Factual and Procedural Background
The appeal concerns whether a claim brought by Company A against Company B is excluded under clause 34.5(a) of their contract as being one "in respect of anticipated profits". Company B applied to strike out the claim or obtain reverse summary judgment, and the trial judge held that the claim fell within the exclusion clause. Company A appealed with permission granted on 5 December 2023.
Company A and Company B entered into a Telecommunications Supply Agreement ("TSA") dated 28 August 2013. Company A is one of four Mobile Network Operators ("MNOs") in the UK, owning and operating its own physical radio access network. Company B, a Mobile Virtual Network Operator, lacked its own network and contracted with MNOs for network access.
Under the TSA, Company A was to provide Company B with services enabling Company B's customers to access 2G, 3G, and 4G mobile services exclusively during an "Exclusive Period". Charges payable by Company B depended on network usage, subject to a Minimum Revenue Commitment which Company B exceeded.
The TSA was amended in December 2016 to address 5G services. Absent agreement, Company B could source 5G services from other MNOs, and customers receiving 5G from alternative suppliers could also receive 2G-4G services from those suppliers, varying the exclusivity clause accordingly.
Company A launched 5G services in May 2019. Company B, without agreement, contracted with another MNO for 5G services and began migrating customers from Company A’s network to the alternative network around January 2021.
Company A claims that Company B breached the exclusivity obligation by migrating customers outside the agreed parameters and seeks damages for loss of revenue it would have received under the TSA for 2G-4G services, estimating losses around £24,635,684. Company B denies breach and contends the claim is for anticipated profits and thus excluded by clause 34.5(a) of the TSA.
Legal Issues Presented
- Whether the claim brought by Company A is excluded as being one "in respect of anticipated profits" under clause 34.5(a) of the TSA.
- Whether the court should determine the construction of clause 34.5(a) at the strike out/summary judgment stage or defer to trial.
- Whether Company A's claim is properly characterised as one for lost profits or diminution in price.
- Whether the exclusion clause should be narrowly construed to avoid commercial absurdity, particularly regarding the exclusivity obligation.
Arguments of the Parties
Appellant's Arguments (Company A)
- The claim is not for lost profits but for diminution in price payable under the TSA due to breach.
- The exclusion clause should not bar claims for expectation loss arising from breach of contract.
- The phrase "anticipated profits" should be construed narrowly to exclude only profits anticipated outside the contract.
- The commercial consequence of the judge's construction leaves Company A without meaningful remedy for breach of exclusivity.
- Reliance on previous cases where exclusion clauses were interpreted not to exclude claims for diminution in price or expectation loss.
- Argued that the exclusivity clause would be reduced to a mere statement of intent if the exclusion clause bars their claim.
Respondent's Arguments (Company B)
- The claim is properly characterised as an expectation loss claim for loss of profits, thus falling within the exclusion clause.
- The phrase "anticipated profits" is used interchangeably with "loss of profits" and includes expectation loss.
- The exclusion clause is clear and unequivocal, drafted by experienced commercial parties, and forms part of a detailed risk allocation.
- The exclusion applies to all claims for loss of profits whether direct or indirect, except for specific carve-outs.
- Previous cases cited by Company A are context-specific and do not establish a general principle limiting the exclusion clause.
- The commercial consequences do not justify departing from the clear language of the exclusion clause.
