Searle, B.A. v Keayes, P

[1995] FCA 323

CATCHWORDS

PATENTS - application for declaration as to interests in patent applications and related confidential information concerning determination of tenderness in meat - determination of inventor of technology.

FIDUCIARY RELATIONSHIP - nature of joint venture - whether there was agreement to enter into a joint venture to develop, patent and exploit the technology - characteristics of fiduciary relationships - whether fiduciary relationship exists between the parties - discussion of principles - whether breach of fiduciary duties - discussion of appropriate remedies.

CONSTRUCTIVE TRUST - constructive trust as remedy for breach of fiduciary duties - imposition of constructive trust on a stranger to a fiduciary relationship.

DURESS - whether written agreement as to invention and ownership of technology vitiated by being entered into as result of duress - whether there was operative duress - effect of ability to negotiate - discussion of principles.

AUTHORITY - authority of company directors and officers - whether first respondent was governing mind behind companies - whether companies bound by written agreement entered into by first respondent.

Crescendo Management Pty Ltd v Westpac (1988) 19 NSWLR 40
Barton v Armstrong [1976] AC 104
Pao On v Lau Yiu Long [1980] AC 614
Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
United Dominions Corporation Ltd v Brian Pty Ltd (1985)
157 CLR 1
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975)
132 CLR 373
H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957]
1 QB 159
Northside Developments Pty Ltd v Registrar-General (1990)
170 CLR 146

BRONWYN ANN SEARLE v
PETER KEAYES, RICHARD KEAYES, BRISALEBE AG LIMITED,
BRISALEBE AG, WSB (No 15) PTY LTD, WSB (No 17) PTY LTD,
& THE GOOD OF THE WORLD FOUNDATION LTD

No NG 309 of 1994

Tamberlin J
Sydney
19 May 1995

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )    No. NG 309 of 1994              GENERAL DIVISION   )

BETWEEN:          BRONWYN ANN SEARLE
  Applicant

AND:              PETER KEAYES
  First Respondent

RICHARD KEAYES
  Second Respondent

BRISALEBE AG LIMITED
  (ACN 060 401 827)
  Third Respondent

BRISALEBE AG
  Fourth Respondent

WSB (No 15) PTY LIMITED
  (ACN 055 949 016)
  Fifth Respondent

WSB (No 17) PTY LIMITED
  (ACN  058 901 170)
  Sixth Respondent

THE GOOD OF THE WORLD
  FOUNDATION LTD
  (ACN 067 152 541)
  Seventh Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       19 May 1995

REASONS FOR JUDGMENT

The Application

The applicant, Bronwyn Ann Searle ("Searle"), seeks a declaration that WSB (No 15) Pty Limited ("WSB15") and WSB (No 17) Pty Limited ("WSB17") and/or Mr Peter Keayes ("Keayes") hold 75% of the issued share capital of Brisalebe AG ("BAG"), a Swiss corporation, in trust to give effect to arrangements entered into between Searle and Keayes on or about 17 March 1993 as varied in December 1993.
The applicant also seeks a declaration that Keayes and his brother Mr Richard Keayes ("R Keayes"), the second respondent, hold any interest either of them may have in Australian patent applications No PL8583/93 and No PM0101/93, together with the benefit of all confidential information concerning the determination of tenderness in meat, in trust to give effect to the arrangements entered into between Searle and Keayes.  This confidential information is expressed to relate to the use of ultrasound, imaging, and computer technology directed to determining, by examining live animals, the tenderness of meat, and also to the use of data arising from the examination of animals and ophthalmological data arising from an examination of the eyes of live animals for the same purpose.

Other orders sought are a declaration that the affairs of Brisalebe AG Limited ("BAGL"), an Australian corporation, are being conducted in a manner that is contrary to the interests of the members of that company as a whole and that BAGL be wound up. This declaration and the claim for winding up of BAGL was not pursued at the hearing.  In addition, an order was sought for rectification of the register of members of BAGL.  Claims were also made for damages, compensation and costs.

In the course of the hearing, as the result of evidence and further consideration, the precise nature of the relief sought was varied and this will be discussed later.
Parties

Searle claims that she invented a technology or process whereby the tenderness and edible quality of meat could be graded and predicted from living animals such as beef cattle and pigs, by a non-intrusive method. The process and related information is also said to reflect the yields of meat from live animals.

The first respondent, Keayes, claims to be the sole inventor of the technology or process with some input to the process by his brother, R Keayes, the second respondent.

The fourth respondent, BAG, is claimed by Keayes to be the owner in respect of all patent applications made and associated confidential information relating to the technology or process. In fact, the applicant is shown on the patent applications as "Brisalebe Ltd", but there is no such corporation and it is claimed by Keayes that the patent applications are owned by the Swiss corporation. The name "Brisalebe Ltd" is claimed to be an anglicised version of "Brisalebe AG".

The third respondent, BAGL, is an Australian corporation which is said to have a 23% interest in BAG.  The fifth and sixth respondents WSB15 and WSB17 are claimed by the applicant to have a 77% shareholding and ownership in the Swiss corporation BAG.
The Good of The World Foundation Limited

One further party was added in the proceedings by the applicant without objection in order to give effect to the orders sought by the applicant in this proceeding. That corporation, The Good of the World Foundation Ltd ("GOWL") is a charitable corporation, limited by guarantee, which became the seventh respondent. It was incorporated on 23 November 1994. Its principal objects are to:

"(a)Provide resources to enhance the education of gifted children as well as children with learning difficulties. eg: Dyslexia, and advancement of ethical and moral teachings.

(b)Promote and fund ecologically sustainable projects, eg: reforestation, land rehabilitation, sustainable food production, research into renewable power.

(c)Promote and fund medical research.

(d)Such objectives of public benefit which are also charitable and which are beneficial to the community, not specified above and which the Directors in their discretion decide, shall be an object...

.......

(g)To .... take or hold any property which may be subject to any trusts..."

The applicant's claim as it finally emerged in relation to charitable purposes, is that the beneficial interest in the meat tenderness technology should be held in trust by GOWL for charitable purposes. GOWL has power pursuant to its Memorandum to hold property in trust.

Corporate Structure

The diagram found on the following page, prepared by Keayes, sets out the relationships and control as between the various parties and entities referred to in evidence in this matter.

