Undertakings as to damages

 Lot 121

In my experience, non-lawyers almost always underestimate the solemnity of curial process.  A court order is the first step towards a possible invocation of the coercive force of the state in its ultimate enforcement.  This is a process which is not lightly set in train. Clients in particular, to whom the rightness of their cause is generally self-evident, have difficulty understanding why matters are required to be proved with such care and to such a degree of pedantry.  When you add to that the time needed for the other side to do the same in response and for there to be a fair hearing of the competing claims, you have the beginning of the law’s delay.  It’s not a new problem, of course. With bureaucratisation and our increasing expectations of due process, even quite simple cases, once disposed of by a briskly brought on oral hearing, will commonly take a year to determine.  More complex cases will inevitably take longer.

So what do you do if, by the time the case can get to be heard, it will simply be too late?

You can apply for an interlocutory (or interim) injunction. Such injunctions are conceived of as preserving the status quo, or in some cases as a means of ensuring that the person being sued cannot take steps in the intervening period which will render the action against them fruitless, or as preventing the wrong which is complained of from causing some irremediable harm.

Obviously, the presumption on which you apply for such an order is that you will turn out to be right in the end when the case is actually determined. The opposing party will naturally say, “But what if I’m right? If that turns out to be the case, you should compensate me for the damage your interlocutory order has caused to me.”

The answer to this is that the party seeking the interlocutory injunction has to offer an undertaking as to damages. If there is reason to believe that this undertaking is worthless or inadequate, because the party offering it would not be in a position to pay the possible likely compensation, then they won’t be able to get the injunction. Otherwise, subject to a number of other considerations which I won’t go into here, the injunction is granted on the condition that the undertaking is given, and the case goes on its merry way.

Often, this is the end of the matter so far as the court is concerned, because now, as well as the legal costs, the stakes have risen for the party which gave the undertaking in the event that they turn out to be wrong. This can often be a powerful incentive to come to a sensible settlement of the dispute, and normally once parties start settling, they soon see the sense of settling all of the outstanding issues between them, though not always. Even if the dispute is resolved to the satisfaction of the party which obtained the injunction, so that the injunction is dissolved, the question of the damage caused to the party which was enjoined may still be in dispute, and the enjoined party will sue on the undertaking.

Rail Corporation NSW v Leduva is a recent decision which provides an interesting example of how these sorts of matters can play out.

Leduva was building some apartments at Henderson Road, Alexandria (red circle in the picture above) which were close to the Eastern Suburbs Railway tunnel in Sydney (black circle in the picture above), which starts on the way into town not long after Erskineville Station.  As a condition of its development consent, it had to obtain the consent of Rail Corp.  The terms of this consent were embodied in a deed between Rail Corp and Leduva which imposed some fairly stringent conditions on Leduva concerning the construction and, in particular, the process whereby Leduva had to provide, on a progressive basis, certification of the safety of its excavations and of the load-bearing piles which it was proposing to build vis-à-vis their impact on the safety of the tunnel.

In July 2004, Rail Corp began to have concerns about the safety of Leduva’s works, and solicitors’ letters began to fly. Leduva offered some undertakings, but these were not to the satisfaction of Rail Corp, which obtained an injunction preventing Leduva from undertaking any further work in September 2004. In October 2004, Leduva applied to the court in an unsuccessful attempt to dissolve the injunction.

The problem for Leduva was that it had not followed to the letter the procedures set out in the deed and the various other documents which were incorporated by reference (that is, the deed referred to them so that they had effect as terms of the deed). So far as the safety of Leduva’s works and what threat, if any, they posed to the tunnel were concerned, the unresolved issues included not only how much load the piles would actually bear (Leduva maintained that the piles actually carried less load than was there before, I think this means simply by reason of the weight of the ground which had been removed compared to the weight of the building), but how deep into the ground the piles actually went, and where exactly they were in relation to the tunnel, in relation to which everyone was working off plans of both the tunnel and the piles, rather than surveys of them as they now were.

By this stage both sides had engaged technical experts.  Once litigation commenced, the purpose of this was in part to defend the positions which each side had adopted.  Once it had failed to lift the injunction, I imagine Leduva was frantically trying to convince Rail Corp that the piles really were and would be safe. Rail Corp was not prepared to accept the information and reports which Leduva was giving it. If you’ve ever tried to convince a bureaucrat of something across the counter, you’ll probably know the feeling.  Rail Corp engaged its own surveyors and other experts and, with Christmas interposing, from Leduva’s perspective they certainly took their time.  They didn’t even ask a Mr Cornish to undertake a “Field Survey” until 14 December 2004.  It was not until 2 February 2005, when Rail Corp received a final “all-clear” from their Geotechnical experts, Connell Wagner, that they agreed that the pilings did not involve any risk to the safety of the tunnel, and the injunction was lifted.

