In the recent case of Alan Ramsay Sales & Marketing ltd v Typhoo Tea Ltd (2016), the High Court considered the application of without prejudice privilege in the context of the termination of a commercial agency agreement. The case serves as a helpful reminder of the principles behind without prejudice communications, particularly where there is a continuum of communication. It also provides important guidance as to the dividing line between settling a dispute and negotiating a new contract and the effect this has on a party’s ability to rely on inter-partes communications to support its case. This will be of particular relevance to clients who enter into commercial agency agreements with distributors, but has wider relevance to any party’s contractual arrangements.

Background to Alan Ramsey & Co vs Typhoo Tea Ltd

Since 2006, the Claimant, Alan Ramsey & Co, had acted as a commercial agent for the Defendant, Typhoo Tea Limited, under the meaning of the Commercial Agents (Council Directive) Regulations (the Commercial Agents Regulations) on a monthly retainer. The Claimant’s role was subsequently expanded and the parties entered into an agreement for agency services in May 2011 to include the whole of the Defendant’s “Out of Home” sector, covering cash & carry, wholesale and foodservice convenience (the Agency Agreement). The Agency Agreement contained a 12 month notice period for termination.

In 2012, the Defendant became concerned about the Claimant’s performance under the Agency Agreement and emailed the Claimant on 8 February 2013 proposing termination of the Agency Agreement on one month’s notice. The notice of termination, which also contained an offer to employ the Claimant’s owner, Mr Ramsay, was marked “without prejudice”. Further communications followed and the Defendant purported to terminate the Agency Agreement by email on 18 March 2013 and again on 26 March 2013 with 3 months’ notice effective from 11 February 2013. These emails were headed “without prejudice”. The Claimant responded on an expressly open basis on 28 March 2013, alleging that the 18 March and 26 March emails constituted repudiatory breach of the Agency Agreement, affirming the breach and stating that the Claimant intended to seek damages. The Claimant then continued to operate as commercial agent to the Defendant until 11 May 2013.

One of the issues in dispute between the parties was whether the Claimant was entitled to rely on the 18 and 26 March emails to allege repudiatory breach on the part of the Defendant and therefore claim damages for breach of contract and compensation under the Commercial Agents Regulations. If the Claimant was unable to rely on these emails, then the Defendant argued that the Claimant had itself committed a repudiatory breach of contract in its email dated 28 March 2013 and could not therefore seek damages or compensation under the Commercial Agents Regulations.

The scope of without prejudice privilege

In his judgment, Mr Justice Flaux reiterated the relevant test for the application of without prejudice privilege to written or oral communications, namely whether such communications are “made for the purpose of a genuine attempt to compromise a dispute between the parties”. He explained that the rationale for protecting such communications is twofold, consisting of: (1) contract, i.e. an agreement between the parties that the communications cannot subsequently be relied upon in Court; and (2) public policy, i.e. the public interest in encouraging settlement of disputes by allowing parties to discuss settlement without the fear that any admissions will come back to bite them.

The core elements of the test are: (1) that there is an extant dispute between the parties, such that the parties contemplated or might reasonably have contemplated litigation if they did not agree the issues being discussed; and (2) that the communications constitute a genuine attempt to settle. These elements are to be viewed objectively. As explained by Mr Justice Flaux, when assessing whether a particular passage is privileged, the relevant question is what a reasonable person, in the position of the recipient of the communication, with its knowledge of the relevant circumstances as at the date the communication was written, would have understood the writer of the passage to have intended when read in the context of the communication as a whole. This protection applies equally to a series of communications as to a single communication, so long as, when viewed objectively, it constitutes a continuum of communications which as a whole meets the test for without prejudice privilege. If such a continuum exists, it is inappropriate to fillet out individual pieces of correspondence in order to rely on them, even if they would not be privileged when viewed on their own (see Unilever v Proctor & Gamble [2000] 1 WLR 2436).

Applying the relevant test to the facts, Mr Justice Flaux concluded that there was clearly an extant dispute about the termination of the Agency Agreement at the time of the relevant emails and that the parties could have contemplated that litigation would ensue if they did not agree. Looked at in the context of the parties’ negotiations as a whole, the relevant emails were part of the discussions to resolve this dispute and so it did not matter if, when viewed in isolation, the emails appeared to be statements of intention expressed in mandatory terms, rather than attempts at settlement.

Since the Claimant was unable to rely on without prejudice privilege, it could not make the argument that the communications amounted to repudiatory breach. Instead, the Judge was able to accept the Defendant’s version of events, meaning that the Claimant’s email of 28 March 2013 was a repudiatory breach of the Agency Agreement. However, Mr Justice Flaux went on to conclude that the Defendant had not accepted the Claimants’ repudiatory breach as bringing the contract to an end and therefore the Claimant was entitled to damages and compensation under the Agency Agreement.

Practical Points

This case raises a number of important points to consider in the context of discussions with a commercial agent or other counterparty.

Specifically in the context of termination:

  • Parties in termination discussions should be aware that their communications may be covered by without prejudice privilege, even if there does not appear to be a live dispute between the parties.
  • If communications are covered by without prejudice privilege, this can have a significant impact on parties’ subsequent arguments about whether or not a contract has been terminated.
  • In the context of commercial agency arrangements, this will also have an impact on whether compensation is payable on the basis that the notice provisions under the contract were not complied with.
  • When seeking to terminate an agreement and enter into another, parties should be aware that the whole communication could be privileged, making it hard to show when the new contract has been entered into.

More generally:

  • A series of communications may all be protected by without prejudice privilege if it forms a continuum of communications meeting the relevant test. Individual communications may therefore be privileged even if they appear to be statements of intention expressed in mandatory or peremptory terms.
  • It can be helpful to agree whether or not communications are covered by without prejudice privilege, in order to avoid disagreement later on.
  • Whether or not communications are marked “without prejudice” is not determinative – as explained above, the Court will examine the communication according to the relevant legal test to determine whether or not privilege applies.