she did not think it was a smooth transition.

Desley Bolger was employed by the plaintiff as a practice manager at the Mermaid Beach Medical Centre. Deborah Woods was employed by the plaintiff as a business manager. Both of them were involved in the so-called transition.

Ms Woods gave evidence that she thought that the then current files (from the Palm Beach Practice) went straight to Mermaid Beach. She said that Dr Van Houten initially said he did not need his paper files.

After a complaint made by Dr Van Houten and Mrs Van Houten, some of the files were scanned and incorporated into the electronic files at Mermaid Beach.

On 27 November 2008, Ms Bolger made a file note of conversations she had with Mrs Van Houten and Dr Van Houten that 18 boxes of the Palm Beach files were to be brought back from Highland Park and computer files generated by scanning the front page containing prescriptions and allergies following which it would be okay to return the files to Highland Park for archiving.

The evidence does not support a finding that the plaintiff failed to bring relevant patient files or records from the Palm Beach Practice to the Mermaid Beach Medical Centre in breach of any contractual term or representation that there would be a smooth transition.

For a short period, at least some and perhaps all of the files were stored in a way where they were not readily available, but an arrangement was made to meet that difficulty. In my view, there was no breach of the alleged term in this respect.

Gross Fees Representation

I have already found that the Gross Fees Representation alleged in par 14(b) of the FADC is inconsistent with the express provisions of the Doctors Services Agreement and cannot, therefore, operate as a contractual term by way of collateral contract.

In any event, Ms Pryce denied the allegation that she said that Dr Van Houten would generate in excess of $500,000 in gross fees per year without any problems.

On 5 June 2007, there was a meeting of Ms Pryce, Dr Van Houten and Mrs Van Houten at the Palm Beach Practice premises. Ms Pryce did not make any representation at that meeting as to the extent of the income that Dr Van Houten could expect.

The FADC does not allege that she did. In par 14(b) of the FADC it is alleged that Ms Pryce said words to the alleged effect in a telephone conversation or conversations with Mrs Van Houten.

Surprisingly, therefore, Dr Van Houten gave evidence that Ms Pryce had said that it is very easy to make $500,000 in Mermaid Beach because it is so overcrowded. Initially, it was not clear whether Dr Van Houten was giving evidence of something said to him or possibly said to Mrs Van Houten, which he was repeating.

Mrs Van Houten was unable to recall much about the meetings or telephone calls involving herself and Ms Price. She thought there were several meetings with Ms Price. I do not accept that there were. There is other evidence of only two meetings.

Mrs Van Houten said that Ms Pryce said that the plaintiff could “match my husband’s earnings” but did not recall what Ms Price said about other doctors.

Ms Pryce said that at the 5 June 2007 meeting she had said that other full time doctors of the Mermaid Beach Medical Centre have billings of approximately $500,000 per annum. But she did not accept that she said that Dr Van Houten would have billings of that amount or would generate in excess of that amount in gross fees per year without any problems.

By the time of the trial of this proceeding, six years had elapsed from the time of the conversations in question. None of the relevant witnesses took notes at the time of the conversations. Their evidence given from recollection is not likely to be accurate.

It is not unlikely that the subject of the amount of the first defendant’s prospective earnings was discussed. Ms Pryce’s statements as to the fees per hour or annual gross fees being made by doctors at the Mermaid Beach Medical Centre are consistent with the interest I would expect that Dr Van Houten’s would have had as to the subject matter.

Further, as previously mentioned, the Appendix B Representation and Agreement to the Doctors Services Agreement expressly provided that the first defendant agreed that the plaintiff had relied upon a representation from the first defendant that the first defendant’s expected practice billings during the term would be approximately $525,000 per annum.

As early as 6 June 2007 Ms Pryce was asking Mrs Van Houten for copies of the Palm Beach Practice billings for the last 12 months. Having received that information, and the parties having signed a mutual confidentially agreement under which information was exchanged, the plaintiff, by Ms Pryce, made an initial offer for the Palm Beach Practice in writing based on billings for the prior year of $448,000.

On 22 June 2007, the plaintiff, by Ms Carney, wrote to Dr Van Houten. She stated that the plaintiff required Dr Van Houten to enter into an agreement to work within the Mermaid Beach Medical Centre with anticipated billings of $460,000 per annum.

On 27 August 2007, an email from Ashwani Naidu to Ian Lulham referred to a meeting between the lawyers’ respective clients that resulted in agreement requiring changes to the draft Sale Contract.

On 11 September 2007, another email from Ms Naidu to Mr Lulham attached an amended draft Sale Contract in mark up and an amended draft Doctors Services Agreement. The draft of the Doctors Services Agreement included the Appendix B Representation and Agreement.

