Symbion Medical Centre v Alexander [2010] NSWSC 1047

New South Wales Supreme Court

CITATION : Symbion Medical Centre v Alexander [2010] NSWSC 1047

HEARING DATE(S) : 23-27 August 2010

JUDGMENT DATE : 16 September 2010

JUDGMENT OF : Gzell J

DECISION : Further amended statement of claim dismissed with costs.

CATCHWORDS : TRADE AND COMMERCE - Trade Commerce Generally - Restraint of Trade - injunctions and damages in lieu or in addition - application to restrain medical practitioners under post-term restraints from practising at another medical centre within a 3 kilometre radius of former medical centre for 12 months - plaintiff provided exclusive administrative services to doctors - nature of goodwill - whether a legitimate interest - whether post-term restraints reasonable

Restraints of Trade Act 1976 LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth) Supreme Court Act 1970

Aussie Home Loans v X Inc Services [2005] NSWSC 285 Idameneo (No 123) Pty Ltd v Dr Theresa Angel–Honnibal [2002] NSWSC 1214; (2003) ATPR 41-918 Smith v Chadwick (1882) 20 Ch D 27 Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company, Limited [1894] AC 535 Herbert Morris, Limited v Axelby [1916] AC 688 Heron v Port Huon Fruit Growers Co-operative Association Ltd (1922) 30 CLR 315 McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society, Limited [1919] AC 548 CASES CITED : Buckley v Tutty (1971) 125 CLR 353 Orton v Melman [1981] 1 NSWLR 583 Woolworths Limited v Mark Konrad Olson [2004] NSWCA 372 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd [2008] NSWSC 542; (2007) 73 NSWLR 53 Federal Commissioner of Taxation v Murry [1998] HCA 42; (1997-1998) 193 CLR 605 Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492 Stokely-Van Camp, Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414

Symbion Medical Centre Operations Pty Limited (Plaintiff) Richard Spence Alexander (First Defendant) PARTIES : Howard John Oxley (Second Defendant) Nicholas Robin Smith (Third Defendant) Healthscope Medical Centres Pty Limited (Fourth Defendant) Mina Nakhla (Fifth Defendant)

FILE NUMBER(S) : SC 2009/287452

R Harper SC with G Lucarelli (Plaintiff) COUNSEL : A Moses SC with Y Shariff (First, Second, Third, Fifth Defendants) J Lockhart SC (Fourth Defendant)

Massey Bailey Solicitors & Consultants (Plaintiff) SOLICITORS : Morris Legal (First, Second, Third & Fifth Defendants) Allens Arthur Robinson (Fourth Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GZELL J

