AB v CD [2014] ECWA Civ 229 –

http://www.bailii.org/ew/cases/EWCA/Civ/2014/229.html

Damages limited by a contractual clause may not be an adequate remedy for breach of the contract. An injunction might therefore be available.

CD owned the IP rights in an online platform selling goods and services relating to mining and metals. AB ran the platform under a licence and it believed its prospects for expansion were good. CD tried to terminate the licence; AB claimed it wasn’t entitled to terminate and sought an injunction. The licence contained a clause excluding liability for consequential or incidental damages or loss of profits. The clause also capped recoverable damages under any head of claim according to a formula.

To grant an injunction, the court must consider that:

  • there is a serious issue to be tried;
  • damages are not an adequate remedy; and
  • the balance of convenience favours granting an injunction.

The issue here was whether the damages available should be AB’s only remedy or whether an injunction should be granted to restrict the breach.

The Court of Appeal decided that an injunction should be granted.

  • The primary obligation of a party under a contract is to perform the contract.

The requirement to pay damages for breach is a secondary obligation.

The parties should expect to perform their obligations.

  • An agreement to restrict the damages recoverable for breach isn’t an agreed price to allow a breach – it can’t be treated as an agreement to excuse performance of that primary obligation.
  • Where damages are contractually limited, the court will use its judgement to decide if there’s a substantial risk that the claimant will suffer loss that would otherwise be recoverable. The court may also take into account the impact of the breach on a claimant’s reputation and standing.
  • The court should ask itself: ‘is it just in all the circumstances that a claimant be confined to his remedy in damages?’.

There were conflicting cases on this issue, and this decision helpfully clarifies the law. When agreeing limitation of liability clauses, be aware that if there is a breach the remedies may not be limited to what was commercially agreed.