Bim Kemi AB v Blackburn Chemicals Ltd.

This is an appeal from the judgment of Langley J given on 30 January 2002. The defendants Blackburn Chemicals Limited (Blackburn) are the appellants but the claimants Bim Kemi AB (Bim) pursue certain points by way of respondents’ notice.

Blackburn is an English company and Bim is a Swedish company. Bim and Blackburn both manufacture and supply chemicals for use in the pulp and paper industries. Bim had an interest in marketing Blackburn’s anti-foam products in Scandinavia, (and Blackburn an interest in its products being so marketed). Blackburn had an interest in marketing Bim’s products in the United Kingdom and Eire, (and Bim in having its products so marketed).

A contract was entered into during 1984 under which Blackburn appointed Bim as its licensee to manufacture products using Blackburn’s know-how. The action and this appeal is concerned with a possible variation to the relationship in the terms of a fax dated December 1993, under which it was contemplated that Blackburn would supply “new” products on terms as to exclusivity to Bim, and under which Bim would supply products on terms as to exclusivity to Blackburn. The trial before Langley J was concerned with certain issues defined by him as follows:-

The answer that the judge gave to those questions was first that there was a binding contract in the terms of the December 1993 fax (the 1994 contract); second that Bim was in breach of contract in selling itself and through Cellkem, Tensidef products in Scandinavia between 1995 and 1998; but third that the breaches by Bim were not repudiatory; and fourth that Blackburn was in repudiatory breach of the 1994 contract first by selling certain products in Scandinavia, and second by refusing in December 1998 to supply the product BS 470 to Bim. Blackburn were thus overall the losers at the trial.

The key issues on the appeal are first whether there was a binding contract in the terms of the December 1993 fax, (Blackburn contending the judge was wrong to so find); second, if so, whether Bim were in breach of that contract, (Bim contending on the appeal that the judge was wrong on this aspect); third if Bim were in breach of contract, whether the breaches were repudiatory, (Blackburn contending that the judge was wrong on that aspect). The question whether Blackburn were in breach of contract in refusing to supply depends on whether Bim were in repudiatory breach. The question whether Blackburn was in breach in supplying certain products into the Scandinavian market depends on the proper construction of the terms of the December 1993 fax (if it was binding).

The judge in his judgment sets out a detailed appraisal of the witnesses. Since there is no challenge to the judge’s findings of primary fact, it is sufficient for the purposes of this judgment to say that clearly the witnesses for Bim made a very good impression on him, whereas those of Blackburn did not. In particular, the judge was very critical of Mr George Lamb who it seems very much controlled matters from the Blackburn point of view. It was with those assessments in mind that the judge made his very detailed findings of fact. Since there is no challenge to many of them it is possible to take much of the factual story from the judge’s judgment.

The significant facts are as follows.

By a written Agreement dated 29 May 1984 ("the 1984 Agreement") Blackburn agreed to supply Bim with antifoam chemicals (under Blackburn's trade name "Dispelair") and granted Bim an exclusive licence to use Blackburn's know-how in the manufacture marketing and selling of anti-foaming agents in Sweden, Norway, Denmark and Finland ("the territory").

The 1984 Agreement was drafted by solicitors advising Blackburn. It provided that it was to continue in force for ten years from its date and thereafter from year to year "until terminated upon the expiration of twenty-four calendar months written notice to that effect ... which notice may be limited to expire at any time."

Provision was made (Clause 6) for improvements or developments of the know-how. Each party had to disclose any improvements to the other. Bim had to pay (Clause 7 and the Schedule) a royalty of 5% of the net-selling price of products (with a minimum annual payment). Bim (Clause 9) had to keep accounts and permit Blackburn to inspect them. Bim also (Clause 11) had to use its best endeavours "to stimulate sales" of the anti-foaming agents.

By Clause 12 Blackburn had the right to terminate the Agreement by notice forthwith if any sum due was unpaid for 31 days or Bim became insolvent (or the like) or if Bim committed "a breach of any of the Agreements herein on its part to be performed or observed and" should "fail to remedy the same within fourteen days after being requested so to do". By Clause 15, on giving 24 months notice to terminate the Agreement, in effect upon expiry of the notice Bim was to be free to produce market and sell anti-foaming agents itself in the territory.

In May 1989 Bim agreed to supply Blackburn with one of its own products for distribution in the United Kingdom. The product was Aquamol 1525 used for lint control in the paper manufacturing industry. The Agreement was the subject of a letter from Mr Larsson to Mr George Lamb which simply recorded a telephone Agreement that Blackburn "will have the right to act as our distributor in the UK" and offered "to sign a distributor contract any time you want" while also expressing the hope that "this piece of paper has a certain validity in the meantime".

At the time of the 1984 Agreement and for some years thereafter anti-foaming agents were generally oil - or water-based. The majority of Bim's sales of Blackburn products under the Agreement were water-based products used in the paper making industry and known as Dispelair DP 120 and DP 150. For reasons both of price and performance chemical manufacturers developed silicone-based products which began to replace oil-based products in the pulp industry market during the 1990s. This development contributed to problems in the relationship between Bim and Blackburn. As a result, negotiations took place in 1992 and 1993. Those negotiations, it is agreed, culminated in 1994 with a new Agreement. But the parties are far apart in their versions of what was agreed. It is accepted that there was an Agreement concerning the supply of new products developed by Blackburn including in particular Dispelair (DP BS 470) which was a silicone-based anti-foaming agent for the pulp industry. Blackburn's case is that the only Agreement made was as to the price at which the new products would be supplied to Bim. Bim's case is that the terms of the Agreement were contained in the December 1993 fax. There are a number of copies of the December 1993 fax with different hand-written markings on them made at various dates which the judge found to be of some importance.

The December 1993 fax provided that the 1984 Agreement would remain in force with respect to "old" products and gave exclusive sales rights for both Blackburn for Bim's products in the United Kingdom and for Bim for Blackburn's products in Sweden and for (at least) 3 years in Denmark, Norway and Finland. The Agreement was said to be "applicable from and including" Blackburn's Dispelair BS 469 (a precursor of BS 470). [If by precursor the judge had in mind that BS 469 was silicone based, it is common ground before us that he was wrong. BS 469 was oil based]. Instead of a royalty it was recorded that there would be a split of "gross contribution" according to the roles played by the companies in the production and sale of a given product. If (as was the case with BS 470) the owner of the technology also manufactured the product (Blackburn) but "the partner" marketed it (Bim) the split was 50:50. If one partner owned the technology but the other manufactured and sold the product the split in the original draft was proposed to be 70:30 in favour of the manufacturer.

The "Term of the Agreement" was expressed as "an evergreen contract starting 1.1.94" with "one year's notice from 1st January" required should a partner "wish to break the Agreement".

