FEDERAL COURT OF AUSTRALIA

Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7) [2016] FCA 991

ORDERS

THE COURT ORDERS THAT:

1.    The first respondent, following consultation with the applicants, to file a proposed minute of orders giving effect to these reasons.

2.    The Court will hear further from the parties, if necessary, on the question of the calculation of pre-judgment interest and costs.

3.    The applicants’ interlocutory application for summary judgment filed 11 December 2015 be dismissed with costs, such costs to be taxed if not agreed.

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

REASONS FOR JUDGMENT

BARKER J:

1    This judgment deals with the question of what damages, if any, were sustained by Coretell Pty Ltd, the first respondent, as a result of unjustifiable threats made by the first applicant, Australian Mud Company Pty Ltd (AMC), to the respondents not to infringe its patent.

2    In Australian Mud Company Pty Ltd (ACN 009 283 416 and Others v Coretell Pty Ltd (ACN 119 188 493) and Another (2010) 88 IPR 270; [2010] FCA 1169, the Court dismissed the patent infringement proceedings instituted by the applicants and the cross-claim of the respondents for invalidity of the patent. In Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 2) [2010] FCA 1451, the Court:

    declared that the threats made by AMC by letters from its solicitors dated 14 November 2006, 5 December 2006 and 13 February 2007 to the second respondent (Mincrest Holdings Pty Ltd, sometimes referred to in passing as Camteq) and the respondents’ solicitors and threatening the bringing of infringement proceedings against the respondents for infringement of Australian Innovation Patent No. 2006100113 were unjustifiable; and

    ordered that there be an enquiry into the amount payable by the applicants to the respondents by way of damages in respect of the cross-claim for unjustified threats.

3    The declaration and order were made pursuant to s 128(1)(a) and (c) of the Patents Act 1990 (Cth) which provides:

(1)    Where a person, by means of circulars, advertisements or otherwise, threatens a person with infringement proceedings, or other similar proceedings, a person aggrieved may apply to a prescribed court, or to another court having jurisdiction to hear and determine the application, for:

(a)     a declaration that the threats are unjustifiable; and

(b)     …

(c)     the recovery of any damages sustained by the applicant as a result of the threats.

4    The grant of this relief was not contested, in the sense that it was considered by the parties, at the time it was granted, and accepted by the Court, to be consequential upon the dismissal of the applicants’ patent infringement proceedings. To an extent, as discussed below, the applicants now seek to avoid the terms of the declaration made, both by construing the declaration in a particular way, and by denying that Coretell was, or is, a “person aggrieved”.

5    A subsequent appeal by the applicants against the dismissal of the infringement proceedings was dismissed. See Australian Mud Company Pty Ltd and Others v Coretell Pty Ltd and Another (2011) 93 IPR 188; [2011] FCAFC 121. The declaratory relief and damages enquiry order referred to above were not in issue on the appeal.

6    Coretell now submits that it, and it alone, is entitled to an award of damages in the amount of $3,290,386, together with interest thereon at such rate or basis as determined by the Court, and costs. Mincrest makes no claim for damages.

7    The applicants contend that Coretell’s claim should be dismissed. A primary issue raised by the applicants is whether Coretell held any interest in the Camteq tool (also referred to as the Barker tool) the subject of the threat letters, at material times. If it did not, it cannot demonstrate that it sustained any damage. Coretell says, at material times, the intellectual property, or at least an equitable interest, in the tool had been assigned to it by Mincrest. The applicants contend no such assignment has been proved.

8    In pressing this contention, the applicants rely particularly on the findings of McKerracher J in Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 5) [2016] FCA 444, a related proceeding commenced in the New South Wales registry of the Court (NSW proceeding) in which judgment was delivered following the conduct of the damages enquiry, to the effect that the alleged assignment was not made. The Court heard interlocutory argument, following the completion of the damages enquiry, as to the implications in this proceeding of his Honour’s finding in the related NSW proceeding.

9    The applicants further contend that only the third threat letter was directed to Coretell, the first two being directed to Mincrest, and so any damages assessment must be from that date.

10    The applicants contend, in any event, that the threat letters did not cause the loss Coretell now alleges it sustained and that, in reality, any alleged loss was the result of entirely different factors, factors rooted in the product being developed, its stage of development and its lack of merchantable quality at material times when the threats were made.

11    The applicants contend that Coretell’s conduct following receipt of the threat letters is inconsistent with the assertion of its principal, Mr Nicky Kleyn, that supply and marketing of the Camteq tool ceased as a result of the letters.

12    The applicants say, in a related submission, that Coretell could not have ceased trading consequent on the threats as it had no business at the time the threat letters were sent: it was a dormant company. In this regard, they say the respondents have not provided any evidence of any cancelled orders for the Camteq tool resulting from the applicants’ threats to commence proceedings.

13    They also say that Mr Ashley Gordon Barker’s evidence, given on behalf of Coretell, was that the reason provided to him by Mr Kleyn for ceasing development and manufacture of the Camteq tool in late July 2007, was the commencement of the infringement proceedings. The applicants say this was consistent with Mr Kleyn’s evidence that, after legal proceedings were commenced on 2 July 2007, he refused to supply customers with core orientation tools because of the legal proceedings – not because of the threat letters.

14    Finally, the applicants contend that the calculation of loss made by Mr Gregory Pollard Meredith, an expert accountant called by Coretell, was flawed and (as discussed below) cannot be relied upon for the purpose of assessing loss and damage in the enquiry in any event.

15    Coretell notes that, by their response to the damages enquiry, the applicants seek to put in issue whether actionable threats were made against Coretell. In this regard, it contends that the question whether Coretell is a “person aggrieved” for the purposes of the damages enquiry is res judicata in light of the declaration and order made, and cannot now be re-litigated.

16    It rejects the proposition that the first two threat letters were not also aimed at Coretell.

17    Coretell rejects most of the applicants’ other propositions, particularly the claim that Coretell did not hold a relevant interest in the tool at material times.

18    Coretell says that the following key issues need to be determined:

(1)    Whether Coretell was “in business” at the dates of receipt of the threat letters, if the existence of such business is in fact or law necessary to the damages enquiry, and whether any such business ceased as a result of the threat letters.

(2)    Whether the Camteq tool was of merchantable quality at the dates of receipt of the threat letters.

(3)    Whether Mr Meredith’s calculation of loss and damage is a reasonable estimate of loss suffered by Coretell.

(4)    Whether the opinion evidence of Mr A M Ross, an expert forensic accountant called by the applicants to express an opinion concerning damage, is admissible (which, it says, it is not).

19    In these circumstances, the following primary questions arise for determination:

(1)    Is Coretell a “person aggrieved” for the purposes of s 128(1) of the Patents Act?

(2)    Did Coretell hold a relevant interest in the Camteq tool at material times when the threat letters were received?

(3)    Was Coretell at material times operating a business?

(4)    Was the Camteq tool of merchantable quality at material times?

(5)    What damage has Coretell sustained in light of the Court’s findings?

Evidence

20    In order to answer these questions a range of factual findings need to be made having regard to facts agreed by the parties and the testimony of witnesses called at the damages enquiry and the evidence led. Factual matters will be considered first and then each of the key questions will be answered. The evidence of the expert accounting witnesses Mr Meredith and Mr Ross will be considered separately later.

Agreed facts

21    The factual circumstances in which the damages enquiry is to be conducted are the subject of a statement of agreed facts made by the parties dated 26 November 2014, and received by the Court pursuant to s 191 of the Evidence Act 1995 (Cth).

22    The agreed facts are as follows:

1    This Statement of Agreed Facts (SOAF) is made jointly by the First Applicant (AMC), Second Applicant (Imdex), Third Applicant (Reflex) and First Respondent (Coretell), pursuant to section 191 of the Evidence Act 1995 (Cth).

The Parties

2    Coretell was incorporated on 25 May 2006.

3    Coretell is and was at all material times an associated entity of Mincrest Holdings Pty Ltd (Mincrest) and Kleyn Investments Pty Ltd (Kleyn Investments) within the meaning of s.50AAA of the Corporations Act 2001 (Cth).

4    Coretell’s business address is at the premises at 6 Davison Street, Maddington, Western Australia (the Maddington Warehouse).

5    Mincrest was incorporated on 17 March 1995.

6    Mincrest:

(a)    is and was at all material times an associated entity of Coretell and Kleyn Investments within the meaning of s.50AAA of the Corporations Act;

(b)    is the trustee of the Kleyn Family Trust ABN 39 593 588 385.

7    Kleyn Investments was incorporated on 29 March 2006.

8    Kleyn Investments:

(a)    is and was at all material times an associated entity of Coretell and Mincrest within the meaning of s.50AAA of the Corporations Act,

(b)    the owner of the business name Camteq International Services, registered on 23 November 2009; and

(c)    the trustee of the Kleyn Investment Trust ABN 71 981 731 047.

9    The business address for Kleyn Investments is the Maddington Warehouse.

10    Mr Nicky Kleyn (Mr Kleyn) is and was at all material times engaged in and responsible for directing the conduct, management, control and day to day operations of:

(a)    Coretell;

(b)    Mincrest; and

(c)    Kleyn Investments.

The equipment

11    Core orientation tools indicate the orientation of core samples.

12    Survey instruments (cameras) determine geo-spatial properties of down-hole environments.

13    These pieces of equipment are complementary products; typically drilling rig operators require the supply of both before commencing drilling and mineral exploration activities.

14    The applicants’ core orientation tool is the Ace Core Tool (ACT).

Coretell equipment

15    There are two models of ‘Coretell Equipment’:

(a)    the core orientation tool (the First Tool) as described in the document entitled “Camteq- Orientation Tool quick user guide” (Camteq User Manual); and

(b)    the core orientation tool (the Second Tool), as described in the documents entitled “ORishot Tool - Quick user guide” and “ORishot multifunction Orientation Instrument” available at: http://www.coretell .com.au/ppp_oritool.htm (together, the ORishot User Manual),

(together, the Coretell Equipment).

16    The Second Tool is comprised of probe Part Number CNPS100 and handset Part Number CNH 100.

17    Coretell updated, amongst other things, the Second Tool’s handset design and wireless communication means in about May 2012.

18    Photographs of the First Tool are at Annexure A.

19    Photographs of the Second Tool are at Annexure B.

Development of the Coretell Equipment

20    In late 2004, Mincrest engaged Mr Ashley Barker (Mr Barker) to develop and manufacture a core orientation tool, which would become the First Tool.

21    Between 5 September 2005 and November 2006, Mincrest:

(a)    manufactured or caused to be manufactured the First Tool; and

(b)    kept stock of the First Tool at Lot 4 Reservoir Road, Orange Grove, Western Australia (Orange Grove).

22    From about December 2005 until around December 2006 the First Tools were trialled without payment with potential customers by Mincrest.

23    On 31 October 2006, Mincrest supplied six First Tools to MTL Philippines. Mincrest invoiced MTL Philippines and was paid by MTL Philippines for these tools.

24    On 16 November 2006, Mincrest received the first unjustified threat in these proceedings, being a letter from Mallon & Co to Mincrest dated 14 November 2006 alleging infringement of AMC’s patent.

25    On 22 November 2006 Arns & Associates replied to Mallon & Co on behalf of Coretell denying infringement of the patent and challenging its validity.

26    On around 5 December 2006, the Applicants made a further unjustified threat of patent infringement by a letter from Mallon & Co to Arns & Associates.

27    On 14 December 2006 Arns & Associates replied to Mallon & Co.

28    On 31 January 2007, two invoices issued on Mincrest letterhead to Silver City Drilling (NSW) Pty Ltd (Silver City) for the hire of four First Tools. Mincrest was paid by Silver City for these tools.

29    On 13 February 2007, the Applicants made a further unjustified threat of patent infringement by letter from Mallon & Co to Arns & Associates.

30    On 28 February 2007 and monthly until 1 July 2007, Coretell invoiced Silver City for the hire of kits of the First Tool. These invoices were paid by Silver City.

31    On 31 May 2007 and 1 July 2007, Coretell issued invoices in respect of the hire of kits of the First Tool to GOS Drilling (GOS). These invoices were paid by GOS.

32    On 2 July 2007, the Applicants commenced these proceedings.

33    By 31 July 2007, Mr Barker was instructed to cease manufacturing the First Tool.

34    Since January 2009, Coretell has:

(a)    made and thereafter supplied, hired and offered for supply and hire and kept for the purposes of supply and hire Second Tools to customers and distribution agents for use:-

1    in Australia; and

2    in countries outside Australia;

(b)    kept Second Tools at Orange Grove and, since September 2010, at the Maddington Warehouse; and

(c)    supplied Second Tools to customers and distribution agents in Australia and in countries outside Australia together with the ORishot User Manual and such Second Tools have been used in accordance with the ORishot User Manual.

Previous Proceedings

35    The First Tool and the Second Tool were the subject of a claim of patent infringement of Innovation Patent 2006100113 by Imdex and the First and Second Applicants, which claim was unsuccessful:

(a)    at trial (WAD 132 of 2007; [2010] FCA 1169); and

(b)    on appeal (WAD 8 of 2011; [2011] FCAFC 121).

36    The First Tool and the Second Tool were subject of a claim of patent infringement in respect of Australian Innovation Patent No AU2010101356 entitled ‘Core Sample Orientation’ and Australian Innovation Patent No AU20111 01041 entitled ‘Core Sample Orientation’ in proceedings NSD 2082 of 2011. The claims of patent infringement were heard in a trial that concluded in July 2014 and in respect of which judgment is yet to be delivered.

[insert photographs]

Evidence received at the hearing

23    The evidence of witnesses bearing on key factual issues is recounted in this section.

Mr Kleyn’s evidence

24    By his evidence in chief, Mr Kleyn, called by Coretell, explained how his business developed from that of a watchmaker into the Camteq business. He initially received work from Ace Drilling Supplies to fix a timing device in an industrial camera used in the mining industry for down-hole surveys. From about May 1993, he began working exclusively on Ace Drilling work. On the advice of his accountant he acquired Mincrest, which was registered and commenced business in March 1995. He and his wife each hold one share in that company and he is the sole director and person primarily responsible for managing its affairs. From the outset, Mincrest traded as “Camteq Instrument Services”. Before that, Mr Kleyn had personally used that business name.

25    In late 1996, Ace Drilling ceased its relationship with Mincrest. Mr Kleyn then said he resolved through Mincrest to develop what he considered to be an improved version of the Ace Drilling camera, based on his belief that the survey camera he had been repairing was a relatively unsophisticated mechanical device and the technology was in the public domain. Mincrest then rather quickly developed its own camera, which it offered to clients for hire and sale, and by the end of 1996, had approximately 10 functioning units and soon all were on hire to clients. At that point Mincrest traded from Mr Kleyn’s home in Orange Grove.

26    Mr Kleyn said that by late 1997, Mincrest had 20 units out in the market on regular hire and in March 1998, Mincrest commenced operating under the business name “Camteq Instruments”. Often the business was referred to as “Camteq”.

27    By late 1998, Mr Kleyn said he had approximately 50 units, most of which were on hire. Business was steady and Mincrest was making a profit. In November 1998, he employed its first employee, Mr Ian Bennett.

28    Mr Kleyn said that in about late 2000, there was greater demand for electronic, as opposed to mechanical, cameras, and he decided that Mincrest should develop its own electronic camera. It engaged an electronics company called Globaltech Corporation Pty Ltd to develop an electronic probe to perform the same function as the camera.

29    Then, from January 2003, Mincrest purchased from Downhole Surveys (Australia) Pty Ltd, agents for Reflex Instruments Asia Pacific Pty Ltd, around 30 Flex-it camera probes. He said there was a growing demand for electronic cameras and Reflex was the company that supplied the best product. Mincrest hired out to its customers the cameras supplied by Reflex and this was known to and authorised by Reflex.

30    Mr Kleyn said that in or around early 2004, he had a discussion with the representatives of Globaltech in relation to producing an orientation device, being a device similar to the probe but minus the inclusion of a magnetometer. He then began receiving enquiries from customers about when Mincrest would be making available for hire an electronic orientation device. One of these enquiries was from Mr Harry Koushappi, the manager of the drilling division of Barminco Limited at Kalgoorlie.

31    Later in 2004, Mincrest ceased its relationship with Globaltech after Mr Kleyn heard it was embarking on its own programme to develop similar devices.

32    At that point, Mr Kleyn said, he needed to retain a different developer to assist in the design and manufacture of the orientation tool and that was when he met Mr Barker, who he understood was a physics graduate at Curtin University in Perth who had an interest in the technology required for down-hole probes and orientation devices. (The Court should note here that Mr Barker is not related to or known to the Court).

33    Mr Kleyn and Mr Barker then discussed a project and came to an agreement, whereby Mr Barker (through his company Hightech Laboratories) would prepare a working prototype electronics board, but without casing, which Mr Kleyn intended that Mr Steve Walton and he would design and Mr Walton, who had been engaged as another employee of Mincrest in early 2004, would machine – at least for the prototypes. At that point in dealing with Mr Barker, Mr Kleyn did not immediately prepare a purchase order for the prototype.

34    Mr Kleyn recalled that by early 2005, Mr Barker showed him a circuit board and explained to him its capabilities and connected it to a monitor which showed the operation of the tool with a graphic on a screen, coinciding with the movement of the tool. He said he identified some immediate difficulties with the prototype and it was apparent to him that there was still a lot of work to do before “we would have a viable orientation tool”. Nonetheless he took confidence from the work that Mr Barker had done. Indeed, he requested him to continue with his work and thereafter remained in touch with him, as they discussed improvements on the design and function of the tool.

35    Mr Kleyn said that at one of these meetings, someone proposed a separate handset from the down-hole component of the tool and Mr Barker agreed to explore the viability of a separate handset and later told him it was viable and the design of the tool thereafter changed so that the operation of the tool was controlled by a separate handset.

36    Mr Kleyn said that about 13 January 2005, Hightech provided a quotation for the design and production of the circuit board for the tool, which he accepted and caused Mincrest to issue a purchase order of that date. Then in March 2005, Camteq received a quotation from Hightech for the handset design. He said the work undertaken by Hightech did not include the manufacture of the external steel casing for the probe, which work was undertaken by a machining shop in Perth in early 2005.

37    Mr Kleyn said that while there were some issues with the first batch of casings produced because the steel had not been hardened correctly for the intended use, the tools produced using the initial batch of casings were “adequate” for the trials conducted, but not for extended use and the issue was resolved by the next batch of housings manufactured.

38    He said the plastic fitting which housed the electronics and fitted inside the steel housing was machined by Mr Walton at Mincrest’s premises in Orange Grove.

39    Mr Kleyn said that from 2003, he was receiving regular enquiries from customers about electronic survey cameras and at that time Mincrest was supplying the mechanical camera but only had limited Flex-it stock for hire, given that it cost Mincrest $30,000 per tool purchased.

40    So, when he engaged Mr Barker in 2005, he had Mr Barker work simultaneously on both a digital survey camera and the orientation tool.

41    Mr Kleyn said Mr Barker commenced working from the Orange Grove premises in or around August 2005, and the arrangement was that although Mr Barker would work from those premises, he would remain a contractor and invoice Mr Kleyn for his work on a regular basis. Mr Barker apparently wished to be free to take on other work.

42    Mr Kleyn said Mr Barker’s time was predominately spent in the development of the camera but he worked on the orientation tool as and when time permitted. By late 2005, Mr Barker produced the first working prototype of the orientation tool. The two part orientation tool was a significant improvement, Mr Kleyn said, over the products of competitors.

43    Mr Kleyn said he believed “that we had a good, viable functioning product. I concluded that it had reached a stage where the tool could be demonstrated to, and trialled by, prospective customers”.

44    In late 2005, he spoke to Mr Eric Tonkin at Boart Longyear, which managed a gold mining operation at Leinster in Western Australia. He says Mr Tonkin offered to “road-test the tool for me and provide feedback”. This was then done for an extended period without charge. He received an email later from Mr Tonkin dated 16 December 2005, reporting that the tool had been used by the drilling crews and there were no problems with it.

45    It appears Mr Barker also dealt directly with Mr Tonkin in relation to the tool and emails passed between the two of them on 5 March 2006.

46    In an email of 15 March 2006, it appeared an issue had emerged concerning the batteries in the tool, which Mr Kleyn said he and Mr Barker concluded was caused by vibration resulting in the batteries’ wires breaking loose. Mr Barker proposed a solution to this, as a result of which modifications were made and it ceased to be a problem.