There does not appear to be any further evidence about the extent of any discussion about the expected earnings if Dr Van Houten practised at the Mermaid Beach Medical Centre.

On balance, in my view, the defendants have not proved that Ms Pryce represented to Mrs Van Houten that Dr Van Houten would generate in excess of $500,000 in gross fees per year without any problem. That may well have been the parties’ expectations. But I do not accept that it was a representation by Mr Pryce to Mrs Van Houten as such.

Notifying Patients of the Palm Beach Practice

The defendants allege that the plaintiff did not ensure that all of the patients of the Palm Beach Practice were notified or notified in a timely manner of the first defendant’s commencement of practice at the Mermaid Beach Medical Centre.

Ms Woods gave evidence that prior to Dr Van Houten starting practice at Mermaid Beach Medical Centre there was a mail out to existing patients. Ms Hay, who was a secretary employed by the Palm Beach Practice, appears to have addressed the relevant envelopes. That is referred to in emails sent on 7 October 2007 and was supported by Mrs Van Houten’s evidence. Ms Woods said that the letters were sent to current patients. Mrs Van Houten suggested that the mail out might not have gone even though the envelopes were addressed and stamps put on them. But in the end she did not know.

It was not suggested to Ms Bolger that the letters were not sent out. Ms Woods said that she could not say who posted the letters but that the plaintiff did receive replies so she could say the letters were sent.

In my view, there is no basis in those facts for a finding that the mail was not sent out.

Ms Woods gave evidence that the plaintiff arranged for telephone calls to the Palm Beach Practice to be redirected to the Mermaid Beach Medical Centre. This was not contradicted by any other evidence.

Ms Woods organised for a sign to be put in the front window of the Palm Beach Practice location advising of Dr Van Houten’s move to the Mermaid Beach Medical Centre. There seems to be some question about whether the sign fell down or became not visible in the window. However, on any view, that seems to be a minor point.

The plaintiff placed an ad in the Gold Coast Sun Newspaper as to Dr Van Houten commencing practice at the Mermaid Beach Centre. The ad was placed for three days. The advertisement provided that the Mermaid Beach Medical Centre welcomes Dr Graydon Van Houten and contained a map showing the location of the Mermaid Beach Medical Centre. It stated that Dr Van Houten is a welcome new addition to the team of doctors working at Mermaid Beach Medical Centre and contained a brief summary of his time in practice and expertise in non-surgical rejuvenating treatments.

In my view, there is no sufficient basis in the evidence to find that the plaintiff did not ensure that patients of the Palm Beach Practice were notified either as a breach of contract or as a basis to allege misleading or deceptive conduct.

Only 8 to 15 patients per day

The defendants allege that on average the plaintiff directed only 8 to 15 patients per day for treatment by the first defendant while he practised at the Mermaid Beach Clinic.

There was no precise evidence given as to the number of patients Dr Van Houten saw per day. Dr Van Houten gave general evidence supporting the conclusion that the numbers were less than 30 per day. It was not in contest that his billings, based on the number of patient consultations and treatments, were much lower than expected.

Quite a deal of the evidence sought to attribute blame for this outcome on one side or the other. The plaintiff’s witnesses said that Dr Van Houten would attend the Mermaid Beach Medical Centre late, would spend time walking around the practice rooms and area, would take long lunch breaks and failed to accept suggestions that were made to improve his billings. One of those suggestions was that he change the days that he worked to include Monday. Another was that he work longer hours. A third was that he work at the plaintiff’s medical centre at Highland Park. Lastly, there was some faint suggestion that Dr Van Houten might have spent more time doing pre-employment medical examinations.

To put things in context, Dr Van Houten said that there were approximately seven other medical practitioners at the Mermaid Beach Medical Centre at the time he practised from there. Each doctor’s patients came from two sources. First, there were patients who were booked for an appointment to see that doctor. Second, there were patients who were not booked to see an individual doctor but who attended the centre. That group was allocated by the plaintiff’s staff to a doctor available in consultation with the doctors concerned.

It is not clear whether there was any “cab-rank” rule for a doctor who became available in relation to unallocated patients sitting in the waiting room. No doubt a patient’s preference to see a particular doctor, if available, might have been taken into account.

Dr Van Houten accepted in evidence that very few of the patients from the Palm Beach Practice came to the Mermaid Beach Medical Centre. It seems that was something of an unexpected outcome to both the plaintiff and Dr Van Houten. In hindsight, perhaps, the catchment area of a medical centre offering the services of a single general practitioner on the Gold Coast Highway at the southern end of Palm Beach may have not extended to a medical centre offering the services of a larger group of medical practitioners on the Gold Coast Highway at mid Mermaid Beach, and the personal goodwill of a particular medical practitioner may not have extended so either, but that is speculation on my part.

