Key Points

• A well-drafted clause excluding loss of profit can prevent one party from recovering lost profits, but courts apply the language’s natural and ordinary meaning, making precision in drafting essential.
• In EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70, the Court of Appeal upheld an exclusion of “anticipated profits” because the wording was clear and unambiguous, leaving the claimant without a meaningful damages remedy.
• The Unfair Contract Terms Act 1977 applies a reasonableness test to exclusion clauses in standard-term contracts; materially negotiated contracts may fall entirely outside its scope.
• Loss of profit can be direct or indirect, meaning a generic “consequential loss” exclusion will often fail to capture it without specific, named drafting.
• A professional contract review before signing can identify dangerous exclusion clauses early and protect both revenue and available remedies.

Commercial contract disputes are seldom straightforward, and clauses excluding loss of profit typically complicate matters further. In fact, they are one of the most complicated matters in contract law, causing even Lord Justice’s of the Court of Appeal to disagree (see below). And a business owner who signs a contract without understanding the terms of an exclusion clause can find themselves up a certain creek without a paddle if things go wrong.

The Court of Appeal’s decision in EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70, handed down in February 2025, is the most significant recent authority. The case confirms that clear exclusion language will be enforced, even where the outcome leaves an innocent party without a damages claim for breach of a core contractual obligation.

The legal basis for claiming contractual damages

The starting point is Hadley v Baxendale [1854] EWHC Exch J70, which established the foundational test for the recoverability of damages in contract. The case created two categories of recoverable loss: direct losses, being those arising naturally from a breach in the ordinary course of things; and indirect losses, being those arising from special circumstances within the reasonable contemplation of the parties at the time of contracting.

Lost profits do not fit neatly into either category. They can be a direct loss where the sole purpose of the contract is to generate revenue, or an indirect loss where the profit-generating use was a special circumstance unknown to the other party. A clause excluding only “indirect or consequential losses” may therefore fail to exclude loss of profit entirely, because the court may classify it as a direct loss. A clause that explicitly excludes “loss of profit” in clear terms will generally be enforced as written.

The Unfair Contract Terms Act 1977

Where a contract is made on one party’s written standard terms of business, the Unfair Contract Terms Act 1977 (UCTA) requires exclusion clauses to satisfy a reasonableness test. The test considers the parties’ bargaining positions, whether the accepting party received an inducement to agree, and whether the clause was drawn to the accepting party’s attention. Where both parties have legal advice and are broadly equal in commercial strength, courts are more willing to uphold the exclusion.

UCTA applies only where the contract was made on one party’s standard terms. Substantive amendments can take the contract outside its scope. That was the outcome in Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies Plc [2023] EWHC 2807 (Comm), where the High Court held that material amendments to a standard form removed UCTA protection. The exclusion clause, which barred recovery of loss of profit and wasted expenditure, was upheld in full.

EE Ltd v Virgin Mobile: The 2025 Decision

In EE Ltd v Virgin Mobile Telecoms Ltd, EE granted Virgin Mobile access to its 2G, 3G, and 4G networks under a supply agreement containing an exclusivity obligation. When Virgin migrated non-5G customers to Vodafone, EE claimed breach of that obligation and sought damages representing the revenue it would have received had those customers remained on its network. Virgin relied on a clause excluding liability for “anticipated profits” and “anticipated savings”.

The Court of Appeal dismissed EE’s appeal by a majority of two to one. Lord Justice Zacaroli held that the language was clear and unequivocal. The phrase “anticipated profits” appeared interchangeably with “loss of profits” elsewhere in the contract, leaving no room for a narrower reading. EE was left without a meaningful damages remedy, even assuming a breach had occurred.

In his dissenting judgment, Lord Justice Phillips stated that it would be hard to believe that Virgin believed it “could breach the key exclusivity provision… without incurring liability to pay EE damages reflecting the loss of revenue for that breach“.

He went on to say at paragraph 87:

“More importantly, I consider that, if the parties had in mind such detailed distinctions between the types of loss of profit claims, the exclusion clause would have been drafted with greater specificity. Accordingly, I consider that the two clauses taken together point more persuasively to the conclusion that the broad and unqualified reference to “liability in respect of anticipated profits” applies to claims based on loss of profits, whether those fall under the heading of expectation loss, or whether they fall under the first or second limb of the rule in Hadley v Baxendale.“

The 2:1 split confirms that interpretation questions in this area remain genuinely difficult, even at appellate level. Importantly, the majority noted that the contract had been negotiated with legal advice on both sides, that EE retained other potential remedies, and that the risk allocation as a whole was commercially coherent.