THURSDAY 16 SEPTEMBER 2010

2009/287452 SYMBION MEDICAL CENTRE OPERATIONS PTY LIMITED v RICHARD SPENCE ALEXANDER & ORS JUDGMENT

Introduction 1 The plaintiff, Symbion Medical Centre Operations Pty Limited, now called Sidameneo (No 456) Pty Limited, provides services to medical practices. It claimed it acquired the assets, undertaking and goodwill of the doctors operating the Wyong Medical Centre. The asset purchase agreement contained restraint of trade clauses. Restraint of trade clauses were also included in practitioner services agreements with the doctors whose assets had been acquired. They included post-term restraint clauses. 2 The fourth defendant, Healthscope Medical Centres Pty Limited, was a competitor of Symbion, also providing services to medical practices. It established the Wyong Family Practice within two kilometres of the Wyong Medical Centre. 3 Doctors Alexander, Oxley, Smith and Nakhla, respectively the first, second, third and fifth defendants, entered into service agreements with Healthscope and subsequently provided medical services from the Wyong Family Practice. 4 Four former employees of Symbion at the Wyong Medical Centre became employees of Healthscope at the Wyong Family Practice. 5 Symbion alleged that the doctors were in breach of contract in providing medical services from the Wyong Family Practice and by soliciting patients of Wyong Medical Centre to obtain medical services at the Wyong Family Practice. 6 It was also alleged that the doctors were in breach of contract in inducing former employees of Symbion to terminate their employment with it and to take up employment with Healthscope. But senior counsel for Symbion abandoned that claim in final address. 7 As against Healthscope, Symbion alleged that it interfered with the contractual relations between the doctors and Symbion under the post-term restraint provisions. The acquisition of the Wyong Medical Centre 8 The asset purchase agreement was executed on 18 January 2002 by Symbion, then called Mayne Nickless Medical Centre Operations Pty Limited, as purchaser and doctors Alexander, Oxley, Smith and Green and trustee companies for some of them as vendors. Doctor Green plays no part in these proceedings. 9 Annexed to the asset purchase agreement were services agreements for each of the four doctors. The asset purchase agreement provided that completion would not proceed unless before or simultaneously with it each of the doctors entered into his practitioner services agreement in the form in the annexure. 10 The asset purchase agreement provided that on the completion date the doctors or their trustee companies would sell and Symbion would buy the doctors' assets. They were defined to mean the doctors' practice management goodwill, their practice records, their interest in the business name and all other tangible assets used in relation to the practice. 11 Practice management goodwill was defined to mean the exclusive right for Symbion to manage the practice to be conducted by the doctors at the Wyong Medical Centre, in the agreement called the Mayne Health Medicentre, for the term of the doctors' services agreements and the exclusive right for Symbion to represent, after completion, that the doctors' practice was being carried on at the Wyong Medical Centre. 12 Each of doctors Alexander, Oxley and Smith or their trustee companies received $465,876.40. 13 Symbion was required to cause a related company, Mayne Nickless Limited, to offer to employ the employees of the doctors' practices with effect from completion on terms and conditions as favourable as those disclosed to Symbion as their current terms and conditions. 14 The asset purchase agreement contained a cascading series of restraints of trade. It provided that, to give full effect to the sale and purchase of the sale assets, particularly the relevant practice management goodwill, each practice owner was required not to do, and was required to procure that each doctor did not do, any of a number of things in an area situated within a radius of five, four or three kilometres of the practice site for five, four or three years. 15 First, subject to exceptions for compliance with the practitioner's obligations under the relevant practitioner services agreement or the rendering of medical services to an injured or ill person in an emergency without fee or reward or any expectation of fee or reward, the doctors were not to render medical services. 16 Secondly, they were not, directly or indirectly, to carry on, whether alone or in partnership or joint venture with anyone else, or otherwise be concerned with, or interested in, whether as trustee, principal, agent, shareholder, unit holder, or in any other capacity, any general medical practice similar to, or competitive with, the Wyong Medical Centre. 17 Thirdly, they were not to solicit or persuade any patient to cease attending the Wyong Medical Centre when clinically required. 18 Fourthly, they were not to induce, or attempt to induce, any person who was at the time of completion, or who later became, an employee of Symbion or any related corporation of Symbion at the Wyong Medical Centre to terminate his or her employment with Symbion or any related corporation of Symbion. 19 Fifthly, they were not to induce, or attempt to induce, any other medical practitioner or provider of ancillary medical services at the Wyong Medical Centre, to terminate his or her agreement with Symbion, a related corporation of Symbion, or any other person in respect of the provision of services at the Wyong Medical Centre, whether or not that person would commit a breach of that person's agreement with that other party. 20 The asset purchase agreement provided that if any part of an undertaking in restraint of trade was unenforceable, it might be severed without affecting the remaining enforceability of that or the other undertakings. 21 These cascading restraints of trade were spent by the time of the actions of which Symbion complains. The five-year period expired in 2007. 22 The asset purchase agreement contained an acknowledgment by each of the doctors or their trustee companies that it was fundamental to the transaction contemplated by the agreement that the doctors were to ensure to the fullest extent legally possible that all the patients of the doctors should, as from completion, attend and continue to attend medical practitioners practising at the Wyong Medical Centre. 23 It was also provided that during the term of the practitioner services agreements, the practice owners were required to use all reasonable endeavours to make available to Symbion the information necessary to acquaint Symbion with the manner in which the practices were conducted at the Wyong Medical Centre; to use all reasonable endeavours to encourage the patients to continue to attend the practices at the Wyong Medical Centre; promptly to refer to the Wyong Medical Centre any inquiries made to the practitioners in respect of the practices; and not to refer any such inquiry to any person other than the Wyong Medical Centre. 24 Practitioner services agreements were executed by each of the doctors on 18 January 2002. They recited that Symbion provided administration and billing services, equipment and serviced premises for the use of medical practitioners; that the doctors wished to render medical services from the Wyong Medical Centre; that in consideration for Symbion entering into the asset purchase agreement the doctors had agreed to render medical services at the Wyong Medical Centre for five years; and that the doctors had requested Symbion and Symbion had agreed to provide the services on the terms of the services agreements. 