Dental Corporation Pty Ltd v Hungki (Mathew) Lee and Anor

1. [1]

   In these proceedings the plaintiff, Dental Corporation Pty Ltd (“DCPL”), for whom Ms C. Cochrane, Mr D. Harris and Ms L. McGovern of Counsel appear, claims that the defendants Dr Mathew Lee (“Dr Lee”) and Yein Pty Ltd (“Yein”) for whom Mr D. O’Connor and Ms F. Bustos- McNeil of Counsel appear, have breached what are commonly called “restraint of trade clauses” in a contract entered into between DCPL, Dr Lee and Yein in 2010.

2. [2]

   Dr Lee is a registered dental practitioner who, until July 2010, practiced at a surgery at unit 3, 14 Ethel Street Eastwood (“The Ethel Street premises”) under the name “Dr Mathew Lee and Associate Dental Surgery.”

3. [3]

   The Ethel Street premises are, and at all relevant times were, owned by the second defendant Yein.

4. [4]

   In 2010 Dr Lee and Yein entered into negotiations with DCPL which led to two agreements being concluded. One agreement is known as the Dental Practice Acquisition Agreement (Exhibit A2 p.315) dated 2 July 2010, (“the Acquisition Agreement”) and the other is known as the Facilities and Services Agreement (entered into about the same time)- “the FSA.”

5. [5]

   By the Acquisition Agreement, DCPL agreed to buy the assets of the business conducted by Dr Lee which assets included the goodwill, the business name under which Dr Lee practiced, stock, equipment, records and other items of the dental practice operated by Dr Lee. Yein, which leased the premises to Dr Lee was a party to the Acquisition Agreement. The total consideration which DCPL agreed to pay was $2.1 million of which $1,661,925 was paid to Dr Lee and $438,000 paid to Yein. Approximately $2 million of the total consideration was expressed to be paid for goodwill. The total figure was arrived at by applying a multiple of 5 to the stated earnings of Dr Lee in the financial year 2009/2010 i.e. $420,000.

6. [6]

   The restraint clause in the Acquisition Agreement (clause 19 see p.344 Exhibit A1) was in the following terms:

7. [7]

   The following further relevant definitions are found in the Acquisition Agreement (clause 1.1 or by incorporation by the FSA):

   1. (1)

      “Assets” means:

   2. (2)

      “Goodwill” means the goodwill of the practice.

   3. (3)

      “Practice” means the dental practice business conducted by the Vendor at the date of this agreement [2 July 2010] from the [Ethel Street] Premises using the Assets.

   4. (4)

      "Dental Practice" means the dental practice business to be conducted by the Practice Principal during the Term at the [Ethel Street] Premises in accordance with the Dental Practice Obligations.

   5. (5)

      "Dental Endeavor" means:

   6. (6)

      "Vendor" means the Practice Principal and the Service Company jointly and each of them severally.

   7. (7)

      "Premises" means unit 3, 14 Ethel Street Eastwood

8. [8]

   In the Acquisition Agreement Exhibit A2 (p.320) Dr Mathew Lee is identified as the Practice Principal and Yein as the Service Company.

9. [9]

   The FSA was entered into by DCPL and Dr Lee. By this agreement Dr Lee was to practice dentistry at the Ethel Street premises, and DCPL to provide facilities and services to him. The FSA provided for Dr Lee to utilise the goodwill that DCPL had acquired under the Acquisition Agreement and to manage the practice in accordance with the terms of the FSA. Dr Lee was to pay 60% of the practice earnings to DCPL. If Dr Lee was able to achieve above a particular target of earnings ($430,000) then he was to receive 60% of that excess. If he was not able to achieve another target ($410,000) then he was required to pay 60% of the shortfall to DCPL.

10. [10]

    The FSA was expressed to operate for an initial period of five years with further automatic extensions but with an option to Dr Lee to end the agreement by giving notice of his intention to do so: see clause 2.2 of the FSA Exhibit A1 p.383.

11. [11]

    It was part of the transaction that Dr Lee would enter into a lease with Yein and then assign his lease to DCPL.

