World Medical Manufacturing Corporation v Phillips Ormonde & Fitzpatrick Lawyers [2000] VSC 196

Supreme Court of Victoria|2000-05-18|Before: Gillard J

The application is for a permanent injunction and the court's jurisdiction to grant a permanent injunction is dictated by the twin statutory considerations.

The cases in this area which go back as far as Cholmondley v Lord Clinton [1815] EngR 511; (1815) 19 Ves 261; 34 ER 575 discuss a number of bases for the jurisdiction to restrain solicitors from acting in litigation against a former client.

Secondly, the relationship between solicitor and client is a fiduciary one and this imposes obligations of trust, integrity and confidence.

The third basis for the jurisdiction is what could be described as the "administration of justice factor". As I said in the Yunghanns case - "It is vital to the proper administration of justice that clients are confident in the expectation that their confidence and trust will be maintained. To permit a legal practitioner to put that obligation at risk by permitting him to act against his former client requires the court to approach the task with caution. To permit a legal practitioner to change sides is an act which cuts across what the average person would consider was right and proper and has the potential to bring the legal profession into disrepute".

This basis for the jurisdiction is fortified by the ethical rules which require a legal practitioner to avoid a conflict of interest and the clear obligation on the solicitor to put at his client's disposal his skill and knowledge which creates a problem if part of his knowledge was gained from a former client against whom he is now acting. See Spector v Ageda (1973) Ch 30 at 48. In addition, the court has a general jurisdiction to control and punish solicitors as officers of the court if they behave in a manner which is not in accordance with the high standards expected of a member of the legal profession.

The point was made by Mr Kerr in the passage to which I referred to above, which is that the rule which protects from disclosure of confidential information between solicitor and client rests not only upon the confidential relationship but also in the interests of justice that the communications between client and solicitor must be full, free and complete.

In my opinion, the main and important basis for the jurisdiction is the necessity of maintaining a confidence.

There is no doubt in a case such as the present that there was a relationship of confidence existing between the plaintiff and the second defendant POF Attorneys and this obligation of confidence continues even though POF Attorneys have ceased to act for World Medical. But the real question is to whether POF Attorneys have obtained any information which could be misused if the first defendant, POF Lawyers, was permitted to continue to act for Cook Inc in the Federal Court proceedings and POF Attorneys were permitted to assist and provide services to POF Lawyers in support of the litigation?

There has been some controversy in respect to the jurisdiction concerning the test to apply with respect to the risk of the former solicitor or indeed the former professional body breaching obligations and misusing the information.

In Yunghanns v Elfic Ltd I adopted and applied the test of Hayne J stated in Farrow Mortgage v Mendall Properties [1995] VicRp 1; (1995) 1 VR 1 at p.5 where his Honour said -

"Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant's choice, it is not necessary to conclude that harm is inevitable (or well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. For present purposes I do not need to consider whether anything turns on the difference in expression of the test as given by Parker LJ and Ipp J. It is enough to say that I consider that an injunction should go if there is a real and sensible possibility of a misuse of confidential information." (Emphasis added.)

Since delivering my judgment the House of Lords have considered the question in relation to both lawyers and accountants.

Prior to the House of Lords consideration there was some controversy about what was the appropriate test in England.

The House of Lords has laid to rest that controversy at least for English courts.

In Prince Jefri Bolkiah v KPMG (a firm) [1998] UKHL 52; (1999) 1 All ER 517, the defendant firm of accountants were employed as auditors of an investment agency which managed the general reserve funds of the government of Brunei. The plaintiff had been chairman of that agency until his removal in 1998. For a period of 18 months between 1996 and 1998 the plaintiff acting in his personal capacity retained the defendants to act for him or one of his companies in private litigation in which he was then engaged. In the course of acting for the plaintiff in that litigation the defendant firm provided extensive litigation support services of the sort usually undertaken by solicitors. In so doing the defendants were entrusted with or acquired extensive confidential information about the plaintiff's assets and financial affairs. The defendant employed 168 personnel on his litigation which was settled in March 1998.

The plaintiff was dismissed from his position as chairman of the agency and in June 1998 the Brunei government commenced an investigation into the affairs of the agency. The government wished to retain the defendant firm to assist the investigation.

The defendants took the view that they could accept the instructions because they had ceased to act for the plaintiff but were aware of the possible conflict of interest and the firm erected an information barrier (a so-called Chinese wall) around the department carrying out the investigation on behalf of the Brunei government.

The plaintiff sought and obtained an injunction against the defendant firm which was set aside by the Court of Appeal. He appealed to the House of Lords.

The leading speech was given by Lord Millett.

It is clear from the reasons given that the members of the House of Lords did not draw any distinction between solicitors and accountants with respect to the exercise of the jurisdiction in the circumstances of that case. It was conceded that the firm of accountants should be treated "for present purposes in the same way as a solicitor" - ibid at p.526(d).

The controversy which was caused by the Court of Appeal decision of Rakusen v Ellis Munday & Clarke (1912) 1 Ch 831 was put to rest by it being overruled. Criticisms had been levelled at that decision because the tests laid down by the Court of Appeal were too demanding and placed a heavy burden on the client or former client to obtain an injunction.