The Technology

The property, the subject of the proceedings, comprises the technology and processes which are the subject of the two patent applications referred to above together with all confidential and associated information concerning the inventions and processes ("the technology").

The Provisional Specifications filed on 4 May 1993 and 23 July 1993, in the name of Brisalebe Ltd, relate to a grading system for the tenderness of meat in live animals by a non-intrusive method. They require the performance of three tests on live animals which consist of:

1. Ultrasonic testing of the animal.

1. Visual observation/testing of the animal's eye.

1. Visual observation of one or more other parts of the animal.

One, or a combination, of these tests, and a comparison of the results with previously acquired animal data, allow the animal to be graded according to characteristics such as meat tenderness and are thus said to be indicative of the commercial value of the animal.

The ultrasonic testing is carried out on the neck of the animal with the content of fibrous connective tissue material being indicative of meat tenderness.  Examination is carried out of parts of the eye to derive various characteristics of the animal including tenderness of the meat, health of the animal, stress level and chemical intake. In addition, there is visual observation of one or more parts of the animal, such as the shape of the head, and regard is had to other features such as the use of known characteristics of the animals, including foot angle and muscle shape which are said to aid the grading process.  The grading system is said to be suitable for cattle, sheep, pigs, dogs and cats.

The International Patents

On 4 May 1994, two international patent applications AU94/00230 and AU94/00231 were filed on behalf of Brisalebe Ltd. These applications are entitled "Evaluating Animals" and "Evaluating Animal Characteristics" respectively. The former is concerned with ophthalmological/iridological aspects whereas the latter deals with the ultrasound aspects.

On 17 June 1994 Searle filed Patent Application PM 6298/94 in her name, and after examination by an Examiner of Patents acting as an independent party, he reported that there was a very close match of essential and preferred features in both the patent application filed by Searle and those previously filed in 1993 in the name of Brisalebe Ltd.  The dispute as to ownership of the interests in the patent applications is still continuing.

Statement of Claim

The Statement of Claim alleges that prior to 7 October 1992, Searle conceived and developed technology for the determination of tenderness in meat by use of ultrasound equipment, imaging technology and computer technology, to ascertain the characteristics of connective tissue in meat. 

It is alleged that on or about 7 October 1992, Searle engaged Keayes to act as her accountant and professional adviser on taxation matters.

On or about 25 October 1992, it is claimed Searle and Keayes agreed to enter into a joint venture to develop, patent and exploit the technology. This was agreed to be on the basis that each of Searle and Keayes would receive a 2% interest in the patent and income derived therefrom, "external investors" would receive 6%, and the remaining 90% would be vested in a foundation to be established and known as "The Good of the World Foundation" ("GOW").

Further, it is claimed to have been a term of the agreement that GOW would have a board of directors independent of Searle and Keayes. It is claimed that Keayes owed a fiduciary duty to Searle pursuant to the joint venture in relation to the technology at all times after 25 October 1992.  As a result of the alleged agreement, Searle disclosed confidential information concerning the technology to Keayes.

On or about 17 March 1993, it is claimed Searle and Keayes varied the agreement, to provide that ownership of the patents and income should be held as to 4% each by Searle and Keayes or their nominees, and as to 17% by investors, and as to 75% by GOW.

On or about 21 March 1993, Keayes and Searle allegedly agreed to apply for patents for the technology in the name of Keayes only, but on the basis that Keayes would act as a nominee on a temporary basis for Searle.

It is then said that from 27 March 1993 to October 1993, in breach of the said agreement and in breach of his fiduciary obligations and his obligations in respect of the confidential information concerning the technology, Keayes caused the two 1993 patent applications referred to above to be lodged in the name of Brisalebe Ltd.  It is further alleged that, in breach of the obligations, Keayes established BAG in Switzerland and transferred to it or treated it as holding the benefit of the patent applications and rights to the technology.  Keayes then caused this company to be owned as to 77% by companies controlled by him; namely the fifth and sixth respondents, WSB15 and WSB17, and as to 23% by BAGL, the Australian corporation.

A further breach is alleged of the obligations of Keayes in that he established BAGL and caused it to be held by a variety of investors without taking into account the interests of GOW.

Issues

The primary issue is the ownership of the technology. This in turn involves an examination as to the identity of the inventor and what arrangements govern the ownership of the technology. In addition, a question arises, in the event that there are found to be binding arrangements between the parties, as to how those arrangements can be put into effect.

The contention of the applicant is that the proprietary interests in the technology are held on constructive trust by BAG which is said to be the present owner in law of the technology for inter alia, certain of the parties to this proceeding, a number of investors who have funded the furtherance of the meat tenderness evaluation project, ("the project"), and as to 75% of the ownership of the technology for GOWL.

It is then claimed that Keayes has dealt with funds of BAGL and BAG in breach of the agreement with Searle and in breach of his obligations as a director of BAGL.

It is said that BAGL has failed and refused to act to implement the agreement between Searle and Keayes and that BAGL has failed to take any steps against Keayes in respect of his breaches of his duties as a director of BAGL.

The final general allegation is that Keayes has sought to exploit for his own benefit the technology, in the United States of America ("USA") and elsewhere.

Searle's Work up to Meeting with Peter Keayes in October 1992

By December 1976 Searle was qualified as a nurse and midwife and from 1977 onwards she became familiar with the ultrasound process and she used an ultrasound probe to examine pregnant women and their unborn babies on many occasions.

In about 1988 she met Mr Chilcott ("Chilcott"), who is a beef farmer and cattle judge in Tasmania.  Searle purchased meat from Chilcott from that time onwards and noticed that it was consistently tender. Chilcott told her that he could predict tender meat by the shape and look of the live animals. In the course of discussions after that meeting, Chilcott indicated to her that he was interested in the commercial possibilities inherent in a process which could predict the tenderness of meat. He pointed out there was no effective grading system for beef which had any claims to be scientific. Chilcott had a theory that animals with flat bones tended to produce more tender meat than other animals. He formed a company called Supergene Pty Limited ("Supergene") to develop and exploit his insight into the correlation between the occurrence of flat bones and the tenderness of beef from an examination of live cattle.