Leduva, whose position all along had been that the pilings did not constitute a risk to the tunnel, sued on the undertaking as to damages.  In particular, they claimed that Rail Corp should pay Leduva damages from 16 November 2004, when Rail Corp appeared to have agreed with calculations based on the plans (but not a survey) that the tunnel was further away from the pilings than had previously been thought (this was called “the Sketch”).  Alternatively, Leduva claimed damages from 17 December 2004, when Leduva provided a report (“the Nye Report”) in relation to the loading on the pilings which Leduva claimed that Rail Corp’s experts had ultimately accepted.  The question of whether Rail Corp was liable on the undertaking for this period was set down for separate determination: if Leduva was successful there would then need to be a separate hearing to determine the amount of those damages, if it could not be agreed.

The second hearing was not necessary, because Leduva lost.

The key part of Justice Einstein’s judgment is as follows: 

85 It is particularly important in standing back from all of the detail to keep steadfastly in mind that the departure from the contractual Work Method Statement with which the plaintiff ultimately went along, was solely caused by the conduct of the defendant. In the particular circumstances which obtained the plaintiff was entirely justified in proceeding at every stage with special caution. That is what it did.

86 The short answer to its case is that the plaintiff was justified in not agreeing to the dissolution of the injunction prior to 2 February 2005 (or, relevantly, between 17 December 2004 and 2 February 2005) because, given that the defendant had failed to satisfy it as to the depths of the piles in breach of the deed, the plaintiff was entitled to obtain such expert advice as was reasonably necessary to satisfy itself as to the correctness or otherwise of Mr Nye’s opinion, [served on 17 December 2004], that the risk posed by the development to the tunnel was negligible even if the piles were not at their specified depth.

87 The expert advice received by the plaintiff was constituted by Connell Wagner’s opinion as to the risk posed to the tunnel in both the Nye Report and the Field Survey of Hard & Forester. As the plaintiff has contended, that advice would not have been necessary if the defendant had honoured its obligations under the Deed.

88 The finding is that on the evidence, the plaintiff was not obliged to accept at face value the Nye Report nor the Sketch.

89 An important part of these findings concerns the fact that there was no challenge made to the evidence of Mr Hilton that a physical survey to locate the position of the tunnel wall was essential and that the Sketch relied on by Mr Nye was insufficient. The plaintiff was not acting unreasonably in acting on that advice, and in waiting

(i) until Mr Cornish’s Field Survey was provided to Connell Wagner and

(ii) for a “sign off” by Connell Wagner before consenting to a dissolution of the injunction.

On the whole, it was a comprehensive defeat for Leduva.  They had already been ordered, because the deed they entered into with Rail Corp provided for it, to pay Rail Corp’s costs immediately and on an indemnity basis after the injunction was dissolved, and I wouldn’t be surprised if the terms of the deed will have a similar consequence to the costs of these later proceedings.  Add to that the expense of a 4-month delay in the construction of a 115-residential-unit development, and they must really be smarting.

Mind you, if you google Leduva and some of the allegations made about its principal and believe any of them have any substance, you might think it couldn’t have happened to a nicer guy.

5 Responses to “Undertakings as to damages”

  1. Legal Eagle Says:

    I used to know that undertaking as to damages off by heart (aka “the usual undertaking, Your Honour”). Haven’t even had to think about it for a few years now. It is a good way of forcing knuckleheaded parties to sit down and think through things more calmly.

    The principal of Leduva sounds like a nightmare client. It’s times like these I’m glad I’m not in practice any more. :-)

  2. ace Says:

    hi.. i cant seem to find the article..

  3. ace Says:

    ive googled leduva.there dosnt seem to be an article on leduva that you have stated.

  4. marcellous Says:

    As of now, it is still in the Google cache, but I can’t promise it will stay there forever. Otherwise try http://www.parliament.nsw.gov.au/prod/PARLMENT/hansArt.nsf/V3Key/LA20060907032
    for a sample, though in that case you might bear in mind that those are allegations made under the protection of parliamentiary privilege.

  5. Vapid remark by judge « Stumbling on melons Says:

    […] 2007, Leduva, whose appearances in the courts I have noticed on this blog before, engaged Mr Mr Nader Mohareb to undertake some consulting work for them as a structural engineer in […]

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