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||Neutral Citation Number:  EWHC 2598 (TCC)
||Case No: HT-09-407
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
THE HONOURABLE MR JUSTICE AKENHEAD
Alex Charlton QC and Matthew Lavy (instructed by Clyde & Co) for the Claimant
Michael Douglas QC and Simon Henderson (instructed by Eversheds LLP) for the Defendant
Hearing dates: 19 October 2009
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Akenhead :
- EADS Defence and Security Systems Ltd ("EADS") is the British subsidiary of a Dutch company; EADS supplies and provides defence, security and public facility systems. EADS was appointed in about 2007 by the Secretary of State of the Department for Communities and Local Government ("CLG") to provide an emergency communications system to the Fire and Rescue Service in England, known as FiReControl. This was intended to be a significantly more efficient system than is currently in place and would involve a much quicker and more coordinated response to emergency calls to the Fire Services.
- Ericsson AB ("Ericsson") is a Swedish company which amongst other things develops and provides telecommunication systems and services.
- By a written agreement dated 20 June 2007 ("the Agreement"), EADS employed Ericsson on a sub-contract basis to develop and supply software and provide related support services. Ericsson agreed to supply the Initial Supplied Software ("ISS") which was or was based on a software system owned by Ericsson known as CoordCom. This system was to be a key element in the overall systems and would coordinate and manage the response of the emergency services.
- There are two applications before the Court, the first issued on 12 October 2009 by Ericsson seeking to prevent EADS from terminating the Agreement at least before an adjudication commenced by Ericsson has run its course or until trial or further order and the second issued by EADS on 13 October 2009 which seeks an order preventing Ericsson from taking any further steps in the adjudication and seeking a declaration that any decision would be invalid.
- I will address the issues between the parties in relation to the two sets of applications, namely the injunction to prevent termination prior to the outcome of adjudication and secondly whether any adjudication on the issue can proceed at all. I will first set out relevant terms of the Agreement followed by a relatively brief analysis of the evidence and the facts.
- This was an agreement by which the parties had to have regard to Milestones, 14 in number, as set out in Schedule 4. By Clause 6.1, Ericsson undertook to:
"… ensure that each Milestone shall be successfully met by the relevant Milestone Date, to the extent it is not delayed or prevented by any event beyond its reasonable control or by any act or mission [sic] (including any delay or failure) of EADS or by a Force Majeure Event or a Relief Event or Compensation Event. There shall be no liability on Ericsson for failure to meet any Milestone or Milestone Date, other than the Milestones numbered 3 and 5 as defined in the Milestone Table."
- It is Milestone 5 which is currently at the centre of the disputes between the parties. It involves the release of the ISS and the contractual delivery date is said in Schedule 4 to be 7 January 2009. Clause 21.1 requires Ericsson upon becoming aware that it will not or is unlikely to be able to meet a Milestone Date to give notice to that effect to EADS. Clause 23 contains in effect an extension of time provision for delays caused by amongst other things Relief or Compensation Events. There are requirements for Ericsson to notify EADS of any such Events shortly after it has become aware that they have caused or are likely to cause delay; it is at least arguable (Clause 23.6) that no or limited relief is available if these notification provisions are not complied with by Ericsson.
- Clause 25 makes provision for liquidated damages for failure of Ericsson to meet Milestones 3 and 5:
"25.1 Subject to Clause 25.2, if Ericsson fails to meet Milestones numbered 3 and 5… by the relevant Milestone Date it shall be liable to pay to EADS upon demand the sum of money specified in Schedule 4 as liquidated damages in respect of each Business Day of the Liquidated Damages Period. Such payment shall be in full and final settlement of and exclusive compensation for Ericsson's liability for all losses, liabilities, damages, costs and expenses arising from, out of or in respect of such delay incurred or suffered by EADS for the period up to and including the end of the Liquidated Damages Period. If the cause of such delay has not been rectified at the expiry of the relevant Liquidated Damages Period, EADS shall be entitled subject to the provisions of Clause 19 to any remedy available to it for all losses, costs, damages or expenses incurred as a result of such delay accruing after the end of the Liquidated Damages Period.
25.2 For the purposes of this Clause 25 (Liquidated Damages), if and to the extent that a delay is demonstrated by Ericsson to have been caused by an event beyond its reasonable control or by any act or omission (including any delay or failure) of EADS or by Force Majeure or a Relief Event or Compensation Event, the liquidated damages shall be avoided or reduced pro rata accordingly. No liquidated damages shall be payable or due unless EADS is able to demonstrate to Ericsson that EADS has incurred and paid out liquidated damages to the Authority under the Principal Agreement and such payment has been made as a result of Ericsson's delay. EADS shall only be entitled to deduct liquidated damages due under Clause 25.1 from Charges owed to Ericsson under this Agreement (and which relate to non-Services Charges) and in no other way.
