In Coventry v Lawrence [2014] UKSC13 the question when damages may be awarded in lieu of injunction was recently considered at the highest level in England and Wales. The Supreme Court took the opportunity to signal a move away from the strict criteria of the “good working rule” laid down by A L Smith LJ in Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287, which had been applied by the Court of Appeal as recently as 2007 in Regan v Paul [2007] Ch 135 and 2009 in Watson v Croft Promosport Ltd [2009] 3 All ER 249.

The case concerned noise emanating from a speedway stadium and motocross circuit near Mildenhall in the Suffolk countryside. The trial Judge found that it amounted to a nuisance and granted an injunction to a neighbour restraining activities which created more than a specified level of noise. The Court of Appeal overturned the Judge’s decision on the ground that the activities carried on at the stadium and on the circuit did not amount to a nuisance. It did not therefore go on to consider the appropriate remedy. The issue was however before the Supreme Court on the appeal to that court.

In Shelfer the Court of Appeal upheld the trial judge’s decision to grant an injunction to restrain noise and vibration. A L Smith LJ said:

“[A] person by committing a wrongful act…is not thereby entitled to ask the court to sanction his doing so by purchasing his neighbour’s rights, by assessing damages in that behalf, leaving his neighbour with the nuisance, or his lights dimmed, as the case may be. In such cases the well known rule is not to accede to the application, but to grant the injunction sought, for the plaintiff’s legal right has been invaded, and he is prima facie entitled to an injunction.

There are however cases in which this rule may be relaxed and in which damages may be awarded in substitution…In my opinion, it may be stated as a good working rule that-(1) If the injury to the Plaintiff’s legal rights is small,(2) And is one which is capable of being estimated in money,(3) And is one which can be adequately compensated by a small money payment,(4) And the case is one in which it would be oppressive to the defendant to grant an injunction, then damages in substitution for an injunction may be given.

There may also be cases in which, though the four above-mentioned requirements exist, the defendant by his conduct, as, for instance, hurrying up his buildings so as if possible to avoid an injunction, or otherwise acting with a reckless disregard to the Plaintiff’s rights, has disentitled himself from asking that damages may be assessed in substitution for an injunction.”

In Coventry Lord Neuberger, with whom Lords Mance, Clarke, Sumption and Carnwarth largely agreed, reviewed a number of the subsequent leading cases on the topic and said:

“…the approach to be adopted by a judge when being asked to award damages instead of an injunction should, in my view, be much more flexible than that suggested in the recent cases of Regan and Watson. It seems to me that (i) an almost mechanical application of A L Smith LJ’s four tests, and (ii) an approach which involves damages being awarded only in “very exceptional circumstances”, are each simply wrong in principle, and give rise to a serious risk of going wrong in practice….”

The court’s power to award damages in lieu of an injunction involves a classic exercise of discretion, which should not, as a matter of principle, be fettered, particularly in the very constrained way in which the Court of Appeal has suggested in Regan and Watson. And, as a matter of practical fairness, each case is likely to be so fact-sensitive that any firm guidance is likely to do more harm than good.

Lord Neuberger adopted the observation of Millett LJ in Jaggard v Sawyer [1995] 1 WLR 269, 288, where he said:

“Reported cases are merely illustrations of circumstances in which particular judges have exercised their discretion, in some cases by granting an injunction, and in others by awarding damages instead. Since they are all cases on the exercise of a discretion, none of them is a binding authority on how the discretion should be exercised. The most that any of them can demonstrate is that in similar circumstances it would not be wrong to exercise the discretion in the same way. But it does not follow that it would be wrong to exercise it differently.”

He then continued:

Having approved that statement, it is only right to acknowledge that this does not prevent the courts from laying down rules as to what factors can, and cannot, be taken into account by a judge when deciding whether to exercise his discretion to award damages in lieu. Indeed, it is appropriate to give as much guidance as possible so as to ensure that, while the discretion is not fettered, its manner of exercise is as predictable as possible. I would accept that the prima facie position is that an injunction should be granted, so the legal burden is on the defendant to show why it should not.

He said that he would cautiously approve the observations of Lord Macnaghten in Colls v Home & Colonial Store Ltd [1904] AC 179, 193, where he said:

“In some cases, of course, an injunction is necessary - if, for instance, the injury cannot fairly be compensated by money - if the defendant has acted in a high-handed manner - if he has endeavoured to steal a march upon the plaintiff or to evade the jurisdiction of the Court. In all these cases an injunction is necessary, in order to do justice to the plaintiff and as a warning to others.”

Lord Neuberger continued:

But if there is really a question as to whether the obstruction is legal or not, and if the defendant has acted fairly and not in an unneighbourly spirit, I am disposed to think that the Court ought to incline to damages rather than to an injunction. It is quite true that a man ought not to be compelled to part with his property against his will, or to have the value of his property diminished, without an Act of Parliament. On the other hand, the Court ought to be very careful not to allow an action for the protection of ancient lights to be used as a means of extorting money.

…..when a judge is called on to decide whether to award damages in lieu of an injunction, I do not think that there should be any inclination either way (subject to the legal burden discussed above): the outcome should depend on all the evidence and arguments.

Lord Neuberger concluded as follows:

Where does that leave A L Smith LJ’s four tests? While the application of any such series of tests cannot be mechanical, I would adopt a modified version of the view expressed by Romer LJ in Fishenden v Higgs & Hill (1935)153 LT 128, 141. First, the application of the four tests must not be such as “to be a fetter on the exercise of the court’s discretion”. Secondly, it would, in the absence of additional relevant circumstances pointing the other way, normally be right to refuse an injunction if those four tests were satisfied. Thirdly, the fact that those tests are not all satisfied does not mean that an injunction should be granted.”

So Judges are to have a wider discretion than in the recent past when considering whether to grant an application for an injunction or to award damages in lieu. The practitioner is therefore left with the task of advising his or her client as to the merits of obtaining or resisting an application for an injunction against a more uncertain legal background. What’s new?