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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70 (04 February 2025) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2025/70.html Cite as: [2025] EWCA Civ 70, [2025] 4 WLR 22, [2025] WLR(D) 101 |
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CIVIL
DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (KBD)
Mrs Justice Joanna Smith
Claim No. HT-2022-000253
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE PHILLIPS
and
LORD JUSTICE ZACAROLI
____________________
EE LIMITED |
Appellant/ Claimant |
|
- and - |
||
VIRGIN MOBILE TELECOMS LIMITED |
Respondent/Defendant |
____________________
Adam Zellick KC and Gillian Hughes (instructed by Baker & McKenzie LLP) for the Respondent
Hearing date: 18 November 2024
____________________
Crown Copyright ©
Lord Justice Zacaroli:
Background
"34.1 Except as set out in Clauses 34.2 or 34.6, the Parties agree and acknowledge that neither Party shall be liable to the other under this Agreement (including any liability of a Party arising out of any indemnification of the other Party specifically provided for under this Agreement) to the extent that the aggregate liability of that Party (for all claims made under this Agreement), in any Annual Period would exceed the lesser of:
(a) fifteen per cent (15%) of the total Customer Network Spend paid or payable by VM in the twelve month period preceding the event giving rise to liability (and in the first year of the Term, fifteen per cent (15%) of the total charges (excluding interconnect charges) paid under the Telecommunications Supply Agreement in the twelve (12) month period prior to the Effective Date); or
(b) ten million pounds (£10 million).
34.2 In addition to any other exceptions or exclusions set out in this Clause 34, the Parties agree that the limitation of liability set out in Clause 34.1 shall not apply to:
(a) VM's liability to pay any Charges and any other sums payable under Clauses 17 and 39;
(b) EE's liability to pay any revenue that EE is obliged to pass through to VM under this Agreement or other amounts which have been agreed to be payable by EE to VM from time to time pursuant to the Agreement Change Control Process and documented in accordance with that process; or
(c) any liability for damage or loss arising from reckless or wilful misconduct or gross negligence of either Party, its employees, agents or permitted sub-contractors (or any other person for which it is responsible for performance or conduct).
34.3 For the purposes of Clause 34.2(c); and in the case of acts or omissions of EE, "wilful misconduct" will include any intentional act by EE resulting in any discontinuance, withdrawal or refusal to supply any Service to VM contrary to EE's obligations under this Agreement, subject to the following additional requirements:
(a) VM promptly notifies EE in writing of the Service which it believes has been discontinued, withdrawn or not supplied, its reasons for its belief, its objection to the discontinuance, withdrawal or refusal to supply that Service and of VM's intention to pursue remedies pursuant to this Clause 34.3;
(b) the discontinuance, withdrawal or refusal to supply relates to a Service that is used by VM to deliver services to Customers that result in Customer revenues in excess of seven and one half per cent (7.5%) of VM's total Customer Revenues…for the twelve (12) month period preceding the discontinuance, withdrawal or refusal to supply the Service in question…;
(c) VM applies at the first practicable time for interim or other urgent equitable relief in response to the discontinuance, withdrawal or refusal to supply the Service in question, and provides notice of such application to EE without undue delay; and in any action claiming damages continues to claim equitable relief and the re-instatement of the affected Service as its primary remedy, with damages claimed only to the extent that equitable relief is not granted or only in respect of losses suffered by VM in the period from the initial discontinuance, withdrawal or refusal to supply the Service in question until re-instatement of the affected Service pursuant to the equitable relief actually obtained.
34.4 Neither Party shall be liable to the other for any loss which is not directly foreseeable or which does not arise directly from the performance of this Agreement and thus neither Party shall be liable for any indirect or consequential or special or incidental loss whatsoever.
34.5 Except for any damages claims by VM pursuant to Clause 34.2(c), to which Clause 34.3 applies (which EE acknowledges may include claims of damages for loss of profits), and for no other damage claims whatsoever, neither Party shall have liability to the other in respect of:
(a) anticipated profits; or
(b) anticipated savings.
34.6 Neither Party excludes or limits liability:
(a) to the extent that such liability arises from death or personal injury of any person…; or
(b) for a fraudulent misrepresentation by a Party or its employees; or
(c) for direct physical damage to or physical loss of the property of the other…
34.7 Except as expressly stipulated in this Agreement, any representations, warranties, terms and conditions (whether implied by law, custom or otherwise) are hereby expressly excluded to the extent permitted by law and the provisions of this Clause 34 specify the entire liability of either Party under or in connection with this Agreement whether arising in contract, tort (including negligence) or otherwise."
