Lan v Kaymet Corporation Pty Ltd

The appellants, Lan and others, sought to appeal a decision of the primary judge concerning an undertaking as to damages given in support of an interlocutory injunction. The respondents, Kaymet Corporation Pty Ltd and others, had obtained an injunction preventing the appellants from proceeding with certain development works. But for this injunction, the respondents would have leased out strata units and earned rental income. During the period the injunction was in force, the unrealised capital value of these strata units increased by an amount exceeding the lost rental income. The dispute centred on whether the compensation payable by the respondents under their undertaking should be reduced by this unrealised capital gain.

The central legal issue before the Court of Appeal was whether the respondents' liability under the undertaking as to damages should be reduced by the unrealised capital gain in the value of the strata units that occurred during the period the injunction was operative. This required the court to consider the principles governing the assessment of damages under an undertaking as to damages, particularly in circumstances where the party restrained by the injunction has experienced a benefit that is not a direct financial gain but rather an increase in the capital value of their property.

The Court of Appeal, comprising McColl and Leeming JJA and Sackville AJA, dismissed the appeal. The court reasoned that the undertaking as to damages is intended to compensate the party restrained for the loss they have suffered as a result of the injunction. It was held that an unrealised capital gain, which is speculative and not a realised profit, does not ordinarily fall to be considered as a reduction of loss in this context. The court affirmed that the loss suffered by the respondents was the lost rental income, and the increase in capital value, while a benefit, was not a direct consequence of the injunction in a way that would offset the loss of rent under the undertaking.

Consequently, the appeal was dismissed, and the appellants were ordered to pay the respondents’ costs of the appeal.