A GP who walked out on his employment contract with the medical centre that bought out his former practice has been sued for the financial loss that resulted.
Ron van Houten sold his practice at the southern end of Palm Beach on the Gold Coast at the end of 2007 to IPN Medical Centres for $320k.
It was a condition of the deal that he sign up for a five year engagement at the company’s Mermaid Beach practice on terms that he keep a share of the consultation fees he billed.
All went well until May 2008 when van Houten downed tools and through solicitors, purported to terminate the engagement on the basis of “misrepresentations and breaches of warranties”.
IPN wasted no time in commencing legal proceedings claiming $226k calculated on contract agreed damages of $5.5k/month for the first 36 months and $3k/month for the remaining two years.
Van Houten alleged that the various representations made by Mrs Pryce on behalf of IPN to induce him to sell his practice also had relevance to his employment contract.
The centre would “ensure a smooth transition of the Palm Beach practice to Mermaid Beach”; the doctor would generate at least $500k/year in fee income no problem; and it would assist to build up his fledgling cosmetic medicine practice.
It turned out that there were fewer patients to see at Mermaid Beach and therefore fewer fees which Dr van Houten ascribed to poor effort on IPN’s part to facilitate the “transition” and build the cosmetic medicine side of the business.
The Queensland Supreme Court had to consider whether the alleged representations were made and if so, whether they could be considered made in relation to the employment contract as opposed to the practice sale agreement.
Justice David Jackson thus ruled neither the “transition representation” nor the “gross fees representation” were consistent with the express terms of the sale contract or employment agreement and thus “could not operate as collateral contractual terms”.
And although it could be assumed there was an “implied duty of cooperation” or to act in good faith towards the opposite party in the contract (van Houten’s medical practice company), it could not be assumed that there was any “general implied contractual obligation” to act in good faith towards Dr van Houten himself.
But what of prohibitions in the Trade Practices Act against misleading and deceptive conduct?
To succeed on this ground the GP still had to prove that the alleged representations were made and that he had relied on them when embarking on the transaction.
The onus then fell upon the buyer as to whether or not it had reasonable grounds for making the statements at the time they were made. If no evidence was adduced to that effect, the court was obliged to conclude that question against IPN.
The court found – on balance – that the “transition” representation had been made to the extent the medical centre transfered patient records from Palm Beach to Mermaid Beach and contacted patients about the move. Desley Bolger (practice manager) and Deborah Woods (business manager) were involved in scanning the electronic files, some of the 18 boxes of patient records delivered from Palm Beach.
Having done exactly that, Mrs Pryce – who appears to have conducted negotiations on behalf of IPN – was held to have had reasonable grounds for making the promise when it was given.
To consider the plausibility of the alleged $500k/yr fees representation, the court noted that at average billings of $200/hr over 7.5 hrs/day “a doctor would have to work over 330 days in a year to achieve gross fees of $500k”. But if working only 46 weeks at 35 hrs/week “as agreed”, the gross fees at $200 per hour would be only $322k.
To achieve $500k/yr for those hours, “a doctor would have to earn gross fees of $310/hr” which no doubt many GPs aspire to achieve.
“That may well have been the party’s expectations” but no such specific representation was, ruled judge Jackson, given in those terms.
“In hindsight perhaps”, he speculated “the personal goodwill of a single general practitioner on the Gold Coast Highway at the southern end of Palm Beach may have not extended to a medical centre at mid Mermaid Beach”.
“Without exception”, the court found that the buyer had not committed any of the alleged breaches or misleading and/or deceptive conduct.
The outcome was an unfortunate instance where the parties had hoped the merger path of their two businesses “would be paved with gold but where it turned out to be rocky”.
Dr van Houten was ordered to pay $226k plus interest, totaling $428k. He was also ordered to pay the medical centre’s legal costs.