Nguyen v Northern Sydney Local Health District

Claims for determination

1. The proceedings were commenced in February 2021. Originally Dr Nguyen was legally represented, but he now represents himself. NSLHD is the first defendant in the proceedings, and the State of New South Wales (the legal entity for NSW Health) is the third defendant.
2. AIGD was initially joined as the second defendant and Professor Morris as the fourth defendant. The proceedings against both of them have been discontinued or dismissed, leaving NSLHD and the State as the remaining defendants. They are commonly represented, and for simplicity I will, in what follows, refer to NSLHD as if it were the sole defendant, not referring to the State unless it is necessary to do so.
3. Dr Nguyen's principal complaint in the proceedings is that NSLHD breached its contractual obligations under the Commercialisation Agreement in failing to "re-assign" the IP to the Inventors. He alleges that had this been done in 2016 he, and the other Inventors, would have been able to commercialise the IP themselves. In an expert report filed on Dr Nguyen's behalf, his damages were put at more than $1 billion. The admissibility of that report was the subject of a judgment which I delivered in October: Nguyen v Northern Sydney Local Health District [2024] NSWSC 1299 ("J1").
4. All four patents remain registered. The Australian, EU and Canadian patents all last until 2027. The US patent expires in 2030.
5. Initially, Dr Nguyen sought relief in the nature of specific performance requiring the patents to be re-assigned to him (he claimed to have acquired Professor Morris' interest in 2016). NSLHD has recently had the patents assigned back to it by AIGD. But, as I described at J1 [18]-[19], when offered the patents shortly before the commencement of the trial, Dr Nguyen said he did not want them, and he did not press his claim for specific performance. It seemed to be common ground that it is now too late to commercialise the patents, as there is insufficient time to make it worthwhile before they expire.
6. In my October judgment, I ruled that Dr Nguyen's expert report was inadmissible. Nevertheless, Dr Nguyen has pursued his damages claim. He also makes a claim for salary payments pursuant to another clause of the Commercialisation Agreement.

Employment of Dr Nguyen and funding of his research

1. Dr Nguyen worked in the Perinatal Research Group at the Kolling Institute, which is located on the Royal North Shore Hospital campus at St Leonards (the Hospital is also operated by NSLHD). The Institute is affiliated with the University of Sydney.
2. Professor Morris, who was the joint head of the Perinatal Research Group, held his professorship at that University. He also had an active clinical practice (as an obstetrician and gynaecologist). The other two Inventors, Professor Eileen Gallery and Dr Sharon McCracken, likewise were involved in the Group (Professor Gallery was the other joint head) and held teaching posts with the University.
3. According to Dr Nguyen, he was recruited to work at the Kolling Institute by Professor Morris and Professor Gallery. He started work in May 2005. He was employed on a series of fixed term contracts. None of those contracts exceeded one year's duration. On some occasions, however, periods of months elapsed after the nominated expiry date before a new formal contract was issued. In this way, some of Dr Nguyen's employment contracts in fact lasted for more than one year.
4. There was evidence before the Court about the funding arrangements for research conducted by the NSLHD. Recurrent expenditure of the NSLHD (which exceeds $1 billion per annum) is funded by governmental allocation through NSW Health. This is known as the "General Fund". There was also reference to a Capital Fund, but as its name suggests, this Fund was apparently not used for recurrent expenditure such as salaries and the operation of laboratories.
5. The General Fund is insufficient to meet recurrent expenditure on the operations of the hospitals for which NSLHD is responsible, let alone research activities. The funding for Dr Nguyen's salary came from what was described in the evidence as "soft money". This is money obtained from governmental research grants and from members of the public, either by way of donation or bequest. The specific monies used to fund Dr Nguyen's salary were under the control of Professor Morris.
6. It seems that the monies available to Professor Morris to fund Dr Nguyen's salary were not always sufficient for that purpose. In an email sent in November 2017, Professor Morris wrote: For years I tried to support Tommie. He knew he was on soft money. The Trust fund that paid his salary was overdrawn …. I was putting my private billings into the trust fund to support him.

The invention and its scientific background

1. Dr Nguyen's research focused on the use of antibodies for the prevention or treatment of disease. An antibody is a large and complex protein molecule, part of which is capable of binding chemically with a target molecule and chemically neutralising it or altering its effects. The binding site on the target molecule is known as the "epitope".
2. Antibodies play a critical role in the immune system of humans and other mammals. They are found naturally in the blood system, in association with white blood cells, where they can work to control or suppress the adverse effect of bacteria, viruses or other "antigens".
3. A particular subject of Dr Nguyen's research was the use of antibodies to target a protein molecule known as immunoglobulin D ("IgD"). IgD is itself an antibody and is found on the surface of a type of white blood cell known as a "B cell".
4. It may seem strange to think of developing an antibody which could be used against a molecule which is itself an antibody and naturally part of the immune system. But there are some diseases which are caused, or are believed to be caused, by the immune system overreacting and generating chronic inflammation which causes tissue or cell damage. Such "autoimmune" conditions include arthritis and lupus. The idea behind Dr Nguyen's research was that B cells were implicated in such overreactions which might be prevented or treated with an antibody targeting IgD.
5. Dr Nguyen's research began with laboratory mice, whose immune systems are sufficiently comparable to the human immune system to make them widely used in research of the relevant type. He worked with existing "monoclonal" antibodies which were already commercially available. A "monoclonal" antibody ("mAb") is an antibody manufactured by cloning a single white cell.
6. According to his published findings, Dr Nguyen was able to administer one of these monoclonal antibodies to laboratory mice and demonstrate a reduction in inflammation associated with a type of arthritis found in mice known as "collagen-induced arthritis". This condition is, according to Dr Nguyen, very similar to rheumatoid arthritis in humans.
7. According to Dr Nguyen, the discovery was made about five months after he started work at the Kolling Institute, which would have been about October 2005. Pursuant to the NSLHD IP policy, policy, a formal record was created early in 2006 recording the discovery and identifying those to whom it should be credited as inventors. It was at this point that credit for the discovery was agreed as being 55% to Dr Nguyen and 15% to each of Professor Morris, Professor Gallery and Dr McCracken, as I have already described.
8. Identifying an antibody which may be effective against autoimmune diseases in mice is of course only the first step in developing a drug which can be used in the treatment of humans (or, for veterinary purposes, other animal species). The monoclonal antibody administered to the mice in Dr Nguyen's tests, being derived from the white cell of a mouse, contains mouse DNA. If administered directly to a human it would be identified by the human immune system as foreign and rejected. It is therefore necessary to convert the mouse antibody protein molecule into a protein molecule which will be sufficiently recognisable by the human immune system not to be rejected. This process is called "humanisation".
9. Humanisation is undertaken by splicing human DNA sequences into the mouse antibody molecule in place of the mouse DNA sequences. The degree of replacement need not be total but must be sufficient to ensure that the modified molecule will not be rejected by the human immune system.
10. Dr Nguyen acknowledged that, even if the original antibody is effective in mice, a humanised version will not necessarily be effective in humans. For instance, differences between human and mouse immune systems, or the biochemical effects of splicing replacement DNA sequences into the antibody molecule, may mean that the humanised version is ineffective.
11. If the antibody molecule can be successfully humanised, one has identified a drug which potentially may be used for treatment purposes. But further steps are necessary to commercialise that drug. These steps involve human trials and approvals from the drug regulatory authority having jurisdiction (in Australia, the Therapeutic Goods Administration ("TGA"); in the United States, the Food and Drug Administration ("FDA")).
12. Permission must first be obtained from the regulator to conduct human studies. Once permission is obtained, the studies fall into three phases.
13. Phase 1 involves testing the drug on healthy human subjects. The purpose of these tests is to ensure that the drug will not produce adverse toxicological reactions.
14. If the drug passes phase 1 tests, phase 2 testing involves tests conducted on patients suffering from the condition in question. The purpose of the tests is to establish whether the drug is effective against the condition in question.
15. If phase 2 is passed, the next step is phase 3, which is a much wider test program of patients suffering from the condition designed to establish the effectiveness of the drug across a population as a whole.
16. Once the drug has passed phase 3, approval must be obtained from the regulator. It is only at this point that the drug can be put on the market.