In 1986 Searle met Dr Anand ("Anand"), who was a doctor working as obstetrics registrar at the General Hospital in Devonport, where Searle was a midwife using the ultrasound technique to examine unborn babies. From time to time in the course of discussion with Anand, Searle mentioned she was working on tender meat with another person and they were going to market a grading system.  Chilcott was first mentioned by name in about 1988 by Searle in discussions with Anand.  She then told him that she was working very closely with Chilcott and that there was a company called Supergene and that while Chilcott was working on the flat or round bone technology she was helping with the ultrasound aspect. She said she was developing an ultrasound probe which she considered would be a better system than the Chilcott system.  Anand had met Chilcott briefly by that time and he had had conversations with Searle about Chilcott's activities. Anand testified that, of course, ultrasound was used very commonly in obstetric practice. He testified that Searle would know what ultrasound
was and what the probe was, but that usually a consultant or the registrar would do the readings of ultrasound scans.

Searle read extensively on the subject of ultrasound, connective tissue, and meat tenderness and sought information from Chilcott in relation to connective tissue and fibrous protein in animal muscles.  She thought, in the late 1980s, that the ultrasound device she used in her work could be modified and used to detect the extent, number and thickness of fibrous connective tissues in the muscled meat.  In the early 1990s she discussed the theory with Chilcott but at that time he showed little interest in the use of ultrasound.

In 1989 she joined the Amway Network marketing organisation and it was in this connection that she met Keayes who did accounting work for Amway marketers.

About September 1991 she showed Anand a video of a television report, shown on "The 7.30 Report" in Tasmania, in which Chilcott was talking about meat tenderness detection by flat bone criteria.  The report was shown on television in about September 1991. The general views of Chilcott in relation to meat tenderness and bone technology were widely known as a result of this television report.

Chilcott's evidence was that he met Searle in early 1987 and they discussed, on more than fifty occasions, cattle and the tenderness of meat.  Chilcott expressed the view that the key to tender meat was genetic and one of the visible signs of tenderness is the shape of the animal.  He had experimented with ultrasound having purchased an ultrasound machine on 14 July 1979, but after some years he discarded it because he could not establish any consistency of results.  He doubted its utility.  He testified that Searle was much more persistent with her ultrasound theories and that in and prior to 1990 she said on numerous occasions that she was sure that ultrasound could be used to detect the amount and characteristics of connective tissue in meat directly and that by computer processing of the image she could obtain a readout prediction which would provide indications of tenderness. She persuaded Chilcott to pursue ultrasound a little further, but after some further examination he described himself as "negative" about it. In August 1990 he developed a bone profile machine which enabled him to demonstrate his theory in relation to the flat bone criterion. After August 1990, he never used any of Searle's ideas relating to the use of ultrasound to detect connective tissue directly.

In about mid-1989, Chilcott and Searle conducted a taste test which received wide publicity. The Supergene bone selection theories were used in this test. The information was in the public domain as a result of the publicity this attracted. Searle expressed the view to Chilcott on a number of occasions that direct inspection of connective tissue is the key to determining tenderness, because it is connective tissue that
makes meat tough.  Chilcott first heard of Keayes from Searle at the end of 1992.

An independent witness called by Searle, Mr Gary Mason, who is the stud stock manager of a publication called Queensland Country Life, stated that he joined Queensland Country Life as a livestock journalist in 1986 and received a letter in May of 1989 from Searle, relating to flat bone yields and tender beef. He testified that as at 1989, there was a lot of talk about the Supergene evaluation system and that a news article he intended to write was put aside to be used at a later stage in an advertisement for Supergene.

He testified to discussions with Searle wherein Searle said that an ultrasound machine was being used to measure the shape of bones in cattle. Reference was made to flat boned cattle and round boned cattle and to the observation that the former produced tender meat.  He also recollected discussions with Chilcott concerning the use of ultrasound technology. On being questioned by Mr Mason, Chilcott at that time said that the technology being used was ultrasound.

There was no challenge to this evidence given by Mr Mason. The notes made by Mr Mason support the testimony he gave orally.  This evidence is important because it provides independent proof of the involvement of Searle and Chilcott in relation to the use of an ultrasound machine in predicting the tenderness of meat prior to any meeting with Keayes. True it is that the reference related to bone shapes, but nevertheless the discussion at that time is significant. The notes in relation to conversations with Chilcott and Searle in about May 1989 provide further support that Searle had examined linking ultrasound technology with tenderness predictions before meeting Keayes.  The discussion related to the promotion of the Supergene system of cattle evaluation and it was indicated that ultrasound could be adapted for use in all livestock species and breeds. The copy advertisement bearing a date July 1989 refers to the inclusion of an ultrasound machine to take readouts of the bone structure of the animal being assessed.

Prior to October 1992 the position is that Searle had done considerable research by way of reading into the subject matter of meat tenderness, connective tissue and ultrasound, including reading texts relating to ultrasound and the use of ultrasound.  She had studied passages in text books for midwives which dealt extensively with the subject of ultrasound technology. This arose from her teaching of childbirth classes. She studied works which showed the characteristics of connective tissue and its relationship to meat tenderness. Extracts from some of these works were tendered in evidence.  Another example of her reading on the subject matter is the material she gathered from an Encyclopaedia Brittanica article dealing with connective tissue and meat tenderness. She had occasion to read a work on biology by Mr E. Peter Volpe which dealt in some detail with connective tissue. She examined the text "Gray's Anatomy" and also looked at material borrowed from Anand. She had ready access to the medical books as the result of her work as a nurse and midwife. Searle prevailed on Chilcott to contact the Cattlemen's Union in the USA which led to him going to South Australia to conduct ultrasound trials. It is reasonably clear from the evidence that Searle had a theoretical background together with a broad practical understanding of the capability of ultrasound in relation to the prediction of meat tenderness, well prior to the first meeting with Keayes in October 1992.

Searle's interest and concern with connective tissue was not merely academic. She had undertaken active steps to pursue the investigation and application of the hypothesis. She visited three slaughter houses with Chilcott, two of which were in Melbourne, to try and develop the flat bone theory. In early 1992 she suggested that Chilcott contact laboratories in Launceston and have electron microscope photographs taken of four categories of meat. Chilcott did this. The resulting electron microscope photographs were tendered in evidence and Searle pointed out in evidence the difference in structure of different types of connective tissue. Searle explained the significance of the photographs and displayed a degree of familiarity and experience and appreciation of the importance of relevant aspects of these photographs.

