A Victorian Court of Appeal Reminder on the Risks of Undertakings as to Damages

undertaking as to damages

In Love v Thwaites & Anor [2014] VSCA 56 the Victorian Court of Appeal (Warren CJ, Tate and Beach JJA) has issued a “salutary lesson to practitioners and their clients to appreciate the conditions governing the grant of an interlocutory injunction”, in particular the risk of an undertaking as to damages.

Background

Mr Love was granted an interlocutory injunction which restrained the demolition or disturbance of part of a property which the Roads Corporation sought to compulsorily acquire for the purposes of the Craigieburn Bypass.

The Roads Corporations had engaged Abigroup Contractors Pty Ltd to design and construct the bypass including a bridge. The contract required the Roads Corporation to give Abigroup possession of all land reserved for the bypass including the land to which the injunction applied.

As a consequence of the injunction Abigroup incurred additional costs ($3.4 million) under the contract for which the Roads Corporation became liable (and paid).  Those costs included design variations, direct construction costs, delay costs and changes to haulage routes.

To obtain the injunction Mr Love gave the usual undertaking as to damages, namely:

to abide by any order the Court may make as to damages in case the Court shall hereafter be of opinion that the defendant shall have sustained any, by reason of this order, which the plaintiff ought to pay”.

Mr Love was repeatedly requested by the solicitors for the Roads Corporation to discharge the injunction, on the basis that significant loss and damage was being incurred which would be claimed pursuant to the undertaking as to damages if the Roads Corporation was successful at trial.

Mr Love was unsuccessful at trial following which the injunction was discharged and he was ordered to pay damages to the Roads Corporation in the amount of $3.4 million together with interest in the amount of $2.4 million.

Mr Love appealed against the assessment of damages, including on the grounds that the trial judge erred:

  • in finding that Mr Love foresaw the damages flowing from the injunction;
  • in failing to consider whether the Roads Corporation had properly mitigated its loss.

The outcome

The Court dismissed the appeal, finding that the “nature and extent of the damage that might flow from the injunction was foreseeable” at the time of the injunction, and at various later times when the Roads Corporation sought to vary or discharge the injunction and/or obtain additional security for the undertaking as to damages (at [22]). It was not necessary for Mr Love to actually foresee the nature and extent of the damage.

Whilst the majority (Warren CJ and Beach JA) accepted “for present purposes” that the principles underlying the concept of mitigation of damage had application “at least by analogy, if not directly” in this case (at [47]), they held that there was no basis for the trial judge to conclude that those principles should reduce any part of the Roads Corporation’s claim.

The majority noted the observations of the High Court in European Banking Ltd v Evans (2010) 240 CLR 432, 439:

“14      [T]he undertaking as to damages is given to the court, for enforcement by the court; it is not a contract between parties or some other cause of action upon which one party can sue the other … 

16        In Air Express ([1981] HCA 75), Mason J said that there was little to be gained from an examination of the authorities dealing with causation of damage in contract, tort and other situations; the Court was better advised to look to the purpose which the undertaking as to damages is to serve and to identify the causal connection or standard of causal connection which is most appropriate to that purpose.

17        A party seeking an equitable remedy is required to ‘do equity’ and this is the origin of the requirement that the party giving an undertaking as to damages submit to such order for payment of compensation as the court may consider to be just.  Given its origin and application to varied circumstances in particular cases, the process of assessment of compensation cannot be constrained by a rigid formulation.”

Comment

This case serves as a reminder to carefully weigh the risks associated with undertakings as to damages, both when granted and at subsequent stages of the underlying litigation. The Court emphasised that Mr Love had refused to discharge the undertaking notwithstanding that he had been put on notice as to mounting loss and damage.

As Tate JA said (at [62]):

While there is no suggestion that the usual undertaking was here given lightly, the consequences that have flowed from the failure of Mr Love to make out his case at trial have been significant.  In my view, these consequences provide a salutary lesson to practitioners and their clients to appreciate the conditions governing the grant of an interlocutory injunction.  The usual undertaking carries serious risks; it would be wholly erroneous to view it as no more than a ritual or a formality.”