FEDERAL COURT OF AUSTRALIA

Ansell Healthcare Products LLC v Reckitt Benckiser (Australia) Pty Ltd (No 2) [2016] FCA 765

ORDERS

THE COURT ORDERS THAT:

Costs of Interlocutory Application filed 8 March 2016

1.    The respondents pay the applicants’ costs of the respondents’ interlocutory application filed on 8 March 2016.

Pleadings

2.    On or before 22 April 2016, the applicants have leave to file and serve a second further amended statement of claim and a second further amended originating application deleting references to claims 3, 4 and 8.

3.    On or before 29 April 2016, the respondents file and serve the following documents pursuant to the leave granted by Rares J on 11 April 2016:

(a)    a further amended defence to the second further amended statement of claim, withdrawing the admission made in paragraph 13(c)(ii) of the defence to the further amended statement of claim dated 14 August 2015, and re-pleading their response to particular (vii) to paragraph 13 of the further amended statement of claim dated 22 June 2015;

(b)    an amended cross-claim and amended particulars of invalidity.

4.    On or before 6 May 2016, the applicants have leave to file and serve an amended defence to the amended cross-claim.

Abandonment of infringement case in respect of certain claims and costs thrown away by reason thereof

5.    The applicants pay the respondents’ costs (if any), including the respondents’ costs as cross-claimants, thrown away in these proceedings by reason of the abandonment of the allegations of infringement of claims 3, 4 and 8 of the patent in suit.

6.    Order 4 made on 25 September 2015 be varied to read: “The applicants pay the respondents’ costs (if any) thrown away by reason of the abandonment of the allegations of infringement of claims 13, 16 and 17 of the patent in suit, including the respondents’ costs as cross-claimants, up to the date on which the applicants notified the respondents of their abandonment of claims 13, 16 and 17”.

Costs thrown away by amendments to Cross-claim and Particulars of Invalidity

7.    Other than costs the subject of Orders 5 and 6, the respondents pay the applicants’ costs thrown away (if any) by reason of the amendments in the amended cross-claim and amended particulars of invalidity pursuant to Order 3(b).

Evidence

8.    On or before 30 June 2016:

(a)    the applicants file and serve their evidence in chief on infringement; and

(b)    the respondents file and serve their evidence in chief on invalidity and their s 119 defence.

9.     On or before 7 September 2016:

(a)    the respondents file and serve their evidence in answer on infringement; and

(b)    the applicants file and serve their evidence in answer on validity and the s 119 defence.

Joint experts report

10.    On or before 21 September 2016, the parties are to confer and provide to the Associate to Rares J, a proposed list of questions for the experts to consider in their joint report, including which identifies any areas of disagreement between the parties regarding what issues should be addressed by the experts in their joint report.

11.    The matter be listed for directions at 9:30am on 26 September 2016, in relation to the list of questions referred to in Order 10 and the preparation of a joint experts report.

12.    On or before 26 October 2016, the parties are to file a joint experts report in relation to the list of questions approved by the Court.

Case management conference and trial

13.    The matter be listed for a Case Management Conference at 9:30am on Monday 31 October 2016 for the fixing of pre-trial directions.

14.    The matter be listed for a five day hearing commencing on 12 December 2016.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    This is an application by Reckitt Benckiser (Australia) Pty Ltd and its associated companies (Reckitt) to withdraw admissions made in its defence and to amend its cross-claim. Substantively, Reckitt seeks to amend its defence by deleting those admissions, pursuant to r 16.53 of the Federal Court Rules 2011 (Cth) and to amend the cross-claim by varying its particulars of invalidity of the patent in suit.

Background

2    The circumstances in which the proceedings have got to their present stage are that, prior to action being brought, Spruson & Ferguson, the solicitors for Ansell Healthcare Products LLC and its Australian subsidiary (collectively Ansell) wrote in early 2014, initially, to Reckitt after which the correspondence proceeded between solicitors. Spruson & Ferguson asserted that Reckitt’s Durex product, being a condom, infringed numerous claims in Ansell’s patent in suit. Since early 2014, Ansell has alleged that the Durex product was a synthetic condom that infringed claims 1 and 9 of the patent in suit. Ansell also alleged at various times since early 2014 that the Durex product infringed other claims of the patent in suit and those presently relevant read as follows:

1.    A synthetic polyisoprene elastomeric article comprising: synthetic polyisoprene particles that are pre-vulcanized and cured; said synthetic polyisoprene particles bonded to each other through intra-polyisoprene particle crosslinks and inter-polyisoprene particle crosslinks; wherein the intra-polyisoprene particle crosslinks and the inter-polyisoprene particle crosslinks are substantially uniform in said synthetic polyisoprene latex article.

2.    The synthetic polyisoprene elastomeric article of claim 1, wherein said latex article exhibits a substantially conchoidal fracture when fractured at liquid nitrogen temperature.

3.    The synthetic polyisoprene elastomeric article of claim 1, wherein scanning electron microscopic observation of a fracture surface obtained by rupture of the article at room temperature shows absence of intra-polyisoprene particle and inter-polyisoprene particle features.

4.    The synthetic polyisoprene elastomeric article of claim 1, wherein scanning electron microscopic zinc and sulfur x-ray maps observation of a fracture surface obtained by fracture of the article at liquid nitrogen temperature, rupture at room temperature, or both shows presence of sulfur within a polyisoprene particle that is decorated by zinc.

