University of Western Australia v Gray [2009] FCA 1229 | Case summary

The second issue: the september 2009 affidavit material 7 The substance of the current dispute before me is whether, at this point of the proceeding in relation to the assessment of damages, Dr Gray should be permitted the opportunity to put on further evidence going to the question of the degree of probability that a settlement would have been concluded between Sirtex and UWA, and the likely form and cost to Sirtex of any such settlement. 8 In the primary judgment of French J, at [1612], his Honour said this: [1612] In my opinion Sirtex is entitled to relief in respect of Dr Gray's breaches of his duties as a director and for misleading or deceptive conduct in contravention of s 10 of the Fair Trading Act 1987 (WA). Had it been aware of the correspondence it would, in all probability, have been advised to make further inquiries of UWA. It would either have been notified of a potential claim or would have negotiated a release for some consideration, perhaps by way of a share issue. It lost the opportunity to so resolve the matter with UWA and has been exposed to this litigation. The fact that the litigation was unsuccessful does not affect the Sirtex causes of action against Dr Gray in respect of his duties as a director and in respect of the claim for misleading or deceptive conduct. Sirtex is entitled to compensation or damages for the loss which it has suffered as a result of opportunity to avoid the instigation of these proceedings and to resolve matters in advance with UWA. The measure and assessment of damages will be a matter for a separate hearing if the quantum cannot otherwise be agreed between Sirtex and Dr Gray. Counsel for Sirtex indicated in argument that the recovery it would seek from Dr Gray would be related to the costs of the proceedings. If that is so, having regard to the outcome of the proceedings, the compensation or damages should be able to be agreed. 9 Critical is the finding that had Sirtex been aware of the relevant correspondence between UWA and Dr Gray, "it would either have been notified of a potential claim or would have negotiated a release for some consideration, perhaps by way of a share issue". 10 French J acknowledged that the measure and assessment of damages would be a matter for a separate hearing if the quantum could not otherwise be agreed between Sirtex and Dr Gray. To that point it was thought that the recovery Sirtex would seek from Dr Gray would be related to the costs of the proceedings. 11 After three days of the trial, on the application of Sirtex, French J agreed to separate the issue of the liability in the proceeding from the question of loss and damage. This occurred in the context of a primary claim by UWA against Dr Gray and Sirtex concerning the application of the fruits of Dr Gray's university research on various grounds at law, in equity and under statute. 12 On 15 August 2008, following delivery of the principal judgment on 17 April 2008, French J ordered that the assessment of damages in the proceeding be adjourned to another judge at a date to be fixed: University of Western Australia v Gray (No 22) [2008] FCA 1315. 13 At [2] of his reasons for this order, his Honour explained that the assessment of damages could not be carried out before his resignation from the Court following his appointment as Chief Justice of the High Court of Australia commencing on 1 September 2008. It was therefore necessary that the assessment be done by another judge. His Honour explained that on 15 August 2008 he declined to make declarations or rulings sought by Sirtex by way of declaration concerning the heads of damages it was entitled to recover. French J noted that various categories of loss were proposed subject to a carve out for any expense "caused by the grossly unreasonable conduct of Sirtex itself". 14 At [3], French J explained that he had come to the view that it was not useful to go down the pathway proposed by Sirtex. The assessment of loss and identification of heads of loss in connection with Sirtex's successful cross‑claim against Dr Gray were clearly closely related and "there is a risk that by formulating heads of damage with any useful precision, whether by way of ruling or in a declaration, I would do so in a way that could unnecessarily confine the assessment process". 15 At [4], French J also noted the possibility, although it had not been formulated with any concreteness, of prejudice to Dr Gray "in that the trial was conducted on the basis that damages, including identification of heads of loss would be separately assessed". 16 At [5], French J observed: [5] The utility of a declaration or, in the alternative, rulings which are sought for the same purpose is questionable. All of the heads of damage proposed are arguable. The qualifications that would have to imported into any declaration might well leave it saying little more than that. The relevant factual findings are for the most part in the judgment and I think those which are relevant to the determination of the heads of loss can be extracted from the judgment and confined within a reasonable compass. 17 Senior counsel for Sirtex particularly relies upon the observations of French J that the relevant factual findings are, for the most part, in the judgment and those which are relevant to the determination of the heads of loss can be extracted from the judgment and confined within a reasonable compass. 18 No doubt, these words were also meant to be words of comfort for the judge who succeeded French J in helping to articulate in a practical form the outcome of the judgment that was entered in favour of Sirtex. 19 I will turn below to the extent to which the findings made appear to permit the assessment of damages to be completed and, in effect, the extent to which Dr Gray would appear to be shut out from introducing new evidentiary material at this stage of the proceeding. But before doing so, I will deal with some of the other particular grounds of objection to the course of conduct now proposed on behalf of Dr Gray, that are raised by Sirtex. 20 The first point taken is the extreme delay. 21 Indeed, an order‑by‑order analysis shows that leading up to the trial and since the trial Dr Gray has been anything but compliant with orders designed to move these proceedings along. 