High court case
The High Court recently granted summary judgment in a dispute between EE and Virgin Mobile. The judge applied established case law, but the ruling shows the courts' approach to interpreting exclusion clauses.
The court was asked to consider an exclusion clause in a supply agreement, and in particular to decide if EE's claim was a claim for "anticipated profits" so that it was excluded by virtue of that clause. EE opposed the application, saying that it raised questions that could only be dealt with at trial.
EE argued that Virgin Mobile had breached an exclusivity clause by migrating or adding non-5G customers onto other networks. EE claimed c.£25 million in damages, saying that it had been deprived of revenue that it would otherwise have earned. Virgin Mobile denied that it had breached the agreement and also, claimed that the exclusion clause meant that neither party could claim for "anticipated profits". Virgin Mobile brought a claim to strike out EE's claim for loss of anticipated profits. The High Court granted summary judgment for Virgin Mobile.
It said that EE had suffered the diversion away of customers to whom it would otherwise have been providing a service for a commensurate cost. In fact, no service was provided and so no invoices could be rendered under the agreement and no charges levied. EE had not provided services that had cost it more; on the contrary, it had not provided any services at all. The judge said that the true nature of the claim, and whether it would fall within a potentially relevant exclusion clause, was unsurprisingly a case sensitive issue. It depended on understanding how the claim was advanced, its true nature and whether it is genuinely concerned with a loss of profit (as opposed to, say, wasted expenditure or a diminution in price). The judge said that there was no doubt that the claim in this case was one for loss of profits, contrary to EE's arguments.
The judge also rejected EE's argument that the term "anticipated profits" should be construed narrowly. The judge said that the exclusion clause applied equally to damages claims for anticipated profits and anticipated savings made by both parties. There was no justification for construing, or re-writing the clause in a manner that limited the basic exclusion in respect of anticipated profits to indirect and consequential loss.
The judge was satisfied that any liability on the part of Virgin Mobile for damages for the unlawful diversion of its customers to alternative networks fell within the terms of the exclusion. The clause was drafted in a clear and unambiguous way. It was a tailor-made, stand-alone, clause intended to have a wide reach. It was plainly part of the risk allocation exercise between two sophisticated parties. It was not qualified by its surrounding provisions and there was nothing surprising about its positioning or context.
Court of Appeal case
EE appealed the High Court's decision to the Court of Appeal on two main grounds:
- The judge in the High Court should not have characterised EE's claim as one for loss of profits; instead, the claim should have been categorised as one for the diminution in the price payable under the Agreement.
- The judge was wrong to construe the exclusion clause as barring EE's claim for damages.
Ultimately, the Court of Appeal dismissed the appeal, upholding the High Court's judgment. Giving his judgment, Zacaroli LJ identified that (1) "there is no overarching principle of law that limits an exclusion of liability for loss of anticipated profits to losses other than expectation loss or diminution in price" (in other words, no previous case law has identified any established meaning of "loss of profits" or determined that an exclusion of "loss of profits" cannot cover a claim for "diminution in price"), (2) "the wording of the exclusion in this case is clear and unequivocal", and (3) the terms "anticipated profits" and "loss of profits" are interchangeable. Interestingly, there was a dissenting judgment from Phillips LJ who suggested that the exclusion clause should not be interpreted to exclude EE's claim for lost revenue due to Virgin Mobile's breach of the original exclusivity provision.
However, the ultimate outcome of this case emphasises that one should not underestimate the importance of exclusion clauses and the specificity used. The case also highlights the importance of stating when an exclusion should not apply, e.g. for deliberate or wilful misconduct. If you need any help with, or a second view on, the drafting of exclusion clauses, let us know!
Case: EE Limited v Virgin Mobile Telecoms Limited, 31 July 2023
Edit: first published 15 August 2023 and updated 17 March 2025
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