25.3 Both Parties acknowledge that any liquidated damages specified in Schedule 4 (Milestones) do not exceed a genuine pre-estimate of the loss likely to be suffered by EADS…"
There is an issue between the parties as to whether the Liquidated Damages entitlement is the exclusive remedy available to EADS during the Liquidated Damages Period, which is 15 Business Days or three weeks.
- Provision is made for termination including in Clause 28 voluntary termination by EADS on three months notice, albeit that this is subject to compensation being payable. Clause 29 enables EADS to terminate where there has been a "Material Default", which is "any material breach [by Ericsson] of its obligations under this Agreement". Clause 29.3 states:
"The following Clauses shall apply where there is a Material Default…
29.3.2 …EADS shall be entitled to either (i) serve notice of default requiring Ericsson to remedy the Material Default referred to in such notice of default (if the same is continuing) within such period as may be reasonable in the circumstances (which time period shall in any case be at least …15 Business Days of the date of receipt of such notice of default)…For the purposes of determining a reasonable timescale for the purposes of this Clause, EADS must take into account the actual impact of the Material Default on the availability of the FiReControl Services to members of the public."
Clause 29.4 enables EADS to terminate the agreement in its entirety by notice if "the Material Default notified in a notice of default served under Clause 29.3.2…is not remedied before the expiry of the period referred to in that Clause…"
- There are provisions for "Changes" to be implemented. Clause 11.1 sets up a Change Control Procedure and Clause 11.2 provides that no change is to be of any effect if it does not comply with the Schedule 16 Procedure.
- Clause 16 provides for confidentiality in a number of respects. Clause 16.3 states as follows:
"Unless otherwise required by any relevant law (but only to that extent), Ericsson shall not…make or permit or procure to be made any public announcement or disclosure (whether for publication in the press, the radio, television screen or the internet or any other medium) of its involvement in this Project or any matters relating to it, without the prior consent of EADS. Where such announcement refers to Ericsson, EADS shall consult with and obtain the consent of Ericsson to such announcement or disclosure, unless the announcement is due to material breach of this Agreement by Ericsson."
- Clause 19.1 provides for limitations of liability for each party:
"Subject to [various exceptions], in no event shall either Party be liable to the other Party under this Agreement for:
a) loss of production, loss of profit, loss of use, loss of business or market share, loss of data… loss of revenue, loss of anticipated savings or any other economic loss, whether direct or indirect; or
b) any special, indirect, incidental or consequential damages,
whether or not the possibility of such damages could have been reasonably foreseen and whether or not actually contemplated by the Parties and whether as a result of or arising from breach of contract, warranty or tort (including negligence) or otherwise."
Clause 19.2 provided that, subject to certain exceptions, the maximum aggregate liability of either party was to be "limited to 125% of the Charges paid or payable in the Contract Year prior to the Contract Year that the event or cause giving rise to the relevant claim arises".
- The Dispute Resolution clause is Clause 31:
"31.1: Any dispute arising in relation to any aspect of this Agreement shall be resolved in accordance with this Clause 31 (Dispute Resolution).
31.2: If a dispute arises in relation to any aspect of this Agreement, Ericsson and EADS shall first consult in good faith in an attempt to come to an agreement in relation to the disputed matter.
31.3: If Ericsson and EADS fail to resolve the dispute through such consultation within …10 Business Days, either Party may give notice of its intention to proceed to mediation in accordance with the…CEDR Model Mediation Procedure for long-term contracts, or to refer the matter to adjudication.
31.4: Following service of a notice of intention to refer … a dispute to adjudication in accordance with Clause 31.2… or Clause 31.3…, the Parties shall use all reasonable endeavours to agree the appointment of an Adjudicator provided always that if the Parties are unable to agree on the identity of such an expert within …2 days of such notice, the Party which served such notice shall request the President for the time being of the Chartered Institute of Arbitrators to appoint an Adjudicator within …5 days of such request and such appointments shall be effective for all purposes of this Agreement.
31.5: Within…5 Business Days of appointment in relation to a particular dispute, the Parties shall submit in writing their respective arguments. The Adjudicator shall, in his absolute discretion, consider whether a hearing is necessary in order to resolve the dispute.
31.6: In any event, the Adjudicator shall provide to both Parties his written decision on the dispute within …20 Business Days of appointment (or such other period as the Parties may agree after the reference, or… 30 Business Days from the date of reference if the Party which referred the dispute agrees). Unless and until revised, cancelled or varied by a decision of the courts, the Adjudicator's decision shall be final and binding on both Parties save for manifest error."
