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||Neutral Citation Number:  EWHC 1 (QB)
||Case No: HQ13X06107
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
THE HONOURABLE MR JUSTICE STUART-SMITH
||- and -
Michael Taylor (instructed by Lewis Silkin LLP) for the Claimant
Terence Bergin (instructed by Kemp Little LLP) for the Defendant
Hearing date: 31 December 2013
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Honourable Mr Justice Stuart-Smith:
- The Claimant applies under s. 44 of the Arbitration Act 1996 ("the Act") for an injunction to restrain the Defendant from terminating a Licensing Agreement between the parties, pending the resolution of an arbitration commenced on 20 December 2013 under LCIA rules. The present application was issued on 20 December and heard on 31 December 2013. The Claimant's case is that the Defendant intends, without justification, to terminate the Licensing Agreement at midnight on 31 December 2013 and that this would permanently destroy the Claimant's business.
- At the end of the hearing I indicated that I was not prepared to order an injunction, for reasons that would be handed down later. These are my reasons. They are written as if delivered at the end of the hearing.
The Factual Background
- The Licensing Agreement concerns an eMarketplace (the "eMarketplace"), which is an internet-based electronic platform used internationally to buy and sell goods and services by entities involved in the mining, metals and other natural resources businesses. It provides a "cloud-based" platform for buyers and their suppliers to complete electronic purchases and sales of goods and services in a secure and private environment and is an intermediary (or portal) for supply chain transactions. Buy-side customers are charged annual membership fees and then transaction fees. The technology platform is based on a server environment which is situated in the Netherlands. All buy-side customers access the same server environment, and each is integrated. Customers' suppliers access and use the eMarketplace as a hosted solution (i.e. they connect via email and web browser).
- On the other side are the various suppliers who enter into transactions with the registered buyer customers. New suppliers pay a fee on registration. Whenever certain transactions are entered into on the eMarketplace, a transaction fee is payable by both the supplier and buyer.
The Licensing Agreement
- The Defendant is based in the Netherlands and owns the intellectual property in the eMarketplace. There is no software sold or supplied by the Defendant for use with the eMarketplace but the Defendant maintains its functionality for those who access it.
- The Licensing Agreement was made as of 1 October 2005. It was to continue to 31 December 2010 and then automatically to renew annually subject to the Defendant's entitlement to terminate pursuant to Clause 7, with each annual extension being described as an Extended Term. Under the Licensing Agreement the Claimant is licensed to market the eMarketplace, to sell eMarketplace Solutions to potential participants in the Middle East, and to supply them with training and support.
- Clauses 7.2 and 7.3 provide different contractual routes to the termination of the Licensing Agreement. The difference between the two contractual routes is immaterial for present purposes. In essence, Clause 7.2.2 entitles the Defendant to give at least 180 days notice after the commencement of one Extended Term that it does not seek a further Extended Term. Under Clause 7.3 the Defendant may terminate the Licensing Agreement at any time in an Extended Term on 180 days notice. However, the Defendant is only entitled to give notice under Clause 7.2.2 or Clause 7.3 "on the following conditions: (i) [Claimant] failing to meet in material respects the Agreed Sales and Marketing Plan, or (ii) [Claimant's] business has developed in a different direction to [the Defendant's]."
- The Agreed Sales and Marketing Plan, to which Clause 7 refers, is the subject of Clause 5. Clause 5.1 provides
"Within ninety (90) days of the Effective Date of this Agreement and by 1 September during each calendar year of the Term
, [The Claimant] will, for the purposes of Marketing Services and Sales Services, develop a marketing and sales plan for the ensuing calendar year identifying potential participants in the Primary Countries
together with its projections as to revenue and expenditure to complete the Marketing Services and Sales Services for that year."
