A review of the American Cyanamid principles – the meaning of “adequate remedy”
In American Cyanamid Co v Ethicom Ltd  AC 396, the court developed a set of guidelines to establish whether an applicant’s case merited the granting of an interlocutory injunction.
The main American Cyanamid guidelines, as they have come to be known, are:
- Whether there is a serious question to be tried.
- What would be the balance of convenience of each party should the order be granted (in other words, where does that balance lie?)
- Whether there are any special factors.
And, what Lord Diplock referred to as the “governing principle:”
- Whether an award of damages would be an adequate remedy, the basis for which he explained as follows:
“... the governing principle is that the court should first consider whether, if the plaintiff were to succeed at trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable would be [an] adequate remedy and the defendant would be in a financial position to pay them, no interim injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage.” (Emphasis added).
The term “adequate remedy,” as its meaning may be informed by reference to a contractual restriction on what damages may be recoverable, has recently been considered by the High Court in AB v CD (Rev 2)  EWHC 1 (QB).
In this case, the Claimant applied under s.44 of the Arbitration Act 1996 for an injunction to restrain the Defendant from terminating a Licensing Agreement (“LA“) between the parties pending the resolution of an arbitration.
Among other submissions, counsel for the Claimant referred to an exclusion clause in the LA which provided (in so far as is material):
“… in no event will either Party be liable to the other Party or any third party for … lost profits, … or any … indirect, special, consequential or incidental damages , under any cause of action and whether or not such Party or its agents have been advised of the possibility of such damage. … either Party’s total liability in contract, tort, negligence or otherwise arising out of or in connection with the performance or observance of its obligations, or otherwise, in respect of this Agreement shall be limited to a sum equal to the total amount RevShare entitlement of that Party during the previous six (6) calendar months prior to the calendar month in which such damages accrued. This limitation will apply notwithstanding any failure of essential purpose of any limited remedy provided herein.”
Against that background, Stuart-Smith J considered, when considering the “adequacy” of the damages available to the Claimant in the event that an injunction is not granted, what regard should be had to the contractual limitations imposed on the damages a party would likely recover under the relevant underlying agreement.
The learned Judge helpfully referred to previous authorities which seemingly adopted different approaches before drawing out a distinction between them, namely by reference to establishing the commercial intentions of the parties when they entered into the underlying contractual arrangement.
“… In each case* there was a package of contractual rights and obligations freely negotiated between substantial commercial concerns. The distinction between the two cases is that in Bath the contractual agreement and intention was that the Council’s losses should be fully compensated, while in Ericcson the contractual agreement and intention was that the relevant heads of damage should not be compensable…” (Emphasis added).
Accordingly, the Judge found that the commercial expectations of the parties were set by the package of rights and obligations in the LA. These included a clause that restricted the damages recoverable in the event of a breach by excluding certain heads of loss altogether. Thus the potential effects of the clause did not lead to the conclusion that damages were not an adequate remedy. Accordingly the application was refused.
The Judge (obiter) admitted to a degree of unease at the result, owing to the tension he perceived to exist between previous authorities, and a “nagging doubt” that his approach may have been too inflexible. Accordingly the Claimant was given permission to appeal.
* Ericsson AB v Eads Defence and Security Systems Ltd  EWHC 2598 (TCC) and Bath and North East Somerset DC v Mowlem plc  EWCA Civ 115