Mr Justice Langley :
INTRODUCTION
- The Claimant, a Swedish company, ("BIM"), and the Defendant, an English company, ("Blackburn"), both manufacture and supply chemicals for use in the pulp and paper industries. The principals and founders of the companies concerned at the relevant times were Mr Peter Wallberg (Bim) and Mr George Lamb (Blackburn).
- The pulp and paper industries use anti-foaming chemicals or agents in the course of the manufacturing process. Anti-foaming agents or "defoamers" eliminate or reduce the presence of air bubbles in the pulp and paper.
- Between 1984 and late 1998 BIM and Blackburn worked together in the promotion and sale of each other's products in Scandinavia (Bim) and the United Kingdom (Blackburn).
- At the heart of the present disputes is the question of what, if any, terms were agreed between the two companies to govern their relationship. Matters came to a head in December 1998 when Blackburn refused to supply Bim and Bim's Finnish subsidiary Cellkem Oy ("Cellkem") with any further deliveries of Blackburn's product known as BS 470. Bim issued proceedings in July 1999 claiming two years loss of profit on sales of BS 470 on the basis that under an agreement allegedly made in 1994 on the terms of a fax from Blackburn to Bim dated 20 December 1993 ("the December 1993 fax") Blackburn was obliged to give a year's notice from the anniversary of the agreement before it could terminate supplies of BS 470 to Bim. Blackburn denies that any such agreement was made and also asserts that even if it was made Bim was in repudiatory breach of it because Bim wrongfully sold its own (or Cellkem's) products in Scandinavia. Blackburn also makes claims for damages against Bim under both the 1994 Agreement (if any) and an earlier written Agreement made in 1984.
- As a result, in general terms, of the estimated length of the trial and late developments in both parties' cases various issues are, if necessary, to be the subject of a further hearing. In particular all issues involving the quantification of the claims and cross-claims and Blackburn's claim that if the 1994 agreement was made it was unlawful by reason of infringement of the Restrictive Trade Practices Act 1976 and/or the Treaty of Rome, are excluded from this trial. Blackburn's claims based on the 1984 Agreement have also been stayed pursuant to the arbitration clause (clause 19) in that agreement.
THE WITNESSES
- I shall refer only to those witnesses whose evidence was given orally. The witnesses for Bim were Mr Wallberg, Mr Larsson, Mr Johansson, Mrs Nordhammer, Mr Hassellof, Mr Rannankari, Mr Mutka and Mr Mattila.
- Mr Wallberg was and is a Director of Bim (Managing Director until 1995) and the owner of the company which he founded in 1973. His first language is Swedish and whilst he speaks good English, his English is not perfect. He is an experienced businessman whom I found to be an astute, careful and straightforward witness, albeit on occasion prepared to argue a case. In his closing submissions Mr Turner submitted that Mr Wallberg was "an evasive and unreliable witness". There was no real justification or basis for that submission and I reject it.
- Mr Larsson was export director of Bim until 1995 when he was appointed Managing Director. His English was better than Mr Wallberg's. Mr Johansson was Bim's Sales Manager for Sweden and promoted to Marketing Director in 1996. Mrs Nordhammer (formerly Miss Storkner) was Export Manager at the material times. Mr Hassellof was a director of Bim until 1996 and remains business development manager of the company. Mr Rannankari is and was the Product Group Manager of Cellkem. Mr Mattila is and was the Managing Director and a co-founder of Cellkem. Mr Mutka is currently employed by Cellkem but worked for a mill in Finland operated by "UPM" until January 2001. Mr Mutka's command of English was not good.
- I am quite satisfied that all these witnesses gave truthful and careful evidence.
- The witnesses for Blackburn were Mr George Lamb, Mr Phillip Tait, Mr Steven Lamb, Mr Roope Maijala, Mr Stephen Clark, Dr Jack Bratt, Mr John Covill and Mrs Amanda Holt.
- Mr George Lamb founded Blackburn also in 1973. He is and was the Chairman of the Company. He intended to retire on reaching the age of 65 on 22 January 2000. Mr Tait was recruited as Product Development manager in July 1993 with the promise of promotion to General Manager no later than 31 May 1995 and ultimately to Managing Director on or before Mr Lamb reached 65. Mr George Lamb was not an impressive witness. His emotions were engaged and his evidence assisted neither the court nor Blackburn's case. Mr Tait was, I think, doing his best in the witness box truthfully to recall the material events with which he was concerned. In the event, after being appointed General Manager in March 1995, he had been headhunted and unexpectedly resigned from Blackburn in November leaving in December 1995. He had not been approached to provide a statement in these proceedings until the summer of 2001. It was therefore entirely understandable that with one or two exceptions Mr Tait had no real recollection of events and was dependant upon the documents where they existed. Indeed his recollection was plainly much less than his witness statement suggested.
- Mr Tait's departure had left a gap in the senior management of Blackburn which Mr George Lamb filled at least until January 1997 when Mr Lamb's third son, Steven Lamb, who was then Factory Manager, was appointed General Manager.
- In January 2000, Mr Steven Lamb was appointed Managing Director. It is, however, some indication of the continuing influence of Mr George Lamb that Mr Steven Lamb was not even aware of the December 1993 fax, let alone that Mr Wallberg had initialled it, before these proceedings started. Again I think Mr Steven Lamb was a truthful witness albeit, like others who gave evidence for Blackburn, somewhat inhibited by the views of his father.