- Clauses 5.4 and 5.5 provide for the Claimant and the Defendant to consult, collaborate and finally to agree the marketing and sales plan developed by the Claimant, which would then become the Agreed Marketing and Sales Plan referred to in Clause 7. It is clear on the evidence of Mr Ranu for the Claimant and Mr Spear for the Defendant that, at least since about 2010, the provisions of Clause 5 have not been complied with by the parties: the Claimant has not developed plans in accordance with Clause 5.1 and the Defendant has neither complained nor called for such plans to be produced for consultation and agreement.
- The Licensing Agreement is subject to English law (Clause 12.3) and contains an arbitration clause (Clause 12.4).
The Claimant's Business
- The Claimant's sole registered buy-side customer is XCo ["X"], which is directly connected to the eMarketplace via a secure integrated technology connection. X pays sums in respect of maintenance and support provided by the Claimant. The Claimant says that it continues to work to increase the number of buy-side customers but that it has met a degree of obstruction from the Defendant in its attempts to do so.
- Since 2009 the number of the Claimant's transacting suppliers has increased from 68 to 350, with the numbers in 2011, 2012 and 2013 being 323, 350 and 350 respectively.
- The evidence of Mr Ranu in support of the Claimant's application is that the revenue from the three sources identified above during the calendar year 2013 is approximately £56,000, of which approximately £22,000 is attributable to the maintenance and support under the X Contract. This is amplified by Mr Rahmann in a witness statement made yesterday, 30 December 2013. According to Mr Rahmann, the Claimant's net income after expenses for the year from 1 January 2013 to date is about US$11,000. The Claimant had made net losses in the previous two years of US$183,000 (y/e 31 December 2011) and US$119,000 (y/e 31 December 2012). The Claimant's balance sheet shows that its liabilities exceed its assets by about US$250,000, largely attributable to shareholder loans which total over US$4.8 million. The evidence does not show any marked growth in the recent past, which reflects the fact that X is and remains the Claimant's only buy-side registered customer. What is clear beyond argument is that the X contract, which is presently extended to April 2017, is the entirety of the Claimant's current business. As a result, termination of the Licensing Agreement by the Defendant will mean that the Claimant has no continuing business.
- By a letter dated 6 June 2013 the Defendant gave notice that it would terminate the Licensing Agreement at midnight on 31 December 2013. It claimed to be entitled to do so on the basis that the requirements under clause 7 were met, but provided no details supporting that assertion. The period from 6 June to 31 December 2013 amounted to over 200 days' notice.
- The Claimant replied on 25 June 2013 by its then lawyers and wholly rejected the Defendant's entitlement to terminate, expressly reserving the right to seek injunctive relief. On 8 July 2013 the Defendant repeated its intention to terminate.
- No further correspondence about the termination took place between 8 July and December of this year. Mr Ranu for the Claimant says that the Claimant hoped that the Defendant would not persist in its threat or carry it out, but no basis for that hope has been identified. Mr Spear for the Defendant says that he "reached out" to try to broker a discussion on two occasions, once in September and once in November, but that this was unsuccessful. That is largely confirmed by Mr Rahmann, who asserts that there were in fact substantive negotiations but provides no further information. The next open and effective step after 8 July was on 2 December 2013 when the Defendant reminded Claimant that the Licensing Agreement was due to come to an end on 31 December 2013.
- In response, the Claimant instructed new solicitors on 5 December 2013. They wrote to the Defendant on 18 December 2013 protesting that the termination was unjustified and repeating the intention to seek injunctive relief. On 20 December 2013 the Defendant's solicitors offered undertakings that would have provided some protection for the position of X until 28 February 2014, which was the date that the Defendant then had in mind as being the termination date for the X contract with the Claimant. This application was issued the same day, providing 4 clear days until today's return date. On the same day the Claimant made a request for arbitration under the LCIA Rules, to be heard in London. If it proceeds with the arbitration (of which, more later) the Claimant has expressed its intention to prosecute the arbitration vigorously to completion within 6 months: The Defendant expresses scepticism about the genuineness or feasibility of this intention.