Clause 31 contains no express provision for any rules specifically to apply to the adjudication. Clause 31.8 makes it clear that "the Adjudicator shall be deemed not to be an arbitrator but shall render his decision as an expert". All adjudication proceedings are required by Clause 31.10 to be kept "strictly confidential".
- Finally, Clause 42.1 deals with the governing law and jurisdiction relating to this agreement:
"This Agreement shall be subject to the laws of England and Wales…Subject to the provisions of the Dispute Resolution Procedure…both Parties agree that the courts of England and Wales shall have exclusive jurisdiction to hear and settle any action, suit, proceeding or dispute arising out of or in connection with this Agreement and irrevocably submit to the jurisdiction of those courts".
The facts and the evidence
- I do not propose to set out a summary of all the evidence but only that which is sufficient to enable me to identify sufficient key facts, disputed or otherwise, for the purposes of rendering this reasoned decision in draft within a sufficiently short time to assist the parties to pursue a proposed mediation on Wednesday 21 October 2009. I have however considered in detail the witness statements of Messrs. Johnson, Young, Svensson and Sharp for Ericsson and those of Messrs. Diggle, Olivier, Tyler and Ryder and Ms Knight for EADS, together with the extensive attachments and contemporaneous documents. I should make it clear that any findings of fact which I make are only in relation to those applications before me and are not intended to bind any adjudicator or trial judge in the future.
- Ericsson started work on the project in 2007. It was originally anticipated that the CoordCom software would be integrated with a Hewlett Packard database known as "HPNS". By early 2008, Ericsson was reporting performance problems with HPNS and in the latter part of 2008 it was resolved that HPNS would be abandoned and that Oracle 11g would be used instead.
- It seems clear that the parties were in dispute by that stage as to who was responsible or at fault with regard to this change. By about November 2008, Ericsson was reporting that ISS delivery would be January 2010 (compared with January 2009 in the Agreement). EADS was most unwilling to accept this. Ericsson sent to EADS on 11 December 2008 a further "Programme Planning Update" suggesting that an October 2009 date was possible. A meeting took place in London on 18 December 2008 attended by five representatives of EADS and six of Ericsson. Ericsson sent the minutes which they had prepared, material parts of which are:
"Both parties discussed the need to share risk and a compromise delivery date was agreed"
That date was 31 August 2009 in effect for the delivery of the ISS. Some "Action Points" were set out in the minutes one of which was that a Contract Change Note to cover the revised schedule was to be agreed by 9 January 2009.
- Various Change Control Notes were prepared by EADS which covered the change to Oracle 11g but they contained a Caveat:
"EADS recognises this work needs to be undertaken and completed in the timescales stated, in order to meet the FiReControl risk mitigation deliverables and subsequent successful delivery of the FiReControl programme. EADS also acknowledges the costs provided are deemed reasonable and therefore accept the costs for this CCN. EADS does not believe it should be liable for these costs on the basis that it considers that they arise as a result of Ericsson's failure to perform its obligations under the Project Agreement in relation to [HPNS]. Ericsson disputes EADS interpretation of this issue. EADS wish to reserve the right for reimbursement of sums paid under this CCN should the liability for the activities set out in this CCN be found to be Ericsson's liability under the Project Agreement, following a final adjudication under Clause 31… of the Project Agreement".
- Matters proceeded in early 2009 but by April 2009 Ericsson was indicating that ISS delivery would be on 30 September 2009. By late May 2009 this had slipped to 12 October 2009 and by late July 2009 ISS delivery had been put back to 25 November 2009. In their various reports to EADS, Ericsson gave various reasons why these slippages had occurred. For instance, Ericsson said (and still say) that a visit by EADS to Ericsson in Sweden in May led to significant diversion of resources to accommodate this visit with the result that several weeks delay overall occurred.
- EADS expressed great concern because their representatives believed that these delays could or would impact upon EADS' delivery programme to CLG; a key deadline was and is said to be the London Olympic Games in 2012. EADS considered that it needed to deliver to its client the whole system by May 2011 but with a full system build provided to CLG by November 2010. In effect CLG wanted or needed the system at this time before the Olympic Games so that it could be tried out operationally and so that there could be confidence in London that the system worked safely and reliably. On 17 July 2009, EADS wrote to Ericsson:
"Ericsson contractually agreed, as per Oracle Migration Change Control Notes, to deliver the fully tested ISS product by 30th September 2009, and further confirmed this during a presentation to EADS and…CLG on 15 May 2009.
