Excluding liability for loss of profit (2)
Virgin Mobile Telecoms v EE (High Court) [2023]
Another case where a loss of profit exclusion had a major impact on the ability of a contracting party to claim damages
Facts:
Virgin Mobile contracted with EE under a telecommunications supply contract to access its radio access network. EE was required to supply various services that would enable Virgin Mobile's customers to be provided with 2G, 3G and 4G mobile services. This arrangement was subject to an exclusivity clause in the contract. The amounts Virgin Mobile had to pay depended upon the level of usage of the EE network by Virgin Mobile customers.
The initial arrangement didn’t apply to 5G services. An amendment to the original agreement permitted Virgin Mobile to use other networks to provide 5G services (and to provide 2G, 3G and 4G services to its 5G customers).
Virgin Mobile put some of its customers on the Vodafone and O2 networks believing it fell within that '5G services' exception to the exclusivity clause. EE contended that, in breach of the exclusivity clause, Virgin migrated non-5G customers from the EE Network on to other networks and added new non-5G customers directly to other networks. EE considered that by doing so Virgin Mobile had breached the exclusivity clause and issued proceedings, claiming damages of circa £25 million in revenue that it would otherwise have earned had Virgin Mobile's customers been kept on EE's network.
Virgin argued that this was not in breach of the exclusivity clause and, in any event, the correct measure of loss would be EE’s loss of profit (and not its loss of revenue) which was excluded by an exclusion clause in the Agreement which stated that neither party would have liability to the other in respect of “anticipated profits”.
Decision:
The judge analysed the nature of the EE claim and emphasised a distinction between a contractual debt claim for failure to pay charges for services provided and a claim for charges unlawfully avoided which can only be claimed in damages.
On that basis, the judge held that EE’s claim was a claim for loss of profit; the profit it would have made if the Virgin customers (alleged to have been wrongfully diverted to other networks) instead used EE’s network under the terms of this Agreement. Under the compensatory principle only the profit that would have been made once any additional costs in providing services to the diverted customers were netted off would be recoverable. Even if (as EE suggested) it incurred no costs in connection with the provision of its services, this was still a claim for loss of profits.
There was no difference in meaning between "lost profits" and "anticipated profits". The agreement was a bespoke, lengthy and detailed contract negotiated by two sophisticated parties on a level playing field. Although that left EE without a financial remedy if Virgin Mobile breached the exclusivity clause, EE could still seek effective non-financial remedies (such as injunctive relief), so the result (according to the court) could not be said to render the contract an "illusory bargain" or "a mere declaration of intent".
The court gave judgment in Virgin Mobile's favour.
Points to Note:
- The judge said that previous cases on the same or similar topics must be treated with caution. It is, on the face of the judgment, difficult to see why the judge felt able to depart from cases such as Kudos Catering v Manchester Convention Complex [2013] (which was referenced in the judgment) and the more recent Acerus v Recipharm [2021] http://www.trglaw.com/news335.html (which was not).
- It is very easy to waive through an exclusion of liability for loss of profit as being a ‘fairly standard exclusion’ but in the context of exclusive reselling type arrangements such as this, their impact and appropriateness needs to be carefully considered.