Interlocutory Injunctions: Beware the Usual Undertaking as to Damages
A recent illustration of the stringency of the usual undertaking as to damages for a party who obtains an interlocutory injunction, where the injunction is later discharged and the proceeding lost.
The Court of appeal’s recent decision in Love v Thwaites & Anor  VSCA 56 “illustrates the stringency of the usual undertaking for damages given by a party who succeeds in obtaining an interlocutory injunction”.
In February 2002, the Roads Corporation compulsorily acquired from Mr Love some 25.6 hectares of land and improvements in Epping known as Clonard for the purpose of construction of the Craigieburn Bypass.
In January 2003, Abigroup Contractors Pty Ltd was awarded the design and construct contract for stage 3 of the Craigieburn Bypass, which included a bridge over the Bypass at O’Herns Road. Abigroup was entitled to determine the most cost effective design within the road reservation provided it met the Roads Corporation’s requirements. The Roads Corporation was required to provide Abigroupwith possession of the whole of the land reserved for the construction of the Bypass within 7 days of the acceptance of the tender. While another tenant of Clonard agreed to provide possession, Mr Love commenced proceedings.
In March 2003, Mr Love obtained an interlocutory injunction restraining the Roads Corporation from demolishing or disturbing the property. In order to obtain the injunction, Mr Love gave the usual undertaking as to damages: to abide by any order the court may make as to damages in case the court should thereafter be of opinion that the defendant shall have sustained any, by reason of this order, which the plaintiff ought to pay.
In June 2009, Mr Love’s proceeding was dismissed, following which the interlocutory injunction was discharged, and an assessment undertaken of the respondent’s damages incurred as a result of the injunction. In November 2012, Dixon J ordered Mr Love to pay the Roads Corporation damages of $3,420,389.70 together with interest in of $2,427,258.47. Mr Love appealed the decision on eight grounds.
The major components of the damages assessed included direct costs to construct the northern bridge option of $842,474.94 and delay costs of $2,284,953, which Dixon J described as representing payments by Roads Corporation to Abigrouppursuant to its obligations arising under and in consequence of the contract.
Dixon J set out the principles governing the assessment of damages as follows:
- Damages flowing directly from the injunction and which would have been foreseen when the injunction was granted.
- The damages must be confined to loss which is the natural consequence of the injunction under the circumstances in which the party obtaining the injunction has notice.
- The party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered.
- The court has the power, as far as monetary compensation allows, to make good the harm of which the grant of the injunction was a cause and but for it he would not have suffered.
- Generally speaking, so long as the claim for damages is not trivial or trifling, an inquiry should be directed and the defendant will be entitled to recover the loss which is the natural consequence of the grant of the injunction.
- The causal connection between the damage and the injunction is to be identified from the purpose for which the undertaking as to damages is designed to serve.
- The object is to protect the party from damage sustained in the event that it emerges that the plaintiff is not entitled to the relief sought. Its purpose is not to protect the defendant from damage otherwise sustained.
- For damage to be reasonably foreseeable, it need only be damage of a type or character that is foreseeable or damage of a type or character that could not be considered unlikely.
- The inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen.
Chief among the complaints by Mr Love, which were all rejected by the Court of Appeal, was the issue of foreseeability of the damages claimed and assessed in favour of Roads Corporation. Dixon J observed that Mr Love was an experienced engineer and project manager and that he knew of the contract between Abigroup and Roads Corporation when he gave the undertaking. In February 2003, an affidavit filed on behalf of Roads Corporation put Mr Love on notice that Abigroup had been awarded the contract and that pursuant to it:
(a) Abigroup became entitled to possession in January 2003 of the land;
(b) failure to give Abigroup clearance to commence work could constitute a breach of the contract allowing Abigroup to make a claim for an extension of time; and
(c) granting an extension of time could lead to delay damages under the contract of up to $169,000 per week plus 10% for profit.
Further, Mr Love had expert advice from Tom Brock of GHD, a civil engineer experienced in the design of major road projects, who opined that the works could be constructed by avoiding the protected area but as the works were being delivered under a contract, the elements of the detailed design were a matter for the contractor; the interchange should not be constructed at the location or in the form proposed by the Roads Corporation; and, on the categories of additional costs that he anticipated Roads Corporation could be exposed to should an injunction be granted. They included additional costs of construction and additional costs flowing from the need to redesign parts of the Project to avoid the protected area including damages in the form of delay costs.
