05/10/2024 | News release | Distributed by Public on 05/10/2024 04:59
Dentons successfully defended a developer and aviation enthusiast, 123 259 932 Pty Ltd (formerly Cutty Sark), in an appeal brought by Cessnock City Council (Council) before the full bench of the High Court of Australia.
The verdict was unanimous and clarifies the position regarding the presumption of recoupment in reliance damages for contracts in Australia for the foreseeable future.
In 1998, Council sought expressions of interest for the development and management of a proposed airport in Cessnock (Cessnock Airport). The airport precinct was meant to invigorate the area.
In 2004, Cutty Sark submitted a tender to Council to use one of the potential lots of the subdivision to build an "iconic" award winning hangar, which would house exotic aircrafts forming part of an aviation museum and used as part of a 'joyride' business.
In 2007, Council and Cutty Sark entered into an agreement for lease with Council (AFL). The AFL would have provided Cutty Sark with a 30-year lease subject to Council using its reasonable endeavours to ensure the plan of subdivision was registered by the specified sunset date. At the same time, Cutty Sark was granted an interim licence so that it could commence construction of the hangar.
Council failed to register the plan of subdivision by the sunset date as it was not able to obtain its internal approval for AU$1.3 million of funds which was to be used to build the sewerage system connecting to Cessnock Airport. Despite this, Council failed to terminate the AFL and did nothing to prevent Cutty Sark from continuing to expend millions on the hangar and other significant sums of money relating to the purchase of the exotic aircrafts by its related companies.
Cutty Sark vacated the hangar sometime after construction was complete with the knowledge that it was not going to receive the 30-year lease from the Council. Council relied on a contractual provision within the AFL which arguably allowed it to purchase the vacant hangar from ASIC in the amount of AU$1.
Dentons was instructed by Cutty Sark to commence proceedings in the Supreme Court of NSW against Council seeking Cutty Sark's damages in the form of "wasted expenditure".
Cutty Sark relied on the principle established in McRae v Commonwealth1 and Commonwealth v Amann Aviation Pty Ltd2, which based their decisions on the old UK decision of Robinson v Harman3: authority for the proposition that a contract-breaker must place an aggrieved party in the position that it would have been in had the contract-breaker performed its contractual obligations.
The Court at first instance found that while Council breached its contractual obligations pursuant to the AFL to take all reasonable steps to ensure that the plan was registered before the sunset date, Cutty Sark did not establish that it would have been able to recover its expenditure had Council performed its contractual obligations, being the argument advanced by the Council.
This finding seemed to reverse the evidentiary burden established in McRae and Amman. Cutty Sark was awarded nominal damages in the sum of AU$1.
Cutty Sark appealed to the NSW Court of Appeal.
On appeal, the Court of Appeal found that the Supreme Court had erred in finding that the burden of proof rested with Cutty Sark, and held that:
The Court of Appeal ultimately found that Council failed to meet the evidentiary burden and awarded judgment in the favour of Cutty Sark in the sum of AU$3.7 million plus interest and costs, ebing the amount sought by Cutty Sark in the Supreme Court, and which was not disputed or tested.
Council then sought and was granted special leave to appeal to the High Court of Australia.
The full bench of the High Court unanimously upheld the Court of Appeal's decision and the majority judgment held that:
In handing down its decision, the High Court did not interfere with the established principles but provided clarification on reliance damages in contract - in circumstances where the established principles in this area have been tinkered with and been the subject of varying decisions across Australia.