AB v CD
| Jurisdiction | England & Wales |
| Judge | Lord Justice Underhill,Lord Justice Ryder,Lord Justice Laws |
| Judgment Date | 06 March 2014 |
| Neutral Citation | [2014] EWCA Civ 229 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2014/0223 |
| Date | 06 March 2014 |
[2014] EWCA Civ 229
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM the High Court, Queen's Bench Division
Mr Justice Stuart-Smith
HQ13X06107
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Laws
Lord Justice Ryder
and
Lord Justice Underhill
Case No: A2/2014/0223
Roger ter Haar QC and Michael Taylor (instructed by Lewis Silkin LLP) for the Appellant
Terence Bergin (instructed by Kemp Little LLP) for the Respondent
Hearing date: 12 February 2014
INTRODUCTION
This appeal raises a point of principle about the proper approach to the grant of an interim injunction. It is trite law that such an injunction will not be granted if damages would be an adequate remedy for the wrong, if proved: indeed the same rule applies to final injunctions. But how does that apply in cases of an alleged breach of contract where the contract contains a provision limiting the recoverable damages to below what might otherwise have been awarded as a matter of general law ?
That being the only issue, I can summarise the facts very briefly. The Respondent owns the intellectual property rights in an internet-based platform for the sale and purchase of goods and services in, primarily, the international mining and metals business: I will refer to it as the eMarketplace. It has granted a licence to the Appellant to market the eMarketplace in the Middle East. The exploitation of that licence is the Appellant's only business, and it has at present only a single customer, though it says that its prospects for expansion are good. The Respondent has purported to terminate the licence with effect from the end of 2013. The Appellant claims that it is not entitled to do so under the terms of the Licence Agreement. The Agreement, which is governed by English law, contains an arbitration clause and the Appellant has commenced arbitration proceedings; but in the meantime on 20 December 2013 it brought the present proceedings in the Queen's Bench Division seeking an interim injunction under section 44 of the Arbitration Act 1996 "requiring the [Respondent] to continue in all respects to perform its obligations under the Licensing Agreement … and restraining the [Respondent] from terminating or suspending the … Agreement pending the Award in the arbitration …".
The Appellant's application came before Stuart-Smith J on 31 December 2013. It was represented by Mr Michael Taylor; the Respondent was represented by Mr Terence Bergin. At the conclusion of the hearing the Judge announced his decision to refuse relief. He gave his reasons in a judgment handed down on 3 January 2014. He had to deal with a number of issues, but his reasoning can be sufficiently summarised for present purposes as follows.
First, he considered whether there was a serious issue to be tried. He held that there was, and since that conclusion is not challenged I need not reproduce his reasoning.
Secondly, he considered whether damages were an adequate remedy. The loss that would be suffered if the licence were withdrawn would be that the Applicant would be unable to make profits from marketing the eMarketplace, and on the face of it damages could be claimed for the loss of those profits. In his skeleton argument and oral submissions Mr Taylor argued that such a claim would not give an adequate remedy in circumstances where the likely consequence of the breach was that the Appellant would go out of business altogether and/or because it would be unable to fund the arbitration. Stuart-Smith J rejected those arguments: again, I need not give his reasons. However, in the course of his oral submissions Mr Taylor sought to rely also on the terms of a clause in the Agreement, cl. 11.4, which purported to exclude liability for loss of profits in the event of breach (or indeed of any cause of action) and also to cap the recoverable damages under any head of claim according to a prescribed formula: I set the clause out in full at para. 10 below. In fact it appears that Mr Taylor initially relied on cl. 11.4 only in connection with his argument that it would not be possible to fund the arbitration, but Stuart-Smith J considered more generally whether the fact that an award of damages would, by reason of the clause, be far less than the loss for which the Appellant could otherwise recover meant that damages could not be regarded as an adequate remedy. He reviewed several authorities which I shall have to consider below and came to the conclusion that he should follow the decision of Akenhead J in Ericsson AB v EADS Defence and Security Systems Ltd. [2009] EWHC 2598 (TCC), [2010] BLR 131. The effect of that case is that where the parties to a commercial contract have agreed that in the event of a breach damages for certain heads of loss will be irrecoverable it is right, in considering whether an injunction should be granted, to ignore the fact that the innocent party may suffer loss falling under those heads. He gave his conclusion at para. 38 of his judgment as follows:
"Applying this approach to the facts of the present case, the commercial expectations of the parties were set by the package of rights and obligations that constituted the Licensing Agreement. That package included Clause 11.4. Assuming for the sake of argument that Clause 11.4 would be effective to block any claim for loss of profits that would otherwise accrue to the Claimant after 31 December 2013 if the termination is unjustified, that is part of the price that the Claimant agreed to pay when executing the Licensing Agreement. That being so, it is not unjust to the Claimant to exclude the effect of Clause 11.4 when considering whether or not it should be left to its remedy in damages."