47    Mr Kleyn said that in May 2006, Mr Tonkin reported to Mr Barker another issue with accuracy of the data rendered by the tool and, on further investigation, he and Mr Barker concluded the problem was not with the tool itself but rather in the operation of the tool by the drillers by not following the correct sequence of steps required to achieve the correct readings. He was surprised to find such an elementary mistake was being made but, as a result, he and Mr Barker reviewed the instruction sheet and emphasised the importance of the survey being taken before the sample was snapped off from the surrounding rock, and not afterwards.

48    Mr Kleyn said in his evidence in chief that he was confident by May 2006 that the orientation tool was ready for commercialisation and he decided to market it through a new company with the intent of making an entirely separate business operation. He said that his intention was that as the new tool gained acceptance in the industry the new company and business would be sold. So he proceeded to incorporate Coretell on 25 May 2006. He was and is the sole director and shareholder of Coretell and there is only one issued share in the company. As with Mincrest, the company initially traded from his home premises in Orange Grove, although at the time of this enquiry it traded from premises in Maddington.

49    Mr Kleyn said the promotion and marketing of the tool was “understated”. He made clients aware of it mainly by word of mouth. Most of his customers were interested in the camera but he took the opportunity when speaking with them to tell them about the orientation tool. He began, he said, by having such discussions with customers in early 2005, when he only had the prototype, but by the time the tool was “ready for market in May 2006”, Coretell had established customer demand for its tool.

50    In June 2006, he said he supplied two prototype tools to Mr Dwayne Reynolds of Drillshop Pty Ltd, which was an agency that sold mining equipment on a commission basis and had successfully arranged hires of Mincrest products in the past. He said he asked Mr Reynolds to also market and promote the orientation tool.

51    In his evidence in chief, Mr Kleyn said that, on the basis of his discussions with Mr Reynolds, he was aware that Drillshop subsequently demonstrated the tool to prospective customers and was informed that Ausdrill Northwest Pty Ltd and Barminco wanted to conduct their own trials and asked for three tools to be supplied for that purpose, which Mr Kleyn agreed to.

52    Mr Kleyn understood that the tools were trialled at least at two rigs and he received feedback via Mr Reynolds. He did attend on site, however, personally to view a trial during a visit to Kalgoorlie in around August or September 2006 and, on that occasion, there was a minor issue with the synchronisation between the handset and the down-hole component for one of the tools. Mr Kleyn said it was “not a serious issue” and they merely continued the trial with a different unit that Mincrest made available. Mr Barker later agreed to investigate what the issue was and Mr Kleyn said the problem “was not reported to me again”.

53    Mr Kleyn said that in about October 2006, a Mr Paul Manda of Boart Longyear telephoned him and said he wanted to trial another one of the orientation tools at a mining site and Mr Kleyn agreed to supply a tool for that purpose. The tool was returned a few weeks after being supplied and recorded as having as a “flat battery”. Mr Kleyn personally inspected the tool and it was apparent to him that the tool had been opened.

54    He telephoned Mr George Smith at Boart Longyear and asked him whether he knew anything about where the tool had been and who had used it and was told, in substance, that it had been delivered to Imdex Limited (one of the applicants) for inspection.

55    Mr Kleyn also indicated that Mincrest had, in some instances, been having difficulty in getting opportunities to demonstrate the tool to potential customers and a number of representatives had declined his offers to demonstrate the tool.

56    Mr Kleyn stated in his evidence in chief that “prior to the transfer of the orientation tool business to Coretell”, Mincrest had agreed, in about October 2006, to supply six orientation tools (three kits) to Mr Peter Draper of EastWest Drilling, who had mining interests in the Philippines. He said he was not entirely sure whether he discussed with Mr Draper his purchase personally or through the company. The tools were charged at around $10,000 per tool, being a total of around $60,000. He said the payment was receipted by Mincrest and used by Mincrest to off-set its costs in having paid for the development and production of the tools and that is why they were recorded as a sale by Mincrest of those tools – even though the orientation tool business had been transferred to Coretell.

57    Mr Kleyn said that Mr Draper directed that the invoices for the tools be made out to MTL Philippines.

58    Mr Kleyn said that in early November 2006, he informed Mr Barker that he had separated the activities of Mincrest and Coretell and requested that in future Mr Barker direct his Hightech invoices for work in relation to the camera to Mincrest, and any work on the orientation tool to Coretell.

59    Mr Kleyn said that, on occasion, Mr Barker later issued some of his invoices to Mincrest, which should have gone to Coretell, and when these errors were detected, the invoices were paid by Coretell and entered into the accounts of Coretell.

60    Mr Kleyn said Coretell started “actively trading” on 14 November 2006, and its transactions were entered into the general ledgers of the company as at that date. He said the first transaction is recorded as occurring on 14 November 2006.

61    He said Coretell opened a bank account with the National Australia Bank (NAB) on 20 November 2006, and the first transaction is recorded as occurring on 26 November 2006.

62    Mr Kleyn said that it was on or around 16 November 2006 (that is, two days after he said Coretell started actively trading) that he received the letter from Mallon & Co, the then lawyers for AMC, alleging patent infringement and seeking the undertakings mentioned above.

63    He said he then consulted his lawyers, Arns & Associates, and refers to the correspondence already set out above that passed between Mallon & Co and Arns & Associates.

64    Mr Kleyn said that in the period from the receipt of the initial letter from Mallon & Co, Coretell discontinued all further marketing and general supply of the Coretell orientation tool, with one exception, because of an existing commitment to an important customer – Silver City Drilling (NSW) Pty Ltd.

65    He said he told other customers that he could no longer supply them, including Barminco, and he told Mincrest employees to inform all customers who inquired about it, that Mincrest could not supply the tool until further notice.

66    He said he made one exception in the case of Silver City, because Mincrest’s sales manager, Mr John Penrose, had made a firm commitment in October 2006, before the Mallon & Co first threat letter.

67    Mr Kleyn said that although the first invoice for hire to Silver City was processed through Mincrest, this was an administrative error and it should have been through Coretell. He said the error occurred because his wife, who manages the accounts, was on holidays at the time and once she returned to the office, Coretell began invoicing Silver City in around February 2007.

68    Mr Kleyn said Coretell agreed to supply up to six more kits to Silver City after the initial supply of three kits. But he then instructed Mr Penrose to inform Silver City that Coretell would no longer supply further kits after that. He said they gave an excuse that there were technical problems with the tools, but that excuse was not in fact true.

69    Mr Kleyn said that in around July 2007, he ceased the further hire of the orientation tools to Silver City and used the pretext that there was a problem with the batteries and the calibration of the tool, when in fact there were no such problems. He said he was worried about the threats of litigation by AMC.

70    He then learned in July 2007, that Silver City had on-supplied one of the tools to another company and that arrangement was later terminated.

71    Mr Kleyn said, as Mr Barker was not involved in the marketing and did not have regular contact with the customers, he did not recall giving Mr Barker any particular direction in regards to whether to continue manufacturing the orientation tool in November 2006, but at that point, he was primarily working on the camera.

72    In about May 2007, Mr Kleyn said he told Mr Barker that he had withdrawn the orientation tool in late 2006 because of the threats and, in order to keep Mr Barker fully occupied in the event that the camera work was not sufficient, he requested him to continue manufacturing the components of the orientation tools and assemble the completed tools. He said he did this “because of the assurances I had given to Mr Barker that there would be sufficient work to continue to retain him. The second reason was that when the infringement proceedings ended, Coretell would have in stock sufficient working tools to supply the market”.

73    Thus, Mr Barker continued to produce tools until about July 2007, when he ceased work on the orientation tools. At that point, Coretell had approximately 25 kits in stock, and in each kit there were two tools with a handset.

74    Mr Kleyn said that after the infringement proceedings were commenced in July 2007 by the applicants, he advised customers that Coretell was being sued by Imdex and, until the legal action was resolved, Coretell could not supply any orientation tools and it did not do so. Mr Kleyn stated that thereafter “[m]y business was dependent upon revenue received from the hire of cameras through Mincrest”.

75    In that regard, Boart Longyear was a major customer for the hire of the camera and it was also told that Coretell could not supply the orientation tool because of the infringement proceedings.

76    Mr Kleyn said that in the three months after the infringement proceedings were commenced, orders from Boart Longyear for the cameras “dropped markedly” and when he made enquiries of Boart Longyear, he was told that it had moved all of their business, including the hire of cameras, to Imdex.

77    Mr Kleyn said the loss of business from Boart Longyear resulted in significant cashflow problems for Mincrest.

78    At this time, Mr Barker was no longer working for “my business”, as Mr Kleyn put it, having stopped working from the premises from late 2006, and he ceased manufacturing the orientation tool around July 2007, and ceased invoicing either Mincrest or Coretell altogether by late 2007. Mr Kleyn said he did not have financial capacity to pay Mr Barker for his services, and that is the reason for him leaving.

79    However, Mr Kleyn said that when he decided to re-enter the market later, he contacted Mr Barker, who at that time was also assisting him in the legal proceedings with AMC. He asked if Mr Barker would resume work on the manufacture of the orientation tool and the camera probe, but he declined, responding in an email dated 8 August 2008, expressing confusion about why Mr Kleyn would continue to manufacture an orientation tool when the company was being sued. He spoke with Mr Barker by telephone and met with him in an effort to persuade him to at least resume production of the orientation tools but he refused and was not willing to assist because of his concerns about being implicated in the infringement proceedings.

80    Mr Kleyn said he then contacted a company in Melbourne called Procept Pty Ltd, with which he had had some initial discussions in mid-2007 regarding a new camera probe but did not retain them at that point but eventually met with them in February 2008. He was told by their representatives they would not use the designs produced to that point by Hightech (Mr Barker) because of intellectual property difficulties and would only use workings and software that Procept had wholly designed.

81    Later, he also asked Procept about manufacturing the orientation tool in addition to the camera, after Mr Barker said he did not want to be involved. Procept agreed, but again said they would start that design brief afresh.

82    In October 2008, he came to an agreement with Procept with a view to the prototype tools being manufactured by December 2008.

83    He said Procept manufactured electronics for a prototype orientation tool quickly and, by Christmas 2008, had produced an electronic board that he was able to fit into a casing. It took Procept approximately two months to produce this which on testing proved to work very well.

84    He then, in January 2009, instructed his solicitors to inform AMC’s solicitors that Coretell was going back into the market to supply an orientation tool.

85    After that, Coretell commenced trialling the core orientation tools with a number of customers organised by Mr Reynolds and did not charge for the trialling.

86    Mr Kleyn said that in around early 2009, Procept commenced manufacturing of the electronic orientation tools but did not, at that time, have a trading history and did not have the funds itself to fund the production of the orientation tool and accordingly borrowed the funds from Mincrest, the loans of which were recorded.

87    He said Coretell assembled the tools itself at its business premises.

88    By April 2009, he said, Coretell had 20 kits available for supply to customers and there was an immediate demand for the tools. Mr Kleyn said he used the business contacts he had in camera hire to promote the core orientation tool and sale records show 10 tools on hire in April 2009, 15 in May 2009 and 20 in June 2009. He said the customers were Australian mining entities and a number of overseas companies in South East Asia, Europe, South America and Africa.

89    Mr Kleyn said he was also told in early April 2009 by a person from Boart Longyear, that AMC had told Boart Longyear that Coretell’s tool was “illegal and I can’t hire it”.

90    At that point, correspondence flew between solicitors for Coretell and solicitors for AMC.

91    Mr Kleyn also gave evidence concerning management of Coretell and the involvement of his wife and daughter in the company.

92    He also confirmed that as at July 2007, Coretell had 25 kits of orientation tools in stock in addition to the six or more kits returned from Silver City when that hire ceased that month.

93    He also said that as at November 2006, the cost of producing a tool was not significant as Mr Barker was charging about $500 per tool circuit board (being $1000 for a complete kit, including handset), which was cheaper per kit than when Procept was engaged by Coretell for that work.

94    The assembly lines were the same for the initial Hightech version of the equipment as the later Procept version and assembling the circuit boards into the housing only took a few minutes, permitting assembly of 20 tools within three hours.

95    Coretell was able to obtain funding for its operations if necessary from Mincrest as trust distributions or loans. Mincrest was continuing to operate a profitable business on survey cameras throughout the period.

96    He believed Coretell, if necessary, could have made use of the 30 days’ credit period arrangement.

97    Mr Kleyn said the anticipated better news from hire of the orientation tools was substantial given the capital cost of manufacture and in his experience from running both the survey camera business and, from 2009, the successful core orientation business. He believed that the business would have, within a matter of one to two months, been wholly self-funding and profitable, which would ensure that it had sufficient ongoing manufacturing capacity to meet demand, as it does today.

98    Mr Kleyn also said that from July 2007 to early 2009, Coretell was able to obtain substantial funding for defending the infringement proceedings and to him that indicates that Coretell had the capacity to source funds to cover the initial cost of manufacture, assembly and distribution of the orientation tool, which costs would have been a “mere fraction” of the costs of the litigation, particularly as the manufacture, assembly and distribution quickly becomes self-funding.

99    Mr Kleyn also addressed the four email threads between himself and Mr Barker about the orientation tools and cameras.

100    As to the first, an email thread from 20 to 22 December 2006, Mr Kleyn said that he was annoyed with Mr Barker as he had gone on holiday to Indonesia during a period Mr Kleyn thought was important to continue manufacture of the camera and also gear up for the first provision of hires to Silver City in early 2007. There was also an argument about fees as Mr Kleyn was concerned about Mr Barker’s absence in what Mr Kleyn saw as a critical period in the lull between the 2006 mining activities and the 2007 mining activities.

101    As to a reference to “4 of the units are not working”, Mr Kleyn said that referred to the four demonstration units that had been sent to Magnet Drilling, for which there was no charge and with which there were battery problems on three units and the fourth was physically damaged. He recalled reviewing the fourth unit and considering it had been mishandled or dropped as a lens was broken. He believed the battery problems were similar to the early 2006 battery movement issues which had otherwise largely been resolved. He recalled the problem “did not occur in all units provided to Magnet Drilling”, and that battery housing improvements continue to this day to reduce failure rates of tools in the field.

102    As to a statement that “more units are being returned from Silver City not working”, he said this referred to demonstration kits provided to Silver City at that time. He believed that only one kit ended up being returned, not two. He recalled the only problem was a battery movement issue or physical breakages of the tools in handling. He recalled an occasional tool being returned by Silver City but it was not a common occurrence.

103    As to the reference in the email to a possibility of refunding Mr Draper’s approximately $60,000 due to a lack of tools available, Mr Kleyn said he was exaggerating this issue to put pressure on Mr Barker and he did not refund, and nor was he asked to refund, the money paid to him by MTL Philippines.

104    As to a statement that “I can’t charge rent until you fix these problems”, Mr Kleyn said he was concerned Mr Barker was not available for the work and there was a possibility that in his absence Mr Kleyn would not be able to sufficiently gear up for commercial hires (once the dispute with the applicants had been resolved). Accordingly, he was putting pressure on Mr Barker to return his attention to that work.

105    The second of the email threads was from 3 July 2007. Mr Kleyn said at that time they were discussing improving the handset so it was less prone to damage when handled by the drillers. He had decided it would be useful for future models to have a stronger handset. When he referred to having “lots of faulty [orientation tools] for return”, he said he was referring to tools that had been returned in the trial period in about December 2006, such as the Magnet Drilling ones and the Silver City ones. This was not unusual, Silver City had at one stage about 15 kits. He would send out a replacement tool when a tool was having problems.

106    As to another email thread of 30 July 2007, where he is stating “as we still have problems with the Ori device we still can’t charge any hire”, Mr Kleyn said he was in this sentence referring to making the handset more robust and did not consider the handset was a major issue but they wanted to improve it. He did not believe he should be charged for a redesign by Mr Barker at that stage. He said that as Coretell was not earning income, then he was concerned about incurring further costs, particularly if the tool handset had not been improved as they had hoped.

107    As to the fourth thread from 21 to 24 January 2008, Mr Kleyn said prior to that email, he had been discussing Coretell ceasing the hire with Silver City, which had occurred in July 2007. Mr Barker had asked about the return of the tools including the one referred to as broken. He informed Mr Barker that the broken tool was a mechanical break and the others had been returned and were still working. Mr Kleyn said he referred to planning to send some tools overseas but he never did so as he was concerned this would be considered infringing conduct.

108    Mr Kleyn corrected some aspects of initial evidence in chief, in the following respects.

109    He confirmed that Mr Graeme Maurice Lightfoot stopped working for Mincrest in November 2005 and so references to him being involved in any trialling was an error after that date and either he, Mr Barker, or Mr Reynolds performed demonstrations in that later period.

110    Mr Kleyn also said that Mr Des Forde at Boart Longyear was one company representative who declined his offer to demonstrate the tool, although he did eventually perform a demonstration at their offices in Wangara.

111    Also a company representative from Kluck Drilling said it had an existing relationship with Imdex and did not want a demonstration.

112    Also on a number of other occasions, such as at Barminco and Boart Longyear, company representatives initially declined a demonstration, but one was nonetheless performed by Mr Reynolds at a different site.

113    Mr Kleyn also emphasised the work done in the design of the Camteq mechanical survey camera and the improvements made to it.

114    He also discussed making available some Eastman cameras that Camteq had purchased.

115    He also mentioned supplying Maxibore tools to customers, a tool which costs about $100,000 per tool.

116    He also expanded on his evidence about the use of the Flex-it camera probes, the Globaltech electronic survey camera and the “Barker electronic survey camera”.

117    Finally, in relation to this technology, Mr Kleyn further discussed the Procept camera and the Procept orientation tool.

118    For the record, the Court notes that it upheld objections by the applicants to the following paragraphs or portions of Mr Kleyn’s first affidavit that went into evidence as exhibit 2A: [61] excluded; [115] admitted, but not as to the truth of what was said. As to Mr Kleyn’s second affidavit, exhibit 3, [12]-[50] excluded; [55(b)] admitted on a limited basis of what the witness said was said, but not as to the truth of the matters referred to; [101] second sentence to the same effect.

119    Mr Kleyn was cross-examined.

120    Mr Kleyn accepted that when Mincrest first hired cameras out, the firms that were hiring equipment were keen to utilise new and improved technology, so long as it was fit for the purpose they required. Mr Kleyn accepted that he understood that these firms operated in a market where the costs of exploration were high and that those for whom they worked, typically mine site operators, expected exploration activities to be conducted competently and efficiently.

121    Mr Kleyn accepted that the ProShot camera proved to be a significant success at a later point, as developed by Procept.

122    Mr Kleyn also accepted that when he retained Procept to design a core orientation tool in October 2008, he was keen to replicate the success of the ProShot that had been designed by Procept.

123    He also agreed that he was certain that the second tool, the Procept tool (also referred to as the ORIshot tool), as distinct from the Camteq or Barker tool, would be ready for commercial release by March 2009.

124    Mr Kleyn indicated that the tool was demonstrated in the January, when the first prototypes were provided and tested.

125    In relation to the Procept tool, Mr Kleyn rejected a proposition that his company needed 200 kits in order to start trading. He said, by reference to an earlier email to Procept, that a reference to delivery of 200 kits was related to Procept’s requirements to know what he would take if manufactured. But he did not need that number to start trading.

126    He said it was incorrect that he raised with them and identified the number of units he required to commercially release the tool, and settled on the figure of 200 units.

127    When pressed about earlier discussions between him and Procept about 350 units being available, Mr Kleyn considered it was an economic decision on how many should be made to make it economically viable for Procept to manufacture a board. He accepted, however, that he would still require enough units to meet demand upon commercial release. His point was a narrower one, that he did not need 200 units before entering the market.

128    Mr Kleyn’s evidence in cross-examination at this point was cautious, not readily agreeing with any propositions put to him.

129    Going back to the initial “Barker tool” which became the “Camteq tool” for the purposes of description, when asked whether it was critical to the success of a new piece of equipment that it be “tested and trialled” to ensure it was fit for purpose, Mr Kleyn suggested it was not critical but advisable to test it beforehand. He added to that by saying he did not accept the word “critical” because that suggested that if it did not work, that would be the finish of it.