- Mr Roope Maijala is and was the product manager of Oy Chemec (a competitor of Cellkem and Bim) and the son of the founder and Chairman of Chemec, Mr Mikko Maijala. Mr Stephen Clark is and was Sales Manager of Blackburn. Dr Bratt is a chemist and has been Technical Director of Blackburn since June 1975. Mr Covill is and was Product Development Manager. Mrs Holt (Mr George Lamb's daughter) is and was customer services manager. These witnesses I am satisfied gave their evidence truthfully, albeit I should record that in their cases also the contents of their witness statements were not always justified by their true recollection.
THE FACTS
- The significant facts as I find them are as follows.
THE 1984 AGREEMENT
- 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. A copy is annexed as Appendix A to this judgment. 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".
THE 1994 AGREEMENT
- 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 companies are far apart in their versions of what was agreed. They accept 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 a copy of which is annexed to this judgment as Appendix B. There are a number of copies of the December 1993 fax with different hand-written markings on them made at various dates which are of some importance.
THE DECEMBER 1993 FAX
- 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). 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 was sent by Mr Tait to Mr Wallberg and Mr Larsson. Mr George Lamb had written to Mr Wallberg telling him about Mr Tait's appointment, the intention that Mr Tait should take over from Mr Lamb when Mr Lamb retired, and Mr Tait's "special responsibility" for activities in Bim's area. Mr Wallberg visited Blackburn in the first week of November 1993 and met Mr Tait and Mr George Lamb and others. Following the meeting Mr Tait wrote to Mr Wallberg referring to "significant progress" in their discussions and enquiring when he could come to Sweden "to finalise matters". Mr Tait met Mr Wallberg and Mr Larsson in Sweden on 24 November. They discussed the terms of a proposed new agreement between the two companies. It was in the context of these exchanges that the December 1993 fax was sent by Mr Tait.
- The December 1993 fax opened with a reference to the discussion Mr Tait had had at Mr Wallberg's home in Sweden and continued:
"I have detailed below the basic points of our proposed new agreement for your information. Would you please confirm that these represent the agreement that we reached. I will then proceed to draw up a suitable legally worded document for approval."
THE MARCH 1994 CONVERSATION
- 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 I think the substance of the conversation is not really much in dispute and 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 Appendix B). The best translation of this note (there are a number) reads:
"I have today made a gentleman's agreement by telephone with P(hilip) T(ait) to the effect that we should follow this enclosed agreement plus that we should push for more pressure with our products in England."
- 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:
"Late last year and earlier this year we both made substantial progress in moving towards a commercial agreement which was intended to facilitate mutual growth for both companies.
You contacted me during the first quarter of 1994 to say that we should proceed under "a Gentleman's Agreement"
My understanding of the matter is that the original agreement between Bim Kemi and Blackburn Chemicals still holds and that we were seeking a supplement to this agreement and not a replacement.
I would welcome your comments as to how you understand this "Gentleman's Agreement" including the salient points you envisage that it covers e.g. territory, exclusive/non-exclusive; sales of each parties' products both ways, remuneration, etc.
I look forward to your response."
- 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 (but not Mr Tait) were present for Blackburn. Mr Tait 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 I do not think it was 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:
"It is now important to develop our business with Bim further. Therefore, will you please arrange:
1. Finalise new agreement.
2. Decide on Bim products to be marketed by us ...."
- Sent or not it is 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.
THE OCTOBER 1994 MEETING
- On October 11 and 12 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 to which I have referred in paragraph 25. 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.
BIM'S ACQUISITION OF CELLKEM
- 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 both in Scandinavia and the United Kingdom. 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 I accept, 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 Kemi in Amsterdam on 6 February. On 2 February Mr Tait sent Mr Larsson a proposed agenda for the meeting. The agenda included:
"1. Confirmation that the old agreement is still in force.
2. Clarification and confirmation of various keypoints of the new supplementary agreement. This to include products, regions, margin split, feed back.
3. Cellkem acquisition. Ascertain impact on Bim/BCL. Clarify what products/technology they may have of interest to BCL ...."
- The references to agreements in the paragraphs numbered 1 and 2 were plainly to the 1984 and 1994 "agreements". One of Bim Kemi'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 Wallberg (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:
"We realise that this does violate our original agreement, which incidentally is the only signed agreement, providing that Blackburn does benefit from a substant....
However at our meeting yesterday I was assured that we would benefit substantially from an increase in Dispelair sales in Finland."
- 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:
"We are very pleased with your success in acquiring such a strategically important company which has an interesting portfolio of products.
We realise that this could lead to a conflict of interests with regard to the foam control agents and this could be to the detriment of Blackburn. However I have received firm assurance from Ingemar (Larsson) that the intention is to replace the Cellkem products with the Dispelair range. This being the case then your acquisition will benefit both companies."
- Mr Wallberg wrote on this letter:
"Is this correct, have we said something like that? Should we correct it?"
- 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:
"Our telephone conversation of earlier today has given me some cause for concern. It would appear that Cellkem is being left to run the business as it was before your take-over of them"
- 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 I accept, 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. Whilst I think it is 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.
- I think the reality of what occurred in relation to Cellkem in the context of the relationship of Bim and Blackburn is not difficult to determine. 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 43) was not accurate in stating generally that Bim had agreed to replace Cellkem products with the Dispelair range. The original draft letter (paragraph 42) 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".
