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ROBB EVANS OF ROBB EVANS & ASSOCIATES v EUROPEAN BANK LTD [2009] NSWCA 67 (2 April 2009)

Last Updated: 6 April 2009

NEW SOUTH WALES COURT OF APPEAL

CITATION:
ROBB EVANS OF ROBB EVANS & ASSOCIATES v EUROPEAN BANK LTD [2009] NSWCA 67

FILE NUMBER(S):
40713/07

HEARING DATE(S):
3 December 2008

JUDGMENT DATE:
2 April 2009

PARTIES:
Robb Evans of Robb Evans & Associates (Appellant)
European Bank Ltd (Respondent)

JUDGMENT OF:
Basten JA Campbell JA Gyles AJA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 4999/1999

LOWER COURT JUDICIAL OFFICER:
Gzell J

LOWER COURT DATE OF DECISION:
20 September 2007

LOWER COURT MEDIUM NEUTRAL CITATION:
Evans & Associates v Citibank Ltd & Ors [2007] NSWSC 1004

COUNSEL:
A S Martin SC/G M Wilkinson (Appellant)
R J Webb SC/J A Halley SC (Respondent)

SOLICITORS:
Deacons (Appellant)
Baker & McKenzie (Respondent)

CATCHWORDS:
APPEALS – evidence – challenge to witness credibility – advantage of trial judge
DAMAGES – “usual undertaking as to damages” – compensation pursuant to undertaking to court for loss of use of money – whether beneficiary of undertaking can recover amount for loss of use of money beyond interest accrued – opportunity for favourable currency exchange rate fluctuations lost – whether loss foreseeable by party proferring the undertaking from circumstances known at time of undertaking – whether loss too remote to be characterised as properly compensable – Supreme Court Rules 1970 ( NSW ), Pt 28 , r 7(2)
INTERLOCUTORY RELIEF – usual undertaking as to damages – origin – purpose – construction – enforcement – relationship with interlocutory injunctions – relationship with contractual obligations – “special circumstances” in which court declines to enforce undertaking
WORDS & PHRASES – “coincidental or extrinsic loss” – “damages” – “intrinsic loss” – “special circumstances” – “usual undertaking as to damages

LEGISLATION CITED:
[Bankruptcy Act 1966] (Cth), s 50
[Corporations Act 2001](Cth), s 1324
Civil Procedure Regulation 2005 , reg 19
Supreme Court Rules 1970 ( NSW ), rr 4, 7, Pt 28
Supreme Court Regulation 2000 , reg 13
[Trade Practices Act 1974] (Cth), ss 82, 87
Uniform Civil Procedure Rules 2005 , Pt 25 r 8

CATEGORY:
Principal judgment

CASES CITED:
[Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd] [1981] HCA 75; 146 CLR 249
[American Cyanamid Co v Ethicon Ltd] [1975] UKHL 1; [1975] AC 396
[Aneco Reinsurance Underwriting Ltd (in liq) v Johnson & Higgins Ltd] [2001] UKHL 51; [2001] 2 All ER (Comm) 929
[Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd] [2001] HCA 63; 208 CLR 199
[Australian Broadcasting Corporation v O’Neill] [2006] HCA 46; 227 CLR 57
[Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd] (1988) 18 NSWLR 540
[Beecham Group Ltd v Bristol Laboratories Pty Ltd] [1968] HCA 1; (1968) 118 CLR 618
[Cheltenham & Gloucester Building Society v Ricketts] [1993] 1 WLR 1545; [1993] 4 All ER 276
[Chisholm v Rieff] (1953) 2 FLR 211
[Churnin v Pilot Developments Pty Ltd] [2007] NSWSC 1459
[Churnin v Pilot Developments Pty Ltd] [2008] NSWSC 831
[Clift v Windrum] [1991] NSWCA 54
[Commonwealth v Amann Aviation Pty Ltd] [1991] HCA 54; 174 CLR 64
[Coshott v Principal Strategic Options Pty Ltd] [2004] FCAFC 50
[Coulton v Holcombe] [1986] HCA 33; (1986) 162 CLR 1
[Devries v Australian National Railways Commission] [1993] HCA 78; (1993) 177 CLR 472
[Di Ferdinando v Simon, Smits & Co Ltd] [1920] 3 KB 409
[European Bank Ltd v Citibank Ltd] [2004] NSWCA 76; 60 NSWLR 153
[Evans & Associates v Citibank Ltd] [2003] NSWSC 204
[Ex parte Hall; In re Wood] (1883) 23 Ch D 644
[F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry] [1975] AC 295
[Fox v Percy] [2003] HCA 22; 214 CLR 118
[Gates v The City Mutual Life Assurance Society Ltd] [1986] HCA 3; 160 CLR 1
[Graham v Campbell] (1878) 7 Ch D 490
[Hadley v Baxendale] (1854) 9 Ex 341; 156 ER 145
[HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd] [2004] HCA 54; 217 CLR 640
[Hungerfords v Walker] [1989] HCA 8; 171 CLR 125
[Hunt v Hunt] (1884) 54 LJ Ch 289
[Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd] [2005] NSWSC 883; 221 ALR 179
[Jackson v Richards] [2005] NSWSC 1295
[Kerridge v Foley] (1968) 70 SR (NSW) 251
[Koufos v C Czarnikow Ltd] [1969] 1 AC 350
[Malec v J C Hutton Pty Ltd] [1990] HCA 20; 169 CLR 638
[Marks v GIO Australia Holdings] [1998] HCA 69; 196 CLR 494
[Miliangos v George Frank (Textiles) Ltd] [1976] AC 443
[Modern Transport Company Ltd v Duneric Steamship Company] [1917] 1 KB 370
[Murphy v Overton Investments Pty Ltd] [2004] HCA 3; 216 CLR 388
[National Australia Bank Ltd v Bond Brewing Holdings Ltd] [1991] VicRp 31; [1991] 1 VR 386
[Newby v Harrison] [1861] EngR 850; (1861) 3 De GF & J 287; 45 ER 889
[Owners of SS Celia v Owners of SS Volturno] [1921] 2 AC 544
[Pacific Carriers Ltd v BNP Paribas] [2004] HCA 35; 218 CLR 451
[Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia] [1998] HCA 30; 195 CLR 1
[Potts v Miller] [1940] HCA 43; 64 CLR 282
[Robb Evans of Robb Evans & Associates v European Bank Ltd] [2004] NSWCA 82; 61 NSWLR 75
[Robinson v Harman] [1848] EngR 135; (1848) 1 Ex 850 at 855;[1848] EngR 135; 154 ER 363
[Ryledar Pty Ltd v Euphoric Pty Ltd] [2007] NSWCA 65 ; 69 NSWLR 603
[Schlesinger v Bedford] (1893) 9 TLR 370
[Sellars v Adelaide Petroleum NL] [1994] HCA 4; 179 CLR 332
[Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health] (1989) 89 ALR 366
[South Australia Asset Management Corporation v York Montague Ltd] [1996] UKHL 10; [1997] AC 191
[State of Queensland v Northaus Trading Company Limited] (Unreported, Pincus JA, Moynihan and Atkinson JJ, 13 August 1999)
[State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq)] [1999] HCA 3; 73 ALJR 306; 160 ALR 588
[Tabcorp Holdings Ltd v Bowen Investments Pty Ltd] [2009] HCA 8; 83 ALJR 390
[Taylor v Johnson] [1983] HCA 5; (1983) 151 CLR 422
[The Despina R] [1979] AC 685
[The Teh Hu] [1970] P 106
[Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd] [2004] HCA 52; 219 CLR 165
[Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)] [2008] UKHL 48; [2008] All ER (D) 117 (Jul); [2008] NLJR 1040; [2008] UKHL 48; [2008] 4 All ER 159; [2008] 3 WLR 345; [2008] 2 All ER (Comm) 753
[Varley v Varley] [2006] NSWSC 1025
[Victorian Onion and Potato Growers’ Association v Finnigan (No 2)] [1922] VicLawRp 92; [1922] VLR 819
[Vieweger Construction Company Ltd v Rush & Tompkins Construction Ltd] (1964) 48 DLR (2d) 509
[Wenham v Ella] [1972] HCA 43; 127 CLR 454
[Yukong Line Ltd v Rendsburg Investments Corp] [2001] 2 Lloyd’s Rep 113 (CA)

TEXTS CITED:
PM McDermott, “Undertakings and Lord Cairns’ Act – A Comment” (1992) 66 ALJ 219
McGregor on Damages, 17th ed (2003) at 25-024
[Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies], 4th ed (2002) at [20-050], [21-415]
ICF Spry, “Plaintiffs’ Undertakings and Equity’s Power to Award Damages” (1991) 65 ALJ 658

DECISION:
(1) Allow the appeal and set aside the judgment and orders made by the Equity Division on 27 September 2007.[ ][ ](2) In lieu of the orders below, order that:[ ](a) the plaintiff pay the eighth defendant the Australian dollar equivalent as at 18 March 2005 of $US 3,077.71;[ ](b) the eighth defendant pay the plaintiff’s costs of the trial.[ ][ ](3) The respondent pay the appellant’s costs of the appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40713/07

SC 4999/1999

BASTEN JA

CAMPBELL JA

GYLES AJA

2 April 2009

ROBB EVANS of ROBB EVANS & ASSOCIATES v EUROPEAN BANK LIMITED

Headnote

The appellant gave an undertaking as to damages, pending an application for special leave to appeal to the High Court. The undertaking was part of arrangements that were ancillary to orders that led to European Bank Limited (the respondent) – a Vanuatu corporation carrying on business in that country – being out of a substantial sum of money owed to it for about 10 months. During that time and pursuant to an order of 18 May 2004 (“the order”), the amount in question was held by the Prothonotary and deposited with an Australian bank in a US dollar account, earning interest accordingly.

The respondent claimed that it would have invested the amount, if received, more advantageously by transferring it to euros. It claimed the difference between the amount that was ultimately paid out of court and the amount that would have been held if it had invested the sum itself. Gzell J accepted the respondent’s claim and ordered that the appellant pay the difference amounting to US$803,077.71.

The principal issue for determination on appeal was whether the trial judge erred in holding that the damages claimed by the respondent were the natural consequence of the order.

The Court held, allowing the appeal:

(per Basten JA, Campbell JA and Gyles AJA)

1. The respondent is entitled to just compensation for any loss sustained by it by reason of its being out of its money for the period in question: [2], [67], [124].

State of Queensland v Northaus Trading Company Limited (Unreported, Pincus JA, Moynihan and Atkinson JJ, 13 August 1999); Miliangos v George Frank (Textiles) Ltd [1976] AC 443; The Despina R [1979] AC 685, applied.

Di Ferdinando v Simon, Smits & Co Ltd [1920] 3 KB 409; Owners of SS Celia v Owners of SS Volturno [1921] 2 AC 544; The Teh Hu [1970] P 106, not followed.

Hungerfords v Walker [1989] HCA 8; 171 CLR 125, considered.

Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280; Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48; [2008] 3 WLR 345, referred to.

(per Basten JA)

2. The person giving the undertaking must have actual or imputed knowledge of the possible loss which might accrue to the respondent from the payment of funds into court. The knowledge must exist at the date of the undertaking: [16].

3. The respondent’s intention to convert the funds from US dollars into euros and deposit them with a counterparty bank was not known to the appellant when the order was made: [15], [19].

4. The consequential loss was too remote to be characterised as properly compensable. The movement in exchange rates was extrinsic to the reason why the respondent was kept out of its money. Nor was the movement (or its extent) reasonably predictable within the relevant timeframe during which the funds might have been held by the court: [19]–[20], [22].

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640; Hungerfords v Walker [1989] HCA 8; 171 CLR 125; Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388; Potts v Miller [1940] HCA 43; 64 CLR 282; Aneco Reinsurance Underwriting Ltd (in liq) v Johnson & Higgins Ltd [2001] UKHL 51; [2001] 2 All ER (Comm) 929; South Australia Asset Management Corporation v York Montague Ltd [1996] UKHL 10; [1997] AC 191, referred to.

(per Basten JA, Campbell JA and Gyles AJA)

5. The appellant should not be liable for the respondent’s inability to obtain such a gain. It would not be just and equitable to make the party giving such an undertaking the insurer of speculative profits: [22], [71], [73]–[74], [129].

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; 146 CLR 249, applied.

Coshott v Principal Strategic Options Pty Ltd [2004] FCAFC 50, considered.

(per Campbell JA)

6. Unless the person giving the undertaking knows that there was a realistic prospect that the person to whom the funds would have been paid might use the money, there is no reason to construe the risk the person undertakes as being any wider than to pay a commercial rate of interest on the money, during the time that the recipient does not have it: [69]–[70].

Hungerfords v Walker [1989] HCA 8; 171 CLR 125, applied.

(per Campbell JA and Gyles AJA)

9. The respondent’s proposal to convert the funds to euros, in July 2004, was not a basis for deciding that the appellant should be liable for appellant’s inability to switch to euros: [72]–[73], [131].

Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1989) 89 ALR 366, referred to.

(per Campbell JA and Gyles AJA)

10. Just compensation to the respondent involves it receiving a commercial rate of interest for the time it was out of money. Nothing suggests that the rate obtained on the Prothonotary’s deposit was not a commercial rate: [75], [130]–[131].

(per Gyles AJA)

11. The loss of profit upon a business speculation that is claimed is not the natural consequence of the order and is too remote to be classed as “just” compensation. The order simply deprived the respondent of the use of the funds, but did not prevent it from entering into any business transaction: [129], [130].

