University of Western Australia v Gray

REASONS FOR JUDGMENT ON AMENDMENTS TO REPLY FILED BY THE UNIVERSITY OF WESTERN AUSTRALIA 1 These proceedings are now in the 44th day of their hearing. The University of Western Australia (the University) claims damages and other relief against Dr Bruce Gray, its former Professor of Surgery, in respect of inventions said to have been discovered and developed by him while working for the University. It alleges breach of contract and of fiduciary duty by Dr Gray in his exploitation of the relevant technologies which are used in the treatment of cancer. They involve the use of microspheres in the targeted delivery of therapies to cancers and, in particular, to cancers in the liver. The University sues Sirtex Medical Limited (Sirtex), a public company established to develop and market the technology. It also sues the Cancer Research Institute (CRI), a charitable incorporated association, which holds shares in Sirtex in consideration of assignments to Sirtex of rights in relation to some of the technology which it had acquired from Dr Gray. The University, subject to the approval of the Court, has settled with CRI but the settlement approval by a judge of this Court is under challenge in an appeal to the Full Court. 2 A question has arisen about amended replies filed by the University purportedly pursuant to leave given by the Court earlier during the hearing, in answer to reamended defences filed by Dr Gray and by Sirtex. 3 In [164] of its substituted statement of claim, in the Second Further Substituted embodiment thereof, filed on 12 April 2007, the University alleged that by reason of Dr Gray's breaches of his employment contract with the University the University lost at least: (a) the opportunity to achieve registration as the patent holder of patents for the inventions the subject of those breaches; (b) the opportunity to develop and commercially exploit the inventions the subject of those breaches; and (c) the opportunity to be recognised as the institution responsible for the discovery of the inventions the subject of the breaches, and as a result of that loss is entitled to damages. 4 The hearing of this action commenced on 15 March 2007. On 19 April 2007 leave was granted to Dr Gray to amend his defence insofar as it pleaded to [164] of the statement of claim. The amendment involved the addition of a new subpar 269.4 and new [270] and [271]. The amendments all invoked the settlement agreement between the University and CRI to support a plea that the University had failed to mitigate its loss or damage in consenting to the dismissal of its claim against CRI. The terms of that settlement, under which the University authorised CRI to transfer its shares and options to a third party entity, were also pleaded ([270]). In [271] it was said that any loss the University suffered in respect of the technologies which were held by CRI was caused by the University's conduct in agreeing to the dismissal of its action against CRI in these proceedings and entering into the agreement with the association in the form approved by the Court on 8 March 2007. 5 In an amended defence and cross-claim against the University, Sirtex pleaded, at [174] an awareness on the part of the University prior to 11 October 1999 that certain provisional patents had been lodged by its predecessor company and that in July 2000 the University was aware of the contents of its prospectus. By 11 October 1999, 17 July 2000 and 28 February 2003 the University was said, by Sirtex, to have been put on inquiry as to information then publicly available on the database maintained by the Australian Commissioner of Patents in reference to the names of Bruce Gray and Paragon Medical Ltd (Paragon Medical) ([174]). Despite being put on inquiry of these matters it was said by Sirtex that the University chose not to take any action to vindicate the rights it asserted against Dr Gray, Sirtex or CRI and chose not to communicate with Sirtex. It was said to have stood by and permitted the raising of funds and acceptance of subscriptions for, and issue to investors, of shares in Sirtex. In addition Sirtex said that between 26 March 2003 and 26 October 2004 the University knew each fact upon which it based the claim which it asserted against Dr Gray, Sirtex and CRI and despite such knowledge consciously concealed its claims from Sirtex and thereby stood by and permitted Sirtex to make profits ([176A]). 6 Sirtex also relied upon the settlement by the University with CRI to support a plea, inter alia, that it waived certain of its rights ([182A]), that Sirtex was entitled to a credit ([182B]) and that the University had failed to mitigate its loss ([182C]). 