EADS considers that Ericsson's actions in providing a programme plan to deliver the Oracle product on 25 November 2009 will place Ericsson in Material Default of its contractual obligations to deliver ISS on 30 September 2009. This situation is clearly unacceptable to EADS and so, by 24 July 2009, EADS requires Ericsson to review its programme plan as presented on 15 July 2009 and design a fully resourced programme plan, with defined weekly milestones, that meets the 30 September 2009 deadline for ISS.
Should Ericsson fail to deliver the programme plan, in accordance with the preceding paragraph, which leads to a release of the fully tested ISS product by 30 September 2009 then EADS will consider invoking its rights to terminate the contract for Material Default."
- This letter provoked a further exchange of correspondence over the following 2 to 3 weeks with each party blaming the other and taking relatively entrenched positions. Solicitors became involved, with, for instance, EADS' solicitors, Eversheds, writing on 24 August 2009 setting out their client's position with regard to responsibility for the HPNS dispute.
- There is no doubt on the basis of the documentation which I have seen that by September 2009 there were disputes between the parties in relation to the HPNS issues and as to what the contractual delivery date for the ISS was or had become.
- On 29 September 2009, Ericsson served notices pursuant to Clause 31.3 of the Agreement of its intention to refer to mediation the dispute as to whether or not Ericsson was contractually obliged to deliver the ISS by 30 September 2009. There seems to be no issue between the parties that this was premature or invalid in form. The letters said:
"Ericsson AB hereby gives notice to EADS…pursuant to section 31.3 of the…Agreement of its intention to refer the HPNS dispute to mediation in accordance with the…CEDR Model Mediation Procedure for long-term contracts…"
"Ericsson AB hereby gives notice to EADS…pursuant to section 31.3 of the…Agreement of its intention to refer the 30 September 2009 ISS Delivery Date dispute to mediation in accordance with the…CEDR Model Mediation Procedure for long-term contracts…"
Ericsson wrote letters to CEDR on 1 October 2009 to seek to have a mediator appointed.
- On the same day, 1 October 2009, EADS wrote to Ericsson purporting to give notice of Material Default:
"We write to give you notice under Clause 29.3.2 of the…Agreement that Ericsson's failure to deliver a fully functioning CoordCom ISS on the Oracle 11g platform…by 30th September 2009 constitutes a material default within the meaning of Clause 29.1.2 of the Agreement. For the avoidance of doubt the required functionality for the ISS is as detailed in Ericsson's CoordCom Release Planning document reference… dated 12 May 2009.
Under sub section (i) of Clause 29.3.2 we require Ericsson to remedy the material default by close of business on Thursday 22nd October 2009.
In the alternative, and without prejudice to the first notice, we give you notice of the exercise of our common law right to make time of the essence for delivery of the ISS…This second notice also requires delivery of the ISS by Thursday 22nd October 2009.
All other rights under the agreement are fully reserved."
- 1 October 2009 was a busy day because on that day Ericsson also purported to give notice of adjudication in two letters to EADS:
"Ericsson AB hereby gives notice to EADS… pursuant to section 31.3 of the…Agreement of its intention to refer [the 30 September 2009 Delivery Date Dispute] [the HPNS Dispute] to adjudication…"
The letters envisaged the mediation taking place within the next 14 days with the adjudicator producing his or her decision within 30 Business Days namely by 12 November 2009. There is no issue that these notices were in valid form.
- On 2 October 2009, EADS responded to the mediation notices and purported to accept Ericsson's "election to refer both disputes to mediation". On 5 October 2009, EADS responded to the adjudication notices to the effect that as Ericsson had elected to refer the disputes to mediation and as Clause 31.3 provided for a choice of either mediation or adjudication it was not open to Ericsson to pursue adjudication in relation to those two disputes. Ericsson disagreed and disagrees with that proposition.
- By letter dated 6 October 2009, Ericsson took issue with the purported Notice of Material Default on various grounds, namely that 30 September 2009 was not a contractual delivery date, the notice was premature, liquidated damages was an exclusive remedy in respect of a delay, EADS was responsible for the delay caused by the May 2009 visit to Sweden, Relief Events had been ignored and the Cure Period was said to be unreasonably short. The same letter purported to give notice pursuant to Clause 31.3 of Ericsson's intention to refer the question of whether the Notice of Default was valid to expert adjudication.
- Thus it is that on 12 and 13 October respectively Ericsson and EADS issued their respective applications for injunctions.