Second, there was a delay between mid-November 2007 and February 2008 for the installation of one of the machines, the Lumenis One, used by Dr Van Houten in connection with his cosmetic medicine practice.

Third, the defendants also pointed to the failure of the plaintiff to launch the cosmetic clinic or services as proposed for the Mermaid Beach Medical Centre in a timely fashion. That may have been a further dampening factor in terms of the patients Dr Van Houten might have seen.

However, whatever the cause, it is clear that Dr Van Houten did see on average only a relatively small number of patients per day for treatment whilst he practised at the Mermaid Beach Clinic. Whether the number was within the range of 8 to 15 patients per day, as against the parties’ mutual expectations that he might see up to 40 patients a day, is not entirely clear.

Accordingly, if as alleged in pars 14 and 17 of the FADC, the plaintiff promised or represented to Mrs Van Houten,^[14] that Dr Van Houten would generate in excess of $500,000 as gross fees per year without any problem, the evidence clearly shows that he did not. Nevertheless, in my view, the causes of the failure are not made clear by the evidence. In my view, if the representation was made, the evidence does not clearly support a finding that were no reasonable grounds for it.

Cosmetic Medicine Practice Representation

As to the Cosmetic Medicine Practice Representation alleged in par 14(c) of the FADC that the first defendant could build up the cosmetic medicine practice at the Mermaid Beach Medical Centre, the plaintiff admits Ms Pryce made that representation to Mrs Van Houten. However, the defendants do not allege any specific falsity of that representation or breach of any term to that effect.

As events transpired, there were plainly some delays. First, the Lumenis One machine was not installed until February 2008. Second, as I find below, the Mermaid Beach Premium Services launch did not occur before the end of May 2008. However, there was some advertising of the cosmetic medicine services, as I also find below.

A representation as to an intention or capability to build up a cosmetic medicine practice or promise to do so is one which can be fulfilled by reasonable efforts over a reasonable time. Although the contrary is arguable, on the facts, I am not satisfied that more than a reasonable time for the first defendant to build up a cosmetic medicine practice had elapsed before the first defendant decided to leave the plaintiff’s Mermaid Beach Medical Centre at the end of May 2008. In my view, the evidence supports a finding that the representation was made with reasonable grounds.

Cosmetic Medicine Marketing Representation

As to the Cosmetic Medicine Marketing Representation alleged in par 14(d) of the FADC, that the plaintiff would assist the first defendant to build up the cosmetic medicine practice by advertising, signage and a launch, the plaintiff admits that Ms Pryce made that representation.

The defendants allege in par 19(e) of the FADC that the plaintiff undertook no adequate newspaper, brochure or internet advertising in respect of Dr Van Houten providing cosmetic medicine services at the Mermaid Beach Medical Centre. As outlined above, the newspaper ad notifying that Dr Van Houten was starting to practise at the Mermaid Beach Medical Centre did contain some reference to Dr Van Houten providing cosmetic medicine services. It stated that Dr Van Houten specialised in non-surgical rejuvenating treatments including anti-aging treatments, vein treatments, hair removal, IPL skin rejuvenation and acne scarring treatment.

Second, Ms Bolger gave evidence of a mail out in February 2008 promoting the cosmetic medicine services at the Mermaid Beach Medical Centre.

Third, Ms Woods gave evidence of other advertising. It included an expensive advertisement placed in the “Gold Coast” book some time after 14 March 2008, an advertisement in the Yellow Pages and radio advertising on SeaFM. At least in part, this evidence was supported by documents. The thrust of this advertising campaign occurred in February and March of 2008. By that time, there had been no formal establishment or launch of the cosmetic clinic aspect of the Mermaid Beach Medical Centre.

There was no evidence as to what would constitute “adequate” newspaper, brochure or internet advertising in respect of the cosmetic medicine services to be provided.

In the light of the evidence that does exist, in my view, the plaintiff has proved that the plaintiff undertook adequate newspaper, brochure or internet advertising and that there were reasonable grounds for the representation.

By par 19(f) of the FADC, the defendants allege that the plaintiff did not commission any or any adequate signage at the Mermaid Beach Medical Centre to advertise the first defendant as available to provide cosmetic medicine services.

Ms Woods gave evidence that in November 2007 signage was put up in the Mermaid Beach Medical Centre stating Dr Van Houten’s relocation and his practice of cosmetic medicine. A copy of the text of the sign tendered in evidence stated that the Mermaid Beach Medical Centre welcomes Dr Van Houten, refers to his practice of medicine for 33 years, his special interests in family medicine and cosmetic medicine and states that he is now available for appointments.

There was no evidence as to what was adequate signage to advertise Dr Van Houten providing cosmetic medicine services at the Mermaid Beach Clinic.