22 By orders made 31 May 2006, [16], the parties were required to provide signed statements of proposed evidence in chief of each witness by 28 July 2006. On 11 August 2006, by [1] those trial directions were vacated, although this happened at a time when no other parties had provided necessary evidence. In [22] - [24] of the orders made 31 May 2006, a regime was put in place in relation to the ability of any party to rely upon evidence in chief beyond what was to be contained in the witness statements. Statements of evidence had to be provided. Leave of the Court was required if any further evidence was to be lead. 23 On 19 September 2006, trial orders were made and each of the respondents, other than the third respondent, was required to provide witness statements by 24 November 2006. The regime put in place in May 2006 was repeated. Dr Gray did not comply with these orders and a further order was made on 1 November 2006 extending the time for the respondents to serve evidence in chief by 19 December 2006. At this point it should be acknowledged Sirtex had not complied with the previous order either, although on 19 December 2006 Sirtex was in a position pursuant to an order of 1 November 2006 to file and serve its evidence. Dr Gray, however, failed to comply with orders of the Court and so the orders of 19 December 2006 were made, giving an extension to Dr Gray to provide his evidence by 15 January 2007. 24 Dr Gray again failed to comply with the orders of the Court and on 23 January 2007, there was a further extension granted to 2 February 2007 to provide a revised version of an affidavit. The Court gave a specific direction that argumentative and conclusory statements were not to be included. 25 As a result of four Court orders, Dr Gray finally provided his primary affidavit for the purposes of the hearing. This was provided in early February 2007 for a trial that was then due to start on 12 March 2007, but actually started on 15 March. 26 On 17 April 2008, the primary judgment was handed down by French J and Sirtex succeeded in part on its cross‑claim against Dr Gray. There was an order for directions as to assessment of damages and an order for Dr Gray to pay Sirtex's costs on the cross‑claim. 27 On 3 June 2008, orders were made dealing with an application by Sirtex against UWA for indemnity costs. Written submissions were put on. On 23 June, the matter was again before the Court. Sirtex had on 20 June 2008 provided a letter to Dr Gray's solicitors identifying each head of loss or damage it claimed. On 23 June the Court ordered that Dr Gray on or before 7 July 2008 provide a substantive response to each of the heads of damage identified. 28 On 7 July 2008, Dr Gray, through his solicitors, advised Sirtex's solicitors that he accepted that a claim for the different between party/party costs and indemnity costs could be made by Sirtex by way of damages for compensation on the cross‑claim subject to things: that the costs were reasonable and they were necessary. 29 Subsequently, French J resigned from the Federal Court and was appointed to the High Court on 1 September 2008. He made the orders mentioned above concerning the assessment of damages on 15 August 2008. 30 On 29 October 2008, District Registrar Jan made orders which included orders dealing with the assessment of damages on Sirtex's cross‑claim. Sirtex was required to provide further evidence by 5 December 2008 and Dr Gray was required to provide evidence on or before 16 January 2009, that is any evidence upon which he intended to rely. 31 Dr Gray chose to file no evidence, pursuant to this order. On 12 February 2009 Dr Gray was given an extension of time to 12 March 2009 to file and serve any affidavit. There was no requirement to file an affidavit but if he wished to file an affidavit it had to be filed by 12 March 2009. Dr Gray did not file any affidavit. 32 It appears that between 12 March 2009 and 15 April 2009, Sirtex's solicitors pressed Dr Gray's solicitors for a definitive statement as to whether he intended to file any evidence and the response was that he did not propose to do so. At this point, the parties found themselves two days shy of a year after the delivery of the primary judgment in the proceeding by French J. 33 On 22 April 2009, the matter first came before me concerning the gross sum costs assessment and also Sirtex's application for damages on the cross‑claim. The matter was listed for directions on 2 June 2009 and tentatively for hearing on 9 November 2009. No order for any further affidavits to be provided by any party was then ordered. 34 On 2 June 2009, a directions hearing was held before me and again there was no provision for Dr Gray to file any affidavit on the assessment. No order was sought. Assurances continued to be given that Dr Gray did not intend to file any evidence. 35 However, in July the matter was prelisted before me at the request of Sirtex, apparently because Sirtex was concerned by correspondence it had received from Dr Gray's new solicitors that the hearing of 9 November 2009 might be in jeopardy. 36 On 29 July 2009, I ordered that by 2 September 2009 Dr Gray was to provide written submissions and any affidavit evidence on which he sought to rely in relation to the cross‑claim. It was not clear at this point that Dr Gray proposed to file any further evidence. On 30 September 2009, I formally ordered the matter be set down for hearing on 20 October 2009. 37 The High Court of Australia has recently made it plain that the rules of a court that provide for case management and demand expedition in the public interest should be honoured. The Federal Court of Australia is such a court: see Federal Court of Australia Practice Note CM1, Case Management and Individual Docket System, 25 September 2009. In Aon Risk Services Australia Ltd v Australia National University (2009) 258 ALR 14, all members of the High Court refused to uphold a decision that a party be given leave to amend its claim on day three of a four week trial. The various judgments of the Court indicated the application to amend was made too late, was accompanied by inadequate explanation, necessitated a vacation or adjournment of the dates set down for trial and raised new claims not previously agitated (apparently because of a deliberate tactical decision not to do so): see French CJ at 17[4], and the joint judgment of Gummow, Hayne, Crennan, Kiefel and Bell JJ at [104] - [110]; Heydon J at [137].. 38 In the joint judgment at [111], their Honours noted that an application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. Their Honours observed: [111] There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. 