Ericsson AB vs EADS: Interim injunctions

The facts

This case concerns two applications for interim injunctions.

In 2007 the secretary of state of the communities department appointed EADS Defence and Security Systems (EADS) to provide an emergency communications system to the Fire and Rescue Service in England, known as FiReControl, which would involve a much quicker and more coordinated response to emergency calls to the Fire Services.

On 20 June 2007 EADS employed Ericsson AB (Ericsson) as a subcontractor to develop and supply software and provide related support services. Ericsson agreed to supply a key element in the overall system, the initial supplied software (ISS). The agreement between the parties stated that certain milestone dates would need to be complied with. In particular, milestone five required that the release of the ISS and contractual delivery date was to be 7 January 2009.

Ericsson started work in 2007. By November 2008 it was reporting that delivery of the ISS would be January 2010, rather than January 2009. Both parties discussed the need to share risk and agreed on an earlier delivery date of 31 August 2009. This date however continued to slip and EADS expressed great concern that this delay would affect EADS' delivery programme to the communities department, and ultimately the communities department's ability in turn to deliver a safe and reliable system before the London Olympic Games in 2012.

At the end of September 2009, Ericsson served notices of its intention to mediate the dispute as to whether or not Ericsson was contractually obliged to deliver the ISS by 30 September 2009. One day later EADS wrote to Ericsson notifying it of material default, invoking its rights to terminate the contract. On that same day, Ericsson also gave notice of two adjudications pursuant to the multi-tier dispute resolution clause in the agreement. EADS responded stating that adjudication was not open to Ericsson as it had elected to pursue mediation.

Subsequently, both parties applied to the court for interim relief. Ericsson sought to prevent EADS from terminating the agreement, at least before the adjudication had taken place and EADS sought an order preventing Ericsson from taking any further steps in the adjudications, seeking a declaration that any decision would be invalid.

The issues

• (1) In order to determine whether or not Ericsson was entitled to an injunction to prevent termination prior to the outcome of adjudication, the court had to determine if Ericsson had a real prospect of success in its claim for a permanent injunction at trial and whether or not damages would be an adequate remedy.
• (2) Regarding EADS' injunction to prevent Ericsson from continuing with the adjudications, the court had to determine whether or not mediation and adjudication were mutually exclusive alternatives. If a party commences one type of dispute resolution in relation to a specific dispute, can it also, at the same time or later, embark upon the other? In addition, the court was required to interpret the dispute resolution clause within the parties' agreement (clause 31).

The decision

Mr Justice Akenhead refused Ericsson's application for an injunction to prevent termination. Following the principles set out in American Cyanamid vs Ethicon, he found that there were serious arguable issues regarding the delivery of the ISS system and EADS' position was not “hopeless” or largely untenable. Among other factors, it was arguable whether or not the contractual delivery date was 30 September 2009, thereby putting into question Ericsson's chance of success at trial.

The judge was also not satisfied that damages would not be an adequate remedy. Both parties were commercial parties, in a commercial context, with a sophisticated contract. Based on the terms of the contract, the damages were not difficult to quantify. Mr Justice Akenhead “[could not] see that it is unjust that a party is confined to the recovery of such damage as the contract, which is has entered into freely, permits it to recover.”

The judge also refused EADS' injunction restraining Ericsson from pursuing remedies in adjudication in relation to delays and termination. Mr Justice Akenhead formed the view that it is open to either party on a given dispute either to mediate or to adjudicate or to do both. Clause 31.3 of the parties' agreement stated that either party “may” (rather than “shall”) give notice of its intention to mediate or to adjudicate. Logically, the use of the word “may” suggested that the parties wanted flexibility.

Furthermore, the wording in Clause 31.6 stated: “Unless and until revised, cancelled or varied by a decision of the courts, the adjudicator's decision shall be final and binding on both parties save for manifest error.” This is further evidence that clause 31 as a whole was intended to provide for various forms of dispute resolution.

Both Ericsson's and EADS' applications for injunctions were dismissed.

Commentary

Interim injunctions are not concerned with determining the final rights of the parties. Therefore, when deciding whether or not to pursue an interim injunction, the particular facts and evidence of your case need to be considered carefully when considering the chance of success. On the facts of this case, Mr Justice Akenhead stated that:

“the effect of an injunction to restrain termination would be in effect to require two parties who have fallen out with each 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.”

Furthermore, when drafting your contract at the outset of a project, particular attention needs to be given to the exact wording of the dispute resolution clauses. Be sure to fully consider how you want to resolve any disputes which may arise. Building in the flexibility to choose a dispute resolution method later on in the future means just that.