Lord Millett at p.526 made it clear that the basis for the court's intervention is not founded on the avoidance of any perception of possible impropriety "but on the protection of confidential information."

He stated the jurisdiction by adopting the submission put by counsel for Prince Jefri. It was expressed in this way at p.526 -

" ... accepting that there was no ground on which the court could properly intervene unless two conditions were satisfied: (i) that the solicitor was in possession of information which was confidential to the former client and (ii) that such information was or might be relevant to the matter on which he was instructed by the second client. This makes the possession of relevant confidential information the test of what is comprehended within the expression 'the same or a connected matter'."

"My Lords, I would affirm this as the basis of the court's jurisdiction to intervene on behalf of a former client."

As his Lordship pointed out, that is a different situation to where the court's intervention is sought by an existing client. In that situation a fiduciary cannot act at the same time both for and against the client and his firm is in no better position and accordingly the court intervenes on that basis.

But that is not the position in the present matter.

Lord Millett at p.527 stated the law for England as follows -

"Where the court's intervention is sought by a former client, however, the position is entirely different. The court's jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client. The only duty to the former client which provides the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence. Accordingly it is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own. Although the burden of proof is on the plaintiff it is not a heavy one. The former may readily be inferred; the latter will often be obvious. I do not think that it is necessary to introduce any presumptions rebuttable or otherwise, in relation to these two matters. But given the basis on which the jurisdiction is exercised, there is no cause to impute or attribute the knowledge of one partner to his fellow partners. Whether a particular individual is in possession of confidential information is a question of fact which must be proved or inferred from the circumstances of the case." (Emphases added.)

His Lordship went on to consider the extent of a solicitor's duty and observed that although the former client cannot be protected completely "he is entitled to prevent his former solicitor from exposing him to any avoidable risk; and this includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information is or may be relevant." (Emphases added.)

As his Lordship pointed out it does then become a question of the degree of risk. He stated that if there was no risk of disclosure or misuse of confidential information then there was no basis for granting relief.

After referring to the criticisms made of Rackusen v Ellis Munday and Clarke to the effect that it placed an unfair burden on the former client he went on to say this -

"It is in any case difficult to discern any justification in principle for a rule which exposes a former client without his consent to any avoidable risk, however slight, that information which he has imparted in confidence in the course of a fiduciary relationship may come into the possession of a third party and be used to his disadvantage. Where in addition the information in question is not only confidential but also privileged, the case for a strict approach is unanswerable."

It was in that context that his Lordship made reference to "proper administration of justice" and emphasised how important it was that a person in possession of confidential and privileged information "should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest." See at p.528.

His Lordship on the same page stated the test concerning risk of disclosure as follows -

"I prefer simply to say that the court should not intervene unless it is satisfied that there is no real risk of disclosure. It goes without saying that the risk must be a real one, and not merely fanciful or theoretical. But it need not be substantial."

This statement concerning the risk goes further in my opinion than what Hayne J said in Farrow Mortgage. Lord Millett is placing an onus upon the confidante in that if the court is satisfied that confidential information has been imparted which could be adverse to the interests of the former client then it should grant the injunction unless it is satisfied there is no real risk of disclosure.

Hayne J in my opinion puts the onus upon the plaintiff seeking the injunction to show that there is a real and sensible possibility of the misuse of confidential information.

Lord Millett concluded, "I am not satisfied on the evidence that KPMG have discharged the heavy burden of showing that there is no risk that information in their possession which is confidential to Prince Jefri and which they obtained in the course of a former client relationship may unwittingly or inadvertently come to the notice of those working on Project Gemma." (Emphasis added.)

The House of Lords held that Prince Jefri should have his injunction.

The decision of Bolkiah v KPMG was considered by the Full Court of South Australia in the decision of Pradham v East Side Day Surgery Pty Ltd, unreported, delivered on 18 June 1999 and the court held that the principles stated by Lord Millett should be applied in South Australia. In Newman as Trustee for the Estates of Littlejohn v Phillips Fox (a firm), Steytler J in the Supreme Court of Western Australia, (unreported, delivered on 15 September 1999) helpfully discussed all the authorities and also concluded that the tests laid down by the House of Lords should be applied in Western Australia.

In my opinion, the principles laid down by Lord Millett in the Bolkiah decision should also be followed in this State.

It means that the court is concerned with a step by step consideration of the issues as follows -

(i) Is the former supplier of services whether it be a solicitor, accountant or a patent attorney or some other person providing services, in possession of information provided by the former client which is confidential and which the former client has not consented to disclosure?;

(ii) Is or may the information be relevant to the new matter in which the interest of the other client is or may be adverse to his own;

(iii) If the answers to the first two issues are yes, then is there a risk which is real and not merely fanciful nor theoretical that there will be disclosure?

(iv) If there is that risk then the evidential burden which is heavy, rests upon the provider of the services to establish that there is no risk of disclosure and this may be established in exceptional cases by the provision of a 'Chinese wall' but this is rarely of sufficient protection.

(v) Should a permanent injunction be granted?

In some circumstances it is nearly impossible to put in place a regime which would ensure that there was no risk of confidential information being inadvertently disclosed. I adverted to the difficulties with the Chinese wall concept in the Yunghanns case where in the circumstances of that case I likened the proposed steps to a Dutch dyke with the ever present risk of seepage of information.