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40713/07

SC 4999/1999

BASTEN JA

CAMPBELL JA

GYLES AJA

2 April 2009

ROBB EVANS of ROBB EVANS & ASSOCIATES v EUROPEAN BANK LIMITED

Judgment

1 BASTEN JA: I agree with Gyles AJA that the appeal in this matter should be allowed. I gratefully adopt his Honour’s statement of the background and litigious history of the matter, together with his reasons for rejecting the grounds of appeal other than ground 2. I also agree with his Honour’s conclusion as to the rejection of ground 2, for reasons set out below.

Undertakings as to damages: principles
2 This case is concerned with the assessment of compensation available to a party kept out of money to which it is entitled by judgment, pending determination of an appeal. More particularly, the question is whether a successful party can recover, in relation to money paid into court pending determination of an appeal, an amount beyond the interest accrued on the investment. The answer turns upon the proper application of the “usual undertaking as to damages” which was, at the relevant time, found in Part 28, r 7(2) of the Supreme Court Rules 1970 ( NSW ).

3 A party kept out of its money may suffer actual loss, due to depreciation of the currency in which it was held, or loss of an expectation, based on the use to which it intended to put the money. In some circumstances, these will be two sides of the same coin because the first, like the second, will depend on the answer to a hypothetical question, namely what would the owner have done with the money if obtained at the date of payment into court.

4 Where a loss is identified, two questions will often arise; one is sometimes identified as the causal link between the loss and the wrong for which compensation is available. The other involves a policy or principle, sometimes referred to as the question of remoteness, which places a limit on the extent to which the wrongdoer is held liable for the loss suffered: see, eg, Wenham v Ella [1972] HCA 43; 127 CLR 454 at 471-472 (Gibbs J). The question of “remoteness” is answered by identifying the terms of the limitation based on principle, and then undertaking the factual inquiry as to whether the relevant criteria are satisfied. The criteria, inevitably, are infused by value judgments which may prevent simple answers flowing from findings of primary fact.

5 In contract, causally consequential loss is limited to “such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach”: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 91-92 (Mason CJ and Dawson J). As their Honours noted, the well-established rule is understood to be “the statement of a single principle and ... its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case”, referring to the opinion of Lord Reid in Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 385. Whether a particular loss satisfies such criteria will often depend on the level of particularity at which the relevant knowledge is assessed. It may, as in the present case, also turn on when the assessment is made.

6 In tort, loss is identified by reference to the concepts of both causation and reasonable foreseeability, each of which is heavily infused with policy considerations derived from the nature of the tort and what is considered an the appropriate limit on the damages recoverable from the tortfeasor: see comparisons drawn between non-negligent, negligent and deceitful representations in Gates v The City Mutual Life Assurance Society Ltd [1986] HCA 3; 160 CLR 1 at 12-13 (Mason, Wilson and Dawson JJ). The principles governing assessment of loss in tort and contract cannot automatically be transposed to the quantification of compensation available under the Trade Practices Act 1974 (Cth), ss 82 and 87: Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 at [44]. Nor, in principle, is any similar transposition automatically available in relation to the quantification of just compensation pursuant to an undertaking to the court: cf Smith v Day (1882) 21 Ch D 421 at 427-428 (Brett LJ). No different view is to be derived from the reasons given in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; 146 CLR 249. After noting the historical development of the undertaking as an adjunct to an interlocutory injunction, Aickin J stated (at 266-267):

“In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case. No doubt ... circumstances may sometimes require a different approach. However it will in my opinion be seldom that it will be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time.”

7 On appeal, the conclusion of Aickin J that no damages were payable was upheld (Mason J dissenting). Barwick CJ agreed with both the conclusion and the reasons given by Aickin J: at 310. Stephen J expressed himself in similar language (at 318-319):

“Perhaps the first point to be observed is that undertakings such as this are given to the court and not to the party enjoined. ... A claimant under an undertaking cannot complain of any breach of contract nor of any breach of duty, tortious or otherwise, owed to him, nor, of course, of any breach of the undertaking. What occurs when such an undertaking is extracted from a plaintiff is that the court, as a condition of its grant of interim or interlocutory injunctive relief, has ensured that, should it turn out that that relief should never have been granted, it will have the power, so far as monetary compensation allows, to make good the harm which the grant has done to the defendant. ...

Damages awarded under such an undertaking are, therefore, of a rather different nature from those awarded at common law. Their special character appears from the fact that their source lies in the plaintiff's own voluntary undertaking, given as the price of obtaining an injunction. It may also be seen in the words of the common form of the undertaking, they must not only be sustained by reason of the grant of the injunction but the court must form the opinion that the plaintiff ‘ought to pay’ them.”

8 Although disagreeing in the outcome, Mason J adopted a similar approach to Aickin J (at 322-323), concluding that the discretion conferred on the court was to be exercised according to well-settled principle:

“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.”

9 His Honour then noted the authority for the proposition that the loss must flow from the injunction and not the litigation, a distinction which he accepted as founded upon the language of the undertaking: at 324. His Honour continued:

“English law has not adopted a uniform approach to causation. Instead, it has tended to take refuge in the notion that causation is very largely a question of fact. But the many statements to this effect which are to be found in the decided cases do not attempt to deny the fact that the common law has applied a variety of theories and standards of causation, in each instance applying that which is in point of policy the most apt or appropriate to the question which arises for decision.

For this reason little is to be gained in the present case from an examination of the myriad authorities which deal with causation of damage in contract, tort and other situations many of which were pressed upon us in argument. We are better advised to look to the purpose which the undertaking as to damages is designed to serve and to identify that causal connexion or standard of causal connexion which is most appropriate to that purpose.”

10 Gibbs J wrote to similar effect in relation to the point of distinction between loss flowing from the injunction and from the litigation and continued (at 312):

“The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice ....”

11 In the Court below, Gzell J appears to have derived from these statements a requirement that damages be assessed according to the principles with respect to breaches of contract, as originally formulated in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145: see Evans & Associates v Citibank Ltd [2007] NSWSC 1004. Despite the similarity of language, referring to the “natural consequence” of the breach and the knowledge of the defendant, especially in the judgment of Gibbs J, the weight of the reasoning is inconsistent with such an approach. A statement of Lord Diplock in F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 361, purporting to equate the assessment of damages for breach of an undertaking with the basis upon which “damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction” was relied upon only by Gibbs J at 312, and then only to note that it was inconsistent with an earlier dictum of Cussen J in Victorian Onion and Potato Growers’ Association v Finnigan (No 2) [1922] VicLawRp 92; [1922] VLR 819 at 822, as to which he did not find it necessary to form a view.

Application of principles
12 The terms of the “usual undertaking as to damages” are fixed by law: their operation in particular circumstances may, however, vary. In the present case the orders made – see [82] below – did not in terms include an interlocutory or interim injunction, nor did they replace an injunction directed at European Bank Limited (“European Bank”). The operation of the orders needs to be understood in their litigious context.

13 The appellant was the receiver of a company, Benford Ltd (“Benford”), which had been the recipient of some $US 7.5M, the proceeds of credit card frauds perpetrated in the United States. The money was deposited in an account in the name of Benford with European Bank. As explained in earlier proceedings, those funds could be “transactionally linked” with a placement of funds by European Bank with Citibank Limited (“Citibank”): see Robb Evans of Robb Evans & Associates v European Bank Ltd [2004] NSWCA 82 ; 61 NSWLR 75 at [1] - [20] (Spigelman CJ). Pursuant to a warrant issued in the United States, Citibank paid the amount of the Benford/European Bank deposit to the US Marshal’s Service. European Bank was successful in obtaining judgment against Citibank for the same amount: see European Bank Ltd v Citibank Ltd [2004] NSWCA 76 ; 60 NSWLR 153. The appellant sought payment of the money to it, rather than European Bank, apparently because it feared that the proceeds of fraud were at risk of being forfeited to the Vanuatu Government, should they be paid to the Vanuatu-based European Bank: Robb Evans [2004] NSWCA 82 ; , 61 NSWLR 75 at [123] and [124] (Spigelman CJ). Accordingly, the effect of the present arrangement was for the sum in dispute to be paid into court by Citibank, at the instigation of the appellant, thus delaying payment to European Bank. None of the parties had the benefit of use of the funds pending determination of the application for special leave to appeal to the High Court.

14 When the regime for payment into court was effected, so far as the evidence revealed, the appellant had no specific knowledge of any use to which European Bank was likely to appropriate the funds. The funds deposited by Benford had apparently been in US dollars. European Bank would be required at some point either to meet a call on Benford’s account by the appellant (as the receiver of Benford) or to forfeit the sum to the Vanuatu Government. There was no evidence as to the appellant’s knowledge of the resources available to European Bank from which to meet such obligations.

15 The trial judge accepted that European Bank would probably have converted the amount of the Citibank payment from US dollars into euros and put them on deposit with a counterparty bank. As explained by Gyles AJA, this Court should not interfere with that finding. However, that intention was not known to the appellant when the order for payment into court was made. Although European Bank later indicated its intentions in that regard, it did not, when the appellant’s consent was not forthcoming, seek to have the terms of the payment into court varied. By merely warning the appellant that it would seek to recover any difference in available interest rates as between deposits in euros and US dollars, it sought to place the risks associated with such a currency transaction entirely on the appellant. It offered no mechanism to limit the real risk associated with floating currency exchange rates, let alone seek to identify the costs involved. It did not suggest that it sought a currency exchange transaction to obtain the benefit of any appreciation in the euro, but merely to obtain a higher interest return.

16 The appropriate time at which to determine the actual or imputed knowledge of the appellant with respect to the possible loss which might accrue to European Bank from the payment into court, was the date on which the appellant agreed to the payment into court and gave the relevant undertaking.

17 Although it has not always been so, it is now established that the loss of use of money may sound in damages to be measured by way of interest: see Hungerfords v Walker [1989] HCA 8; 171 CLR 125 at 142-145 (Mason CJ and Wilson J) and 152 (Brennan and Deane JJ). The payment ordered in the present case can only be supported if an additional contention be accepted, namely that the plaintiff, by proving the use to which it would have put the funds if under its control, can recover any profit foregone. No authority was identified which supported that approach. Its acceptance by the trial judge was erroneous, for two related reasons.

18 First, his Honour considered the appellant’s knowledge of likely losses which would flow from keeping European Bank out of its funds, but at a high level of generality. His Honour’s reasoning is set out in the following passages:

“[76] It can be inferred that Mr Evans knew that a bank earns its income on the difference between the interest that it pays its customers and the interest it can earn on their deposits and it can be inferred that he understood that the earnings of European Bank, that dealt exclusively in foreign currencies, came not only from interest rates but also from currency differentials.

[77] I infer that it was within the contemplation of Mr Evans when the order for the payment into court was made, that it would have the effect of denying European Bank the opportunity to convert those funds from US dollars to other currencies to take advantage of market fluctuations in the value of those currencies.

[78] I find that not only were the losses sustained by European Bank by reason of its inability to convert to euros the natural consequence of the payment into court, but also that the losses could have been foreseen when the order was made. Put another way the losses were the natural consequence of the payment into court under circumstances of which Mr Evans had notice.”

19 This reasoning is flawed in its own terms: when the money was paid into court, the appellant had no reason to believe that European Bank wished to convert it from US dollars into any other currency; specifically, he had no notice that European Bank wished to convert the money into euros. For reasons given above, when he was put on notice of its wishes in that regard, those wishes were expressed in terms which provided no reason to suppose that any significant loss would flow from a failure to adopt the proposed variation. (Significantly, no claim has been made for the differential between the interest rate available on US dollars and euros, the benefit of which European Bank advised that it was seeking.) Nor, given the essentially speculative nature of currency transactions, was there any actual or imputed knowledge possessed by the appellant that a significant profit would be made by transferring the currency into euros for the anticipated period of the High Court litigation. Nor did the trial judge suggest that the appellant had such knowledge within his contemplation. Rather he dismissed that approach as “too narrow an identification of the relevant contemplation”: at [74]. It was sufficient, his Honour held, that the appellant knew that European Bank might seek to take advantage of possible currency movements so as to claim a loss, if the proposal would have proved financially beneficial.

20 The second and related reason for rejecting the approach adopted by the trial judge is that the consequential loss was too remote to be characterised as properly compensable. The movement in exchange rates was extrinsic to the reason why European Bank was kept out of its money. There was nothing in this case equivalent to an agreement to lend funds for a specified purpose. Nor was the deprivation of the use of the funds to be compared with the consequences of negligent advice, the supply of faulty goods or other forms of wrongful activity. Nor is it helpful to construct a contractual relationship in order to analyse the terms of the hypothetical contract to see what the parties have bargained for and at what price, in order to determine who should bear particular risks of breach.

21 The relevant principle may be distilled from the valuation cases, because they illustrate the distinction between losses which are intrinsic to the breach of duty and those which are extrinsic or coincidental: see Potts v Miller [1940] HCA 43; 64 CLR 282 at 298 (Dixon J). A negligent valuation which fails to take into account an intrinsic characteristic of that which is valued may give rise to a claim for diminution in market value; on the other hand, a general downturn in a particular market will not: compare, in Australia, HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640 at [440], with Murphy v Overton and, in the UK, South Australia Asset Management Corporation v York Montague Ltd [1996] UKHL 10; [1997] AC 191 with Aneco Reinsurance Underwriting Ltd (in liq) v Johnson & Higgins Ltd [2001] UKHL 51; [2001] 2 All ER (Comm) 929 at [11]- [13] (Lord Lloyd of Berwick) and [36]-[38] (Lord Steyn).

22 Similar distinctions operate where, instead of buying overvalued property, the claimant is kept out of money which might (or would) have been invested in undervalued assets. That the market value of the asset might rise was a factor entirely extrinsic to the relationship of the parties. Nor was the movement (or its extent) reasonably predictable within the relevant timeframe during which the funds might have been held by the Court. In that sense, the loss was, as Gyles AJA notes, “speculative”. The appellant should not be liable for the inability of European Bank to obtain such a gain. It would not be just and equitable to make the party giving such an undertaking the insurer of speculative profits.

