EE’s “anticipated profits” claim against Virgin Mobile cut off by the Court of Appeal

What was agreed?

Virgin contracted with EE to use its network infrastructure to provide 2G, 3G and 4G mobile services to Virgin customers.  The contract contained an exclusivity clause stipulating that Virgin would exclusively use the EE network, rather than other providers’ networks, to provide those services to its customers.

Summary of the issues in dispute

EE issued a claim against Virgin, alleging (amongst other things) that:

• Virgin breached the exclusivity clause by adding or migrating customers onto other networks; and
• EE was entitled to recover damages as a result of the alleged breach.

Virgin denied the breach and argued that the claim was “precluded” as it was a claim for “anticipated profits”, and therefore expressly excluded under the terms of the supply agreement.

The application to strike out

Virgin applied to strike out EE’s claim on the above basis.  Whilst EE contested and clarified that its claim was not for “anticipated profits”, rather, it was for “charges unlawfully avoided”, the High Court rejected this argument.  As it considered the essence of the claim was to recover profits and that the term “loss of anticipated profits” likely meant the same as “loss of profits”.  The High Court therefore granted summary judgment in favour of Virgin.

EE’s appeal

EE appealed this decision on the basis that:

• the claim was for “diminution of price”, which is not the same as “loss of profits”; and
• the High Court’s construction of the exclusion clause so as to include EE’s claim was incorrect.

It also argued that:

• the “anticipated profits” exclusion should be construed narrowly in the context of the contract so as to mean profits anticipated to be earned outside the contract; and
• commercially, the High Court’s decision left EE without a remedy for breach of the exclusivity obligation.

The appeal decision

In dismissing EE’s appeal by a majority decision, the Court of Appeal considered:

• the key issue was whether “anticipated profits” meant something other than the value of contractual performance by Virgin to EE;
• there was no overarching principle of law to the effect that exclusion clauses relating to “anticipated profits” did not exclude “expectation losses” or “diminution in price”;
• in construing the contract itself, weight was given to the fact that the exclusion clause for “anticipated profits” immediately followed an exclusion clause relating to indirect or consequential loss, meaning that “anticipated profits” likely meant something additional to “indirect or consequential loss”; and
• if the parties had intended for the “anticipated profits” exclusion to only include losses outside the contract, then express wording to that effect should have been used.

It also did not agree that EE was left with no remedy for the breach of the exclusivity clause.  This is because the contract also provided for injunctive relief and claims for wasted expenditure were not excluded.  The availability of these remedies was also relevant to the question of what was in the mind of Virgin and EE when they agreed the terms of the supply agreement and its exclusion clause that referred to “anticipated profits” being excluded.

However, Phillips LJ did not agree with the Court of Appeal’s (Zacaroli LJ’s and Coulson LJ’s) majority decision.  Instead, he considered that it would be contrary to commercial business sense if the parties’ intention was that the exclusivity clause could be breached, allowing Virgin to divert customers to alternate providers.  And that because the exclusivity clause was so central to the parties’ bargain, he stated that express and unequivocal wording should have been used to exclude EE’s right to damages for a breach of that provision.

What does this decision mean in practice?

The key points to take away from this decision are:

1. Referring to “anticipated profits” in exclusion clauses will usually mean the same thing as “loss of profits”. And the Court of Appeal previously clarified that an exclusion of “loss of profit, revenue, savings (including anticipated savings)” did not exclude a claim for wasted expenditure in Soteria Insurance Ltd v IBM United Kingdom Ltd [2022] EWCA Civ 440.
2. However, the precise meaning of “anticipated profits” in exclusion clauses will depend on the particular drafting and factual context. And even the Court of Appeal did not reach a unanimous decision on the meaning of “anticipated profits” in its recent decision.
3. Unequivocable and clear contract terms are therefore essential: exclusion clauses should be clearly and unequivocally worded to record the parties’ precise intentions. In this case EE should have set out what “anticipated profits” meant within the supplier agreement and that “anticipated profits” only included profits that it anticipated earning outside of the supplier agreement and/or it should have ensured that an effective distinction was drawn between “anticipated profits” and “loss of profits”.

The Court of Appeal’s decision is a useful reminder of the importance of all contractual terms (not just exclusion clauses) being clearly and unequivocally worded.  If your intentions, and/or the remedies for any potential breach of contract, are not clearly recorded in a contract, you may end being on the wrong end of the Court’s interpretation of the terms of that contract.  If you need help with a Dispute and/or ensuring your commercial contracts and/or terms and conditions actually have the meaning and effect you intend, please get in touch.