Bioprospect Ltd v Solagran Ltd (No 2)

[2010] FCA 1097

FEDERAL COURT OF AUSTRALIA

Bioprospect Ltd v Solagran Ltd (No 2) [2010] FCA 1097

Citation:		Bioprospect Ltd v Solagran Ltd (No 2) [2010] FCA 1097
Parties:		BIOPROSPECT LTD ACN 008 130 336 v SOLAGRAN LTD ACN 002 592 396, VAGIF SOULTANOVICH SOULTANOV, DENIS BERTRAM KILROY, NOVA VITA PTY LTD ACN 109 436 508 and CUMPUTERSHARE INVESTOR SERVICES PTY LTD ACN 078 279 277
File number:		WAD 234 of 2010
Judge:		MCKERRACHER J
Date of judgment:		11 October 2010
Catchwords:		PRACTICE AND PROCEDURE – motion to amend statement of claim – motion to strike out statement of claim – prejudice to the respondents – arguable cause of action disclosed
Cases cited:		Bioprospect Ltd v Solagran Ltd [2010] FCA 1081 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Date of hearing:	6 October 2010
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	15
Counsel for the Applicant:	T Coyle with A Rumble
Solicitor for the Applicant:	Lavan Legal
Counsel for the First and Second Respondents:	MD Wyles SC with B Murphy
Solicitor for the First and Second Respondents:	Foster Nicholson Legal

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 234 of 2010

BETWEEN:

BIOPROSPECT LTD ACN 008 130 336
Applicant

AND:

SOLAGRAN LTD ACN 002 592 396
First Respondent

VAGIF SOULTANOVICH SOULTANOV
Second Respondent

DENIS BERTRAM KILROY
Third Respondent

NOVA VITA PTY LTD ACN 109 436 508
Fourth Respondent

CUMPUTERSHARE INVESTOR SERVICES PTY LTD
ACN 078 279 277
Fifth Respondent

JUDGE:	MCKERRACHER J
DATE OF ORDER:	11 OCTOBER 2010
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1.The motion to further amend the statement of claim be allowed.

2.The motion to strike out the amended statement of claim be dismissed.

3.Costs be reserved until trial.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 234 of 2010

BETWEEN:

BIOPROSPECT LTD ACN 008 130 336
Applicant

AND:

SOLAGRAN LTD ACN 002 592 396
First Respondent

VAGIF SOULTANOVICH SOULTANOV
Second Respondent

DENIS BERTRAM KILROY
Third Respondent

NOVA VITA PTY LTD ACN 109 436 508
Fourth Respondent

CUMPUTERSHARE INVESTOR SERVICES PTY LTD
ACN 078 279 277
Fifth Respondent

JUDGE:	MCKERRACHER J
DATE:	11 OCTOBER 2010
PLACE:	PERTH

REASONS FOR JUDGMENT

INTRODUCTION

1. These reasons deal with a pleading debate and consequential considerations.  For an understanding of the background and terminology used in these reasons regard should be had to Bioprospect Ltd v Solagran Ltd [2010] FCA 1081 (Bioprospect No 1).

2. The applicant (Bioprospect) seeks to amend its statement of claim.  The first respondent (Solagran) opposes the amendment.   Solagran is concerned as to prejudice that would be sustained as a result of a new expanded case, alternatively it contends that the case as explained by counsel in oral argument discloses no cause of action.

3. The essence of the proposed amendment is to remove a loss of opportunity claim (previously pleaded in paras 67 to 69) and to replace it with a claim of a more confined nature.  Bioprospect claim the costs associated with entry into the Development Agreement (DA) which it seeks to have set aside (the costs).  Expressly, it does not claim expectation loss based on what it would have recovered under the DA if representations inducing it to enter the DA had been true.

4. Bioprospect now puts its case under those paragraphs as being that it has incurred the costs in circumstances where by reason of Solagran not having the rights as represented under the various representations, the rights acquired under the DA were worth less than the consideration provided by Bioprospect under the DA.  Although on its face this sounds like an expectation loss claim counsel for Bioprospect has made it clear that there is no intention to adduce valuation evidence to show the lost expectation.  Bioprospect will simply argue that, as a matter of commonsense, entry into the agreement in reliance on the pleaded representations when the represented rights the subject of the DA were not held, caused loss. 

5. Counsel for Bioprospect has also confirmed that it is prepared to confine its claim in damages to the matters expressly pleaded in the proposed amended statement of claim being the costs and therefore, at least on their face, readily identifiable expenses incurred in consequence of entry into the DA. 