Initial commercialisation efforts by NSHLD

1. Pursuant to the NSLHD IP policy, responsibility for managing the commercialisation of the invention was allocated to a dedicated body within the NSLHD known as the Office of Commercialisation ("OoC"). At the relevant time the officer of the OoC with responsibility for commercialising the invention was Dr Deborah Kuchler, whose job title was Team Leader. She was assisted by Dr Christine Davis, whose job title was Manager. Dr Kuchler reported to the Chief Executive of the OoC and its governing committee, known as the NSLHD IP Committee.
2. The patenting process was handled by staff of the OoC and was paid for from NSLHD funds. The patent applications in the relevant jurisdictions were filed in April 2007. This meant that once patents were formally granted, they would have an April 2007 priority date.
3. The ultimate objective was to licence the manufacture and distribution of the drug, if one could be developed, to a pharmaceutical company in return for royalties based on its sales. But in 2007, the IgD antibody the subject of the invention had not yet been humanised, let alone further commercialised. It was recognised by all concerned that commercialisation, if it could be achieved at all, would be very expensive and time consuming. Each of the phase 1, phase 2 and phase 3 tests, if the invention reached that point, could take months or years and cost millions of dollars.
4. The plan was to strike a deal with a commercial partner who could fund the development and commercialisation of a drug based on the patented invention. The partner could be a pharmaceutical company or an intermediate investor who could provide funding for further commercialisation with a view to an eventual licensing arrangement with a pharmaceutical company. In addition to funding commitments and promises of royalties from eventual sales, commercialisation deals of this type can sometimes involve what are known as "milestone" payments, which are capital sums payable to the Inventor for each stage of the process achieved (such as passing phase 1, passing phase 2, etc).
5. In 2008 and 2009, the OoC approached over 190 possible commercialisation partners about the development of a drug based on the invention which was the subject of the patent application. This included direct approaches to major multinational pharmaceutical companies, such as Pfizer, Astra Zeneca, and Roche, and approaches to intermediary investors with access to private equity or other forms of venture capital. A number of respondents indicated interest, but more work needed to be done before any deal could be struck.
6. In describing further development of the invention, the term "proof of concept" was used at times in the evidence, including by Dr Nguyen. The term has no clearly defined meaning and may have been used by different participants in the commercialisation process to mean somewhat different things. It seems however, that, while "proof of concept" does not require full scale humanisation, it denotes further development of the invention giving more confidence, perhaps based on laboratory results, that the antibody would be effective in humans.

