Restrictive Injunctions v Specific Performance - Keeping the Pool Together

In May 2005 the Court of Appeal (LauritzenCool AB v. Lady Navigation Inc) had to decide whether a negative injunction restraining owners from withdrawing their vessels from a pool could be granted, notwithstanding the well established principle under English law that an order for specific performance of a time charter is not an available remedy.

In 1998 the predecessors of the claimants (Lauritzen) time chartered two reefer vessels for a period of 10 years. In their capacity as charterers, Lauritzen managed a pool of reefer vessels of which the two vessels in question were part.

Subsequently in 2003 disputes arose concerning the operation of the pool which led to two arbitrations and caused the owners to give notice of their intention to take the vessels out of the pool. As the charters still had several years to run, Lauritzen sought an undertaking from the owners that they would not withdraw their vessels pending the outcome of the arbitration proceedings. When owners refused to give such an undertaking, Lauritzen sought an interim injunction to the effect that the Owners could not withdraw their vessels until the final award of the arbitrators had been made.

At first instance the High Court Judge granted Lauritzen interim injunctions in the following terms:-

"That the owners must not employ the vessels in a manner inconsistent with the time charters and must not fix the vessels with any third party for employment prior to the end of the charter periods".

Relying on the House of Lords decision in “The Scaptrade"¹ owners appealed on the basis that there was a general principle that injunctive relief would not be granted in respect of a contract for services, if the practical effect would be to compel performance.

In “The Scaptrade” the House of Lords considered whether charterers should be entitled to an order compelling owners to perform a charter in circumstances where, as a consequence of the non payment of hire, owners had withdrawn their vessel from charterers’ service. It was held that a time charter was a contract for services to be rendered by the owners to the charterers through the use of the vessel by the owners’ servants, master and crew acting under orders from the charterers. Recognising that a time charter, being a contract for services, is the prototype of a contract of which the English courts would never order specific performance, the House held,² that in any event it was not appropriate to grant the application as the owners had a contractual right to withdraw the vessel from the charterers’ service if the charterers failed to pay hire in strict compliance with the terms of the charter. In doing so the owners committed no breach of contract and the charterers had no remedy in damages. It therefore followed that charterers were not entitled to an injunction restraining the owners from exercising their contractual right of withdrawal.

The Court of Appeal in Lauritzen held that although " The Scaptrade" was authority that the courts would not make an order to compel performance of a time charter, there was no general principle under English law that a court should refuse to grant negative injunctive relief, even though the practical effect of such relief might be the same. Indeed, in a number of cases predating “The Scaptrade” the courts had granted such relief even though the result would or might have been, albeit indirectly, to compel performance of charters and other contracts for services ³. Although as a matter of practical reality the relief sought by Lauritzen would compel owners to perform the charters, the Court of Appeal concluded that there was no objection in principle or authority in law preventing them from upholding the first instance decision ordering Owners “ … not to employ the vessels in a manner inconsistent with the time charters ...” ⁴ as the injunction was not restraining owners from exercising a contractual right.

The decision does not create new law but illustrates the consistent approach taken by English courts towards interim injunctions for more than 150 years.

^1.(1983) 2 LLR 253
^2.relying on a line of cases culminating in “The Chikuma” [1981] 1 Lloyd’s Rep. 371
^3.see e.g. Lumley v. Wagner (1852) 1 De G. M & G 604
^4. It is noteworthy that the court did decline to grant Lauritzen’s application for an order that the owners must not take any steps preventing performance of the charters. Although dressed in negative language such an order would have been tantamount to an order for specific performance.