Gambro Pty Ltd v Fresenius Medical Care Australia Pty Ltd

REASONS FOR JUDGMENT 1 The applicants (collectively "Gambro") by Notice of Motion filed on 9 August 2002, seek a stay of the cross-claim for revocation of the patent by the respondent ("Fresenius") until further order and an order that the matter be set down for hearing of the application for infringement brought by Gambro. 2 Gambro contends that Fresenius has not complied with the order made by me on 27 May 2002 which required Fresenius to: "… take all reasonable steps available to it to obtain documents or copies thereof which fall within categories 12, 13, 14 and 15 of the Categories for Discovery … which are in the possession, custody or power of any of [its overseas parent company and other related bodies corporate]." 3 I also ordered Fresenius to file and serve an affidavit deposing to the efforts it had made to obtain the documents and to attach to the affidavit the terms of its requests and the responses received. 4 In my earlier reasons for judgment delivered on 10 May 2002, I adopted the course suggested by Lockhart J in Sabre Corporation Pty Ltd v Russ Kalvin's Hair Care Company (1993) 46 FCR 428 at 432. I considered that on the material before me this was a case where there was a real likelihood that the respondent would be provided with access to the relevant documents by its overseas parent company and related overseas entities should it make such a request. In those reasons I set out the basis on which I arrived at that conclusion. In the present case the basis for the stay of the cross-claim is said to be O 10 r 7 and O 15 r 16 of the Federal Court Rules (the "FCR") and the general discretionary powers of the Court conferred by s 23 of the Federal Court of Australia Act 1976 (Cth) ("the Act"). It is common ground on this application that there is power in the Court to stay the proceedings and the question is whether the Court, exercising its discretionary power in a judicial manner, should make such an order. 5 The applicants' case proceeds on the basis that all reasonable steps available have not been taken by Fresenius to comply with the order of 27 May 2002 and that it would be unjust to permit the cross-claim to proceed without the production of all relevant documents which Fresenius would reasonably be expected to discover. 6 Thomas Mechtersheimer is the Managing Director of the respondent, which is an Australian subsidiary of the German company, Fresenius Medical Care AG ("FMCAG") which is in turn controlled by Fresenius AG, also a company incorporated in Germany. In his first affidavit of 8 July 2002, he says that the global business unit is controlled by the Management Board of FMCAG. He states that on 12 June 2002 he sent a letter to the General Counsel and Deputy Member of the Management Board of FMCAG, Dr Runte, within which a request was made to obtain the relevant documents for discovery. The affidavit annexes a copy of a reply in which the General Counsel makes a number of assertions. The letter from Dr Runte states that the Management Board and the related overseas Fresenius companies refuse to produce the documents requested in the letter from Fresenius. He says that he believes that the documents sought may be located in six possible locations throughout Europe. He asserts that the overseas companies in the Fresenius Group, from whom discovery has been sought, have not maintained indexes of documents stored in archives and that most documents were held by individual employees, many of whom are no longer employed. He also asserts that the task of locating, identifying and reviewing documents would require a significant investment of resources. He asserts that even if the task was undertaken it would be difficult to say with certainty that all relevant documents had been located. 7 He notes that none of the overseas Fresenius companies are a party to the Australian proceedings and that the orders to make the request are not directed to any of the overseas companies but to the Australian subsidiaries. He refers to The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters ("Convention") and relies on Article 23 of that Convention which is said to provide a facility whereby contracting States can make it clear that they will not execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in common law countries. He expresses an understanding that Germany has made such a reservation. That is in fact the case and Australia, which ratified the Convention on 23 October 1992, has also made such a reservation. On that basis Dr Runte asserts that providing the documents would be inconsistent with Germany's position under international law and can be seen as an attempt to achieve indirectly what cannot be achieved directly under the Convention. He concludes by saying that, with all respect to the Australian Federal Court, the Management Board of the parent company believes that the overseas Fresenius companies are not under any legal (my emphasis) obligation to produce the required documents and that it would be inappropriate for them to do so. This is said to be also consistent with the policy of the Fresenius group of companies. 8 I pause to note that the present case is not one concerning a Letter of Request to seek an order from a German court compelling the production of a document by a German company. Rather the order is directed to obtaining co-operation from an Australian litigant in this Court seeking relief in this country against Gambro in order to ensure effective and even-handed administration of the interlocutory steps in preparation for hearing. 