Gray v Cancer Research Institute Incorporated

REASONS FOR JUDGMENT 1 The applicant, Dr Gray, is a former professor of Medicine at The University of Western Australia (the University), and the first respondent to the primary proceeding commenced by the University. The second respondent to that proceeding is Sirtex Medical Limited (Sirtex), a public company, and the third respondent is the Cancer Research Institute Incorporated (CRI), an incorporated association administering a charitable trust with which Dr Gray claims to be associated. 2 On 8 March 2007, Graham J approved a settlement agreement whereby the University compromised its claims in the primary proceeding against CRI (The University of Western Australia v Gray (No 10) [2007] FCA 377 (Gray No (10)). Dr Gray has appealed against the decision of Graham J, and seeks to stay the implementation of the settlement agreement pending the appeal. More specifically, the order that Dr Gray seeks to have made is that CRI be restrained from transferring or otherwise disposing of, or encumbering shares registered in its name in the issued share capital of Sirtex, pending the hearing and determination of an appeal against the decision of Graham J. The shares are, on the evidence, worth "in the vicinity of $16 million". 3 The events leading up to the hearing before Graham J are more fully set out in the reasons for decision of French J in The University of Western Australia v Gray (No 13) [2007] FCA 397 (Gray (No 13)). 4 The primary litigation is complex and is part heard before French J. I set out below a very brief summary of the litigation insofar as it is relevant to the matters at hand. 5 The dispute is about the entitlement to the intellectual property rights in a number of inventions which the University claims were developed by Dr Gray while acting within the scope of his employment with the University. One such invention is the DOX‑Sphere invention. 6 CRI acquired the intellectual property rights in the DOX‑Sphere invention from Dr Gray. CRI assigned the intellectual property rights to Sirtex. In consideration of the assignment of the intellectual property rights to Sirtex, CRI was issued with shares and options in Sirtex. 7 The University claims that the intellectual property rights held by Sirtex are subject to a constructive trust and that the shares and options in Sirtex held by CRI are also impressed with a constructive trust. In the primary proceeding, the University claims an order that CRI transfer the shares and options to the University. On 2 June 2006, French J made an order that CRI be restrained until further order from dealing with any shares held by it in Sirtex and from exercising any options by it in relation to that company. Sirtex has cross‑claimed against each of Dr Gray and CRI in respect of representations and contractual warranties made and given to Sirtex in connection with the assignment of the intellectual property rights in the inventions. 8 On 22 December 2006, French J granted to Mr Mark Conlan, as a Court appointed receiver to CRI, powers to determine the position CRI should take in the proceedings and to enter into a settlement agreement. The orders made by French J also required that any settlement reached by CRI be subject to the approval of the Court (The University of Western Australia v Gray (No 8) [2006] FCA 1825). 9 On 22 February 2007, CRI and the University entered into a settlement agreement whereby the parties compromised the claims made by the University against CRI. In general terms, the settlement agreement provided for the establishment of a new charitable trust to be known as "The Cancer Research Trust" which would support and promote cancer research and education. The trust was to be managed by a board of management comprising representatives of the WA Institute of Medical Research, CRI and the University. The settlement agreement provided that the assets of CRI, namely, the shares and options it held in Sirtex, were to be transferred to the trustee of the new trust. The trust deed for the new charitable trust was to provide that the capital would not be distributed in grants for at least 10 years, but thereafter, the capital and income could be distributed in accordance with the objects of the trust. The settlement agreement also provided that if the approval of the Federal Court was not obtained for the settlement, the settlement agreement would be of no force or effect. The approval application before Graham J 10 The application for the approval of the settlement was heard by Graham J on an expedited basis, because of the imminent commencement of the main action in early March 2007. 11 Each of Sirtex and Dr Gray appeared and made submissions at the hearing of the approval application before Graham J. I make no further comment as to the basis upon which this was done, as I understand it to be a matter of some contention. Each of Dr Gray and Sirtex opposed the approval of the settlement, on the basis that they would each be prejudiced if the settlement was approved and implemented, because CRI would thereby be divested of its assets. Sirtex contended that it would be prejudiced because it had a cross‑claim against CRI, and there would then be no assets to execute against in the event that Sirtex was successful in its cross‑claim. 12 Dr Gray contended that he would be prejudiced, because Sirtex had also cross‑claimed against him, and he would not be able to seek a contribution from CRI in respect of any judgment obtained by Sirtex on its cross‑claim against him, if CRI had no assets. 