In light of the evidence, in my view, the plaintiff has not proved that the plaintiff did commission adequate signage at the Mermaid Beach Clinic and there were reasonable grounds for the representation.

Dr Van Houten went on holiday or leave during the week prior to the end of May 2008. In the period between 18 May and 1 June he worked 13 sessions only. On 2 June 2008, he purported to terminate the Doctors Services Agreement.

During May 2008, it appears that the plaintiff’s staff planned a launch described as the Mermaid Premium Services launch. A VIP invitation list was prepared. It was to be a combined launch of on-site “Total Image, Your Health and Skin Health and Diagnostic” clinics. It appears that a letter drop distribution list or lists were also prepared.

Ms Woods and Ms Price gave evidence that an official launch for the Total Image Cosmetic clinic was held. Although Ms Woods said that her recollection was that the launch occurred in about April 2008, the documentary exhibits suggest a later date. Exhibit 21 states that the date for the VIP launch event was to be Tuesday 24 June 2008. Dr Van Houten said that the launch had not occurred by the time he left the Mermaid Beach Medical Centre at the end of or towards the end of May 2008. Accordingly, I accept that there was no official launch of the Total Image Cosmetic clinic before 1 June 2008.

However, given the fact outlined above, in my view, the plaintiff has established that the representation as to a launch was made with reasonable grounds.

Cosmetic Medicine Premises Representation

As to the Cosmetic Medicine Premises Representation alleged in par 14(e) of the FADC, that the Mermaid Beach Medical Centre would have a specific section at the back of the premises for the first defendant to practise cosmetic medicine, Ms Pryce’s evidence was that the establishment of a cosmetic clinic was discussed but that she did not make the alleged statement.

Mrs Van Houten’s evidence was that Ms Pryce said that there would be a place allocated at the back of the centre and would head up that clinic and he would train other doctors.

In my view, it is likely that establishing an area for cosmetic medicine was discussed. However, I do not find that Ms Pryce promised that a particular area would be established for that exclusive purpose. If such a promise had been sought and given, I would have expected it to be incorporated in the Doctor Services Agreement. That agreement expressly dealt with whether the first defendant was to be have exclusive use of a room to see patients.

Nor do I find that Ms Pryce represented that the Mermaid Beach Medical Centre would have a specific section at the back of the premises for the first defendant to practise cosmetic medicine.

In case I am wrong in those conclusions, I will consider pars 19(h) and 19(i) of the FADC. The defendants allege that the plaintiff did not have a specific section at the back of the premises at the Mermaid Beach clinic ready for Dr Van Houten to practise cosmetic medicine.

Ms Pryce gave evidence about meetings between September 2007 and early 2008 attended by Ms Webb, Ms Woods and doctors regarding the proposal for a cosmetic clinic. As stated above, it does not appear that the launch occurred until after Dr Van Houten left the Mermaid Beach Medical Centre.

Dr Van Houten gave evidence that the Lumenis One machine was installed in a treatment room but no specific section of the premises was set up to practise cosmetic medicine.

I find that the plaintiff did not set up a specific section at the Mermaid Beach Medical Centre for Dr Van Houten to practise cosmetic medicine.

The defendants allege that the plaintiff did not have the Lumenis One machine installed and ready for use by Dr Van Houten to provide cosmetic medicine services.

As previously stated, Dr Van Houten said that the Lumenis One machine was available for use from February 2008. It does appear that the plaintiff sought to move it the Mermaid Beach Medical Centre at or about the time Dr Van Houten started to practise there. However, there were delays.

The plaintiff blamed the delay on Dr Van Houten’s failure to advise of relevant requirements for installation and failure to make appropriate insurance arrangements. There may also have been an initial difficulty in the need for a specialist carrier to transport the machine. The installation problem appears to have related to the need for a three phase power source. It was not clear why the need for a three phase power source would have caused significant delay.

In any event, in my view, given that the machine was available from February 2008, the defendants have not proved that the plaintiff failed to have the Lumenis One machine installed and ready for use by Dr Van Houten within a reasonable time.

Cosmetic Assistance Representation

As to the Cosmetic Assistance Representation alleged in par 14(f) of the FADC, that the first defendant would have all the support he needed including a nurse who had worked with cosmetic and plastic surgeons and trained administrative staff for telephone inquiries, Ms Pryce’s evidence was that she did not make that representation or promise.

Neither Dr Van Houten nor Mrs Van Houten gave direct evidence that she did. Accordingly, on the evidence, I find that there was no representation or promise to that effect.

In case I am wrong in that finding, I will consider the defendants’ allegation in par 19(j) of the FADC that the plaintiff did not provide the assistance of a nurse who had worked with cosmetic and plastic surgeons.