12. [12]

    DCPL paid the consideration due to Dr Lee and Yein under the Acquisition Agreement, Dr Lee assigned to DCPL the lease from Yein and the FSA continued in effect for five years. The practice at the Ethel Street premises after the commencement of the FSA became known as “the Eastwood Family Dental and Implant Centre” and I shall refer to the practice operated by Dr Lee under the FSA as “the Eastwood Family Dental Practice.” I shall refer to the practice operated by Dr Lee before the FSA as “the pre-sale practice.” Close to the end of the first five years, on 4 May 2015, Dr Lee advised that he would not be renewing the FSA: see Exhibit A2 p.488. DCPL then gave notice to Yein, as it was entitled to do under clause 7 of the lease (Exhibit A3 p.712), that the lease of the Ethel Street premises would terminate in August 2015.

13. [13]

    The events of July and August 2015 are the subject of controversy and I shall return to deal with them later but what is not in dispute factually is that:

    1. (1)

       Yein in September 2015 entered into a new lease of the Ethel Street premises with Eastwood Medical Group Pty Ltd (“EMG”) as the tenant.

    2. (2)

       EMG on 14 September 2015 engaged Dr Lee as a dentist, and it would appear, all or much of the staff who had previously been working at the Ethel Street premises whilst Dr Lee was working there pursuant to the FSA.

14. [14]

    There are a number of undisputed facts which need to be recited to give context to Dr Lee’s decision not to continue with the FSA:

    1. (1)

       The annual earnings of the practice, in comparison to the earnings for 2009/10 of $420,000 and on which the payment to Dr Lee and Yein had been based, were:

    2. (2)

       As a consequence DCPL was entitled to claim back from Dr Lee a significant amount of money.

    3. (3)

       Dr Lee did not pay all of the amounts demanded of him by DCPL and DCPL obtained a default judgment against Dr Lee for approximately $130,000 following which Dr Lee declared himself bankrupt and a trustee was appointed to administer his bankrupt estate.

15. [15]

    It was a term of the FSA that Dr Lee conduct the Dental Practice and manage the Dental Endeavour personally during the term of the FSA: clause 4.1 (a). Dr Lee together with his wife Dr Jessica Lee opened a practice known as “World-Citi Medical” in George Street in the city and Dr Lee commenced working there on, he says, a casual basis: Dr Lee’s affidavit of 21 September 2016, paras 21 and 24 at Exhibit A1 p.167.

16. [16]

    I have referred to paragraphs of Dr Lee’s affidavit. There were filed affidavits from Dr Lee, Dr Jessica Lee, and Mr Youn Chou the solicitor for Dr Lee and Yein. At the commencement of the defendants’ case Mr O’Connor announced that he would not be reading any of the defendants’ affidavits. Ms Cochrane then sought to tender various portions of those affidavits which I permitted her to do. Ms Cochrane however had no opportunity to cross-examine Dr Lee and his wife.

17. [17]

    Dr Lee, in his affidavits, offered no explanation for the rather remarkable downturn in earnings from the practice. A significant part of the downturn may have been attributable to his working for World-Citi, but these proceedings are not brought against Dr Lee for breach of the FSA for failing to manage the practice or failing to devote all of his time to that practice, but rather are limited to enforcement of the restraint clauses of the Acquisition Agreement and a claim for damages for breach of those clauses. DCPL has previously consented to not making any claim for damages against Dr Lee given his status as a bankrupt.

18. [18]

    There is another matter of background which needs to be explained in order to understand the events following Dr Lee’s notice of his intention not to renew the FSA beyond 30 June 2015. In November 2009, well prior to its entry into the Acquisition Agreement and the FSA, DCPL had entered into an agreement to purchase another practice in Eastwood, that of Dr Jeanne Won and Dr James Won. That was a practice to which DCPL provided dental facilities and services: see para 12 of Mr Darcy Rendalls’ affidavit of 3 June 2016, and it was located at Suite 6, 79-81 Rowe Street Eastwood and operated as “Eastwood Dental” (see para 17 of Mr Rendalls’ affidavit). I shall refer to it as “the Rowe Street Practice.” It is some 140 metres by foot from the Ethel Street premises. Dr Jeanne Won and Dr James Won are, like Dr Lee, of Korean background and speak Korean. There was no dispute that a significant number of the residents in and near Eastwood are of Korean background.