- It is also, I think, apparent (despite his attempts to offer alternative possibilities in cross-examination) 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). Mr Tait sent two faxes to Mr Larsson on 8 February 1995 which can only sensibly be explained on that basis. Indeed one of them refers to "our agreement" and quotes from the December 1993 fax as an answer to a question raised by Mr Larsson.
- 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.
THE BS 470 PRICING AGREEMENT
- 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:
"As you are aware the agreed price arrangement works like this, BCL charge Bim the Raw Material price + half the difference between the selling price and the Raw Material cost. To ensure correct pricing Bim were to send BCL copies of all invoices relating to sales ... Any price adjustments up or down were to be made retrospectively every quarter."
- 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. Unsurprisingly, 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.
BIM'S CONCERNS
- 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 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 are not entirely clear or consistent but the substance of the discussion is I think 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 obvious commercial concern was that Blackburn would react by immediately cutting off supplies. Mr Wallberg said that this strategy was directed to the 1984 agreement only and the 'old' products only. That evidence derives support from the wording of the last paragraph of the minutes and the terms of the termination letter. Nonetheless I think it is clear 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.
THE TERMINATION LETTER
- Bim decided to bring matters to a head. Bim's case is 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. 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.
- 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:
"We have discussed at several meetings the complex a(nd) unsatisfied situation with the different agreements between the companies. We have not reached any consensus regarding a new Agreement so far. We think the present situation is unfavourable for both parties.
Therefore following clause 1 and 15 in the above mentioned "Licence" Agreement we feel that we are forced to notify yourselves about the termination of said agreement. The agreement will terminate 29 May 1999, after stipulated 24th month notice period.
Our intention is that the termination will result in a serious discussion about a new modernised agreement covering all parts of our long and forthgoing co-operation."
- Mr Steven Lamb replied on 5 June. He wrote:
"We accept your formal declaration to terminate our licence agreement, and confirm that it will cease to operate from 29 May 1999. This will mean that we have formally worked together for 15 years - longer than most marriages!"
- The terms of Mr Larsson's letter were expressly limited to the 1984 Agreement. Indeed the December 1993 fax required a different period of notice: one year from 1 January. Mr Steven Lamb was, as I have said, wholly unaware of the December 1993 fax at the time. It is no surprise therefore that his response appears to assume that 29 May 1999 would be the end of the companies at least "formally" working together. But both parties expressed a willingness to discuss a new agreement. Mr Steven Lamb did so in a letter to Mr Larsson dated 20 June and Mr George Lamb in a letter to Mr Wallberg dated 7 July. Also in June a price reduction for BS 470 was agreed apparently to reflect a reduction in costs to Blackburn.
- A Minute of Bim Kemi's Board Meeting held on 16 June reveals Bim Kemi's strategy to be to "pass the ball over" to Blackburn, "complete the development of our own products" and "even if the business connection is now severed Bim will if possible be the salespersons' preferred purchaser".
BLACKBURN AND CLARIANT/CHEMEC
- 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) (one of the few said to have been created) 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". 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 £90 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 "options" for Blackburn were noted 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 dialogue with Bim did indeed continue.
- The visit to Chemec took place on 14 November 1997. By then Clariant had bought a further 20 tonnes of BS 470. Chemec was arranging trials of BS 470 in Finland and Blackburn noted that pending a further meeting with Chemec and Clariant "BS 470 and paper-stock antifoams will continue to be supplied to Chemec via Clariant". Blackburn sold BS 470 to Clariant as "Antimussol PWB". Chemec sold it as CVA 40. Thereafter regular sales of at least 20 tonnes a month of BS 470 were made by Blackburn to Clariant. Sales were also later (from April 1999) made to Chemec's Swedish subsidiary, Grupen AB.
- 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.
BLACKBURN END SUPPLIES OF BS 470 TO BIM
- 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:
"I am afraid that Cellkem will dump the price of ... BS 470 at other mills too and ruin the whole markets of BS 470. As you know they are all the time trying to replace BS 470 by Tensidef products like in Kankas mill by Tensidef 151.
In my opinion we have to act fast. I suggest you either raise their price significantly at least to 1700 pounds/ton ex your plant or stop selling to them. I can assure you that the customers prefer us to Cellkem as a supplier and by co-operation I am convinced that all the Cellkem sales can be transferred to Chemec/Blackburn ...."
- Mr Maijala's motivation is 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. Nor were most of the allegations put to Bim's witnesses in cross-examination.
- 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".
- The letter continued by stating that Blackburn had decided to stop supplying Bim "with any of our pulp defoamers"; and looked forward to working closely with Chemec in Finland and the rest of Scandinavia having built up extra stocks to enable Chemec to ensure continuity of supply.
- 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". No reason was expressed, not even that given to Mr Maijala, which itself has not been advanced in these proceedings.
