Re Allergan Pharmaceuticals Inc and Allergan Pharmaceuticals Pty Limited v Bausch & Lomb Inc and Bausch & Lomb (Australia) Pty Limited [1985] FCA 369 (4 October 1985)

FEDERAL COURT OF AUSTRALIA

Re: ALLERGAN PHARMACEUTICALS INC. and ALLERGAN PHARMACEUTICALS PTY. LIMITED
And: BAUSCH & LOMB INC. and BAUSCH & LOMB (AUSTRALIA) PTY. LIMITED
No. G250 of 1985
Arbitration

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.

CATCHWORDS

Arbitration - contract made in U.S.A. containing arbitration clause - proceedings for breach of contract and breach of Part V, Trade Practices Act, 1974 and patent infringement - stay application by respondent in respect of whole proceedings - stay of proceedings mandatory under Arbitration (Foreign Awards and Agreements) Act, 1974 - stay refused for matters relating to Part V and patent infringement - stay granted in respect of claims in contract.

Flakt Australia Ltd. v. Williams & Davies Construction Co. Ltd. (1979) 2 N.S.W.L.R. 243 - con.

Elders CED Ltd. v. Dravo Corporation (1984) 59 ALR 2O6 - con.

Roussel-Uclaf v. G.D. Searle & Co. Limited (1978) RPC 747 - con.

HEARING

SYDNEY
4:10:1985

ORDER

1. Order pursuant to s.7 of the Arbitration (Foreign Awards and Agreements) Act, 1974

(a) That these proceedings be stayed

so far as they involve claims for
breach of contract upon the
condition that such stay may be
terminated upon application by the
applicants in the event that the
respondents do not do all things
necessary to be done on their part
to have the matters referred to
hereunder determined in accordance
with the arbitration agreement
between the parties with
reasonable expedition.

(b) That the parties be referred to
arbitration in respect of the
matters the subject of these
proceedings so far as they involve
claims for breach of contract.

2. Reserve costs.

3. Reserve liberty to apply on 3 days' notice.

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

DECISION

These proceedings were commenced by application filed on 30 August 1985 by the first applicant, Allergan Pharmaceuticals Inc., a Delaware corporation, and by its subsidiary company, Allergan Pharmaceuticals Pty. Limited, a company incorporated in New South Wales, the second applicant. The applicants filed at the same time a statement of claim which has since been amended twice without objection. In their pleadings, the applicants seek various forms of relief against the first respondent, Bausch & Lomb Inc., a New York corporation, and its subsidiary, Bausch & Lomb (Australia) Pty. Limited, a company incorporated in New South Wales, the second respondent, under several provisions of Part V of the Trade Practices Act, 1974. They also seek to invoke the Court's associated and accrued jurisdictions in respect of certain other claims being allegations of infringements of certain Australian letters patent including a claim that the respondents have aided and abetted others in infringements of the letters patent. A claim is also made for damages for alleged breach of contract.

2. The present application is made by the respondents pursuant to an amended notice of motion filed on 27 September 1985 for orders that the proceedings be stayed pursuant to s.7 of the Arbitration (Foreign Awards & Agreements) Act, 1974 ("the Arbitration Act"); alternatively, a stay is sought under the Arbitration Act of so much of the proceedings as involves claims of contraventions of the provisions of Part V of the Trade Practices Act and consequential relief. A further application is made by the respondents pursuant to O.2O r.2 for dismissal of the proceedings generally; alternatively, the respondents seek, pursuant to O.2O r.2, the dismissal of the claims made by the applicants so far as they charge contraventions of certain of the provisions of Part V of the Trade Practices Act. Finally, assuming that the claims lastly mentioned have been dismissed as asked, the respondents seek an order dismissing the claims alleging patent infringements on the ground that the Court then lacked accrued or associated jurisdiction to entertain such claims.

3. I shall deal first with the stay application. By s.4 of the Arbitration Act, approval is given to accession by Australia to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration ("the Convention"). Section 7 is as follows: -

"7.(1) Where -

(a) the procedure in relation to arbitration
under an arbitration agreement is governed,
whether by virtue of the express terms of
the agreement or otherwise, by the law of a
convention country;

....

this section applies to the agreement.

