SmithKline Beecham (Australia) Pty Ltd v Chipman

the notice of motion 8 The notice of motion filed on behalf of Synthon was supported by an affidavit sworn on 14 July 2003 by Mr Robert McInnes, a solicitor acting on its behalf. His affidavit annexed a number of letters which had passed between his firm, and the solicitors representing SmithKline. It also annexed various documents said to be relevant to the issue whether Professor Charman was "independent". These included extracts from annual company reports and company searches, and letters sent to the Australian Stock Exchange. 9 The evidence filed in support of the notice of motion establishes that Professor Charman has been, at all material times, a non-executive director of Sigma Company Ltd ("Sigma"), a large publicly listed pharmaceutical company. He receives an annual director's fee which, for the year 2002/03, amounted to $56,828. He also owns 12,833 shares in that company. 10 Sigma has a "contract manufacturing" relationship, and other business links, with SmithKline. In 1999, it acquired SmithKline's manufacturing facility at Dandenong. There also exists between Sigma and SmithKline a confidential agreement known as the "Strategic Alliance Agreement". A copy of that agreement was made available to Synthon, and tendered on a confidential basis on this application. 11 Perhaps more importantly, the documents annexed to Mr McInnes' affidavit disclose that Sigma currently manufactures, on behalf of SmithKline, "some of the heritage SmithKline products and heritage Glaxo Wellcome products under an outsourcing arrangement". The evidence also discloses that Sigma packages, on behalf of GlaxoSmithKline (Australia) Pty Ltd, the second applicant, a range of product lines manufactured by companies in the GSK group. Indeed, although Sigma does not manufacture Aropax, it transpires that it packages that product, on behalf of the GSK group. 12 Finally, the documents show that approximately 12% of Professor Charman's research activities are, or have been, funded by SmithKline, or companies within the GSK group. The amounts in question were said to constitute "up to" 5% of his income from "consultancies". 13 Mr Maryniak, counsel for Synthon, submitted that the evidence demonstrated that Professor Charman was not, in any sense, "independent". It followed that he should not be permitted access to any of Synthon's confidential material which might be disclosed, pursuant to the confidentiality regime agreed upon between the parties. 14 Mr Maryniak submitted that I should infer that Professor Charman would be a partisan witness in this proceeding if permitted access to the confidential material. He relied upon Professor Charman's financial and other links to both Sigma and SmithKline. He also relied upon what he submitted had been a less than wholly candid disclosure, on the part of Professor Charman, of those links. 15 Mr Maryniak pointed to the fact that the confidentiality regime which had been put in place required that any proposed expert file with the Court a statement setting out all relevant connections between that person and any party to this proceeding. Further, it was required that the proposed expert give an undertaking that the disclosure thereby made was "true and complete", in all respects. 16 The particular undertaking required of Professor Charman was that he provide a "true and complete statement of [his] … affiliations". It also required that he provide an assurance that he had "no affiliation … with any party to this proceeding or any person or company involved in the manufacture, distribution, supply or sale of pharmaceuticals, health care products and vaccines" other than what was disclosed in his statement. 17 Professor Charman's statement of his affiliations, and his assurance, were provided on 22 April 2003. The information in that statement was said by Mr Maryniak to be grossly inadequate. He submitted that it did not disclose a number of relevant matters which ought to have been at the forefront of Professor Charman's mind. These included the details of his involvement with Sigma, and its financial and other links with SmithKline. They also included his own financial links with SmithKline. 18 Mr Maryniak drew attention to the fact that his client sought additional information regarding Professor Charman, and his links to SmithKline, from the moment that the statement was filed. Synthon's solicitors wrote to SmithKline's solicitors repeatedly, seeking further information regarding those links. 19 According to Mr Maryniak, the response from SmithKline's solicitors had been less than forthcoming. The material concerning Professor Charman had emerged gradually, over time, and only after repeated requests. He submitted that an inference should be drawn that Professor Charman had sought to conceal the true nature of his dealings with SmithKline, in order to make it appear that he was genuinely "independent". 