Commercially Connected Shorts - 12 February 2025

This week we look at:

• Lessons from case law: Court of Appeal on exclusion clauses
• Consumer: safe and sustainable e-commerce in the EU
• Data, privacy and cyber round up
• AI: Guidance on the EU AI Act

Lessons from case law: draft your exclusion clauses with care

In a decision published on 4 February 2025, the Court of Appeal has determined that a claim brought by EE Limited (‘EE’) against Virgin Mobile Telecoms Limited (‘VM’) is excluded under the limitation clauses in their contract, as EE's claim is one in respect of anticipated profits. The court found (by a majority of 2:1, Phillips LJ dissenting) that the exclusion clause was clear and unequivocal in excluding such claims.

Key facts

The dispute had arisen out of an exclusivity agreement contained within a Telecommunications Supply Agreement (‘TSA’) where EE provided VM access to its mobile network and the charges payable by VM to EE would depend on the level of usage by VM’s customers. Following an amendment to the TSA in 2016, where no agreement was reached between EE and VM as to the provision of 5G services, VM was entitled to provide 5G services to its customers from a different network (as well as 2G, 3G and 4G services to those 5G customers).

EE claimed that, in breach of the exclusivity clause, VM had migrated non-5G customers onto the alternative supplier’s network, resulting in “lost revenue” in the provision of 2G, 3G and 4G services to those customers, or “charges unlawfully avoided”, in the region of £25 million. VM stated that in fact it was a claim for loss of profits and was accordingly prohibited by cl.34.5(a) of the TSA which excluded damages claims by either party in respect of “anticipated profits”.

The lower court held the claim fell within the exclusion clause, and this decision was appealed by EE.

On appeal, EE argued again that their claim was for diminution in price, not loss of profits, and thus should not be excluded under clause 34.5(a). They asserted that the phrase 'anticipated profits' should be narrowly construed as profits anticipated to be earned outside the performance of the TSA and that their losses were not hypothetical but capturable from the pricing language in the contract.

VM contended that EE’s claim was essentially for loss of anticipated profits which was clearly excluded by clause 34.5(a) of the TSA. VM argued that the claim was an expectation loss claim for the revenue EE alleged it would have received, which falls under the exclusion of 'anticipated profits.'

The decision

The court reasoned that the exclusion clause must be interpreted according to its plain language. It found that the phrase 'anticipated profits' includes expectation losses, which are the profits EE would have made had the contract been performed. The court determined that the detailed risk allocation within the TSA warranted upholding the exclusion clause as written, without distinguishing between different types of profit losses. The surrounding circumstances, including the extensive negotiation and drafting of the contract by experienced parties, supported this interpretation.

Key takeaways for drafting and negotiating exclusion clauses:

• the courts are inclined to uphold the parties’ apparent apportionment of liability and an express, clearly drafted and negotiated broad limitation of liability clause is likely to be given its literal meaning
• clear words are needed to exclude valuable rights - the court will start from the assumption that in the absence of clear words the parties do not intend to depart from common law rights and obligations
• factors such as level of detail in the exclusion clause and contract, whether it is bespoke and the level of knowledge of the parties negotiating all act as supporting evidence in determining the meaning of words / expressions used in the contract
• it is a risky approach to hope the Court will interpret your exclusion clause in the same way as other cases – each case turns on its own facts
• a reminder to review the language used when excluding liability for profits – is it clear whether these are direct, indirect or consequential losses and how should the word ‘anticipated’ be construed if you are using that language – what are you intending to capture here?
• this was not a unanimous decision. The judgment shows the complexities of interpreting exclusion clauses but also could indicate a right to appeal – will the Supreme Court have an opportunity to express their view?!

EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70

Safe and sustainable e-commerce in the EU

On 5 February 2025, the European Commission announced their approach to addressing the challenges posed by e-commerce imports into the EU which “pose a risk to the health and safety of consumers, … raise challenges for the environment, and create an unfair playing field for businesses”.  Businesses that import products directly to EU consumers should be aware of the EU’s invigorated approach which includes:

• Safety and product compliance
• Addressing the environmental impact of short life, non-compliant products
• Measures to encourage compliance and competition

Whilst law/policy already operate to address these issues, the increase in imports and lack of compliance has led to the Commission calling for strengthened co-operation across Member States and proactive monitoring.  Particular focus will be on:

