Virulite LLC v Virulite Distribution Ltd & Anor, Court of Appeal - Queen's Bench Division, February 26, 2014, [2014] EWHC 366 (QB)

Resolution Date:February 26, 2014
Issuing Organization:Queen's Bench Division
Actores:Virulite LLC v Virulite Distribution Ltd & Anor
 
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Case No: HQ12X03115

Neutral Citation Number: [2014] EWHC 366 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 26/02/2014

Before:

THE HONOURABLE MR JUSTICE STUART-SMITH

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Between:

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Sam Grodzinski QC and Matt Hutchings (instructed by Simons Muirhead and Burton) for the Claimant

Oliver Segal QC and Stuart Brittenden (instructed by Clarkslegal LLP) for the Defendant

Hearing dates: 2,3,4,5,6,9,10,11,12,13, December 2013

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JudgmentMr Justice Stuart-Smith:

Introduction

  1. For a number of years the main treatment for cold sores in the United Kingdom, the United States and elsewhere has been by the topical application of creams. Some are available over the counter [``OTC''] while others are available only on prescription [``POM'']. In the United States the dominant market leader is Abreva, which is available OTC.

  2. The Defendant companies [``1072/VDL''] have held and hold the patent and intellectual property rights in a device that provides an alternative means of treatment [``the Device'']. It is known as the Virulite device and is based on the use of infra-red light technology operating at 1072 nanometres: hence the names of the Defendant companies. When the Device is held over a cold sore, light at the required frequency is emitted which has healing properties without the need to apply visible unguents.

  3. The Claimant [``LLC''] is a Nevada-based company established for the purpose of distributing the Device. LLC and 1072/VDL entered into successive agreements for the distribution of the Device in the United States and elsewhere. The last agreement, which is the subject of this action, was executed on 4 July 2006 [``the DLA'']. It was terminated by 1072/VDL by notice dated 31 January 2011. At that date FDA approval had not yet been obtained for the Device and it was not being distributed by LLC in the United States or elsewhere. LLC disputes 1072/VDL's entitlement to terminate the DLA and claims substantial damages based upon the profits which it says it would have made if it had been able to distribute the Device after October 2012, which is when FDA approval was obtained.

  4. 1072/VDL justified their termination of the DLA in early 2011 on the grounds that the sum of £25,000 should have been paid to them by LLC in about late 2008. Under the terms of the DLA as executed, a failure to pay that sum as stipulated would be good grounds for termination. In this action LLC has not challenged the assertions that, according to the terms of the DLA as executed, the £25,000 was due and owing and that non-payment would provide contractual justification for termination. However it asserts that the DLA was subsequently varied in early 2009 so that the sum of £25,000 did not become due and payable before FDA approval was obtained, which had not happened by the date of termination. Alternatively it submits that, as a result of the communications between the parties upon which it relies as amounting to a variation, 1072/VDL were estopped from relying upon LLC's non-payment of the £25,000 as justifying the termination. If LLC is right on either argument it succeeds on liability, in which case questions of quantum arise. It is common ground that as a result of the termination LLC lost the chance to distribute the Device or otherwise to exploit its rights under the DLA. LLC submits that it has lost very substantial sums. 1072/VDL submit to the contrary that LLC could never have made a profit or that its chances of doing so were so speculative that any award of damages should be negligible at best.

  5. The parties virtually agreed a list of issues for determination by the Court and then made their submissions by reference to those issues. This helpful approach is reflected in the structure of this judgment which adopts the following format:

  6. During the hearing commercially sensitive and confidential information was introduced in evidence on terms that it was and should remain confidential to the parties and the Court. The information related to a pharmaceutical company that is referred to in the judgment as Pharmaco. Detailed consideration of the material relating to Pharmaco is contained in a separate annexe that is confidential as set out above. The conclusions in the judgment take into account the information relating to Pharmaco and the judgment incorporates reference to that information to the extent necessary to explain the basis of those conclusions.