130    He accepted, however, in further questioning, that testing and trialling of such a product in real world conditions is attempted, apart from anything else, to encourage some demand upon commercial release. While Mr Kleyn responded by saying that “you could do it that way, yes”, that indeed appears to be exactly what he planned at relevant times.

131    As to the Boart Longyear trial in 2006, he accepted that the first part of the trialling was testing with them. He said that later in that year, Coretell did more trialling, more to see if people accepted the handset and the tool in its entirety.

132    When his evidence concerning that tool being ready for market in May 2006 was raised, Mr Kleyn immediately insisted that it was ready to go to market, stating:

We weren’t releasing it, at that stage, but it was ready to go to market, yes.

133    When asked whether he meant by that, that it was “ready for trialling off-site”, he agreed.

134    When challenged as to whether or not it was ready for commercial release, he added that it was “ready for commercial release in November, but I wanted to gauge to make sure that people would accept the fact there was a handset with ours”. He said he was not sure that it was going to be accepted or not.

135    He rejected the concept that he did not even have a tool at that point and was still developing it. He insisted that “we have a tool”.

136    Mr Kleyn was then taken to evidence that he gave in the NSW proceeding. His attention was drawn to a letter of demand in November 2006, and that, on the transcript, he had indicated that “Coretell” was being set up to operate the core orientation tool. He did not have a core orientation tool at that stage. “We were still developing it”.

137    When again challenged that it was not ready for commercial release as of November 2006, Mr Kleyn responded that in June 2006-2007 “we were getting the results back from Boart Longyear”. He said they were testing the tool at the beginning of 2006. “So we had a tool, they were testing it”.

138    Mr Kleyn further insisted that “they were testing it, an orientation tool. It was a complete orientation tool”. He also agreed that it was not released for commercial release at that stage, but that they had an orientation tool “because they were using it”.

139    When further pressed, he said it was ready to go to market and they gave it to Silver City in late 2006 and Silver City paid hire in 2007. He insisted it was definitely ready in November 2006, regardless of the evidence given in the NSW proceeding. Of that evidence, he said it was “incorrect”.

140    Mr Kleyn was then cross-examined about supplying two tools for testing and evaluation by Mr Reynolds of Drillshop. He thought it was about the same time as he provided tools to Boart Longyear.

141    He was taken to the pleadings, which contained an admission that Coretell developed and manufactured the tool and supplied demonstration units of the tool to various parties for testing and evaluation in the field in various states, but ceasing on or about 25 May 2006. He then a little later in his evidence thought that either he got these dates wrong or Coretell gave Drillshop the two tools in 2005. He withdrew the tools. But he then said that he did not recall giving Mr Reynolds any tools in 2005.

142    The evidence in further cross-examination makes it clear that Mr Kleyn considered that the tools were provided to Mr Reynolds in June 2006. He agreed that he asked Mr Reynolds to market and promote the orientation tool. He also agreed that Drillshop subsequently demonstrated the tools to prospective customers.

143    In passing, as to any suggestions that tools were going out in 2005, having regard to the cross-examination of Mr Kleyn, I reject that that occurred.

144    Ultimately, it was put to Mr Kleyn that it was a fact that despite extensive trialling at Boart Longyear’s Leinster mine throughout 2006, the tools were ultimately rejected by site geologists and sent back in May 2006. Mr Kleyn accepted they were sent back then, but “weren’t rejected though, totally”. He recalled “lots of problems on that site”.

145    When emails from Mr Tonkin from Leinster were put to him, he accepted that the email suggested there were “accuracy issues” with the tool. He accepted they “had a few problems with the Ori-tool” – that is to say the Camteq or Barker tool.

146    Mr Kleyn also accepted as correct that he appreciated it was going to take him a while to regain the confidence of some people, in these circumstances.

147    Mr Kleyn accepted that through Mr Reynolds he also arranged trials of the tool between April and December 2006. Mr Kleyn thought he only had two tools or two kits. One tool he agreed was returned by BHP Billiton to Mr Reynolds.

148    Mr Kleyn suggested that he tried them out and “we didn’t have an accuracy issue”. He accepted the proposition that it was only the people who were running the sites who were having the accuracy issues. He considered that there was an issue with the way drillers were breaking off the bottom and doing surveys at the wrong time, a common problem because it was a new tool. He ascribed the perception difficulties with what Mr John Emerson of BHP was saying.

149    He rejected the concept that Boart Longyear were trialling the tool, insisting that it was “testing”.

150    In relation to the question of sales to MTL Philippines, counsel for the applicants noted that in [62] of his first affidavit, Mr Kleyn had said that “prior to the transfer of the orientation tool business to Coretell, Mincrest had agreed in or around September or October 2006 to supply six orientation tools to Peter Draper”, Mr Draper being with that company.

151    Mr Kleyn said that as far as he was concerned, the transfer happened in May 2006 to Coretell, but Coretell never had an income, Mincrest was paying its bills. He said he never transferred it “clearly like I should’ve done”. He said that in hindsight he should have transferred it properly in May, but because Mincrest was paying the bills he did not.

152    When pressed that he “didn’t transfer it properly” and accepted that he did not transfer it, Mr Kleyn responded that it was transferred “so far as I was concerned” but there was no legal reason for him to do it in writing. He insisted that Coretell owned the core orientation tool but Mincrest was doing the dealing because Coretell had no income at that stage.

153    He insisted that the completion of the transfer was after he had supplied the tools to Mr Draper.

154    When pressed as to what he meant by “the completion”, he said that he opened the bank accounts in November and then Mincrest never dealt again on the core orientation tools.

155    As to the payment by MTL Philippines, he said that the money went to Mincrest and he opened the accounts in the name of Coretell so that further transactions could be done through the Coretell account.

156    Mr Kleyn plainly appreciated the apparent inconsistency between him insisting that Mincrest had transferred the ownership in the core orientation tool to Coretell before the dealings with MTL Philippines, and the documents that suggested Mincrest was, at material times, the owner of the tool and the payment by MTL Philippines went into Mincrest’s account.

157    As on other instances, Mr Kleyn’s response was that, in hindsight, if he had known he was going to be in the Federal Court dealing with this question eight years after the event, he would have done the transfer “properly with lawyers on the day that Coretell was incorporated”. He acknowledged that he did not do that and hence “it wasn’t completed until November”.

158    This evidence was challenged by counsel for the applicants in cross-examination, who took Mr Kleyn to the actual words used in [62], on the fifth to the last line, where he stated:

The tools were charged at around $10,000 per tool, being a total of around $60,000. And the payment was receipted by Mincrest. And was used by Mincrest to offset its costs in having paid for the development and production. These were recorded as a sale by Mincrest of those tools.

159    Counsel suggested to Mr Kleyn that he was being very careful with his wording, so as to not mention whether as part of the deal he was identifying, he actually supplied any tools.

160    Counsel said that he was being very careful not to assert that any tools were supplied to EastWest as part of the deal identified. Mr Kleyn categorically refuted that and said he supplied the tools to MTL Philippines via Mr Draper in about October 2006, but definitely before November 2006.

161    He accepted, however, that, as disclosed in an email of 22 December 2006 to Mr Barker, the tools stopped working after a short time and that he “may have to refund Draper’s $60,000 because I have no tools to give and he is in town”.

162    As to this email, Mr Kleyn suggested that he was having a dispute with Mr Barker at that time “over him not working hard enough to get the tools finished” and so, he “exaggerated” issues with Mr Barker to get him to do more work on the tools. He said the tools had been supplied to MTL Philippines at that stage.

163    The question of MTL Philippines is, to say the least, confusing, because of the respondents’ pleading. Counsel put it to Mr Kleyn that the defence at [5.2] expressly pleaded that neither Mincrest nor Coretell had supplied any tools in response to the MTL Philippines order, but Mr Kleyn insisted that the tools were definitely supplied in October 2006.

164    Mr Kleyn was also cross-examined by reference to a further set of particulars in which the respondents said that in October 2006, Mincrest received an order for the supply of six tools of $60,000, but was unable to overcome “technical difficulties in the calibration of the tools” and did not supply them.

165    Mr Kleyn insisted that the tools were supplied to the client.

166    When pressed about this Mr Kleyn said he had always maintained that he supplied the tools and “I don’t know where this has come from. I’m sorry”.

167    Counsel then put it to Mr Kleyn that he had not supplied the tools and the reason for that was, they were not fit for purpose. Again, this proposition was denied by Mr Kleyn.

168    Mr Kleyn refuted a suggestion that it had been a characteristic of his in the proceeding to have a tendency, well after discovery had taken place and at a time when he was wishing to file some affidavit evidence, to all of a sudden say that he had discovered further material and then put it on when he thought it was advantageous to him. Specifically it was put to him that he had come across a copy of an old MTL Philippines invoice and sought to take advantage of it.

169    Mr Kleyn, following cross-examination, denied the proposition in effect that he had seized upon the MTL Philippines transaction both to fix an alleged date for transfer of the core orientation tool from Mincrest to Coretell, and to show that there was at material times a business in that core orientation device.

170    When counsel further challenged Mr Kleyn that, as at November 2006 when the first threat letter was received, the core orientation tool was still in development, he insisted that the tool was ready to be commercialised and that “we had sold three kits to MTL Philippines and were getting ready to supply Silver City”, which he did not want to supply but did supply because they had promised those tools to Silver City.

171    He insisted that “we had tools in the marketplace at that time. We had tools that we’d sent to MTL Philippines and we had tools getting ready for Silver City in late 2006, prior to this letter”.

172    Mr Kleyn was then cross-examined about the transfer of the tool claim. He was taken to evidence in the NSW proceeding.

173    He confirmed that his evidence was that the transfer “finished by mid-November. It was started when Coretell was incorporated. Coretell, that’s why it was called Coretell, because it was doing the core orientation equipment”. When challenged as to exactly what was said in [27] of the affidavit he filed in the NSW proceeding, which stated that “in mid-November 2006 all proprietary right which Mincrest had in the orientation tool were assigned to Coretell. There was no written document recording the assignment.” Mr Kleyn said that he was explaining it. He said he was not good at paperwork. He did not do it very well. And he did not expect to be in the Federal Court for eight years.

174    He insisted that Coretell was incorporated for the core orientation tool and that is where the name came from. Again, he explained that he should have completed the transfer all at once and transferred money into Coretell at the time, but it took six months to transfer it across because Coretell never had an income.

175    When again challenged that there was no tool in May 2006, he insisted that there was. When challenged that there was certainly no business in 2006, he conceded that there were “no rentals as such”. He added that there was a business in November 2006. There was Coretell and there was Mincrest. He said Mincrest was probably making about $300,000 per month at that stage from trading activities.

176    As of November 2006, Mr Kleyn insisted there was a core orientation device to be transferred, that it was ready for hire and it was going to Silver City, and that three kits had already been sold to MTL Philippines. “So therefore yes, there was a business”.

177    In cross-examination, counsel also took Mr Kleyn to an affidavit made by Mr Barker in which he said that in or around late 2006, Mr Kleyn met with him and said that “he was restructuring his business and wanted to transfer that part of the business engaged in the development and sale of the ORIshot to a new business entity”. Mr Barker also made reference to “now the tools are ready”.

178    Mr Kleyn said he did not agree that in or around late 2006 he told Mr Barker he wanted to transfer part of the business and the orientation tool to a new business entity. He said he asked him to invoice Coretell in the future for core orientation work. He considered that Mr Barker had interpreted what he said. “He’s a university person. He can do big words and all that sort of stuff. I can’t”.

179    When put to him that Mr Barker was not interpreting what was said but saying what he was told, Mr Kleyn denied there was any restructuring; he just got Coretell to do the core orientation devices.

180    Mr Kleyn also denied that he used words to the effect, in speaking with Mr Barker, that it would be a good idea to quarantine the ORIshot business away from the general Camteq business in case allegations of patent infringement were made in respect to the ORIshot tool. Mr Kleyn said: “that would be his interpretation, again, not mine”. He denied that he had said that to Mr Barker.

181    Mr Kleyn insisted, so far as the transfer was concerned, that he “started doing it” when Coretell was incorporated but “I didn’t finish it because Coretell had no income. We finished it in November, when we finally got the tools finished and we had a client base that were going to take the tools”.

182    Even on the case put, counsel put it to Mr Kleyn, the “completion” was motivated by a desire to quarantine liability for any actions undertaken in respect of the tool to Coretell. He said that was “totally incorrect”. He also said it was totally incorrect that that was what he had told Mr Barker.

183    Senior counsel for the applicants also took Mr Kleyn to the chronology of events filed by Coretell, noting that it asserted that intellectual property was transferred to Coretell in May 2006. Mr Kleyn said that was his belief. Counsel then reminded Mr Kleyn that in the NSW proceeding he had made an affidavit stating that there was a transfer in mid-November 2006. He responded by saying that it was his belief that it was “all transferred” as soon as he incorporated Coretell. He added: “It came to be that it wasn’t or I couldn’t claim it as being until I opened the bank accounts and Mincrest had nothing more to do with the core orientation device”.

184    Counsel also took Mr Kleyn to Coretell’s amended statement of claimed loss and damage and how it asserted that, after May 2006, all dealings were carried on by Coretell. That was the initial position. And then, as amended, it alleged in the alternative that this was only from November 2006. To explain the change of position, Mr Kleyn stated that “I should have done it better in May”.

185    Then Mr Kleyn was cross-examined concerning his statement at [66] of his first affidavit that “Coretell started actively trading on 14 November 2006”. He confirmed that by that he meant the cheque account was opened.

186    Counsel then identified, by reference to Mr Kleyn’s affidavit in the NSW proceeding, that on or around 19 November 2006, he received a letter from the solicitors for the applicants effectively accusing Mincrest of infringing patents. Mr Kleyn said that while the letter was dated 16 November 2006, it was received on 18 November 2006. Counsel took Mr Kleyn to the transcript of his evidence in the NSW proceeding, noting that the bank account was set up four days later on 20 November 2006. Mr Kleyn confirmed that that was the bank account that he now wished to place emphasis on as to when completion of the transfer occurred. He stated that it was a coincidence that the letter of demand was issued on 16 November 2006 and Coretell established its bank account on 20 November 2006. He repeated his earlier evidence that Coretell had been incorporated in May 2006 to operate the core orientation device business.

187    Senior counsel noted that in his evidence in the NSW proceeding on this point, Mr Kleyn had stated: “Well, it hadn’t started to trade, I suppose, because there wasn’t an orientation tool at that stage”. Counsel then identified that counsel in the NSW proceeding said to Mr Kleyn: “You began ostensibly trading through Coretell after you had received the letter of demand … didn’t you?”. He noted Mr Kleyn’s answer was: “After we were advised that they thought we were infringing, that is correct”. Counsel in that proceeding then asked: “That was no coincidence, was it?”. Mr Kleyn responded: “Well, it wasn’t a coincidence. The fact was, there was no money coming into Coretell because we didn’t have core orientation devices yet”. Mr Kleyn clarified his evidence to mean that they did not have core orientation devices for hire. He said they were being trialled, they were being tested by people.

188    Senior counsel put a series of facts to Mr Kleyn that included him consulting his solicitor on 21 November 2006. He noted the letter of response and put it to Mr Kleyn that what was sought to be put front and centre in the response was the suggestion that it was Coretell and not Mincrest who was involved with the core orientation tool. Mr Kleyn responded “Because it was”.

189    Again, Mr Kleyn, in further questioning, said that he should have done everything in May 2006 and in hindsight appreciated that. He added: “I didn’t. That’s where we stand at the moment”.

190    Elsewhere, Mr Kleyn insisted that Coretell owned the orientation equipment from May 2006 onwards as far he was concerned.

191    Senior counsel cross-examined Mr Kleyn concerning the general ledger entry of 14 November 2006, with the ultimate intent of suggesting that an entry concerning payment of Mr Barker for and on behalf of Coretell did not occur until 11 January 2007, whilst the general ledger suggested an earlier entry. It was put to Mr Kleyn that on 8 May 2007, he made the entry for 14 November 2006, six months after receiving the letter of demand. Mr Kleyn denied this.

192    Mr Kleyn was further cross-examined concerning dealings between him and Mr Barker from about March 2007, concerning the development of a multi-shot version of the orientation tool and an email of 7 March 2007 from Mr Barker to him with the subject heading “Camteq-Coretell IP”. Mr Kleyn explained that he thought that if they had a multi-shot orientation tool, he would get a patent on it.

193    Subsequently, he said he dealt with Mr Adrian Crouch of Procept and identified an email dated 10 July 2007 in this regard, in which he noted that “It may be prudent to produce the first 200 kits using the technology we already have”. Mr Kleyn said he was not, at that point, proposing that Procept manufacture the tool as it was at that point, but that he was telling Procept that he would get Mr Barker to make the first 200 tools. Mr Kleyn clarified that he was wanting Mr Barker to finish the camera at that stage and he was trying to put pressure on him to do so before he started the orientation tool.

194    Mr Kleyn also explained that as of May 2006, Coretell operated from his residential premises and it was not until September 2010 that he moved to the Maddington warehouse.

195    Mr Kleyn further explained that Silver City was the only entity supplied on a commercial basis, in late 2006. And that was because he had made a commitment to supply tools to Silver City. He denied this was a commitment made by Mincrest and said it was on behalf of Coretell. He explained that Mincrest invoiced the first two tools supplied because Coretell’s accounts had not been set up at that point. He said that Mincrest, and Mr Penrose, who worked for it, did work for Coretell. He insisted Coretell took the order from Silver City and Mincrest invoiced the first cameras because he was not able to invoice it from Coretell.

196    So far as the tools supplied to Silver City were concerned, Mr Kleyn denied that they experienced many problems. When faced with documentation of 22 December 2006, that Silver City was having to send back kits that were not working, Mr Kleyn said that in 2006, they were “demo kits” that were sent. He added: “Demonstration kits on a commercial supply”. He accepted that as of December 2006, they needed to be upgraded.

197    As to the fact that Mincrest on its website, maintained promotion of the tools into 2007, Mr Kleyn said that was “accidental”.

198    When challenged as to the fact that no further orders by way of any of that sort of promotion had occurred, Mr Kleyn said that they did not receive the orders because “we decided not to supply those orders”.

199    When Mr Kleyn was challenged as to what enquiries he had received, he could not produce any documents but said they were telephone enquiries.

200    Mr Kleyn confirmed that regardless of the lack of success in promoting interest in the tool, Mr Barker continued to manufacture and develop it at least until July 2007. Or even a little bit after that. He accepted that he did not give him any directions to stop manufacturing.

201    Mr Kleyn said it was totally incorrect that from January to July 2007, he had Mr Barker producing modest numbers of tools for the purposes of continuing the development phase for trialling and replacing tools being trialled in the field in the expectation that he might encourage some demand for the tools from prospective customers.

202    Mr Kleyn would not accept that an email from Mr Barker that said that “after more than two and a half years and a lot of money we are still only testing products, although I do think we are getting close” was a reference to the orientation tools and said it was only a reference to the camera.

203    Senior counsel then noted that the statement of claim in the proceeding was served on or about July 2007 and that soon after that, Mr Kleyn and his solicitor attended on a Mr Plummer, a patent attorney, on about 26 July 2007. And that soon after that, he arranged to meet with Procept to discuss further developments of the orientation tool and the ProShot camera. Mr Kleyn said that was incorrect. In response to the question that he did this because he was convinced that an electronic orientation tool would be commercially successful, he stated that he was convinced a tool would be commercially viable. He insisted, however, that in July 2007 he already had one that was commercially viable.

204    He insisted he was being paid by Silver City for exactly that tool.

205    In response to the question that in July 2007 he felt that he needed to get it professionally developed by Procept, he said that was “totally absurd and totally incorrect”.

206    Mr Kleyn said it was incorrect that going to Procept in July 2007, was in the context of having been sued earlier in the month by AMC.

207    Mr Kleyn was then challenged as to his dealings with Mr Barker in late July 2007. References in an email by Mr Kleyn that “we still have problems with the Ori device, we still can’t charge any hire” was put to Mr Kleyn. He denied that by 30 July 2007, he wanted one or other of the ProShot camera or the orientation tool to be commercially released. He said he was actually being sarcastic and said that if he could get rid of his legal problems then he would be happy. He was referring to the camera probes to get the handsets sorted out so that he could buy another two Flex-it cameras. He said it was totally incorrect that the words “we still have problems with the Ori device” meant that he still had technical problems with it in July 2007. Again, Mr Kleyn reverted back to the fact that the tool was on hire to Silver City and “they were very happy”.