Orders
23 For these reasons, the following orders should be made:

(1) Allow the appeal and set aside the judgment and orders made by the Equity Division on 27 September 2007.

(2) In lieu of the orders below, order that:

(a) the plaintiff pay the eighth defendant the Australian dollar equivalent as at 18 March 2005 of $US 3,077.71;

(b) the eighth defendant pay the plaintiff’s costs of the trial.

(3) The respondent pay the appellant’s costs of the appeal.

24 CAMPBELL JA: I have had the advantage of reading the reasons of Basten JA and Gyles AJA, in which the relevant facts and grounds of appeal are set out. I have reached the same conclusion as their Honours, for the following reasons.

25 It is convenient to deal first with the principles on which compensation is awarded under an undertaking as to damages.

26 Any decision about the quantum of damages payable under an undertaking as to damages requires close consideration of the precise terms of the undertaking that has been given. Part 28 rule 4 Supreme Court Rules (the rule applicable when the undertaking was given) says:

“The “usual undertaking as to damages”, if given to the Court in connection with any interlocutory order or undertaking, is an undertaking to the Court to submit to such order (if any) as the court may consider to be just for the payment of compensation, to be assessed by the court or as it may direct, to any person, whether or not a party, affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation, with or without variation, of the interlocutory order or undertaking.”

When Undertakings as to Damages are given, and Why

27 The origin and purpose of an undertaking as to damages can help to decide how to assess the amount of compensation that is payable under it. Such undertakings first arose in connection with the granting of interlocutory injunctions pending a first-instance trial, but have come to be more widely applied. As to the history, see Chisholm v Rieff (1953) 2 FLR 211 at 214–215 (Kriewaldt J); Kerridge v Foley (1968) 70 SR (NSW) 251 at 255-256; [1968] 1 NSWR 628 at 630–631 per Sugerman, Asprey & Holmes JJA; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1979) 146 CLR 249 at 260-261 per Aickin J; Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1989) 89 ALR 366 at 369-371 per Gummow J; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386 at 599–600 per Brooking J; ICF Spry, “Plaintiffs’ Undertakings and Equity’s Power to Award Damages” (1991) 65 ALJ 658; PM McDermott, “Undertakings and Lord Cairns’ Act – A Comment” (1992) 66 ALJ 219. It was recognised very early in the history of courts accepting undertakings as to damages that even though the undertaking is given in connection with an interlocutory order, the undertaking continues to be enforceable even after the principal litigation in which it was granted has been decided: Newby v Harrison [1861] EngR 850; (1861) 3 De GF & J 287; 45 ER 889 at 289; 889 per Knight Bruce LJ, at 290; 890 per Turner LJ.

28 An interlocutory injunction can be sought by a plaintiff who claims that (a) it has a right (which I will call the “underlying right”) that it is in the course of seeking to establish and enforce by litigation, and (b) that underlying right is at risk of being damaged or destroyed in the time before the court can decide the litigation. The litigation in question might be a trial, or it might be an appeal. The plaintiff asks the court to make an order that operates only until the litigation has been decided, and that will prevent one or more of the defendants from acting in some specific way that (if the plaintiff were correct in saying it had the right it claims) would damage or destroy that underlying right. Thus an interlocutory injunction obtained on the application of a plaintiff always seeks to protect an underlying right that is claimed, but at the time of granting the interlocutory injunction not established: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 at [9]–[11] per Gleeson CJ, [62] per Gaudron J, [91], [105] per Gummow and Hayne JJ. (The practice of courts sometimes granting interlocutory cross-injunctions is consistent with this view. If the cross-injunction is granted in support of a cross-claim by the defendant, the defendant is in that cross-claim in the position of a plaintiff. Even if there is no cross-claim, interlocutory cross-injunctions are sometimes granted when a plaintiff claims an underlying right, and the court comes to the view that the appropriate basis on which that claim should be protected pending the final determination is that the plaintiff also be restrained from acting in some way that is relevant to its claim of right pending the hearing. In that situation, requiring the plaintiff to be bound by an interlocutory order is a means of lessening the damage that might result if at the final hearing it proved that the plaintiff did not have its claimed underlying right.)

29 There have been some changes in the language that the courts have used to describe the tests for when it is appropriate to grant an interlocutory injunction: Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, cf American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396; Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57 at [19] per Gleeson CJ and Crennan J, cf [65]–[72] per Gummow and Hayne JJ as to whether damages being an inadequate remedy is part of what must be shown (a difference that is capable of explanation, as whether damages are an adequate remedy can affect both whether there is a sufficiently seriously demonstrated question to be tried, and the balance of convenience: Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd [2005] NSWSC 883 at [30] –[31]; [2005] NSWSC 883 ; (2005) 221 ALR 179 at 184; Varley v Varley [2006] NSWSC 1025 at [23] –[26]).

30 However, there has always been a need to consider two types of matters – whether there is a sufficient prospect of the underlying right that the interlocutory injunction seeks to protect being established, and whether the balance of convenience favours granting or refusing the injunction. In saying this I speak of the granting of an interlocutory injunction under the general powers of the court, not pursuant to a specific statutory power like section 1324 Corporations Act 2001(Cth).

31 When an interlocutory injunction is sought, there is a practical necessity for the judge to decide whether to grant it at a time when the judge knows that he or she is likely to have only an incomplete understanding of the facts, and sometimes also of the law, that will ultimately decide the case. As well, the judge often knows that granting an interlocutory injunction is likely to alter the way that events will unfold, in ways that themselves cannot be predicted with any accuracy. That alteration in the way events unfold might affect not only parties to the litigation, but also other third parties. The interests of such other people are taken into consideration in assessing where the balance of convenience lies: Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1 at [65]- [66].

32 Some prediction of how the granting of an injunction is likely to affect the way events will unfold is necessarily involved in deciding the balance of convenience. This is because deciding the balance of convenience involves deciding whether, on the limited material then available to the court, it seems it would be more likely to produce harmful consequences if the injunction is granted and it eventuates that the plaintiff was not entitled to the underlying right, than would be produced if the injunction is refused and after the litigation it is known that the plaintiff had the underlying right. But it remains the case that when an interlocutory injunction is granted, the court knows that it cannot predict all the consequences of the injunction being granted. In consequence, there is a risk that, if the plaintiff does not succeed in establishing the underlying right, the granting of the interlocutory injunction will turn out to be productive of harm that in retrospect will be seen to have been unnecessary.

33 Undertakings as to damages have come to be given to courts in circumstances other than the making of an interlocutory injunction. If a defendant (including in that expression a respondent to an appeal) is threatened with proceedings seeking an interlocutory injunction, the defendant sometimes avoids the trouble and expense of having an interlocutory hearing by offering an undertaking to act in some particular way pending the determination of the litigation, on terms that the plaintiff (or appellant) gives to the court the usual undertaking as to damages. Concerning some interlocutory orders that are not injunctions, like Anton Piller orders or Mareva orders, the usual practice of the court is to require the party seeking the order to give an undertaking as to damages: eg Schedule A undertaking 1 to the draft freezing order in Supreme Court Practice Note SC Gen 14, Schedule B undertaking 1 to the draft Anton Piller order in Supreme Court Practice Note SC Gen 13. As in the present case, a stay of proceedings pending an appeal or application for leave to appeal may be granted on terms of an undertaking as to damages. In all cases where an undertaking as to damages is given, however, there is a situation where: (a) a plaintiff claims some underlying right in litigation; (b) the court makes an interlocutory order or accepts an interlocutory undertaking that seeks to protect that underlying right during the period before the court decides whether the plaintiff actually has the underlying right; (c) making the interlocutory order or accepting the interlocutory undertaking has the potential to damage the rights of people affected by it, in circumstances where the court frequently does not know with any precision who will be affected by the order or undertaking given, or in what ways they will be affected.

34 In a contested hearing about the grant of an interlocutory order or on an application for an ex parte interlocutory order, a frequent occurrence is that the court in substance indicates to the applicant that it is prepared to make an order if the applicant gives the undertaking as to damages to the court. It is a matter for the applicant whether it then gives the undertaking as to damages, or risks the court declining to make the interlocutory order. Thus, the undertaking is sometimes referred to as being the “price” of the interlocutory order: Kerridge v Foley at 255; 630; Smith Kline & French at 372; Cheltenham & Gloucester Building Society v Ricketts [1993] 1 WLR 1545; [1993] 4 All ER 276 at 1551; 281. Sometimes an applicant for an interlocutory order offers the undertaking to the court without the court needing to enquire whether it will be offered. Sometimes parties settling an interlocutory dispute agree that one of them will give an undertaking as to damages to the court. But always the giving of an undertaking as to damages is the voluntary act of the person who gives it. The New South Wales practice is that it is not implied from the mere seeking and obtaining of an interlocutory injunction: Kerridge v Foley. Even in England, where the previous practice was that an undertaking as to damages was implied unless a contrary intention appears, “[t]he practice is subject to the qualification that, since an undertaking must be voluntary, it will not be forced on the plaintiff; if he declines to give it ...”: Kerridge v Foley at 256; 630; JM Paterson, Kerr on Injunctions, 6th ed (1927) at 646.

35 The undertaking as to damages is an attempt to lessen the extent to which the making of an interlocutory order or accepting of an interlocutory undertaking might be productive of harm, if it eventuates that the plaintiff does not have the underlying right that the plaintiff claims in the litigation. When that is its purpose, the relevant way in which a person might be affected by the granting of the interlocutory order or undertaking is if the person is affected by the granting of the interlocutory order or undertaking and it eventuates that the plaintiff does not have the underlying right in support of which the interlocutory order or undertaking was claimed. It could happen that a plaintiff is found not to have the underlying right in support of which the interlocutory order or undertaking was claimed, even if the plaintiff obtains one or more final orders in the litigation. That situation could arise if the injunction granted was wider than was appropriate to protect such rights as the plaintiff is found in the litigation actually to have.

Construction of the Undertaking

36 The terms of the undertaking as to damages under Part 28 rule 4 Supreme Court Rules recognise that not only any parties to the litigation who are restrained, but also parties to the litigation who are not themselves restrained, and even people who are not the parties to the litigation, might be harmed by the granting of an interlocutory order that sought to protect a right that a plaintiff claimed, but that the plaintiff failed to make good at a trial (or, where the interlocutory order operates pending an appeal, at that appeal). Hence the undertaking is to make a payment to “any person, whether or not a party, affected by the operation of the interlocutory order or undertaking”. The class of potential payees under such an undertaking is thus very wide – it is anyone in the world, provided only that they have been affected by the operation of the interlocutory order or undertaking.

37 But the terms of the undertaking leave it to the court to decide whether any payment at all should be made under the undertaking, and if so precisely to which of the potential payees any payment should be made, and what the amount is of any such payment. The only limits that arise expressly from the language of the undertaking on the court’s decision in those respects are that the order that the court makes is one that the court considers “just”, and that the payment is to be a payment of “compensation”. It is a reasonable inference from the language that the compensation in question is to be for the payee having been affected by the granting of the interlocutory order or undertaking in question. However there is nothing in the notion of “compensation” that requires it to be the provision of a full indemnity – one need only recall that workers’ compensation usually does not indemnify a worker fully for the effects of having been injured at work. While the language of the undertaking allows the compensation to be “assessed by the court or as it may direct”, that seems to be directed just to the procedure for quantifying the compensation, not to the principles by reference to which the quantum of the compensation is decided. However, the court is subject to some bounds of principle in making a decision whether and if so how to enforce the undertaking as to damages. The fact that the power to decide whether, to whom, and in what amount any payment should be made is conferred on a court, and the express requirement that the order made be one that the court “considers to be just” requires the power to be exercised in a judicial manner, and in accordance with the purpose for which the power is conferred, and in accordance with the guidance provided by previous decisions about what is just compensation in particular cases.

Relationship of Undertakings as to Damages to Contractual Obligations

38 Decisions identified in the other judgments in this case show that the courts have on occasions quantified the amount of compensation payable under an undertaking as to damages by drawing upon the principles for assessment of damages for breach of contract. That could not be because the undertaking as to damages is a type of contract. In fact, the undertaking as to damages is fundamentally different to a contract in several respects.

39 First, a contract is made between two or more people, and creates legal rights among those people. By contrast, there are no parties to an undertaking to the court. The undertaking is the unilateral act of the person who gives it – something particularly clear when an undertaking as to damages is given upon obtaining an ex parte order. While the undertaking is given to the court, it is not as though the court is a party to the undertaking, as the court is given no legal rights by it. The court is empowered by the undertaking to require the payment of compensation, if it eventuates that someone is affected by the making of the interlocutory order, but that is not the same as the court itself having any rights under the undertaking. Even when an undertaking as to damages is given under a contractual obligation (as happens when an interlocutory dispute is settled on terms that require one party to the dispute to give an undertaking to the court), the giving of the undertaking is performance of that contractual obligation, and once the undertaking has been given any right to compensation for being affected by the interlocutory order arises under the undertaking, not under the contract.

40 Second, the obligations that the parties to a contract undertake to each other are to perform their respective parts of the contract. The right to unliquidated damages is an incident that the law attaches to the contract, if the contract is breached, and is not itself part of the contract. Even if there is a term in the contract that quantifies the liquidated damages that are payable upon breach of some term, any such damages that the court might order a party to the contract to pay are payable for breach of both the term the breach of which triggered the liquidated damages clause, and the liquidated damages term of the contract. By contrast, the obligation that arises under an undertaking as to damages is itself an obligation to pay compensation, in certain circumstances.