Commercialisation Agreement

1. The negotiations which resulted in entry into the Commercialisation Agreement began in 2010, and took, in all, about eighteen months.
2. From the outset, Dr Nguyen and the OoC officials had different views about the extent to which Dr Nguyen and the other Inventors should have control over the commercialisation process. Some of the differences can be seen from the following email exchange between Dr Nguyen and Dr Kuchler in March 2011 which followed an email from Dr Nguyen setting out his "understanding of the agreement and responsibility of the Area [NSLHD] in commercialisation of" inventions (emphasis added): Dr Kuchler to Dr Nguyen, 2 March 2011 at 8:56pm Many thanks for this email and for the very good questions [quoted below in italics]. The answers are complex, so I will do my best to simplify them and answer quickly. …. …. 2) The inventors have the major say in the decision in the commercialization dealings with company, i.e. settlement of milestones and royalties percentage received. This is incorrect. Why? because of the inexperience of the inventors in commercialisation matters. You are an expert in your area of research. Would it make sense to you if I were to tell you how to run your research, not forgetting however that I do have a PhD and I have been a research scientist at CSIRO for several years. However, I am not an expert in your field. The OoC is made up of individuals who have significant experience in research commercialisation and in running and operating companies and such experience is needed to interact with companies and talk their language; to understand the offer that they are making and to create a win/win deal for both parties. There are also industry benchmarks for such deals. A major say is not given to inventors, because our AREA inventors do not have sufficient experience in research commercialisation and/or in running companies, understanding corporate culture and bridging the negotiation divide between public research and private product developments. However, all inventors' comments are taken into consideration and the OoC comments are given to the inventors. In the 10 years we have been running the OoC at NSCH and SWAHS we have created the deals with companies so (1) that a deal was done given it was the only deal we had and (2) as time goes on the OoC is under intense pressure to get a deal before the budget runs out to maintain the patent and (3) to get a deal as soon as possible and so to stop the ageing of the patent while it "sits on the shelf' a process which makes the patent asset less attractive to the commercial market. Such deals are done in consultation with the inventor. However, the inventor often has an unrealistic view of what an investor is prepared to pay due to their lack of experience in the area, their unrealistic view of what an undeveloped patent is worth in commercial terms and the amount of investment and time that is needed to get a commercial product out of the patent. The PAPP-A patent which is our best performing patent was invented over 15 years ago and so far the commercial partner has put 7 years of development into it and still does not have a commercial retail product but it is looking promising. They expect to have to spend about another 3-5 years on development/commercialisation. All of this costs money and much more money than what it cost to do the research in the first place. Generally, it is thought commercialisation costs 5-7 times the total research budget (including the cost of resources and personnel) to make the invention. In the last three years, the OoC did two deals with companies where the inventors did not particularly "like" the investors because they were not "experts"' in the field. We could not convince the inventors that (1) they are the experts and will be given this role (2) that the investors buy in highly specialised advice, they do not employ it full time and (3) in business, one does not have to like the business partner - it is a business deal, not a social relationship. Anyway, the deals did not go through. …. 3) In case of the Area no longer interested in the IP, it will be handed back to the inventors in a viable form and with adequate time as such that the inventor/s will have a fair opportunity to seek interest elsewhere. And the inventor/s will pay the cost that has been incurred on the Area in patenting protection process if the IP develop into a commercial success. In the case of another organization taking up the IP, such organization will repay this cost to the Area and the area will have no more interest in the IP. If the IP is jointly owned, the IP is first offered to the other joint owner. If the other joint owner does not want the IP then it is offered to the inventor. The inventors are kept informed of changes in the NSCCH IP culture at all times and in deadlines and costs. The inventor will most likely know more about whether a piece of IP will be supported than the OoC since they now have to organise the funds. The IP is usually handed over to the inventor due to budget constraints - these budgets are now controlled by the inventor and their Dept - they are no longer controlled by the OoC. And the inventor/s will pay the cost that has been incurred on the Area in patenting protection process if the IP develop into a commercial success. YES. In this case, the patents are "assigned" to the inventors. However they could be licensed which would be a different model. In the case of another organization taking up the IP, such organization will repay this cost to the Area and the area will have no more interest in the IP. YES in concept - In most deals, the organisation does not pay back the patent money directly, rather they pay a license fee which we use to offset the patent money. Sometimes that license fee equals the amount, sometimes it takes a few years for it to equal the amount. A lot depends on at "what age" the patents were licensed or assigned. The patents could also be assigned which is a different model with different funding. For example, if we were to assign patents that we were 12 years old and we had paid $500,000 in patent fees for them to date, we would not expect the assignee to pay back the S500,000 as the patents are nearly out of patent. So there are many variables to consider and it is not often a straight case. In summary, the task is to license the IP as soon as possible in as sensible circumstances as possible in order to "stop the ageing of the patent while it sits on the shelf unlicensed" and to stop the patent fees that are being paid by NSCCH. On the plus side, the licensing of the patent can also result in more research funds going to the inventor to continue research in the area. So the deal situation is very much about "tradeoffs" and about balancing a list of probabilities and positives and negatives, It is definitely not a black and white situation and it definitely is not a "get rich quick" scheme. In your field, the inventor should not expect to make any money from licensing of the patent under 20 years, otherwise it is an unrealistic expectation. It also needs to be remembered that the patents taken out by the AREA are in a very, very early stage of development and significant risk and money needs to invested by the licensee to get a reliable indication as to whether anything commercial will result. At the end of a long process, the FDA registration can still be unsuccessful. I must say that all companies do due diligence on the inventors to ascertain whether they would fit in with the corporate culture of the company, as they need to be consulted during the development process, so it is not all about the patent. …. Dr Nguyen to Dr Kuchler, 3 March 2011 at 11:34am I don't think we have solved anything unless we have an official written agreement on the detail of what the area expect and what the inventor expect. I too have had unhappy experience in similar situations. In staying with the Area, I had given up my chance to go and work at Harvard on this project … and probably a better chance of seeing whether or not the idea will work in clinic as well as probably a better academic career. So I don't take this lightly and I do research in commercializing processes and business, I also had a Master in Biopharmaceutical Science with background regulatory and manufacturing process and do subscribe journal in related field. And so to suggest that we even think it is 'a get rich quick scheme' is both absurd and offensive. If the Area do not think there is real potential in the IP then it should assign it back to us as soon as possible. We will be happy to pay the cost so far and take it to a different organization. I am happy to assign the IP and sign any licensing dealings, that you may put forward to us at anytime, and that are consistent with the current standard. Dr Kuchler to Dr Nguyen, 5 March 2011 at 8:25pm ... I understand that an informed decision would have been made to go with the Area rather than to Harvard and the pros and cons of both opportunities would have been weighed up and a final decision made. I hope that you do not regret the final decision that was made. I need to point out that my understanding is that the Area owns the IP and that the inventors have a contribution to the invention asset under moral rights with these rights being acknowledged in a 1/3 distribution of the royalty income from commercialisation. … However, all inventors have "equal" moral rights - ie. one inventor cannot act unless they have the total agreement of all other inventors. The moral rights of the invention belong to 4 inventors - if you as one of the inventors, wish to assign your moral rights to any of the other inventors or to the Area that is possible, however, the Area cannot assign its ownership rights and all the financial and governance obligations to one inventor alone in a multiple inventor situation. If ALL of the inventors wish to approach the Area to take over ownership of the invention, this approach should be made by ALL of the inventors for consideration. As an absolute minimum, $110,000 would need to be paid back to the Area and then there are several thousands of dollars to be paid in maintenance fees in the next 12 months, plus all the costs of commercialisation (advice, legal opinion, international phone calls, courier costs, IP commercialisation advice, preparation of legal documents - confidentiality agreements every time one speaks with a company etc, etc etc). The OoC anticipates it will spend in the order of $80,000 (not including the patent costs) on such expenses in the next 12 months, expenses which the Area is currently paying for and are not being passed onto the Department. In terms of commercialising the invention, I would like to point out again, that it is not a situation where, the OoC attempts to commercialise the invention and then if unsuccessful, the Area offers the IP to the inventors. The inventors then commence to try and commercialise the invention. The situation is one where the inventors need to work with the OoC and actively assist the OoC to commercialise and at some point both parties come to the conclusion how much more money do we invest in this patent, given we have invested x, is it time to drop it or keep going and if it is a case of keep going, then the inventor needs to take it over. We did have companies who wish to speak with the inventors but won't until all the paperwork is in place. The inventors need to actively work with the OoC to commercialise while they have access to an organisation that is paying for the commercialisation services. I believe the OoC has been very supportive of the inventors wishes in attempts to commercialise this invention. In the beginning we understood that there was a million dollar investor who was going to do a spin out company to develop the invention and we were asked to "leave this lead alone" - the inventors had it all under control and it was quite certain to go ahead. We respected that wish. However, it did not eventuate. These type of arrangements rarely ever work. The asset has aged as a result and the OoC now needs to take urgent action. We have attempted to move the commercialisation along in the last 12 months and it is going very slow because we are not getting the inventor assistance we need to progress to the next stage. Thus, the asset continues to age and this worries us. ... Given all the risks, variable, probabilities, I find the best commercialisation outcomes are done when the inventor/s adopt the following view: - it is possible, that this invention may be commercialised (there is no certainty that anyone will take up the IP asset [but] we … believe it has good prospects …) - if it is commercialised to a full product, in about 20 years time, after all commercialisation costs are returned, I will receive 60% of 1/3 of royalty from net commercialisation income - there are four inventors with equal rights and I am only one of a team of four. We need to have a view which reflects that of the 4 inventors. - commercialisation needs to be moved along as a matter of urgency and it needs to be aggressive, so as to reduce the ageing effect on the assets and t get a development partner to develop a product before the market changes and our invention becomes outdated. - research in the area needs to continued and aggressive, so to attract interest and improve the credibility and peer acceptance of the IP asset. I hope I have outlined some of the "real" risks of delaying the commercialisation further. Please keep discussing as it is important that we understand the inventors. We are very keen to stop the asset ageing further by getting all the necessary paperwork done and then do a commercialisation deal.
3. The present case shows that, although for contractual purposes the parties' rights and obligations with respect to commercialisation were eventually defined in the Commercialisation Agreement, the differences in their subjective views about how the commercialisation process should operate were never fully resolved.
4. The Commercialisation Agreement was signed on 10 February 2012. In the Agreement, NSLHD was termed "the LHD" and Dr Nguyen was termed "the Researcher". The "Project Intellectual Property" was defined as the invention the subject of these proceedings and IP derived from or associated with it. The Inventors were referred to as "the Creators".
5. Clause 2 was headed "Project Intellectual Property" and provided: 2.1 The LHD asserts ownership of all Project Intellectual Property. 2.2 The Researcher agrees to assign to the LHD his title and interests in the Project Intellectual Property and any improvements thereto, other than scholarly works, created or contributed by him in carrying out the research in connection with the research project if and only if his research ls carried out as a part of his employment by LHD and within the appropriate LHD facilities (subject to and in accordance with the IP Policy).
6. Commercialisation by NSLHD was dealt with in cl 3. That clause provided (emphasis added): 3.1 The LHD is hereby responsible the development of the best strategy and must use its best endeavours in proceeding to commercialise and exploit the Project Intellectual Property in accordance with the terms and conditions of this Deed. 3.2 The LHD must consult with the Researcher (and other creators of the Project Intellectual Property) when determining the most appropriate commercialisation pathway be taken. 3.3 The LHD must keep the Researcher (and other creators of the Project Intellectual Property) informed of the development of the commercialisation of the Project Intellectual Property. The LHD must have regard to any request of the Researcher (and other creators of the Project Intellectual Property) in any proposed commercialisation and must include all evidence-based feedback or inputs from the Researcher (and other creators of the Project Intellectual property) in any proposed commercialisation pathway. 3.4 The Researcher must provide all reasonable assistance to the LHD in connection with the assessment and commercialisation of "Project Intellectual Property. This includes but is not limited to the execution, in a timely manner, of all deeds of assignment and other documentation necessary to give effect to the intellectual property ownership, protection, use and commercialisation provisions set out in this Deed. The parties acknowledge and agree that in accordance with the IP Policy, (a) the distribution of any net commercialisation proceeds from commercialisation of the Project Intellectual Property by the LHD will be distributed one third each between the creators, the department and the LHD and (b) any profit sharing that involves creators sharing the proceeds of commercialisation in greater share than this amount must be approved in writing by the Director-General of the NSW Ministry of Health (or his or her delegate). 3.5 The parties acknowledge and agree that the distribution of one third proceeds between the creators is a matter for the creators having regard to their contributions. … 3. 7 The LHD acknowledges that the Researcher is currently on a further fixed-term contract of employment that expires in mid 2014. If the LHD decides to continue with the commercialisation process and the financial interests relating to the Project Intellectual Property at the end of 3 years from the date of this Deed, the LHD must use its best endeavours to offer further employment to the Researcher with an appropriate salary level.
7. Assignment of the IP to the Inventors was dealt with in cl 4. That clause provided (emphasis added): 4.1 Notwithstanding clause 3.1 above, the LHD has 3 years from the date of this Deed in which to decide whether or not to continue with the commercialisation process relating to the Project Intellectual Property. In the case that the LHD cannot find a suitable commercialisation deal after 3 years, the LHD must reassign the Project IP to the Researcher and other creators of the Project lP in accordance with clauses 4.2 and 4.3 below. 4.2 If the LHD decides not to continue with the commercialisation process relating to the project Intellectual Property, the LHD must (a) advise the Researcher (and other creators of the Project Intellectual Property) of its decision in writing in a timely manner and (b) assign the Project Intellectual Property to the Researcher (and other creators of the Project Intellectual Property) in a condition that allows the Researcher a fair opportunity to proceed with the commercialization of the IP. 4.3 It is a condition of any assignment of the Project Intellectual Property to the Researcher (and other creators of the Project Intellectual Property) that LHD will receive (a) its reasonable costs of protecting and maintaining Project Intellectual Property (to date, being limited to patent registration, patent maintenance and legal costs) and (b) after these costs have been recovered, a future benefit amounting to 10% of the gross commercialisation proceeds up to a maximum of $1 million per year for 5 years. The researchers will, subject to and in accordance with his employment relationship with the LHD, retain the rights to continue to investigate the basic science of the IP on the campus of the LHD, and have access to appropriate facilities and resources of the LHD. 4.4 It is a further condition of any assignment of Project Intellectual Property to the Researcher (and other creators of the Project Intellectual Property) that the Researcher complies with this Deed. 4.5 Upon assignment, the Researcher (and the other creators of the Project Intellectual Property) will be free to protect /and commercialise the Project Intellectual Property at his and their discretion and cost. 4.6 The LHD must give the Researcher (and other creators of Project Intellectual Property) all reasonable assistance in assigning the Project Intellectual Property back to him (and other creators of the Project Intellectual Property) and a notice of 4 months in advance of its decision to assign the IP back to the Researcher (and other creators of Project Intellectual Property). This includes but is not limited to the execution, in a timely manner, of all deeds of assignment and other documentation necessary to give effect to the intellectual property ownership, use and commercialisation provisions set out in this Deed.
8. The term of the agreement was dealt with in cl 5. That clause relevantly provided (emphasis added): 5.2 This Deed may only be terminated by written agreement between the parties, for example, on the assignment of the Project Intellectual Property from the LHD to the staff.
9. These proceedings have exposed various difficulties with the drafting of the Commercialisation Agreement. For present purposes, the most important is the loose way in which the provisions for "re-assignment" of the IP were expressed.
10. The first sentence of cl 4.1 gave NSLHD until the end of the Initial Commercialisation Period (originally three years) to decide "whether or not to continue with the commercialisation process". If it decided not to, cl 4.2 obliged it to re-assign the IP to the Inventors. Although the language of obligation was used in cl 4.2 ("must"), for practical purposes the making of the decision was a matter for NSLHD. Leaving aside the second sentence of cl 4.1, unless and until NSLHD made a decision not to pursue the "commercialisation process", then, irrespective of Dr Nguyen's wishes, that process would continue in accordance with cl 3.1, apparently indefinitely.
11. That position was however qualified by the second sentence of cl 4.1. If NSLHD could not find a "suitable commercialisation deal" by the end of the Initial Commercialisation Period, it was obliged to "re-assign" the IP to Dr Nguyen and the other Inventors. This obligation on NSLHD necessarily involved a corresponding right on the part of Dr Nguyen to require such a "re-assignment" even if NSLHD had not decided to abandon the commercialisation process. But that right was not clearly spelt out.
12. Clauses 4.2 and 4.6 dealt only with "re-assignment" consequent on a decision of the NSLHD. There was no mechanism (one would usually expect a notice procedure) to allow Dr Nguyen to exercise his right to require "re-assignment". The term "commercialisation deal" was left undefined, nor were any criteria specified for judging whether such a "deal" was "suitable" or not.
13. Clause 5.2 made it clear that, upon "re-assignment" of the IP to the Inventors, the Agreement would come to an end. But nothing was said about what would happen if, for some reason, "re-assignment" was not possible. Any "re-assignment" which might take place had to be a re-assignment to all of the Inventors. It would therefore require the cooperation of the other three Inventors as well as Dr Nguyen. The Agreement did not deal with the Inventors' rights and obligations among themselves concerning the IP. Indeed, the other three Inventors were not even parties to it.
14. Finally, the Agreement did not deal with what was to happen if a "suitable commercial deal" was made. The making of a "commercialisation deal", in the ordinary use of language, would not necessarily result in the "commercialisation process" coming to an end. That left open the possibility that more might need to be done at NSLHD's, or the Inventors', end to pursue the commercialisation of the IP. An obvious example would be a case where a "commercialisation deal" had been made with what I have termed an intermediate investor which left further contractual arrangements for the licensing of the IP to a pharmaceutical company for manufacture still to be determined. Another example would be a case where the counter-party to the "deal" defaulted and the question of taking the IP back arose. I will return to this below.