9 In a second affidavit, dated 1 October 2002, Mr Mechtersheimer states that the overseas Fresenius group of companies does not have a group or general document retention policy and that the retention of documents is limited to those classes of documents which must be retained under German or European law. He "understands" there are specific laws in Germany that relate to retention of some kinds of documents but expresses the view that it is the responsibility of the Fresenius subsidiary trading in a particular European country to ensure that it is complying with laws governing the retention of documents in the country within which it is located. He states that there is no group policy that governs the storage or archiving of documents and that there is no indexing system. He also says that a number of the individuals engaged in relevant tasks are no longer employed. 10 I do not consider that the cursory efforts disclosed by the evidence can be said to constitute the taking of all reasonable steps available to obtain the documents. There is no specific evidence from anyone involved in the handling of records or archives as to any attempt whatsoever to collate the documents. Nor is there any evidence of any specific request to that effect. There is a blanket refusal to make any document available and it is apparent from this and the affidavits in evidence that no significant attempt has been made to obtain any documents or to ascertain whether any documents could be speedily located and produced to the Court without engaging in the range of activities asserted by Mr Mechtersheimer and Dr Runte. There is no specific evidence as to the likely cost or nature of the inconvenience. There has been no attempt to follow up the letter of Dr Runte seeking a more specific response. Nor is there any evidence of any particular conversation with any officer of any subsidiary in any particular country in relation to production of documents in that country. The material is vague and generalised and is largely speculative and falls short, in my view, of what might be considered to be the taking of reasonable steps. I have taken into account the provisions of Article 23 of the Convention but, in my view, there is no inconsistency with that section, because the documents are sought to be provided on a voluntary basis. The request is not one made pursuant to the Convention. It is not a Letter of Request. It is made by an Australian litigant required to ask for documents. Because there is no element of compulsion as against the German entity it cannot be said that there is any infringement of German "judicial sovereignty" if the request were acceded to by the overseas companies. 11 However, the insufficiency of the attempts made by the respondent does not of itself determine the present application for a stay. Counsel on either side were unable to point to any case directly in point in which the grant of a stay in such circumstances had been ordered by the court of the forum, although such a possibility was adverted to by Rogers CJ Comm Div in Arhill Pty Ltd v General Terminal Co Pty Ltd (1990) 23 NSWLR 545 at 554-5 and Giles J in Aetna Pacific Securities Ltd v Hong Kong Bank of Australia Ltd (unreported, Supreme Court of New South Wales, Giles J, 29 April 1993) at p 6. 12 To grant a stay in relation to revocation of the patent in this case and yet proceed to consider infringement is not an appropriate course to adopt. That would fragment the resolution of the matter by splitting the determination of liability. One consequence of such a course of action is that, in the event of dissatisfaction by either party with the judgment at first instance, the appellate process could be invoked and the matter would then become bogged down with a series of disruptive interlocutory hearings for leave and possible appeals. 13 If the question of infringement were to be decided first, then the decision and the hearing may be rendered otiose in the event that Fresenius subsequently makes good its case as to revocation. Logically, consideration of validity is anterior to resolution of the infringement question. The usual course is to hear both issues together in a case where liability has already been separated from consideration of the appropriate remedies and no sufficient basis has been shown for a departure from this course in this proceeding. It is submitted for Gambro that if infringement were to be decided as a separate question, this might serve a useful purpose because it may clarify some questions of construction of the specification and this would be of assistance in determining the questions arising on the revocation application. However, overall, it seems to me that the appropriate step is to determine both the questions of infringement and revocation together in this proceeding in the interests of an orderly and integrated administration of justice to all the parties. This view gains some support from the remarks of the High Court in Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (2001) 207 CLR 1. The High Court in that case at [34], pointed to the inappropriateness of approaching patent litigation in a piecemeal fashion. The Court expressed the view that such an approach was generally unsatisfactory and that it is normally appropriate to deal with all issues in order to dispose of the matter so far as practicable. Of course, in that case, their Honours were only considering the question of issues relating to revocation but nevertheless, the Court's observations provide support for the general approach to hearing related issues together in patent cases. Of course, it may be convenient, as in this case, to decide questions of liability and remedies separately because it may not be necessary to examine complex and difficult questions as to damages and other remedies if there is no liability established. 