41 Third, the event that triggers a right to payment of damages for breach of contract is the failure of the party obliged to pay the damages to perform a legal obligation he or she has undertaken. By contrast, there is no precondition of anyone having breached any legal obligation before an amount can be payable under an undertaking as to damages. Rather, it is the arising of a state of facts that is the precondition – that state of facts being that the person who gave the undertaking does not succeed in establishing the claimed underlying right for the protection of which the interlocutory order was made, and that someone has been affected by the interlocutory order having been made. This difference is deliberately reflected in the language of Part 28 rule 4 Supreme Court Rules , where what it requires is the payment of “compensation”. The notion of “damages” has a flavour of compensation that is payable for breach of a legal right, while “compensation” can be paid for loss suffered in circumstances that involve no breach of a legal right. The concept of an ex gratia payment of compensation is familiar. Part 28 rule 4 Supreme Court Rules retains the traditional expression “undertaking as to damages”, but then defines it in a way that does not include any notion of the compensation being for breach of a legal right.

42 Fourth, once a contract has been breached, the common law gives a right to the innocent party to receive damages. There is no corresponding right for someone affected by the making of an interlocutory order to receive compensation pursuant to the undertaking as to damages. The court can decide that there are reasons why it is not just that such compensation be paid.

“Special Circumstances”

43 One reason recognised in the cases for not requiring any payment to be made under an undertaking as to damages is delay: Newby v Harrison at 289; 889 per Knight Bruce LJ; Smith v Day (1882) 21 Ch D 421 at 425-426 per Jessel MR, at 427 per Brett LJ; Ex parte Hall; In re Wood (1883) 23 Ch D 644 (where four years after litigation concluded was held to be too long); Air Express v Ansett at 261 per Aickin J.

44 Enforcement of an undertaking as to damages can also be totally refused, or the amount awarded under it limited, by reason of other special circumstances: Graham v Campbell (1878) 7 Ch D 490 at 494 (quoted with apparent approval by Aickin J in Air Express v Ansett at 260).

45 The breadth of what can, in the circumstances of a particular case, amount to special circumstances is illustrated by the case law. That the damages involved are small can be a reason for not ordering an inquiry as to damage: Smith v Day at 425.

46 The conduct of the injunctee at the time the injunction was obtained or later, can be a reason for not enforcing the undertaking as to damages: F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 361 per Lord Diplock; Yukong Line Ltd v Rendsburg Investments Corp [2001] 2 Lloyd’s Rep 113 (CA) at 119–120 per Potter LJ, with whom Hale and Thorpe LJJ agreed. That the court regards the conduct of the person claiming to enforce the undertaking as to damages as relevant to whether and if so how the undertaking should be enforced was originally a specific instance of application of the maxim that he who seeks equity must do equity. It is not possible to specify exhaustively the type of conduct of the injunctee that might lead the court not to enforce, or to limit the enforcement, of an undertaking as to damages. Even when the relevant conduct of the injunctee is not minimising his loss, the conduct is not necessarily judged by the same standards as apply in the law concerning mitigation of damages at common law. For example, in Hunt v Hunt (1884) 54 LJ Ch 289 at 291 Pearson J intimated, when ordering an enquiry as to damages, “I certainly shall not allow the defendant any damages if I find that he has not availed himself of every opportunity which may be given him” to minimise his loss.

47 A specific example of circumstances in which the conduct of the injunctee makes it unjust to enforce the undertaking as to damages appears in Modern Transport Company Ltd v Duneric Steamship Company [1917] 1 KB 370. There, a shipowner had entered a time charter of its vessel. During the term of the charter, the vessel was requisitioned, and the Crown paid a monthly amount considerably less than the contractual amount of hire under the charter. The owner claimed the full amount of hire from the charterer, and when the charterer was unwilling to pay it the owner invoked an arbitration clause in the charterparty. The charterer argued that the requisition had brought the charterparty to an end, and hence its liability to pay the hire had ceased. Before the arbitration was concluded, and still during the term of the charterparty, the Admiralty released the vessel from requisition. By that time the market had altered so that it would be more favourable to the owner to have possession of the vessel. The owner sent a notice requiring payment of the outstanding hire, and threatening to withdraw the vessel if the hire was not paid virtually immediately. The charterer began an action for an injunction to restrain withdrawal of the vessel, and obtained an interlocutory injunction to prevent it being withdrawn. Ultimately, it was held that the charterer remained liable for the contractual amount of hire, but that, by reason of the subsistence of the arbitration, the notice of withdrawal was invalid. In those circumstances there was no occasion to enforce the undertaking as to damages that the charterer had given, but Swinfen Eady LJ (with whom A T Lawrence J agreed) said at 379 that:

"The circumstances of this case were of a character to lead the plaintiffs to believe that any right to require payment or to withdraw the ship for non-payment would be suspended until there had been determined in the arbitration what the respective rights of the parties were, whether the time charter was still subsisting or not, and whether or not the plaintiffs remained liable to pay the hire."

48 He continued, at 380:

"Having regard to the circumstances under which the notice to withdraw of November 19 was given, I am of the opinion that the plaintiffs were fully justified in applying to the Court immediately for an injunction, and that the plaintiffs ought not to be required to make any payment to the defendants in respect thereof, even if it should have happened that at the trial the plaintiffs could not have sustained their claim to a continuance of the injunction. The special circumstances are such that no inquiry as to damages ought to be granted, even if the claim for an injunction could not be sustained at the trial."

49 In Air Express Mason J noted without disapproval at 323 that in Vieweger Construction Company Ltd v Rush & Tompkins Construction Ltd (1964) 48 DLR (2d) 509 at 519 the Supreme Court of Canada held that the court would be entitled to refuse a reference as to damages when the plaintiff is a public body that has acted in the public interest to hold the situation until the rights are determined and when the defendant, having succeeded on technical grounds, has been guilty of misconduct.

50 In Cheltenham & Gloucester Building Society v Ricketts at 1557; 287 Peter Gibson LJ collected other examples of special circumstances in which a court might decline to enforce an undertaking as to damages:

“In Upper Canada College v City of Toronto (1917) 40 OLR 483, the court in refusing to order an inquiry as to damages ... had regard to a number of circumstances including the good faith of the plaintiffs and the fact that no costs were awarded against them when the action was dismissed. In Attorney-General for Ontario v Harry (1982) 25 CPC 67 a factor taken into account by the court in refusing to enforce an undertaking as to damages ... was the inequitable conduct of the defendants. These cases support the general words of Turner LJ in Newby v Harrison (1861) 2 De GJ & J 287, 290: ‘there may be cases in which the court will not consider it just to enforce an undertaking, though the jurisdiction to do so exists.’”

51 Whether this reference to Upper Canada College states a principle that would apply in Australian law would depend very much on the particular reasons why no costs were awarded against the losing party, as good faith on the part of a plaintiff is seldom enough to excuse the plaintiff from making a payment under an undertaking as to damages.

52 The decision in Cheltenham & Gloucester Building Society was that, when an undertaking as to damages had been given in connection with the grant of an interlocutory order that was dissolved before the trial, the inquiry as to damages should be delayed until after the trial, because only then would the judge know all the relevant circumstances that could affect whether it is appropriate to enforce the undertaking as to damages. That is a decision concerning the facts of the particular case. The time at which a court should consider whether to order an inquiry as to damages, as with all matters concerning enforcement of an undertaking as to damages, is a question of discretion to be exercised in accordance with all the circumstances of the case, and a principle has been expressed that an application to enforce an undertaking as to damages should be made within a reasonable time of the dissolution of the interlocutory injunction: Smith v Day at 427 per Brett LJ.

53 In Churnin v Pilot Developments Pty Ltd [2008] NSWSC 831 Young CJ in Eq (as his Honour then was) at [16] held that the court should offset gains made by the defendant because of the injunction against the loss suffered by the plaintiff because of the injunction.

54 Another example of special circumstances recognised in this court was in Clift v Windrum [1991] NSWCA 54. There an interlocutory injunction had been granted to delay settlement of a sale of land to a company, the plaintiff failed to make good at trial the claimed right to stop the sale, and a claim by the company for compensation under the undertaking as to damages was settled. Later, directors of the company, who had not been parties to the contract of sale nor the litigation relating to it, made their own claim for compensation under the undertaking as to damages. The court denied their claim on the grounds of both delay and of lack of clarity about whether the compensation they were claiming had already been taken account of in the manner in which the agreed amount of compensation paid to the company was arrived at.

55 The foregoing examples of special circumstances do not exhaust the field. As well, if it would be contrary to public policy to order compensation to be paid under an undertaking as to damages, presumably a court would decline to do so. However the examples show how varied such “special circumstances” can be.

Rationale for Contractual Principles of Remoteness

56 Because damages at common law are compensation for a legal wrong, the manner in which they are assessed depends on the precise legal wrong that has been committed. When the wrong consists of a breach of a contract, the wrong is not doing that which the defaulting party had promised to do. It is for that reason that the principle for assessing damages for breach of contract is the one stated by Parke B in Robinson v Harman [1848] EngR 135; (1848) 1 Ex 850 at 855;[1848] EngR 135; 154 ER 363 at 365:

"The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."

57 That principle continues to apply in Australia: Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; 83 ALJR 390 at [13]; Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454 at 471. However, in assessing damages for breach of contract the common law does not necessarily require compensation to be given for all the consequences of the breach. Rather, damages are awarded for those losses that fall within the rule in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145. As explained by Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 91-92:

“According to Alderson B's renowned formulation, the plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach: at p 354 (ER at p 151). It is now accepted that this is the statement of a single principle and that its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case: C Czarnikow Ltd v Koufos [1969] 1 AC 350, at p 385 per Lord Reid; p 421, per Lord Upjohn; The "Pegase" [1981] 1 Lloyd's Rep 175, at p 182, per Robert Goff J.”

58 One can see why it is just that principles like these should apply to the quantification of damages for breach of contract. When A promises B that some future event will occur, both parties would reasonably understand that A is undertaking the risk of that event not occurring. But the scope of the risk that A is undertaking needs to be construed in the same way as any other aspect of a contract is construed, namely objectively in the light of surrounding circumstances known to both parties: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35 at [22]; [2004] HCA 35; (2004) 218 CLR 451 at 461-462; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [40]; (2004) 219 CLR 165 at 179; Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 at 429; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549–550; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 ; (2007) 69 NSWLR 603 at [262] –[266]. It is consonant with A having undertaken a risk construed in that way that, if the event does not occur, A will be liable for those consequences of the breach that arise according to the usual course of things from the breach, and also for those consequences of the breach that would reasonably be supposed to be in the contemplation of both parties at the time they made the contract. However, damages that do not meet those criteria are beyond the scope of the risk that A undertook, and hence ought not be recoverable. That losses recoverable for breach of contract are those for which the party in breach has assumed responsibility has recently been reiterated in Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48; [2009] 1 AC 61 at [12], [17], [21], [31]–[32] and [87].

Relationship of Contractual Remoteness Rules to Assessing Compensation Under an Undertaking

59 Notwithstanding the significant differences that I have earlier pointed out between the giving of an undertaking as to damages and the entering of a contract, there are some similarities. A contract and an undertaking as to damages are both promises, both are entered into voluntarily, and both are legally enforceable devices for risk allocation. That the undertaking as to damages involves voluntarily coming to be under an obligation gives it an analogy to contract that it does not have to tort obligations and statutorily imposed obligations. The purpose of the undertaking as to damages is to lessen the risk that granting the interlocutory order will prove to be productive of harm that turns out not to have been justified. The undertaking as to damages lessens that risk by the party who seeks the interlocutory order undertaking the risk that harmful consequences will flow if it turns out that he or she does not have the underlying right in protection of which the interlocutory order is sought. When the undertaking as to damages is given to the court, and is known, or is likely to become known, to at least other parties to the litigation, it is reasonable that, like a contract, it be construed in an objective fashion. The scope of the power that the undertaking gives to the court to make an order “as the court may consider to be just” needs to be exercised bearing in mind the extent of the risk that the giver of the undertaking is reasonably to be understood as agreeing to bear. That risk would ordinarily include the risk of making good the consequences that would flow in the ordinary course of things from it eventuating that the plaintiff does not have the underlying right. If at the time the undertaking was given there was reason, because of particular facts known to the plaintiff, for the court or a relevant person affected by the interlocutory order to understand that the plaintiff was undertaking some wider risk than that, the scope of the undertaking would be construed as extending to that wider risk. But I cannot at present think of any circumstances in which it would be just for the court to enforce the undertaking as to damages to cover consequences of the granting of the interlocutory order and of the plaintiff turning out not to have the underlying right, where those consequences fell outside the scope of the risk that the plaintiff ought reasonably be understood to have been undertaking by proffering the undertaking. In this way, the rationale for the rules concerning remoteness of damage in contract have a similarity to the rationale by reference to which a court fixes just compensation under an undertaking as to damages (absent special circumstances), notwithstanding the significant differences between a contractual obligation and an undertaking as to damages.

60 This view is consistent with the earlier case law about the manner in which compensation is assessed under an undertaking as to damages. From quite early in the history of the undertaking as to damages some connection has been noted between the principles that are applied to assess the compensation under such an undertaking and the principles on which damages for breach of contract are assessed. Thus, Pearson J has said that if the damages sustained are “of such a nature that if it were a case of suing on a contract they would be too remote, then they are not damages which the Court on such an undertaking ought to allow”: Hunt v Hunt (1884) 54 LJ Ch 289 at 291. Similarly in Smith v Day Brett LJ at 428 said:

"If damages are granted at all, I think the Court would never go beyond what would be given if there were an analogous contract with or duty to the opposite party ... in such a case the damages to be allowed are the proximate and natural damages arising from such a breach, unless as in Hadley v Baxendale, notice had been given to the opposite party, of there being some particular contract which would be affected by the breach." Similarly at 430 Cotton LJ said: "I think that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party of obtaining the injunction has notice ..."

