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.

 

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

 

     3.   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.

 

On 29 March 1993 Keayes indicated to Searle that Switzerland would be the best place to set up a tax structure and he was going to send Warwick Fulton ("Fulton"), an associate of Keayes, whose background is unclear, to establish it. On 30 March 1993 Searle received a call from Keayes stating that he was off to Switzerland and would rent an office there.

 

April 1993

 

In the first week of April 1993 Searle received a number of telephone calls from Keayes in Switzerland referring to renting a villa and setting up a company with a resident Swiss director.

 

According to Searle, Keayes became quite concerned for his security. He employed bodyguards. He was concerned that the "Japanese mafia who control the abattoirs in Eastern Australia" were out to get him.

May 1993

 

During April-May R Keayes says he continued his analysis of data and carried out research. On 16 May he was visited by Keayes and Anand. R Keayes said that there was some examination of a range of eye images collected from the testing. R Keayes said he arranged for some material to be "sourced" for him, which was faxed to R Keayes on 17 May 1993 allegedly from Anand.  Anand denies that any such arrangements were made with R Keayes. The material faxed related to extracts from publications concerning asteroid hyalosis.

 

It should be noted that on 4 May 1993, prior to this discussion with Anand on 16 May, the first patent application had been filed identifying Brisalebe Ltd as owner. This first application had as components the ophthalmological and iridological methodology so that there had been a commitment to those techniques prior to discussion with Anand on 16 May.

R Keayes stated that after this time the testing continued "at a feverish pace" and Searle was often in attendance but did not involve herself in anything to do with the technical research. It is said she did not show any interest in the ultrasound machine, nor give any advice in relation to it. Her role, it is suggested, was simply to read tea-leaves and "ask the crystal to advise" whenever Keayes requested clarification.  I do not accept this evidence by R Keayes. It is difficult to understand why Searle was often in attendance
at physical trials of the process if her role was only that of clairvoyant.

 

In contrast Searle asserted that throughout May she continued working on the testing and organising further testing of cattle. This is more probable than the version given by R Keayes as to her function.

 

On 25 May 1993 Searle said she went to Brisbane and was told by Keayes that substantial sums of money had been invested in the project by a number of individuals and that Keayes was looking for more investors.

 

May to October 1993

 

During the period February 1993 to October 1993, Keayes made extensive purchases and charged large amounts to his credit card arising from extensive overseas travel, which included the renting of a villa in Switzerland allegedly for the purpose of the project and a number of vehicles were purchased.

 

It is common ground that in October 1993 there was a difference between Searle and Keayes as to the percentage ownership of the technology which should go to Jones, who had been employed as a bodyguard or assistant by Searle since about 25 June 1993. The difference according to Keayes turned on the question whether Jones should get 1% or ½%.  Keayes says that Searle asserted that he, Keayes, needed to recognise the contribution of Jones to the project and give him 1%. In fact Jones says, and I accept, that he was involved in performing practical tasks to enable the technology to be further tested. This seems to have been established on the evidence and it was acknowledged by Keayes. On the evidence, Jones was more than a mere bodyguard, in the sense that he made some practical contribution in the nature of constructing apparatus to enable the necessary physical examinations to be made on the animals. These comprised the design and fabrication of cattle restraining devices to hold the animals steady during testing. This work was done in July-August 1993.

 

Searle, on the other hand, stated that these discussions concerning percentages ranged over a wider field than simply the interest of Jones. In the course of this October 1993 meeting Searle stated Keayes said that BAGL was his company and she was not entitled to be a director, Keayes also allegedly made statements as to percentages held by the other parties which contradicted earlier alleged statements.

 

In October-November 1993 Searle, Jones and a number of other people became concerned at the expenditure being incurred by Keayes and his family. These matters were raised in the course of a meeting in Mankato, Minnesota, USA in December 1993.

Mankato Meeting

 

It is common ground that there was a meeting on 11 December 1993 at Mankato in Minnesota between Keayes, Searle, Jones and Paterson.