5.    The synthetic polyisoprene elastomeric article of claim 1, wherein the molecular weight is less than about 6800 g/mol between the crosslinks.

6.    The synthetic polyisoprene elastomeric article of claim 1, wherein microprobe elemental analysis by electron microscopy shows an accumulation of zinc surrounding said synthetic polyisoprene particles.

…

8.    The synthetic polyisoprene elastomeric article of claim 1, wherein said substantial uniformity of intra-polyisoprene particle crosslinks and inter-polyisoprene particle crosslinks is verified by scanning electron microscopy of a fracture surface that passes through both inter-particle regions and intra-particle regions nonpreferentially .

9    The synthetic polyisoprene elastomeric article of one of the forgoing claims, wherein said latex article is a condom or a glove. (emphasis added)

3    On 19 March 2014, Reckitt responded by denying that the Durex product did infringe any of those claims. Reckitt asserted that the Durex product had been made in accordance with Reckitt’s patent (known as the GB566 or LRC patent). Spruson & Ferguson wrote to Reckitt again, on 12 May 2014, asserting that Ansell believed that it was likely that the Durex product involved pre-vulcanisation to a degree not disclosed in the GB566 patent.

4    The correspondence proceeded on the basis that each side made contentions as to whether or not the Durex product infringed the patent in suit. Reckitt soon engaged its own solicitors, Corrs Chambers Westgarth. Reckitt asserted that it was not clear how the Durex product could infringe the patent in suit. It asserted that it manufactured its product pursuant to the process specified in the GB566 patent together with an additional step. Reckitt asked Ansell for a clear statement of its construction of the disputed claims in the patent in suit, so that Reckitt could understand the nature of Ansell’s allegations.

5    Ultimately on 17 November 2014, Ansell commenced these proceedings by filing the originating application and statement of claim. There, Ansell pleaded, among other things, a bald allegation of infringement by asserting that the Durex product had all the features of claims 1, 3 and 9 of the patent and, accordingly, that it infringed those claims.

6    At the first directions hearing on 19 December 2014, the parties argued how best to crystallise the issues relating to the construction of the relevant claims in the patent in suit. The position taken by Reckitt, through its senior counsel, was that it needed to know precisely how Ansell claimed that the Durex product infringed. Counsel for Ansell responded that Reckitt had not suggested that particular features of the claims, namely crosslinks, in the Durex product were neither present, nor, being present were not substantially uniform, and those features were indicia of pre-vulcanisation within the construction of claim 1 of the patent.

7    I took the view that the way in which Ansell had pleaded infringement was not sufficient to clarify exactly what it was that Ansell asserted. I ordered that, on or before 13 February 2015, Ansell file and serve an amended statement of claim that pleaded the presence of each claim feature in the Durex product and particularised the precise basis on which it asserted that the pre-vulcanisation feature was present. I also ordered that, on or before 27 March 2015, Reckitt file and serve a defence that pleaded to the presence or absence of each pleaded claim feature and particularised the basis for any denial of the presence of any claim feature, together with any cross-claim.

8    In its amended statement of claim, Ansell pleaded that:

13    The Durex Product comprises:

(a)    synthetic polyisoprene particles that are:

i.    pre-vulcanized; and

ii.    cured;

(b)    synthetic polyisoprene particles that are bonded to each other through intra-polyisoprene particle crosslinks and inter-polyisoprene particle crosslinks;

(c)    wherein the intra-polyisoprene particle crosslinks and the inter-polyisoprene particle crosslinks are substantially uniform in the synthetic polyisoprene latex article.

Particulars of the “pre-vulcanised” feature

i.    Sulfur has penetrated, and is present within, the synthetic polyisoprene particles.

ii.    The sulfur is distributed in a substantially uniform manner within the synthetic polyisoprene particles.

iii.    The sulfur has formed intra-particle crosslinks within the synthetic polyisoprene particles.

iv.    Zinc dithiocarbamate is present outside the synthetic polyisoprene particles, and decorates their exterior.

v.    Zinc dithiocarbamate is a catalyst that breaks down sulfur atoms into short chain atoms that are able to penetrate into synthetic polyisoprene particles.

vi.    The intra-polyisoprene particle crosslinks and the inter-polyisoprene particle crosslinks are substantially uniform.

vii.    In the premises of the above, the synthetic polyisoprene particles in the Durex Product are “pre-vulcanised”.

viii.    The applicants reserve their right to provide further particulars following discovery or other interlocutory steps.

9    Reckitt’s defence of 7 April 2015, admitted the matters alleged in pars 13(b) and (c) and said that particulars (i) to (vi) to par 13 of the amended statement of claim applied to the Durex product. But, the defence denied that, by reason of those matters, the synthetic polyisoprene particles in the Durex product were, first, pre-vulcanised, as alleged in particular (vii) and, secondly, that they were, (1) pre-vulcanised, and (2) cured, as alleged in subpar 13(a). Reckitt otherwise denied the allegations in par 13.

10    That promoted another debate at the next directions hearing on 10 April 2015 as to the clarity of the pleadings. As a result, I made a further order, designed to flush out the real issues in dispute. I ordered that Ansell file and serve a defence to cross-claim and a reply to the defence on or before 24 April 2015. I also ordered that on or before 8 May 2015 Reckitt produce to Ansell, on a confidential basis, documents that set out the process used to manufacture the Durex product, including all the essential detailed steps, so that Ansell could plead its infringement case on an informed basis.