• Customs reform – a drive from the Commission to push its 2023 customs reform package through as legislation with a target date of 2026. This could see improvements to the supervision and control of the flow of goods entering the EU for direct shipment to consumers using technology and a risk management approach to screen goods and their supply chains.  The package of reforms include a new Union Customs Code; simplified tariffs for low value shipments and the removal of the duty exemption for low-value parcels worth less than €150; a VAT proposal to extend the scope of “Import One Stop Shop” so online sellers and marketplaces become “deemed importer” and are responsible for collecting and reporting the duties and VAT; introducing a handling fee for importers of e-commerce items to consumers and a new EU Customs Authority to oversee these measures
• Environmental protection – the first action plan under the Ecodesign for Sustainable Products Regulation is scheduled for April 2025 – this will determine the priority product groups for adopting sustainability requirements. A push for the adoption of the revision to the Waste Framework Directive (which introduces extended producer responsibility ‘EPR’ for textiles and footwear).  This will run alongside measures already adopted on EPR in the regulation of packaging and packaging waste (now in force, see our LinkedIn update) and the regulation on batteries and waste batteries.  There are also plans for a Circular Economy Act to further develop EPR and strengthen enforcement.
• A targeted approach on imports shipped directly to consumers from online marketplaces. This includes introducing a customs Priority Control Area (‘PCA’) focused on third-country products with significant safety hazards and risk of non-compliance; launching a new coordinated Activity on the Safety of Products (‘CASP’) to improve co-operation between customs and market surveillance authorities.  Expect a push to maximise the powers and enforcement which emanate from the Market Surveillance Regulation and General Product Safety Regulation
• Intensifying action under the Digital Services Act on major online marketplace compliance and prioritising enforcement under the Digital Markets Act
• Use of digital tools to address the issues raised above such as digital product passports (‘DPPs’) (first action plan expected in April 2025), streamlining existing databases and AI tools for the detection of illegal goods
• Use of education and awareness raising to empower consumers and encourage voluntary action from traders (especially those outside the EU)
• Joint working with authorities in third countries (such as China) on the compliance requirements for placing products in the EU market

The Commission has set themselves a target of 12 months to review the progress of actions announced and whether further actions or proposals are necessary for the achievement of its aims.

Data, privacy and cyber round up

Tap into our latest quarterly edition of Updata with coverage on the following hot topics:

• ongoing efforts globally to address the opportunities and challenges posed by Artificial Intelligence (AI)
• an NGO has been granted "qualified entity" status in Austria and Ireland, signalling an increase in privacy related litigation in 2025
• new data law developments such as the UK’s Data (Use and Access) Bill, Hong Kong’s Protection of Critical Infrastructures (Computer Systems) Bill, and further NIS2 implementation progress across the EU
• updates on regulations concerning the use of cookies and similar technologies
• intensifying global initiatives to enhance online safety
• continued regulatory focus on Facial Recognition Technologies (FRT)

Guidance on the EU AI Act now that it has started to apply

In the month which sees the global conference on AI Safety in France (on 10/11 February), a number of developments have been published relating to the EU AI Act which started to apply (in part) from 2 February 2025:

• from 2 February 2025 the EU AI Act provisions in respect of prohibited practices, the AI system definition and AI literacy started to apply
• on 4 February 2025, the European Commission (‘EC’) published draft guidance on the prohibited AI practices under Article 5 of the Act which came into force on 2 February. These include practices such as “harmful manipulation, social scoring, and real-time remote biometric identification”.  The purpose of the guidance is to aid a uniform approach in           applying the Act and aid understanding of the Act’s requirements but note it is non-binding, and   the authoritative interpretation will be left to the Court of Justice (CJEU)
• on 4 February 2025, the EC published the EU AI Office’s work to compile a ‘living repository’ of AI literacy practice examples from those organisations who pledged participation in the AI Pact. Article 4 of the AI Act requires providers and deployers of AI systems to ensure a sufficient level of AI literacy of their staff and anyone using the systems on their behalf – the repository “aims to encourage learning and exchange among providers and deployers of AI systems” and may help organisations understand Article 4’s requirements (albeit following the examples provided does not presume compliance).  For our suggested approach see: AI Literacy e-learning promo - Eversheds Sutherland
• on 6 February 2025, the EC published draft guidelines on the AI System definition “to assist providers …in determining whether a software system constitutes an AI system to facilitate the effective application of the rules”. The guidelines take the seven elements of the definition:
  • a machine-based system
  • that is designed to operate with varying levels of autonomy
  • that may exhibit adaptiveness after deployment
  • and that, for explicit or implicit objectives
  • infers, from the input it receives, how to generate outputs
  • such as predictions, content, recommendations, or decisions (i.e. the techniques which enable inference)
  • that can influence physical or virtual environments

and provide an explanation of what each component means. 

Whilst the guidance is still to be formally adopted (this will likely take place when all language versions are available), non-binding and designed to evolve over time, businesses within the scope of the EU AI Act are recommended to review the drafts and adjust any of their policies and procedures to align with the recommended compliant approach.