61 Lindley LJ, with whom Lopes and A L Smith LLJ agreed, said in Schlesinger v Bedford (1893) 9 TLR 370 at 370-371, in a passage quoted with approval by Aickin J in Air Express at 264:

“The real nature of an undertaking of this kind and the extent to which damages ought to be awarded thereunder were carefully explained by the late Master of the Rolls in the well-known case of Smith v Day. That case was instructive for this reason, that it showed that all the remote consequences of obtaining an injunction which was afterwards dissolved, were not to be taken into account in assessing the damages to be paid to the defendant under the plaintiff's undertaking. It would be unduly straining such undertaking to include in it damages which did not naturally flow from the injunction. In Smith v Day (1882) 21 Ch D 421 it was held that the damage was too remote. The defendant there claimed that he had lost a good tenant by reason of the injunction, but it turned out that there had not at the date of the injunction been any agreement for a lease, although negotiations had been entered into with a view to a lease. That case was followed by Ex parte Hall; In re Wood (1883) 23 Ch D 644, where a receiver obtained an injunction restraining a man from the selling of certain goods, and damage resulted from the receiver restraining him from removing the goods. The Court held that the man against whom the injunction was obtained was not entitled to recover any damage except such as resulted naturally from his being restrained from selling and that the damage was too remote. So here the plaintiffs ought not to be exposed to damages which were not fairly consequential upon the injunction, and which they could not have foreseen when the injunction was granted."

62 All these English cases refer to the principles for remoteness of damage in contract as setting an outer limit on the amount of compensation recoverable under an undertaking as to damages, but not necessarily stating the amount of compensation that is actually recoverable.

63 In Air Express at 266 Aickin J accepted that the contractual rules for remoteness of damage were “at least a prima facie guide” to the quantum of damage recoverable under an undertaking of damages. He continued, at 266-267:

“In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case. No doubt the view as expressed in the two decisions of the Court of Appeal does not constitute a rigid rule and circumstances may sometimes require a different approach. However it will in my opinion be seldom that it will be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time.”

That statement seems to me to be consistent with the account I have given.

64 The decision of Aickin J was upheld on appeal to the Full Bench of the High Court (Barwick CJ, Gibbs and Stephen JJ; Mason J dissenting), but the reasoning in the Full Court is not as helpful for present purposes as the reasoning of Aickin J. Barwick CJ endorsed the reasons of Aickin J. Gibbs J noted, at 312:

"... it would seem just, speaking generally, that a plaintiff who has failed on the merits should recompense the defendant for the damage that he has suffered as the result of the making of the interlocutory order ... The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice: see Smith v Day (1882) 21 Ch D 421, at p 430 and the cases cited in Kerr on Injunctions, 6th ed (1927), p 667, and Halsbury, 4th ed vol 24, par 1077. However, in the present case the question is not whether loss caused by an injunction was a natural consequence of making it, but whether any loss which the appellant suffered was caused by the making of the injunction.”

65 Gibbs J went on to uphold Aickin J’s conclusion that the loss that Air Express had suffered arose from the litigation, not from the injunction. Stephen J at 315 expressed his agreement with Aickin J concerning the appropriate measure of damages under an undertaking, subject to one reservation. That reservation concerned whether assistance could be derived from the statement of Cussen J in Victorian Onion and Potato Growers' Association v Finnigan [No. 2] [1922] VicLawRp 92; [1922] VLR 819 at 822, that:

“I think the word ‘damages’ in that undertaking is to be given a very general meaning, and is not necessarily to be given the same meaning as the word ‘damages’ when used in connection with breaches of contracts. ‘Damages' in this case seems to me to mean real harm, rather than to have any strictly defined meaning."

66 The use that Stephen J thought, at 319-320, could be obtained from that statement concerns whether common law principles of causation, not common law principles concerning remoteness of damage, applied to an undertaking as to damages. There is no issue in the present case about which principles concerning causation should be applied.

67 To recapitulate, a plaintiff offers the undertaking voluntarily to the court as an inducement to the court to make the interlocutory order. The court usually makes the interlocutory order only on receipt of that undertaking. The objective of the undertaking as to damages is to lessen the risk that the court’s interlocutory intervention proves to cause unnecessary harm. These factors provide powerful considerations in favour of it frequently being just for the court to require the payment of compensation to the extent of the risk that the plaintiff has undertaken by giving the undertaking. But there may be factors arising from the circumstances of the particular case why it is not just to do so. Some of these factors have been referred to at paras [43]-[55] above.

Grounds 2, 3, 5, 6 and 7

68 Turning to the application of these principles to the facts of the present case, grounds 2, 3, 5, 6 and 7 can be dealt with together.

69 Concerning grounds 3, 5, 6 and 7, I agree with Gyles AJA that there is no basis for setting aside the finding that Mr Evans would have understood that the order staying the judgment would have the effect of denying European Bank the opportunity to convert the funds from US dollars to other currencies to take advantage of market fluctuations in the value of those currencies. But the significance of that finding is not great. Any interlocutory order that freezes a sum of money pending the determination of litigation, where that sum of money would otherwise have been paid to some particular person, will always have the consequence of depriving that person of the opportunity to use the sum of money to speculate in currencies during the time that the interlocutory order is on foot. Anyone who knows that currencies can be converted (which, these days would include the bulk of members of the community) would understand that obtaining an interlocutory order freezing a sum of money would have that effect. I would not accept that that shows that, every time such an interlocutory order is made, someone who gives an undertaking as to damages concerning it is thereby undertaking the risk that the person who would have received the money absent the order might have used it for currency speculation. Nor do I accept that the fact that the recipient of the undertaking as to damages is a bank, which has as part of its business dealing in foreign currencies, is enough to make a difference.

70 Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 held that damages for loss of use of money can be recoverable in both tort and contract, and was calculated by reference to interest rates. Mason CJ and Wilson J (with whom Brennan and Deane JJ were “in general agreement”) said at 143 that: “The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money.” (emphasis added). The natural and ordinary consequence of A being kept out of money that is due to him or her is that A loses the use of the money during the period for which he or she is kept out of it. Unless there is a reason for B, a person who undertakes the risk of being liable for A being out of his or her money, to know that there was a realistic prospect that A might actually make some particular use of the money, there is no reason to construe the risk that B is undertaking as being any wider than to pay a commercial rate of interest on the money, during the time that A is out of it. There is no occasion in the circumstances of the present case to be precise about the degree of foresight that is required, and my use of the expression “realistic prospect that A might actually” is not intended to convey any such precision. Ultimately the scope of the risk undertaken is closely dependent on questions of fact, in the circumstances of each particular case.

71 So far as Mr Evans knew or had reason to believe at the time he gave the undertaking as to damages, there was no actual intention, desire, or even passing thought on the part of European Bank that if it were to have been repaid the deposit it might have made a conversion of the US dollars into euros. The fact that the European Bank agreed to the sum in dispute being invested by the Prothonotary in an account denominated in US dollars shows its assent to the sum remaining denominated in US dollars until the High Court litigation had run its course. In those circumstances, I would not regard Mr Evans as having undertaken the risk, when the undertaking as to damages was given in May 2004, of European Bank being cut out of the opportunity to engage in currency speculation with this particular sum of money.

72 Even when European Bank proposed, in the course of July 2004 that the deposit be converted to one denominated in euros, the only reason it gave was connected with interest rate differentials, not with the potential for the euro to appreciate against the US dollar. The proposal to convert the sum to euros brought with it an obvious risk that the euro might decline in value compared to the US dollar, and it was on the basis of that risk that Mr Evans’ solicitors wrote on 21 July 2004 rejecting the proposal that the deposit be converted to euros. European Bank did not seek to explain to Mr Evans the sorts of procedures that were available to it, and about which it gave evidence in the present case, for limiting any exchange losses that resulted from switching the currencies.

73 European Bank did not activate the liberty to apply. Had it done so, and sought to have the court vary the interlocutory regime so that the deposit was switched into euros, there would have been a live question whether the court would permit such a switch only on the basis of an undertaking by European Bank to make good to Mr Evans any loss he might suffer if the euro declined against the US dollar. The European Bank knew that Mr Evans had been appointed by a US court to trace the proceeds of a fraudulent misappropriation of money that had originally been denominated in US dollars, and thereby had reason to believe that any payment out that Mr Evans might ultimately make to those who had been defrauded was likely to be in US dollars. Obtaining a switch of the currency into euros would have the effect of putting Mr Evans at risk of an exchange rate loss, if he were to succeed in the High Court. The course that European Bank actually took, of not approaching the court, and notifying Mr Evans’ solicitors that it proposed to claim the interest differential between that earned on a euro deposit and that earned on a US dollar deposit if Mr Evans failed in the High Court, sought to give itself the advantage of the increased interest rate applicable to euros, without bearing the currency-fall risk of actually making the conversion into euros.

74 That amounts to conduct that would make it not just, even during the period after it made known its desire to convert first some, then all, of the deposit into euros, that European Bank be compensated under the undertaking as to damages for its loss arising from currency fluctuations. When Mr Evans had not undertaken the risk of currency fluctuations at the time that he first gave the undertaking as to damages, a later attempt on the part of European Bank to impose that risk on him is an attempt retrospectively to alter the price of the interlocutory order. That in itself is not just: cf Smith Kline & French v Secretary, Department of Community Services and Health at 372. As well, seeking to obtain the benefit of a conversion to euros without bearing the risk of that conversion is the sort of conduct that would offend the maxim that he who seeks equity must do equity.

75 In those circumstances, just compensation to European Bank would involve it receiving a commercial rate of interest for the time it was out of its money. There is no reason to believe that the rate obtained on the deposit by the Prothonotary was not a commercial rate. However European Bank did not receive all the interest that was earned on the deposit, because Supreme Court Regulation 2000 reg 13 obliged the Prothonotary to deduct 2.5% of the interest earned. 2.5% of the interest earned was US$3077.71. Giving the European Bank just compensation requires Mr Evans to pay European Bank that amount of $3077.71.

Other Grounds

76 I agree with Gyles AJA in his reasons for rejecting appeal grounds 1, 4, 7A and 8.

Orders

77 In my view the orders proposed by Basten JA should be made.

78 GYLES AJA: This appeal concerns the enforcement of an undertaking as to damages given to this Court pending an unsuccessful application for special leave to the High Court. The undertaking was part of arrangements that were ancillary to orders that led to the respondent, European Bank Limited (European Bank) – a Vanuatu corporation company carrying on banking business in that country – being out of a substantial sum of money owed to it for about 10 months. During that time the amount in question was held by the Prothonotary and deposited with an Australian bank in a US dollar account, earning interest accordingly. European Bank claimed that it would have invested the amount, if received, more advantageously than the terms upon which it was held, as it would have switched to euro dollars (euros) rather than US dollars. European Bank claimed the difference between the amount that was ultimately paid out of Court and the amount that would have been held if it had invested the sum itself. Gzell J accepted European Bank’s claim and ordered that the appellant pay the difference amounting to US$803,077.71, which his Honour converted to Australian dollars: Evans & Associates v Citibank Ltd [2007] NSWSC 1004. The appellant contends that the judge erred in finding that European Bank would have done what it now says that it would have done and, in any event, erred in principle in approaching the issue in that way.

79 The underlying case was heard by Palmer J in the Equity Division of the Court (Evans & Associates v Citibank Ltd [2003] NSWSC 204). The present appellant was the plaintiff. He had been appointed as receiver of the assets of certain defendants by a United State’s Court and sought to enforce claims against these defendants in Australia, and in particular, in relation to an account held with Citibank in Australia. European Bank had deposited the monies with Citibank in an account in US dollars. The receiver claimed that those monies represented funds deposited with European Bank by one of the US defendants. European Bank, by cross claim, claimed repayment of the monies from Citibank. Palmer J rejected all of the appellant’s claims but dismissed European Bank’s cross claim for immediate repayment of the deposit. His Honour held that Citibank was entitled to refuse to repay based upon a force majeure clause in the General Account Conditions governing the account (Evans & Associate v Citibank at [142]-[157]).

80 On 24 March 2004, the Court of Appeal dismissed the appellant’s appeal against the rejection of its case by Palmer J (Robb Evans of Robb Evans & Associates v European Bank Ltd [2004] NSWCA 82 ; (2004) 61 NSWLR 75).

81 On the same day, the Court of Appeal allowed an appeal by European Bank against the decision by Palmer J on its cross–claim against Citibank (European Bank Ltd v Citibank Ltd [2004] NSWCA 76 ; (2004) 60 NSWLR 153). The following orders were made (at [83]):

“1. Appeal allowed with costs.

2. Orders 2 and 7 made by Palmer J on 4 April 2003 set aside.

3. In lieu thereof order that judgment be entered for the cross-claimant European Bank Ltd for the debt sued for together with interest at a rate or rates appropriate for a debt in United States dollars.

4. Order that interest accrue on the judgment at a rate appropriate for a debt in United States dollars.

5. The cross-defendant Citibank Ltd is to pay the cross-claimant’s costs of the proceedings before Palmer J.

6. The parties are directed to bring in short minutes of the judgment to be entered pursuant to Order 3 and the order to be made pursuant to Order 4 before Handley JA on 8 April 2004 at 9.30 am unless agreed short minutes have previously been filed with the Registrar of this Court.”

82 On 18 May 2004, final orders were made in appeal CA 40331/03 from dismissal of the cross-claim by European Bank as follows:

“The Court declares that:

1. The Respondent [Citibank] was indebted to the Appellant [European Bank] on 29 November 2000 in the sum of US$8,118,600.90.

