Phones 4U Ltd ((in Administration)) v Ee Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Baker |
| Judgment Date | 16 January 2018 |
| Neutral Citation | [2018] EWHC 49 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000746 |
| Date | 16 January 2018 |
[2018] EWHC 49 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London EC4A 1NL
Mr Justice Andrew Baker
Case No: CL-2016-000746
David Allison QC and Georgina Peters (instructed by Allen & Overy LLP) for the Claimant
David Wolfson QC and James Nadin (instructed by Addleshaw Goddard LLP) for the Defendant
Hearing dates: 6, 7 December 2017
Judgment Approved
Introduction
The Claimant (‘Phones 4U’) was in recent times, until September 2014, a very well-known retail name, in towns and cities across the UK and online. Its core business was the selling of mobile phone contracts to users, whether original contracts creating new network connections or upgrade contracts for existing connections. Phones 4U traded both pay monthly and pay as you go services. Its primary revenue stream comprised commissions or revenue shares in respect of the customer connections it sold.
The Defendant (‘EE’) was and is one of the major mobile network operators in the UK, providing connections and network services both under its newer ‘EE’ brand and also under the longer-established ‘Orange’ and ‘T-Mobile’ brands. One of the main independent intermediaries through which EE's services were sold, until September 2014, was Phones 4U.
In September 2014, the primary trading relationship between Phones 4U and EE was governed by a written agreement relating to consumer pay monthly acquisition, retention and in-life management dated 8 October 2012 (‘the Trading Agreement’). It contained the terms of business between Phones 4U and EE relating to pay monthly contracts. The vast majority of both Phones 4U's claim in these proceedings and EE's counterclaim the subject of this judgment arises, I was told, out of the Trading Agreement. The Trading Agreement was set to run until 30 September 2015.
The terms of business between the parties applicable in September 2014 for pay as you go connections were agreed in, or are evidenced by, an exchange of emails in October 2013 (‘the PAYG Terms’). The PAYG Terms were set to run until 31 December 2014. They were additional terms agreed between the parties in relation to pay as you go services as contemplated by clause 4.3.4 of the Trading Agreement. The termination provisions of the Trading Agreement to which I refer below therefore applied also to the PAYG Terms.
In the rest of this judgment, where I intend to refer specifically to one or other of the Trading Agreement or the PAYG Terms, I have tried to use language making that clear. Where I refer to ‘the contract’ or its termination without any such specificity, I mean to refer to the Trading Agreement and PAYG Terms collectively (and in those instances, it will not matter to the analysis whether strictly they formed a single, aggregate contract, or were by nature two separate contracts.)
From 2012, Phones 4U's business model faced a series of mounting pressures: in 2012, Three ended its trading relationship with Phones 4U; from February 2013, Phones 4U was no longer authorised to sell new O2 connections; O2 then decided in January 2014 not to renew its contract with Phones 4U for any type of connections; in early August 2014, Vodafone issued a notice terminating its contract with Phones 4U with effect from early February 2015.
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 inter alia to seek the appointment of administrators. Phones 4U's retail shops and outlets remained open and traded over the weekend of 13–14 September 2014, as did its website for online transactions. On the morning of Monday 15 September 2014, however, the retail shops and outlets did not open for business and online trading was suspended. That cessation of trading has turned out to be permanent. A major issue in the proceedings is whether it was permanent, or was likely (and if so how likely) to be or become permanent, as of 1 pm on 17 September 2014.
That date and time are critical because at 1.02 pm, EE sent the administrators an email indicating inter alia that EE was terminating the contract by a letter said to be attached. The relevant letter was not in fact attached as advertised and a further email was sent at 1.21 pm to cure that omission. The termination letter dated 17 September 2014 and thus sent by EE was in the following terms:
“We refer to the Agreement [i.e. the Trading Agreement].
In accordance with clause 14.1.2 of the Agreement, we hereby terminate the Agreement with immediate effect.
As a result, we hereby terminate with immediately [ sic.] effect your authority to sell and promote all EE products and services contemplated by the Agreement ….