19. [19]

    I turn now to what occurred after Dr Lee gave notice to DCPL that he would not be continuing the FSA after 30 June 2015:

    1. (1)

       DCPL placed a sign on the window/door of the Ethel Street premises which said:

    2. (2)

       DCPL, very likely, placed a recorded message on the phone number of the practice saying:

    3. (3)

       DCPL placed an announcement on its website of Eastwood Family Dental (a website owned and managed by DCPL- see Mr Rendalls’ affidavit para 52) saying:

    4. (4)

       DCPL wrote to the persons listed as patients (3,717) of the practice at Ethel Street in both English and Korean:

    5. (5)

       The telephone line used at the Ethel Street premises was redirected to the mobile phone of the receptionist at the Rowe Street Practice: Mr Rendalls’ affidavit para 55, Exhibit A1 p. 52

    6. (6)

       Consumables and dental equipment, including an autoclave and a microscope, were collected from the Ethel Street premises by the dentists practicing at the Rowe Street Practice and moved to the Rowe Street Practice.

    7. (7)

       Patients’ records were moved from the Ethel Street premises to the Rowe Street Practice.

20. [20]

    There is no dispute that only 184 patients from the Ethel Street premises became patients at the Rowe Street Practice in and after July 2015.

21. [21]

    In September 2015, EMG took up a lease of the Ethel Street premises and commenced operating a dental practice at those premises. The dental practice is known as World-Citi Eastwood and employs Dr Lee and some, at least, of the other dentists who had previously worked for Eastwood Family Dental: see Exhibit A3 p.736. Dr Jessica Lee controls Yein and has done so since she and Dr Lee divorced. There is, according to DCPL, a connection between Dr Lee, Dr Jessica Lee and EMG beyond the fact that Yein rents the Ethel Street premises to EMG and EMG employs Dr Lee. DCPL alleges that the interpositioning of EMG as a tenant of Yein and the purported employment arrangement is a sham. An allegation to that effect was pleaded by the reply filed by DCPL. That contention is said to be relevant to a submission that the defendants set up arrangements “designed to circumvent the restraints in the Acquisition Agreement” (Plaintiff’s Schedule para 9 ).

22. [22]

    DCPL claims that Dr Lee and Yein have breached the Acquisition Agreement and the FSA by Dr Lee working for EMG in the Ethel Street premises and in the case of Yein by leasing the Ethel Street premises to EMG. DCPL seeks to injunct Dr Lee from continuing his employment with EMG or anywhere in a 10 kilometre radius of the Ethel Street premises for 3 years from the date of termination of the FSA- i.e until 1 July 2018. Alternatively DCPL seeks to injunct Dr Lee for a lesser period and a more limited geographical exclusion in accordance with the cascading terms of clauses 19.3 and 19.4 of the Acquisition Agreement. Similarly DCPL seeks to prevent Yein from leasing the Ethel Street premises to EMG for the purposes of a dental practice until 1 July 2018.

23. [23]

    There is no dispute between the parties that the FSA came to an end on 1 July 2015, or that the lease by DCPL of the Ethel Street premises came to an end on 30 August 2015.

24. [24]

    DCPL contends that it moved the practice conducted at Ethel Street to the Rowe Street premises. The defendants contend that that is not what occurred and rather what occurred is that DCPL closed the Ethel Street practice.

25. [25]

    DCPL claims that by reason of Dr Lee and Yein’s breaches of contract it has suffered loss and damage because patients of the Ethel Street practice attended at the World-Citi Eastwood Practice at the Ethel Street premises. DCPL contends that of the 3,700 persons who were listed as patients of the Ethel Street premises when Dr Lee operated the practice pursuant to the FSA, only 184 have become patients at the Rowe Street Practice because Dr Lee has a strong connection with his patients, and the fact that he now practices at the Ethel Street premises in breach of his contractual obligations has discouraged patients from moving to the Rowe Street Practice. It also claims that he has solicited business by advertising and other means. Dr Lee claims that he personally has not solicited any business from his former patients.

26. [26]

    DCPL claims that Dr Lee having received the $1.6 million for goodwill has not met his contractual obligations and that Yein has received $400,000 for goodwill but not met its contractual obligations.