Further corroboration is to be found in the evidence of Alex  Paterson ("Paterson"), an investor in the project, who said that in about May or June 1992, Searle described to him her meat grading ideas based on ultrasound.  Craig Jones ("Jones"), also a witness called for Searle, testified that in late 1992 and early 1993, Searle told him that she believed a computer program could be made that would be able to identify animals that are predetermined towards tenderness.  At that time she said to him that with her ultrasound ideas used in conjunction with Chilcott's probe, there could be an accurate meat grading system for determining tenderness in cattle whilst they are alive.

The above discussion and evidence in my view supports the conclusion that prior to the end of 1992, Searle had been closely involved at both a theoretical and practical level with the process of predicting the tenderness of meat by reference to ultrasound, eye characteristics and computer programming. This is also corroborated by the evidence of other witnesses to whom reference has been made above.

Meetings with Peter Keayes in October 1992 to January 1993

It is from October 1992 that discussions and negotiations with Keayes commenced.

It is common ground that Searle met Keayes on 7 October 1992 in the context of Searle seeking taxation advice from Keayes. Both were at that time active in the Amway organisation.

In the course of discussion, Searle told Keayes about her interest in meat grading. Keayes expressed considerable interest in the beef grading system.

He visited Searle on 8 October 1992 and after discussing the accounts of Searle, a discussion took place wherein Searle indicated her commercial involvement with Chilcott. Searle told him about the Supergene meat grading system and the flat bone theory. She referred to the fact that both she and Chilcott had been working on developing the flat or round bone theory and she sought the advice of Keayes on obtaining a formal acknowledgment of her role. Keayes indicated he would be able to structure a joint venture deal and provide expertise in marketing their technology. Keayes volunteered to manage the project and to act as chief executive officer.

At this time Searle was working full time at a hospital in Launceston.  On 18 October 1992, Keayes came from Brisbane to visit Searle.  The discussion on this occasion turned around Searle's involvement with Chilcott's proposals. Keayes said he had an understanding of corporate law and patents and could assist in marketing and raising capital.  There was discussion about the potential of the project to earn millions of dollars. Searle indicated that she had no desire for personal wealth but wanted the money spent to a very large extent on the protection of the environment and assisting needy people. She stated that she wanted to set up a foundation to hold it. The foundation was to be run like the "Make A Wish Foundation", which she told Keayes was a charitable organisation in Tasmania with an independent board of directors. Keayes allegedly said that he would use 90% of his personal earnings from the joint venture to establish projects for "The Good of the World." 

The October 1992 Agreement

After some further discussion Searle says that an agreement was reached whereby 90% of the ownership of and income from the technology was to serve the purposes of GOW and was to be used for charitable purposes. It was proposed that a 2% interest in the technology would go to Searle, 2% to Keayes and 6% for investors who funded the project. Searle says this was agreed on. The parties at this time were talking in terms of a market worth $4 billion a year. Keayes suggested that with such revenue it was a great waste to have to pay $2 billion tax which was apparently the genesis of the idea of setting up a Swiss corporation to own the technology. Searle says that the arrangement was then agreed whereby Keayes would go to Chilcott and work out a deal that suited both of them and it was suggested maybe a joint venture would stem from there.

According to Keayes the discussion primarily related to Searle's tax returns, particularly in relation to Amway income. He then noticed in looking at the records that Searle had received some other business income. This was said by Searle to come from her clairvoyant business which comprised reading tea-leaves and carrying out predictions as to what would happen in the future. Keayes says there was no discussion of the beef industry. He denies the substance of Searle's version of the discussions in October 1992.

Keayes agrees there was a meeting on 8 October 1992. On his version tax was discussed at length and Searle offered to do a tea-leaf reading for him, taking two hours. There was according to him also some discussion of connecting with the spirits by using a swinging crystal and a ouija board. He then did some work on her tax returns, collected her records and left. He says there was no discussion concerning Chilcott or any meat grading system at the meeting on 8 October. After that meeting Keayes returned to Brisbane.

On about 18 October 1992 Keayes says he was again in Tasmania and met with Searle.  There was a tea-leaf reading. At some stage in late October 1992, he says Searle discussed her involvement with Chilcott and stated her role to be that of a clairvoyant business adviser to Chilcott. She referred to his new technology for determining meat tenderness in beef cattle based on the flat bone theory. Reference was made to the Supergene company and Keayes says that Searle requested that he should meet Chilcott to see if he could sort out any problems of internal management. Keayes denies that there was any discussion about a joint venture agreement between Searle and himself. He denies there was any discussion about arranging a joint venture to combine Searle's alleged technology and Chilcott's Supergene technology. He denies there was any discussion about a "Good of the World Foundation" until March 1993, and says that then the only such discussion was simply to the effect that he planned only to keep 5% of the income from technology he developed and that the remainder of his dividends would go to projects for the good of the world as a benevolent gesture. This would not be a binding obligation but was intended by him to be at his  discretion.

I accept Searle's account of the above discussions in preference to that given by Keayes.

It is common ground that on 1 November 1992  Keayes left for America on a trip provided by Amway and did not arrive back in Australia until 13 December 1992.  He then says that after settling in on his return he rang Searle to get Chilcott's telephone number and took up direct negotiations and discussions with Chilcott. There was a meeting in Brisbane during which was discussed an outline of the Supergene system.

On 1 December 1992, Mr Green of Keayes Green & Associates, Accountants of Kedron, Queensland, wrote to Searle and her husband sending tax returns and a memorandum of fees for accounting services concerning individual and partnership tax returns together with financial statements in relation to financial years ended 30 June 1991 and 30 June 1992.  There is no mention in this letter or in the memorandum of fees of any work done in relation to any joint venture or in relation to meat tenderness technology.

Evidence of Dr Anand

I pause in the narrative at this point, to consider the meetings and discussions with Anand around this time. He was an important witness. I found him to be an independent and reliable witness. His evidence supports the version of events given by Searle.