208    Faced with further documentation of 30 July 2007, being an email to Mr Barker, Mr Kleyn denied that there was any calibration error on the tool, despite a reference made by Mr Barker: “Whether the attachment is the old dodgy calibration or is that the new ones, which are better?”.

209    In the event, Mr Kleyn was taken to the further email by him which instructed Mr Barker: “However, please leave the Ori-tool for now and finish the camera”. Mr Kleyn said that did not say to “stop the development work on the orientation tool”. He added: “It says please stop the – leave the Ori-tool for now. That’s not development work. When we do – when we make equipment, we are always upgrading equipment”. Mr Kleyn denied there was any calibration.

210    Mr Kleyn agreed that he then took up discussions with Mr Barker again after a hiatus of about six months, with a view to proceeding “with the new version of the Ori-tool as soon as the new probe is complete”. The new probe was a reference to the camera probe. He denied, however, that he was trying to get Mr Barker back into harness “in terms of development work”. He said he was trying to get Mr Barker “to start manufacturing the Ori-Shot tool again”.

211    Mr Kleyn also explained, in cross-examination, that in an email of 8 August 2008, he was trying to convince Mr Barker to “continue manufacturing” notwithstanding the litigation between the parties, and that Mr Kleyn would indemnify him about any litigation.

212    Mr Kleyn then accepted that about that same time, he was again dealing with Procept. Mr Kleyn rejected the proposition that, even after the commencement of this proceeding, he was determined to commit to Coretell to continuing to try and bring the tool to market, saying: “The tool had been in the market. I withdrew the tool because of the threats”. He denied that he wished to keep developing the earlier tool that Mr Barker had been working on. Again, he insisted that the tool had been out in the marketplace to Silver City. He insisted it was working very well.

213    As to the Procept tool which was developed thereafter, Mr Kleyn denied that it was different in material respects from the Barker tool. He said they were both orientation tools. He said it was like a Ford and a Holden. They are cars but they are still both different, but they are still both cars. He said these were both orientation tools. They do the same job in exactly the same way.

214    When counsel suggested to him that it was a bit like the difference “between a Skoda and a Bentley”, Mr Kleyn said “Yes, could be”.

215    A question was then raised in cross-examination as to the extent to which the Procept tool was relevantly different from the Barker tool.

216    In re-examination, Mr Kleyn identified a purchase order from Boart Longyear to Camteq for the hire of an electronic orientation device with HQ barrel and extension from 23 October 2006.

217    Mr Kleyn also confirmed the existence, at material times, of an exclusive agreement between Mincrest and Boart Longyear, which he said was worth about $100,000 a month to Mincrest.

218    Concerning email correspondence with Mr Barrett, Mr Kleyn observed that while the author of the email, Mr Barrett, liked using the orientation tool they were testing or trialling, “they were told to get them offsite by BHP”.

219    Mr Kleyn said that as far as he was aware, the drill did go to Cliffs, another drill site, and he believed it was there for quite some time. He thought that it came back to Camteq or Coretell in about December 2006, “at our request”.

220    Mr Kleyn also explained that Mincrest developed a special tool for Boart Longyear, in relation to the earlier identified purchase order, which was a 3.68 size HQ drill rod. It was a special, or one-off, order.

221    Mr Kleyn said that there was a mechanical failure but the tools worked fine and it was the threads that actually snapped. They were so thin that when they were attached to the core they actually snapped tightening them up. They needed to have extreme care but they were over cut when they were manufactured. He explained that the threads were not part of the orientation device. The orientation device goes inside that thread.

222    In relation to MTL Philippines, Mr Kleyn, in re-examination, identified an invoice dated 31 October 2006 for an amount of approximately $60,000.

223    He then identified the payment in the same amount ($59,992 to be exact) on a bank statement of 11 December 2006, which he said was payment on that invoice.

224    He said there was never any request for a refund or a repayment.

225    In relation to the entry on the general ledger of 14 November 2006, concerning the payment of Mr Barker, Mr Kleyn was asked a series of questions in re-examination and thought that his bookkeeper had made the record. He explained that his bookkeeper did all the GST work.

226    In re-examination about the Boart Longyear drilling activities at the Leinster mine throughout 2006, Mr Kleyn considered that the drillers were not educated on how to use electronic core orientation devices and that helped to explain why there were problems on that site. He said they used to snap the core off before they did the survey, which was the wrong way to do it for electronic devices. This was the “inaccuracy” that people were talking about. He said that to this day they had never found a tool that was inaccurate as such that it will give you an error. The tool always finds “top dead centre”. If it finds top dead centre at the bottom, it will find top dead centre at the top.

Mr Barker’s evidence

227    Mr Barker, who now describes himself as an electronic instrument designer, was called by Coretell. (As noted in my earlier, liability judgment, this witness is not related to me.)

228    He explained that he completed a Bachelor of Science degree at Curtin University of Technology in Perth in 2004, but for the main part was self-taught in the fields of electronics and computer science, learning by experimentation and general reading in the area. He commenced but did not complete an honours degree in physics at Curtin.

229    In October 2004, instead, he started up a business under the name Hightech, designing and developing electronic devices for clients.

230    In May 2007, he started up a second business offering services to the mining industry in radiation safety and training, and incorporated a company called Radiation Professionals Pty Ltd for that purpose, which business he sold in January 2011.

231    It was not until October 2008, however, that he incorporated Hightech.

232    More recently since August 2011, he has provided consultancy services through another company in relation to research and development in the medical industry. He is also involved in servicing medical ultrasound transducers.

233    Mr Barker confirmed he was introduced to Mincrest in late 2004 while he was working as a machinist at the Curtin University workshop, and learned about both the down-hole cameras and a desire by Camteq to develop a more modern version of an orientation tool. He was reliant on Mr Walton from Camteq describing to him the purpose and function of the orientation tool, something that plainly he was not previously acquainted with.

234    Mr Walton told him that the Camteq camera had been successful but its primary function was not core orientation and there was a need for a new piece of equipment in that regard.

235    Mr Barker first met Mr Kleyn in late 2004 in Orange Grove, a meeting also attended by Mr Walton and Mr Lightfoot. The meeting discussed the design of a new core orientation tool for Camteq. Mr Barker learned about some other existing core orientation tools and the Camteq camera.

236    Mr Barker said he was given the design brief by Mr Kleyn to make an electronic core orientation tool. This brief was purely verbal and based on his discussions with Mr Kleyn, Mr Walton and Mr Lightfoot. He said he was told by Mr Kleyn to make a circuit board and liaise with Mr Walton about the mechanical housing for the tool.

237    When he set about research, Mr Barker said, to his mind, the Camteq camera was a slow and cumbersome process and he thought it could be vastly improved by the use of the electronic components.

238    So far as the core orientation tool was concerned, Mr Barker said that on 13 January 2005, he issued Camteq a quotation for his design of the equipment and in February 2005 commenced invoicing Camteq for his work. Those invoices were issued by Hightech to Camteq in the period February 2005 to November 2006.

239    Mr Barker explained how he developed an initial prototype circuit board and software for the intended core orientation tool by around March 2005, and described the circuit board and discussed these with Mr Kleyn at his premises.

240    They identified a number of primary problems with the prototype design including the resilience of the microswitch and the possibility of “false” activations when the core had not actually triggered the microswitch.

241    Mr Barker said that at a meeting at which these problems were discussed in March 2005, he proposed an alternate design utilising a handpiece that would be entirely separate from the down-hole portion of the tool. (This ultimately came about.)

242    He explained why the two component design appealed to him.

243    Mr Barker explained various design challenges and how, in preparing the handset design, battery life and space were paramount factors.

244    Mr Barker said that after the meeting with Mr Kleyn in March 2005, Mr Kleyn asked him to commence manufacture of prototypes of the two part core orientation tool and later that month he provided a quotation to Mr Kleyn for the handset design.

245    Mr Barker said that from March 2005 to November 2005, he had regular meetings, once a week, with Mr Kleyn, Mr Walton and Mr Lightfoot at which they discussed options for improving the design and operation of the tool. At that stage, Mr Barker said he was also performing work for other clients.

246    Mr Barker said numerous tests were undertaken in Bindoon and at Orange Grove and shock testing was also undertaken.

247    He also recalled meeting Mr Tonkin of Boart Longyear and recalled that Mr Tonkin told him early in 2005, that he considered the core orientation tool an improvement over existing designs he had seen and that he was positive about it.

248    Mr Barker said that in around late 2005, he improved the design by replacing a button on the face of the down-hole unit, used to power on the unit, with a light sensor that was activated by the operator placing their hand over the sensor and removing it.

249    He said Mr Kleyn asked him to commence manufacture of 50 circuit boards in or around May 2005 and he provided his quotation on 10 May 2005 to Mr Kleyn. This work is referred to as an “inclinometer”.

250    From around August 2005, Mr Barker said he was spending the majority of his time on Camteq work and again working out of their offices in Orange Grove and was invoicing Camteq approximately $1,000 per week for his work. He suggested Mr Kleyn pay him a retainer.

251    Mr Barker issued his first invoice specifically for camera work on or around 12 November 2005.

252    Mr Barker said that in around late 2005, he and Mr Kleyn met with two or three drillers at Camteq’s premises. He recalled meeting Mr Tonkin again. He understood that the entities associated with these people were already hiring other items of equipment from Camteq, and he and Mr Kleyn demonstrated the two part core orientation tool to the drillers. He recalled Mr Tonkin saying that he liked the design and it seemed it would work. He recalled it was suggested they trial the tool at Leinster. Mr Kleyn said in substance that he would appreciate the opportunity.

253    This happened and Mr Barker said he was in contact with Mr Tonkin about the tests on a number of occasions.

254    In January 2006, Mr Tonkin wrote to him about a problem he was having with one of the tools not powering up. This was a problem on the handset. He said he corrected the problem. A similar problem occurred with several prototype handsets but in the next version the problem did not occur.

255    In early March 2006, Mr Barker recalled receiving a tool from the Leinster mine site and being instructed by Mr Tonkin that the tool was failing to power up. He examined the tool and it appeared it had a flat battery. He also discovered the leads from the battery to the circuit board had broken and concluded that the leads were breaking because of fast impulse movements of the tool and the inertia of the battery pack. He found a solution to that problem which was to more securely mount the batteries in the plastic casing which would prevent them from moving independently from the housing of the down-hole unit.

256    He also recalled that in about March 2006, other tools were presenting with faulty batteries for a slightly different reason. He found the batteries had been slightly crushed and concluded that the forces involved had been higher than expected and had compressed the batteries into one another.

257    These battery problems were reported to Camteq over the course of two to three months and he recalled they were referred to Mr Walton and did not recall being made aware of the problems after that period.

258    Mr Barker also attended at Leinster around 29 March 2006 to advise on the practical operation of the tools, and was there for about two or three days. He met with Mr Tonkin. Tools with problems were identified. Powering up was the problem. He found that a lead from the battery had broken. He returned to Perth with that tool to look into the issue further. It was a broken wire at the board rather than the battery end and the wire used was thin and brittle. It was replaced with a softer, more flexible wire.

259    Mr Barker said that this problem was remedied in all tools returned.

260    He recalled that in mid-May 2006, one of the tools would not turn off because of a software glitch and that was immediately resolved by a slight change to the code.

261    Mr Barker said he could not recall any other significant problems being identified during the testing phase with Leinster, however he recalled some minor issues came up occasionally, namely:

(1)    some temperature drift problems when readings were varying due to temperature, which were solved quickly by incorporating a temperature calibration into the software; and

(2)    on some occasions, there was a timing difference between the handset and the down-hole unit, which was resolved by replacing the capacitors with correct capacitors.

262    Mr Barker said Mr Kleyn told him that he wanted to derive revenue from the hire or sale of the tools as soon as possible, with the result that the testing of the tool prior to sending out each tool to Leinster was on occasion not as extensive or as thorough as he, Mr Barker, would have liked.

263    Mr Barker also said that he did on occasion improve the operating software for tools when they were returned for servicing or new tools were being assembled. He said these were “incremental improvements”.

264    Mr Barker said that in around May 2006, Mr Tonkin contacted him and said his company no longer wished to be involved in the testing of the tools at the Leinster site.

265    In about April 2006, Mr Barker said he provided Mr Kleyn with a copy of drawings he had received from SDS Corporation of a grease cap assembly. He thought that company may have been involved with Mr Reynolds.

266    He also recalled flying to Argyle Diamond Mine on two occasions during the testing phase of the tool, one of those trips being in May 2006, when he gave a demonstration to eight to 10 drillers.

267    Mr Barker said that all of the major design problems with the orientation tool had been resolved by around mid-2006, and from a technical viewpoint, he considered the tool was ready for introduction to the market at that time, but that he had to manufacture sufficient quantities to meet the expected market demand. He added that he continued to make incremental improvements to the software and the circuit board.

268    From February to April 2006, Mr Barker said he ordered parts for the orientation tools in bulk and commenced preparation for the first batch of tools to go into commercial production.

269    He said he was also invoicing at the time for work on the Camteq ProShot camera.

270    He recalled, however, that from around April or May 2006 he slowed on production of the orientation tool and focussed primarily on the development of the ProShot. Mr Barker said Mr Kleyn instructed him to focus his efforts in that way but could not now recall whether he received a specific reason for this.

271    Mr Barker said that accordingly by late 2006, he did not consider the assembly of the tools required a high level of skill and he engaged a company to assemble the circuit boards for the orientation tool. He said it took approximately 10 minutes to put the circuit board into the housing, install the software and calibrate. He considered, assuming a conservative working time of six hours a day, he was able to produce 36 tools per day or a 180 tools per week if only working on business days. If Camteq had requested more tools than 180 per week, he believes he would have been able to fulfil that request, either alone or by taking on staff.

272    He said he also ensured that Camteq had sufficient stores of parts to build new tools as required and he charged $1,000 per whole kit, being two down-hole units and one handset, to Camteq and later Coretell.

273    As at November 2006, Mr Barker recalled that an assembled tool’s lifespan was intended to be slightly more than 12 months.

274    He said he was aware from his discussions with Mr Kleyn during the period from around mid-2006 to November 2006, that he was at the time having a selection of customers trialling the orientation tool and he understood they were generally going well. Mr Barker himself could not recall any major design flaws or accuracy errors being referred to him at that time.

275    Mr Barker also said that in around late 2006, Mr Kleyn met with him and said that he was restructuring his business and wanted to transfer that part of the business dealing with the orientation tool to a new business entity. He recalled Mr Kleyn said words to the effect that it would be a good idea to quarantine the orientation tool business away from the general Camteq business in case allegations of patent infringement were made in respect of the orientation tool. This is something Mr Kleyn said was incorrect.

276    Mr Barker said in or around November 2006, Mr Kleyn told him to invoice further work and materials in relation to the orientation tool to Coretell and not to Camteq.

277    He recalled then invoicing the next batch of orientation tools directly to Camteq, which was a mistake on his part, noting that it was sometimes difficult to decide which company to invoice as the orientation tools and cameras shared some similar parts.

278    He said he first invoiced Coretell directly on or around 29 January 2007, but noted that invoices 153 (9 March 2007) and 150 (1 April 2007) were both to Camteq, and said they should have been to Coretell.

279    Mr Barker recalled that in around mid-November 2006, Mr Kleyn came into his office and told him that Imdex was claiming that their patent had been breached. He said Mr Kleyn said words to the effect that he had decided to cease hiring the orientation tool and focus primarily on the ProShot until he had taken legal advice. Mr Barker could not specifically recall, however, whether Coretell withdrew the tool from the sites where it was being used or hired at the time. He was not involved in that aspect of the business. He was told, however, to just focus on the camera for now.

280    Mr Barker said that he ceased working out of Orange Grove in January 2007 and began working from his own home and worked primarily on the ProShot. He slowed down but did not cease production on the orientation tools. He referred to invoices 134, 146, 148 and 153 between January and March 2007 for the tools.

281    Mr Barker said he completed the development of a reliable ProShot in or around February 2007.

282    He, however, also recalled making some technical incremental improvements to the ProShot and the orientation tool in around March 2007.

283    He said in April 2007, he decided to manufacture a small run of about 50 orientation tools and discussed that with Mr Kleyn at the time. He, Mr Kleyn, said he wanted to have sufficient stock on hand once the patent dispute was resolved. Mr Barker referred to a quote he received in that regard from Pace Assembly Pty Ltd on 18 April 2007. He then worked on the batch of the orientation tools as well as cameras during April and May 2007.

284    After the infringement proceedings were commenced, his last invoice to Coretell for production of orientation tools was on 30 July 2007.

285    Mr Kleyn then emailed him on 21 January 2008 requesting he resume work on the orientation tool. They met but he decided not to be involved as he may be targeted by Imdex in the litigation.

286    Then he was contacted by Mr Kleyn by email on 30 July 2008 to see if he was interested in pursuing work on the camera and the orientation tool. A further email was received about 8 August 2008. Mr Barker said he recalled that he declined to be further involved.

287    Mr Barker became aware that Mr Kleyn then approached Procept to produce tools.

288    Mr Barker considered that the Procept version of the tool did not have any particular advantage over the version he designed and manufactured for Coretell and that, if not for the threats of litigation, either tool could have been manufactured in sufficient quantities to meet customer demand for both tools, which would have had a similarly good reception in the market.

289    Mr Barker was also asked in examination-in-chief to look at court book part E, p 3555, which he did. He considered what was there written expressed a misunderstanding of what he had earlier said concerning the three degrees of accuracy. Having explained how the tool is used, he said that “the tool itself is very, very accurate. You will achieve .1, .2 degrees accuracy on that particular measurement, but when the operator is expected to rotate that core barrel around and then take a marking, if you made it .2 of a degree, the operator would never be able to achieve aligning that core barrel and core to that level of accuracy”. Mr Barker explained that for that reason “we put a tolerance in there, which we set at + or – three degrees”. So there is a six degree window. Ultimately, he said the maximum error one could achieve would be three degrees, not five to 10 degrees.

290    In cross-examination, senior counsel for the applicants sought in a number of ways to downgrade Mr Barker’s knowledge and experience that underpinned his evidence about the tool. He did not complete post-graduate work in physics but worked as a technician in the physics department at Curtin University in 2004. In that period he was introduced to Mr Kleyn. He was then asked to develop the electronic core tool for Mincrest.

291    Mr Barker explained how he was engaged to work on the tool under a handshake agreement.

292    Nonetheless, Mr Barker disagreed with the proposition that he was inexperienced at material times, although agreed that he was inexperienced in matters of commerce.

293    He also explained that he would, with the experience he has now acquired, continue to make a handshake agreement “if it was a project like this”, which he explained was a project where a clear understanding of exactly what was required was not possible at the time of conception of the project. In this case he explained that the switch they were going to use to activate the unit when the core came up the barrel was something they could not have foreseen as not working. It made a huge difference to the design requirements in the board.

294    Mr Barker also disagreed with the proposition that in 2005 he did not have the experience to equip him with preparing technical documentation for the sort of project he was in fact engaged in. He said that when he prepared his honours thesis (which was not completed) he designed a circuit board that had a compass and accelerometer for some underwater robotics. He considered he was very knowledgeable on that.

295    Mr Barker confirmed that from about August 2005, he effectively began working in-house for Mr Kleyn and was paid a weekly retainer by him.

296    Mr Barker was further cross-examined about the microswitch change in the design of the orientation tool. He explained that problems became apparent not because of his boards, but in the housing, and so he embarked upon a new design in about March 2005.

297    He explained that by late 2005, he needed to start trialling the tool that he had developed. He confirmed that he would have liked some more internal testing, prior to on-site trialling with customers. But he confirmed that he understood Mr Kleyn was eager to derive revenue as soon as possible from the tools and wanted to press ahead with trialling with prospective customers. He explained that Mr Kleyn said he had a friendly who could identify potential problems. That apparently was Boart Longyear at the Leinster site. Testing was then conducted in early 2006.

298    He confirmed there were battery problems. There were problems with units failing to turn on.

299    He accepted that because of the frequency of problems being experienced by Boart Longyear, he was required to travel to Leinster. This was in about late March 2006.

300    He also acknowledged that there were problems revealed in the trialling at Leinster that included water ingress into the handset.

301    He also agreed that in May 2006, one of the tools would not turn off because there was a software glitch and he sought to resolve this by a slight change to the code.

