EE Limited v Virgin Mobile: exclusion clauses examined
In EE Limited v Virgin Mobile Telecoms Limited [2023] EWHC 1989 (TCC) the Court found that a clause excluding claims for 'anticipated profits' prevented the claimant ("EE") from bringing a claim for revenue lost as a result of the defendant's ("Virgin Mobile") alleged breach of contract.
This decision is another reminder that the courts will in principle uphold wide-ranging exclusions of liability – in this case EE was prevented by the exclusion clause from bringing any damages claim for its loss of bargain (i.e., not getting what it had contracted for). When entering into agreements you should therefore carefully consider with your legal team the effect of any proposed exclusion clauses and the impact they may have on any future claims.
Background
In 2013, Virgin Mobile entered into an agreement with EE to exclusively use EE's mobile network infrastructure to provide its customers with 2G, 3G and 4G mobile services.
The parties subsequently amended this agreement to permit Virgin Mobile to source 5G services from alternative suppliers. They also agreed that where a Virgin Mobile customer received 5G services from an alternative supplier, the customer could also receive 2G, 3G and 4G mobile services from that supplier.
In 2021, following unsuccessful negotiations with EE for 5G services, Virgin Mobile migrated its customers to Vodafone's mobile network.
EE argued that this migration breached the exclusivity clause in the agreement as Virgin Mobile had migrated non-5G customers (and added new non-5G customers) to Vodafone's network. It claimed £24.6 million in damages for loss of revenue in relation to these non-5G customers.
Virgin Mobile denied that it had breached the exclusivity clause and argued that, in any event, EE could not bring its claim due to a contractual exclusion of claims for 'anticipated profits'. Virgin Mobile applied for strike out and/or reverse summary judgment on this basis.
Judgment
The High Court granted Virgin Mobile's application for summary judgment and dismissed EE's claim.
1. Was EE's claim a claim for loss of profits?
The Court rejected EE's argument that its claim for loss of revenue or 'charges unlawfully avoided' was distinct from a claim for loss of profits.
The Court noted that EE's claim was properly characterised as a damages claim, rather than a debt claim. This was because a party could only bring a debt claim in respect of services it had actually provided. Where a party had been wrongfully prevented from providing services (as EE claimed it had been in relation to the non-5G Virgin Mobile customers), it was limited to bringing a claim in damages.
Damages for breach of contract aim to put the party suffering loss in the position it would have been in had the contract properly been performed. A party can claim either its expectation loss (i.e. the benefit it expected to earn by performing the contract less any costs it expected to incur) or its reliance loss (i.e. its wasted expenditure in relation to the contract).
As there was no suggestion that EE was claiming wasted expenditure, the Court found that EE's claim was for its expectation loss. This was, in effect, a claim for its loss of profits, as it was a claim for its expected revenues from performing the services less any expected costs in providing the services. The Court noted that EE could not simply claim its loss of revenue (as it had purported to do) as this would contravene the fundamental rule that expectation damages take into account expected costs as well as expected benefits.
2. Was EE's claim excluded by the agreement?
Having determined that EE's claim was in fact a claim for loss of profits, the Court then held that, applying the relevant principles of construction, the exclusion clause operated to prevent EE's claim. The clause provided that:
'Except for any damages claims by [Virgin Mobile] pursuant to Clause 34.2(c), to which Clause 34.3 applies (which EE acknowledges may include claims of damages for loss of profits), and for no other damage claims whatsoever, neither Party shall have liability to the other in respect of: (a) anticipated profits; or (b) anticipated savings.'
In reaching this conclusion, the Court noted that:
- The natural meaning of the clause was clear and unambiguous – that the parties intended to exclude all claims for anticipated profits, subject to one express carve out. The only possible interpretation of this was that the parties intended to exclude claims for any foreseeable loss of profits.
- The fact the exclusion clause contained a carve out suggested the parties had expressly considered and agreed the exemptions there should be from the general exclusion. This supported the natural broad construction of the clause.
- The agreement was a bespoke, detailed contract negotiated by two sophisticated parties. It was clear that the parties had given significant consideration to their rights and remedies, agreeing a tailor-made regime.
- Although there is a starting presumption that parties do not intend to give up valuable remedies, the language of the clause was clear and there was nothing in the wider agreement or background which contradicted the natural meaning of the words used.
- The exclusion of claims for anticipated profits applied equally to both parties.
- The fact that the exclusion prevented EE from bringing a damages claim for loss of bargain did not mean that there was no sanction for Virgin Mobile's non-performance; EE was still able to bring a claim for injunctive relief and for any wasted expenditure.