20 Mr Maryniak submitted that Synthon's reasons for concluding that Professor Charman should not be given access to its confidential material had been set out in a letter dated 4 June 2003 sent to SmithKline's solicitors. Because that letter conveniently summarises Synthon's case, it is appropriate to set it out in full: "We refer to your letter of yesterday and to earlier correspondence relating to your clients' nomination of Professor William N. Charman as an independent expert for the purposes of clauses 6 and 8 of the Schedule to the orders of 6 March 2003. In our previous correspondence we requested further information from your clients and from Professor Charman to supplement Professor Charman's Statement of Qualifications and Business Affiliations. In our view, the Statement of Qualifications and Business Affiliations disclosed insufficient detail to allow our client to assess the independence or otherwise of Professor Charman, and failed to disclose plainly material and important matters, including the fact that Professor Charman is a director of and shareholder in the company that packages Aropax for the GlaxoSmithKline group of companies ("GSK"). Having reviewed further information subsequently made available by you and having made inquiries of publicly available information, we have formed the view that Professor Charman cannot reasonably be considered to be independent of GSK such that he can be described as an "independent expert" for the purposes of clauses 6 and 8 of the Schedule to the orders of 6 March 2003. The reasons for our view are as follows: · Professor Charman has been a director of Sigma Company Limited ("Sigma") since 1996. Sigma's 2002/2003 Annual Report reveals that Professor Charman received remuneration as a non-executive director for that period totalling $56,828. · Professor Charman holds 12,833 shares in Sigma. · Sigma has what you have described in correspondence as a "contract manufacturing" relationship with GlaxoSmithKline Australia. This suggests an arm's length commercial relationship, but however the term is interpreted, it is clear that Sigma manufactures products to GSK's specifications for sale by GSK, and that the economic fortunes of GSK and Sigma, of which Professor Charman is a director and shareholder, are linked. · You have indicated that Sigma packages Aropax for GSK. Aropax is the GSK product with which our client's product would compete for sales. It is reasonable to infer that Sigma would be remunerated for this activity by reference to the amount of Aropax packaged, which would in turn depend on the amount of Aropax sold by GSK. Thus, the income of Sigma, of which Professor Charman is a director and shareholder, varies directly by reference to sales of Aropax. · Further, it seems that the relationship between Sigma and GSK is somewhat closer than the expression "contract manufacturing" would suggest. We noted and enquired in correspondence about a reference in Sigma's Annual Report to the existence of a Strategic Alliance Agreement dated 1 December 1999 between Sigma and GSK. The Annual Report states that under the Strategic Alliance Agreement, Sigma and GSK have agreed to investigate jointly, alliance benefits relating to pre-distribution, sales and distribution and co-marketing of some products, and that Sigma guarantees to deliver to GSK alliance benefits of a minimum value of $6.6 million over a period of five years. To the extent that alliance benefits meeting the minimum values are not delivered to GSK in any year, Sigma is obliged to pay the shortfall in cash (this information is publicly available and has not been derived from the confidential copy of the Agreement supplied to us). · From the general description of the Strategic Alliance Agreement above, it is clear that the Agreement sets up a framework under which Sigma, of which Professor Charman is a director and shareholder, has an incentive to identify, develop and implement commercial opportunities for the delivery of alliance benefits to GSK. If it does not do so, it is required to make cash payments to GSK. In our view, this indicates a degree of interdependence between Sigma and GSK that goes beyond an arm's-length contractual relationship. · Professor Charman was a director of Sigma throughout 1999, during which year the Strategic Alliance Agreement was entered into, and other significant business transactions were undertaken by Sigma, such as Sigma's acquisition of the former SmithKline Beecham manufacturing facility and associated entry into a contract manufacturing relationship with GSK. We would be surprised if Professor Charman was not involved in board discussions concerning the general development of the strategic relationship between Sigma and GSK. · As a director of Sigma, Professor Charman is under a duty to act in the best interests of Sigma. For the reasons stated above, the interests of Sigma are closely aligned with the interests of GSK, including in particular the interest of both companies in maximising sales of Aropax. We note that Professor Charman was re-elected as a director of Sigma at its Annual General Meeting last Wednesday, 28 May 2003. · Finally, you have indicated in correspondence that GSK supplied approximately 12% of the total commercial funding of research activities supervised by Professor Charman at Monash University during the last five years, and that approximately 5% of Professor Charman's income from consultancies during the past five years was paid by GSK. For the above reasons, our client objects to your clients' nomination of Professor Charman as an independent expert in this proceeding, and requests that Professor Charman's nomination be withdrawn. If you clients refuse to withdraw professor Charman's nomination, please notify us. If this is the case, our client intends to file an application with the Court for an order that our client's Confidential Documents and Confidential Information not be disclosed to Professor Charman. …" 21 When asked to identify precisely the nature of his client's misgivings regarding Professor Charman, Mr Maryniak made it clear that he was not suggesting that Professor Charman would deliberately misuse Synthon's confidential material, in breach of his undertaking to the Court. The risk was rather that he would subconsciously, and inadvertently, misuse that material. 