- Unless restrained by an injunction, the Defendant will from midnight tonight cease to comply with its obligations under the Licensing Agreement. If the termination is ineffective, it will then be acting in breach of contract.
Section 44 of the Arbitration Act 1996
- It is common ground that s. 44 of the Act confers upon the court powers exercisable in support of arbitral proceedings including the granting of an interim injunction. If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving assets: s. 44(3). Choses in action including contractual rights are "assets" within the meaning of s. 44(3): Cetelem SA v Roust Houldings Ltd  2 Lloyds Rep 494. In any case the Court shall act only if or to the extent that the arbitral tribunal has no power or is unable for the time being to act effectively: s. 44(5). It is common ground that s. 44(5) applies here, where arbitral proceedings have only just been initiated.
- Although the urgency of the application is largely of the Claimant's making by failing to take any steps to apply or to institute arbitral proceedings until 20 December, the Defendant does not submit that the application cannot be brought within the terms of s. 44(3), and I accept that it can be. That being so, the questions to be answered are well known.
Is there a serious issue to be tried?
- On the information that is available today, it appears that there is a serious issue to be tried as to whether or not the proposed termination is wrongful and ineffective.
i) The first ground of termination is the failure to comply with the Sales and Marketing Plan. However, as I have said, no Sales and Marketing Plan as contemplated by Clause 5.1 has been prepared at least since about 2010 and this state of affairs has not been the subject of complaint by the Defendant at any stage. In those circumstances it appears to be well arguable that it should not be open to the Defendant to rely upon failure to comply with a Sales and Marketing Plan where no such plan exists and no objection to its absence has been made. It is not necessary for the purposes of this judgment to go into any further analysis of the potential arguments on either side;
ii) The second ground alleged is that the Claimant's business has developed in a different direction from the Defendant's. However, it appears to be well arguable that the Claimant's core business has not changed from that contemplated by the Licensing Agreement. That is so whether or not the Claimant were to be able to demonstrate that, despite a lack of obvious success to date, it has been continuing to attempt to attract more customers as well as servicing the X contract.
- Mr Bergin, Counsel for the Defendant, did not formally concede that there was a serious issue to be tried; but he realistically concentrated his oral submissions elsewhere. On each of the grounds relied upon by the Defendant as justifying termination, I hold that there is a serious issue to be tried.
Are Damages an Adequate Remedy?
- Subject to two points, if the termination goes ahead it will be open to the Claimant to pursue a loss of profits claim. The Claimant has not identified any feature of its loss of profits claim that would take the assessment and quantification of damages out of the normal run of claims that are routinely dealt with by financially competent courts and arbitral panels. The Claimant asserts that it is on the verge of profitable expansion: but that is an assertion that is commonly made by companies claiming loss of profits whether they are in a large and already profitable way of business or, as the Claimant appears to be, effectively still in start-up mode with modest current turnover and profitability.
- In written and oral submissions the major point advanced was that termination would close down the Claimant's business because it would lose its only source of income (namely the X contract). Its business would therefore cease to exist and it would immediately cease to be viable. Even if it were successful in proving in the arbitration that the termination was wrongful, and the Defendant were to cooperate for the future, there would be a real risk that X would not welcome the Claimant back after any intervening disruption. However, in my judgment, none of that renders damages an inadequate remedy: at most the fact that the business has been destroyed and will not be capable of restoration (if proved) is to be taken into account in calculating those damages, applying normal principles of quantification and assessment. I would accept that, if damages were an inadequate remedy, the fact that the termination would cause irremediable damage by the destruction of the business would be a relevant matter when considering the balance of convenience, but that is a different question.
