KEY POINTS:
Honey-based health products company Comvita and WaikatoLink are suing each other after a breakdown between the two firms.
In December 2006 Comvita entered into an agreement with WaikatoLink - the commercial arm of the University of Waikato - to buy intellectual property related to wound-care, skincare and cosmetics.
The deal covered existing intellectual property and future research for eight years.
Comvita made an initial payment of $1.5 million in cash and shares and was due to make two further payments of $1.25 million and $750,000 at subsequent annual anniversaries.
Comvita yesterday said it did not accept that it had any legal liability for the two subsequent payments as it believed WaikatoLink had misrepresented what it had to sell and was in breach of the Fair Trading Act.
WaikatoLink chief executive Mark Stuart said the organisation has complied in full and was mystified.
"We believe there's a great deal of value in the relationship and in the intellectual property they've received and we're rather confused about what's really going on here," Stuart said. "At no time prior to their failure to pay did they raise any issues around payment so it was quite a surprise to us."
Steps to recover payment were unsuccessful and in February WaikatoLink filed in the High Court at Tauranga for the recovery of the outstanding $1.25 million and would seek to recover the $750,000 when it became due, Stuart said.
"At the same time we've terminated the agreement with Comvita due to them failing to meet their obligations," he said.
Comvita has counter-sued WaikatoLink for damages of more than $2 million.
"WaikatoLink considers the counterclaim has absolutely no merit and it's nothing more than an effort to avoid payment or delay payment," Stuart said.
The two parties took part in mediation last week, which had been part of contractual terms.
"But we we're disappointed in Comvita's approach at that," Stuart said. "They didn't seem genuinely interested in a realistic outcome."
Comvita chief executive Brett Hewlett said he was disappointed the mediation was not able to reach a resolution.
"We really did enter that with every hope and desire to see a solution."
Hewlett said the amount already paid by Comvita was more than fair value for money "and to pay any more would be unreasonable so we don't feel it's appropriate to continue to pay any more".
It was too early to say whether Comvita would seek to recover the original payment already made, Hewlett said.
Under IFRS reporting Comvita had to take a non-cash provision of $2 million against the 2008 result, pending a resolution.
"It's business as usual for us in many regards but we're obliged to, of course, take a very conservative view on it I suppose and make sure that our shareholders are aware of that," Hewlett said.
Comvita had a 20-year relationship with the university.
"So for the relationship to have deteriorated this far is just really disappointing," Hewlett said. "But I think we've moved on and upwards and we're doing a roll-out plan for our wound-care and skincare products around the world so it doesn't impede us or prevent us doing things."
Comvita's shares closed down 5c yesterday at $2.05.
OFF TO COURT
* Comvita agreed to buy research related to wound and skincare from WaikatoLink.
* An initial $1.5 million was paid, with two payments to follow totalling a further $2 million.
* Comvita is not paying the subsequent amounts claiming WaikatoLink "misrepresented what it had to sell".
* Mediation last week failed to resolve the dispute.
* WaikatoLink is suing for outstanding payment.
* Comvita is counter-suing for damages.