39 At [112], their Honours further stated: [112] A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate. (Emphasis in original) 40 Their Honours further added at [113]: [113] In the past it has been left largely to the parties to prepare for trial and to seek the court's assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy (footnote omitted). It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings. 41 I think it is fair to observe that the observations of the various members of the Court, disclose that courts subject to case management objectives, have a real interest, if not obligation to ensure the efficiency of proceedings commenced in them. 42 I do not consider, in all the circumstances and on the material before me, that the change of position of Dr Gray, following his change of solicitors and counsel, can be seen as some deliberate tactical decision. While the factor of delay is real and must be kept in mind in the overall determination of the issues now before me, I am not satisfied, having regard to the history of this action, the fact that there is now a principal judgment determining the primary liabilities of parties, the fact that there has been an intervening appeal and now that damages must be assessed (amongst other things) in the cross‑claim between Sirtex and Dr Gray, that this delay, should, of itself, count against Dr Gray being able to develop the issues identified above at the hearing of assessment of damages. 43 Nor do I consider in the circumstances that the changed position of Dr Gray, following his change of solicitors and counsel should, of itself, count against him. 44 Similarly, I do not think that mere inconvenience to parties and witnesses in a proceeding like this, of itself, should count against Dr Gray. 45 The more complicated issue and the one that drives me principally in considering whether Dr Gray should be able to agitate the factual issues he now wants to introduce into evidence is whether the new Judge brought into the assessment of damages process, in the light of the findings made by the trial Judge, French J, is likely to be materially assisted by any of the additional evidence proposed by Dr Gray, and whether such evidence might, in any event, be considered to raise the prospects of findings of fact that conflict with findings already made by French J. 46 There are related questions, but important ones, concerning the probative value of any of the evidence Dr Gray proposes to lead. 47 As noted above, in making the orders that he made on 15 August 2008, French J thought that the relevant factual findings were for the most part in the judgment and he thought those which were relevant could be extracted from the judgment and confined within reasonable compass. I feel assured by this observation by his Honour but note that in making it, French J seems not expressly to have excluded the possibility that further evidence might be required properly to deal with the assessment of damages. His Honour was also making that comment at a time when he understood, from preliminary submissions about the matter, that the damages assessment would more or less be confined to the costs of Sirtex in defending the proceedings instituted by UWA when they lost the opportunity to avoid such proceedings. 48 It is useful to note a little of the detail of the evidence that Dr Gray would propose to give if he could rely on his September 2009 affidavit. He would say as follows: [5] If the UWA correspondence had been disclosed to Sirtex in 2000, he accepts Sirtex would have entered into negotiations with UWA regarding a lease. However, he does not believe that those negotiations would necessarily have resulted in a concluded agreement. [6] So far as a resolution by Sirtex issuing shares to UWA was concerned, he considers that there may have been difficulties in doing this under the Memorandum and Articles of Association of Sirtex and he would not have agreed to a proposed resolution of the dispute in this way as he did not believe that UWA had a claim of real substance against him or Sirtex. [16] Additionally, he would not have wanted UWA on the share register of Sirtex by reason of animosity between himself and the Vice Chancellor and Provost of UWA. [17] He recalls in January 1997, prior to finalising the shareholders agreement that he met with Mr Lennon, a lawyer for UWA and recalls saying words to the effect that: Any claim by the University over the intellectual property is small. If UWA was to make a claim, it could be only be satisfied by a monetary, as opposed to an equity, consideration. I do not want Professor Alan Robson to have any involvement or influence over the company that is going to commercialise the intellectual property. [18] Prior to the meeting with Mr Lennon, on 14 January 1997, he met with Dr Panaccio, who told him certain things about Nomura/JAFCO investment in Sirtex. [19] & [20]He had faith and confidence in the viability of Sirtex and its intellectual property and rather than give up his own shareholding in Sirtex, he would have preferred that Sirtex litigate its dispute with UWA and publicly list the company once the litigation with UWA had been concluded. [26] If the listing had been delayed and it had become necessary to reduce operating expenses he would have caused Sirtex to terminate the services of a number of people who were employees of Sirtex. [29] Alternatively, if a resolution would have involved the allocation of shares to UWA and those to be issued to CRI, he would not have regarded this as being in the best interests of CRI and would have opposed it. [34] If there were a proposal to allot new shares to UWA, he would have similarly opposed this. [36] He would not have agreed to, or supported, a resolution of the dispute between Sirtex and UWA which involved the payment of a lump sum to UWA prior to listing. [37] He considers that the only feasible basis for a resolution would have been one by which Sirtex would have agreed to pay a royalty to UWA from the net sales of SIR‑Spheres. 49 Senior counsel for Sirtex reasonably submits that Dr Gray should not be entitled to lead any evidence that would contradict findings already made. 50 Senior counsel for Sirtex also draws attention to what French J observed in the primary judgment at [1142] to the effect that he was reluctant to place much weight on "concessions" of a hypothetical or inferential character extracted from witnesses, having regard to what people would have thought, known or said at times long past. I accept this is an extremely relevant point to note in determining whether or not Dr Gray at this stage should have leave to put on more evidence in relation to the assessment of damages. 