- The practice relating to interim injunctions is well established since American Cyanamid v Ethicon Ltd  AC 396. In broad terms, the court must be satisfied that Ericsson has a real prospect of success in succeeding in its claim for a permanent injunction at trial; the court must consider whether damages would or would not be an adequate remedy for Ericsson if it was refused an injunction and whether damages would be an inadequate remedy for EADS if the injunction was granted; finally, if damages would not be an adequate remedy, the court needs to consider where the "balance of convenience" lies.
- The first of these three requirements will necessarily be dependent upon the judge's assessment on the law and the facts in any given case. As for the second, Lord Justice Sachs said in Evans Marshall & Co v Bertola  1 WLR 349 at 379H:
"The standard question in relation to the grant of an injunction, "Are damages an adequate remedy?", might perhaps, in the light of the authorities of recent years, be rewritten: "Is it just, in all the circumstances, the plaintiff should be confined to his remedy in damages?"
- Mr Justice Tomlinson in Vertex Data Science Ltd v Powergen Retail Ltd  2 LL Rep 591 added to the list a dictum from the dissenting judgement of Millet LJ in Co-operative Insurance v Argyll Stores Ltd  Ch 286 at 305G:
"The equitable jurisdiction should not be exercised in a manner which would defeat the commercial expectations of the parties at the time when they entered into their contractual obligations"
Tomlinson J was of the view that this dictum had been approved in the House of Lords on the appeal ( 1 AC 15). The Vertex case involved a contract which, as in this case, excluded liability for loss of profit and the like; the learned judge went on to say in Paragraph 49, having referred to this exclusion:
"Of course, there will be issues as to the proper construction and applicability of these provisions and Vertex also contends, somewhat implausibly as it seems to me, that they are unfair and as such unenforceable. However that may be, it is not immediately obvious to me that it will be unjust for Vertex to be confined to such remedy in damages as is determined to be the extent of the bargain which it struck…"
Although the Vertex case was a case in which an injunction was refused to prevent the defendant in effect from terminating a contractual relationship between them, I exercise some caution in concluding that it sets out any general principle on what a court should do between two commercial parties in terms of injunctions when one is trying to terminate a contract. For instance, in Timeload Ltd v British Telecommunications plc  EMLR 459, the Court of Appeal upheld a first instance injunction preventing the defendant from terminating its contract. Both these cases are different from the current case.
- In Francome v Mirror Group Newspapers  1 WLR 892, Lord Donaldson MR said at 898E in "reviewing the balance of convenience", albeit in a very different type of case:
"I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression, our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not convenience."
- So far as contractual interpretation is concerned, the general principles set out in the West Bromwich case in the House of Lords are applicable. It is unnecessary to set them out in any great detail. It is however clear that commercial contracts are commercially construed in the factual context in which the contracts were entered into.
The injunction to prevent termination prior to the outcome of adjudication
- I have formed the view on the basis of all the evidence and arguments put before the court that there are serious arguable issues so far as the 30 September 2009 delivery, the HPNS problems and EADS' entitlement to terminate are concerned. It is perhaps undesirable given the impending adjudication and any final trial to go into substantial detail. As Lord Donaldson said in the Francome case, this Court is not at this stage concerned to determine the final rights of the parties.
- It is undoubtedly the case that Ericsson firmly believes and argues with some factual and legal support that it is not in default, that it is complying with its legal or contractual time obligation, that its product is a good one and that EADS has no entitlement to terminate at all.
- Against that, EADS has advanced wholly tenable arguments on the law and on the facts that Ericsson is in Material Default and that its notice is valid and the "cure period" is adequate.
- Out of respect for both sides Counsel's arguments, I will identify briefly why I cannot at this stage accept the thrust of the Ericsson argument which was to the effect that EADS' position was "hopeless" or wholly or largely untenable:
(a) the 30 September 2009 was not a contractual delivery date: on the face of the Agreement, Ericsson's original contractual obligation was apparently to achieve Milestone 5, the delivery of the ISS, by 7 January 2009. There is a largely factual dispute as to whether Ericsson was contractually responsible or at risk for the change to the Oracle 11g database. I cannot begin to resolve that. If Ericsson is contractually responsible for that, there seems little doubt that a number of months culpable delay occurred in consequence. If Ericsson is not responsible, it may well be that in effect a substantial extension of time is due. Again, I cannot determine the factual issues as to whether there were other factors such as the May 2009 visit to Sweden which delayed Ericsson and if so whether as a result Ericsson was entitled to an extension of time. There is clearly a factually arguable case that agreement was reached in December 2008 the ISS delivery should be by the end of August 2009. It is factually confusing as to whether there was some effectively binding agreement that ISS delivery should be by the end of September 2009.