11    I made further orders at the directions hearing on 22 May 2015 to enable the case to be properly pleaded with respect to, among other matters, the way in which Ansell alleged that whatever occurred in Reckitt’s confidential manufacturing process infringed the claims in the patent in suit. I ordered that, on or before 19 June 2015, after receiving the confidential documents, Ansell file and serve a proposed further amended statement of claim that included further particulars of the basis on which it alleged the presence of, relevantly, the pre-vulcanisation feature of each asserted claim, and, I also ordered that on or before 10 July 2015 Reckitt serve a proposed amended defence.

12    In the event, Ansell served a further amended statement of claim on 22 June 2015, that added a new particular (vii) to par 13(c) and renumbered the old particulars (vii) and (viii) as particulars (viii) and (ix) respectively. New particular 13(vii) read:

vii.    At the time of dipping, the polyisoprene latex has a pre-vulcanisate relaxed modulus value that exceeds the range of “less than 0.1 MPa” that is referred to in paragraph 15 of the Patent. (emphasis added)

13    Reckitt served a defence dated 13 August 2015, which responded as follows:

13.    In answer to paragraph 13 of the Further Amended Statement of Claim, the Respondents:

(a)    admit that the Durex Product comprises synthetic polyisoprene particles that are cured;

(b)    admit the matters alleged in sub-paragraphs (b) and (c);

(c)    as to the Particulars (i) to (viii) of paragraph 13:

(i)    say that the matters set out in Particulars (i) to (vi) apply to the Durex Product; but deny that by reason of these matters the synthetic polyisoprene particles in the Durex Product are “pre-vulcanised” as alleged in Particular (viii);

(ii)    as to Particular (vii):

A.    admit that the prevulcanisate relaxed modulus (PRM) value for the polyisoprene latex of the Durex Product “at the time of dipping” exceeds the range of “less than 0.1MPa”;

B.    say that paragraph 15 of the Patent does not refer to the PRM value “at the time of dipping” as alleged in particular (vii) of Paragraph 13 of the Further Amended Statement of Claim and therefore deny that the Durex Product is “pre-vulcanised” as alleged; and

(d)    otherwise, deny the matters alleged in the paragraph.

14    In that defence, Reckitt also admitted two other matters that it had previously denied. First, it admitted the old par 15, which related to the essential feature of claim 2, namely, that the Durex product exhibited a substantially conchoidal fracture when fractured at liquid nitrogen temperature. Secondly, Reckitt admitted the essential feature of claim 6, namely, that microprobe elemental analysis by electron microscopy showed an accumulation of zinc surrounding the synthetic polyisoprene particles in the Durex product.

15    On 25 September 2015, I made orders that questions of liability and threatened conduct, as identified in pars 1 to 36 of the further amended statement of claim, and the validity of the patent, as identified in pars 1 to 7 of the statement of cross-claim, be heard and determined separately before questions of pecuniary relief and additional damages. I ordered Ansell to give discovery by 9 October 2015, and that on or before 27 November 2015, each of Ansell and Reckitt serve its evidence-in-chief on their respective claim and cross-claim, together with any details of agreed protocols for experiments. I ordered the matter to go to a mediation before a Registrar, to take place before 29 October 2015, to be attended by the most senior executives of each of the two parties in Australia. Needless to say, regrettably, that failed.

16    On 13 October 2015, Ansell companies launched patent infringement proceedings in the United States of America, in the United States District Court for the District of Delaware, claiming that Reckitt companies had infringed claims in four of the Ansell companies’ patents.

17    By consent orders that I made on 26 November 2015, the parties in these proceedings agreed to extend the timetable for the filing of their evidence-in-chief to 15 February 2016.

18    On 14 January 2016, Reckitt’s solicitors wrote to Ansell’s solicitors, seeking a further extension of the parties’ timetable for filing their evidence-in-chief to 8 April 2016.

19    The Australian solicitor for Reckitt, Odette Gourley, said she had her first discussions on 21 January 2016 with Reckitt’s United States attorneys and learned for the first time that the admissions that Reckitt had made in pars 13, 15 and 21 of its defence of 13 August 2015 would have a substantially detrimental impact on Reckitt’s conduct of the United States patent litigation. That led to Reckitt’s solicitors’ letter of 28 January 2016 to Ansell’s solicitors, in which Reckitt first sought to withdraw those admissions and to expand the particulars of invalidity in substantial respects, including by adding eight examples of prior art to supplement the one that had been pleaded beforehand, being Reckitt’s own GB566 patent.

Reckitt’s application to amend

20    On 4 March 2016, Ms Gourley swore the substantive affidavit on which Reckitt relied in support of its application to amend, from which she subsequently redacted a small portion, because of concerns about inadvertently revealing some material that was confidential in the United States proceeding. The redacted version of that affidavit is substantively what Reckitt relied on to explain its own circumstances and state of mind for the purposes of its application.

21    Ms Gourley said that, at the date of her affidavit, the sales of Durex brand synthetic polyisoprene condoms in Australia since 2013 had generated less than a six-figure sum. She said that, in substance, one reason for Reckitt’s economy and admissions in Reckitt’s defence and cross-claim was the small actual and potential market value of sales in Australia of sales of the Durex product. Ms Gourley said that she had understood from the correspondence between the parties and their lawyers, exchanged before the proceedings were launched, that Ansell had previously conducted tests on the Durex product, including ones called TEM tests. I referred to such tests in my reasons of 7 April 2016, in which I refused to order Ansell to produce, in answer to Durex’ notice to produce, those TEM test results that I inferred did exist: Ansell Healthcare Products LLC v Reckitt Benckiser (Australia) Pty Limited [2016] FCA 506.