What is confidential information in a given set of circumstances will depend upon those circumstances. I emphasised in the Yunghanns case what I described as the "getting to know you" factors which in my opinion are of considerable importance to former clients who feel that their trust and loyalty has been betrayed when a solicitor acts against them in a later piece of litigation.

At p.10 of the unreported judgment I stated the following -

"But the degree of particularity of the confidential information must depend upon all the circumstances. Often it cannot be identified for fear of disclosure. In considering this factor it must be borne in mind that a solicitor makes notes, forms views and opinions of clients and observes things that the client may have forgotten or overlooked. In some cases the circumstances of the retainer and the nature of the legal work will be sufficient to establish the nature of the confidential information. In this regard the relationship between solicitor and client may be such that the solicitor learns a great deal about his client, his strengths, his weaknesses, his honesty or a lack thereof, his reaction to crisis, pressure or tension, his attitude to litigation and settling cases and his tactics. These are factors which I would call the 'getting to know you' factors. The overall opinion formed by a solicitor of his client as a result of his contact may in circumstances amount to confidential information that should not be disclosed and more importantly used against the client."

There are no such factors present in this proceeding.

Mr Garrett QC who appeared with Mr Maryniak of counsel for the plaintiff placed much emphasis on the fiduciary relationship between solicitor and client and also patent attorney and client. Their argument proceeded on the basis that there was some separate and independent basis for the jurisdiction resting upon the mere relationship. Of course if there is a subsisting fiduciary relationship then it is not open for a solicitor or another provider of services to act for both interests. But where the retainer has terminated then the position is different.

Further, Mr Garrett QC submitted that "the administration of justice factor", that is, the importance to the administration of justice of an appearance of loyalty and integrity and the fact that the legal profession is brought into disrepute when former lawyers act against former clients is a separate basis for the jurisdiction.

He drew attention to what the Court of Appeal of this State said in the matter of McVeigh & Anor v Linen House Pty Ltd & ors, an unreported decision delivered 3 September 1999.

In the course of an ex tempore judgment Batt JA said this -

"The authorities establish that a court will restrain a solicitor from acting for a litigant not only in order to prevent disclosure of confidence of a client or a former client, but also to ensure that the solicitor's duty of loyalty to the former client is respected, notwithstanding termination of the retainer, and to uphold as a matter of public policy the special relationship of solicitor and client."

His Honour went on to refer to what Burchett J said in Wan v McDonald [1992] FCA 4; (1992) 33 FCR 491 at 512 and what Phillips J said in Holdsworth v M.R. Anderson & Associates, unreported, delivered 26 August 1994.

However, in considering what his Honour said it must be borne in mind what were the circumstances of that case. In that case a solicitor was seeking to act against a former client in the continuation of the same matter.

"In my opinion, it could only be in a rare and very special case of this latter kind that a solicitor could properly be permitted to act against his former client whether or not any real question of the use of confidential information could arise."

His Honour was referring to a situation where one solicitor, having acted for both parties, seeks to act against one of his former clients and in the interest of the preferred client "in litigation arising out of the very matter in which he himself acted for both".

This was also the position in the Wan and Hollsworth cases.

In the present case there is no suggestion that the defendants are seeking to act in a litigation against the interests of the plaintiff after acting for the plaintiff in the litigation. The defendants have not acted for the plaintiff in the litigation in the Federal Court.

There is no real dispute between the parties as to the facts. The contest between them concerns the inferences that should be drawn from them.

The plaintiff in support of its application relied upon a number of affidavits from Ms Schmitt, the plaintiff's in-house intellectual property attorney both patent and legal, a solicitor Mr Rees from the plaintiff's solicitors Baker & McKenzie, and the affidavit of Mr Paul Bawel who at all relevant times was the independent patent agent acting for the plaintiff in the United States of America.

The plaintiff also relied upon an affidavit of Mr Rathbone who is the divisional manager in Australia for Medtronic.

The defendants filed a substantial number of affidavits. The main two witnesses were Mr Malcolm Royal who at all relevant times was a partner of POF Attorneys and the managing partner, and Mr Gregory Chambers, a partner in both POF Lawyers and POF Attorneys. Both men were cross-examined at some length. In addition a number of deponents of affidavits filed on behalf of the defendant were also cross-examined but not to any great extent.

At the outset it is important to state four facts which are not in dispute.

First, that no distinction is drawn between POF Lawyers and POF Attorneys and that for the purposes of the present application they are to be treated as one and the same entity. This fact not only emerged in the course of evidence but no argument was addressed to the court by defendants' counsel drawing a distinction between both entities. Indeed, the facts clearly demonstrate that Mr Greg Chambers at all relevant times was acting for Cook Inc as a patent attorney on behalf of POF Attorneys and as a lawyer for POF Lawyers. Other employees of both firms acted for Cook Inc.

Secondly, the evidence demonstrates and no argument was put to the contrary, that the plaintiff World Medical engaged POF Attorneys.

