FEDERAL COURT OF AUSTRALIA

 

Pan Pharmaceuticals Limited (In Liquidation) v Selim [2008] FCA 416

EVIDENCE – expert evidence – opinion rule – admissibility of experts’ reports under section 79 of the Evidence Act 1995 (Cth) – whether evidence is based on specialised knowledge based on training, study or experience – whether the facts and assumptions upon which the opinions are based are adequate – whether evidence is more than a bare ipse dixit

EVIDENCE – general discretion to exclude evidence – section 135 of the Evidence Act 1995 (Cth) – leave to file evidence out of time – whether probative value is substantially outweighed by prejudicial effect – whether admissible opinion evidence is of significant probative value if the facts and assumptions upon which the opinion are based are inadequately detailed in an expert’s report – effect of expert’s involvement in preparation of one party’s case including involvement in drafting of that party’s statement of claim – whether expert is sufficiently independent

Evidence Act 1995 (Cth) ss 79, 80, 135

Therapeutic Goods Act 1989 (Cth)

Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313  

HG v The Queen (1999) 197 CLR 414

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705

Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd (2000) 120 FCR 146

R v Tang (2006) 65 NSWLR 681

IN THE MATTER OF PAN PHARMACEUTICALS LIMITED (IN LIQUIDATION) & ANOR v JAMES SELIM

 

NSD 489 OF 2004

 

 

EMMETT J

2 APRIL 2008

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 489 OF 2004

 

IN THE MATTER OF PAN PHARMACEUTICALS LIMITED (IN LIQUIDATION)

 

BETWEEN:	PAN PHARMACEUTICALS LIMITED First Plaintiff   ANTHONY MCGRATH AND CHRISTOPHER HONEY AS LIQUIDATORS FOR PAN PHARMACEUTICALS LIMITED Second Plaintiff
AND:	JAMES SELIM Defendant

 

JUDGE:	EMMETT J
DATE OF ORDER:	2 APRIL 2008
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1.                   

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 489 OF 2004

 

IN THE MATTER OF PAN PHARMACEUTICALS LIMITED (IN LIQUIDATION)

BETWEEN:	PAN PHARMACEUTICALS LIMITED First Plaintiff   ANTHONY MCGRATH AND CHRISTOPHER HONEY AS LIQUIDATORS FOR PAN PHARMACEUTICALS LIMITED Second Plaintiff
AND:	JAMES SELIM Defendant

 

JUDGE:	EMMETT J
DATE:	2 APRIL 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

BACKGROUND.. 2

THE LIQUIDATORS’ CASE AGAINST MR SELIM... 4

THE DISPUTED REPORTS. 8

RELEVANT PRINCIPLES AS TO ADMISSIBLITY.. 11

THE GMP REPORT. 15

Mr Williams Training, Study and Experience. 19

Section 2 of the GMP Report23

Section 1 of the GMP Report32

Sections 3 and 4 of the GMP report33

Sections 5, 6 and 7 of the GMP Report36

The Deficiencies of the GMP Report40

THE REMEDIATION COSTS REPORT. 48

THE CLARK REPORT. 52

Dr Clark’s Lack of Objectivity. 55

Dr Clark’s Lack of Specialised Knowledge. 57

CONCLUSION.. 62

BACKGROUND

1                     The second plaintiffs, Anthony McGrath and Christopher Honey (the Liquidators), are the liquidators of the first plaintiff, Pan Pharmaceuticals Limited (Pan).  The Liquidators have brought this proceeding in the name of Pan and in their capacity as liquidators of Pan.  I shall refer to all plaintiffs as the Liquidators. 

2                     The defendant, Mr James Selim, was the chief executive officer of Pan.  The Liquidators are claiming damages against Mr Selim on the basis that he breached the duties that he owed to Pan as its chief executive officer.  More specifically, the Liquidators say that Mr Selim failed to ensure that Pan adopted and applied good manufacturing principles (GMP). 

3                     The proceeding has been on foot for some years and it is presently fixed for hearing commencing on 2 June 2008.  Questions have arisen concerning the extent to which the Court should permit the Liquidators to rely upon expert evidence concerning aspects of the operations of Pan that are alleged to have resulted in breach of duties by Mr Selim, including opinion evidence under ss 79 and 80 of the Evidence Act 1995 (the Evidence Act).  The questions arise in a context where the Liquidators have failed to comply with the Court’s directions in relation to the filing of such evidence. 

4                     On 9 June 2006, the Court ordered that, by 1 December 2006, the Liquidators serve, inter alia, all affidavits, both lay and expert, on which they wish to rely.  On 16 November 2006, because the Liquidators were unable to comply with that order, the Court ordered that that order be vacated and that, by 31 May 2007, the Liquidators serve all lay affidavits on which they intend to rely and all expert affidavits on which they intend to rely.  However, on 12 March 2007, those orders were also vacated and the Court ordered that the Liquidators serve all lay affidavits on which they intend to rely and all expert affidavits on which they intend to rely by 31 May 2007. 

5                     The Liquidators failed to comply with the directions of 12 March 2007 so far as they concern expert opinion evidence.  No satisfactory explanation has been provided for the failure, other than that the task was more complex and the identification of appropriate experts was more difficult than had been anticipated.  It is somewhat surprising that no attempt was made by the Liquidators and their advisers, until well after 31 May 2008, to have the matter relisted for the purpose of proffering some explanation and seeking an extension of time for compliance with the directions. 

6                     Notwithstanding that they failed to comply with the directions, the Liquidators indicated at a directions hearing on 25 September 2007 that they wished to rely on three reports (the Disputed Reports), relating to expert evidence, as follows:

·                    reports of Stephen John Williams dated 3 September 2007 (the GMP Report)  and 10 October 2007 (the Remediation Costs Report); and

·                    a report of Dr Julian Maxwell Clark dated 6 September 2007 (the Clark Report).

The Court ordered the Liquidators to file and serve a motion in relation to variation of the then current orders for filing the Liquidators’ evidence, together with any supporting affidavits on which they wish to rely.  The motion and affidavits were to be filed by 3 October 2007 and the motion was initially listed for hearing on 12 October 2007. 

7                     In addition, each party was directed to serve on all other parties an outline of the opinion or expert evidence on which that party proposed to rely as follows:

·                    The Liquidators: by 19 October 2007;

·                    Mr Selim: by 5 November 2007; and

·                    All other parties (cross-respondents): by 22 November 2007. 

The Liquidators filed an outline pursuant to that direction, explaining the reliance that they wished to place on the Disputed Reports. 

8                     The material in the Disputed Reports is voluminous and detailed.  Reliance upon the material is vehemently opposed by Mr Selim.  Mr Selim, for reasons related to his health, is anxious that the proceeding be heard as soon as reasonably practicable and contends that he would be placed under unfair pressure and stress by having to respond, at this stage, to the material on which the Liquidators now seek to rely.  Apart from the failure of the Liquidators to comply with the Court’s directions, Mr Selim also opposes the admission of the Disputed Reports on the bases that much of their contents is irrelevant or of little weight, that they do not satisfy the requirements of s 79 of the Evidence Act for the admission of opinion evidence and that, even if some of the material is otherwise admissible, it should be rejected under s 135 of the Evidence Act.  Under s 135, the Court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:

(a)        be unfairly prejudicial to a party; or

(b)       be misleading or confusing; or

(c)        cause or result in undue waste of time.

9                     Before examining in detail the content of the Disputed Reports and the bases upon which Mr Selim objects to them, it is desirable to outline the case that the Liquidators seek to establish against Mr Selim  

THE LIQUIDATORS’ CASE AGAINST MR SELIM

10                  Pan was a manufacturer of therapeutic goods.  By reason of the provisions of the Therapeutic Goods Act 1989 (Cth) (the TG Act), Pan was not permitted to manufacture therapeutic goods unless it was the holder of a licence under the TG Act.  Under the TG Act, the Secretary of the Department of Health and Ageing (the Secretary) had power to suspend or revoke a licence if the holder failed to comply with any conditions of the licence. 

11                  Pan was the holder of a licence under the TG Act until April 2003.  The conditions of that licence included that Pan must observe the requirements of the 1990 Australian Code of Good Manufacturing Practice for Therapeutic Goods – Medicinal Products (the Code) and that the person nominated as having control over quality control measures must maintain such control.  The Code included requirements that the quality assurance manager be promptly notified of all departures from the master formulae for products, that the quality assurance or quality control department should participate in the investigation of deviations and that Pan have in place a documented procedure for the review of reports of such deviations, the assessment of whether a significant problem exists and the allocation of tasks for corrective action. 

12                  Most of the goods manufactured by Pan were either registered or listed on the Australian Register of Therapeutic Goods (the Register) kept under the TG Act.  Such goods had to be manufactured in compliance with the information provided as part of the application for listing or registration.  The Secretary had power to cancel the registration or listing of goods on the Register if it appeared to the Secretary that the quality, safety or efficacy of the goods was unacceptable. 

13                  On 5 February 2003, the Therapeutic Goods Administration (TGA), which is part of the Department of Health and Ageing, identified a number of alleged critical deficiencies in Pan’s compliance with the Code and, as a result, a delegate of the Secretary imposed a new condition on Pan’s licence, preventing it from manufacturing certain products.  Following that, the TGA conducted a broader audit of Pan’s operations, which led to an audit report in April 2003 that identified additional alleged critical deficiencies in Pan’s compliance with the Code.  As a result of those reports, and on the recommendation of an expert advisory group appointed by the TGA, Pan’s licence was suspended by a delegate of the Secretary on 28 April 2003.  

14                  Mr Selim was the only director of Pan with executive management responsibility and he was involved in various aspects of Pan’s manufacturing operations.  Prior to the listing of Pan for quotation on the Australian Securities Exchange (the ASX) in 1999, Mr Selim was aware of serious problems with product quality, compliance with the Code and quality assurance and quality control procedures.  He was aware that serious problems of that type continued to occur from the time of Pan’s listing on the ASX up until April 2003. 

15                  Paragraphs 69 and 70 of the second further amended statement of claim filed by the Liquidators (the Statement of Claim) assert that a person in the position of Mr Selim would have ensured or, alternatively, would have taken reasonable steps to ensure, that he was regularly and sufficiently informed as to whether or not Pan was acting in compliance with the Code and the conditions of Pan’s licence.  The reasonable steps would have included the following action:

·                    Requiring that Pan’s quality assurance manager provide Mr Selim with written monthly reports detailing various matters.

·                    Requiring that Pan’s general manager provide Mr Selim with written monthly reports dealing with other specified matters.

·                    If Mr Selim had delegated any of his powers in relation to Pan’s compliance with the Code and the conditions of its licence to the general manager, requiring that the general manager provide him with such written reports as when necessary to ensure that the general manager was exercising the powers in conformity with the duties alleged in the statement of claim.

·                    Requiring copies of minutes of regular meetings between managers and from time to time attending such meetings.

16                  Paragraph 72 of the Statement of Claim then asserts that, had Mr Selim ensured that he was regularly and sufficiently informed as to whether or not Pan was acting in compliance with the Code and the conditions of its licence or, alternatively, taken the steps pleaded in paragraph 70, Mr Selim would, by no later than May 2002, have known, inter alia, each of the following matters:

·                    Pan’s General Manager was regularly authorising that raw materials that failed specification be released for use in manufacturing and that finished products that failed specification be released for sale.

·                    From time to time Pan’s General Manager was authorising the release of raw materials for use in manufacturing and the release of finished products for sale prior to the completion of all the testing required by the Code.

·                    From time to time raw materials specified in the registered formulation for a product were substituted for other raw materials.

·                    From time to time, finished products were released and dispatched without the completion of any or all quality control testing of the raw materials utilised.

·                    One of Pan’s standard operating procedures (SOPs), dealing with the acceptance of finished products and raw material analytical results which are outside specification, was in breach of a requirement of the Regulations made under the TG Act, requiring that control over quality control measures remain with Pan’s quality assurance  manager.

·                    There was an entrenched practice at Pan of changing formulations of products to enable a satisfactory product to be made.

·                    Pan’s Validation Master Plan had been implemented only in limited respects.

·                    The computer controls at Pan were inadequate and there had been no validation of the computer system.

·                    There were serious deficiencies in the measures employed at Pan to present cross contamination.

·                    There were significant deviations in the products manufactured by Pan.

·                    There were instances of poor GMP practices throughout Pan’s operations.

·                    There was a practice by which the control by Pan’s quality assurance manager over quality control matters was regularly overridden by Dr Brennan, Pan’s general manager.

·                    There was an inadequate number of staff to carry out all the quality assurance and quality control testing required by the Code.

·                    Pan did not implement reasonable procedures for the regular audit of its compliance with GMP.

·                    Pan did not have in place adequate training procedures.

·                    Pan did not have in place or did not adequately implement certain identified systems, practices, procedures and policies.

·                    Correspondence between Pan on the one hand and the TGA concerning a proposed validation master plan.