7 Sirtex cross-claimed against the University and in its amended cross-claim alleged that the University breached a duty of care and engaged in conduct that was misleading or deceptive or likely to mislead or deceive. This plea was based upon representations said to have been made by an officer of the University, Professor Barber. It claimed that in reliance upon representations made by Professor Barber, it entered into transactions under which it acquired the relevant technology. By its amendment, Sirtex asserted that if the University were to succeed in the proceeding on its claim for ownership of the "Acquired Inventions" then Sirtex ought to be entitled to an equitable lien against the inventions corresponding to its investment in their development, protection and marketing. It added to the relief claimed, a claim for a declaration of its entitlement to such a lien. 8 On 19 April 2007 I gave leave to the University to file a reply to the amended defence filed by Dr Gray. It is not in dispute that that leave was limited to an amendment to the University's reply to deal with the matters raised in the amendment to Dr Gray's defence, ie failure to mitigate loss by reason of the CRI settlement and associated pleas. The amended Sirtex defence and cross-claim also required an amended reply to be filed. 9 The amendments to the replies filed on 14 June 2007 went well beyond the responses to the amendments to the defences. That is accepted by counsel for the University. 10 The Court heard submissions on whether, and to what extent, the amended replies should be allowed. The University's amendment to the reply to Dr Gray's defence 11 The principal new elements of the University's reply to Dr Gray's defence were: The first amendment - paragraph 17(e) 12 In [21.4A] to [21.4D] of Dr Gray's defence he alleged that on 1 September 1987 the director of the University's Centre for Applied Business Research (CABR) reported to the then Deputy Vice Chancellor-Research the progress of research commercialisation projects including two involving Dr Gray ([21.4A]). He said that either CABR or Dr Gray, at CABR's directions, sought external funding to support the development of what was known as the SIRT2 Invention ([21.4B]). Dr Gray said that in early 1988 he prepared and submitted to the University an equipment grant application explaining the work performed in relation to the SIRT2 Invention, the DOX Spheres Invention and the Thermo-Spheres Invention ([21.4C]). It was then said in the defence that in late 1988 or early 1989 CABR, acting as delegate of the University's Vice Chancellor determined that it would cease work on obtaining patent protection for the SIRT2 Invention and Thermo-Spheres Invention, cease any attempt to commercialise any of the research projects being conduct by Dr Gray and cease any attempt to raise funds to support those projects. The University was said to have thereby abandoned the exploitation of the relevant inventions ([21.4D]). 13 In [17(e)] of its amended reply dealing with these paragraphs, the University said that in September or October 1988 Uniscan, which was a company owned or controlled by the University under the name of CABR, referred the projects then under consideration by it back to the University Department of Surgery for further research and development. Such referral was said not to have constituted an abandonment or waiver or to have affected Dr Gray's contractual or fiduciary obligations to the University as pleaded in the statement of claim. The second amendment - paragraph 20 14 The next amendment in the reply was to [20] principally by the addition of subpars 20(c)(ii) and 20(c)(iii), A, B, C, D and E. Paragraph 20 of the reply dealt with [24] of Dr Gray's defence. In [24] Dr Gray said that, in reliance upon the University's conduct pleaded in [21.4D] amounting to abandonment of the exploitation of the inventions [24A.1] and the University's failure to assert any right or interest in research into microsphere targeted treatment of liver cancer, he procured CRI to enter into the Centre for Applied Cancer Studies agreement and devoted funds and resources to the development of the treatment ([24A.2]). Dr Gray also said in his defence that he met with the Deputy Vice Chancellor, Professor Michael Barber, on or about 24 July 1996 and disclosed the nature of his research, the fact that the company Paragon Medical was funding CRI's research into microparticle technology and that Paragon Medical would acquire the intellectual property to such technology and attempt to commercialise it ([24.1]). He said that he repeated this in a letter dated 26 July 1996 ([24.2]), that the University with knowledge of those matters stood by and allowed or acquiesced in the funding of research conducted by CRI to be supplied by Paragon Medical. He said that in or about January 1997 CRI, by a letter dated 17 January 1997 addressed to the Deputy Vice Chancellor-Research, sought assurances that the University had no claim on the relevant technology ([24.3 and 24.4]). Various things said to have been known to the University were then set out in the defence. The University was said to have been put on inquiry from the time of receipt of the letter as to the nature and extent of interest which might be asserted by it arising from the research and the matters referred to in the letter ([24.4B]). Reliance was then placed upon a letter from Professor Barber, the Deputy Vice Chancellor-Research, exercising the delegated powers of the Vice Chancellor who confirmed to Dr Gray and CRI that the University had no interest financially or otherwise in technology funded by CRI referred to as: