KEYWORDS: HOW CONTRACTUAL LIMITATIONS AND EXCLUSIONS OF DAMAGES
AFFECT INTERLOCUTORY INJUNCTIONS
KEY TAKEAWAY
These three decisions153 all deal with an issue that
arises when seeking interlocutory injunctions: will damages be an
adequate remedy? While this is not a separate factor for Australian
courts to consider (see Australian Broadcasting Corporation v
O'Neill (2006) 227 CLR 57, 81–84 [65]–[72]
(Gummow and Hayne JJ; Gleeson CJ and Crennan J agreeing at 68
[19]), it is used as part of determining the balance of
convenience.
The upshot of the English cases is (per Underhill LJ in AB v CD
[2015] 1 WLR 771, 783 [28]): "The primary commercial
expectation must be that the parties will perform their
obligations. The expectations created (indeed given contractual
force) by an exclusion or limitation clause are expectations about
what damages will be recoverable in the event of breach; but that
is not the same thing." This is consistent with the trend
of High Court of Australia decisions, including Zhu v Treasurer
(New South Wales) (2004) 218 CLR 530 and Tabcorp Holdings
Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, which
reject the notion of economic breach of contract.
The decisions
Bath and North East Somerset District Council v Mowlem
plc [2015] 1 WLR 785 is a construction case. It has been
reported (as a note) over 10 years after the date of the decision
(20 February 2004). The primary judge had granted the Council an
injunction restraining Mowlem plc (the head contractor) from
denying subcontractors access to the relevant site for testing,
purportedly in accordance with the contract. It was accepted there
was a serious question to be tried about whether the contract
authorised this testing (at 788–789 [7]). Mance LJ (with whom
Brooke LJ and Park J agreed) noted that "the decisive
issue is ... whether ... an injunction should be granted as a
matter of convenience" (at 789 [8]).
The Council contended that damages would not be an adequate
remedy because, if the injunction was not granted, there would be
"an indefinite stalemate" between the Council and the
head contractor, causing delay, the loss from which would exceed
the amount of liquidated damages agreed in the contract (at
[9]).
This argument found favour in the Court of Appeal. Mance LJ said
(at 793–794 [15]–[16], emphasis in original):
"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.
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."
In terms that may apply to many public infrastructure projects,
Mance LJ also held (at 795 [21]):
"Independently of
this conclusion, I also consider that it is open to the council on
the facts of this case to rely on the likelihood that delay would
cause further loss which would be felt by the general public,
through the negative effect of delay on economic regeneration (loss
of extra visitors, loss of additional trade for local hotels and
restaurants, loss of additional car parking revenue and general
loss of "spend" in the local economy) and through general
loss of public confidence in the council (with consequential
negative implications for further council projects). These items
represent the type of unquantifiable, and in substantial measure,
irrecoverable damage to public interests that may well be suffered
if a Millennium project undertaken by a public authority moves (as
Mr Cavanagh puts it) from the status of 'Eden' to
'Dome'."
http://www.bailii.org/ew/cases/EWCA/
Civ/2004/115.html
The decision in Bath v Mowlem was applied in AB v
CD [2015] 1 WLR 771. (The parties' names were anonymised
because the dispute was under an agreement with an arbitration
clause and arbitration proceedings were commenced: at [2].)
In that case, the agreement between the parties excluded
consequential loss, including loss of profits (at 774 [5], 775
[10]). The applicant sought an interlocutory injunction requiring
the respondent to continue to perform its obligations under the
agreement (at 773 [2]), the breach of which would have caused the
applicant loss of profit which would not be recoverable because of
the exclusion clause.
Underhill LJ (with whom Ryder and Laws LJJ agreed) considered
that Bath v Mowlem was both binding and right in principle
(at 782 [24]). In his short concurring reasons, Laws LJ held (at
785 [33]):
"Where a party to a
contract stipulates that if he breaches his obligations his
liability will be limited or the damages he must pay will be
capped, that is a circumstance which in justice tends to favour the
grant of an injunction to prohibit the breach in the first
place."
Underhill LJ also noted that the court must still undertake a
balancing exercise despite an exclusion or limitation clause (at
784 [30]):
"[Counsel for the
respondent] argued that it could not be right that in every case
where the victim of a threatened breach of contract sought an
interim injunction he could rely on the existence of an exclusion
or limitation clause to claim that damages would not be an adequate
remedy. I think that that overstates the consequences of the case
which I have accepted. A claimant will still have to show that if
the threatened breach occurs there is (at least) a substantial risk
that he will suffer loss that would otherwise be recoverable but
for which he will (or at least may) be prevented from recovering in
full, or at all, by the provision in question. If he does, then
certainly it will not be sufficient for the defendant to say that
the restriction in question was agreed; and to that extent the
claimant will indeed have established that his remedy in damages
may not be adequate. But that only opens the door to the exercise
of the court's discretion; and in the exercise of that
discretion the fact that the restriction in question was agreed
may, depending on the circumstances of the case, be a relevant
consideration—as may the scale of any shortfall and the
degree of risk of it occurring."
http://www.bailii.org/ew/cases/EWCA/
Civ/2014/229.html
Ashton Manufacturing Pty Ltd v Express Sign Labs Pty
Ltd [2015] FCA 975 was a dispute between two parties
"both involved in enterprises concerning the wrapping of
coffins" (at [1]). The issue was whether certain
representations made by one of the parties, including whether they
had "AFL approval for Club themed wraps" were
misleading.
Edelman J ultimately did not grant an interlocutory injunction
because the evidence before him did not establish a prima facie
case. But he noted that the potential difficulty of assessing
damages would have been a relevant factor, though it seems the
other way (at [12]–[15]):
"In [the
plaintiff's solicitor's] affidavit he says that that [the
plaintiff] is likely to suffer 'irreparable damage to its
commercial operations and goodwill'.
...
I accept that in relation
to the two representations in issue loss would be difficult to
assess (in particular loss of future custom based upon these
representations). In a case like this, like cases involving
restraint of trade, there can be some inadequacy in damages because
of (i) the difficulties in establishing causation between any loss
of business with customers and any actions of a respondent, and
(ii) the difficulty of the calculation of the quantum of any damage
arising from loss of business
These concerns about
assessing damages should not be overstated. There are many cases
where proof of quantum of damages can be difficult, and cases
involving claims for loss of a chance of obtaining, or retaining,
customers often involve these assessments.
Overall, even if I had
been satisfied that there was a prima facie case, the weakness of
any prima facie case would mean that the difficulty of assessment
of possible loss would not be sufficient to restrain Express Sign
Labs from making the two representations it seeks to make as part
of its continuing business."
http://www.austlii.edu.au/au/cases/cth/
FCA/2015/975.html
Footnote
153 The English decisions were recently noted
by Young AJA in (2015) 89 Australian Law Journal 379 at
379–380
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