- Bim responded immediately to Mrs Holt's fax of 22 December. Mrs Nordhammer had spoken to Mr Larsson who had himself spoken to Steven Lamb. Mrs Nordhammer sent a fax for Steven Lamb's attention saying she did not understand what Mr Larsson had reported to her about their conversation and asking whether it was still possible to place orders with Blackburn and would Blackburn supply existing and future orders. The next day (23 December) Mrs Nordhammer sent a further fax asking if Blackburn would supply other products and saying she would like to order 40 tons of BS 470 for delivery on 15 January. The response that day from Blackburn was that it was "not able to supply" BS 470 to Bim but was happy to supply other products. Mrs Nordhammer responded by asking why. There was no reply from Blackburn. On 20 January Bim's solicitors wrote to Blackburn contending that the appointment of Chemec (recently discovered) and the refusal to supply BS 470 to Bim were breaches of the 1994 Agreement and threatening to seek an injunction to enforce it. Blackburn responded on 19 February 1999 asserting that no agreement had been made on the terms of the December 1993 fax but if it had Bim had repudiated both it and the 1984 Agreement which repudiation Blackburn accepted
BIM's SALES OF SILICONE-BASED DEFOAMERS
- There is no dispute that 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. It is Bim's case and Mr Rannankari's evidence (which I accept) that such sales were made only for tests or trials and where the customer had experienced some dissatisfaction with BS 470 and in the knowledge that the products had not in fact been developed to a stage where they could hope to be trialled successfully in comparison 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 was Cellkem's pre-acquisition technology which had not been developed further after BS 470 sales by Cellkem had begun. To a great extent the actual sales figures (which I am satisfied have been fully disclosed) bear 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 (paragraph 47).
- Whilst I think Cellkem and Bim's Board Minutes and other documents show that the companies were keen to develop (or further develop) a silicone-based defoamer which could compete with BS 470 once it was decided to terminate the 1984 Agreement and against the eventuality that Blackburn cut off supplies, the documents and evidence also establish that Bim/Cellkem were not as successful as they hoped to be in achieving that aim. Whilst such questions are also material to questions of loss (should they arise) the figures for actual sales speak for themselves.
THE ISSUES
- Blackburn's defence and counterclaim tends to obscure what are I think the real issues between the parties. They are:
(1) Whether or not a binding contract was made in 1994 in the terms (later varied as to price) of the December 1993 fax for the exclusive supply to Bim by Blackburn of BS 470 for sale in Scandinavia;
(2) Was Bim in breach of that contract and/or the earlier 1984 Agreement by reason in particular of its (or Cellkem's) sales of Tensidef products in Scandinavia between 1995 and 1998;
(3) If Bim was in breach were the breaches repudiatory.
(4) Was Blackburn in breach of the 1994 contract and if so in what respects.
- There are a number of subsidiary issues. Amongst those issues related to the first issue, Blackburn asserts that Mr Tait (if he made any agreement with Bim) had no authority to do so; that any agreement was not intended to be legally binding; that the terms were uncertain; that it has been rescinded for misrepresentation; and that 20% of the available market was not achieved. On the second issue Blackburn also alleges failures by Bim to provide sales information; the appointment of Mr Westwood; and failures to use best endeavours to promote sales of Blackburn products.
- There is also an issue ("The Notice Issue") which, although more material to the quantum of any claim by Bim should it succeed on the other issues, it has been agreed it would be sensible to address. It can be summarised as whether the 1994 Agreement (if any) terminated on expiry of the 29th May 1997 notice terminating the 1984 Agreement or at some other and if so what date. If it did terminate on expiry of the notice the period of any claim by Bim would be limited to an end date of 29th May 1999. If it did not, there is an issue whether the end date for a claim by Bim would be 1 January 2000 or, (on the basis that, as Mr Onslow submits, Bim did not accept Blackburn's repudiation of the agreement until 17 August 1999 when it served its Points of Claim) 1 January 2001 as the earliest date thereafter on which Blackburn could have terminated the agreement in accordance with its terms.
(1) THE 1994 AGREEMENT
WAS THERE AN AGREEMENT?
- I think the evidence is tolerably clear as to the relevant events. 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. There is a revealing note of a discussion in a sauna held in March 1992 at which Dr Bratt and Mr Larsson were present which states "no-one does anything at Blackburn without George approving it". Having seen George Lamb give evidence and as Dr Bratt confirmed I have no doubt at all that was accurate and remained accurate at all times material to this dispute.
- What is ironic in the context of the present dispute is that Blackburn was 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, as I find, 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 is understandable that the long delay in Bim's response would have caused some anxiety at Blackburn and so led to the March 1994 telephone conversation.
- As I have said (paragraph 26) I find that in this conversation the terms of the December 1993 fax were agreed but as a "gentleman's agreement". That gives rise to a further irony. I accept Mr Wallberg's evidence 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 20) as a gentleman's agreement in just this sense. I also accept the evidence that Bim thought the expression meant the same in England. But I also accept 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, as I find, Bim believed the terms of the fax were agreed and binding; Blackburn believed they were agreed but not binding. Hence 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, I would have concluded that no "new" agreement had been made. Whilst it is ironic that the party which wanted an agreement (Blackburn) wrongly believed that Bim did not want such an agreement, I think the position was sufficiently confused that it could not be concluded that there was the necessary meeting of minds.
- The October meeting, however, in my judgment and as I find, achieved the finality which Blackburn sought and Mr George Lamb had asked Mr Tait to achieve. Although there are differences in the evidence as to the precise chain of events again I think the substance of what occurred is sufficiently clear and accords 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 (which I accept as a clear and accurate recollection) 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 satisfy me 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. I think it probably did. 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.