(2) Subject to this Act, where -

(a) proceedings instituted by a party to an
arbitration agreement to which this section
applies against another party to the
agreement are pending in a court; and

(b) the proceedings involve the determination
of a matter that, in pursuance of the
agreement, is capable of settlement by
arbitration, on the application of a party
to the agreement, the court shall, by
order, upon such conditions (if any) as it
thinks fit, stay the proceedings or so much
of the proceedings as involves the
determination of that matter, as the case
may be, and refer the parties to
arbitration in respect of that matter.
(emphasis added)

(3) Where a court makes an order under
sub-section (2), it may, for the purpose of
preserving the rights of the parties, make such
interim or supplementary orders as it thinks fit
in relation to any property that is the subject
of the matter to which the first-mentioned order
relates.

(4) For the purposes of sub-sections (2) and
(3), a reference to a party includes a reference
to a person claiming through or under a party.

...."

4. An "arbitration agreement" is defined in s.3(1) to mean an agreement in writing of the kind referred to in sub-article l of Article II of the Convention. That sub-article is in these terms:-

"l. Each Contracting State shall recognize an
agreement in writing under which the
parties undertake to submit to arbitration
all or any differences which have arisen or
which may arise between them in respect of
a defined legal relationship, whether
contractual or not, concerning a subject
matter capable of settlement by
arbitration."

5. The arbitration agreement now relied upon by the respondent is an agreement made as of l July 1979 between the first applicant and the first respondent dealing with the sale or resale of the products of the first applicant, in particular an enzyme contact lens cleaner, outside of the United States, including in Australia ("the Agreement"). It will be necessary to refer later to the detail of the Agreement and its surrounding circumstances. It will suffice, for present purposes, to note that in its application to the enzyme cleaner, the Agreement is to terminate on 31 December 1991, and to refer to sections XlX and XX of the Agreement, which are as follows: -

"XIX. Arbitration

Any controversy or claims arising out of or
relating to this Agreement shall be settled
by arbitration in the City of New York,
State of New York, in accordance with the
Rules of the American Arbitration
Association, and judgment upon the award
rendered by the Arbitrator(s) may be
entered in any Court having jurisdiction
thereof.

XX. New York Law

This Agreement shall be construed in
accordance with the provisions of New York
law as if made and to be performed in New
York."

6. There is documentary evidence, tendered pursuant to s.lO(1) of the Arbitration Act, that on 30 September 197O the United States of America acceded to the Convention and has continued to be a Convention country for the purposes of the Act.

7. In order to understand the several questions which arise on the respondents' application, it is necessary to explain in some detail the allegations made by the applicants in their amended statement of claim. The first respondent carries on the business of manufacturing and selling optical products, including contact lenses which are marketed in Australia by the second respondent (paras. 3 and 4). The first applicant carries on the business of developing, manufacturing and marketing contact lens care products including a product for the removal of proteinaceous deposits from contact lenses ("the Hydrocare product") sold under the trade mark and name "Hydrocare". The first applicant supplies these products, including the Hydrocare products, to the second applicant which carries on the business of selling them in Australia (para.5). The first applicant is the registered proprietor of Australian letters patent No. 483265 for an invention entitled "Method and Composition of Removing Proteinaceous Deposits from Contact Lenses" ("the Hydrocare Patent"). It will suffice for present purposes to note that the primary claim defining the invention the subject of these letters patent is "(a) method for removing proteinaceous deposits from contact lenses comprising contacting the lens for a period of time sufficient to clean the lens, with an aqueous solution containing an effective amount of a protease". The Hydrocare Patent was granted pursuant to a patent application lodged on 16 April 1974, the completed specification of which was published on 13 November 1975 and accepted on ll May 1977 (para.6).

8. The Hydrocare product is manufactured in accordance with the Hydrocare Patent and is sold as tablets ("Hydrocare tablets") which contain a measured amount of protease enzyme which is non-toxic to eyes and contact lenses, together with instructions for use (para.7). Since 1976, the second applicant has sold Hydrocare tablets under the trade mark and name "Hydrocare" (para.8). Since 1971, pursuant to agreements made on 17 September 1971, ll May 1973, l November 1974, 24 January 1977 and l July 1979 between the first applicant and the first respondent ("the agreements"), the first applicant has agreed to supply to the first respondent certain soft contact lens cleaning products including Hydrocare tablets (para.9).

