The power and importance of exclusion clauses

Our commercial dispute resolution team look at what we can learn about exclusion clauses from the Court of Appeal Judgment in EE Limited v Virgin Mobile Telecoms Limited [2025] EWCA Civ 70

What are exclusion clauses?

It is well known that contracts can be complicated; especially when they involve large sums of money and regulate potentially longstanding agreements between businesses.

One of the most powerful tools in the contract drafting armoury is the exclusion clause. An exclusion clause is a clause under which a party seeks to exclude or limit its liability for non-performance (a breach) of the contract.

They are often the most hotly negotiated sections of commercial agreements – for good reason. They assist parties to assign and reduce risk. However, problems can arise where there is disagreement about whether an exclusion clause can be used.

This article examines the recent Court of Appeal case of EE Limited v Virgin Mobile Telecoms Limited [2025] EWCA Civ 70 which divided three eminent Judges, demonstrating just how challenging exclusion clauses can be to interpret.

Overview of EE Limited v Virgin Mobile Telecoms Limited [2025] EWCA Civ 70

The dispute

This dispute arose out of a Telecommunications Supply Agreement (“TSA”) between EE Limited (“EE”) and Virgin Mobile Telecoms Limited (“Virgin”) under which EE was required to provide Virgin with various services, essentially comprising access to its mobile network, to enable Virgin’s customers to be provided with 2G, 3G and 4G mobile services.

Virgin agreed it would use EE’s network exclusively for the duration of an “Exclusive Period”.

In 2016, an amendment to the agreement provided for a potential agreement between EE and Virgin in relation to the provision of 5G services using EE’s network.

In the absence of agreement, the amendment allowed Virgin to provide 5G services to its customers from a network owned by another mobile network operator and in that situation varied the exclusivity clause so that those customers could also receive 2G, 3G, and 4G services from that new operator.

In 2021, Virgin began migrating its customers from EE to Vodafone, having entered into an agreement with them in relation to 5G services.

EE claimed that Virgin had acted in breach of the exclusivity obligation, by migrating those customers to Vodafone and/or adding new non-5G customers to the Vodafone network, even though those customers were only provided with 2G-4G mobile services.

It estimated the value of its losses (sums it would have received if the Virgin customers had stayed with EE’s network) at more than £24 million. Virgin denied it was in breach of the contract and argued that the claim fell within the following exclusion clause:

34.5 (a):
“……neither Party shall have liability to the other in respect of:
(a) anticipated profits”

Mrs Justice Joanna Smith in the High Court held that EE’s claim was for “anticipated profits” and granted Summary Judgment. EE appealed.

The judgement

Lord Justice Zacaroli and Lord Justice Coulson ultimately endorsed the High Court decision with Lord Justice Phillips dissenting. This division demonstrates just how challenging the task of drafting exclusion clauses can be when they are so open to interpretation when challenged!

Lord Justice Zacaroli summarised the core issue between the parties as

whether a claim in respect of anticipated profits means, on the true construction of clause 34.5(a), a claim for loss of profit other than expectation loss. Put another way, whether it is something other than the loss that consists in the value to EE of the contractual performance which would have been provided by Virgin but for the breach of contract.

He did not accept EE’s arguments on construction of this clause, preferring Virgin’s interpretation.

In summary he supported his finding on the basis that:

1. There is no overarching principle of law that limits an exclusion of liability for loss of anticipated profits to losses other than expectation loss or diminution in price.
2. Existing case law on this point is contrary and therefore the better approach is to interpret the specific terms and context of each clause on a case by case basis and he found the wording of the exclusion in this case to be clear and unequivocal.
3. “Anticipated profits” is used in this exclusion clause interchangeably with “loss of profits and did not change the meaning of the clause.
4. The clause is part of a lengthy contract drafted with the assistance of legal advice on both sides, involving a careful allocation of risk for both parties.

Lord Justice Coulson explained in his Judgment that he had not found the central issue in this matter easy to decide but ultimately said that:

The issue is whether the provision that “neither Party shall have liability to the other in respect of…anticipated profits” excludes this claim. In my view, Zacaroli LJ is right to say that there can be no magic in the words “anticipated profits” since the expression “loss of profits” is used interchangeably in clause 34.5.

The importance of exclusion clauses 

This case highlights the importance of taking the time when drafting critical clauses such as exclusion clauses to ensure (as far as is possible) that they:

1. Use clear and unambiguous language.
2. Think through all the foreseeable situations in which the exclusion clause might be triggered and set out with specificity any exceptions or provisos.
3. Take the time to consider whether the clause is open to interpretation and if possible, remove any ambiguities.

We wait to see if EE decides to appeal to the Supreme Court.

How Morr & Co can help with exclusion clauses?

If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Dispute Resolution team on 0333 038 9100 or email info@morrlaw.com and a member of our expert team will get back to you.

Disclaimer
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.