The University of Western Australia v Gray (No 4)

[2006] FCA 1350

FEDERAL COURT OF AUSTRALIA

The University of Western Australia v Gray (No 4) [2006] FCA 1350

CORPORATIONS – appointment of receiver under Federal Court of Australia Act – pending proceedings re ownership of intellectual property developed by former university academic – shares in publicly listed corporate owner of intellectual property held by Cancer Research Institute –  non-profit  incorporated association – settlement of proceedings between University and association – disputed shares to be applied to cancer research and education purposes – challenge to validity of Board of association and of settlement agreement – new Board elected – potential conflict of interest – defendant and solicitor on new Board of association – receiver appointed to shares – receiver empowered to call general meeting  

THE UNIVERSITY OF WESTERN AUSTRALIA v BRUCE NATHANIEL GRAY, SIRTEX MEDICAL LIMITED (ACN 078 166 122) AND CANCER RESEARCH INSTITUTE INCORPORATED (REGISTERED NUMBER 1001005)
WAD 292 OF 2004

FRENCH J
5 OCTOBER 2006
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 292 OF 2004

BETWEEN:

THE UNIVERSITY OF WESTERN AUSTRALIA
Applicant

AND:

BRUCE NATHANIEL GRAY
First Respondent

SIRTEX MEDICAL LIMITED (ACN 078 166 122)
Second Respondent

CANCER RESEARCH INSTITUTE INCORPORATED (REGISTERED NUMBER 1001005)
Third Respondent

JUDGE:	FRENCH J
DATE OF ORDER:	5 OCTOBER 2006
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. Mr Mark Conlon of RSM Bird Cameron Partners be appointed, until further order of this Court, as receiver of the shares in the second respondent held by the third respondent.

2.The receiver shall, during the currency of this order, have the power to exercise on behalf of the third respondent all of its rights as a shareholder in the second respondent.

3.The receiver shall be entitled to investigate the enforceability of the document entitled ‘Agreed Settlement Terms’ signed on behalf of the applicant and the third respondent and dated 31 July 2006 and report to a general meeting of the members of  the third respondent to be convened to consider that report.

4.A meeting of the members of the third respondent shall be convened by the receiver as soon as practicable and he shall have all the powers of the Board and a member of the third respondent for that purpose in order to enable the meeting to consider and determine whether the agreement should be ratified or an alternative course taken in relation to the resolution of the litigation.

5. The receiver may obtain and provide to members of the third respondent independent legal advice in order to enable him to properly discharge his functions under this order.

6.The receiver and manager shall be entitled to:

(a) reasonable remuneration and reasonable costs and expenses properly incurred by him in the performance of his duties and the exercise of his powers as receiver;  and

(b) to an indemnity out of the assets of the third respondent in respect of such costs and expenses.

7.The orders of the Court on 2 June 2006 and 7 July 2006 be varied to the extent necessary to give effect to Order 6.

8.The receiver and any other party have liberty to apply to the Court to vary or discharge this order or for other directions.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD 292 OF 2004

BETWEEN:

THE UNIVERSITY OF WESTERN AUSTRALIA
Applicant

AND:

BRUCE NATHANIEL GRAY
First Respondent

SIRTEX MEDICAL LIMITED (ACN 078 166 122)
Second Respondent

CANCER RESEARCH INSTITUTE INCORPORATED (REGISTERED NUMBER 1001005)
Third Respondent

JUDGE:	FRENCH J
DATE:	5 OCTOBER 2006
PLACE:	PERTH

REASONS FOR JUDGMENT ON PROPOSED APPOINTMENT OF RECEIVER TO THIRD RESPONDENT

1. The third respondent, the Cancer Research Institute Incorporated (CRI), was formed, under the Associations Incorporation Act 1987 (WA) for public charitable purposes and, in particular, for purposes related to cancer research and education. It has evidently, by its former Board, reached a settlement with the applicant, the University of Western Australia (the University), although the validity of that settlement and the validity of the appointment of the members of the Board of CRI who were involved in its negotiation is in question. The principal issue between the University and CRI in these proceedings has been the entitlement of the University to the ownership, via a constructive trust or otherwise, of shares in the second respondent, Sirtex Medical Ltd (Sirtex). The shares, which evidently derive their value from the disputed technology, are the only substantial asset held CRI. The asset is substantial. One estimate of its value earlier in these proceedings was $11 million.