The December 1993 fax opened with a reference to a discussion Mr Tait had had at Mr Wallberg's home in Sweden and continued:

The fax produced no response from Bim for some weeks (partly at least because Mr Wallberg suffered an accident in the interim) but on 9 March 1994 Mr Tait raised the matter with Mr Wallberg in a telephone conversation. Although there is some disagreement as to what was said the judge found that the substance of the conversation was not really much in dispute. The best evidence of it is to be found in a handwritten note, made in Swedish, by Mr Wallberg at the time on his copy of the fax (the copy in the Appendix). The best translation of this note reads:

This note was signed "Peter" with the date 9 March 1994 and on the same day copies of the December 1993 fax with the note on it were sent by Mr Wallberg's secretary to Mr Larsson and Birgitta Petersson (an Accountant at Bim) for information.

Mr Wallberg also annotated this copy of the December 1993 fax where it referred to "Margin Split" by crossing out the 70:30 split in favour of the seller and manufacturer of a product derived from the other party's technology and writing in 75:25. That was because he and Mr Tait had agreed the change on the telephone. The change was not material to BS 470 which would be subject to the 50:50 split but it could of course be applicable to other products.

The pricing of BS 470 was the subject of a further conversation between Mr Tait and Mr Wallberg reflected in a fax from Mr Tait dated 30 March 1994. The price was to be £1285 per metric tonne (pmt) ex Blackburn's works based on a stated average Bim selling price. The figure was derived by application of the 50:50 margin formula in the December 1993 fax.

On 29 July 1994 Mr Tait sent a fax addressed to Mr Wallberg which read:

Mr Wallberg wrote on this fax for the attention of his secretary "reply to his fax and tell him we can discuss this when we meet in England". A fax to that effect was sent by Bim on 15 August. That fax was seen by Mr George Lamb who copied it to Mr Tait with the comment that Mr Lamb had not replied to it.

The Bim sales team was meeting in London at the end of August and a visit was arranged to Blackburn on 31 August which included "discussions with the objectives of how we can increase the sales of each others products" held in the afternoon followed by a memorable evening out in Preston. Mr Clark and Mr George Lamb, Dr Bratt and others were present for Blackburn but not Mr Tait as he was in Australia.

Mr George Lamb wrote a memo for Mr Tait on the Bim visit dated 7 September 1994. Although the memo records "c.c. Peter Wallberg" as a matter of probability the judge found it was not in fact sent to Mr Wallberg as no copy was found in Bim's documents and Mr Wallberg had no recollection of receiving or seeing it at the time. The memo described the Bim visit as "a great success in terms of personal relationships" and continued:

Sent or not the judge found it was of some significance that Mr George Lamb was plainly happy for Mr Wallberg to see this memo with its instruction to Mr Tait to finalise the new agreement.

On 11 and 12 October 1994, Mr Tait and Mr Clark visited Bim Kemi in Gothenberg for discussions about trading between the two companies. In the course of those meetings (which were held with Mr Larsson, Mrs Nordhammer and Mr Johansson) and probably towards their conclusion and at Mr Tait's instigation because Mr Tait wanted to discuss the agreement, Mr Wallberg came into the meeting briefly. Whilst there he placed his initials on a copy of the December 1993 fax which Mr Tait had brought with him from Blackburn. The initials were placed prominently on the front page immediately above and to the right of the opening words of the fax. This copy of the fax did not contain the amendment to the Margin Split from 70:30 to 75:25. Mr Tait returned to Blackburn with the initialled copy. It (or a copy of it) certainly found its way to Mr George Lamb because he wrote on the second page a reference to "Gross cont(ribution)" and some other matters albeit he could not recall when he had done so. Mr George Lamb also wrote on the first page "GL Bim File" but he said he had done that only in 1999 when faced with the threat of Bim's present claim.

At the meetings on 11 and 12 October it is not in dispute, and is demonstrated by some notes made by Mr Clark, that Mr Larsson spoke about Bim's business operation, including its structure, mentioning the presence of two sales people in Finland, and also referring to Bim focusing on Germany and Canada and other parts of the world. Bim's products were discussed as were some viscosity problems experienced with BS 470.

In a further note prepared by Mr Clark and initialled by Mr Tait there are two references to agreements. The first regarding possible sales of other Dispelair products by Bim noted "return on sales according to the new Bim/BCL agreement". The second under the heading "Bim/BCL agreement" noted "This is to be formally written up and forwarded to Peter Wallberg to sign". Mr Tait himself described the discussions as "very positive" in a "thank you" fax.

At about midnight on 31 December 1994, having been alerted to the prospect early in the year and begun negotiations in the summer of 1994, and without prior mention to Blackburn, Bim entered into an agreement to acquire from a holding company through a Finnish company formed for the purpose and subsequently named Cellkem Oy, the business, assets and liabilities of a company known as Cellpap Oy. "Cellkem" manufactured and sold its own range of anti-foaming agents under the brand names Tensidef and Prodex in Scandinavia. These anti-foaming agents were oil-based for the pulp industry. Bim recognised rightly that this acquisition would cause concern to Blackburn in the context of the existing arrangements between Bim and Blackburn. At the time Bim had a subsidiary with only two employees seeking to sell products in Finland. But Finland was a major market for both pulp and paper-making chemicals.

Following completion of the acquisition Mr Wallberg informed Mr George Lamb about it on the telephone. Mr Lamb asked Mr Wallberg to write to Mr Tait on the subject which Mr Wallberg duly did on 2 February 1995. Mr Wallberg described Cellkem's business, including the fact that it produced and sold "pulp oil-based ... defoamers", and expressed his belief that "we can, through the new company's sales resources, break through to the Finnish market in a way which has not been possible before. This shall be very advantageous for our shared defoaming business". Mr Wallberg said, as did Mr Larsson, (and the judge accepted), that Bim had in mind in particular the sale of BS 470 in Finland as pulp-manufacturers moved from oil-based to silicone-based anti-foaming agents. Although Cellkem had begun to develop its own silicone-based product it was not proved or finally developed at the time.

Mr Tait and Mr Clark were due to meet Bim in Amsterdam on 6 February. On 2 February Mr Tait sent Mr Larsson a proposed agenda for the meeting. The agenda included:

The references to agreements in the paragraphs numbered 1 and 2 were the judge found, plainly to the 1984 and 1994 "agreements". One of Bim's expressed aims for the meeting was to "create acceptance for Cellkem business without any claims on Bim of any kind".