In December 1992 Searle says that she spoke with Anand and he raised the possibility of inspecting the eyes of animals as a means of detecting tenderness because he considered a great deal of data could be obtained by looking into the eye. He raised the possibility that such an inspection could have some correlation with the tenderness of meat. There was some detailed discussion between Searle and Anand about the parts of the eye, various features of the eye, and the use of what is called a fundal camera to take photographs for detecting fat globules, white spots called "asteroid hyalosis", cholesterol and crystal deposits in the eye. Anand stated that examination of the eye was an excellent diagnostic tool. Searle said that she was impressed with this suggestion and decided to look into it. Her view was that the more tests which could be applied then the higher degree of probable accuracy of the results as to tenderness.
Anand testified that Searle had contacted him between October and December 1992 and mentioned that she had been introduced to Keayes who had many contacts and marketing skills and that Keayes was going to get the project "off the ground." Anand understood the project to be a meat grading project which involved flat bone/round bone and tender meat technology, on which Searle had been working since 1987. Anand confirmed that prior to becoming Ophthalmic Registrar at the Repatriation General Hospital in South Australia in late January 1993, he had discussions with Searle on the question of whether there was any way that an eye inspection might be related to the prediction of meat tenderness. Anand agreed that he had suggested if fundal pictures of the back of the eye of an animal were taken, the examination might be useful. He agreed that he made reference to a condition called "asteroid hyalosis". He said to Searle that this condition consisted of suspended fat particles in the eye.  Since humans could be affected by such particles then it was considered that animals could be affected as well.  He said there was also discussion about other eye conditions and other features of the eyes in the context of meat tenderness. 

Anand further stated that in early 1993, possibly late March or early April, he had discussions with Keayes because Searle wanted Keayes to meet him.  In the course of discussion Keayes made some extravagant claims.  Keayes indicated that he was going to market the technology all over the world and it was going to bring in about $3 billion annually. He mentioned that he was going to have a company in Switzerland that was going to market the invention. He said that he was going to help humankind and that the nice people would rule the world and he was going to help Anand to be the Prime Minister of India so that there would be no wars on this earth and no one would be poor. Anand said there was no discussion about any technical aspects during that meeting. This is consistent with the role of Keayes as a promoter or marketer rather than an originator or inventor of the technology.

Subsequently Anand met Keayes in Sydney in April-May 1993 at the home of R Keayes, the second respondent. The meeting lasted about one hour. R Keayes said that they had taken fundal photographs and they did not understand them so they needed some help to interpret them. There was then some discussion in which Anand explained various features of the eyes and conditions photographed.

January 1993

According to Keayes he met with Chilcott on 5 January 1993. This was after getting Chilcott's telephone number from Searle. The discussion with Chilcott turned on the position of a Mr Watkins regarding the Supergene technology.  Keayes says that Chilcott gave him some documents relating to the Supergene system.  Shortly after the meeting Keayes telephoned Searle to advise her of his discussion with Chilcott in
relation to sorting out a difficult management problem for Chilcott.

On 13 January 1993, Keayes went to Tasmania and spoke with Searle about how Keayes should approach the matter in discussions with Chilcott and other members of the board of Supergene.  He said he asked for a tea-leaf prediction from Searle. Keayes met with Chilcott on 13 January in Launceston but was unable to reach any agreement. Chilcott mentioned his theory on connective tissue in relation to meat tenderness.

After discussion with Keayes, Searle arranged to rent office space in Launceston to enable her to carry out research and development on the project. This was suggested by  Keayes. It was rented from about 16 January 1993.  It was rented in the name of "Person to Person - The Business Network Pty Limited", which Keayes referred to as his "research" company, after being transferred from Searle, who initially leased the office.  It was his personal company. Keayes says that this office was rented to enable Searle to carry out her prediction and forecasting work. It is hard to see why she would need an office to do this if Keayes' version is correct.

Searle states that in the period 10 January 1993 to 31 January 1993, she spoke with Keayes every two days or so and these conversations concerned dealings with Chilcott and Supergene. Keayes was excited about the Supergene technology. He was anxious to get something moving.  He was interested in marketing the technology in the USA. Around 20 February 1993, Searle left her employment and went to work full time on the joint venture on the basis that she would be paid $500 per week. Keayes gives a different version of the arrangement between the parties, which was that Searle was employed to assist him by predicting the future course of the business and suggesting and predicting the most appropriate persons to contact regarding the funding and marketing of the technology. The prediction technique was said to be based on tea-leaf reading and crystal prediction.

It is established on the evidence that in fact Searle did profess to have clairvoyant abilities in using tea-leaves and crystals to predict future events and that Keayes believed in these powers and relied on them. Keayes suggests that this was the only basis on which Searle was employed and was working with him. Searle's evidence and submission is to the effect that although there was some predictive work done, the real involvement that she had with the project was by virtue of the fact that she was the originator and inventor of the technology.

Richard Keayes

In January 1993, the brother of Keayes, R Keayes, enters the picture. In substance his role according to Keayes was that R Keayes was responsible for most of the research work which was carried out and resulted in the provisional patent applications in May and July 1993.  He says that this work was carried out after 22 January 1993.

R Keayes was called as a witness. He is a chartered architect. He has degrees in science and architecture and has studied computer programming and engineering as part of his science degree. From 1987 to 1990 he was managing director of a product development, graphics and exhibition design company. There is no indication in the evidence that he had any experience in relation to meat quality prediction or the meat industry at all.

R Keayes says that he was invited by Keayes on 22 January 1993 to undertake a research assignment into an aspect of a project in which he was involved relating to the cattle industry. There was a meeting held on that day at the Golden Wing Lounge at Sydney Airport with R Keayes, Keayes, their sister Erin Jefferies and her husband Brian Jefferies. At the meeting Keayes is alleged to have said that he had been working with Chilcott who had developed a theory relating to bone shapes and was using an antiquated bone profile determination method. Keayes said the product had enormous potential and it could be successfully developed into a marketable form and he believed that the three men present should be able to determine the most suitable approach to develop it into a marketable form.

