AB v CD (Rev 2)

For an interim injunction supporting arbitration, the court must consider whether there is a serious issue to be tried and whether damages would be an adequate remedy. Contractual limits on recoverable damages do not automatically make damages inadequate. Where substantial commercial parties freely agreed to exclude particular heads of loss, that bargain may be considered when deciding whether it is just to confine the claimant to damages. The court retains an equitable discretion and must avoid treating the American Cyanamid approach as inflexible. If damages are inadequate, the balance of convenience may favour relief where termination would destroy the claimant’s business.

The claimant sought an injunction under section 44 of the Arbitration Act 1996 to restrain termination of a licensing agreement pending LCIA arbitration. The defendant had given notice terminating the agreement, under which the claimant marketed and supported an electronic marketplace. Termination would remove the claimant’s only continuing business. The agreement contained a clause excluding lost profits and other losses and limiting liability. The central issues were whether there was a serious issue to be tried, whether damages were an adequate remedy despite the contractual limitation, and, if not, where the balance of convenience lay.

1. Application refused. The court had jurisdiction under section 44 of the Arbitration Act 1996. Contractual rights were assets for the purposes of section 44(3), and the arbitral tribunal was unable presently to act effectively for the purposes of section 44(5).
2. There was a serious issue to be tried. It was arguable that the defendant could not rely on failure to comply with a sales and marketing plan which had not been prepared and whose absence had not been challenged. It was also arguable that the claimant’s business had not developed in a different direction from that contemplated by the agreement.
3. Damages were an adequate remedy. Loss of profits was capable of ordinary assessment, and the possible destruction of the business did not itself make damages inadequate. The availability of external funding for the arbitration did not alter that conclusion.
4. The contractual limitation clause required consideration. The approach in Bath and North East Somerset DC v Mowlem PLC [2004] EWCA Civ 115 was distinguishable because the agreed damages there were intended as a pre-estimate of full compensation. Here, the commercial bargain included exclusion of specified heads of loss. Following Ericsson AB v Eads Defence and Security Systems Ltd [2009] EWHC 2598 (TCC), it was not unjust to confine the claimant to the damages permitted by that bargain.
5. Had damages been inadequate, the balance of convenience would have favoured an injunction because termination could destroy the claimant’s business. The court would have required a bank guarantee of £100,000 in support of the claimant’s cross-undertaking in damages. Permission to appeal was granted because the issue had wider implications.

This was a first-instance application. Permission to appeal was granted.