The Court orders that:

2. The Appeal be allowed with costs.

3. Orders 2 and 7 made by the Honourable Justice Palmer on 4 April 2003 be set aside.

4. Judgment in the sum of US$8,731,023.73 be entered for the Appellant with effect from 18 May 2004.

5. Interest be accrued by the Respondent on the judgment debt at a rate of 0.95% per annum in US currency on and from 19 May 2004 until the judgment debt and interest is paid into Court.

6. The judgment debt with interest be paid by the Respondent into Court in the matter of CA 40359 of 2003, to be invested in the name of the Prothonotary in a US dollar account with Westpac Banking Corporation pursuant to orders made in matter No. CA 40359 of 2003 on 18 May 2004.

7. The Appellant’s costs of the proceedings in the Equity Division be paid by the Respondent.

8. Liberty to apply on two working days’ notice be granted to the parties.”

83 On the same day, final orders were made in the principal appeal CA 40359/03 as follows:

“The Court orders that:

1. Upon the Appellant [Robb Evans], by his Counsel, giving the usual undertaking as to damages in respect of the period after the judgment debt in matter No. 40331 of 2003 (the judgment debt) has been paid into Court in lieu of an injunction, the existing injunction be dissolved to permit the judgment debt to be paid into Court in these proceedings to abide the outcome of proceedings in the High Court of Australia No. S 154 of 2004.

2. The Prothonotary, upon its payment into Court, invest the judgment debt until further order pursuant to SCR Pt 50 , r 5(f)(i) on an interest bearing deposit with Westpac Banking Corporation as follows:

(a) account name: Prothonotary of the Supreme

Court;

(b) designator: Prothonotary’s Account No.

40359/03; and

parties to approach the Prothonotary to vary the terms of the deposit if so advised.

3. The existing security provided by the Appellant to support his undertaking as to damages given in the proceedings in the Equity Division also stand as security for his undertaking as to damages in respect of the period that the judgment debt remains in Court pursuant to these orders.

4. Costs be costs in the appeal.

5. Liberty to apply on two working days’ notice be granted to the parties.

6. The mention date of 28 May 2004 be vacated.

The Court notes that:

7. The Appellant undertakes to prosecute with due diligence his special leave application to the High Court of Australia No. S 154 of 2004 and any resulting appeal and not to oppose any application on behalf of the Respondent for the hearing of the special leave application or any such appeal to be expedited.”

84 On 27 May 2004, Prothonotary’s Account No. 40359/03 was established with Westpac Banking Corporation (Westpac) and a foreign currency deposit accepted with a term of one day, the principal being US$8,732,866.93. It continued to be rolled over for one day periods for a time and then for periods of one week.

85 On 6 July 2004, the solicitors for European Bank wrote to the solicitors for the appellant as follows:

“European Bank Limited ats Robb Evans
CA 40359 of 2003

We refer to the orders made by the Court of Appeal on 18 May 2004.

In the event that you were unaware, we advise that, on 27 May 2004, Westpac Banking Corporation established a term deposit in the name of the Prothonotary of the Supreme Court for the amount of US$8,732,866.93. On the Prothonotary’s instructions, the deposit is currently rolling over on a weekly basis, at an interest rate of 0.95% per annum.

While our client is content with the interest rate which Westpac is currently applying to the term deposit, we propose approaching the Prothonotary to vary the terms of the deposit so that a portion of it can be converted to and invested in euros, rather than all remain in US dollars.

As you would be aware, our client’s original deposit with Citibank Limited in Sydney was for an amount which was considerably more than the balance of the deposit which Benford Limited had made with it in Vanuatu. Our client proposes that an amount be converted to and invested in euros which is equivalent to the proportion by which out client’s original deposit with Citibank was more than Benford’s deposit with our client, which proportion and amount we calculate as follows:

Benford Bank’s deposit with European Bank in October 1999	= 7,378,373.01

European Bank’s deposit with Citibank Limited in October 1999	= 7,593,532.48

Difference	= 215,159.47

Difference as a percentage	= 2.8335%

Amount to be converted to and invested in euros (2.8335% of 8,732,866.93)	= 247,445.78

Our client’s proposal to convert to and invest in euros is based on indicative interest rates for deposit in that currency, which we understand from Westpac to be currently higher than for those in US dollars. By thus improving the potential return on the deposit, our client’s proposal is extended to mitigate the damages which it may otherwise have to seek from your client pursuant to his undertaking as to damages.

Please let us know whether your client agrees to this proposal.

For the avoidance of doubt, this proposal should in no way be interpreted as either:

(a) an admission that our client’s original deposit with Citibank in any way corresponded to the deposits which Benford Limited made with it; or

(b) a departure by our client from its position that the whole of its deposit with Citibank was its asset.

We look forward to hearing from you.

...”

86 On 15 July 2004, the solicitors for European Bank wrote a further letter to the solicitors for the appellant as follows:

“European Bank Limited ats Robb Evans
CA 40359 of 2003

We refer to our letter dated 6 July 2004.

On further reflection, our client proposes that the whole of the term deposit currently invested with Westpac by the Prothonotary, being our client’s judgment debt and the interest which is accruing be converted from US dollars to Euros.

We understand that Westpac is rolling over the deposit on a weekly basis, each Thursday, and that today it will be rolled over at an interest rate of 1.16%. By contrast, we note that Westpac’s indicative weekly rate for a term deposit in Euros is 1.85%. The table below sets out this disparity further.

Term	USD	Euros

1 Week	1.16%	1.85%

1 Month	1.20%	1.85%

2 Months	1.30%	1.85%

3 Months	1.40%	1.85%

6 Months	1.65%	1.95%

Given this disparity, our client is no longer content with the USD interest rate which Westpac is applying to the deposit. In addition, were it not for the payment into Court, we are instructed that our client would by now have invested the proceeds of the judgment debt and accrued interest in Euros in order to maximise the return on its investment.

For these reasons, we now propose approaching the Prothonotary to vary the terms of the deposit so that the whole of the deposit be converted to and invested in Euros.

By thus further improving the potential return on the deposit, our client’s proposal is intended to mitigate the damages which it may otherwise have to seek from your client pursuant to his undertaking as to damages.

Please let us know whether your client agrees to this proposal.

...”

87 The solicitors for the appellant replied to those letters by letter of 21 July 2004 in the following terms:

“Robb Evans v European Bank Limited
High Court of Australia: S 154 of 2004

We refer to your letters of 6 July and 15 July 2004 and advise that our client does not agree to the monies presently held on term deposit in the name of the Prothonotary of the Supreme Court in the amount of US$8,732.866.93 being converted into Euros.

Whilst it may be possible to achieve a slightly higher interest rate on a term deposit in Euros, if there was an adverse exchange rate fluctuation, the loss could be significant.

...”

88 The reply dated 26 July 2004 from the solicitors for European Bank was as follows:

“European Bank Limited ats Evans

We refer to your letter dated 21 July 2004.

We confirm that, should your client not be successful in his application for special leave or in his appeal, if it occurs, our client will seek to recover from your client, through his undertaking as to damages, any difference between the interest earned on the Prothonotary’s term deposit in US dollars and what might have been earned if the Prothonotary’s term deposit was made in Euros.

...”

89 The deposit with Westpac continued to be rolled over although by 24 February 2005 the period of the deposit was four weeks.

90 On 18 March 2005, the following orders were made in No. CA 40359/03:

“The Court notes that the Appellant’s application for special leave to appeal to the High Court of Australia (proceedings no. S154 of 2004) was dismissed on 11 March 2005.

By consent, the Court orders that the Prothonotary pay the judgment debt to the Respondent or at its direction and, subject to Regulation 13 of the Supreme Court Regulation 2000 , account to the Respondent for the interest which has accrued while the judgment debt has remained in Court.”

91 On 29 March 2005, the deposit with Westpac was repaid with interest, the total being US$8,855,975.16, less US$3077.71 that was deducted pursuant to the then operative Supreme Court Regulation 2000 , reg 13 (now the Civil Procedure Regulation 2005 , reg 19), leaving a balance of $US8,852,897.45 nett being paid to European Bank.

92 The claim foreshadowed by the solicitors for European Bank followed by way of a notice of motion filed on 11 May 2005.

93 The usual undertaking as to damages was defined in the Supreme Court Rules 1970 , Pt 28 r 7(2), now the Uniform Civil Procedure Rules 2005 , Pt 25 r 8 in the following terms:

“The ‘usual undertaking as to damages’, if given to the court in connection with any interlocutory order or undertaking, is an undertaking to the court to submit to such order (if any) as the court may consider to be just for the payment of compensation (to be assessed by the court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking.”
(emphasis added)

Judgment under appeal
94 Gzell J primarily directed himself by reference to the judgments in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1979-1981) 146 CLR 249, but noted a difference between Cussen J in Victorian Onion & Potato Growers’ Association Ltd v Finnigan [No 2] [1922] VicLawRp 92; [1922] VLR 819; (1922) 28 ALR 413, who took the view that “damages” in the usual undertaking was not necessarily to be given the same meaning as when used in connection with breaches of contract, and the statement of Lord Diplock in F Hoffman-La Roche & Co AG v Secretary for Trade and Industry [1975] AC 295 at 361; [1974] 2 All ER 1128; [1974] 3 WLR 104, that the assessment of damages for breach of an undertaking is made on the same basis as that upon which damages for breach of contract would be assessed. Gzell J accepted that the damages must be confined to loss that is the natural consequence of the undertaking under the circumstances of which the party having the benefit of the undertaking had notice ([2007] NSWSC 1004 at [5]-[13]). His Honour considered that each limb of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145, had to be satisfied.

95 The substantive evidence, upon which the case of European Bank depended, was that of Ms Kely Ihrig who was the manager, operations, of European Bank. She swore five affidavits and those affidavits in turn referred to numerous documents. Ms Ihrig was subjected to a searching cross-examination, which included a challenge to her credit. The positive case for the appellant was based upon two reports by Mr Russo, an expert in financial markets, including foreign exchange transactions. The appellant did not give evidence.

96 After examining the evidence and the arguments of the parties, Gzell J found as follows ([2007] NSWSC 1004 at [59]):

“I find it probable that European Bank would have converted the funds invested by the Prothonotary from US dollars to euros but for the order of 18 May 2004. In my view this conversion was likely to have occurred in early July 2004 following the management meeting of late June 2004.”

97 His Honour then considered whether the damages claimed were the natural consequence of the making of the interlocutory order. His Honour distinguished the case of Di Ferdinando v Simon, Smits & Co Ltd [1920] 3 KB 409, where Scrutton LJ (at 415) said that a Court had to exclude from the calculation of damages the subsequent change in the value of currency after the date of breach. His Honour also rejected an argument that it was not the natural consequence of the order because European Bank had not hitherto entered into a currency transaction of the order in question.

98 Gzell J went on to consider the circumstances of which the appellant had notice in terms of the second limb of Hadley v Baxendale, it having been submitted that the losses were not foreseeable from the circumstances known to the appellant. His Honour then held that the second limb was to be determined at the date of breach of contract and not the date of judgment of the Court and, therefore, left to one side the request for the appellant’s consent to a conversion of the funds invested by the Prothonotary to euros. That is, presumably, on the basis that his Honour regarded the relevant date as the date of the giving of the undertaking. Gzell J examined a number of the objective circumstances and drew inferences as to the facts of which the appellant had notice. His Honour (at [78]) concluded that the losses would have been foreseen when the order was made or, put another way, the losses were the natural consequence of the payment into Court under circumstances of which the appellant had notice. It was held that the damages claimed were not too remote.

99 His Honour rejected a claim that European Bank had failed to mitigate its loss by taking various steps suggested by Mr Russo. His Honour accepted the reasons given by Ms Ihrig as to why those courses were not appropriate. His Honour rejected the argument that it would not be just to require the payment of this compensation because it would arise from a matter that was not within the contemplation of the parties at the time the order was made. For the same reasons he had rejected the claim of remoteness.

100 In fixing quantum, his Honour held that the appropriate period was from 1 July 2004 to 18 March 2005. The trial judge’s reasoning as to the assessment of damages appears as follows ([2007] NSWSC 1004 at [85]-[86]):

“The loss sustained by European Bank was for deprivation of a commercial opportunity of the type considered in Sellars v Adelaide Petroleum NL [1994] HCA 4; (1992-1994) 179 CLR 332 and in Norris v Blake (1997) 41 NSWLR 49. The proper approach, in my view, is to assess what is most likely to have been the return on a hypothetical euro investment during the relevant period and deduct the return actually achieved during that period by the investment in US dollars. Then it will be necessary to consider whether an adjustment should be made for contingencies, including the prospect that European Bank’s return on the euro investment might have been greater.

Thus, the compensation should first be calculated as the difference between the value of a euro investment on 18 March 2005 calculated as if it had been rolled over from time to time during the period and the value of the US dollars held by the Prothonotary on that date, both converted into Australian dollars at the applicable exchange rates on 18 March 2005.”

101 Different hypotheses were spelt out in the evidence. That chosen by his Honour was based upon an actual investment of approximately EC 3.6 million with the National Bank of New Zealand, which gave an increased return on investment in euros as against US dollars of US$810,298.12 before conversion to Australian dollars. His Honour made only a small adjustment for contingencies by way of rounding the amount down to US$800,000, to which was added the US$3077.71 deduction by virtue of reg 13 of the Supreme Court Regulation . His Honour held that the total was to be converted to Australian dollars at the exchange rate that applied on 18 March 2007. On 27 September 2007, it was ordered that:

“1. The Plaintiff pay the Eighth Defendant the sum of AUD 1,251,088.33.

2. The Plaintiff pay the Eighth Defendant’s costs.”

Issues on appeal
102 The first ground of appeal was as follows:

“1. The trial judge erred in finding that European Bank Limited would have converted the prothonotary funds of US$8,732,866.63 from US dollars to Euros but for the interlocutory order of 18 May 2004.”