51 As to Dr Gray's proposed new evidence described in alleged discussion between him and Dr Panaccio before January 1997, Sirtex says French J made detailed findings in that regard, based on the evidence of Dr Gray and Dr Panaccio at [ 912] - [915], [919] - [920], [930] and [932]. 52 Further, Dr Gray's proposed new evidence describes alleged discussions between Dr Gray and Mr Karlson, (then one of his Sirtex co-directors) before January 1997. French J also made detailed findings in that regard at [918], [969] and [970]. 53 Senior counsel for Sirtex also draws attention to findings of French J concerning Sirtex's general attitude to resolving disputes with persons claiming interest in intellectual property. In particular, he made findings regarding Sirtex's financial position in July 1996 at [892] - [895]. He also made findings as to Sirtex's efforts in 1996 to resolve any potential claims against its intellectual property at [910] - [918]. French J also made findings as to the basis upon which Dr Panaccio and Nomura/JAFCO were prepared to invest in Sirtex at [930] - [932]. His Honour also made findings as to the approval of the terms by Sirtex's other directors and the ongoing involvement of those other directors at [969] - [970]. 54 In particular, counsel draws to the attention of the Court the oral evidence at transcript 3916, given by Dr Panaccio that as of 1 March 1997, six weeks before the transaction between Sirtex and Nomura/JAFCO was entered into, if the lights had then switched on he would have had no reservation in offering some shares to UWA. 55 Dr Panaccio said that if he had been told before May 1997 that Monash or UWA claimed an interest in the technology, he would have made it clear that Nomura/JAFCO would not have proceeded with the investment unless everybody had agreed to transfer their rights to the technology to the new company and that it was dilutive of Nomura's position (transcript 3669). If Dr Panaccio had anticipated an interest claimed by Monash or UWA he would have had negotiations with them (transcript 3669). 56 Mr Karlson accepted that from late 1998 through to 1999, he was anticipating a cash flow crisis and a shortage of cash for Sirtex (transcript 4196 in cross‑examination by Dr Gray's counsel). 57 French J at [1125] found that in a meeting of Sirtex's Due Diligence Committee, Dr Gray discussed the issuing of shares or options to Dr Burton as follows: [1125] Dr Gray said that shares or options could be issued to other persons including Dr Burton and a new managing director at some time prior to or at the initial public offering. The company had not determined how many options would be issued or their terms. He and Dr Panaccio were to prepare a list of proposed option holders, the numbers of options proposed to be issued and a description of their terms. There was also a discussion about changing the company's name. The name "Oncomed Technology Limited" was discussed. 58 French J made further findings at [1140], concerning Dr Gray and Dr Burton and that Dr Gray said "he would write to Dr Burton to seek confirmation that he would make no claim in relation to ceramic microspheres used by the company. The company might offer shares or options in exchange for that confirmation". 59 Senior counsel for Sirtex draws attention to evidence that the Sirtex prospectus itself demonstrated the ease with which shares or options could be issued as part of the IPO. 60 Senior counsel also draws attention to other evidence before French J that demonstrated Sirtex had very little cash and needed a secure income stream. Counsel submits this reinforces the conclusion on the balance of probabilities that Sirtex would have resolved any issues with UWA by offering shares, rather than paying money or offering UWA a royalty on future profits. 61 Sirtex also draws attention to other evidence and findings of French J concerning UWA's general attitude to commercialisation of intellectual property between 1997 and 2000. Attention is drawn to the finding by French J in the context of the January 1997 Barber letter [960] that Professor Barber had a "less than rigorous approach in this respect" which was consistent with his less than hard line attitude to the enforcement of what he and others thought were UWA's intellectual property rights. 62 Attention is also drawn to the evidence given by Professor Robson that in 1993 through to 1999, if UWA was told of the prospects of the invention becoming commercially exploitable or either non‑existent or remote, UWA would have made a decision based on the probabilities of the invention being a profitable invention. That is, UWA would not have been interested in the invention. 63 Attention was also drawn to the evidence of Professor Barber, that in all cases UWA was reactive rather than proactive. The driver of any commercialisation of intellectual property was the researcher and/or his or her external contacts. 64 Sirtex also drew attention to other findings of French J concerning dealings in 1994 and 1996 between Dr Gray and Professor Barber. 65 Additionally, attention was drawn by Sirtex to discussions in 1996 and 1997 between Dr Gray and UWA's internal solicitor, Mr Lennon. Senior counsel for Sirtex note that Dr Gray's new evidence purports to describe the content of an oral discussion at a meeting in January 1997 (over 12 and a half years ago) between Dr Gray and Mr Lennon. This meeting has already been the subject of evidence at trial and the subject of findings. At [921], French J describes the meeting between Dr Gray and Mr Lennon in October 1996 as well. He also made findings of the further meeting between Dr Gray and Mr Lennon on 14 January 1997. Dr Gray was cross‑examined on the meeting by reference to Mr Lennon's memorandum to Professor Barber. He was asked about the relevant facts set out in the memorandum and attributed to him. He did not agree with the exact wording (see French J at [938]). 66 French J also made findings in respect of Mr Gorn's and Professor Barber's letters of January 1997. 