The defendant contested the injunction application by arguing that, even if they were wrong about the validity of the SPC, damages would be an adequate remedy and would compensate any loss suffered by the plaintiff.
In a unanimous decision, the court allowed the plaintiff’s appeal. Although Merck is of particular interest to intellectual property practitioners, it has greater significance in the context of interlocutory injunction applications in general.
Chemical brothers
O’Donnell J made a number of findings that are of relevance for all legal practitioners. He summarised these findings in a new test, which is more nuanced than that in Campus Oil and which emphasises the essentially flexible nature of an injunction:
- First, the court should consider whether, if the plaintiff succeeded at the trial, a permanent injunction might be granted. If not, then it is extremely unlikely that an interlocutory injunction seeking the same relief upon ending the trial could be granted.
- The court should then consider if it has been established that there is a fair question to be tried, which may also involve a consideration of whether the case will probably go to trial. In many cases, the straightforward application of the American Cyanimid and Campus Oil approach will yield the correct outcome. However, the qualification of that approach should be kept in mind. Even then, if the claim is of a nature that could be tried, the court, in considering the balance of convenience or balance of justice, should do so with an awareness that cases may not go to trial and that the presence or absence of an injunction may be a significant tactical benefit.
- If there is a fair issue to be tried (and it probably will be tried), the court should consider how best the matter should be arranged pending the trial, which involves a consideration of the balance of convenience and the balance of justice.
- The most important element in that balance is, in most cases, the question of adequacy of damages.
- In commercial cases where breach of contract is claimed, courts should be robustly sceptical of a claim that damages are not an adequate remedy.
- Nevertheless, difficulty in assessing damages may be a factor that can be taken into account and lead to the grant of an interlocutory injunction, particularly where the difficulty in calculation and assessment makes it more likely that any damages awarded will not be a precise and perfect remedy. In such cases, it may be just and convenient to grant an interlocutory injunction, even though damages are an available remedy at trial.
- While the adequacy of damages is the most important component of any assessment of the balance of convenience or balance of justice, a number of other factors may come into play and may properly be considered and weighed in the balance in considering how matters are to be held most fairly pending a trial, and recognising the possibility that there may be no trial.
- While a structured approach facilitates analysis and (if necessary) review, any application should be approached with a recognition of the essential flexibility of the remedy and the fundamental objective in seeking to minimise injustice, in circumstances where the legal rights of the parties have yet to be determined.
In this test, and elsewhere in the Merck judgment, O’Donnell J clarifies the approach to be taken when considering the grant of an interlocutory injunction and develops the law significantly from the Campus Oil position.
Remedy
The judgment restates the fact that an injunction is an equitable remedy, and is critical of the approach sometimes taken by judges and practitioners alike in rigidly applying the Campus Oil test.
The judge stated that there has been “a discernible tendency to reduce the approach taken in cases to rules which sometimes become calcified, so it becomes necessary periodically to reassert the essential flexibility of the remedy”, and further found that “the underlying theme of the [American Cyanamid decision, adopted in Campus Oil] was to reassert the flexibility of the remedy and the essential function of an interlocutory injunction in finding a just solution pending the hearing of the action.
Even though the judgment is lucidly and succinctly expressed, it should not … be approached as though it were the laying down of strict mechanical rules for the control of future cases.”
Two steps
O’Donnell J also clarified the manner in which the Campus Oil test ought to be interpreted. It is not, as courts have often held, a three-step test of:
- Fair question to be tried,
- Adequacy of damages, and
- Balance of convenience.
Rather, it is a two-step test:
- Fair question to be tried, and
- Balance of convenience (of which adequacy of damages forms a part).
There has previously been uncertainty on whether or not consideration of adequacy of damages is antecedent to an assessment of the balance of convenience, with Blayney J finding in Ferris v Ward that the issue of balance of convenience only arises when there is doubt as to the adequacy of damages, and O’Flaherty J finding in Curust Financial Services Ltd v Loewe-Lack-Werk that the balance of convenience is found first by inquiring as to “whether damages would be an adequate remedy”.
Adequacy of damages
O’Donnell J, returning to his central point about the flexibility of equitable remedies, stated that “the preferable approach is to consider adequacy of damages as part of the balance of convenience, or the balance of justice, as it is sometimes called. That approach tends to reinforce the essential flexibility of the remedy. It is not simply a question of asking whether damages are an adequate remedy.”
He further stated that “the fact that it is possible to award damages does not preclude the grant of a permanent injunction, and should not be understood as an absolute bar to the grant of an interlocutory order.”
He went on to consider the question of difficulty in quantifying damages, and the effect such difficulty has on the determination of the adequacy of damages.
The existing rule had been set out by Finlay CJ in Curust: “Difficulty, as distinct from complete impossibility in the assessment of damages, should not, in my view, be a ground for characterising the awarding of damages as an inadequate remedy.”
Technical ecstasy
O’Donnell J stated that: “Difficulty of calculation of damages may be relevant at the interlocutory stage, because the more complex the calculation and the greater the number of variables involved, the more likely it is that a court at trial would be forced to make an estimate or indeed to compound one hypothesis with another to arrive at its best assessment of damages to do justice in the case.
“But that necessarily increases the risk that the award of damages, although the best the court can do, may be something less than the doing of justice to either the plaintiff or indeed the defendant.
“In such a case, it may be more convenient not to leave one or other party to the possibility of an assessment of damages which is theoretically possible, but highly imprecise, speculative and therefore inconvenient … The fact that it is not completely impossible to assess damages should not preclude the grant of an injunction to the plaintiff in an appropriate case.”
O’Donnell J doubted that Finlay CJ intended that his words be interpreted as meaning that anything short of complete impossibility of assessment should preclude the finding that damages are an inadequate remedy.
However, that is certainly the way that those words have been interpreted, notably by Kelly J in Cavankee Fishing Company Ltd v Minister for Communication.
Equitable remedy
As such, Merck represents a notable softening of the approach to be taken in assessing the question of the adequacy of damages. Again, this is consistent with the central thesis of the Merck judgment, that an injunction is an equitable remedy and that there ought to be no immutable rules against granting injunctions where it is otherwise convenient.
There is an inherent inconsistency in emphasising the fact that an injunction is an equitable remedy – and therefore resistant to a mechanistic application of rules of thumb – while at the same time establishing a new and detailed test for the grant of interlocutory injunctions.
O’Donnell J notes this, prefacing his eight-point test with the acknowledgement that he risks “creating a further rule that will require subsequent qualification and correction”.
Balance of convenience
However, the new elements O’Donnell J has added in his modified version of the classic test are sensible, and will be of use in future injunction applications, particularly where both parties are well-resourced commercial entities, and the balance of convenience appears finely balanced.
Courts will find that they have more latitude to consider the balance of justice in the case and, even if damages may be an adequate remedy, are empowered to grant injunctions pending trial, should it be convenient.