Loss of profits and exclusion clauses: EE Limited v Virgin Mobile Telecoms Ltd

In February 2025, the Court of Appeal dismissed EE Limited's ("EE") appeal against a 2023 High Court judgment. At the centre of the case was an exclusion clause.

Zacaroli LJ confidently dismissed the appeal but Coulson LJ did not find "the central issue in this case easy to decide" and Phillips LJ gave a dissenting judgment. The appeal was dismissed but this case highlights how difficult exclusion clauses can be to interpret.

Background

By a telecommunications supply agreement (the "TSA"), EE agreed to provide Virgin Mobile Telecoms Ltd ("Virgin") with access to EE's mobile network, enabling Virgin's customers to be provided with 2G, 3G and 4G mobile services. Virgin agreed to use EE's network exclusively for a certain period. However, the TSA did not make provision for 5G and Virgin later entered into an agreement with Vodafone for the supply of 5G services. EE argued that Virgin's migration of new non-5G customers to the Vodafone network was in breach of the TSA's exclusivity provision.

Virgin denied that it was in breach of the provision, but contended in any event that the loss and damage claimed by EE was in respect of "anticipated profits" and fell within the following exclusion clause, contained in the TSA:

"34.5   Except for damages claims by [Virgin] 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"

At both the first instance and appellate level, the construction of this clause was found to prevent EE from bringing its claim.

The judgment

EE appealed the judgments, arguing that the High Court judge was wrong to construe the exclusion clause as barring the damages pleaded by EE.

The core issue to be decided was whether a claim in respect of anticipated profits meant, on the true construction of the exclusion clause, a claim for loss of profit other than expectation loss.

In making its case, EE argued that:

1. On the High Court judge's construction, the exclusion of liability for loss of profits is capable of obliterating virtually every claim by the victim of breach of contract to recover their expectation loss.
2. The wording of the exclusion clause favours the narrower construction that "anticipated profits" means profits that were anticipated to be earned outside of the contract.
3. The commercial consequences of the judge's construction should lead the court to a narrower construction of the exclusion clause, given that (in EE's view) EE was left without a meaningful remedy for breach of the TSA's exclusivity obligation.

Zacaroli LJ dismissed EE's arguments, identifying the following points:

• Case law had not "repeatedly held" (as EE argued) that not every claim for expectation loss would fall within an exclusion clause such as that in the TSA. The interpretation of an exclusion clause is subject to its precise wording and the context of each contract.
• EE focused too narrowly on the particular breach in question when interpreting the exclusion clause. EE argued that claims for lost profits depend on hypotheticals and involve speculation, whereas the TSA had detailed provisions for the calculation of charges. Zacaroli LJ pointed out that other hypothetical breaches of the TSA would invite the speculative calculations such as those EE described for claims for lost profits.
• The meaning of a claim for anticipated profits could not vary depending on when the claim is brought. EE suggested its claim was for profits already lost as a result of Virgin's actions, as opposed to a loss of profits "anticipated" to be made in the future. However, Zacaroli LJ held that a claim for damages following a repudiatory breach by either party would be in respect of profits that would have been made (i.e. anticipated) during the remainder of the contractual term. So, the claim was for profits anticipated at the time of breach.
• The clause carved out claims which "may include claims of damages for loss of profits", suggesting that what was being excepted from the exclusion would otherwise be within it and, therefore, that the phrase "claims of damages for loss of profits" is used interchangeably with the phrase "liability in respect of anticipated profits".
• If the parties had detailed distinctions between types of loss of profit claims in mind, the exclusion clause would have been drafted with greater specificity.
• Commercial reasonableness must be judged at the time of entering the TSA. Though EE did not have any damages claim in the specific circumstances, many possible claims would have been in the parties' contemplation when the TSA was agreed. Indeed, EE was left with the option of bringing a claim for injunctive relief or for wasted expenditure.
• The exclusion clause was clearly worded, part of a carefully drafted agreement allocating risk between the parties and was drafted with the assistance of legal advice. Zacaroli LJ considered these factors to be material when weighing the commerciality of the exclusion of liability in respect of anticipated profits.

Coulson LJ also dismissed the appeal as he accepted that "there can be no magic in the words "anticipated profits", since they were used interchangeably with the expression "loss of profits" elsewhere in the exclusion clause. However, he reached his decision "with a little more reluctance than Zacaroli LJ", underlining that the interpretation of the exclusion clause was not clear cut.

Dissenting judgment

Phillips LJ gave a dissenting judgment, stating that it would be "surprising if the parties had intended that [Virgin] could breach the key exclusivity provision… without incurring liability to pay EE damages reflecting the loss of revenue for that breach". In his opinion, the TSA would require language susceptible of only one meaning to exclude EE's right to claim damages for breach of the key exclusivity provision. He also stated that it was "far from clear that the exclusion of damages claims for 'anticipated profits' encompasses a claim for loss of revenue by reason of a breach of the exclusivity provision". In his view, excluding EE's claim gave rise to a "commercially surprising" result.

Conclusion

Exclusion clauses are powerful tools. Courts are reluctant to look beyond clear contractual drafting, especially when the relevant contract appears commercially reasonable and is drafted with the assistance of legal advice. However, despite the presence of these factors, this case reached the appellate level and received a dissenting judgment from Phillips LJ.

Contracting parties should pay significant attention to exclusion clauses and take advice before entering contracts. Any room for varying interpretations opens parties up to lengthy disagreements and, in the worst cases, the unexpected allowance or exclusion of a party's right to bring a claim.