Ms Rodley was employed to provide assistance to Dr Van Houten from approximately the third week of April 2008. Surprisingly, perhaps, neither Dr Van Houten nor Mrs Van Houten recalls her employment. The level of her skills in the relevant areas was not proved. It is likely that Dr Van Houten was not performing any or any significant cosmetic medicine procedures in the period between Ms Rodley’s employment and when he ceased to work at the Mermaid Beach Medical Centre towards the end of May 2008.

As Ms Rodley was not employed until April 2008 at the least, the plaintiff did not provide the assistance of a nurse who had worked with cosmetic and plastic surgeons until then.

The defendants also allege in par 19(k) of the FADC that the plaintiff did not have administrative staff who were suitably trained to receive telephone enquires in relation to cosmetic medicine services.

Ms Bolger gave evidence that after Dr Van Houten joined the Mermaid Beach Medical Centre she gave brief training to the administrative staff to receive telephone enquires about cosmetic medicine services, including how to make the appointments, the basis of the fee structures and time structures.

On 11 December 2007 she wrote a diary note of a briefing meeting between Ms Price, Dr Van Houten and herself regarding a system for the cosmetic medicine procedures.

Neither Dr Van Houten nor Mrs Van Houten gave significant evidence on this point.

In the light of the evidence, in my view, the defendants have not proved that the plaintiff did not have administrative staff who were capable of receiving telephone enquires in relation to cosmetic medicine services.

Cosmetic Exclusivity Representation

As to the Cosmetic Exclusivity Representation alleged in par 14(g) of the FADC that the first defendant would initially be the only doctor practising cosmetic medicine, Ms Pryce denied that she made this representation or made a promise to that effect.

Although the statement is alleged to have been made to Mrs Van Houten, she did not give evidence of it. Dr Van Houten, however, said that Ms Pryce did say that he would be the only person doing cosmetic medicine. However, the pleading does not allege that she said it to him. And when cross-examined, he frankly admitted that he could not really recall what was said to him.

In my view, the defendants have not discharged the onus of proof that the representation or promise was made.

In par 19(l) of the FADC the defendants allege that the plaintiff permitted other doctors who practised at the Mermaid Beach Medical Centre to provide cosmetic medicine services while the first plaintiff was seeking to build up the cosmetic medicine practice.

It appears that Dr Colagrande was a consultant specialist medical practitioner who attended the Mermaid Beach medical Centre. He was a cosmetic surgeon. Ms Price and Ms Woods gave evidence that he was not employed by the plaintiff (presumably meaning that he had not entered into a Doctors Services Agreement) and the plaintiff did not provide him with the administration services supplied to its medical practitioners. In effect, it seems that he rented a consulting room in the Mermaid Beach Medical Centre for the purposes of carrying on his own practice.

Accordingly, it is accurate to say that Dr Colagrande practised from the Centre. However, his practice was that of a cosmetic surgeon. That was not the scope of practice intended by Dr Van Houten who intended to practise non-surgical cosmetic medicine.

Cosmetic Seniority Representation

As to the Cosmetic Seniority Representation alleged in par 14(h) of the FADC, that the first defendant would be head of cosmetic medicine at the Mermaid Beach Medical centre and train other doctors in the relevant techniques, Ms Pryce denied that she made this representation or promise.

She did say that Mrs Van Houten referred to the first defendant being the head of a cosmetic medicine department, but that she neither agreed to it nor referred to the first defendant in those terms. Mrs Van Houten said in evidence that Ms Pryce had agreed to the first defendant becoming the head of department.

I accept that the question of the first defendant becoming the head of a cosmetic medicine department was discussed. However, on the state of the oral evidence, I do not find that it was agreed. This is again a matter of such importance that I would have expected it to be included in the Doctors Services Agreement, if agreed.

There is a difference, in my view, between discussion as to the anticipation that the first defendant as an experienced practitioner in cosmetic medicine and a senior medical practitioner might provide leadership and training at the Mermaid Beach Medical Centre and a representation or promise that he would be a head of department and given other medical practitioners to train. I do not accept that these were representations or promises that were made.

In case I am wrong in that finding, I will consider the relevant allegations of breach.

In par 19(m) of the FADC the defendants allege that the plaintiff did not offer the first defendant the opportunity to be head of the cosmetic medicine practice at the Mermaid Beach Medical Centre. There is no dispute that the plaintiff did not do so.

In par 19(n) of the FADC the defendants allege that the plaintiff did not request or require Dr Van Houten to train other doctors at the Mermaid Beach Medical Centre in cosmetic medicine techniques.

Again, there is no question that the plaintiff did not do so.