- The main thrust of Mr Taylor's oral submissions was not that damages would be incapable of assessment and quantification but that if the business was terminated, the Claimant may not have access to damages at all because it may not be able to fund the costs of the arbitration. There is no evidence to support this submission. It is true that there is evidence from which it may be inferred that pursuing the arbitration may require support from external funders, just as the evidence I have summarised above supports the inference that the Claimant may have been reliant on external funding to continue as a going concern to date; but there is no evidence that those funders would be willing to fund the arbitration if an injunction is granted but will not be willing to fund it if an injunction is refused. Mr Taylor argued that the existence of outside funders makes a critical difference. For my part, I cannot see that the availability of damages as an adequate remedy is materially affected by who decides whether it is worth pursuing an arbitration. Thus it cannot make any difference in principle whether the Claimant has resources of its own (whether from retained profits or otherwise) so that the decision to pursue an action for damages would involve spending its own money, or whether the Claimant is reliant on outside funding so that the decision would involve spending the money of an outside investor (whether or not that investor had already invested and so was trying to protect its existing investment, or otherwise). The adequacy of damages as a remedy would be the same in either event.
- As a new point in oral submissions, Mr Taylor referred to Clause 11.4 which provides (so far as material):
in no event will either Party be liable to the other Party or any third party for ... lost profits,
indirect, special, consequential or incidental damages , under any cause of action and whether or not such Party or its agents have been advised of the possibility of such damage.
either Party's total liability in contract, tort, negligence or otherwise arising out of or in connection with the performance or observance of its obligations, or otherwise, in respect of this Agreement shall be limited to a sum equal to the total amount RevShare entitlement of that Party during the previous six (6) calendar months prior to the calendar month in which such damages accrued. This limitation will apply notwithstanding any failure of essential purpose of any limited remedy provided herein."
- Faced with this clause as part of the Claimant's argument for the first time in oral argument, all that Mr Bergin for the Defendant could or would say is that the Defendant would rely upon that clause in an arbitration if it was open to it to do so. While not being prepared to concede that Clause 11.4 would in fact apply to limit the Claimant's recoverable damages in this case, Mr Taylor relied upon the risk associated with the existence of the clause as a further reason why an outside investor would not wish to fund the arbitration. That may be right, but for the reasons I have already given, I do not consider that the willingness or unwillingness of an outside investor (as opposed to the Claimant itself) to fund the arbitration affects the question of the adequacy of damages for the purposes of the present application.
- However, the fact that the recoverable damages are (or may be) limited by Clause 11.4 of itself raises a broader question about the adequacy of the remedy in damages in the American Cyanamid sense. Given the number of times that parties seeking injunctions must have been doing so in circumstances where there is a contractual restriction on the quantum of recoverable damages, there is a surprising lack of authority on the point.
- The Court's approach to the adequacy of damages question is not bound by inflexible rules. The phrase "adequacy of damages" is itself derived from the following passage from Lord Diplock's speech in American Cyanamid v Ethicon Ltd  AC 396, 408:
the governing principle is that the court should first consider whether, if the plaintiff were to succeed at trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable would be [an] adequate remedy and the defendant would be in a financial position to pay them, no interim injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage."
- There is a latent ambiguity in this well known passage, as it is not clear whether the phrase "adequate remedy" means a remedy that provides (so far as money can) full compensation for what has been lost or means a remedy that is regarded as adequate by the law even though it may fall short of providing full compensation. The latter approach is suggested by the frequently cited observation of Sachs LJ in Evans Marshall & Co v Bertola  1 WLR 349, 379, where he said:
"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?"
This observation highlights that American Cyanamid provides guidance to the exercise of a discretionary equitable jurisdiction rather than a straightjacket of rigid criteria: see also R v Secretary of State for Transport, ex p. Factortame Ltd  1 AC 671-674 per Lord Goff. A similar point was made in Bath and North East Somerset DC v Mowlem PLC  EWCA Civ 115 where Mance LJ said at  that "Lord Diplock's speech in American Cyanamid is not itself a statute."