Mr Tait (with Mr Clark) did meet Mr Larsson (and others from Bim) in Amsterdam on 6 February. There was discussion about the Cellkem acquisition. Mr Tait returned to London the next day and discussed the meeting with Mr George Lamb and Dr Bratt. Following that discussion, Mr Tait prepared a rough draft of a letter to be sent to Bim concerning the acquisition. The draft expressed pleasure at the acquisition and anticipation of a substantial expansion of Dispelair sales in Finland and continued in uncompleted form:

The reference to "the only signed agreement" was plainly a reference to the 1984 Agreement. In the event on 9 February Mr Tait wrote to Mr Wallberg to thank him for his letter of 2 February and continued:

Mr Wallberg wrote on this letter:

The 9 February letter was not replied to in writing. But there was a telephone conversation between Mr Tait and Mr Larsson on 27 February to which Mr Tait referred in a fax sent to Mr Larsson that day. The fax (so far as relevant) reads:

Mr Tait continued by asking specific questions about the sale of Cellkem's products in the United Kingdom and asking for full details of Cellkem's range of anti-foaming agents. The cause of his concern was sales by Cellkem of products (not anti-foaming agents) in the United Kingdom of which Blackburn was unaware. There was no follow-up to this fax, but the documents and evidence show that sales by Cellkem in the United Kingdom were not a subject of complaint by Blackburn thereafter.

Mr Larsson said, and the judge accepted, that once it was agreed, as it was, that BS 470 should be sold through Cellkem in Finland, Cellkem dropped its development of its own silicone-based product. Mr Clark acknowledged that the purchase of Cellkem was seen as a good commercial opportunity for both companies. Mr Tait was less willing to acknowledge this but agreed that if the purchase of Cellkem led to sales of Blackburn's products then he would be happy. Mr Tait left Blackburn in December 1995. There is no doubt that Cellkem was in fact very successful in selling BS 470 in and after 1995 as the pulp market in Finland moved from oil-based to silicone-based products. As the judge found whereas it was apparent both from the documentary and oral evidence that within Blackburn Bim's acquisition of Cellkem was viewed with concern and even suspicion, once the level of sales of BS 470 was established, as it quickly was, no concerns were ever expressed by Blackburn about the Cellkem acquisition or Cellkem's activities. Thus in the calendar year 1997 sales by Blackburn of BS 470 to Bim/Cellkem were worth some £1.5m with an estimated gross contribution to Blackburn of some £840,000. Total sales by Bim/Cellkem of BS 470 (including sales of BS 470 marketed as Tensidef 160) were of the order of 550 tonnes in 1996, and 1000 tonnes in both 1997 and 1998. Most of these sales were made by Cellkem to customers in Finland.

As found by the judge the reality of what occurred in relation to Cellkem in the context of the relationship of Bim and Blackburn was that both parties knew silicone-based products were the future in the pulp industry. Both also knew, or appreciated that Cellkem would continue to supply oil-based products to its Finnish customers not only to maintain its existing market but also so as to be well placed to supply that market with silicone-based products when customers were prepared to make the change. Both knew that Finland was a major market to which Cellkem had an access which they had not managed to achieve on their own. Blackburn's concern was that BS 470 should be the silicone-based product promoted by Cellkem. Blackburn was much less concerned with sales of 'old' products or their derivatives under the 1984 Agreement (which were of much less and declining value to Blackburn) and so also unconcerned by Cellkem continuing to sell its existing range of oil-based products. Indeed those sales were part of the foothold in the market. Mr Tait's 9 February letter (paragraph 34) was not accurate in stating generally that Bim had agreed to replace Cellkem products with the Dispelair range. The original draft letter (paragraph 33) captured the substance of what had been said by Bim, namely that Blackburn would benefit from an increase of sales in Finland as BS 470 came to replace Cellkem's oil-based products. Mr Tait accepted his letter had been written "to elicit a response".

The judge also found that Mr Tait came away from the Amsterdam meeting in the belief that the 1994 agreement was effective for sales both of Blackburn's "new" products by Bim and Bim's products by Blackburn (to which, apart from Aquamol, only the 1994 agreement could apply). The judge in essence found that Blackburn acquiesced in Cellkem selling its own oil-based anti-foams, but did not acquiesce in any sale by Cellkem of its own silicone-based products. Mr Onslow on this appeal has sought to challenge that finding asserting that the acquiescence went over the whole range of anti-foams and indeed affected the clause in the alleged 1994 agreement relating to exclusivity. If Mr Onslow were right it is not quite clear what effect that would have on Bim/Cellkem’s entitlement to insist on supplies of BS 470 for the Finnish market. This is a point to which we will return.

Mr Tait sent two faxes to Mr Larsson on 8 February 1995 which the judge found could only sensibly be explained on that basis. One of them refers to "our agreement" and quotes from the December 1993 fax as an answer to a question raised by Mr Larsson.

On the judge’s findings a much improved relationship had been established by 1995 and regular meetings took place to review the business and "the Agreements" to quote from a fax sent by Mr Tait on 1 September 1995.

In January 1996 questions arose about the operation of the pricing arrangement for supplies of BS 470. Mr Philip Lamb (another son of Mr George Lamb and then Blackburn's Company Secretary) wrote to Mr Larsson on the subject. He said:

Mr Lamb stated that Bim had not supplied invoices to enable the correct price to be established but from a list of sales Bim had provided it appeared that an adjustment was due in Blackburn's favour against "the initial price" of £1285 pmt at which Blackburn had continued to invoice.

The letter led to a question whether when Bim on-sold supplies to Cellkem the relevant price was the price to Cellkem or the price charged by Cellkem to the end-user. Blackburn maintained the relevant price was the price to the end-user. Mr Lamb however proposed an alternative in a further fax dated 15 April 1996 that Blackburn would invoice Bim at a fixed price per tonne ex-works. It was this proposal that was agreed at a review meeting held with Mr Clark in Sweden on 24 April. The ex-works price agreed was £1550 pmt. Mr Clark reported on this agreement (and the meeting generally) to Mr George Lamb (and others) at Blackburn in a memorandum dated 30 April. He reported that it was "accepted that ... BS 470 sales fall within a new agreement. The objective being that profits from sales should be more evenly distributed between the two parties" and that "after much debate" it had been agreed that an ex-works fixed price policy was best rather than continue the difficulties caused by delay in obtaining invoices from Bim.

The judge then dealt with what he termed “Bim’s concerns” in the following way. Mr Wallberg and Mr George Lamb met at Mr Wallberg's summer house in Sweden in June 1996. Minutes of the meeting were prepared by Mr Lamb. They discussed what was referred to as the "new arrangement" and Mr Wallberg's concern that it was not as good for Bim as Blackburn because Bim was increasing sales of Blackburn anti-foaming agents but Blackburn was not increasing sales of Bim's products. In the context of a suggestion for closer co-operation between the two companies made by Mr Wallberg it was agreed to exchange commercial information including sales turnover figures for anti-foaming agents.