 

At that meeting Mr Barry Peck, one of the bodyguards to Keayes, was asked to leave and did leave the room.  There was then discussion between the parties. In the course of discussion the expenditure by Keayes during 1993 was raised and there were accusations made that Keayes was acting arrogantly and was treating Searle, Jones and the investors with contempt.  There was discussion about the purchase of a motor vehicle in Switzerland, the expenditure of other money, and the lack of progress with the project.  A request was made for an independent audit and Keayes was reluctant to have this done. Paterson threatened to call in the Australian Securities Commission ("ASC"), if there was no independent audit. Either Jones or Paterson said to Keayes that he had misused the shareholders' money to prop up his private company and had used that money to travel around the world in a lavish style with a large entourage.  It was also alleged that Keayes had numerous bodyguards and had purchased a large number of cars "all over the place". It was said this was criminal and that the ASC would be "on to you". There were allegations directed at Keayes that his family had received luxuries such as his daughter making a return flight to Sydney to attend a pop music concert.  Paterson also indicated that he had a list of things he expected to occur. A deadline was set for Keayes to have a look at them and a meeting was arranged for Monday morning, 13 December 1993.

 

The next day, 12 December 1993 was a Sunday. Paterson, Jones and Searle prepared a draft document and had it typed. This was the document which was signed by Keayes the following day after he made a number of handwritten alterations ("the Mankato statement").

 

A meeting took place with Keayes on 13 December 1993 at 9.00 am.  The document, typed up on Sunday, was presented to Keayes for signature.  It was entitled, "Declaration by Peter John Keayes".  It dealt with a number of central matters.  The contents are set out in full on the following three pages. The document was signed in places by Keayes and each signature was witnessed by a notary public.

 

Keayes asserts that the Mankato statement was not binding on him as it was executed under duress and threat.

 

The duress he alleged is as follows:

 

     1.   He said that Paterson and Jones made references on 11 December 1993 to the effect that a person who had stolen Searle's lawn roller was injured and ended up confined to a wheel chair. He said he took this to be a reference to the dire consequences which are suffered generally by people who upset Searle. He says that he entertained some degree of fear as a result of this. He says he took it as a threat.

 

     2.   A series of demands and threats were made that if Keayes did not comply they would destroy his company. He was accused of misappropriation of funds. Paterson is alleged to have said that if they didn't get what they wanted Paterson would make sure that Keayes went to gaol. Keayes said he protested that this would destroy the company and that he was physically ill as a result.

 

     3.   When he met with Jones, Paterson and Searle on Monday morning Keayes presented them with a document, which was tendered in evidence, wherein he protested that he was being threatened and forced to sign the Mankato statement, because he had no choice but to comply or the company would be destroyed.  He referred to "blackmail". He says he was however able to get them to accept a few alterations.

 

          Paterson wanted an account of the expenses. He was concerned at the lack of progress with the project. He wanted Keayes to be subject to greater control.  He denies that any undue pressure was brought to bear on Keayes.

 

          I prefer the version of events given by Paterson to that of Keayes.

 

          The evidence of Paterson was that he was concerned with the lavish unwarranted expenditure and upset that the prospectus for BAGL, which was about to be issued, was grossly misleading.

 

     4.   Keayes claimed that he was afraid of "black magic" from Searle and the infliction of harm by psychic or magical means.

 

In my view, the major concern of Keayes at this time was that the ASC would perceive and pursue irregularities in the way in which investment funds in the project had been solicited and raised by him. 

 

In fact, Keayes was able to negotiate and he was successful in his negotiations for a number of alterations at the meeting before the Mankato statement was signed.  These alterations related to the entitlement of Carla Harper, who was employed as Peter Keayes' private secretary and to do the company accounts in relation to the project, being reduced to a ½% shareholding and to Fulton receiving a 2% shareholding.  Keayes testified that they "reluctantly" allowed him to have the change in relation to Fulton. He negotiated, wrote in and initialled a further amendment, relating to shares in other Keayes companies to the effect that an amendment should operate only "... if after independent audit there is found to be fraud taken (sic) place."  This latter handwritten change is consistent with a  genuine fear of fraud being exposed as the result of an independent audit of BAGL.