Thirdly, all contact between World Medical and POF Attorneys was by correspondence in the form of letters or facsimiles. There were no face to face meetings or telephone calls involving anybody from World Medical and anybody from POF Attorneys at any time, nor were there any telephone conversations.

There was no contact between POF Attorneys and World Medical which could in any way be described as "getting to know you". POF Attorneys did not acquire any information as to what the attitude of World Medical was to any issue or how it would act and behave in any litigation. In the course of performing services the question of amending the specification was raised by Mr Bawel but never followed up by Mr Bawel who was discussing matters with representatives of World Medical in the United States of America.

The contact between World Medical and POF Attorneys was impersonal.

The fourth fact was that the information passing between the World Medical and POF attorneys was confidential.

The first relevant contact between any of the parties occurred in June 1997 when representatives of Cook Inc travelled to Melbourne and had a conference with Mr Chambers in the latter's office. The discussions centred around the question of Cook Inc retaining patent attorneys and lawyers to advise it with respect to a possible infringement of its patent by World Medical and to act for it.

It is necessary to go back in time. In October 1984, Cook Inc obtained a patent in respect to its stent-graft device. It had a priority date of 1984.

In October 1995, World Medical made a patent application in America with the earliest priority date being October 1995.

On 7 January 1997 World Medical's US patent 5591195 file wrapper was open to public inspection in the United States of America.

On 16 January 1997 World Medical's Australian patent application number designation was advertised in Australia and on 9 May 1997 World Medical's patent application PCT/US96/17233 had an international publication date.

On 22 May 1997 World Medical's patent application Australian 74794/96 was published.

It was in that background that the Cook Inc discussions with Mr Chambers took place in June 1997.

From June onwards Mr Chambers reviewed various documents and the like and in August 1997 Cook Inc wrote to Mr Chambers requesting him to advise on a number of matters including the potential infringement of its Australian patent by the sale of stent grafts by World Medical in Australia.

A conflict search by Mr Chambers disclosed no difficulties in POF Attorneys acting.

There is some confusion in the evidence as to whether or not POF Lawyers were also acting for Cook Inc at this time but taking into account the other evidence it is unnecessary to decide that.

In January 1998, POF Lawyers briefed Mr Lyons QC on behalf of Cook Inc in relation to possible patent proceedings. However, POF Lawyers did not at this stage open any file in respect to the matter. Advice was obtained from Mr Lyons QC.

On 24 February 1998, Mr Paul Bawel, patent attorney located in Pennsylvania US of A wrote to POF Attorneys and the first two paragraphs of his facsimile stated -

"I am seeking an agent to represent my client before the Australian Patent Office for a PTC application. The PTC application must enter the national stage by April 30 1998. My clients are World Medical Manufacturing Corporation, 14794N.W. 4th Street, Bldgs. 210 and 211, Sunrise, Florida, 33325, U.S.A. The device for which a patent is sought is a vascular stent graft placed via a catheter."

He then asked were "POF Attorneys able to represent World Medical"? His facsimile was handed to Mr Royal, the managing partner of POF Attorneys and he carried out a standard conflict check which did not reveal any conflict.

On that day Mr Royal sent a facsimile to Mr Bawel and after informing him that they would be pleased to act for him in Australia wrote -

"We can enter the national phase and prosecute the application without any signed forms or other documents. We simply need you to identify the international application by its PCT number. We can obtain all of the necessary information from the Australian Patent Office." (Emphasis added.)

It is significant that all the necessary information concerning the application could be obtained from the Australian Patent Office.

Mr Royal went on to say that the official fees and charges were A$1,180 and the charge for claiming priority was A$70.

Mr Royal forwarded by mail details of the firm and forms that could assist Mr Bawel in instructing POF Attorneys.

In response to that facsimile Mr Bawel sent a facsimile on 1 March 1998 and stated that once the information was received by mail he would be in contact. He then went on to state -

"If the information is not included in the mailed package, would you please inform me of the procedure and cost to amend the claims? I would like to submit a different set of claims for consideration."

At no stage thereafter did Mr Bawel ever submit a different set of claims for consideration or to amend the claims. He never revealed what he or his client had in mind.

The complete file of POF Attorneys was placed in evidence and is Exhibit MJR4 to the affidavit of Mr Royal sworn 3 December 1999.

A perusal of the file shows correspondence which raised a number of issues concerning the prosecution of World Medical's application in Australia.

POF Attorneys informed Mr Bawel concerning the procedure for amending patent claims, an issue arose as to who was the applicant and the proposed assignment to World Medical of rights by two inventors and the obtaining by POF Attorneys of information from the Australian Patent Office computer. On 24 March 1998 POF Attorneys lodged the patent application and told Mr Bawel by facsimile.

At this point Mr Royal handed over the file to a Mr Downie.

Further steps were taken with the allotment of the official application number by the Patent Office, a reminder facsimile concerning the assignment of patent rights from the inventors to World Medical, a letter from Mr Bawel to Mr Royal concerning details of the inventors and ultimately a letter from the Patent Office on 10 June 1998 to POF Attorneys.

This letter required Mr H.J. Leonhardt who was one of the inventors to make a request under s.44(2) of the Patents Act 1990 to make an examination of the above patent request and complete specifications relating to that application. It was noted that the application, i.e. World Medical's application, would lapse unless the direction was complied with within six months. This was a procedural step that must be followed in the course of prosecuting the application.

