Eastland Technology Australia Pty Ltd v Whisson

[2002] WASC 150

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   EASTLAND TECHNOLOGY AUSTRALIA PTY LTD & ORS -v- WHISSON & ORS [2002] WASC 150

CORAM:   TEMPLEMAN J

HEARD:   2-15 APRIL 2002

DELIVERED          :   14 JUNE 2002

FILE NO/S:   COR 347 of 1999

BETWEEN:   EASTLAND TECHNOLOGY AUSTRALIA PTY LTD (ACN 059 479 391)

First Applicant

FEEZONE PTY LTD (ACN 057 705 129)
Second Applicant

INTERCONTINENTAL CORPORATION PTY LTD
Third Applicant

AND

MAXWELL EDMUND WHISSON
First Respondent

DEAN BRIAN PRESTIDGE
Second Respondent

SILVERFERN NOMINEES PTY LTD (ACN 070 887 722) as Trustee for the PRESTIDGE FAMILY TRUST
Third Respondent

Catchwords:

Corporations Law - Breach of Directors' duty

Corporations Law - Whether shareholders are entitled to relief under s 1324 as persons whose interests are affected by conduct that contravenes the Corporations Law

Contract - Deed of Settlement - Whether release and bar clause may be relied on as a complete defence barring further action - Whether Deed of Settlement is rendered void by s 241 of the Corporations Law - Whether Deed of Settlement is voidable for fraud or misleading or deceptive conduct

Contract - Licence Agreement - Notice of default - Whether notice of default and termination of licence agreement can be pursued whilst arbitration under s 7 of the Commercial Arbitration Act 1985 (WA) is pending

Legislation:

Commercial Arbitration Act 1985 (WA), s 7, s 53, s 3

Corporations Act 2001 (Cth), s 1324, s 241(1A), s 1317, s 232

Fair Trading Act 1985 (WA)

Result:

Application dismissed
Counterclaim upheld

Category:    B

Representation:

Counsel:

First Applicant              :     Mr P I Jooste QC & Mr E J Picton-Warlow

Second Applicant          :     Mr P I Jooste QC & Mr E J Picton-Warlow

Third Applicant            :     Mr P I Jooste QC & Mr E J Picton-Warlow

First Respondent           :     Mr C G Colvin SC & Mr B W Ashdown

Second Respondent       :     Mr C G Colvin SC & Mr B W Ashdown

Third Respondent         :     Mr C G Colvin SC & Mr B W Ashdown

Solicitors:

First Applicant              :     John Picton-Warlow

Second Applicant          :     John Picton-Warlow

Third Applicant            :     John Picton-Warlow

First Respondent           :     Williams & Co

Second Respondent       :     Williams & Co

Third Respondent         :     Williams & Co

Case(s) referred to in judgment(s):

Akerhielm v de Mare [1959] AC 789

Allen v Atalay (1993) 12 ACLC 7

Aneeta Window Systems (Vic) Pty Ltd v K Shugg Industries Pty Ltd (1996) 34 IPR 95

Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 71 ALR 125

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594

Corporate Affairs Commission (Vic) v Bracht (1988) 7 ACLC 40

Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd (2000) 22 WAR 372

Emlen Pty Ltd v St Barbara Mines Ltd (1997) 15 ACLC 1107

Fine Industrial Commodities Ltd v Powling (1954) 71 RPC 253

Forkserve Pty Ltd v Jack and Aussie Forklift Repairs (2001) 19 ACLC 299

Gipps v Gipps [1978] 1 NSWLR 454

Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 14 ACLC 519

Miller v Miller (1995) 16 ACSR 73

Sinclair v Preston [1970] WAR 186

Turner & Goudy v McConnell [1985] 1 WLR 898

Case(s) also cited:

Abeles v PA (Holdings) Pty Ltd (2000) 18 ACLC 867

Airpeak Pty Ltd & Ors v Jetstream Aircraft Ltd & Anor (1997) 15 ACLC 715

Australian Breeders Co-operative Society Ltd v Jones (1997) 16 ACLC 100

Australian Competition & Consumer Commission v Real Estate Institute (WA) Inc [1999] ATPR 42,597 (41-673)

Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLC 100

Barnes v Addy (1874) LR 9 Ch App 244

Boardman v Phipps [1967] 2 AC 46

Broken Hill Pty Co Ltd v Bell Resources Ltd (1984) 2 ACLC 157

Brunswick NL v Sam Graham Nominees Pty Ltd (1989) 2 WAR 207

Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516

Campomar Sociedad, Limitada & Anor v Nike International Ltd (2000) 202 CLR 45

Capital Investments Corporation Pty Ltd v Classic Trading Pty Ltd [2001] FCA 1385

Chan v Zacharia (1984) 154 CLR 178

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373

Cook v Deeks [1916] 1 AC 554

Daniels v Anderson (1995) 13 ACLC 614

Digital Pulse Pty Ltd v Harris (2002) 20 ACLC 365

Eastland Technology Australia Pty Ltd v Whisson [2000] WASC 134

Edwards v The Queen (1992) 173 CLR 653

Feil v Commissioner of Corporate Affairs (1991) 9 ACLC 811

Ferris v Plaister (1994) 34 NSWLR 474

Furs Ltd v Tomkies (1936) 54 CLR 583

Gemstone Corporation of Australia v Grasso (1993) 11 ACLC 1161

Green v Bestobell Industries Pty Ltd [1982] WAR 1

Heller Financial Services Ltd v Thiess Contractors Pty Ltd [2000] FCA 802

Hospital Products Ltd v United States Surgical Corporation (1984) 55 ALR 417

Industrial Development Consultants v Cooley [1972] 1 WLR 443

Keech v Sandford (1726) 25 ER 223

Lawson v Mitchell [1975] VR 579

Marchesi v Barnes [1970] VR 434

Marson Pty Ltd v Pressbank Pty Ltd (1990) 7 ACLC 733

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457

Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110

Ngurli v McCann (1953) 90 CLR 425

Pacifica Shipping Co Ltd v Anderson [1986] 2 NZLR 328

Papaki Pty Ltd v Scott (1984) 2 ACLC 253

Permanent Building Society (in liq) v Wheeler (1994) 12 ACLC 674

Pilmer v Duke Group Ltd (in liq) (2001) 180 ALR 249

Poliwka v Heven Holdings Pty Ltd (1992) 10 ACLC 1759

QIW Retailers Ltd v Davids Holdings Pty Ltd & Ors (No 2) (1992) 10 ACLC 1162

Queensland Mines Ltd v Hudson (1978) 18 ALR 1

Re Price Mitchell Pty Ltd (1984) 2 ACLC 524

Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378

Rosetex Co Pty Ltd v Licata (1994) 12 ACLC 269

Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378

SEA Food International Pty Ltd v Lam (1988) 16 ACLC 552

Sheahan (in liq) v Verco (2001) 19 ACLC 814

Sycotex Pty Ltd v Baseler (1994) 13 ACSR 766

Thomas v Star Maid International Pty Ltd [1999] FCA 911

Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488

Warman International Ltd v Dwyer (1995) 182 CLR 544

Yorke v Lucas (1985) 158 CLR 661

1. TEMPLEMAN J: 

Introduction

1. The applicant, Eastland Technology Australia Pty Ltd ("Eastland") was incorporated in March 1993 by members of a syndicate who wished to develop and exploit certain parenteral devices which had been invented and patented by Dr Maxwell Edmond Whisson, the first respondent.  Dr Whisson, who was also a member of the syndicate, was appointed to Eastland's board in June 1993, and became its Chairman.

2. In 1994, Eastland entered into a joint venture agreement with Kemayan Oil Berhad ("Kemayan"), a Malaysian corporation.  This led to the formation of a joint venture company known as Kemayan Eastland Medical Sdn Bhd ("KEM"), to which Eastland licensed its rights in respect of Dr Whisson's inventions.  It will be convenient to refer to the rights so licensed as "the Eastland technology".

3. In the course of its business, Eastland used design and drafting services provided by Dean Brian Prestidge, the second respondent.  Mr Prestidge had worked closely with Dr Whisson before their respective involvements with Eastland.  Mr Prestidge's family company is Silverfern Nominees Pty Ltd ("Silverfern"), the third respondent.  On 26 January 1996, Silverfern entered into a contract with KEM for the provision of Mr Prestidge's design and drafting services.

4. On 23 September 1998, on a social occasion, Dr Whisson and Mr Prestidge invented a novel form of parenteral device.  Shortly afterwards, they made five joint patent applications in relation to the invention and registered the name "Di-Med" as the business name relating to the informal partnership which arose from their joint invention.  It will be convenient to refer to the invention of 23 September 1998 as "the Di‑Med invention".

5. On 25 January 1999, Eastland entered into a licence agreement with Dr Whisson and Mr Prestidge, as the Di-Med partners, for the purpose of exploiting the Di-Med invention.  In that agreement, Dr Whisson and Mr Prestidge warranted that they had full right and title to the Di-Med invention.  However, the directors of Eastland became concerned that this might not be so: they suspected that in all the circumstances, Eastland might be entitled to claim the relevant intellectual property for its own.  This suspicion was fuelled by the fact that Dr Whisson declined to allow the board of Eastland to examine the patent applications relating to the Di‑Med invention.

6. On 31 March 1999, Eastland commenced an action in this Court against Dr Whisson, Mr Prestidge and Silverfern.  Eastland sought relief which included declarations that the intellectual property subsisting in the Di-Med invention was its property which the defendants held on constructive trust for Eastland.  The claim was based on alleged breaches of fiduciary duty and confidence by Dr Whisson and on breaches of confidence by Mr Prestidge, with the knowledge and approval of Silverfern.

7. The action was settled at a meeting between the parties and their legal representatives on 16 May 1999, when a handwritten deed of settlement was executed.  The parties entered into a formal deed of settlement on 5 June 1999.  The terms of settlement included amendments to the licence agreement of 25 January 1999 and a clause barring further action.

8. The parties entered into the deeds of settlement after Dr Whisson and Mr Prestidge had sworn affidavits on 6 May 1999 in opposition to interlocutory injunction applications.  In their affidavits, Dr Whisson and Mr Prestidge said, in substance, that the Di-Med invention was entirely novel, that it embodied a process which was completely different from Dr Whisson's earlier inventions and that none of Eastland's confidential information had been used in developing the Di-Med invention.

9. Following the settlement, Eastland's directors and advisors inspected the patent applications relating to the Di-Med invention.  They claim to have formed the view then, that the statements made by Dr Whisson and Mr Prestidge in their affidavits of 6 May were false: that they had been made fraudulently and that they constituted misleading and deceptive conduct.

10. On 3 December 1999 Eastland commenced the present proceedings, by which it seeks to set aside the deeds of settlement of May and June 1999 and, in effect, to pursue the previous claims.  Later, Feezone Pty Ltd and Intercontinental Corporation Pty Ltd were joined as the second and third applicants.  Those parties are shareholders in Eastland.  They claim to be persons whose interests have been affected by conduct which constitutes contravention of the Corporations Law (which was then in force) so as to entitle them to relief pursuant to s 1324 of the law.

11. This application raises a number of issues, including:

    •whether, in all the circumstances, the respondents may rely on the deeds of settlement or whether those deeds are (in part) void by reason of s 241(1A) of the law, or wholly voidable for fraud or misleading and deceptive conduct;

    •whether, if the deeds of settlement do not bar the present proceedings, (or if the second and third applicants are not bound by the deeds) Dr Whisson and Mr Prestidge acted in breach of fiduciary duty and whether, if so Silverfern is fixed with sufficient knowledge of such breaches to warrant relief being granted against it also.  The question whether Mr Prestidge was an officer of Eastland arises in that context.

12. There is also a counterclaim by Dr Whisson and Mr Prestidge. They served notice of default, followed by a notice of termination of the licence agreement, after the failure of Eastland to pay moneys due under that agreement. After the notice of default was served, Eastland served notice of appointment of an arbitrator pursuant to s 7 of the Commercial Arbitration Act 1985.  Eastland now contends that the arbitration is pending and that Dr Whisson and Mr Prestidge should not be permitted to proceed with their counterclaim.