17                  The Liquidators claim that a reasonable person having the same position and responsibilities with Pan as Mr Selim had, in order to fulfil his duties as chief executive officer, was required to take reasonable steps to ensure that:

·                    Responsibility for and authority over all quality control measures remained at all times with the quality assurance manager;

·                    Pan at all times employed adequate staff to carry out the testing required by the Code in relation to the products it manufactured;

·                    Pan implemented reasonable procedures for the internal audit of its compliance with the Code;

·                    Pan had in place reasonable procedures for the training of its staff;

·                    Pan had various other systems, procedures, policies and/or practices in place to ensure compliance with the Code;

·                    Pan adopted a validation master plan in the form proposed by a Mr Humphreys, an external GMP consultant, and had in place such resources as were reasonably required for the purposes of implementing that plan;

·                    He was regularly and sufficiently informed of whether Pan was complying with the Code and the conditions of its licence.

The Liquidators claim that, in breach of his duties, Mr Selim failed to take reasonable steps to ensure each of those seven matters.  The Liquidators say that that alleged breach by Mr Selim of his duties caused the adverse findings in the audits conducted by the TGA, leading to the loss of Pan’s business. 

THE DISPUTED REPORTS

18                  The GMP Report begins with an executive summary section, running to four pages, which is followed by a background section, running to five pages.  There are then seven sections dealing with each of the seven aspects identified in the instructions and the questions, running to some 88 pages.  Thus, the total GMP Report is 97 pages in length, ignoring the table of contents. 

19                  The Liquidators seek to rely on the GMP Report in two distinct ways as follows:

·                    As counterfactual evidence of the recommendations that would have been made to Pan had Mr Selim engaged a quality assurance consultant in May 2002 to conduct a full GMP audit of Pan and commissioned that consultant to prepare a corrective action plan.

·                    As expert opinion evidence of Pan’s non-compliance with the Code.

The Remediation Costs Report follows on from that first purpose, by providing estimates of the likely costs, as at May 2002, of implementing the corrective action identified in the GMP Report. 

20                  The Clark Report itself, without its attachments and annexures, consists of 192 paragraphs running to some 76 pages, ignoring the table of contents.  The Clark Report was originally to be relied upon by the Liquidators as being expert evidence as to:

·                    what a reasonable chief executive officer in the position of Mr Selim would do in relation to particular areas of operation;

·                    the steps that would be practicable for someone in the position of Mr Selim to take as regards improving Pan’s GMP compliance and quality assurance and control; and

·                    considerations that would bear on whether taking such steps was warranted or necessary.

21                  The Liquidators now seek to rely only on parts of the Clark Report and to rely on those parts on a much more limited basis, namely, as evidence:

·                    that the measures identified in the extracted parts were reasonably practicable to implement for a pharmaceutical manufacture in the assumed circumstances of Pan in the period 2000 to 2003; and

·                    of the considerations that would be relevant to a chief executive officer of a firm in the assumed position of Pan in deciding what measures to adopt.

22                  The Liquidators say that the rejection of the Disputed Reports would be highly prejudicial to their case and that the interests of justice dictate that they be permitted to rely upon them, notwithstanding the very significant and almost contumelious failure to comply with the Court’s orders.  Mr Selim responds that the rejection of the Disputed Reports would not be unduly prejudicial to the Liquidators’ case because they are either entirely, or for the most part, inadmissible or, to the extent that they are admissible, they would have so little weight that their rejection would not prejudice the Liquidators’ case to any significant degree. 

23                  Mr Selim’s complaints concerning the Disputed Reports may be summarised as follows:

·                    They do not identify the basis upon which it could be found that the relevant witness has the requisite specialised knowledge for the purposes of s 79 of the Evidence Act:  Mr Williams does not give any indication on when he has performed a similar exercise or seen one performed in relation to his opinions;  Dr Clark’s credentials and experience are extraordinarily insufficient for the purpose for which he is being put forward.

·                    They do not establish what it is that the opinions are based on.

·                    They are not reports based on opinions derived as a result of an explanation of how a defined field of specialised knowledge possessed by the witness, by reason of training, study or experience, and on which the opinion is wholly or substantially based, applies to the facts established or assumed, so as to produce the opinion.  Rather, the Disputed Reports are, in many respects, an adoption, without more, of a highly detailed, lengthy set of assumptions, the drafting of which results in their being nothing more than answers to grossly leading questions.

·                    In the case of the Clark Report, Dr Clark does not possess the necessary and required degree of independence, in so far as his initial retainer was to assist the Liquidators’ legal team to draft the claim against Mr Selim: in undertaking that role, Dr Clark prepared parts of the statement of claim and the schedules to it;  further, he provided advice to the Liquidators, in respect of which the Liquidators claim legal professional privilege and which they have declined to provide to Mr Selim or his legal advisors, and Dr Clark incorporated substantial parts of the advice that he gave into the Clark Report.

24                  In order to focus attention on the opinion evidence on which the Liquidators seek to rely, I directed them to prepare a document extracting the opinions in the Disputed Reports in respect of which the Liquidators rely on s 79 of the Evidence Act, identifying for each opinion:

·                    the reasoning in support of the opinion,

·                    the specialised knowledge on which the opinion is based ; and

·                    the training, study or experience on which the specialised knowledge is based.

On 21 December 2007, the Liquidators filed a document in relation to each of the Disputed Reports, extracting opinions on which the Liquidators wish to rely (the Extracts Documents).  

RELEVANT PRINCIPLES AS TO ADMISSIBLITY 

25                  Four separate functions have been identified as being performed by so called expert witnesses, as follows:

·                    generalising from experience,

·                    acting as librarian,

·                    acting as statistician, and

·                    acting as advocate.

(See Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 at 350-352).

26                  A person experienced in a particular discipline may, in the course of a lifetime, accumulate a mass of material about the subject of the person’s expertise, from his or her own practice, from journals, from newspaper reports and from discussion with fellow practitioners, much of which the person may not be able to recall but which enables him or her to express an opinion more accurately than one who has examined only the facts regarding particular instances.  Such a witness may base an opinion on his or her experience, without having to prove by admissible evidence all the facts on which the opinion is based.  Such witnesses regularly generalise from experience, calling in aid all their training and professional experience in expressing an opinion upon a matter within their field (see Arnotts at 350-1). 

27                  In many instances, a witness who has experience in a particular discipline may not himself or herself know the answer to a particular problem from his or her own study or experience.  However, being trained in the relevant discipline, the witness may be able to refer to works of authority in which the answer is given.  In that sense, the witness may be said to be acting as a librarian.  In that function, the witness is not giving evidence of his or her own opinion, except to say that, in his or her opinion, the books to which reference is made are of sufficient standing to be accepted by the Court (see Arnotts at 351.). 

28                  The third function of such a witness can be to apply statistical methods to material available from various sources in order to draw relevant conclusions.  The statistical expertise and experience of the witness may be brought to bear on material otherwise in evidence (see Arnotts at 351-2). 

29                  However, it is not permissible for such a witness to take over the role of advocate, although a witness having expertise in a particular discipline may have a legitimate role of advocacy in that the evidence given by the witness may include arguments as to the conclusions that can be drawn, and perhaps should be drawn, from the facts that the witness is asked to assume.  Nevertheless, the extent to which opinion evidence, if so given, will have greater or less weight will depend upon the extent to which the witness furnishes specific detail as to the actual experience of the witness.  Even if the witness is not required to prove by admissible evidence all the facts on which an opinion is based, those facts ought to be stated with sufficient specificity to enable them to be tested by cross examination (see Arnotts at 352). 

30                  Before opinion evidence will be admissible pursuant to s 79, two prerequisites must be satisfied as follows:

·                    Specialised knowledge derived from training, study or experience must be identified.

·                    The opinion sought to be relied upon must be shown to be wholly or substantially based on that specialised knowledge.

Knowledge is “more than subjective belief or unsupported speculation”: it refers to “any body of known facts or any body of ideas inferred from [known] facts or accepted as truth on good grounds” (see R v Tang (2006) 65 NSWLR 681 at 712).  Further, under s 80, evidence of an opinion is not inadmissible only because it is about a fact in issue or an alternate issue or about a matter of common knowledge.

31                  The prerequisites contained in s 79 may well have the practical effect of emphasising the need for attention to requirements of form.  By directing attention to whether an opinion is wholly or substantially based on specialised knowledge, which is in turn based on training, study or experience, the section will not be satisfied unless the opinion is “presented in the form that makes it possible to answer that question” (HG v The Queen (1999) 197 CLR 414 at 427).  The Court must be furnished with the necessary scientific criteria for testing the accuracy of the conclusion. 

32                  Opinion evidence must go beyond a bare ipse dixit (Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 745 and R v Tang at 715).  Before opinion evidence will be admissible under s 79, the witness must explain how the field of specialised knowledge in which the witness is expert by reason of training, study or experience and on which the opinion is wholly or substantially based applies to the facts assumed or observed so as to produce the opinion given.  Unless those two prerequisites are satisfied, the opinion evidence will be of no value to the Court, in the sense that it would be accorded no weight.  It should not be left to the cross-examiner to attempt to illicit the facts or assumptions upon which opinions are based.  The evidence must demonstrate an identifiable reasoning process against which the conclusions can be tested (Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd (2000) 120 FCR 146 at 151). 

33                  In considering the weight of so-called expert evidence, it is necessary to consider two aspects of the evidence.  The first aspect is the expertise or experience of the expert.  In considering the expertise or knowledge of the expert, it is easy enough to identify disciplines such as the following:

·                    hard science, such as pathology, chemistry, physics and the like;

·                    technical or applied science, such as engineering, medicine and the like;

·                    social sciences, such as economics, anthropology and the like;

In addition, an expert witness may have expertise or special knowledge resulting from particular education or learning, such as in the case of lawyers, medical practitioners and the like, where some technical study or education has been undertaken. 

34                  Alternatively, such special knowledge or expertise might be the result of experience, where no particular technical study or education has been undertaken by the witness, such as in the case of managers and the like.  Such evidence will often have less weight afforded to it.  While it may be admissible as opinion evidence, because of the provisions of ss 79 and 80, the Court may often be in as good a position as the so-called expert to assess such matters if it simply goes to ordinary experience. 

35                  The second aspect to be considered in assessing the weight of expert evidence is the nature of the evidence that the expert is to give.  An expert witness might give evidence in the following categories, which are non exhaustive:

·                    opinion evidence as to what actually happened in particular circumstances, on the basis of assumptions that the expert is asked to make, as when a pathologist expresses an opinion about cause of death;

·                    opinion evidence as to what might be likely to happen in the future, on the basis of assumptions that the expert is asked to make, as when an economist might predict the effect of identified phenomena on a market;

·                    evidence of what is normally done in particular circumstances experienced by the expert, as when a legal practitioner says what is normally done in a conveyancing transaction ;

·                    evidence as to what can be done in particular circumstances that the expert is asked to assume, and which the expert has not experienced, as when an engineer says what could have been done to avoid a failure of a particular structure;

·                    evidence concerning special usage of language or terms in the field of the expert’s expertise, as when a chemist explains special usage of terms that have a different meaning in everyday speech;

·                    opinion evidence about what should or ought to have been done in particular circumstances that the expert is asked to assume, as when a legal practitioner says what enquiries ought to have been undertaken in a particular transaction, as distinct from what enquiries are ordinarily undertaken;

·                    opinion evidence as to whether particular conduct that the expert is asked to assume satisfies or falls short of some legal standard, as when a medical practitioner says that a particular procedure was conducted negligently.

36                  Very little, if any weight, should ever be accorded the last category of opinion evidence.  It may be admissible by reason of the operation of s 80, however, in so far as it is an opinion by reference to a legal standard, it will be essential, before it can be admissible and certainly before any weight can be afforded to it, that the expert’s understanding of the relevant legal standard be established and be shown to be in accordance with the law. 

37                  Thus, an opinion as to whether conduct satisfies or falls short of a particular standard, such as whether particular conduct was in breach of a duty of care entails an examination as to what the expert’s understanding is of the duty of care.  Where the so-called opinion is proffered as to whether conduct satisfies or falls short of a statutory requirement, such as the Code, the expert must make clear just what his understanding of the effect of the Code might be.  Unless the witness makes perfectly clear what he understands the Code to mean, his evidence as to whether particular conduct satisfies or falls short of it cannot be tested and can have no weight. 

THE GMP REPORT

38                  The GMP Report of 3 September 2007 was furnished in response to instructions of 11 May 2007 given to Mr Williams by the Liquidators’ solicitors.  The letter of instructions enclosed:

·                    a list of questions;

·                    a Statement of Assumptions;

·                    nine volumes of documents referred to in the Statement of Assumptions;

·                    the Court’s Guidelines for Expert Witnesses.

The letter of instructions also informed Mr Williams that the Liquidators’ solicitors wished to meet with him before he commenced drafting his report. 

39                  Mr Williams was asked to assume that the Code set out the relevant quality principles with what Pan was required to comply.  It also informed him that the questions related to aspects of Pan’s operations and quality control that generally correspond with the Liquidators’ allegations concerning Mr Selim’s failure to take reasonable steps, as outlined above. 

