A decade-long legal battle between two well-known agricultural companies will remain before the courts for at least another six months.
Philom Bios, a Saskatoon inoculant company, is appealing a recent Alberta court judgment ordering it to pay more than $1 million to Dow AgroSciences Canada in a dispute over expired product.
Philom Bios president Calvin Sonntag expects the appeal will be heard next spring. How long it will take after that for a decision to be issued is impossible to predict, he said.
Despite losing at the lower court level, Sonntag expressed optimism about the eventual outcome.
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“We’re confident in the rationale of our appeal and believe we’re right,” he said, adding the appeal will be based on alleged errors in fact and law in the original judgment.
An official with Dow expressed a similar degree of confidence.
“Obviously the judgment reflected our viewpoint and we believe that will prevail through a second review,” said Jim Wispinski, the company’s director of marketing.
The case centres on the disposition of expired phosphate inoculant called Provide in 1996.
In September of that year, Philom Bios advised Dow it was unilaterally ending their business relationship, under which Dow had been for a number of years the sole distributor of Provide. Dow was left holding inventory of Provide that it had bought in October 1995.
Despite a series of exchanges, proposals and counter-proposals between the two companies over the next few months, they were unable to agree on a process for testing and disposing of the inventory.
In December 1996 Agriculture Canada issued a notice detaining Dow’s expired inventory and directing that it be either destroyed or returned to Philom Bios. Dow eventually destroyed the product, for which it had paid $422,000. The case ended up in court, with each side claiming the other was in breach of its contract.
Dow said Philom Bios failed to live up to its obligations regarding inventory testing and protection and asked for damages to compensate it for “worthless” product it was left holding.
Philom Bios said it complied with its contract and filed a counterclaim seeking damages from Dow related to issues of trademark rights, loss of reputation and goodwill and lost sales.
In a ruling handed down in July, judge P. M. Clark of the Alberta Court of Queen’s Bench ruled in favour of Dow on every issue.
He said Philom Bios breached its contractual obligations and duty of good faith to Dow, leaving the company with unsold inventory and no options to mitigate the loss.
He also dismissed Philom Bios’ counterclaim, saying the company provided “no reliable or convincing evidence” of any losses sustained as a result of actions by Dow.
The judge awarded Dow damages in the amount of $944,319, along with interest, now calculated to be about $375,000, and court costs.
Wispinski downplayed the situation, saying it was simply a commercial dispute over a business transaction.
“When you have contracts and business agreements, there are times when you have to ask the courts to decide if the two parties can’t agree,” he said. “That’s what we sought to do.”
He described Philom Bios as a good organization, noting that Dow owns eight to nine percent of Philom Bios’ shares. He declined to say whether the company intends to hold on to those shares in the wake of the lawsuit.
In its financial statement for the three-month period ending June 30, 2005, Philom Bios included an extraordinary cost item of $1.19 million, representing the costs of the Dow judgment, less estimated tax recoveries of $560,000.
That reduced the company’s net earnings for the quarter to $386,000, or 11 cents per share, from what would otherwise have been $1.58 million, or 45 cents per share.
Sonntag said the lawsuit is having no significant impact on the company’s operations or business relationships.
“From an operations point of view and strategic point of view, it has no impact on our plans and our ability to bring our technology to farmers today,” he said, noting that the company will soon move into a new $6 million, 100,000 sq. foot office, laboratory and production facility in Saskatoon.
However, he added there’s no question the company has better things to do with $1.19 million, including a possible payout to shareholders, many of whom are farmers.