13. As is common in applications brought pursuant to the Corporations legislation, there is a plethora of affidavits, directed both to the substantive application and to various interlocutory skirmishes along the way.  The affidavits disclose that there are many factual issues between the parties.  Only some of these issues have been explored in cross‑examination: others are not now relevant.  At the end of the trial there were some outstanding objections to various passages in affidavits sworn on behalf of the applicants and to the inclusion of certain material in the trial bundle.  I have set out my rulings in an appendix to these reasons.

14. The principal witnesses of fact for Eastland were three of its directors, Douglas Arthur Sims, Dr Martin Mann-Lok Ng and Charles Frederick Sharland.

15. Mr Sims was appointed a director of Eastland on 15 December 1997.  He was a member of the original syndicate but was not a founding director because he was then bankrupt.  Mr Sims has no medical qualification or experience, other than that acquired in the course of his association with Eastland and KEM.  He does, however, have considerable experience as an inventor and of progressing inventions from concepts through to patenting, development and commercial production.

16. Dr Ng was a member of the original syndicate and a founding director of Eastland.  He is a medical practitioner (now retired, as I understand it) who practised as such for over 45 years, initially in Malaysia, but in Australia for the past 30 years.

17. Mr Sharland was secretary to the original syndicate and became Eastland's company secretary on its incorporation.  He has continued in that role, since being appointed a director of Eastland, as he was, on 29 February 2000.  Mr Sharland is, or was, an accountant by profession.  He has no engineering or design qualifications although he has been involved in preparing or submitting patent applications.  I infer those to have been related to the Eastland technology.

18. The final member of the original syndicate was Mr Pasquale (Pat) Luca.  He was also a founding director, but ceased to hold office on 1 November 1999.  Mr Luca has played no part in this application and has not given evidence.

19. The current directors and Dr Whisson and Mr Prestidge were cross‑examined on their affidavits.  In addition, patent attorneys Errol John Harwood and Kelvin Ernest Lord provided expert evidence for the applicants and the respondents respectively.

20. It is necessary to set out the history of this dispute in some detail, in order to understand the circumstances in which the original action was settled.  However, not all of my findings of fact can be based on evidence which has been tested by cross-examination.  (I do not regard myself as bound by a statement of Agreed Facts filed on 24 February 2000 by the solicitors who acted formerly for the respondents for the purposes of a then pending interlocutory application).  I have placed considerable reliance on contemporaneous documents, including correspondence and file notes made by Mr Prestidge and various solicitors.  There are many documents in evidence in respect of which legal-professional privilege has been waived. 

21. Before dealing with the various issues arising in this application, I propose to set out my findings of fact, in broadly chronological order.  Where appropriate, I shall refer to the trial bundle by way of volume and page numbers (eg 6/1863) and to the transcript (eg TS 457).  I commence by explaining the technical background which gives this litigation its context.

The Holy Grail – Safe parenteral devices

1. A parenteral device enables fluid to be introduced into or withdrawn from the body other than through its natural passages.  The most common form of parenteral device is a syringe embodying a needle.  Associated with the use of such devices is the needlestick injury.  That is, an injury caused by a needle which has been contaminated by its exposure to the tissue of one person, accidentally puncturing the skin of another person: typically, a health-care worker.

2. Disease transmission from needlestick injuries is now recognised as a major cause of occupational disease transmission to health care workers.  Although not widely publicised, such injuries result in the transmission of fatal Aids infection to one in every two hundred health-care workers who are injured with Aids contaminated needles.  Far more individuals are infected with hepatitis B, C and other viruses during the course of their work.  Apart from accidental injury, diseases such as Aids and hepatitis are transmitted as a result of the deliberate re-use of needles by intravenous drug users.

3. There are three principal ways of avoiding needlestick injury.  The first is by the improved education and training of health-care workers.  The second, involves the provision of containers into which used needles may be placed safely for subsequent disposal.  The third, is by way of parenteral devices which are designed to minimise or eliminate needlestick injury.  Many devices of this kind have been invented by Dr Whisson.  Mr Jooste QC, leading counsel for the applicants, put to Dr Whisson in cross‑examination that in 1998 he was probably the foremost parenteral device inventor in the world: a proposition which Dr Whisson thought might well be true (TS 816).

4. As Mr Jooste said in his opening address, the prevention of needlestick injuries has become a Holy Grail in the medical profession.  This reflects a statement made by Dr Whisson to his solicitors in February 1999, that interest in "safe needles … exploded from near zero in 1992 to something perhaps approaching a billion dollar R & D effort in 1998" (4/1305).

Dr Whisson's inventions

1. Dr Whisson is a medical practitioner of some 46 years standing.  He is a graduate of the University of Melbourne and the Royal Melbourne Hospital Medical School.  During the course of a distinguished career in Australia and the United Kingdom, Dr Whisson has held a number of hospital, university and research appointments.  He has published numerous papers.  His parenteral device inventions have been patented in Australia and internationally.  (5/1540‑5)

2. Dr Whisson is a specialist haematologist.  In that capacity, in 1980, he joined the Western Australian Red Cross Blood Transfusion Service.  In 1990, he became its Director of Research and Development and occasionally, the Acting Director.  He remained in full-time employment with the Service until July 1998.

3. During Dr Whisson's time with the Red Cross, the transmission of disease by needlestick injuries was a constant concern.  Dr Whisson became aware that the transmission of hepatitis by needlestick injury was a real danger to medical staff dealing with hepatitis sufferers.  He became interested in solving the problem.  For that reason, he asked the Red Cross staff to report to him how needlestick injuries had occurred and the consequences of those injuries.  That was information which Dr Whisson collected informally.  The exercise was not related to the nature of his employment by the Red Cross.

4. In 1987, Dr Whisson invented a parenteral device embodying a syringe with a retractable needle.  It became known as the Retralock.

5. Although Dr Whisson invented the Retralock device while he was employed by the Red Cross, the invention was not related to his position with the Red Cross.

6. It was Dr Whisson's evidence, which was not challenged, and which I accept, that the invention of the Retralock device gave him the personal satisfaction of meeting the mental challenge involved in problem solving.  Further, Dr Whisson wished to be acknowledged for his inventions: and he wished to help clinical staff by reducing the transmission of disease through needlestick injuries.

7. I accept Dr Whisson's evidence that the possibility of his making money from commercialising the Retralock devices did not motivate him to invent it.  It was, and is, Dr Whisson's belief (which has not been challenged) that he invented the first truly retractable needle syringe.  Dr Whisson saw the invention as having the potential of enormous clinical benefit in preventing the transmission of diseases through needlestick injuries.

1. Before he invented the Retralock devices, Dr Whisson had never attempted to commercialise his inventions.  I accept his evidence that this was for the following reasons:

   •he is primarily an academic person interested in the acquisition and dissemination of knowledge.  His curriculum vitae supports that statement (4/1475-1485).

   •he invents for the pleasure of doing so.  He has always been an inventor and will continue to invent, even in circumstances where there is no likely financial reward.

   •inventions such as those which Dr Whisson developed while at the Red Cross were commercialised by that organisation.  Dr Whisson gained the recognition that he desired as the inventor.  He also had the satisfaction of having his invention produced without having to commercialise them himself.

2. Although this had been Dr Whisson's attitude previously, he decided that he would attempt to commercialise the Retralock devices.  His reasons for that decision, which I accept to be true, were as follows:

   •he wanted to see his invention progress into a clinically usable product.  That had occurred previously with an invention of his involving a means of separating blood.  Dr Whisson called the invention the "Bagwrap".  It was patented by the Red Cross and developed by the Red Cross to a clinical standard.  Dr Whisson found that to be a very rewarding experience.

   •Dr Whisson had a continuing desire to reduce the transmission of disease through needlestick injuries.

   •Dr Whisson hoped that he would recoup some of the costs he had incurred in inventing, patenting and developing the Retralock devices.

Attempts to commercialise the Retralock devices

1. In 1987, Dr Whisson approached a lawyer, Mr Kerryn Smart, to find out how he might interest investors in commercialising the Retralock devices.  As a result of his approach, a company known as Prometheus Pty Ltd was formed for that purpose.  Dr Whisson's patent, which had been the subject of an application dated 22 April 1987, was assigned to Prometheus.  Dr Whisson became a director of the company.

2. During his involvement with Prometheus, Dr Whisson was introduced to Mr Sims through another partner in Mr Smart's firm.  Mr Sims was engaged to represent Prometheus in negotiations with the research and development department of an international company known as Becton Dickinson.  Those negotiations were unsuccessful.

3. At the time, Dr Whisson was fully employed with the Red Cross.  Although he helped with Prometheus in his spare time, he left its day to day management in the hands of others, such as Mr Sims.

4. Prometheus was unsuccessful and became dormant.  It is Dr Whisson's view that it was undercapitalised because it exhausted its funds before the Retralock devices were developed to a clinical standard.

The formation of Eastland

1. There is some conflict on the affidavit evidence about the detail of the circumstances in which Eastland was formed.  It is not necessary to resolve these conflicts which were not explored in cross-examination of Dr Whisson and Dr Ng, the principal deponents in this area.

2. It is sufficient to record my finding that Dr Ng was introduced to Dr Whisson through Mr Sims.  Dr Whisson told Dr Ng about his inventions and his ideas for safe parenteral devices.

3. As a result, Dr Ng became interested in investing in a project for commercialising Dr Whisson's inventions.  Dr Ng introduced Mr Luca as another investor.  The syndicate formed Eastland, which was incorporated on 17 March 1993.

4. On 27 February 1993, shortly before Eastland was incorporated, there was a meeting between the members of the syndicate: Dr Ng, Dr Whisson, Mr Sims and Mr Luca.  Mr Sharland attended as secretary.  The minutes of the meeting, which I accept as accurate (2/459) record that:

   "Dr M Whisson had over a period of years developed medical syringes which were superior to the existing needles due to inbuilt safeguards which reduced the possibility of accidental injury to the user.  He had commenced the patenting of the syringes and in return for the syndicate funding further research, patent and other costs agreed to transfer to the syndicate the rights to applications of the syringes.  Details of the arrangements were contained in a memorandum dated 16.2.93.

   Resolved that a company be formed to hold and market these rights the shareholding in which would be:

   Dr Whisson 40 %

   Mr D Sims 30%

   Dr M Ng 15%

   Mr P Luca 15%

   Dr Ng and Mr Luca agreed that they would contribute $20,000 and $30,000 as their equity to found the costs involved."

5. The minutes were signed by all members of the syndicate.  The memorandum of 16 February 1993 is not in evidence.

The licence agreements between Eastland and Dr Whisson

1. In March 1993, Dr Whisson licensed three of his inventions to Eastland.  The licences were for:

   •the Selecta syringe the subject of patent application PL1455 (1/328)

   •the Autoinjecta the subject of patent application PCT/AU91/00297 (1/344)

   •the Clip-on Retracta the subject of patent application PK9593 (1/360)

2. Each of the licence agreements granted Eastland an exclusive worldwide licence for the life of the product, to commercialise, manufacture, market and sell the product.  Each agreement also gave Eastland the right to grant sub-licences and to enter into joint venture arrangements.

3. The consideration for the Selecta and Clip-on Retracta licence agreements was the payment of $10,000 to Dr Whisson.  The consideration for the Autoinjecta agreement was the issue of 40 per cent of the issued shares in Eastland together with a seat on the board.

4. Each agreement made provision for the payment of a royalty to Dr Whisson, by way of 40 per cent of funds distributed by Eastland, as dividends or otherwise.

5. The agreements also contained provisions whereby any improvements to the product made by Eastland were granted back to Dr Whisson, free of royalty.  Eastland agreed that if any such improvements were patentable, they would be patented at Eastland's cost, but in Dr Whisson's name, on the basis that he would then incorporate them into a similar licence to Eastland.

6. The parties agreed that all research and development undertaken by Eastland or any sub-licensee or assignee should be "freely communicated" between Dr Whisson and Eastland at no cost to the other, in an endeavour to improve the products and their uses and to ensure market penetration.

7. The parties also agreed that Dr Whisson would, in good faith, promptly and regularly supply to Eastland and any of its sub-licensees, on request, such assistance as Eastland might reasonably require, including:

   •advice on the technical characteristics of the product and the equipment and process used to manufacture it;

   •full details of each step in the processing and manufacture of the product and the use of trade secrets;

   •information relating to special tools, machinery and other equipment used in the manufacture of the product, to ensure full exploitation of the licences;

   •all details of all of Dr Whisson's improvements and other developments in trade secrets which might thereafter become known to or owned by him.

