Liam McMonagle

The case involved a contact dispute. In 2013, EE agreed to supply 2G, 3G and 4G network services to Virgin Mobile. The supply was exclusive so Virgin Mobile could only buy these services from EE.

The contract was subsequently amended to permit Virgin Mobile to use 5G services from another operator and it duly obtained 5G services from Vodafone in 2021. An exception to the exclusivity provisions was agreed which would allow Virgin Mobile to supply non-EE 2G/ 3G/ 4G services to its 5G customers.

EE subsequently claimed that Virgin Mobile was in breach of the exclusivity in its agreement because it offered services sourced from other networks to a wider range of customers than just the 5G customers.

EE claimed approximately £2.46m in damages for the revenue it did not receive as a result. Virgin Mobile disputed the breach but also argued that the loss was not recoverable as there was an exclusion clause in the contract which excluded liability for “anticipated profits”. The High Court accepted that argument and it was upheld by the Court of Appeal by a narrow majority decision.

The decision highlights a number of important considerations that should be considered by contract lawyers.

Firstly, the case is a reminder of the need to treat exclusion and limitation clauses in commercial contracts very carefully because, if they are clear, they will likely take effect. The clause in this case had very commonly used language. In many technology contracts, business interruption, loss of profits, loss of revenue, loss of reputation and so forth, may be the most likely consequences of a breach and are often subject to exclusions. What types of losses are the parties exposed to? Is there a remedy for that once exclusion clauses are applied? Does that reflect the agreed position?

Secondly, clearly drafted limitation and exclusion clauses are subject to the same rules of contractual interpretation: as anything else. What would a reasonable person having the relevant background knowledge available to the parties have understood the contract to mean? The judgments in this case considered carefully what “anticipated profits” meant and what types of losses they covered.

The accepted presumption that a party to a contract would not limit or give away rights without clear wording was referenced, but that did not help EE here because the exclusion clause was sufficiently clear.

Thirdly, in line with other significant cases such as Arnold v Britton [2015] UKSC 36, background factors and “commercial common sense” may be irrelevant if the contract is clear. EE argued that upholding the exclusion clause would leave it with no remedy for breach of the exclusivity provisions.

This was rejected by the court, which considered that other remedies may have been available in this case – particularly injunction and damages for wasted expenditure. But even if not, the exclusion clause reflected the agreed allocation of risk between the parties.

Lastly, and perhaps unhelpfully for all of us, case law in this area is often of limited value. Many cases depend on their facts and quirks. In a reluctant concurring judgment, Coulson LJ described many of the cases cited in the opinions as “a ragbag of particular results in particular types of cases”. So they are, but this is a reminder of the need to look at exclusions and limitations of liability very closely when negotiating agreements.

Liam McMonagle is a partner at Thorntons