On 25 June 1998 Mr Mark Williams on behalf of POF Attorneys wrote to Mr Bawel informing him of the Commissioner's direction and requesting his advice whether he required POF Attorneys to request examination and "whether we should request regular or modified examination." He informed Mr Bawel of the cost of the examinations and requested instructions preferably by 12 October 1998.

In the meantime POF Attorneys and probably POF Lawyers were continuing to perform services for Cook Inc in relation to its possible claim against World Medical.

On 8 August 1998 Mr Bawel asked POF Attorneys to request the examination at their earliest convenience and on 10 August 1998 POF Attorneys filed a request for examination with the Australian Patent Office.

On the same day POF Attorneys informed Mr Bawel of that fact and informed him that when the examiner's report was received they would forward it to him with their comments.

World Medical's file was then handed over to Mr Philip Gehrig an attorney with POF Attorneys.

He examined the file in accordance with an office practice of POF Attorneys.

The practice had been put in place because over a period of some years prior to 1998 there had been an increase in the number of patents applications held invalid or ineffective on grounds relating to the form of the specification. In order to avoid problems POF Attorneys, when asked by the client to request examination by the Patent Office, reviewed the file "to determine whether amendments would be appropriate to bring the specification into accord with usual Australian practice."

The request to do same did not come from a client but was a practice put in place by POF Attorneys and it was only if instructions were given to make amendments that they would charge for their services.

Mr Gehrig considered the file and sent a facsimile to Mr Bawel dated 21 August 1998 in which he informed him that he had reviewed the file and he made a number of recommendations concerning amendments to the specification.

At this stage the file comprised correspondence with World Medical and documents which had been obtained from the Patent Office. Mr Gehrig wrote -

"Based on our review we recommend the following amendments:

(i) Inclusion in the description of statements of invention consistent with the independent claim;

(ii) Re-expression of the stated objects of the invention as advantageous outcomes achievable by various embodiments of the invention;

(iii) Including of a statement to make it clear that the word 'compromise' as it is used throughout the description and claims is not intended to exclude additional features; and

(iv) Insertion of an omnibus claim."

Mr Gehrig opined the view that the amendments would improve the specification and could be made without incurring any further fees. He warned that the option may not be available after examination and wrote, "The application may proceed directly to acceptance." He pointed out the difficulty of amendment after acceptance and the cost factor.

He also suggested to Mr Bawel to consider any amendment to "the claims in the light of prior art which may have come to your attention since the drafting of the current claims."

I am satisfied on the evidence at this stage that what Mr Gehrig was considering was something that was available through the Australian Patent Office and which would become generally available to the public at some stage thereafter. He was not considering documents which had come into the possession of POF Attorneys from Mr Bawel or World Medical itself.

Mr Gehrig also raised the question of the inventor and the necessity to transfer the application to World Medical by assignments from the two inventors. This followed on from a query raised by the Patent Office. Mr Tadgell of POF Attorneys was requested to handle the issue concerning the name of the applicant.

In September 1998 or thereabouts POF Lawyers opened their file in relation to the Cook Inc matter.

Because of the problems concerning the applicant for the patent, Mr Leonhardt one of the inventors through POF Attorneys on 3 September 1998 requested the making of an examination of the application.

By letter dated 27 October 1998 the Patent Office provided a commentary on the examination and it is noted that the examiner based his report on the pamphlet which was a copy of the application in the United States of America and was freely available.

The examiner opined the view that there were lawful grounds of objection to the application and these were listed. The two main objections were that first there was no notice of entitlement on the file and secondly, that the specification did not comply with s.40(4) of the Patents Act because it did not relate to one invention only or to a group of inventions linked as to form a single general inventive concept. The examiner said that he found there were different inventions which he specified.

On 5 November Mr Gehrig wrote to Mr Bawel informing him that the application had been examined and the first official report was attached. It was pointed out to Mr Bawel that if the application was not accepted with 21 months of the first report date it would elapse.

The first item of objection of the examiner concerned the name of the applicant. Request was again made for assignment documents evidencing the transfer from the two inventors to World Medical.

Mr Gehrig explained the Australian test for "unity" which was concerned with the second objection.

"We look forward to receiving your instructions for responding to this report in due course."

In December 1998, or early January 1999, a radiologist handed a Talent stent graft to Mr Chambers to examine. This was for the purposes of the Cook Inc claim.

On 10 February 1999, POF Lawyers instituted on behalf of Cook Inc the infringement of patent proceeding in the Federal Court against a number of respondents, including World Medical.

During the period from 5 November 1998 to the institution of the proceeding in February 1999 no response was provided by Mr Bawel or World Medical in answer to the queries raised by the Patent Office examination and Mr Gehrig's letter of 5 November.

On 8 April 1999 World Medical was served with the Federal Court papers and on 16 April it instructed Messrs Baker & McKenzie Solicitors to act for it in relation to the patent proceeding.