9. The amended statement of claim then pleads, in terms, sections IV, V, VI, VII, VIII and IX of the agreement. Section IV deals with the supply, forecasting and ordering of products. Packaging is dealt with in section V as follows -

"V. Packaging

A. ALLERGAN shall supply to B&L the
Products, Combination Packages, Samples
and Sample Packages in the same size
packages as the Comparable ALLERGAN
Products are sold in a country. The
package design and art work shall be
determined by B&L. ALLERGAN shall, at
B&L's request and providing such
requests are reasonable, provide
Samples and Sample Package sizes
different from that used for the
Comparable ALLERGAN Products. If the
direct manufacturing costs of B&L's
selected packaging exceeds that of the
Comparable ALLERGAN Product, B&L shall
pay the difference.

B. The words "Manufactured by Allergan
Pharmaceuticals" shall appear on each
Product package in one place, to be
determined by B&L, in no larger than lO
point type."

10. Samples are dealt with by section VI. Para.C is in these terms -

"C. Samples and Sample Packages shall be
used by B&L for the purpose of creating
new customers for the Products and
shall not be sold except as part of a
B&L starter kit."

11. Section VII deals with the first respondent's "Soflens" brand as follows:-

"VII. SOFLENS Brand

A. The Enzyme Cleaner shall be the only
proteolytic enzyme containing product
for cleaning soft contact lenses sold
by B&L under the SOFLENS brand name.

B. The SOFLENS brand of enzyme cleaner
shall be sold by ALLERGAN only to B&L.

C. The Soaking Solution shall be the only
disinfecting soaking solution for soft
contact lenses sold by B&L under the
SOFLENS brand name.

D. The SOFLENS brand of disinfecting
soaking solution shall be sold by
ALLERGAN only to B&L.

Promotion is dealt with by section VIII:-

"VIII. Promotion

A. Except as authorized by Section
VIII.B., B&L shall recommend and
promote the sale of the Enzyme Cleaner
in a manner not inconsistent with its
labelling as one of its cleaning
regimens for use with the SOFLENS
(polymacon) Contact Lens in all
countries in which it may legally be
sold and in which B&L has a Subsidiary
or Branch which sells the lenses.

B. i. If, in a country where B&L has a
Subsidiary or Branch, B&L should
discontinue the sale of the Enzyme
Cleaner or cease promoting the
Enzyme Cleaner or sell a different
enzyme preparation for the cleaning
of SOFLENS (polymacon) Contact
Lenses then ALLERGAN may sell the
SOFLENS brand of enzyme cleaner in
that country to persons other than
B&L. With respect to any such
sales ALLERGAN shall pay, within
thirty days after the close of each
quarter to B&L, at Rochester, New
York, a royalty equal to 7 l/2% of
its Net Sales accompanied by a
report showing the basis upon which
the payment to B&L has been
computed. (emphasis added)

ii. Notwithstanding the license granted
in Paragraph B.i., B&L shall retain
full ownership of the trademark
SOFLENS and all such trademarks
and/or logos including the name
"Bausch & Lomb" as well as "B&L"
which may be used in connection
with the marketing of the B&L
hydrophilic plastic contact lenses.
ALLERGAN agrees to maintain the
quality of the Enzyme Cleaner sold
under the trademarks at a high
level commensurate with the
reputation of B&L. ALLERGAN shall
supply B&L with samples of the
Enzyme Cleaner from time to time
and B&L shall have the continuous
right to inspect the Enzyme Cleaner
in order to ascertain that ALLERGAN
is meeting the high quality
standards of B&L. ALLERGAN will
submit in advance to B&L samples of
all labelling and promotional
material to be used in connection
with the marketing of the Enzyme
Cleaner and, before using any such
labelling or promotional material
in connection with the marketing of
the Enzyme Cleaner, ALLERGAN shall
first have obtained written
approval for such use from B&L. If
B&L shall, in its sole opinion,
disapprove of the labelling or
promotional material or determine
that the quality of any of the
Enzyme Cleaner does not meet B&L
quality standards, it shall so
notify ALLERGAN and ALLERGAN shall
not use the disapproved labelling
or promotion material nor sell such
Enzyme Cleaner until the labelling
or promotion material is approved,
or the quality is improved to meet
B&L's standards, as the case may
be. Further ALLERGAN agrees to do
nothing that would in any way
depreciate the value of B&L's
trademark.

iii. In the event of termination of this
Agreement for any reason whatsoever
ALLERGAN shall immediately cease
all further use outside of United
States of any of the trademarks
licensed hereunder.

