English Law: When Contractual Limitations on Damages Can Backfire

by Pillsbury Winthrop Shaw Pittman LLP

In AB v. CD [2014] EWCA Civ 229, the Court of Appeal for England and Wales addressed an issue with surprisingly little precedent. It held that a claimant seeking an injunction to prevent an alleged wrongful termination of a contract was entitled to argue that damages could not be an adequate remedy because recoverable damages were limited or excluded under the contract.

The Claimant AB instituted arbitration proceeding against CD, and also sought an interim injunction before Stuart-Smith J. of the English High Court Queen’s Bench Division under Section 44 of the Arbitration Act 1996 requiring CD to continue to perform his obligations under the contract and preventing termination of a licence of certain intellectual property rights pending the conclusion of the Arbitration proceedings. The Claimant argued in support of its application for injunctive relief that damages would not be an adequate remedy at law since the contract excluded liability for a number of types of loss and otherwise capped the total damages recoverable.

Judge Stuart-Smith concluded that AB’s application should be refused because CD did have an adequate remedy in damages. He proceeded nevertheless to consider whether, if he had reached the opposite conclusion, the balance of convenience would have favored the grant of an injunction. He held that it would, relying on the decision in Ericsson AB v. EADS Defence and Security Systems Ltd. [2009] EWHC 2598 (TCC). However, he believed that there was a tension between that decision and other authority and therefore gave AB permission to appeal.

The Court of Appeal first noted that it is axiomatic that an injunction will not be granted if damages would be an adequate remedy for the wrong. But how does that apply in cases of an alleged breach of contract where the contract contains a provision limiting the recoverable damages to below what might otherwise have been awarded as a matter of general law? The court then applied the logic in Bath v. Mowlem, [2004] EWCA Civ 115, to accept the appellant's argument that an injunction should be granted where damages as limited under the contract at hand could not be considered an adequate remedy barring that relief. The Court began by holding that the primary commercial expectation in any contract must be that the parties will perform their obligations. A clause which restricts the entitlement to recover damages for breach is a secondary obligation that cannot be treated as a licence to breach or an agreement to excuse the primary obligation to perform. Injunctive relief, at least where not expressly excluded by the terms of the agreement, is a remedy available to the court to give effect to commercial expectations where it is a just result that agreed obligations should continue to be binding on the parties, whether for an interim period or the term of the contract.

However, the Court also held that the party applying for an interim injunction would 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 he will (or at least may) be prevented from recovering in full, or at all, by the limitation or exclusion in question. If he does, then 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 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.

This conclusion may disappoint some who would argue that the commercial expectations of the parties were set by the entire package of rights and obligations in the agreement, including any limitation or exclusion of liability, even if that barrier might be effective to block a claim for loss of profits that would otherwise accrue to a party if termination is unjustified. That is simply part of the bargain that the parties struck when executing the agreement, and it would not be unjust to consider the agreed scope of damages when determining whether there is an adequate remedy available.

Ultimately, the Court of Appeal felt that the justice of the case required an injunction lest otherwise a party could potentially breach a contract with impunity and without effective consequences. It is, therefore important for contracting parties to keep in mind that typical limitation of liability clauses may not prevent injunctive relief. As Lord Justice Laws succinctly put it: ‘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.’


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.