The judge's judgment
"The court construes the relevant words of a contract in their documentary, factual and commercial context, assessed in the light of (i) the natural and ordinary meaning of the provision being construed, (ii) any other relevant provisions of the contract being construed, (iii) the overall purpose of the provision being construed and the contract or order in which it is contained, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions – see Arnold v Britton [2015] UKSC 36, [2016] 1 All ER 1, [2015] AC 1619 per Lord Neuberger PSC at paragraph 15 and the earlier cases he refers to in that paragraph;
ii) A court can only consider facts or circumstances known or reasonably available to both parties that existed at the time that the contract or order was made – see Arnold v. Britton (ibid.) per Lord Neuberger PSC at paragraph 20;
iii) In arriving at the true meaning and effect of a contract or order, the departure point in most cases will be the language used by the parties because (a) the parties have control over the language they use in a contract or consent order and (b) the parties must have been specifically focussing on the issue covered by the disputed clause or clauses when agreeing the wording of that provision – see Arnold v. Britton (ibid.) per Lord Neuberger PSC at paragraph 17;
iv) Where the parties have used unambiguous language, the court must apply it – see Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2012] 1 All ER (Comm) 1, [2012] 1 Lloyd's Rep 34 per Lord Clarke JSC at paragraph 23;
v) Where the language used by the parties is unclear the court can properly depart from its natural meaning where the context suggests that an alternative meaning more accurately reflects what a reasonable person with the parties' actual and presumed knowledge would conclude the parties had meant by the language they used but that does not justify the court searching for drafting infelicities in order to facilitate a departure from the natural meaning of the language used – see Arnold v. Britton (ibid.) per Lord Neuberger PSC at paragraph 18;
vi) If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other – see Rainy Sky SA v. Kookmin Bank (ibid.) per Lord Clarke JSC at paragraph 2 – but commercial common sense is relevant only to the extent of how matters would have been perceived by reasonable people in the position of the parties, as at the date that the contract was made – see Arnold v. Britton (ibid.) per Lord Neuberger PSC at paragraph 19;
vii) In striking a balance between the indications given by the language and those arising contextually, the court must consider the quality of drafting of the clause and the agreement in which it appears – see Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2018] 1 All ER (Comm) 51, [2017] AC 1173 per Lord Hodge JSC at paragraph 11. Sophisticated, complex agreements drafted by skilled professionals are likely to be interpreted principally by textual analysis unless a provision lacks clarity or is apparently illogical or incoherent– see Wood v Capita Insurance Services Ltd (ibid.) per Lord Hodge JSC at paragraph 13; and
viii) A court should not reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight, because it is not the function of a court when interpreting an agreement to relieve a party from a bad bargain – see Arnold v. Britton (ibid.) per Lord Neuberger PSC at paragraph 20 and Wood v. Capita Insurance Services Limited (ibid.) per Lord Hodge JSC at paragraph 11".
"27. As for the approach to be taken to the interpretation of exclusion clauses:
a. The exercise of construing an exclusion clause must be undertaken in accordance with the ordinary methods of contractual interpretation. Commercial parties are free to make their own bargains and to allocate risks as they think fit; exclusion and limitation clauses are an integral part of pricing and risk allocation. The principle of freedom of contract requires the court to respect and give effect to the parties' agreement (see Interactive E-Solutions JLT v O3b Africa Ltd [2018]EWCA
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Civ
62 at [14] per Lewison LJ and Triple Point Technology Inc v PTT Public Co Ltd [2021] AC 1148 at [108] per Lord Leggatt with whom Lord Burrows agreed).
b. However, a vital part of the setting in which parties contract is a framework of rights and obligations established by the common law. In construing an exclusion clause, the court will start from the assumption that in the absence of clear words the parties did not intend to derogate from those normal rights and obligations. (Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) Ltd [1974] AC 689 per Viscount Diplock at page 717H; Triple Point at [108]-[110]; Soteria v IBM at [34] and Sara & Hossein Holdings Ltd v Blacks Outdoor Retail Ltd [2023] 1 WLR 575 per Lord Hamblen at [48]).
