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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