Vertex Data Science Ltd v Powergen Retail Ltd

On an application for an interim injunction restraining termination of a complex outsourcing contract, the claimant must first show a real prospect of obtaining the permanent injunction sought. The court should then consider the balance of convenience only if that threshold is met.

An injunction is inappropriate where it would require continuing cooperation between parties whose relationship has broken down, particularly where the contract does not define with sufficient precision what the restrained party must do. A contractual arbitration clause may still reserve genuine disputes incapable of arbitration to the court, even where the arbitrator lacks power to grant injunctions, declarations or specific performance. The court must respect the parties’ allocation of remedies and commercial expectations.

Vertex provided customer-management outsourcing services to Powergen under a 2005 Master Services Agreement. Powergen served notice purporting to terminate the agreement for alleged material and persistent breaches. Vertex disputed the termination and sought an interim injunction preventing Powergen from acting on the notice or hindering continued performance.

Powergen accepted that there was a serious issue to be tried on its termination rights. It argued that the dispute had to be referred to arbitration under clause 19 and that the court could not grant permanent or interim injunctive relief. Vertex contended that clause 19.6(v) permitted court relief for a genuine dispute incapable of being referred to the contractual dispute-resolution machinery. The central issues were the construction of clause 19 and whether an injunction was realistically capable of being granted at trial.

1. Threshold for relief. Applying American Cyanamid v Ethicon [1975] A.C 396, the court had first to decide whether Vertex had a real prospect of obtaining the permanent injunction sought. The balance of convenience would arise only if that threshold was satisfied.
2. Construction of the arbitration clause. Clause 19 defined a dispute broadly and contained a comprehensive agreement not to resort to the court, subject to specified exceptions. Nevertheless, clause 19.6(v), referring to a genuine dispute not capable of being referred for resolution under clause 19, was directed to the nature of the dispute and could reserve certain disputes to the court. The exclusion of the arbitrator’s power to grant injunctions, declarations and specific performance did not necessarily mean that those remedies were unavailable altogether. The court therefore rejected Powergen’s construction.
3. Workability of an injunction. The MSA required extensive and continuing operational, managerial and systems cooperation. The relationship had materially broken down, and there were genuine disputes about the cooperation and information required from Powergen. An injunction would therefore compel the parties to work together while leaving Powergen uncertain about what conduct was required. Following the guidance in Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, an order that could not be enforced with reasonable certainty should not be made.
4. Distinguishing earlier service-contract cases. Lauritzencool AB v Lady Navigation [2005] 2 Lloyd’s Rep 63 and Regent International Hotels (UK) Ltd v Pageguide Ltd were fact-sensitive decisions involving workable, comparatively impersonal arrangements or autonomous management. They did not govern this materially different outsourcing relationship.
5. Vertex consequently had no realistic prospect of obtaining the permanent injunction. The application for interim injunctive relief was refused. It was unnecessary to determine the balance of convenience, although the court observed that the contractual damages limitations and the potential impact on Powergen’s customer relations did not clearly favour an injunction.