It was on 19 April that Mr Gough from Baker & McKenzie raised the issue of conflict with Mr Chambers over the telephone and on the following day Mr Royal wrote to Mr Bawel on the letterhead of POF Attorneys a letter in which he said -

"It has come to my attention that we act for Cook Inc in an action against World Medical Manufacturing Corporation related to Stents of the type described in your Australian patent application 74794/96. While this does not in itself create a position of conflict, there is a concern that by continuing to act in the application, a situation of conflict could arise."

Mr Royal then suggested that the file should be transferred to another patent attorney.

In the meantime, Medtronic AVE Inc had taken over World Medical and Susan Schmitt, an employee of Medtronic, was directed to handle the matter. She stated that she anticipated responding to POF Attorneys letter of 5 November 1998. On 29 April 1999 Mr Gehrig responded to a letter from Ms Schmitt taking up the question of the assignment but interestingly did not make any mention of any conflict, nor any suggestion of transferring the file. I think it is a fair inference that both Miss Schmitt and Mr Gehrig were unaware of the issue of conflict at that stage.

On 21 May 1999 Mr Royal raised with Miss Schmitt the question of transferring the file and enclosed a copy of the facsimile directed to Mr Bawel on this topic. He ended up by saying -

"Do you have alternative attorneys in Australia to whom this file could be transferred or would you like a recommendation from us?"

Surprisingly, on 1 June 1999 Miss Schmitt sent to Mr Williams of POF Attorneys a copy of the assignment to World Medical by one of the investors and requested that a copy be sent to the Patent Office.

On 10 June 1999 Mr Royal again wrote to Miss Schmitt and again requested what was to be done concerning the conflict.

I accept the evidence of Miss Schmitt that in April/May she was under a lot of pressure and did not appreciate the necessity at that time of transferring the file.

On 21 June 1999 Mr Cowin of POF Attorneys in the absence of Mr Royal by facsimile again requested that the file be transferred to avoid any conflict and stated in the absence of any instructions would return the file to Miss Schmitt.

This prompted swift action and on the same day by facsimile Miss Schmitt requested Mr Royal to transfer the file to another patent attorney located in Sydney.

"I confirm that we are most concerned about the conflict of interest which we believe your firm has created in preparing for and commencing proceedings against WMMC on behalf of Cook Incorporated at the same time that it acted for WMMC in relation to this patent application. Our legal representatives in Australia will contact you separately and in more detail about this conflict."

The file was transferred to Mr Sharp of Griffith Hack Patent Attorney in Sydney.

In July 1999 the POF firms did an extraordinary and surprising thing. They sent their whole POF Attorneys file to a barrister requesting him to advise whether there was any potential for conflict of interest. Evidently, counsel said there was not. It was an extraordinary thing in that the POF firms had no right to disclose any part of their file to anybody without the permission or consent of their client, World Medical.

The fact that independent counsel opined the view that there was no conflict and accordingly POF Lawyers could continue to act are matters which are not relevant to my consideration of the issues in this application.

It was on 3 September 1999 that the plaintiff, World Medical, instituted the motion in this court.

The totality of information which POF Attorneys had is contained in the file which is Exhibit MJR4.

There can be no doubt that the information which was supplied was confidential but the information within the file concerning World Medical's stent graft device was already in the public domain either in the USA or Australia or would come into the public domain at some point thereafter. But whilst the information did not come into the public domain there is no doubt that POF Attorneys were obliged to keep the information confidential.

Although members of each firm acted in relation to the Cook Inc proceeding I am satisfied that no member of the POF Lawyers firm had anything to do with World Medical's application in Australia. Further, I am satisfied that no person employed by POF Attorneys who looked at or performed services in respect of, the World Medical application provided any services, or advice in respect of the Cook Inc matter or was aware of the Cook Inc proceeding instituted by POF Lawyers. Likewise I am satisfied that no person employed by POF Attorneys who assisted on the Cook Inc matter knew of, or had any contact with the World Medical file.

Many of the deponents of affidavits filed on behalf of the defendants were cross-examined but I am satisfied that there was no disclosure of any iinformation concerning World Medical's application by POF Attorneys to any person in POF Lawyers or POF Attorneys who was handling the Cook Inc proceeding.

It is important to consider the issues in the Federal Court proceeding because of the importance of the question of the relationship of the confidential information to the issues.

The infringement of a patent occurs when a product is supplied by one person to another in circumstances where it is an infringement of the patent unless the supplier is the patentee or a licensee of the patent. See s.117(1) of the Patents Act 1990.

In order for Cook Inc to prove infringement it has to establish -

(i) that it is the patentee;

(ii) what constitutes the patent;

(iii) that World Medical has infringed the patent by supplying its product, the Talent Stent Graft, to another.

World Medical has not filed and served a defence in the Federal Court proceeding and accordingly its defences are not known. No evidence was adduced or submissions made as to any defences. One can assume that it will put Cook Inc to its proof but whether it seeks to establish any positive defences at this stage is not known.

An important issue in the proceeding is the construction of the specification which sets out the claims of the invention. It will be necessary for the court to construe the claims. They must be read in the light of what is contained in them and must be construed by reference to what a craftsman endowed with the common general knowledge of the art, would understand by them. This would involve the calling of expert evidence. The question is one of law and no doubt much time will be spent at trial on this question, to determine the limits of the monopoly which is claimed by Cook Inc.