The majority decision was in line with the general principle that the courts will not rescue a party from a poor bargain.

The Drafting Trap

One of the most persistent errors in this area is the assumption that a “consequential loss” exclusion will capture loss of profit. It will not always do so. Where a contract is entered into specifically to generate profit, that loss may arise naturally from a breach, placing it within the first limb of Hadley v Baxendale and outside a generic “consequential loss” exclusion. The answer is explicit drafting: if the intention is to exclude loss of profit, loss of revenue, loss of business, and loss of anticipated savings, each category should be named separately and in plain terms.

There is a limit to this principle. Courts will not enforce an exclusion clause that defeats the main object of the contract or produces a commercial absurdity, even where the language is clear. That backstop is narrow, and business owners should not rely on it as a safety net.

Practical Steps for Businesses

• Read exclusion clauses carefully before signing. An exclusion of “anticipated profits” or “loss of profit” may leave you without a remedy for the breach most likely to harm your business.
• Name every category of loss explicitly. List loss of profit, loss of revenue, loss of goodwill, and loss of anticipated savings separately, using plain and unambiguous language.
• Consider a financial cap as an alternative to a blanket exclusion. A cap preserves the right to claim while controlling maximum exposure and may be a more balanced approach.
• Include carve-outs for fraud and wilful default. Exclusion clauses that appear to permit escape from liability for deliberate wrongdoing carry both legal and reputational risks.
• Review standard terms periodically, particularly following significant court decisions. A clause that appeared adequate when drafted may have been overtaken by shifts in judicial interpretation.
• Have an experienced solicitor review the contract before you sign it. In my experience, legal due diligence at this stage costs a fraction of pursuing or defending a contract dispute.

Frequently Asked Questions

Can a contract validly exclude all liability for loss of profit?

Yes, a commercial contract can validly exclude all liability for loss of profit in a business-to-business context, provided the clause is sufficiently clear and unambiguous. Where the contract is made on one party’s written standard terms, the clause must also satisfy the reasonableness test under the Unfair Contract Terms Act 1977. Contracts that have been materially negotiated with legal advice on both sides are more likely to be upheld in full.

Does a “consequential loss” exclusion automatically cover loss of profit?

No, it does not always do so. Loss of profit can be classified as a direct loss when generating profit is the contract’s obvious purpose. A generic “consequential loss” exclusion may fail to capture the direct loss of profit, leaving significant exposure. Explicit language naming loss of profit as a separate, excluded category is the only reliable approach.

What did the Court of Appeal decide in EE v Virgin Mobile?

The Court of Appeal held, by a majority of two to one, that an exclusion of “anticipated profits” barred EE’s damages claim for loss of revenue arising from an alleged breach of an exclusivity obligation. The court applied the natural and ordinary meaning of the clause and found that it excluded all loss of profit claims, including expectation losses. EE was left without a meaningful damages remedy, despite the court proceeding on the assumption that a breach had occurred.

How does UCTA affect loss of profit exclusion clauses?

Where a contract is made on written standard terms of business, the Unfair Contract Terms Act 1977 requires any exclusion clause to satisfy a reasonableness test. If a clause fails that test, it is unenforceable. Contracts that have been materially negotiated may fall outside UCTA’s scope entirely, as the High Court found in Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies Plc [2023] EWHC 2807 (Comm).

What steps should a business take before signing a contract with a loss of profit exclusion?

A business should commission a contract review by an experienced solicitor before signing. Key questions include: what remedies remain available if the exclusion applies; whether a financial cap is preferable to a blanket exclusion; whether carve-outs for fraud or wilful default are needed; and whether the overall allocation of risk is commercially acceptable. Legal due diligence at this stage is considerably less costly than pursuing or defending a claim after a dispute has arisen.

To find out more about any matters discussed in this article, please email us at info@43legal.com or phone 0121 249 2400.

The content of this article is for general information only.  It is not, and should not be taken as, legal advice.  If you require any further information in relation to this article, please contact 43Legal.

Melissa Danks is the founder of 43Legal. She has over 20 years’ experience as a solicitor working within the legal sector dealing with issues relating to risk management, dispute resolution, and advising in-house counsel in SMEs and large companies. Melissa has extensive expertise in providing practical, valuable, modern legal advice on large commercial projects, joint ventures, data protection and GDPR compliance, franchises, and commercial contracts. She has worked with stakeholders in multiple market sectors, including IT, legal, manufacturing, retail, hospitality, logistics and construction. When not providing legal advice and growing her law firm, Melissa spends her time running, walking in the countryside, reading and enjoying downtime with close friends and family.