Soldatic v Inverness [2008] NSWSC 734

New South Wales Supreme Court

CITATION : Soldatic v Inverness [2008] NSWSC 734

HEARING DATE(S) : 25/06/08

JUDGMENT DATE : 21 July 2008

JURISDICTION : Equity Division

JUDGMENT OF : Macready AsJ at 1

CATCHWORDS : Corporations Law. Application to set aside demand under s 459G of the Corporations Act. Allegation of genuine dispute. Held: No genuine dispute. No matter of principle.

PARTIES : Marco Soldatic Enterprices (Australasia) Pty Limited v Inverness Medical Switzerland GmbH

FILE NUMBER(S) : SC 2068/2008

COUNSEL : Ms S Mirzabegian for plaintiff Ms JA Soars for defendant

SOLICITORS : Meehans Solicitor Corporation for plaintiff Addisons for defendant

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

Associate Justice Macready

Monday 21 July 2008

2068/08 Marco Soldatic Enterprises (Australia) Pty Limited v Inverness Medical Switzerland GmbH JUDGMENT 1 His Honour: This is an application under sections 459G and 459H of the Corporations Act 2001 (Cth) to set aside a statutory demand served by the Defendant ("Inverness") on 7 March 2008. The application was brought within time and an initial affidavit in support was also filed and served within time. 2 The statutory demand claimed that the Plaintiff ("MSE") was indebted to Inverness in the amount of $500,000 under a Deed of Settlement entered into by the parties on or about 5 September 2007 ("Deed of Settlement"). 3 MSE challenges the statutory demand on the basis that there is a genuine dispute as to the existence of the debt and MSE has an offsetting claim. Background to the demand 4 The background is helpfully set out in submissions which I will adopt with some modification. 5 On 18 May 2007 proceedings were commenced in the Federal Court by Inverness against MSE and Mr Soldatic alleging patent infringement by MSE in respect of certain medical testing products for pregnancy, ovulation and menopause imported into Australia and sold by MSE trading as Marco D'Polo. A settlement meeting took place on 18 July 2007 attended by representatives of the parties and their solicitors. 6 A live question in these proceedings is whether there was a discussion at the settlement meeting in relation to Inverness providing what have been described as "letters of comfort". These are letters to be sent by Inverness to MSE's customers giving advice that Inverness would not sue the customer for selling the product. 7 Following that meeting, extensive "without prejudice" or "subject to contract" correspondence and drafts passed between the solicitors for the parties negotiating the terms of a Deed of Settlement and Supply Agreement between the solicitors for the parties and for Innovacon, Inc ("Innovacon") a US company related to Inverness. On 5 September 2007 the solicitors for Inverness received the Deed of Settlement and Supply Agreement signed by MSE and Mr Soldatic. 8 Although further attention will have to be paid to it, one of the provisions in clause 2 of the Deed of Settlement provided that MSE and Mr Soldatic agreed to forthwith cease to sell the infringing products. The Supply Agreement provided that Innovacon and related companies would supply MSE directly with the diagnostic tests. 9 Subsequently the patent attorney for Inverness, Dr Houlihan of Houlihan² Patent & Trade Mark Attorneys proposed by letter dated 19 September 2007 an arrangement for "future cooperation" on terms, including that Inverness would agree not to take enforcement action and would allow MSE to continue to sell its existing stocks of the infringing products with a percentage being paid to Inverness, that sales would cease by 4 January 2008 and providing that Inverness would send a letter in a proposed form attached to that letter, to the "marketplace" in order to take into account the time lag until Innovacon could supply MSE with products. Mr Soldatic of MSE countersigned this letter where marked to indicate MSE's acceptance of the terms and returned the letter to Houlihan² on 28 September 2007. 10 Houlihan² sent letters in the agreed form to MSE's customers on 3 October 2007 and an additional letter to Coles dated 18 October 2007 . This later letter refers to the Supply Agreement between Innovacon and MSE and states "(a) there may be a time lag in the supply of the Inverness products, Marco D'Polo is permitted by Inverness to sell the following products which are not Inverness products during the transition period…". 11 There was further correspondence between the solicitors for the parties, Houlihan and Meehans about the sending of a further letter to some of MSE's customers, including Woolworths. A further letter was sent to Coles (and apparently API), but an impasse was reached between the solicitors and no further letter was sent to Woolworths. 12 On 1 December 2007 the first of 8 quarterly instalments was due pursuant to clause 3.2(c) of the Deed of Settlement. MSE failed to pay. A letter of demand was sent on 8 January 2008 from Houlihan to the solicitors for MSE and no reply was received. On 7 February 2008 a demand was made under clause 3.3 of the Deed of Settlement for the whole amount then outstanding of $500,000 (pursuant to an acceleration clause), and MSE refused to pay. 13 On 7 March 2008 a statutory demand and affidavit in support were served by Inverness on MSE. While there had been a previous assertion in a letter dated 4 February 2008 that it was a term of the agreement that Inverness would provide these further letters, that assertion only came after MSE was already in default in paying the instalment due and after a letter of demand dated 8 January 2008 from Houlihan² to Meehans which had not been responded to. No assertion that any representation had been made or that there was an implied term of the agreement had been made in correspondence prior to the commencement of these proceedings. The claims by MSE 14 MSE submitted that there were two areas of genuine dispute with respect to the existence of the debt arising under the Deed of Settlement: (a) first, there is a dispute as to what was agreed at the settlement meeting and in particular, whether a representation was made as to the provision by Inverness to MSE's customers of letters of comfort to facilitate the sale of MSE's products by those customers ("letters of comfort"); (b) secondly, there is a dispute as to the legal effect of the representation – in particular: (i) whether, by failing to provide letters of comfort which would facilitate the sale of MSE's products, IMS engaged in misleading or deceptive conduct in contravention of section 52 of the Trade Practices Act 1974 (Cth), causing loss to MSE and therefore making the Deed of Settlement liable to be set aside under section 87 of the Act; or (ii) whether the representation took effect as an implied term of the agreement, which term was breached by Inerness thus preventing Inverness from seeking specific performance of the Deed of Settlement. 15 The implied term suggested was in these terms: "That Inverness agreed to forward letters of comfort to MSE's customers so as to facilitate the continued sale of MSE's products and in particular its existing stocks of products which might or might not have infringed Inverness' patents by those customers of MSE without the threat of litigation by Inverness 16 There was no evidence of the amount of any damage suffered by MSE which would support an offsetting claim. Normally a plaintiff must provide a basis for finding, even by way of estimate, the "amount" of the alleged offsetting claim, that being an indispensable component of the case that must be made out under s459H(1)(b); see W&P Reedy Pty Ltd v Macadams Baking Systems (Pty) Ltd [2007] NSWCA 146 per the Court of Appeal at [6]; cited with approval in Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483 per Barrett J at [56]. This is the reason for the submission that the misrepresentation could lead to setting aside the Deed of Settlement. 17 I turn to the evidence of any representation that letters of comfort be provided. In evidence an initial affidavit was rejected on this aspect and in a later affidavit which supplemented the earlier affidavit the following was said: