THE decision of the Court of Appeal in AB v CD [2014] EWCA Civ 229; [2014] 3 All E.R. 667 concerned a distinctive feature of equity's auxiliary jurisdiction. Unlike situations in which a claimant invokes equity's exclusive jurisdiction to enforce or protect the claimant's purely equitable rights, a claimant seeking equitable relief in aid of his or her legal rights must show that the relief available at common law, if any, would be inadequate to do justice. Thus, a contract party (for example) must cross a threshold before an injunction or specific performance will be granted. Equity's refusal to intervene where adequate relief is available at law properly makes equitable relief in the auxiliary jurisdiction special. The ordinary operation of the law of contract, and that of the courts, could be unjustifiably disrupted if every threatened or actual breach attracted these forms of discretionary equitable relief. But can a contract party tilt the balance of discretion towards the grant (or the refusal) of such relief by relying on a particular term in the contract?

The claimant in AB v CD successfully did so in an application for an interim injunction. The term in question was a clause in a licence agreement by which CD licensed AB to market CD's internet-based platform for the sale of goods and services in the international mining and metals business. The clause provided that “in no event will either Party be liable to the other Party or any third Party for loss of data, lost profits, costs of procurement of substitute goods or services, or any exemplary, punitive, indirect, special, consequential or incidental damages, under any cause of action”. It further limited each party's total liability “in contract, tort, negligence or otherwise arising out of or in connection with the performance or observation of its obligations, or otherwise, in respect of this Agreement” to a particular sum to be calculated by a formula. CD purported to terminate the licence. AB disputed CD's entitlement to terminate, and sought an interim injunction requiring CD to continue performance, and restraining CD from terminating the contract. At first instance, the judge held that, in exercising his discretion whether to grant or refuse the relief sought, it was right to ignore the fact that AB might suffer loss falling under the heads listed in the clause that were, as such, irrecoverable. The Court of Appeal effectively held that the judge made a jurisdictional error in instructing himself that way, and granted an interim injunction. Underhill L.J., with whom Laws L.J. and Ryder L.J. agreed, held that the Court of Appeal's earlier decision in Bath & North East Somerset District Council v Mowlem plc [2004] EWCA Civ 115; [2004] B.L.R. 153 bound the judge at first instance to consider the clause. Moreover, they considered that position to be correct in principle.

AB v CD can be distinguished from situations in which a contract party relies on a clause that purports expressly to deem the contract to be either enforceable or unenforceable in equity's auxiliary jurisdiction. The case stands for the narrower proposition that a clause limiting the availability of damages for breach of contract does not as such cause injunctive relief to restrain an apprehended breach to be unavailable. Whether those distinctions reflect differences of principle might be doubted in light of their Lordships' reasoning, and will be returned to below. But it is clear from the outset that AB v CD illustrates some basic differences towards the award of common law and equitable relief in respect of contractual rights.

One such difference emerges from the court's treatment of the following submission. CD argued that, if AB could rely on the clause limiting and excluding the parties' liability to show that damages would be inadequate to do justice in the particular case, then in every case where one contract party apprehends that the other will breach the contract imminently, the claimant could rely on the existence of such a clause in order to establish that damages would be an inadequate remedy. Underhill L.J. thought this overstated the consequence of permitting AB to rely on the provision. A claimant relying on such a clause would have to show that the threatened loss would be recoverable but for the operation of the relevant clause. However, once that is established, an injunction will not necessarily issue: the claimant will merely have succeeded in “open[ing] the door to the exercise of the court's discretion” whether to grant interim relief. That is at one with a further strand of his Lordship's reasoning. CD argued that to award an injunction would undermine the parties' bargain. They had negotiated to limit their respective liabilities to pay damages. To restrain one party from breaching the contract, CD submitted, would prevent the agreed clause limiting the parties' liabilities from operating. Underhill L.J. had no difficulty rejecting that argument (at para. [27]):

Whereas, at common law, the clause excluding or limiting liability is generally conclusive as far as liability in damages for losses within the exclusion or limitation is concerned, equity will also consider what a party's liabilities would have been absent the exclusion or limitation.