C. Except as provided in Paragraph VIII.B.,
B&L does not grant and ALLERGAN does not
acquire any rights in or to the SOFLENS
or Bausch & Lomb trademark or trade
name.

D. ALLERGAN may not feature the SOFLENS
Contact Lens name in its labelling and
advertising for Comparable ALLERGAN
Products. The listing of the SOFLENS
Contact Lens brand in a list of lens
brands of equal prominence is not deemed
to be "featured.""

12. By section lX provision is made for the payment of royalties as follows -

"IX Royalties

ALLERGAN shall pay, within thirty (30) days
after the close of each quarter to B&L at
Rochester, New York, a royalty equal to 5% of
ALLERGAN'S Net Sales of enzymatic contact
lens cleaning tablets and 2 l/2% of
ALLERGAN'S net sales of Combination Packages
of Comparable ALLERGAN Products sold under
any brand name other than the SOFLENS brand
name accompanied by a report showing the
basis on which the payment to B&L has been
computed."

13. The amended statement of claim further alleges that pursuant to the agreements -

(a) the first applicant supplied to the first
respondent throughout the world and the
second applicant has supplied to the second
respondent in Australia, inter alia,
Hydrocare tablets in the same size packages
as comparable Allergan products are sold in
the countries of supply, including
Australia, bearing words such as
"manufactured by Allergan" and bearing the
name "Bausch & Lomb" and/or the trade mark
and name "Soflens";

(b) in Australia, the respondents have not sold
any proteolytic enzyme product for cleaning
soft contact lenses under or by reference
to the name "Bausch & Lomb" or under or by
reference to the trade mark and name
"Soflens" except Hydrocare tablets;

(c) in Australia, the respondents have not sold
any disinfectant soaking solution under or
by reference to the name "Bausch & Lomb"
and/or the trade mark and name Soflens
except Allergan U.S. disinfectant soaking
solution.

(d) the respondents have widely advertised and
sold throughout the world and in Australia
the Hydrocare tablets under and by
reference to the name "Bausch & Lomb" and
the trade mark and name "Soflens", bearing
words such as "manufactured by Allergan" as
aforesaid. (para.ll).

14. It is then alleged that, by reason of the foregoing, it has been represented in Australia and elsewere to medical practitioners, opticians, opthalmologists and members of the public, including wearers of soft contact lenses, and it is the fact that, and it is the belief of medical practitioners, opticians, opthalmologists and members of the public, including wearers of soft contact lenses to whom such representations were made, that -

(a) the Hydrocare tablets sold by the
respondents under the trade marks and names
"Bausch & Lomb" or "Soflens" are
manufactured by the first applicant;

(b) the Hydrocare tablets sold by the
respondents under the trade marks and names
"Bausch & Lomb" or "Soflens" are of the
same standard, quality, grade and
composition as the Hydrocare tablets
manufactured and sold by the applicants.

(c) the Hydrocare tablets sold by the
respondents under the trade marks and names
"Bausch & Lomb" or "Soflens" have the
sponsorship or approval of the applicants
or have the performance characteristics,
uses and benefits of the Hydrocare tablets
manufactured and sold by the applicants
(para.12).

15. It is then said that by reason of the foregoing, the applicants have valuable goodwill and reputation in and in relation to the Hydrocare tablets manufactured by the first applicant (para.13). It is further alleged that the Hydrocare tablets sold by the applicants to the respondents and resold by the respondents to purchasers and users under the names and marks "Bausch & Lomb" or "Soflens" were sold without restriction as to use and it was an implied condition of their sale that the respondents had the right to sell them and that the purchasers thereof and the users thereof would enjoy quiet possession of the Hydrocare tablets (cf. Trade Practices Act, s.69). (para.14).

