Bim Kemi AB v Blackburn Chemicals Ltd.

An agreement may be legally binding even though the parties intend later to record it in a formal document, unless the agreement is expressly made subject to contract or the circumstances show that no binding obligation was intended. Contractual exclusivity and sourcing obligations must be construed together and commercially. Failure to attain a contractual market-share threshold removed exclusivity, but did not release the continuing obligation to source products from the designated supplier or the corresponding obligation to supply. Breaches involving the marketing of competing products may be repudiatory where they show an intention to provide those products commercially during the contractual period. A party may accept that repudiation by ending further performance.

Bim Kemi AB and Blackburn Chemicals Ltd were chemical manufacturers whose commercial relationship was governed by a 1984 licence agreement. Following negotiations, the parties disputed whether a December 1993 fax, later initialled in October 1994, created a binding supplementary agreement concerning exclusive territories, product sourcing, profit sharing and termination.

Langley J found that the 1994 agreement was binding. He also found that Bim had breached it by selling competing products, but that the breaches were not repudiatory; and that Blackburn had repudiated the agreement by market sales and by refusing to supply BS 470. Blackburn appealed, while Bim challenged findings adverse to it. The central issues were whether the 1994 agreement existed, how its exclusivity and sourcing provisions operated, and whether Bim’s breaches justified termination.

1. Appeal allowed. The court upheld the finding that the December 1993 fax, as confirmed by the parties’ October 1994 conduct, constituted a binding 1994 agreement. The absence of a later formal document was not decisive. The fax did not state that the arrangement was subject to contract, and the parties’ subsequent trading supported an intention to be legally bound.
2. The agreement extended to controlled subsidiaries, including an after-acquired subsidiary. Its commercial foundation was mutual exclusivity and co-operation in the pulp and paper chemicals field. A subsidiary could not be used to circumvent the obligations.
3. “Product range” and “available market” in the 20 per cent provision referred to defoamers generally and to all purchasers of defoamers. Bim therefore failed to obtain the required 20 per cent market share in Finland. It lost exclusivity there, but remained obliged to source relevant products from Blackburn, and Blackburn remained obliged to supply them unless the agreement was terminated on notice. The court rejected the contrary construction as commercially misconceived.
4. Bim and Cellkem’s sales and trials of silicone-based products during 1997 and 1998 were not merely measures to preserve Blackburn’s BS 470 market. They were attempts to market Cellkem products which would have been supplied commercially if successful. Those breaches were repudiatory and entitled Blackburn to terminate the 1994 agreement by refusing further BS 470 supplies in December 1998.
5. Because Bim had not obtained the relevant market share in Finland, Blackburn’s sales through Clariant and Chemec were not breaches of Bim’s exclusive rights and could not themselves amount to repudiation. The court also agreed, obiter, with the judge’s approach that, had Blackburn’s repudiation been wrongful, damages could have been assessed on the basis of the earliest proper contractual termination notice.

Blackburn was entitled to accept Bim’s repudiation. The 1994 agreement ended on that acceptance. The argument on costs was adjourned.

• Court of Appeal (Civil Division) [2003] EWCA Civ 106: allowed Blackburn’s appeal from the judgment of Langley J.
• Queen’s Bench Division, Commercial Court: found the 1994 agreement binding, held Bim in breach but not repudiatory breach, and held Blackburn in repudiatory breach.