(b) the notice was premature: the argument is to the effect that one day's or one second's delay beyond the close of business on 30 September 2009 was insufficient. This goes to whether or not the breach if any was material. However having regard to cases such as Dalkia Utilities Services Plc v Celtech International Ltd  1 LL Rep 599 (and in particular to Paragraphs 98 and 99 and the authorities referred to by Mr Justice Christopher Clarke), the materiality of any given breach depends upon all the circumstances, the facts and possibly the future effect of the breach. I cannot decide this issue. If it is the case that, upon a proper factual and legal analysis, it is determined that Ericsson should have completed weeks or months before 30 September 2009, that could arguably make a failure to complete by 1 October 2009 material; I doubt that it would be helpful to consider the breach as simply a one-day breach because it was given in circumstances in which Ericsson was saying that it would not complete until 25 November 2009 some eight weeks later.
(c) liquidated damages was an exclusive remedy for delay: this depends upon an interpretation of Clause 25.1. All that it is appropriate for me to say at this stage is that I consider that it is highly arguable that Clause 25.1 does not prevent or limit the operation of the termination provisions either for the Liquidated Damages Period or thereafter.
(d) EADS was responsible for the delay caused by the May 2009 visit to Sweden and Relief Events have been ignored: I have dealt with these two matters above. These are factual issues which cannot be determined on applications such as this.
(e) the Cure Period was unreasonably short: it is argued that giving Ericsson 15 Business days or three weeks was a wholly unreasonable period. Again however this is largely a factual issue which cannot be resolved at this stage on written evidence. There is a respectable argument that the Cure Period does not necessarily have to be the time which Ericsson say they need to complete or which Ericsson do actually need to complete; otherwise, it would be difficult if not impossible ever to terminate for material culpable delay.
- It follows from the above that the first threshold test in Cyanamid is satisfied. I will return in dealing with EADS' application to the issue of whether or not adjudication is effectively the only forum for the final resolution of disputes; as will be seen, I am of the view that it is not. This is not a case in which I can be satisfied that it is certain that EADS is in the wrong and that Ericsson is in the right.
- The next stage is to consider whether damages will be an adequate remedy. In broad terms, Ericsson puts forward evidence and a number of arguments to the effect that, if it is refused an injunction to prevent termination, termination will have a seriously adverse effect on its business around the world and in the UK, and in particular in relation to the CoordCom software, that up to 300 staff working on this project may have to be made redundant and that it will be "muzzled" by the confidentiality clauses from explaining its position to the commercial world at large even though it is firmly of the view that it is not in any way to blame.
- I am not satisfied that damages will not be an adequate remedy as between commercial parties in this commercial context. Both parties are in commercial terms very substantial entities. They entered into a contract which mutually prevented them from recovering most types of economic loss such as loss of profit or production. That contract contained termination clauses which could impact upon the commercial reputations of the parties. The damages which are recoverable and have not been excluded by Clause 19 are presumably not difficult to quantify; indeed it has not been argued that such damages would be difficult to quantify. I do accept that difficulties in quantification of damages can support an assertion that damages are not an adequate remedy. To answer the question posed by Lord Justice Sachs in the Evans Marshall case, I cannot see that it is unjust that a party is confined to the recovery of such damages as the contract, which it has entered into freely, permits it to recover.
- The arguments about confidentiality have somewhat greater merit. However, Clause 16.3 is prefaced with the words "unless otherwise required by any relevant law"; without deciding the point, it would seem that, if there are legal requirements in Sweden (where Ericsson is registered) or in countries where its shares or stock are traded whereby companies must report various matters to the relevant stock exchanges or in their publicised company accounts or reports, and I would assume that there are, then Ericsson through those routes can within reason put forward their side of the argument. In addition, this judgement will be a publicly available document and I have set out at least in general terms Ericsson's position. Without in any way condoning the illegal dissemination of confidential information on the Internet, it is a fact of life however that information emerges on that medium even without the active participation of the party which is bound by confidentiality provisions. Ultimately, in the event that the disputes have not been resolved in an amicable way, an open court case will decide the extent to which Ericsson was in the right. It is realistic to expect that, if the parties moved promptly in the TCC, a trial at least on the issues of liability could be concluded in 2010 and thus any unjustified damage to reputation would be of relatively limited duration.
- For the reasons given in relation to EADS' application for injunctive relief and to the issues as to the meaning of Clause 31 (see below), I am wholly satisfied that the dispute resolution provisions in Clause 31 do not by implication or otherwise suspend a party's rights under the contract to take whatever steps which it is entitled to take. Put another way in the context of this case, it is not a breach of contract in my opinion for a termination to take place even whilst a dispute as to whether it can take place has been referred to adjudication. The wording of the contract does not support such a construction, there is nothing in the termination or dispute resolution provisions to suggest it and, commercially, I would doubt very much that sensible parties would agree that all their relevant or commercially significant contractual rights would be frozen pending an adjudicator's decision, at least in the absence of very clear wording to that effect.