2. It is in the public interest that, if there be a resolution between the University and CRI, that asset not be dissipated in the litigation and that it be made available for the public purposes for which CRI was formed.  Since the settlement however, a new Board has evidently been appointed by resolution of a meeting of CRI.  It comprises the first respondent, Dr Gray, a member of the firm of legal practitioners representing him (Mr Sanders) and his sister, Ms Daebritz.  This has given rise to concerns about the extent to which the affairs of CRI may be conducted in the pursuit of interests other than those related to its objects.

3. Mr Bennett, on behalf of Dr Gray, maintains that there is no intention to pursue  interests other than those of CRI.  His client however has a concern about the validity of the settlement agreement relied upon by the University which has filed a motion seeking its enforcement.  These concerns were discussed at the return of that motion on 3 October 2006 and at that time I raised the possibility that, because of the obvious governance difficulties affecting CRI, it might be necessary to consider the appointment of a receiver.

4. There has been debate today about how the matter should proceed.  Two alternatives are put before me:

   1.by the University – for the appointment of a receiver with extensive powers to, in effect, take over the functions of the Board of CRI whose members would cease to hold office and orders empowering the receiver to give effect to the agreement comprising the claims against CRI in these proceedings;

   2.by Mr Bennett on behalf of Mr Gray -  for an order to tighten up the existing freezing order or to leave it in place in relation to the assets, so that CRI can have further discussions with legal advisers with a view to the possibility of convening a general meeting of members to determine what course should be taken.

5. One course floated provisionally by Mr Bennett, was that the objects of CRI might be widened by resolution of the members in order to enable an agreement of the kind which has been made with the University to be put in place even if the original agreement itself were not to be ratified. 

6. I have given anxious consideration to these proposals and the course which I propose to take represents something of a half-way house. In essence, I propose, under s 57 of the Federal Court of Australia Act 1976 (Cth) (the Act), to appoint a receiver as a receiver of the shares in Sirtex which are held by CRI. As receiver of those shares he will have the power to exercise all of CRI’s rights as shareholder. He will be entitled to investigate the enforceability of the agreement said to have been made with the University. A meeting of CRI is to be convened by the receiver, who shall have all the powers of the Board and a member of CRI for that purpose in order to enable the meeting to consider and determine whether the agreement which has been made should be ratified or whether some alternative course should be taken in relation to the resolution of litigation. I will authorise him to obtain independent legal advice in order to enable him to properly discharge his functions in that regard.

7. The receiver shall be entitled to reasonable remuneration and costs, and to an indemnity out of the assets of CRI in respect of those costs. The freezing orders I made on 2 June and 7 July 2006 will be varied to the extent necessary to give effect to these orders and there will be liberty to apply to the Court for further directions by the receiver and by any other party. This order is made under s 57 of the Act.

I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable JusticeFrench.

Associate:
Dated:        5 October 2006

Counsel for the Applicant:	Mr  M Green and Mr D Pratt
Solicitor for the Applicant:	Jackson McDonald
Counsel for the First Respondent:	Mr M Bennett

Solicitor for the First Respondent:

Counsel for the Second Respondent:

Solicitor for the Second Respondent:

Counsel for the Third Respondent:

Solicitor for the Third Respondent:

Lavan Legal

Mr J Elliot SC

Phillips Fox

Mr P Tottle

Tottle Partners

Date of Hearing:

3 and 5 October 2006

Date of Judgment:

5 October 2006