22 When pressed further, Mr Maryniak identified the nature of the material which Synthon sought to protect. It consisted of information of a scientific and technical nature which had been provided to the TGA by Synthon in relation to its product, Ausrox. Mr Maryniak accepted that there was nothing "commercially sensitive" about that material, in the sense that it disclosed matters such as marketing strategies, business plans, financial data, or any prospective customer base. 23 Ultimately, Mr Maryniak submitted that SmithKline's choice of Professor Charman as its "independent expert" was both "inappropriate" and "unhelpful". He submitted that it would be "prudent" for the Court to deny Professor Charman access to the confidential material, and that this decision should be taken now, before substantial expenditure was incurred. He submitted that there was nothing to suggest that SmithKline would suffer any prejudice if required to nominate an alternative, "truly independent", expert. 24 Mr Cavanough QC, senior counsel for SmithKline, who appeared with Mr Caleo, relied upon an affidavit of Mr Patrick Richard Sands, SmithKline's solicitor, sworn on 18 July 2003. In par 2 of that affidavit Mr Sands deposed that: "(a) Professor Charman does not hold any positions on committees or on governing bodies of scientific professional associations which involve a regular close contact with person affiliated with the GlaxoSmithKline group of companies or their predecessors in business; (b) during the last five years, the GlaxoSmithKline group of companies provided approximately 12% of the total funding (from commercial resources) of research activities for which Professor Charman is the investigator or co-investigator (with his research collaborators) at Monash University; (c) during the last five year, then than 5% of Professor Charman's income derived from private consultancies has been paid by the GlaxoSmithKline group of companies; and (d) neither Professor Charman nor the research group over which he had direct responsibility has received funds during the last five years from the GlaxoSmithKline group of companies, or their predecessors in business, other than by way of the research funding and the consultancies referred to in Professor Charman's Statement of Qualification and Business Affiliations dated 22 April 2003." 25 Mr Sands said that he had been told by Professor Charman that he had conducted both consulting and research work for more than 15 years. His external consulting work frequently involved other pharmaceutical companies, including direct competitors of the GSK group. In order to conduct that work, Professor Charman often received confidential information. He recognised that it was essential that he safeguard and maintain the confidentiality of that information, both for the particular client, and in order to protect his own reputation. 26 Mr Sands acknowledged that Sigma and one of its subsidiaries, Sigma Pharmaceuticals Pty Ltd, were parties to a "Contract Manufacture Agreement" with SmithKline. That agreement commenced in December 1999, and had a term of 10 years. Under that agreement, the GSK group was obliged to use Sigma for the manufacture and packaging in Australia of various pharmaceuticals for both local and overseas markets. 27 Mr Sands also commented upon the "Strategic Alliance Agreement" in relation to which the Sigma Annual Report stated: "The Company [Sigma] and GlaxoSmithKline have agreed to investigate jointly, alliance benefits relating to pre-distribution, sales and distribution and co-marketing of some products." 28 Importantly, he said: "20. I am informed by Professor Charman and verily believe that, in his role as non-executive director he was aware of the Strategic Alliance Agreement but that he was not aware either from his role as non-executive director or otherwise, that Sigma packaged Aropax on behalf of GSK nor, as a non-executive director, would Professor Charman expect to have been aware of any particular product or line of products manufactured or packaged by Sigma on behalf of its pharmaceutical company customers. In his role as a non-executive director, Professor Charman is generally unaware of Sigma's day to day operational matters." 29 Mr Sands concluded: "22. Professor Charman's experience in conduct, reviewing and supervising pharmaceutical research work at the highest level and his publication in excess of 200 publications including research papers, articles, chapters of texts, patents and review articles establish his pre-eminence in the pharmaceutical field and his competence to undertake the role of an expert witness required to assist the Court by reviewing the material which the applicant seek to show him. 23. I have conducted substantial investigations on behalf of the Applicants. From those investigations it appears that there is a paucity of similarly and suitably qualified experts, particularly in Australia. Furthermore, it appears that any person suitably qualified to undertake the role of an expert in this proceeding will inevitably have links to some extent with pharmaceutical companies and/or the Therapeutic Goods Administration." 30 Mr Cavanough submitted that there was simply no basis for the suggestion that Professor Charman was not relevantly "independent". He was neither a director of, or shareholder in, SmithKline. Nor was he a director, or shareholder of any company within its group. The confidential material which would be disclosed was purely scientific, or technical. It did not relate to matters of a "commercial nature", such as those to which Synthon's solicitors alluded in their letter of 4 June 2003. In particular, it did not relate to matters of the type that might be discussed at board meetings of Sigma regarding "the general development of the strategic relationship" between Sigma and the GSK group. 