- The commercial reality is that, apparently, something has been going and has now gone wrong in the relationship between these two substantial parties. Whilst some friction is not uncommon in contracts such as this particularly when programmes have to be adjusted and delays occur, it begins to look as if the relationship has largely and possibly irretrievably broken down when one side takes steps to terminate the contract by reason of what is said to be material breaches on the part of the other side. EADS' evidence is to the effect that the relationship has so broken down. For instance, Mr Diggle of EADS says that EADS has "totally lost confidence in Ericsson's ability to deliver a fully functional product" and that it felt it had no alternative but to go down the route of termination. The contemporaneous evidence in terms of letters written in July to September 2009 lends some credence to this evidence. The question of whether EADS was justified legally or factually in losing confidence in Ericsson is for the reasons I have given above not possible to determine on this application.
- Ericsson through its Counsel and to some extent its witnesses seeks to argue that termination will make matters worse for EADS in that, if it has to retain a new contractor to replace Ericsson, the overall programme and time constraints are likely to be significantly more jeopardised than by keeping Ericsson on. I must assume however that EADS has considered very carefully its commercial position and the risks involved in terminating its contract with Ericsson and employing others to provide the requisite software. The Court should be slow to arrogate to itself the job of determining whether parties such as EADS are commercially doing the "sensible thing".
- There has been discussion before me about various specific points made by EADS that by reason of the belated arrival of the ISS its programme for workshops with CLG and the Fire Service over the coming months has been and will be affected. I must confess to some confusion about this as I cannot see that termination before delivery of the ISS by Ericsson will improve or assist the utility of the workshops. However this aspect of the matter is factually neutral in my judgement.
- EADS is using another company called Intergraph on various other aspects of the project and has had this firm available as a potential backup or alternative for some months. It has in fact retained Intergraph since the beginning of October to do some work on an alternative solution to Ericsson's, albeit that this retainer runs for only 20 days, unless renewed. I understand EADS' position to be that it wishes to know whether it can proceed with Intergraph in the commercial certainty that rightly or wrongly it will be permitted to terminate the Agreement with Ericsson. I can see that this is a point which is a legitimate one to make which is not eliminated by Ericsson's argument that EADS could still continue to employ Intergraph whilst continuing to employ Ericsson at least until the adjudicator has reached his or her decision.
- In all the circumstances, I do not consider having considered the competing positions of the parties that the "balance of convenience" or, as Lord Donaldson put it, justice requires me to prevent EADS from exercising what is at least on its face and subject to proof of facts a right to terminate. The effect of an injunction to restrain termination would be in effect to require two parties who have fallen out with each other and one of whom has lost confidence in the other to continue to work together in circumstances where they have a sophisticated contract which purports to provide commercial solutions and remedies when a lawful or unlawful termination occurs.
- Ericsson's application for an injunction to prevent termination is therefore refused.
Whether any adjudication on the issue can proceed at all
- The parties have agreed that I can finally resolve by way of declaration the issues which have arisen between them as to the impact of the dispute resolution clause and as to whether or not court proceedings are available to the parties on all disputes. This will determine whether or not an injunction should be granted in effect to prevent the adjudication or adjudications purportedly instituted by Ericsson from proceeding.
- I will not repeat the terms in Clause 31 which are set out above. It is necessary to read Clause 31 in its contractual context and in particular bearing in mind that Clause 42 is or may be of relevance.
- The first issue is whether or not mediation and adjudication are mutually exclusive alternatives so that, if a party embarks on one in relation to a specific dispute, it cannot also at the same time or later embark upon the other. Mediation is ultimately a consensual form of dispute resolution, albeit that a contract may require a party to proceed on that route; a party cannot be forced by the other party or the mediator to settle even if the available settlement is a sensible one.
- Adjudication involves an independent third party giving a decision on a given dispute which is usually binding. Adjudication is certainly common in the construction and engineering context by reason of the operation of the Housing Grants Construction and Regeneration Act 1996; that type of adjudication is almost invariably only binding unless and until the dispute in question is finally resolved by a court or arbitrator depending upon what the parties have agreed is the tribunal of final resolution. There is now some 10 years' worth of legal precedent in relation to construction adjudications. Cases such as Bouygues v Dahl Jensen  BLR 522 are authority for the proposition that adjudicators' decisions are to be enforced even if the adjudicator was, obviously or otherwise, wrong as a matter of law or fact (or even arithmetic), provided that he or she acted fairly and within jurisdiction. This form of adjudication, usually completed within 28 days, has been described by some commentators as producing rough justice.