 

The ability to successfully negotiate variations to the Mankato statement is inconsistent with the overriding duress which he alleges.  The ability to negotiate, whilst relevant, is not controlling.

 

Keayes did not assert in oral evidence that he protested at the meeting that the statement in the Mankato statement as to Searle's role as the inventor was false.  He did say, however, in a note presented to that meeting, that he, Searle and R Keayes were co-inventors and that Searle ought to realise that "the final patent will be very different to the original patent".  This note in turn is consistent with Searle being involved in the production of at least the "original patent".

 

Duress

 

In order to make out a case of duress the proper approach is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether the pressure went beyond what the law considers legitimate.  Pressure will not be legitimate if it consists of unlawful threats or unconscionable conduct. However, the circumstances which can give rise to duress are wide and variable. It may be that, for example, even extreme pressure which is not unconscionable or unlawful behaviour, would not amount to duress.  See McHugh JA in Crescendo Management Pty Ltd v Westpac (1988) 19 NSWLR 40 at 45-46; Barton v Armstrong [1976] AC 104 at 120; and Pao On v Lau Yiu Long [1980] AC 614 at 635. It is not necessary to show that the illegitimate pressure was the sole reason for entry into the contract: Barton v Armstrong (at 120).  Nor is it necessary to show that the pressure was such as to override the will of the victim or to have the practical effect that there was an absence of choice. In this respect Australian law differs from that of England. Cf Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366.

 

There is no doubt that at the time he signed the document Keayes was under stress and was worried and agitated. However, I do not think that the surrounding circumstances gave rise to operative duress in the sense that unlawful pressure was brought to bear on him or that there was unconscionable conduct by those present at the meeting, within the meaning of the case law referred to above. Keayes was concerned that irregularities in relation to funding of the project could be exposed on an independent audit. In my view, Keayes made the allegation of duress in order to enable him to resile from the arrangement whenever it suited him at a later stage, just as he later raised the argument that he had no authority to bind, by the Mankato statement, the companies of which he was director.

It is also said that the parties were aligned three to one against Keayes at the meeting. I do not think that the fact that there were two other persons present in addition to Searle, who were supportive of Searle, had any operative effect such as would negate the admissions made by Keayes on behalf of the companies as to the arrangement on the grounds of duress.

 

Keayes also agreed in the Mankato statement that, whilst working on the EYEKEY Livestock Evaluation System, he should be paid the same amount as the other "co-inventor", namely Searle, and that this pay should be backdated to the same commencement date as that applicable to Searle.

 

On 7 January 1994, after returning to Australia, Keayes wrote to Searle on the letterhead of one of his companies, Global Keys Pty Ltd ("Global"), purporting to terminate the employment of Searle immediately because of her "failure to follow directions".

 

If indeed, there had been blackmail then this is an odd assertion to make as the ground for termination of Searle's services.

 

However, the letter does go on to say that the company is investigating whether she had been involved in a conspiracy to attempt blackmail and disrupt the project and what legal
action would be taken against those involved.  No legal action was ever taken.

 

Again, it is curious, to say the least, that a letter signed by Keayes as Managing Director should assert that the company was investigating whether Searle had been involved in a conspiracy to attempt blackmail if he believed that he was blackmailed when he signed the Mankato statement on 13 December 1993, in circumstances where he had already referred to "blackmailing" in the notes produced by him to the meeting on that date.

 

Lack of Authority

 

It was also argued by Keayes that in signing the Mankato statement he did not have authority in law to bind the Keayes group of companies, in particular BAG and BAGL.  However, the evidence clearly indicates that throughout the dealings at that time Keayes was the controlling and governing mind behind these companies and that they were subject to his direction and control.  I do not accept that the Mankato statement was signed purely in his capacity as an individual or shareholder and not as a director.  Even if it were signed by him on such a basis the Mankato statement evidences an agreement quite inconsistent with the position for which he now contends.  I am satisfied that he signed not only in his capacity as director but that given his de facto control over the
companies his statement bound all the companies of which he was director at that time.