The next issue concerns the question of whether World Medical by supplying its device has infringed the patent.

In order to fully consider and present their rival cases, it would be necessary for the patentee and the alleged infringer to analyse and fully comprehend the nature, character and essentials of each other's products. No doubt much expert evidence will be called in relation to these matters.

In summary, the main issues are the construction of the specification and the scope of the monopoly ascertained by reference to the claims made; secondly, whether the alleged infringing acts of World Medical are of such a nature that they are capable of amounting to a breach of the patent rights and thirdly, whether World Medical has any defence including excuse under some statutory provision.

It is most likely the main issue will focus on the nature and type of the devices supplied by Cook Inc and World Medical.

In my opinion it will not be an issue in the Federal Court proceeding to consider the possible patent right of World Medical's device over the Cook patent. Whether or not World Medical could have or has a valid patent is not relevant to the question of the infringement of the Cook patent.

This is significant when considering whether there was any confidential information known by POF Attorneys and gained in the course of the retainer of World Medical which could be used adversely to their interests in the litigation.

The court requested Mr Garratt QC to identify what important confidential information was supplied to the POF firms which may be relevant to the Federal Court proceeding. In my opinion in most cases particulars of the confidential information must be given. In this case it was necessary.

In the decision of In re a firm of solicitors (1997) Ch. 1 at p.10, Lightman J said -

"On the issue whether the solicitor is possessed of relevant confidential information: (a) it is in general not sufficient for the client to make a general allegation that the solicitor is in possession of relevant confidential information if this is in issue; some particularity as to the confidential information is required: see Bricheno v Thorp, Jac. 300 and Johnson v Marriott (1833) 2 C. and M. 183. But the degree of particularity required must depend upon the facts of the particular case, and in many cases identification of the nature of the matter on which the solicitor was instructed, the length of the period of original retainer and the date of the proposed fresh retainer and the nature of the subject matter for practical purposes will be sufficient to establish the possession by the solicitor of relevant information."

In final address Mr Garratt QC identified the following, namely -

"(a) WMMC's disclosure of its intentions to substitute a new set of claims; (b) the patent examiner's advice in the first report that the claims in the patent were defective in that they claimed more than one invention; (c) POF Attorney's advice to World Medical suggesting amendments to the patent application as to the clear deficiencies of form that could affect the validity of the patent granted."

On the question of the relevance of these pieces of confidential information Mr Garratt QC submitted that the information could be used by Cook Inc to "erode any argument on behalf of the respondent s (in the Federal Court proceedings) that the Talent stent graft device embodies new technology and not existing technology."

I am satisfied that World Medical did provide confidential information to POF Attorneys and did not consent to its disclosure except insofar as it was necessary to process the application in Australia.

Save for the letter from Mr Gehrig which highlighted matters that should be attended to, to ensure the application accorded with Australian practice and to protect the patent rights in the event the patent was granted, all other information which passed between World Medical and POF Attorneys was either public or capable of being discovered or deduced by any interested observer of World Medical business affairs.

World Medical published in Australia prior to 21 March 1998 its Talent brochure which listed relevant patent numbers including but not limited to the two US patents equivalent to the Australian application. A search of the well-known Derwent database would reveal World Medical's Australian application number which was advertised in Australia in any event on 16 January 1997. The fact that World Medical intended to enter the Australian national phase was forecasted in its PCT pamphlet published in Australia on 22 May 1997 and national phase entry was due no later than 30 April 1998.

This publicly available information established the date of national phase entry, date of examination, deadline for Australian acceptance and the details of the complete specification and relation specifications. Errors concerning the identification of who was to be the applicant and who were the inventors would have been apparent to any observer by looking at and comparing the PCT pamphlet, the US patents which issued from it and also comparing it with other publicly available national phase entry documents.

It was immediately apparent to the Australian Patent Office. It would have also been equally apparent to an interested observer that amendments were likely first to conform to Australian law and second, because of the likely duality of claims in the PCT claims which in the United States had resulted in two separate patents issuing.

No hint was ever given to POF Attorneys of the kind of amendments World Medical had in mind. On no view could this fact be relevant to any issue in the Federal Court proceedings, let alone be used adversely to the interests of World Medical in the litigation.

The second piece of confidential information relied upon by World Medical, namely, the patent examiner's advice in the first report, will be disclosed in mid 2000 and hence become public knowledge. However, one can confidently say that any person prior to the public revelation experienced in patents in Australia on a cursory examination would conclude it was arguably defective in that it claimed more than one invention.

However, the information at this stage was confidential.

The third concerns the letters of advice written by Mr Geghrig but all he is saying is that the application should be amended to accord with Australian law in order to protect the interests of World Medical in its application in Australia. I accept the submission that there is nothing in his advice which would not be apparent to any competent patent attorney viewing the published PCT claims and nothing else. The advice concerns the requirements of adding the named inventors, assignment from the inventors to the corporate entity, formal amendments of international specifications to comply with the local Australian practice and duality of claiming.

It follows that although the information was given confidentially, much of it was in the public domain or about to become in the public domain, or was the type of information that any experienced patent attorney or patent lawyer could have ascertained for himself upon examination of the publicly listed documentation concerning the World Medical's Talent stent graft.