22    Ms Gourley explained that at the time these proceedings were commenced, Reckitt had concerns and beliefs based on the pre-litigation history and the nature of the allegations in the statement of claim, that Ansell’s patent related to a process for manufacturing synthetic polyisoprene condoms that was different to the process in the GB566 patent, and that Reckitt’s patent sought to minimise pre-vulcanisation, as acknowledged at [15] in the specification of the Ansell patent. She said that, in accordance with the method followed by Reckitt in the production of the Durex product, pursuant to its own GB566 patent, it did not add a post-vulcanisation composition to its latex. The patent in suit described that step or feature as an important feature of the invention being the Ansell product.

23    Ms Gourley said that Reckitt used steps additional to examples 1 and 3 in the GB566 patent in the manufacture of the Durex product that involved confidential proprietary techniques for stripping the condoms from a former. A former is an article that is dipped into a solution of synthetic latex to which the synthetic latex adheres in the formation of the condom that ultimately is produced. She said that the pre-litigation correspondence, which I have briefly summarised above, had indicated the existence of those additional steps to Ansell, as early as May 2014.

24    She said that there appeared to be no direct commercial rationale for the proceedings and that Reckitt was very concerned about the potential high cost to it of defending the proceedings in this country, having regard to the small volume and low value of sales of the Durex product in Australia and the nature of patent litigation. Ms Gourley also stated that Reckitt had concerns about what genuine losses or damage Ansell would suffer in this country. She said that Ansell had joined four Reckitt companies, including two overseas ones, one of which is the group’s UK publicly listed holding parent company, and that Reckitt:

…was therefore concerned that Ansell was seeking to obtain from the litigation a collateral commercial benefit of discouraging [Reckitt] internationally from competing with Ansell in the supply of synthetic polyisoprene condoms and condoms generally.

25    Ms Gourley noted that because they were made from artificial ingredients, the synthetic condoms made by both parties were suitable for use by consumers who had concerns about possible allergies to rubber condoms.

26    Ms Gourley said that Reckitt had chosen to resist Ansell’s demands and defend these proceedings on a basis that was “sensibly narrow and confined to what [Reckitt] understood were the critical issues in dispute, in an effort to achieve early disposal of the proceedings without incurring substantial costs” or by an agreed resolution. As a result, she said, Reckitt had continued to resist production of its confidential manufacturing process documents, deferred investigations in relation to the availability of records to establish any prior use defence, resisted production of those records, and had only undertaken limited searches for possible novelty-defeating prior art. She said that Reckitt had sought to confine the extent to which it had sought independent expert assistance and, given that the major issue in contention on infringement:

… appeared to be the presence of the “pre-vulcanised” feature in the Durex product, [Reckitt] chose to make admissions and concessions in its defence of the statement of claim, other than in relation to matters it understood to be directly relevant to “pre-vulcanisation” in claim 1 of the Ansell patent.

27    Ms Gourley said that, in its defence, Reckitt had admitted the particulars of pre-vulcanisation feature, but denied the presence of “pre-vulcanisation” on the basis of its construction of the patent in suit. She said that, in preparing the cross-claim and particulars of invalidity, Reckitt had relied:

… only on the information it then had to hand, and sought to put forward relatively narrow and confined grounds and particulars of invalidity.

28    Ms Gourley asserted that Reckitt had sought to negotiate a narrow and prompt way of resolving the proceedings. She said that, in formulating the pleadings up to that time, Reckitt had only had very limited conferences, through its legal representatives, with its independent expert, Dr Bill Potter. He had only been provided with a copy of the Ansell patent in suit in December 2015.

29    Importantly, Ms Gourley said that she was under a misapprehension as to what the expression “at the time of dipping” in particular 13(vii) of the further amended statement of claim meant, and that after the mediation on 29 October 2015 it became increasingly clear to Reckitt that the admission of the pre-vulcanisate relaxed modulus (PRM) value that was made there had been based on a different understanding to what she had thought Ansell’s understanding was.

30    In contrast, Ansell’s solicitor, John Afaras, asserted that both sides had the same understanding. He said that understanding had come out of one of Reckitt’s manufacturing process documents that I had ordered be produced. That document identified a confidential value for the PRM of Reckitt’s mixture of the latex before the completed maturation time, as compared to the figure set out at the time of dipping, being the 0.1 to 0.25 MPa figure set out in particular 13(vii). That difference, and how it could occur, may be important but its significance, if any, is not explained in Reckitt’s current defence.

31    I am satisfied because of the way in which Ansell pleaded particular 13(vii), and how Ms Gourley stated that Reckitt had approached its admission of that asserted fact, that it is in the interests of justice that Reckitt be allowed to amend its admission, so as precisely to plead in response to particular 13(vii) what she has said was its actual understanding of the factual position.

32    The remarkable feature of Ms Gourley’s affidavit evidence is that at no point did she mention any person within Reckitt who had identified specifically what it did or did not know about the subject matter of its admissions, or how its last three admissions came to be made, being those of claims 2, 6 and the error which I have suggested should be allowed to be corrected in relation to paragraph 13(vii). Rather, she gave generalised evidence of her understanding of Reckitt’s position, which I have no reason to doubt accurately set out her belief. However, her evidence did not identify any facts about the knowledge, understanding or state of mind of her client, Reckitt, in making the factual admissions. After all, Reckitt, and not Ms Gourley, was responsible for manufacturing the very product whose hitherto admitted features are the subject of this litigation.