Further commercialisation efforts by NSLHD

1. The evidence concerning NSLHD's further commercialisation efforts centred on discussions with representatives of two companies, Medical Innovation Partners Pty Limited ("MIP") and Nexvet Biopharma Pty Limited ("Nexvet") in 2013-2014. MIP was what I have described as an "intermediate investor", capable of developing the invention to a point where a deal could be struck with a pharmaceutical company. Nexvet, as its name suggests, was interested in developing the invention for veterinary purposes.
2. The discussions began in the second half of 2013. Both MIP and Nexvet entered into confidentiality agreements with NSLHD.
3. Consultants were retained by MIP and Nexvet to assist them in evaluating the invention and its commercialisation potential. On the NSLHD side, the discussions involved Dr Kuchler and Dr Davis of the OoC, Professor Morris and Dr Nguyen. The discussions involved presentations by Dr Nguyen on the scientific aspects of the invention and requests for further scientific information (which were referred to Dr Nguyen for response).
4. One hurdle faced by the invention was identified by Dr Brian Creese, MIP's consultant, in a report produced in October 2013 (emphasis added): A major problem with the collagen-induced arthritis study in mice is that it was conducted with a mouse anti-mouse IgD monoclonal antibody, which would not be suitable for further development because it does not target human IgD. The researchers need to develop a suitable monoclonal antibody targeting human IgD to support further development of the technology. This step is additional to the 'humanisation' of the monoclonal antibody, which refers to modification of the constant (non antigen-binding) regions of the antibody molecule to avoid recognition of as a foreign protein when it is administered to humans. Development of an antibody targeting human IgD may represent a greater challenge than the more straightforward process of 'humanisation'.
5. The evidence shows that Dr Nguyen had retained strong views about the way in which the commercialisation discussions should proceed. The following statement to Dr Kuchler and Dr Davis in response to a request from MIP for laboratory results and information concerning the application of the invention to humans is illustrative: I've said this a number of times already. I do not believe a company require the details of screening assays and clone characteristics to give us a formal quote. These knowledge and information are strictly confidential cannot be disclosed until there is a commercial development agreement in place. I am tired of going over this issue over, and over again to be honest.
6. A further complicating factor was that Dr Kuchler and her colleagues, in their dealings with Dr Nguyen, seem not to have treated him as a counterparty to a commercial contract, but rather to have been influenced by perceived "workplace" considerations. This is illustrated by the following passage from Dr Kuchler's affidavit concerning Dr Nguyen's failure to supply information about the invention when it had been requested: I did not issue a written warning to Dr Nguyen on behalf of NSLHD. Professor Morris was Dr Nguyen's supervisor and he was funding Dr Nguyen's salary, which were temporary contracts that were extended from time to time, if funds permitted. Whether Dr Nguyen's employment contract was extended or not was dependent on whether the external funding was available. I raised the option of issuing a written warning with Professor Morris. It was not the cultural approach of NSLHD. Professor Morris adopted a mentor approach and created an environment with the opportunity for scientists to develop.
7. It is unnecessary for present purposes to set out in detail the course of the discussions, the information requested and the responses (to the extent responses were made). For the moment, it is sufficient to say that the point raised by Dr Creese was not addressed and the discussions did not progress to negotiations about the terms of a commercialisation deal. By September 2014, MIP had decided to pursue a different commercialisation project with another Local Health District. Nexvet had also put the idea on hold.

Extension of Initial Commercialisation Period

1. By this stage, the end of the three-year Initial Commercialisation Period was approaching. At NSLHD's request, an agreement was signed extending the deadline for the NSLHD to make its decision on what to do.
2. The agreement took the form of a letter from the NSLHD to Dr Nguyen which was countersigned by him. The letter was dated 26 September 2014 and relevantly stated: MUTUAL AGREEMENT TO EXTENSION OF TIME TO [sic] [COMMERCIALISATION AGREEMENT]. We understand from your advice to the [NSLHD OoC] that Professor Jonathan Morris has extended your contract of employment through the Northern Sydney Local Health District (NSLHD) from 1 July 2014 to 30 June 2015. NSLHD is currently preparing a response to the [Commercialisation Agreement]. In order to finalise the response, the NSLHD OoC procedure is to first meet with the inventors, with all inventors present in person. Dr Eileen Gallery has been overseas since 28th May, 2014 and will return on 7th November, 2014. ... In an email of 25th September, 2014, the Researcher has suggested he will agree to an extension of one (1) month from Dr Eileen Gallery's return date, taking the extension of clause 4.1 out to 10th March, 2015 and clause 4.6 out to 7th December, 2014. The process of commercialising an Intellectual Property asset is complex and in this instance, is further complicated by the current situations of the four (4) inventors one of which who has been absent from Australia for the past four (4) months and returning on 7th November, 2014; a retired inventor and inventors who no longer work in the original research discovery team. It is hereby agreed that NSLHD will use their best endeavours to have clause 4.6 of the Deed of Agreement satisfied by 7th December, 2014.
3. Like the Commercialisation Agreement, the September 2014 amendment letter had its drafting difficulties. The intent may have been simply to vary the Initial Commercialisation Period by extending it for one month. But the letter did not actually provide in terms that the parties agreed to a variation of the Commercialisation Agreement to that effect. But while the letter substituted new dates in cl 4.1 and (unnecessarily) in 4.6, it left the date reference in cl 3.7 unaltered.
4. Overall, the letter reads more as an administrative re-arrangement than the variation of a commercial contract. It is hard to escape the conclusion that it was a bureaucratic device designed to postpone, and take the hard contractual edge off, the looming date by which the NSLHD would have to decide whether to continue the commercialisation process.

Commercialisation efforts by Professor Morris and Dr Nguyen

1. Dr Kuchler's email of 5 March 2011 (quoted at [48] above) indicates that before 2011 there had been unsuccessful attempts by the Inventors, or some of them, to obtain a commercialisation deal for the invention directly. Thereafter commercialisation efforts appear to have been left with the OoC. But by mid-2014 at the latest, Dr Nguyen had become dissatisfied with the performance of the OoC. In a June 2014 email to Professor Morris, he wrote: I am thinking about going ahead and create our own humanized clone. It is a dead end with the Area. There is no point of flogging a dead horse.
2. Once the discussions with MIP and Nextvet were suspended, Dr Nguyen and Professor Morris seemed to have contemplated taking active steps themselves to commercialise the invention. In November 2014, Dr Nguyen prepared for Dr Morris a business plan outline which set out a strategy for the commercialisation of the IP into a marketable drug.
3. The business plan called for the establishment of a "start-up" company to which the patents would be assigned. The start-up company would then obtain venture capital funding to allow it to develop the invention further, and, once the drug had been developed, strike a licensing deal with a pharmaceutical company. It seems however that no immediate steps were taken to incorporate the proposed start-up company or obtain a commercialisation partner.

