AB v CD [2014] EWCA Civ 229

Summary

The English Court of Appeal has held that a claimant seeking an injunction to prevent an alleged wrongful termination of a contract was entitled to argue that damages could not be an adequate remedy for a breach of contract because recoverable damages were limited by a clause in that contract.

The Court found that the rule that an injunction should not be granted where damages would be an adequate remedy, should be applicable only where it is just and in the present circumstances it was just to grant an injunction, as the loss caused by the threatened breach would not be recoverable in damages.

Facts

The Claimant sought an interim injunction preventing the defendant from terminating a licence to market the sale and purchase of intellectual property rights. The Claimant commenced arbitration proceedings and sought an injunction pursuant to Section 44 of the Arbitration Act 1996 requiring the defendant to continue to perform his obligations under the contract pending the conclusion of the Arbitration proceedings. The Claimant argued that damages would not be adequate remedy as the contract excluded liability for a number of types of loss and capped the recoverable damages recoverable.

Decision

The Court of Appeal accepted the appellant's argument that injunction should be granted where damages could not be considered an adequate remedy.

The Court held that the primary obligation of a party is to perform the contract. The requirement to pay damages in event of a breach of that contract is a secondary obligation and a clause which restricts the entitlement to recover damages cannot be treated as an agreement to excuse the performance of primary obligation.

The Court went on to state that the rule that an injunction should not be granted where damages would be an adequate remedy should be applied to make the situation just. It in no way undermines the commercial expectations of the parties as the primary expectation of the parties is that they perform their obligations under the contract. 

However, the Court also held that the party applying for an injunction would still have to show, that if there is a breach, the potential loss suffered would be recoverable but for the clause limiting damages.

Conclusion

This case provides an interesting discussion on this subject as there does not appear to be an Irish authority on the issue.  It is clear that in the present case the Court felt that the justice of the case required the granting of an injunction as otherwise a party could potentially breach a contract without effective consequences. 

It is important for contracting parties to note that limitation of liability clauses may not prevent injunctive relief.