25 The recitals continued that during the term, the doctors would acquire experience, confidential information, trade secrets, know-how and particular skills in the affairs, practices, customer requirements and trade connections of Symbion and the Wyong Medical Centre and that Symbion wished to ensure that after the termination of the agreements the doctors did not take advantage of those matters for the advantage of the doctors or others to the detriment of Symbion and the Wyong Medical Centre and in violation of Symbion's rights. 26 The services agreements provided that during the term, the doctors were required to render medical services at the Wyong Medical Centre and not render medical services at any other place unless it involved a home visit, hospital visit, or nursing home visit, Symbion gave its prior written consent, or the services were rendered in an emergency. 27 The services agreements required the doctors to use all reasonable endeavours to promote the interests and welfare of the Wyong Medical Centre; to use all reasonable endeavours, ethically and professionally, to expand the turnover, profitability, quality and image of the Wyong Medical Centre; and to support, on appropriate occasions, by word of mouth and appropriate referrals, the medical and paramedical services available at the Wyong Medical Centre. 28 The services agreements required Symbion to operate and manage the Wyong Medical Centre in accordance with the Wyong Medical Centre procedures manual, the Wyong Medical Centre standards and policies manual and generally to a standard that conformed to the standard required by the accrediting body. 29 Symbion was required each year to develop a business plan after consultation with the doctors. The services to be provided by Symbion were set out in detail in the services agreements. 30 The service fee payable by the doctors was 25% of the gross amount billed by Symbion on behalf of the practitioners with respect to home, nursing home and hospital visits, the preparation of medical reports and court appearances; and 50% of the gross amount billed by Symbion on behalf of the practitioners in relation to medical services rendered at the Wyong Medical Centre, less any efficiency bonus received by the doctors. 31 The services agreements stated that the parties acknowledged that the relationship between Symbion and the practitioner was that of principal and independent contractor. 32 The services agreements also contained cascading restraint of trade provisions upon which Symbion relies. Clause 10 was in the following terms: " Protection of Mayne's interest 10.1 Restricted areas and restricted activities (a) During the Term, the Practitioner must not without the prior written consent of Mayne do any of the following: (1) subject to clause 10.1(c), provide medical services at any location other than the Mayne Health Medicentre with a radius of: (A) 5 kilometres of the Mayne Health Medicentre; (B) 4 kilometres of the Mayne Health Medicentre; (C) 3 kilometres of the Mayne Health Medicentre; (2) subject to clause 10.1(c), directly or indirectly carry on (whether alone, in partnership or in joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) the practice of medicine within a radius of: (A) 5 kilometres of the Mayne Health Medicentre; (B) 4 kilometres of the Mayne Health Medicentre; (C) 3 kilometres of the Mayne Health Medicentre; (3) solicit or persuade any person who has obtained medical services from the Practitioner or any other practitioner at the Mayne Health Medicentre to cease obtaining medical services at the Mayne health Medicentre; (4) induce or attempt to induce any director, manger, employee of Mayne or a Related Corporation of Mayne to terminate his or her employment with Mayne or a Related Corporation of Mayne, whether or not that person would commit a breach of that person's contract of employment; or (5) induce or attempt to induce any other medical practitioner or provider of ancillary medical services at the Mayne Health Medicentre to terminate his or her agreement with Mayne, a Related Corporation of Mayne or any other person in respect of the provision of services at the Mayne Health Medicentre, whether or not that person would commit a breach of that person's agreement with that other party. (b) For a period of 12 months after the Termination Date, the Practitioner must not without the prior written consent of Mayne do any of the following: (1) subject to clause 10.1(d), directly or indirectly carry on (whether alone, in partnership or in joint venture with anyone else) or otherwise be concerned with or interested in (whether as trustee, principal, agent, shareholder, unit holder or in any other capacity) the practice of medicine within a radius of: (A) 5 kilometres of the Mayne Health Medicentre; (B) 4 kilometres of the Mayne Health Medicentre; (C) 3 kilometres of the Mayne Health Medicentre; (2) solicit or persuade any person who has obtained medical services from the Practitioner or any other practitioner at the Mayne Health Medicentre to cease obtaining medical services at the Mayne Health Medicentre; (3) induce or attempt to induce any director, manager, employee of Mayne or a Related Corporation of Mayne to terminate his or her employment with Mayne or a Related Corporation of Mayne, whether or not that person would commit a breach of that person's contract of employment; or (4) induce or attempt to induce any other medical practitioner or provider of ancillary medical services at the Mayne Health Medicentre to terminate his or her agreement with Mayne, a Related Corporation of Mayne or any other party in respect of the provision of services at the Mayne health Medicentre, whether or not that person would commit a breach of that person's agreement with that other party. (c) Clause 10.1(a)(1) does not prevent the Practitioner from: (1) making home visits, hospital visits or nursing home visits to patients who have at any time attended or been attended by the Practitioner or any other medical practitioner at the Mayne Health Medicentre and who have arranged the visits through the Mayne Health Medicentre; or (2) rendering professional services in the capacity of a registered medical practitioner to any person in an emergency: (A) at or near the scene of the emergency or while the person is being transported from that scene to another place where adequate medical care is available; and (B) without fee or reward or expectation of fee or reward. (d) Clause 10.1(b)(1) does not prevent the Practitioner from rendering professional services in the capacity of a registered medical practitioner to any person in an emergency: (1) at or near the scene of he emergency or while the person is being transported from that scene to another place where adequate medical care is available' and (2) without fee or reward or expectation of fee or reward. 10.2 Restraints reasonable (a) The parties consider the restraints contained in clause 10.1 to be reasonable and intend the restraints to operate to the maximum extent. (b) If the restraints contained in clause 10.1: (1) are void as unreasonable for the protection of the interests of Mayne; and (2) would be valid if part of the wording was deleted or the period or area was reduced, the restraints will apply with the modifications necessary to make them effective. 