8. It is to be noted that the licence agreements did not impose on Dr Whisson any obligation to undertake research, or development of the licensed product.  Nor did the licences effect any assignment of the patents themselves.

9. It was Dr Whisson's unchallenged evidence, which I accept, that in entering into the licence agreements, he was not particularly motivated by the 40 per cent shareholding in Eastland.  I accept that he had no idea what the shares were worth or what was likely to be the value of the royalties.  He received no independent advice in relation to either of these matters.

Dr Whisson's role in Eastland

1. It was Dr Whisson's evidence that he accepted a directorship of Eastland because he wanted to have some say in its management after his unfortunate experience with Prometheus, but that he was a somewhat reluctant chairman.  However, Mr Sharland deposed that Dr Whisson insisted that he was entitled to be chairman of Eastland because he was the inventor of the technology it was developing (3/806).  I do not think anything turns on this difference in the evidence.  The fact is that Dr Whisson was the chairman of Eastland, and owed fiduciary duties to it in that capacity.  Dr Whisson conceded (and I accept) that he had only a basic understanding of the obligations and powers of a company director, and of the way in which companies worked.  However, he knew that there were to be two other directors so that he would not have control of Eastland.

2. In an affidavit sworn on 30 March 1999, Mr Sims stated that on its incorporation in March 1993, Eastland employed Dr Whisson for reward to carry out research and development for and on its behalf in relation to the inventions which were the subjects of the licences and assignments referred to above (1/78).

3. I find that statement gives a quite inaccurate picture of Dr Whisson's involvement with Eastland.

4. First, Eastland did not "employ" Dr Whisson: there was never any employment agreement between them, formal or informal.  In any event, apart from the statement contained in the pre-incorporation minutes of 27 February 1993 to which I have referred above, and the licence agreements of March 1993, Dr Whisson's role was never defined.

5. Secondly, there was little in the way of "reward" to Dr Whisson, until the Kemayan joint venture came into existence.  Mr Sharland extracted from Eastland's accounting records, details of payments made to Dr Whisson.  These amounted to some $22,000 from 15 April 1993 to 9 February 1994.  However, the payments related largely to patent fees (3/847) which Eastland was obliged to pay, pursuant to the licence agreements.

6. After the joint venture came into existence, Dr Whisson, Mr Sims and Dr Ng (or their prospective family companies) each received $1,000 per month, for a period of between some two years (TS 697).  Mr Sharland said in his affidavit that these payments were not directors' fees, as Dr Whisson had stated, but were to offset expenses (3/809).  However, in cross‑examination, Mr Sharland seemed to accept that the payments might be regarded as directors' fees (TS 697).  In any event, I am satisfied that the payments made to Dr Whisson were not a "reward" for carrying out research and development.

7. Mr Sims, in the course of cross-examination, contended that Dr Whisson controlled Eastland's research and development from the outset.  However, Mr Sims then appeared to accept that Dr Whisson's role was, rather, to assist in the commercialisation of the devices which he had introduced to Eastland (TS585).

8. This is consistent with Dr Whisson's account of his role and responsibilities as set out in his affidavit of 21 July 2000 which was not challenged in cross-examination and which I accept (4/1454).  Dr Whisson said that from the time of his appointment as a director of Eastland until it commenced negotiations with Kemayan, his role was limited to the following matters.

   •He advised in relation to technical questions which arose in respect of the licensed technology.  During that period, Mr Sims and Dr Ng were trying to interest investors to Eastland.  Sometimes those investors would have technical questions.  Dr Whisson was then working full‑time for the Red Cross.  He did not have the time or the expertise to become involved in negotiations with potential investors.

   •He attended board and shareholder meetings.  Those meetings allowed him to keep track of Eastland's progress.  The meetings usually took less than one hour.  Dr Whisson was usually able to attend to current laboratory and clinical problems by telephone from the meetings.  These took place about every two to three weeks.

   I do not regard this evidence as different, in substance, from that given by Mr Sharland in his affidavit of 20 February 2001 (3/807).

9. I find also that Dr Whisson gave advice and direction to Mr Prestidge so as to assist him in his role, to which I now refer.

Mr Prestidge's role in Eastland

1. Mr Prestidge has a trade certificate in Plastics Engineering from the New Zealand Trades Certification Board and a certificate in Engineering (Plastics) from the New Zealand Authority for Advanced Vocational Awards.

2. In November 1991, Mr Prestidge started a design and drafting business to supply his services, predominantly to the plastics manufacturing industry in which, by then, he had acquired considerable experience.  Initially, Mr Prestidge traded under his own name.  From February 1993, he traded under the name Tekdesign.  From November 1995, he provided his services through Silverfern, as trustee for the Prestidge Family Trust which took over the name Tekdesign.

3. Mr Prestidge was introduced to Dr Whisson in about May 1992.  He was engaged by Dr Whisson to carry out design work on a retractable needle which Dr Whisson was then developing on behalf of Prometheus.  There was no formal contract between Mr Prestidge and Dr Whisson or Prometheus: Mr Prestidge simply charged for his work at an hourly rate.

4. In May 1993, Dr Whisson engaged Mr Prestidge on the same basis to provide design and drawing services in relation to another retractable needle device which is now known as the Reversyringe.  Mr Prestidge rendered an invoice to Dr Whisson in June 1993.  Dr Whisson then informed him that Eastland had been incorporated.  He asked Mr Prestidge to alter his invoice to reflect this and to submit it to Eastland.

5. In July 1993, Dr Whisson (on behalf of Eastland) asked Mr Prestidge to perform work on the parenteral devices which are now known as Autoinjecta and Safeline.  Thereafter, Mr Prestidge assisted Eastland by providing his expertise in the development of plastic products for mass production.  That was expertise which Mr Prestidge had acquired through his previous training and commercial experience.  It was his unchallenged evidence, which I accept, that his work for Eastland did not contribute to his expertise.

The joint venture agreement

1. On 4 March 1994, Eastland entered into the joint venture agreement with Kemayan.  The agreement followed negotiations between officers of Kemayan and Mr Sims and Dr Ng.  Although Mr Sims was not appointed as a director of Eastland until 15 December 1997, I find that he acted as a de facto director from Eastland's incorporation until his appointment.

2. It was Mr Sims' evidence that Eastland entered into negotiations with Kemayan in about January 1994.  However, I prefer the evidence of Dr Whisson that negotiations were on foot much earlier.  I accept Dr Whisson's evidence that in about September 1993 he met Dr Ng and Mr Michael Seet, a director of Kemayan, at the Hyatt Hotel in Perth.  Dr Ng told Dr Whisson that he had brokered a deal which involved a joint venture between Kemayan and Eastland.  The proposal interested Dr Whisson and he discussed it with Dr Ng.  Later, Dr Whisson answered Kemayan's technical questions about the Eastland inventions.  He also discussed with Mr Errol Harwood of Wray and Associates, the patent attorney, the effect of the proposed joint venture agreement on the Eastland technology.

3. One of the reasons for preferring Dr Whisson's evidence about the timing of the negotiations between Eastland and Kemayan is that in November 1993, Dr Whisson assigned to Eastland the inventions which were the subject of the licence agreements of March 1993.  I accept that Dr Whisson did so because he was told by Mr Sims and Dr Ng that the joint venture would be prejudiced and would not proceed if the inventions were not assigned.  I accept Dr Whisson's evidence that at the time, he did not understand why it was necessary for the inventions to be assigned and that he had not been offered an adequate explanation by Mr Sims or Dr Ng.  I accept also that Dr Whisson did not receive any independent legal or other advice about the assignment of his inventions.  Dr Whisson received no consideration for the assignment and did not know whether or not the joint venture would have proceeded had he declined to assign the patents.

4. Pursuant to the joint venture agreement, KEM was incorporated.  Dr Whisson became its Chairman.  Kemayan agreed to pay Eastland a sum equivalent to $1,850,000 as its contribution to the costs incurred by Eastland for research and development of the Whisson parenteral products.  These products were defined to be:

   (1)the Safeline winged infusion set

   (2)Reversyringe (Type A and Type B)

   (3)Retraneedle

   (4)the Retracta group of needles comprising four variations

   (5)the Autoinjecta group of needles comprising six variations

   Of that contribution, $450,000 was to be paid on or before execution of the agreement (1/185).

5. I accept Dr Whisson's unchallenged evidence that he wanted the joint venture to succeed for the same reasons he had involved himself in Eastland.  In addition, Dr Whisson was motivated by the fact that Kemayan was required to pay Eastland the sum of $450,000 and that he would earn royalties from that payment.  Dr Whisson therefore hoped that the value of his holding in Eastland would increase.  I accept Dr Whisson's evidence that for the first time, he believed that he would benefit financially from his inventions, as, in fact, he did.  I accept also that Dr Whisson was not motivated by the offer of a directorship in the joint venture company.

Dr Whisson's role after the formation of KEM

1. On 5 March 1994, Eastland and Kemayan entered into a licence agreement whereby Eastland granted Kemayan an exclusive licence and authority to manufacture market and sell "the Whisson Parenteral Products".  In substance, this was the Eastland technology.  The licence agreement imposed on Eastland an obligation to supply to the joint venture company all information, data and know how relating to that technology (1/239).

2. Dr Whisson's role was set out in the minutes of a meeting of the Eastland board on 21 April 1994.  He was to be jointly responsible with Mr Sims to:

   "(i)supervise, oversee and attend to all matters in conjunction with the R & D Centre in Wangara

   (ii)participate in, and advise on, the development, improvement and completion of the (Eastland technology) into commercial prototype."  (3/832)

   I accept Mr Sharland's evidence that the Wangara research and development centre did not proceed and that development work was carried out in Malaysia and Singapore.  It was proposed that Dr Whisson take up a full time appointment in Malaysia, but that did not happen (3/802).

3. I accept the unchallenged evidence of Dr Whisson (4/1457-60) that in these circumstances, he contributed to the discussions about where the inventions might best be constructed and which products should be developed.  Dr Whisson made recommendations based on his knowledge of clinical use and the time he estimated it would take to develop the products to a clinical standard.  While the development work with respect to the Eastland technology was carried out in Malaysia (as it was until January 1996).  Dr Whisson's role was to advise KEM in relation to any production difficulties.  On average, Dr Whisson was engaged for no more than an hour each week.  Often, he simply provided his opinion on a production issue during the course of a telephone conversation.  Despite Eastland's obligation to KEM, if Dr Whisson did not know the answer to any question asked of him, he was not put under any pressure to find out the answer.

4. In addition to providing advice of this nature, Dr Whisson was flown to Malaysia in about the middle of 1994.  There, he visited a manufacturing company in Penang and attended a meeting with the owner of that company, a Malaysian engineer.  Dr Whisson discussed with the owner what he saw as some of the problems in manufacturing some of the devices.  The problems included those likely to be encountered in the workshop.  Dr Whisson offered his opinion on the solutions to those problems.

1. In about January 1996 KEM decided that its production should be moved from Malaysia to Perth.  At about that time, Mr Prestidge was retained to undertake certain design and production work.  Thereafter, Dr Whisson's role and responsibilities changed very little although he spent about two hours per week in advising on technical questions.  The time was devoted to attempting to help Mr Prestidge overcome technical problems he encountered so that the products could be developed for commercial production as quickly as possible. 

2. Dr Whisson ceased these activities after Kemayan stopped funding KEM.

Mr Prestidge's role in KEM

1. Despite the formation of KEM in March 1994, Mr Prestidge continued to provide his services as before to Eastland.  In about December 1995, Mr Prestidge met Mr Seet of Kemayan at Eastland's premises at Osborne Park.  The purpose of the meeting was to discuss Tekdesign undertaking work for the joint venture company.  As a result, on 26 January 1996, KEM and Silverfern (trading as Tekdesign) entered into an agreement for the provision of Tekdesign's services to KEM.  The services were:

   •the development of concept drawings for the relevant products, in conjunction with Dr Whisson as inventor;

   •optimisation of the design of the products in consultation with Dr Whisson, KEM and such other contractors and subcontractors employed by KEM as appropriate;

   •providing consultative services to manufacturers selected by KEM for the purpose of optimising production methods and preparing tool designs as required by KEM;

   •preparing engineering design drawings of prototypes and products in consultation with the engineers and manufacturers as required by KEM;

   •submitting all designs to KEM for approval and, where necessary and by consultative progress, to modify those designs where appropriate (3/835-6).

