Queensland court sides with IVF clinic in non-compete dispute and enforces post-termination restraint

To secure the injunction, the Supreme Court had to first determine whether there was a valid breach of contract. The Business Protection Deed would not apply if the working relationship ended due a contractual breach by City Fertility. In the event of a breach, Reims and Dr Campbell would be free to operate as they wished.

The key issue was whether City Fertility had breached its obligation to pay the Cycle Management fees to Reims under clause 8 of the contract. This involved competing interpretations of the formula for calculating the increase in fees each year. There was no dispute on the facts on services were provided or fees actually paid, only about how the wording of the contract applied to the various annual increases in payments. 

The notice from Reims claimed the shortfall was $17000. Ultimately, the Court preferred City Fertility’s interpretation of the formula so that the amount in dispute was only a $7000 difference over a two-year period from 2023 to 2025. 

The Court ruled in favour of City Fertility that this difference was not significant enough to constitute a breach of contract allowing Reims and Dr Campbell to give immediate notice of termination. 

The Court noted that Reims’ termination notice overstated the underpayment at $18000, which was revised to $7000 by the time the matter reached trial.

The Court found that the significant miscalculation of the shortfall rendered the termination notice ineffective under the contract as Reim failed to give City Fertility an accurate breach figure capable of remedy within the one-month period as required under the contract.

Having found that the contract had not been validly terminated by Reims and Dr Campbell, the Court then considered whether the restraint in the Business Protection Deed should be enforced. 

The Deed contained provisions which set out alternative conditions of geographical areas and time periods of restraints, known as a cascading clause, to allow for contractual flexibility. At its highest, the contract restrained Dr Campbell from carrying out or performing exclusive clinician services for any other entity within a 50km radius of the Newstead and Sunnybank clinics for 12 months. 

The Deed also named a class of prohibited patients who had either received treatment or were engaged in discussions about becoming a patient with Dr Campbell within two years before the termination of the contract. 

The Court noted that restraint of trade clauses are prima facie void as contrary to public policy, unless proven to be reasonably necessary to safeguard a party’s legitimate business interests.   

The Court was satisfied that the geographical and temporal limits in the Deed was reasonably necessary to protect City Fertility’s legitimate interests in patient goodwill, noting the reasonableness of the geographical area and time period was supported by the following:

• In the four years leading up to the buy out of the clinicians, City Fertility had engaged in extensive marketing of the clinicians, including Dr Campbell, to build up their profiles.
• The Court heard evidence that the Business Protection Deed had been drafted by a working group of the clinicians who were selling their shares in the business to City Fertility in 2018, and as such, the doctors had a direct say in formulating the scope of the restraints imposed on them.
• Evidence was given that the relationship with patients was typically for 48 to 52 weeks, until the child was born, and often extended over several years as patients would return for repeated treatment for further children.
• Dr Campbell had generated fees of $2.17M for City Fertility in 2017, immediately before the buyout.
• Around 80% of Dr Campbell’s Newstead patients and 90% of her Sunnybank patients lived within 50km of the respective City Fertility clinics.
• The 12-month period would provide City Fertility enough time to find a replacement for Dr Campbell and for existing patients to be distributed amongst remaining clinicians.

Given the limits were found to be reasonable, the Court then turned to whether it was in the public interest to enforce the restraint on Dr Campbell. The Court weighed up the elective nature of IVF treatment against the evidence of the shortage of specialists in that market. Reims submitted that the trust between patients and medical specialists, crucial for navigating inherently complex pregnancy challenges, made the restraints unreasonable and against public interest by denying patients their choice of treating specialist. 

However, City Fertility highlighted that where the time and area limits are reasonable between the parties, the worker faces a harder burden of proving that the restraint is unreasonable against the public interest. 

While the Court recognised the importance of the patient-medical specialist relationship, it found that the availability of alternative specialists, and the additional need for investments in accredited facilities outweighed that public concern. Reims failed to show that the public interest concerns outweighed the commercial need to protect City Fertility’s goodwill with the patients.

The final issue was whether an injunction should be granted to restrain Dr Campbell from performing exclusive clinical services instead of just awarding damages for the lost patient fees. This required a balancing exercise between the adequacy of damages and the impact on patients. 

Reims and Dr Campbell argued that damages would sufficient, as lost revenue could be easily calculated from any patients who transferred to the new business. City Fertility claimed that damages could not address the unquantifiable loss of patient goodwill. The impact of the injunction on patients would be mitigated by the provision of replacement specialist care by City Fertility which tipped the balance of convenience towards an injunction to enforce the restraint. 

The Court ordered that an injunction should be granted, finding City Fertility’s potential loss of goodwill outweighed patient inconvenience, restraining Dr Campbell from working within 50kmof the City Fertility clinics for 12 months

This article was written with the assistance of Sara Luck, Law Graduate.