10.3 Restraints independent The restraints contained in clause 10.1 are separate, distinct and several, so that the unenforceability of any restraint does not affect the enforceability of the other restraints. 10.4 Survival of obligations The obligations of the Practitioner under this part 10 survive termination of this agreement. 10.5 Acknowledgments by the Practitioner The Practitioner acknowledges that: (a) in relation to this agreement and in particular this part 10, the Practitioner has received legal advice or has had the opportunity of obtaining legal advice; (b) the restraints contained in clause 10.1 are reasonable and necessary for the protection of the goodwill of Mayne; and (c) the remedy of damages may be inadequate to protect the interests of Mayne and Mayne is entitled to seek and obtain injunctive relief, or any other remedy, in any court." 33 In its further amended statement of claim, Symbion elected to enforce the 12-month post-term restraint in cl 10.1(b)(1)(C), that is, the embargo against the practice of medicine within a radius of 3 kilometres of the Wyong Medical Centre. Variation of the services agreements 34 On 21 January 2004, doctors Alexander, Oxley and Smith executed documents containing amendments to the practitioner services agreements. The amendments do not affect the matters before the court. The most significant amendment was the replacement of the service fee with a progressive fee structure. 35 The doctors and Symbion agreed and acknowledged that save for the amendments set out in the agreements, the terms and conditions of the practitioner services agreements continued to have full force and effect. 36 When Doctor Nakhla joined Wyong Medical Centre he signed a letter from Symbion on 19 March 2004, which set out the terms and conditions of his relationship with Symbion. Unlike Doctors Alexander, Oxley and Smith he sold no assets to Symbion. Instead, in consideration of his entering into the agreement in the letter, Symbion paid him $200,000. 37 The commencement date specified in this agreement was 15 March 2004 with a term of 60 months, meaning that it expired on 14 March 2009. The restraint in his case was as follows: "During the term and for twelve months after this agreement terminates, you must not: (a) render any medical services, or be concerned in an enterprise which provides medical services, within a radius of three kilometres of the Medicentre, except for services rendered at the Medicentre; (b) solicit or persuade any patient who has received medical services at the Medicentre to cease to obtain medical services at the Medicentre; (c) induce any of Mayne's officers or employees to cease their employment with Mayne; or (d) induce any medical practitioner or other health professional at the Medicentre to terminate his or her arrangements with Mayne." 38 The letter set out the duties of Doctor Nakhla, the services to be provided by Symbion and the service fee payable, which was 50%. The relationship between Symbion and Doctor Nakhla was similar to the relationship between Symbion and the other doctors. 39 There was no mention of goodwill in the agreement with Dr Nakhla. But his obligations included a requirement that he conduct himself in a manner that ethically and professionally enhanced the quality and image of the services provided at the Wyong Medical Centre. 40 Dr Nakhla signed a number of letters dated 8 August 2005 that varied the service fee in Dr Nakhla's favour. 41 Dr Oxley signed a letter dated 20 September 2006 that increased the term under his services agreement from five years to seven years. In consideration of the variation, Dr Oxley was paid $125,000. 42 The effect of the letter might have been to extend the expiration of Dr Oxley's services agreement from 17 January 2007 to 17 January 2009. But the letter stated that the variation was as at 6 November 2006 and further stated that the agreement finished on 5 November 2008. 43 It seems tolerably clear that that was the two-year extension contemplated by the parties and Dr Oxley's services agreement was to expire on 5 November 2008. 44 There was some suggestion that the agreement did not alter the commencement date of the post-term restraints of trade. 45 I reject that submission. The variation of Dr Oxley's services agreement was stated to be effected in accordance with cl 11.8 of the services agreement and so it was. It provided that a variation of any term of the agreement had to be in writing and signed by the parties. 46 The effect of the variation was that for the purposes of cl 10.1(b) of the services agreement, the termination date became 5 November 2008. 47 A similar letter of 6 October 2006 was signed by Dr Alexander. In consideration of the payment of $50,000 the parties agreed to vary his services agreement as at 18 January 2007 by increasing the term from five to six years, the agreement to finish on 17 January 2008. 48 The letter signed by Dr Smith replaced the term of five years in his services agreement with seven years by an agreement as at 6 November 2006, the agreement to finish on 5 November 2008. The consideration was $100,000. 49 Finally, Dr Alexander signed a letter of 22 January 2008 by which the parties confirmed that they had agreed to further extend the term of Dr Alexander's services agreement to 16 January 2009. 50 In Aussie Home Loans v X Inc Services [2005] NSWSC 285, White J considered whether the statement: "the terms and conditions of your employment will not differ from those you currently have…" were sufficient to impose the post-contractual restraints in the former contracts of employment in the new agreement. White J held they were not as the post-contractual restraints were not properly characterised as the terms and conditions of the former employment. 51 But the circumstances in this case are far different. The practitioner services agreements allowed for variation. They were varied in accordance with that power. The result was a continuation of the provision and reception of services and otherwise upon the terms of the services agreements including the post-term restraints. The Healthscope overtures 52 Symbion was taken over by Primary Health Care Limited in April 2008. On 20 May 2008 the doctors met with Dr Edmond Bateman of Primary and Thomas Henry Carwardine Bateman, the general manager of Symbion's medical centre operations. Dr Bateman expressed the view that Wyong Medical Centre was not profitable, the doctors were earning too much and his preference was to close the Centre down and relocate the doctors at the Wyoming Medical Centre. 53 The doctors opposed these suggestions and correspondence passed between Dr Bateman and Dr Oxley in May and early June 2008. 54 In the months that followed the meeting there was dissatisfaction by the doctors with limits placed on supplies of consumables. Specialised dressings were no longer supplied and the doctors paid for such supplies themselves. 55 Janine Maree Gibbs became the practice manager of the Wyong Medical Centre in about May 2008. She was not called by the defence and appeared in answer to a subpoena issued on behalf of Symbion. She said that what she knew about Healthscope in October 2008 was that a drug representative had brought a plan for a new clinic that had the name Healthscope on it to the Wyong Medical Centre. 56 Natalie Kelleher was the clinical coordinator of Healthscope. She and Ms Gibbs had been friends for many years. Ms Gibbs said she telephoned Ms Kelleher after she saw the plan and asked her whether she was with Healthscope to which Ms Kelleher said she was. 57 I do not accept that Ms Gibbs contacted Ms Kelleher as late as October 2008. 