2. The agreement was for a period of one year commencing on 1 February 1996.

3. Despite the fact that Silverfern entered into the agreement with KEM, Mr Prestidge continued to render invoices to Eastland.  There is a conflict in the evidence as to his reasons for so doing, but nothing turns on that.

4. During the course of Silverfern's engagement to KEM, Mr Prestidge was asked to try to put specific products into a plastic form suitable for mass production.  It was not part of his or Silverfern's duties to invent new devices: nor was he asked to do so.  However, in the course of developing the Eastland technology, Dr Whisson and Mr Prestidge did invent various devices which were improvements to that technology, and which were patented by Eastland as such.

5. For example, in late 1996, Mr Prestidge invented a new device which came to be known as Reversyringe D.  It solved a problem known as "tracking".  This is a problem associated with the withdrawal of a needle while an injection is being administered, with the result that the drug injection path moves away from the desired subcutaneous site, towards the surface of the skin.  The Reversyringe D device was the subject of a patent application which was made by Eastland.  That was accepted by Mr Prestidge, and rightly so, to be entirely appropriate because the development occurred while he was working under instructions from Eastland, which paid the fee for his services.

6. The tracking problem was solved in the Reversyringe D because the needle did not retract while the drug was being delivered to the patient.  This fact was recorded in the minutes of a management meeting held at Eastland's offices on 20 March 1997, to which Mr Prestidge was invited, to inform the meeting about the stage of development of the various devices (6/1991).

7. The minutes record also that Mr Seet stated that patent costs for the Reversyringe D devices were excessive and that further variation should be avoided.  I accept Mr Prestidge's unchallenged evidence that after the meeting had concluded and before he left the Eastland's offices, Dr Ng told him that Eastland did not want any more patents and that he would be required to concentrate on developing the existing patents.  This was because Mr Seet was not happy about the costs (6/1899).  Mr Sharland's evidence is to the same effect (3/807).

8. Although the agreement between Silverfern and KEM expired on 30 January 1997, Mr Prestidge continued to provide services to KEM on the same terms and conditions until January 1998, when Kemayan ceased funding KEM.

9. When Mr Prestidge was informed of that fact by Dr Ng, he ceased work for KEM.  There is a conflict between him and Dr Ng as to the instructions then given to Mr Prestidge.  Nothing turns on that for present purposes.  Mr Prestidge did however assist Eastland in an audit conducted by the Therapeutic Goods Association ("TGA") in February 1998.  Shortly before the audit was conducted, Mr Prestidge attended a meeting with Dr Ng, Mr Sharland and Mr David Wilson, a quality management consultant who is the managing director of a New Zealand company known as Corporate Quality International Ltd.

10. Mr Wilson had been asked by Dr Whisson to assist Eastland to obtain quality accreditation from TGA so that Eastland could conduct clinical trials of its medical devices.  Mr Wilson was engaged subsequently to examine Eastland and to make recommendations for the implementation of a quality management system (TS 409; 2/1241).  In the course of his engagement, Mr Wilson was introduced to Mr Prestidge as a design engineer who had been contracted to turn the design concept for parenteral devices into reality (TS 409).  Mr Wilson produced a job description for a production manager with Mr Prestidge as the incumbent (Exhibit 1).

11. The job description showed that the production manager was responsible to the director; that he had functional relationships with the quality coordinator and the board of management and that his main objective was to assume responsibility for and perform the assembly of devices.

12. Mr Prestidge signed the job description document as the product manager.  Dr Ng told Mr Prestidge that he was being asked to sign only for the purpose of the audit and because there was no one else who could do so.  Dr Ng said it could be changed later.  I accept Mr Prestidge's uncontested evidence that he agreed, reluctantly, to sign the document and that he did so only for the purpose of the audit (6/1901).  I accept the evidence of Mr Wilson that by using the term "production manager" as applied to Mr Prestidge, he did not intend to indicate that Mr Prestidge had a role in the management of Eastland itself (TS 410).

Eastland's position in June – July 1998

1. The failure of Kemayan to meet its funding obligations to KEM resulted in financial difficulties for Eastland.  There was a meeting of the Eastland board on 4 June 1998 attended by Dr Whisson as Chairman, Dr Ng, Mr Sims and Mr Sharland as Secretary.  There was an apology from Mr Luca.  Mr Sharland tabled a report in which he noted that recent contributions amounting to $4,250 from shareholders would allow him to pay outstanding accounts for rent, telephone, electricity, cleaning and wages and would leave a reserve of only $1,669.68.

2. Mr Sharland noted that funds were needed urgently to pay other accounts, including $9,487.82 which was due to Wray and Associates.  Payment had been promised at a recent meeting between Dr Whisson, Dr Ng and Mr Harwood.  Rent, wages, group tax and arrears of wages amounting to some $6,000 were also payable.  Mr Sharland noted that Mr Wilson and Mr Prestidge were "constantly contacting" him (2/489).

3. It is Dr Whisson's evidence, which I accept, that he believed Eastland to be insolvent.  The fact of insolvency was denied by Mr Sharland, who claimed that Eastland had available to it "a number of sources of capital" (3/822).  Although the sources were not specified, I understand that Mr Sharland was referring to shareholders, who have since contributed to Eastland's resources.

4. Mr Sharland went on in his report to refer to a number of potential investors in Eastland.  These included Becton Dickinson.

5. Mr Sharland's report was discussed at the directors' meeting on 4 June.  The minutes record that (as was the case) Dr Whisson had been in contact with Mr David Capes of Becton Dickinson in Singapore.  Mr Capes had told Dr Whisson that Becton Dickinson was interested in viewing Eastland's products and had requested further information (2/488).

6. Mr Sharland said in his report that the interest in Eastland "confirms that we have a marketable commodity from which all parties will derive commercial benefit provided we can keep the ship afloat in the interim".

7. On 5 June 1998, Dr Whisson, as Chairman of Eastland, wrote to Mr Capes to inform him that his interest had been noted at the board meeting of the previous day.  He requested Mr Capes to transmit a request for information to Mr Sharland at Eastland's office.  Mr Capes did so on the same day.  He sent a facsimile to Mr Sharland in which he said he had been aware of Dr Whisson's activities for some time and that he had contacted Dr Whisson to enquire whether he had any interest in opening discussions with Becton Dickinson about any products, patents, etc that he might have which would be of interest.  Mr Capes went on to say that his company would be interested in discussing possible arrangements to their mutual benefit, such as the sale of patent rights, licensing, partnering, distributorship and joint venturing.  He proposed a further exchange of information (2/577).

8. On 3 July, Dr Whisson, again, as Chairman of Eastland, wrote to Dr Graeme Howie of Delta West Pty Ltd.  This is another company carrying on business in the medical products industry, apparently, under the name "Upjohn".  Dr Whisson referred to the fact that he was no longer the research and development director of the Australian Red Cross Blood Service and that, apart from being Chairman of Eastland and having "diverse other intellectual interests", he was unemployed.  Dr Whisson went on to say that Eastland was keen to talk to possible partners or even a group interested in buying the company.  He said the capital required to develop and bring a large number of products to the market was formidable and that Eastland was having "tentative discussions with a number of well known names".  Dr Whisson said that a great deal had happened in the six years since he had attempted to interest Dr Howie in his original Retracta syringe and that to the best of his knowledge he now had patents "on all practical ways of constructing retractable needle injection devices".  He said that although many different models could be made from those concepts, Eastland had focussed on developing those which were most easily manufactured and marketed (2/570-1).

9. As a result of that approach, Dr Howie visited Eastland's premises at Wangara.  This was a meeting arranged by Dr Whisson to interest Dr Howie in the Autoinjecta as a delivery device for drugs being developed by his company.  According to the notes of the meeting made by Mr Sharland, Dr Howie was interested in the Autoinjecta.  However, he wanted to know whether the device could be altered to accept a capsule and to accept either a spring-loaded or gas cartridge as a means of extending the needle.  Dr Howie felt that if those factors could be incorporated and the device priced below $US 1.00, his company would be interested (2/572).

10. On 12 August 1998, Dr Whisson wrote to Dr Howie to thank him for taking the time to visit Eastland's premises.  He said that an automatic version of Autoinjecta could be produced for less than $US 1.00.  Although the copy of Dr Whisson's letter contained in the trial bundle is incomplete, it appeared to assure Dr Howie that with research funds either from his company or an investor, the Autoinjecta device could be altered as required (2/573).

The Di-Med Invention

1. As I have noted above, the essence of Dr Whisson's inventions, to which I have referred as the Eastland technology, is the complete retraction of the needle into the body of the syringe, thereby rendering the device safe.

2. The Di-Med invention is quite different.  It involves a composite needle.  The sharp steel needle is encased in a plastic sleeve for all but 2‑3 mm of its length.  The sleeve is the term used by Dr Whisson to identify what is also described as a catheter or cannula.  On injection, the sharp tip of the needle and the end of the plastic sleeve enter the patient's tissue.  The sharp tip can then be retracted some 2-3 mm inside the sleeve, which remains in place.  In that position, the needle is protected.  The possibility of needlestick injury is therefore eliminated.

3. It is the unchallenged evidence of Dr Whisson and Mr Prestidge that the Di-Med invention came into existence on 23 September 1998, while Mr Prestidge was visiting Dr Whisson at his home.  There was a slight difference between Dr Whisson and Mr Prestidge as to the precise words spoken between them on that occasion: indeed, Mr Prestidge could recall only the substance of the conversation (6/1906).  Although Dr Whisson had adopted Mr Prestidge's affidavit relating to the discovery, his evidence in cross-examination was slightly different.  He said:

   " … I was at the kitchen … bench … making up some coffee.  Dean (Mr Prestidge) was sitting at the dining room table playing with this box of tricks and sliding a plastic tube over a couple of old syringe needles and he said, 'Look, when I have the plastic sticking only a little way out, the needle is protected and won't prick me', and I saw that; and almost immediately said with some excitement, 'Dean, this is a joint invention'.  I am sure that both of us saw the immense possibilities in less than a minute." (TS 838)

4. Having had the opportunity to observe Dr Whisson during a lengthy cross-examination, I am satisfied that he has a good recollection of detail and I accept his evidence.

5. It is not in dispute that what occurred on 23 September was "a momentary insight … a flash of inspiration … a blinding flash".  Those were the terms in which Mr Jooste described the events in the course of his opening (TS 336).  Similarly, in his closing address Mr Jooste referred to the invention being "simple, obvious, a momentary insight and can be (revealed) by a few words or a sentence at most" (TS 1148).

6. Mr Jooste did however submit in his closing address (for the first time) that, accepting the evidence of Dr Whisson and Mr Prestidge, it was the latter who was the inventor.  The significance of that, Mr Jooste submitted, was that by joining in the invention by what he described as "self proclamation", Dr Whisson immediately and voluntarily placed himself in a position of conflict with Eastland of which he was then the Chairman.

7. I do not accept that submission.  Accepting (without deciding) that the idea which found its embodiment in the Di-Med invention came first into the mind of Mr Prestidge, it does not follow that he, and he alone, must be regarded as the inventor.  An idea is not an invention.  It is the practical embodiment of that idea which constitutes the invention.  On 23 September, Mr Prestidge and Dr Whisson had what Mr Jooste put to him in cross-examination was "a joint momentary insight".  Dr Whisson replied:

   "One can say that not every one would have recognised it as such.  We both knew a little about these fields in different ways.  But to me it was a unique event; I've never had a joint invention of any sort and I felt that it was clear that that was a joint invention."  (TS 839)

8. Furthermore, both Dr Whisson and Mr Prestidge participated fully in the process of turning the idea into an invention by preparing the drawings and (in Dr Whisson's case) in drafting a provisional patent application.