16. It is further alleged that the Hydrocare tablets sold by the applicants to the respondents have been sold by the respondents to purchasers and users in a distinctive get-up which is the same or a similar get-up to that adopted by the respondents for other products used in contact lens care. (para.14A).

17. It is further alleged that the first respondent has developed an enzymatic cleaner for use in removing proteinaceous deposits from soft contact lenses and that the respondents intend to sell tablets containing protease for the purpose of cleaning soft contact lenses, together with instructions for their use. Reference is made to the filing by the first respondent of European Patent Application No.843O7265.3 entitled "Microbial Enzymatic Contact Lens Cleanser and Methods for Use" (para.15). An infringement of the Hydrocare patent by the respondents is then charged by reason of their manufacture and sale of the tablets (para.16). It is further alleged that the respondents intend to infringe the Hydrocare Patent and to aid and abet others to do so (para.17).

18. Then it is said that the respondents threaten to represent to consumers -

(a) that consumers are entitled to use a
product containing protease, other than the
Hydrocare Product manufactured by the first
applicant as an enzymatic cleaner for
contact lenses;

(b) that consumers will enjoy quiet possession
of any such product for such use;

(c) that such product is manufactured by the
first applicant;

(d) that such product is of the same standard
quality grade or composition as the
Hydrocare tablets sold by the applicants;

(e) that such product has the performance
characteristics, uses and benefits of the
Hydrocare tablets manufactured and sold by
the applicants;

(f) that such product is the same as the
product previously marketed by the
respondents, which had been manufactured by
the first applicant (para.17A).

19. The applicants further charge that the respondents threaten to represent to medical practitioners, opticians and ophthalmologists -

(a) that medical practitioners, opticians and
ophthalmologists have the right to
prescribe or sell a product containing
protease, other than the Hydrocare Product
manufactured by the first applicant for use
as an enzymatic cleaner for contact lenses;

(b) that medical practitioners, opticians and
ophthalmologists will enjoy quiet
possession of any such product for such
use;

(c) that the respondents have the right to sell
such a product, other than the Hydrocare
Product manufactured by the first applicant
for such use or for resupply for such use;

(d) that such product is manufactured by the
first applicant;

(e) that such product is of the same standard
quality grade or composition as the
Hydrocare tablets manufactured and sold by
the applicants;

(f) that such product has the performance
characteristics, uses and benefits of the
Hydrocare tablets manufactured and sold by
the applicants;

(g) that such product is the same as the
product previously marketed by the
respondents, which had been manufactured by
the first applicant (para.17B).

20. The applicants further charge that the respondents threaten to mislead and deceive medical practitioners, opticians, ophthalmologists and members of the public by substituting for the Hydrocare product sold under the names "Bausch & Lomb" or "Soflens" a product other than the Hydrocare product manufactured by the first applicant; and that the respondents intend to use in relation to the said substituted product a get-up the same or closely similar to that used by the respondents for their other products referred to in para.14A (para.17C). In the premises, the respondents are charged with conduct or threatened conduct -

(a) which is misleading and deceptive or likely
to mislead or deceive within s.52 of the
Trade Practices Act;

(b) whereby they falsely represent that goods
are of a particular standard quality grade
or composition within s.53(a) of the Trade
Practices Act;

(c) whereby they represent that goods have
sponsorship approval or performance
characteristics which they do not have
within s.53(d) of the Trade Practices Act;
and

(d) whereby they make a false or misleading
statement concerning the existence of a
right, within s.53(g) of the Trade
Practices Act (para.18).

21. The applicants then seek the relief claimed in the application filed with their statement of claim.

22. In their application the applicants seek injunctions restraining the respondents from -

(a) selling any substance containing protease
or any compound within the invention
claimed in the first respondent's European
Patent Application for use as an enzymatic
cleaner for contact lenses other than the
genuine product of the applicants sold
under or by reference to the names
"Allergan", "Hydrocare", "Soflens" or
"Bausch & Lomb";

(b) representing to consumers that they are
entitled to use any such substance or
compound as an enzymatic cleaner for
contact lenses other than the said product
of the applicants;

(c) representing to consumers that they will
enjoy quiet possession of any such
substance or compound for use as an
enzymatic cleaner for contact lenses other
than the said product of the applicants;

(d) representing to consumers and to medical
practitioners, optometrists and
ophthalmologists that the respondents or
medical practitioners, optometrists or
ophthalmologists have the right to sell any
such substance or compound for such use;

(e) selling such substance or compound together
with instructions for use in infringement
of the letters patent;

(f) aiding or abetting or being a party to the
conduct of others the subject of orders
(a), (b), (c) and (d) above and from
counselling or procuring the infringement
of the letters patent by others.