 

Credit Issues

 

In this matter the credit of the main witnesses assumes a central role because versions of the critical events are often completely opposed, especially in relation to the conversations between Searle and Keayes. The two principal witnesses are of course Searle and Keayes.

 

Peter Keayes

 

The evidence of Keayes disclosed an approach to commercial dealing which makes it unsafe to rely on his uncorroborated evidence to any extent at all. My view is that unless objective facts, independent credible evidence, surrounding circumstances or documents support his oral evidence I will not accept his version of events.

 

My reasons for this approach arise from the following matters:

 

1.  Keayes Green Fundraising

 

On the evidence of Mr Yates, a former partner of Keayes in Keayes Green Associates (an accounting firm in which Keayes was a partner), Keayes offered to raise funds for the partnership in late 1991 because of a liquidity problem. He was given authority to raise funds to relieve the financial position of the partnership by raising loan funds up to a maximum limit of $40,000 with each loan to be less than $10,000. Funds were to be placed into the firm's business account.

 

Without disclosure, Keayes borrowed many times these limits, on the letterhead of the firm. He raised well in excess of $200,000. Yates only learned of the breaches from a client on 14 May  1993. A large amount of the money raised was not accounted for. Keayes also persuaded his parents to mortgage their house for a further $50,000 on the premise that it was for the accountancy practice.  In fact, this money was not so used.

 

These events occurred prior to meeting Searle in October 1992.

 

2.  Grandiose Assertions

 

Evidence from independent credible witnesses was that in his "enthusiasm" Keayes made extravagant and reckless assertions. For example, speaking to Anand, he claimed that the project would earn about $3 billion annually and that he would buy for Anand the Repatriation General Hospital and would help make him the Prime Minister of India if the patents were successful.  Keayes said that "Nice people will rule the world .... no-one [would be] poor."

 

Keayes stated to his sister that people were spying on him and he believed this was because of the significance of the project. It appears that he genuinely believed this, although without any reasonable foundation having been shown for such an attitude. He employed an entourage of up to three bodyguards who accompanied him on his travels.  Perhaps his somewhat erratic conduct arose from a stress problem he experienced in October 1991 which was "not exactly" a nervous breakdown. He agreed that he had experienced "periods of hectic activity" followed by "a collapse".

 

3.  Gibbs

 

Keayes told Gibbs, the patent attorney in Melbourne, with whom Searle and Keayes had several meetings concerning the technology in March 1993 that R Keayes was not a co-inventor, according to the testimony of Gibbs.  When Gibbs asked Keayes who was the inventor he said that he was.  This was after reference had been made to R Keayes.  Yet in his notes prepared for the Mankato meeting in December 1993, Keayes refers to "Bron, Rick and I as co-inventors".  This contradicts what he told Gibbs in March 1993.

 

4.  Excessive Expenditure

 

Keayes spent in the order of $400,000, supposedly in the course of development and promotion of the technology, on accommodation, business equipment and travel for himself and his family pursuant to arrangements that he was to receive effectively through his company, Global, 20% of what was spent. Accordingly, the more money spent in relation to the project, the greater the commission to Global.  This is set out in the agency agreement made between Global and BAG of 4 January 1994. Both companies were ultimately controlled by Keayes and his family. The "agency" agreement purports to date back to April 1993. This retrospective agreement probably originated as the result of complaints made by Paterson, Jones and Searle, arising from the lavish expenditure incurred by Keayes during 1993 which was suggested to have been unauthorised.

 

The relevant clause of the agency agreement made with BAG reads:

 

          "2. Global will be entitled to an agency fee of up to twenty percent (20%) of the expenses incurred by Global in carrying out the terms of the agency arrangement."

 

 

It is signed by BAG under the hand of the Swiss director, Dr Villiger and by  Keayes with the notation, in his hand, "Seal to be affixed within 30 days".  This latter statement is indicative of the haste with which the agreement was executed arising no doubt from the anxiety of Keayes to retrospectively "regularise" the expenditure which had been raised at the meeting in Mankato in December 1993.