9. Some months later, in a document which Dr Whisson prepared for his solicitors, he wrote:

   "I have referred to the invention as a momentary insight.  It was, but what followed was a month of day and night inspired frenzy and labour, involving some 60 drawings, days spent searching through prior art and long nights writing patent applications.  So: it would have been absolutely and totally impossible to do anything at all to progress the new inventions alone.  It was a situation in which two minds caught fire.  Dean would do drawings and something would occur to him.  He would fax the drawing to me for discussion.  Very often I had already made a sketch outlining the same idea.  This process led to the new concepts and the drawings ready for the patent applications."  (4/1305)

10. I accept that passage as an accurate summary of the events immediately following 23 September 1998.  I am accordingly satisfied that the Di-Med invention was truly a joint invention.

11. On 6 October 1998, provisional patent application PP6347 was prepared and lodged by Lord & Co, patent attorneys, on behalf of Dr Whisson and Mr Prestidge.  A second provisional patent application, PP6477 was prepared and lodged by Dr Whisson and Mr Prestidge themselves on 14 October 1998.  Neither Dr Whisson nor Mr Prestidge disclosed to Eastland the fact that these applications had been made.

12. Three further provisional patent applications were lodged by Dr Whisson and Mr Prestidge.  They were as follows:

    •PP7660 on 11 December 1998

    •PP7989 on 31 December 1998

    •PP8318 on 22 January 1999

13. I accept Dr Whisson's evidence that in relation to patenting improvements to the Eastland technology, the established practice was for him to consult Mr Harwood of Wray and Associates (5/1535).  Dr Whisson asked Mr Harwood (who had acted for Dr Whisson previously) whether he would have a conflict of interest in acting as patent attorney in relation to the Di-Med inventions.  Mr Harwood gave an equivocal answer.  Further, I accept Dr Whisson's evidence that it would have embarrassed him to instruct Mr Harwood in relation to the Di‑Med inventions because he was aware of the large debt owed to Wray and Associates by Eastland which at that time, Eastland had not paid despite being pressed by Mr Harwood, and which Dr Whisson believed, Eastland had no means of paying (5/1536).

14. For those reasons, Dr Whisson instructed Lord & Co to act in relation to the Di-Med inventions.  Instructing that firm had the added advantage of proximity to Dr Whisson's residence.

15. For reasons which I shall explain in more detail below, I am satisfied and find as a fact that the Di-Med inventions are based on a concept which is quite different from that embodied in the devices the subject of the Eastland technology.  I find also that the Di-Med invention did not constitute an improvement, modification or alteration to Eastland's technology: and that none of Eastland's intellectual property was utilised in developing the concept which is embodied in the Di-Med inventions or in those inventions themselves.  I find that the genesis for the insight which came to Dr Whisson on 23 September 1998 was his long term interest and experience in safe parenteral devices.  That knowledge and experience pre-dated Dr Whisson's involvement with Eastland.  Mr Prestidge's interest in the subject also pre-dated his involvement with Eastland.  And his idea for a safe parenteral device, being derived from a needle and a short length of tubing, owed nothing to Eastland's technology.

An approach to Heytesbury Pty Ltd

1. In October 1998, following some previous contact through the Red Cross, Dr Whisson sought to interest Heytesbury Pty Ltd ("Heytesbury") in the Di-Med invention.

2. On 26 October Dr Whisson wrote personally to Dr William J Ryan the executive manager of research and development for Heytesbury.  In his letter (1/278) Dr Whisson referred to earlier correspondence and a telephone discussion with Dr Ryan, and to a meeting which was to take place on 4 November.  Dr Whisson continued:

   "The invention itself is extraordinarily simple and easily explained but potentially can alter the whole of medical practice worldwide.  Hopefully we can make a brief PowerPoint presentation using a lap-top computer.  We will also bring copies of two provisional patent applications and a few drawings from previous patents granted to myself and others."

   Dr Whisson enclosed a confidentiality agreement for consideration by Dr Ryan.

1. It is not clear in what form the confidentiality agreement was executed subsequently.  However, it is clear from a draft (11/3594) that the agreement was between Heytesbury and Dr Whisson and Mr Prestidge as inventors.

2. I accept Dr Whisson's evidence that when he arranged the meeting with Dr Ryan he had no thought of competing with Eastland nor of commercialising the Di-Med inventions himself.  Dr Whisson said, and I accept, that he could not see how he or Mr Prestidge could have gone in that direction (TS 793).  The substantial cost of commercialisation would have made such a course impossible without substantial funds.

3. I accept Dr Whisson's evidence that he regarded the approach to Heytesbury as primarily an exercise to find a way to salvage Eastland from its financial difficulties (TS 791).

4. I accept Mr Prestidge's evidence that shortly before the Heytesbury meeting of 4 November, Dr Whisson said that he would be present primarily as chairman of Eastland.  Dr Whisson said he hoped Mr Prestidge would not be disappointed by that: and Mr Prestidge agreed.  As he said in cross‑examination, and as I accept, he "had no problem with that" (TS 968).  That was not, however, because Mr Prestidge regarded the Di-Med invention as Eastland's property.  As I shall explain later in the reasons, it was not.  I am satisfied that Mr Prestidge agreed to Dr Whisson representing Eastland at the meeting because he shared Dr Whisson's view that Eastland provided a suitable avenue for exploitation of the Di-Med invention.  In making this finding, I accept Mr Prestidge's unchallenged evidence in par 84 – 88 of his affidavit of 21 July 2000 (6/1910-2).

5. I accept also Mr Prestidge's unchallenged evidence about the Heytesbury meeting.

6. I find that the meeting commenced with a discussion about the signing of the confidentiality agreement.  It was agreed that some changes would be made to the documents.  Dr Ryan said he would have the changes made and send the signed agreement to Dr Whisson and Mr Prestidge at a later date.

7. Dr Whisson then spoke about the history of safe needle devices and explained his and Mr Prestidge's involvement with Eastland.  Dr Whisson also explained Eastland's current difficulties with KEM and Eastland's financial situation.

8. Dr Whisson then said he was present at the meeting wearing two hats: as Chairman of Eastland and as co-inventor of the new technology.  Dr Whisson told Dr Ryan it was his personal wish to have all the products, including the new inventions, within one company.  He said Eastland's products were very close to the clinical evaluation stage and it was unfortunate for KEM that funding had ceased on the verge of success in getting products to clinical trials.

9. Mr Prestidge then gave the PowerPoint presentation of the Di-Med inventions.  He did so using the lap-top computer which he had brought for the purpose.

10. Dr Ryan said Heytesbury generally liked to invest in projects with fairly prompt returns and would not be in a position to fund a large development programme.  Dr Ryan did, however, suggest that Heytesbury might be able to help by forming an investment group in such a way as to provide tax concessions to the investors.  Dr Ryan was of the view that the proposed project would require about four months research before Heytesbury would consider it seriously (6/1912-4).

11. Mr Prestidge prepared a short summary of the meeting with Dr Ryan (6/2019).  In addition to summarising the matters referred to above, the document contained the statement that Dr Ryan had indicated that any involvement on the part of Heytesbury would be on the condition that "any undesirable legal implications involving Eastland …, KEM, and ourselves were resolved".

12. There was no evidence from Dr Ryan, whose comment is therefore unexplained.  However, it emerged from evidence to which I shall refer below, that Dr Ryan probably perceived a potential conflict of interest.

13. In his cross-examination, Mr Prestidge said Dr Ryan had referred to his concern about problems which might arise from the fact that although Kemayan had ceased funding KEM, the joint venture agreement had not been terminated despite Eastland's belief that it was entitled to take that action (TS 967).  I accept Mr Prestidge's evidence, which is not inconsistent with Dr Ryan's apparent view.

14. Dr Whisson, in cross-examination, said he was not aware of any legal problems at that time although he recalled saying that he had two hats (TS 796‑7).  I accept Dr Whisson's evidence also.  I accept it despite the fact that in his cross-examination Dr Whisson agreed that when wearing his "Di-Med hat" at the Heytesbury meeting, it was to advance the interests of Mr Prestidge and himself (TS 794).  But that, I think, was not a matter which Dr Whisson regarded as being of any consequence.  As I have found, Dr Whisson and Mr Prestidge saw no prospect of commercialising the Di-Med invention themselves.  Dr Whisson saw the invention as a means of saving Eastland: and Mr Prestidge acquiesced in that.

15. It seems more probable than not that Dr Ryan was concerned about a possible conflict of interest between Eastland or KEM and Dr Whisson and Mr Prestidge.  I am satisfied however that naïve though it may have been, that had not occurred to them.

16. On the day following the meeting with Dr Ryan, Dr Whisson wrote personally to him.  In his letter, Dr Whisson said:

    "Towards the end of our meeting you mentioned the possibility of investment in such a way as to meet the requirements for R&D tax concessions.  This does indeed seem to be an attractive way of avoiding complications.  A possible minor disadvantage is that it does not appear to provide early reward to us for Intellectual Property, but I think reasonable salaries and consultancy fees would be legitimate R&D expenses.  Patent fees are evidently tax deductible on a separate basis and we would pay these."  (1/279)

17. It was accepted by Dr Whisson in cross-examination that the salaries and consultancy fees to which he had referred in his letter would be his own and those of Mr Prestidge "amongst others perhaps" (TS 791).

Disclosure of the Di-Med invention to Eastland

1. In the afternoon of 4 November, following the meeting with Dr Ryan, Dr Whisson attended an Eastland board meeting.  The meeting had been scheduled for that afternoon to discuss how funding would be obtained to enable Eastland to continue.  After some discussion about the possibility of a public float in Canada, Dr Ng asked Dr Whisson if he had anything to report.  Dr Whisson said that a big Perth company with a lady director might be interested in providing funds.  Mr Sims said he supposed the company was Heytesbury.  Dr Whisson said it was.  He then said he had a new invention and that Heytesbury had suggested there might be a way in which a new invention could be promoted as new research and development which would qualify for taxation relief so as to more attractive to potential investors.

2. Dr Whisson said the new technology involved an outside joint inventor and that a formula would have to be found whereby that inventor could be rewarded properly.  Dr Whisson suggested the possibility that he himself might be rewarded by virtue of his shareholding and that he could agree to pay a proportion of the dividend to the joint inventor.  Both Mr Sims and Dr Ng said that should be workable.  Dr Ng and Mr Sims wanted to know what the new invention was.  Dr Whisson declined to disclose that information.

3. In making those findings, I accept Dr Whisson's unchallenged account of the meeting (4/1465-6).

4. In cross-examination, Dr Whisson was asked why he had waited so long since 23 September to disclose the existence of the new invention to Eastland.  It was clear from the way in which Dr Whisson responded to the question that he was surprised by the suggestion that he had delayed.  He went on to answer by saying that he thought his disclosure was "extremely early" (TS 797).

5. Dr Whisson addressed the disclosure issue in his affidavit sworn on 21 July 2000, in which he said that when the core inventive concept behind the Di-Med inventions was discovered he did not believe it was necessary or prudent to discuss the invention with the Eastland board (4/1463-4).  The embodiments of the invention had not been finalised nor had they been documented properly.  Dr Whisson went on to say that the invention was dealt with in exactly the same way as all previous inventions he had made.  That involved the process of recording and checking the invention, and consulting records on the Internet and in the patent office to find out whether the invention was already in existence.

6. Dr Whisson said that in the first month after the invention had been made there were frequent faxes and telephone conversations between Mr Prestidge and himself.  It was during that period that the first provisional patent applications were prepared.  The application was very much provisional and the inventive processes were continuing.

7. Dr Whisson said:

   "The inventive process must be highly confidential.  Inadvertently disclosing the invention would destroy the chances of obtaining patent protection for it.  For this reason, any disclosure, even to the board of Eastland, prior to the lodging of provisional patents, would have been extremely foolish.  (The provisional patent applications) were related mainly to exploring ways in which the invention could be applied or adapted to known injection techniques."  (4/1463-4)

8. I accept that evidence, which seems to me to reflect an eminently sensible approach.  I note that Mr Sims' attitude to his own inventions appears to have been similar.  I refer to Mr Sims intellectual property CV in which he said he had developed inventions and concepts "which cannot be disclosed" (2/447).