58 There were three meetings between the doctors and representatives of Healthscope, including Ms Kelleher, each three to four weeks apart that led to offers to the doctors to work from the Wyong Family Practice on 18 September 2008. 59 That means the first meeting must have been held in the period from the middle of July to early August. 60 Dr Smith said that some time before the first meeting Dr Oxley approached him and said that Ms Gibbs had been talking to Ms Kelleher and had said how unhappy they were working in the Wyong Medical Centre and Ms Kelleher had told Ms Gibbs that Healthscope was interested in opening a centre in Wyong and asked whether "the boys" would be interested. Ms Gibbs referred to the doctors as the boys. Dr Smith told Dr Oxley that he was interested in leaving and he attended the first meeting. 61 Dr Oxley was contacted by Sam Galanos who assisted Andrew Gordon Sando in the business development of the medical centre division of Healthscope. Mr Galanos was not called as a witness. 62 The first meeting was attended by doctors Alexander, Oxley and Smith and Mr Galanos and Ms Kelleher. Dr Nakhla had telephoned Mr Galanos and arranged a meeting with him in Sydney. 63 The second meeting was between the four doctors and Ms Kelleher, Mr Galanos and Dr Burns. 64 The third meeting was attended by Ms Kelleher, Dr Burns and the four doctors. It was at that meeting that Dr Burns handed an envelope containing an offer from Healthscope to each of the doctors. 65 Thereafter, following further negotiations, each of the doctors executed service agreements with Healthscope on 23 October 2008. Ms Gibbs witnessed their signatures. Execution by that date led to the earlier payment of the instalments of the amounts payable to the doctors in consideration of their executing service agreements. 66 Doctors Alexander, Oxley and Smith gave notice of their intention to cease rendering services from the Wyong Medical Centre on 30 January 2009 by letters dated 16 January 2009. They commenced to practice from the Wyong Family Practice on Monday 2 February 2009. 67 Dr Nakhla rendered medical services from the Wyong Medical Centre until the expiration of the term of his services agreement on 15 March 2009 when he went to work at other medical centres operated by Healthscope until 11 June 2009 when he joined the Wyong Family Practice. 68 Ms Gibbs said she did not know that she was to be the project manager of the Wyong Family Practice until she commenced work with Healthscope on 12 January 2009. She tendered her resignation to Symbion on 5 December 2008, effective from 19 December 2008. 69 But Ms Gibbs spoke with other staff members of the Wyong Medical Centre about the prospect of jobs at the Wyong Family Practice well before that date. Ms Gibbs said she did not discuss the Wyong Family Practice with the other women. I do not accept that evidence. 70 Janice May Neil gave evidence in answer to a subpoena. She resigned from the Wyong Medical Centre on 9 January 2009, having given a fortnight's notice. She said she was offered a job at the Wyong Family Practice in November or December 2008 by Ms Gibbs. 71 Yvonne Therese Stone also gave evidence in answer to a subpoena from Symbion. She commenced work at Wyong Family Practice on 29 January 2009 after she had resigned from the Wyong Medical Centre in the New Year. She was told by Ms Gibbs that Healthscope was setting up a new clinic. 72 Susan Joan Candy gave evidence on subpoena that she worked at the Wyong Medical Centre until 20 January 2009. She said that before Christmas 2008 Ms Gibbs approached her and privately told her that there was a position for her at the Wyong Family Practice if she wanted it. 73 I allowed Ms Gibbs to be recalled and cross-examined. Ms Gibbs said she did not believe she offered Ms Neil a job at the new centre. She denied that she knew before Christmas 2008 that she was going to be the practice manager. She denied she offered Ms Candy a job at the Wyong Family Practice. She denied that she knew before Christmas 2008 she was going to be practice manager at the Wyong Family Centre. She denied that she knew by October 2008 that the "boys" were going across to the Wyong Family Practice. 74 But on 20 October 2008 Ms Kelleher sent Ms Gibbs by email a plan of the proposed medical centre at her home email address, which she sent on to three of the doctors. And on 17 December 2008 she sent those doctors an email from her private email address passing on a message from Ms Kelleher that DA approval had been received from the Local Authority. 75 I find that Ms Gibbs had been in communication with Ms Kelleher about the prospect of the doctors joining Healthscope's new medical centre well before October 2008 and that she acted as a go-between between the doctors and Ms Kelleher. Dr Smith said that Ms Gibbs had acted as an intermediary from her initial conversation with Ms Kelleher. 76 I find that Ms Gibbs knew she was to be the project manager at the Wyong Family Practice in November or December 2008 and that in that knowledge she offered jobs at the Wyong Family Practice to Ms Neil, Ms Stone and Ms Candy. 77 Mr Sando had no direct contact with the doctors and relied on information from Mr Galanos. Mr Sando obtained copies of the doctors' contracts with Symbion but only one extension of one year with one doctor. Dr Smith said he may have provided a copy of his contract with Symbion to Dr Burns. 78 Mr Sando was aware that the doctors' services agreements with Symbion contained restraint of trade provisions. Mr Sando sought the advice of Ingrid Player, the general counsel and company secretary of Healthscope, by email on 25 August 2008. Ms Player was not called as a witness. She asked some questions of Mr Sando who requested Mr Galanos to find the answers as soon as possible. 79 Some of Ms Player's questions were answered on 29 August 2008 and on the same day she attached a draft opinion from Mark Houston of Landerer & Company, solicitors, to an email asking Mr Sando to discuss with her the assumptions made by Mr Houston, asking the question whether it was likely that Primary would litigate and saying it might be prudent to obtain a QC's opinion before going ahead. 80 The draft opinion analysed the decision of Palmer J in Idameneo (No 123) Pty Ltd v Dr Theresa Angel–Honnibal [2002] NSWSC 1214; (2003) ATPR ¶41-918 and concluded that the restraint of trade in the practitioner services agreements were naked restraints and unenforceable. 81 The draft opinion suggested that a term would be implied in the agreements requiring the giving of a reasonable notice of termination and that would require at least 60 days' notice. 82 On 29 August 2008 Mr Sando responded to Ms Player: "I think we need to prepare that they will litigate. (or though we need to be quick)". 83 On 1 September 2008 Mr Sando asked Ms Player: "If we commenced the medical centre on the 17th Jan 2009 and the doctors give a long notice period (60 plus days) – does this become very straightforward legally? 84 Ms Player responded on the same day that Dr Nakhla was in a different position. She continued: "On the issue of the restraint, yes, this makes it straightforward as this is then even outside the duration of the 12 months post termination (which is unlikely to be enforceable in any event)." 85 The email correspondence had been sent as well to Vita Pepe. She was the group chief operating officer for the Healthscope Group reporting to the managing director, Mr Bruce Dixon. 