- I also think the conclusion that an agreement on the terms of the December 1993 fax was made by Mr Wallberg initialling it in October is supported by the subsequent exchanges to which I have referred which are much more consistent with a mutual understanding that there was than that there was not an agreement. Nor do I find it surprising that the agreement was not "formally written up" (to use Mr Clark's expression) and that no "suitable legally worded document" was produced (to use the language of the December 1993 fax itself). In the context of the misunderstanding about a "gentleman's agreement" I think Blackburn was indeed well pleased with what it had got and unlikely to raise the matter again. The only explanation offered for Blackburn's subsequent failure to produce a legally worded document is that it was thought inappropriate because of Bim's purchase of Cellkem. But Mr Wallberg initialled the December 1993 fax on 12 October 1994. Blackburn was not told of the purchase of Cellkem until at least some 3 months later. The lack of follow-up in that period supports the conclusion that Blackburn and in particular Mr Tait and Mr George Lamb, were pleased and content with what they had got. Nor is the suggested explanation consistent with Mr Tait's agenda for the meeting on 2 February (paragraph 40); it is contrived and I reject it.
WAS THE AGREEMENT OTHERWISE EFFECTIVE
- In addressing this question I propose to consider the points made by Mr Turner in his written Closing Arguments on which Blackburn relies to impugn the 1994 Agreement, assuming, as I have held, that such an Agreement was made on the terms of the December 1993 fax.
- NO OFFER. I have no doubt at all that Mr Tait was making an offer to Bim to agree the terms of the December 1993 fax. The fax in fact purports to record an agreement already made. It was "signed" by Mr Tait. It was initialled by Mr Wallberg at Mr Tait's request (paragraph 86). It was not (despite Mr Turner's submission to the contrary) expressed as an offer "subject to contract" or conditional on approval of a legally worded document. Nor did the parties treat it as such.
- NO ACCEPTANCE. On my findings, there was "acceptance" when Mr Wallberg initialled the December 1993 fax at the October 1994 meeting.
- NO INTENTION TO BE LEGALLY BOUND. Again on my findings, there was a mutual intention to be bound manifest to both parties at the October meeting. That is what Mr Tait had set out to get and rightly believed he had got. The misunderstanding about and reference to a gentleman's agreement was effectively removed.
- SUBJECT TO CONTRACT. The same considerations apply as they do to the submission that "No offer" was made. The fact that no further document was put forward and that the terms of the agreement were applied to sales of BS 470 (despite Mr Clark's doubts: paragraph 56) support the conclusion that the fax was seen as it was expressed to be namely a record of an agreement "that we reached".
- NO AUTHORITY . Mr Tait agreed that both he and Mr George Lamb wanted Mr Wallberg to agree to the terms of the December 1993 fax. I am entirely satisfied that at all times Mr Tait had Mr George Lamb's express authority to obtain (if he could) that agreement. If there had been any doubt at all about that Mr Lamb would have at once made it manifest on Mr Tait's return in October 1994 when I am sure Mr Tait would have given Mr Lamb the initialled copy.
- TERMS NOT IMPLEMENTED. It is apparent that in certain respects the terms of the 1984 and 1994 Agreements were not observed by both parties. Sales by Cellkem of its own oil- and water-based defoamers are examples. So too were the sales of the silicone-based defoamers to which I have referred. Sales by Blackburn of BS 470 to Clariant/Chemec were also breaches of the 1994 Agreement. I do not think, however, that such matters are evidentially as compelling in considering the parties' understanding of their relationship as the documentation which refers to the agreements. Mr Turner also made the point that the 1994 Agreement was not implemented as regards the price of BS 470 because "the margin split was abandoned". It is true that the margin split was replaced with a fixed ex-works price (paragraphs 51 to 53) but the principle of equality of contribution remained (paragraphs 56 and 63). The change was made by reference to and variation of the Agreement not by replacement of it.
- CERTAINTY OF TERMS. Any reading of the December 1993 fax demonstrates that some of its provisions leave an impression that they might have benefitted from legal drafting. But the question is whether the commercially important terms are sufficiently certain to be effectively construed. Mr Turner submitted that such was not the case in two respects, namely (i) whether and how the exclusivity, margin split and information exchange terms applied in relation to subsidiary companies such as Cellkem and (ii) how the 20% market share provision applied.
(i) Subsidiaries. In my judgment the agreement did extend to subsidiaries such as Cellkem and could readily be construed to do so. It is and was Bim's case that it did not and it is no surprise therefore that Blackburn seeks to turn the point in its favour. But I do not think there can be any doubt that existing subsidiaries (such as Bim's original Finnish subsidiary) were subject to the provisions of the Agreement and I see no basis for distinguishing after-acquired subsidiaries. The commercial foundation of the 1994 Agreement was mutual exclusive rights and co-operation in "the field of chemicals for the Pulp and Paper Industry". It also provided (in the last paragraph) for acquisitions. The use of a subsidiary in an attempt to circumvent those provisions would not in my judgment accord with them. That was also, of course, how the matter was seen at the time by Bim and why the acquisition of Cellkem was addressed as it was. It also follows that conduct by Cellkem could also be a breach of the Agreement.