Ground of appeal 4 is related:

“4. The trial judge erred in finding that European Bank Limited had the ability to convert US$8.7 million from US dollars into Euros by relying on the report of Mr Peter Middleton Simpson which was neither tendered nor admitted into evidence in the proceedings.”

Most of the attention on appeal was directed to these grounds as they involved a wholesale attack upon findings of fact.

103 The second ground of appeal was as follows:

“2. The trial judge erred in holding that the damages claimed by European Bank Limited were the natural consequence of the making of the interlocutory order of 18 May 2004.”

That is a question of principle.

104 There are then a cluster of grounds which challenge the findings in relation to, what the trial judge called, the second limb of Hadley v Baxendale, namely:

“3. The trial judge erred in holding that the damages claimed by European Bank Limited were foreseeable from the circumstances known to Mr Robb Evans at the time of the making of the 18 May 2004 order.

...

5. The trial judge erred in finding that European Bank Limited was a trader in foreign currency.

6. The trial judge erred in finding that Mr Evans knew at the time of the making of the 18 May 2004 order that European Bank Limited traded in foreign currency.

7. The trial judge ought to have found that the evidence did not establish that it was within the contemplation of Mr Evans at the time of making of the 18 May 2004 order that European Bank Limited would be likely to suffer a loss by reasons of the US dollar failing in value against that of the Euro.”

105 Grounds 7A and 8 will be dealt with later.

Second ground of appeal
106 It is convenient to take the second ground first because that is the most general of the issues. The appellant submitted that the damages claimed were not the natural consequence of the making of the interlocutory order by applying the principle in Di Ferdinando [1920] 3 KB 409 that the Court is to exclude the subsequent change in the value of currency after the date of breach as too remote a consequence to be taken into consideration. It was submitted that the trial judge’s distinguishing of Di Ferdinando was not sound since it remained applicable to subsequent change in the value of the goods including, either directly or by analogy, currency, after the date of breach. It was submitted, that contrary to the opinion of the trial judge, the relevant principle had not been overruled by the House of Lords in The Despina R [1979] AC 685. Di Ferdinando was only overruled to the extent that it decided that a judgment in an English Court could only be given in sterling converted from any foreign currency as at the date of breach of the contract.

107 It was submitted that in The Teh Hu [1970] P 106, Salmon LJ, with whom Karminski LJ agreed, stated (at 128):

“In no case of breach of contract, tort or debt is the amount for which judgment is entered to be affected by any change in the value of sterling after the date when the damages or debt became due. This is so whether the damages was originally calculated in sterling or foreign currency and whether the debt was a sterling debt or a debt in foreign currency.”

The basis for the general rule in relation to an action in tort was described by Lord Parmoor in Owners of SS Celia v Owners of SS Volturno [1921] 2 AC 544 at 560:

“The probability of the alteration in the rate of exchange is not an admissible factor in the ascertainment in the amount of damage, both on the ground of remoteness, and on the ground that it is a matter which affects generally all financial transactions, and is in no way connected with a tortious act for which the respondent is liable.”

108 It was submitted that the general rule set out in The Teh Hu was followed by the Queensland Court of Appeal in State of Queensland v Northaus Trading Company Limited (Unreported, Pincus JA, Moynihan and Atkinson JJ, 13 August 1999), which declined to award damages for foreign currency exchange losses resulting from the fluctuation of foreign currency rates that occurred between the dates when the relevant sum should have been received and the dates when in fact it was received.

109 It was pointed out that the difference here does not spring only from interest differentials but from currency fluctuations. It was submitted that prediction of fluctuations in the value of unhedged investments in foreign currencies is entirely speculative. The direction and magnitude of currency fluctuations and interest rate differentials between currencies are impossible to predict and consequentially too remote to be a natural consequence of the making of the order to be taken into consideration by the Court. There was no long-term evidence of a favourable interest rate differential or capital gain when holding one currency relative to another.

110 In response, it was submitted, for European Bank, that the natural consequence of the making of the order was that the European Bank would not be able to generate income based on currency fluctuations and the interest rate differentials between currencies – that being the stock in trade of a bank and the means by which it earns income. If the suggested principle applied, it would severely curtail the ability of any financial institution to obtain damages pursuant to an undertaking as to damages. It was accepted that precise exchange rate fluctuations and interest rate fluctuations could not have been known in advance but it was submitted that it does not follow that the losses were not the natural consequence of the order or were too remote. A particular transaction was proposed, and the potential consequences can be ascertained.

111 This ground of appeal requires ascertaining the principles to be applied in enforcing an undertaking as to damages. Aickin J discussed the authorities in some detail in his judgment in Air Express Ltd [1981] HCA 75; 146 CLR 249 (at 262-268) and particularly discussed the measures of damages to be applied where a plaintiff has failed in the action. Aickin J favoured the view that, although there was no rigid rule, it would seldom be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time. To this extent his Honour did not agree with the observations of Cussen J in Victorian Onion & Potato Growers’ Association [1922] VicLawRp 92; [1922] VLR 819 at 822, who said:

“I think the word ‘damages’ in that undertaking is to be given a very general meaning, and is not necessarily to be given the same meaning as the word ‘damages’ when used in connection with breaches of contract. ‘Damages’ in this case seems to me to mean real harm, rather than to have any strictly defined meaning.”

On appeal, Barwick CJ appeared to agree with the reasons of Aickin J as to the question to be decided and the considerations relevant to its answer [1981] HCA 75; (146 CLR 249 at 310). Gibbs J (at 312) said:

“... it is perfectly clear, and it appears from the words of the undertaking themselves, that the only damages to which a defendant is entitled are those which he had sustained by reason of the grant of the injunction. The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice.”
(emphasis added)

His Honour noted, but did not resolve, the difference of opinion between Cussen J and Lord Diplock in F Hoffman-La Roche ([1975] AC 295 at 361). It should be noted that Lord Diplock stated the position, as he understood it, rather than resolving an issue in the case.

112 Stephen J explained that damages awarded under an undertaking are of rather a different nature from those awarded at common law. The special character appears from the fact that their source lies in the plaintiff’s own voluntary undertaking as the price of obtaining an injunction. The undertaking is given to the Court, not to the other party and a claimant cannot complain about any breach of contract nor of any duty tortious or otherwise owed to him. His Honour accepted that it may be appropriate to rely upon analogies drawn from the common law in the matter of remoteness of damages, but drew a distinction between common law causation and that applicable to a claim under undertaking. In his Honour’s view, damage is only recoverable if it was suffered because of the grant of the injunction and would not have been suffered but for it. (See 149 CLR at 318-320.)

113 Mason J concentrated upon the question of causation, especially as to the distinction between damages flowing from the litigation and flowing from an interlocutory injunction, a distinction which was critical to the actual decision on the facts by Aickin J and in relation to which Mason J differed from him.

114 In Cheltenham & Gloucester Building Society v Ricketts [1993] 4 All ER 276; [1993] 1 WLR 1545 it was held that the primary judge had erred by enforcing an undertaking for damages after discharge of the injunction but before trial. The manner of carrying out the enquiry was only incidental to that decision, although there are some general statements made on that topic in the judgment. Neill LJ said that it seemed that damages are awarded on a similar basis to that on which damages are awarded for breach of contract, based principally upon the dicta of Aickin J in Air Express Ltd to which I have referred. It was said that this passage suggested that the Court would adopt similar principles to those relevant in a claim for breach of contract. Peter Gibson LJ quoted a statement from an earlier case by Lloyd LJ who said, “Here ordinary principles of the law of contract apply both as to causation and as to quantum”, based upon the dicta of Lord Diplock in F Hoffmann-La Roche.

115 There was some tangential discussion in National Australian Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386; (1990) 8 ACLC 403 in a case where no undertaking for damages had been expressly given.

116 In Coshott v Principal Strategic Options Pty Ltd [2004] FCAFC 50, the Full Court of the Federal Court (at [18]), approved the following summary by the primary judge, Branson J, of the principles to be deduced from Air Express Ltd:

“(a) the court has a discretion not to enforce an undertaking as to damages, but unless the respondent has been guilty of conduct that would render it inequitable to enforce the undertaking it will be just, speaking generally, for an applicant who fails on the merits to recompense the respondent for the damage suffered by him or her as a result of the making of the interlocutory order (see Gibbs J at 311 – 312);

(b) it is necessary to draw a distinction between results which are caused by the making of the interlocutory order and those which flow from the fact of the litigation itself (see Barwick CJ at 310; Gibbs J at 312 and Stephen J at 315);

(c) generally speaking, the damages must be confined to loss which is the natural consequence of the interlocutory order under the circumstances of which the applicant for the order had notice (see Gibbs J at 312 and the authorities there cited and Stephen J at 319);

(d) the making of the interlocutory order must have been a cause without which the damage would not have been suffered (Gibbs J at 313 and Stephen J at 320); and

(e) the onus of proof in respect of the damage claimed lies on the respondent who asserts that he or she sustained damage by reason of the making of the interlocutory order (see Gibbs J at 313 and Stephen J at 316 and 320).”

117 That case has similarities with the present because it concerned the result of an order made under s 50 of the Bankruptcy Act 1966 (Cth) pursuant to which a trustee, in effect, took control of Mr Coshott’s property. As a consequence he was held out of his money during the period for which the order was effective. An express undertaking as to damages had been given notwithstanding the fact that there was a similar statutory right. One claimed head of damage was the loss of the increase on the capital value of a home, which would have been purchased absent the s 50 orders. The claim was dismissed on the basis that it had not been established that, if it were not for the orders, the claimant would have been in the position to purchase the home. On appeal, this was upheld. The Full Court expressly refrained from expressing a view on the appropriateness of that measure of damage. Closer to this case, one head of claim related to the difference between the interest actually earned by the money in the trustee’s trust account and the interest which the claimant could have earned elsewhere. The primary judge made a small award under that head. The judge found that had the orders not been made the claimant would have a term deposit with Westpac of a particular amount which would have earned more than the amount that was earned. It does not appear that there was any challenge to the appropriateness of that head of claim, although there was a challenge to the factual application of it.

118 Young CJ in Eq made some interesting comments in Jackson v Richards [2005] NSWSC 1295. That was a case in which, just before proceeds of sale were due to be paid to a defendant, solicitors obtained an injunction freezing the funds alleging that they had a fruits of litigation lien over the funds, giving the usual undertaking as to damages. The monies were placed in a controlled interest account and remained there for some 10 months. Ultimately, the application for final injunction was refused on the basis that there was no lien. In the events which happened, very little interest was earned in the controlled account, for reasons which are not explained. His Honour gave his own summary of the principles from Air Express Ltd (at [15]-[19]) as follows:

“1. It is for the claimant under an undertaking to establish by evidence or by inference from evidence that the grant of the injunction was a cause of his damage and that but for it he would not have suffered that damage (320).

2. There is a distinction between damages flowing from the injunction and damages flowing from the litigation itself. Only the former is claimable in this type of proceeding (268).

3. The damages must be confined for loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice (267).

4. The damages are not the same as damages for breach of contract (266).

5. Whilst the common law principles of remoteness are relevant, those dealing with causation are not (319).”

119 His Honour described the order as one of restitution rather than an award of damages. His Honour allowed the difference between the interest earned and the Court rate of interest (which was nine per cent). The defendant also claimed that he was not able to do various other things because of the lack of money. Young CJ in Eq said (at [32]-[38]):

“The remoteness of damages rules apply to claims under the undertaking as to damages. Ordinarily, a person who has not had money because of the acts of another party does not get damages for what he could have done with the money had he had it in his hands because the law would say that he should just have borrowed it at interest and claimed the interest as damages.

However, the situation is different when the other party knows of the impecuniosity of the defendant. In the present case, the solicitors had been involved in proceedings under the Property (Relationships) Act and, assuming they were doing their job properly, as they claim to have done, they must have had intimate knowledge of the capital and income of the defendant; thus, on the balance of probabilities they knew of his debts and of his limited capital.

Where this situation appertains, extra damages may be awarded to a claimant under contracts, such as breach of contract to make a loan; see eg Prehn v The Royal Bank of Liverpool (1870) LR 5 Ex 92.

However, in the instant case, there is no evidence of any particular extra expense caused to the defendant, nor is there any evidence that his health suffered as a result of not obtaining the treatment.

If, for instance, the defendant had gone to the money sharks and had borrowed money at 48%, it may be that the solicitors would have had to pay that large amount of interest because they would have known that the defendant was only able to borrow because of his precarious financial position at a much higher rate of interest than normal. However, that did not happen.

There does not appear to be any case where damages have been allowed for depriving a person of cash flow. In this 21st century, that, however, is a matter which can be one of serious concern.

A claimant must prove his damages when seeking to be compensated for disruption caused by the grant of an injunction. However, there is also an interest in the court in seeing to it that its processes are not taken advantage of by people who are not fully and fairly willing to compensate those who suffer from their putting the court's processes in motion. I consider that it is appropriate to increase the award by a further $1,000 to cover unspecified inconvenience as a result of deprivation of the money.”

120 Young CJ in Eq applied a test of foreseeability in Churnin v Pilot Developments Pty Ltd [2007] NSWSC 1459 (clarified by a supplementary judgment Churnin v Pilot Developments Pty Ltd [2008] NSWSC 831).