R Keayes said that he was asked by his brother to find the most appropriate method of non-invasive determination of the shape of a bone in a live animal and a means of comparing one recorded shape with another.  R Keayes states that he responded to the effect that the Chilcott device was "a joke" and that ultrasound was "the way to go". R Keayes asserts that he said that he had done some research into ultrasound.  He said he did not know enough about ultrasound to be sure at that time whether it would accurately measure the size and profile of the bone. He said that he was aware of a camera produced by Canon which did not use film but had an imaging chip which down-loaded the image to a computer. He said that he was sure that they could take an ultrasound image on the screen, feed it into a computer and manipulate it to pick out the bone profile in much the same way as Canon had electronically cut out the images of visitors at an exhibition in which R Keayes was involved. He said that he thought he could get some software to compare a stored image with the bone shape of an animal. He said that he had some experience of using sophisticated computer technology at exhibitions.

Summary of Position up to February 1993

Searle's evidence as supported by other witnesses establishes that before March 1993, she had been involved in working with, or interested in:

*Ultrasound in nursing work.

*Discussions on fundal cameras and ophthalmological applications especially with Anand.

*Work on  meat tenderness prediction.

*Bone structure of animals.

*Consideration of the predictive effect on meat tenderness of connective tissue.

*Computer processing of ultrasound images.

In contrast, prior to early February 1993, at the earliest, neither Keayes nor R Keayes:

*Had any formal study or training in ultrasound or physiology of connective tissue.

*Claimed any practical experience in the use of ultrasound or with respect to connective tissue.    

*Had any experience using an ultrasound machine.

*Had any long standing interest in meat tenderness.

R Keayes was an architect with some background in science and Keayes was an accountant cum promoter and entrepreneur who had demonstrated considerable ability in extracting large sums of money from a wide range of people. Neither background was adapted towards a creative role in originating or formulating meat tenderness technology. Indeed R Keayes said he was not even aware that his efforts and research were directed to meat tenderness until the last week or so of February 1993.  He asserted that he was working in the dark until that time so far as the end purpose of his efforts were concerned.

February 1993

On 3 February 1993, R Keayes prepared a report for Keayes in which he said that ultrasound is the "only viable option" for predicting meat tenderness due to a number of considerations including cost and portability. However, he pointed out that no one had yet developed a truly portable model.

Also in the report R Keayes expressed confidence that a computer programme could be obtained to analyse the output of images and match the field scan to one of the reference images. He felt confident that an answer was at hand and a prototype not far off. He referred to setting up meetings with a software group.

On 5 February 1993 R Keayes and Brian Jefferies went to the CSIRO Division of Radiophysics Ultrasonics Laboratory in Sydney and saw a Dr Kossof who stated that he had been working on a project in Queensland to determine the size of the ribeye muscle in live cattle and was using a similar methodology.

On 9 February 1993 R Keayes faxed an outline of a proposed methodology to Keayes. It refers to the fact that a system had been "conceived" which was considered to be "appropriate and achievable".  He considered that the software would "seem" to be available with minimal modification being required. He referred to ultrasound probes being delicate instruments.

R Keayes said that after 9 February 1993 he continued the research and was able to undertake a preliminary field trial of the "ultrasound based system" on 16 February 1993 at Gympie, Queensland. Chilcott was present and ultrasound images of bone profile were compared against the result from Chilcott's technique. Chilcott is alleged to have said that he was impressed with the results and that R Keayes' system was amazingly accurate. However, in his affidavit Chilcott stated that neither R Keayes nor Keayes knew how to operate an ultrasound machine although R Keayes said that he did. Chilcott stated that at the session, which lasted about three hours, neither R Keayes nor Keayes made any mention of eyes in cattle and they did not examine any eyes. They applied the ultrasound probe to 72 cattle on the bone of the back leg. Chilcott applied it to the jaw bone. Chilcott's estimation of the worth of the testing at Gympie was that "nothing was achieved". Pictures were obtained, he said, but without comparative measures nothing could be achieved. It is squarely contradictory to the enthusiastic statements attributed to him by R Keayes.

Having regard to his more independent position in relation to this project I prefer the evidence given by Chilcott on this point to the evidence of R Keayes.

Within the next week from 16 February 1993, R Keayes said that Keayes telephoned him and stated that he had just realised what made meat tender or tough and that it was the fibres called  connective tissue. He urged R Keayes to look at some meat for himself.

In my opinion this statement is highly unlikely to have been made given the role assumed by Keayes as marketer and promoter of the project and also in the light of the fact that for years previously, Searle had been investigating the question of connective tissue and had communicated this to Keayes.  I consider it more probable that she told Keayes of the importance she attached to connective tissue well prior to 1993, and that this was not something which suddenly sprang to Keayes' mind in February 1993.

R Keayes claims to have been responsible for suggesting that an analysis could be done properly by ultrasound and computer.

R Keayes said that shortly afterwards he discussed with Keayes negotiations he had initiated in relation to ultrasound equipment.  He said that during the next week he continued to research and source material concerning animal genetics at an extensive and comprehensive second-hand technical book store in Newtown.  He was searching there for material on connective tissue. A second-hand book shop seems a highly unlikely place to search for material rather than going to a specialist veterinary or medical library.

March 1993

R Keayes said that on 13 March, Keayes came to Sydney and had a discussion with R Keayes. This discussion turned around the interest of R Keayes in the genetic aspect and the characteristics exhibited in such fundamental elements of the body as bone and tissue.  R Keayes said he thought that the essential features of tenderness should be exhibited in a more readily accessible and sensitive area of an animal's anatomy than bone and tissue. He thought the whole idea of examining bones and tissue was somewhat clumsy and naive in scientific terms.

It is then asserted that during the discussion with his brother on 13 March 1993, R Keayes suddenly realised that the eye was an extremely sensitive organ and from his fleeting dabblings in "alternative medicine" with a former girlfriend, he was aware that the eye was considered a finger print of the body.  Eye colour in his view was a strongly hereditary characteristic in humans and he was also aware of the "heritability" in domestic animals. He alleged that he said to Keayes "You know, I think I've got it. It's so simple. We should be able to read tenderness from the eye."  At this Keayes is alleged to have "jumped around excitedly" and suggested that he make an immediate call to Tasmania.

