Excluding loss of profits liability novel arguments fail to impress

Many suppliers have limits on liability in their contracts to help protect against legal claims by customers. Often these will include a financial cap and an exclusion of various heads of loss.

One loss that almost always features as excluded is “loss of profits” or the variant “loss of anticipated profits”. Simple enough expressions one might think but they were debated long and hard in the recent Court of Appeal decision of EE v Virgin Mobile Limited.

There the contract excluded liability for “anticipatory profits” in the context of a claim by EE against Virgin for alleged breach of contract resulting in financial losses. To try and get round this exclusion, EE framed its claim as one for loss of revenue – for the charges it would have received had the arrangement been carried out. It sought to argue this was different to a loss of profits claim as it was a diminution in the price of the services sold.

This interesting distinction was rejected by the court. It also considered whether the exclusion language, which here referred to “anticipated profits”, was aimed at something other than the loss of profit EE would make from the contract i.e. that anticipated profits meant some other profits anticipated to be earned outside of the contract. The court did not accept this; nor did it agree that the use of “anticipated” was a differentiator intended to point at other types of loss. The court found that in this clause and context the expressions “loss of profit” and loss of “anticipated profits” were interchangeable; the fact that EE described its claim as for “charges foregone“ did not mean that this was different to a claim for loss of profits.

So, ultimately the interesting arguments of EE failed - which is a relief for those seeking to rely on the regularly used exclusion of “anticipated profits”.

However, before relaxing too much, it is important to bear in mind that one of the key takeaways from the many interesting analyses in this judgment is the danger of thinking that prior case law which looks at these sort of stock phrases can act as a reliable guide in future cases. The court rejected earlier case law interpretations of words put forward by EE, reiterating that context is everything and that most of these clauses stand or fall by their specific drafting and circumstances.