- In the Bath case the Claimant Council obtained an injunction restraining Mowlem (who were main contractors) from denying a firm of contractors access to site to carry out works ordered by an architect's instruction. The contract provided for liquidated and ascertained damages to be paid at the rate of £12,000 per week. The trial judge regarded Mowlem's conduct as "[leaving] sterilised in some sort of limbo the Completion of the Bath Spa Project for who knows quite how long" and held that the effect of the liquidated damages clause was that the Council would sustain damage which would not be adequately compensated by an award of damages unless the injunction were granted.
- Mowlem appealed, the grounds of appeal including that (a) the Judge had misdirected himself by holding that if the Council's actual loss were greater than the available liquidated damages, the Council could not be adequately compensated by an award of damages; and (b) the Judge should have held that payment to the Council by Mowlem of the liquidated damages would have adequately compensated the Council for Mowlem continuing to do what it was enjoined from doing and should therefore have refused to order the injunction.
- The Court of Appeal upheld the trial judge's granting of the injunction. Giving the substantive judgment of the Court, Mance LJ said:
"15. Secondly, and assuming for this purpose that the damages are viewed as an attempted measure of the full loss likely to be suffered or recoverable at common law by the Council, apart from the agreement, Mowlem's case treats the parties' quantification of such loss as conclusive not merely in the context of a claim to recover damages, but also in the context of a claim to an injunction which is designed to avoid any further financial loss and any cause for a claim to such damages. The Council accepts indeed it asserts that it would be bound in any claim for damages by its contractual agreement regarding liquidated and ascertained damages. The Council is not seeking to avoid that agreement, but to rely on it. It is the reason why the Council seeks an injunction, and why the Council submits that interlocutory injunctive relief is appropriate. Mowlem is not entitled to breach its contract. The agreement on liquidated and ascertained damages is not an agreed price to permit Mowlem to do so, and it does not preclude the court granting any other relief that may be appropriate. In my view, the Council's case is right in principle.
16. I would only add that the fact that difficulty of quantification is an acknowledged basis for treating damages as an inadequate remedy means that the court recognises, when deciding whether to grant an interlocutory injunction, that it can be unjust to leave a party to a claim to damages which the court would if necessary have to quantify. The court may in other words be sufficiently lacking in confidence about its own ability fairly and adequately to quantify damages after the event to prefer to grant an injunction. The court ought not to discourage parties from agreeing liquidated and ascertained damages. But it ought to recognise that the assessment of the totality of any likely loss before the event is an even more rough and ready and difficult exercise than after the event; and that such an assessment may prove in the event not to give rise to adequate compensation, so that to leave a party to a claim in damages may mean that it will suffer loss which the grant of an interlocutory injunction would completely avoid."
At , Mance LJ concluded that "it is open to the Council, despite the liquidated and ascertained damages clause, to rely on the probable higher level of the actual loss that it would suffer without an injunction, in order to show that it would not be adequately compensated if it were left to a claim in damages." It therefore appears from  and  that Mance LJ was using the phrase "adequate compensation" as meaning full compensation for what had been lost.
- Clause 11.4 of the Licensing Agreement is a clause that circumscribes the damages recoverable in the event of breach of contract, but it does so by excluding certain heads of loss altogether. In Vertex Data Science Ltd v Powergen Retail Ltd  EWHC 1340 (Comm) there was also a limitation clause that excluded liability for loss of profit and imposed other limitations on recoverable damages. Powergen served notice on Vertex terminating their complex commercial contract for the outsourcing of customer management services. Vertex applied for an injunction on the basis that it would suffer unquantifiable loss for which an award of damages would be an inadequate remedy. Tomlinson J decided that it was inappropriate to grant injunctive relief which would have the effect of compelling the parties to work together and where the terms of the contract were insufficiently precise to indicate to Powergen what it had to do. Having so decided, it was not necessary for him to consider alternative grounds on which injunctive relief might be inappropriate; but he did so under the general heading of balance of convenience. Having endorsed an observation originally made by Millett LJ that "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", he continued at [49-50]:
These sophisticated parties included in their contract clause 11 which excludes liability for loss of profit, loss of contract and loss of goodwill and imposes a cap on each party's liability in the aggregate sum of £12 million. 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 would 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. In view of my earlier conclusion I do not need to grapple with the question what is the precise ambit and extent of the decision of the Court of Appeal in Bath and North East Somerset District Council v. Mowlem plc
. That was an extraordinary case on the facts where the contractor, Mowlem, sought indefinitely to delay completion of the high profile Millennium Bath Spa project, a project which was intended and expected to confer significant benefits upon the local economy. At paragraph 15 of his judgment Mance LJ said, in relation to that contract:
"The agreement on liquidated and ascertained damages is not an agreed price to permit Mowlem [to breach its contract], and it does not preclude the court granting any other relief that may be appropriate."