 

The expenditure, most of which was incurred in 1993, included the renting of a Swiss villa; the unsolicited provision of a car for Anand; the purchase of motor vehicles on three continents, allegedly for the project; and flying his daughter to Australia at company expense. There was also a vacation for Keayes' family together with substantial expenditure on bodyguards.

 

5.  Lack of Frankness

 

At one stage, when confronted in cross-examination with a letter from EYEKEY Livestock Evaluation Inc, the name of one of the companies set up by Keayes in the USA in relation to the project, on which the date 10 April 1994 appeared, being a letter written to Mr and Mrs Le Roi, Keayes refused to admit that he had signed the document. The letter was written to solicit a minimum investment, in the world licensing rights to the technology, of US$20,000.  Keayes suggested that his signature had been written in by a Mr Peat, who was present in court at the time this statement was made. There was a short adjournment for Keayes to consider whether he wanted to call Mr Peat. However, Mr Peat, although available, was not called to back up this assertion.

 

6.  General

 

The conduct of Keayes at Mankato and in particular his fear of being reported to the ASC in respect of the BAGL prospectus is indicative of a sense of guilt and fear of investigation to an extreme degree on the part of Keayes. This strong sense of apprehension is in my view significant when considering the credibility of Keayes on any particular issue.

 

In the light of the above matters I do not accept any uncorroborated evidence of Keayes. On the evidence I find that he was neither an inventor or co-inventor of the technology or any part of it.

 

Richard Keayes

 

The evidence of R Keayes also needs to be approached with considerable caution. My principal reason for adopting this approach in the case of R Keayes, is that his evidence conflicts substantially with that of the independent witnesses and of his brother and sister. His evidence is inconsistent with that of Anand in relation to the faxing of information regarding eye images and asteroid hyalosis.  Anand denied that he sent any fax to R Keayes. He also denied that he was asked by R Keayes to fax or obtain research information at all. Both of these denials contradict R Keayes' evidence.

 

R Keayes' evidence was also contradicted by that of Chilcott, the originator of "Supergene". Whilst Chilcott was a defensive and truculent witness, I accept him as independent and truthful. In particular, R Keayes attributed to Chilcott at the meeting at Gympie in Queensland, during February 1993, lavish praise for R Keayes' results allegedly referring to amazing accuracy and impressive results. Apart from such language being extremely unlikely to have originated from Chilcott, who was not unduly given to praising other people, such statements were specifically denied by Chilcott.  Chilcott's evidence was that "nothing was achieved" on the occasion of the ultrasound demonstration in Queensland.

 

Moreover, the evidence of R Keayes was inconsistent with that of Erin Jefferies, his sister, in relation to what was discussed in the Golden Wing Lounge with Keayes on 22 January 1993.  R Keayes said that the relevance of the project to the detection of the tenderness of meat was not revealed to him until late February 1993.

 

The evidence of Erin Jefferies was that express reference was made to the tenderness of meat at the outset of the discussion on 22 January 1993. It is, in my view, inherently unlikely, given the remarkable enthusiasm of Keayes for the potential of the project, that Keayes would not have even mentioned the end purpose of the project. The version of Mrs Jefferies, notwithstanding her strong support for her brothers, is in this respect more likely to have occurred. R Keayes' claim that he did not learn until about a week after the Gympie meeting on 16 February 1993 that the project was concerned with predicting meat tenderness is quite simply not believable and casts strong doubts on his testimony and affidavit evidence.

Whilst I accept that R Keayes did some work in relation to the project and was interested in it, I do not accept that he was in any sense a co-inventor. In my view his input was simply directed to investigating ideas and work which prior to his first involvement had been conceived, explored and developed by Searle. Whilst R Keayes may have regarded himself as a co-originator of the methodology, Keayes told Gibbs, the patent attorney, that while R Keayes contributed some ideas, he, Keayes, was the inventor.  This is in direct contradiction to the position taken by R Keayes, who clearly regarded himself as a co-inventor or originator of the technology.

