Financial claim caught by clause excluding liability for loss of anticipated profits
EE Limited v Virgin Mobile Telecoms Limited  EWHC 1989 (TCC)
How did the court approach the construction of an exclusion clause to determine whether the claimant's financial claim for breach of an exclusivity provision was properly described as a claim for “anticipated profits” and as such was excluded by that clause?
The key takeaway
In line with a number of recent cases, the court's decision in this case shows that parties generally cannot avoid clear wording contained in exclusion clauses in order to recover losses that have been expressly excluded (in this case, loss of profits).
Under a telecommunications supply contract, Virgin Mobile Telecoms (Virgin Mobile) contracted with Mobile Network Operator EE to access its radio access network. EE was required to supply Virgin Mobile with various services that would enable Virgin Mobile's customers to be provided with 2G, 3G and 4G mobile services. This arrangement was subject to an exclusivity clause in the contract.
Other than in certain limited circumstances, the liability clauses in the contract expressly excluded liability for “anticipated profits”.
The initial arrangement wasn't applicable to the provision of 5G services but 5G was added subsequently and the contract was amended accordingly. The amendments provided for potential agreement between EE and Virgin Mobile in relation to the provision of 5G services using EE's network or, in the absence of such agreement, for Virgin Mobile to be entitled to provide 5G services to its customers from a different network owned by one of EE's competitors.
Virgin Mobile put some of its customers on Vodafone's and O2's networks believing it fell within that “5G services” exception to the exclusivity clause. EE considered that by doing so Virgin Mobile had breached the exclusivity clause and issued proceedings, claiming damages of c.£25m in revenue that it would otherwise have earned in respect of liability for additional charges payable by Virgin Media to EE under the contract had Virgin Mobile's customers been kept on EE's network instead.
Virgin Mobile accordingly applied for strike out and/or reverse summary judgment of EE's claim, contending that regardless of breach (which it denied) the claimed losses fell within the clear and natural meaning of the words “anticipated profits” in the exclusion clause.
The key question for the court was whether that interpretation was correct. While bearing in mind that the court should hesitate about making a final decision without trial, the court decided that it had all the evidence necessary to determine this key point of contractual construction summarily.
The court revisited the well-established general approach to contractual interpretation, as well as the purposive and contextual principles applicable to the interpretation of exclusion clauses.
Given the clear and unambiguous language of the exclusion clause, the court found that EE's damages claim fell within the natural meaning of “anticipated profits” and was therefore excluded.
There was no difference in meaning between “lost profits” and “anticipated profits”. The agreement was a bespoke, lengthy and detailed contract negotiated by two sophisticated parties operating in the field of telecommunications, which had been negotiated on a level playing field. Although that admittedly left EE without a financial remedy if Virgin Mobile breached the exclusivity clause, EE would still be paid the substantial contractually agreed minimum revenue payments in any event, and EE could still seek effective non-financial remedies (such as injunctive relief), so the result could not be said to render the contract an “illusory bargain” or “a mere declaration of intent”.
The court therefore gave summary judgment in Virgin Mobile's favour.
Why is this important?
The meaning ascribed to the phrase “loss of profits” will depend on the context and drafting of the relevant contract – this case highlights that despite the wording in the claim referring to “charges unlawfully avoided” the court found the damages sought were for loss of profit, and thereby excluded, on the grounds that the wording of the clause was clear.
The judgment also includes a useful summary of key case law showing the court's approach to the interpretation of exclusion clauses.
Any practical tips?
It is important to identify in the contract exactly which losses the parties intend to limit or exclude and under what circumstances. If it is intended that certain losses are not to be excluded (for example, charges) consider including a (non-exhaustive) list of losses that are recoverable. If particular risks or liabilities are being allocated to a particular party in specific circumstances, consider describing the commercial rationale in recitals or acknowledgments in the contract or the specific provisions.