Phones 4u Ltd v EE Ltd

Factual and Procedural Background

The Plaintiff, a prominent retail entity until September 2014, specialised in selling mobile phone contracts across the UK, including pay monthly and pay as you go services, generating revenue mainly through commissions on customer connections. The Defendant is a major mobile network operator in the UK, operating under multiple brand names, and until September 2014, the Plaintiff was a key independent intermediary for its services.

From 2012, the Plaintiff's business faced significant challenges as several network providers terminated their trading relationships. In September 2014, the Plaintiff and Defendant's relationship was governed by a written Trading Agreement dated October 2012 covering pay monthly contracts, set to expire in September 2015, and additional PAYG Terms from October 2013, expiring December 2014.

On 12 September 2014, the Defendant notified the Plaintiff that it would not renew the Trading Agreement upon expiry. The Plaintiff's Board resolved to seek administrators, and trading ceased permanently by 15 September 2014. On 17 September 2014, the Defendant sent a termination letter to the Plaintiff's administrators, terminating the contract immediately under a contractual provision triggered by the appointment of administrators.

The Plaintiff applied for summary judgment to dismiss the Defendant's primary counterclaim for damages for loss of bargain due to contract termination. The Defendant asserted losses exceeding £200 million, relying on an alleged breach of key contractual obligations by the Plaintiff in marketing and procuring connections. The Defendant also pleaded an additional counterclaim concerning alleged misleading representations by the Plaintiff, which was not contested in the summary judgment context.

Legal Issues Presented

1. Whether the Plaintiff breached the key contractual obligations (Key Obligation and PAYG Obligation) under the Trading Agreement and PAYG Terms.
2. If such breach occurred, whether it constituted a repudiatory breach justifying termination and damages for loss of bargain.
3. Whether the Plaintiff renounced its contractual obligations prior to termination.
4. Whether the Defendant's termination letter precludes a claim for damages for loss of bargain.

Arguments of the Parties

Plaintiff's Arguments

• The Plaintiff contended there was no breach of the Key Obligation or PAYG Obligation.
• Alternatively, even if breaches occurred, neither obligation was a condition of the contract, and the brief cessation of trading did not deprive the Defendant of substantially the whole benefit of the contracts.
• The Defendant terminated the contracts under a contractual provision triggered by administration, not for breach, negating any loss of bargain claim.
• The Plaintiff relied on the contractual scheme of Key Performance Indicators (KPIs) and material breach provisions to argue that a two-day cessation of trading could not constitute repudiatory breach.
• The Plaintiff challenged the Defendant's allegations of permanent cessation of trading at the time of termination as speculative and unsupported by evidence.
• The Plaintiff argued the Defendant’s additional claims, including wilful default and renunciation, were either unpleaded or insufficiently supported.
• The Plaintiff asserted that the Defendant's termination letter, which expressly invoked a contractual right independent of breach, precludes loss of bargain damages.

Defendant's Arguments

• The Defendant alleged the Plaintiff breached key obligations to market, sell, and procure connections, and these breaches were serious and likely to continue, constituting repudiatory breach.
• Alternatively, the Defendant contended there was renunciation by the Plaintiff, evidenced by conduct and communications indicating an intention not to perform.
• The Defendant relied on established case law principles that a breach likely to continue and deprive the innocent party of substantially the whole benefit justifies termination and damages.
• The Defendant contended that the termination letter accepted the repudiatory breach and/or renunciation, justifying a claim for loss of bargain damages.
• In the absence of termination for breach, the Defendant argued it nevertheless reserved rights to pursue claims for breaches existing prior to termination.
• The Defendant sought to amend its pleadings to clarify and strengthen the repudiatory breach and renunciation claims.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by assuming, for the purpose of the summary judgment, the existence of the Plaintiff's Key Obligation and PAYG Obligation as pleaded by the Defendant. It found that if those obligations existed, the Plaintiff breached them by failing to trade over the two days prior to termination. However, the court held that a two-day cessation in the context of long-term agreements could not constitute a repudiatory breach depriving the Defendant of substantially the whole benefit of the contracts.

The critical question was whether the Defendant's termination letter, which terminated the contract under a contractual provision triggered by the appointment of administrators (clause 14.1.2), could support a claim for loss of bargain damages based on repudiatory breach or renunciation alleged to have existed at termination.

The court undertook a detailed review of case law concerning the relationship between contractual rights to terminate and common law rights to terminate for repudiatory breach. It identified that loss of bargain damages require that the innocent party terminated the contract by exercising its common law right to terminate for breach or renunciation, and that this must be clearly communicated.

The court concluded that the Defendant's termination letter unequivocally exercised only the contractual right to terminate under clause 14.1.2, independent of any breach. The letter did not accept or rely on any repudiatory breach or renunciation as the basis for termination. The reservation of rights in the letter did not amount to exercising those rights.

Accordingly, the termination did not result from repudiatory breach or renunciation, and the Defendant could not maintain a claim for loss of bargain damages founded on such breach. The Defendant could not retrospectively re-characterise the termination as one for breach when it was not so communicated.

The court also found no compelling reason to deny summary judgment or to allow amendment of the Defendant's pleadings to avoid dismissal. The factual issues concerning the likelihood of permanent cessation of trading and wilful default were not determinative of the legal point concerning the effect of the termination letter.

Holding and Implications

The court GRANTED SUMMARY JUDGMENT in favour of the Plaintiff, dismissing the Defendant's primary counterclaim for damages for loss of bargain arising from termination of the contract.

The ruling establishes that a termination letter exercising a contractual right to terminate independent of breach cannot support a common law claim for loss of bargain damages based on repudiatory breach or renunciation not expressly relied upon in the termination communication.

The direct effect is that the Defendant's loss of bargain claim will not proceed to trial, resulting in significant savings in time and costs for the parties and the court. The decision does not establish new precedent beyond applying and clarifying existing principles regarding the interplay of contractual termination rights and common law breach claims.