Dentist lacks goodwill

Interlocutory injunction granted to enforce non-competition clause in purchase and sale agreement

In 1996 A.R. (Dick) Jones sold his dental practice to Richard G. Button for $150,000. Of that amount, the agreement of purchase and sale assigned $84,260 to “goodwill, patients, charts, x-rays, models and records.” As part of the purchase and sale, the parties agreed to a non-competition and non-solicitation undertaking which required that, for a period of four years from Feb. 1, 1996, Jones not carry on or be engaged in a dental practice within the city of Kitchener/Waterloo.

As part of the agreement of purchase and sale, Button and Jones entered into an association agreement until Dec. 31, 1997. Jones began to practice at Button’s premises. The agreement provided that they would split the revenue generated by the practice in the ratio of 60 per cent to Button and 40 per cent to Jones. They acknowledged that they were independent contractors. Despite their intention, their practices did not merge and each continued to serve his own patients.

In December 1999 the association agreement was renewed with a provision that Button could terminate the agreement on Dec. 31, 2000, by giving 90 days written notice. The revenue generated by Jones was to be split in the ratio of 70 per cent to Button and 30 per cent to Jones.

Like the agreement of purchase and sale, the association agreement contained a non-competition and non- solicitation clause whereby Jones agreed that he would not carry on or engage in a dental practice in Kitchener/Waterloo for a period of four years following the termination of the agreement.In September 2000, Button gave Jones notice of the termination of the association agreement.

Jones notified his patients orally and in writing that he intended to set up a practice in Kitchener. In his notice to them, he did not tell them about the non-competition and non-solicitation agreement with Button nor did he tell them that their records had been sold to Button. The location of Jones’ new practice was 1.5 km from Button’s practice.

Button sued Jones for specific performance and damages for violation of the non-competition/non-solicitation clause in the agreement. He also sought an interlocutory injunction for enforcement of the agreement.

In determining whether to grant the interlocutory injunction, the Court acknowledged that a non-competition clause would be more readily enforced in a contract for the sale of a business than in an employment contract. In determining whether to grant the interlocutory injunction, the Court considered whether the test had been met, which was:

1) was there a serious question to be tried that was not frivolous or vexatious;

2) if the injunction was not granted, would Button suffer irreparable harm that could not be compensated in damages;

3) will Button’s undertaking to pay damages in the event that Jones was successful at trial provide adequate compensation to Jones; and

4) what is the balance of convenience between the parties, where there is doubt about 2 or 3?

As Jones was in clear violation of the non-competition clause and the non-solicitation clause in the association agreement, there was a serious question to be tried. The damage to Button is the revenue that would have been generated by the treatment of patients who would not have gone to Jones if Jones had not breached the contract.

However, it was impossible to determine who would have stayed with Button if Jones had relocated outside of Kitchener and if he had told his patients that he had sold their records to Button. For this reason the breach by Jones caused Button irreparable harm for which he cannot be compensated in damages.

Having considered the first three parts of the test, the Court held that the balance of convenience would be to let Jones continue his practice but to require him to relocate outside of Kitchener. This would not make it impossible for him to practice dentistry.

For these reasons, the Court awarded the interlocutory injunction and ordered that Jones restrain from carrying on a dental practice within Kitchener and from soliciting his former patients to his new practice.

For more information:

Button v. Jones, Ontario Superior Court of Justice, Docket No. C-26-01, Feb. 13/01.

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