50 I have already concluded that other relief is not here appropriate and I do not have to decide whether the approach of the Court of Appeal in that case precludes the court from concluding in this that it is not unjust that Vertex should be confined to its remedy in damages."
- In Ericsson AB v Eads Defence and Security Systems Ltd  EWHC 2598 (TCC) Akenhead J addressed the existence of a limitation of liability clause head on, as follows:
"39 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.
40 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 Claimant submits that the Court on this application should follow the Bath case and interpret it as meaning that the fact that the parties have entered into agreement about the recoverable measure of damages should not prevent the Court from looking objectively at whether the damages recoverable by the Claimant will amount to full compensation. Here, it submits, it is evident that the Claimant cannot recover adequate damages because its main head of claim will be for loss of profits, which are or may be excluded by clause 11.4.
- By implication the Claimant submits that the reasoning of Akenhead J in Ericsson was wrong - liquidated and ascertained damages clauses and limitation clauses are conceptually the same in being prior contractual agreements determining the measure of recoverable damages and that therefore Akenhead J should have been prepared to look behind that prior agreement to the substance of whether or not damages were an adequate remedy. At first sight that is an attractive submission, but I am not persuaded that it is correct. In each case there was a package of contractual rights and obligations freely negotiated between substantial commercial concerns. The distinction between the two cases is that in Bath the contractual agreement and intention was that the Council's losses should be fully compensated (with £12,000 per week being the parties' pre-estimate of full compensation for delay), while in Ericsson the contractual agreement and intention was that the relevant heads of damage should not be compensable. Accordingly, in Bath the Court was entitled to take into account whether the contractual intention of full compensation would be achieved by an award of damages when considering whether to exercise its equitable discretion to order an injunction. To the contrary, the contractual scheme in Ericsson included that certain heads of damage would not be compensated, so that the Court was entitled to take that into account when deciding whether it was unjust for the party to be confined to its recoverable damages even though they fell short of full compensation.
- Applying this approach to the facts of the present case, the commercial expectations of the parties were set by the package of rights and obligations that constituted the Licensing Agreement. That package included Clause 11.4. Assuming for the sake of argument that Clause 11.4 would be effective to block any claim for loss of profits that would otherwise accrue to the Claimant after 31 December 2013 if the termination is unjustified, that is part of the price that the Claimant agreed to pay when executing the Licensing Agreement. That being so, it is not unjust to the Claimant to exclude the effect of Clause 11.4 when considering whether or not it should be left to its remedy in damages.
- Mr Bergin pointed to the fact that, unlike the Council's position in the Bath case, the Claimant here does not positively assert that Clause 11.4 will be effective to reduce its claim. To my mind, that is not a material factor. It is obvious that Clause 11.4 carries (at least) substantial risk for the Claimant. However, if it applies, the position is as I have just set out; and if it does not apply, the Claimant has its unaffected claim for damages. In either event, Clause 11.4 does not lead to the conclusion that damages are not an adequate remedy.