40                  For each of those seven aspects, Mr Williams was asked to provide his opinion on what he would have advised in a report to Pan had he been retained by Pan as a consultant on GMP, in or about May 2002, and requested to conduct a full GMP audit of Pan and to prepare, in conjunction with Pan’s own quality assurance manager, a plan of corrective action to ensure the compliance of Pan’s practices and procedures with the Code and the conditions of Pan’s licence.  He was also asked to provide an explanation as to what matters he would take into account in giving that opinion and the reasons for that opinion, together with his opinion and reasons on whether a number of particular actions specified by the solicitors in the questions should have been taken. 

41                  The questions in relation to each matter were in a similar form.  Each matter was the subject of two questions.  The first question was as follows:

Would your report have included recommendations regarding measures relating to [the relevant matter]?  If so:

(a)        identify the steps that you would have recommended be taken; and

(b)       explain why those steps would have been recommended.

Thus, the attention of Mr Williams was drawn expressly to the question of whether, in providing such a report to Pan, he would have included recommendations regarding measures relating to each of the seven aspects that are the subject of the Liquidators’ complaint in the Statement of Claim.  That of itself has the consequence that the Court does not have the benefit of Mr Williams untutored evidence as to what such a hypothetical report from him would have included.  One of the very significant questions that will fall for decision by the Court was thus pre-empted, namely, whether, if such a hypothetical report had been sought by Mr Selim at the relevant time, any of the seven aspects complained of would have been the subject of such a report.

42                  That difficulty is exacerbated by the form of the second question in relation to each of the seven matters.  The form of the second question in relation to each aspect was as follows:

If the answer to [the previous question] is affirmative, please indicate (giving reasons) whether the steps you would have recommended be taken would have included any action in relation to any of the matters set out below:

 

[here followed references to the very specific particulars set out in the Statement of Claim in relation to the relevant matter]

In answering the above question with reference to each of the particular matters ...

·                   If in your opinion an action would have been taken, please describe that action and the reasons for it.

·                   If in your opinion no action would have been taken, please explain why.

 

43                  Thus, the attention of Mr Williams was drawn specifically to the matters particularised by the Liquidators as being breaches by Mr Selim of his duties as chief executive officer.  Accordingly, the Court would not have the benefit of Mr Williams’s untutored evidence as to whether in his hypothetical report, Mr Williams would have had regard to those specific questions.

44                  Attached to the Statement of Assumptions was a schedule listing relevant officers and employees of Pan and another schedule containing a glossary of terms used in the Statement of Assumptions.  The assumptions that Mr Williams was invited to make for the purposes of his opinion went through several versions.  The version attached to the GMP Report is dated 27 August 2007 and runs to 49 pages. 

45                  The Statement of Assumptions is a detailed statement of facts relating to Pan and its operations containing the kind of detail that it would be necessary for the Court to include in its findings in the course of its reasons for judgment.  The Statement of Assumptions also contains legal propositions concerning Pan’s regulatory environment, statements concerning Pan’s contractual arrangements with parties with whom Pan had entered into written supply agreements and statements concerning Pan’s potential liability to consumers under the Trade Practices Act 1974 (Cth).

46                  The Statement of Assumptions contains material under the following further rubrics:

·               Overview of the structure of operations of Pan;

·               The office held by [Mr] Selim and [Mr] Selim’s responsibilities within Pan;

·               Audits, GMP meetings and reports on quality assurance [at Pan];

·               Other sources of knowledge concerning quality assurance [at Pan].

 

Throughout the Statement of Assumptions there are references to the nine volumes of documents provided by the solicitors to Mr Williams with the letter of instructions.  The GMP Report itself also cross-refers to both the Statement of Assumptions and the nine volumes of other documents.

47                  In the section of the GMP Report entitled “Background to the Report” Mr Williams defined the following terms:

(a)       Critical deficiency: A deficiency that has produced, or may result in a significant risk of producing, a product which is harmful to the user.

(b)       Major deficiency: A non-critical deficiency [that]:

·                    … has produced or may produce a product which does not comply with its marketing authorisation … ; and/or

·                    indicates a major deviation from [the Code]; and/or

·                    indicates a major deviation from the terms of the manufacturing licence … ; and/or

·                    indicates a failure to carry out satisfactory procedures for release or batches; and/or

·                    indicates a failure of the person responsible for QA/QC to fulfil his/her duties; and/or

·                    consists of several other deficiencies, none of which on its own may be major, but which may together represent a major deficiency and should be explained and reported as such.

(c)       Other deficiency:

·                    A deficiency, which cannot be classified as either critical or major, that indicates a departure from good manufacturing practice.

·                    A deficiency may be “other” either because it is judged as minor, or because there is insufficient information to classify it as major or critical.

·                    One-off minor lapses or less significant issues are usually not formally reported, but are brought to the attention of the manufacturer.

 

Mr Williams asserted that his definitions are consistent with definitions of the TGA in place in May 2002.  He does not refer to any TGA material in support of that assertion.

48                  Having regard to the detail of the material placed before Mr Williams and the detail contained in the GMP Report itself, the analysis of the GMP Report, and the testing of the opinions contained in it, many of which will be contested by Mr Selim, would occupy a very considerable amount of Court time as well as judicial time out of Court.  I do not propose to deal exhaustively with the whole of the GMP Report.  However, in order to explain the nature of the evidence and the deficiencies in the material, I shall say something about the various sections of the GMP Report.  Since particular attention was focussed on Section 2, I shall begin with Section 2 as exemplifying the GMP Report and its deficiencies.  However, before dealing with the detail of the GMP Report, I shall say something about Mr Williams expertise and experience.

Mr Williams Training, Study and Experience

49                  A detailed curriculum vitae of Mr Williams was annexed to the GMP Report.  That shows that Mr Williams has been employed in the pharmaceutical industry since 1971.  During that period he held line management positions in quality assurance, quality control, production and packaging in Australian based multinationals such as CSL Limited and Faulding (Mayne Pharma and now Hospira).  During the period, Mr Williams prepared for and hosted a number of GNP audits including audits from sponsors, the TGA, the United Kingdom’s Medicines and Health Care Regulatory Authority and the United States’ Federal Drug Agency (FDA).

50                  In his role as a quality assurance manager in industry, Mr Williams has overseen and been responsible for the following areas:

·                    compliance with the Code;

·                    quality assurance programs development and administration;

·                    facility and process validation;

·                    quality control testing laboratories; and

·                    GMP training programs.

51                  Since 1989, Mr Williams has been a full time professional consultant in GMP and quality assurance within the pharmaceutical industry.  In that role he has generally been required to conduct the following analyses and project roles for clients:

·                    assessing GMP compliance for a range of codes, including the Code;

·                    preparing clients for regulatory audits;

·                    assisting clients in responding to TGA and FDA deficiencies; and

·                    preparing remediation programs to bring clients into compliance.

52                  In the area of compliance training as a consultant, Mr Williams has had the following experience in the past 18 years:

·                    developing multiple training packages for industry and clients in the areas of quality assurance, GMP, validation and good auditing practices;

·                    analysing client compliance training programs; and

·                    developing training programs and conducting training programs in GMP, validation and quality assurance.

53                  Mr Williams says that he has consulted to a range of companies including:

·                    MediHerb,

·                    Golden Glow,

·                    Parke Davis,

·                    Pharmaction/Probiotec, and

·                    Herron Pharmaceuticals.

He says that his contact with those companies was in fields directly related to quality assurance, GMP compliance, training and validation.

54                  Following Mr Selim’s complaints, the Liquidators filed an affidavit, affirmed by Mr Williams on 29 November 2007, in which Mr Williams expanded on:

·                    his experience as a consultant in relation to GMP;

·                    the standards that he applied in making the observations and recommendations set out in the GMP Report;

·                    the standards that were applied by other consultants who offered GMP consultancy services; and

·                    the standards of GMP compliance of pharmaceutical and manufacturing companies.

In the affidavit, Mr Williams also answered a series of further questions posed to him by the Liquidators’ solicitors.

55                  Mr Williams said that he has been a fulltime consultant, specialising in providing advice and training in relation to GMP since 1989.  About 75% of his work involved consulting to manufacturing companies within Australia.  The balance involved consulting to manufacturing companies in South East Asia.

56                  During the period of twelve years prior to May 2002, Mr Williams provided services of the following types:

·                    Advice on GMP compliance, validation and quality assurance, entailing the provision of professional services and advice to clients regarding compliance with various codes of GMP in relation to improving compliance with such codes, strengthening quality assurance systems and implementing validation programs.

·                    Developing and delivering GMP, good laboratory practices, quality assurance and validation training packages, for prescription, over the counter and complimentary manufacturers.

57                  During the period from 1990 up to May 2002, Mr Williams provided consultancy or auditing services to approximately twenty clients that manufactured complimentary medicines and over the counter products, including:

·                    MediHerb, a manufacture of complimentary medicines with a staff of around 20 to 30 people and a range of over 100 products.

·                    Golden Glow, a manufacturer of complimentary medicines with a staff of around 30 to 40 and a range of in excess of 100 products.

·                    Parke-Davis, a manufacturer of over the counter and prescription products with in excess of 250 staff and a product range well in excess of 150 products.

·                    Probiotech, formerly PharmAction, a contract manufacturer of prescription, over the counter and complimentary medicines with in excess of 80 staff manufacturing in excess of 150 products.

·                    Herron Pharmaceuticals, a manufacturer of complimentary medicines and over the counter products with in excess of 150 staff and a product range in excess of 250 products.

58                  In the period up to May 2002, Mr Williams was engaged, either by himself or with another consultant, on around 15 occasions to carry out a full GMP audit and recommend any corrective action.  Those occasions related to one or other of the above clients, other than Probiotech.

59                  During the period from 1989 onwards, Mr Williams has worked for SeerPharma Pty Ltd (SeerPharma) and its predecessor, Pharma Systems International (PSI) Pty Ltd.  As at May 2002, SeerPharma had active projects for around 30 to 40 companies to whom consultancy services regarding GMP validation training on quality systems were being provided on a continuing or ad-hoc basis.  Mr Williams had direct experience with approximately 20 to 25% of those projects. 

60                  Mr Williams said that there is extensive discussion between the GMP consultants in relation to the projects on which they are working, which involves a discussion in relation to the nature of manufacturing practices and operations.  In the two years up to May 2002, Mr Williams had direct or indirect experience, as I have described, with more than 30 manufacturing companies.  Over the five year period to May 2002, he had direct or indirect experience with more than 100 manufacturing companies. 

61                  Mr Williams was cross examined on his affidavit of 29 November 2007.  In particular, he was asked about the statements made in paragraph 49 of the GMP Report.  He said that, before he formed and expressed that opinion, he turned his mind to an industry survey that he was asked to carry out by Bristol-Myers on their quality assurance and quality control levels.  He surveyed three other companies and compared them to Bristol-Myers.  The other three companies that he surveyed were Sigma, Parke-Davis and Pfizer.  Mr Williams also said that his consulting experience at Herron, Parke-Davis and PharmAction and his experience when he was a quality assurance manager and a quality control manager were matters to which he turned his mind when considering staffing levels.  Mr Williams said that he turned his mind to the staff levels in the quality assurance department in each of Herron Pharmaceuticals, Parke-Davis, PharmAction and Sigma.

Section 2 of the GMP Report

62                  Section 2 of the GMP Report deals with “Quality Assurance And Quality Control Staffing Levels”.  The questions put to Mr Williams in relation to that aspect were as follows:

3.         Would your report have included recommendations regarding measures relating to staffing levels in the quality control department?  If so:

(a)        identify the steps that you would have recommended be taken; and

(b)       explain why those steps would have been recommended.

4.         If the answer to question 3 is affirmative, please indicate (giving reasons) whether the steps you would have recommended be taken would have included any action in relation to any of the matters set out below:

(a)        Any mechanisms by which Selim would be kept informed as to whether Pan was employing adequate members of staff to carry out the testing required by the GMP Code (eg by reports, meeting or minutes).

(b)       Employing mechanisms such as “key ratio” systems.

(c)        Any investigating or reporting obligations that were appropriate for Mr Elia [Quality Assurance Manager] in relation to the adequacy of Pan’s quality control resources.

(d)       The number of staff to be employed for testing raw materials, process controls, finished products, stability and validation.

(e)        Actions upon identifying any deficiency in the number of staff.

In answering the above question with reference to each of the particular matters (a) to (e):

·                    If in your opinion an action would have been taken, please describe that action and the reasons for it.

·                    If in your opinion no action would have been taken, please explain why.

 

63                  Section 2 of the GMP Report begins as follows:

Paragraph 48:              My report would have included recommendations regarding measures relating to staffing levels in the quality control department.

 

Paragraph 49:              With respect to the staffing levels within the Quality Assurance area and Quality Control laboratories I would advise that the QA and QC groups were significantly understaffed for the rate of new products being introduced, and the number of raw materials/finished products being tested each month.  The basis for my opinion is primarily the range of activities required under the [Code], the large production/testing throughput and the large volume of existing products having to be maintained compared to the low number of staff employed within the QA/QC departments and in comparison to industry norms.