Expiry of Initial Commercialisation Period and subsequent negotiations

1. On 9 December 2014, Dr Davis sent the following email to Dr Nguyen (emphasis added): As you are aware, the [Commercialisation Agreement] provides that NSLHD is to advise 4 months in advance of a 'decision' to assign the IP back to the Researchers. Although this requirement for advance notice may not be of any application in the current scenario, NSLHD is willing to provide a response to you. For this purpose the NSLHD IP Committee considered the matter In its meeting yesterday, 8th December. The Chief Executive of NSLHD hopes formally to respond within a further 7 business days.
2. On 13 December, by way of reply email, Dr Nguyen sought clarification about what was meant by Dr Davis' reference to the "current scenario". In his email, Dr Nguyen expressed his own understanding of the "current scenario" as "[t]here [having been] no communication from the Area for the last six months [or] commercial commitment from either the Area or any that [had] been agreed from us the inventors or others".
3. Dr Davis did not clarify what was meant by "the current scenario". Instead, she informed Dr Nguyen in an email response on 15 December that the NSLHD Chief Executive was "currently seeking external advice on the matter" and that, because of this, she was "unable to offer any further information".
4. When nothing had happened for more than a month, Dr Nguyen emailed Dr Kuchler and Dr Davis in early February the following terms: I am writing to you in regard to the Area's decision on our agreement signed on the 9th of Feb 2012. It is agreed that the IP is given back to the Inventors after 3 years from the date signed if there is no suitable pathway to commercialization that is agreed by both the Inventor and the Area. I would greatly appreciate if you could update us on the decision as Monday next week [9 February] is the date that the decision come into effect. It is imperative that this decision is made so that we can all plan out our course of action. We are anxiously await for the update and would greatly appreciate if you can help us in this matter.
5. Despite further follow-ups from Dr Nguyen, four further months passed without the promised "response". Dr Nguyen was told at various times that relevant people were on leave; that legal advice had been sought; and that the matter was with the NSLHD "executive". But the deadline for a decision under cl 4.1 (10 March, as extended) passed without Dr Nguyen being told anything of substance.
6. Then in June 2015, a formal without prejudice letter was sent from NSLHD to Dr Nguyen. Rather than address NSLHD's obligation to make a decision on commercialisation, the letter responded defensively to the suggestion (perhaps referring to Dr Nguyen's email of early February) that NSLHD was obliged to transfer the patents to him and the other Inventors. It stated that NSLHD did not accept it had any such obligation. This was because, so the letter alleged, Dr Nguyen had breached his obligations under cl 3.4 to use best endeavours to assist with commercialisation during the unsuccessful negotiations with MIP and Nextvet.
7. In this letter, NSLHD also made a commercialisation proposal to Dr Nguyen which involved NSLHD granting an exclusive licence of the IP to a new company formed and owned by Dr Nguyen (or his commercial partners) for the purposes of commercialising the IP. A draft Licence Agreement to this effect, was enclosed with the NSLHD's letter.
8. Dr Nguyen replied to the letter denying any breach and rejecting the NSLHD's commercialisation proposal on the basis that its terms were "unreasonable". Over the following two months, correspondence continued between Dr Nguyen and the NSLHD in which various amended forms of the Licence Agreement were exchanged without agreement.
9. NSLHD's tack then changed. On 4 September 2015, notwithstanding that NSLHD remained of the view is that it was "not obliged to make a reassignment under the Terms of the [Commercialisation Agreement]", the Chief Executive made, by way of letter, a without prejudice offer on behalf of NSLHD to reassign the IP to the Inventors. In the letter, the chief executive stated that the offer was made with view towards "resolving the matter finally".
10. A proposed Assignment and Royalty Agreement was enclosed. The proposed agreement provided for the Inventors, as assignees, to reimburse NSLHD for its protection and maintenance costs (then $220,000), and then pay a 10% profits share, out of the "Gross Commercialisation Proceeds" derived from the IP.
11. Dr Nguyen responded by way of letter dated 6 November refusing the offer and foreshadowing that "under [his] legal advice" a "redrafted Agreement" was in the process of being prepared which would be duly sent to the NSLHD effectively in the form of a counter-offer.
12. The "redrafted Agreement" was provided to the NSLHD by Dr Nguyen on 17 December 2015 but was formally refused, by way of reply letter, four days later.
13. By letter dated 22 December, Dr Nguyen enclosed his own version of the Assignment and Royalty Agreement. There was provision for the Inventors to reimburse NSLHD for protection and maintenance costs, and pay a 10% profit share, out of the Gross Commercialisation Proceeds but the definition of Proceeds was different from that which had been proposed by NSLHD (see [101] below). Dr Nguyen's letter intimated that this was his final offer, and would be open until 7 January. The date passed and there was no further proposal from NSLHD.

Further commercialisation efforts by Professor Morris and Dr Nguyen

1. Meanwhile, Professor Morris and Dr Nguyen had begun to lay the foundations for their own attempt at commercialisation. Dr Nguyen set out arranging for the assignment of Dr McCracken's and Professor Gallery's rights in the IP to himself and Professor Morris. Professor Morris also identified a potential investor, Mr Peter Spencer, and began negotiations with him.
2. As part of these negotiations, an MOU between Mr Spencer, Professor Morris and Dr Nguyen was proposed. The proposed MOU recognised Mr Spencer as the "CEO of a newly created company" which would proceed to commercialise the IP. The MOU did not deal with the structure of the proposed company, but Professor Morris separately proposed to Dr Nguyen that they should have 50% each. Dr Nguyen however did not agree and the proposed MOU was never signed.
3. By 21 March, the relationship between Professor Morris and Dr Nguyen had broken down. Professor Morris told Dr Nguyen that his employment, which was then due to expire at the end of August, would not be renewed.

Assignment to AIGD and termination of Dr Nguyen's employment

1. Meanwhile, an approach had been made on behalf of a company called Snilloc Pty Limited for Snilloc to acquire the patents on terms which involved partially reimbursing NSLHD for its costs of registering and maintaining the patents, and a share of any eventual commercialisation proceeds.
2. On 11 April, the Chief Executive of NSLHD wrote to each of the Inventors advising them that NSLHD was inclined to proceed with the proposal and inviting their comment (but without providing much by way of detail). Dr Nguyen objected but a variant of the proposal went ahead anyway in the form of the sale to AIGD. The agreement provided for an up-front reimbursement payment of $55,000. The profit share was defined as 3% of "net sales" of the drug, if any, developed, and 1.5% of "non-sales revenue" from the IP (including up-front licence fees and milestone payments).
3. Following execution of the agreement with AIGD, the Inventors were invited to execute deed polls confirming that they would maintain confidentiality of IP related information and assign any remaining rights that they might have to NSLHD. At least Professor Morris and Dr McCracken did so, but Dr Nguyen refused. The agreement was later completed, although it was modified on the ground that not all of the confidential information required by the agreement had been provided, and part of the modification involved the $55,000 payment being cancelled.

Failure to assign patents

1. In terms, cl 4.1 obliged NSLHD to "re-assign" the patents to the Inventors if NSLHD could not find a "suitable commercialisation deal" within the Initial Commercialisation Period. But, despite the lack of express wording, for practical purposes, there was no actual obligation to effect the assignment unless Dr Nguyen had called for it and satisfied the conditions in cll 4.3 and 4.4.
2. It is unnecessary to decide whether the proposals put forward by NSLHD in the second half of 2015 were offers which would have been capable of acceptance, because Dr Nguyen never accepted any of them. Instead, he made counterproposals culminating in his letter of 22 December 2015 which enclosed his version of the draft deed of assignment (above [87]). That counterproposal by Dr Nguyen was never accepted, and no further proposals were made by NSLHD.
3. No claim in these proceedings was made on the basis that, in its conduct from late 2014 until 2016, NSLHD in some way breached any obligation requiring it to negotiate in good faith with Dr Nguyen. It follows that Dr Nguyen cannot succeed, except on the basis that NSLHD's obligation under cl 4.1 obliged it to accept the proposal put forward in his letter of 22 December 2015; that is, to execute the enclosed deed of assignment in the form attached to that letter.
4. Dr Nguyen's case must therefore be that NSLHD breached its obligations under cl 4.1 by its non‑acceptance of his proposal of 22 December 2015, and was in breach from 7 January 2016 (the date nominated for acceptance in Dr Nguyen's letter) onwards. As I understood him, Dr Nguyen accepted that this was so, and that he had to demonstrate that there was an obligation to accept the letter of 22 December and execute the assignment in the form attached to that letter.
5. Counsel for NSLHD advanced three main lines of defence to Dr Nguyen's claim. The first defence was that Dr Nguyen's offer failed to comply with the requirements of an assignment under cl 4.3, and accordingly the condition in cl 4.3 was not satisfied. The second argument was that, irrespective of the outcome of the first argument, Dr Nguyen was in breach, or had in the past breached, his obligations under cl 3.4 of the Commercialisation Agreement. The existence of such breaches meant that the condition in cl 4.4 was not satisfied.
6. Both these defences went to breach. Counsel's third line of defence was that, even if breach was established, Dr Nguyen had not established an entitlement to any substantial damages for any such breach. I will deal with the three defences in turn.