27. [27]

    Mr O’Connor contends that the goodwill which DCPL purchased was goodwill “inextricably connected” to the Ethel Street premises by the terms of the Acquisition Agreement. The business for which DCPL obtained protection was the business conducted at the Ethel Street premises- when DCPL terminated the lease it no longer had an interest in the Ethel Street premises or any business at those premises. The second argument advanced by Mr O’Connor is that even if the business which DCPL was seeking to protect was not inextricably tied to the Ethel Street premises the business formerly operated by Dr Lee had to continue to run in some meaningful sense and it in fact did not continue to run but rather was permanently closed by DCPL. Thus he contends, since the business with which Dr Lee and Yein had promised they would not compete had ceased to exist nothing they did was in competition with that business or in a breach of the restraint clause.

28. [28]

    Counsel for the parties were in agreement as to the general principles relating to restraints of trade and both Ms Cochrane and Mr O’Connor agreed that the summary of the law by Brereton J in Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 [10]-[11] and Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 [47] encapsulate the relevant principles.

29. [29]

    The issues which need to be determined are these:

    1. (1)

       Did DCPL close the Ethel Street practice and what is the consequence of that fact and the undisputed termination of the lease of the Ethel Street premises?

    2. (2)

       What does the restraint clause prohibit and were Dr Lee and Yein acting in breach of the clause?

    3. (3)

       If otherwise effective is the restraint clause too wide on public policy grounds?

    4. (4)

       Assuming, in favour of DCPL, that the restraint clauses are effective and were breached, to what damages, if any, is DCPL entitled?

30. [30]

    An additional issue arose in the course of the hearing namely whether if injunctive relief was otherwise available against Yein, the fact that EMG (the lessee of the Ethel Street premises) is not a party presented a problem: see John Alexander Clubs v White City (2010) 241 CLR 1; [2010] HCA 19. Mr O’Connor submitted whether or not EMG should be joined is a matter for DCPL since it is the party seeking to injunct Yein. DCPL submitted that EMG was well aware of the proceedings and that EMG did not need to be a party to the proceedings.

The Closure Issue

1. [31]

   There was a dispute as to whether the evidence established that ‘the practice’ was moved. I have referred in [19] above to what occurred in respect of Eastwood Family Dental. Those steps, coupled with the termination of the Ethel Street premises lease, amount, in my opinion, to a closure of Eastwood Family Dental as a practice. In his affidavit (para 39) Mr Rendalls, the only witness called by DCPL on the topic and who was in 2015 the Senior Area Manager- Practice Development Analyst, spoke of moving the dental practice from Ethel Street to Rowe Street. I set out the cross-examination of Mr Rendalls at T70.30 –T70.39:

2. [32]

   Mr Rendalls indicated that it was not he but Ms Annie Bryce who was the senior employee involved in decision making concerning the Ethel Street premises and the practice conducted there: T69. Ms Bryce actually swore the affidavit verifying the Reply (Exhibit A1 p.21) and she is the Group Commercial Manager of DCPL but she was not called as a witness by DCPL. Nor was Mr Rendalls making the decisions in relation to marketing at the end of the FSA- that was a Mrs Guilfoyle: see T70.42- T71.4, who also was not called as a witness by DCPL.

3. [33]

   Mr Rendalls also gave evidence that DCPL did not market itself to the public- the patients of any of the practices which DCPL has purchased have no knowledge of DCPL’s identity or involvement. Mr Rendalls refers to the name Eastwood Family Dental and Implant Centre in para 28 of his affidavit as the name under which Dr Lee practiced during the FSA and which name was a registered business name owned by DCPL but says nothing more about the name or any steps taken to utilise or protect it, although that is the name appearing on the website, and in the letter and the closure notice.

4. [34]

   Ms Cochrane contended that Mr Rendalls was too junior an employee to make admissions on behalf of DCPL that the business had closed. Given that Mr Rendalls (who is no longer employed by DCPL) was the only person called by DCPL to give evidence on this aspect of the matter (and was authorised by DCPL to do so: para 2 of Mr Rendalls’ affidavit) that is a rather surprising assertion to make. Ms Cochrane in defending the absence of any person more senior contended that the only relevant evidence was what was in fact done by DCPL not what employees thought they had done. In focusing on what employees of DCPL did (and also on the absence of evidence that they did other things) what they said to patients of Eastwood Family Dental in signs and letters and on the Eastwood Family Dental website is very significant. Mr Rendalls’ agreement that the Eastwood Family Dental business was shut down was corroborative of what appears from the cumulative effect of the other individual items of evidence to be the case in any event.