 

Erin Jefferies

 

Mrs Jefferies is the sister of R Keayes and Keayes. She and her husband were persuaded by Keayes to invest their life savings of about $125,000 in the project. She was described by her husband, Brian, to have been "incessantly supportive" of Keayes and initially at least she was the "driving force" behind the family investment, having been "fired" by what Keayes had told her. This strong support and natural trust in her brother was evident during the hearing. Her manifest strong loyalty to Keayes calls for caution in accepting her evidence at its face value.

Dudley Hobbs

 

Mr Hobbs was an "Amway" connection of Keayes. Keayes persuaded him to invest $160,000 of family money in the project. He was called as a witness for Keayes. He is employed by one of the Keayes companies to co-ordinate staff and deal with suppliers and assist with public relations for the project. Keayes arranged the job for him.  He was called to support the proposition that to his observation and knowledge the only role of Searle was as a clairvoyant.  His evidence must in my view also be looked at with caution.  However, apart from the $160,000 investment which he and his wife have in the project, it is important to bear in mind that he was not privy to any of the central conversations between Searle and Keayes as to specific arrangements and that he was based in Queensland.  His evidence is therefore of limited value.

 

Searle

 

I consider that her evidence must be approached with considerable caution, given her involvement and strong financial commitment to her version of the events. Also I take into account some unusual aspects of her evidence as to clairvoyant forecasting. However, I generally accept her evidence as truthful and for the most part consistent with objective circumstances and context.  In particular, I accept her version of her work, research, insights and efforts in
relation to the project, prior to and after October 1992, when she first met Keayes.

 

I accept that she was perceived by Keayes to have played an important and useful role as a clairvoyant and that he was greatly impressed by her abilities in that regard, both as to tea leaf readings and predictions by use of a crystal. Indeed, I have little doubt that he placed reliance on the predictions.  But I consider her involvement in the matter was much more than that.

 

I do not consider that Searle's involvement in clairvoyance affects her credibility to any extent. Several matters were raised against her credibility. At first blush, it is unusual that she did not, for example claim in discussions with Gibbs, to be the inventor or a co-inventor of the methodology or process. I accept the evidence of Gibbs that she did not mention it in discussions with him that she had a role as a either inventor or co-inventor. I regard her statements to the contrary as having arisen from defective recollection.

 

However, I do accept her evidence to the effect that she was persuaded prior to the first meeting with Gibbs, on 22 March 1993, not to make any statement to Gibbs as to her inventive role and to allow the matter to proceed on the basis that Keayes was the inventor because this would provide greater security to her and safety for her family. This line of persuasion is quite consistent with Keayes' established sense of unease and his perceived sense of danger and threats surrounding the project. It is also consistent with the strong persuasive powers and forceful personality of Keayes which was manifest in the evidence.  He had a formidable capacity to persuade friends, family and acquaintances to comply with his suggestions.  I am satisfied that Searle's failure to assert her position before Gibbs was not evidence of an admission by her that she was not the inventor.

 

In this context, the note by Gibbs of his discussion on 22 March 1993 (see above), is important when he recorded that the new technology was "discovered" by talking through the invention and that one of the staff had nursing experience.

 

This contemporaneous note by Gibbs is consistent with Searle having played an important role to the understanding and knowledge of Keayes in arriving at "the discovery" of the new technology and is corroborative of Searle's version of events. It is inconsistent with the suggestion that she was solely a clairvoyant.

 

A second matter raised against Searle's credibility is the matter of the Global News/Brisalebe AG Shareholders' Update letter.  This was a newsletter purportedly prepared to keep investors in the project up to date with developments (Exhibit 7).  A draft copy of a newsletter was prepared in about July 1993 and a redraft was carried out by Paterson, over the following month. The name of Searle appears in print on the newsletter as "Editor". The letter refers to Keayes as the inventor.  Searle says that she did not edit or authorise the document and that her name was placed on it by Keayes. On the evidence it has not been established either that Searle was in fact the editor of the document or that she was privy to the assertions made in it.  Nor do I consider that the evidence relating to the newsletter served to cast any real doubt on the credibility of Searle.

