An interim injunction is a powerful form of emergency relief available from the English courts in certain circumstances before a dispute is determined, which may either restrain a party from doing a specific act or require it to do a specific act. The general rule is that such an injunction will not be granted by the court if it considers that damages would be an adequate remedy for the wrong. In the recent decision of AB v CD, the Court of Appeal considered what effect a contractual term limiting recoverable damages might have on this rule.

The parties had entered into a licensing agreement in relation to the defendant’s internet‑ based electronic platform. However, in 2013 the defendant gave notice of its intention to terminate. The claimant denied that the defendant was entitled to terminate, and made a request for arbitration under the LCIA Rules and an application under section 44 of the Arbitration Act 1996 for an injunction to restrain the defendant from terminating pending the resolution of that arbitration. At first instance the judge accepted that there was a serious issue to be tried as to whether or not the proposed termination was wrongful, but he considered that if the termination went ahead it would be open to the claimant to pursue a loss of profits claim. The injunction was therefore refused and the claimant appealed, principally relying on the fact that damages would not be an adequate remedy due to the existence of a clause in the licensing agreement which limited liability for lost profits.

On appeal Lord Justice Underhill noted that the authorities directly considering the relevance of an exclusion or limitation clause to the question of whether damages are an adequate remedy are surprisingly few. However, in his view the Court of Appeal’s decision in Bath and North East Somerset District Council v Mowlem plc (2004) constituted binding authority on the point. In that judgment the court drew a distinction between two “contexts”: a claim to recover damages and a claim for an injunction which is designed to avoid any cause for a claim to such damages. He considered that the decision in Mowlem meant the parties’ agreement as to the quantification of loss will be conclusive in the former context but not in the latter. Observing that the primary obligation of a party is to perform the contract, Lord Justice Underhill commented that the requirement to pay damages in the event of a breach is a secondary obligation, and an agreement to restrict the recoverability of damages in the event of a breach cannot be treated as an agreement to excuse performance of that primary obligation. Thus it was right to reject arguments that, even where a provision limits the victim of a breach to damages which bear no relation to its loss, those damages must be regarded as an adequate remedy – the “rule” that an injunction should not be granted where damages would be an adequate remedy should be applied in a way which reflects the substantial justice of the situation.

The defendant sought to argue that the consequences of this decision could be far reaching, and that in every case where the victim of a threatened breach of contract seeks an interim injunction, they could rely on an exclusion or limitation clause to claim that damages would not be an adequate remedy. Unsurprisingly Lord Justice Underhill considered this overstated the consequences of the case, since it will still be necessary for a claimant to show that, if the threatened breach were to occur, there would be a substantial risk that they would suffer loss that would otherwise be recoverable, notwithstanding the existence of a contractual limitation, and further it will still be up to the court to exercise its discretion to determine whether to order an injunction or not. It is therefore unlikely that parties will change their approach to the inclusion of limitation clauses in their agreements. Nevertheless, this decision means that it will no longer be possible for defendants to escape an injunction which may require them to perform their contractual obligations by simply relying on the existence of a limitation clause.

AB v CD [2014] EWCA Civ 229