- For these reasons I have concluded that the Claimant is unable to show that damages are an inadequate remedy. There is no reason to doubt that the Defendant would be in a financial position to pay such damages as may be awarded. That being so, the case does not have features that singly or cumulatively justify departing from the normal result that no interim injunction should be granted.
The Balance of Convenience
- Had I considered that damages were not an adequate remedy, I would have held that the balance of convenience clearly favoured the granting of an injunction since any damage to the Defendant would be relatively minor in comparison with the potential effect upon the Claimant of the Defendant implementing the termination, to which I have referred above. Although the Claimant could and (in my judgment) should have acted sooner, it would not have made a material difference to the outcome since the arbitration would still have been in its early stages and could not feasibly have been brought to completion by now. The question of interim injunctive relief would therefore have had to have been addressed at some stage in any event, even if not at this latest possible date. I would have required the Claimant's undertaking in damages to be fortified by a bank guarantee in the sum of £100,000. I would not have added to that sum by reference to the possible costs of the arbitration for two reasons. First, I have no information about whether the arbitration will proceed and, if so, what the likely costs will be. Second, I do not consider that the costs of the arbitration are in any event to be brought within the protection against damage which a Claimant's undertaking is intended to address.
- For these reasons I refuse the application.
- Having reached this conclusion I admit to a degree of unease at the result. It stems from a tension that I perceive between the American Cyanamid approach as applied by the Court of Appeal in the Bath case, and the approach suggested by Tomlinson J in Vertex and adopted by Akenhead J in Ericsson. I see the force of the argument that the parties' commercial expectations are set by the bargain that they have made so that a person whose claim for damages, if substantiated, will be reduced by an agreed limitation clause should not have cause to complain if that is the eventual outcome. I also acknowledge that limitation clauses are an ubiquitous fact of commercial life and contracting and that, if the existence of such a clause were held to render damages inadequate, the road to an interim injunction may be open in practically every similar case. However, Mance LJ's judgment in the Bath case hints that the equitable jurisdiction has a more fundamental objective, namely "to avoid any further financial loss and any cause for a claim to such damages." It is also evident that the Court of Appeal in the Bath case objected to treating the contract freely entered into by the parties as setting a price for a party's breach of contract: see  of Mance LJ's judgement. In addition, the Court of Appeal's willingness in Bath to take a view of the liquidated and ascertained damages clause before an event that is liable to give rise to loss that differs from the view to be taken after such an event and when considering whether to grant an injunction suggests a flexibility of approach that does not sit easily with the more doctrinaire approach adopted in the two subsequent first instance decisions. It is to be noted that the facts as understood by the Court in the Bath case suggested that the Council had a strong case with good prospects of proving that Mowlem was acting in breach of contract. In the present case there is a serious issue to be tried, but I remind myself that the outcome of any arbitration is unknown and cannot be predicted with any certainty. That reduces my concern to some extent, but does not eliminate it.
- In the result, I have said that I am not persuaded that the approach adopted in Ericsson was wrong; and I have therefore followed that approach. But I have a nagging doubt that the approach I have adopted may be too inflexible in a case such as the present.
- Because of the concern that I have expressed above, and because I consider that the point has wider implications, I have given permission to the Claimant to appeal. Because this is an arbitration claim within the meaning of CPR 62, the hearing was to be in private unless the Court otherwise ordered: see CPR62.10. Before the Clause 11.4 point arose, I had not made an order for the hearing to be held in public. However, given the possible wider implications the position was revisited on hand-down of this judgment. The Defendant has no objection to the judgment being made public. The Claimant has understandable concerns that X may come to know of the dispute, and points to the parties' confidentiality obligations under the Licensing Agreement. In the light of those concerns, the Claimant requested that the parties and X be anonymised. That is a reasonable compromise and I have adapted this version of the judgment accordingly before authorising its publication. It will, of course, be open to another Court to make any other order that it thinks fit.
Note 1 Payments by X for maintenance and support; new supplier registration fees; transaction fees from suppliers and X. [Back]
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