    Summary of Conclusions

  7. For the reasons set out below this judgment concludes that:

    i) There was a contractual variation of the DLA which was concluded during a telephone conversation at the end of January or early February 2009, the effect of which was that the £25,000 payment did not fall due until FDA clearance had been obtained. Failing that, 1072/VDL's offer that the payment be delayed until after FDA clearance was accepted by conduct in the period following late January/early February 2009;

    ii) If there had been no contractual variation, 1072/VDL waived reliance upon LLC's breach of contract in failing to pay the £25,000 on receipt of clinical data for the FDA submission or was estopped from relying upon it. The period of suspension continued until at least 18 November 2010, when 1072/VDL gave notice of intended termination;

    iii) The notice given on 18 November 2011 was not a valid notice under Clause 22.2.1 of the DLA. To have been valid, 14 days notice should have been given to terminate the period of suspension. When that period elapsed, the contractual mechanisms for termination pursuant to Clauses 18.3 and 22.2 would have been applicable;

    iv) 1072/VDL was not entitled to terminate the DLA on 31 January 2011. Its purported termination amounted to a repudiatory breach which LLC was entitled to accept on 4 April 2011;

    v) LLC had a real or substantial chance of making a success of the launch and subsequent selling of the Device at a retail price of $79.99 and achieving the sales targets set out at Schedule 4 of the DLA or Mr Boghigian's lower range of predictions;

    vi) Applying Allied Maples principles, I assess damages in the sum of $1,900,000 with interest to be added in the sum of $80,750.

    Factual Background: Liability

  8. The central issue on liability is whether the effect of the DLA was modified by subsequent communications that were either oral or contained or evidenced in emails. Most of the witnesses of fact have an interest in the outcome of the litigation and have had a long time to consider their evidence. As explained in greater detail below, it is possible to trace shifts in the positions being adopted by the parties from time to time. I therefore approach the evidence of the witnesses bearing in mind the importance of the documentary evidence: see The Ocean Frost [1985] 1 Lloyd's Rep 1 at 43 per Dunn LJ at 57 per Robert Goff LJ and the recent observations of Leggatt J in Gestmin SGPS S.A. v Credit Suisse [2013] EWHC 3560 (Comm) at [15-24]. The Ocean Frost was a case involving allegations of fraud. No allegations of fraud are made in the present case, but the approach outlined by the Court of Appeal has general application when attempting to assess the reliability of witnesses of fact. I offer two additional observations in the light of these authorities. The first is that the nature of the documents that are being considered needs to be taken into account. At one end of the spectrum, formal contractual documents negotiated with the benefit of legal advice are given special primacy; but this case typically involves communications by email sent by business associates without prior vetting by lawyers and without attempting to achieve full precision or formality. I shall bear that in mind at all times, and particularly when assessing whether or not LLC has proved that a sufficient degree of certainty (contractual or otherwise) was achieved in late 2008/early 2009 so as to affect the position clearly set out in the DLA. The second is that if, having had due regard to all of the evidence (including relevant documentation), the Court considers that a witness' evidence is reliable despite being in apparent conflict with other evidence, it should not shrink from making such a finding.

    The Parties and Witnesses: Liability

  9. The Claimant was established by Ms Louise Higginson and Mr Lance Field. They are both British citizens but had become partners in business and their personal lives while living in the United States and before becoming involved with Virulite. Ms Higginson is highly intelligent and had been in business since about 1991, having worked in retailing and for Compaq before meeting Mr Field. Before her involvement with Virulite, she had not previously been involved with the negotiation or execution of formal contracts, but she always knew that contractual obligations were binding and that the fact that she felt something should have happened before a payment was made was not a good reason for not complying with a contractual obligation to pay unless the contract said so. She is, however, first and foremost a businesswoman and, as such, had no compunction about trying to improve her (and LLC's) position where possible, including by delaying payments due to 1072/VDL whether with the prior agreement of Dr Dougal or 1072/VDL or not. She was in many respects a formidable witness, who had a clear appreciation of where her evidence fitted or did not fit comfortably with the documents. I formed the view that she was the primary driving force behind LLC although Mr Field also played a full part, including in negotiations with 1072/VDL. His evidence was less clear than that of Ms Higginson: I shall consider it more closely later in the judgment. Mr Stephen Mencanin was the third Managing Member of LLC. His evidence was less centrally important than that of Ms Higginson and Mr Field and...

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