302    There were also temperature drift issues and timing differences between the handset and the down-hole probe.

303    Mr Barker thought, nonetheless, that by mid-2006 the name “ORIshot tool” had been assigned to the tool. When pressed as to whether Procept had used that name and that no name had ever been attached to the orientation tool by mid-2006, Mr Barker was a little more uncertain but added that he was “reasonably certain” he had referred to it at meetings as the ORIshot at that time.

304    Mr Barker was not dealing with customers so was unable to give evidence about how many Mr Kleyn was dealing with at this point.

305    He was aware of other companies trialling the tool, however.

306    Mr Barker agreed that Mr Kleyn made him aware of any frustrations that he had that he was not able to hire the tool.

307    Mr Barker was aware of Mr Reynolds at Drillshop assisting.

308    As to some feedback, for example from Mr Reynolds, Mr Barker said that in 2006 he was aware of feedback and he believed a lot of people were misusing the tool and not following the instruction sheet. He also considered that at one of the sites they were significantly behind with processing their cores.

309    Mr Barker was challenged concerning his statement that by late 2006, he had manufactured sufficient quantities of the orientation tool to enable Mincrest to start putting the tool into the market. It was put to him whether he appreciated that the relevant consideration was not so much the number of tools, but whether they were sufficiently fit for the purpose to be commercially released. He said that he did. He rejected the proposition, however, that as of late 2006, the tools were not ready for commercial release.

310    Mr Barker was then asked whether it was more accurate to describe the position in late 2006 as one in which he and Mr Kleyn were continuing to put tools out for trialling with potential customers, with a view to encouraging them ultimately to hire the equipment. He answered “yes”. In response to a question whether he was still trialling them and obtaining feedback that they were inaccurate or unreliable, he responded that feedback did come but he believed the reason for that was the delayed core processing.

311    When pressed as to whether the tool simply was not commercially feasible in late 2006 to mass produce the tool and introduce them on a commercial basis to the market until problems were solved, he responded that he felt that the problems had been resolved at that time, despite the late feedback which he said “had a bit of a lag on it”.

312    He said the late cores was a big thing but also that people seemed to be misunderstanding when you should press the actual take measurement button. It did not seem confusing to him but there did seem to be some confusion in the field.

313    So far as manufacturing sufficient quantities of the tool for market in late 2006, Mr Barker accepted that at that point he was operating from Mr Kleyn’s premises and that to produce significant numbers he would require the services of a third party to populate boards and those sorts of tasks.

314    He agreed, however, that in April 2007, he began making some tentative inquiries of a company by way of third party assistance. This, however, was not the first time that company had been used. In June 2007, he confirmed a quote from Pace was for the production of 50 units.

315    In passing, it should be noted that Mr Barker had no real awareness of an order from MTL Philippines.

316    Mr Barker was taken to an email from Mr Kleyn to him dated 22 December 2006, which included a reference to “I’m reluctant to pay any other invoices before (a) we sort out what we are paying for; (b) we have Ori-tool in the field that we can charge for”.

317    Mr Barker noted that this did not refer to any accuracy issues but about charging rent. He said there were many parts to the tool, from the way it was presented to the market, the instruction sheet, the housing. He simply made the circuit boards and he believed the circuit boards were ready. He considered the tool did very well. He considered there were problems with operators doing some silly things, not pressing the right buttons at the right times.

318    But he confirmed that he understood Mr Kleyn was frustrated at this point in time because he was not able to earn money from the tool.

319    When counsel put it to Mr Barker: “Well, I suggest to you that’s a fundamental indication that it would not be at a standard at that point that it was fit for purpose for commercial release, because money could not be earnt for it for whatever reason?”, Mr Barker responded “Okay”.

320    Counsel pressed him – “Do you accept that?” to which Mr Barker replied: “I accept what you are saying. But my feeling at the time was that it was ready. So – okay”.

321    Counsel asked what was ready, your circuit board? This time Mr Barker replied: “No, I believe that the tool was commercially ready. I do”.

322    He indicated when challenged, that he was not being defensive because he had worked on the design and development of the tool. He said he thought he was trying to defend the truth, even if he did appear to be somewhat defensive, particularly in his evidence the day before.

323    Mr Barker had shown to him the email to him from Mr Kleyn on 22 December 2006, which, amongst other things, stated that Mr Kleyn believed “both products are very close to completion”. Mr Barker said that he was in Indonesia at the time and he considered Mr Kleyn’s motivation in sending this email was to get to come back. “He wanted me there working on things at Camteq over the Christmas break.” Mr Barker thought that Mr Kleyn may have been exaggerating issues to motivate him.

324    Mr Barker accepted in cross-examination, however, that he was also disappointed, in that payment had been withheld for the work that he had done to that point.

325    Mr Barker was also taken to correspondence which indicated that four of the units were not working and more units were being “returned from Silver City not working”. Senior counsel put it to Mr Barker that Mr Kleyn was saying in the correspondence that Mr Barker should not be paid until the units were working. Mr Barker recalled returning from Indonesia and discovering that the problems were “simple, silly problems”.

326    Mr Barker was also taken to correspondence in which Mr Kleyn said “If the tools don’t work, how can I rent them?”. Mr Barker said he did understand that Mr Kleyn was expressing frustration at his inability to commercialise the tool because there were reliability issues with it.

327    Mr Barker’s consideration of what was then happening – which makes sense from his point of view – was that Mr Kleyn was trying to pressure him into getting back to work.

328    Mr Barker also accepted, in cross-examination, that a March 2007 email indicated that he understood Mr Kleyn was still keen to get the orientation tool commercially released as of that date. He also accepted that it was right that the email exchange showed that he was wanting Mr Kleyn to understand that the documentation concerning intellectual property might divert Mr Barker’s attention from the development and production of the camera and the orientation tool.

329    Mr Barker suggested, however, that Mr Kleyn had given him a directive to slow down on the orientation tool development and manufacture, and continue at full pace on the camera, as fast as he could. He said that by March 2007, there was not a lot of orientation tool development going on.

330    Mr Barker was also taken to an email of 3 July 2007, in which the question of faulty orientation tools was discussed, together with the question of payment to Mr Barker. In particular, Mr Kleyn stated:

After more than two and a half years and a lot of money, we are still only testing products, although I do think we are getting close.

331    Mr Barker, despite initially responding that the email did not actually say that the orientation tools were not ready for commercial release, when pressed, accepted that indeed the email “does read that way”. He added that he did believe the orientation tool was ready earlier than that.

332    Mr Barker also added that about that time he heard there was potentially a problem with infringement of the patent and he was very concerned at that point and did not want to get involved in litigation. He said he was also buying a house at that point and would “have loved to commercially release them”.

333    Mr Barker could not recall whether it was in July 2007 that he became aware that Mr Kleyn was approaching Procept with a view to development and production of the orientation tool.

334    Mr Barker also indicated that he went to some meetings with Mr Kleyn to his lawyers in late November 2006 at least. He said that after that he continued to do very small amounts, that is continued to make small batches of tools up until July 2007.

335    In relation to the question of Coretell and the tool and his primary evidence, in cross-examination Mr Barker said that basically there was some talk of legal proceedings and so:

he decided to quarantine it there, and also he said it would be advantageous if the tool were to go out and be very successful, he could sell off that company with that tool, as a – as a commercial running entity, and he said that would be beneficial to his business model.

He considered that the discussion was in late 2006. He believed it was probably about the time Mr Kleyn asked him to start invoicing Coretell, rather than Camteq, for any work he undertook on the tool.

336    So far as the development of the tool was concerned, Mr Barker ultimately accepted that while he “believed in the tool”, Mr Kleyn was extremely frustrated in July 2007 because he wanted to, but was unable to, release the tool on a commercial scale because of the reliability issues.

337    Mr Barker was also of the view that he was not sure that in July 2007 he knew Mr Kleyn had already begun talking to Procept about the tool.

338    Mr Barker agreed that in November 2007, in respect of the ProShot camera, and then in January 2008 in respect of the orientation tool, Mr Kleyn sought to re-engage him. But he did not wish to be drawn back in.

339    At that point, Mr Barker said that he did understand, having regard to correspondence he then had from Mr Kleyn, that Mr Kleyn considered there was further development of the tool required before it was commercially released and earning some higher income.

340    Finally, Mr Barker was cross-examined about invoice 107 for the amount of $3,850. Records indicated that payment by Mincrest to Hightech (Mr Barker) on 11 January 2007, but the invoice appeared to be dated 29 January 2007. Mr Barker said that was his fault. He “would say” that what has happened is that there was the original invoice on 14 November 2006, which should have been “wiped out” and a new number assigned, but instead the invoice was modified later. It should have been to and paid by Coretell. He added that Coretell had obviously not paid the invoice until January, because “they’ve had some concerns with those other tools”. Then when it was paid he amended the invoice to match what they paid and changed the date to later in January.

341    When pressed that there could not have been an invoice dated 14 November 2006, Mr Barker said it was only in the course of cross-examination that he had become aware there were two invoices numbered 107. To that extent he was seeking to reconstruct his evidence.

342    In re-examination, Mr Barker dealt with a number of problems that had been experienced in 2006 with the tool. As to the problem at Leinster, he confirmed that he did not believe that they were doing things correctly.

343    He repeated his evidence that, as of 2006, he considered there only minor or silly problems that were easily fixed with the tool. “Nothing fundamental.”

344    He considered Mr Kleyn had something of a “hissy fit” when Mr Barker went to Indonesia on holidays at Christmas.

Mr Reynolds’ evidence

345    Mr Reynolds, at material times, was the managing director of Drillshop and was called by Coretell.

346    He was involved in arranging trials or conducting demonstrations for Gilbert Drilling at Argyle Diamond Mine and St Barbara Limited/Barminco at Marvel Loch Gold Mine.

347    He is also a director of Seismic Drilling Services.

348    He said Drillshop and Seismic had ongoing relationships with members of the Imdex group of companies, as well as companies of which Mr Kleyn was a director and, from time-to-time, on-hired Coretell core orientation tools and Camteq survey cameras, though this was not a major part of their business.

349    Mr Reynolds said that in around 2006, he spoke with Mr Kleyn about Drillshop becoming a re-seller of the Camteq camera tools, and Mr Kleyn told him that he had developed an electronic core orientation tool and suggested it might be useful if he could use his contacts to trial it at mine sites. He wanted feedback from customers to see if there were any problems and to show it around to potential customers to gauge market interest.

350    Mr Reynolds said he was keen to assist Mr Kleyn with testing and trialling as he saw the Camteq camera as a valuable opportunity and that this business opportunity would be enhanced if Mr Kleyn’s companies were also able to supply a core orientation tool.

351    He saw his role as assisting and gathering feedback and information for the supplier in determining how the tool was operating in the field.

352    He understood Mr Kleyn was directly in contact with some of the customers.

353    He recalled contacting drilling contractors in 2006 to arrange testing of Mr Kleyn’s core orientation tool.

354    He recalled the main issues were battery issues, in that the tools would not power up because of a flat or damaged battery or loose wires to the battery. He could not recall whether these problems were widespread.

355    He did not believe any problems experienced were other than standard “bugs” faced in the later stages of development before a product was finally released to the market.

356    He recalled Mr Koushappi and recalled he gave a demonstration of Mr Kleyn’s core orientation tool to Barminco in 2006.

357    He recalled that he gave a demonstration at Barminco’s offices in Kalgoorlie. He recalled Mr Koushappi briefly met with him before the demonstration.

358    He also recalled a trial at Marvel Loch in 2006 before Barminco.

359    He did not recall any request for the tools in early 2007 and his instructions from Mr Kleyn by that time were that the tool was not available to be hired out.

360    Mr Reynolds said that in around 2006, Drillshop supplied drill bits to Gilbert Drilling but he did not go to the Gilbert Drilling site to demonstrate the equipment.

361    From his unaided memory, he recalled a trial in 2006 with Layne Drilling at Mount Newman and also recalled being told that there were issues with the accuracy of the tool during the trial.

362    He did not have any recollection of providing core orientation tools to Ausdrill and Mount Magnet Drilling in 2006.

363    He recalled that Mr Kleyn in late 2006 told him that Mr Kleyn would no longer be asking Mr Reynolds to distribute the core orientation tools because of a dispute over a patent.

364    Drillshop commenced hiring to customers core orientation tools supplied by Coretell in early 2009.

365    In cross-examination, Mr Reynolds explained that the business of Drillshop was to provide assistance with trialling both tools and products. He agreed this enabled prospective customers to see how a tool, for example, performed, and also whether it was going to be viable for commercial release.

366    He confirmed that the tools provided by Mr Kleyn had not been run in the field so the idea was to run the tool in the field and then, if it went well, to encourage people to hire the tool.

367    As to demonstrating the tool at Barminco, he said he did a demonstration but could not remember other trials. He acknowledged that this was some six years before he was asked to make an affidavit recalling these events on behalf of Coretell. He did not recall arranging a trial with Gilbert Drilling but did remember getting some feedback from Layne Drilling. He had no recollection of trialling with Mount Magnet Drilling.

368    As to documents that he referred to in his affidavit, he was unable to recall them but assumed that he must have had some involvement in the trial of the tool the subject of those documents. He did, however, recall that at some point, Mr Kleyn told him that he could no longer distribute tools for Coretell. This was because Imdex had considered Mr Kleyn or Camteq was infringing their patent.

369    He placed the time that happened at the time he ceased hiring or trying to hire out the tools.

370    Concerning whether Mincrest supplied tools to an agent, Mr Reynolds was asked whether he recalled that it was two kits he was provided with. He did not recall that.

371    He said he did not recall receiving the two tools and did not recall going to two separate clients although that does not mean it did not happen. He said he just did not remember.

372    As to further reference in Mr Kleyn’s evidence that the “agent” was advised by the clients that the tests they had conducted on the tools rendered “inaccurate and unreliable data”, Mr Reynolds answered that the only memory he had of that is BHP with Layne Drilling and there being an issue about accuracy of the data.

373    Generally, Mr Reynolds’ memory was not extensive. He remembered doing a demonstration but did not go to the site of the trials.

374    Nor did he have any discussions that he could remember with geologists from Barminco after their trials. He said it was “a long time ago”.

375    He said he had never processed a Barminco order for a tool so he would not have received an order.

376    In the course of cross-examination, he confirmed that accuracy of the equipment was important to clients.

377    He confirmed that he did not receive a purchase order from Gilbert Drilling for the tool.

378    He thought that he did attend on-site for the Layne Drilling trial. He confirmed that the records showed that Layne Drilling informed him there were issues with the accuracy of the tools, and this was from about July/August 2006. He confirmed that Layne Drilling did not place an order for the tool.

379    He agreed with the proposition that mine site operators and drilling service providers expect a sufficiently resilient, reliable and functional tool during a hire period.

380    In all of those circumstances, Mr Reynolds was challenged as to his statement that he believed that in 2006 the core orientation tool could have been sold or hired to customers successfully. He said the reason he made that statement was that in 2006, from what he saw of the tool, he felt it could be. He was expecting there would be some sort of issue when it was run in the field because everything he had been involved with “has had those same developmental issues” – he felt it was sellable – that is he could hire it out.

381    He accepted, however, he was not shown the tool in the field and he observed it in an “office environment”, and he accepted the proposition that he thought “at a conceptual level” it seemed that it should be an appropriate tool.

382    He accepted that in reality that he had “zero success” with customers in trying to hire it out during 2006. He added: “Yes, that’s right, because of these issues that they had.”

383    In further cross-examination, he agreed that the statement made, at [21] of his affidavit, represented his thoughts in 2006 “at the time” he agreed to place it for trial.

384    In relation to the Procept tool released in 2009, Mr Reynolds remembered the hand piece being different, larger. But, in essence, he said, it seemed to do the same thing, that was to orientate the core electronically. He was able to hire them at that point and since. He said he would not say in significant numbers, but they were “going out”.

385    He agreed that there $20,000 worth of orders in the first nine months that he had access to the Procept tool, compared to the $0 for the first tool in 2006.

386    As to his statement regarding the similarity of the two tools, he said that his observations had nothing to do with electronics, just their “user friendliness”.

387    In re-examination, Mr Reynolds was asked about what he could actually recall from eight years ago. He recalled the BHP Newman trial. He also remembered there were issues with battery.

388    When asked, and allowed by the Court to answer, whether there was anything that happened during the rest of 2006 to change his view that the Camteq tool could succeed, Mr Reynolds said that he thought the tool could have been successful if they had continued their trial and error process of having it out in the field. He said that he would not have continued to deal with it if he did not think that the tool could not eventually be sold or hired, and he supposed that it could. “So I never really sort of lost faith in the tool, it’s just that, you know, it had a lot of issues.”

Mr Kenny’s evidence

389    Mr Zane Kenny, accountant, was called by Coretell.

390    At material times, he was a director of the accounting firm Brealey Quill Kenny.

391    He said in May 2006, prior to 25 May 2006, he met with Mr Kleyn at his offices in Canning Vale and was instructed by Mr Kleyn that he wanted to set up a new entity as he had developed a core orientation tool and wanted this business to be operated through a separate entity.

392    He said Mr Kleyn explained that this was because he wanted to be able to sell his two businesses separately and also said that he wanted to have succession planning in that he may want his two sons to be able to take over separate entities when he retired or passed away.

393    Mr Kenny gave him advice.

394    Following that, his firm incorporated Coretell on 25 May 2006.

395    He noted that Coretell’s ledgers record a payment to Hightech of $3,500 on 14 November 2006 and a corresponding accrual of the Camteq loan account (as in money Coretell owes Camteq) of $3,850. He said that trading transaction would not have resulted in any movement in a business bank account as Camteq had paid the amount on Coretell’s behalf and Coretell owed Camteq for those funds.

396    In cross-examination, Mr Kenny was taken to the financial affairs of companies within the Kleyn group. He was also taken to evidence that he gave in the NSW proceeding.

397    Questions covered included management fees charged or not charged by Mincrest to Coretell.

398    Mr Kenny was also asked about the incorporation of Coretell. Mr Kenny said he discussed with Mr Kleyn the impact of having a separate company focusing on the core orientation tool. The reasons for that were succession planning, tax minimisation and the potential sale of business. Mr Kenny confirmed that he was not advising Mr Kleyn in order to achieve a valid assignment.

399    He was further questioned about the relationship between the companies.

400    Mr Kenny was unable to express any view about the manufacturing capacity of Coretell in 2006-2007, compared with 2009.

401    As to the 14 November 2006 entry in the Coretell ledger, Mr Kenny, in effect, made a reference to this first record of trading based on the materials given to him. It was an entry made by reference to the loan account. He said the ledger read basically as a purchase as the debit and the credit was basically a loan from a Kleyn related group. He did not look for any supporting documentation beyond that. He said that because he did not think it was paid on 14 November 2006, that is why it was mentioned as a loan. He noted on the FAST account there was a narration in lower case stipulating it was paid on a date after November and it said by Mincrest. He has become aware of that more recently. When it was suggested to him that the money accrued to the loan account on 11 January 2007, because that was the day that payment was made by Mincrest on Coretell’s behalf, Mr Kenny replied that technically on 14 November 2006 if they incurred an invoice in Coretell’s accounts, if you have a purchase and a corresponding creditor, as in owing money to someone. If they believed that invoice belonged to them, then subsequently if somebody else pays the invoice, that creditor is at zero and the person paying the money basically becomes the lender.

Mr Maher’s evidence

402    Mr Aaron Cope Maher was called by Coretell and his affidavit went into evidence. He was a co-founder of Procept in Melbourne in 2006.

403    Mr Maher’s qualifications and experience were not in doubt. Procept was in the business of providing services to clients in the design and management of the manufacture of electronics.

404    Mr Maher was called principally to give evidence about similarities and differences between the core orientation tool designed by Mr Barker/Camteq and that designed by Procept; and whether the Barker/Camteq tool was ready for market by late 2006.

405    Mr Maher said that his review of the earlier tool was limited.

406    Mr Maher said he first spoke with Mr Kleyn in around July 2007 in Melbourne. Mr Kleyn wanted Procept to design and develop the electronics, software and handset for an electronic magnetic camera tool (survey camera) for mining surveying of drill holes in the mining and minerals industry. He told Mr Maher that he had an existing survey camera. Mr Kleyn said that while he had been working with Mr Barker, he no longer was.

