Zimmer-Vorhaus v Taylor [2005] FCA 315

FEDERAL COURT OF AUSTRALIA

Zimmer-Vorhaus v Taylor [2005] FCA 315 KLAUS ZIMMER-VORHAUS v PAUL TAYLOR AND ANOR N 719 of 2003 ALLSOP J 31 MARCH 2005 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 719 of 2003

BETWEEN: KLAUS ZIMMER-VORHAUS

APPLICANT

AND: PAUL TAYLOR

FIRST RESPONDENT

The Institute of Patent and Trade Mark Attorneys of Australia

SECOND RESPONDENT JUDGE: ALLSOP J

DATE OF ORDER: 31 MARCH 2005

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. Judgment be entered for the applicant against the first respondent in the sum of $151,000. 2. The cross-claim of the first respondent against the applicant be dismissed. 3. The first respondent (cross-claimant) pay the applicant's (cross-respondent's) costs of the proceedings against the first respondent (cross-claimant), including the cross claim, on an indemnity basis. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 719 of 2003

BETWEEN: KLAUS ZIMMER-VORHAUS

APPLICANT

AND: PAUL TAYLOR

FIRST RESPONDENT

The Institute of Patent and Trade Mark Attorneys of Australia

SECOND RESPONDENT

JUDGE: ALLSOP J

DATE: 31 MARCH 2005

PLACE: SYDNEY

REASONS FOR JUDGMENT

1 The applicant is a former client of the first respondent (Mr Taylor) who was at all relevant times a patent attorney practising in New South Wales. The applicant claims monetary relief against Mr Taylor arising out of what are said to be defaults in the conduct of the applicant's affairs. 2 On the first day of the hearing, I made orders dismissing the claim against the second respondent. However, those claims were based on s 52 of the Trade Practices Act 1974 (Cth). The claims against Mr Taylor, based as they were on breach of the retainer, were bound up integrally with the claims against the second respondent and so were part of the one matter or controversy arising under a law of the Parliament. 3 Mr Taylor made a cross-claim against the applicant for unpaid fees. 4 The pleaded claims of the applicant were that from 20 September 1993 the applicant retained Mr Taylor to act for him as a patent attorney. The applicant claims that he gave to Mr Taylor moneys on account of fees, including fees due to overseas patent attorneys for costs and expenses, in relation to foreign registration of a patent concerning a pump. The applicant claims that Mr Taylor did not pass the moneys on to the foreign attorneys, but fraudulently misappropriated the funds. The overseas patents were lost thereby it is said, thus causing loss and damage. Though fraud is pleaded the paragraphs are wide enough to encompass a claim for an account of the funds provided. The hearing was so conducted. 5 The applicant's first affidavit, to which there was no real answer, and little cross examination, established the following. The applicant was an inventor. In 1992, he began developing an idea for a water powered pump. A prototype was developed in about one year. The applicant met Mr Taylor at meetings of the Inventors' Association. After checking that Mr Taylor was a member of the Institute of Patent and Trade Mark Attorneys the applicant retained Mr Taylor. He told Mr Taylor that he had developed the pump and he wanted to know how to protect the idea. Mr Taylor said that he would need to register a Provisional Application to begin with. Mr Taylor asked to be put in funds. The applicant did so. 6 In mid-1994, the applicant and Mr Taylor met and discussed the countries in which the applicant would need to register his patent. Shortly after 11 August 1994, the applicant gave Mr Taylor instructions to proceed to protect the pump invention internationally in accordance with the terms of a letter of that date. Funds were called for and provided. 7 In about October 1994, the applicant developed a further device, a pump piston. He asked Mr Taylor to obtain provisional registration for this. Mr Taylor agreed, and called for funds, which were provided. In particular, on 15 November 1994, the applicant paid Mr Taylor the sum of $25,500 on account of effecting registration in various overseas countries. 8 Thereafter, correspondence followed asking for funds and stating that work had been done. 9 It is necessary to examine in some detail what moneys were paid, for what purposes and whether Mr Taylor applied them as he was telling the applicant. At total of $104,050.83 was paid by the applicant to Mr Taylor. Mr Taylor claims in his cross-claim that he is owed $21,415.05 as the balance of his fees. It would appear that the moneys given to Mr Taylor on account of payments to overseas attorneys were allocated by Mr Taylor to his own use on account of fees. The applicant said that this was without his instructions. The debit notes with claims for payments to overseas patent attorneys totalled over $60,000. The evidence reveals that only sums being a fraction of that were paid to overseas attorneys, and then only in circumstances of such lateness that all overseas patents lapsed. 10 In May 1999, the applicant wrote to the first respondent stating that the piston invention though workable and effective was not commercially viable. He asked that all patent applications for the piston invention be terminated. As to the pump patent application the applicant in the same letter sought a restriction to the following overseas markets: USA, Canada, China, India and Korea. 11 By this time all the $104,050.83 had been given to Mr Taylor. 12 The letter of Mr Taylor in reply of 22 June 1999 asserted non-payment of fees and told the applicant of the lapse of some of his patents. 13 In his affidavit, the applicant recounted a conversation in 1999 wherein he taxed Mr Taylor about the absence of any protection in the United States. The following was said: Me I have done a search. My patent for the pump is not registered in the United States. What has happened? 1st Respondent You have not paid me for the patent. Me I have paid you the sum of $8,470.20 to date. 1st Respondent I have allocated the money somewhere else. Me Where? 