A £200 million loss? Not your typical mobile phone contract....

In Phones 4U Ltd (In Administration) v EE Ltd, the High Court rejected EE Ltd’s claim for damages against Phones4U totalling £200 million. As outlined below, EE Ltd had made a costly mistake.  

Phones4U and EE’s relationship was governed by a trading agreement.  This agreement contained an express term stating that EE had the right to terminate the agreement in the event of Phones4U’s insolvency. When Phones4U entered into administration, EE exercised this contractual right and terminated the contract by way of notice stating: “In accordance with clause 14.1.2 of the Agreement, we hereby terminate the Agreement with immediate effect…”

The termination sparked a legal dispute between the two parties, with Phones4U bringing a claim for unpaid commission. In response to this, EE brought a counterclaim seeking damages for losses resulting from Phones4U’s insolvency. They alleged that Phones4U had committed a breach of contract by ceasing to trade when administrators were appointed. The claim was for £200 million.

The Judge considered the wording of the termination letter sent by EE to Phones4U, which clearly communicated that EE was terminating the agreement by exercising its contractual right to terminate upon insolvency. The Judge however held that because the notice had failed to mention a breach of contract as well as the insolvency, the termination was exercised independently of any alleged breach. Because EE had completely failed to mention any breach of contract in the notice, the Judge dismissed the claim.

A harsh decision possibly. But it is a reminder to carefully consider the drafting of a termination notice, and to consider what you want to achieve post-termination. If a claim for damages is on your agenda, make sure you refer to a breach of contract when the termination notice is served.