Nothing in this notice shall be construed as a waiver of any rights EE may have with respect to the Agreement …. Without limiting the generality of the previous sentence, nothing herein shall be deemed to constitute a waiver of any default or termination event, and EE hereby reserves all rights and remedies it may have under the Agreement ….
This notice is governed by English law.”
It is common ground that the appointment of administrators on 15 September 2014 was not a breach of contract on the part of Phones 4U but did entitle EE to terminate the contract under the provision of the Trading Agreement invoked by EE in that letter, clause 14.1.2.
It is also common ground that, subject to any entitlement to set off any cross-liability of Phones 4U to EE on its counterclaims, EE's liability to Phones 4U in respect of revenue generated from EE contracts sold by Phones 4U survives termination, such that sums have fallen due to date and will continue to fall due until a date in 2021. Arrangements are in place for the ongoing provision by EE of the information needed to enable Phones 4U to calculate its entitlements. The possibility of disagreement over the sums due cannot be ruled out. However, it seems on any view that very large sums are and will be due to Phones 4U, subject to the impact (if any) of EE's counterclaims. For its part, Phones 4U presently estimates that its aggregate prima facie entitlement is likely to reach c.£120 million.
This judgment deals with Phones 4U's application for a summary judgment under CPR Part 24 dismissing EE's primary counterclaim. That is a claim for damages for the loss of bargain resulting from the termination of the contract. EE asserts loss of over £200 million. Phones 4U is sceptical of EE's ability to prove anything like that large a loss, but accepts that quantum cannot be assessed without a trial. Avoiding any need to engage in such a trial is one of the reasons favouring a summary dismissal of the loss of bargain counterclaim, if Phones 4U can show that it does not have realistic prospects of success as to liability.
EE has also pleaded a counterclaim based upon a statement on the Phones 4U website referring to both EE and Vodafone in explaining why Phones 4U were offline, promising an update as soon as possible and concluding with a sad face emoji, and a notice containing that statement said to have been posted in the windows of some of Phones 4U's retail shops. The claim alleges that this involved the making by Phones 4U of unauthorised, false or misleading representations relating to the Trading Agreement, in breach of clause 13.1.4 thereof. EE is yet to identify any consequent loss or damage. So there may be room to doubt whether the case will offer the court at trial an opportunity to consider the use of the sad face emoji as creating or involving a breach of contract. Be that as it may, there was no suggestion that this further counterclaim was a reason against granting summary judgment on the loss of bargain damages counterclaim if such a judgment were otherwise justified. In the rest of this judgment, references to EE's counterclaim are to the primary, loss of bargain counterclaim only, unless the contrary is stated.
References to capitalised terms below, if they are not terms I define in this judgment, are references to defined terms from the Trading Agreement.
The Issues
The foundation of the counterclaim is an alleged obligation on the part of Phones 4U, labelled by EE the ‘Key Obligation’, to undertake what I shall label ‘Key Activities’, viz. (a) to market and sell Products under the EE Marks, (b) to market and promote the Services, (c) to procure Customers for the Services and (d) to promote and resell Apple Products in conjunction with the Network Services in accordance with the Apple Terms. The Key Obligation is said to arise, on the true construction of the Trading Agreement, as an obligation under clause 4.1.1 thereof, by which EE appointed Phones 4U, and Phones 4U agreed to act, as a non-exclusive dealer authorised to carry out the Key Activities in accordance with the terms and subject to the conditions set out in the Trading Agreement.
The existence of the Key Obligation, or its precise scope if it existed, is open to debate. Indeed, Phones 4U's summary judgment application proposed that there was no real prospect of success for EE on its existence. However, that ground for summary judgment was not pressed, because of the extent to which EE has sought to rely on matters of background fact. Phones 4U will say the matters alleged are largely if not entirely inadmissible on the construction of clause 4.1.1 of the Trading Agreement, but it did not press the proposition that the relevant arguments could be disposed of by way of summary judgment.
As regards the PAYG Terms, it is common ground that one express provision...
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