9. I find as a fact that Dr Whisson honestly and justifiably believed, for the reasons set out in his affidavit, that it was neither necessary nor prudent to disclose the invention to the Eastland board.  I find further that in taking that view, Dr Whisson was not motivated by a desire to advance his own interests at the expense of or in competition with Eastland.  Indeed, as I have already found, it was Dr Whisson's hope and intention that the inventions would be used to the advantage of Eastland in order to overcome its financial difficulties.

10. I accept further that Dr Whisson believed he did not have an obligation to disclose the invention to Eastland.  Given that Dr Whisson was not employed by Eastland as an inventor, and given that the Di-Med invention owed nothing to the Eastland technology, I consider Dr Whisson was justified in taking that view.

11. I accept also Mr Prestidge's evidence that he had no reason to disclose the Di-Med invention to Eastland.  His design work for KEM had ceased in about January 1998: he had been involved in the preparation for the TGA audit (to which I have referred above) in about February 1998, and he had attended a meeting at Eastland's premises in August 1998.  Mr Prestidge therefore had no reason to contact Eastland in October 1998 (TS 968).

The Events of November 1998 to January 1999

1. There was a board meeting of Eastland on 18 November.  According to the minutes, which I accept as accurate, the meeting was attended by Dr Whisson, Dr Ng, Mr Sims, Mr Luca and Mr Sharland as secretary (4/1488).

2. There was further discussion about potential investors but there were apparently no definite proposals.

3. The minutes record that Dr Whisson reported that he had discussed some new patents and intellectual property with "a large organisation".  Dr Whisson is recorded as saying that he had raised the question of research and development expenditure by Eastland and the prospect of a takeover of Eastland, based on a value of $3.5m, by the organisation with which he had been holding discussions.  Dr Whisson said that a confidentiality agreement was being prepared.

4. It is not clear to which organisation Dr Whisson referred.  I infer that it was Heytesbury because of the reference to the confidentiality agreement which was then close to being finalised with Heytesbury (see 1/283).

5. This view is supported by the further reference to "the group" not dealing with any company with disputes or undisclosed problems.  That comment supports Mr Prestidge's evidence about the discussion with Dr Ryan on 4 November.

6. Mr Sims is recorded as explaining to the meeting that his discussions with potential investors were being jeopardised by the continuance of the joint venture with Kemayan, having regard to its default and insolvency.  It was agreed that Mr Sims should instruct solicitors to issue a notice of termination of the joint venture and the licence agreement.

7. It seems that notices were served by MacKinlay & Co, Eastland's solicitors, on KEM on 18 November 1998 (although one notice is dated 21 August 1998) (1/266 - 7).  Mr Sharland wrote to Kemayan's solicitors in Singapore on 19 November, informing them that the joint venture had been terminated (2/509).  Dr Whisson and Dr Ng had resigned as directors of KEM on the previous day (2/507-8).

8. There was a further meeting of the Eastland board on 25 November.  It was attended by Dr Whisson as chairman, Mr Sims and Mr Sharland.  Again, I accept the minutes as an accurate record (4/1490).

9. At the meeting, there were further discussions about potential investors.  Dr Whisson reported that the investor with which he had been negotiating had three options.  These were to undertake research and development on Dr Whisson's project only, to undertake research and development on Dr Whisson's and Eastland projects or the acquisition of Eastland for about $3m.  Again, I assume that the investor was Heytesbury and that the reference to Dr Whisson's project was to the Di‑Med invention.

10. There was a prospect of ameliorating Eastland's financial difficulties by the injection of $22,000 from Dr Whisson's brother in return for shares.  It was also agreed that a further share issue should be made to existing shareholders for the purpose of raising $20,000 of which $19,000 would be regarded as loan funds.

11. The meeting resolved that every endeavour should be made to bring the Clip‑on device to the point at which it could be tested in preparation for marketing.  This was to be achieved by utilising the directors' own labour in the assembly process and employing Dr Whisson's son to undertake some gluing.  I accept Dr Whisson's evidence that with the amount of money available, Eastland was not able to produce any clinical quality Clip‑on devices.  Manufacturing was put on hold until the company had further funds (4/1468).

12. On 15 December 1998, Dr Whisson, as chairman of Eastland, wrote to Dr Ryan (1/284-5).  Dr Whisson opened his letter by referring to the steps which had been taken to place Eastland on a better financial footing.  He continued by referring to the fact that a potential investor known both to him and to Dr Ryan had mentioned to a member of the Eastland board that Eastland had new "competition".  Dr Whisson said that was undoubtedly a reference to the new Whisson‑Prestidge developments: and that clearly, Eastland could be weakened at a critical time.

13. The inference was that there had been a leakage of the information which was the subject of the confidentiality agreement between him and Mr Prestidge on the one hand and Heytesbury on the other.

14. As Dr Whisson said in cross examination, and as I accept, he was concerned about the potential damage to Eastland arising from the fact that potential investors might think it had the competition when that was not the case (TS793).

15. Dr Whisson continued his letter by saying that Eastland had remained ahead of all competition in terms of innovation because he had fed all new patents into the company.  He said Eastland's lead had become rather narrow since the collapse of "the Malaysian connection".  Eastland had not had the resources to pursue new intellectual property.  Dr Whisson said the new developments could re‑establish Eastland's lead if it was "injected with enough nourishment to acquire the new intellectual property filed and coming through".  The letter continued:

    "I have discussed the new IP with our board but NOT revealed its nature.  The board of [Eastland] is committed to acquiring it simply on the basis of my past record of innovation.  [Eastland] recognises however that this new IP is available to other investors and recognises that there are several possible ways to proceed.  [Eastland] is ready to make the Wangara plant available for the development if that is satisfactory to all involved.  [Eastland] also recognises that if the Whisson‑Prestidge group is strengthened then the more solid base would assist [Eastland].  For example I have already supported [Eastland] financially in several ways and [Mr Prestidge] provides valuable input to development of currently available [technology] to [Eastland].

    A separate R&D company - or at the very least a separate R&D account - could be established.  This could be purely for Whisson‑Prestidge but a fully integrated R&D effort would be preferable, so that all of the patents could be developed with an eye to rapidly changing medical needs.  All of these variations are possible and at the moment do not appear to pose any serious conflict."

16. Although that letter, unexplained, may be capable of supporting an inference that Dr Whisson was at least offering Heytesbury an opportunity to advance his and Mr Prestidge's interests to the detriment of Eastland, I am satisfied that the letter was not written for that purpose.

17. As Dr Whisson explained in cross examination, the letter was part of his continuing attempt to salvage Eastland.  Although the letter referred to a research and development account which could be "purely for Whisson‑Prestidge" Dr Whisson said, and I accept, that he did not believe it had been considered seriously (TS799).  Indeed, the letter itself referred to the fact that a fully integrated research and development effort would be preferable: that is, a research and development effort by Eastland, directed to its existing technology and the new developments which, as Dr Whisson said, Eastland was committed to acquiring.  That is, I think, a reference to a potential licence agreement similar to those of 1993.

18. It is not clear when the proposal for a licence agreement was first raised.  I accept Mr Sims' evidence that in late December 1998, he and Dr Whisson met Dr Ryan of Heytesbury.  On that occasion, Dr Ryan asked what arrangements had been made between Dr Whisson, Mr Prestidge and Eastland in relation to the new inventions.  Mr Sims told Dr Ryan that no agreement had been reached.  Dr Whisson and Mr Sims told Dr Ryan that they would sort out any issues in relation to the new inventions and would contact him again once they had done so (1/81-2).

19. Mr Sims and Dr Whisson met Dr Ryan again in January 1999.  Dr Ryan said Heytesbury was interested in Eastland listing on the Australian Stock Exchange as a public company.  If that occurred, Dr Ryan said, Heytesbury might be interested in investing.  Mr Sims told Dr Ryan that Eastland had other negotiations on foot at the time and was not interested in a public listing.  According to Mr Sims, Dr Ryan asked him why Eastland had approached Heytesbury in the circumstances.  Mr Sims told Dr Ryan that Eastland had not made the approach but that Dr Whisson and Mr Prestidge had approached Heytesbury in their own right.  That was true, up to a point.  I accept that Mr Sims may have believed that to be the case.  However, it was not the whole truth.  As I have held, Dr Whisson was at all times acting in what he believed to be the best interests of Eastland in order to overcome its financial difficulties.

20. It is apparent that Mr Sims started to become suspicious of Dr Whisson.  Mr Sims was concerned that Dr Whisson and Mr Prestidge might be attempting to establish themselves in opposition to Eastland.

21. At about the time Mr Sims was involved in the Heytesbury meetings, he consulted Mr Harwood.  Mr Harwood told Mr Sims that Dr Whisson had approached him with another medical device and that he had refused to act on Dr Whisson's behalf.  Dr Whisson's approach caused Mr Harwood to suspect that the new device was in the same field of business as Eastland, and that Dr Whisson was therefore under a duty to disclose the device fully to Eastland.  According to Mr Sims, he was told also by "Heytesbury" that there was a conflict because the new device was in the same field (TS483).

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION: EASTLAND TECHNOLOGY AUSTRALIA PTY LTD & ORS -v- WHISSON & ORS [2002] WASC 150 (S)

CORAM:   TEMPLEMAN J

HEARD:   2-15 APRIL, 22 AUGUST 2002

DELIVERED          :   14 JUNE 2002

SUPPLEMENTARY

DECISION              :30 AUGUST 2002

FILE NO/S:   COR 347 of 1999

BETWEEN:   EASTLAND TECHNOLOGY AUSTRALIA PTY LTD (ACN 059 479 391)

First Applicant

FEEZONE PTY LTD (ACN 057 705 129)
Second Applicant

INTERCONTINENTAL CORPORATION PTY LTD
Third Applicant

AND

MAXWELL EDMUND WHISSON
First Respondent

DEAN BRIAN PRESTIDGE
Second Respondent

SILVERFERN NOMINEES PTY LTD (ACN 070 887 722) as Trustee for the PRESTIDGE FAMILY TRUST
Third Respondent

Catchwords:

Practice and procedure - Costs - Calderbank offer - Whether the offeree acted unreasonably in not accepting the offer - Whether costs should be awarded on an indemnity basis

Legislation:

Nil

Result:

Indemnity costs awarded

Category:    B

Representation:

Counsel:

First Applicant              :     Mr D J Garnsworthy & Mr E J Picton-Warlow

Second Applicant          :     Mr D J Garnsworthy & Mr E J Picton-Warlow

Third Applicant            :     Mr D J Garnsworthy & Mr E J Picton-Warlow

First Respondent           :     Mr C G Colvin SC & Mr B W Ashdown

Second Respondent       :     Mr C G Colvin SC & Mr B W Ashdown

Third Respondent         :     Mr C G Colvin SC & Mr B W Ashdown

Solicitors:

First Applicant              :     John Picton-Warlow

Second Applicant          :     John Picton-Warlow

Third Applicant            :     John Picton-Warlow

First Respondent           :     Williams & Co

Second Respondent       :     Williams & Co

Third Respondent         :     Williams & Co

Case(s) referred to in judgment(s):

Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner for Taxation [2001] HCA 26

Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2002] WASC 150

Murcia Holdings Pty Ltd & Ors v City of Nedlands & Ors [1999] WASC 270

Optus Networks Pty Ltd v Leighton Contractors Pty Ltd [2002] NSWSC 450

Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201

Case(s) also cited:

Alpine Hard (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224

Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 100 ALR 568

Bass Coast Shire Council v King & Ors, unreported, SCt of Vic; 18 October 1996

Black v Lipovac [1998] FCA 4

Co-operative Bulk Handling Ltd v Antonino Ballato & Ors, unreported; SCt of WA; 25 October 1991

Colgate Palmolive v Cussons Pty Ltd (1993) 46 FCR 225

Coshott v Learoyd [1999] FCA 276

Davids Holdings Pty Ltd v Coles Myer Ltd [1995] ATPR 40, 297

Donnelly v Edelstein (1994) 49 FCR 384

Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2000] WASC 285

Eastland Technology Australia Pty Ltd v Whisson [2000] WASC 134

Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd [1998] FCA 53

Hughes v Western Australian Cricket Association Inc (1986) 19 FCR 10

John S Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201

Love v Williams & Ors, unreported, Fed C of A; 16 December 1994

MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd & Anor (No 2) (1996) 70 FCR 236

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425

NMFM Property Pty Ltd v Citibank Ltd (No 2) (2001) 109 FCR 77

Nobrega v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133

Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569

Re Wilcox; ex parte Venture Industries Pty Ltd (No 2) (1996) 141 ALR 727

Regata Developments Pty Ltd v Westpac Banking Corp, unreported; Fed  C of A; 5 February 1993

SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323

Spencer v Dowling [1997] 2 VR 127

Stobbart v Mocnaj & Ors [1999] WASC 252

Unioil International Pty Ltd v Deloitte Touche Tohmatsu (1997) 18 WAR 190

Wenzel v Australian Stock Exchange Ltd [2002] FCA 353

Yunghanns & Ors v Elfic Ltd (formerly known as Elders Finance Investment Co Ltd) & Ors, unreported; SCt of Vic; 16 July 1998

1. TEMPLEMAN J:On 14 June 2002, I delivered my reasons for dismissing the application and giving judgment to the respondents on their counterclaim: see Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2002] WASC 150.

