Ericsson Ab v Eads Defence and Security Systems Ltd.

On an application for an interim injunction, the court applies the American Cyanamid framework: a serious issue to be tried, adequacy of damages, and the balance of justice. Commercial parties who have freely agreed contractual limits on recoverable loss will generally be confined to damages permitted by their bargain. A dispute-resolution clause providing for mediation or adjudication does not, without clear words, suspend contractual termination rights. A party may pursue adjudication even after electing mediation where the contract preserves that flexibility. An adjudicator’s decision may be enforced subject to the contractual qualification for manifest error, while the courts retain jurisdiction to revise, cancel or vary it and finally resolve the underlying dispute.

Ericsson supplied software and related services to EADS under a subcontract for the FiReControl emergency communications project. Disputes arose concerning responsibility for database changes, the contractual delivery date for the initial software, alleged material default, and EADS’s threatened termination.

Ericsson sought an injunction restraining termination pending adjudication. EADS sought to restrain Ericsson’s adjudications and obtain declarations that the adjudications could not proceed, arguing that the contractual mediation and adjudication options were mutually exclusive and that the courts lacked jurisdiction to resolve the disputes. The court determined both injunction applications and the construction of the dispute-resolution provisions.

1. Ericsson’s injunction was refused. The threshold requirement under American Cyanamid v Ethicon Ltd was satisfied because there were serious arguable issues concerning the delivery date, responsibility for delay, the validity of the default notice, the effect of liquidated damages, and the cure period. The court did not attempt finally to determine those issues.
2. Damages were an adequate remedy in the commercial context. The parties were substantial commercial entities and had freely agreed exclusions and limits of liability. It was not unjust to confine Ericsson to the damages available under the Agreement. The confidentiality concerns did not alter that conclusion.
3. The balance of justice did not require termination to be restrained. The court was slow to determine the commercial course which EADS should take after it had lost confidence in Ericsson, particularly where the Agreement provided contractual remedies for termination.
4. Clause 31 did not suspend EADS’s contractual termination rights while a dispute was referred to adjudication. Clear wording would have been required to freeze those rights.
5. Mediation and adjudication were available as alternatives which could both be pursued. The use of “may” in Clause 31.3, contrasted with the mandatory prior consultation requirement, preserved contractual flexibility and did not make one procedure exclusive.
6. The courts retained jurisdiction under Clause 31.6 and Clause 42.1. The adjudicator’s decision was final and binding subject to manifest error, but the courts could revise, cancel or vary it and could finally resolve disputes. Ericsson was therefore free to pursue adjudication despite also instituting mediation. Both injunction applications were dismissed, with declarations to reflect the Clause 31 findings.