Belatedly, because of bereavement, Mr Wallberg responded in a letter to Mr George Lamb dated 4 October. Mr Wallberg provided sales figures for anti-foaming agents split into sales of products under the 1984 agreement, resale of Blackburn's products (that is sales of BS 470 and other products) and sales of Cellkem products. Mr Wallberg also referred expressly to the problem of paying a royalty under the 1984 agreement for old products even though Bim had been forced to use its own resources to up-grade them; to the fact that "all new products now go under a new agreement where we have lower profit" which was demotivating for Bim's sales force; and to Blackburn's lack of success in selling Bim's products. Mr Wallberg wanted "some type of new agreement" where product development and marketing could be decided jointly.

Mr Clark analysed the sales figures provided by Mr Wallberg. He recognised and recorded that Cellkem anti-foaming products provided a significant part of Bim's turnover. He also commented that "the new agreement dated 20/12/93 has not really become established. BS 470 sales are not within it for instance. It was agreed that a fixed ex-works price be applied such that both companies would benefit fairly in contribution return" which gave a very similar net result to the terms of the new agreement.

In late November 1996 a serious problem arose with one of Bim's major customers (Husum) when it became known that DP150 contained a chemical which did not comply with Husum's or regulatory environmental requirements. There were also some viscosity and silicone deposit problems with BS 470.

By the end of the year, and despite the increasing success of sales, Bim's concerns were such that it was considering alternatives to continued co-operation with Blackburn. A "strategy meeting" was held at Malaga in early March 1997 to that end. The minutes of the meeting and the oral evidence from Mr Wallberg and Mr Larsson about the meeting according to the judge were not entirely clear or consistent but he found that the substance of the discussion was sufficiently established especially when seen in the context of the termination letter sent some 2½ months later at the end of May. The strategy decided upon was to seek to ensure that Bim was in a position to manufacture alternative products, hopefully by the end of May, and then to consider whether Bim should "cancel the contract" which of course required 2 years' notice in the case of the 1984 Agreement. The judge found that Bim’s obvious commercial concern was that Blackburn would react by immediately cutting off all supplies. Mr Wallberg said that this strategy was directed to the 1984 agreement only and the 'old' products only, but the judge found that Bim also had in mind the possibility that Blackburn might react by cutting off supplies of BS 470, albeit to do so would have been commercially damaging to Blackburn itself.

It was at this time that Mr Steven Lamb was appointed General Manager of Blackburn and on 22 April Mr George Lamb informed Mr Wallberg of the appointment and the intention that he should become Managing Director when Mr George Lamb reached 65.

According to the judge, Bim decided to bring matters to a head. Bim's case was that it decided to give notice of termination of only the 1984 Agreement, not the 1994 Agreement, and to do so in the hope that it would lead to a new relationship between the two companies of the nature of a joint venture. As for the risk that Blackburn would cut off supplies of BS 470 Bim wanted to be as ready as it could be with its own silicone-based product should that occur. In this context the judge pointed to the fact that the documents suggest that Bim had a need for further supplies of BS 470 of 80 tons a month in each of the 5 months from 1 June to 30 October 1997 but believed it could have a substitute product available thereafter. What the document actually said was “At the moment, we do not believe we will need any more BS 470 deliveries after October.” What the judge did not point out was that this document was also capable of supporting Blackburn’s case that Bim were developing a silicone-based product which they were hoping to sell in place of BS 470.

On 27 May 1997, following a Board Meeting held on 16 May, Mr Larsson wrote to Steven Lamb sending what was described as a "Notice of termination of Licence Agreement dated 29th of May 1984" which stated:

Mr Steven Lamb replied on 5 June. He wrote:

There was a dispute at the trial as to whether that notice was intended to relate to the 1984 agreement alone or to all forms of agreement then existing as between the parties. The judge found it related to the 1984 agreement alone, and that Mr Steven Lamb’s reaction was explained by the fact that he was wholly unaware of the December 1993 fax at the time. This issue does not arise on this appeal.

By 16 September 1997 it is apparent that Blackburn had already established a relationship with another Finnish company (Clariant Finland) and the agent of Clariant, Oy Chemec, with a view to those companies selling Blackburn's products. Indeed on 24 June 1997 Blackburn had sold 20 tonnes of BS 470 to Clariant. Clariant and Chemec also provided Blackburn with information about the Scandinavian market and about what Bim was supposedly doing in it. Thus on 16 September Clariant wrote to Blackburn that "Bim/Cellkem" had moved from Dispelair to Tensidef in many places but it was not known if it was only a change of name because in the case of Dispelair 150 (which was manufactured and sold by Bim subject to the 1984 Agreement) Cellkem was saying that Tensidef 520 was the same product. No one at Blackburn took the matter up with Bim, although Mr Steven Lamb also met Mr Larsson in Munich on 16 September.

An internal document of Blackburn (17 October) (as to which the judge commented that it was one of the few said to have been created) according to the judge “states” Blackburn's strategy. The marketing of Blackburn products under the Tensidef name and other unspecified action by Bim was said to be "clearly against the agreement, therefore effectively cancelling it". There is no detail given at this stage of the recitation of the facts by the judge of what sales by Bim through Cellkem had been taking place. When that analysis does come the judge was persuaded that Bim’s conduct, even though a breach of contract, was not repudiatory. A key question is whether that view of Bim’s conduct is right. The judge’s findings concentrate at this stage on what Blackburn were doing without reference to any suspicion they may have had as to what Bim were doing, and without reference to what Bim were actually doing. He refers to the fact that trials had already begun and been successful with Chemec who were keen to market BS 470 and DP 150 in Finland. Chemec also wanted to cut Clariant out. The note records that the total annual contribution from Bim to Blackburn was approaching £1m almost 90% of it coming from sales of BS 470. Total Royalty payments under the "old" agreement in 1997 had declined from a peak in the early 1990s of £90K to £100K to an estimated £85,000 in 1997. The margin on sales of BS 470 was much better than could be achieved on oil-based defoamers.

The judge noted that the "options" for Blackburn were said to be sales via a re-seller or direct sales. A joint venture with Bim, as Mr Larsson had proposed to Mr Steven Lamb at the meeting in Munich, was not considered to be worth pursuing as Blackburn would be "most uncomfortable" in forming such a venture but a dialogue was to be maintained "so as not to show our hand too early". The action plan included Dr Bratt devoting a full week in October to a project to "match" Bim's Aquamol product and Mr Steven Lamb and Mr Clark visiting Chemec. The judge’s comment was that “the dialogue with Bim did indeed continue.”