Breach: clause 4.3 condition

1. Counsel for NSLHD did not accept that Dr Nguyen's letter of 22 December 2015 was actually a formal offer capable of acceptance. Given the views that I have formed, I do not find it necessary to consider that issue, and I will proceed on the assumption that the letter was a valid offer which was capable of acceptance.
2. Counsel's main arguments were centred on differences between the provisions of the proposed deed which accompanied Dr Nguyen's letter, and what counsel contended were the requirements of cl 4.3 of the Commercialisation Agreement. The relevant provisions of the proposed deed were as follows: Definitions … (m) Gross Commercialization Proceeds means the gross monetary payment received by Assignee in a way of Royalty Payment to Assignee (including any individual comprising Assignee) from time to time from any the Commercialization of the Assigned IP or any part of it or any Product, before deduction only of taxes forming part of such amounts, from annual Net Sales of Product Revenue beginning in the first year, but within the expired date of the Patents on the Assigned IP in Schedule 1, of market launch of the regulatory approved Product for human uses. Any Gross Commercialization Proceeds received by the Assignee after the expired date of the Assigned IP as stated in Schedules I are not payable to the Assignor. … (z) Royalty Payment means the percentage of net revenue of annual sale of the Product payable to the Assignee from any Commercialization deals as a result of the regulatory approval of the Product. … 3. Payment by Assignee to Assignor 3.1 Payment to the Assignor: A condition for the assignment of the Assigned IP under clause 2, Assignee must pay to the Assignor the following payment upon the milestones indicated below and/or receipt by the Assignee of any Gross Commercialization Proceeds: (a) A half of the Registration Costs will be paid to the Assignor by the Assignee and their Associated Entity upon the initiation of a Phase I human clinical trial. (b) As a first call on and deduction from such Gross Commercialization Proceeds, an amount equal to the remaining half of Registration Costs (which will be fully returned to the Department and Research Group where the IP and its patenting costs were originated and incurred); and (c) Once Gross Commercialization Proceeds equal to the Registration Costs have been paid in full, then 10% of all further Gross Commercialization Proceeds up to the following maximum payments to Assignor: no more than AU$1 million per calendar year and no more than AU$ 5 million in aggregate.
3. Counsel submitted that the proposed deed failed to meet the requirements of cl 4.3 in two main ways. Counsel's first point concerned the requirement that NSLHD "receive" reimbursement of its costs of protecting and maintaining the IP. Counsel submitted that, on the true interpretation of cl 4.3, the Inventors' obligation to reimburse NSLHD for these costs had to be unconditional. But under the terms of the proposed deed, there would be no obligation to pay any "Registration Costs" unless the invention was developed to the point where a drug was produced which was approved for phase 1 testing. In that sense, the obligation was conditional and there was no certainty that NSLHD would ever receive reimbursement of its costs.
4. Counsel's second point concerned the requirement that NSLHD "receive", after recovery of the protection and maintenance costs, a 10% share of the "gross commercialisation proceeds" up to a specified maximum of $1 million per year for five years. Counsel noted that the term "gross commercialisation proceeds" was not defined in the Agreement. It therefore should have its ordinary meaning, which, in counsel's submission, was a broad one. It would extend not only to royalty payments from a successfully marketed product, but also to payments received before that point, such as milestone payments. By contrast, the obligation to make payment in the proposed deed was limited by the definition of "Gross Commercialisation Proceeds" to "royalty payments" on actual sales of an eventual product. If no such royalties were earned, then nothing would be payable under that definition.
5. In response to these arguments, Dr Nguyen asserted that the proposed deed was based on terms which had originally been proposed by NSLHD itself in September 2015 (see [83]-[84] above). He submitted that those terms presumably would have been acceptable to NSLHD. As he put it, even if they did not meet the terms of cl 4.3, they met the expectations of NSLHD.
6. It is only partly correct that the terms of the proposed deed reflect the terms of the earlier proposal made by NSLHD. It is true that NSLHD's proposal obliged the Inventors to reimburse protection and maintenance costs out of the "Gross Commercialisation Proceeds" as defined. Their reimbursement obligation was therefore conditional. However, the NSLHD's definition of "Gross Commercialisation Proceeds" in the NSLHD proposal was wider than that put forward in Dr Nguyen's proposed deed.
7. In any event, I do not think that this matters. The question is whether there has been compliance with the terms of cl 4.3. As at December 2015, NSLHD had made no commitment to any particular form of assignment. The proposal it put forward in September 2015 was expressly put forward on the basis that it was without prejudice. But even if it had not been, there is no obligation on a party who begins negotiations proposing a particular form of words in the contract to maintain that position thereafter for the rest of the negotiations. A party may change its mind, at will, until the final contract is signed. At least that is so in the usual case where the parties' intention, as objectively determined, is not to be bound until the execution of a formal agreement.
8. If a party changes its mind and completely alters the terms of the proposal, even at the last minute in negotiations, it may cause frustration for the opposing party, but it is not unlawful. I put aside for this purpose the possibility that a party may, by its conduct, raise an estoppel against itself or agree that it will be immediately bound, but on terms later to be recorded. Neither of those suggestions was made in the present case, and the evidence does not suggest that there would be any basis for making any such suggestion.
9. For these reasons, I accept counsel's argument that the proposed deed did not satisfy the requirements of cl 4.3. It follows that the failure by NSLHD thereafter to execute that deed was not a breach of its obligations under cl 4.1. Dr Nguyen's claim for damages for breach of cl 4.1 fails for that reason alone.

Breach: clause 4.4 condition

1. Given the conclusion that I have just reached, it is not necessary to decide whether the condition imposed by cl 4.4 had been satisfied as at January 2016. But in case these proceedings go further, I will briefly say something about the evidence and the issues which arose under this heading.
2. As already noted, a great deal of the evidence before me at the trial concerned the events between 2013 and 2014, during which negotiations were taking place between NSLHD and MIP and Nexvet concerning a possible commercialisation deal for the invention. There was extensive documentary evidence, and Dr Nguyen was cross‑examined at length about his conduct during those negotiations and, in particular, the steps taken by him (or not taken by him) in response to requests for information.
3. In their written submissions, counsel for NSLHD identified numerous instances where Dr Nguyen was asked for information and either delayed providing the information or never provided it at all. These submissions were supported by extensive references to the documentary evidence and, where appropriate, to the testimonial evidence of Dr Nguyen and Dr Kuchler.
4. It would serve no purpose in this judgment to summarise these submissions in detail. It is fair to say that Dr Nguyen made no attempt in his submissions in reply to make any point‑by‑point rebuttal of them. For present purposes, it is sufficient to say that the evidence referred to in those submissions establishes that: Dr Nguyen had formed the view by 2013 that none of the information which he held and considered potentially valuable should be released to MIP or Nexvet, unless they had first made commitments to commercialise the invention and to fund, or ensure the funding of, the next stage of the development process; and that Dr Davis and Dr Kuchler repeatedly made it clear that they did not agree with him.
5. The justification offered by Dr Nguyen for his attitude was that, unless such a commitment were made, it would be possible for the potential investors to pull out of the deal and exploit the information provided to them for themselves. He maintained that position despite the explanation that he received from Dr Davis and Dr Kuchler that this would not be possible because of the terms of the confidentiality agreements which NSLHD had entered into with the investors.
6. On the evidence, the position taken by Dr Nguyen was unreasonable. Whether it truly represented his ground for taking that position, or whether there were other motivations, the outcome was that Dr Nguyen definitely did delay in providing the information he provided; and in some cases, he appears never to have answered the questions at all. Not surprisingly, the investors became aware of the unnecessary delays and obstacles which were being put in the way of commercialisation, and drew adverse conclusions about Dr Nguyen's commitment to commercialisation, or, at least, about his commitment to commercialisation with them.
7. Dr Nguyen, in his submissions in reply, pointed to correspondence in which, as late as 2014, Dr Kuchler had been making encouraging comments about commercialisation. Dr Nguyen submitted that there were no outstanding requests of him, and effectively, that by then, there were no outstanding complaints from the NSLHD about the cooperation he was offering. I am not sure that that is correct as a matter of fact, but even if it is correct, it does not alter the fact that there had been earlier delays and refusals, even if temporary, which amounted to breaches of cl 3.4.
8. Counsel, in their written submissions, also made a wholesale attack on Dr Nguyen's credit as a witness. Again, their submissions were comprehensive and detailed, and supported by a wealth of transcript and other evidentiary references. Among other things, counsel submitted that the evidence showed that at times Dr Nguyen had lied in his dealings with Dr Kuchler and Dr Davis. In a particularly surreal passage of evidence, it emerged that references in Dr Nguyen's correspondence to a lawyer supposedly acting on his behalf, and for whom he provided an email address, were in fact to a false identity created by Dr Nguyen himself.
9. Counsel also submitted that Dr Nguyen's evidence at the trial was unsatisfactory. They pointed out that Dr Nguyen himself conceded that he lacked objectivity in presenting his evidence due to his emotional commitment to the litigation and the dispute which led up to it. They referred to passages in the evidence which they submitted had clearly been made up by Dr Nguyen in the course of giving evidence, and to other passages where Dr Nguyen had been evasive, or had offered plainly ludicrous interpretations of emails that he himself had written.
10. Again, no useful purpose would be served by setting this material out in detail. Again, Dr Nguyen did not attempt any point-by-point rebuttal. I regret to have to say that counsel's submissions coincide with, and support, the conclusions which I made in the course of the hearing so far as Dr Nguyen's reliability as a witness was concerned. In general, I consider that his testimony was so demonstrably unreliable that I would be reluctant to give any weight at all to his evidence on any disputed matter unless it were corroborated.
11. It may be that not everything Dr Nguyen said in his evidence was incorrect but the inconsistencies, and in some cases, falsehoods, were so extensive that it would not be safe to rely on other evidence. In short, I find it generally impossible to say where truth ends and falsehood begins.
12. These conclusions do not necessarily mean that the defence relying on the cl 4.4 condition succeeds. In fact, that part of the case probably does not depend to any great extent on Dr Nguyen's credit. The relevant events are set out in the documentary record. The outcome really depends upon the construction of cl 4.4.
13. Counsel submitted that where cl 4.4 referred to compliance with the Agreement, it was referring to any and all compliances, whether current or past. Even a past breach having no ongoing significance was capable of being picked up by cl 4.4 and resulting in the condition not being satisfied. Thus, for instance, counsel submitted that, even where Dr Nguyen had delayed for a week or so in providing information, if, as I have found, those delays were unreasonable, then the condition in cl 4.4 was not satisfied.
14. I find this an unattractive submission. It would mean that the most trivial past breach would prevent an assignment ever happening, and thus deprive Dr Nguyen of an important benefit under the contract, forever into the future. It is a particularly unattractive submission when it involves something like a forfeiture of the IP rights which had previously been assigned by Dr Nguyen to NSLHD so they could be commercialised for the parties' joint benefit.
15. In my view, such an interpretation of the Agreement is one which the Court should avoid if it can, as potentially giving rise to capricious and unreasonable outcomes (cf Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109). It seems to me that a more businesslike interpretation of cl 4.4 would require that the breach in question be one which had some ongoing effect on NSLHD's ability to assign the IP at the time that it fell for consideration; or, at least, that such breach had some causal effect on the ability of the NSLHD to obtain a suitable commercialisation deal within the Initial Commercialisation Period.
16. Dr Kuchler made assertions in her evidence about the consequences of Dr Nguyen's delays in providing, and failure to provide, information. Not all of that evidence was objected to. But even if admitted, it had no weight. In the absence of evidence from the potential investors themselves, whether breaches by Dr Nguyen had had the relevant causal effect was a matter of inference for the Court, to be determined objectively on the evidence. It was not, in my view, a matter of opinion for witnesses, lay or expert.
17. Counsel for NSLHD accepted that their client had the onus to show that the condition in cl 4.4 had not been satisfied. Given what I have said about the evidence presented by NSLHD, it is hard to see how that onus could be discharged. Although I do not need to decide the question, I am inclined to think that such breaches of cl 3.4 as there may have been would not be sufficient to excuse NSLHD's failure to make the assignment if it had otherwise been obliged to do so.
18. I should say that Dr Nguyen also contended that there was an estoppel which prevented NSLHD relying on cl 4.4. This argument was not developed at any length by Dr Nguyen, and was the subject of a detailed, and to my mind, unanswerable, critique in the written submissions by counsel for NSLHD. Again, there is no need to set those submissions out, and the issue does not arise for final determination in any event.