 

The GMP Report then sets out recommendations as follows:

Paragraph 49.1:           … An external consultancy should conduct a full analysis of the resource requirements for both the QA department and the QC testing laboratory, matched to the volume of new products being introduced and the number of batches of raw materials and finished products being tested and maintained …

 

Paragraph 49.2:           … The external consultancy should establish key ratios … for the resource loads and Pan management should use these ratios for future QA/QC budgeting purposes …

 

Paragraph 49.3:           … The QA Manager should re-introduce monthly reporting by the QA Manager to the General Manager and ensure that those monthly reports include key ratio metrics on such items as testing throughput, backlogs, constraints and resource requirements.   …

 

Paragraph 49.4:           … In the event that the laboratory and/or the QA Manager could not meet their requirements the General Manager should confer with the CEO in regard to provision of more permanent staff, a pool of contract staff or out-sourcing work to qualified contract testing laboratories. …

 

Clearly enough, the recommendations made by Mr Williams are in response to the specific matters referred to in Question 4.

64                  The GMP Report then proceeds to say why those steps would have been recommended.  He says that, in relation to the staffing levels within the quality assurance and quality control laboratories, he had the following concerns:

Paragraph 50.1:           There is no formal system for assessing or matching resource levels to the workloads in the QA and QC departments. …

 

Paragraph 50.2:           In relation to laboratory staffing levels the number of staff in my opinion was inadequate for the required workload …

 

Paragraph 50.3:           In relation to quality assurance staffing levels have I two concerns regarding the effective functioning of the Quality Assurance Department, based on its resource levels:

 

                                   (a)     in my opinion there are insufficient QA staff to adequately complete the expected responsibilities of the department …

 

                                   (b)     The introduction of new products regularly, and the resources required for maintenance of existing products, would make it extremely difficult, in my opinion, to effectively maintain the products in compliance with the [Code] and registration obligations …

 

65                  Section 2 ends with the observation that the matter of staffing levels was “rated a major deficiency” because  the resource levels for the Quality Assurance Department (the QA Department) and the Quality Controllaboratory (the QC Laboratory) were not matched to the resource requirements and therefore did not comply with cll 302 and 802 of the Code.  Mr Williams quoted extracts from cll 302 and 802, which relevantly require that key personnel should be “adequate in number” and that provision for the management of quality should include “an adequately staffed laboratory”.  However, no criteria for adequacy are stated in the Code. 

66                  In the Extracts Document for the GMP Report, the Liquidators set out the opinions of Mr Williams that they seek to have admitted pursuant to s 79 of the Evidence Act.  In relation to Section 2 of the GMP Report, the first opinion is the following statement in the GMP Report:

Paragraph 50.1(c):       Based on the information I have reviewed there is no key ratio reporting system for the laboratory so, in my opinion, it would be very difficult for the General Manager or CEO to be assured that the staffing levels were governed properly to the volume of work.  Since QA and QC activities are often seen as an operating overhead it is important to have metrics in place to justify resource levels.

 

There appear to be two statements of opinion in that extract as follows:

·                    It would be very difficult for the general manager or chief executive officer to be assured that the staffing levels were properly governed by the volume of work; and

·                    It is important to have metrics in place to justify resource levels.

The balance of the extract appears to be part of the reasoning leading to those opinions.

67                  The Extracts Document endeavours to explain Mr Williams’ reasoning as follows:

·                    The Code requires quality assurance and quality control staffing to be adequate;

·                    At least a certain number of tests must be conducted on each batch of products and, at most, a certain number of batches can be tested by any one analyst in any one day, so that the main factor in terms of adequacy of staff is volume of production.

·                    Examples of key ratios include the following:

§                     number of tests required and completed per analyst per week;

§                     average labour hours required and expended per test;

§                     backlog tracking;

§                     number of quality assurance staff per product/annum;

·                    Mr Williams has not seen any such system in the material provided to him in relation to Pan;

·                    It would therefore be difficult to ensure that “staffing levels were governed properly to the volume of work”.

68                  In one sense, the first opinion leads nowhere.  The Liquidators did not put forward the statement contained in para 49, which is set out above, as an opinion of Mr Williams upon which they would rely.  That statement was that the quality assurance and quality control groups were significantly understaffed for the rate of new products being introduced and the number of raw materials/finished products being tested each month.  The present absence of key ratios is simply a mechanism whereby one determines the adequacy of staff level. 

69                  The second opinion in the Extracts Documents from Section 2 of the GMP Report is the following:

Paragraphs 50.2 and 50.2(b):

 

                                   In relation to laboratory staffing levels the number of staff in my opinion was inadequate for the required workload.  In my opinion both the QA and the QC staffing levels were well below industry norms, even allowing for a mix of complementary and registered medicines.

Different reasoning is advanced in relation to quality assurance staffing levels, on the one hand, and quality control staffing levels, on the other hand.

70                  As regards quality control staffing levels, the reasoning is said to be as follows:

·                    The normal functions of a QC Laboratory include a number of activities.

·                    According to the Statement of Assumptions, the number of employees in quality control, which means a combination of quality assurance and quality control staff, was fourteen as at December 2001.

·                    According to the Statement of Assumptions, the laboratory needed to test somewhere between 1,100 and 1,700 batches per month.

·                    As a minimum, no less than five tests would normally be conducted on any batch on average and, accordingly, a reasonable estimate of the number of tests would be around 7,000 per month.

·                    On the assumption that there were approximately eight laboratory staff, every analyst had to test up to 200 lots per month or up to ten per day: if each lot or batch required five tests, that amounted to 50 tests per day or 6 per hour.

·                    The staff levels in the laboratory must have been grossly inadequate to handle the testing volume required: in running laboratories analysts generally manage at best three to four batches per day.

·                    Therefore, key personnel responsible for managing and supervising manufacture, quality assurance and quality control were not adequate in number.

71                  The only question of opinion that is contained in the reasoning and the conclusion is the assertion that analysts generally manage at best three to four batches per day.  Mr Williams asserts that conclusion is based on studies that he has previously conducted relating to laboratory staffing loads and on his experience.  However, he does not identify in the GMP Report those studies or the particular experience that gives rise to that opinion. 

72                  As regards quality assurance staffing levels, the reasoning appears to be as follows:

·                    Pan had a quality assurance staff of no more than three people, including the quality assurance manager.

·                    According to cl 805 of the Code, the QA Department is responsible for a number of separate tasks.

·                    Pan had a library of over 4,000 products, each of which required quality assurance approvals, oversight and maintenance of product related documents.

·                    It is usual for a QA Department with a large portfolio of products to have subordinate managers for:

(i)         master batch records and specifications maintenance,

(ii)        compliance and internal auditing,

(iii)       complaints management,

(iv)       change control/validation oversight,

(v)        failure investigations, deviations and corrective actions, and

(vi)       release for supply offices plus clerical and technical assistance.

·                    The QA Department would need somewhere between seven to ten staff to manage and maintain the product portfolio effectively.

·                    The introduction of a new product, even if it is a variation of an existing product, required at least some twelve separate steps.

·                    It would take two to three full time quality assurance staff just to manage the documentation associated with that activity.

·                    Given the number of subordinate managers required to deal with the activities referred to above and the number of staff required to deal with the activity connected with the introduction of a new product, the staffing levels of the QA Department were inadequate.

73                  The gravamen of the reasoning is that Pan needed a group of subordinate managers.  No specific or concrete examples are given of the use of such managers by companies comparable to Pan.  The assertion is not susceptible of testing. 

74                  The third opinion in the Extracts Document from Section 2 of the GMP Report is as follows:

Paragraphs 50.2(e) and (h):     

                                   …as a minimum no less than about five tests would normally be conducted on any batch on average; analysts generally manage a best [three to four] batches per day.

The Liquidators say that that opinion is based on studies conducted by Mr Williams in relation to staffing loads and on his experience.  However, as I have already said, the studies and the particular experience are not identified in the GMP Report.

75                  The Liquidators assert that Mr Williams’ opinion concerning the number of tests that would normally be conducted and the number of batches that could be managed by an analyst per day is based on Mr Williams’ specialised knowledge of such matters.  They say that such knowledge is based on his experience in working in and running laboratories and in preparing resource budgets, his experience in consulting to companies in relation to their laboratory operations and a specific study he has conducted of four pharmaceutical manufacturers, which involved assessing their level of staffing relative to their level of production.

76                  The GMP Report says that it is normal industry practice for functional departments, such as the QA Department and the QC Laboratory, to report formally to a general manager on a regular basis, usually monthly.  In a subsequent affidavit, Mr Williams says that, in his experience, around eighty percent of manufacturing companies have such a practice in place.  However, he does not identify any such company.

77                  The GMP Report also states that the level of staff in Pan’s QA Department and its QC Laboratory was below “industry norms” and that high numbers of staff were required to cope with the volume of tests and the documentation that needed to be maintained.  However, the GMP Report says nothing of the so called industry norms.  In his later affidavit Mr Williams says that that:

I formed this opinion based on my experience as a manager of QA/QC departments where I was required to prepare resource budgets, based on my experience in reviewing the operations of QA/QC departments as part of consulting with a number of manufacturers of complementary medicines and [over-the-counter] products, such as Herron Pharmaceuticals and Pharmaction, and based on a survey conducted by SeerPharma of [three to four] manufacturers in 2004 to ascertain their levels of staffing relative to their level of production.

Significantly, the results of the survey were not produced and the manufacturers were not identified.

78                  The next opinion extracted from the Section 2 of the GMP Report is as follows:

Paragraph 50.3(a):       …there are insufficient QA staff to adequately complete the expected responsibilities of the department … the number of QA staff resourced to [the responsibilities of the QA department under cl 805 of the Code] was inadequate. ... It is usual for a QA department with a large portfolio of products to have sub-ordinate managers for:

                                   (i)      master batch records and specifications maintenance;

                                   (ii)      compliance and internal auditing;

                                   (iii)     complaints management;

                                   (iv)     change controls/validation oversight;

                                   (v)     failure investigations, deviations and corrective actions; and

                                   (vi)     release for supply officers plus clerical and technical assistants.

                                   My best estimate, based on my experience in running and consulting to QA departments, is that the QA department would need somewhere between [seven to ten] staff to effectively manage and maintain the product portfolio.

79                  The Liquidators say that Mr Williams’ reasoning, as disclosed in the GMP Report, is as follows:

·                    He started with the assumption that Pan had a quality assurance staff of no more than 3 people, including the quality assurance manager.

·                    He identified the range of tasks for which the QA Department is responsible.

·                    It is usual for a QA Department to have a series of subordinate managers to deal with those tasks.

·                    The QA Department would need between 7 and 10 staff to maintain the portfolio, in addition to the current 2 to 3 staff, and around 6 subordinate managers of the type identified in paragraphs (i) – (vi) quoted above. 

80                  The next opinion extracted by the Liquidators from the GMP Report is as follows:

Paragraph 50.3(b):      The introduction of new products regularly, and the resources required for maintenance of existing products, would make it extremely difficult, in my opinion, to effectively maintain the products in compliance with the [Code] and registration obligations.  For example the introduction of a new product, even if it is a variation of existing product, requires at least the following steps:

                                   [(i) – (xii)]

                                   …it would take [two to three] fulltime QA staff just to manage the documentation associated with this activity.

The same comments are applicable to this opinion as I have made above concerning the opinion that staffing levels are below industry norms. 

81                  The Liquidators say that the reasoning in support of that opinion involves the following:

·                    Identifying the range of tasks involved in the development of new products and those in respect of which the QA Department must provide oversight or sign-off.

·                    Identifying the staffing levels typical in industry to manage the documentation involved with introduction of new products.

·                    Therefore, it would be very difficult to perform the necessary QA tasks in relation to the introduction of new products, on the basis of the assumed staffing levels at Pan.

They point to the evidence contained in Mr Williams’ subsequent affidavit, as to his training, study or experience, upon which his claimed specialised knowledge is based.  However, it is significant that Mr Williams refers to no specific staffing levels in relation to any particular company with which he has had experience.  While that may not be fatal to the admissibility of his opinion, it goes very much to the weight of the evidence, if it were admitted.

82                  The Extracts Document also refers to Mr Williams’ conclusion that, in paragraph 52 of the GMP Report, the deficiencies in staffing levels to which he refers constituted a “major deficiency”.  The Liquidators say that the classification of deficiencies in complying with GMP involves the application of specialised knowledge regarding the possible consequences and risks attached to the deficiency and the assessment of the significance of those risks.  The Liquidators again point to Mr Williams’ subsequent affidavit as to his training, study and experience as the basis for his specialised knowledge on which the opinion is based.

Section 1 of the GMP Report

83                  Section 1 is concerned with “Authority of the Quality Assurance Manager”.  Itfollows the structure of Section 2, as outlined above.  The opinions extracted by the Liquidators are as follows:

Paragraph 37.2(b):       …it is normal industry practice for functional departments such as the QA department and QC laboratories to formally report to a General Manager on a regular basis, usually monthly.  The purpose of this is to ensure clear, traceable and regular communication to senior management of activities, risks and issues.