c. The more valuable the right, the clearer the language of the exclusion clause will need to be if it is to be given effect (Stocznia Gdynia v Gearbulk Holdings [2009]EWCA
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Civ
75, per Moore-Bick LJ at [23]; Triple Point at [110] and Soteria v IBM at [35], [37] and [60]).
d. Unclear words will not suffice; if linguistic, contextual and purposive analysis do not disclose an answer to the question with sufficient clarity, any ambiguity or lack of clarity must be resolved against the party seeking to exclude liability (Dairy Containers Ltd v Tasman Orient Line CV (The Tasman Discoverer) [2004] UKPC 22 at [12], per Lord Bingham of Cornhill and Nobahar-Cookson v Hut Group Ltd [2016]EWCA
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Civ
128 at [16]-[19] and [21] per Briggs LJ).
e. However, "[i]n commercial contracts negotiated between business-men capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne…it is…wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only…" (Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 per Lord Diplock at page 851 and Fujitsu at [49]).
f. Notwithstanding (a)-(e) above, an exemption clause will not normally be interpreted as extending to a situation which would defeat the main object of the contract or create a commercial absurdity, notwithstanding the literal meaning of the words used. This is a context in which it is open to the court to strain to avoid a particular construction, rather than one which requires ambiguity on a fair reading before the principle comes into play, because it is inherently unlikely that the parties intended that the clause should have so wide an ambit as in effect to deprive one party's stipulations of all contractual force such that the contract becomes 'a mere declaration of intent' (Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013]EWCA
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Civ
38, per Tomlinson LJ at [19] citing from the speech of Lord Wilberforce in Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at pages 431-432; CNM Estates (Tolworth Tower) Ltd v VeCREF I Sarl [2020] 2 CLC 243, per Foxton J at [33]).
g. However, even in this context, where language is fairly susceptible of one meaning only, that meaning must be attributed to it unless "the meaning is repugnant to the contract" (see Kudos at [20]). It is a principle which "should be seen as one of last resort and there is authority that it applies only in cases where the effect of the clause is to relieve one party from all liability for breach of any of the obligations which he has purported to undertake: see Great North Eastern Rly Ltd v Avon Insurance plc [2001]EWCA
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Civ
780, [2001] 2 ALL ER (Comm) 526…Only in such a case could it be said that the contract amounted to nothing more than a mere declaration of intent" (Transocean Drilling UK Ltd v Providence Resources plc (The GSF Arctic III) [2016]
EWCA
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Civ
372, per Moore-Bick LJ at [27]).
"…in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits, anticipated savings or wasted expenditure (whether reasonably foreseeable or not) or indirect or consequential loss suffered by the Contractor or any third party in relation to this Agreement…"
Grounds of appeal
Ground 1: the characterisation of EE's claim
"the rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."
"Save for the provisions of Clauses 11, 12, 13 and 16 neither the Tugowner nor the Hirer shall be liable to the other party for loss of profit, loss of use, loss of production or any other indirect or consequential damage for any reason whatsoever."
Ground 2: the true construction of clause 34.5(a)
"In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations. It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit."
(1) The case law relied on by EE
"the difference between the total net cost to the seller of acquiring the goods and bringing them to market on the one hand and the net sale price that would have been achieved on the other."
(1) If S sourced the goods for £40, sold them to B for £100, and re-sold them in the market on B's breach for £80, its overall loss of profit is the difference between the anticipated profit (£60) and the actual profit (£40), i.e. £20. That, being the difference between contract/market price, is its expectation loss.
(2) If on the other hand, S sourced the goods for £90, sold them to B for £100, and re-sold them on B's breach for £80, its overall loss of profit is the difference between its anticipated profit (£10) and the loss that it made (-£10), i.e. £20, which is, again, its expectation loss, being the difference between the contract/market price.
(2) The contractual language
"with damages claimed only to the extent that equitable relief is not granted or only in respect of losses suffered by VM in the period from the initial discontinuance, withdrawal or refusal to supply the Service in question until re-instatement of the affected service pursuant to the equitable relief actually obtained."
(3) The commercial consequences
Conclusion
Lord Justice Phillips
"If there are two possible contractions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."
Second, as Tomlinson LJ summarised at [21] of Kudos Catering:
"There also comes into play the presumption that neither party to a contract intends to abandon any remedies for its breach arising by operation of law – see per Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at page 717. Lord Diplock went on to say that clear words must be used to rebut this presumption and the judge plainly thought that the words here used were sufficiently clear for that purpose."
Lord Justice Coulson