2. The respondents now seek an order for the payment of their costs by the applicants on an indemnity basis:

   "… by reason of the terms of a Calderbank offer made by the respondents, the attitude of the applicants to settlement and the manner in which the proceedings have been conducted by the applicants."

3. Before referring to the terms of the offer, it is important to note that it was made about two weeks after the hearing before Wheeler J of the applicants' application for an interim injunction to restrain the respondents from dealing with their intellectual property.

4. In the course of her extempore judgment, Wheeler J referred to Mr Sims' explanation of the circumstances in which he entered into the deeds of settlement of the previous proceedings (I use the same terminology in these reasons as I have done previously).

5. Wheeler J referred to Mr Sims' belief that the Di‑Med inventions were novel and had nothing to do with the Eastland Technology.  Wheeler J referred also to Mr Sims' statement that the execution of the deeds of settlement had been founded on representations made by Dr Whisson and Mr Prestidge: and that the actions would not have been settled, had the representations not been made and had he not believed them.

6. Wheeler J went on to say:

   "It is not appropriate to form a concluded view about matters of disputed fact at this stage.  I therefore do not reject the assertions made by Mr Sims in his affidavit, but it is my view that they are so inherently implausible that they are unlikely to be made out at trial.  On Sims' own other affidavit evidence, he and the other directors had plainly long suspected that the later inventions were related to the Eastland inventions despite Whisson's repeated denials.  They have seen drawings, albeit briefly, and had formed their own view.

   It appears to me that a further bald denial totally unsupported by any particulars, such as that found in the affidavits of Whisson and Prestidge to which Mr Sims refers, would be most unlikely to alter anything.

   In any event, I note that by 8 July Mr Sims had the report of Mr Harwood and then for some months the applicant, by its conduct, appears to me to have represented that it would proceed on the basis of the deed of settlement, not making the application which it did to me until December.

   As a matter of law, I accept that the s 241 of the CorporationsLaw argument to which I have referred in my other reasons is open and that there is a serious question to be tried with respect to it.  Indeed, I have to comment that after hearing it set out in a more refined way yesterday, it appears to me to be well‑arguable.

   Also open, although in my view rather weakly on the facts, is the allegation that the deed of settlement was procured by a fraud or a false representation on the part of Dr Whisson and Mr Prestidge, …"

7. The Calderbank offer was contained in a letter dated 10 July 2000 written to Mr Jooste QC by Mr Scott Crabb of Clayton Utz, the respondents' former solicitors .  The letter was headed "Without prejudice save as to costs".

8. The letter contained two offers.  The first was set out in a document entitled "Proposed Settlement Terms" annexed to the letter.  That offer involved the respondents providing an option agreement to the applicants' solicitors.  It was proposed that the option agreement would be in terms to be finalised, but would include terms whereby Eastland would acquire an exclusive option to acquire from the respondents the whole of their right, title and interest in the Di‑Med inventions in return for a non‑refundable option fee of $380,000.

9. The option period would be for 12 calendar months and would be exercisable on payment of a price of $1,400,000.

10. That part of the offer was explained in the accompanying letter, in the following terms:

    "You will observe that the settlement terms have been prepared on the assumption that [the applicants] will wish to gain control of the intellectual property which is the subject of the Di‑Med inventions and that (as has been suggested) [the applicants] are contemplating publicly floating a company into which the technology has been transferred.  The suggested mechanism is an option agreement with an option fee calculated, in part to cover, [the respondents'] legal costs incurred to date.

    The overall figure for acquisition has been calculated by reference to the sum of money (tens of millions of dollars) which I seem to recall that [the applicants] have claimed in open court will be realised upon exploitation of the intellectual property.  It also represents a very modest portion of the funds which we understand are expected to be raised on any float."

11. I have accepted evidence given by Dr Whisson at trial, that when the Di‑Med invention was first disclosed to Mr Capes of Becton Dickinson, Mr Capes immediately expressed the view that the invention might be worth $20 million.  Later, when Eastland was negotiating with Becton Dickinson, it emerged that the figure was $US20 million.  That was the amount to which Mr Sharland referred in his letter dated 10 May 1999 in which he complained to Clayton Utz about their letter to Becton Dickinson.  That letter was said to have resulted in Becton Dickinson breaking off negotiations with Eastland: see par [328] of my reasons.

12. Against the background of the value of the Di‑Med technology and Wheeler J's comments about the lack of merit in the applicants' case, the first offer contained in the Calderbank letter was, in my view, extremely generous.  It is not surprising therefore, that in the opening part of the Calderbank letter, Mr Crabb set out in some detail what he perceived to be the obstacles which the applicants would need to overcome if they were to succeed in the litigation.  As Mr Crabb said, that was not done "out of a desire to debate the relative merits of our clients' respective legal positions".  Rather, it was done "in order to dispel any belief that might linger in [the applicants'] minds that any settlement should be a reflection of what they hitherto regarded as an overwhelming strong position".  The letter also stated:

    "For [the respondents] part, they have always had a strong desire to resolve this litigation.  It has been time consuming, extremely costly and highly destructive in nature.  It was never [the respondents'] desire to involve themselves in litigation.  Indeed, it was a matter of great concern to [the respondents] that, after having settled the matter once, they were met with further proceedings in relation to the same (or essentially the same) subject matter.

    As was the case when they settled the earlier proceedings, [the respondents'] wish to settle is not based upon any inherent belief in the weakness of their position but is reflective of a desire to get on with their lives.  In the case of Dr Whisson, there is also a strong desire to see this technology being used for the benefit of both medical staff and patients."

13. The second limb of the Calderbank letter proposed alternative terms if the principal offer was unacceptable.  The alternative, was an offer to settle the proceedings forthwith on the basis that the action was dismissed and each party would bear his or its own costs.  That offer was to remain open for 14 days.

14. It is common ground between the parties that the mere fact that a Calderbank offeror is worse off at the end of the proceedings than he would have been had the offer been accepted, does not lead necessarily to the result that an indemnity costs order will be made.  The critical question is whether the offeree acted unreasonably in not accepting the offer.  In determining this, the Court looks to all the circumstances of the case:  Optus Networks Pty Ltd v Leighton Contractors Pty Ltd [2002] NSWSC 450 at par [94].

15. In the present case, the Calderbank offer was rejected almost immediately.  As I have said, the letter was written on 10 July 2000 - a Monday.  It is not clear when the letter was received by Mr Jooste.  However, Mr Sims replied to it on Wednesday, 12 July 2000.

16. Mr Sims replied on the letterhead of Bead Cheata Nom Pty Ltd.  That is explained by the fact that the proposed settlement terms which formed part of the Calderbank offer, included a provision whereby companies such as Bead Cheata, with which Mr Sims was connected, would release the respondents from claims made against them by such companies.  Although written on Bead Cheata letterhead, the letter was referenced:

    "Matter: Eastland Technology Australia Pty Ltd"

    Mr Sims wrote as follows:

    "Dear Mr Crabbe (sic),

    We are in receipt of an 8-page letter to Mr Peter Jooste dated 10 July 2000.  Within this letter there are several false allegations, accusations and misconceived assumptions.

    Within this garble you have made reference to my Family Trust, Bead Cheata Nom Pty Ltd.

    Now Take Notice

    Bead Cheata Nom Pty Ltd have no part or role in the matters you have attempted to join them in namely the dispute between E.T.A. Vs Whisson and Others.

    The actions being taken by Bead Cheata Nom Pty Ltd are of a total separate issue and the Sims Family Trust is NOT represented by either Mr Picton Warlow or Mr Jooste.  Furthermore you have previously been advised of this.

    There are further actions against your client by other companies that my company's (sic) hold an interest that are also separate to the E.T.A. vs Whisson & Others issue.  This company is also represented by separate lawyers as they are joined with TNI Verlag Publishing who have claims against your clients.

    You have NO defence against any of the actions upon your client or clients being taken by any of the companies in which I have an interest.

    You also make comment to allegations made by me, and obviously others, against your company and representatives of your company.  I can only assume you are referring to the files that have been opened by Australian Securities Commission and Legal Practitioners Board and we believe soon, the Police Fraud Squad.

    The allegations I think you are referring too are not without substance and evidence, mark my word.

    If you are under the misconceived assumption or the misguided information that for some reason you are of the belief that any of the actions to gain justice in these matters is placing undue financial pressure on any of our companies you have made a grave mistake.  Whether the dispute goes for one or five years and costs a further $100,000 or $5ml there is no financial strain on us.  We are totally underwritten in all matters as the breaches and crimes pre‑date your obstructive action IN ALL CASES.

    All of these matters could have been settled a long time ago if your company had not taken the approach of "feed the monkey, obstruct and delay for as long as possible" (as stated in a letter to your client of March 1999 held by TNI Verlag).  The hope that financial hardship would win the day has unfortunately for you, and your client, failed dismally.

    The present situation is that as time progresses you will be joined in all of our actions unless all of these disputes are settled to our satisfaction and in this progression you may well find you have forfeited your insurance cover.

    As previously requested, please advise if you are receiving service of documents for Whisson.

    Yours sincerely

    (signed)

    Doug Sims
    Director

    12-07-2000"

17. It was submitted by Mr Garnsworthy who argued the costs application on behalf of the applicants, that as this letter was signed by Mr Sims in his capacity as a director of Bead Cheata, it should not be regarded as a response by, or on behalf of Eastland.  I do not accept that submission.  I think the letter was written on behalf of Eastland, not only because of the heading, but also because it contained the statement that:

    "You have NO defence against any of the actions upon your client or clients being taken by any of the companies in which I have an interest."  [my emphasis]

    In that statement, Mr Sims was obviously expressing a view about the merits of Eastland's claim against the respondents.

18. Furthermore, in asserting that Clayton Utz would be making a grave mistake if they believed that the actions were placing undue financial pressure "on any of our companies", Mr Sims clearly included Eastland.

19. Although Mr Sims did not say expressly that the Calderbank offer was rejected, that was clearly the message which his letter conveyed.  Equally clearly, the reasons for that rejection were that:

    •The respondents had no defence to any of the actions brought against them.

    •The applicants would suffer no financial strain if the dispute continued for a further five years and cost a further $5m.

    •The applicants were prepared to proceed with the actions (joining Clayton Utz as a party) unless the disputes were settled to the applicants' satisfaction.

20. The second response to the Calderbank letter was from Mr Jooste, who replied on 17 July 2000.

21. It is not necessary to refer in detail to Mr Jooste's letter.  That is because it was not written on behalf of his clients but was a personal response by way of a complaint that Mr Crabb had "seen fit to attempt to side step the 'without prejudice' quarantine that we both clearly agreed and acknowledged on 28 June in a lengthy telephone conversation".

22. The essence of Mr Jooste's complaint, was that Clayton Utz ought not to have avoided that quarantine by adding the condition "save as to costs" to the without prejudice nature of the letter of 10 July 2000.

23. Mr Garnsworthy submitted that Mr Jooste's letter was irrelevant, and therefore inadmissible.  I do not think Mr Jooste's letter is irrelevant because even though it contained a complaint, it contained also an invitation to Mr Crabb to "immediately in writing restore the completely without prejudice position".

24. Although the matter has not been argued out before me, I think it appropriate to express my view that there was nothing improper in Clayton Utz making a Calderbank offer, even if this was done in the course of without prejudice negotiations between the parties.

25. If Mr Jooste's request to Mr Crabb to restore the completely without prejudice position was intended as an invitation to engage in further negotiation, that invitation was not accepted.  Mr Crabb replied on 19 July 2000 to Mr Jooste's letter in an open letter in which he explained the basis on which he had written the Calderbank letter.  And there the matter rested.

26. I make that observation, despite a statement in Mr Sims' affidavit of 13 August 2002 in which he referred to the assertion by Mr Prestidge that the Calderbank offer received no response from Eastland.  Mr Sims said:

    "This is not true.  I am told by Mr Jooste and I believe that Mr Jooste acting for [Eastland] did respond to the solicitor's [sic] for the First and Second Respondent rejecting the offer on the basis of their refusal to honour previous agreements and making a counter offer.

    After this conversation between Mr Jooste and Mr Crabb no further attempt was made by the respondents to pursue a settlement."

27. I do not accept Mr Sims' evidence.  Had Mr Jooste attempted to negotiate with the respondents' solicitors in the way suggested by Mr Sims, it would have been open to him to swear an affidavit to that effect.  Although that might well have disqualified Mr Jooste from appearing to argue the costs point, as I have noted, he did not appear in any event.  The matter was argued for the applicants by Mr Garnsworthy.

28. Furthermore, Mr Jooste had an opportunity to inform me of any such conversation with Mr Crabb.  The respondents' application for indemnity costs, supported by Mr Prestidge's affidavit of 29 July 2002 exhibiting the Calderbank offer and the responses to it, was listed before me on 31 July 2002.  Mr Jooste then sought an adjournment so that his instructing solicitors could look into the question whether there had been any response beyond his and Mr Sims' letters.  Had Mr Jooste engaged in any negotiation with Mr Crabb, I have no doubt he would have informed me on that occasion.

1. Even if I were to accept Mr Sims' evidence, I would regard as wholly unreasonable the rejection of the Calderbank offer on the basis that the respondents had refused to honour previous agreements.  As made plain in my previous reasons, earlier attempts to settle the dispute did not founder because of the conduct of the respondents.  The position was quite the reverse.

2. In my view, the applicants behaved quite unreasonably in response to the principal offer contained in the Calderbank letter.  They rejected out of hand an offer which was extremely generous in all the circumstances and which was made by parties who were most anxious not to litigate.  I say that despite the reference in Mr Sims' letter of 12 July 2000 to the "feed the monkey, obstruct and delay for as long as possible approach" apparently recommended by Clayton Utz.  I note that although Mr Sims seems to have been referring to privileged correspondence, the respondents rely on his letter.  If that was the advice given by Clayton Utz, it is clear from the fact that the Calderbank offer and its terms, that the advice was not accepted.

3. Mr Garnsworthy submitted that the applicants did not act unreasonably in rejecting the offer because, even if it had been accepted, it would not have resolved every issue in dispute between the parties.  I accept that may have been the case.  However, the offer was not intended to include all the appropriate terms: it was expressed to be "in terms to be finalised".  Furthermore, the offer contained an invitation to negotiate albeit "within the narrow confines" of the principles it contains.  If the applicants had been genuinely concerned about the detail of the offer, I have little doubt that the matter could have been resolved by further negotiation.

4. As I have noted above, the respondents claim indemnity costs not only because of the attitude of the applicants to settlement, but also the manner in which the applicants conducted the proceedings.  There is an issue between the parties about the extent to which it is legitimate to refer to the history of the dispute in judging the applicants' response to the offer of settlement.

5. I accept that the applicants' cavalier rejection of the Calderbank offer is entirely consistent with their attitude to the respondents throughout the history of the dispute.  This emerges from my earlier reasons which it is not necessary to repeat here.

6. However, the crucial question, in my view, is not how a Calderbank offeree conducted himself before the offer was made.  It is how he conducted himself afterwards.  In the present case, the position is clear from my previous reasons: the applicants conducted themselves unreasonably by pursuing a claim based on fraudulent misrepresentations when the relevant statements were true and the applicants did not rely on them in any event.  Furthermore, the applicants were given a clear indication by Wheeler J, that insofar as the action was based on fraud, it was unlikely to succeed.

7. I accept that Wheeler J regarded as arguable the claim brought pursuant to s 241 of the Corporations Law.  However, if that had been the only claim to be pursued by the applicants, it could have been resolved in probably less than a day in court and on the basis of limited factual material which, in all probability, would have been non‑contentious.

8. In Murcia Holdings Pty Ltd & Ors v City of Nedlands & Ors [1999] WASC 270 at par [10] Anderson J referred to two matters of policy which are relevant to considerations of indemnity costs:

   "In the first place, settlements are to be encouraged.  Parties should know that if they act obdurately in the face of realistic compromise offers, they may have to pay indemnity costs.  On the other hand, parties should not be placed in terrorem by compromise offers.  I respectfully adopt the reasoning of Lehane J in Flemington Properties Pty Ltd v Raine & Horne Commercial Pty Ltd (1998) 83 FCR 411 where he said that the promotion of the policy of encouraging settlements 'does not … require that an applicant who receives any offer and rejects it be at risk of an order for payment of indemnity costs should the applicant ultimately fail to obtain any relief because it fails to make good the cause of action on which it relies. There is, after all, a policy against deterring parties from pursuing claims to which they reasonably believe themselves entitled'."

9. In the present case, I have no doubt that the applicants did act obdurately in response to a very generous compromise offer which warranted careful consideration.  In rejecting the offer, they may well have pursued a claim to which they believe themselves entitled.  But in my view, their belief was unreasonable, for the reasons I have already given.

10. In these circumstances, I consider this an appropriate case in which to make an award of indemnity costs.

11. There was some issue between the parties as to the precise formulation of the order.  Mr Garnsworthy suggested a number of possible alternatives.  His principal concern, as I understood it, was that the order should not put scrutiny of the respondents' legal costs beyond the reach of the courts and the taxing officer: see Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner for Taxation [2001] HCA 26 at par [40] per Callahan J. I agree that such a course would be unacceptable. However, the order sought by the respondents does not involve that vice. The order will be:

    "The first, second and third applicants, jointly and severally, pay the costs of the first, second and third respondents of the application and counterclaim, including any reserved costs.

    The costs are to be taxed as in an action, down to and including 12 July 2000.

    From 13 July 2000 onwards, the applicants are to pay such costs, except in so far as they are of an unreasonable amount or have been incurred unreasonably so that, subject to the above exceptions, the respondents will be completely indemnified by the applicants for the costs incurred since that date."

12. Having regard to this conclusion, it is not necessary to consider the second limb of the Calderbank offer.

Apportionment of Costs

1. In making the above order, I have not accepted the applicants' submission that the costs should be allocated as to 95 per cent to Eastland and as to 2.5 per cent each to Feezone Pty Ltd and Intercontinental Corporation Pty Ltd.

2. The basis for the apportionment is said to be first, that Feezone and Intercontinental Corporation were joined as parties only for the purpose of prosecuting the claim under s 241 of the Corporations Law, and secondly, that it was relatively inexpensive claim to litigate. I agree with the second proposition. Indeed, the 5 per cent in total which the applicants attribute to the s 241 claim approximates to a half‑day in court. That reflects the assessment which I have already made.

3. However, I do not accept that the costs should be apportioned in the way proposed by the applicants. That is because although only Feezone and Intercontinental Corporation could take the s 241 point, had it succeeded, they would have stood in the shoes of Eastland for the purpose of prosecuting the action generally.

4. Feezone and Intercontinental were joined as parties to the proceedings at their request: And Mr Jooste and Mr Picton‑Warlow acted for them, together with Eastland throughout the proceedings.

5. In these circumstances, I see no reason to depart from the usual rule by which the respondents, as the successful parties, are entitled to be indemnified by the applicants, jointly and severally.  As Fisher J put it in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201 at 210:

   "… if one of the unsuccessful defendants is unable or unwilling to meet its share of the obligation, the misfortune should be that of its 'partner in crime' and not of the plaintiff."

Objections to Affidavits

1. I have referred above to Mr Sims' affidavit of 13 August 2002, filed in opposition to the respondents' claim for indemnity costs.

2. Objection was taken to various parts of that affidavit.  I now set out my rulings in relation to those objections.

Paragraph 3

1. In this paragraph, Mr Sims sets out his perception of the history of the dispute in a way which very largely ignores the findings of fact which I have made, as set out in my earlier reasons for judgment.

2. In so far as par 3 reflects my reasons it is irrelevant.  In so far as it seeks to controvert my findings, it is improper.

3. Paragraph 3 should therefore be struck out.

Paragraph 5

1. In this paragraph, Mr Sims states that he has seen correspondence between the respondents and their advisors which indicated that it was the respondents' intention to continually frustrate Eastland and repudiate agreements, to cause Eastland financial stress.

2. This paragraph should be struck out for two reasons.  First, it appears to be a reference to privileged correspondence between the respondents and their solicitors which was stolen from Dr Whisson's premises and found its way into the possession of Mr Sims.  I ruled at the trial that such evidence was inadmissible.  In my view, Mr Sims acted improperly in making reference to the correspondence in his affidavit.

3. If I am wrong in my supposition that Mr Sims is referring to privileged communications, I consider that the paragraph should be struck out on an alternative ground: namely that it is irrelevant.

4. I take that view, because, as I have found, the respondents did not in fact frustrate Eastland.  Nor did they repudiate any agreements.  The respondents' conduct must be measured by what they actually did.  Relevantly for present purposes, that conduct involved the making of an extremely generous offer of settlement which the applicants rejected out of hand.

Paragraph 9

1. Mr Sims here asserts that Eastland was not disposed to accept the respondents' offer of settlement for various reasons, there set out.  In summary, these were:

   •The respondents were in default of their obligations under the licence agreement of 25 January 1999.

   •Dr Whisson had a conflict of interest in his respective capacities as a Di‑Med partner and a director and chairman of Eastland.

   •Mr Prestidge was in breach of his duties to Eastland.

   •The respondents engaged in improper conduct by handing over incomplete and inaccurate patent applications at settlement on 5 June 1999, handing over corrupt computer records, (in the case of the first respondent) by denying his involvement in developing Eastland's technology and products and in lodging the UK patent application on 24 June 1999.

2. Again, Mr Sims relies on matters about which I have made findings adverse to the applicants.  I exclude from that, reference to the lodgement of the UK patent.  That was a matter which proved to be irrelevant to the main proceedings.

3. I accept that the reasonableness of the applicants' conduct in rejecting the Calderbank offer must be viewed in the light of the circumstances when the offer was made, and not with the benefit of hindsight.  That being so, evidence of the reasons for the rejection of the respondents' offer is, I think, properly admissible.  I do not, therefore, strike out par 9.  However, I place no weight on the evidence.  That is because it relies principally on assertions which are contrary to the findings I made at trial.  Furthermore, in the circumstances as I have found them to be, the allegations support, rather than contradict, my conclusion that the applicants acted unreasonably in rejecting the Calderbank offer.

Paragraphs 7 and 8

1. I have already referred to these paragraphs in the course of my reasons.  Although they contain hearsay evidence, they are relevant to Mr Sims' credibility and I will therefore allow them to stand.

Objections to Mr Prestidge's Affidavit

1. Mr Garnsworthy submits that a number of paragraphs of Mr Prestidge's affidavit of 29 July 2002 are objectionable.  Mr Garnsworthy did not press the submission but I must nevertheless deal with it.

Paragraphs 11 - 14

1. These paragraphs exhibit the correspondence between Clayton Utz, Mr Sims and Mr Jooste to which I have referred above.  In my view, it is relevant to know how the applicants responded to the Calderbank offer.  I therefore consider the evidence admissible.

Paragraphs 15, 17 - 28

1. In these paragraphs, Mr Prestidge refers to, and exhibits, various documents contained in the trial bundle.  I take the same view in relation to these materials as I did in relation to Mr Sims' evidence of a similar kind.

2. That is to say, in so far as I have made findings in relation to the exhibited materials, Mr Prestidge's affidavit adds nothing to my reasons.  In so far as the material has not been the subject of findings, I consider it inappropriate now to rely on it.

3. I will therefore strike out paragraphs 15 and 17 - 28 of Mr Prestidge's affidavit.