Damages

1. As already noted, in my October judgment I rejected the allegedly expert evidence put forward in support of Dr Nguyen's damages claim. At the trial, Dr Nguyen nevertheless sought to sustain the claim by reference to material which had been provided to the expert. In effect, he invited me to infer the level of damages directly from that material, without the need for an intervening expert opinion. The material in question consisted of a collection of published articles, including scientific articles, supplemented by comments and opinions offered by Dr Nguyen himself.
2. The material was directed to establishing two related propositions. The first proposition was that there was a large market for what Dr Nguyen (and some of the articles) described as "blockbuster" monoclonal antibody drugs. The material supporting this proposition consisted of articles published in scientific journals giving sales figures for the drugs in question, and estimates of the size of the market for such drugs.
3. The second proposition was that a drug based on the invention in the present case would be sufficiently similar, biochemically and immunologically, to these blockbuster drugs that their commercial potential and performance would be a guide to that hypothetical drug's commercial potential and performance. The material in support of this proposition consisted of other scientific articles dealing with the characteristics of the blockbuster drugs, supplemented by Dr Nguyen's views as to the likely characteristics of a drug which would result from the invention.
4. All of this material was objected to, and, following extensive debate over the first two days of the trial, I rejected it. My reasons for doing so will appear in the transcript, but for present purposes, I will summarise them briefly.
5. First, Dr Nguyen's evidence, in the form of commentary on the articles, was clearly of an opinion nature. It was therefore inadmissible under s 76 of the Evidence Act 1995 unless it could be made admissible as an expert opinion for the purposes of s 79.
6. Had Dr Nguyen put the evidence in proper expert form with supporting reasoning, it might well not have been admissible in any event, but there was a more fundamental problem. The Uniform Civil Procedure Rules 2005 require that expert evidence of this type be served in the form of an expert report prior to the trial, and that the expert be independent and sign the expert witness code of conduct. These conditions had not been, and could not have been, satisfied by Dr Nguyen. His opinions were inadmissible for that reason alone.
7. Counsel for NSLHD took the point that the articles upon which Dr Nguyen relied, both to support his first proposition and his second proposition, were inadmissible as hearsay. As evidence of the representations made by the authors, the articles were at best first-hand hearsay. If the authors lacked personal knowledge of the subject-matter of the representations, the articles would be even more remote hearsay.
8. Dr Nguyen asserted that the hearsay problem could be overcome by treating the articles as business records. It seemed to me that this could not, on any view, work for the articles relied upon for the first proposition, which were at best second-hand hearsay. But it is unnecessary to go any further into the question for the purposes of my published judgment. That is because there was a more fundamental objection to the tender of all the articles. That objection was based on a lack of relevance.
9. The propositions to which the articles were directed were only part of Dr Nguyen's case on damages. Those propositions involved reasoning backwards from the sales of a hypothetical drug developed from the invention, through royalty or other payments, to the moneys that would be derived by the startup company hypothesised by Dr Nguyen (J1 [95]-[97]). From there, the monies would make their way into Dr Nguyen's hands through his dividend entitlements as a shareholder in that hypothetical startup company.
10. The problem for Dr Nguyen is that, even if one assumes that there was evidence which allowed the Court to say how much a hypothetical drug would gross for the pharmaceutical company which might eventually exploit it, there was no evidence about the quantum of royalty or milestone payments which such a pharmaceutical company might pay to the hypothetical startup company to acquire the rights to the invention.
11. The evidence in the present case shows (and this is probably a matter of common sense anyway) that there is a market for inventions of the present type to be sold or licensed, directly or indirectly, to pharmaceutical companies. As I noted at J1 [75]-[76], there does not appear to be any ready source of publicly available market data, but that does not mean that evidence could not have been obtained about its workings from those with relevant experience of it. The problem for Dr Nguyen's case is that he did not present any such evidence.
12. In the course of his final submissions, Dr Nguyen pointed to the agreement with AIGD as demonstrating that there was value in the patents in 2016. But I do not think that this solves the problem. In fact, no cash was ultimately paid by AIGD, and the cash AIGD did initially agree to pay did not go beyond a partial costs recoupment. AIGD apparently failed to commercialise the invention during its ownership of the patents. In fact, there is no evidence before the Court which would establish, as a matter of probability, that the antibody the subject of the invention ever could have been humanised at all, let alone developed into a successful drug within the time available.
13. In the course of the debate about admissibility, I deferred dealing finally with the admissibility of the articles in support of Dr Nguyen's second proposition until he had identified all of the evidence upon which he wished to rely in his damages case. But at the end of Dr Nguyen's evidentiary case, there remained a gap between demonstrating that the invention had scientific potential, and proving that it had a quantifiable value to the Inventors (after taking into account the obligation to recoup NSLHD's protection and maintenance costs) if it had been assigned to them in January 2016.
14. Probably the gap could only have been filled by expert evidence, both of a scientific and of a commercial nature. In my view the articles did not do bridge the gap, and would not have done so even if the articles relied upon for the first proposition had been admissible. The articles were therefore inadmissible because the test of relevance was not satisfied.

Failure to use best endeavours to offer employment to Dr Nguyen

1. Two issues arise under this heading. The first is whether the NSLHD breached its obligation to Dr Nguyen under cl 3.7 to use best endeavours to offer employment to him, and the second is, what damages, if any, flow from any such breach.

