Virulite LLC v Virulite Distribution Ltd & Anor

A contractual provision requiring variations to be written does not prevent a subsequent oral variation, waiver or promissory estoppel. The party alleging an unwritten variation bears the burden of proof, but the standard remains the balance of probabilities. The court must give proper weight to the original clause, its negotiation and the parties’ subsequent conduct.

An open-ended waiver may generally be ended by reasonable notice. Where the promise defines its duration and has been substantially relied upon, ending it early requires positive justification and may be inequitable. Contractual termination mechanisms continue to govern once the suspension ends, and a party cannot retrospectively rely on a breach which was suspended.

The claimant distributed the defendants’ infra-red cold-sore treatment device under a distribution and licence agreement. The agreement required a £25,000 consideration payment after delivery of clinical data for an FDA application and contained clauses requiring contractual modifications to be written and signed.

The claimant argued that the parties later agreed, or alternatively represented, that the payment would be deferred until FDA clearance. The defendants demanded payment in November 2010 and purported to terminate the agreement in January 2011. The issues included variation, waiver, promissory estoppel, validity of the termination and damages for lost commercial opportunity.

1. Variation. The written-variation clauses did not prevent an unwritten variation. The claimant bore the burden of proving a variation, but the standard remained the balance of probabilities. The court should consider the original contract, the circumstances in which it was made and the parties’ later conduct. The phrase “evidential presumption” and formulations such as “strong evidence” risked obscuring that standard.
2. The parties’ communications in November 2008 to January 2009 showed that both sides were prepared to defer the £25,000 payment until FDA approval. The defendants’ emails constituted an offer. The claimant did not reject it, and the offer was accepted in a later telephone conversation. Alternatively, acceptance occurred through the claimant’s continued pursuit of FDA approval, expenditure of resources and cooperation with the defendants. The DLA was therefore varied.
3. Waiver and estoppel. Alternatively, the defendants clearly represented that the payment would not be required until FDA clearance. They intended reliance, and the claimant relied by continuing the FDA process and investing time and resources. The representation defined its duration. Given the substantial reliance over about 20 months and the absence of positive justification for changing position, it was inequitable to demand payment before clearance.
4. An estoppel or waiver did not retrospectively remove the breach, but prevented reliance upon it during the period of suspension. If the suspension could have been ended, 14 days’ notice would have been required. The contractual termination machinery would then have applied, including the minimum periods specified by clauses 18.3 and 22.2. The November 2010 letter was invalid and could not support termination on 31 January 2011.
5. The purported termination was a repudiatory breach which the claimant accepted. Applying Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, the claimant had a real or substantial chance of successfully launching and selling the device. The appropriate damages were $1,900,000, with interest of $80,750.