(ii) 20% Market Share. The relevant clause could no doubt have been more elegant but I do not find a clear meaning difficult to state. In each of the three countries (Denmark, Norway and Finland) Bim has exclusive sales rights for 3 years from 1 January 1994. At the end of 3 years, if Bim has achieved a 20% share of the "available market in any agreed product range" in any of the countries it achieves the extension of that exclusivity until the agreement is otherwise determined by notice. The "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. I cannot accept Mr Turner's submission that the words refer to "all potential customers who might" buy a product. That would be very difficult if not impossible to assess. The available market consists of those in fact "in the market" to buy a product. The "agreed product range", relevant to the dispute, is, I think, silicone-based defoamers for the pulp industry. Whilst it is perhaps arguable as a matter of language that defoamers generally were a "product range", in the context of the agreed continuation of the 1984 Agreement (which applied to "old" oil-based defoamers) and the general evidence about anti-foaming agents, I have little doubt that silicone-based products were considered to be and described as a "product range" in their own right. Again it is perhaps arguable that the wording could be read so as to require a 20% share of the available market in all 3 countries, but as a matter of construction I do not think that is what was meant. Exclusivity for Sweden was not subject to the 3 year/20% share provision. No doubt that was in recognition of Bim's established sales in that country. Commercially it could be expected that market shares would be assessed by country and that if a 20% market share was achieved in any one country that would justify an extension of exclusivity. It is in evidence that market statistics were available and I also see no difficulty in determining what the available market was and Bim's achieved share of it. On the basis of the construction of the clause which I have stated it is not in dispute that Bim/Cellkem achieved 20% of the market in Finland by 31 December 1996 and thus that it satisfied this requirement so as to entitle it to exclusive sales rights in Finland thereafter.
- MISREPRESENTATION/MISTAKE. Blackburn's allegations of misrepresentation and mistake appear in paragraph 6BC of the final version of the Defence served on 30 November 2001. The substance of the misrepresentation and mistake relied upon is that at the October 1994 meeting Mr Larsson implicitly represented that Bim had no plans to acquire a business competing with Blackburn's business and that representation was false because the acquisition of what became Cellkem was then under consideration.
- The basis for this allegation is Mr Larsson's description at the meeting of Bim's business and plans (paragraph 36). In my judgment that does not come near to establishing the representation sought to be relied upon. Not only (and unsurprisingly as the potential vendor was a listed company) were the negotiations for the acquisition subject to confidentiality restrictions and not certain of success at the time, but I do not think anything that was said could reasonably have been taken as a representation that should such opportunities exist or arise they would not be considered and if considered to be justified taken. Indeed it would in any event arguably have been in Blackburn's commercial interests to make the 1994 Agreement in order to strengthen its hand should such an eventuality occur. That is borne out by Blackburn's reaction when it learnt of the acquisition and I see no reason to think that reaction would have differed had the information been imparted in October.
- Blackburn also seeks to rely on the final paragraph of the December 1993 fax to allege that the Cellkem acquisition was in breach of its terms by failing to offer Blackburn the "opportunity" to acquire such of Cellkem's products as could be described as "licensed under this agreement" from Blackburn. But I think that description could apply only to cases where the 75:25 margin split applied (of which there were none). Moreover and plainly the operation of this provision was not (even if they thought about it) considered to be appropriate or sensible by Blackburn at any time.
CONCLUSION
- I therefore reject these points both as a basis for impugning the 1994 Agreement and as a ground for a claim by Blackburn for damages. I would add that as regards the purchase by Bim of Cellkem and Cellkem's continued business of selling oil-based defoamers the evidence on which Mr Onslow submits it should be concluded that Blackburn is precluded from making any claims in respect of those matters is in my judgment overwhelming. Blackburn was made fully aware of the purchase and of Cellkem's existing defoamer business. For good commercial reasons (potential sales of BS 470 to Cellkem customers in Finland) Blackburn chose to accept the position and has benefitted substantially as a result. I do not think it can now complain on whatever basis that complaint is sought to be expressed.
(2) BREACHES BY BIM
- Blackburn alleges that Bim was in breach of the 1994 Agreement in several respects which are also set out in Mr Turner's written Closing Argument.
- Sale by Cellkem of its own Defoamers. The December 1993 fax provided that "Bim Kemi will only source antifoams from BCL". But it is conceded by Blackburn that it cannot now complain about Cellkem's continued sale of those defoamers which were already being sold when the business was acquired by Bim. It also has to be noted that under the 1984 Agreement Bim manufactured and sold various defoamers under licence from Blackburn. From time to time improvements were made to these defoamers (as contemplated by the 1984 Agreement) and no relevant complaint can be made about those sales. The concession itself is rightly made because of the overwhelming evidence that Blackburn was aware of and accepted Cellkem's continuing sales and in my judgment also carries with it acceptance of what can reasonably be shown to be enhancements of those products also.
- Insofar as there were sales of other defoamers, however, I think Bim was in breach of the exclusive sourcing provision. That applies in particular to the sales of silicone-based defoamers (paragraphs 76-77). There is an issue whether it also applies to sales of water-based products for the paper industry which were made by Bim/Cellkem under the names of Tensidef 520 and 530. On the evidence such sales arose out of the need to try to retain goodwill once the constituent problem with DP 150 was discovered (paragraph 57). The issue was not as fully developed in the evidence or submissions as some other often very minor issues. That is some measure of the significance attached to it by both parties. Indeed Bim had made it clear at meetings with Blackburn held in April 1996 that customers would not buy DP 150 because of its lack of environmental certification.
- The first question is whether the "Product Exclusivity" clause in the 1994 Agreement has any application to such products at all. DP 150 was sold under the 1984 Agreement. Equally water-based defoamers plainly fall within the general words of the clause. Although I am entirely satisfied that silicone-based defoamers for the pulp industry (and any other products which might in future be offered by Blackburn under the Agreement) were in commercial terms the key products to which Blackburn was concerned this clause should apply and that both parties were relatively indifferent to products sold under the 1984 Agreement for other markets or purposes, as a matter of construction, and subject to the waiver in the case of Cellkem (paragraphs 99 and 101), I do think the Clause is to be construed so as to extend to any defoamer which can properly be described as a 'new' product and so that it would extend to Tensidef 520 and 530.