5. [35]

   There is no evidence that DCPL sought to protect the business name “Eastwood Family Dental” or do anything with that name after it received notice from Dr Lee in May 2015- there was no suggestion made to patients that Eastwood Family Dental would be relocating to other premises, or that it and the Rowe Street Practice would be merged. Ms Cochrane contended that Korean speaking patients may have had difficulty understanding the nuance of such matters but the letters sent were written in Korean as well as English, and there is no reason why all the material sent, displayed or recorded could not have been translated into Korean if it had been regarded as important.

6. [36]

   In my view the evidence, as it stands, points, on the balance of probabilities, to DCPL having decided not only to terminate the lease of the Ethel Street premises but to close the Eastwood Family Dental practice, move patient records and equipment to the Rowe Street Practice in which it had an interest and to encourage patients of the closed practice to become patients of the Rowe Street Practice. If it had not so decided that is the objective effect of what it did.

The Construction Issue

1. [37]

   The first question is one of construction- what was it that Dr Lee (and Yein) promised they would not do.

2. [38]

   In the Plaintiff’s Closing Submissions (“PCS”) paras 49-53, some general principles relevant to the construction of commercial contracts are set out which I summarise:

   1. (1)

      the need for commercial contracts to be given a business like interpretation: Electricity Generation Corp v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corp (2014) 251 CLR 640; [2014] HCA 7,

   2. (2)

      the Court should consider the context, that is the surrounding circumstances known to both parties and have an appreciation of the commercial purpose including the market in which parties are operating Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184,

   3. (3)

      where the language of a contract is open to more than one equally plausible construction the Court will prefer that construction which avoids an unreasonable or inconvenient result Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at p.109.

   4. (4)

      if one construction would render the contract valid and one would not the former is to be preferred: Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation (2008) 173 FCR 359; [2008] FCA 1951.

3. [39]

   DCPL also contends that there is no special rule of construction that requires restraint of trade to be construed narrowly where the restraint is imposed following the sale of a business (as opposed to cases where the restraint is imposed on an employee), Mr Heydon in his text The Restraint of Trade Doctrine (3rd ed 2008, LexisNexis Butterworths) supports this approach and in final submissions Mr O’Connor did not seek to put a contrary view.

4. [40]

   Focusing on Dr Lee for present purposes and breaking down the restraint clause what he promised not to do, inter alia, was to not be employed, within a stated geographical area for a stated period of time in any business which:

   1. (1)

      was the same or similar to:

   2. (2)

      was in competition with the pre-sale practice, the Eastwood Family Dental Practice or the Other Dentists’ Practice.

5. [41]

   The Acquisition Agreement makes it clear that DCPL was keen to protect the goodwill of the pre-sale practice and of the Eastwood Family Dental practice (including the Ethel Street Other Dentists’ practice): see the definitions in clause 1.1 and see clause 19.7 (a).

6. [42]

   Mr O’Connor submitted that both conditions (1) and (2) set out in [40] had to be met for Dr Lee and Yein to be in breach. Ms Cochrane submitted that the use of ‘and’ did not impose a second cumulative condition.

7. [43]

   I think it is important to bear in mind what goodwill is. The High Court in Commissioner of Taxation (Cth) v Murry (1998) 193 CLR 605 at 615 ([23]-[24]) described goodwill as:

8. [44]

   Importantly, the plurality said at [36] that two fundamental premises of the law of goodwill are:

9. [45]

   In Taormina v Culicchia 355 SW 2d 569 at 573 (Texas Civ App 1962) cited by Mr Heydon (supra) at p.192 a jury were instructed that goodwill was:

10. [46]

    In Idameneo (No 123) Pty Ltd v Dr Teresa Angel-Honnibal [2002] NSWSC 1214; (2003) ATPR 41-918 (Idameneo) a case concerned with the purchase of a medical practice and use of a similar structure to that used by DCPL Palmer J said:

11. [47]

    Mr Heydon (supra) at p.197, of his book makes the point that the covenants obtained on a sale of a business are for the protection of goodwill of the business sold not the goodwill of the businesses already owned by the purchaser.

