In Phones 4u Ltd (In Administration) v EE Ltd (2018), the High Court struck out EE's claim for £200 million in damages because of the wording of a letter terminating its distribution arrangements with Phones 4u. The letter was effective in terminating the relevant contract only in exercise of EE's right under a contractual provision allowing termination for insolvency - and not for alleged repudiatory breach by Phones 4u under common law. As a result, EE had no claim for future loss of bargain.
Prior to its entry into administration in September 2014, Phones 4u was a well-known distributor of mobile phone contracts from mobile network operators to end users and EE was and remains one of the major mobile network operators in the UK.
As at September 2014, the primary trading relationship between Phones 4u and EE in relation to "pay monthly" contracts was governed by a written agreement dated 8 October 2012, which was set to run until 30 September 2015 (the Trading Agreement). In addition, the terms of business for "Pay As You Go" connections were agreed separately by emails in October 2013, which were set to run until 31 December 2014 (the PAYG Terms). The PAYG Terms were "additional terms" as contemplated by the Trading Agreement and therefore the termination provisions of the Trading Agreement applied also to the PAYG Terms.
Problems at Phones 4u
From 2012 onwards, Phones 4u’s business began to decline and on Friday 12 September 2014, EE notified Phones 4u that it would not renew or replace the Trading Agreement when it expired on 30 September 2015. The Board of Directors of Phones 4u met that afternoon and resolved to seek the appointment of administrators. On the morning of Monday 15 September 2014, administrators were appointed, Phones 4u's retail shops and outlets did not open for business and online trading was suspended. That cessation of trading turned out to be permanent.
At around 1pm on Wednesday 17 September 2014, EE sent a termination letter (the Termination Letter) to Phones 4u's administrators, which stated that "[i]n accordance with clause 14.1.2 of the [Trading] Agreement, we hereby terminate the Agreement with immediate effect" and contained general reservation of rights language at the end. Clause 14.1.2 allowed EE to terminate if Phones4u was affected by various insolvency-related events.
It was common ground that while the appointment of administrators on 15 September 2014 was not, in itself, a breach of contract on the part of Phones 4u, it did entitle EE to terminate the contract under clause 14.1.2 of the Trading Agreement as invoked by EE in the Termination Letter.
Phones 4U commenced a claim against EE for payment in respect of revenues generated from EE contracts sold by Phones 4U, which survived the termination of the Trading Agreement. EE counterclaimed for damages for the loss of bargain resulting in the termination of the Trading Agreement, asserting losses of over £200 million.
Phones 4U applied for summary judgement under CPR Part 24 on EE's counterclaim on the basis that is had no real prospect of success and that there was no other compelling reason why the counterclaim should be disposed of at trial.
EE's counterclaim was founded on an alleged obligation on the part of Phones 4u, in essence, to market and to sell EE's products and services (the Key Obligation). For the purposes of the summary judgment application, the existence and scope of the Key Obligation fell to be assumed as alleged by EE. Therefore, the issues for determination (and in each case, whether EE had a real prospect of success or other compelling reason for trial) were: