Recent Court of Appeal decision – a reminder of the power and perils of exclusion clauses

The recent case of EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70 serves as a crucial reminder to draft exclusion clauses with clarity to avoid unintended consequences. If parties are not careful, they could end up contracting away rights to claim loss for breaches of key contract terms.

The Issue

EE agreed to host Virgin’s mobile phone customers on its network and Virgin signed up to an exclusivity agreement with EE.

EE alleged that, in breach of the exclusivity agreement, Virgin had been adding some customers to other networks. EE estimated that it had lost revenue of over £24 million, as a result of the breach.

Virgin denied that it was in breach of the exclusivity obligation, but in any event argued that liability for the type of loss claimed by EE was expressly excluded by the Contract.

Specifically, Virgin relied on the fact that the Contract excluded liability of either Party for “anticipated profits” (Exclusion Clause).  

EE noted that the effect of Virgin’s argument, if upheld, would be that Virgin would be able to breach the Contract, without having to pay any material compensation to EE.

The Decision

Despite EE’s arguments, the Court of Appeal held (by a not unhesitant majority) that EE’s claim did fall within the Exclusion Clause.  Coulson LJ noted in his judgment that he had initially expected to decide the case the other way.

However, ultimately the Court decided that the wording of the Contract was sufficiently clear that it had to be interpreted to exclude EE’s claim.

In particular, the Court held that:

• there is no special meaning to the words “anticipated profits” – in the context of the Contract, this term was equivalent to (and used interchangeably with) “loss of profits“;
• the Contract gave no reason to limit the scope of the Exclusion Clause to only include profits earned outside the Contract;
• the loss claimed by EE was in fact a claim for loss of profits; and
• the loss suffered by EE did fall within the scope of the Exclusion Clause.  EE argued that the claim should be viewed as a reduction in the price, and so not to relate to “profits“.  However, this was rejected.

Implications and Commentary

The Court of Appeal’s decision in this case barred a claim for over £24 million, turning on the interpretation of just two words in the Contract.  As a result of these words, it is likely that EE has little, if any, recourse against Virgin, even if Virgin has breached the Contract in the way EE alleged.  At first, this seems a surprising result – a point acknowledged by the Court.

However, this emphasises the power and perils of exclusion clauses.

It also emphasises the importance of drafting them carefully and giving consideration to all potential scenarios in which they might apply.  If there are scenarios to which an exclusion clause should not apply, then this should be stated clearly in the contract.

There are two aspects to this decision that are particularly useful reminders in relation to construction contracts:

1. first, this decision is another in a line of cases which demonstrate that it is now very difficult to invoke ‘business common sense’ in order to save a bad bargain. 
   
   The Court underlined that the meaning of a clause has to be assessed as at the date of entry into the contract, taking into account the issues that might have been anticipated at that point.  One should not place particular importance on the scenario that has actually come to pass.  In this case, the Court noted that, if the factual scenario had been different, there would have been nothing ‘unfair’ about the Exclusion Clause (and in this case, EE was still entitled to significant payments under the Contract as there was a minimum revenue commitment). 
   
   As such, the Exclusion Clause was valid and excluded EE’s claim, even if it resulted in a (at first glance) surprising result in this particular instance.

2. Secondly, a claim can still be for “loss of profit” or “loss of anticipated profit” even if it is a claim for a loss that is a specific, ascertainable amount and which would otherwise have been paid as part of the contract price.
   
   If a construction contract had an exclusion for loss of profits – without careful carve-outs – a party might struggle to claim most of its losses following a wrongful termination.

Key Drafting Considerations

The divided Court of Appeal highlights the risks in drafting exclusion clauses.  Key points to consider are:

1. ensure exclusion clauses don’t inadvertently exclude losses for breaches of key provisions.  While there are good commercial reasons for limiting liability for loss of profit in principle, there are likely to be particular scenarios in which such an exclusion is not appropriate – particularly in terms of profit that would be earned under the contract itself.
2. make sure clauses say what you intend them to mean.  Take the time to consider all scenarios in which a clause might apply, and how it will be read in such scenarios.  As ever, subjective intentions, or retrospective invocations of ‘business common sense’, are unlikely to be taken into account by English courts.

Eugene Lee assisted with writing this article.