Limitation of liability – EE v Virgin Mobile provides some useful reminders
Most businesses will look to limit their liability when entering into contracts with business customers or suppliers and this recent decision reminds us that the courts will allow tough clauses provided they are clear.
In this case EE had agreed to provide mobile network access to Virgin’s customers in return for them using EE’s network exclusively for 2G, 3G and 4G services. 5G services weren’t covered by these provisions and an amendment to the agreement was later made allowing Virgin to use other networks to provide 5G services. Virgin decided to use Vodafone and O2 to provide 5G services which resulted in many Virgin customers moving from EE to Vodafone/O2 so they could use all the services (5G as well as 2G, 3G and 4G).
EE contended that this sequence of events amounted to a breach by Virgin of the exclusivity provision, and EE claimed some £24 million from Virgin for the business that that had been diverted away from them. Virgin argued that the losses were excluded by the terms of the limitation of liability clause which provided that “neither party shall have liability to the other in respect of anticipated profits or anticipated savings”.
EE argued that its claim was not for loss of profits but, rather, for charges unlawfully avoided. In other words, because customers had moved away from EE there was reduction in the volume of services to be provided by EE and, consequently, a reduction in the charges payable by Virgin.
However, the judge was not persuaded by this argument and took the view that EE had sustained a loss of profit. He also found that there was no distinction between “loss of profits” and “anticipated profits” and therefore that the amount EE clamed fell within the scope of the clause excluding of liability for anticipated loss of profits. He therefore upheld the wording of the clause and rejected EE’s claim.
Although not new law, the most important part of this decision was arguably the judge’s comments that the limitation of liability clause was agreed as part of a detailed contract that had been negotiated by the parties, and that they had intended that the clause should have a wide reach – a salutary reminder for any business negotiating a contract and considering what limitations of liability to include.
When negotiating any clause to exclude or limit liability it is important to ensure that the wording is as clear and succinct as possible – this will improve the prospects of the court upholding it in the event of a dispute, irrespective of whether it might seem harsh or overly generous.
It is also good practice to ensure that the different parts of the limitation of liability clause are drafted separately so that if there is any problem with one particular part of the clause, it should be possible to sever it and enable the rest of the clause to still stand.
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