67 French J found as follows as to further correspondence between Dr Gray and Professor Barber in March 1997 at [994] - [996]: [994] On 20 February 1997, Professor Barber wrote to Dr Gray. He had been reflecting upon several conversations which they had had in recent months concerning the commercialisation of intellectual property arising from his research activities. He referred to concerns he had raised with Dr Gray about the potential for conflict of interest arising in his various roles. He said: In the most recent case concerning identification of Intellectual Property ownership between the Cancer Research Institute and the University of Western Australia, I was in the end convinced that our interest was negligible. In the future, I rather doubt if they will be as clear cut. [995] Professor Barber said that he believed that a clear statement was necessary from Dr Gray concerning his various roles. He understood, although he did not believe Dr Gray had ever advised him, that he was a director of Paragon Medical. He said this raised the potential for the conflict of interest in any dealings between himself and Dr Gray on Paragon Medical/CRI/UWA issues. He said: On this particular issue, I presume that you have sought approval of the Vice Chancellor as required by the University's policy on Academic Professional and Consultative Work. [996] Dr Gray responded on 5 March 1997. He agreed that there was potential for conflict of interest in the future and a need to "service the University's requirements". He said that in the past he had been medical director of LCI and CRI both of which had been and would continue to be unpaid positions. He had not derived any income or other benefit from any institution or company that he had been associated with during his employment with the university. Paragon Medical had been little more than a shell company up until that time. He was acutely aware that there could be conflict of interest in the future. For that reason he had been negotiating with Professor Landau to reduce his commitment to the university and had arranged to reduce from a full time to a 0.3 fraction of full-time position to be effective in the immediate future. This would allow him appropriate time to pursue, inter alia, promotional activities associated with the CRI. 68 French J made the following findings that UWA would not have pursued a claim against Sirtex in late 1999 and 2000 and thus, any approach by Sirtex to UWA would have most likely resolved any issue favourably to Sirtex, and at nominal cost: [1110]: [1110] By November 1999, Professors Schreuder and Robson and Ms Key were aware of the following matters: 1. That Dr Gray told the ACC that the microsphere technology being used by Sirtex had been developed by him in Melbourne and Perth. 2. Dr Gray had been employed by UWA from the time he came to Perth about 1999. 3. There were grounds for suspecting that some of the work done in the development of the microspheres technology might have been done in the course of Dr Gray's employment. 4. Paragon Medical had lodged applications for certain patents and had been granted the patents. 5. There were grounds for suspecting that the patents applied for by Paragon Medical might not be covered by the Barber letter of January 1997. 6. UWA did not regard itself as having assigned any of its interests in the intellectual property. 7. Paragon Medical was conducting its business on the basis that it owned the microsphere technology being used. 8. Dr Gray regarded UWA as having no interest in the intellectual property being used by Paragon Medical. Professor Schreuder was not called to give evidence. I infer that he knew of the information contained in his letters to Dr Gray and took no action upon Dr Gray's defiance of his demand for information. 69 French J also made findings in regard to Dr Gray's belief in 2000 that UWA was unlikely to take action against Sirtex [1174]: [1174] As to Dr Gray, I have already made findings adverse to his contention that he disclosed the possibility of some "spurious" claim being made by UWA in relation to the intellectual property. I accept the Sirtex submission that UWA's claim to be the owner of some or all of Sirtex's patents was not identified as a possibility in 2000 because Dr Gray did not disclose relevant information and, in particular, did not disclose the Schreuder correspondence of 1999. Sirtex accuses him of deliberate non-disclosure. Dr Gray was aware that UWA, through Professor Schreuder, had raised a real possibility that it would assert a claim to an interest in the intellectual property underpinning the Sirtex float. He must have known that the possibility of such a claim was relevant to the due diligence process and the preparation of the prospectus. In my opinion, despite this knowledge, he decided not to disclose the possibility to Sirtex. In all likelihood that was because he took the view that there was not much chance that the university would follow through. He had convinced himself that the Schreuder correspondence was part of a tactic by Professor Robson to bring about his resignation. He had resigned and therefore there would be little or no purpose in UWA pursuing him. He took a calculated risk in not disclosing the correspondence to Sirtex. It was, as Sirtex alleges, a deliberate non-disclosure. 70 This finding, by reason of the fact that Dr Gray took the view that there was not much chance that the University would follow through, is critical to the overall findings in this paragraph. 71 It also seems clear that the evidence before French J enables a sharp contrast to be drawn between the attitude of UWA and approach taken in 2003, driven by Mr Heitman (UWA's new internal solicitor) and Dr Sierakowski (the Director of UWA's Office of Industry and Innovation at that time) compared with the approach taken in 2000: see primary judgment at [1252] - [1258]. 72 French J also made findings as to how other directors of Sirtex, apart from Dr Gray would have reacted if they had known about the relevant correspondence between Dr Gray and UWA [1111] - [1115]. The finding at [1115] is of particular interest: [1115] Had Dr Gray disclosed the 1999 correspondence to the board, particularly the letter of October 1999 from Professor Schreuder, the board would have been put upon inquiry as to the security of the intellectual property upon which it was to rely the following year in proceeding to a public float. I also accept that Nomura/JAFCO would have been put upon inquiry in the way indicated by Dr Panaccio. Dr Panaccio was not the kind of person to gloss over that kind of issue when his principal's money was at stake. 