This paints an unattractive picture of Blackburn’s conduct, but this was a marriage in the course of break-up and no comparison is made with what Bim/Cellkem were doing in equal contemplation of the break-up. It would perhaps give a more balanced picture to quote the following Bim documents.

In about October 1998 Bim appointed a Mr John Westwood to promote sales of Bim products in the United Kingdom. Blackburn was informed of the appointment and Mr Westwood met Mr Clark to discuss how Mr Westwood envisaged he and Blackburn were to co-operate to that end.

The immediate trigger for Blackburn refusing to make further supplies of BS 470 to Bim seems to have been a report from Mr Roope Maijala of Chemec to Mr Clark dated 7 December 1998. At that time Bim's notice of termination still had some 6 months to run before it became effective, and Chemec had begun trials of BS 470 (sold as CVA 40) with a number of major customers of Bim in Finland. Mr Maijala reported that Cellkem had decreased the price of BS 470 to a major customer in Finland (Enso Varkaus) by several Finn Marks; Cellkem had done so to enable them to develop and trial even cheaper Tensidef products and if the Tensidef products did not work Cellkem was offering BS 470 free of charge. The report continued:

The judge found, no doubt rightly, that Mr Maijala's motivation was not in doubt. He wanted the business. Chemec was also concerned and had told Blackburn that customers were suspicious that Chemec was supplying the same product as Cellkem under a different name. The source of Mr Maijala's information in his report was not named. As he said in evidence it was not for him to check whether it was accurate or not. Blackburn took no steps to check it either. The judge was furthermore critical of the fact that most of the allegations had not been put to Bim's witnesses in cross-examination (a feature to which we must return).

On 21 December, Steven Lamb wrote to Mr Mikko Maijala stating that Mr Maijala was "well aware of the problems we have encountered with Bim Kemi/Cellkem with regard to them breaking our agreement time and time again. We have now lost faith with Bim Kemi and are suspicious of them tampering with our material before delivering to the customers".

On the next day (22 December) Mrs Holt, on Mr Steven Lamb's instructions, sent a fax to Bim thanking Bim for two orders but adding "as I am sure you are aware we are unable to supply future orders for Dispelair BS 470 to Cellkem". The judge said of this communication that no reason was expressed, not even that given to Mr Maijala, which itself has not been advanced in these proceedings.

We are troubled that it is this communication on which the judge has relied. The judge is clearly critical of Blackburn not spelling out the basis on which they were refusing to supply BS 470, but there is no reference in the judgment to a telephone conversation which Mr Steven Lamb refers to in his written statement. Mr Steven Lamb said this at paragraph 20:-

The explanation for the lack of reference appears to be the following. Neither Mr Onslow QC nor Mr Turner had put this conversation to Mr Larsson when he gave evidence. At the conclusion of Mr Onslow’s case on Day 6, an unseemly exchange took place between the judge and Mr Turner relating to the duty of counsel to put matters in cross-examination. At the end of Day 6 Mr Onslow informed the court that all his witnesses, other than Mr Wallberg, were returning to Scandinavia, and Mr Turner was simply given the opportunity of considering whether there were matters he still wished to put to Mr Wallberg. Mr Turner on Day 7 indicated three points, and it seems that this conversation and any inference to be drawn from it was not one of them.

Prior to Mr Steven Lamb giving evidence, Mr Onslow raised with the judge various aspects of Mr Steven Lamb’s statement which Mr Onslow said had not been put to his witnesses. Mr Onslow sought a ruling at that stage as to whether he should challenge Mr Steven Lamb because “if I put our case, such as I know it, on points which have not yet been put, I will be letting in the evidence” [D901095]. One point raised was paragraph 20 by which Mr Onslow asserted Mr Steven Lamb as alleging that Mr Larsson had told “a whopping lie about Tensidef 151” [D9-1099]. That had not been put to Mr Larsson. The judge was sympathetic to Mr Onslow’s position which was that it would not be fair for a suggestion that Mr Larsson had lied to be part of Blackburn’s case without Mr Larsson having had a chance to deal with it. Mr Onslow did not ask for paragraph 20, or any part of that paragraph, to be excluded from evidence and his ultimate submission was that it was “a matter of weight” [D9-1111].

This is not the kind of technical dispute one would expect to occur in the Commercial Court, but in our view Mr Onslow took a considerable risk in taking the line he did. The rules in relation to putting the case to a witness are of course about fairness, and in particular about not taking one’s opponent or a witness by surprise. In this instance this conversation was plainly dealt with by Mr Steven Lamb in his witness statement. One question was whether it had taken place at all and if Mr Larsson wished to say it did not take place then Mr Larsson had the opportunity to do that in a further witness statement, or in his evidence in chief. It should be added that at the conclusion of Mr Steven Lamb’s evidence a suggestion was made that Mr Larsson might be recalled. Mr Onslow for Bim was not prepared to have him brought back from Sweden and thus there was no evidence on behalf of Bim that this conversation had not in fact taken place.

If the conversation had taken place, there were two possible inferences that could be drawn from the statement as set out by Steven Lamb; one inference is that Mr Larsson had known for some time that Tensidef 151 was Cellkem’s own product, was lying when he said it was BS 470 re-labelled and was annoyed at being caught out; the other inference involves no imputation of misconduct against Mr Larsson, and was simply that he had not previously known that Cellkem were selling their own silicone-based product, but was annoyed that Cellkem had done such a thing. We agree that if Mr Turner for Blackburn, wanted to persuade the court that the adverse inference should be drawn, then he was bound to put that to Mr Larsson and give Mr Larsson a chance to deal with it. What Mr Onslow is not entitled to do however is to say that since a possible inference to be drawn from the conversation is adverse, and since the conversation was not put by Mr Turner, then the conversation can not be relied upon at all. Indeed he submitted that is not the stance he sought to take at the trial or now takes on the appeal.

The position is that there is an unchallenged statement of Mr Steven Lamb that this conversation took place. There has been no request to recall Mr Larsson, and no attempt to put in a statement from him denying the existence of the conversation. It was not suggested to Mr Larsson that he was lying and that inference should not thus be drawn. But equally, for the judge to draw an adverse inference against Blackburn for not providing an explanation for refusing to supply BS 470 was unfair. Mr Larsson was told clearly why they were refusing, and prima facie, if there existed a contract under which Bim/Cellkem were bound only to supply silicone products from Blackburn, it is at the very least an understandable reason.

