A summary judgment against EE in its claim versus Virgin Mobile has significant implications for any companies bound by exclusivity provisions in English law governed contracts, which also contain exclusions of liability.
In terms of the telecoms mobile sector, this could have major implications for MVNOs bound by exclusivity under any English governed MVNO agreement with their host MNO.
EE’s claim for losses due to Virgin Mobile having breached an exclusivity clause pursuant to a telecommunications supply agreement, was adjudged to have been defeated by the exclusion of liability for loss of “anticipated profits”.
Background to the judgment
In EE Ltd v Virgin Mobile Telecoms Ltd [2003] EWHC (1989), the dispute revolved around a contractual agreement between the two telecom giants. Virgin Mobile agreed to exclusively use EE’s 2G, 3G and 4G network for its customers with the option for EE to additionally provide 5G to Virgin Mobile’s customers if the parties agreed.
Virgin Mobile ended up moving its customers to other networks that provided 5G services and these providers could also provide 2G, 3G and 4G services. Therefore, EE claimed that Virgin Mobile’s migration breached the parties’ agreed exclusive relationship and brought a damages claim for £24.6 million for loss of revenue that EE would have otherwise earned.
Virgin Mobile denied all allegations of breach of the exclusivity obligation and that in any event, the claim was impeded by another clause providing that neither party could claim for “anticipated profits”. EE claimed that its loss was for “charges unlawfully avoided” by Virgin Mobile rather than “loss of profits” and thus, not caught by the exclusion clause. However, the judge rejected EE’s argument as “fanciful” and provided summary judgment in favour of Virgin Mobile.
Exclusivity Clauses versus Exclusion Clauses
Exclusivity clauses are contractual provisions that restrict one or both parties from engaging with third parties in certain ways. They serve to safeguard the interests of the contracting parties by ensuring that the benefits of the relationship remain exclusive and protected from external competition.
This judgment highlighted the critical importance of interpreting exclusivity clauses in the context of the entire contract and the parties’ intention at the time of drafting. A breach of the exclusivity clause could provide for other forms of relief such as an injunction and minimum payments negotiated as part of the agreement. However, any claim for loss of profits was ultimately ruled out by the exclusion clause.
Key Takeaways
- Clear Drafting: parties drafting agreements should ensure that exclusivity clauses are clear, specific, and aligned with the broader intentions of the agreement. The more valuable the right, the clearer the language of the clause will need to be.
- Context Matters: exclusivity clauses cannot be interpreted in isolation. The broader context of the agreement, industry norms, and the parties’ intentions play a crucial role in their interpretation.
- Limitations of liability: must be carefully worded to reflect the parties’ intention and must be carefully thought through to ensure certain losses are not excluded in the event of specific breaches, including wilful breach mentioned below.
- Wilful Breach: provisions which Preiskel & Co commonly see in US agreements ought to be considered, where appropriate, such that the exclusions of liability would not bite where there has been a wilful breach.
Conclusion
The judgment further reinstates the courts’ approach to the general interpretation of contracts and in particular, exclusion clauses. As businesses continue to forge agreements, this once again reminds us of the need for clear, well-drafted exclusivity clauses and highlights the danger of agreeing to extensive exclusions of loss.
Please contact Danny Preiskel or Tim Cowen if you have any questions regarding the above.
The material contained in this article is only for general review of the topics covered and does not constitute any legal advice. No legal or business decision should be based on its content.
This article is written in English language. Preiskel & Co LLP is not responsible for any translation of all or part of its content into any language.