407    While he could not exactly recall, Mr Maher said that if he had been asked to manufacture a product designed by someone else, for example, Mr Barker, he would have said no.

408    He also considered it was difficult and generally not commercially feasible to reverse engineer a product.

409    Then in around October 2008, he met with Mr Kleyn about developing a core orientation tool.

410    He said Mr Kleyn said words to the effect that he had previously developed such a tool through a company called Coretell and that he wanted Procept to develop the electronics and handset for Coretell.

411    Mr Maher believed he was aware of the existing Coretell tool from his first meeting with Mr Kleyn, but the October 2008 meeting was the first time there was a detailed discussion about the requirements for a tool of that type. He recalled, however, that Procept had previously put to Mr Kleyn an initial proposal to design electronics for a core orientation tool in around February 2008, but Mr Kleyn had not approved this while the camera electronics were still in a design phase.

412    Mr Maher recalled that Mr Kleyn had a prototype circuit board with him at the meeting in October 2008 and showed it to Mr Maher. Mr Kleyn demonstrated the tool’s operation. He explained the high level functionality of a core orientation tool to Mr Maher and told him what he wanted the tool to achieve.

413    Mr Maher did not recall Mr Kleyn mentioning any problems with the existing circuit board.

414    Mr Maher said he did not need to inspect the circuit board because Procept did not reverse engineer products.

415    Mr Maher said that one of the major differences of the tools designed on Mr Kleyn’s instructions, including the survey camera and the core orientation tool, compared to the equipment he had designed for other customers, was that the tools’ designs, on Mr Kleyn’s instructions, were a joint research and development effort between Procept and Mr Kleyn’s companies. Thus, the development of the tools was a joint effort.

416    Mr Maher said Procept completed the design and managed the production of prototype units of the electronics and handset for the core orientation tool by around mid-December 2008.

417    He said he became aware of these legal proceedings and other legal proceedings between Coretell and Imdex some time after completing the camera and orientation tool designs.

418    In cross-examination, Mr Maher confirmed his qualifications in electronics and electrical engineering and that Procept had extensive commercial experience in product design and manufacture, identifying a number of areas in which he and the company worked.

419    He confirmed that the various people who were engaged with the survey camera – the ProShot camera – were all engineers. Mr Maher confirmed that he had seen the Barker/Camteq tool but said he would not call it a “review”. He considered it was fair to say that he did not make a study of it but it was shown to him for the purpose of understanding the gist of the tool. There was no need to pull it apart.

420    He confirmed that Procept’s initial work was on the ProShot camera.

421    While Mr Maher could confirm that he understood Mincrest owned the ProShot camera, he said he was not able to comment on whether Coretell owned the Barker tool.

422    Nor could he recall why in July 2007, both Mincrest and Coretell were entering into a non-disclosure agreement with Procept.

423    In response to a question whether Procept was highlighting particular efficiencies in a project, namely that it could bill all the work that it had undertaken with the ProShot as part of a program for developing the orientation tool, Mr Maher said yes, there would be some efficiencies between both products.

424    Senior counsel then took Mr Maher to documentary materials from late October 2008, concerning the Procept orientation tool.

425    Mr Maher could not recall whether Mr Kleyn had said there were problems with the Barker camera or the Barker tool. He could not recall whether he had been told that Mr Barker had tested for a considerable amount of time the Barker tool.

426    Mr Maher made it clear that he could not make comments about the Barker tool and the technologies that were used in that product as they declined to engage in reverse engineering.

427    Mr Maher was taken to an earlier email from 10 July 2008, in which Mr Kleyn had made reference to it being “prudent to produce the first 200 kits using the technology we already have and revisit your proposal at a later date”. When asked whether he understood that Mr Kleyn was proposing that Procept actually seek to manufacture the existing tool that he had, that is to say the Barker tool, Mr Maher said no, that he read that as saying that Mr Kleyn would manufacture the tool he already had and that Procept would not do it.

428    Mr Maher was then taken to the specifications for the Procept tool. He was also taken to a document described as “Comparison of operating instructions and user interface”. Mr Maher was asked to assume that someone had performed the exercise of comparing the Procept tool and the Barker tool operating instructions and user interface. Mr Maher said:

    that it was not part of the process of design of the Procept tool to test the battery each time a survey was taken;

    the Procept tool provided the user the ability to check on the handset the battery level;

    the Procept tool design involved the operator simply pressing “new survey” as a function and selecting the required tool, compared with the Barker tool involving switching on the handset and a light activation switch on the down-hole probe; and

    “while he could not comment on the Barker tool, the Procept tool has a process to incorporate its own operating software and using different interfaces for the user – that is, it had its own software, embedded software, in the handset and the Barker tool would’ve had different operating software”.

429    Mr Maher also acknowledged that while he suggested in his affidavit that he was going to deal with the similarities and differences between the two tools, he had not actually done that.

430    In order to do that, he said he would have to do a product review of the Barker tool, which would involve having access to the tool or the design documentation, source code, and then going through a review process and documenting it.

431    He agreed that ideally would involve determining the relevant metrics and assessing each tool against those metrics by way of testing. He agreed that one way to achieve this would be to look at the results and see whether they suggested similarities or differences and, in effect, working out how extensive the similarities were and how extensive the differences were.

432    He added that reviewing the tools would enable him to come up with some sort of matrix, looking at the performance, functionality and other aspects of each tool and then ranking them against each other.

433    In relation to the question whether the Barker tool was ready for market by late 2006, something also not addressed in his primary affidavit, Mr Maher said that if you were going to determine whether it was ready for market, you would first look at what constitutes ready for market because there are various forms of ready for market. He explained that over the last 10 years a lot of design companies have moved away from what is called the waterfall base model, whereby you have a set of requirements, and you then go through a number of stages which may take many months. Once you have completed all that and the testing complies with the requirements, then you would release that to market.

434    He added that more and more today, companies are moving towards an agile process of development, whereby you develop the requirements but then release the product into the marketplace so, where as you used to just release it once, you now design a product, it might take you two years, then you release it. An agile approach allows you to release into the market maybe within six, nine months and then do continuous updates so that product, while it is in the marketplace, responds to feedback from customers.

435    Mr Maher explained that when developing the Procept tool he undertook “alpha testing”. That is, at that time, they broke the product or released the product into multiple stages which resulted in the release of an alpha prototype, a demo prototype and so on and so forth and those prototypes marked a testing phase. The testing would be done against the alpha and you would see whether it complied with the requirements set, but today that is less the case than it was back then. He said the alpha prototype generally was not for commercial use. One reason would be that bugs needed to be ironed out before it was released into the market.

436    Mr Maher confirmed that one aspect of what one seeks to achieve in design and development is that any release, whether it is a soft release or a waterfall release, is one where you have got a product that is fit for purpose and one is confident that it is not going to suffer any issues of significance. One does not want any critical or major issues, although inevitably there are going to be some minor or trivial issues that need resolving over time.

437    Mr Maher confirmed that in circumstances where a developer may not have a level of sophistication or resources that involves the developer having sophisticated testing facilities, it is common to trial off-site, in real world conditions.

438    Indeed, Mr Maher said that with products of the sort in question, with rugged instrumentation, one really does need to go through a field trial phase.

439    He was unaware, however, that the Barker tool underwent such a trial process. Indeed, he was not aware that it went through any such process or was trialled or tested on various drill sites.

440    Returning to the question of the Barker tool being ready for market and the process that Mr Maher would expect would be undertaken, he ultimately suggested that he would take the tool and test it for performance because the core orientation is about angles and he would check firstly, that it actually achieved that functionality. Secondly, he would check the performance of that functionality and see how accurate it was. Thirdly, he would rank ease of use, usability and those factors.

441    In re-examination, the question of various forms of development was discussed, including waterfall testing. Mr Maher said that one of the basic fundamentals of being agile is really about the concept of “failing fast”. With the waterfall model, he explained, as you go through the stages, you develop to some specification but you never test it in the marketplace. You never test with your customer. You never test in the real world per se. With agile, what it allows you to do is get to a certain maturity point where you can release the product into the marketplace and essentially see how it goes, getting feedback.

442    As to the differences between the waterfall model and agile development, and the different circumstances in which they might be used, Mr Maher considered that agile development would comprehend core orientation technology. But, he added, that even with a waterfall model, one really does need field testing with “safe customers”. But you would not officially release it commercially.

443    Mr Maher, in further cross-examination, confirmed that with the waterfall product there would not be release to the wider market per se. With agile development, there is commercial release to end users.

444    He accepted, however, that in both models, it is field testing with safe customers, it is before you go mass market, but you do that with agile or you do that with waterfall, it does not matter what model you use. It is a phase before you hit the button to mass produce.

445    Mr Maher further explained the different circumstances in which one form of assessment and testing would apply depending on the product.

446    It is clear enough that the evidence of Mr Maher was, in the end, of limited relevance to matters in issue. He was able to confirm that he was first spoken to by Mr Kleyn in July 2007, but only in respect of the survey camera, although he became aware then, or not so long later, that Mr Kleyn also had a core orientation tool. But he knew little or nothing of Mr Barker and the background to that tool and whether or not it had ever been tested or the like.

447    It was not until October 2008, that Mr Kleyn came back to Procept to develop formally the Procept orientation tool. However, there was activity earlier that year in February 2008. It is just that the formal arrangements between Coretell and Procept did not get to be completed until later.

448    On the face of it, Mr Kleyn was either or both not content with the readiness of the Barker/Camteq tool for commercial release (whether the waterfall or the agile processes, described by Mr Maher, were undertaken) or he was wishing to ensure that the tool developed by Procept would be free of the intellectual property complaints alleged by the applicants against the Barker/Camteq tool that were, at that point, the subject of litigation. The Court would tend to take the view that it was probably both. The question of readiness for market of the Barker/Camteq tool is discussed further below. In other respects, Mr Maher’s evidence does not really go to the comparison between the Camteq tool and the Procept tool, save to identify a range of things that would be done to measure the similarities and differences.

Mr Tonkin’s evidence

449    Mr Tonkin was called by the applicants. His evidence was contained in two affidavits. Prior to October 2010 he had, at material times, worked for Boart Longyear as site supervisor at BHP’s Leinster mine site and did so for two and a half years, finishing November 2006.

450    During that time he oversaw the use of the respondents’ electronic core orientation tool.

451    He confirmed he made a visit to Mr Kleyn’s Orange Grove property in late 2005 relating to the survey camera that Boart Longyear was using at the time. He said that was the first time he visited the property. He was introduced to Mr Kleyn by Mr Lightfoot, having known Mr Lightfoot since childhood.

452    Mr Kleyn showed him an electronic orientation tool and informed him it had not been released onto the market and it was in the testing phase and asked whether he would be willing to run the Camteq tool on one of Boart Longyear’s drilling rigs.

453    Mr Tonkin said that, to the best of his recollection, he said words to the effect of “I’ll run it past my superiors and let you know”.

454    He thereby disagreed with what Mr Kleyn said, to the effect that Mr Tonkin suggested to Mr Kleyn that Mr Tonkin could test the tool. He said Mr Kleyn offered him the tool for testing, not the other way around. He said he lacked the authority to make that sort of decision for Boart Longyear.

455    However, he was interested in trialling the tool once it was offered because it appeared to be simple to use and, on the face of it, could reduce drilling downtime.

456    He said he approached his supervisors and obtained approval for a trial. He recalled in late 2005, three to four kits were delivered to the Leinster mine site.

457    He did not agree with the suggestion by Mr Kleyn that there were no problems with it. He said the drillers only used the tools to create an initial operating plan.

458    He said that whenever he had a problem, he discussed that with Mr Kleyn and, when he was unavailable, Mr Tonkin would speak to Mr Barker. Mr Tonkin said this would involve frequent calls, sometimes several times a week. He referred to a particular email of late January 2006, in which he described how the tool would not power up.

459    Mr Tonkin said that in around March 2006, BHP organised the hiring of Mr Kleyn’s tools by direct negotiations with Mr Tonkin, and he then oversaw the commercial use of the tools at the Leinster mine site from March 2006.

460    He described how the tools were to be used across the five drilling rigs at Leinster. He ran a number of workshops with drill crews, but was not always present when they were used. When they were used, he observed several deficiencies, including that they would not power up due to battery issues. They produced inconsistent readings and would have power but would not activate.

461    He said he made contact with Camteq whenever he had a problem.

462    He said so far as the power issues were concerned, he was not aware at the time that these were caused by problems with the batteries. He recalled that during testing and hire, they regularly became inoperable and had to be replaced, for example, in early March, he telephoned Camteq requesting replacement tools due to power issues on 15, 17 and 21 March 2006.

463    He said such was the frequency of the problems and length of time involved in getting replacement tools, Mr Barker was required to travel to Leinster in late March 2006 to resolve the issues. Following that, the tools continued to lock up or fail to activate.

464    He said that as they were unable to fix the tools on site, faulty Camteq tools had to be couriered back to Perth to be fixed. He said there were times in April 2006 when they had no working Camteq tool kits on site.

465    He recalled that when they did not have enough working Camteq tools, they would have to ask the client (BHP) which rig to prioritise for electronic coring.

466    He denied that the problems with accuracy were caused by operator error.

467    He also said that the operators snapping the core sample was not what was occurring.

468    He denied that the operators were the cause of the problems.

469    He said that the tools were producing inconsistent readings and this was reflected in the inconsistent orientation readings the tools were providing between core runs.

470    The BHP geologists informed him there was a discrepancy. He ran a comparison between the Camteq tool and the orientation tools they were otherwise using and were not able to match up the marks made by the two methods.

471    Mr Barker, he said, came once, and Mr Kleyn also visited in May 2006, and after that, BHP requested that all Camteq tools be removed from the Leinster mine site.

472    Mr Tonkin also rejected any suggestion that he was consulted on a frequent basis about the design features of the tool or that he was an appropriate person to provide such advice and had no involvement in the design process. He provided feedback.

473    He did not accept that he ever made the statement that Mr Barker attributed to him, that the Camteq tool was “an improvement over existing designs”.

474    He said that, despite any initial positive reaction to the tool upon first seeing it, by the time the tools were removed at BHP’s request, he did not consider the tool to be an advancement without further development and trial.

475    Mr Tonkin dealt with a number of emails from the first half of 2006 explaining particular issues and problems that arose.

476    In the result, he said he did not agree that Mr Barker would not have known why the tools were returned to Camteq.

477    In cross-examination, Mr Tonkin explained that at Leinster, five drill rigs were on site at the time he was there, all underground.

478    He, as others, agreed that exploration drilling is expensive and time is not to be wasted. He also agreed that you would not want to be working with unusable orientation tools.

479    He said that “many” Camteq tools came on site for trialling. They probably had two kits to start off with. That is two kits of four units and two handsets.

480    He explained that there were training sessions to get everyone to understand what the tool’s functions were.

481    He was taken to the question of unreliability with consistently inaccurate readings.

482    He accepted that one difficulty was with the wiring disconnecting from the battery pack. He agreed the problem was rectified.

483    Another problem was the membrane button, which was later replaced.

484    He said the main problem though, was that they were not getting the orientation to the geologists’ satisfaction.

485    He said the operators were not the cause of the problem. He had the responsibility of supervising them. He accepted though that he did not go underground and hold the drillers’ hands. He relied on the training they had been given.

486    He said the geologists were also on site.

487    Mr Tonkin said he was sure that what subsequently happened around 31 May 2006 was that they brought all the tools to the surface, packed them up, took them to the dispatch box and sent them back to Camteq.

488    When taken to an email that he had written, he was asked whether he had, in effect, reported that what had been reported to him was about the pencil orientation not matching up with the tool orientation. He said, in effect, that was not so, and he had been down to the core shed many times to match up and explain the process.

489    He agreed that if the core is broken off by the driller, and then an orientation is taken, there will be a problem with the orientation matching up. But he insisted that was not how the drillers were trained to use it. He said they were trained to use it the correct way, which was the way given to them on a laminated sheet. That was used as the training guideline. He insisted they followed the instructions. He said that when he was on the drill site, the drillers were doing the core orientation in the correct fashion.

490    When it was suggested that the tools had in fact remained on site for another couple of months, he could not recall that, but accepted most probably that is what happened.

491    When asked whether the tools remained on site until 26 July 2006, Mr Tonkin said that they could have been stored in the office, he could not recall, but they would not have been used if the client had told him not to use them.

492    When asked about difficulties with geologists, he accepted that he had written that he had asked for feedback about how the tools were working and was not getting it.

493    He was then asked questions about his request for a special size of core orientation tool housing, known as the HQ3.68 diameter tool. He confirmed that he was asking for an adaption when a bigger core size was required. When asked if this was an indication that Boart Longyear was still interested in dealing with the Camteq tool, he said that it was an indication that he had spoken with the client. They were doing a drill hole run against where they were putting a decline in. They wanted to know the foliation of the ground, which meant they needed orientations to be able to see which way the ground was laying while they were driving a new decline of Cliffs. He confirmed it was an important job.

494    When asked whether the chosen tool for this job was the Camteq tool, Mr Tonkin said that was correct, “because the guys have been all trained in it, they were aware of its use”. He said “you don’t go changing tools when people are trained with it”. He agreed that the HQ3.68 diameter tool was really a special one-off order.

495    He was cross-examined about an email Mr Barrett sent to Mr Kleyn dated 8 November 2006, about which Mr Tonkin said he had no recollection because he was not there and had nothing to do with that.

496    Mr Tonkin was also challenged about his physical capacity to personally supervise the drilling runs at all times, something that he accepted as not possible. He also accepted that it was not possible for him to have supervised the use or misuse of the tools at all times, or to have oversight of the drillers using the tools.

497    He accepted the tool was a new tool in the sense that the drillers were having to get used to both the handset and the down-hole unit as distinct from the spear orientation method.

498    He also confirmed there had been Ace Drilling tools on site prior to the Camteq tool arriving.

499    When challenged as to him not being in a position to say whether in fact the drillers were following instructions, Mr Tonkin did not accept that saying: “but they never knew when I was going to turn up, so they were always following instructions”.

500    Mr Tonkin was also cross-examined about backlogged cores. When asked whether there could be drilled core in the core farm that had not been oriented, he agreed and said that he guaranteed there was drill core in the core farm that had not been orientated using the latest modifications. But he said he had never had feedback to say the orientations electronic matching were anywhere close at that time.

501    When pressed about some further correspondence from around 26 July 2006, where Mr Tonkin had said to Mr Kleyn “please don’t get the idea that I’m shoving it offsite completely wrong”, he made the point that he was always interested in anything that would completely remove spear orientation because it was time consuming. That was why he was interested in the electronic orientation device. He confirmed that they were doing a test for it.

502    Senior counsel in cross-examination took Mr Tonkin through a chain of emails that included abbreviated comments about the relative roles and attributes of geologists and drillers and their approaches to life that may be considered to have had some bearing on the approach taken by the drillers, and the geologists, to the trialling of the Camteq tool.

503    Mr Tonkin’s evidence, generally speaking, was that of a person very familiar with the job of drillers. He had the job of supervising them. He understood work requirements and the difficult conditions they worked under. That he expressed the view that drillers perhaps did not test new drilling equipment to the greatest extent possible, did not, in my judgement, affect the evidence he gave concerning the various difficulties that were encountered with the Camteq tool at material times at Leinster.

504    What came through Mr Tonkin’s evidence is that he favoured the new type of tool that Camteq were trialling with them over the earlier spear equipment like the Ace Drilling tool. He was keen to see if it could succeed. There were, however, problems.

505    At the same time, it is clear that the tool was used and continued to be used over a period of time and it cannot be concluded that it was a defective tool, although it did experience a range of problems.

Mr Koushappi’s evidence

506    Mr Koushappi, at material times, was employed by Barminco as general manager of their diamond drilling division. He held that position for 14 years until 2008 and all in all has worked in the mineral exploration industry for around 49 years. He was called by the applicants.

507    With Barminco he was responsible for liaising with mine site operators regarding their production rate, drilling personnel and equipment requirements. In response to Mr Kleyn’s evidence, he said he did not recall ever having attended a demonstration of any electronic core orientation tool by Drillshop and Mr Reynolds. He said had there been a demonstration, then he would have been present at it.

508    The only trial that he recalled of any orientation tool from Camteq, was at St Barbara’s Marvel Loch site. He was not present at the trial, however, but learned that it revealed the Camteq tool was not reliable and Barminco did not subsequently place an order for it.