- Although Blackburn was aware in 1997 of sales of Tensidef 520 in place of DP 150 and of doubts as to whether they were the same product (paragraph 65) but did not pursue the matter, I agree with Mr Turner that the evidence does not establish the elements necessary for waiver or estoppel. It is, however, also some further indication of the significance attached to such products. Whilst therefore there may be serious questions as to whether such sales caused any concern or significant loss I do think they were made in breach of this clause.
- Breach of the "Information" Clause. The December 1993 fax provided that:
"if the non-technology owning partner discovers or becomes aware of any application or product knowledge relating to the partner's products included in this agreement, then such information should be disclosed to the technology owning partner immediately."
- It also provided for the mutual supply of "all reasonable and relevant commercial information required to maintain the business".
- Mr Turner submits that Bim/Cellkem were in breach of these provisions because they did not impart the information that Cellkem was seeking to develop and selling a silicone-based defoamer. Whilst I think it is arguable that the clauses apply as Mr Turner submits, on balance I do not think the language used has that effect. I think it is aimed at information about ( in the event) BS 470 itself. Whether that be right or wrong, however, I do not think the submission adds anything of substance to the breach arising from the actual sales of the Tensidef 130 and 150 ranges.
- Failure to provide information about sales of BS 470. The only complaint which is pursued under this head is an alleged failure by Bim to supply the prices at which BS 470 was sold to customers by Cellkem. The fact is that no request was made for such prices nor did Bim refuse to provide them. The debate about invoices became of no importance when the further pricing agreement was made: see paragraphs 51 to 53.
- Failure to offer Cellkem's products to Blackburn. Whether or not the last paragraph of the December 1993 fax applied to such products (and I do not think it did) there can be no doubt that any such failure was waived by Blackburn (see paragraph 99).
- Sales by Cellkem in the U.K. Whatever the rights of Blackburn under the December 1993 fax in relation to sales of Cellkem's products in the United Kingdom (which would depend on the product in question) Blackburn was aware that Cellkem was continuing to make such sales (paragraph 46), that Bim was concerned at Blackburn's lack of success in selling in the U.K. (paragraphs 54 and 55) and of Mr Westwood's appointment (paragraph 69). The evidence suggests strongly that Blackburn was not interested in selling the products (probably because it was not convinced there was a market for them) and not concerned at Cellkem's own attempts to do so. There is nothing of substance in this allegation.
- Breaches of the 1984 Agreement. The hypothesis on which such alleged breaches are said to be breaches of the 1994 Agreement is that it was a term of the 1994 Agreement that the 1984 Agreement would continue to apply to "old" products. In my judgment the hypothesis does not justify the conclusion sought to be based upon it. The December 1993 fax did provide that the 1984 Agreement "will remain in force" with respect to "old" products. It did so to make clear the scope of the "new" agreement. That is not the same as a provision that a breach of the 1984 Agreement would be a breach of the new agreement. Indeed and in any event such a breach would not of itself normally result in the 1984 Agreement ceasing to be "in force". The two agreements had different termination clauses and indeed were of a different commercial nature. Had it been intended to provide otherwise it would have been simple to do so.
- I would add that the only complaint of breach of the 1984 Agreement relied upon by Blackburn is the promotion and sale by Bim/Cellkem of Tensidef 520 and 530 instead of DP 150. That is a matter already addressed in the context of the 1994 Agreement itself.
(3) WERE BIM'S BREACHES REPUDIATORY?
- For the reasons stated, in my judgment the only "breaches" of any potential significance which Blackburn has established are the sales of silicone-based defoamers for the pulp industry and water-based defoamers for the paper making industry. But in each case, albeit for different reasons, I do not think either of these breaches alone or taken together sufficiently serious to be of the necessary fundamental nature to constitute a repudiation of the 1994 Agreement. They did not deprive Blackburn of substantially the whole benefit which it was the intention of the parties Blackburn should obtain from the contract : Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2QB 26 per Diplock LJ at pages 72-3. Nor can it in my judgment be said that Bim evinced any intention no longer to be bound by the Agreement by reason of either breach.
- In the case of sales of silicone-based defoamers, the level of sales was insignificant. As I have said (paragraphs 76 to 77) whilst Bim/Cellkem was alive to the commercial advantage of developing its own product it had not succeeded in doing so by the time Blackburn cut off supplies of BS 470 nor on the evidence did it succeed for some considerable time thereafter. Development was not of itself a breach of any Agreement. As for water-based defoamers Bim's concern, I accept, was largely because of doubts about the compliance of DP 150 with environmental regulations. There are documents in which Blackburn suggested that an alternative compliant product was available. On the other hand that suggestion was not raised at any sales meeting. DP 150 was sold under the 1984 Agreement. Blackburn rightly recognised that such sales were of much less commercial interest both financially and in terms of future sales than sales of BS 470 under the 1984 Agreement. The real commercial substance of the product exclusivity clause in the 1984 Agreement was in its application to silicone-based defoamers for the pulp industry. It was the development by Blackburn of BS 470 (which, as BS 469, was the only "new" product expressly referred to in the December 1993 fax) and Bim's access to the Scandinavian markets in which it was hoped to sell it that caused the 1994 Agreement to be made. No other Blackburn "new" products were ever promoted for sale by Blackburn under the Agreement.