Paragraph 40.2:           The [standard operating procedures] that describe position descriptions for the QA and QC Managers do not sufficiently define their levels and authority and reporting relationships to demonstrate the independence of the person in charge of Quality Control on the TGA licence.

                                    …the effect of this deficiency is that the authority of the QA Manager is insufficiently clear and [that] he could be bypassed in decisions relating to independently evaluating product quality and the testing of raw materials and finished products.

Paragraph 41:              Compliance rating: Critical Deficiency…

 

84                  The Liquidators acknowledge that the first opinion has no explicit reasoning to support it.  The GMP Report does not identify any specific expertise or furnish any particulars of standards generally observed in the industry.  The Liquidators point to assertions in Mr Williams’ later affidavit that, in his experience, around 80% of manufacturing companies have such a practice in place.  He says that the manufacturing companies that do not have that practice are usually smaller and exchange information informally.  However, no particular companies are identified and no explanation is given as to how the figure of 80% was arrived at.  Mr Williams asserted in cross-examination that his assertions were based on his auditing experience and his consulting experience.

85                  Mr Williams identifies particular features that are absent from relevant standard operating procedures as a result of which he says there was no separation between those having authority for production and for quality.  However, the so called opinion is an assertion about Pan’s job descriptions, in terms that they “do not sufficiently define … levels and authority and reporting relationships”, without specifying any standard of which the job descriptions fall short.

86                  The conclusion that there is a “critical deficiency” is simply a conclusion without reference to any other instance of a company that has exhibited a critical deficiency.

Sections 3 and 4 of the GMP report

87                  These sections deal with “Internal Audits” and “Training” respectively.  They follow the format of Sections 1 and 2.  The opinions extracted by the Liquidators are as follows:

Paragraph 61.1:           The SOP… covering internal audits is grossly inadequate and lacks any details regarding processes and corrective actions.  For example, in my experience in an SOP setting out internal audit programs there are usually details of sequential audits steps [sic] such as:

                                   (a)     planning;

                                   (b)     conducting the audit;

                                   (c)     classifying observations/Write up of report;

                                   (d)     debrief auditee and agree corrective actions; and

                                   (e)     follow up or verification of closure.

 

Paragraph 64.1:           …the effect of this deficiency … is that the existing audit program would not be effective, particularly in relation to implementing corrective actions and prevention of re-occurrence of compliance problems.

 

Paragraphs 64.2(b):     There are a number of observations (in the internal audit reports) that would be rated either as critical or major under the TGA definitions for GMP non-compliances [seven matters were then set out]…

 

Paragraph 64.3(b):      The company makes liquids, creams and softgel caps all of which may be susceptible to microbiological contamination.

 

Paragraph 65:              Compliance Rating:  Major Deficiency…

 

Paragraph 73.1:           …the training programs for induction, GMP principles and SOPs lack structure and effectiveness.

 

                                   …the effect of this deficiency is that [Pan] does not have assurance that all GMP related employees are effectively training to carry out their tasks.

 

Paragraph 73.2(b):      …the SOP training program did not have any system for assessment of skill or knowledge transfer to operators.

 

Paragraph 73.2(e):       There was a computerised GMP program… The value of this product is dependent on the English literacy of the employee and the utilisation of the assessments to identify those staff who lack understanding of GMP principles.

 

Paragraph 73.2(f):       …three key indicators of inadequate training in the workplace, in part, would be:

                                   (i)      significant manufacturing deviations;

                                   (ii)      repeated out of specification test results; and

                                   (iii)     multiple observations of non-compliance during QA audits.

 

Paragraph 73.2:           …the effect of this deficiency (ie in relation to assessing effectiveness of training) is that [Pan] does not have assurance that all GMP related employees are effectively trained to carry out their tasks.

 

Paragraph 73.3(b):      The training requirements for such a workforce are significant and … would require detailed co-ordination … the training requirements vary depending on the company, the job requirement and the department, however, they can be approximated as follows:

 

                                   [Estimates for the number of written procedures for a position, the number of training events per annum and the time for each training event were then set out.]

 

                                   Therefore the volume of training management per annum would be approximately two full time personnel.

 

Paragraph 73.3(c):       The training requirements include the following – training schedules, training events, assessments and records/evidence of training.  Each of these require [sic] management oversight and co-ordination.

 

88                  The Extracts Document does not go beyond stating that the opinion is based on Mr Williams’ specialised knowledge regarding training practices and his specialised knowledge regarding the elements of a training program.  It may be that Mr Williams has experience that would enable him to say what is normally done in pharmaceutical companies carrying on a business similar to that of Pan.  It is not apparent from the GMP Report what that experience is.

89                  In his subsequent affidavit, Mr Williams says that, in his experience, around 90% of the SOPs relating to internal audit all contain most of the steps he identifies as missing from Pan’s SOPs.  He says that, in the case of large companies, they almost always contain all or most of those steps.  He says that the manufacturing companies that do not have that practice are usually smaller and exchange information informally (paragraph 74(c)). 

90                  No explanation is given as to how the figure of 90% was reached and Mr Williams concedes that some of the steps he refers to are not contained in such unidentified SOPs.  Significantly, Mr Williams does not address the fact that the TGA audit of Pan carried out in May 2002 found no difficulty with Pan’s SOPs and found that Pan’s operators were conversant with the SOPs. 

Sections 5, 6 and 7 of the GMP Report

91                  These sections deal respectively with:

·                    Reporting Procedures Regarding Compliance with GMP and Conditions of Licence;

·                    Further Systems, Procedures, Polices and Practices Regarding Compliance with the Code and the Conditions of Pan’s Licence; and

·                    Implementation of Validation Master Plan.

92                  The substance of the opinions expressed in Section 5 is that it is a critical deficiency not to employ a trend register or other quality metric.  Mr Williams provides no identification of other companies who maintained trend registers as at May 2002 or what is covered by such a register. 

93                  Section 6 is concerned with:

·                    product complaints,

·                    deviations and investigations,

·                    introduction of new products, and

·                    potential contamination.

Mr Williams say that the reason for focussing on those four areas is that they are areas where “ineffective controls” could most likely result in the release of “defective product” to the market place or the failure to identify released products that “could merit recall action”. 

94                  The opinions in the Extracts Document in relation to Section 6 are as follows:

Paragraph 88.3:            The nature and profile of the complaints in many instances indicated significant production control and/or formulation problems (eg metal fragments, odour, changed overages, mould, leaking capsules, foreign substances, missing results or results failing specifications).

The Extracts Document acknowledges that the reasoning is not expressly set out in the GMP Report and that the opinion is implicitly based on Mr Williams’ awareness of the likely causes of particular types of product complaints which, it is said, is in turn based on his experience in investigating such complaints.  However, the conclusion is simply not shown to be based on any particular experience and a complete absence of reasoning makes the opinion worthless.

95                  Subsequently, the GMP Report contained a notation that the failure to ensure all product related complaints were routed via the QA Department for investigation was a major deficiency.  The GMP Report also asserts that the following constituted a critical deficiency:

Paragraph 90.2            (a)     The structure of the master manufacturing instructions did not allow for nominated variations to excipients for listed products but this was a common practice…

                                   (b)     There have been instances of substitutions and changes to formulation (addition of non registered raw materials) without application to the TGA for prior approval of those changes…

                                   (c)     There was [a] common practice within Pan whereby the composition of batches were altered from the (registered) formulation under the deviation system.

                                   (d)     …the system for approving changes and deviations is not in compliance with [the Code] in that it was not mandatory for the QA manager to pre-approve changes to formulae…

 

Paragraph 92.2:           [The following matters constitute a major deficiency:]

(a)     …except for soft gel there does not appear to be any step that includes trial batches to verify the suitability for manufacture or validation of the proposed formulation and process steps as required by clause 6.11 of [the Code];

(b)     …there is no consideration of stability studies to verify nominated shelf life at the point of introduction of a new product…  The TGA requires that the manufacture or sponsor hold evidence of stability of products at the time of registration or listing and availability of this evidence is a condition of release for supply…

(c)     …there was no description or account of how test methods would be validated as part of a new product introduction.

(d)     There did not appear to be any consideration of the potential impact of a new product on the cleaning of common equipment.

 

96                  The Extracts Document boldly asserts that the opinions are based on Mr Williams’ specialised knowledge of “the likely causes of particular types of product complaints”, “the possible consequences attaching to these practices’ and ‘the risks attaching to deficiencies”.  The GMP Report makes no effort to identify the particular training, study or experience on which the so-called specialised knowledge is based other than his general experience described already.

97                  Section 7 is Mr Williams’ assessment of alleged deficiencies in implementing a recommended validation plan.  The Extracts Document identifies the following opinions:

Paragraph 107.4:         …validation activity is resource intensive.

Paragraph 107.5:         …validation is a core compliance requirement and the site supports over 4,000 products – this workload would easily justify the appointment of a full time resource group headed by a validation officer.  It is most likely this officer would need support resources such as protocol writer(s) and clerical assistants.

Paragraph 109:            In my experience the TGA directed industry to the Pharmaceutical Inspection Cooperation Scheme (PIC/S) guidance for validation called “Validation Master Plan – Installation and Operational Qualification, non sterile process validation and cleaning validation”.  The TGA was a member of the PIC/S Scheme and supported the guidelines introduced by PIC/S.  The PIC/S [Validation Master Plan] document was adopted by PIC/S in December 1998 and brought into force in March 1999.  In my experience, TGA auditors generally applied the principles in that document to the industry as a means of interpreting [the Code] requirements for validation.

Paragraph 110.7:         …the effect of certain changes [made by Dr Brennan around March 2002 to Pan’s consultants draft validation report] was:

(a)     a significant weakening of the initial intent of the [second] draft document, which had previously addressed the requirements to the PIC/S Guidance Document…

(b)     a reduction in the level of testing or verification associated with process validation…

(c)     a reduction in the oversight required to be provided by the QA manager…

 

Paragraph 111:            The final Pan [Validation Master Plan] although still well constructed, in general has a number of specific weaknesses which would, in my opinion, impair effective implementation.  Many of these weaknesses were introduced at the final draft by Dr Brennan’s changes.

[The identified weaknesses are then set out]

The effect of this deficiency and the removal of some requirements is that the validation program, its coverage and scheduled completions may not be achieved.  One key effect is that new products and significant changes to existing products do not automatically fall under consideration for validation.  Given that new products were regularly introduced… it is highly likely that many products would be in commercial manufacture without validation support under the requirements of the [Validation Master Plan].

Paragraph 113:            [There were a] significant number of manufacturing deviations, changes to formulations, incidents of raw material and finished product being out of specifications, and complaints from customers/sponsors over the previous three years.  These four factors are, in my opinion, reliable indicators of the effectiveness of in-process controls and therefore process validations…  End point testing, on a limited number of samples, has been shown to not be effective in assuring safety, efficacy or purity of pharmaceutical products.

Paragraph 115:            …the failure of the Validation Master Plan and programs to address in sufficient detail the requirements for computer validation, process validation, validation of changes and validation of new product introduction [is a] Major Deficiency.

 

98                  The Extracts Document asserts that Mr Williams has specialised knowledge of the range of tasks involved in a validation program and that this specialised knowledge is based on his extensive experience in developing, implementing and reviewing validation programs and is experience in training in relation to validation.

99                  In relation to the assertions in paragraph 109 concerning the pharmaceutical inspection to operation scheme, the Extracts Documents says that that material is factual evidence admissible apart from s 79 of the Evidence Act.  However, it is no more than bald assertion about what TGA did or did not do.  If the TGA “directed industry” as the GMP Report asserts, that can be proved.  The assertion is no more than a conclusion based on unidentified primary facts.

The Deficiencies of the GMP Report

100               The Liquidators assert that the GMP Report goes to a counterfactual scenario based on Mr Selim’s being a person who should have been aware of the matters pleaded in the Statement of Claim and who accordingly should have called in a person such as Mr Williams to conduct a full GMP audit and prepare a corrective action plan.  The Liquidators refer specifically to paragraph 72 of the Statement of Claim.  

101               Mr Selim complains that the GMP Report, however, is not premised on paragraph 72.  Rather, it is premised on the 49 pages of the Statement of Assumptions and 9 volumes of documents, which go well beyond paragraph 72 and have taken the Liquidators four years to compile. 

102               The GMP Report and the further affidavits affirmed by Mr Williams furnish no evidence of what a full GMP audit or corrective action plan customarily looked like in May 2002.  While Mr Williams asserted in cross-examination that he had conducted 72 audits in his career, many with multiple repeats, he did not produce in answer to a subpoena any audit reports that looked anything like the GMP Report. 

103               Mr Williams and SeerPharma failed to produce, in answer to subpoenas, any documents that would demonstrate whether Mr Williams had relevant expertise in providing the sort of report he was asked to assume that he had been retained to provide in May 2002.  If Mr Williams had provided a full GMP audit and corrective action plan for a company in Australia in an industry similar to Pan in the years prior to May 2002, there should have been no difficulty in identifying the client and the approximate date upon which the plan or audit was provided.  The inference is clearly open that Mr Williams never did such work and that the conclusionary statements in Mr Williams’ curriculum vitáe, mask Mr Williams’ lack of relevant expertise to express the opinions contained in the GMP Report. 