86 On 3 September 2008 Ms Pepe sent an email to Mr Sando and Ms Player: "We need to take a position and go with it – Andrew?" Mr Sando responded to Ms Pepe on the same day: "We have decided that we will open the new medical centre on the 18th Jan 2009." 87 Mr Sando said he had decided that a QC's opinion was not necessary because with the delayed opening of the Wyong Family Practice there was no problem with provisions in restraint of trade and the issue was one with respect to the length of notice to terminate. 88 Mr Sando did not sit down with Ms Player to go through the assumptions made by Mr Houston in the draft advice and a QC's opinion was not sought. 89 Nor were signed copies of the doctors' services agreements and variations obtained. What Mr Sando had was the form of services agreements annexed to the asset purchase agreement. Healthscope did not seek a full set of contractual documents. 90 Prior to the doctors signing the services agreements, Mr Sando made a recommendation to Ms Pepe that Healthscope enter into the agreements. For this purpose he submitted a capital expenditure request form on 16 October 2008. It made no mention of the draft opinion of Mr Houston but contained the following: "The Symbion doctors do have a exclusion zone of 3kms for 12 months. The Healthscope centre is within this zone. Each doctor has sought independent advice, which concludes that this exclusion is not enforceable." 91 None of the doctors had sought or received legal advice on the restraint provisions. 92 Ms Pepe approved entry into the practitioner services agreements on Mr Sando's recommendation. Dr Alexander, Oxley and Smith were to commence providing medical services from February 2009 and Dr Nakhla from May 2009. Ms Pepe also recommended to Mr Dixon formal approval of the establishment of the Wyong Family Practice. 93 Ms Pepe's knowledge of the situation was entirely based upon the exchange of emails to which she was a party. She was anxious that the matter proceed as quickly as possible. In response to Ms Player's email of 29 August 2008 attaching Mr Houston's draft advice and suggesting it might be prudent to obtain a QC's opinion, Ms Pepe responded: "Primary will litigate. Let's get the advice and get going. These are missed opportunities." 94 Ms Pepe said that while she initially thought it worth getting a QC's advice she came to the view that it was unnecessary for a number of reasons. First, there was Mr Sando's suggestion that the centre not commence until 17 January 2009 and the doctors give a long notice period and Ms Player's response from which she understood that adopting Mr Sando's suggestion would make it very straightforward legally. Secondly she understood that the reference to the possibility of getting a QC's advice was to confirm the period of notice. Thirdly, she believed that Mr Houston's draft advice had well and truly covered the issues very thoroughly and had concluded that the restraints were unlikely to be enforceable in any event. 95 Ms Pepe received the draft advice of Mr Houston and responded by email five minutes later with her reference to "get going". Ms Pepe agreed that she would not have had time to read the draft advice in that time period. 96 The ultimate decision was made by Mr Dixon but in light of the lack of reference in the capital expenditure request form to advice received from Mr Houston, the inference is that he was unaware of that advice. 97 There was no inquiry of the doctors as to whether they gave 60 days' notice of termination to Symbion nor was there included in their service agreements with Healthscope any condition of entry into the agreements that they give such notice to Symbion. They gave 14 days' notice. 98 Mr Houston assumed that Dr Alexander's services agreement had been extended for only one year and expired on 16 January 2008. But Dr Alexander's agreement was further extended to 16 January 2009. The draft opinion was based on a false premise so far as the post-term restraint was concerned. 99 The assumption that Dr Alexander's term in his services agreement expired on 16 January 2008 was also made by Ms Player in her email of 1 September 2008. She thought the post-term restraint period would expire on 16 January 2009 so that delaying the commencement of medical services from the Wyong Family Practice until after that date would make it a straightforward situation. 100 Ms Player had asked Mr Sando to sit down and discuss the assumptions made by Mr Houston. That never happened. Had the contractual arrangements with the doctors being scrutinised properly the false premise would have been discovered. One transaction 101 It was submitted on behalf of Symbion that the asset purchase agreement and the practitioner services agreements constituted a single transaction. 102 It is non-contentious where several instruments are made as part of one transaction, they will be construed together and each will be construed with reference to the other (Smith v Chadwick (1882) 20 Ch D 27 at 62-63). 103 It was submitted that when the restraints in the two agreements are construed together, that in the asset purchase agreement operated during the agreed term of five years; the restraint in cl 10.1(a) of the practitioner services agreements catered for the circumstance of the parties extending the term beyond five years and operated during that extended period; and the restraint in cl 10.1(b) operated during the 12 month period following the expiration of the term. 104 I do not read cl 10.1(a) as restricted to any extended term. It appears to me to cover the term of each practitioner's services agreement, a period identical with the period of the restraint in the asset purchase agreement. 105 But as it is cl 10.1(b) and not cl 10.1(a) with which this decision is concerned, it probably does not matter how the three restraints operate together. The interdependence of the agreements is apparent from the terms discussed earlier in these reasons. Onus of proof 106 The common law position with respect to restraints of trade was enunciated by Lord Macnaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company, Limited [1894] AC 535 at 565: "The true view at the present time I think, is this: The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public." 107 In Herbert Morris, Limited v Axelby [1916] AC 688 at 700 Lord Atkinson said the onus of establishing that a restraint is of a reasonable character rests upon the person alleging that it is of that character and the onus of showing that, notwithstanding that it is of that character, it is nevertheless injurious to the public and therefore void, rests on the party alleging the latter. 108 In Heron v Port Huon Fruit Growers Co-operative Association Ltd (1922) 30 CLR 315 at 324 the High Court endorsed what had been said by Lord Birkenhead LC in McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society, Limited [1919] AC 548 at 563: "The real test is, as your Lordships have so often pointed out, does the restriction exceed what is reasonably necessary for the protection of the covenantee? To make the matter particular your Lordships have to reach a conclusion as to whether the combined effect of rule 6(2.), rule 16, and rule 21 is or is not to impose upon the appellant a greater degree of restraint than the reasonable protection of the respondents requires." 