For those engaged in drafting and dissecting limitations on liability clauses, recent court decisions have provided a very good collection of specimens to marvel at. Think Triple Point Technology Inc v PTT (2021), Soteria Insurance v IBM (2022) and Drax Energy Solutions Ltd v Wipro Ltd (2023), amongst others. The most recent addition to come to my attention is EE Ltd v Virgin Telecoms Ltd ([2023] EWHC (1989) TCC).
The facts were briefly: EE, as a network provider, agreed to provide mobile network access to Virgin Mobile (VM) customers and VM agreed to use EE’s network exclusively for 2G, 3G and 4G services. VM had to pay various charges based on usage and EE was entitled to a minimum payment. A later amendment to the agreement allowed VM to engage other networks to provide 5G services to VM customers, and these providers could also provide those VM customers with 2G, 3G and 4G services thus creating an inroad into the exclusivity. Eventually VM decided to use Vodafone and O2 for 5G services and not EE, leading to VM shifting customers from EE to the 5G providers. This gave rise to a dispute over whether this was a breach of the exclusivity provisions and a financial claim by EE of over £24m resulting from the diverted business. As well as disputing the breach of exclusivity, VM stated that EE’s claim was for loss of profit and, critically, that therefore, the claim was excluded by the following clause which formed part of a suite of detailed liability clauses:
“34.5… neither Party shall have liability to the other in respect of:
(a) anticipated profits, or
(b) anticipated savings.”
VM was confident; it incited the court to “grasp the nettle” and deliver summary judgment on this point, ruling out such a claim, without the need for the matter to go to trial on this issue.
The court analysed the nature of the EE claim. EE claimed its loss was for “charges unlawfully avoided” – it was neither a loss of profits claim nor a claim for wasted expenditure and it was outside of the exclusion clause. In brief, the judge disagreed and said it was a loss of profit claim – the lost profit on the services it was unable to provide: “To suggest otherwise appears to me to be fanciful”.
Did a clause referring to “anticipated profits” exclude the claim? Yes – there was no distinction between “anticipated profits” and “lost profits” for these purpose. It was also flagged that:
- The exclusion clause itself provided exceptions allowing some loss of profit claims so the parties clearly felt the exclusion was dealing with these claims.
- The parties also agreed in the clause that there could be “no other damages claims whatsoever” in respect of anticipated profits.
The judge emphasised the distinction between a damages claim on the one hand and a debt claim for unpaid charges for services provided on the other – the latter would not be caught by the exclusion clause. EE did attempt to characterise it’s loss as somehow for unpaid charges, but this was rejected, so arguments centring around this were not relevant. Once one had determined it was a loss of profit claim, it was not possible to reconcile the broad language of the clause with the possibility of EE being able to bring such a claim. There was no reason not to construe the clause in this way – the parties had agreed a detailed set of liability provisions, as well as detailed commercial terms to protect each of them; the parties could be taken to have meant what they said, even in the context of a breach of the exclusivity provisions. The exclusion did not denude the agreement of its commercial value to EE – for example, it would not preclude a claim for wasted expenditure, nor would it preclude a claim for injunctive relief against VM for breach of the exclusivity clause. Further, EE was entitled to the minimum payments it had negotiated and this was an important part of the context.
Therefore VM was granted summary judgment ruling out this type of claim.
As is often the case, the judgment provides a useful summary of important case law on contract interpretation and serves as a reminder that the court will give effect to tough clauses when they are sufficiently and clearly worded. It highlights in particular the danger of agreeing to sweeping exclusions of heads of loss – unless that’s what you really mean of course.
This article was published on the Stevens & Bolton website and reproduced here with permission.
Beverley Whittaker is a Consultant at Stevens & Bolton
