Creative Smiles Pty Ltd & Anor v Ekera Dental Pty Ltd & Anor [2022] VCC 2281

This material is intended to provide observations and general information only . This case summary does not constitute legal advice and should not be relied upon as legal advice. Individualised legal advice should be sought for individual circumstances.

This is a cautionary tale of the pursuit of principles and litigation costs. It is also useful for practice sellers and buyers to be aware of the costs of litigation both their own costs and those that might be ordered by a Court if a party is in part unsuccessful.

It gives some insight into corporate dental practice operations and post sale disputes in a somewhat specialised cosmetic dental practice.

It is a summary of the decision only without reference to pleadings and transcripts.

In essence Dr Goodman and his company (the plaintiffs) sued Ekera and Dr Coulepis for damages for breaches of contracts, early termination and unpaid employee entitlements. The claim was in the order of $200,000 on an underlying practice sale of some $5.3 million.

The plaintiffs did not retain lawyers for the contracts of sale or the services agreement. The case turned on largely uncontroversial law and the unique facts and procedure in terms of assertions not put to witnesses or in evidence.

The decision is comprehensive and divided into the sections of the claims.

In essence the plaintiffs failed in relation to all of the alleged misleading and deceptive conduct claims and almost all of the contractual claims (save for issue 10 below).

Dr Goodman was successful in his claims to have been due payment and leave as an employee in circumstances where he was found to be ‘covered’ by the HPSSA.

Unsurprisingly, these cases are expensive to run with experts and legal costs. The decision that Dr Goodman was an employee is particularly interesting in quite unusual circumstances. The decision will inform those in similar circumstances.The decision was delivered on 16 December 2022. It runs to over 208 pages. It is exceedingly detailed and complex.

His Honour Judge Cosgrove noted pithily…

This is a regrettable case. It ran for 18 days, had a court book exceeding 3,300 pages and in addition to a lengthy transcript, generated over 400 pages of submissions – all for a case where the plaintiffs’ damages claim was about $200,000. It was extremely unfortunate that the parties, advised sensibly by counsel, could not have resolved the litigation in a manner which better exemplified the application of the overarching purpose referred to in the Civil Procedure Act 2010 (Vic) and did not involve such a disproportionate relationship between the amount in dispute and the resources (both of the parties and the Court) utilised to decide the dispute.

  1. The plaintiffs allege that Ekera breached the sale and engagement agreements and engaged in misleading and deceptive conduct
  2. The second Plaintiff Dr Goodman claims against Ekera under the Fair Work Act 2009 (Cth) (“FWA”)
  3. The plaintiffs also sued Dr Coulepis as an accessory to Ekera’s liability

 

This gave rise to 14 issues to be determined by the Court. The Court made findings of credit that were generally not advantageous to the Plaintiffs.

In broad terms the misleading and deceptive conduct claims (issues 1-4) failed in relation to the requisite evidence and in relation to damages.

Issue 5 was in relation to the date in dispute as to the term of the services agreement contract. The plaintiff was unsuccessful in persuading the Court that the date was not known to the plaintiffs.

Issue 6 was whether Ekera was in breach of the services agreement by terminating Dr Goodman. The Court found that it was not.

Issue 7 was whether Ekera followed the dispute resolution provisions of the Service agreement. The court found that Ekera did follow the dispute resolution provisions.

Issue 8 was whether Ekera thought its conduct prevented Dr Goodman performing his duties. The court found broadly that that the matters of which the plaintiffs complained did not amount to breaches by Ekera of the Services Agreement.

Issue 9 was whether Ekerea breached any express and/or any implied terms of the Acquisition Agreement through breaching the Services Agreement. The Court found it did not.

Issue 10 was whether Ekera breached the terms of the Acquisition Agreement through deducting $237,903 from the 2018 purchase price instalment. The Court found Ekera was not justified in withholding from Creative Smiles the amounts of $132,909.04 for the missing cash and $3779 for the dental work on Goodman. To that extent, Ekera breached the Acquisition Agreement.

Issue 11 was what is the compensable loss of Creative Smiles Pty Ltd and/or Dr Goodman, whether by reference to the 2018 earn-out payment that should have been made, or otherwise. The Court found that the plaintiffs did not lose a valuable opportunity and are entitled to no damages on this aspect of the claim.

Issue 12 was whether Goodman in his capacity as practice principal and practice manager of the practice an employee of Ekera for the purposes of the Fair Work Act 2009 (Cth). After considering the recent high court authorities, the Court decided Goodman was an employee. This was in part because he was working not as a dentist but as a manager and was covered by an award.

The service agreement did state that he was not an employee [22] but the Court found on the facts in this particular case that he was on balance an employee even though there were aspects that gave the Court some pause. Goodman framed the FWA case in relation to his capacity as a manager not as a clinician. This section of the decision is quite complex and detailed discussion of the reasoning is beyond the scope of this summary

Issue 13 (1)was in the event that Dr Goodman was an employee, what was he entitled to as unpaid entitlements. The Court found after considering Moffet that he was entitled to superannuation. It also found he was entitled to entitlements under the relevant HPSSA -he was entitled to public holidays in Melbourne (section 114 and 115), the untaken annual leave (section 87 and 90(2)) and the leave loading under the Award.

Issue 13(2) was whether civil penalties would apply to Ekera and Dr Coulepis. The Court decided there was no personal liability for Dr Coulepis, but that the penalties for Ekera would be decided at a later hearing.

Issue 14 was whether the amount payable to Goodman or any penalty affects the EBITDA calculation and/or the award of damages. The Court found that if Ekera were ordered to pay wages and related costs to Goodman, they could be taken into account when assessing EBITDA, but only to the extent of $6,000 as that was a capped amount in the EBITDA.

Conclusion of Court

The Court ordered that the parties frame orders in relation to all of the matters to be decided in 2023.

Lessons for Dentists

  1. Dentists should be aware that contracts are binding and that litigation can be incredibly expensive and time consuming and taxing on entities.
  2. The costs if ordered will be significant for such a detailed and lengthy hearing over some almost five weeks plus submissions. The amount in dispute was apparently around $200,000.
  3. The Court notes at [135] and this is an important if not common sense finding that “the general rule is that when a person signs a document which is known by that person to contain contractual terms, and to affect legal relations, they are bound by those terms, regardless of whether that person has read the document.”
  4. Ultimately, Ekera will likely have to pay the plaintiff some funds for the successful claims. Of course where the Plaintiffs are unsuccessful, there will be costs implications.
  5. All the law books in the world list millions of cases and decisions. Half of the parties are arguably losers. That is the nature of civil litigation.
  6. Litigation is uncertain and expensive.
  7. Winning a case and having to pay some costs for the other side can be a hollow victory.

 

Brad Wright 27 December 2022

For those brave enough, the case in full can be found and possibly read here

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