6. There is then a further amendment in para 70 in the following terms:

   70Further and in the alternative to paragraphs 67, 68 and 69 above, BioProspect has suffered and is likely to suffer further loss and damage by reason of Solagran’s conduct in making each of the First IP Representations, the Second IP Representations, Third IP Representations, the IP Reassurance Representations and the DA IP Representations, in that:

   70.1BioProspect would not have entered into the Development Agreement but for its reliance on those Representations;

   70.2BioProspect issued 45,000,000 shares in itself to Solagran pursuant to the term of the Development Agreement pleaded in paragraph 47.  14 above, as set out at items 8 and 21 of Schedule C to this Statement of Claim;

   70.3In light of the matters pleaded in paragraphs 9, 19, 20, 21, 31, 38 and 49 above and the circumstances pleaded in paragraphs 67.3.2, 68.2.2 and 69.1.2 above, BioProspect’s ability to raise further capital by share issue, debt finance or otherwise, has been compromised in that any such fund raising is likely to be on terms less favourable to BioProspect than if it had not issued the 45,000,000 shares to Solagran.

   Particulars

   70.4By issuing the 45,000,000 shares for an inadequate consideration, the value of BioProspect shares was reduced, and in consequence, potential subscribers for shares in BioProspect, underwriters and lenders, would be likely to see BioProspect as a less attractive investment than if BioProspect had not entered into the Development Agreement and issued the 45,000,000 shares to Solagran.

7. Again, it might be thought that on its face this pleading would potentially raise the need for valuation evidence.  Again, however, counsel for Bioprospect has made it clear that the pleading in [70] goes only to the nature of loss that is sustained as a result of entry into the DA, not the quantum.  It is said to support the claim for rescission to which would be added the claim for a transfer, cancellation or forfeiture of the 45,000,000 shares.  I have in Bioprospect No 1 described this claim as being somewhat novel but arguable. 

8. With these express concessions made by counsel for Bioprospect, Solagran’s concern about the trial time being doubled and Solagran being required to meet a case which has radically changed since the first statement of claim are ameliorated.  Indeed, if anything, the case for Bioprospect, on the assurances given by counsel as to the claim basis and evidence to be adduced, tends to be more confined rather than expanded. 

9. However on the second point, that leaves for consideration the question as to whether there is a proper claim for loss under s 82 of the Trade Practices Act 1974 (Cth) (TPA) by entry into the DA in circumstances when the representations about the patents were (allegedly) untrue.  Senior counsel for Solagran on his argument draws heavily from Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 (at [47]-[59]) starting with what is said at [47] which is in these terms (footnotes omitted):

   [47]The bare fact that a contract has been made which confers rights or imposes obligations that are different from what one party represented to be the case does not demonstrate that the party that was misled has suffered loss or damage. The contrary view (which had been adopted by the Full Court of the Federal Court in Jobbins v Capel Court Corporation Ltd) was rejected by the majority in Wardley.  (emphasis added)

10. One can and must accept without doubt what was said in [47] of Marks v GIO but it does not apply here.  It is not the case that Bioprospect says that the rights and obligations conferred and imposed under the DA are simply ‘different’ from those represented.  Rather, Bioprospect alleges that because the representations as to the patents were untrue, the DA was worth much less than they paid for it.  Thus it seeks rescission.  It does not seek damages on an expectation basis.  On the Bioprospect case (accepting for present purposes it can succeed on liability) the representations which were at the core of its reasons for entry into the DA, were untrue.  It seems to me that that is not simply a ‘different contract’ as referred to in [47] in Marks v GIO but if the case is made good, a fundamentally different one in which it is at least arguable (from a strikeout perspective) that the loss is obvious. 

11. Additionally, what is said in [47] in Marks v GIO is expanded upon in [48] where the plurality says that a party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted.  (emphasis added)  That is the case Bioprospect puts.  Whether it can succeed is a matter for another day. 

12. Further, at [59] of Marks v GIO the reasoning of the plurality is clear where they say:

    Accordingly, the position of the borrowers is that they were misled into taking a loan which cost them more than was represented to them but which, even so, cost less than any other loan available to them in the market. They suffered … no loss or damage as a result of the misleading and deceptive conduct of the respondents.

13. What appears to be quite different in Marks v GIO is that at trial no borrower gave evidence that if the true terms had been known, he or she would not have borrowed at all or would have entered into alternative arrangements. The borrowers conceded that even with the increased margin the facility was more beneficial to them than any other available. The case for Bioprospect is that for reasons indicated, entry into the DA when the fundamental IP representations were untrue was not only something it would not have done but something which was necessarily detrimental to it. In entering into the DA, it incurred a range of costs. It says that those costs were its loss. That is the loss or damage which may be recovered under s 82(1) TPA. This claim is arguable.

14. For those reasons I will allow the application to amend the statement of claim and to the extent necessary dismiss the application to strike out the statement of claim.

15. There are competing considerations on costs on these motions.  Given that the trial is reasonably imminent, I will reserve costs until trial. 

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Associate: 

Dated:        11 October 2010