Choose your words carefully. That was the message from the High Court recently in the high-profile case of Phones 4u Ltd (In Administration) v EE Ltd.
The court ruled that EE were not allowed to claim damages arising from alleged breaches of contract, because they had brought the contract to an end by activating the contract itself, rather than by repudiation – which means ending a contract because of a breach.
Phones 4u entered into a contract with EE for the supply and sale of mobile phones. Subsequently, Phones 4u entered administration, and eventually ceased trading. Phones 4u’s failure to trade meant a failure or at least an inability to perform its contractual obligations. In retrospect, EE claimed it had suffered financial loss, as a result of these failures, and claimed the failures amounted to breaches of contract.
However, EE’s initial response was to formally trigger a clause which simply brought the contract to an end. The court held this had, in effect, discharged Phone 4u from any further performance of the contract, and EE lost the right to claim damages (estimated at £200m) from the date of the trigger onwards.
In this case, the benefit of hindsight was of no use to EE, which will no doubt have wished it had chosen a different set of words when initially reacting to Phones 4u’s plight.
If a business considers the other party to a contract to be in breach of its obligations, it is important to seek legal advice, immediately. Any steps which the business takes or fails to take in the immediate aftermath can have permanent effects on its legal rights. To ensure a business understands and, where necessary, preserves the right to exercise a full range of available remedies, these steps are crucial. If your business needs advice, we are available to help.