73 Senior counsel for Sirtex draw particular attention to the following evidence and findings: · Dr Panaccio gave evidence that as of 1997, he would have had no reservation in offering some shares to UWA (transcript 3916). · French J found that in early 2000, Sirtex's Due Diligence Committee (including Dr Gray and Dr Panaccio) was considering offering shares or options to persons such as Dr Burton who were involved in developing the technology and Sirtex was still determining how many options would be issued and their terms [1125], [1140]. · Professor Barber for UWA was the relevant officer with responsibility for ensuring adherence to UWA's policies on intellectual property. At the hearing of 15 August 2008, concerning the orders to be made, French J considered that there was a marked contrast in the approach of UWA in 2003 - more strict - compared with the earlier approach in 2000. In an exchange between French J and Mr Bennett, then counsel and solicitor for Dr Gray, Mr Bennett accepted that as a matter of probability UWA's Vice Chancellor Schreuder probably would have consulted the relevant executive of the University, in particular Professor Barber, but the executive decision of the University of what to take was perhaps represented by the fact that it would be the Vice Chancellor who would sign off on the transaction. French J noted that Professor Barber was "wisely alive to the hazards of litigation". In the principal judgment at [960], French J found that Professor Barber took a "less than hard line attitude to the enforcement of what he and others thought were UWA's intellectual property rights". He was fully informed of UWA's rights in 2000 and chose to do nothing ([1199] - [1204]). Professor Barber was harbouring the hope that the matter may be resolved on an amicable basis, such as that Dr Gray might donate a "Gray Chair of Surgery" to UWA ([1202]), that is without any shares, lump sum or loyalty. 74 Sirtex submits that on the basis of all this evidence and these findings, the potential for Sirtex and UWA to successfully conclude negotiations were very probable. On this topic, however, Dr Gray would propose to put on new evidence that asserts at [5] of the September affidavit: I accept that, had the correspondence which I received from Professor Schreuder of UWA, dated 17 June and 11 October 1999 … been disclosed to Sirtex in 2000, the company would have entered into negotiations with UWA regarding a release. However, I do not believe that those negotiations would necessarily have resulted in a concluded agreement between Sirtex and UWA. 75 Senior counsel accepts that this is consistent with the view that there was a high probability that a release would have been obtained. Rather Dr Gray's new proposed evidence is that any resolution would not have resulted in some share allocation, from one source or another, but in the payment of a royalty to UWA. 76 Dr Gray's September affidavit also suggests at [19] "that Sirtex would become a profitable company, whether or not the Listing went ahead as planned". It also contemplates a hypothetical delay in Sirtex's listing, which took place in July and August 2000, and consequential measures which Dr Gray purports he would have taken to reduce Sirtex's staff. 77 Senior counsel for Sirtex submits that as such, Dr Gray's proposed new evidence contends that it is likely the board of Sirtex would have agreed not to resolve UWA's claim and to delay the proposed listing for as long as it might have taken to conclude such hypothetical litigation with UWA, and that Sirtex would have simply continued to conduct its business without listing. It is submitted that such evidence is inconsistent with: · French J's findings that Sirtex's board accepted the basis upon which Nomura/JAFCO invested in 1997, which focussed on clearing all intellectual property ownership disputes before obtaining a listing within five years ([930] - [932], [969] - [970]). · French J's findings that Dr Panaccio's view would have been that Nomura/JAFCO would have withheld funding pending resolution of UWA's claim ([1111]). · French J's findings that Mr Karlson's and Mr Gorn's view would have been that the listing could not go ahead without first resolving UWA's claim ([1112] - [1113]). · Mr Karlson's evidence (under cross‑examination by Dr Gray's counsel) that from late 1998 through to 1999, he was anticipating a cash flow crisis and a shortage of cash for Sirtex. 78 Senior counsel says such proposed new evidence also contradicts Dr Gray's concession his written submissions dated 15 August 2008, that, if Sirtex had been aware of the Schreuder correspondence of 1999, the abandonment of the initial public offering would have been an inappropriate course for Sirtex to have adopted. 79 Sirtex also draws attention to Dr Panaccio's evidence that in 1997, he would have had no reservation in offering some shares to UWA (transcript 3916) so long as it was not dilutive of Nomura's position (transcript 3669). Counsel submits that if Dr Panaccio had anticipated an interest claimed by UWA, he would have had negotiations with them as he claimed in evidence (transcript 3669). 80 Sirtex submits that there is ample basis to support the conclusion that if any monetary compensation had to be offered to UWA, it would most probably have been in the form of shares or options in Sirtex, in view of: · French J's findings that the Sirtex board accepted the basis upon which Nomura/JAFCO invested in 1997. · French J's findings that Dr Panaccio's view would have been that Nomura/JAFCO would have withheld funding pending resolution of UWA's claim. · French J's findings that Mr Karlson and Mr Gorn's view would have been that the listing could not go ahead without first resolving UWA's claim. · Dr Panaccio's evidence that as of 1997, he would have had no reservation in offering some shares to UWA. · Mr Karlson's evidence that from late 1998 through to 1999, he was anticipating a cash flow crisis and a shortage of funds for Sirtex. · French J's findings that in early 2000, Sirtex's Due Diligence Committee (which included Dr Gray and Dr Panaccio) was considering offering shares or options to persons such as Dr Burton who were involved in developing the technology and Sirtex was still determining how many options would be issued and their terms. 81 By contrast, counsel submits that Dr Gray's proposed new evidence speculates about how he would have opposed any attempt by Sirtex to issue new shares to UWA or pay it in a lump sum, and argues instead that Sirtex would have granted UWA an extensive royalty. Senior counsel submits this argument may now be convenient for Dr Gray's current defence against Sirtex, but it is clearly seeking to revisit matters already addressed and, in any event, is contrary to the weight of the findings. 