The judge then dealt under a separate head with the supplies of silicone-based products by Bim, and his findings in relation to quantities sold are not in dispute. Bim/Cellkem did sell some silicone-based defoamers manufactured by Cellkem in the years 1996, 1997 and 1998. They were sold as the Tensidef 130 and 150 range, and as the Prodex 130 and 150 range. The judge on this aspect found that the sales were in breach of the contract he found to exist, but he accepted Bim's case and the evidence of Mr Rannankari of Cellkem. He found that such sales had, as Mr Wilson QC put it in his reply before us, four indicia – (1) They were all trials; (2) They were all prompted by deficiencies in BS470; (3) the trials were all expected to fail; and (4) the sales were in reality for Blackburn’s benefit in order to maintain the market for BS 470. Bim’s case, as accepted by the judge, was that the products had not in fact been developed to a stage where they could hope to be trialled successfully in opposition to BS 470 (or competing products of other suppliers) but in the hope that it would help to retain the goodwill of customers. The technology he suggested was Cellkem's pre-acquisition technology which had not been developed further after BS 470 sales by Cellkem had begun. He further suggested that to a great extent the actual sales figures bore out Bim's case. Total sales in 1996 were 6 tonnes: enough on the evidence only for a preliminary test rather than a full trial. In 1997 total sales were some 8 tonnes. In 1998 total sales were some 95 tonnes but split between 8 mills. Sales of BS 470 (as such or as Tensidef 160) were some 550 tonnes in 1996 and over 1000 tonnes in both 1997 and 1998.

These findings of the judge are highly material to the issue as to whether Bim was in repudiatory breach of such agreement as may have existed. Mr Wilson QC for Blackburn produced before us a schedule in relation to the sales by Cellkem of silicone-based products setting out all references in the documents, all references in the witness statements, and all references in cross-examination. He suggested that an examination of Bim/Cellkem’s dealings with silicone-based products with customers in Finland demonstrated that in reality, prior to any refusal by Blackburn to supply BS 470, Bim/Cellkem had during 1997 and 1998 developed its own silicone-based defoamer which they were offering to their customers, and which if found acceptable by the customer would have been sold in place of BS 470, even during the currency of the 1994 agreement.

On this aspect the judge made the following further findings.

Both parties wanted a new or further and binding agreement because the 1984 Agreement was unsatisfactory. Blackburn did not want to supply BS 470 (or other ‘new’ products) on the basis of only a 5% royalty and would have argued that such new products did not fall within the 1984 Agreement in any event.

Bim wanted new and improved products to maintain its market share (especially in Sweden at the time) and wanted Blackburn to work harder to promote the sale of Bim's products in the United Kingdom. Whilst both parties produced drafts of the sort of agreement they had in mind, Mr Wallberg was more concerned in starting selling than the niceties of agreements. It was Blackburn which drafted the December 1993 fax and, on the evidence, Mr George Lamb was personally and plainly very much involved in doing so.

Blackburn were more keen formally to tie down the relationship than Bim. The arrival of Mr Tait was seen as a means to that end. The December 1993 fax was, the judge found, accurate in stating that it set out the basic points of a new agreement "reached" between Blackburn and Bim in the discussions which preceded it. In that context it was understandable that the long delay in Bim's response would have caused some anxiety at Blackburn and so, the judge found, led to the March 1994 telephone conversation.

The judge found that in the conversation in March 1994 the terms of the December 1993 fax were agreed but as a "gentleman's agreement". That gave rise to a further irony. Mr Wallberg's evidence was that in Sweden a "gentleman's agreement" means an effective (or binding) agreement but one which will not be drafted or finalised by lawyers. Mr Larsson described the May 1989 Agreement (paragraph 12) as a gentleman's agreement in just this sense. The judge accepted that evidence and accepted the evidence that Bim thought the expression meant the same in England. The judge also accepted Mr Tait's evidence that he took the words in the sense in which they are (and were) commonly used in England as an agreement binding in honour only and to be contrasted with a legally binding agreement. Mr Tait had a clear recollection of Mr Wallberg using the expression and that when Mr Tait reported it to Mr George Lamb and Dr Bratt it was met with ironic laughter. Thus, the judge found Bim believed the terms of the fax were agreed and binding and that Blackburn believed they were agreed but not binding. Hence (the judge found) Mr Tait's fax sent on 29 July 1994 and the August meeting which led to the October meeting and Blackburn's attempts to "finalise" an agreement.

Had matters remained as they were prior to the October meeting, the judge would have concluded that no "new" agreement had been made. He found the position was sufficiently confused that it could not be concluded that there was the necessary meeting of minds.

The judge found that the October meeting achieved the finality which Blackburn sought and which Mr George Lamb had asked Mr Tait to achieve. The judge found the substance of what occurred was sufficiently clear and accorded both with the indisputable fact that Mr Wallberg initialled the December 1993 fax and the fact that Mr Clark referred to a new agreement in his notes. It was also the evidence of Mrs Nordhammer and Mr Larsson (accepted by the judge) that Mr Tait was obviously delighted by the fact that Mr Wallberg had initialled the fax. The further indisputable facts that Mr Tait had the fax with him, it was that copy (alone) which was initialled, and that Mr Wallberg was asked to come to the meeting to deal with the agreement, also satisfied the judge that Mr Tait must have at least in effect asked Mr Wallberg to sign the fax. Both Mr Tait and Mr Clark suggested that it all happened quickly if not brusquely. But their impression is consistent with Mr Wallberg's belief that he was doing no more than he had already agreed in the March 1994 conversation and also with Mr Tait's belief that a binding agreement was not yet in place because only a gentleman's agreement had been made in March.

The finding of the judge that no contract was made in March 1994 was not challenged by Bim. Obviously in one sense Blackburn rely on that finding by the judge, but Mr Wilson did not put the matter in the same way as the judge. His submission was that the terms being offered by the fax were not capable of acceptance as a binding contract; the offer was no more than principles which if confirmed, were to be developed by lawyers into a draft agreement to be considered and agreed by each side. Only the contract thus drawn up and agreed would constitute a binding agreement.

Mr Wilson’s submission was that Mr Tait went no further in October 1994. His argument was that the terms of the fax and in particular the first paragraph were still very much part of the offer. His submission was that there was no meeting of the minds as to the precise terms agreed between the parties, and such consensus as was achieved on principles was “subject” to contract. The consensus was not to an agreement binding on the parties until the lawyers had drafted the terms; it was to principles and subject to the lawyers drafting the terms.

Mr Wilson supported his submission by seeking to demonstrate that the conduct of the parties after October 1994 showed that none of the terms were actually implemented. They became as he suggested a “dead letter”.