31 Mr Cavanough submitted that the matters raised by Mr Maryniak regarding Professor Charman went to weight, and not testimonial competence. To deny him access to the Synthon's data, contained in the confidential material, would effectively render his evidence devoid of probative value. Having regard to his eminence in the field of pharmaceutical science, this would cause significant prejudice to SmithKline's case. 32 Mr Cavanough supported his contentions by referring to FGT Custodians Pty Ltd v Fagenblat [2003] VSCA 33. In that case it was held that an expert witness called on behalf of the respondent, who happened to be his brother-in-law, was not disqualified from giving evidence. The Court of Appeal rejected the proposition that the brother-in-law was disqualified from giving evidence upon the ground that he lacked independence, either by reason of direct interest, or perceived bias. This was so, notwithstanding the fact that Mr Borsky's sister stood to gain, by having certain debts paid by her husband, the plaintiff in the proceeding, if her husband won the action. 33 The judgment of Ormiston JA (with whom Chernov and Eames JJA agreed) contains, a thorough and helpful analysis of the relevant issue. His Honour noted that the real question was whether the witness lacked testimonial capacity or competence. He concluded that there was: "… no basis in principle for excluding Mr Borsky's expert evidence, whatever one might have said as to the wisdom of calling him as an expert in this action and whatever one may say as to the ultimate decision to prefer his evidence." 34 The judgment of Ormiston JA is of particular importance regarding the concept of a witness who might be said to have "an interest in the outcome of the litigation". Historically, an interest which was direct, or legal, in the outcome of a proceeding was treated as precluding a person with that interest from giving evidence: Starkie Law of Evidence (3rd ed) 1842 p 17. His Honour also referred to Wigmore, noting that the rule disqualifying witnesses by reason of "interest" had long since been abolished. He referred, in that regard, to ss 22 and 24 of the Evidence Act 1958 (Vic). 35 The question to be addressed in relation to the notice of motion which is before this Court is not, in terms, whether Professor Charman should be permitted to give evidence at the trial of this proceeding. It is rather whether he should be given access to Synthon's confidential material. Nonetheless, as I have indicated, and as the parties all accepted, the answer to that question effectively determines the issue of his testimonial competence. 36 In my opinion, Professor Charman should be permitted access to Synthon's confidential material. I do not accept Mr Maryniak's contention that there is a significant risk that, were he to see that material, he would subconsciously, or inadvertently, misuse it. 37 The links between Mr Borsky, the expert witness, and Mr Fagenblat,his brother-in-law, in FGT Custodians Pty Ltd were significantly greater than those between Professor Charman and SmithKline. The fact that the Court of Appeal accepted Mr Borsky as a competent witness (though querying the wisdom, in that case, of calling him) strongly suggests, to my mind, that Professor Charman should not be precluded from seeing the Synthon material. 38 In arriving at this conclusion, I should indicate that I accept that Professor Charman's initial statement was incomplete, and that he should file with the Court a supplementary statement which sets out more fully his links to SmithKline. This will enable his position to be clarified, and also ensure that his undertaking is more meaningful. 39 Having said that, I do not accept that there is any appreciable risk of Professor Charman subconsciously misusing any of Synthon's scientific data. He has significant links to Sigma, and that company has significant links to SmithKline. He also has some direct links to SmithKline, although they might be thought to be relatively inconsequential. Nonetheless, the evidence as a whole does not persuade me that there is any basis for denying SmithKline the opportunity to call Professor Charman as its expert in the trial of this proceeding. He is not, by reason of those links, a person who cannot be trusted. Nor is he a person likely to make inadvertent use of technical data. 40 In substance, the matters raised by Mr Maryniak go to weight, and not to the potential admissibility of his evidence. There is nothing in the Evidence Act 1995 (Cth) to suggest that he should be precluded from giving expert evidence in this proceeding. If his giving evidence requires him to see confidential material, upon appropriate undertakings, then that course should be followed. For these reasons the notice of motion must be dismissed. 41 The first, second, third and fifth respondents did not concede that Professor Charman was relevantly "independent". However, they did not object to his being given access to Synthon's material. Their position, put simply, was that they would abide the decision of the Court, and that they would not seek costs. 42 Mr Maryniak submitted that SmithKline should pay Synthon's costs irrespective of whether this application succeeded, because it had been brought about by the inadequacy of Professor Charman's statement. I am unable to accept that submission. Costs should follow the event. It follows that Synthon should pay SmithKline's costs of and incidental to the notice of motion.

I certify that the preceding forty two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Counsel for the First and Second Applicants: Mr A.L. Cavanough QC with Mr C.M. Caleo

Solicitors for the First and Second Applicants: Allens Arthur Robinson

Solicitor for the First Second, Third and Fifth Respondents: Mr P. Barker

Solicitors for the First Second, Third and Fifth Respondents: Australian Government Solicitor

Counsel for the Fourth Respondent: Mr A.J. Maryniak

Solicitors for the Fourth Respondent: Baldwin Shelston Waters Law

Date of Hearing: 21 July 2003

Date of Judgment: 31 July 2003