82 Senior counsel for Sirtex says the question of causation and whether particular heads of damage are recoverable should be determined by reference to what French J actually found at [1611] and [1612] as follows: [1611] Having regard to his provision of the Barber letter of 20 February 1997 and his answers to the due diligence questionnaires, Dr Gray's silence on the 1999 letter was, in my opinion, misleading or deceptive. That is to say, the circumstances of his silence were such as to convey the wrong impression that no possibility existed that UWA had or was likely to be interested in the intellectual property underpinning the Sirtex float. [1612] In my opinion Sirtex is entitled to relief in respect of Dr Gray's breaches of is duties as a director and for misleading or deceptive conduct in contravention of s 10 of the Fair Trading Act 1987 (WA). Had it been aware of the correspondence it would, in all probability, have been advised to make further inquiries of UWA. It would either have been notified of a potential claim or would have negotiated a release for some consideration, perhaps by way of a share issue. It lost the opportunity to so resolve the matter with UWA and has been exposed to this litigation. The fact that the litigation was unsuccessful does not affect the Sirtex causes of action against Dr Gray in respect of his duties as a director and in respect of the claim for misleading or deceptive conduct. Sirtex is entitled to compensation or damages for the loss which it has suffered as a result of opportunity to avoid the instigation of these proceedings and to resolve matters in advance with UWA. The measure and assessment of damages will be a matter for a separate hearing if the quantum cannot otherwise be agreed between Sirtex and Dr Gray. Counsel for Sirtex indicated in argument that the recovery it would seek from Dr Gray would be related to the costs of the proceedings. If that is so, having regard to the outcome of the proceedings, the compensation or damages should be able to be agreed. 83 Attention is also drawn to what French J found as to Dr Gray's own view as to the consequences of his non‑disclosure of the UWA correspondence ([1115]) as follows: [1115] Had Dr Gray disclosed the 1999 correspondence to the board, particularly the letter of October 1999 from Professor Schreuder, the board would have been put upon inquiry as to the security of the intellectual property upon which it was to rely the following year in proceeding to a public float. I also accept that Nomura/JAFCO would have been put upon inquiry in the way indicated by Dr Panaccio. Dr Panaccio was not the kind of person to gloss over that kind of issue when his principal's money was at stake. 84 Senior counsel for Dr Gray noted the evidence upon which Sirtex would rely in contending that, as of 2000, if Sirtex had been aware of the UWA correspondence a resolution of matters would have been achieved between Sirtex and UWA that would have involved the payment of some consideration, but not a royalty payment. Senior counsel submitted, however, that none of the evidence relied on went squarely to the point of what would have happened in that hypothetical situation and that is not surprising given the order made on the third day of the trial at the question of assessment that any loss be deferred. Senior counsel for Dr Gray accepted that Dr Gray was bound by the findings of French J. But that is not to say that other evidence might not be led. Senior counsel drew attention to what French J said in his reasons for decision on 15 August 2008 at [3] and submitted that this showed his Honour was at pains not to unnecessarily confine the assessment process. He also noted what his Honour had said that there was a possibility which had not been formulated with any concreteness, of prejudice to Dr Gray in that the trial was conducted on the basis of damages. Senior counsel also noted that French J accepted that relevant factual findings which were for the most part in the judgment. The result, senior counsel submitted is that there may be a gap in the evidence where the trial was not focussed upon the hypothetical as opposed as to what was actually happening. That is a gap in relation to what might have happened had the hypothetical situation arose. It is in fact that gap that Dr Gray's most recent affidavit seeks to fill. 85 Senior counsel for Dr Gray submitted that there was no part of the evidence that senior counsel for Sirtex had referred to in oral submissions which focussed on the hypothetical, or by reference to which French J had found that there was a possibility of a share issue. That did not amount to a finding of what would be the form of consideration or compromise. 86 Senior counsel for Dr Gray doubted that it would be necessary for Sirtex to call a range of retired officers of the company to deal with this issue as it had suggested it might need to do. For example, so far as the conversation that Dr Gray says he also had with Mr Lennon on 14 January 1997 is concerned, it would only be necessary to call Mr Lennon to contradict him. It would be a "cross‑examiners dream", he said, as to why the conversation now mentioned was not previously referred to in evidence. 87 Senior counsel for Dr Gray accepted that a conversation from January 1997 - three years before the hypothetical period - may well raise a question of probative value or relevance. He suggested that the Court may well get a sense that the evidence is not of cardinal significance, to say the least. Senior counsel suggested that if the Court considered the evidence really lacked probative value then it might be excluded under s 135 of the Evidence Act 1995 (Cth) and the Court could later decide to rule in that regard. 88 When pressed as to what evidence senior counsel for Dr Gray considered might be called "critical" to the assessment of damages, senior counsel focussed on the following paragraphs of Dr Gray's September affidavit. 89 First, [14] by which Dr Gray would say that in 2000 he would not have agreed to a proposed resolution of the dispute by the issuing to UWA of shares which had been issued to Dr Gray or which Dr Gray controlled. 90 Secondly, he emphasised [16] in which Dr Gray would say that in 2000 he would not have wanted UWA on the share register of Sirtex, given his relationship with Professor Robson. 91 Thirdly, he drew attention to [28] by which Dr Gray would say that had such a proposal been put to CRI he would have opposed any acceptance of it, in his capacity as a director of CRI and would have recommended to other directors that they also reject the proposal. 