Terminating a Contract

Quite often solicitors are complimented for ‘having a way with words’ and the importance of using the correct words is the topic of this Article.

All contracts, whether for a multi-million pound deal, or for repairs around the house, should have a termination clause, but how do you rely upon it when you need to use it?

In 2018, the High Court heard Phones4U v EE, a case revolving solely around termination clauses and the importance of careful drafting. Phones4U operated on a commission based arrangement with a number of mobile phone networks. Prior to the commencement of litigation, Phones4U had been struggling to retain some key mobile networks and EE would become the next one to cease working with them. Phones4U opted to file for administration and subsequently closed down their stores. EE wrote to Phones4U terminating and counterclaimed for damages for earnings had Phones4U not closed their doors.

EE’s contract with Phones4U provided for a right to give notice of termination upon Phones4U entering into Administration. The contract also contained clauses, which if breached, allowed EE to terminate immediately – the most pertinent was the clause stipulating Phones4U’s doors must be open to the public.

However, when EE terminated the contract, they relied only on the fact Phones4U were in administration when providing notice of termination. EE did not rely upon the failure to re-open the stores. As such, because EE’s termination was based upon the administration, they were not able to rely upon damages stemming from the breach – meaning they could not claim any damages.

This case assists in highlighting the importance of (1) careful drafting of termination clauses and (2) careful reading and interpretation of contracts.

Questions to ask prior to termination?

– Give careful thought as to why you are terminating – are you terminating because of an action of one of the parties, or because of something else?
– What is the loss you may suffer due to the termination? Does your termination notice reflect this?
– Are you having to terminate because there are no alternatives, or because you have the ability to do so?

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