Can you call upon on your exclusion of liability provisions?

By Peter Kouwenberg

Partner – Head of Commercial

18 March 2025

Insights News

The recent majority decision of the Court of Appeal in the case of EE Ltd v Virgin Mobile Telecoms Ltd [2025] illustrates how carefully exclusion of liability provisions must be drafted in order for a party to be able to rely upon these. It also confirms that the Court will consider the precise wording of any such provision and the admissible contractual and commercial context on a case-by-case basis.

Background

EE claimed that Virgin breached an exclusivity provision in their telecommunications supply which required Virgin to use EE’s network for all of its 2G, 3G and 4G (but not 5G) customers. EE claimed for “loss of profits” in the region of £25 million, being the estimated sum which EE would have expected to receive if the relevant Virgin customers had been not moved to a different supplier.

A key part of Virgin’s defence was that EE’s claim was essentially one for loss of “anticipated profits” and that the contract excluded recovery of such losses by virtue of Clause 34, under which “neither party shall have liability to the other in respect of… anticipated profits”.

Judgement and dissenting voice

The Court of Appeal, by a two to one majority, upheld the High Court judgement which had agreed with Virgin’s defence and with Virgin’s wide interpretation of Clause 34.

In his dissenting judgment, LJ Phillips sympathised with EE’s perspective that this wide interpretation effectively led to the “surprising” outcome that EE could be left without any potential remedy for breach of the exclusivity provision by Virgin. In his view, the term “anticipated profits” did not necessarily include “a claim for loss of revenue by reason of a breach of the exclusivity provision”. He agreed with EE that the “anticipated profits” referred to in Clause 34 could be interpreted more narrowly to mean profits earned outside the contract.

However, LJ Zacaroli and LJ Coulson considered that EE did have potential remedies which were not excluded by Clause 34, including an injunction for specific performance and/ or a claim for wasted expenditure. LJ Coulson did acknowledge that this key issue was not easy to decide and reiterated that his decision was based solely to the full circumstances of this particular case and the precise wording of the contract as a whole.

It was also relevant that:

• The contract included a “minimum payment” provision in favour of EE;

• There was separate reference in Clause 34 to the exclusion of indirect or consequential losses, suggesting exclusion of “anticipated profits” was an additional and separate item; and

• Clause 34 included express exceptions to the exclusions but did not include any express wording which narrowed the term “anticipated profits” in line with EE’s asserted interpretation.

Therefore, although in other cases the wording of “loss of profits” had been interpreted more narrowly, the Court’s interpretation would always be fact specific and would depend upon “the words used and the commercial background against which the words must be construed”.

Takeaway

The devil really is in the detail, so when negotiating exclusion clauses make the wording crystal clear, add clarification as appropriate and even consider listing any exceptions to what might otherwise fall within the general wording. A Court will seek to determine the objective interpretation of the wording, so it is essential to avoid ambiguity and minimise the risk of dispute.

A Court may interpret an exclusion clause relatively narrowly if to do otherwise would defeat the purpose of the contract. However, as EE found to its cost, a Court won’t generally depart from the literal interpretation of such a provision simply to avoid a commercially tough outcome for either party.

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