Exclusion clauses: Loss of profits – EE v Virgin Telecoms

On 31 July 2023, the High Court handed down its decision in the case of EE Ltd v Virgin Telecoms Ltd [2023] EWHC 1989 (TCC).

The judgment follows Virgin's application for a strike out and/or reverse summary judgment of the claim brought against it by EE. The case highlights the importance of carefully drafted exclusion clauses.

Background

EE and Virgin entered into a Telecommunications Supply Agreement on 28 August 2013 (the TSA). Under it, EE was required to provide Virgin with access to its mobile network to enable Virgin's customers to be provided with 2G, 3G and 4G mobile services. Virgin in turn agreed that for the duration of an Exclusivity Period, it would only use EE’s network for the provision of such services to its customers.

The TSA was amended in December 2016, to allow for the provision of 5G by Virgin to its customers. The amendments provided that where there was no agreement between the parties concerning the provision of 5G services, Virgin could use an alternative supplier (and would be entitled to provide its customers using 5G services with 2G, 3G and 4G services from the alternative supplier also).

When 5G was subsequently launched in 2019, Virgin entered into an agreement for the provision of 5G services with Vodafone and began migrating existing customers to Vodafone's network.

The claim

EE brought a claim against Virgin on the basis that, in breach of the exclusivity provisions in the TSA, it had:

(1) Migrated non-5G customers to alternative networks.

(2) Added new non-5G customers to alternative networks.

EE argued that it had suffered loss and damage represented by the revenue it would have received had the customers remained/been placed on the EE network. In contrast, Virgin denied that it had breached the exclusivity provisions, and argued that in any event the correct measure of EE's loss was loss of profit. Virgin argued that such loss was categorised as 'anticipated profits', meaning that it fell within an exclusion clause contained within the TSA.

Exclusion clauses: interpretation

In determining whether the alleged loss fell within the relevant exclusion clause, the Court set out succinctly the approach to be taken to the interpretation of exclusion clauses:

1. General methods of contractual interpretation apply. Parties are free to make their own bargains and allocate their own risks, and exclusion clauses are an integral part of the risk allocation exercise.
2. In construing an exclusion clause, the court will start from the assumption that in the absence of clear words the parties did not intend to derogate from the normal rights and obligations established by common law.
3. The more valuable the right, the clearer the language of the exclusion clause will need to be if it is to be given effect.
4. Where there is unclear wording, if linguistic, contextual and purposive analysis do not disclose an answer to the question with sufficient clarity, any ambiguity must be resolved against the party seeking to exclude liability.
5. In the case of negotiated commercial contracts, it is wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only.
6. An exclusion clause will not normally be interpreted as extending to a situation which would defeat the main object of the contract or create a commercial absurdity, notwithstanding the literal meaning of the words used.
7. Where language is fairly susceptible of one meaning only, that meaning must be attributed to it unless the meaning is repugnant to the contract.

Judgment

In applying the principles outlined above, the Court determined that any liability on the part of Virgin for the migration of its customers contrary to the exclusivity provisions of the contract fell within the terms of the relevant exclusion. The Court found that the wording of the exclusivity clause was clear and unambiguous, and expressly excluded liability for anticipated profits.

Agreeing with Virgin that the correct measure of loss was loss of profits, the Court found that the term loss of profits was capable of being encompassed by the words anticipated profits, noting this to be fairly susceptible to one meaning only.

Referring back to the principles, the Court stated that there was no reason to suppose that use of the term anticipated profits in the exclusion clause was intended to do anything other than exclude damages for loss of profits and went as far to say that there was no distinction between 'anticipated profits' and 'lost profits' for these purposes.

In summary

This case serves as a useful reminder of the importance of carefully drafted exclusion clauses, especially where such a clause forms part of a carefully negotiated commercial contract. Whilst the relevant exclusion clause in this case was widely drafted, the Court was content that the parties 'meant what they said', and that the construction of the clause was sufficiently clear so as to allow it to grant summary judgment in favour of Virgin.

There has been a trend of similar decisions in recent times. For instance, in the case of Soteria Insurance Ltd v IBM United Kingdom Limited [2022] EWCA Civ 440, the Court of Appeal found that an exclusion clause limiting liability for ‘loss of profit, revenue and savings’ did not exclude claims for wasted expenditure incurred in anticipation of a contract’s completion.

So, when it comes to exclusion clauses say what you mean, and expect to be found to have meant what you said.

If you would like to discuss this judgment in more detail or standard terms which include exclusion clauses, please do get in touch with a member of the team.