23. The applicants further claim damages pursuant to s.82 of the Trade Practices Act; an order for delivery up by the respondents of all products, packaging, plates, promotional matter, marketing material or printed matter of any kind bearing instructions for use of the product in infringement of the letters patent; an inquiry as to damages, or, in the alternative, an account of profits in respect of the infringement by the respondents of the letters patent; damages for breach of contract; such further or other order, including orders for corrective advertising and otherwise under s.87 of the Trade Practices Act as to the Court may seem fit.

24. Reference should next be made to the respondents' defence filed on 23 September 1985. Formal matters apart, it will suffice for present purposes to note that the respondents put in issue any contravention of the Trade Practices Act, any infringement of the letters patent and any breach of the Agreement. In addition to the claim for stay now sought, a number of special defences are raised. The respondents say that the claims of the letters patent are invalid on the grounds of objection they then particularise. They further say that the effect of the Agreement is to confer upon the respondents a licence in respect of the patent upon a condition that prohibits or restricts the respondents from using for the term of the Agreement that is to say until 31 December 1991, any product for cleaning soft contact lenses sold by the respondents under the Soflens brand name which contains any proteolytic enzyme and which is supplied by a person other than the applicants, but they say that the said condition is void and it is not an infringement of the patent for the respondents to do what it is alleged that they have done or are threatening to do (see Patents Act 1952, s.l12).

25. Then the respondents refer to section VIII of the Agreement and say that it contains covenants by the first applicant that the applicants will not do anything that would in any way depreciate the value of the trade marks of the respondents or acquire any rights in or to the Soflens trade mark or trade name or the Bausch & Lomb trade mark or trade name; and that the first respondent will retain full ownership of the trade mark Soflens and all such trade marks or logos including the name "Bausch & Lomb" as well as "B. & L." which may be used in connection with the marketing by the respondents of hydrophilic plastic contact lenses. The respondents say that by the institution of these proceedings and by allegations made in paras. 12, 13, 17A, 17B, 17C, 18 and 19 of the amended statement of claim and by the relief sought in these proceedings, the applicants have broken and propose further to breach the said covenants in the Agreement.

26. In support of their present application, the respondents tendered a body of documentary evidence, including certain paragraphs of the affidavit of the Managing Director of the second applicant, Mr. Christopher D.B. Greenhill, sworn on 3 September 1985 and filed on behalf of the applicants. For their part, the applicants read the balance of Mr. Greenhill's affidavit. The affidavit is lengthy. I am satisfied that the case sought to be made by the applicants in the evidence of Mr. Greenhill, including his oral evidence given in cross-examination on his affidavit, not only does not go beyond the case sought to be made by the applicants in their amended statement of claim but, substantially at least, seeks to make that case. In the circumstances, it is unnecessary to refer to that evidence or, indeed, any of the other evidence tendered by any party, with the exception of certain correspondence now to be mentioned.

27. By letter dated 21 June 1985, Mr. James C. Bullis, Director, Materials Management of the first applicant, wrote to Mr. John E. Housden, Vice-President, International Marketing, of the first respondent saying -

"As you may be aware, certain subsidiaries and
branches of Bausch & Lomb have, over the last
several months, begun submitting to Allergan
purchase order forecasts showing no demand for
enzyme cleaning product. The Agreement dated
July l, 1979, between Allergan and Bausch &
Lomb, which covers the sale of enzyme tablets
internationally, authorizes Bausch & Lomb to
discontinue the sale of Allergan products on a
country-by-country basis and commence the sale
of its own product. This letter is to confirm
that, within approximately 30 days, Bausch &
Lomb will begin the introduction of its own
enzyme product in the countries on the attached
list. Accordingly, no further purchases of
Allergan product will be required for those
countries..."