Relevance of information and possible adverse use in the litigation?

The disclosure of World Medical's intention to substitute a new set of claims or amend same in my opinion is not relevant in any way to any issue in the Federal Court proceedings and could not in any way be described as a piece of information which could be used adversely to the interests of World Medical in that proceeding.

The second piece of confidential information, namely, the patent examiner's advice in his report in my opinion is also not relevant to any issue in the Federal Court proceeding and could not adversely affect the interests of World Medical in that proceeding if it was disclosed.

First, because the question of the patentability of World Medical's specification over the Cook patent is not an issue in the proceeding. Secondly and more importantly, the fact that World Medical's application in Australia is defective at this stage could not in any way be relevant to any issue in the Federal Court proceeding.

But in any event the information will cease to be confidential by the time the application is heard in the Federal Court.

Finally, POF Attorneys' advice to World Medical suggesting amendments to their application again in my view would not be relevant in any way to any of the issues before the Federal Court. Further, the alleged deficiencies could be easily ascertained and determined by an experienced patent attorney.

It follows that in my opinion none of the confidential information which was supplied to POF Attorneys by World Medical would be of any consequence in the Federal Court proceeding, could not be used adversely to the interests of World Medical in that proceeding and further, is the type of information that ultimately is or will be in the public domain or by the hearing easily ascertainable by an experienced patent attorney.

Further, I am satisfied that none of the information has been made available to the POF Lawyers handling the Cook Inc litigation and although there may be a risk that some of the information may be ascertained it is in my opinion of such inconsequence that it would not be used adversely in the litigation.

Questions 3 and 4 do not arise for determination in the light of my finding that there is no confidential matter of relevance to the Federal Court proceeding which could be used adversely to the interests of World Medical in that proceeding.

Nevertheless it is appropriate I should make some observations in relation to the issues. No suggestion was made of erecting Chinese walls to provide protection. So it must be accepted that there is a risk which is not fanciful or theoretical there could be disclosure.

However, in my view the information is of such little moment in relation to the issues in the Federal Court proceedings that one could not really see any employee of POF Attorneys wishing to disclose any of the information to POF Lawyers or indeed any employee of POF Lawyers associated with the litigation who would be really interested in the information. The latter will be concerned with the issues in the litigation and they do not concern progress of World Medical's application for a patent in Australia.

It follows that the plaintiff has not established a basis for an injunction restraining either of the defendants from being engaged in the Federal Court in accordance with the principles laid down by the courts in respect of solicitors acting against former clients in litigation.

The plaintiff's counsel put a number of submissions.

The primary submission put on behalf of World Medical was that at all relevant times POF Attorneys owed a fiduciary duty to World Medical and even though the retainer ceased in April-June 1999 an injunction should be granted to restrain POF Attorneys from breaching that fiduciary duty and also POF Lawyers being a party to a breach. I accept that the courts hold fiduciaries to high standards of behaviour to deter breaches of faith and to maintain high standards of professional conduct and further because the consequences of disloyalty are often difficult to determine.

There is no doubt that a solicitor owes a fiduciary duty to his client. See Nocton v Ashburton (1914) AC 932, Clark Boyce v Mouat (1994) 1 AC 428 at 437 and Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449.

In my opinion it is strongly arguable that POF Attorneys owed a fiduciary duty to World Medical not only in accordance with general principle establishing a fiduciary relationship - see Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 69-70 and 96-97 - but because the relationship for some purposes was principal-agent which is a well-known relationship establishing a fiduciary duty.

In the Hospital Products Limited case, supra, Gibbs CJ at p.68 said -

"The authorities contain much guidance as to the duties of one who is in a fiduciary relationship with another, but provide no comprehensive statement of the criteria by reference to which the existence of a fiduciary relationship may be established. The archetype of a fiduciary is of course the trustee, but it is recognised by the decisions of the courts that there are other classes of persons who normally stand in a fiduciary relationship to one another - e.g. partners, principal and agent, director and company, master and servant, solicitor and client, tenant-for-life and remainderman. There is no reason to suppose that these categories are closed."

For present purposes I will proceed on the assumption that during the course of the retainer of POF Attorneys, the firm was in a fiduciary relationship with World Medical. But that conclusion does not per se establish the nature and extent of the duty owed.

As a general proposition the minimum duties which are owed are first, that a fiduciary must not make a personal profit from his position and secondly, he must not allow personal interest and duty to conflict.

In Macguire v Makaronis, supra, the relationship was solicitor and client but as the court stated at p.464 it is necessary to determine the particular obligation that is allegedly broken.

Brennan CJ, Gaudron, McHugh and Gummow JJ said -

"Nevertheless, even here, to say the appellants stood as fiduciaries to the respondents, calls for the ascertainment of the particular obligations owed to the respondents in considering of what acts and omissions amounted to failure to discharge those obligations."

In the present matter World Medical retained POF Attorneys to prosecute their application for a patent in Australia. During the course of that retainer POF Attorneys owed an obligation to not place their own personal interests in conflict with their duty to World Medical.

But once the retainer ceased then in my opinion the obligation ceased.

At a glance

Court

Decision date

Before

Source

Judgment (217 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)