104               None of the documents produced in answer to subpoenas is similar to what a GMP compliance audit at May 2002 or any other relevant time would have looked like.  Even if it be accepted that the purpose of the GMP Report was not to produce a counterfactual audit report, but to indicate the deficiencies that would have been identified if an audit had been conducted and the corrective action that would have been recommended, the Court could not conclude with any safety or specificity what Mr Williams would have found or recommended, particularly in circumstances where he was comprehensively assisted by the written work and consultative assistance of solicitors and counsel for the Liquidators.  Mr Williams had never previously produced anything similar in size or scope to the GMP Report for a company that resembles Pan.  He had never produced anything during the relevant period that took the extraordinary amount of time that the GMP Report took to produce and that required the background assistance of four years of legal work and subsequent consultation with lawyers.

105               Mr Williams accepted in cross-examination that a usual GMP audit report would:

·                    Involve spending between one to three days at the premises of the client;

·                    Be conducted on a sampling basis, as opposed to looking at every single document and process;

·                    Be turned around, back to the client, within a week or, at most, two weeks;

·                    Not be settled in consultation with lawyers;

·                    Would not be based on carefully compiled assumptions about the history of the company; and

·                    Would not be assisted by the provision of voluminous documents on the company.

In contrast, the GMP Report took about 15 or 16 days of full time work over a period of four to five months, involved at least five lengthy meetings with lawyers at which the content of the report was discussed and was assisted by the provision of ten volumes of documents concerning Pan.

106               Mr Williams indicated that a particular report that he furnished to Morgan Grenfell, which was produced in answer to a subpoena, had similarities with the way he normally conducted audit reports.  The substance and length of the Morgan Grenfell report is entirely different from the GMP Report.  The Morgan Grenfell report related to a company called MediHerb.  In the Morgan Grenfell report, the TGA view of MediHerb at the relevant time was considered central to the audit. 

107               The GMP Report does not purport to be a full GMP audit or corrective action plan.  Rather it is a series of answers to the highly specific and leading questions posed by the solicitors for the Liquidators.  Mr Williams was led to provide answers to highly specific questions as to the actions that the Liquidators assert should have been taken.  The questions go into such detail as, for example, employing “key ratio” mechanisms, making recommendations about internal audits, what a written training program should address and what reporting procedures for the QA manager should be established. 

108               Nowhere in the GMP Report, which Mr Williams took months to prepare and which was based on assumptions that took the Liquidators’ legal team years to generate, does Mr Williams identify an actual example of an industry company, similar to Pan or otherwise, that followed or did not follow what Mr Williams identified as norms or practices.  His opinions therefore are virtually incapable of being tested. 

109               The Liquidators also seek to rely on the GMP Report for identification of the following:

·                    The GMP standards applicable to a business such as Pan’s in May 2002,

·                    Standards of practice for the conduct of the operations of pharmaceutical manufacturing companies such as Pan as at May 2002,  and

·                    Deficiencies in Pan’s systems and operations, by reference to those standards.

110               However, Mr Williams does not identify any independent body of GMP standards generally observed by businesses like Pan’s, other than the Code.  Rather, much of the GMP Report represents Mr Williams’ conclusions as to whether standards in the Code were breached.  Of necessity, that involves either the construction of the Code or the application of the Code to the facts that Mr Williams was asked to assume.  They are roles for the Court and not for opinion evidence.  Even if opinion evidence as to those matters might strictly, so long as s 79 were satisfied, be admissible under s 80 of the Evidence Act, the evidence would have little, if any, weight. 

111               Even if the construction of the Code were something on which expert evidence were required, because of technical or scientific ambiguity or some particular technical or scientific usage, Mr Williams does not address such matters in the GMP Report.  In particular, the GMP Report contains no statement of Mr Williams’ view of the interpretation of the Code, in so far as that might be different from its meaning in ordinary English.  There is no reference to any particular experience on the part of Mr Williams where the Code has been interpreted in a particular way different from its meaning in ordinary English and there is no reference to any general body of opinion on the interpretation of the Code.  There are merely assertions that Pan has breached the Code.  At its highest, the GMP Report represents a statement by Mr Williams of what he now says he would have concluded, had he been furnished, in or before May 2002, with the Statement of Assumptions and the nine volumes of documents. 

112               For opinion evidence of Mr Williams to be afforded any weight, it would be necessary to demonstrate that he has had broad experience in the types of matters under consideration and has been called upon to perform the tasks about which he expresses opinions or that he has scientifically researched such tasks.  It would be necessary to show how his experience and specialised knowledge in the particular field forms a basis for his opinion. 

113               An example is Mr Williams’ treatment of key ratios.  Mr Williams outlines what he considers to be relevant key ratio indicators.  He refers to the Code, implying that the Code requires a key ratio system.  The Code does not mention such a concept.  The GMP Report makes no suggestion that “key ratios” were matters considered by the industry at any time prior to May 2002.  Those observations appear to be prompted by the specific question posed to Mr Williams by the Liquidators’ solicitors. 

114               There is no suggestion in the GMP Report or in Mr Williams’ affidavits that there is any single company in Australia that uses a key ratio system.  There is no evidence of levels of staff in QA Departments or QC Laboratories at any other companies like Pan at the relevant time.  There is no evidence about the effect, in terms of quality, of the testing done by different levels of staff. 

115               The most that can be gleaned from the GMP Report is that Mr Williams is of the opinion that key ratios are something to which a company should aspire.  However, in the absence of some specific indication that key ratios were employed in the industry prior to May 2002 and the way in which they were employed by comparable businesses, that opinion has no weight.  Neither the GMP Report nor Mr Williams’ affidavits afford any means of testing his opinions as to how many people Pan should have employed and what impact any deficiency would actually have had on the products manufactured by Pan.

116               Mr Williams on several occasions uses phrases such as “industry norm” and asserts matters based on his “experience”.  However, neither the GMP Report nor Mr Williams’ affidavits contain evidence of practices generally observed in the industry.  No examples are given to demonstrate that there is any norm and Mr Williams does not at any time specifically identify any practice observed by any other company.  After months of work, Mr Williams does not identify any specific company where the industry norms and practices to which he purports to refer were either observed or not observed.  Mr Williams accepted that he did not spell out the actual basis of any of the claimed industry norms by reference to actual examples; nor did he identify a single occasion in his career where he had been confronted with any of the situations of which he wrote in the GMP Report. 

117               In cross-examination, Mr Williams accepted that the so called industry norm as to staffing levels was no more than the notion that the more work there is, the more people are needed in the laboratory, although automation can reduce the number of analysts needed.  Nevertheless, Mr Williams purports to express opinions about the specific number of extra staff required, based on an alleged industry norm.  Mr Williams gave examples, in the course of cross-examination, of the numbers of staff employed in the quality assurance departments of a number of companies engaged in the industry as follows:

·                    Herron: “probably four, maybe five”,

·                    Parke-Davis: “approximately half a dozen”,

·                    PharmAction: “about four”, and

·                    Sigma: “probably half a dozen”.

118               Mr Williams was asked to assume, for the purposes of the GMP Report, that the Pan QA Department had two or three staff.  Mr Williams was then asked what was the industry norm that he derived from his knowledge of the number of people at the four other companies.  His response was that he would expect to see somebody controlling documentation, somebody controlling internal audit, somebody controlling invalidation, somebody looking at registration of the product and somebody sometimes looking after specification and looking after deviations and batch release.  He acknowledged that no such industry norm was spelt out in the GMP Report.

119               Mr Williams was then asked where in the GMP Report he identified the respects in which Pan did not meet that so called industry norm.  Mr Williams then drew a distinction between quality assurance and quality control, suggesting that companies would have substantially more people in the QC Laboratory, which involved laboratory testing.  Mr Williams then gave evidence as to his understanding of the numbers of staff in the quality control departments of other companies as follows:

·                    Herron: “in excess of ten”,

·                    Parke-Davis: “probably twenty”, and

·                    PharmAction: “ranging between six and fifteen”.

Mr Williams accepted that none of those figures were included in the GMP Report.  His explanation was that he was not sure it was necessary to do so.    

120               Mr Williams was then directed to one of the Assumptions that he had been asked to make, namely that Pan had 18 people in the laboratory in addition to the quality assurance manager and the quality control manager.  The assumption was that approximately 5 staff members undertook raw materials testing, 9 staff members undertook in-process controls, 1 or 2 staff members undertook finished product testing and 2 staff members undertook stability testing.  The assumption also went on to state that the number of staff employed in the laboratory was never assessed or determined by reference to any form of key ratio system or any other system based on how many products Pan produced. 

121               Mr Williams was asked, in the light of that assumption, what was the industry norm from which he derived the number of people needed in the QC Laboratory as of May 2002.  His response was that it would depend on the level of activity in the business, in relation to the number of batches they were testing or releasing.  He said that it in a QC Laboratory the number of analysts is dependant upon the volume of work, so it would vary from company to company.  That led to his acceptance of the proposition that the industry norm was no more than that the more work there was the more people were needed in the laboratory, subject to the level of automation.

122               The Liquidators say that the gist of Mr Williams’ opinion was that, although he refers to “the industry norm”, Pan simply did not have sufficient staff to meet its workload.  Nevertheless, for the reasons already indicated, the GMP Report does not demonstrate how the allegedly specialised knowledge on which that opinion is said to be based is based on any specific or particular training, study or experience of Mr Williams.  There is no indication in the GMP Report of any quantifiable technical or scientific analysis that would assist the Court in identifying the industry norms referred to by Mr Williams.  The various bases for the industry norms or practices to which Mr Williams refers are no more than a most general rule of thumb, unconstrained by any specific actual or practical experience on the part of Mr Williams. 

123               The Liquidators respond to the criticism of Section 2 of the GMP Report by suggesting that the GMP Report provides cogent reasons for the adoption of a key ratio system.  They rely on the proposition that s 79 of the Evidence Act does not preclude an expert from generalising from experience in forming an opinion, so long as the expert possesses specialised knowledge and the opinion is wholly or substantially based on that knowledge.  The expert does not need to identify individual examples in support of an opinion for that to be so.  Be that as it may, the absence of specific examples in support of an opinion will go to the weight that should be afforded to the opinion. 

124               The evidence of the GMP Report is not based on the fields of expertise described above, such as hard science, applied science or one of the social sciences.  Nor is it the result of particular education or learning. Rather, it is based only on the experience of the witness. 

125               There may be admissible opinion evidence within the GMP Report.  However, substantial parts of the GMP Report consist of impermissible interpretation of the Code, and reproduction of the detailed assumptions that Mr Williams was asked to make and the voluminous supporting documents with which he was provided, which are prejudicial and of little weight.  Neither Mr Selim nor the Court should be required to spend time extracting admissible evidence in the GMP Report in circumstances where it was produced four months after the date fixed by the Court, without any approach on behalf of the Liquidators to the Court for an extension of time or explanation for the blatant failure to comply with the Court’s direction.  In fact, the GMP Report was produced some 15 months after the Court first gave directions about its filing.  On the earlier occasions when it was apparent that the Liquidators were unable to comply with the Court’s directions, the time for compliance was extended.  It is now apparent that Mr Williams had not even been instructed until well after the expiry of the time originally fixed. 

126               Having regard to the argumentative nature of the GMP Report and the leading nature of the questions posed for Mr Williams’ opinion, it should be given little weight of its own.  It would be unfair for Mr Selim to have to cross-examine on the GMP Report in its current form, thereby running the risk of eliciting answers that may have greater weight than the GMP Report itself.

127               The GMP Report is cast in highly prejudicial terms from Mr Selim’s point of view, apart from the prejudice arising from its late provision.  Any admissible opinion evidence in the GMP Report is of such equivocal weight and would generate such further hearing time that I do not consider that any inconvenience or detriment from its rejection outweighs the inconvenience and unfairness involved for Mr Selim in preparing to answer the GMP Report at this stage.  In the circumstances, to the extent that there is admissible evidence in the GMP Report, I would reject it under s 135 of the Evidence Act.

128               Nevertheless, the GMP Report appears to represent a substantial part of the case that the Liquidators seek to mount against Mr Selim, albeit not in an admissible form as evidence.  Accordingly, while I would reject the GMP Report as evidence, it could possibly constitute a substantial submission on behalf of the Liquidators.  If the material in the Statement of Assumptions is established by admissible evidence, a great deal of the work of counsel for the Liquidators will have been done by the GMP Report.  That observation itself emphasises the defects of so called opinion evidence in a form such as the GMP Report. 

THE REMEDIATION COSTS REPORT

129               Following the provision of the GMP report, Mr Williams was asked to answer several additional questions in respect of the recommendations set out in the GMP Report.  In response, Mr Williams provided the Remediation Costs Report of 10 October 2007.  The Liquidators seek to rely on the Remediation Costs Report as evidence of the equipment, consultancy and other matters likely to be required to satisfy the recommendations in the GMP Report and the quantum of the cost of the equipment, consultancy and other matters. 