Patient Allocation Representation

As to the Patient Allocation Representation alleged in par 15(b)(i) of the FADC that the plaintiff impliedly represented that the plaintiff would ensure that the first defendant was provided with sufficient patients to enable him to generate gross billings of $500,000 per year, the implication is alleged to arise from two sources. The second source is what was said in the representations alleged in par 14 of the FADC already discussed above. The first source comprises statements alleged to have been made by Ms Pryce on 7 June 2007 at a meeting at the Palm Beach Practice with the first defendant and Mrs Van Houten.

The defendants allege in par 10(b) of the FADC that Ms Pryce said that Mermaid Beach was a fairly affluent area and there was plenty of work, that it was overflowing with patients, that the plaintiff could not control the patient numbers with the (about ten) doctors they had and that the first defendant could see as many patients as he liked – 40, 43, 45 per day if he wanted.

Ms Pryce did not accept that she said all those things. She agreed that she said that Mermaid Beach was an affluent area, that it was overflowing with patients and that the Mermaid Beach Medical Centre could not control the number of patients with the doctors it had. She said that average billings in Mermaid Beach were $200 per hour and that some doctors’ billings were approximately $500,000 per annum. But otherwise did not accept that she had made the alleged statements.

I note that if the average billings were $200 per hour and an average number of hours per day seeing patients was 7.5 (as provided in the Doctors Services Agreement), a doctor would have to work over 330 days in a year to achieve gross fees of $500,000. If the doctor worked for 46 weeks for 35 hours per week as agreed between the plaintiff and the first defendant, the gross fees at $200 per hour would be $322,000. For those hours, a doctor would have to earn gross fees of $310 per hour to gross approximately $500,000 per annum.

Further, I have previously noted that the Doctors Services Agreement provided by the Appendix B Representation and Agreement that the first defendant acknowledged and agreed that the plaintiff had relied upon the representation from him that his expected practice billings during the term should be approximately $525,000 per annum.

It appears that both parties were interested in the gross fees that the first defendant’s practice at the Mermaid Beach Medical Centre might generate. But did the plaintiff impliedly represent to the defendants that it would ensure that the first defendant was provided with sufficient patients to enable him to generate gross billings of $500,000 per year?

It must be remembered that where words of a conversation like the one relied upon are alleged to have been misleading or deceptive:

“…it is necessary that the words spoken be filed with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend on what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”^[15]

In my view, the defendants have not proved that the plaintiff by Ms Pryce made the alleged implied representation. No doubt the parties expected an outcome that the first defendant would do so, but I am not satisfied that the plaintiff by Ms Pryce positively represented in express terms facts which impliedly represented to the defendants that the first defendant would be able to generate those gross billings.

As previously stated, it is not in contest that the first defendant did not generate gross billings that would have amounted to $500,000 per year. However, there was a significant dispute whether that was just because the plaintiff was unable to provide enough patients. At least in part, in my view, it was due to that cause. The failure to launch the cosmetic practice more promptly may have contributed to the first defendant’s lower than expected billings. However, as well, the plaintiff’s witnesses attributed the low level of the first defendant’s billings to his failure to be on time for sessions and failure to seek out patients who were available in the waiting room.

In March 2008, it appears that the plaintiff offered to change the first defendant’s days or sessions and offered to arrange for the first defendant to attend at the plaintiff’s Highland’s Health Centre at Highland Park. The first defendant did not take up those offers.

In the result, if contrary to my finding the plaintiff did represent that the that it would ensure that the first defendant was provided with sufficient patients to enable him to generate gross billings of $500,000 per year, it is difficult to ascertain whether there were reasonable grounds for the representation.

In the result, I find that the defendants did not prove that the plaintiff engaged in misleading or deceptive conduct on this ground because the alleged implied representation was not proved, but make no further finding.

Assured Income Representation

In par 15(b)(ii) of the FADC the defendants allege that the plaintiff impliedly represented that the plaintiff would ensure that the first defendant earned $250,000 by way of annual net income.

The implication is alleged to arise from the same two sources as the Plaintiff Allocation Representation. In those sources, there is no specific basis for the amount of $250,000 by way of net income.

I note that the Doctors Services Agreement provides that the plaintiff’s Services Fee is to be “50% plus GST”, that is 55 per cent of the gross fees rendered by the first defendant. There is no other evidence on this point.

In my view, there is no basis in the evidence to find that the plaintiff represented to the defendants that the first defendant’s net income would be $250,000 per annum.

Summary of outcomes on liability issues

As set out above, the starting point is that the plaintiff claims that on 2 June 2008 the first defendant repudiated the Doctors Services Agreement, and that the plaintiff was thereby entitled to terminate the Doctors Services Agreement and did so, so that the defendants are liable for damages for breach of contract.

There is no dispute that the first defendant repudiated the Doctors Services Agreement, unless he was entitled to terminate it for the alleged breaches of contract by the plaintiff or for misleading or deceptive conduct under s 87 of the Trade Practice Act 1974 (Cth).

