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When Termination becomes terminal

12/03/2018 | Lucy Hamilton-James

A recent judgment has brought into sharp focus the importance of giving careful consideration to the reason given for terminating a contract at the time of such termination.  The case, Phones 4U Limited (in administration) v EE Limited [2018] EWHC 49 (Comm), involved Phones 4U which had a trading agreement with EE Limited and, on 15 September 2014, appointed administrators.  On 17 September 2014, EE terminated the agreement citing its right under clause 14.1.2 to terminate the agreement if Phones 4U went into administration.

The administrators subsequently brought a claim against EE for unpaid commission and EE then sought to counterclaim for damages it claimed it had suffered as a result of a repudiatory breach of contract by Phones 4U for its failure to market EE products in accordance with the agreement.

The Judge ruled in favour of Phones 4U on the counterclaim the basis that EE could not recover for “loss of bargain” damages for repudiatory breach, despite the Judge finding that EE had a reasonable prospect of establishing a repudiatory breach.   The Judge decided that even if there had been a repudiatory breach at the time EE terminated the agreement, because the termination letter expressly citied its right to terminate for a contractual reason (the appointment of administrators by Phones 4U), EE could not later claim the agreement was terminated for a breach.

It can be tempting for a party wishing to end its agreement with another to use a clause which gives it the right to terminate without having to show breach, such as termination on the appointment of an administrator.  It can be a clean, no blame and express right to terminate, but if it is the sole, expressly used reason for termination, it can restrict the right to bring other claims in the future and should therefore be used with care.

If you need advice on terminating an agreement for reasons of insolvency without inadvertently waiving your future rights to bring a claim for damages, contact Anthony Field or Lucy Hamilton-James in the Dispute Resolution department.

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