The Judge concluded, accordingly, that the application should be refused because the Appellant had an adequate remedy in damages. He proceeded nevertheless to consider whether, if he had reached the opposite conclusion, the balance of convenience would have favoured the grant of an injunction. He held that it would. Again, since that conclusion is not challenged I need not set out his reasons.
Stuart-Smith J added a postscript to his judgment to the effect that although he had thought it right to follow the decision in Ericsson he believed that there was a tension between that decision and other authority to which I shall refer below and that he felt some unease at the result. He gave permission to appeal.
On the appeal before us the Appellant has been represented by Mr Roger ter Haar QC, leading Mr Taylor. The Respondent has again been represented by Mr Bergin. The only issue raised by either party is whether the Judge was right to disregard the effect of clause 11.4. It appears that if he had taken it into account he would have granted relief; and although Mr Bergin made no formal concession that if he were wrong on this issue the injunction should be granted he advanced no positive case to the contrary.
Since the application was made in connection with arbitration proceedings it was heard in private – see CPR 62.10. The Judge permitted publication of the judgment because of the wider interest of the issues raised, but he agreed that it should be reported in anonymised form because of the risk that the Appellant would suffer commercial damage if its identity were revealed. Mr ter Haar asked for that anonymity to be maintained, and Mr Bergin did not oppose that application. In the circumstances we agreed to take the same course as the Judge.
CLAUSE 11.4
Clause 11.4 of the Agreement reads as follows:
"Except for liability resulting from breach of clause 9.2, 9.3, 9.5 and/or 9.7, or obligations arising under clause 11.1, in no event will either Party be liable to the other Party or any third Party for loss of data, lost profits, costs of procurement of substitute goods or services, or any exemplary, punitive, indirect, special, consequential or incidental damages, under any cause of action and whether or not such Party or its agents have been advised of the possibility of such damage. Except as provided in clause 11.3 and 11.6, either Party's total liability in contract, tort, negligence or otherwise arising out of or in connection with the performance or observance of its obligations, or otherwise, in respect of this Agreement shall be limited to a sum equal to the total amount RevShare entitlement of that Party during the previous six (6) calendar months prior to the calendar month in which such damages accrued. This limitation will apply notwithstanding any failure of essential purpose of any limited remedy provided herein."
None of the exceptions provided for is material for present purposes.
It will be seen that the clause has two elements:
• First, liability is excluded for a number of types of loss, including "lost profits", and heads of damage. Fortunately I do not need to express a view about what precisely the multitude of different terms used might cover, but clearly they have a very wide range; and it is not altogether easy to conceive of circumstances in which either party could recover substantial damages for a breach of the Agreement.
• Secondly, there is a cap on such damages as might nevertheless be recoverable. The workings of the prescribed formula were not explained to us. We were told by Mr ter Haar that his clients believed that in the circumstances of the present case its effect would be to cap their damages at some £17,000. Mr Bergin had no instructions about whether that was correct.
Mr ter Haar did not formally concede that clause 11.4 was in fact effective or...
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