I have accordingly considered each of the many alleged grounds of breach of contract and misleading or deceptive conduct. Without exception, I have found that the defendants have not proved the alleged breaches of conduct or misleading or deceptive conduct by the plaintiff.

It follows that the defendants have not justified the first defendant’s termination of the Doctors Services Agreement.

The plaintiff is entitled, therefore, to a finding that the first defendant repudiated the Doctors Services Agreement in breach of contract.

Is Clause 11.3(a) a penalty?

As previously stated, the plaintiff claims the amount of $428,275 as the Agreed Damages and interest payable by both of the defendants. Paragraph 32(b)(ii) of the FADC alleges that cl 11.3(a) of the Sale Contract is void as a penalty as it requires either of the defendants to repay to the plaintiff part of the purchase price for the Palm Beach Practice.

The facts in this case fall into the well-established categories of cases at common law dealing with a sum agreed to be payable as damages for the loss of the benefit of a bargain on the termination of the contract for breach of contract or repudiation. Accordingly, there is no occasion to discuss the High Court of Australia’s recent affirmation of the continuing operation of equitable principles in the field of discourse relating to the doctrine of penalties.^[16]

Instead, the question of whether cl 11.3(a) is a penalty or not may be addressed through the familiar tests for whether an agreed amount for liquidated damages is a penalty, determined as at the time the contract was made and not with the benefit of hindsight. As to those tests, and their relationship to the development of principle in the recent decisions of the High Court, the Full Court of the Federal Court of Australia said recently:

“It is necessary at this point to consider the legitimate scope of the compensation that is the subject of the assessment of extravagance or exorbitance. Care must be taken not to dwell on the words of expression used by judges in cases as if they were statutes. It is essential to keep in mind and distinguish the object and purpose of the doctrine of penalties (the prevention or limitation of oppressive or unconscionable terms) and the means of prevention or limitation (the leaving of the obligee to an action in damages). The object and purpose of the doctrine of penalties is vindicated if one considers whether the agreed sum is commensurate with the interest protected by the bargain: Andrews (HC) at [75]; Dunlop at 91–93; Clydebank at 15–17, 19 and 20; Public Works Commission v Hills at 375–376. This is not to say that the enquiry is unconnected with recoverable damages; but the question of extravagance and unconscionability by reference, as Lord Dunedin said in Dunlop, to the greatest loss that could conceivably be proved to have followed from the breach, is to be understood as reflecting the obligee’s interest in the due performance of the obligation: Public Works Commission v Hills at 375–376. One only needs to reflect on the facts of Dunlop and the justification for the payment that was found to be legitimate to appreciate these matters.”^[17]

Here, the interest protected by the bargain in cl 11.3 was the loss to the plaintiff of the benefit of the Doctors Services Agreement. The first defendant’s commitment to comply with the terms of that contract was a fundamental reason for the plaintiff’s agreement to purchase the business under the Sale Contract, as the parties agreed and acknowledged in the Sale contract.

In my view, the value of that interest was reflected in the parties’ agreement under the Sale Contract as to the amount of the purchase price allocated to goodwill ($145,000) and the amount of the purchase price allocated to intellectual property rights (also $145,000). Both those values might have been undermined by the loss of the first defendant’s services. The goodwill did not represent any value for the place of the Palm Beach Practice, given that the parties always intended that practice location would be closed.

The value of that interest was also reflected in Appendix B to the Doctors Services Agreement, where the first defendant acknowledged and agreed that the plaintiff had relied upon the representation from him that his expected practice billings during the term should be approximately $525,000 per annum in entering in to the agreement and that the commercial terms of the Doctors Services Agreement were dependant on him achieving at least that level of practice billings each year of the term.

A relevant statement of principle in relation to liquidated damages clauses was made by the High Court of Australia in Ringrow Pty Ltd v BP Australia Pty Ltd:^[18]

“The principles of law relating to penalties require only that the money stipulated to be paid on breach or the property stipulated to be transferred on breach will produce for the payee or transferee advantages significantly greater than the advantages which would flow from a genuine pre-estimate of damage. Among the different words which have been used to describe how extensive the difference must be before the transaction creates a penalty are the words employed by Mason and Wilson JJ in AMEV-UDC Finance Ltd v Austin — a “degree of disproportion” sufficient to point to oppressiveness.”^[19]

In my view, there is no basis to conclude that the repayment by the defendants of an amount of Agreed Damages under cl 11.3(a) is “extravagant” or “unconscionable” in relation to the greatest loss that could conceivably be proved to have followed from the breach of the Doctors Service Agreement entered into interdependently with and consequent upon the payment of the price under the Sale Contract on the facts of the present case. Nor is there a “degree of disproportion” sufficient to point to oppressiveness.