14 In Unilever Plc v Chefaro Proprietaries Ltd [1994] FSR 135 at 142 Hoffman LJ pointed out that when validity of a patent is challenged it is standard practice to ask for documents relating to research and development which went into the defendant's product in circumstances where the challenge is based on obviousness. His Lordship pointed out that whether one can obtain discovery against an overseas group company depends on whether an arguable case can be shown for joining the company as a substantive defendant and this in turn would involve demonstrating that arguably, the overseas group company was a party to a common design to commit the act as alleged to constitute infringement within the jurisdiction of the foreign court. He pointed to the fact that "difficulties" can arise when a multi-national does not wish to co-operate. He observed that the discovery of research and development materials should be available against a multi-national on a group basis and should not depend on the particular corporate structure of the group and how it has chosen to divide its activities. Nevertheless, his Honour expressed the view that this would require legislative change which the legislature "may wish to consider". His Lordship's judgment was concurred in by Glidewell and McCowan LJJ. 15 In addition, where documents are not provided in accordance with a Sabre Corporation request, the Court, on hearing the matter, may be invited to draw inferences based on such refusal as Lehane J noted in Kimberly-Clark Australia Ltd v Carter Holt Harvey Tissue Australia Ltd (1997) 37 IPR 293 at 301. His Honour noted that such a failure might indicate a cautious approach to the applicant's claim and be relevant on discretionary considerations. But in that case his Honour did not attribute any particular significance to the failure. 16 On the present state of the law in Australia it is not open to this Court to pierce the corporate veil or to treat the Australian subsidiary as part of an overall entity in order to compel discovery of overseas documents from the subsidiary. Indeed, the provisions of the Convention indicate that there may be difficulties if this procedure were followed and compulsory production was sought by way of Letter of Request. It cannot be said in Australia that documents in the possession of a parent company can be taken to be within the control of the subsidiary for discovery purposes. Indeed, it has been held that documents which may possibly be relevant and are in the possession of a subsidiary company, depending on the corporate structure, may not be within the control or power of the parent company: see Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627; Douglas-Hill v Parke Davis Pty Ltd (1990) 54 SASR 346 at 350-352. 17 Although some United States authorities cited to me by counsel for Gambro take a broader view as to the breadth of the concept of "control" in this respect from that taken in Australia and the United Kingdom, the weight of authority in Australia is that the concept of "control" is not so widely based: see Afros SpA v Krauss-Maffei Corporation 113 F.R.D. 127 (D. Del. 1986) at 130-131 and Cooper Industries Inc v British Aerospace Inc 102 F.R.D. 918 (1984) at 919-920. In those cases the court closely analysed the degree of connection between control and the management of the corporations. It is not the law in Australia that documents in the possession of an overseas parent company can be said to be within the "control" of the subsidiary. 18 Reference was made to s 7 of the Foreign Evidence Act 1994 (Cth) which provides for the taking of evidence abroad. But this Act has no application in this case because the production of documents cannot be said to be the taking of evidence: see Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (1987) 14 FCR 461 at 465. 19 Counsel for Fresenius referred to the decision of the United States District Court, In re Grand Jury 81-2, 550 F. Supp. 24 (1982) which was concerned with an ongoing investigation by a Federal Grand Jury into the activities of certain German entities within the United States where the Grand Jury had issued subpoenas upon Deutsche Bank AG calling for the production of documents. The German Bank, which had an office in New York, argued that the United States Court could not require production of documents from the home office of the Bank in Germany. However, the court was satisfied that the Bank would not violate German law nor public policy by co-operating with the subpoenas from the United States Grand Jury. The court confirmed that the Government's request for an order directing the German Bank to comply fully with the subpoenas served on the New York branch would be granted. Three weeks later the matter came before a German District Court in Kiel. That court affirmed a temporary restraining order on the Bank which required it not to produce documents pursuant to the Grand Jury subpoenas. The German court did not share the view of the United States court that the orders of the American authorities, and the judicial decision confirming the subpoenas, were tantamount to decisions issued by German authorities or courts. It considered that a United States court order could not displace a German judicial or administrative directive concerning the contractual relationships between the parties and the resulting right to maintain Bank secrecy under German law: see Krupp Mak Maschinebau GMBH v Deutsche Bank AG 22 ILM 740 (1983). In my view, these decisions and the impasse reached between the German and United States courts do not have any significant bearing on the present case because in this case there is no element of compulsion or possible infringement of German judicial sovereignty. 20 For the above reasons, I am of the opinion that the stay sought should not be granted in this proceeding based on the evidence presently before me. I therefore dismiss the application for a stay. Because in my view "reasonable steps" as required by the earlier order have not been taken by the respondent, I consider that the appropriate decision as to costs is that each side should pay its own costs. As indicated earlier, I consider that further efforts should have been made in order to follow through the request to obtain production of the documents on a co-operative basis from the overseas Fresenius companies. 21 For these reasons the stay application is dismissed. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.