- In my judgment therefore none of the breaches of the 1994 Agreement which Blackburn has established were such as to justify Blackburn terminating the Agreement on that basis.
(4) BREACHES BY BLACKBURN
- The sales of BS 470 made by Blackburn to Clariant and Chemec (paragraphs 65 to 68) were, granted my finding that Bim/Cellkem had achieved 20% of the available market in Finland by the end of 1996, plainly breaches of the exclusive sales rights granted to Bim in the 1994 Agreement. The end date for a claim by Bim on that basis depends on the outcome of the Notice Issue.
- There is also an issue whether on the true construction of the 1994 Agreement Blackburn was obliged to supply Bim with Bim's reasonable requirements for BS 470 during the currency of the Agreement. Mr Turner submits there was no obligation to do so: it was not expressly provided for and should not be implied. Mr Onslow submits that such an obligation is a necessary implication from the terms of the Agreement read as a whole. I agree with Mr Onslow. There is no evidence to suggest that the manufacture and supply of BS 470 was subject to any limitations. Although the price to be paid by Bim had been varied, the criterion of equality remained (paragraphs 53 and 56) and in my judgment provided a sufficient basis to establish a price should that have led to controversy. But the essence of the Agreement was exclusivity of sales rights (and the related obligation only to source products from the other party) and Bim's opportunity to retain such rights in Denmark, Norway and Finland if it attained 20% of the market. If Blackburn was entitled simply to refuse to supply orders from Bim these provisions would be deprived of any force or purpose. In commercial terms Bim wanted to sell BS 470 and Blackburn wanted Bim to sell as much as possible. Indeed Mr Tait in his evidence acknowledged the obligation on Blackburn for which Mr Onslow contends.
- It follows that in my judgment Blackburn was also in breach of the 1994 Agreement when it refused further to supply Bim with BS 470 on 22 and 23 December 1998.
- These breaches by Blackburn of the 1994 Agreement were I think plainly repudiatory breaches. In effect they deprived the Agreement of its commercial purpose. The sales to Clariant/Chemec were to enable those companies to sell on to the same market and customers with which Cellkem had established sales. Mr Turner also rightly accepted that if (as I have decided) Blackburn's refusal to make further supplies was a breach of the Agreement it was a repudiatory breach.
THE NOTICE ISSUE
- On my findings:
(i) The 1994 Agreement was effective and binding.
(ii) Bim was not in repudiatory breach of the Agreement and so Blackburn was not entitled to bring it to an end other than in accordance with its provisions.
(iii) Blackburn was in repudiatory breach of the Agreement by at least the end of 1998 and Bim was entitled to and did accept that repudiation in its original claim dated 17 August 1999.
(iv) Under the provisions of the 1994 Agreement each party had the right to end the Agreement by giving one year's notice effective from 1 January in any year.
- The consequences of these findings gives rise to the contrasting submissions relevant to the assessment of damages. Mr Turner submits, first, that the 1994 Agreement itself terminated on expiry of Bim's notice to terminate the 1994 Agreement and so on 29 May 1999. If that be wrong he submits that at the time (as I have held) 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 submits 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.
- I reject Mr Turner's submission that the 1994 Agreement terminated on expiry of the 1984 Agreement. It was not, in my judgment, a condition of the 1994 Agreement that the 1984 Agreement should remain in force, which was the basis of Mr Turner's submission. As I have said (paragraph 111) the two Agreements had different commercial bases, applied to different products, and had different termination provisions. The term of the 1994 Agreement providing that it should "remain in force" for old products was not expressed either as a condition or as a continuing obligation for the term of the 1994 Agreement.
- In support of his submission, and as an alternative basis for it, Mr Turner submitted that it would be unconscionable for Bim now to seek to deny that the whole relationship between the parties ended on 29 May 1999. The basis for this submission was Mr Steven Lamb's letter dated 5 June 1997 (paragraph 62) and the lack of any response by Bim to it. This, submitted Mr Turner, encouraged and allowed Blackburn to believe that the parties would no longer be working together after 29 May 1999. I do not accept this submission either. I do not think Mr Lamb's letter was unequivocal nor was Bim's lack of response to it. It was indeed open to Blackburn in June 1997 to give notice before January 1998 under the 1994 Agreement to expire before expiry of Bim's notice if Blackburn so wished.
- On the other hand I think Mr Turner is right and Mr Onslow is wrong in their submissions on the effect of the express notice provision in the 1994 Agreement.
- In December 1998 Blackburn plainly intended to bring the 1994 Agreement to an immediate end. The company wrongly, as I have held, purported to do so on the basis that it was entitled to take that course as a result of Bim's repudiation of the Agreement. Blackburn could properly have terminated the Agreement at the time by a notice expiring at the end of December 1999. As a matter of general principle I think damages should be assessed on the assumption that Blackburn would have conducted itself so as to limit its obligations under the Agreement to the minimum: see McGregor on Damages, 16th Edition, paras 386 to 388. It would also not in my judgment be reasonable in circumstances in which in fact the commercial basis of the Agreement was extinguished by 23 December to assess damages on the artificial basis that the Agreement remained alive for some months thereafter.
POSTSCRIPT
- I will hear the parties when this judgment is handed down on the appropriate orders to which it gives rise and as to the future conduct of the proceedings.