12. [48]

    Sources of goodwill in a medical and dental practice are the identity and standing of the practitioner and his associates, the business name under which the practice operates and the premises themselves which might be described as “personal goodwill,” “name goodwill,” and “site goodwill” see: “The meaning and nature of goodwill in the tax context” (2010) 29 AT Rev 123 p.125 by I. Tregoning. The fourth category mentioned in that article, “monopoly goodwill” which arises for example, where the business has the benefit of a statutory licence, is not relevant here.

13. [49]

    The critical question in this case is the question of whether, with the closure of Eastwood Family Dental, the restraint had any remaining operation. Ms Cochrane emphasises the important fact that DCPL had in 2010 paid approximately $2 million to Dr Lee and Yein for goodwill. Mr O’ Connor does not dispute that significant money was handed over to his clients but he submits that it was for DCPL to decide what to do with the goodwill for which it had paid. It could, for example, have continued to lease the Ethel Street premises.

14. [50]

    Ms Cochrane referred to what she described as a ‘time machine problem’ in the defendants’ arguments: see PCS 55-56. The defendants, it is put, contend that the Dental Practice is fixed in place and time, whereas in fact the Acquisition Agreement and the FSA contemplated the protection of goodwill of the practice to be conducted under the FSA not just the pre-sale practice.

15. [51]

    Mr O’Connor points out that all of the definitions such as Practice, Dental Practice and Dental Endeavour are all linked to the Ethel Street premises and he contends therefore that when the lease ended there ceased to be any practice, irrespective of whether DCPL “moved” the Eastwood Family Dental practice as opposed to closed it. The restraint, he submits in effect, is to protect “ the drawing power of the premises” see [39] of Idameneo cited at [46] above. Whilst the definitions clearly are linked to the Ethel Street premises, and whilst it was contemplated that DCPL could continue to licence a practice at those premises even if Dr Lee did not renew the FSA, the close linkage does not of itself necessarily mean that DCPL had not obtained a promise from Dr Lee and Yein not to compete if DCPL decided to lease premises elsewhere in Eastwood. The Acquisition Agreement and the FSA clearly intended to give protection to DCPL for the pre-sale practice goodwill and the goodwill of the practice under the FSA. In my view the Acquisition Agreement must be seen as recognising that once the FSA commenced whatever pre-sale goodwill existed would be taken up in the practice conducted under the FSA. DCPL could act to protect what might be called the conglomerated goodwill- which would also include the goodwill generated by the other dentists practicing at the Ethel Street premises.

16. [52]

    Clause 19.7 does record that the parties have agreed that the prohibitions and restrictions in clause 19 are necessary to protect the goodwill of the practice which is defined as the practice conducted at Ethel Street.

17. [53]

    One way of viewing clause 19 is that it identifies the practice by reference to where it has been, and where it is intended it will be conducted, rather than as limiting the practice to be protected as one that is conducted at those particular premises. On this approach if DCPL had leased premises in the next street and had moved Eastwood Family Dental practice to those new premises there is nothing in clause 19 which, in terms, ends Dr Lee’s promise not to carry on practice within the geographically defined area. Having regard to the extensive payment made to the defendants and the fact that neither the Acquisition Agreement nor the FSA expressly requires the practice contemplated by the FSA to be conducted at the Ethel Street premises, I am not persuaded that termination of the lease of and by itself brings an end to Dr Lee’s or Yein’s obligations but the point made is nevertheless linked to the second argument.

18. [54]

    It is not without significance that Dr Lee, and not DCPL, was operating Eastwood Family Dental. The only sources of goodwill attaching to Eastwood Family Dental were Dr Lee, probably reinforced by the goodwill generated by his earlier years in the pre-sale practice, the other dentists and staff, the premises and the name Eastwood Family Dental. When Dr Lee left the Eastwood Family Dental practice and DCPL terminated the lease without establishing or seeking to establish the Eastwood Family Dental practice in another location and advised patients that the practice was no longer operational or was closed there then ceased to be any practice. Not only did DCPL terminate the lease and advise patients that the practice had closed there is no evidence that it sought to retain or maintain use of the name Eastwood Family Dental. It sought rather to enhance the business of another practice- the Rowe Street Practice. Mr O’Connor pointed out that there were several commercial reasons why DCPL may have decided to take this course- the poor performance of the practice in the five years of the FSA being one. The fact that DCPL already had an interest in the Rowe Street Practice is another. No-one was called from DCPL to explain management’s thinking on these matters.

