Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Sidameneo (No 456) Pty Ltd v Alexander (No 2) [2012] NSWCA 87
• Hearing dates: On the papers
• Decision date: 18 April 2012
• Before: Beazley JA at [1]; Basten JA at [2]; Young JA at [3]

Decision

(1) Dismiss the appellant's motion of 22 December 2011, seeking declaratory relief.

(2) Order that the appellant pay the costs of the first, second and third respondents of the motion.

(3) Dismiss the appeal from the costs judgment in the Equity Division.

(4) Dismiss the application to vary order (2) made on 21 December 2011, requiring the appellant to pay the respondents' costs of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: COSTS- damages claim- central issue validity of covenant in restraint of trade- appellant succeeds on that issue but fails generally- insufficient grounds to prevent usual order that appellant pay total costs- indemnity costs ordered below- appellant unsuccessful in appeal- order not disturbed.; DECLARATION- whether appropriate to make a declaration as to the validity of covenant- declaration is within court's discretion but generally should not be granted if it serves no useful purpose- not ordinarily appropriate to make declarations as to "intermediate conclusions" of a court leading to a final order- declaration not granted.
• Cases Cited: AMP Fire and General Insurance Co Ltd v Dixon [1982] VR 833; Biss v Smallburgh RDC [1965] Ch 335; Buckley v Tutty [1971] HCA 71; 125 CLR 353; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337; Dysart (Earl) v Hammerton & Co [1914] 1 Ch 822; Fred, Wilkins and Brothers Ltd v Weaver [1915] 2 Ch 322; Global Funds Management (NSW) Ltd v Rooney (1994) 36 NSWLR 122; Gray v Sirtex Medical Ltd [2009] WASC 126; Hammerton v Dysart (Earl) [1916] 1 AC 57; Hope v Bathurst City Council (NSW Supreme Court, MH McLelland J, 8.4.1983, unreported); Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 108; Marion White Ltd v Francis [1972] 1 WLR 1423; Marshall v English Electric Co Ltd [1945] 1 All ER 653; Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1179; Sydney City Council v Greek Australian Finance Corporation Pty Ltd (1974) 32 LGRA 32; Sydney Ferries v Morton (No 2) [2010] NSWCA 238; Symbion Medical Centre Operations Pty Ltd v Alexander [2011] NSWSC 701; Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430; Warramunda Village Inc v Pryde [2001] FCA 61; 105 FCR 437
• Category: Costs
• Parties: Sidameneo (No 456) Pty Ltd (Appellant); Richard Spence Alexander (First Respondent); Howard John Oxley (Second Respondent); Nicholas Robin Smith (Third Respondent); Mina Nakhla (Fourth Respondent); Healthscope Medical Centres Pty Ltd (Fifth Respondent)
• Representation: Counsel: R R I Harper SC and G Lucarelli (Appellant); A Moses SC and Y Shariff (First to Fourth Respondents); J R J Lockhart SC (Fifth Respondent); Solicitors: Turner Freeman (Appellant); Morris Legal (First to Fourth Respondent); Allens Arthur Robinson (Fifth Respondent)
• File Number(s): CA 2009/287452

Decision under appeal

• Jurisdiction: 9111
• Citation: Symbion Medical Centre v Alexander [2010] NSWSC 1047
• Date of Decision: 2010-09-16 00:00:00
• Before: Gzell J
• File Number(s): SC 2009/287452

Judgment

1 BEAZLEY JA: I agree with Young JA.

2 BASTEN JA: I agree with the orders proposed by Young JA and with his reasons.

3 YOUNG JA: The Court delivered judgment in this appeal on 21 December 2011: [2011] NSWCA 418. The primary judge had dismissed the appellant's claim that the respondents had breached provisions in their contracts for service. The appeal was dismissed.

4 The appellant then, within the prescribed time and on 22 December, filed a motion requesting that the court make a declaration that the appellant had at all material times a legitimate interest to protect by means of the restraint of trade covenants in the practitioner services agreements entered into between the appellant and first to fourth respondents.