For the resolution of the dispute in AB v CD, it was unnecessary to frame the analysis any wider than was done. However, equitable doctrines and remedies often operate on the basis of wide principles rather than narrow rules. It is significant, therefore, that their Lordships' reasoning and conclusions could be supported on a wider basis going to the root of the auxiliary jurisdiction. For example, CD submitted that the adequacy (or not) of damages was to be assessed on the basis of the damages recoverable at common law, subject, that is, to the clause excluding and limiting liability. Underhill L.J. rejected this as “a mechanistic application of the ‘damages an adequate remedy’ rule”: for equity's purpose, the “damages” also included damage suffered, but for which the claimant would not be able to recover at law (at para. [29]). But, the reasons for granting equitable relief in aid of legal rights are not exhausted by consideration of damages. If it were, there would be a curious situation. The holder of legal rights could never obtain equitable protection of them, no matter how great the harm that person might suffer without equitable relief.

Hence, the traditional formulation of the threshold to be crossed by a claimant who seeks equitable relief in aid of legal rights is not that the claimant must show that damages would be inadequate relief, but to show that relief at law– including under statute – would be inadequate on the facts of the case. The classic example is of the old law of part performance abolished in England by the Law of Property (Miscellaneous Provisions) Act 1989. Until 27 September 1989, s. 40(1) of the Law of Property Act 1925 (which descended from s. 4 of the Statute of Frauds 1677) provided that a contract for the disposition of an interest in land should be unenforceable unless certain writing requirements were met. Where the parties to the contract partly performed a wholly oral contract for the disposition of an interest in land, neither could recover damages at law for breach of their unenforceable, though valid, contract. However, equity could order specific performance where the acts of part performance were unequivocally referable to the contract. The order was said to enforce the “equities” arising from part performance, rather than the contract as such: Maddison v Alderson (1883) 8 App. Cas. 467, 475–76. But, when specific performance was granted, it ordered the parties to perform their respective contractual obligations under the otherwise unenforceable contract. Damages were never recoverable in a case of part performance. It was beside the point in proceedings for specific performance to ask whether damages were adequate. The basis on which specific performance was ordered was wider. Relief at law, of all kinds, was inadequate.

What of the situations from which AB v CD was distinguished earlier, in which a clause in a contract deems equitable relief to be available by providing, for example, that damages are to be considered inadequate relief? It is relatively clear that the principles in AB v CD also apply to those clauses. The argument that freedom of contract ought to permit the parties to procure or avoid whatever judicial remedy they choose is unpersuasive. It assumes that stipulating for certain remedies in the event of default gives those stipulations virtually the same qualities as the promises of performance, and that each type ought therefore to be as fully enforceable as the other. As Underhill L.J. acknowledged, as a matter of experience, it is clear that parties contract for performance of promises. They do not contract for remedies instead of the performance of promises. Any exceptions to that generalisation must be so unimportant or rare that, for practical purposes, they ought to be ignored. As AB v CD well shows, arguments for the protection of parties' contractual expectations have considerably less force in relation to equitable remedies than in respect of the legal remedy of damages for breach of their primary contractual obligations to one another.

There is wisdom in this legal position. Equitable remedies in aid of legal rights are an important supplement to parties' legal entitlements. However, they are to be applied judiciously. Injunctions especially are subject to various doctrines, principles, and rules that ensure parties' legal rights are not unjustifiably affected by the coercive effect of the remedy and that the courts are not charged with enforcing injunctions without good reasons. The Court of Appeal in AB v CD saw that it would be unsatisfactory for a contractual term effectively to oust equitable relief. The dangers of permitting parties to contract into equitable relief free of the various doctrines to which equity itself subjects its own relief could be considerable.