19. [55]

    There was, as I have mentioned, some focus on the question of whether ‘and’ in clause 19.2 was to be seen as requiring two conditions to be met for the restraint to be breached i.e. that the business which Dr Lee promised not to engage had to be:

20. [56]

    Ms Cochrane contended that the ‘and’ did not impose a second requirement- describing the issue as one of hendiadys. Hendiadys is a grammatical term to describe the expression of a single idea in two words with the conjunction ‘and:’ see Statutory Interpretation in Australia Pearce and Geddes (8th ed 2014, LexisNexis Butterworths) [4.44]. The term is usually applied in cases of statutory interpretation rather than contract interpretation but since it is a grammatical term it may well be apt to describe a contractual term as well.

21. [57]

    In Airservices Australia (formerly Civil Aviation Authority) v Monarch Airlines Ltd (1998) 152 ALR 656 Beaumont J, with whom Wilcox J agreed, held that the words of s. 67 of the Civil Aviation Act 1988 (Cth):

22. [58]

    A similar approach was taken by Hope J (as his Honour then was) in Traders Prudent Insurance Co Ltd v The Registrar of the Workers' Compensation Commission of New South Wales [1971] 2 NSWLR 513 at p.521 (“promptly cooperate with the committee and assist it to carry out its duties under this section”) and by Basten JA in De Marco v Chief Commissioner of State Revenue (2013) 83 NSWLR 445 at 449, where his Honour held that ‘use and occupation’ should be treated as hendiadys precluding the need to consider “use” and “occupation” separately. However in Victims Compensation Fund Corp v Brown (2003) 201 ALR 260 at 269 the High Court rejected the claim that the phrase “symptoms and disability” should be read as a “composite or portmanteau” phrase.

23. [59]

    The learned authors of Statutory Interpretation in Australia note that it will often be difficult for a Court to determine whether or not the use of ‘and’ is a hendiadys.

24. [60]

    In AirServices Beaumont J approved of what had been said in an earlier edition of Statutory Interpretation in Australia:

25. [61]

    In PCS 77 Ms Cochrane contends that both limbs of the subclause are in fact satisfied and in PCS 78 she contends that:

26. [62]

    Mr O’Connor in any event resisted the contention that “in competition with” was superfluous he contended that the author of the clause had very likely been astute to include a reference to competition because of a concern that a restraint which was not designed to protect the practices purchased by Dr Lee and to be run by Dr Lee under the FSA would be offensive to the limits of reasonable protection of DCPL’s interests.

27. [63]

    If the words “in competition with” add nothing to the first limb then the first limb must carry the notion of competition within it. If they do then DCPL’s argument does not assist it. If the first limb does not carry the notion of competition then the second limb does have work to do. Further I agree with Mr O’Connor that the use of the phrase “in competition with” was designed to establish the bona fides of the restraint within established principle, and I do not regard the two limbs of the clause as saying precisely the same thing.

28. [64]

    By paragraph 45 of the PCS, DCPL submits that “the goodwill” has value to DCPL “as a means of attracting dental practice businesses to the Dental Corporation’s Network. Dental Corporation markets itself to dentists” citing Mr Rendalls’ affidavit Exhibit A1 p.42 and T67.49-50. If ‘Dental Corporation Network’ has any identity or meaning it does not appear to be or relate to a protection of the goodwill of the business sold but rather of some other claimed goodwill of DCPL. The restraint in clause 19 was a restraint to protect the business that it bought from Dr Lee not DCPL’s other businesses and DCPL could not legitimately seek a restraint to stop Dr Lee from competing with the Rowe Street Practice, or protecting other businesses of DCPL and nor in my view did the Acquisition Agreement purport to do so. In accordance with what the High Court held in Murry the goodwill protected by the Acquisition Agreement could not be severed from the Eastwood Family Dental Practice and has no existence independently of it.