130               In respect of each of the additional questions, Mr Williams was asked what he would have advised in the report to Pan had he been asked, in or about June 2002, to provide further details on the conclusions set out in the GMP Report. 

131               The further questions posed to Mr Williams were as follows:

1.         To the extent that you have made a recommendation to the effect that Pan should engage an external party to provide some service, please estimate:

(a)        the anticipated cost range which would have been incurred by Pan had it complied with your recommendation; and

(b)       the anticipated cost range of any related or ongoing cost, further to the identified at 1(a),which you anticipate Pan would incur through following your recommendation and, if appropriate, the intervals at which any such ongoing cost would be incurred.

2.         To the extent that you have made a recommendation to the effect that Pan should purchase equipment or should carry out or commission any infrastructure work in relation to the site, please estimate:

(a)        the anticipated cost range of capital expenditure and any related costs which would have been incurred by Pan had it complied with your recommendation; and

(b)       the frequency at which such equipment would need to be replaced, or the frequency and anticipated cost range of any ongoing infrastructure work in relation to the site.

3.         To the extent that you have made a recommendation to the effect that Pan should hire any additional staff, please:

(a)        provide details of the role to be filled;

(b)       advise whether the role would be full time or part time, estimating the anticipated number of hours per week the person completing the role would be engaged

(c)        advise whether the role relates to a temporary or permanent position; and

(d)       if the role is for a temporary position, define the duration of the role.

 

132               The Remediation Costs Report consists of estimates of costs in relation to the following separate matters:

·                    Commission and external expert to rewrite all quality assurance related procedures to bring them into line with the current GMP.

·                    Rewrite management and job descriptions and quality assurance procedures to reflect separation of authority and responsibility between quality assurance/quality control and production.

·                    Establish quality metrics, trend analysis and a quality forum for regular reporting on GMP compliance and quality members and introduce a corrective action tracking system to verify closeout of problems.

·                    Commission a study to evaluate what additional quality assurance and quality control resources are required.

·                    Employ additional staff to ensure that such resources are available for the QA Department and QC Laboratory and introduce key ratio metrics to manage forward resource planning.

·                    Commission a comprehensive independent external GMP and quality assurance compliance audit to establish a real base line of the gaps between current internal practices and the requirements of the Code and the TGA manufacturing principles.

·                    Commission a literacy review of existing employees to identify those that may have difficulty understanding instructions or documenting records.

·                    Commission a study to evaluate the additional training resources needed to deliver effective and compliant training.

·                    Employ or internally appoint a dedicated training coordinator or manager to set up a structured training system.

·                    Engage external expertise to deliver sustained GMP and quality assurance principles training.

·                    Revise completely the customer complaints systems and introduce a searchable software based solution for managing and tracking complaints and their resolution.

·                    Engage an independent pharmaceutical formulation expert to conduct a systematic review of all products manufactured over the last three years.

·                    Commission an external GMP expert consultant/engineer to review the factory’s potential for cross contamination of products.

·                    Conduct a retrospective review of the training practices for all common equipment and revalidate cleaning effectiveness.

·                    Appoint a validation officer and establish a dedicated validation team to implement validation programs.

·                    Revise existing new product introduction procedures to include risk based process validation programs.

133               The Remediation Costs report contains Mr Williams’ estimate of costs, either on a one off or annual basis for each of those items.  The Liquidators rely on s 79 only in respect of those estimates.  That is to say, in relation to each of the items, the Liquidators rely on Mr Williams’ opinion as to the range of costs in respect of each recommendation. 

134               The Liquidators support the admission of the Remediation Costs Report on the basis that, where Mr Williams has recommended an external service provider be retained, the costing is based upon Mr Williams’ estimate of the hours required to complete that task and his knowledge of the prevailing daily rates.  Where Mr Williams has recommended that additional staff be employed, the costing is based upon Mr Williams’ recommendation as to the number of position and level of staff to be employed.  The Liquidators say that there is no reason to find that Mr Williams’ experience does not equip him to estimate the totality, in circumstances where Mr Williams has prepared the costing for the activities set out in most of the sections at some point, including for Herron and PharmAction. 

135               None of Mr Williams’ evidence discloses expertise in the area of costs estimates so as to support the opinions contained in the Remediation Costs report.  Mr Williams gives no example of ever having done a similar exercise himself.  He accepted in cross-examination that he has never previously been called upon to cost a corrective plan of the magnitude he suggests.  The detail of the Remediation Costs Report effectively recommends rebuilding Pan from the ground up through complicated and extreme measures, with the assistance of numerous external consultants.  The course suggested would take at least twelve months.  No attention is given to the possible impact of those measures in the context of a listed company, which would require disclosure to ASX, investors and the TGA, or to the question of whether the other directors of Pan would have approved the course suggested. 

136               The first recommendation involves the complete redrafting of all procedures, which Mr Williams estimates would take between 5,000 and 6,500 man hours.  There is no suggestion that such a project has ever been shown to have been undertaken or done before in any other company.  The estimated cost is between $328,000 and $666,875.  Mr Selim suggests that such a proposal should not be accepted by the Court, in circumstances where Mr Williams has neither performed a similar process nor given any example where a company was required to undertake such a vast quantity of work. 

137               In relation to the rewriting of procedures, Mr Williams states that his rationale for the recommendation is that the upgrade of the quality system needs to be outsourced rather than completed internally because he does not consider that the management of Pan had the depth of knowledge or demonstrated skills to bring Pan up to standard without external advice.  He says that this view is based on the disrepair of the quality system itself, as set out in the GMP Report. 

138               In relation to the question of rewriting procedures, Mr Williams says that his estimate is based on the engagement of an external party consisting of a senior consultant, a team of technical writers and clerical administration support.  He identifies the team as consisting of:

·                    Four technical writers,

·                    A senior consultant,

·                    A clerical contact administrator, and

·                    An experienced trainer.

139               However, there is nothing in the Remediation Costs Report to explain the basis upon which that estimate is derived from any particular training, study or experience on the part of Mr Williams.  While the estimates of Mr Williams as to rates of particular personnel may be admissible, his conclusions and opinions as to what would be entailed can be afforded little weight. 

140               In any event, the Remediation Costs Report cannot stand without the GMP Report.  Since I propose to reject the GMP Report, the Remediation Cost Report should also be rejected. 

THE CLARK REPORT

141               The Extracts Document produced by the Liquidators in respect of the Clark Report has an attachment entitled “Measures that were reasonably practicable to adopt”.  The attachment sets out numerous extracts from the Clark Report.  The Liquidators say specifically that they do not rely on the Clark Report as evidence that the steps identified by Dr Clark were necessary, that failure to implement the steps showed a lack of care or skill or that it was common to implement the steps.  The Liquidators propose that Dr Clark’s evidence be admitted on the basis that it is evidence only of measures that were reasonably practicable to adopt and not as evidence of what ought to have been done or what a hypothetical reasonable officer would have done.

142               As to whether measures were reasonably practicable, the Liquidators say that Dr Clark’s specialised knowledge regarding whether or not measures are reasonably practicable is based on his experience as a senior executive officer of Faulding, with responsibility for Faulding’s manufacturing operations, including its manufacture of complementary medicines and as chief executive officer of Pharmacia LBK Biotechnology and Biochrom.  The Liquidators say that his knowledge is also based on his experience in observing the practices in place at Faulding prior to his appointment to the role of chief executive officer, in observing the practices in place at Faulding after he ceased that appointment and in observing the practices adopted at Cenovis and Golden Glow, which were also manufacturers of complementary medicines. 

143               While the questions posed to Dr Clark for the purposes of the Clark Report were different from those posed to Mr Williams, the substance of the areas covered by the questions was similar.  The questions covered the seven aspects that were the subject of the allegations of breach by Mr Selim.  Dr Clark’s attention was drawn to specific matters, many of which corresponded with the matters that were the subject of the questions to Mr Williams.  The introduction to the questions referred to the Statement of Assumptions and drew attention to defined terms in the Statement of Assumptions.  The introduction pointed out that each of the questions refers to the conduct of a “reasonable officer” and said that by that expression the following was intended:

…a person who exercises powers and discharges duties with the degree of care and diligence that a reasonable person in [Mr] Selim’s position would if they:

 

(a)        were a director or officer of a corporation in Pan’s circumstances;

(b)       occupied the office held by [Mr] Selim and had the same responsibilities within Pan as [Mr] Selim had; and

(c)        had the knowledge, experience and skills of [Mr] Selim.

The introduction asserted that the questions were directed to the action that such “a Reasonable Officer would have take” during the period from March 2000 to April 2003.

144               By way of example, the questions directed to Dr Clark concerning quality assurance and quality control staffing levels were as follows:

3.         Would a Reasonable Officer have taken any steps in relation to staffing levels for carrying out the testing required by [the Code] in relation to the products that Pan manufactured?  If so:

(a)        please explain why, in your opinion, a Reasonable Officer would have taken steps in relation to this subject, identifying the relevant considerations;

(b)        identify the steps that would have been taken; and:

(c)        explain why those steps would or should have been taken.

4.         Would a Reasonable Officer have taken any steps in response to the request for an increase in staff numbers from Mr Elia at the meeting of 22 November 2001 (referred to in paragraph 225 of the Assumptions)?  If so:

(a)        please explain why, in your opinion, a Reasonable Officer would have taken steps in relation to this subject, identifying the relevant considerations;

(b)        identify the steps that would have been taken; and

(c)        explain why those steps would or should have been taken.

5.         Would a Reasonable Officer have taken any steps in response to becoming aware at any time within the Period that Pan did not employ an adequate number of staff to carry out the testing required by the GMP Code?  If so:

(a)        please explain why, in your opinion, a Reasonable Officer would have taken steps  in relation to this subject, identifying the relevant considerations;

(b)        identify the steps that would have been taken; and

(c)        explain why those steps would or should have been taken.

6.         If the answer(s) to questions 3, 4 and/or 5 is affirmative, please indicate (giving reasons) whether the steps a Reasonable Officer would have taken would have included any action in relation to any of the matters set out below:

(a)        Any mechanisms by which the CEO would be kept informed as to whether Pan was employing adequate numbers of staff to carry out the testing required by the GMP Code (eg, by reports, meeting or minutes).

(b)        Employing mechanisms such as “key ratio” systems.

(c)        Any investigating or reporting obligations that were appropriate for Mr Elia in relation to the adequacy of Pan’s quality control resources.

(d)        The number of staff to be employed for testing.

In answering the above question with reference to each of the particular matters (a) to (d):

·                    If in your opinion an action would have been taken, please describe that action and the reasons for it.

·                    If in your opinion no action would have been taken, please explain why.

 

145               Section 2 of the Clark Report, which deals with quality assurance and quality control staffing levels and responds to the four questions quoted above, consists of paragraphs 49 to 68.  The Extract Document for the Clark Report contains extracts from paragraphs 51, 52, 54, 55, 56 and 58. In each case, however, the extract is cast in terms of what a reasonable officer “would” or “should” do.  At no time does the Clark Report speak in terms of the reasonable practicability of particular measures.  At no stage does the Clark report identify the criteria of practicability.  Rather, it appears that the Liquidators invite the Court simply to conclude from Dr Clark’s assertion that certain things should be done that those things were reasonably practicable. 

146               The Clark Report does not purport to be evidence of the matters upon which the Liquidators now seek to have it admitted.  That is to say, before the substance of the Clark Report could be admitted for the limited purpose for which the Liquidators now seek to rely on it, it would have to be completely recast.  It should not be admitted as evidence of something that it does not say. 

Dr Clark’s Lack of Objectivity

147               Dr Clark has had a long involvement with the claims by the Liquidators.  On 22 July 2003, well before the proceeding was commenced, the Liquidators’ solicitors wrote to Dr Clark in connection with their investigation of a potential claim against Mr Selim.  Dr Clark agreed to assess the conduct of Mr Selim and to provide a report to the Liquidator.  Between August 2003 and November 2003 Dr Clark:

·                    reviewed or considered information concerning Pan, including an outline of assumed facts, provided to him by the Liquidators’ solicitors;

·                    provided advice to the Liquidators’ solicitors on the matters raised with him, including a draft opinion;

·                    suggested questions for investigation relevant to the potential claim against Mr Selim;

·                    provided the Liquidators’ solicitors with the names of individuals with expertise in compliance with the Code.

148               Between November 2003 and May 2004, Dr Clark provided his views, as requested, in respect of sections of a draft statement of claim and in respect of the standards that he considered that a reasonable chief executive officer in the position of Mr Selim would adhere to.  He was provided with additional documents for review throughout the period and considered those documents in formulating his opinions at the time. 

149               The proceeding was commenced on 7 April 2004.  Following service of the original statement of claim, the Liquidators’ solicitors requested Dr Clark to commence work on the preparation of a report.  In July 2004, they provided him with a copy of Mr Selim’s request for particulars of the original statement of claim and asked him to review and discuss appropriate answers to certain of the requests.  Dr Clark drafted a response.  Between October 2004 and April 2005, Dr Clark worked on a draft report, which was to be used by the Liquidators’ solicitors for the purposes of a mediation with Mr Selim that was to be conducted at the end of April 2005. 