5 This motion was, by consent, dealt with on the papers after each side had made detailed written submissions. I am grateful to counsel for those submissions.

6 The appellant relied on a number of authorities in order to support its proposition that a declaration should properly be made in the instant case.

7 The citation of copious authority in this sort of case is of minimal value as there is no doubt as to the jurisdiction to make a declaration, the question for the court is whether it is appropriate in its discretion to do so. Each case needs to be considered on its own facts. However, previous cases suggest valuable guidelines as to the exercise of the discretion.

8 This Court decided that there was a valid restrictive covenant, the respondent doctors had breached that covenant but the appellant had not shown that any damages flowed from the breach. The appeal was dismissed. The appellant argues that, in the circumstances, a declaration should be made that this type of covenant is valid to protect its business interests.

9 On a practical level, the appellant points out that the covenant in question is a common one imposed by it in the ordinary course of its business. It notes that in its files, decisions of this court as to the validity and construction of restrictive covenants have considerable importance to parties and their advisors even though, technically, a declaration only binds the parties to the proceedings in which it was made.

10 One of the principal guidelines on the utility of declarations is that laid down by the English Court of Appeal in Dysart (Earl) v Hammerton & Co [1914] 1 Ch 822, 834, where Cozens-Hardy MR said:

The rule enabling the Court to make a declaratory decree ought not to be applied where a declaration is merely asked as a foundation for substantive relief which fails.

11 Although the decision in the Dysart case was reversed in the House of Lords, Hammerton v Dysart (Earl) [1916] 1 AC 57, Viscount Haldane approved Cozens-Hardy MR's statement at 64-5.

12 However, it must be realized that the Dysart case was decided when the process of making of declaratory orders was in its infancy and the rule authorising such orders was narrowly construed.

13 However, Dysart's case is still cited in the 4th (2011) edition of the standard English text on declarations, Zamir & Woolf [4-100] as a case where a declaration was refused because it would serve no useful purpose.

14 In Sydney City Council v Greek Australian Finance Corporation Pty Ltd (1974) 32 LGRA 32, 35, Moffitt P, with whom Glass & Mahoney JJA agreed, made it clear that it was not ordinarily appropriate to make declarations as to "intermediate conclusions" of a court leading to the ultimate order.

15 The same view was taken by the Full Federal Court in Warramunda Village Inc v Pryde [2001] FCA 61; 105 FCR 437.

16 The matter is one of discretion. The utility to be demonstrated is "Practical Utility"or "Public Purpose" that is whether a declaration would solve a real difficulty with which the appellant is faced (Zamir & Woolf [4-105]). Thus in Marshall v English Electric Co Ltd [1945] 1 All ER 653, an employee was unsuccessful in a claim for lost wages for £2.12.6. However, Singleton J made a declaration as to the proper meaning of the terms of employment. The majority of the English Court of Appeal considered that this was appropriate.

17 As I have said, the appellant cited many cases in its counsels' written submissions. One of the basic planks of that submission was the decision of the English Court of Appeal in Marion White Ltd v Francis [1972] 1 WLR 1423. In that case, an employer sought to enforce a restrictive covenant which was for 12 months after the employee terminated her employment. The trial judge declined to enforce the covenant holding it was invalid. The 12 months expired before the Court of Appeal heard the case. The appeal court considered the covenant enforceable. As it had expired, it could not grant an injunction, but considered that it was proper to make a declaration as to the validity of the covenant.

18 In AMP Fire and General Insurance Co Ltd v Dixon [1982] VR 833, 839 the Victorian Full Supreme Court adversely commented on that decision saying that no reasons appear in the judgment as to why the court so exercised its discretion and the court appeared to have acted "not without doubt".

19 Turning now from the guidelines to the facts and circumstances of the instant case, a significant factor is that nowhere in the final version of the statement of claim and nowhere in the argument before the Court was it suggested that a declaration ought to be made if the damages claim failed.

