Injunctions to Prevent Allegedly Wrongful Termination
The Technology & Construction Court recently considered a case which involved construing a contractual dispute resolution clause. The case highlighted the practical approach adopted by the English Courts in construing commercial contracts generally and the continued reluctance of the English Courts to grant injunctions unless absolutely necessary. If the parties have voluntarily agreed to restrict recovery under the contract, that fact will not allow a party later to seek an injunction preventing termination on the basis that damages for termination would not be an adequate remedy.
The case of Ericsson AB -v- EADS Defence & Security Systems Limited [2009] EWHC 2598 (TCC) dealt with applications made for injunctions by both parties. Ericsson, inter alia, sought an injunction to prevent EADS from terminating the contract prior to the outcome of a contractually agreed adjudication process. That request was denied. Mr Justice Akenhead held that:
“The effect of an injunction to restrain termination would be in effect to require two parties who have fallen out with each other and one of whom has lost confidence in the other to continue to work together in circumstances where they have a sophisticated contract which purports to provide commercial solutions and remedies when a lawful or unlawful termination occurs.” (Paragraph 47).
The Judge also considered the question of circumstances in which damages would not be an adequate remedy. The contract contained exclusion clauses, mutually preventing the parties from recovering most types of economic loss including loss of profit. Ericsson contended that if termination of the contract were permitted, this would have a seriously adverse effect on its business around the world. This would exceed the damages recoverable under the contract and would lead to many redundancies. An injunction preventing termination should therefore be granted on those grounds. Mr Justice Akenhead held:
“I cannot see that it is unjust that a party is confined to the recovery of such damages as the contract, which it has entered into freely, permits it to recover.” (Paragraph 40)
This makes clear that in contractual disputes between commercial parties, the Courts will look carefully at the terms of the contract and at what would make commercial sense. The fact that there was an agreed mediation and/or adjudication process in this particular contract did not serve to prevent the exercise of contractual rights such as the ability to terminate prior to the conclusion of the dispute resolution process. If the parties wished the dispute resolution process to have the effect of suspending or otherwise preventing a party from exercising such contractual rights, then very clear contractual wording would be needed in order to achieve this. The case also serves as a useful reminder that the leading case on injunctions, American Cyanamid -v- Ethicon Limited [1975] AC 396 remains the leading authority and is strictly applied by the English Courts.
Gibson & Co
6 January 2010