- One needs to construe dispute resolution provisions particularly in commercial contracts in a way which would make sense to commercial parties. I have formed the view clearly that it is open to either party on a given dispute either to mediate or to adjudicate or to do both. These are different types of dispute resolution. Clause 31.3 gives to each party a right to mediate or adjudicate; the use of the word "may" underlines that and the word " may" is in distinction to the word "shall" in the preceding sub-clause where that word is used positively to require the parties to consult each other in good faith. The wording of Clause 31.3 does not prevent or limit a party from going down either route. If the clause meant what EADS argues, that could produce a commercially ridiculous result: if, say, Ericsson gave notice of mediation on a given dispute, it would be open to EADS to give notice of adjudication on the same dispute so that both types of dispute resolution would be proceeding. Logic suggests that the parties wanted flexibility: they did not have to mediate or adjudicate and, again, the word "may" supports that. The wording does not require however that a party has both to mediate and to adjudicate. As in a number of international engineering contracts, it would have been easy for the parties to specify an absolute requirement that parties have good faith negotiations first, then mediation, then adjudication followed by the final form of dispute resolution (court or arbitration). The parties however chose, doubtless for reasons of commercial flexibility, not to have such an absolute and inflexible procedure.
- I next turn to the meaning of Clause 31.6. There are no rules applicable to this adjudication as there would be in many forms of construction and engineering adjudication. Hearings will only be called if the adjudicator in his or her absolute discretion thinks fit (Clause 31.5). One has to doubt that sensible parties would wish heavy factually complex disputes to be resolved without a hearing which could be almost irrationally refused by an adjudicator exercising his or her absolute discretion. It is of course however understandable that they might do so if ultimately there was a court or tribunal of final recourse. Similar considerations apply to such disputes being resolved within 4 weeks.
- It is true that Clause 31.1 says that any "dispute shall be resolved in accordance with this Clause 31". One needs however to look to see what it is that Clause 31 requires. As indicated above, all that Clause 31.3 seems to provide for is an option to mediate or adjudicate or to do both.
- In my view a very strong pointer is contained in the words of the last sentence to Clause 31.6: "Unless and until revised, cancelled or varied by a decision of the courts, the Adjudicator's decision shall be final and binding on both Parties save for manifest error". One needs to ask: why did the parties put in the first part of the wording "Unless…the courts"? They are completely superfluous unless the courts have (at least) some jurisdiction over disputes. If parties simply wanted to make an agreement that adjudicators' decisions were to be final and binding save for manifest error, one does not need the earlier words at all. With that difficulty in mind, Ericsson seeks to argue that it should be read as follows: "Unless and until revised, cancelled or varied by a decision of the courts for manifest error, the Adjudicator's decision shall be final and binding on both Parties."
- I can see no justification for the approach put forward by Ericsson. It is well known that adjudicators' decisions (within jurisdiction and fairly reached) can be and will be enforced by the courts if they are not honoured. There are hundreds of decisions in the TCC to that effect. Usually, errors of any sort in adjudicators' decisions do not prevent enforcement. There is therefore a good reason, in commercial terms, for the parties to have agreed wording in the exact sequence in which it appears in the clause: save and to the extent that there is some obvious error, the decision will be enforceable; without the "manifest error" wording, it would be enforceable even if there were manifest errors. Thus with the wording used by the parties, a material arithmetical error or obvious error of law on the face of the decision could prevent or limit enforcement.
- The wording in Clause 31.6 is perfectly comprehensible if what the parties were doing in Clause 31 as a whole was providing for various forms of dispute resolution but reserving to the Court the right to revise, cancel or vary the decision of an adjudicator. Similarly, if either or both parties decide not to mediate or to adjudicate, the court retains jurisdiction, as Clause 42.1 says, to hear and settle any action or dispute "arising out of or in connection with this Agreement".
- In the light of the above, there can be no injunction restraining Ericsson from pursuing remedies in adjudication in relation to delays and termination. Ericsson are free to pursue such remedies even though they have also instituted mediation. Subject to manifest error, adjudicators' decisions will be enforceable by the courts, albeit that ultimately in time the courts retain jurisdiction finally to resolve the disputes which have been the subject matter of those decisions.
- Appropriate declarations can be drafted and agreed by the parties, failing which the Court will draw the appropriate forms of wording.
- Ericsson's and EADS's applications for injunctions are dismissed. There will be declarations to reflect my findings on the Clause 31 issues.
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