20 I must note, however, that the claim for a declaration does appear as order 2 of the "Orders Sought" both in the original notice of appeal and in the amended notice of appeal.

21 The respondents put considerable emphasis on the failure of the appellant to develop this matter at the hearing of the appeal (as well as before the primary judge). They say that by the time of trial, the only relevance of the issue of the validity and enforceability of the restraints were an intermediate step to obtaining damages. The question of declaratory relief was neither sought nor argued below and was not argued during the course of oral submissions in this Court. Other than the reference in paragraph 2 of the "Orders Sought" the matter was not raised until after judgment had been pronounced.

22 On the positive side, the appellant points to the fact that on a number of occasions courts have seen fit to grant declarations as to the validity or otherwise of restrictive covenants. It is true that there are a number of reported cases on this subject matter. However, care must be taken with this general proposition. It is clear that some of the cases referred to in the textbooks were orthodox proceedings for a declaratory order, at least one (Fred, Wilkins and Brothers Ltd v Weaver [1915] 2 Ch 322) was a case where a declaration was made prior to the assessment of damages.

23 Further, as the respondents' submissions show, the analysis of three cases referred to by the appellant in support of this submission namely, Buckley v Tutty [1971] HCA 71; 125 CLR 353; Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1959] Ch 108 and Gray v Sirtex Medical Ltd [2009] WASC 126, do not assist.

24 The respondents point out that in almost every restrictive covenant case where the reasonableness of the covenant is in issue, the court needs to make a determination which, as the respondents' counsel submits, is quintessentially a question of mixed law and fact. That question is not solved by looking at the covenant in isolation, but by reference to the particular circumstances that existed at the time the parties entered into the covenant, the conditions in the industry concerned known to both parties, what is reasonable to protect the covenantee balanced against what is reasonable in the interests of the covenantor and the public; see eg Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337, 244; Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1179 at [61] et seq.

25 Thus, in the ordinary case, the decision of a court in a previous case that a very similar covenant was valid only takes a plaintiff a small part of the way to success.

26 However, in this case, the significance of the decision is not so much as to the construction of the covenant nor its reasonableness, but that such a covenant may be taken to protect not the business in which the covenantor is involved, but a business of the covenantee in an allied, but connected field.

27 That proposition is a proposition of law which should not form the content of a declaratory order: Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430, 445; Hope v Bathurst City Council (NSW Supreme Court, MH McLelland J. 8.4.1983, unreported).

28 In any event, probably because the possible making of a declaration was not considered until late in the piece, the evidence that the covenant in the present case is a standard which is likely to be used in later cases is not of great weight.

29 I should add, that the declaration as sought in order 2 would not be made in that form. A party seeking a declaration must formulate it specifically: Biss v Smallburgh RDC [1965] Ch 335, 361. The declaration must be clear and self contained so that it is readily intelligible by the parties and third parties: Global Funds Management (NSW) Ltd v Rooney (1994) 36 NSWLR 122 and see Zamir & Wooff [7-15].

30 When one adds the factors recently discussed to the disinclination of courts to make declarations of incidental findings and the factor that the point was not raised at all until after judgment was delivered, I do not consider that the Court should make the declaration sought.

31 I would just add that there is the flavour in the appellant's submissions that somehow the Court was at fault in not giving greater notice of the intended date when judgment was delivered so that counsel could put submissions. Two things should be said. First, points like the present one should be presented before the argument in the case finishes, not after delivery of reasons. Secondly, some notice was given of the date for judgment and counsel must always be ready to react.

32 I now need to deal with the question of costs, both the costs below and the costs of the appeal, subject matters which were expressly reserved at the request of the parties.

33 The costs below were the subject of a separate judgment from the primary judge referred to in argument as the "costs judgment". It was handed down on 5 July 2011: Symbion Medical Centre Operations Pty Ltd v Alexander [2011] NSWSC 701.

