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Doctor sued for breach of service agreement has appeal dismissed

Newsletter 01 May 2017

Kitchen v Vision Eye Institute Limited & Another 

It is important that service agreements between doctors and practices clearly and unambiguously address the circumstances that might arise during the course of the doctor’s service.  A recent decision of the Queensland Court of Appeal against a doctor seeking to rely on the plain words of his agreement is an example of why this is so important.

The facts

Dr David Kitchen, an ophthalmologist practising in central Queensland, sold his practice to Vision Eye Institute Limited (Vision) in 2006.  The holding company for the practice was purchased by Vision through a Share Purchase Agreement and Dr Kitchen’s services were secured for an initial term of five years through a Service Agreement with Icon Laser (Aust) Pty Ltd (Icon Laser).    

In September 2009, Dr Kitchen purported to terminate the Service Agreement.  Dr Kitchen relied upon an alleged failure by Icon Laser to notify him that a “New Doctor Agreement” with another “Salaried Doctor Partner” had been entered into.  This was relevant as clause 3.3 of the Service Agreement provided that Dr Kitchen could elect to amend his Service Agreement to ensure it was no less favourable to him in certain respects (including term length but not salary) than the terms offered under any New Doctor Agreement to any Salaried Doctor Partner.  

The New Doctor Agreements in question were seven agreements with ophthalmologists who had sold practices to Vision to extend their services for a second term beyond the initial five year term.  The terms of some of these second term agreements were shorter than five years and Dr Kitchen argued that this gave him a right to insist his agreement be shortened.  Vision and Icon Laser denied they were required to notify Dr Kitchen of these agreements and proceeded to terminate Dr Kitchen’s Service Agreement on the basis of his wrongful repudiation.  Vision and Icon then successfully sued Dr Kitchen in the Supreme Court of Queensland for damages for breach of the Service Agreement, and were awarded damages in excess of $10 million.

Dr Kitchen appealed the Supreme Court’s decision.

The issue on appeal

Dr Kitchen argued the seven second term agreements fell within the definition of New Doctor Agreement and enlivened his right to insist that his agreement be no less favourable. 

The Service Agreement defined a New Doctor Agreement as “any service or employment agreement”.  

In determining the rights and obligations of parties to an agreement, a court will ordinarily apply the plain meaning of the written terms of the agreement, which in this case would have been broad enough to find that the second term agreements were New Doctor Agreements.  However, both the trial judge and the appeal judges concluded that the Service Agreement was ambiguous and that a construction should be adopted which takes into account the commercial context of the agreement.

The court looked at explanations of the Vision business model given to Dr Kitchen, the relationship between the Service Agreement and the Share Purchase Agreement, and the outcomes likely to arise from Dr Kitchen’s interpretation, and concluded that “the ambiguous provisions of cl 3.3 of the Service Agreement should not be construed in a way which would produce the objectively unlikely consequence that the parties intended such a complex comparison to be required on each occasion when a doctor entered into a second term agreement.”  

This outcome, in the court’s judgment, would not be “consistent with common sense”.

What to do

As the Service Agreement was ambiguous, Dr Kitchen was not able to rely upon its plain meaning to end the agreement, resulting in him being sued for wrongful repudiation. This could have been avoided if clause 3.3 spelt out in clear terms the circumstances in which it applied. 


Katharine Philp, Partner
Brisbane

Joshua Liddle, Solicitor
Brisbane

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Newsletter 01 May 2017
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