13 On 8 March 2007, Graham J made orders approving the settlement. However, he also ordered that the orders not be entered prior to 2.15 pm on Friday, 9 March 2007, to provide Sirtex with an opportunity to make an application for "freezing orders" before French J precluding CRI from transferring its assets in accordance with the terms of the settlement agreement. The injunction application before French J 14 On 9 March 2007, Sirtex made an application for orders restraining CRI from transferring its assets, in implementation of the settlement. On the same day, Dr Gray also made an application for orders precluding the transfer by CRI of its assets. The orders sought by Dr Gray were the following: 1. Upon the usual undertakings as to damages, order that: (a) The Third Respondent and Mr Mark Conlan, the receiver of the Third Respondent (the Receiver) be restrained, until further order, from dealing (whether by transfer, alienation, encumbrance, or otherwise) in any shares held by it or him as Receiver (whether beneficially or otherwise) in the Second Respondent, further or alternatively from taking the steps in paragraphs 4, 6 and 7 of the Terms of settlement dated 22 February 2007 and amended 2 March 2007; (b) The Third Respondent and the Receiver be restrained, until further order, from exercising any options held by it or him as Receiver (whether beneficially or otherwise) (if any) in relation to the Second Respondent. 2 Further and other orders. 3 Costs. 15 On 20 March 2007, French J dismissed the motions for the interlocutory injunctions sought by each of Sirtex and Dr Gray. French J's reasons are set out in Gray (No 13). 16 French J dismissed the application by Sirtex on discretionary grounds arising from representations made by Sirtex before the Court and in correspondence in relation to what it would do in the event of a settlement between CRI and Sirtex. 17 French J dismissed Dr Gray's application because he found that Dr Gray had not demonstrated a good arguable case that he would be entitled to seek a contribution from CRI to satisfy any judgment which Sirtex might obtain against Dr Gray on the basis of its cross‑claim. 18 Further, French J observed at [38]: Moreover, for the purpose of establishing a good arguable case, it is not sufficient to point to the possibility of a contribution claim. The applicant must adduce some evidence that assists the Court in determining what contribution is just and equitable. No such evidence has been adduced by Dr Gray. The application for a stay 19 On 27 March 2007, Dr Gray filed a "Notice of Appeal" against the whole of the judgment of Graham J. Objection was taken to the competency of the appeal on the grounds that the decision of Graham J was interlocutory, and leave was required. Dr Gray's standing to appeal has also been challenged in the objection to competency. 20 On 17 April 2007, Dr Gray applied for leave to extend time within which to appeal and for leave to appeal. That motion was adjourned by Nicholson J on 26 April 2007 to be heard at the same time as the appeal. 21 In support of his application for a stay, Dr Gray submitted that unless a stay is granted his position will be irretrievably prejudiced, and the appeal rendered nugatory. Further, Dr Gray submitted that the appeal was likely to be heard in August 2007 and, CRI would not suffer any serious prejudice, if it was precluded from transferring its assets, until the hearing and determination of the appeal. Further, he said, there was already an injunction in place which had been granted on the application of the University, which precluded CRI from transferring its assets. Dr Gray also submitted that the appeal had reasonable merits. 22 In deciding whether to grant a stay pending an appeal, the Court has a discretion. In exercising the discretion the Court takes into account a number of factors. These include, recognition of the right of the successful party to the benefit of the judgment which has been obtained, the prejudice which would be suffered by a party seeking the stay, if the stay was not granted, and the prejudice which might be suffered by the successful party, if the stay is granted. As a general rule, a stay will be granted in circumstances where an appeal would be rendered nugatory if the stay was not granted. The merits of the appeal will also be a consideration in the exercise of the discretion. 23 Dr Gray submitted that the prejudice that he would suffer would be, that, if the stay was not granted, and the assets were transferred, CRI would not be able to meet any contribution liability in respect of any judgment which may be obtained by Sirtex against Dr Gray on its cross‑claim. The substance of Dr Gray's submission is, therefore, to the same effect as that made before French J in support of his motion for an interlocutory injunction seeking similar relief in Gray (No 13). Dr Gray was not able to refer me to any authority which was not before French J, in support of a basis upon which Dr Gray would be entitled to seek a contribution from CRI. Further, there was nothing in the affidavit of Dr Gray affirmed 26 March 2007, read in support of this application, that might assist the Court in determining what contribution, if any, would be just and equitable. 