University of Western Australia v Gray
University of Western Australia v Gray has by now achieved “legend” status in the intellectual property arena in Australia. On 10 June, 2010 the Federal Court handed down a decision which could be the last episode in this long running battle which started in December, 2004.
This recent decision concerned the liability of Dr Gray for the unrecovered costs incurred by Sirtex Medical Limited (“Sirtex”) in defending itself against the claims to ownership of certain intellectual property made by University of Western Australia (“UWA”).
In the initial proceedings, French J held that Dr Gray had engaged in misleading and deceptive conduct and breached his director’s duties by deliberately not disclosing certain correspondence regarding claims by UWA to Sirtex.
In brief, the facts are as follows:
- Sirtex was a company which was floated in 2000 on the basis that it would commercialise certain technology.
- Dr Gray was involved in the development of the technology and had worked at Monash University and UWA and been the medical director of the Cancer Research Institute (“CRI”) for part of the time over which the technology was developed.
- In 1997, CRI asserted to UWA that it had independently funded three technologies which it believed it was likely to be able to commercialise and sought from UWA a letter saying that it had no interest in those technologies. UWA ultimately provided in January, 1997 a letter conditioned on “the basis of the facts in your letter” to that effect.
- In May, 1997 Dr Gray assigned all of his intellectual property rights in all relevant intellectual property to Sirtex.
- On 17 June, 1999 the Vice Chancellor of UWA wrote to Dr Gray directly raising the issue of ownership of certain of the technology being commercialised by Sirtex. Dr Gray responded by saying that the particular technology was developed exclusively by CRI. In October, 1999 a further letter from the Vice Chancellor asserted that the relevant technology was owned by UWA and that there had been no assignment to Gray or any third party of its rights (“the 1999 Correspondence”).
- Sirtex was floated in 2000. Dr Gray was found to have deliberately concealed from Sirtex and its advisors, the 1999 Correspondence. It was also held that if the correspondence had been disclosed, then Sirtex would have been put on enquiry and that, given the attitude of UWA at the time, it would have been highly probable that Sirtex would have obtained a release from UWA as to ownership of the relevant intellectual property.
- However, the disclosure was not made and by 2003 the attitude of UWA had hardened with a change in personnel. As noted above, UWA issued proceedings in 2004 against Sirtex, Dr Gray and a number of other parties over the ownership of the relevant intellectual property. Whilst UWA ultimately lost its case against Sirtex, Sirtex incurred costs of $5,633,996.00 (including GST) of which only $3 million was to be recovered from UWA following a settlement of the costs issue. This left a significant amount of unrecovered costs which Sirtex sought from Dr Gray.
- The Court accepted that there is a general principle in civil proceedings that costs are not recoverable as damages in that proceeding or in a related or subsequent proceeding. However, the Court also recognised that there were some exceptions to this general rule. Importantly, the Court accepted that in a situation where a party was put to the trouble of maintaining an action or defending an action by reason of the wrongdoing of another party, and is entitled to an indemnity from that party, then the injured party should be able to recover as damages the costs either in a separate action subsequent to the primary action or in a related proceeding in the primary action.
In this particular case, the Court held that Dr Gray’s failure to disclose the 1999 Correspondence amounted to misleading and deceptive conduct and a breach of his duties owed as a director to Sirtex and that, as a result Sirtex had lost the opportunity to resolve the issues before litigation ensued and was therefore entitled to recover from Dr Gray the amount of its loss. However, the Court did apply a discount to the amount recoverable based on the level of certainty which the Court was prepared to apply to the ability of Sirtex to negotiate a satisfactory outcome with UWA at the relevant time. This discount was calculated to be 14% with the result that Sirtex was entitled to recover 86% of the costs and disbursements connected to the unlawful conduct of Dr Gray.