33    If anyone would know what the Durex product’s features were, prima facie, Reckitt must have known them. There is no explanation at all in its affidavit evidence as to who knew what within Reckitt or what inquiries were made, before Reckitt filed its various defences, as to whether the admissions were accurate or correct. Moreover, and critically, there is no evidence whatsoever in Ms Gourley’s very lengthy and detailed affidavit that extends, with annexures to 536 pages, of what, if any, inaccuracy to Reckitt’s knowledge or understanding, there was in any of the admissions, other than in relation to particular 13(vii).

34    As I observed to senior counsel for Reckitt in the first directions hearing:

You make the things, so you will know whether it has that or doesn’t have that, [the pre-vulcanised feature].

35    I am still of that view. There is no explanation in Reckitt’s evidence as to what it knew or did not know about the factual basis for the admissions that it now seeks to withdraw and whether the admissions are inaccurate. Therefore, I am not in a position to determine on Reckitt’s application to withdraw those admissions, that it would suffer some or any injustice as a result of having made them, other than the information about their impact in the United States’ proceedings.

36    Ms Gourley’s affidavit continued to explain in detail her understanding of the pleaded and factual position. She said that the first time that Reckitt’s Australian legal representatives spoke to its US attorneys was on 21 January 2016 when they told her that, although the disclosure in each of the four patents sued on by Ansell companies in the United States was very similar to that in Ansell’s Australian patent in suit, there were some different claims and that, in some claims in two of the four patents in suit in the United States, the pre-vulcanised feature was not explicitly included. However, Ms Gourley said that in each of the independent product claims in those four United States’ patents, one explicit claim feature was the presence of “substantially uniform interparticle and intraparticle cross-links”.

37    She said that Reckitt’s United States attorneys had made her aware that “it would be significantly disadvantageous to [Reckitt] in the proceedings in the United States if various admissions made in the Australian proceedings were not withdrawn”. The disadvantageous admissions were those in Reckitt’s defence concerning the presence of “substantially uniform cross-links” and “substantial uniformity” in claims 1 and 8 respectively, “substantially conchoidal” in claim 2, the word “decorated” in claim 4, and the pre-vulcanised feature in par 13 of the statement of claim. However, Reckitt had not admitted any feature of claim 4 and it is not clear to what admission in relation to “decorated” Ms Gourley referred.

38    As I have said, the concerns that Reckitt’s US attorneys had expressed led ultimately to the amendment applications that Reckitt communicated to Ansell for the first time on 28 January 2016. Ms Gourley thought that these would not give rise to any significant consequences in terms of time or cost in preparing evidence. She said that based on her discussions with Dr Potter and the tests that Ansell had already done, Ansell would not need to do more tests in relation to the features of claims 1, 2 and 6. She noted that the parties were negotiating agreed protocols or ways in which prior tests might be used in evidence for the purposes of r 34.50 of the Federal Court Rules 2011 (Cth). She also said that Ansell’s lawyers in the United States had informed the United States Court that it proposed to rely on Reckitt’s admissions in these proceedings and that, unless these admissions were withdrawn, Reckitt would be in a “significantly disadvantageous” position there. She said that it would still be possible to have a hearing here before the end of this year, if the amendments Reckitt sought were allowed and that it had proposed those in an effort to narrow the issues in dispute. Ms Gourley stated that now, having had the benefit of Dr Potter’s evidence, she considered that the meaning of the claim features in relation to which Reckitt had made the admissions was unclear and, given Ansell’s desire to rely on those admissions in the United States’ proceedings, it was in the interests of justice to allow Reckitt to withdraw them.

39    As I noted in my reasons of 7 April 2016 (Ansell [2016] FCA 506 at [9]), there is a dispute between Dr Potter and Ansell’s expert, Dr Cook, as to the utility of doing TEM tests to determine whether or not the substantially uniform feature is present in the Durex product. If the amendments are allowed, Ansell would wish to rely on such tests that would take about eight weeks to perform and cost $50,000 to $66,000. In the context of patent litigation, as it is ordinarily conducted in this Court, while not an insubstantial sum, such an expense would represent a drop in the bucket of what would be spent in this case were it to be a fully-blown contested hearing in which Ansell had to prove what Reckitt no longer wishes to admit. Ansell relied on that consequence as prejudice to it.

40    Reckitt argued that the earlier correspondence demonstrated that Ansell had already performed such TEM tests and that Ansell had not been able, as Dr Potter argued, to demonstrate the presence of sulphur crosslinks, either for inter or intra-particle purposes. Dr Cook appeared to assert the contrary. That dispute is clearly a matter that would require exploration at a trial if the admissions were allowed to be withdrawn. It is not possible to resolve that dispute on the evidence before me.

41    Dr Potter also opined about a number of ambiguities in the wording of the patent in suit. He explained his opinion about his difficulties in ascertaining the existence of crosslinking and understanding the meaning of expressions such as “substantially uniform” or “substantially conchoidal”, on which Reckitt relied.