24 In the circumstances, I am unable to reach any different decision to that reached by French J in Gray (No 13), namely, that Dr Gray has not demonstrated an arguable case in support of an entitlement to contribution from CRI, in the event that the cross‑claim of Sirtex was successful against Dr Gray. 25 There is a further consideration in relation to the weight to be accorded to Dr Gray's contention on prejudice. Dr Gray's argument appears to assume that if the judgment of Graham J is set aside, with the consequence that the settlement fails, that the shares held by CRI in Sirtex will be available to CRI to satisfy a contribution liability to Dr Gray. In other words, the argument appears to assume that all other things will remain equal in the event that the appeal succeeds. However, the University contended that if the settlement was to fail, the University would be at liberty to pursue its claim for a constructive trust over the CRI assets. Accordingly, even if the appeal against Graham J's judgment were to succeed, it is not axiomatic that there would be monies available to CRI to meet any claim for a contribution by Dr Gray. 26 Further, if the assets are transferred by CRI to the new charitable trust, and the appeal succeeds, the settlement will be of no force or effect, and the assets would be liable to be retransferred to CRI. Under the terms of the settlement agreement, the receiver is required to apply to the Court before he can take steps to wind‑up CRI. 27 A further consideration is the merits of the appeal. There are four grounds of appeal. One ground refers to the issue discussed at [23] and [24] above. Counsel for Dr Gray only referred to two of the other three grounds in support of his submission as to the merits of the appeal. The grounds referred to by the applicant before me were the following: 1.1 His Honour erred in that he failed to consider the legal advice that the receiver of CRI had obtained in considering whether to enter into the terms of settlement; 1.2 Alternatively, his Honour erred in that he failed to consider whether, based on the legal advice that the receiver of CRI had obtained, it was in the best interests of CRI to enter into the Terms of Settlement. 28 Counsel referred to the following passage from the judgment of Graham J at [36] and [37]: In the instant case, of course, the Court is not confronted with a will where a charitable object cannot be fulfilled or with a donor. The Court is concerned with an incorporated association which has very noble charitable objects, the management of which has become somewhat difficult given uncertainty as to the state of the membership and as to the composition of the Board of Management. The receiver has, as he was empowered to do, taken advice or referred to advice in respect of the Agreement the approval of which is sought. The advice has been provided in documents which have become exhibits NM-2, NM-3 and NM-4 on the present application and it has been agreed that privilege is maintained in respect of those advices. Needless to say, the only persons who are privy to these advices are CRI and myself. It seems clear that the settlement proposed by the Amended 22 February 2007 Agreement is one which should be supported given that, if CRI failed in resisting the claims made against it by the University and/or Sirtex, it would be in a position where its assets would have to pass to one or other of those organisations and the charitable purpose of the body would be defeated. 29 Counsel for Dr Gray submitted that in order properly to exercise the approval function, Graham J was required to have regard to the legal advice obtained by the receiver. Counsel went on to submit that there is no basis to conclude from the reasons, that Graham J had regard to the legal advice in coming to his decision. Counsel submitted that the reasons went no further than to demonstrate that Graham J was aware of the existence of the legal advice, but not that he had read, and had regard to, the legal advice. 30 Firstly, counsel was unable to refer to any authority in support of an argument that in order properly to exercise his discretion to approve the settlement agreement, Graham J was required to have regard to the legal advice obtained by the Court appointed receiver. 31 Secondly, in any event, the reasons demonstrate, in my view, that Graham J did have regard to the legal advice. This is evident from the fact that Graham J refers to the advice, and then mentions that the only two people who are "privy" to the legal advice are CRI and himself. 32 Thirdly, in the paragraph immediately following the reference to the legal advice, Graham J explains why the settlement should be supported, namely, that the settlement would ensure that the charitable objects of CRI were achieved, rather than risk the loss of the assets to either the University or Sirtex. This, in my view, plainly reflects Graham J's view of what course of action was in the best interests of CRI. The fact that Graham J does not discuss the content of the legal advice, and relate that to his decision, is explainable by Graham J's reference to the fact that privilege was retained in the advice. 33 In my view, Dr Gray's prospects of success in the appeal, founded on the submissions made before this Court, are low. 34 I place little weight on the contention that there is already an injunction in place restraining CRI from transferring its assets, because, now that the settlement has been approved, it is open to the University to apply for the discharge of the injunction in order to give effect to the settlement. 35 However, I do give some weight to the fact that the appeal is likely to be heard in August 2007, and that the University and CRI have not deposed to any prejudice they would suffer by the grant of the stay. 36 Against the factors referred to by Dr Gray, must be weighed the fact that the University and CRI succeeded in the application before Graham J. Considerable weight is to be accorded to that factor. In my view, that factor outweighs the factors that have been raised on Dr Gray's behalf which, for the reasons given above, are to be accorded less weight. 37 The notice of motion is dismissed. I certify that the preceding thirty‑seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.