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The (in)admissibility in evidence of “without prejudice” correspondence and repudiatory breach of co

The recent Commercial Court judgment in the case of Alan Ramsay Sales & Marketing Ltd v Typhoo Tea Limited, reported on 8 March 2016, highlights the importance of having a clear written agreement setting out the terms of the agency and, in particular, the manner in which it may be terminated. The judgment is interesting for a number of reasons, not least in that it considers in some detail two areas of the law that are often troublesome for lawyers and claimants alike, namely:

1. the nature of ‘without prejudice’ communications and their admissibility in evidence; and

2. repudiatory breach of contract and when it shall and shall not be effective.

The case also assists in considering damages due to a commercial agent under the Commercial Agents (Council Directive) Regulations 1993 for the termination of an agency on insufficient notice and for compensation under Article 17 of the Regulations.

The judgment is a lengthy one and is not analysed in great depth in this article. Summarising the facts briefly, the claimant, Alan Ramsay Sales & Marketing Ltd, was a commercial agent operating in the food and drink sector and acting for a number of principals including the defendant company, the well-known producer of Typhoo teas.

The dispute surrounded the manner in which the agency came to be terminated on 11 May 2013. The claimant’s case was that the agency agreement provided for twelve months’ notice of termination, but the defendant gave notice of termination with effect from 11 February 2013, to terminate on 11 May 2013, by two “without prejudice” emails dated 18 and 26 March 2013 and therefore was in repudiatory breach of contract, which repudiation the claimant accepted in an email to the defendant as bringing the agency agreement to an end on 28 March 2013.

The defendant’s case was that the two emails marked “without prejudice” were part of a series of without prejudice negotiations to settle a dispute as to termination of the agency and, as such, they could not be relied upon as repudiatory and should be inadmissible in evidence. As such, it would then follow that the claimant’s email of 28 March 2013 purporting to rely upon those emails as repudiatory was itself a repudiation of the agency agreement.

The arguments made by both sides were detailed, however in very simple terms, the claimant’s case is that there was at the time no extant dispute which would render the “without prejudice” emails inadmissible in evidence. Essentially, inadmissibility turns on whether “without prejudice” communications are made for the purpose of a genuine attempt to compromise a dispute between parties – if so, such communications may generally not be admitted in evidence. This is accepted practice in the English courts partly as a matter of public policy and partly due to an implied agreement between the parties to the effect that what is said in settlement negotiations will not be relied upon in court.

The Court found that the two emails in question from the defendant company were indeed protected by without prejudice privilege and therefore could not and should not have been relied upon by the claimant as constituting a repudiatory breach of the agreement. It had to follow, in that case, that the email from the claimant of 28 March 2013 purporting to accept the defendant’s emails as a repudiatory breach and to terminate the agreement forthwith was itself a repudiatory breach of the agency agreement.

At this point in the judgment, the defendant must have felt that things were going its way, however it was not the end of the story – far from it.

For a repudiatory breach of contract to be effective, there must be a clear and unequivocal acceptance of the repudiatory breach and there must be a ‘conscious intention to bring the contract to an end, or the doing of something which is inconsistent with its continuation’. Mere inactivity or acquiescence on the part of the party seeking to rely on the repudiatory breach will not suffice. If the innocent party which is entitled to treat itself as discharged from the contract by the other party’s repudiatory breach chooses to treat the contract as continuing, then it will be taken to have affirmed the contract and thereby will lose its right to treat the contract as repudiated.

The trouble for the defendant company Typhoo was that it did not clearly and unequivocally accept the claimant agent’s repudiatory breach. In fact, the claimant’s case was that the defendant made the clearest possible affirmation of the agency agreement in accepting the claimant’s continued performance of its commercial agency duties pursuant to the agency agreement until 11 May 2013, including in respect of the defendant’s attendance at a trade show in April 2013.

The Court found that because the defendant (a) did not accept the claimant’s repudiatory breach in its email of 28 March 2013 as bringing the agency agreement to an end and (b) thereafter accepted the claimant’s offer to continue with the agreement until 11 May 2013 and affirmed the agreement, the agency agreement continued until it was terminated with effect from 11 May 2013. The Claimant was therefore entitled to compensation under the Commercial Agents Regulations and damages for termination with insufficient notice.

This case provides a salutary lesson for commercial parties. However well known a company or brand, there is no escaping the legal consequences of an untidy and ill thought-out termination of a commercial relationship, particularly with a commercial agent which can rely on the Commercial Agents Regulations for protection.

The content of this article is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content herein.

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