1st Respondent I can't immediately tell you. I will have to go through my records. 14 The inability of Mr Taylor to give any accounting for funds received and any explanation for the applicant's position continued up to and including the close of evidence before me. 15 After this correspondence and exchange the applicant made enquiries of the overseas patent attorneys. He discovered that very little of the funds that he had provided to Mr Taylor for overseas attorneys had been paid to them. 16 The applicant denied that he was ever informed about the loss of his patents by Mr Taylor, prior to 1999. I accept this. 17 After about 1995 when the applicant had thought that he had set in train the protection of his intellectual property in the pump and piston, he set about attempting to market the inventions. He appointed an agent to market the pump in China. Activity was undertaken in China and some interest shown. In 1997 delegations from China came to Australia to view the pump. Interest in China declined at a time when the applicant's Chinese patent appears to have lapsed. The applicant gave evidence in very general terms of similar pumps doing well on the Australian market. 18 The evidence, including the documentary evidence reveals that real and substantial steps were taken to market the invention, especially in China. They do not however provide a clear basis upon which I can assess the value of the lost opportunity of not having effective patent protection in the various countries, in particular as limited by the applicant's letter of May 1999. However, a statement of a Mr Spring was tendered. Mr Spring was the retained agent of the applicant to market the pump. He was not present in Court, being overseas. After I explained to Mr Taylor the evidential position, he indicated that he did not object to the statements going into evidence. (It is to be noted that on p 17 of the transcript where the words "Mr Nair" appear twice, they should be "Mr Taylor".) Mr Spring's statutory declaration included material that in discussion in China there had been reference to the applicant being paid AUD 10 million for the "intellectual property". Mr Lee, another agent for marketing, also made a statutory declaration which was likewise admitted without objection. He, like Mr Spring, gave evidence of discussion of strong interest in China and of the intellectual property in the pump being valued at AUD 10 million. 19 The applicant also gave oral evidence about the value of the pump. He said that he developed the pump close to production level and marketed the pump. He calculated the market as very substantial in various countries. 20 The applicant sought to prove the value of the loss of intellectual property by evidence explaining Exhibit B. This was a market projection of sales by another company which the applicant called a "vaguely identical device". The applicant took a figure which was said to be the number of these other pumps sold in the UK, divided that into the population of the UK to reach 17.857 pumps per million. He then took various countries, including China and mathematically extrapolated this figure into their populations. So, he calculated sales per annum in China of 22,548 pumps, India 17,170 pumps and so on as in Exh B. This was a wholly arbitrary calculation, based on an unknown though "vaguely identical" item. I place little reliance on such mechanical extrapolations as any reliable guide to future sales or the worth of the lost opportunity of the intellectual property. 21 As to the conduct of the applicant's affairs by Mr Taylor, the documentary evidence is ultimately incomplete. That however was due to Mr Taylor's, unwillingness or inability to assist in the accounting process. He gave no coherent explanation as to what he did with the applicant's funds, notwithstanding his possession of his files. On the second day of the hearing, he resisted production of his files claiming privilege against self-incrimination. His evidence was confused, as was his affidavit. At times he was deliberately evasive. There is no material before me to enable me to conclude that he took any worthwhile step on behalf of the applicant which may be seen to be in furtherance of his retainer of any lasting benefit to the applicant. It may well be that all the funds that appear to have been provided were wasted. 22 It appears on the evidence before me that the applicant's instructions to obtain patent protection in the United States, Europe, Canada, Russia, China, Taiwan, India, the Philippines, Vietnam, Indonesia, South Africa, Malaysia and Thailand were not followed. I am not able to conclude that any of the $104,050.83 paid by the applicant to Mr Taylor from October 1993 to 9 April 1999 have been put to any good use in the affairs of the applicant. The material before me does not, however, enable me to carry out a reliable analysis of the whole relationship. The claim was fundamentally directed to the failure of Mr Taylor to pass on funds to overseas attorneys, his misleading the applicant in that regard and the value of the loss of the overseas intellectual property rights. Although, in address, Mr Nair, counsel for the applicant, claimed damages recognising the wasted nature of all the sums given to Mr Taylor. 23 The evidence does not disclose any coherent explanation of what was done by Mr Taylor to justify his fee notes which total $134,514.34. More particularly, it appears from the evidence that the following sums were expressly or impliedly stated by Mr Taylor to be payable by the applicant for overseas associates, were paid by the applicant and virtually none of that money was transmitted to those associates. Country Amounts debited on behalf of overseas expenses Amounts paid to the overseas party USA $19,793.04 USD 727.84 Canada $2,383.54 - China $4,483.07 - Taiwan $4,803.94 - Indonesia $3,874.04 - South Africa $1,927.76 (Some part payment) Philippines $2,116.15 India $994.66 USD 576.00 Thailand $1,046.03 - Malaysia $1,922.44 USD 782 Russia $9,727.22 Vietnam $2,880.41