150               Between May 2005 and May 2007, Dr Clark had no involvement with the proceeding.  However, on 3 May 2007, he was retained by the Liquidators’ solicitors to provide a report for the purpose of tendering it in the proceeding.  It is significant, in the present context, that this occurred some 10 months after the Liquidators were first directed to file affidavits as to expert evidence. 

151               By letter of 7 May 2007, Dr Clark was provided with:

·                    a list of questions with instructions concerning the questions;

·                    the Statement of Assumptions;

·                    ten volumes of documents referred to in the Statement of Assumptions;

·                    Federal Court Guidelines for Expert Witnesses.

The Statement of Assumptions was amended from time to time . 

152               Ultimately, Dr Clark produced the Clark Report dated 6 September 2007.  He originally said, in an affidavit affirmed on 18 October 2007, that, although there was some overlap between documents provided to him prior to May 2005 and the documents provided to him in May 2007, in preparing the Clark Report he relied only on the material in the Statement of Assumptions.  However, in the course of cross-examination, Dr Clark accepted that he “cut-and-pasted” many paragraphs of the earlier reports into the Clark Report. 

153               In 1998 and 1999 Dr Clark was the executive general manager of the health care consumer division of FH Faulding Pty Limited.  In about 1998, Dr Clark visited Pan and met Mr Selim and Mr John Brennan in that capacity.  The purpose of his visit was to obtain an overview of Pan’s capabilities.  He asserted in his affidavit that he did not rely on any observations he had made in dealings that he had had with Pan during that visit.  Dr Clark also visited Pan’s premises in November 2003 in connection with the retainer he had from the Liquidators at that time.  He asserted in the affidavit that, for the purposes of the Clark Report, he did not rely on any discussions he had during that visit.

154               Between August 2003 and May 2005, Dr Clark played the role of advising the Liquidators’ solicitors on matters relevant to the claim, suggesting questions for further investigation and assisting in the drafting of the original statement of claim and responses to requests for particulars of the statement of claim.  The drafts prepared by Dr Clark have been the subject of a claim for privilege by the Liquidators, such that the extent of his involvement is not capable of being fully tested.  That is significant in circumstances where Dr Clark accepted that he relied on earlier draft reports prepared by him in preparing the Clark Report, which the Liquidators now seek to tender.

155               Dr Clark says that he recognises that his primary duty is to the Court and to provide independent evidence such that no matters of significance that he regards as relevant have been withheld from the Court.  On the other hand, he declines to reveal in his affidavit or give evidence as to the substance of the numerous prior communications that he has had with the Liquidators’ solicitors in helping them to formulate their case against Mr Selim.  It is well nigh impossible to test his credibility or reliability in circumstances where his role in the formulation of the case against Mr Selim is substantially unknown.

156               Dr Clark accepted that, by 13 August 2003, he had provided to the Liquidators a draft report that was critical of Mr Selim in respect of a number of the areas that appear in the Clark Report and six or seven areas in which Mr Selim is said to have failed in his duty.  Dr Clark was also the author of detailed schedules to the original statement of claim making serious allegations against Mr Selim.

157               The prior involvement of Dr Clark in the preparation of the Liquidators’ case against Mr Selim is not necessarily fatal to the admissibility of the Clark Report.  However, in the light of Dr Clark’s lack of independence and the insistence on professional privilege on the part of the Liquidators, it would be unfair to Mr Selim for Dr Clark’s evidence to be before the Court.  It cannot be properly tested.  It should be afforded so little weight that its exclusion would not prejudice the Liquidators’ case. 

Dr Clark’s Lack of Specialised Knowledge

158               Mr Selim also complains about Dr Clark’s report on several other bases.  First, he says Dr Clark does not have the required degree of specialised knowledge of how an appropriate chief executive officer performs in a business equivalent to Pan’s.  Secondly, the format of the evidence given by Dr Clark is challenged. 

159               Dr Clark was never chief executive officer of a company equivalent to Pan.  The highest position that he has held was head of division within Faulding but he was not chief executive officer.  Dr Clark was never a member of the board of Faulding and did not have a direct line of reporting to the board of Faulding.  There were many functions performed by Mr Selim, such as being responsible for investor relations, that were not performed by Dr Clark.  Dr Clark frankly admitted that he was not experienced in dealing with the TGA.

160               While Dr Clark conducted a consultancy from 1999 onwards, he did not identify any consultancy that brought him into direct contact with chief executive officers of pharmaceutical companies such as Pan, in a way that would enable him to observe the practices of such companies.  Dr Clark accepted in cross-examination that he understood only a bit about the practices of chief executive officers and could not recall any specific discussion relating to GMP.  He also conceded that he just did not know how chief executive officers facing similar situations to Mr Selim had in fact behaved in Australia at the relevant time.  He could not remember any of the specific practices of the two businesses, Cenovis and Golden Glow, that were acquired while he worked at Faulding. 

161               That lack of experience is recognised, in a sense, in Dr Clark’s affidavit of 6 December 2007, in which the standards and practices of responsible senior executives are touched on rather than that of a chief executive officer.  Dr Clark observed in that affidavit that, while at Faulding, he did not provide to the management of any rival company any details of the practices and procedures adopted within Faulding in relation to manufacturing operations and cannot recall being provided with such information by the management of any other company, other than in the context of an acquisition of that company by Faulding.

162               Mr Selim also complains that the Clark Report does not satisfy the prerequisites of s 79 of the Evidence Act in that he does not set out material from which a conclusion could be drawn that Dr Clark’s expressed opinions are wholly or substantially based on any specialised knowledge that he possesses. 

163               In a curriculum vitae attached to the Clark Report, Dr Clark asserts that his industry experience consists of:

business and product development, organisation, commercialisation, marketing and manufacturing experience directly gained in the following areas:

·                    Consumer products…

·                    Complementary medicine…

·                    Pharmaceuticals…

·                    Biotechnology and biologics…

·                    Clinical research organisation services

·                    Analytical instruments, sensors and control software and related services

·                    Bimolecular purification systems…

·                    Marine sciences and biodiversity

·                    Bulk chemicals, polymers, fine chemicals and reagents

·                    Training and education.

 

The description is in highly general terms and does not disclose any experience that Dr Clark has actually had of companies similar to Pan.  Nor does his report disclose how his opinions are based upon the experience described in those general terms.

164               The Liquidators also seek to rely upon the affidavit of Dr Clark affirmed on 6 December 2007.  In that affidavit, Dr Clark responded to a series of questions posed by the Liquidators’ solicitors.  In particular, paragraphs 48 to 55 of the affidavit contain Dr Clarks response to a request to “identify the range of general considerations that a reasonably competent and careful CEO (or equivalent responsible senior executive) would take into account, when making decisions regarding GMP and Quality Issues” (my emphasis).  In addition, the Liquidators seek to rely on paragraphs 57 to 62 of Dr Clark’s affidavit as evidence of the fact that senior executives of specific companies identified in the affidavit adopted the practices and procedures identified in the paragraphs at the relevant time. 

165               Paragraphs 56 to 62 of Dr Clark’s affidavit purport to respond to a question in the following terms:

In your First Report, you describe steps which a Reasonable Officer would have taken on the Assumptions in relation to various areas of operation.  With respect to each step identified below, do you have any basis for expressing a view as to the extent (if at all) the step was consistent with generally observed standards or practices (as at May 2002) amongst CEOs of pharmaceutical manufacturing companies:

(i)         The Reasonable Officer should require the QA Manager to report to the Reasonable Officer regularly in writing (Report, paragraph 26);

(ii)        The Reasonable Officer must ensure that that there is a clear operational and management distinction between manufacturing, marketing and quality assurance (Report, paragraph 31);

(iii)       The Reasonable Officer should ensure that all senior managers follow the directives and decisions of the QA Manager, and any disagreement with the QA Manager’s decisions must be taken up in discussion with the Reasonable Officer together with the QA Manager (Report, paragraph 38);

(iv)       The Reasonable Officer would require that the QA Manager held regular QA meetings with senior management, typically monthly (Report, paragraph 52);

(v)        The Reasonable Officer would have reporting mechanisms in place, such as headcount key ratios, so that resource constraints could be identified, communicated, prioritised and addressed (Report, paragraph 53);

(vi)       The Reasonable Officer would insist that the QC laboratory and batch records specifically were audited more than once a year and such audits would be unannounced (Report, paragraph 73);

(vii)      The Reasonable Officer would ensure follow-up of internal audits, making sure that corrective actions have been taken and there is an improvement plan in place to remedy deficiencies (Report, paragraph 75);

(viii)     The Reasonable Officer would ensure that there was a written GMP training program in place, and would require regular reporting on the training program (Report, paragraphs 98-99); and

(ix)       The Reasonable Officer, faced with the information available to Mr Selim as at May 2002, would have engaged an external consultant to conduct a full GMP audit of the company, and to develop with the QA manager a plan for corrective action (Report, paragraph 181).

166               For example, paragraph 56 is as follows:

I adopted the measures set out in paragraphs (i)-(viii) above at both the Salisbury and Mulgrave manufacturing plants during my time as head of the Development and Operations Unit of Faulding.  I am aware that my predecessor in the equivalent role at Faulding… also adopted those practices prior to my appointment.

 

167               The material contained in the affidavit of 6 December 2007 should not be admitted.  It is no more than bald assertion by Dr Clark.  It would have been possible for him to give evidence about what he actually observed in the particular companies to which he refers in his affidavit.  Rather, the question to which paragraphs 56 to 62 are a response to pick up the language of the Clark Report. 

168               Thus, the first two steps identified in the question are:

(i)         The reasonable officer should require the QA manager to report to the reasonable officer regularly in writing;

(ii)        The reasonable officer must ensure that there is a clear operational and management distinction between manufacturing, marketing and quality assurance.

Dr Clark’s response, the bald assertion that he adopted the measures set out in those paragraphs, has no real weight at all.

169               In relation to paragraphs 56 to 62 of Dr Clark’s affidavit of 6 December 2007, Mr Selim makes the following complaints:

·                    The assertions about the measures he adopted at Faulding are conclusionary in form.

·                    There is no evidence of what in fact occurred and the assertions are general as to be incapable of being tested.

·                    As to at least two of the eight matters that he says he adopted at Faulding, he cannot confirm whether they were maintained at Faulding after he left.

·                    As to half of the matters, he cannot say whether they were in place at Cenovis and Golden Glow, which were acquired by Faulding.

·                    Dr Clark accepts that he was never in fact faced with a situation involving information that he was asked to assume was faced by Mr Selim.

·                    To the extent that Dr Clark says that he engaged consultants to prepare a GMP audit, he has produced no evidence of the form that the audit took.

·                    Significantly, Dr Clark concedes that he was not in a position to observe whether chief executive officers of pharmaceutical companies outside the Faulding group observed any of the practices to which he refers and the matters were never raised in discussions with other chief executive officers.

Thus, Mr Selim says, Dr Clark’s evidence is mere conclusory assertion, incapable of being tested, about practices that were in place in Faulding up to 1999 and in part in place in two companies acquired by Faulding.  Such evidence does not establish any industry norm or standard.  There is great substance and merit in those complaints, which would be bases for rejection of the affidavit. 

170               I do not regard Dr Clark’s report or his affidavit of 6 December 2007 as having any significant evidentiary weight on the limited basis upon which the Liquidators seek to have the material admitted.  In order to test the assertions made by Dr Clark, it would be necessary for Mr Selim’s counsel to spend an inordinate time in cross-examining Dr Clark as to the specific matters about which he makes broad generalisations.  That is both unfair for Mr Selim and a substantial waste of time and costs, particularly in circumstances where the Clark Report was produced some four months and the affidavit some six months after the time fixed by the Court for the filing of expert evidence. 

CONCLUSION

171               To the extent that the Disputed Reports contain admissible evidence, they should be accorded very little, if any, weight.  On the other hand, the admission of the Disputed Reports at this stage would be unfairly prejudicial to Mr Selim.  In addition, substantial judicial and court time, involving substantial cost, would be occupied by the examination of the content of the Disputed Reports.  Accordingly, in circumstances where the Liquidators failed to comply with the Court’s explicit directions, I do not propose to admit the Disputed Reports, although I may, at an appropriate time, to a limited extent, admit them as submissions. 

 

 

I certify that the preceding one hundred and one-hundred and seventy-one (171) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:        

Dated:              2 April 2008

Counsel for the Plaintiffs:	Mr J Sheahan SC, Mr H Stowe, Mr S Nixon
Solicitor for the Plaintiffs:	Blake Dawson
Counsel for the Defendant:	Mr J Gleeson SC, Mr P Kulevski, Mr J A Watson
Solicitor for the Defendant:	McLachlan Thorpe Partners
Counsel for the Commonwealth:	Mr R J Webb SC, Mr D Brogan
Solicitor for the Commonwealth:	Australian Government Solicitor
Dates of Hearing:	5, 6, 7, 10 and 11 December 2007
Date of Last Submission:	7 February 2008
Date of Judgment:	2 April 2008