There is no doubt that the acquisition of Cellkem, unknown to Blackburn but in prospect so far as Bim was concerned in October 1994, and debated between the parties in the first quarter of 1995, led to a reconsideration of such terms or principles as had been thought to have been confirmed by the initialling of the fax. But Cellkem was concerned with sales into the Finnish market. Apart from the Finnish market, the trading relationship of the parties continued thereafter on the terms or principles set out in the fax. Blackburn, for example, was considered by itself and by Bim as Bim’s agent for the sale of Bim’s products in the United Kingdom and Eire. It is true that Blackburn was concerned at one time that Cellkem seemed to be selling products directly into the United Kingdom, but Blackburn’s attitude was that they were the exclusive agent for Bim in the United Kingdom and Eire. As regards Finland and Cellkem, Bim persuaded Blackburn to allow the continuation of the sale of Cellkem’s oil-based products on the basis that Cellkem would seek to introduce BS 470 into the Finnish market. The parties, including Cellkem, acted on the basis that Bim/Cellkem were the exclusive agents in Finland, and on the basis that silicone-based defoamers would be sourced from Blackburn. Cellkem under Bim’s instruction gave up their development of their silicone-based products at this time. As Mr Rannankari said in his witness statement:

The introduction of Cellkem did lead in 1996 to a variation to the 50:50 split so far as supply of Blackburn products for the Finnish market was concerned. Blackburn sold to Bim at a certain price and left Bim/Cellkem to decide at what price they sold on to customers.

The judge dealt with this argument under the heading relating to whether the terms of the agreement were implemented. He said:

We have not found the resolution of this issue easy, but have ultimately concluded that it would not be right to interfere with the judge’s conclusion on it. The arguments of Mr Wilson, which are in reality based on the first paragraph of the fax, are powerful referring as it does to “basic points”, and if confirmation was received, to the drawing up of a “suitably legally worded document for approval”. The paragraph does not however use the words “subject to contract”, and once the parties were trading in accordance with the terms set out in the fax which they in effect were from 1/1/94, one would expect each to want terms of trade which were legally binding. The evidence would support the view that Bim thought it had such a contract even if described as a gentleman’s agreement although the intention was that a more formal document would be drawn up. It is difficult to see why Blackburn would not want such a contract pending the drawing up of a formal document, and the delay in sending the fax to lawyers after October 1994 would suggest that they thought that they did have. Evidence of what happened thereafter is not conclusive either way, but on balance supports the existence of an agreement that was intended to be binding.

There are various points relating to construction which it may be convenient to deal with at this stage.

The judge then held that "available market" is a reference to "market share" and so to a percentage of total actual sales made by Bim and competitors selling competing products, and rejected Mr Turner's submission that the words refer to "all potential customers who might" buy a product suggesting that would be very difficult if not impossible to assess. The available market consisted in the judge’s words “of those in fact "in the market" to buy a product”, and the judge thought that .the "agreed product range" was silicone-based defoamers for the pulp industry. It is only on the basis that the available market is limited to purchasers of silicone-based products and product range is limited to silicone-based products that Bim/Cellkem achieved 20% of the market in Finland by 31 December 1996 and it was on that basis that the judge found that Bim had obtained a continuation of its exclusive sales rights in Finland after that date.

The arguments presented to us varied from time to time. At first both Mr Wilson and Mr Onslow argued that the judge was right about “product range” being silicone-based defoamers, and the dispute between them related to “available market”, Mr Onslow supporting the judge’s view and Mr Wilson arguing that the available market was for “pulp defoamers generally”. Both interpretations had unsatisfactory features. If Mr Onslow was right, quite small sales of silicone defoamers which happened to be the only sales of silicone defoamers, would give Bim exclusivity. If Mr Wilson was right, quite substantial sales of silicone defoamers together with substantial sales of oil-based defoamers emanating from Blackburn, might not lead to Bim obtaining exclusivity.

A suggestion came from the court that product range should in fact include “antifoams” generally. That suggestion was made because it seemed unlikely that exclusivity was not intended to be granted where Bim obtained 20% of the market in defoamers, from any defoamers sourced from Blackburn, and because of the terms of the 1994 agreement itself. The agreement referred in what was clearly intended as the quid pro quo for the exclusivity provision, the penultimate provision (paragraph 14), to the obligation on Bim to source “antifoams” generally from BCL. “Product range” thus seemed to include oil-based and silicone-based products. Furthermore, the starting point for the new agreement included BS 469 which was in fact an oil-based anti-foam. Why then should “product range” not mean “anti-foams” generally?

Mr Wilson adopted this suggestion. Mr Onslow maintained his position.

It seems to us that the intention was that product range should include defoamers generally, and that available market was intended to include all purchasers of defoamers.

On this basis we understand that it is common ground that Bim did not achieve 20% of the available market in Finland. The basic reason for that is that of course Cellkem continued to sell its oil-based antifoamers in that market in the circumstances already explained.

This point is raised in the skeleton argument of Blackburn at paragraph 34. The argument there suggested is that if Bim did not achieve a 20% share, then in addition to that leaving them without any exclusivity in Finland, it also released Blackburn from its obligation to supply. Mr Onslow suggested that if that was right it had serious implications on certain of the basic issues, including whether it might affect the question whether Bim, once the three years was up, was under any obligation to “source” anti-silicone defoamers from Blackburn. Seeing where this argument might lead caused Mr Wilson to seek to abandon it. Mr Wilson appreciated that the obligation to supply only flowed from Bim’s obligation to source in paragraph 14. He further appreciated that if a loss of exclusivity had the effect of releasing the obligation to source, his argument that Bim were in repudiatory breach once the three year period was up would no longer be available. These were possible ramifications that were never explored before the judge or indeed in any detail before us. If in relation to Finland there was no exclusivity, and no obligation to source from Blackburn and no obligation on Blackburn to supply, what (as Mr Onslow put it) have the parties been fighting over?

Mr Onslow suggested that as a point of construction we should deal with it. Neither side however attempted to argue the point. If it were right, we do not know what effect it would have, but it would seem to have the following potential implications:-

If Bim were no longer bound to buy silicone defoamers from Blackburn once their exclusivity had been lost, then from 1997 onwards they would not be in breach of contract in selling their own silicone-based defoamers;

If Bim were no longer bound to source such products from Blackburn, Blackburn were no longer under any obligation to supply the same and were not in breach of contract in refusing to supply in December 1998 in so far as supplies were destined for Finland;

Blackburn would not be in breach of contract in supplying silicone-based products through Chemec in Finland.

Thus only if Bim were seeking supplies in relation to Sweden or a named country in relation to which a 20% market share had been obtained (and we do not understand that in fact to be the case), and Blackburn was refusing to supply, would Blackburn be in breach in December 1998. But even on this basis, Bim could receive no damages for non-supplies that affected their Finnish market.

At first sight there does appear to be force in the argument that if the exclusivity is no longer applicable the obligation to source and the consequent obligation to supply should also disappear. We have had no real assistance on the point but can simply say that in the context of this agreement we do in fact believe that the argument is misconceived. We believe that the agreement makes more commercial sense if it is construed in the way which it seems both parties have in fact construed it prior to the last moments of the hearing of the appeal.