509    As to Mr Kleyn’s statement that in early 2007, he informed Mr Koushappi that he was not able to supply Barminco with three “Ori toolkits”, he said he did not recall ever making this request given the problems encountered at Marvel Loch.

510    He said that Barminco’s practice was to issue a purchase order for the required supply and he had not seen any such purchase order.

511    In cross-examination, he said Barminco were operating about 40 rigs right around Australia.

512    He was challenged about not recalling having ever attended a demonstration of the tool by Drillshop. He said he was contacted by Mr Williams.

513    As to Mr Reynolds’ evidence of a trial at which Mr Koushappi was present, when pressed, he said that, if it had happened, he was “pretty sure” that he would have remembered something like that and he could not remember it ever happening. He again added that he was fairly sure that if he had been there, he would have remembered it. He was leaving the possibility open that someone else at Barminco was at the demonstration, not him.

514    Mr Koushappi was also shown a summary of tools that apparently went to the Barminco site from 12 June 2006. From those documents he was prepared to accept that the tools were sent to Marvel Loch, either directly or to Kalgoorlie and then onto Marvel Loch. He also accepted there was a “turnover of tools” with the last tools being returned on 15 August 2006.

515    He accepted, on the basis of the documents, that the trialling occurred for a period of at least two months. He accepted drilling is an expensive business.

516    As to whether or not one would not bring on to site a useless tool, he said that you do not know if they are useless until you trial them.

517    He also agreed you would not want to waste time with a useless tool.

518    Counsel then put to him that it was plain that over a period from 12 June 2006 to 5 August 2006, Barminco and Camteq were trialling the tools. He answered that the tools could have been on site, but each hole you drill is different because the client actually requests whether they want the holes orientated or not, so there may have been a period where they did not have to actually orientate the holes.

519    He accepted that for a period of about two months, Barminco was happy to trial the tool. Mr Koushappi said “that was the general idea, yes”.

520    Mr Koushappi was also challenged about his evidence that he did not recall ever making a request in early 2007 of Mr Kleyn to hire all three orientation tool kits. The reason, he said, was that if he had requested them, they would have been on the Barminco supply order system. He added that he might have said to Mr Kleyn over the phone, because they often rang up and joked with each other over different things, and he might have said that he wanted half a dozen of them. He did not know. But he could not recall ordering three orientation tools off Mr Kleyn.

521    He did not accept a proposition that Mr Kleyn may have told him he was not in a position to supply them.

522    He said he could not recall the conversation suggested with Mr Kleyn in early 2007, concerning the hire of three orientation tool kits.

523    When asked whether it was possible that it occurred, he made it clear that he would have known about it if it did.

524    On the basis of that evidence, I should note immediately that I accept the thrust of Mr Koushappi’s fundamental position, namely, that the conversation did not occur.

Mr Herbert’s evidence

525    Mr Rhett Herbert, at material times in 2006, was the area supervisor for Barminco and his responsibilities included staff training and managing drilling rigs in the Kalgoorlie area. He left Barminco in November 2008. He was called by the applicants.

526    He recalled that he was involved in trialling by Barminco of the Camteq tool at the Sons of Gwalia Marvel Loch gold mine site to evaluate its accuracy and performance. He said the trials were carried out under his supervision.

527    He said he made sure the drilling crew was able to use the tool in the correct manner and they ran the tool for several days.

528    He said one of the assessments involved comparing its accuracy to the accuracy of another core orientation tool that Barminco had already been using, the Ace Drilling tool.

529    He said the comparative trials revealed that the Camteq tool was inaccurate and the level of inaccuracy was beyond what he would have expected from any operator error.

530    At the conclusion of the trial, he was instructed to discontinue the Camteq tool. The kit was returned to Camteq at the conclusion of the trial.

531    In cross-examination, Mr Herbert, when asked whether coring is an expensive operation in which one does not want to waste time, was reluctant to answer on the basis that he was involved only with the invoicing, so he could only presume. He agreed, however, that the company would not persist with a useless tool that was not delivering the goods.

532    He confirmed knowing Mr Kleyn and receiving two down-hole units, plus one handset.

533    He was challenged as to his statement that the level of inaccuracy was beyond what he would have expected from any operator error.

534    When pressed as to the actual dates and times of the year when the tools were trialled, he could not be precise. He was also pressed as to how many rigs Barminco was operating in 2006, and suggested it could have been anywhere up to 28 plus drill rigs.

535    In relation to his estimation of a two week trial period, a table was put to him suggesting that tools went backwards and forwards for a period of about two months, between 12 June and 15 August 2006. He did not accept that. He said that he only saw one kit. He accepted, however, that the records seemed to state that the tools went out on 12 June, 3 July and 5 July 2006 variously to Kalgoorlie and Marvel Loch.

536    He was also questioned about his statement that he made sure the drilling crew was able to use the tool in the correct manner. He said he met Mr Reynolds on site and he went through it, before he demonstrated it to personnel on site. He explained it involved initiating the tool and downloading the orientation result.

537    He said he personally supervised underground drilling operations. He was pressed for details about the procedures involved.

538    He accepted that drilling crews change. He could not recall exactly how many drilling rigs were on site at the time. He thought there were about eight in the Kalgoorlie area.

539    When challenged as to whether the tools were on site for a considerably longer period than two weeks, he suggested that to the best of his ability “it was”, which the Court understands to mean just the two weeks.

540    When challenged as to whether the tools were working “broadly satisfactorily”, he said no they were not.

541    Mr Herbert was taken through the procedures by which the drilling occurred and the difficulties apparently discovered with the tools.

542    Mr Herbert’s evidence was given many years after the event in relation to activities with which he had been familiar for a number of years as well. Generally speaking, however, his opinion that there were problems with the tools trialled was not seriously diminished and I accept his evidence in this regard.

Mr Brown’s evidence

543    Mr Kelvin Laurence Brown is the global products manager of Reflex, the third applicant, and he has held this position for over 18 years. He was called by the applicants.

544    Mr Brown gave his evidence on the basis that he had read an affidavit by Mr Kleyn made 11 September 2013 and one by Mr Barker made 10 September 2013, and had also reviewed and commented on the contents of repair reports for the respondents’ core orientation tools returned between January and May 2007 in an affidavit made by him and filed in Court, dated 24 September 2014.

545    Mr Brown gave evidence of his qualifications and experience, including over 20 years’ experience in exploration and drilling. In 2011, he received the Australian Mining Award for Outstanding Contribution to Mining and Miner of the Year, the AMEX, for his role as the lead driller and instrumentation consultant in the rescue of the Chilean miners trapped underground in the San Jose copper mine in August 2010. He was previously employed as a senior driller by DrillCorp Western Deep Hole Drilling from January 1995 until about February 2001 and worked on core drilling programmes throughout Western Australia and was responsible for overseeing and managing all drill crews using core orientation instruments on the rig. Then, on February 2003, he was employed by Mosslake Drilling as its drilling manager and was responsible for overseeing and managing core drilling operations on their rigs. That included hiring and returning equipment used on rigs. He estimated that he had carried out or overseen in excess of over 90,000 metres of core drilling and core sample orientation operations.

546    In early 2004, he joined Imdex working for its business division, Ace Drilling, as its technical sales representative. It was the exclusive distributor for down-hole cameras and survey navigation tools in Australia in the Asian region for Reflex.

547    In January 2005, he became regional manager for Ace Drilling and held that role until 2007 and, in the course of doing so, visited mine sites and introduced and explained Ace Drilling’s electronic core orientation tool, known as the Ace Drilling tool, and reported feedback from drilling crews to the business.

548    He explained that Imdex acquired Reflex in early 2006 and merged its Ace Drilling business with it, following which the Ace Drilling name was no longer used.

549    He commenced his current role as global product manager for Reflex in 2007 and, in addition to visiting sites and sales, he was responsible for the “life cycle management” of Reflex’s rental fleet and the development and implementation of training programmes.

550    Mr Brown in his evidence in chief, by affidavit, sought to give evidence about core sample orientation, the electronic core orientation tools, the respondents’ first generation electronic orientation tool, reported problems at the Boart Longyear site, reported problems at the Barminco site, letters of demand at the commencement of the proceedings, his view of there being no observed cessation of activity, the respondents’ second generation electronic core tool, the light activation feature, electrical components, power issues, and review of repair reports for Camteq tools.

551    While there is objection made on behalf of Coretell to the reception of this evidence, I am satisfied that, by virtue of his qualifications, training and experience, Mr Brown is entitled to give opinion evidence about these various matters and in particular by reference to materials that have been put in evidence, including the evidence of Mr Kleyn, Mr Barker and others.

552    It goes without saying that the ultimate probative value of this evidence is to be assessed by the Court, and the fact that Mr Brown is employed by Reflex, the third applicant, must steadfastly be borne in mind in assessing the probative value of his evidence. But of itself, the fact that he is currently employed and has been for some eight years or more in the applicant group does not, in my opinion, of itself disqualify him from giving opinion evidence.

553    I should also add that while Coretell effectively sought to impugn his impartiality, I do not consider that Mr Brown simply became an advocate for the applicants and his evidence should be considered relevant.

554    It is not necessary here to recount Mr Brown’s evidence about the technique of core sample orientation. It has been sufficiently adverted to above.

555    Nor is it particularly necessary to recount the evidence he gave about the different electronic core orientation tools at material times. Mr Brown said he first became aware of the Camteq tool in March 2006 and, in or about 30 May 2006, was informed that Gilbert Drilling, Argyle Diamond Mine geologists and Boart Longyear at Leinster, had experienced problems with it, including “questions over its accuracy”.

556    He said that about 21 June 2006, he visited the Leinster mine site and also received some feedback on the Camteq tool, to the effect that they had trouble getting the tool to work.

557    Then on about 2 August 2006, he received a telephone call reporting on problems at the Barminco site with the Camteq tool.

558    Mr Brown briefly referred to the threat letters. He further noted that in early 2007, the Camteq tool appeared to be advertised as “now available” on the Camteq website.

559    He then became aware that Mr Kleyn had re-entered the market with a second generation or Procept tool in January 2009.

560    In 2006, Mr Brown inspected the Camteq tool. He gave evidence about how it was to be used and expressed his opinion there were some problems with the light activation feature.

561    He also gave evidence about the electrical components he observed in the Procept tool in approximately 2009 and how it was bespoke. He said that, by contrast, the Camteq tool he inspected in November 2006 incorporated two boards, had loose wiring connecting it to the battery and appeared to him to incorporate features which had been soldered in a private workshop rather than by a professional printing factory. The Procept tool did not suffer these design flaws which could potentially render a tool inoperable.

562    Mr Brown also compared and contrasted the Camteq tool and the Procept tool in respect of the power issues. He identified the Camteq tool problems in that regard, and considered that they had been obviated such that the technical specifications said the total operating time for the handset and probe was up to two years depending on use.

563    Mr Brown also reviewed the repair reports from Hightech from January to May 2007; he formed the view that the tools that had been repaired there failed after less than two or three days in the field.

564    He further said that he understood that Coretell had at most 50 units available in early 2007, and this meant that during a relatively short period of time, 22 of the 50 tools (that is 44% of them) were returned for repair or upgrade, with 13 (that is 26%) experiencing what appeared to be critical errors that would have prevented the tool from being used altogether.

565    On that basis, he did not believe the Camteq tool was commercially viable at the time legal letters of demand were sent by Imdex or at any time before the legal proceedings were commenced on 2 July 2007.

566    In further evidence by affidavit, Mr Brown addressed matters arising out of Mr Kleyn’s second affidavit made 31 October 2014 and Mr Barker’s affidavit made 31 October 2014, which, amongst other things, dealt with additional trialling of the Camteq tool, including emails between Boart Longyear and Camteq in 2005 and 2006.

567    Mr Brown produced a supply and return record for each customer, which he produced as annexure KLB9.

568    Mr Brown expressed his opinion that it was unusual in his experience for a core orientation tool to be returned to the supplier during the course of the drilling program, unless there was a specific problem with the tool.

569    He also addressed the difference between the Camteq tool and the Procept tool and commented on Mr Barker’s report at annexure AGB57 of Mr Barker’s second affidavit.

570    In the result, Mr Brown said it was clear to him that the Camteq tool incorporated a different operating procedure, operating commands, components and user-interface from the Procept tool and did not accept Mr Barker’s conclusion that the tools were “remarkably similar in design”.

571    I do not accept the objection made on behalf of Coretell that Mr Brown’s evidence constituted speculation or was irrelevant. In my view, while the question of its ultimate probative value may be debated, Mr Brown’s training and experience is such that he is able to examine relevant repair and return records and pass an opinion, from his experience in the field, as to how usual or unusual returns for particular reasons might be.

572    The Court would say at this point, however, that, to an extent, Mr Brown was plainly contending for a particular outcome that supports the position of his employer, the third applicant in the proceedings, and to this extent, the Court remains cautious in readily accepting Mr Brown’s conclusions.

573    In cross-examination, Mr Brown was asked about the extent to which the applicants were “watching” the activities of Mr Kleyn and the Camteq products in use in the mining industry, including the camera and later the orientation tool. As of 2 August 2006, a “red flag” was attached to the orientation tool. Mr Brown explained in cross-examination that this was to draw people’s attention to this development and the potential competition.

574    Mr Brown was further taken to some materials that suggested that the Camteq tool was cheaper by about $600 a month. He was also taken to a document concerning the St Barbara Marvel Loch/Barminco mine, which stated that the length of the Camteq tool was similar to the Ace Drilling tool, with the same barrel extension being used to run the Ace Drilling tool as well. It stated that “the geos are impressed with the dip function of Camteq”.

575    Mr Brown indicated that he had attended some of the sites where the Camteq tool was being used. He confirmed that he had the view that the Camteq tools were not on site for very long at either Leinster or Barminco.

576    In that regard, counsel sought to challenge the tables and the opinions based on them prepared by Mr Brown.

577    Mr Brown accepted that what the table showed was that there was a considerable length of time that tools were with customers such as Ausdrill, Barminco, Gilbert Drilling, and Boart Longyear.

578    Mr Brown also accepted that the trial of the products could have been to see whether the tool was working, and whether the customer liked the tool. In other words, just to test to see some sort of market response, particularly with the handset. He accepted that as a possibility.

579    He also accepted as making sense the proposition that the trial could have been, in any event, a short period because it was only for a short trial and the tool was returned at the end of the time. He also accepted that if there was a short trial or it was expected to be a short time, that might have nothing to do with the tool malfunction.

580    Mr Brown also accepted that another reason that the tool could have come back was that it was damaged, however that may have occurred. He also accepted that his table did not take into account the different reasons why the tool may have been returned. He said that his earlier affidavits contained emails which suggested reasons for the returns.

581    Mr Brown also accepted that tools returned because of a Camteq request for a return or for further modifications were not present in the table.

582    He also accepted that the table did not include requests for return because of operator error.

583    Mr Brown was then cross-examined about driller behaviour and operator or operating errors. He agreed that different drillers might have different operating techniques.

584    He also accepted that if tools are not reading orientation correctly, one possible cause of error is that the reading is taken too soon, that is too soon after the cessation of drilling.

585    He also accepted as possible that inaccuracies could derive from the core being broken before the orientation is taken.

586    Mr Brown was further asked about an inspection of the Camteq tool and the Procept tool, and indicated that while he had seen them, he had not done a formal comparison of the two tools, one against the other.

587    He was further asked about what in his evidence he called the comparative differences between the two. For example, the circuit boards were different, something he noticed. He also referred to the loose wiring of the Barker tool that he saw in November 2006. He said the Ace Drilling tool did not have unsecured wires because they had heat shrunk the wiring on the body.

588    Mr Brown also spoke about the issue of a light switch between one and the other.

589    He further separately addressed the question of tolerance and accuracy. He considered the Procept tool was superior to the Camteq tool.

590    Senior counsel put it to Mr Brown that he advanced no evidence of any defect reports relating to the Camteq tool having any issues after August 2006 in relation to matters such as the circuit board, loose wires, lack of conformal coating, the light switch or its tolerance. His general answer indicated that he thought quite possibly his earlier affidavits had drawn conclusions on that basis. Mr Brown agreed, however, with the proposition that they were different products by design. He said they achieved the end goal. He accepted the Procept tool was a down-hole unit. He agreed it had a separate handset. He accepted that it had a handset in which the electronics were placed. He accepted that the Camteq tool had a design so that the handset would communicate with the down-hole unit and that the handset communicates with the down-hole unit before the tool goes into the hole. And also communicates with the down-hole unit after it is retrieved from the hole. And that was also the case with the Procept tool. He confirmed they both worked with accelerometers. He also accepted they both derived rotational orientation.

591    When asked whether the tools exhibited any differences with the external housing for the down-hole unit, he said not of any significance.

592    Mr Brown was then asked, if the circuit board were an issue, that it would have been fixable by dipping it in the conformal coating. He was not able to answer that, only to make an assumption.

593    Mr Brown agreed fixing loose wires would be an easy thing to achieve.

594    As to the light switch, he thought it would not be a feature he would want to have in an instrument in the drilling industry. He was unable though to comment meaningfully on the use of a membrane switch in the Camteq tool.

595    In relation to circuit boards – of which senior counsel produced three for the purposes of questions – Mr Brown ultimately said that impact always breaks everything but vibration is the enemy. That is what the epoxy is for. The coating is a way of managing vibration. If water ingress is the issue, you would apply some other form of coating.

596    Mr Brown was handed the third of these boards, said to be from the down-hole Procept tool. He did not agree that it was protected from shock. He did not consider it was protected from impact. He noted it had a perspex window on it. He considered that was more for protection from water ingress, not impact.

597    Senior counsel then turned to the question of drilling core.

598    He accepted in relation to a statement about a five to 10 degree error range, that it should be a possible maximum error of six degrees and that is what Mr Barker had been talking about in his report, that is the handset indicating that the core is at top dead centre plus or minus three degrees. Mr Brown was then taken through the example of NQ core. He appeared to accept that plus or minus three degrees, or plus or minus 1.25mm, would be good enough. Speaking as a driller, Mr Brown said he would be happy with that, but his customer might be a bit more concerned than him, “but as a driller, wouldn’t see the reason to split hairs”.

599    Mr Brown was then cross-examined about the take up of digital core orientation. By reference to evidence given in the NSW proceeding, he said that not until approximately 2009, did it gain overall acceptance within the industry.

600    It was put to Mr Brown that with the Ace Drilling tool, business was very “brisk” earlier than 2009. Mr Brown said he was not saying that but in response to the question whether it was a good product for the company, he answered “Overall. Absolutely”. But denied that was the case from the start up, from the get go. He disagreed with that.

601    He was taken to the divisional highlights of Imdex’s 2005 annual report, which suggested that Ace Drilling was benefiting from “strong increases in the resources sector and the introduction of the new electronic core orientation tool, lifting revenue by 23% and EBIT by 63% in financial year 05”.

602    When taken to other information, he accepted that what was contained in these reports was “at odds” with what he had said at [37] of his affidavit. Mr Brown then said that what gets reported in annual reports “is always very upbeat”.

603    He also put qualifications on other statements made in the annual report for 2006.

604    He, however, did not think he was in a position to comment on what the position was at November 2006 and whether Imdex was earning significant revenue from the Ace Drilling tool then. He said the business as a whole seemed to be going well, the commentary sounded really good and he did not argue that the business was doing well. He said that shareholders reading the report would certainly draw that conclusion.

605    The question of the threat letters in late 2006 was then raised with Mr Brown. He inspected one of the allegedly offending tools in November 2006, and he identified features which he thought were similar to the applicants’ tool.

606    Mr Brown agreed that revenue was being generated by Ace Drilling in relation to its core tool in 2006 and onwards, but could not say what percentage of the revenue was core tool versus any other tool or products made at that time. It was his understanding it was something that was growing.

607    He accepted, however, that other than the Camteq tool, there was not a competitor electronic core orientation tool.

608    In re-examination, in relation to Mr Brown’s table, concerning “kits going on our sites”, he explained how he had looked at materials that Mr Kleyn had supplied.

609    He also explained that he did not deal with Silver City information because it did not appear in the 2006 folder that Mr Kleyn had produced.

610    Similarly, he did not consider the MTL Philippines materials because it was not in the 2006 folder supplied by Mr Kleyn.

