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Counter claim for loss of bargain dismissed on grounds of not terminating the Contract on the correct grounds

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The case of Phones 4U Ltd (in Administration) v EE Ltd [2018] EWHC 49 provides a useful reminder that the content of a notice served to terminate a contract will be critical when considering whether a party can sue for damages arising from a party’s repudiatory breach of a contract.

Phones 4U and EE had entered into a commercial trading agreement (“Agreement”) whereby EE would pay commission/sales revenue to Phones 4U for selling mobile contracts to its customers. Under the terms of the Agreement, EE was permitted to terminate the Agreement upon serving written notice if Phones 4U committed a fundamental breach of the Agreement. The fundamental breach had to be either a breach which was incapable of remedy or, if capable of remedy, had not been remedied to the reasonable satisfaction of EE within 30 days of a written request to remedy the breach. The Agreement also provided EE with the option to terminate the Agreement if Phones 4U was unable to pay its debts or took any steps to initiate a composition or scheme or other arrangement with any of its creditors. Following Phones 4U’s decision to appoint Administrators, EE served notice to terminate the Agreement on the latter grounds.

The Administrators for Phones 4U subsequently brought proceedings against EE for unpaid commission fees that were due under the Agreement at the time EE had served notice to terminate. As part of its defence to the proceedings, EE counter claimed for financial loss it had suffered as a consequence of the Agreement ending early. EE argued that Phones 4U was in fundamental breach of the Agreement by ceasing to trade. In response, Phones 4U made an application for summary judgment asking the Court to dismiss EE’s counter claim on the grounds that EE, by way of its termination notice, had terminated the Agreement solely by reference to the clause within the Agreement relating to Phones 4U’s ability to pay its creditors rather than alleging that Phones 4U had fundamentally breached the terms of the Agreement.

The High Court held that EE’s termination notice explicitly stated that it was terminating the Agreement in accordance with its contractual right and not because of Phones 4U’s fundamental breach of the Agreement. The Court found that EE’s counter claim for damages for loss of bargain was untenable as consequence and gave summary judgment in favour for Phones 4U striking out the counter claim. Although EE’s termination notice stated that it did not waive any breach that may have existed at the time of termination and reserved all its rights, the Court considered this did not assist EE as it had not claimed to exercise those rights in the notice.

This case underlines the necessity to give careful consideration to how notices to terminate contracts are drafted and upon what grounds termination is based. If a party wishes to sue for damages arising from a party’s fundamental breach of contract, this case confirms that the suing party must make clear reference to the fact that they consider the other party to have repudiated the contract and that the act is treated as a terminating act. Failure to make such reference is likely to restrict a party’s ability to sue for damages arising from a repudiatory breach of contact.

For advice relating to a breach of commercial contracts, you can contact Torion Bowles on 023 8071 7455 or email torionbowles@warnergoodman.co.uk.