This sudden flash of insight, however, was not "original". The evidence of Anand was that the references to the eye were first made by him in discussions with Searle in late January/early February 1993.  In that conversation Anand mentioned suspended fat particles in the eye and suggested that animals could be affected by such features. He also suggested that a fundal camera could be used to photograph the eye. He also referred to asteroid hyalosis. He said that in early 1993, he had said to Searle, that if pictures are to be taken of the back of the eye, the animal has to be in a calm state, otherwise the pupil can become constricted. He said that he commenced faxing material to her in relation to eye examination in February - March 1993. The only material in evidence was a fax relating to May 1993, but Anand's best recollection is that he faxed documents to Searle on 5 or 6 occasions.

I consider the likelihood is that as the result of discussions with Anand, Searle had previously mentioned to Keayes that examination of the eye could provide a useful insight into the character of the animal and the meat.

This matter assumes importance because both R Keayes and Keayes attached great significance to the alleged insight by R Keayes into ophthalmic examination as a feature of the methodology to detect meat tenderness, yield and other important characteristics.  In my view Searle had previously adverted to this line of examination.

Searle testified (in her affidavit) that on 14 March 1993 Keayes called her and recounted that R Keayes had raised the question of whether the eye "would tell us anything" and Keayes had an "incredible vision" of iridology and said that he knew it would work. Searle says that she referred to her discussions with Anand and said that she had been looking at ophthalmology and not iridology. Keayes, according to her, asserted that iridology was "the way to go" and that eye photographs and other information needed to be collected. Searle said that she agreed and stated she needed a fundal camera and that some eye shots could be taken.  Keayes expressed an interest in meeting Anand and was told by Searle that Anand was in Adelaide.

A few days later Keayes suggested to Searle that the ideas should be patented and then she asked him to organise that.

Arrangements were made by Keayes to meet a patent attorney in Melbourne.

Searle met Keayes on 21 March 1993 in Melbourne. She said that she produced some books and magazines to illustrate notes which she had prepared which could form a basis for the patent.  Keayes told her he had arranged an appointment with Mr John Gibbs ("Gibbs"), a patent attorney. Searle testified that Keayes said to her that he did not think that it was a good idea for her to have her name on the patent.  He said that once the provisional patent went in, her name would be on the patent and people would know she was involved and that this could cause problems because of her past association with Supergene and her changing from one company to another. This in turn it was said could give rise to a perception that the grading system had been stolen. She said that Keayes suggested that the system would make a great deal of money and would attract the attention of people who were unsavoury, ruthless and unscrupulous. He suggested that there might even be a risk of kidnapping of her children.

She said that Keayes stated it was only a provisional patent and that it would be put in his name and he would "take the heat" for her for the moment. He said he could protect himself more easily because he only had one person to protect and because he could have bodyguards.  He said to her that she should stay in the background and he would be the front person. She then suggested that she would prefer the patent to be owned by GOW as her preferred option. Keayes allegedly said that that would not be a problem, as there would be 18 more months before there would have to be a final decision.  On this point I accept the evidence of Searle that she was influenced by these representations by Keayes and for that reason allowed the application to be made in the name of Brisalebe Ltd.

Meeting with Gibbs

There was a meeting with Gibbs, the patent attorney, on 22 March 1993 at his office. There are different versions of what took place. The evidence which I accept in relation to this meeting is that of Gibbs.  He struck me as a painstaking and cautious attorney and I accept that if any specific reference had been made in the course of discussion to Searle being recorded as the inventor, then Gibbs would have recorded a note thereof.

On this point I accept the evidence of Gibbs that in the course of discussions with Gibbs, Searle did not raise her role as inventor or originator of the technology.  There were further discussions with Gibbs on 23 and 24 March 1993 in which Searle asserted that she gave a list of key words to Gibbs and described the methodology with some technicality. She said that meeting consisted mainly of a technical discussion between herself and Gibbs. Keayes is alleged not to have said anything relating to technical matters in this discussion.  In the further attendance at the office of Gibbs on 25 March 1993, there was some discussion about searches which Gibbs had obtained and reference was made to some German patents in respect of certain ultrasound techniques relating to tenderness. However they were apparently not related to fibrous protein or connective tissue, but to the shape of muscle. The relevant patent had lapsed. Searle said that Gibbs indicated that if they proved the hypothesis then there would be a good prospect of obtaining a permanent patent.  After the meeting Searle flew home to Tasmania.

Gibbs said that he had several meetings on 22, 23, 24 March 1993 and 3 May 1993.  He said he had no recollection of Searle ever claiming to be an inventor at any of these meetings. He said there was no indication or discussion as to Searle's invention of anything, nor the inclusion of her name on the patent application at any time. He said there was never mention of GOW nor discussion as to the current or future ownership of the technology, nor the inclusion on the patent applications of GOW.  His recollection was that during the meetings Keayes was the most significant contributor while Searle provided some input. He asked Keayes who the inventor was and he said that he was and then indicated his brother had "contributed" some of the ideas. Gibbs emphasised that it was very important to have the correct inventor identified.  Keayes apparently gave instructions to do a computer search to determine the relative degree of novelty of the invention. Gibbs recollected that on Tuesday 23 March 1993 Searle and Keayes came back with a list of key words, which were suggested on the Monday, to enable a computer search to be done. He was provided by either Keayes or Searle with a rough outline of the shape of the head of an animal. Keayes did some sketches of eyes which related to the "iridology" aspect of the invention.

The transcript of Gibbs' evidence in relation to the first meeting is as follows:

"..... I considered these all to be more ideas than inventions at this stage because there were no - there was (sic) no scientific experiments to demonstrate that any of this would actually work.  Mr Keayes said to me, that that is not a problem, he was intending to very soon get experimentation going but before he got the experimentation going he wanted to have a patent application covering it because he never knew if someone was going to see his experimentation. I said that I thought that was a sound way of proceeding and the appropriate thing to do was to file an application based on what we had at the moment, with a more detailed application to be provided once we actually had the experimental evidence demonstrating that the invention worked."

Gibbs says that there was a meeting in May with Keayes. Subsequently there was a further meeting with Keayes, Searle and another person in July at which Keayes conveyed that the methodology related not only to determining meat characteristics of animals but to determining other characteristics of animals such as race horses and domestic pets. As a result there was a redraft of the specification by Gibbs and he filed a second application.  Gibbs' recollection was that Searle was described as the "assistant" to Keayes at the first meeting. There was some reference to the use of a fundal camera together with ultrasound pictures.  He did not recollect whether this reference was made by Searle or Keayes.