34 In that judgment, the primary judge dealt with an argument that a Calderbank offer made by the defendants, should sound in the first to third respondents being awarded costs on an indemnity basis from 28 May 2009 as well as having their costs on the ordinary basis up until that date. The primary judge so ordered. He also ordered that the plaintiff pay the costs of the other defendants on the ordinary basis: at [29].

35 The appellant challenges that judgment. It says that the basic question was the validity of the covenant. That aspect of the case failed before the primary judge, but in the light of the decision of the Court of Appeal, that decision was erroneous. Accordingly, comments such as that made in [28] of the costs judgment that it must have been apparent to the appellant on 28 May 2009 that its prospects of success were dismal, were misdirected.

36 After our judgment of 21 December 2011, both parties put in further submissions as to the appropriate order for costs. The appellant submits that the appropriate costs order below ought to be:

(a) plaintiff pay one-half of the first, second, third and fifth defendants' costs;

(b) plaintiff pay the fourth defendant's costs.

37 The appellant submits that the appropriate order for costs on appeal ought to be:

(a) appellant pay one-half of the first, second, third and fourth respondents' costs;

(b) appellant to pay the fifth respondent's costs.

38 The fourth defendant below and the fifth respondent to the appeal, was the company Healthscope Medical Centres Pty Ltd: the other four respondents being the first, second, third and fifth defendants below, were doctors.

39 The appellant seeks to justify such orders by saying that the central issue in the litigation was the validity of the covenant. That is an issue on which it succeeded. Mr Harper SC and Mr Lucarelli put:

In the light of this Court's findings that the post termination restraints were valid and enforceable, it is open for this Court to vary the costs order made by the trial judge to accommodate that circumstance; to make a costs order that will fairly correspond to the ultimate result that the appellant's contentions on the central issue ... were ... correct.

40 Counsel for the doctors reject that proposition in their submissions. They put that so far as the indemnity costs order is concerned, the primary judge ruled that the Calderbank offer was a genuine offer of compromise rather than a mere demand for capitulation. That has not been challenged. The fact still is that the appellant did not achieve in these proceedings the result which was more advantageous than that offer. There is thus no reason to disturb the order for indemnity costs below.

41 The appellant's submissions on this point and also on the question of the costs of the appeal, rely on the proposition that the "central issue" in the trial was the validity of the covenant.

42 Mr Moses SC and Mr Shariff for the doctors, say that whilst in one sense that was the central issue, it was not the "event" which resulted in a favourable order in the appellant's favour. They refer to Sydney Ferries v Morton (No 2) [2010] NSWCA 238, where Basten JA said at [5] that there should be no expectation that success on some issues will result in a reduction of the costs which a party may have to pay because it was unsuccessful in the event. The doctors point out that a large part of the time of the trial was taken up by material relevant to the possible culpability of the fifth respondent and the assessment of damages. I agree with these submissions. In my view, whilst the appellant may have gained considerable satisfaction from the result of the case, the fact remains that its central issue was not determinative of the litigation, it lost the litigation and I do not see that its success on the covenant point is sufficient to alter the ordinary result. It is not a case where there were distinct issues which were severable: the issue as to the validity of the covenant was merely a step along the way to whether the doctors should pay damages or not.

43 Accordingly, in my view, both the indemnity costs order and the ordinary costs order made by the primary judge should stand.

44 As to the costs of the appeal, again, the appellant failed. Again, it was successful on one aspect which it may regard as the central issue, but it lost in the result and accordingly, the order envisaged in our original judgment that the appellant pay the respondents' costs of the appeal, should stand.

45 The Court should make the following orders:

(1) Dismiss the appellant's motion of 22 December 2011, seeking declaratory relief.

(2) Order that the appellant pay the costs of the first, second and third respondents of the motion.

(3) Dismiss the appeal from the costs judgment in the Equity Division.

(4) Dismiss the application to vary order (2) made on 21 December 2011, requiring the appellant to pay the respondents' costs of the appeal.

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Decision last updated: 18 April 2012