Honey ruling leaves sour taste

BY NICK KRAUSE
Last updated 10:29 17/06/2010
honey
SOUR TASTE: A 25-year relationship between Comvita and Waikato University has ended in acrimony after a protracted legal battle over the holy grail of manuka honey.

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A 25-year relationship between a listed company and a university has ended in acrimony after a protracted legal battle over the holy grail of manuka honey.

New Zealand healthcare group Comvita, which has an annual turnover of more than $80 million, and WaikatoLink, the commercialisation arm of Waikato University, called in the lawyers after a multimillion dollar deal to share the costs and benefits of research turned sour.

The dispute reached its climax in a High Court judgment last week but the ruling from Justice Rhys Harrison pleased neither combatant.

Central to the case were efforts to discover the root of manuka honey's antibacterial qualities  a potentially valuable secret giving manuka honey a huge premium in the market  known in the industry as unique manuka factor, or UMF.

Brett Hewlett, Comvita CEO, said the company no longer had a working relationship with WaikatoLink or the University of Waikato, and has instead forged a close working relationship with the University of Auckland, where Comvita's research on honey and other products continues.

"Comvita relied heavily upon the representations made by WaikatoLink about the stage of progress the research team at the University of Waikato had made in isolating and classifying the active compound behind UMF manuka honey," Hewlett said. "Those representations subsequently turned out to be either false or misleading."

In 2006, Comvita and WaikatoLink agreed to form a joint venture with Comvita financing research in exchange for rights to discoveries by the university's scientists. Whether the parties ever agreed on the essential terms of the arrangement, as Comvita alleges, is inconsequential to the claim, the judge said. One of the scientists working on the research was Professor Peter Molan, a renowned biochemist whose identification of the medicinal qualities in manuka honey was responsible for its transition from low value commodity to the world's most sought-after honey.

In February 2006, Molan advised Dr Ralf Schlothauer, Comvita's chief technical officer, that he was on the brink of discovering the molecule which comprised the UMF compound.

This apparent breakthrough led to the disintegration of the partnership as WaikatoLink demanded more money from Comvita, believing it now had a much more valuable asset for sale.

The demand was significant  rather than the $3.5m it was originally due from Comvita, it now wanted $10m.

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Believing it had little choice, Comvita started negotiating a new deal but then made a discovery of its own that, it believes, threw a different light on the university's behaviour.

As Justice Harrison commented in his ruling: "On an objective analysis WaikatoLink's conduct was, I find, misleading, deceptive or false."

Comvita's discovery was this: In April 2007 Schlothauer carried out a Google search. He found a paper given by Professor Henle of Dresden University in Germany at a conference in Naples in late May 2006. He had concluded from tests they "clearly demonstrated that the pronounced antibacterial activity in New Zealand manuka honey directly originates from MGO (methylglyoxal)". He had discovered the UMF compound and made the breakthrough claimed two months later by WaikatoLink.

As a result, Comvita refused to pay $2m still due on the original deal and claimed it had not got its money's worth on the $1.5m it had already paid.

At the court hearings in Rotorua and Hamilton, internal memos were presented suggesting Molan became less confident he would make the key discovery, but the university maintained its tough stance with Comvita.

This was not through duplicity, said the judge.

"I am satisfied Messrs [Gerald] Bailey (WaikatoLink chairman) and [Mark] Stuart [WaikatoLink CEO] acted honestly and in good faith ... Each believed that he was communicating the truth even though, as I have found, each was wrong."

Nevertheless, he ruled Comvita liable to pay half of the $2m due under the original deal.

A WaikatoLink spokesman said the university was surprised by the court finding that Comvita was misled by its conduct, but "is pleased with the court's recognition that its representatives acted honestly and in good faith and did not deliberately mislead Comvita".

- The Independent

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