Bristows’ SnippITs – Suppliers beware!

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

An exclusion for “loss of profits” excludes a supplier’s claim for the “revenue” it expected under its customer contract.

In a hearing for summary judgment to assess whether a party could recover lost revenue resulting from a breach of an exclusivity clause, the Court looked in detail at the interpretation of exclusion clauses in a commercially negotiated telecoms agreement (see EE Ltd v Virgin Mobile Telecoms Ltd [2023] EWHC 1989 (TCC)).

Key Takeaways

• Suppliers should be aware that when a customer breaches its agreement, the common, mutual exclusions of “loss of profits” or “anticipated profits” and/or “loss of revenue” may prevent suppliers from recovering the very thing they enter a contract for i.e. the charges it would have been paid had the contract not been breached or terminated.
• Courts are likely to read an exclusion of “loss of profit” or “anticipated profit” in a way that precludes a supplier from recovering its lost “revenue” under the contract. This is because a claimant is only entitled to its “net loss”, i.e. regardless of whether there is a breach or not, the supplier would have incurred certain operational costs to generate the profit, so when calculating its loss, these costs need to be deducted from the “revenue”… leaving just profit.
• An exclusion of loss of “anticipated profits” can also include the profits of the supplier under the agreement in question. If it is intended to only cover profits generated “outside” of the contract between the parties, this needs to be expressly set out – although this is likely to be an indirect loss in any case. 
• Suppliers may struggle to shoehorn a claim for charges unlawfully avoided into a carve out from the liability cap for “unpaid charges” as the courts see the former as a damages claim outside the scope of that carve out, which is intended to cover debt claims for unpaid charges for services rendered. 

Background

EE Limited and Virgin Mobile Telecoms Limited entered into a contract under which VM agreed to exclusively use EE’s 2G-4G radio network for its customers, with the option for EE to additionally provide 5G to VM’s customers, if the parties agreed. 

The parties did not agree terms to extend the arrangement to the 5G network so VM moved customers to alternative mobile network operators to enable its customers to access 5G (as well as 2G-4G). EE claimed that VM’s migration (and introduction) of non-5G customers to these alternative networks breached the parties’ agreed exclusive relationship and brought a damages claim for £24.6 million (pleading “loss of revenue (claimed as damages)” as EE had been purportedly “deprived of revenue that it would have otherwise earned”). 

Court’s conclusions

After deciding it had all the facts and information it needed to determine the issues at summary judgment, the Court dismissed EE’s claim on the basis its claim was, in substance, for “anticipated profits” and therefore a loss EE could not recover due to exclusion clause. More specifically:

• The contract provided that, except in certain circumstances, neither party would have any liability to the other for “anticipated profits”. EE argued (relying on witness evidence from its lead negotiator on the deal) that “anticipated profits” relates to profits generated “outside” the contract between the parties. The Court confirmed these would, in fact, be an indirect or consequential loss (which were separately excluded by another clause) and went on to provide a useful reminder that if you want to exclude a certain type of loss in your contract, expressly set this out in the drafting (for example, “anticipated profits” incurred “in respect of losses arising in connection with third parties”). 

• In this case, there is no distinction between loss of profit and loss of anticipated profit.

• While a court may prefer a reading of an exclusion clause which does not wholly deprive the claimant of any meaningful remedy, in this case the Court did appear to strain somewhat to hold that a claim for damages for the obvious, and most meaningful category of loss (i.e. charges the supplier would have received but for the breach) had not been the only remedy available to EE as they could have sought to recover interest on late payments and also make a debt claim for charges which were due but remained unpaid.