29. [65]

    DCPL contended that Yein, by leasing the premises to EMG and receiving rent, was providing a service to EMG and was indirectly involved in the business as a beneficiary. There is a real question as to whether receiving rent is sufficient to meet either criterion but in any event the same arguments available to Dr Lee that I have already addressed are available to Yein as well.

30. [66]

    I conclude that to infringe the restraint clause Dr Lee had to be employed by, or to solicit custom for, and Yein had to lease premises to, a business in competition with Eastwood Family Dental, and since Eastwood Family Dental (effectively also the successor of the pre-sale practice) had ceased to exist by reason of DCPL’s conduct there was no competing practice.

31. [67]

    I therefore conclude that neither Dr Lee not Yein have breached the Acquisition Agreement.

32. [68]

    Given my conclusion that Dr Lee and Yein have not breached the restraint clauses it is not necessary to consider whether the clauses are reasonable, whether injunctive relief against Yein is available when EMG, the lessee, has not been joined or whether DCPL has established an entitlement to damages. Whilst strictly unnecessary to do so I will however express my views on the issue of damages.

Damages

1. [69]

   DCPL’s case on damages has these components:

   1. (1)

      Only 184 of the Eastwood Family Dental patients transferred to the Rowe Street Practice.

   2. (2)

      Dr Lee recommenced practice in the new Ethel Street practice from September 2015.

   3. (3)

      The dentists who had worked in the Eastwood Family Dental recommenced in the new Ethel Street practice.

   4. (4)

      There is evidence that normal dentistry was being practiced at the new Ethel Street practice (see evidence of Mr Streeter).

   5. (5)

      The Court should infer that had no surgery been run out of Ethel Street premises after June 2015 many of the patients would have migrated to the Rowe Street Practice operated by the Drs Won. I shall refer to the patients who would have migrated to the Rowe Street Practice as “the additional patients.”

   6. (6)

      Although it is difficult for the Court to make an assessment it must do its best: Howe v Teefy (1927) 27 SR (NSW) 301 and should choose between the 10% and 40% put forward by DCPL as the likely level of additional patients.

   7. (7)

      Having determined the number of additional patients the Court should determine the net earnings which would have been generated for the Rowe Street Practice by the additional patients.

   8. (8)

      Having determined the dollar value of net earnings that the Rowe Street practice would obtain from the additional patients the Court should apply 55% to that figure to ascertain what amount DCPL would have earnt.

2. [70]

   In Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd [2014] NSWSC 1016 I made reference to NCON Australia Limited v Spotlight Pty Ltd [2012] VSC 604 and summarised the principles relevant to claims for damages in contract cases:

3. [71]

   There are a number of problems with DCPL’s damages case:

   1. (1)

      There is no information to establish that any of the patients of the new World-Citi Eastwood practice are the former patients of Eastwood Family Dental. If for example none of them are, there would be no causal connection between the absence of the additional patients from the Rowe Street Practice and the existence of the World-Citi Eastwood practice at the Ethel Street premises or Dr Lee’s employment there.

   2. (2)

      There is no evidence that the Rowe Street Practice had the capacity to meet any particular influx of patients from Eastwood Family Dental. Eastwood Family Dental had four chairs and Rowe Street three chairs. There is no evidence concerning whether the additional patients could be accommodated at the Rowe Street Practice by additional dentists and the addition of dental chairs.

   3. (3)

      When I raised the question of costs that might need to be expended on additional dentists to meet the additional patients Ms Cochrane explained that cost was not relevant to the calculation. That is because it was said, DCPL’s claim is based on the fact that had Rowe Street earnt, say another $100,000 net of laboratory costs from the additional patients, DCPL would have been entitled to 55% of those earnings. Quite apart from the question of whether the Drs Won would have been willing to expand their business in this way there is a fundamental evidentiary hiatus because DCPL has not put in evidence the agreement between itself and the Drs Won and there is therefore no evidence as to what percentage DCPL would have earnt from whatever increase in earnings might have been obtained at the Rowe Street Practice by the influx of additional patients.

Conclusion

1. [72]

   DCPL has failed to make out its case for injunctive relief and damages and its Summons should be dismissed with an order that it pay the defendants’ costs as agreed or assessed..