English Court of Appeal Rules on "loss of anticipated profits" Exclusion Clause

The Court of Appeal recently considered whether a clause excluding claims for "loss of anticipated profits" prevented the claimant from bringing a claim for loss-of-profit damages stemming from an alleged breach of contract. In a 2:1 split decision, the claimant's claim was held to fall within the contractual exclusion clause, leaving it without a meaningful remedy for breach of an exclusivity obligation.

This Legal Update analyses EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70, which will be of interest and application to parties drafting contracts with an exclusion clause, particularly if they are contemplating excluding loss of anticipated profits from future claims.

FACTUAL BACKGROUND

EE Limited ("EE"), the Appellant, and Virgin Mobile Telecoms Limited ("VM"), the Respondent, entered into a telecommunications supply agreement ("TSA") whereby VM agreed to exclusively use EE's mobile network infrastructure to provide its customers with 2G, 3G, and 4G mobile services. The TSA was later amended to allow VM to source 5G services for "5G customers" from alternative suppliers, and in such cases, to allow VM to also source 2G, 3G and 4G mobile services from the same alternative supplier for those customers.

Following unsuccessful negotiations with EE for the supply of 5G services, VM subsequently entered into an agreement for 5G services with Vodafone, and later began migrating its customers from the EE network to the Vodafone network.

EE argued that this breached the TSA's exclusivity clause, since as well as migrating 5G customers, VM had also migrated (existing and new) non-5G customers to the Vodafone network. EE claimed £24.6 million in damages for loss of revenue it would have received in relation to these non-5G customers. VM denied breach of the exclusivity clause and argued that, in any event, such damages were precluded by an exclusion clause, which provided that neither party could claim for loss of "anticipated profits"; it applied to strike out the claim on this basis.

HIGH COURT RULING

At first instance, Mrs Justice Joanna Smith granted VM's request for summary judgment and struck out EE's claim on the basis that it constituted a claim for loss of "anticipated profits", and that the TSA's exclusion clause operated to prevent such claims. EE was granted permission to appeal the issue of whether its claim fell within the exclusion clause.

COURT OF APPEAL'S FINDINGS

In the main judgment, Lord Justice Zacaroli identified the core issue as being whether a claim for loss of "anticipated profits" meant, on the true construction of the exclusion clause, a claim for loss of profit other than expectation loss ("expectation loss" is the usual measure of damages for breach of contract and would comprise the profits that EE would have expected to receive had VM not breached the contract, less the costs it would have incurred to earn that profit). He and Lord Justice Coulson determined this to be the case in the specific circumstances of this contract for the following reasons:

1. There was little assistance to be gained from existing case law, and no overarching legal principle that limits an exclusion of liability for loss of anticipated profits to losses other than expectation loss or diminution in price.
2. When the two adjacent sub-clauses within the exclusion clause were read cumulatively, as intended, it was clear and unequivocal from the wording of the exclusion clause that liability for "anticipated profits" was intended to indicate something additional to loss which did not arise directly from the performance of the contract (i.e., it included expectation loss as well as indirect loss), and if the parties had intended the exclusion clause to only cover direct loss of profit claims that did not fall within the ambit of expectation loss, then they would have stated so specifically.
3. Since the exclusion clause formed part of a lengthy contract which was drafted with the assistance of legal advice on both sides, involved careful risk allocation for both parties, and provided contractual rights that remained enforceable by specific performance, injunction or damages based on wasted expenditure, Mrs Justice Joanna Smith's conclusions could not be rejected as uncommercial. In particular, the difficulties EE might have had in connection with a claim for an injunction in the circumstances did not undermine the utility of injunctive relief in the case of other breaches that would have been in the contemplation of the parties when the agreement was made. The fact that the parties agreed that neither would argue that damages was an adequate remedy pointed towards their contemplation that injunctive relief was a real and valuable remedy.

Dissenting, Lord Justice Phillips found that the commercial bargain embodied in the TSA was for VM to provide EE exclusively with a flow of customers and therefore considered it "surprising" that VM could breach this exclusivity by unlawfully diverting its customers to a third party supplier without having to pay EE damages for loss of revenue resulting from that breach. The exclusion of a right to claim for the amount of lost charges would undermine the bargain and it was unclear why the parties would have agreed that when it defies business common sense. 

Disagreeing with the Majority's point two above, LJ Philips felt that the exclusion of damages claimed for "anticipated profits" did not necessarily encompass a claim for loss of revenue by reason of breach of the exclusivity provision. In his view, "anticipated profits" indicated "hoped for but uncertain profits which would arise as a consequence of, but outside, performance of the contract", not "sums directly payable under the contract" (i.e., expectation loss). Excluding the right to recover such revenues would "undermine the bargain", as it would insulate VM from having to pay damages if it breached the primary purpose of the TSA and such a construction would, in his judgement, be inconsistent "with business common sense".

KEY TAKEAWAYS

1. The terms "loss of profits" or "anticipated profits" are not "terms of art" which have a generally established meaning. The particular wording, and the wider commercial context of the contract in which the wording is used, will always be a vital part of the interpretation of any exclusion clause.
2. This decision reminds us that while there are general principles which help guide the interpretation of exclusion clauses (set out at paragraph 16 of the judgment), in practice different judges adopt different interpretations to the above terms, even when faced with similar underlying fact patterns, so construing exclusion clauses involves inherent uncertainty and unpredictability.
3. Exclusion clauses can be wide-ranging – to a point: this judgment shows that it is possible for an exclusion clause to exclude all claims for "loss of profits", despite this undermining the main head of loss for at least one of the parties and potentially being inconsistent with business common sense. However, a court is highly unlikely to interpret an exclusion clause 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".