Not only was Dixon J satisfied that the nature and extent of the damage which might flow from the injunction was foreseeable in March 2003, he was satisfied that Mr Love actually foresaw it. He found, amongst other things, that Mr Love sought to influence the manner in which Abigroup discharged its contract to minimise variation and delay costs for Roads Corporation arising from the impact of the protected areas of the Project. For the most part, Mr Love’s defence of the assessment for damage proceeded on the basis that Roads Corporation did not direct, and Abigroup did not implement, Mr Love’s suggested solutions to the issues that were likely to arise from the existence of the protected area.
The Court of Appeal reiterated that it was the issue of foreseeability rather than whether the appellant actually foresaw relevant matters that must be determined. The Court held that Dixon J did not err in finding that the nature and extent of the damage that might flow from the injunction was foreseeable in March 2003 and that the nature and extent of the damage that might flow was plainly foreseeable at the time the injunction was granted, and at the various times when Roads Corporation sought to vary or discharge the injunction and/or obtain additional security for Mr Love’s undertaking as to damages.
In relation to Roads Corporation’s claim for delay costs, the plurality held that but for the injunction, Roads Corporation would have constructed a bridge to the south of the bridge actually constructed. Because of the injunction, Roads Corporation was required to construct a bridge to the north of the bridge originally proposed. This involved the incurring of additional direct costs referred to in the particulars of damages and further, having regard to the complexity of the issues and matters that needed to be debated, the claimed and paid delay period of 10.2 weeks assessed under the contract at $2,284,953 could not have been held by the Judge to have been unreasonable. Roads Corporation was liable to pay the amount under the contract, and the liability to pay was brought about by the existence of the injunction. Again as to the issue of foreseeability, it was of some note that on 31 March 2004, a little over a year after the injunction was granted, Roads Corporation wrote to Mr Love seeking to discharge the injunction and noting cost estimates of the various options in relation to the bridge which ranged from $4,890,000 to $8,317,309. Notwithstanding notice of those matters, Mr Love again refused Roads Corporation’s requests to discharge the injunction.
Mr Love was critical of the time taken by Roads Corporation to issue the direction to proceed with the design and construction of the northern bridge. Dixon J found that it was proper and appropriate for Roads Corporation to consider all opinions and consequences carefully (including costs consequences) before issuing a direction. The Court of Appeal agreed and found that there was no basis for Mr Love to contend that any delay was unreasonable.
The final ground of Mr Love’s appeal was that Roads Corporation had failed to properly mitigate its loss. In short, he contended that Roads Corporation should have listened to and accepted his views in relation to any redesign that the injunction might have necessitated. The Court of Appeal rejected Mr Love’s submissions and held at : “assuming for present purposes that rules in relation to mitigation of damage had application in this case, there was in our view no basis for the Judge to conclude that these principles operated to reduce any part of the respondent’s claim against the appellant”. The Court agreed with Dixon J’s observation at  that “Mr Love could not identify any basis that permitted him to be involved in the design and construction process.”
So far as principles mitigation of damage were concerned, Dixon J observed that “…the concept of mitigation is, principally, a common law doctrine that refers to the manner in which a claimant has avoided the consequences of a wrong, whether a tort or a breach of contract. McGregor on Damages suggests that this is the only exact use of the term, but its principle meaning comprises three different, closely interrelated, rules; a claimant cannot recover for avoidable loss, a claimant can recover from loss incurred in reasonable attempts to avoid loss and a claimant cannot recover for avoided loss. …”
The Court proceeded on the basis, in Mr Love’s favour, that the principles underlying the concept of mitigation of damage had application (at least by analogy, if not directly) but observed the comments of the High Court in European Banking Ltd v Evans that “…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.”
In her separate, but assenting judgment, Tate JA concluded: “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.”
 Tate JA at .
 Dixon J at - referring to Davinski Nominees Pty Ltd v I&A Bowler Holdings Ltd  VSC 220 at ; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249; European Bank Ltd v Robb Evans of Robb Evans & Associates (2010) 240 CLR 432 at 439.
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