121 Notwithstanding some of the foregoing, in my opinion, the usual undertaking as to damages should not be enforced as if it is a claim in contract. As Stephen J showed in Air Express Ltd, an undertaking is given to the Court and does not represent a private right of action. There is no more warrant for reading down this undertaking than there is for constraining statutory remedies such as those provided for by ss 82 and 87 of Trades Practices Act 1974 (Cth) (see Marks v GIO Australia Holdings [1998] HCA 69; (1998) 196 CLR 494 at [17] per Gaudron J; at [38] per McHugh, Hayne and Callinan JJ; at [100]-[103] per Gummow J; at [152] per Kirby J). If the issue were to be approached by way of analogy, it is not clear to me why contract is the appropriate analogy, rather than tort, equitable damages or statutory compensation. (See Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 4th ed (2002) at [21-415]).

122 The usual undertaking provides a flexible formula which should not be unduly restricted. The appropriate analogy can be adopted. There may be cases where a just order for compensation should be made without the restraints of awards of damages in contract or tort. The procedure is often described as equitable in character. This may have been true historically as it was developed in conjunction with the granting of injunctions in Chancery, but it has a wider operation now.

123 This case is an example. It concerns, in effect, the stay of execution of a final judgment for the payment of a sum of money by the highest Court in New South Wales, subject only to the possibility of the grant of special leave by the High Court of Australia and the possibility that, if leave were granted, an appeal would be upheld. Generally speaking, a party is entitled to the fruits of such a victory. The usual arrangement, in a case such as the present, would have been for the money judgment to be paid, subject to appropriate security being given for the repayment of the money in the event of a successful appeal, as European Bank is a foreign corporation. It is not clear to me why that was not the solution here. There was no evidence as to the circumstances surrounding the making of the orders or the proffering of the undertaking. The proceeds of the judgment could have been used by European Bank for any purpose it saw fit, subject to the obligation to repay the capital plus interest. The provision of security, for example by way of bank bond, would no doubt have involved some expense.

124 In the events which have happened, it can be seen that European Bank had a right to the amount of the judgment from the time of judgment in this Court. On any view, European Bank is entitled to just compensation for any loss sustained by it by reason of its being out of its money for the period in question. How is that to be assessed? Is it sufficient to establish that European Bank would have invested the proceeds in a particular fashion for a particular period, which would have led to a better result than that obtained by leaving the money where it was pursuant to Court order? That is an attractive proposition and commanded the assent of the primary judge. However, I am not persuaded that it is sound for the purposes of this case or as a general proposition.

125 The complications of changing circumstances in relation to contractual damages are apparent from the recent decision of the House of Lords in Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48; [2008] All ER (D) 117 (Jul); [2008] NLJR 1040; [2008] UKHL 48; [2008] 4 All ER 159; [2008] 3 WLR 345; [2008] 2 All ER (Comm) 753. The fungible nature of money further complicates the issue. It is freely negotiable and has no unique characteristic. It can be “invested” in innumerable ways. Except in the case of bank notes, money will usually be represented by a credit with a bank or financial institution. Money is not traced except in particular trust situations. Money can be lent at interest and the interest will vary depending upon the terms of the loan, the identity of the borrower and the state of the market. Money will always represent a currency. The value of a currency constantly fluctuates as against other currencies. Currency trading is, as of necessity, a speculative activity.

126 The general rule is that a contract to lend money cannot be specifically enforced, although there can be exceptions (Wight v Haberdan Pty Ltd [1984] 2 NSWLR 280 at 289-292; Meagher, Gummow and Lehane’s equity: doctrines and remedies, 4th ed (2002) at [20-050]). In the case of contracts for loan of money, the normal measure of damages for the lender’s failure to provide the money is the amount required by the borrower to go into the market and effect a substitute loan for himself less the amount the contractual loan had required (McGregor on Damages, 17th ed (2003) at para 25-024). The question examined by the High Court in Hungerfords v Walker [1989] HCA 8; 171 CLR 125 was somewhat different, but in the course of the leading judgment Mason CJ and Wilson J said (at 143-144):

“... Judged from a commercial viewpoint, the plaintiff sustains an economic loss if his damages are not paid promptly, just as he sustains such a loss when his debt is not paid on the due date. The loss may arise in the form of the investment cost of being deprived of money which could have been invested at interest or used to reduce an existing indebtedness. Or the loss may arise in the form of the borrowing cost, i.e., interest payable on borrowed money or interest foregone because an existing investment is realised or reduced.

The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money. Opportunity cost, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money. But, even in the case of incurred expense, it is at least strongly arguable that a plaintiff's loss or damage represented by this expense is not too remote on the score of foreseeability. In truth, it is an expense which represents loss or damage flowing naturally and directly from the defendant's wrongful act or omission, particularly when that act or omission results in the withholding of money from a plaintiff or causes the plaintiff to pay away money.

....

Incurred expense and opportunity cost arising from paying money away or the withholding of moneys due to the defendant's wrong are something more than the late payment of damages. They are pecuniary losses suffered by the plaintiff as a result of the defendant's wrong and therefore constitute an integral element of the loss for which he is entitled to be compensated by an award of damages.”

127 I do not think that the line of authority referred to by counsel for the appellant – Di Ferdinando; The Celia; and The Teh Hu – can be safely relied upon since the decisions of the House of Lords in Miliangos v George Frank (Textiles) Ltd [1976] AC 443 and The Despina R [1979] AC 685.

128 The decision of the Queensland Court of Appeal in State of Queensland v Northaus (Unreported, 13 August 1999) is in a different category as it was decided in the post Miliangos world. Whilst the context is not the same as that here, the reasoning as to exchange movements is consistent with the applicant’s submission and my opinion.

129 Properly analysed, European Bank did not need this particular parcel of money to speculate in currencies by switching from US dollars to euros. There is no principled basis upon which the European Bank should be underwritten in placing a hypothetical bet on a hazardous enterprise because it can show in retrospect that the bet would have been successful. There is no reason for earmarking this particular money for making that particular bet.

130 In my opinion the loss of profit upon a business speculation that is claimed is not the natural consequence of the order and is too remote to be classed as “just” compensation. The order simply deprived European Bank of the use of these funds, but did not prevent European Bank from entering into any business transaction including borrowing, investing or speculating as it saw fit. A notional interest rate as the cost of money for that purpose would be an appropriate allowance. In the present case there is no basis for thinking that would be greater than the interest earned on the Westpac deposit. The Court order was not the “sine qua non” of the loss complained of in the fashion described by Stephen J in Air Express Ltd (146 CLR at 320).

131 The failure of European Bank to approach the Court for the variation of the arrangement that it had proposed in correspondence underscores that conclusion. Liberty was reserved for that purpose. If such application had been made, a switch of currencies would only have been permitted if accompanied by satisfactory arrangements on the part of European Bank for restoring the US dollar value if the appeal succeeded. Interim arrangements such as these were the inevitable consequence of doing justice to both parties in the litigation. European Bank had in fact been out of its money since the demand for repayment prior to the litigation. There is no basis upon which it could claim loss of business profit from that time on until judgment. Enforcement of the undertaking in the manner claimed after that time would therefore give a windfall gain. The arrangement, of which the undertaking formed part, meant that the capital was preserved in the most appropriate currency and the interest earned was adequate recompense for being out of the money. That ensured just compensation. I would therefore uphold the appeal.

132 That conclusion makes it strictly unnecessary to decide the other grounds of appeal. However, as those issues were fully debated, it is appropriate to consider them.

Switch to euros? – Grounds of appeal 1 and 4
133 As I have said, this question largely turned upon the primary judge’s assessment of the credit of Ms Ihrig. The only substantive evidence led on behalf of the appellant was evidence from Mr Russo of an expert nature which, of necessity, only dealt with banking practices as he understood them and with his reading of the procedures of and applicable to European Bank. All of those matters were put to Ms Ihrig and the primary judge was well placed to assess her responses.

134 The foundation for the challenge to Ms Ihrig’s evidence was that conversion of the amount in question from US dollars to euros would have created an open position in relation to euros that was a breach of the bank’s liquidity management policy and policy guidelines generally and would not comply with the liquidity guidelines of the Reserve Bank of Vanuatu. Much of the sting of that challenge was taken out when the primary judge accepted Ms Ihrig’s evidence that if the US dollars were converted into euros they would be deposited with a counter-party bank coupled with a forward exchange contract to sell euros and buy US dollars at a 2 per cent loss, or there about. If the euros were on a term deposit for one month the forward exchange contract would have a like maturity date. This would have the consequence that the dealing would not infringe the European Bank open position limits or the Reserve Bank guidelines because it would be a temporary excess, the investment being for no longer than 30 days. Furthermore, because of the small number of people employed in European Bank and the relatively small scale of business, daily attention would be paid to the open position and whether it should remain or should be closed out. The fact that a significant amount of European Bank’s US dollar borrowings were frozen also alleviated the apparent open position.

135 His Honour accepted evidence that European Bank did invest amounts in excess of US$8 million in euros in April/May 2004 and again in early 2005 and that such investment was not connected with presenting a picture for this case. Furthermore, reports, at the time, by Pacific Fund Managers Ltd, of which Ms Ihrig was the fund manager, were recommending a move in favour of euros. The primary judge also took into account the correspondence in July 2004 seeking the consent of the appellant to the funds being converted into euros, although European Bank did not apply to the Court for variation of the arrangements.

136 The primary judge examined with some care the contention that Ms Ihrig had tailored and changed her evidence as required and rejected the contention. The primary judge had the advantage of seeing Ms Ihrig give evidence and of seeing the documentary evidence unfold before him. There is no basis upon which it can be said that he misused that advantage or failed to have regard to cogent evidence (Devries v Australian National Railways Commission [1993] HCA 78; (1993) 177 CLR 472; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999 HCA 3; (1999) 73 ALJR 306; 160 ALR 588; Fox v Percy [2003] HCA 22; (2003) 214 CLR 118).

137 Counsel for the appellant sought to sidestep the effect of Ms Ihrig’s evidence by submitting that she was not authorised to speak, relevantly, on behalf of European Bank. She was not a member of the board of directors or even a member of the executive committee. Her state of mind cannot be imputed to European Bank. No director or member of the executive committee was called. There was no evidence that Ms Ihrig had any authority to enter into a transaction such as that hypothetically proposed. That contention is not recorded by the primary judge and there is no such ground of appeal. It is not found in the appellant’s written submissions in chief. It appears in reply. Ms Ihrig was put forward as the operational executive who would make the recommendation, and, effectively, any decision. She was put forward as the effective decision maker. Evidence could have been led if a point as to authority had been clearly taken at trial. It is too late to take that point now (Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1).

138 The primary judge was in error in referring (at [65]) to a statement of Peter Middleton Simpson which was not tendered in evidence. It appears to have been regarded as confirmatory of the ability of European Bank to place a euro deposit or deposits of the relevant amount during the relevant period. That could hardly be doubted if the funds were available, as confirmed by the evidence as to what actually occurred during the period.

Foreseeability? – Grounds of appeal 3, 5, 6 and 7
139 The finding concerning the facts that were in the contemplation of the appellant was at a very general level. It was inferred that Mr Evans would know that the European Bank would utilise monies deposited with it to earn income including by dealing in foreign currencies and making profit from currency differentials.

140 It is accepted by the appellant that he knew that European Bank took the Benford deposit in US dollars and retained it in US dollars and that it had placed it on deposit in a US dollar account in Australia. However it is submitted that the appellant did not know of any circumstance which would point to the likelihood of European Bank converting that account into euros.

141 The evidence of Mr Russo supports the fact that foreign currency dealing is a normal feature of the business of banks. The dealings of European Bank of which Mr Evans knew concerned foreign currency so far as Vanuatu was concerned. The precise finding was that the appellant would have understood that the order staying the judgment would have the effect of denying European Bank the opportunity to convert the funds from US dollars to other currencies to take advantage of market fluctuations in the value of those currencies. No basis has been shown for setting aside that finding.

Discount? – Ground of appeal 7A
142 It was submitted on behalf of the appellant that even if the primary judge was entitled to find that it was more probable than not that European Bank would have converted the amount in question into euros, damages should be assessed on the basis of loss of a chance (Malec v J C Hutton Pty Ltd [1990] HCA 20; 169 CLR 638 at 643 per Deane, Gaudron and McHugh JJ; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64 at 125 per Deane J; Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ; Daniels v Anderson (1995) 37 NSWLR 438 at 530; and Heenan v Di Sisto [2008] NSWCA 25 ; (2008) Aust Torts Reports 81-941 at [29] and [32]). It was submitted on this basis that the probabilities would only have been a bare 50.1 per cent, calling for a very significant discount. The primary judge only allowed a very minor discount.

143 In my opinion that argument is misconceived in a situation like the present. Whilst the exercise is necessarily hypothetical, it is not valuing a chance as in those cases. Here the question is whether European Bank would have made the transaction. The task is not to assess the chance that it would. Furthermore, it is incorrect to say that the assessment of the chance must be made as at the time the decision might be made. Here the facts are known. The assessment is retrospective in the light of the actual facts.

Conversion to Australian dollars – Ground of appeal 8
144 It was contended for the appellant that the trial judge erred in converting the loss from US dollars to Australian dollars at the exchange rate that applied on 18 March 2005. It was submitted that US dollars was the currency that most fairly expressed the loss. The conversion to Australian dollars should have taken place at the date of judgment.

145 The first point made on behalf of European Bank is that this issue was not raised before the primary judge, and, indeed, that the parties joined in the agreed short minutes of order. That is sufficient to preclude the argument. The question as to whether US dollars would fairly reflect the loss is by no means a simple argument. It should not take place for the first time on appeal.

CONCLUSION
146 The appeal ought be allowed. The orders of 27 September 2007 should be set aside, and, in lieu thereof, it should be ordered that the plaintiff pay the eighth defendant the Australian dollar equivalent of US$3077.71 as at 18 March 2005, and that the plaintiff pay the costs of the eighth defendant of the trial. The respondent should pay the appellant’s costs of the appeal.

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LAST UPDATED:
2 April 2009

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