92 Fourthly, what is proposed by [28] cannot be separated out from what is in [29] - [33], which all goes to support a contention of Dr Gray that other members of the CRI board would have closely considered his recommendations by reason of the relationship he had with them over some time. 93 Fifthly, [34] by which Dr Gray would say that he would have also have opposed any attempt by Sirtex to resolve a dispute with UWA by issuing or allotting his Sirtex shares to UWA. 94 Sixthly, in [35], he sets out the reasons he would do this: he would have diluted his own shareholding; he would not have wanted UWA on the share register for the reasons given earlier; and he held a strong view that UWA had no entitlements of substance. 95 Seventhly, [36] in which Dr Gray would say that he would not have agreed to or supported a resolution of a dispute between Sirtex and UWA which involved the payment of a lump sum to UWA prior to the listing. He would not have regarded it as being in the interests of Sirtex. Senior counsel for Dr Gray says that senior counsel for Sirtex would have the opportunity to cross‑examine about this and it is difficult to see why there would be any prejudice to Sirtex if this evidence were to go in. 96 Having considered the submissions of counsel for Dr Gray and Sirtex, and particularly the aspects of the evidence identified by senior counsel for Dr Gray as falling into the critical category, I am not persuaded, at this stage of the proceeding, that further evidence led of the nature proposed is going to make any material difference to the nature of the assessment task that I am now called upon to perform. It seems to me, especially by reference to the evidence and findings of French J mentioned above, that there are indeed relevant factual findings which are for the most part in the judgment and which are relevant to a determination of damages and which are confined within a reasonable compass, as French J said in University of Western Australia v Gray (No 22) at [5]. 97 Each of the paragraphs identified by senior counsel for Dr Gray seeks to revisit issues that have been to a large extent the subject of evidence in the primary proceeding and in relation to which French J has made relevant findings, whether or not the hypothetical situation now under consideration was uppermost in the witnesses mind at the time of their evidence. 98 It also seems to me that if I were to allow Dr Gray to put on his further proposed evidence, he would thereby be given an opportunity to revisit issues and evidence previously adduced and the subject of cross‑examination and re‑examination in the course of the earlier trial. One glaring example of this, is the evidence that Dr Gray would propose to give at [17] of his September affidavit concerning what he recalls saying to Mr Lennon at the meeting on 14 January 1997. That meeting was the subject of extensive evidence. If Dr Gray did not give evidence about the matter mentioned in [17], at the time of the trial, it seems to me it would be quite iniquitous for him now to have the opportunity to come in and revisit that meeting and what was said or not said all those years ago, when it was dealt with at the primary hearing. It is not good enough, in the event, for counsel for Dr Gray to say that, if Dr Gray were permitted to lead this evidence, it would be a "cross‑examiner's dream" for counsel for Sirtex. It is simply iniquitous that such an issue could be reopened. Moreover, 1997 is some three years before the relevant hypothetical period in 2000. The probative value of any such evidence would be little, if any. 99 In my view, the same question concerning the probative value of the evidence in other paragraphs identified by senior counsel for Dr Gray as critical, must also be doubted. The primary evidence is already in the primary proceeding. The relationships that Dr Gray had with various actors, members of the boards of Sirtex and CRI and other individuals, for example, are all the subject of evidence and appropriate inferences may be drawn. The relative commercial positions and attitudes of the relevant actor, board members and the like are all well recorded, or at the very least reasonable inferences as to their attitude concerning the hypothetical compromise issue now before the Court on the assessment of damages seem capable of being drawn. Additional evidence in this regard is quite likely to be argumentative, or tendentious, or speculative in the extreme; and in light of the facts already found by French J, self‑serving. 100 It seems to me that, for the Court to provide Dr Gray with the opportunity to reflect, well after the events in question, and well after the trial in the primary proceeding and the judgment given and the findings made, on the hypothetical task now before the Court, would simply produce a range of speculative evidence that would have little probative value. Rather, the foundation already seems to exist for the Court to assess the probability of a resolution along the lines suggested by French J at [1612] of the primary judgment. 101 In these circumstances, I consider it is much more useful for the parties and the Court to focus on the evidence and findings to date in the primary judgment. The question of the probability of the resolution of issues between UWA and Sirtex can be measured by reference to that evidence. 102 I would make only one qualification to this finding at this point out of an abundance of caution. If, during the course of the assessment of damages, it appears to my satisfaction that it would be unjust for Dr Gray not to be able to lead further evidence on a particular matter contained in his September affidavit, having regard to the manner in which the trial of the primary proceedings had earlier developed or the assessment of damages hearing progresses, I would entertain an application from Dr Gray to lead such evidence. However, I would take some convincing, based on my appreciation of the assessment proceedings to this point to take such further evidence. 103 In summary, the fact that the assessment of damages proceeding, since the handing down of the principal judgment on 17 April 2008, has taken so long, the fact that the former counsel and solicitor for Dr Gray chose not to put on affidavit evidence and, particularly, the general lack of satisfaction I have that adducing any further evidence in the proceeding in relation to the assessment of damages is likely to be of any assistance in a probative sense to me in assessing damages, all lead me to refuse the application of Dr Gray to rely on the further evidence referred to in his September affidavit. 104 I am however, prepared, as noted above, to allow Dr Gray to argue the point of law that has been raised by senior counsel on his behalf.

University of Western Australia v Gray

At a glance

Court

Decision date

Before

Source

Judgment (15 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (5)