42    Mr Afaras gave evidence about the work that Ansell had done on the basis of the pleadings to date. He explained that Ansell had invested significant time and incurred significant expense taking steps to prepare its infringement evidence on the basis that the Durex product possessed each feature, the subject of the admissions, now sought to be withdrawn. I accept that evidence. He said that, as I have mentioned, if the admissions were withdrawn Ansell would wish to conduct TEM tests and that would cause it to incur some expense. He said that Ansell also would need to conduct some other tests. He said that, if leave to withdraw the admissions were refused, Ansell proposed to abandon its claims for infringement of claims 3, 4 and 8 of the patent in suit and that would avoid the need for it to perform any further tests, including scanning electron microscopy or SEM tests.

43    Reckitt complained that it would be terribly unfair for it to have to meet such an attempt to bargain, as it were, with the Court on the basis that Ansell would abandon claims if Reckitt’s amendments were refused. I simply note that that is what Ansell has stated will happen and the matter must be dealt with in that way.

44    Mr Afaras said, and there is no issue, that, irrespective of whether or not I permitted Reckitt to withdraw the admissions, Reckitt could file a pre-trial motion in limine in the United States’ proceedings seeking to preclude Ansell from making use of the admissions. He said that, if Reckitt sought to do so, both parties would be entitled to file evidence and make submissions addressing that issue so that the United States District Court could exercise its discretion as to whether it would allow that to occur. He also argued, which is contested by evidence from Ms Gourley, that the admissions, even if withdrawn, would be available to be used against Reckitt in any event. I am satisfied that that is a matter that is arguable in the United States and is open to be dealt with by the District Court when it considers any in limine pre-trial motion.

The proposed amendments to Reckitt’s particulars of invalidity

45    The amended particulars of invalidity on which Reckitt seeks to rely in its cross-claim raise some matters that Ansell accepted during the course of argument caused it no difficulty. Those were, first, a new, essentially, legal argument based on a denial that the invention in issue was a manner of manufacture or new manufacture within the Statute of Monopolies 1623 (UK), having regard to the recent decision in D’Arcy v Myriad Genetics Inc (2015) 325 ALR 100, secondly, legal arguments that some claims were not fairly based, which involve substantively questions of construction of the patent in suit and, thirdly, a new pleading asserting a lack of clarity, based on Dr Potter’s recent evidence.

46    However, the two substantively contentious amendments were, first, Reckitt’s wish to rely on eight new pieces of prior art in support of its assertions that the claims lacked novelty and an inventive step, and secondly, its wish to claim that the invention was not useful within the meaning of s 18(1)(c) of the Patents Act 1990 (Cth). During the course of argument, Reckitt decided to rely on only four pieces of prior art. Notably, there was no expert evidence that identified or supported the way in which any of either the original eight or the reduced four, new pieces of prior art, would demonstrate that the invention was not novel or lacked an inventive step.

47    Reckitt’s proposed inutility amendment to plead that the claims in issue were inutile was as follows:

6.    Each of the Claims does not comply with s 18(1)(c) of the Act in that it is not useful.

Particulars

(a)    The object of the invention is to overcome the disadvantages of the prior art or provide a useful alternative (the Patent at [16]).

(b)    Some products falling within claim 1 that are not produced by the process described in the specification will not meet this objective.

(c)    The Cross-claimants repeat the particulars to paragraphs 4 and 5 above.

48    During the course of argument, counsel for Reckitt sought to narrow that plea from the very general terms in which it was expressed. He proposed to amend it to say that, if it were found that the Durex product infringed any impugned claim (which it denied), then that claim lacked utility because it did not meet the promise of the invention, in that that product was produced by a process that did not fall within the promise of invention, being to overcome the prior art that included patent GB566 referred in [15] of the patent in suit.

Consideration – withdrawal of admissions

49    An application to withdraw an admission made in a pleading calls for the exercise of a judicial discretion under r 16.53 that falls to be exercised in accordance with ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). Section 37M requires the Court to interpret and apply the Rules in a way that best promotes the overarching purpose of the civil practice and procedure provisions, namely, to facilitate the just resolution of disputes according to law, as quickly, inexpensively and efficiently as possible. Moreover, s 37M(2) identifies, non-exhaustively, objectives of the overarching purpose, that include:

     the just determination of all proceedings before the Court;

    the efficient use of the Court’s judicial and administrative resources;

    the efficient disposal of the Court’s overall caseload;

    the disposal of all cases in a timely manner; and

    the resolution of disputes at a cost proportionate to the importance and complexity of the matters in dispute.

50    French CJ, Kiefel, Bell, Gageler and Keane JJ held in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303 at 321 [51] that:

…case management is an accepted aspect of the system of civil justice administered by the courts in Australia. It had been recognised some time ago by courts in the common law world that a different approach was required to tackle the problems of delay and cost in the litigation process. Speed and efficiency, in the sense of minimum delay and expense, are essential to a just resolution of proceedings. The achievement of a just but timely and cost-effective resolution of a dispute has effects not only upon the parties to the dispute but upon the court and other litigants.

51    They also explained, in relation to an analogue of Pt VB of the Federal Court Act, the CPA, that (250 CLR at 323 [56]-[57]):

The evident intention and the expectation of the CPA is that the court use these broad powers to facilitate the overriding purpose. Parties continue to have the right to bring, pursue and defend proceedings in the court, but the conduct of those proceedings is firmly in the hands of the court. It is the duty of the parties and their lawyers to assist the court in furthering the overriding purpose.