The agreement related to certain territories so far as exclusivity was concerned but also dealt with Bim selling outside those territories. Certainly, so far as the named territories were concerned, all that Bim lost was exclusivity if it did not obtain 20%. But Bim would still want to be entitled to supply Blackburn products in those territories and it would make sense that it should be obliged to source products from Blackburn and that Blackburn should be bound to supply even after the three year period had expired, unless one or other party gave one years notice to terminate the agreement.

Blackburn alleged at the trial that Bim was in breach of the 1994 Agreement in several respects but on the appeal only two aspects were pursued; the sale by Bim/Cellkem of silicone-based defoamers sold under the names of Tensidef 130,150 and 151, and the sale of water-based products for the paper industry which were made by Bim/Cellkem under the names of Tensidef 520 and 530.

The judge held that Bim was in breach in selling the above products but that the breaches were not repudiatory. On the hearing of the appeal the key issue addressed by Mr Wilson for Blackburn and Mr Onslow for Bim was whether the sales by Cellkem of the silicone-based products was repudiatory.

The schedule put in by Mr Wilson paints, one suspects, a clearer picture than that which was painted to the judge. To be fair on Mr Turner, who presented the case for Blackburn before the judge, it would appear that he was faced with last minute disclosures and with a formidable task in marshalling it all. Our view is that, whether because of the good impression made upon him generally by the Bim witnesses, or because at one time e.g. during 1996 the conduct of Bim/Cellkem was capable of the construction placed upon it by the judge, the judge failed to recognise the true nature of Bim/Cellkem’s conduct after notice had been given to terminate the 1984 agreement.

The conduct of Bim/Cellkem must be viewed in the context of the term of the 1994 agreement relating to termination. By that term:

If a 12 month notice was served, the contemplation was that for a period of three years, Bim/Cellkem would not be entitled to manufacture silicone-based defoamers unless at the very least they achieved 25% of the available market. Bim/Cellkem could have served notice on 1^st January 1998 under the 1994 Agreement but if they had done so they would, under that Agreement, have been prevented from manufacturing silicone-based anti-foams for a period of three years.

What then were they doing during the period 1997-1998? The schedule producing the whole picture seems to us to demonstrate attempts by Bim/Cellkem to market Tensidef 130 and 131 and Tensidef 150 and 151 and Prodex 131 and 132. It is true that supplies of these products to customers were for the purpose of trials. It may also be true that Cellkem was seeking to keep customers happy in allowing them to have trials of Cellkem products. But, if the trials had been successful and the customers had ordered the Cellkem products, those products would have been supplied. Furthermore Bim/Cellkem were not seeking to dissuade customers from taking their products and to take BS 470. The reverse was true.

Certain examples will demonstrate the position. We will provide them by reference to customer names as identified on the schedule.

It is impossible in our view to accept that what Bim/Cellkem were doing was only being done to protect Blackburn and its sales of BS 470. What was being done may legitimately be described as seeking to preserve the customers, not for BS 470, but for products of Bim/Cellkem which Bim/Cellkem would have willingly supplied while the agreement was still in being, and certainly intended to supply once it terminated whether rightfully or wrongfully.

It seems to us that on any view Bim/Cellkem were supplying the key customers with silicone-based defoamers developed by Cellkem. The development was not just prior to 1994, but was development during 1997 and 1998 with the aim of having a product that could take the place of BS 470. Furthermore the trials if successful would have led to commercial supplies prior to Blackburn cutting off supplies in December 1998, if the customers had been attracted by the product and the price at which it was being marketed.

In our judgment the breaches of the 1994 Agreement which Blackburn established were such as to justify Blackburn terminating the Agreement on that basis.

This conclusion is one we would have reached without any supporting factor. It is however supported by the following. If Bim’s explanation for what they were doing was accurate, it would be likely to have been well known to all personnel running Bim. It would have needed a plan to trial silicone-based products in order to protect BS 470. But Bim denied in its pleading in this action that there were any sales of silicone-based products and there was a considerable period of protracted interlocutory applications by Blackburn before that position changed. We were told that the denial was simply a failure in communication. But, if that were so, it is somewhat strange that the change in position was gradual. The first change was for Bim to assert that although Tensidef 151 was silicone-based it was a product only developed in a rush after Blackburn’s refusal to supply BS 470. Thereafter when that version appeared no longer to hold water there was a gradual change relating first to two or three customers and then an admission in relation to further customers. The detailed history of the gradual change in position is set out in paragraphs 3 to 25 of Blackburn’s responsive skeleton argument. This is not a matter referred to by the judge and in the context of the timescale for hearing submissions on the appeal Mr Onslow did not have much opportunity to deal with it. It is not a factor which on its own would influence our view but the retreat from successive positions by Bim is at the very least inconsistent with the innocent explanation they put forward for their conduct at the trial.

Since Bim/Cellkem on our construction of the 20% provision did not achieve that market share in Finland by 1/1/97, the sales of BS 470 made by Blackburn to Clariant and Chemec were not breaches of the exclusive sales rights granted to Bim in the 1994 Agreement. There can thus be no question of those sales being a repudiation giving Bim any entitlement to treat the agreement as at an end.

Bim were however in breach of the 1994 Agreement during 1998 and in our view a repudiatory breach. At one stage Mr Onslow was going to argue that Blackburn affirmed the contract with knowledge of the breaches, but that argument was abandoned.

Blackburn were accordingly entitled to accept Bim’s repudiation of the contract by refusing further supplies in December 1998, and it was that acceptance which brought the 1994 Agreement to an end.

On our findings this issue does not arise. But on the judge’s findings that Blackburn had repudiated the agreement in December 1998 a further point was argued. Mr Wilson argued, as had Mr Turner before the judge, that if Blackburn wrongfully repudiated the 1994 Agreement it was nonetheless entitled to terminate it by a notice expiring on 31 December 1999 and damages should be assessed as if it had done so.

Mr Onslow submitted that until Bim accepted Blackburn's repudiation of the Agreement in August 1999 the Agreement remained in force and because at that date it could only have been properly terminated by a notice expiring on 31 December 2000 damages are to be assessed up to the end of 2000. Mr Onslow sought to obtain support for this submission from SIB International SRL v Metallgesellschaft Corporation (The Noel Bay) [1989] 1 Ll. Rep. 361.

The judge put his conclusions on this point in this way:-

If the point had arisen we agree with the conclusions of the judge on this point.

We allow the appeal and hold that Bim was in repudiatory breach of contract as at December 1998 and Blackburn were entitled to accept that repudiation by refusing to sell further quantities of BS 470 to Bim.