Breach

1. Counsel for NSLHD submitted that failure to extend Dr Nguyen's employment beyond the end of August 2016 could, on no view, give rise to a breach of cl 3.7. This was because, in counsel's submission, the clause had a limited temporal operation. Counsel argued that it applied only at the point when the Initial Commercialisation Period expired. At that date, Dr Nguyen was still employed and he remained employed for a period of almost 18 months thereafter.
2. Again, I find this an unattractive submission, and one which, if accepted, would result in capricious or unreasonable results. The facts of the present case underline the problem.
3. On the face of it, the purpose of offering employment to Dr Nguyen was to ensure that he would be available to assist while NSLHD was engaged with the commercialisation process. In fact, upon expiry of the Initial Commercialisation Period, no decision was made by NSLHD to abandon commercialisation of the invention, and NSLHD continued its attempts to do so.
4. Counsel submitted that this ceased when NSLHD entered into the contract with AIGD in June 2016. I do not think that is correct. It seems to me that, even after that date, NSLHD, although not itself trying to commercialise the invention, was still engaged in the process of developing it, if only through administering its contract with AIGD.
5. As I put to counsel in argument, had AIGD gone into liquidation, NSLHD would presumably have come under an obligation to retrieve the IP and to continue to try to exploit it. I think this shows the difficulty in saying that simply to sign an agreement with AIGD brought the end of the commercialisation process. NSLHD never has actually decided not to proceed with commercialisation of the invention. Strictly speaking, its commercialisation obligations may be continuing, if in highly attenuated form, even today.
6. But even if this is not so, and the commercialisation process ended in June 2016, it is still a very unattractive interpretation of cl 3.7 to say that all that was necessary to do to comply with it was to offer employment for an unspecified period after February or March 2015. In my view, the better reading of cl 3.7 is that it creates an ongoing obligation to use best endeavours to procure the continuation of Dr Nguyen's employment as long as NSLHD was engaged in the commercialisation process.
7. On that view, NSLHD was in breach of its obligations under cl 3.7 after August 2016. From that point onwards, those responsible for the carriage of the matter for NSLHD appear to have washed their hands of it. Certainly, NSLHD made no effort, once Dr Nguyen's employment expired, to persuade Professor Morris to keep him on.
8. In his oral submissions in reply, Dr Nguyen argued that NSLHD's obligations went beyond merely using its best endeavours to have his employment arrangements with Professor Morris continue. He suggested that the obligation extended to obtaining employment with AIGD as a third‑party investor or direct employment out of NSLHD's general fund.
9. I do not accept this submission. It seems to me not to be contemplated by the words of cll 3.7 and 4.3. In any event, as counsel for NSLHD pointed out, the contention was not pleaded. It therefore does not need to be considered further.
10. In preparing the judgment for publication, it has occurred to me that I may not have covered another possible interpretation of cl 3.7. That possible interpretation is that the obligation under the clause continued after the expiry of the Initial Limitation Period for as long as NSLHD had not decided to abandon commercialisation, but ceased once a "commercialisation deal" had been entered into. On this interpretation, NSLHD's entry into the contract with AIGD might have brought the obligation to an end. As this was not something which I considered when giving my decision, I will not say anything further about it now: it may or may not be a matter to be raised if there is an appeal.

Damages

1. The conclusion that there was a breach by NSLHD of its obligation under cl 3.7 entitles Dr Nguyen to nominal damages. But the obligation was only an obligation to use best endeavours, and was not a guarantee of an actual offer of employment. If Dr Nguyen is to recover more than nominal damages, he must prove that, had NSLHD complied with its obligation, an offer of paid employment acceptable to him would have in fact resulted.
2. In my view, there is no evidence that, had the NSLHD used best endeavours to try to obtain employment for Dr Nguyen, such an offer would have resulted. Any continued employment by Dr Nguyen would have had to have been funded by "soft money" under the control of Professor Morris. By that stage, it appears that the money had run out. And it seems that Professor Morris had formed the view, influenced no doubt by Dr Nguyen's earlier obstruction of efforts to commercialise the invention, that he was not reliable. Whether that was a correct view or not does not need to be decided. The fact was that Professor Morris had fallen out with Dr Nguyen.
3. Accordingly, there is no evidence to support a claim for substantial damages for breach of cl 3.7.

Conclusions

1. I thus conclude that: 1. Dr Nguyen's claim based on cl 4.1 of the Commercialisation Agreement fails; 2. even if breach of cl 4.1 had been established, Dr Nguyen has failed to prove his claim for damages; 3. Dr Nguyen has established breach of cl 3.7 of the Commercialisation Agreement; 4. but Dr Nguyen's claim for damages for breach of cl 3.7 fails, and he is entitled to nominal damages only.
2. When I announced these conclusions at the end of my ex-tempore reasons on 12 November, I invited counsel for NSLHD and Dr Nguyen to address on the form of the orders to be made, and on costs. There was no dispute about the orders to be made disposing of Dr Nguyen's claims. There was, however, some debate concerning costs.

Costs

1. No relief of a contractual nature was, or could have been, sought against NSW Health (the State of New South Wales) because it was not a party to the Commercialisation Agreement. Indeed, as counsel for NSLHD pointed out in their closing written submissions, Dr Nguyen's statement of claim never rose to the level of articulating a cause of action against the State at all. Clearly the State was entitled to costs. The only area for debate was therefore what costs order should be made as between NSLHD and Dr Nguyen.
2. For the purpose of applying the rule that costs generally follow the event (UCPR, r 42.1), it seemed to me that there were two "events". These were Dr Nguyen's claim under cl 4.1 of the Commercialisation Agreement and his claim under cl 3.7 of the Agreement. Of the two, the claim under cl 4.1 was clearly the most significant one.
3. Having been completely successful in defending the clause 4.1 claim, NSLHD was, in accordance with the general rule, entitled to its costs of doing so, and also to its general costs of defending the proceedings. The only question concerned the costs, as between NSLHD and Dr Nguyen (if any), solely referable to the claim for breach of cl 3.7.
4. When I put this to Dr Nguyen he did not demur. But he did ask me to make some sort of award of costs in his favour, or perhaps to impose some sort of restriction on the costs order to be made in favour of NSLHD, on account of the cl 3.7 claim.
5. It is far from clear that any such allowance would make any practical difference. I find it difficult to see how any substantial costs could have been incurred by either party solely as a result of the allegation of breach of cl 3.7 (any costs solely attributable to the quantification of damages for that breach would, on any view, be awarded in favour of NSLHD as it succeeded on that issue). In any event, I do not think that such an order would be correct in principle.
6. Determining whether a party has succeeded on an "event" for the purposes of the rule calls for a practical judgment (Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15]). In the present proceedings, as I have described, Dr Nguyen brought claims seeking a very large sum of money for breach of cl 4.1 and a smaller, but still substantial, figure ($2.1 million) for damages for breach of cl 3.7. Given the amounts involved, NSLHD had no alternative but to defend the proceedings as effectively as it could, and that would have been so even if the claim had been confined to a claim for damages for breach of cl 3.7.
7. It was clear that damages were always in issue. Nevertheless, Dr Nguyen persisted, even after my ruling that his expert evidence in support of the damages claim under cl 4.1 was inadmissible, in pursuing his claims over a seven-day hearing. I appreciate that the cl 4.1 claim was by far the larger one, but the whole case was always about money. I do not see any reason to deprive NSLHD of any of its costs on account of the purely nominal success enjoyed by Dr Nguyen.
8. Another way of expressing the same conclusion would be to say that the "event" for the purposes of the UCPR r 42.1 was, relevantly, the outcome of Dr Nguyen's claim for damages under cl 3.7, and the question of breach was only an issue arising in the course of that claim, the costs of which (if any) could not be said to have been "clearly dominant or severable" (Waters v PC Henderson (Australia) Pty Ltd [1994] NSWCA 338; see Akierman Holdings Pty Limited v Akerman (No 3); In the matter of Akierman Holdings Pty Limited (No 2) [2021] NSWSC 869 at [67], [85]).
9. In the course of his submissions on costs, Dr Nguyen foreshadowed the possibility of an appeal and sought a stay of the costs order. On what Dr Nguyen told me from the Bar Table, he has no realistic prospect of satisfying the cost order in favour of NSLHD, which is likely to be in the hundreds of thousands of dollars. It seems that his concern is that he could be bankrupted by the costs order and thus lose control of any appeal proceedings he may bring.
10. None of this, however, is a sufficient reason to grant a stay at this point. The making of the costs order does not prevent Dr Nguyen from launching appeal proceedings if he considers he has grounds to do so, although he may face an application for security for the costs of the appeal. For practical purposes, an application to assess the costs (if NSLHD and the State decide to pursue payment) will take some time. Should bankruptcy become a real possibility before any appeal proceedings have been determined, there will be ample opportunity for Dr Nguyen to approach a Judge of Appeal for a stay. That Judge will be in a better position to make an assessment of the relevant factors, including the strength of any grounds of appeal and the amount of time which it will take to hear and determine the appeal. The better course is to leave the question of a stay until then.

Orders

1. The orders made on 12 November 2024 were: 1. Judgment for the plaintiff against the first defendant in the sum of $1, by way of nominal damages, on the plaintiff's claim for breach of clause 3.7 of the Deed of Agreement dated 10 February 2012. 2. Otherwise, judgment for the first and third defendants on the plaintiff's claims in the proceedings. 3. Order that the plaintiff pay the costs of the first and third defendants of the proceedings. 4. Order that the monies paid into Court by the plaintiff pursuant to order 1 made by the Court on 2 September 2022 be released to the first and third defendants in partial satisfaction of the plaintiff's liabilities under order (3).

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2024