109 In Buckley v Tutty (1971) 125 CLR 353 at 377 the High Court, having cited the passage from Heron, said that the onus of establishing circumstances that show that the restraint affords no more than adequate protection to the interests of the appellants lay on the appellants. 110 In New South Wales the common law position is subject to the Restraints of Trade Act 1976, s 4(1). It provides that a restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. Its effect is to allow a restraint to be read down so as to be valid to the extent necessary only to capture the conduct of the offending party if that extent would have been valid (Orton v Melman [1981] 1 NSWLR 583). But the court is not permitted to redraft the restraint (Woolworths Limited v Mark Konrad Olson [2004] NSWCA 372 at [46]). Legitimate interest 111 Symbion accepted that it bore the onus of proof that cl 10.1(b) of the practitioner services agreements was no more than was reasonable for the protection of its legitimate interest (Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344). 112 In Idameneo Palmer J held it was not with respect to similar circumstances. 113 Idameneo was a company of which Dr Bateman was the managing director. It, like Symbion, operated a number of medical centres in New South Wales providing doctors and allied health practitioners the use of premises and various administrative services in return for which it charged a fixed percentage of the gross fees received by the doctors and others. 114 Idameneo and Dr Angel-Honnibal entered into a sale of practice contract under which Idameneo agreed to purchase Dr Angel-Honnibal's medical practice at Burwood for a stated price all of which, excluding $1,000, was apportioned to the purchase of the "goodwill" of the practice. Dr Angel-Honnibal was to practice from Idameneo's new medical centre at Leichhardt. 115 Like the asset purchase agreement, the sale of practice contract in Idameneo required Dr Angel-Honnibal to execute a practitioner contract. 116 Like the restraint of trade provision in the asset purchase agreement, the sale of practice contract in Idameneo restrained Dr Angel-Honnibal from rendering medical services at any place within a radius of eight kilometres of the Burwood premises and within a radius of eight kilometres of the Leichhardt premises, relevantly, for five years. 117 Dr Angel-Honnibal had practiced from the Leichhardt premises for a short period before she commenced practice at a medical centre in Concord, that was less than six kilometres from the Leichhardt premises and less than two kilometres from the Burwood premises. 118 Like the practitioner services agreements, the practitioner contract prevented Dr Angel-Honnibal from rendering medical services at any place within a radius of eight kilometres of the Leichhardt premises for a period of five years. 119 With respect to this latter restraint, which is analogous to cl 10.1(a) of the practitioner services agreements, Palmer J concluded that there was no legitimate interest to be protected by it. His Honour said at 46,815-46,816 [80]–[86]: "80. The restraint of trade in Clause 5.5(a) of the Practitioner Contract is valid only if it is no greater than is reasonably necessary to protect the Plaintiff's legitimate interest. The question immediately arises: what is the legitimate interest of the Plaintiff which requires protection under the Practitioner Contract? It cannot be the goodwill of the Defendant's medical practice purchased under the Sale of Practice Contract because Clause 10.1 of the Sale of Practice Contract already provides that protection. 81. Although the Practitioner Contract is linked to the Sale of Practice Contract in that Clause 7.1(a) of the Sale of Practice Contract requires the Defendant to enter into the Practitioner Contract, the Practitioner Contract is nevertheless a different contract and is concerned with a different subject matter. It is, in essence, an agreement between the Plaintiff and the Defendant in which the Plaintiff agrees to supply services to the Defendant, and the Defendant agrees to take and pay for those services for a period of years. 82. Clause 10 of the Practitioner Contract expressly provides that there is no partnership or relationship of employer and employee between the parties and, by way of reinforcement, Clause 5.2 prevents the Plaintiff from giving directions to the Defendant as to the manner in which she conducts her practice. By Clause 4 the Defendant appoints the Plaintiff as her agent and attorney for the purpose of collecting the Defendant's fees. By Clause 7.1 the Defendant is liable for any claim arising from the conduct of her practice and she indemnifies the Plaintiff in respect of any such liability. 83. Nevertheless, despite the fact that the Practitioner Contract is an agreement for the supply of services to the Defendant, not by the Defendant, it endeavours to incorporate obligations on the part of the Defendant which would typically be found in a partnership or in a contract of service between the Plaintiff as employer and the Defendant as employee. Clause 5.3 requires the Defendant to use her best endeavours to protect the interests and welfare of the Plaintiff's business. Clause 5.4 requires the Defendant to support by referrals or otherwise the other medical practices in the Leichhardt Premises. Clause 5.7 provides that the Defendant's patient records are the property of the Plaintiff and are to remain so after termination of the Practitioner Contract. Clause 7.4 requires the Defendant to pursue appropriate continuing medical education and to conduct herself in a way which ethically and professionally enhances the quality and image of the services provided by the Leichhardt Premises. 84. The Defendant has given these promises in the Practitioner Contract and they may be enforced if breached, but that does not in itself give the Plaintiff a legitimate interest to protect by the restraint of trade covenant contained in Clause 5.5(a) of the Practitioner Contract. The Defendant is neither a partner nor an employee nor an agent of the Plaintiff and she plays no part in the conduct of the Plaintiff's business. I cannot see any other circumstance which would place her in a fiduciary relationship with the Plaintiff so that she is bound by any duty of exclusive loyalty to the Plaintiff. 85. In those circumstances, it seems to me that the Defendant's covenant in Clause 5.5(a) of the Practitioner Contract not to conduct her practice elsewhere within the proscribed area is a naked restraint of trade. It is as if the lessor of a building agreed to grant a lease to a high-profile tenant upon ordinary commercial terms but with the inclusion of a covenant that during the tenancy the tenant would not conduct any part of its business in another building. The lessor might have an interest in exacting such a covenant so as to enhance the market image of, and therefore the price for space in, its own building. But that is not the kind of interest that the law will protect by upholding a restraint of trade covenant. One does not have an interest sufficient to support a restraint of trade covenant simply because one has given consideration for the covenant. If that were so, no restraint of trade covenant supported by consideration would ever be struck down as unreasonable and contrary to the public interest. 86. In my opinion, the Plaintiff has not established that the restraint of trade imposed by Clause 5.5(a) of the Practitioner Contract is for the protection of any legitimate interest which it has. Clause 5.5(a) is, therefore, wholly void as contrary to public policy."