That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided. However, the powers of the court are not at large and are not to be exercised according to a judge's individualistic idea of what is fair in a given circumstance. Rather, the dictates of justice referred to in s 58 require that in determining what directions or orders to make in the conduct of the proceedings, regard is to be had in the first place to how the overriding purpose of the CPA can be furthered, together with other relevant matters, including those referred to in s 58(2). The focus is upon facilitating a just, quick and cheap resolution of the real issues in the proceedings, although not at all costs. The terms of the CPA assume that its purpose, to a large extent, will coincide with the dictates of justice. (emphasis added)

52    When a party seeks to amend a pleading to change the, or a, substantive matter, ordinarily the party seeking the exercise of that discretion should provide an explanation for the change of position and bring the circumstances in which that change came about to the Court’s attention so that it can weigh those against the effects of any delay and the objectives in s 37M: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at 215 [103] per Gummow, Hayne, Crennan, Kiefel and Bell JJ.

53    The issue will come down, at the end, to what is the appropriate order to make in the interests of justice; but those interests have themselves been informed by the objectives in s 37M. I agree with what Robertson J said in Novartis Pharmaceuticals Australia Pty Limited v Bayer Australia Limited (No. 3) [2013] FCA 1323 at [12]:

I note what was said by Yates J in Optical 88 Limited v Optical 88 Pty Limited [2010] FCA 310 at [31] citing Finn J in Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2007] FCA 1390 at [4]:

The overriding consideration is the interests of justice. The Court will not lightly permit a party to withdraw an admission where the other party has acted to its detriment on the admission or is otherwise prejudiced by the withdrawal. It is plainly necessary to have regard to all relevant factors including the nature and importance of the admission, the circumstances in which the admission was made, whether the admission was made deliberately or inadvertently, the reason given for the application to withdraw, the detriment or prejudice which might be caused to the other party and the stage which the proceedings have reached, and whether the admission is contrary to the facts. The list of relevant factors affecting the Court’s decision will plainly vary from case to case.

as read in the light of the considerations in s 37M of the Federal Court of Australia Act 1976 (Cth) and in light of Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175. It is also to be recalled that in a decision of a Full Court in Jeans v Commonwealth Bank of Australia Ltd (2003) 204 ALR 327 it was said that the Court had a broad discretion to weigh up all matters with the overall question being to ensure that there is a fair trial. (emphasis added)

54    However, Aon 239 CLR 175 is not a one size fits all case, as Keane CJ, Gilmour and Logan JJ said in Cement Australia Pty Limited v Australian Competition and Consumer Commission (2010) 187 FCR 261 at 275 [51]. They noted that the Court must take into account and balance a variety of factors in the circumstances of each individual case, as indeed is essential in order to do justice in the circumstances.

55    Recently in Tamaya Resources Limited (in Liquidation) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2 at [154]-[156], Gilmour, Perram and Beach JJ discussed the principles for considering the quality of an explanation given by a party seeking to withdraw admissions or make amendments to pleadings. They said:

Just what explanation is called for will necessarily depend upon the particular case. The explanation will be given by, or on behalf of, the moving party. Affidavit evidence may or may not be necessary. In Cement Australia, for example, as the explanation was that the error was one of judgment by senior counsel for the ACCC, a statement by him from the bar table, to which no objection was taken, was accepted by the Court as sufficient.

It must be borne in mind that the explanation required is that of the moving party, not merely their solicitor or counsel. The client may very well know of matters relevant to the explanation for delay which are not known by the lawyers.

Evidence as to the explanation for delay will often be given by an applicant’s solicitor from their own knowledge but that may, in some cases, not be sufficient. This is such a case. The primary judge was correct to conclude that the explanation offered by Tamaya was deficient because Ms Banton could not explain why she did not know of the Chilean audit issues until she was told by Mr Basford. (emphasis added)

56    They held that the actual party which had sought the amendment had given no evidence, itself, as opposed to its solicitor, about what the party knew and how the party had come to make the original forensic choice from which it sought later to depart.

57    And, in DeMasi v Linfox Transport (Aust) Pty Limited (unreported, NSWSC, 14 June 1995) McClelland CJ in Eq said:

… it is a significant matter to permit an admission to be withdrawn because it may be the fact that the admission connotes an acknowledgment of the correctness of the fact admitted. (emphasis added)

58    Here, of course, it is Reckitt’s own initiative to change the course of the litigation, obviously influenced by what has happened in the United States.

59    However, as I have said, the absence of any evidence about the knowledge or state of mind of Reckitt’s own personnel, who were responsible for giving the instructions about the admitted features of the Durex product that Reckitt manufactures is striking. No doubt Reckitt performs its own tests on the Durex product to make sure that it conforms to Reckitt’s patented or other confidential production processes, its standards for production and the quality controls that Reckitt requires. Yet, Reckitt has remained silent on how it, as opposed to its solicitors, made the admissions in suit and whether those admissions are incorrect.

60    In my opinion, that silence was a deliberate choice by Reckitt not to put that material before the Court when it was open to Reckitt to explain those matters. I infer that nothing that Reckitt could say would have assisted its case in demonstrating that the admissions that it had made were inaccurate: Jones v Dunkel (1958) 101 CLR 298. Indeed, as Handley JA said in Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited (1991) 22 NSWLR 389 at 418E, a court should not draw inferences favourable to a party that has made no attempt to prove particular matters by direct evidence. He said that when a party does not ask a witness, whom it calls and who could have given evidence of the facts, any questions about a topic in the witness’ evidence in chief, the most natural inference that the Court can draw is “that the party fears to do so”. He said that that fear was “some evidence that such examination-in-chief would have exposed facts unfavourable to the party”: see too Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 525-526 [230] where Weinberg, Bennett and Rares JJ applied Handley JA’s reasoning.

