A leading ophthalmologist who walked out on his contract at a central Queensland treatment clinic with two years left to run has appealed against a court ruling that sees him paying more than $10mil to the Victorian company against whom he promptly started up in competition.
Vision Eye Institute P/L acquired Dr David Kitchen’s existing Rockhampton, Mackay and (related) Bundaberg practices in 2006 for more than $18 mil in cash and shares (held in escrow) on terms he stay on in Rockhampton for 5 years.
Evidence produced to the supreme court revealed monthly revenue for cataract removal, laser treatment and age-related macular degeneration therapy, of nearly $300k for Rockhampton alone.
Typically doctors in the practice retained 60% of the treatment fees they generate and bonuses. Dr Kitchen’s bonuses were linked to the EBIT performance of all the practices he had sold not just the highly profitable Rockhampton clinic.
By August 2009 – at the depths of the GFC – Vision’s share price had plummeted to a fraction of its 2006 value resulting in a corresponding decline in the worth of the shares Kitchen received as a large part of the payment for the sale, still in escrow.
Vision rejected his attempt to re-negotiate remuneration to a more favourable share on the EBIT model, one that was referable only to the highly profitable Rockhampton clinic.
“Disgruntled with Vision’s management and its poor share price, Dr Kitchen was looking for a way out,” wrote Justice Peter Applegarth in the first chapter of the marathon dispute that occupied the supreme court for 11 full days.
Kitchen made the move in early September 2009 to set up a new company – and given Vision locked him out of the clinic – established new rooms to compete in both Rockhampton and Gladstone.
As a result, Vision accepted his conduct as a “repudiation” and terminated the agreement on 13 September.
It closed the Rockhampton clinic as it was unable to recruit another specialist to continue its operations. It subsequently also closed the Gladstone clinic in part because Dr Kitchen recruited numerous of its staff.
Vision – Australia’s largest provider of ophthalmic care – filed its contract breach lawsuit within 7 days of the lockout.
Ruling Dr Kitchen “wrongfully terminated” his service agreement, Justice Applegarth assessed Vision’s losses for the closure for the remaining period of Dr Kitchen’s service plus a further 12 months, on the assumption he would have stayed on for another 12 months after 2001 at a higher share of revenue.
Vision’s total losses were calculated prospectively from the September 2009 date of breach and discounted accordingly. They totalled $7.2 mil and interest of $3.6 mil was awarded on top.
Kitchen’s claims of misleading and/or deceptive conduct as against Vision in relation to the original 2006 transaction were dismissed.
He also – this time successfully – contended that the geographical (2km – 20 km from any Vision service clinic) and temporal (6 -24 months) post-termination competition restraint was unreasonable as it went beyond what was reasonably required to protect Vision’s goodwill.
However the restriction – in the sale agreement – on him canvasing persons who were his own clients at Vision in the 12 months before termination, or treating them – in those geographical areas for those periods, was upheld.
Dr Kitchen – who continues his practice in Rockhampton and Gladstone – filed an appeal that disputes the court’s findings, against the $10.85 mil judgment. His appeal was rejected in September 2016.