120 Symbion seeks to distinguish Idameneo on a number of grounds. First, it is said that in Idameneo the sale of practice contract and the practitioner contract were not regarded as the one transaction. I reject that submission. At [80], cited above, Palmer J construed the practitioner contract in conjunction with the sale of practice contract. 121 Secondly, it was submitted that Idameneo was distinguishable because it did not deal with a post-term restraint as is the case in cl 10.1(b) of the practitioner services agreements. Palmer J concluded that a read down version of the restraints in the sale of practice contract was reasonable and enforceable. His Honour was not called upon to consider the reasonableness of a post-term restraint. 122 That is so but it does not exclude his Honour's analysis of concurrent restraints in two agreements albeit as part of the one transaction. 123 What is needed is a precise identification of the legitimate interest to be protected. As Brereton J observed in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd [2008] NSWSC 542; (2007) 73 NSWLR 53 at 64 [40] whether a restraint is reasonable depends upon two questions: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. 124 Symbion submitted that its goodwill was its legitimate protectable interest. It had acquired the goodwill of the doctors' practices and that goodwill had grown over the term of the doctors' services agreements. 125 The concept of goodwill was examined by the High Court in Federal Commissioner of Taxation v Murry [1998] HCA 42; (1997-1998) 193 CLR 605. A partnership of husband and wife owned statutory licences to operate taxis and shares in a taxi cooperative company the ownership of which was a legal requirement for the operation of a taxi. 126 One licence was leased to a taxi driver who owned and operated his own vehicle and kept the profits. Subsequently, that licence and some shares in the cooperative company were sold by the partners to a third party and the taxi driver sold his vehicle to the third party at the same time. 127 The sale agreement with the partners apportioned the price between goodwill, expressed to be the value of the licence, the shares and the vehicle. 128 The wife claimed a small business exemption in the Income Tax Assessment Act 1936 (Cth), s 160ZZR(1)(a) that reduced to 50% a capital gain where a taxpayer disposed of, or of an interest in, a business being a disposal that included, or included an interest in, the goodwill of the business. 129 It was held that the wife was not entitled to the benefit of the provision because in so far as the licence gave a right to conduct a taxi business, that business was conducted by the taxi driver and not the partnership. At 608-609 [4] the court said: "Goodwill is inseparable from the conduct of a business. It may derive from identifiable assets of a business, but it is an indivisible item of property, and it is an asset that is legally distinct from the sources – including other assets of the business – that have created the goodwill. Because that is so, goodwill does not inhere in the identifiable assets of a business, and the sale of an asset which is a source of goodwill, separate from the business itself, does not involve any disposition of the goodwill of the business." 130 At 611 [12], after referring to the observation of Dawson J in Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492 at 519 that goodwill was notoriously difficult to define, the court continued: "One reason for this difficulty is that goodwill is really a quality or attribute derived from other assets of the business. Its existence depends upon proof that the business generates and is likely to continue to generate earnings from the use of the identifiable assets, locations, people, efficiencies, systems, processes and techniques of the business." 131 At 614 [20] the court noted that the attraction of custom still remained central to the legal concept of goodwill. And at 615 [23] the court noted that goodwill was the legal right or privilege to conduct a business in substantially the same manner by substantially the same means that had attracted custom to it. It is a right or privilege that is inseparable from the conduct of the business. 132 Notwithstanding that by the asset purchase agreement Symbion purported to purchase the doctors' practice management goodwill, it did not do so. Symbion could not conduct the medical practices of the doctors. That right or privilege remained with them. What Symbion got for its money were the same rights or privileges that it got for the payments it made to extend the terms of the doctors' services agreements – the exclusive right to provide management services to the doctors at the Wyong Medical Centre during the term and the right to represent that the doctors carried on their practices from the Wyong Medical Centre. 133 Symbion did not share any part of the goodwill of the doctors' medical practices. That remained with the doctors when they moved to the Wyong Family Practice although its quality was necessarily transmogrified by the move. 134 I reject the suggestion that the acquisition of patient records and patient contact not only with the doctors but also with the Symbion staff generated in Symbion some sort of goodwill in the doctors' practices. 135 If Symbion developed goodwill of its business it was of a different kind – the right to provide services to medical practitioners from the Wyong Medical Centre to attract to it the custom of other medical practitioners willing to pay a price for the provision of those services. 136 The nature of any goodwill of Symbion divorced from the practice of medicine was not explained during the proceedings. 137 If the above was its nature, the post-term restraints were unreasonable. The doctors were required to obtain Symbion's services at the Wyong Medical Centre for the period specified in the asset purchase agreement and in the doctors' services agreements. But when those agreements expired the doctors were denied the opportunity of obtaining accommodation and services from some other source within the radius of three kilometres of the Wyong Medical Centre. And there were 11 medical practices within that area. The doctors were effectively tied to a continuation of their services agreements or the cessation of their practices for 12 months if they wished to remain proximate to the Wyong Medical Centre. 138 This was not a case in which the doctors were in competition with Symbion. Nor was it a case of threatened misuse of trade secrets or confidential information, although the recitals to the practitioner services agreements sought to embrace this as a basis for the post-term restraints. The doctors were customers of Symbion, bound to take its services for the term of the asset purchase agreement and the practitioner services agreements. 139 There was negotiation between solicitors acting for Symbion and solicitors acting for the doctors before the asset purchase agreement was executed. Its terms were agreed including the length of time the doctors were required to receive Symbion's services. If that period was regarded as reasonable, there is no reasonable basis to effectively compel an extension of that period in the guise of a post-term restraint of trade provision. 140 It follows, in my view, that Symbion had no interest in the goodwill of the doctors' medical practices and it was not a legitimate interest of Symbion. If it had no legitimate interest to protect, the post-term restraints must be void as against public policy. 141 It also follows that if Symbion had goodwill in its service provider business it has failed to demonstrate that the post-term restraints were no more than reasonable for the legitimate protection of that goodwill and, again, the post-term restraints are void as against public policy. 142 Like the restraint in the practitioner contract in Idameneo, no portion of the post-term restraints can be saved under the Restraints of Trade Act, s 4(1) because the restraints of trade are wholly unreasonable. They are void as contrary to public policy. 143 Symbion's fall back position was to call in aid Stokely-Van Camp, Inc v New Generation Beverages Pty Ltd (1998) 44 NSWLR 607 in which Young J at 612-613 rejected the submission that a legitimate interest could only be proprietary and not commercial. Symbion conceded that later authority supported the restriction to proprietary interests. Brereton J took that view in McHugh at 65 [40] and in Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 at 428 [47]. 144 Even if the post-term restraints are to be viewed as protecting a commercial interest of Symbion as a service provider to medical practitioners at the Wyong Medical Centre, the same problem of unreasonableness emerges. 145 The parties after taking legal advice determined that a five-year period of exclusivity of service provision was appropriate. The parties subsequently agreed to extensions of the doctors' services agreements upon payment of further consideration. To require the doctors at the conclusion of their extended services agreements to either continue to receive Symbion's services for a further year or cease to practice medicine within the radius of three kilometres of the Wyong Medical Centre was unreasonable and wholly void as against public policy. 146 It follows that in my judgment Symbion is not entitled to injunctive relief preventing the doctors from practising medicine at the Wyong Family Centre or to damages in lieu or in addition under the Supreme Court Act 1970, s 68. 147 I have already said that the claim that the doctors solicited staff to move to the Wyong Family Practice was abandoned. 148 It was submitted that it might be inferred that there was solicitation of patients based on the large number of transfer forms that were presented to the Wyong Medical Centre. I do not think that such an inference should be drawn. The large number of transfer forms is more indicative of patients following the doctors without any form of solicitation by them. Symbion accepted that there was no other evidence upon which the inference could be drawn. I reject its claim to relief on this basis. 149 Symbion has failed to establish entitlement to any relief against the first, second, third and fifth defendants. 150 Since the post-term restraints of trade in the doctors' services agreements are void as against public policy the claim against Healthscope for injunctive relief and damages in lieu or in addition must fail since there could be no tortious interference with contractual rights in the post-term restraints of trade. 151 I must say, however, that had the post-term restraints of trade been enforceable, I doubt that Healthscope was entitled to rely on a belief that the restraints were unenforceable based upon Mr Houston's draft advice where, as I have said, it was based upon a false assumption that was never checked.

152 The further amended statement of claim is dismissed. The plaintiff must pay the defendants' costs. ***********

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