Virulite LLC v Virulite Distribution Ltd
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Stuart-Smith,Mr Justice Stuart-Smith |
| Judgment Date | 26 February 2014 |
| Neutral Citation | [2014] EWHC 366 (QB) |
| Docket Number | Case No: HQ12X03115 |
| Court | Queen's Bench Division |
| Date | 26 February 2014 |
[2014] EWHC 366 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Stuart-Smith
Case No: HQ12X03115
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
Approved Judgment
Hearing dates: 2, 3, 4, 5, 6, 9, 10, 11, 12, 13, December 2013
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
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.
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.
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.
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.
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:
| Section | Paragraph |
| Introduction | 1 |
| Summary of Conclusions | 7 |
| The Factual Background: Liability | 8 |
| The Parties and Witnesses: Liability | 9 |
| The Period Before the DLA | 14 |
| The DLA: 4 July 2006 | 19 |
| From the DLA to Early 2009 | 21 |
| From Early 2009 to Termination in 2011 | 43 |
| Issue 1: The Effect of the No Variation Clauses in the DLA | 55 |
| The Applicable Principles | 55 |
| Issues 1(i) and 1(ii) | 61 |
| Issue 2: Contractual variation | 70 |
| The Applicable Principles | 70 |
| The Approach to the Evidence | 75 |
| Negotiations between November 2008 and January/February 2009 | 77 |
| Conclusions on Issues 1 and 2 | 112 |
| Issue 3: Waiver/Promissory Estoppel | 117 |
| LLC's Pleaded Case on Estoppel | 118 |
| The Applicable Principles | 120 |
| Acting in Reliance | 121 |
| When does the Doctrine Suspend and when does it Extinguish Rights? | 122 |
| The Effect of Giving Notice | 124 |
| A Reasonable Period of Notice | 134 |
| Issue 3.1 | 136 |
| Issue 3.2 | 138 |
| Issue 3.3 | 140 |
| Issue 3.4 | 141 |
| Issues 3.5 and 3.6 | 143 |
| Issue 4: Entitlement to Serve Default Notice and to Terminate | 146 |
| Conclusions on Issues 3 and 4 | 148 |
| Quantum | 156 |
| The DLA Requirements and LLC's Case | 156 |
| The Applicable Principles | 160 |
| The Expert Evidence | 161 |
| The Walgreens Online Trial | 169 |
| Boots and Other Sales in the United Kingdom | 175 |
| Boehringer Ingelheim | 177 |
| Pharmaco | 180 |
| The Size of the United States Market | 181 |
| Is the Device a Breakthrough Product | 187 |
| Retail and Wholesale Pricing | 196 |
| Marketing Spend | 204 |
| Other Costs of Sales | 217 |
| A Real or Substantial Chance | 219 |
| Alternative Formulations | 240 |
| Interest | 242 |
| Conclusions on Issue 5 | 243 |
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
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
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 Frostwas 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...
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