Case law: Court clarifies when commercial negotiations can be 'without prejudice'
Parties to a commercial agreement who are discussing its termination should consider whether their discussions relate to a dispute or potential dispute and are undertaken with a view to a settlement, so they are 'without prejudice', even if the discussions seem to involve only statements of intent.
This update was published in Legal Alert - June 2016
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A company had acted as commercial agent for a tea company since 2006 on a month-by-month basis. The nature of the agreement meant the agent automatically enjoyed certain legal protections under European commercial agency regulations, including a right to compensation if the agreement was terminated.
In 2011, the agency was expanded to include a significant number of additional products. A new agency agreement was signed requiring 12 months' notice if a party wanted to terminate the agency. The following year the tea company emailed its agent proposing to end the agreement on one month's notice, but offering to employ the owner of the company. The email was marked 'without prejudice'.
In a dispute or potential dispute, statements made orally or in a document (including an email) with a genuine view to settlement are 'without prejudice', which means they cannot later be used in court. This applies whether or not the statement is expressly said to be 'without prejudice'.
Negotiations ensued, during which the tea company purported to terminate the agreement in two further 'without prejudice' emails. The agent replied in an open email (ie specifically not on a without prejudice basis) alleging that the tea company's latest emails amounted to a repudiatory breach of the agency agreement.
The legal test of whether there has been a repudiatory breach is whether, from the perspective of a reasonable person in the position of the innocent party, looking at all the circumstances, the contract breaker has shown a clear intention to abandon and altogether refuse to perform the contract.
However, the agent purported to affirm the agreement (thus requiring the tea company to continue to perform its part of the agreement). It then continued to act as agent.
The tea company argued that the agent could not claim repudiatory breach on the basis of the statements in its emails because those statements had been made without prejudice. It was not therefore liable to the agent for damages for repudiatory breach of the agreement.
However, this left it open to the agent to argue that the agreement had been terminated after all, and claim compensation under the commercial agent regulations. In this respect the tea company argued that the agent's unfounded allegation of its repudiatory breach, in the agent's open email, was itself a repudiatory breach of the agreement by the agent. If it was, the agent had no right to claim compensation under the commercial agent regulations either.
The court found that:
- There was a 'dispute' over termination of the agreement: when the emails were sent, the possibility of litigation was clearly in the parties' contemplation
- Despite being phrased as statements of intention, the emails were still made with a genuine view of settlement
The emails were therefore protected by the 'without prejudice' rule and the agent could not argue they amounted to a repudiatory breach by the tea company. This meant that the agent's allegation in its open email was a repudiatory breach.
However, the court then found that the tea company had not accepted the agent's repudiatory breach because it had continued the agency as normal afterwards. Instead, it had affirmed the agreement and the agent was therefore entitled to damages for breach of the agency agreement.
- Parties to an agreement who are discussing its termination should consider whether their discussions relate to a dispute or potential dispute and with a view to a settlement, so they are 'without prejudice', even if their discussions seem to involve only statements of intent
- If they are, or the issue is in doubt, they may wish to agree expressly whether or not their discussions are to be treated as open
- If their discussions are without prejudice, they should consider whether this may lead to later disputes over whether or not the agreement has been terminated
Case ref: Alan Ramsey & Co vs Typhoo Tea Ltd  EWHC 486
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.
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