The High Court has considered whether EE Ltd (EE) breached duties of good faith in its agreement with Phones 4U Ltd (P4U) by informing P4U that EE would not be extending the agreement when it still had a year to run. P4U claimed that EE's action was designed to cause P4U to go into administration, enabling EE to terminate the agreement early and avoid further payments.
P4U argued that the agreement was a relational contract with an implied general duty on EE to act in good faith towards P4U. Roth J accepted that the agreement had some features of a relational contract, including a moderately long term and extensive collaboration needed to perform its terms.
However, while EE enabled P4U to supply customer connections to its mobile network, it also competed with P4U to source those customer connections directly. In Roth J's view, if exclusivity is a supporting indication for a relational contract, being in competition is a "strong factor" pointing the other way. The agreement's detailed description of the parties' collaboration was also inconsistent with relational contracts where details of the venture were not expressed exhaustively. The agreement was not a relational contract.
An express term of the agreement required EE to act in good faith and not to carry out activity designed to reduce P4U's revenue. P4U argued that this term meant EE must act in good faith generally as well as in relation to contract revenue. The judge disagreed. These were not distinct duties. The requirement to act in good faith only applied to activity designed to reduce P4U's revenue. If there was to be an express, general good faith obligation on EE, it was inconceivable that the contract would not have imposed the same obligation on P4U, which it did not. The express duties of good faith also precluded an implied general duty to act in good faith.
Even if there was a general duty of good faith, there was no breach by EE. EE had appointed a different business as its exclusive large indirect retailer and was entitled to give priority to its own interests. Its decision to inform P4U that their agreement would not be extended could not be regarded as commercially unacceptable by reasonable and honest people.
Date: 20 November