Accordingly, cl 11.3(a) is not a penalty. It was not suggested that the 12 per cent per annum interest rate under cl 11.3(c) is a penalty. It follows that the plaintiff is entitled to payment of the Agreed Damages and interest in the amount of $428,275.

Because that is the agreed amount of the damages payable, it is unnecessary to consider the plaintiff’s alternative claim for damages. In any event, the plaintiff would not be entitled to ignore the agreed amount of damages for termination of the Doctors Services Agreement for breach by the first defendant and elect to claim a larger amount as damages for breach of contract at common law. To hold that the agreed damages are a genuine pre-estimate of the damages “does involve an implied limitation on the liability to pay damages”.^[20]

Costs

The costs of the proceeding should follow the events of the claim and the counterclaim, unless the court orders otherwise (r 681(1) of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”)). The plaintiff has succeeded on both events.

However, the plaintiff has succeeded only for an amount and upon a claim within the jurisdiction and monetary limit of $ 750,000 of the District Court of Queensland under s 68(1)(a) of the District Court of Queensland Act 1967 (Qld) when the proceeding started.

The amount recovered exceeds, however, the relief that the Magistrates Court could have given when the proceeding started.

Although the plaintiff also made claims for greater amounts, it has not succeeded on those claims.

Rule 698(3) UCPR relevantly states the following:

“If the only relief obtained by a plaintiff in a proceeding in the Supreme Court is relief that, when the proceeding began, could have been given by the District Court, but not a Magistrates Court, the costs the plaintiff may recover must be assessed as if the proceeding had been started in the District Court.”

That rule is applicable unless the court otherwise orders (r 698(1) UCPR).

In Distant v Queensland Rail,^[21] the plaintiff submitted that in cases where there is a significant prospect that an award of damages may exceed the jurisdictional limit of the District Court the choice of the appropriate court in which to proceed is difficult. With apparent reference to Beardmore v Franklins Management Services Pty Ltd [2002] QCA 60 it was submitted that since the award of damages fell within 20 per cent of the jurisdictional limit there was an appropriate reason for an order for costs on the Supreme Court scale. Mackenzie J rejected that submission, saying:

“In my view it is incorrect to think that Beardmore v Franklins Management Services Pty Ltd is intended to encourage a kind of generalised bracket creep with regard to costs when the award falls close to a jurisdictional boundary.”

In my view, the costs must be assessed as if the proceeding had been started in the District Court. There is no reason to order otherwise disclosed by the circumstances of the case as far as I know them.

However, I will give the parties liberty to apply to vary the order for costs that I propose to make by making submissions in writing no longer than 5 pages within 14 days of today.

Footnotes

[1] I note that at common law the legal discourse as to misrepresentation generally proceeded on the footing that a representation was a representation of fact. However, s 51A of the Trade Practices Act 1974 (Cth) was added to that Act in 1986 in a form that described a prediction or statement as to a future matter as a “representation”. It is no longer inappropriate to treat “representation” in the context of a claim under that Act as including a prediction or statement as to a future matter.

[2] JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435; Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, 408.

[3] Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, 414.

[4] Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, 414.

[5] (1919) 27 CLR 133.

[6] (1919) 27 CLR 133, 139.

[7] [2007] FCA 1175.

[8] [2007] FCA 1175, [155].

[9] Secured Income Real Estate (Australia) Pty Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607.

[10] Commonwealth Bank of Australia v Barker (2014) 312 ALR 356, 366 [29]-[30], 374 [56], 381-382 [90], 386 [113].

[11] Trade Practice Act 1974 (Cth), s 51A(1).

[12] Trade Practice Act 1974 (Cth), s 51A(2).

[13] Downey & Anor v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199, [127].

[14] I note that Dr Van Houten gave evidence on this question, but it was not pleaded that the representation or promise was made to him.

[15] Watson v Foxman & Ors (1995) 49 NSWLR 315, 318-319.

[16] Andrews & Ors v Australian and New Zealand Banking Group Ltd (2012) 247 CLR 205.

[17] Paciocco v Australia & New Zealand Banking Group Ltd [2015] FCAFC 50, [103].

[18] (2005) 224 CLR 656.

[19] Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656, [27].

[20] NLS Pty Ltd v Hughes (1966) 120 CLR 583, 589

[21] [2002] QSC 271.

Editorial Notes

Published Case Name:
IPN Medical Centres Pty Ltd v Van Houten & Anor
Shortened Case Name:
IPN Medical Centres Pty Ltd v Van Houten
MNC:
[2015] QSC 204
Court:
QSC
Judge(s):
Jackson J
Date:
23 Jul 2015

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IPN Medical Centres Pty Ltd v Van Houten[2015] QSC 204