28. On the same date, Mr. Daniel E. Gill, Chairman of the Board and President of the first respondent, wrote to Mr. Gavin S. Herbert, Chairman of the Board and Chief Executive Officer of the first applicant in response to a letter written by Mr. Herbert on 10 June 1985. Mr. Gill, after claiming that the first applicant's United States patent was unenforceable against the first respondent, said:-

"....contractual issues which concern you arise
out of two separate and distinct agreements:
l) the domestic agreement for the sale of enzyme
tablets in the United States, or 2) the
international agreement for the sale of such
tablets internationally. Your statement,
therefore, that Bausch & Lomb's marketing of the
new enzymatic product "will inevitably result in
a breach of the agreeement between our
companies" needs to be examined in the light of
the provisions of the two agreements. Your
conclusion is not correct under either
agreement..."

29. The first question which arises for determination is the meaning of the phrase "matter that is capable of settlement by arbitration" where used in s.7(2)(b) of the Arbitration Act. In Flakt (Australia) Ltd. v. Wilkins & Davies Construction Co. Ltd. (1979) 2 NSWLR 243, McLelland, J. said (at p 25O) -

"The plaintiff contends that the word "matter" in
s.7(2)(b) denotes the ultimate subject matter at
issue between the parties, which is said to be
how much is the defendant entitled to be paid
for the work it has done, and further contends
that there could be no "settlement" within the
meaning of the section without a complete
resolution of that issue, which, it is said, is
not possible under the arbitration agreement,
because of the claims foreshadowed by the
defendant as alternatives to its primary
contentions, for rectification of the accepted
purchase order and for breach of an alleged duty
by the plaintiff to draw attention to material
changes in the scope of the work that would
arise out of the purchase order. Such claims
for rectification or for breach of duty, it is
said, are not capable of being determined by
arbitration under the arbitration agreement.

It is further contended for the plaintiff that,
in so far as the present application is founded
upon s.7 of the 1974 Act, it is premature. It
is argued that it is not until after the
pleadings have closed that one can properly
determine whether the proceedings fall within
s.7(2)(b).

In my opinion, the word "matter" in s.7(2)(b)
denotes any claim for relief of a kind proper
for determination in a court. It does not
include every issue which would, or might, arise
for decision in the course of the deterination
of such a claim. The use of the word
"settlement" provides support for the view.
"Settlement" is an apt term to be used in
relation to a claim for relief - it is less apt
in relation to a mere issue."

30. This reasoning was followed by Foster, J. in Elders CED Ltd. v. Dravo Corporation (1984) 59 ALR 2O6 at p 21O and, with respect, I agree with it. It is necessary, therefore, to analyse with some precision the nature of the claims for relief made in the amended statement of claim. In particular, it will be necessary to inquire whether any claim is made for breach of the Agreement.

31. In this respect, the pleading is somewhat equivocal. Certain sections of the Agreement are pleaded in terms. However, on the face of it, these allegations appear to do no more than provide part of the substratum of facts in which, as a matter of background only, the apprehended contraventions of the Trade Practices Act will occur. There is not, in terms at least, any specific allegation that a breach has occurred of any of the provisions of the Agreement, notwithstanding the foreshadowing of such a claim in the June 1985 correspondence. On the other hand, the application does claim damages for breach of contract.

32. In the circumstances, it must be accepted that part of the applicants' claim, as presently framed, is based on an alleged breach or breaches of the Agreement, although the pleading hardly defines such a cause of action with any particularity. But, once such an allegation is pleaded, the provisions of section XIX of the Agreement must apply - a claim for damages for breach of contract is clearly a "controversy or claim arising out of or relating to (the) Agreement" at least so far as concerns the first applicant. (The position of the second applicant may be different because it was not a party to the Agreement). It follows that, since the provisions of s.7(2)(b) are mandatory, a stay of proceedings so far as concerns the first applicant should be granted so far as a claim for breach of contract is involved. I shall return later to the conditions to be imposed on the grant of the stay.