61    As I have explained, the evidence on which Reckitt relied in support of being permitted to withdraw the admissions (other than particular 13(vii)), does not explain anything about Reckitt’s state of knowledge or whether any of the admissions was inaccurate. Reckitt is in all relevant respects an expert in the features of its own Durex product. It has chosen to give no evidence about the extent that it knew, or did not know, the accuracy of any of the matters that it chose to admit, including in respect of its entirely unexplained admissions of claims 2 and 6.

62    It follows that there is no evidence that Reckitt would suffer any injustice by its being held to those admissions. Indeed, the evidence that Reckitt gave through Ms Gourley, showed that it had made the admissions for a tactical reason. And, Reckitt maintained them in the proceedings for over a year and in circumstances where the parties had been in the course of preparing evidence for over six months on the basis that the admissions reflected the facts.

63    If the admissions were allowed to be withdrawn a substantial, but not complete, part of the proceedings to date would have been made inutile. As counsel for Reckitt pointed out, some utility had been achieved because Ansell abandoned its process claims of infringement of its patent. However, the purpose of the case management to date would be substantially lost if I allowed Reckitt to withdraw its admissions. Reckitt adopted a deliberate tactic, conscious of the possible international implications on its position elsewhere than in Australia, by focusing on the pre-vulcanisation issue and making the admissions that I have no evidence to suggest were not accurate.

64    For those reasons, I decline to allow any further amendment of Reckitt’s admissions of matters pleaded in the statement of claim.

Consideration – other amendments

65    As I have said, there is no prejudice that Ansell suggests from Reckitt’s proposed amendments to add issues about manner of manufacture, fair basis and clarity to the particulars of invalidity. Reckitt should be allowed to make those. I am satisfied that they will not cause any substantial delay in the proceedings coming to trial.

66    The desire of Reckitt to rely on the prior art is more problematic. Ms Gourley’s evidence is a little ambiguous in respect of what Reckitt knew at the time of the preparation of the original particulars of invalidity. She said that it had relied only on the information it then had to hand and Reckitt had sought to put forward relatively narrow and confined grounds of particulars of invalidity. The patent in suit refers in [13] to another patent taken out by Wang, which appears to describe the subject matter of the Wang patent as being similar to, if not exactly the same, as that in the United States’ patent application publication that Reckitt now seeks to add as prior art.

67    However, it does not follow that Reckitt did not exercise some selectivity in what prior art it would rely on for that very purpose or that it did not have to hand the material on which it now seeks to rely. On the other hand, as Reckitt points out, these matters may be in issue potentially in the United States proceedings.

68    The primary reason that Reckitt has given for seeking to expand its particulars of invalidity in these proceedings is that it wishes to run a similar case to that which it is running in the United States. I am not prepared to infer that Ms Gourley knew of the prior publications before investigating those matters with the United States’ attorneys. The evidence is just too ambiguous. But, Reckitt has not given a complete or adequate explanation of its conduct. I appreciate the explanation that it wished to confine the expense of the proceedings. However, it chose to base its current invalidity case on its own prior patent advisedly. Reckitt put that matter into issue and, in order to make good such a case at trial, Reckitt would require some evidence to justify it. Obviously, if four pieces of prior art are added to the invalidity arguments on novelty and inventive step, there will be substantial expert evidence going to the construction and inferences one or other side’s experts will draw from what is in the new prior art. That exercise would significantly expand the issues in the case.

69    There is no evidence of any injustice to Reckitt if it is not allowed to rely on the new items of prior art. Indeed, in seeking to argue for these amendments, counsel for Reckitt said that he “suspected” that new items would be shown to have destroyed novelty or demonstrated the absence of an inventive step. Even at this stage of the litigation, and in light of the importance of this application, Reckitt has not put on any expert evidence, even on information and belief, as to how any of these new pieces of prior art would be deployed or used for this purpose. The best that Reckitt could do was to make submissions for the first time in oral argument as to how Reckitt “suspected” it might rely on them.

70    In all those circumstances I am not satisfied that, having regard to s 37M, it would be in the interests of justice to permit the case to be expanded in this way involving, what inevitably will be, delay in bringing the case to a hearing. Until its recent change of heart, Reckitt had sought to litigate these proceedings by narrowing the issues. In my opinion, the issues should stay narrow, in light of all of the evidence, so that this case can be determined in the most efficient and inexpensive way, conformably with the interests of justice.

71    Accordingly, I decline to allow Reckitt to amend its particulars of invalidity by adding any further items of prior art to its lack of novelty and inventive step particulars.

72    The inutility argument, as reformulated, appears to me to be very narrow, in effect saying nothing more than if Reckitt proves its case on the GB566 patent the invention will not be useful. In my opinion it is unlikely that that will expand the factual compass of the case greatly or delay its hearing in any substantive way. I propose to allow Reckitt to make that amendment.

Conclusion

73    For these reasons, I am of opinion that, first, other than to clarify its position in relation to particular 13(vii), Reckitt should not be permitted to withdraw its admissions and, secondly, Reckitt should have leave to amend its particulars of invalidity only to raise its new contentions in respect of manner of manufacture, fair basis, lack of clarity and inutility. I will hear the parties on costs on 15 April 2016.

Associate:

Dated:    29 June 2016