 

Conclusions as to the Agreement

 

In my opinion, the Mankato statement accurately represented in substance the final agreed position between Keayes and Searle in respect of ownership of the interests in the technology. I consider that Keayes had the necessary authority to bind the companies interested in the patent on his side of the arrangement, namely BAG, BAGL, WSB15 and WSB17. I consider that the arrangement was that the respective proprietary interests as to the capital and income in the technology should be shared in the percentages set out in the Mankato statement.  Apart from variations as to percentages I am of the view that as from October-November 1992 onwards there was an agreement in force whereby Keayes agreed that Searle was entitled to be treated as originator and inventor of the technology and as a co-inventor and that steps would be taken by him to enable the agreed arrangement to be implemented.  In effect, Keayes agreed to ensure that whatever form the arrangements finally took, the property in the technology should be held on behalf of the named persons and bodies in the proportions agreed and as finally varied at Mankato. The undertaking between Keayes and Searle was to co-operate effectively in a joint venture to bring about the result that the technology would be developed and marketed and that the property in it would be beneficially vested as agreed.

 

My conclusions are:

 

1.   Searle was the originator and inventor of the technology.

 

2.   Keayes was not the inventor or originator of the technology. His role was as promoter, developer, marketer and protector of the technology and in return for his work in that role it was agreed that he was to receive a 5% interest in the technology.

 

3.   R Keayes did some research work but made no original or inventive contribution.

 

4.   There was and is a binding agreement between Searle and Keayes and the third, fourth, fifth and sixth respondents as from about 18 October 1992 which was varied in March 1993 as to the ownership of and income from the technology.  The final agreement as embodied in the Mankato statement was that the proprietary interest in and income relating to the technology was for the benefit
of the persons and bodies listed therein in the percentages agreed in that statement.

 

5.   The Mankato statement was not made under duress or undue excessive pressure.

 

Principles

 

The following principles are relevant to the circumstances of this case:

 

1.   The essential characteristic of a fiduciary relationship is that the fiduciary undertakes to act for, or in the interests of, another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. It is a relationship under which the fiduciary has a special opportunity to exercise the power or discretion to the detriment of the other person who is vulnerable to any abuse by the fiduciary of its position. See Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97.

 

2.   A relationship between prospective participants to a joint venture can give rise to a fiduciary relationship. See United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 12; Joint Ventures Law in Australia, W D Duncan, Federation Press, 1994, paragraph 3.3.1

3.   The term "joint venture" does not have a settled legal meaning. It is a flexible concept. It generally indicates an association of persons for the purpose of a particular trading, commercial or financial undertaking with a view to mutual profit. Each participant usually contributes money, property or skill.  The term is appropriate to refer to joint activity carried out through a medium such as a company, trust, agency or joint ownership. See United Dominions Ltd at 10-11.

 

4.   Dependent on the form of the joint undertaking and the content of the obligations the parties to it have undertaken, a joint venture can give rise to a fiduciary relationship. See United Dominions (supra at 11).

 

5.   When a fiduciary obtains a benefit as the result of breach of fiduciary obligation, the fiduciary will not be permitted to retain a benefit obtained as a result of such breach.  See Consul Development Pty Ltd v D.P.C. Estates Pty Ltd (1975) 132 CLR 373 at 393.  Relief is available by way of constructive trust. See Hospital Products (supra at 107).

 

6.   The remedy of constructive trust is a flexible remedy adaptable to the equity of the transaction and arises in circumstances where property is acquired in such circumstances that it would be contrary to good conscience to allow the fiduciary to retain the beneficial interest in question.  See Hospital Products (supra at 108).

 

7.   A stranger to the fiduciary relationship can be subject to a constructive trust where the stranger has knowingly participated in, or assisted in, a dishonest disposition of trust property: see Consul Development (supra at 396-7, 408-409).

 

8.   The state of mind and knowledge of managers and directors who control a company is the state of mind and knowledge of the company itself. Compare H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 Q.B. 159 at 172-3 and Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 201-2.

 

     In this matter the Minutes of BAG for March 23 1995 (Exhibit AAC), and the diagram of the corporate structure make it clear that the controlling will of this Swiss corporation was and is Keayes who is therein described as "chief operating officer of Brisalebe AG".