611    Finally, he confirmed he had not seen in the Kleyn 2006 folder any defect reports after August 2006, and thereby, by implication, had not identified any defect reports after that date in his table, for that reason.

Mr Lightfoot’s evidence

612    Mr Lightfoot is the project manager of Ausdrill and was called by the applicants. His evidence was not contested at the hearing and is as follows:

1    I am employed as the Project Manager of Ausdrill Northwest. I have worked with the Ausdrill Group since 2007.

2    For the purpose of making this affidavit, Chris Williams of Gilbert+ Tobin has provided me with the Affidavits of Mr Barker sworn 10 September 2013 (Mr Barker’s Affidavit) and Mr Nicky Kleyn sworn on 11 September 2013 (Mr Kleyn’s Affidavit). I respond to those affidavits to the extent that they refer to matters that involved me.

3    Unless otherwise indicated the contents of my affidavit are based on my knowledge.

Background and Experience

4    I have been involved in the Exploration Drilling industry for approximately 40 years. My experience in the sector includes working on drill rigs for approximately 10 years and then working in Sales and Marketing of drilling products for approximately 20 years.

5    I was previously employed for approximately 12 months ending in late 2005 as a Marketing and Sales Manager by a company operated by Nick Kleyn, known as “Camteq”. When I joined Camteq, the company’s principal source of business was Mr Kleyn’s fleet of photomechanical survey cameras. I was responsible for organising sales of that equipment for the company.

6    Upon leaving Camteq in late 2005, I took up a position with Anderson Drilling Pty Ltd’s Ballmark business. Ballmark sold a mechanical core orientation tool and my role was to market the product for hire in Australia and Africa.

7    In January 2007, I left Ballmark to join Ausdrill Ltd as Site Manager. I subsequently took up my current position as Project Manager for Ausdrill Northwest.

Response to Mr Barker’s Affidavit

8    In response to paragraphs 27 to 38 of Mr Barker’s Affidavit. I recall that when I first met Mr Barker I was aware that Australian Mud Company (AMC) had recently released an electronic core orientation tool onto the market, which I knew to be the Ace Core Tool (ACT). I was also aware of an electronic survey tool that had been released in Canada or North America at around that time. These tools operated in a different manner to the mechanical core orientation methods that I was familiar with at this time.

9    During one of my conversations in approximately early 2005 with Mr Kleyn regarding Camteq’s development of a core orientation tool (Camteq Tool), I asked Mr Kleyn whether he was concerned about whether Imdex held patent rights in the field of electronic core orientation. I recall a conversation to the following effect:

I said:    ‘Aren’t you concerned that the tool might be covered by a patent?’

Mr Kleyn said:    ‘No, the tool we are developing will not interfere with their patent’

10    During all my time at Camteq, Mr Kleyn never said in my presence anything about his concern about potential litigation, involving AMC’s patent or otherwise.

11    In response to paragraphs 51 to 61 of Mr Barker’s Affidavit, while I recall production of a prototype in early 2005, the Camteq Tool was not ready for commercial release by the time I left the company. During my time at Camteq I did not request customers to submit orders for the tool and, to my knowledge, the Camteq Tool had never been used in the field. The Camteq Tool was still very much in development phase by the time I left Camteq in late 2005.

Response to Mr Kleyn’s Affidavit

12    I refer to paragraph 18 of Mr Kleyn Affidavit. At that time, Camteq was a small family run company that operated from Mr Kleyn’s residential premises located in 10 Reservoir Road, Orange Grove, Perth. It comprised a house on a block of land with a workshop separate from the house.

13    At paragraph 105 of Mr Kleyn’s Affidavit, I understand that Mr Kleyn suggests that I was involved in organising trialling and commercial sales of the second version of the Camteq Tool in late 2009. This is not correct. I have never seen the second version Camteq Tool. After leaving Camteq in late 2005, I had no further role in marketing Camteq products.

Some findings arising from this evidence

613    Coretell submits that, aside from Mr Brown, the applicants’ lay witnesses approached their evidence in an honest and credible manner.

614    It says Mr Brown was partisan and gave evidence beyond his capability, qualifications or expertise and, to that extent, his evidence should be treated with caution. I have dealt with those submissions above and have, in substance, rejected them.

615    Coretell says that its lay witnesses, Mr Kleyn, Mr Barker, Mr Maher and Mr Reynolds, gave their evidence honestly and credibly. It says that while Mr Kleyn became terse with the cross-examiner in the witness box, that should not detract from his integrity or his honesty and it is understandable that he found himself in an emotional position, having been engaged in seven years of litigation by the applicants. I will return to Mr Kleyn’s evidence below when dealing with primary factual questions, but largely I accept these observations about his evidence made on behalf of Coretell.

616    Coretell says that Mr Tonkin’s negative written evidence about the “unworkability” of the Camteq tool as used at Leinster should be treated with caution. In his cross-examination, it is contended, Mr Tonkin “gradually modified” his statement that the tools had not been in use after May 2006, as he sought to explain emails put to him which set out continued use of the tools after May 2006. Nonetheless, he initially maintained they could have been stored at the office and he did not recall, but they would not have been used if the client had told him not to use them.

617    Coretell points out that he nonetheless accepted in cross-examination that the tools remained on site until July 2006 rather than May 2006, and recalled that a driller dropped a spanner onto a hand pad at that time.

618    Coretell says that “[a]fter changing his evidence as to the extent of time the tools were on site” Mr Tonkin also agreed in cross-examination that in October 2006, Boart Longyear ordered a special size of core orientation tool housing to be manufactured by Coretell and sent to the Leinster site to enable use of the tool on an important project for a client identified as BHP, which apparently had earlier asked for the tools to be removed from the site on Mr Tonkin’s evidence. That order was on commercial terms.

619    Coretell says the contemporaneous records indicate that Boart Longyear’s request to remove the tools from the Leinster mine site in about July 2006 may have been due to operational reasons rather than technical issues with the tools, as an email from Mr Tonkin to Mr Kleyn dated 26 July 2006 advised of the removal and referred to “geo’s here having no leadership”, the hand pad being damaged by an offsider and the fact that Mr Tonkin could get no feedback on the operation of the tool.

620    Coretell also suggests that further issues in early November 2006 may have been due to business connections rather than technical issues, Mr Kleyn noting that one of the managers at BHP was a friend of the general manager of AMC and Ace Drilling, and Ace Drilling was telling BHP that the Coretell tool was wrong.

621    In any event, Coretell submits that even if Boart Longyear or BHP were of the view that there were technical problems, the opinion may have been based on an erroneous factual foundation, suggesting that Mr Tonkin was not in a position to directly supervise day-to-day use of the tools and was not responsible for direct supervision of the drilling runs.

622    Thus, Coretell submits, the Court cannot rule out that some or all of the problems, as set out in Mr Tonkin’s evidence, were due to driller error.

623    Coretell submits that this position was independently corroborated by Mr Brown, who agreed that in exploration mining there were different shifts and different crews on the same rig and the same tools at different times, and that some drillers would operate them differently to others.

624    In the result, despite the attempts on behalf of Coretell to minimise or explain away Mr Tonkin’s evidence, in my view, Mr Tonkin was a direct witness who had not in any respects tailored his evidence. Any suggestion or implication that the reason the Camteq tool was sent back to Coretell was not due to technical failure but due to business reasons, or that Mr Tonkin had inadvertently or incorrectly formed the view that there were technical problems with the Camteq tool when it was really a driller’s problem in using the tool, were answered by Mr Tonkin in cross-examination. He refused to accept an explanation that ongoing accuracy issues were caused by drillers using the tools incorrectly. He explained they were used in the harshest conditions in accordance with the instructions and extensive training provided. I accept a submission made by the applicants that from this evidence there is no reason to assume the drillers would have consistently used the tools incorrectly. Nor is there any basis to Coretell’s contention that the inaccurate results were simply the result of a backlog of core samples or tools without latest modifications. As Mr Tonkin explained, and I accept, the backlog in core samples in May 2006 was no longer than three or four days.

625    Thus, I accept and find that by the end of July 2006, Mr Tonkin had determined that the problems with the Camteq tool had not been fully rectified and the geologists were no longer interested in providing feedback because it was not operational after significant trialling. In the event, this evidence was not seriously undermined in cross-examination.

626    As to the later supply of the special size of the core orientation housing tool in October 2006, Mr Tonkin said that these tools also failed and that BHP requested their removal in late October 2006. That evidence, as submitted, is consistent with the documentary record.

627    As to Mr Herbert’s evidence, Coretell submits that it appeared rather confused and it appeared he had a poor recollection. It is submitted that he needed to protect his reputation as a supervisor by insisting that his drillers must have been following instructions. It is submitted his evidence is unreliable. It is also submitted there were a number of problems in the manner in which the testing was done at the Marvel Loch site.

628    Coretell says that Mr Herbert initially said the tools were at Marvel Loch over several days and then changed his evidence to say they were on site, whether they were being used or not used, for two weeks. He denied the tools were on site for as long as Coretell’s business records indicated. In fact, the records suggested they were at Marvel Loch from 12 June to 15 August 2006, about two months.

629    Coretell says that Mr Herbert did not seem properly familiar with the Camteq tool. He agreed that the pressing of the take measurement button too early would lead to an error but was not aware that taking the orientation after breaking off could also lead to an error, as was accepted by others.

630    It is said his view was that the only way this could lead to incorrect data was if the sample was lifted and then placed back down. He was the only witness to deny that taking the orientation after breaking off could lead to an error. It is submitted that it is possible he passed on such erroneous instructions to drillers that he supervised.

631    Coretell submits that training in the tool at Marvel Loch appeared to be rudimentary. It says that Mr Herbert’s evidence about the extent of his personal supervision was unsatisfactory and he confirmed that he did not personally supervise the drilling operations all of the time. The assertion that he personally supervised 100 hours of drilling in a two week period, it is submitted, should be treated cautiously.

632    The applicants say that Mr Herbert, when he gave evidence, only said that he saw one kit and for that reason he denied that the length of time the tools were on site was as long as the business records indicate.

633    For my part, while it should be accepted the kits were there for the length of time that the records indicate, that evidence does not undermine the burden of what Mr Herbert had to say. Nor does it mean that Mr Herbert was an unreliable witness.

634    The burden of Mr Herbert’s evidence, that the trial of the tools resulted in the tools being found to be unsatisfactory, in my judgement reflects his true evidence which I accept to be true, despite the attempts to undermine it in cross-examination.

635    As to the clash of evidence between Mr Koushappi and Mr Reynolds as to whether Mr Koushappi was at a demonstration Mr Reynolds said he gave to Barminco in Kalgoorlie in mid-2006, Coretell says Mr Koushappi could not remember the demonstration but agreed that he could not rule out that it occurred.

636    It says he was also not in a position to dispute that the tools had been on site from 12 June to 15 August 2006, and he agreed that the records indicated that Barminco was content to keep working with Mr Kleyn on the trialling of the tool throughout that period.

637    Coretell says that Mr Koushappi agreed it was possible he had made an enquiry of Mr Kleyn in early 2007 for core orientation tools and that the generation of any formal order based on that conversation would have depended on the price offered by Reflex and Camteq on their tools. Mr Koushappi confirmed Camteq was in the running, and the placing of an order would have depended on the price of the unit.

638    Coretell says Mr Koushappi’s evidence was confirmatory that, following the Marvel Loch trial, he did not have major concerns about the merchantable quality of the tools and would have made an order if Camteq had been competitive on price.

639    The applicants submit the transcript references show that Mr Koushappi gave evidence that he could not remember the demonstration and that there is no evidence to show that he agreed that he could not rule out that it had occurred.

640    As to inquiring of Mr Kleyn about core orientation tools in early 2007, the applicants point out that Mr Koushappi simply agreed that “anything’s possible”, evidence of low probative value.

641    I broadly accept the submissions made on behalf of the applicants. The reality is, in my judgement, that Mr Koushappi had no memory at all of a demonstration conducted by Mr Reynolds. It may have happened but he thought he would have remembered it if it did.

642    Regardless, Mr Koushappi’s evidence concerning the unsatisfactory trialling of the Camteq equipment is not undermined.

643    There is no evidence to reliably support a finding that Mr Koushappi was comparing other products with those of Camteq in early 2007.

644    Coretell also addresses the evidence of the email exchange between Mr Kleyn and Mr Barker in December 2006 and into 2007.

645    Coretell submits that while Mr Barker sensibly accepted that Mr Kleyn had been keen to have the tools out on hire, the evidence is clear that Coretell could not do so because of the threats.

646    Coretell notes that Mr Barker was extensively cross-examined and re-examined on the email thread commencing 22 December 2006, and maintained that the tools were ready for market. He pointed out that the problems referred to in the email exchange were “simple, silly problems” that were easily resolved. He expanded upon that in re-examination. Mr Kleyn said he exaggerated issues in the email of 22 December to get Mr Barker back to work.

647    Mr Barker, Coretell says, was extensively cross-examined on an 8 March 2007 email thread and it was suggested to him that a reference to “manufacturing/production must be given priority at all times” was actually a reference to a need to continue developing a flawed core orientation tool, which Mr Barker rejected.

648    Coretell notes that Mr Barker was also cross-examined on a 3 July 2007 email thread in which Mr Kleyn expressed agitation in a delay in the orientation tool being on hire and Mr Barker maintained his view that “I do believe the tool was ready earlier – the Ori-tool was ready earlier than that”. Coretell says Mr Barker was further cross-examined about the low level of production of the Camteq tool at that time, and rejected that the low level of production in 2007 was due to problems with reliability of the equipment, and said that his “time was primarily focussed on the camera by that stage so we weren’t mass producing tools”.

649    Coretell notes Mr Barker was briefly cross-examined on an entry in a 30 July 2007 email which referred to a handset locking up. Although not asked for an explanation, an explanation was given in re-examination and it related to a proposed upgrade to the handset rather than some fault in it.

650    The applicants, in relation to Coretell’s submission that Mr Barker stated that the problems that were “simple, silly problems” that were easily resolved but had seemed important to Mr Kleyn as he was a person readily agitated and did not have technical expertise, submit that the transcript reference shows that Mr Barker does not give any such evidence regarding Mr Kleyn’s personality. That last point is accurately made and I proceed on that understanding.

651    Generally speaking I consider that Mr Barker gave honest and reliable evidence and was not at any great pains to colour his evidence. However, while from his point of view he confidently considered that he had produced a product that was ready for market – accepting there remained issues to be resolved – a serious question remains whether his perceptions mean the Court should arrive at this same conclusion on all the evidence. This question and the question whether his evidence should result in a finding that there were no merchantable quality issues with the Camteq tool at material times is considered further below. In the result, taking into account the evidence concerning trialling of the tool in the field, canvassed above, Mr Barker’s evidence and Mr Kleyn’s evidence – all pointing to more work requiring to be done on the tool – I do not accept that the tool was, in fact, ready for market towards the end of 2006 when the first threat letter was received.

Is Coretell a “person aggrieved”?

652    This question is the subject of a range of submissions made by the parties, raising the following issues: whether Mincrest had assigned the Camteq tool to Coretell at material times; to whom the threat letters were actually addressed at particular dates; and the significance of the declaration and order made on 22 December 2010.

653    As noted above, following my first, liability judgment in this proceeding, letters sent on behalf of AMC dated 14 November 2006, 5 December 2006 and 13 February 2007 were declared unjustifiable threats of patent infringement and an enquiry into damages was ordered. The precise terms of the declaration and order have been set out above. The applicants say the first threat actually addressed to Coretell was the third, 2007 letter, the earlier two being to Mincrest.

654    In response, Coretell says that in or around May 2006, and certainly by 22 November 2006, Mincrest had assigned its proprietary interest (or at least an equitable interest) in the Camteq tool to Coretell and that, as a result, each of the threat letters, whether addressed to Coretell directly or not, are actionable by Coretell, or Coretell is a “person aggrieved” who is otherwise entitled to claim the loss and damage suffered by the respondents.

655    Coretell submits that there can be no doubt that each letter threatened patent infringement proceedings based on the patent in question and each letter asserted that the core sample orientation tool – defined in the correspondence as the Camteq tool – was an infringement of the patent. Similarly, each letter demanded undertakings concerning the tool consequent on the asserted infringement.

656    Coretell contends that, as a matter of law, it is not to the point that the initial threat letter and demand was addressed to Mincrest, and relief for unjustified threats under s 128 of the Patents Act has never been confined to the specific addressee of a threat. See Johnson v Edge (1892) 2 Ch 1; John Summers & Sons Ltd v Cold Metal Process Co (1948) 65 RPC 75.

657    Coretell says the threat of patent infringement was against the Camteq tool, as made plain by the threat letter dated 14 November 2006.

658    Coretell also says that, in fact, the applicants’ solicitors had the wrong addressee. As at 14 November 2006, the proprietary interest in the Camteq tool was believed, and stated by both Mincrest and Coretell, to have passed from Mincrest to Coretell. That position, it is said, was stated unambiguously to the applicants’ then solicitors, Mallon & Co, by Arns & Associates, then solicitors for the respondents, in letters dated 22 November 2006 and 14 December 2006. Coretell says that, relevantly, however, both letters expressly made clear that Coretell understood that the threat or threats being made against the tool were threats against Coretell and its asserted proprietary interest in the tool.

659    Coretell says this position also accords with the unjustified threat letter of 13 February 2007, in which Mallon & Co responded to Arns & Associates’ letter of 14 December 2006 and stated: “Our client repeats its demands that Mincrest and Coretell provide the following undertakings” (emphasis added in submission). Thus, Coretell contends, the applicants accepted that their demands were also being made to Coretell.

660    Further, Coretell contends that the making of the above declaration and order put beyond dispute its entitlement, as a person aggrieved, to prove its loss and damage and the question is res judicata. In essence, it contends the relief granted establishes Coretell’s interest to claim damages and the Court should not look behind the declaration and order made.

661    In response to these submissions, the applicants submit:

(1)    That the res judicata plea is not part of Coretell’s pleaded case.

(2)    In any event, the Court has not made any finding preventing the applicants from contending, as a threshold question, that Coretell is not a “person aggrieved” in respect of the letters sent to Mincrest. Rather the Court has determined and declared that AMC’s threats to commence legal proceedings were unjustifiable. A “person aggrieved” for the purpose of s 128 of the Patents Act includes persons who have been threatened directly, those threatened by clear implication and those whose commercial interests stand to be damaged as a result of the threats. In the present case, the initial threats were directed to Mincrest (not Coretell), there is no clear implication (unlike the final threat) that the applicants also intended to commence proceedings against Coretell and it is unclear how Coretell’s commercial interests stood to be damaged as a result of proceedings threatened to be brought against Mincrest. Accordingly, the threats period only commenced on 13 February 2007 when threats to commence proceedings were first issued to Coretell.

(3)    The real issue is whether Coretell is entitled to claim loss and damage based upon the controversial contention of Mr Kleyn that he assigned the “tool business” from Mincrest to Coretell. If there was no assignment, (there was no written assignment and Coretell now impermissibly travels outside its pleaded case and alleges there was an equitable assignment) then any loss (which is denied) was to be claimed by Mincrest not Coretell. Mr Meredith’s evidence, discussed below, is predicated on the assumption that Coretell is the owner of the Camteq tool. In the related NSW proceeding, the applicants note, the issue of a valid assignment was determined by McKerracher J against Coretell’s current claim.

662    The Court accepts that, one way or the other, the question whether there was an assignment of property, or indeed any interest, in the Camteq tool from Mincrest to Coretell at material times, is relevant to the damages enquiry and may be pressed by the applicants. This issue may be said, however, to be more directly relevant to the question whether Coretell has itself sustained any damage, and less so to the question whether Coretell is a “person aggrieved”.

663    I say that because s 128(1) of the Patents Act, set out above, empowers this Court, on the application of a “person aggrieved” – that is to say, a person who has been threatened with infringement proceedings – to make a declaration that the threats are unjustifiable and to deal with the recovery of “any damages sustained by the applicant as a result of the threats”.

664    In circumstances where the respondents alleged unjustified threats by the applicants and sought a relevant declaration and an order for a damages enquiry, and the Court, following the dismissal of the applicants’ infringement proceedings, granted the relief in the circumstances set out above, the view should be adopted that it is now too late for the applicants to contend that Coretell is not a “person aggrieved”. The declaration has been made that it is, and must stand.