33. The position of the second applicant in this regard is not so obvious, although the definition of "B&L" in section lA of the Agreement extends to subsidiaries of the first applicant and the provisions of s.7(4) of the Arbitration Act may apply so as to pick up the second applicant in any event (see Roussel-Uclaf v. G.D. Searle & Co. Limited (1978) RPC 747 at pp 754-5). Because of the obscurity of the pleading, it must be assumed, at this stage at least, that the second applicant is also seeking relief for breach of contract. It follows that a stay of proceedings should now be granted against the second applicant so far as a claim for breach of contract is involved.

34. For those reasons, in my opinion, a stay of proceedings should be granted so far as they involve claims for relief for breach of contract. The respondents further seek a general stay. Such a stay can, in my view, only be granted if the remaining claims for relief fall within the provisions of section XIX of the Agreement. The phrase in that reference "arising out of or relating to (the) Agreement" is, it is true, capable of the widest construction (see Heyman v. Darwins, Limited (1942) AC 356 at p 366 and Fountain v. Alexander [1982] HCA 16; 150 CLR 615 at p 629). But can it be said that the applicants' claims that the several provisions of the Trade Practices Act have been contravened are referable to arbitration under this clause? In my opinion, those claims fall outside the purview of that clause. In my view, causes of action in the form of contraventions of ss.52, 53(a), 53(d) or 53(g) arise exclusively from the statutory provisions themselves. It is trite to say that causes of action under the general law, whether in contract or otherwise, arise independently of these provisions. In the absence of any substantive nexus or connection between the contract sued upon and the contraventions of the several provisions of Part V of the Trade Practices Act alleged, and, in my view, none exists here, the latter causes of action cannot be referable to arbitration pursuant to section XIX.

35. In my opinion, it is not enough for this purpose to point to the contract as part of the background to these alleged contraventions. As has been said, the statutory causes of action now sued upon exist independently of contract. They are consumer protection provisions which in no way depend upon any private agreement for their source. Conduct of the kind proscribed by Part V of the Trade Practices Act will be established, if at all, irrespective of the contractual relations of the immediate parties. Nor could any contract inter partes constitute a defence to any alleged contravention of such legislation In short, an alleged contravention of Part V of the Trade Practices Act is not, as a matter of characterisation, a "controversy or claim arising out of or relating to (the) Agreement" for the purposes of section XIX of that contract. (cf. Wyatt Earp Enterprises Inc. v. Sackman Inc. 157 F Supp 621 (1958)).

36. The same observations can be made of the claimed infringement of the letters patent. Again, the cause of action is statutory only (see N.V. Maatschappij Voor Industriele Waarden v. A.O. Smith Corporation 523 F 2d 874 (1976)).

37. In the result, I refuse to extend the stay beyond the claims for breach of contract.

38. As to conditions, I propose to adopt the approach taken by McLelland J. in Flakt, noting that Lockhart, J. took a similar course in White Industries Ltd. v. Trammell (1983) 51 ALR 779 at p 786.

39. It must follow from the stay to be granted that the applicants will need to further amend their statement of claim so as to exclude their claims in contract. In the timetable mentioned in the reasons given on the applicants' application for interlocutory relief, provision should be made for a direction that the applicants file within 7 days an amended statement of claim omitting any claim for breach of contract. Provision should also be made in that timetable for the respondents to file an amended defence within a further 14 days. If any dispute arises on the fresh pleadings, including the amended defence, as to the scope or operation of the limited stay now to be granted, it can be dealt with pursuant to the liberty to apply to be reserved. It is hardly necessary to say that the amended pleading should clearly exclude any suggestion that the applicants seek to agitate in this Court any substantive cause of action in contract. This is not to say that the applicants may not properly refer to the agreements by way of background to their claimed contraventions of the Trade Practices Act.

40. I make the following orders -

l. Order pursuant to s.7 of the Arbitration
(Foreign Awards and Agreements) Act, 1974

(a) That these proceedings be stayed
so far as they involve claims for
breach of contract upon the
condition that such stay may be
terminated upon application by the
applicants in the event that the
respondents do not do all things
necessary to be done on their part
to have the matters referred to
hereunder determined in accordance
with the arbitration agreement
between the parties with
reasonable expedition.

(b) That the parties be referred to
arbitration in respect of the
matters the subject of these
proceedings so far as they involve
claims for breach of contract.

2. Reserve costs.

3. Reserve liberty to apply on 3 days' notice.