The Present Case

 

Applying the above principles to the instant case, the situation is as follows:

 

In October 1992, Keayes and Searle entered into a joint venture agreement for the development, marketing and ownership of the technology in accordance with the terms then discussed between them. These terms were varied, as testified to by Searle, in March 1993 and later at Mankato on 13 December 1993.

 

The relationship was such as to give rise to a fiduciary relationship between Searle and Keayes and the companies he controlled within the principles enunciated in the Hospital Products case.

 

Keayes breached that fiduciary relationship by asserting on behalf of himself and the companies he controlled that the technology was not subject to the above agreement.

 

BAG was vested with the property in the technology and through Keayes, who was its controlling and directing will at all material times, BAG was on notice of the arrangements with Searle and was aware that the position taken by Keayes denying the arrangement was in breach of his fiduciary duties to Searle arising from the joint venture arrangement.

 

Accordingly, BAG is subject to a constructive trust to give effect to the arrangements. Such trust is enforceable at the instance of Searle and the other beneficiaries.

 

It is clear that BAG, under the effective control of Keayes, intends unless restrained to continue to participate in the breach of the fiduciary duties owed by Keayes to Searle and the other beneficiaries of the arrangement.

 

In these circumstances, as the constructive trustee, BAG holds the technology in trust in the proportions set out in the Mankato statement.

 

In order to give effect to this obligation BAG should be ordered to transfer the technology to the body corporate known as GOWL, which is a company, with charitable objects, limited by guarantee, to be held on trust by that corporation as trustee substantially in accordance with the terms set out in the Mankato statement for the beneficiaries under that agreement and in the shares set out therein.

 

On the evidence it is my view that the reference to GOW in the arrangement and the Mankato statement was intended to express an intention to benefit public charitable purposes generally, and in particular, purposes with respect to the protection and enhancement of the environment and ecology; the relief of poverty; the care of the aged, infirm and/or sick; children's education and/or medical research.

Investors

 

As is apparent from the evidence and the corporate structure diagram, there appear to be approximately 135 investors in the project. Their interest is presently held by way of shareholdings in the Australian company BAGL which is a 23% shareholder in BAG, the Swiss corporation controlled by Keayes. The balance 77% interest in BAG is held by the two respondents WSB15 and WSB17 which are also owned by Keayes and his wife, Catherine, as to 50% each.  The Managing Director of both WSB15 and WSB17 is Keayes.  In the corporate structure diagram produced by Keayes, BAGL is described as the Australian shareholders' company. BAG, which is also known as "Brisalebe Ltd", is the owner of the technology and its chief operating officer is Keayes.

 

The identity and interest of each individual investor in BAGL is far from clear. From the company structure produced by Keayes there are said to be approximately 135 shareholders who have contributed $3 million collectively.

 

Although there is no specific reference in the Mankato statement to the share in the technology to be held by these investors, it is clear form the previous conversations between Keayes and Searle in October 1992 and March 1993 that any residual property in the technology remaining after the other named beneficiaries received their share was to vest in these
BAGL investors.  Accordingly, the remaining 12½% interest in the technology should be held for BAGL.

 

In this matter I consider that the purpose underlying the agreement is best given effect to by vesting the technology in GOWL on trust. As to 75% interest the technology should be held on trust by it for public charitable purposes with reference to the desire to benefit particularly those purposes referred to above. As to the remainder of the property in trust, first, as to 12½% share for BAGL to provide for the "investors" and second, as to the balance 12½% share the interest should be held on trust for the persons specifically named in the Mankato statement in the proportions therein set out.

 

SHORT MINUTES

 

In this matter I think that the parties should have an opportunity to consider the reasons for decision and bring in Short Minutes of Order to give effect to these reasons.  I have set out below the type of orders which I am presently disposed to make. I direct the parties to consider them and bring in Short Minutes of Order within seven (7) days from today.

 

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.

 

2.   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).

 

3.   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).

 

4.   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.

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

 

6.   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.

 

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

 

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

 

9.   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