- Company A could have claimed wasted expenditure separately, which is not excluded.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) |
Approach to strike out and summary judgment applications. |
Referred to for the test on strike out/summary judgment. |
| Lamesa Investments Ltd v Cynergy Bank Ltd [2020] EWCA Civ 821 |
Principles of contractual construction and contextual interpretation. |
Guided the court’s approach to contract interpretation. |
| Arnold v Britton [2015] UKSC 36 |
Contractual interpretation focusing on natural and ordinary meaning. |
Supported rejecting subjective evidence and focusing on language. |
| Rainy Sky SA v Kookmin Bank [2011] UKSC 50 |
Preference for commercially sensible construction where language is ambiguous. |
Supported preference for business common sense in interpretation. |
| Wood v Capita Insurance Services Ltd [2017] UKSC 24 |
Effect of quality of drafting on interpretation of complex contracts. |
Supported textual analysis for sophisticated agreements. |
| Interactive E-Solutions JLT v O3b Africa Ltd [2018] EWCA Civ 62 |
Freedom of contract and respect for parties’ risk allocation. |
Supported giving effect to exclusion clauses in commercial contracts. |
| Triple Point Technology Inc v PTT Public Co Ltd [2021] AC 1148 |
Principles of exclusion clause construction and risk allocation. |
Reinforced approach to exclusion clauses and commercial context. |
| Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) Ltd [1974] AC 689 |
Presumption against derogation from common law rights without clear words. |
Supported presumption that parties do not exclude remedies without clear language. |
| Dairy Containers Ltd v Tasman Orient Line CV (The Tasman Discoverer) [2004] UKPC 22 |
Contra proferentem rule in interpreting ambiguous exclusion clauses. |
Supported resolving ambiguity against party seeking exclusion. |
| Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 |
Exclusion clauses should not be strained if language is clear. |
Supported giving effect to clear exclusion clause language. |
| Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38 |
Limits on exclusion clauses that would render contract a mere statement of intent. |
Distinguished and considered in relation to commercial absurdity arguments. |
| Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 |
Presumption that parties do not abandon remedies arising by operation of law without clear words. |
Referred to in relation to exclusion clause clarity. |
| Robinson v Harman (1848) 1 Exch 850 |
Expectation damages principle placing claimant in position as if contract performed. |
Accepted as basis for expectation loss claims. |
| Fujitsu Services v IBM United Kingdom [2014] EWHC 752 (TCC) |
Exclusion clause interpretation in detailed commercial contract context. |
Supported exclusion of loss of profits claims under clear wording. |
| Glencore Energy v Cirrus Oil [2014] 1 All ER (Comm) 513 |
Distinction between loss of anticipated profits and contract price differential. |
Considered but found limited to sale of goods context. |
| University of Wales v London College of Business [2015] EWHC 1280 (QB) |
Exclusion of loss of anticipated profits interpreted as excluding only profits outside contract. |
Noted as context-specific with no wider principle. |
| Galtrade Ltd v BP Oil International Ltd [2021] EWHC 1796 (Comm) |
Exclusion clause limited to conventional claims for loss of profit. |
Considered in relation to exclusion of anticipated profits. |
Court's Reasoning and Analysis
The court began by affirming the principles governing strike out and summary judgment, and the established approach to contractual interpretation, emphasizing the primacy of the natural and ordinary meaning of the contract language within its commercial and factual context. The court reiterated that exclusion clauses are integral to risk allocation and must be clearly worded to be effective.
The core issue was the interpretation of clause 34.5(a), which excludes liability "in respect of anticipated profits". The court held that this phrase is clear and unambiguous, intended to exclude claims for loss of profits, including expectation loss, whether direct or indirect. The phrase "anticipated profits" was used interchangeably with "lost profits" within the contract, including in carve-outs that allow certain claims for loss of profits.
The court rejected the appellant's argument that the claim should be characterised as diminution in price rather than loss of profits, noting that the cases cited by the appellant were context-specific and did not establish a general principle limiting the scope of such exclusion clauses. The court found that the appellant's claim was, in essence, an expectation loss claim for lost profits arising from the breach.
Regarding commercial consequences, the court acknowledged the appellant's concern that the exclusion clause leaves it without an effective remedy for breach of exclusivity. However, it emphasized that the contract as a whole, including the Minimum Revenue Commitment and availability of other remedies such as injunctions and damages for wasted expenditure, formed part of a balanced risk allocation. The court was not persuaded that this rendered the exclusion clause uncommercial or absurd.
The court distinguished the appellant's reliance on the "statement of intent" principle from Kudos Catering, noting that where the contract language is clear, the court must give effect to it, and that the contract preserved other remedies and obligations, preventing it from being a mere declaration of intent.
In summary, the court concluded that the exclusion clause unambiguously excluded Company A's claim for loss of anticipated profits, including expectation loss, and that the appeal should be dismissed.
Holding and Implications
The appeal is DISMISSED.
The court held that the claim brought by Company A against Company B is excluded by clause 34.5(a) of the TSA as a claim "in respect of anticipated profits". This includes claims for expectation loss or lost profits arising from the breach of the exclusivity obligation. The exclusion clause was clear, unequivocal, and formed part of a carefully negotiated risk allocation between sophisticated commercial parties.
The direct effect of this decision is that Company A’s damages claim for loss of revenue due to migration of customers to alternative networks is barred by the exclusion clause. No new legal precedent was established beyond the application of established principles of contractual interpretation and exclusion clause construction in the context of the specific contract.