In the course of cross-examination Gibbs conceded that his recollection as to what was said was hazy and that his affidavit had been drafted for him by Keayes' then solicitor and was perfunctory. He agreed that he basically reconstructed the conversation with the assistance of the patent application itself. He relied on some notes which he had made at the meetings. These were not exhaustive but I accept them as accurate so far as they went.

Gibbs did not consider, in the light of conversations with Keayes, that R Keayes was an inventor. He also did not refer to Keayes as an inventor in his notes. However, throughout the cross-examination, Gibbs was not shaken from his recollection that Searle did not claim that she was the inventor. He testified that if someone was an inventor and did not want to be recorded as an inventor and this was made known to him, then he would consider that an extraordinary step and would have noted it down. I accept that this was the position.

Gibbs' Notes

The notes of Gibbs of his conversation with Searle and Keayes on 22 March 1993 include the following:

"Y (you) subseqtly (sic) discovered new technology thru (sic) talking through invention. One of staff has nursing experience. Decided that if could identify connective tissue, that would give idea of tenderness - less connective tissue = more tender.

Idea was to try to find it on ultrasound pictures using computer analysis.

Orig co. was called Supergene P/L.

Went back to Supergene with proposal re 2 technologies - ultrasound re bone profile & ultrasound re conn. tissue. They weren't interested." (emphasis added)

On behalf of Searle it is contended that the reference to "one of staff" having "nursing experience" is to Searle. This is clearly correct.  The reference to the nursing experience of one of the staff is consistent with the position  advanced by Searle but there is nothing in this to indicate that Searle had made known her role.  The important point is that it supports the view that Keayes was of the opinion that the technology had been arrived at or discovered by talking it through with Searle and that she played a substantially more responsible part in the inventive process than that of a mere tea-leaf or crystal forecaster. Again, this is supported by the list of key words which comprises exhibit Q and which it was agreed was prepared by Searle.

In summary, I consider that the contemporaneous note of Gibbs supports the proposition that in fact during the course of the three or four discussions Searle did not make known that she was the inventor or had played any significant part in the invention.  However, I am satisfied that the reasons she did this was because she was concerned at the warnings and acted under fear arising from the indications of danger which had been communicated to her by Keayes the evening before the first discussion with Gibbs on 22 March 1993.

Searle said that she flew to Brisbane on 27 March 1993 and met Keayes.  In this discussion reference was made to the need for more funding and selling more equity for the project. Searle said she stated Keayes was not to sell the patent and that it must be protected from both of their families. Her position was that the patent must be owned by GOW.  There was then agreement reached, she said, whereby her interest in the patent and income, was to be 4% and Keayes was to own 4%.  Keayes indicated that he would give his brother 2% and keep 2% for himself. It was eventually agreed that the interest in the patent and the confidential information would be split so that Keayes and R Keayes would take 4% between them, Searle and her brother would take 4%, 17% was to go to investors to fund the project and 75% would go to GOW.   With some relatively minor variations this is the agreement allegedly reached between the parties at the end of March 1993 and which varied the earlier arrangement of October 1992.

Keayes is stated to have said: "We had better set up a company ... once there is a cash flow."  He said he would help set up a company and would put the 75% GOW interest in a joint company. The 17% interest of investor shareholders would also participate and he and Searle would have 4% each.  The name of Brisalebe for the company was agreed to, being a derivative of the names of the children of Keayes. As a "cover up" it was suggested by Keayes to call it the "EYEKEY Project".  This was to throw people "off the scent" of the ultrasound trail and make them think that the eye part was more important than it is. Searle said she agreed to this. I accept Searle's evidence.

The type of orders which I consider appropriate are as follows:

1. Declaration that the fourth respondent, Brisalebe AG, holds the following assets on trust for The Good of the World Foundation Ltd, Australian Company Number 067 152 541 and has so held such assets at all times:

(a)Patent application PL 8583/93;

(b)Patent application PM 0101/93;

(c)Patent application PCT AU 94/00230; and

(d)Patent application PCT AU 94/00231; and together with

(e)all confidential information relating to the above applications.

1. Order that the fourth respondent, Brisalebe AG, transfer to The Good of the World Foundation Ltd all assets the subject of the declaration in (1).

1. Order that each of the first, second, third, fourth, fifth and sixth respondents respectively does all such things as may be necessary to procure permit and facilitate the transfer to The Good of the World Foundation Ltd of all assets the subject of the declaration in (1).

1. Order that each of the first, second, third, fourth, fifth and sixth respondents is restrained from dealing with any of the assets the subject of the declaration in (1) or of any order hereby made.

2. Order that The Good of the World Foundation Ltd be joined to these proceedings as the seventh respondent.

1. Declaration that The Good of the World Foundation Ltd holds all property and the assets the subject of the declaration in (1) as well as any income deriving therefrom on trust as follows;

(a)as to 75% beneficially;

(b)as to 5%, for the first respondent, Mr Peter Keayes;

(c)as to 3%, for the applicant, Mrs Searle;

(d)as to 2%, for Mr Craig Jones;

(e)as to 2%, for Mr Warwick Fulton;

(f)as to ½%, for Ms Carla Harper; and

(g)as to 12½% for the third respondent, Brisalebe AG Ltd.

1. Order that the first, second, third, fourth, fifth, and sixth respondents pay the applicant's costs of this action.

1. There be no order as to the costs of the seventh respondent.

1. Exhibits be returned.

I adjourn the matter so that the parties can address me as to the precise form of the orders to be made.

I certify that this and
the preceding seventy-six (76)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.

Associate:

Date:  19 May 1995               

Counsel for Applicant:           Mr T K Tobin QC       
  Mr G M McGrath

Solicitor for Applicant:              Aitken & Magney

Counsel for First &
Sixth Respondent:               Mr J M Gorrick  

Date of Hearing:               26-30 September, 21-25 November,
  21 December 1994 and 3-4 April 1995

Date Judgment Delivered:              19 May 1995