123 259 932 Pty Ltd v Cessnock City Council

No judgment structure available for this case.

110 NSWLR 464

[EDITORIAL NOTE: An application for special leave to appeal to the High Court was granted: [2023] HCATrans 125.]

[2023] NSWCA 21 Court of Appeal Macfarlan, Brereton and Mitchelmore JJA 25August 2022, 20 February 2023 CONTRACTS — Remedies — Damages — Reliance damages .

A local council agreed to lease to a company for 30 years an unsubdivided part of an airport owned by the council. The agreement was conditional on registration of a plan of subdivision creating the relevant area as a separate lot, and the council promised to take all reasonable action to apply for and obtain registration of the plan by a specified “sunset date”. In the meantime, the company was given a licence to occupy the relevant area and proceeded to construct a hangar at a cost of more than $3 million.

The council did not comply with its obligation to take all reasonable action to apply for and obtain registration of the plan by the sunset date. The plan was never registered, and the proposed lease was not granted.

The company sued the council claiming damages for breach of contract. The primary judge held that the council had breached the agreement by failing to take all reasonable action to apply for and obtain registration of the plan by the sunset date, but that the company was entitled only to nominal damages. The company appealed, contending that it should have been awarded substantial reliance damages, representing the amount that it had expended in constructing the hangar.

Held (allowing the appeal): (1) A plaintiff who does not prove expectation damages may recover expenditure incurred in reliance on a contractual promise made by the defendant and wasted because of non-performance by the defendant (the presumption), except to the extent that the defendant proves that the plaintiff would not have recouped its expenditure had the contract been performed (the rebuttal). This onus reversal is not conditional upon it being established that the defendant’s breach denied, prevented or precluded the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits. ([1]; [52]–[55], [73], [161]; [171])

Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54; McRae v Commonwealth Disposals Commission(1951) 84 CLR 377; [1951] HCA 79; Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd[2020] NSWCA 234 applied. Berry v CCL Secure Pty Ltd(2020) 271 CLR 151; [2020] HCA 27 considered.

(2) The notion of expenditure incurred in reliance on the defendant’s contractual promise is not confined to expenditure under or required by the contract, but extends to any expenditure reasonably incurred in reliance on the defendant’s contractual promise. ([1]; [65]–[68], [73], [161]; [171])

Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54; McRae v Commonwealth Disposals Commission(1951) 84 CLR 377; [1951] HCA 79 applied.

(3) Expenditure “reasonably incurred” is really an expression of the rule in Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145. That is, whether expenditure is reasonably incurred turns on whether it was the type of expenditure as might naturally be incurred in preparing for, performing or exploiting the benefit of the contract, or is or ought to have been contemplated by the defendant. ([1]; [69]–[70], [73], [161]; [171])

Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54; McRae v Commonwealth Disposals Commission(1951) 84 CLR 377; [1951] HCA 79 applied. Hadley v Baxendale(1854) 9 Exch 341; 156 ER 145 considered.

(4) The value of the reliance interest is the quantum of the net detriment, after allowing for any offsetting benefit accruing to the plaintiff from the expenditure. ([1]; [71], [73], [161]; [171])

Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54 applied.

(5) There is no requirement that a plaintiff prove that expenditure was wasted as a consequence of the defendant’s breach of contract. If the expenditure was incurred in reliance on the defendant’s contractual promise, then it is regarded as wasted in the relevant sense if the promise is not performed. ([1]; [72], [73], [161]; [171])

Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54 applied.

(6) It is not the case that the presumption can be invoked only where it is impossible to work out lost profits or expectation damages. ([1]; [87]–[96], [162]; [171])

Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54; McRae v Commonwealth Disposals Commission(1951) 84 CLR 377; [1951] HCA 79; Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd[2020] NSWCA 234 applied.

Discussion of the notion that an innocent party is entitled to insist on its contractual rights, or damages for breach, rather than accepting some inferior proposal advanced by the counterparty. ([132])

CASES CITED

The following cases are cited in the judgments:

123 259 932 Pty Ltd v Cessnock City Council (No 2)[2021] NSWSC 1329 Anglia Television v Reed[1972] 1 QB 60 Berry v CCL Secure Pty Ltd(2020) 271 CLR 151; [2020] HCA 27 Commonwealth of Australia v Amann Aviation Pty Ltd(1991) 174 CLR 64; [1991] HCA 54 Foaminol Laboratories Ltd v British Artid Plastics Ltd[1941] 2 All ER 393 Hadley v Baxendale(1854) 9 Exch 341; 156 ER 145 Johnson v Perez(1988) 166 CLR 351; [1988] HCA 64 McIntosh v Williams[1979] 2 NSWLR 543 McRae v Commonwealth Disposals Commission(1951) 84 CLR 377; [1951] HCA 79 Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd[2020] NSWCA 234 Nikolaou v Papasavas, Phillips & Co(1989) 166 CLR 394; [1989] HCA 11 Renown Corporation Pty Ltd v SEMF Pty Ltd(2022) 110 NSWLR 246; [2022] NSWCA 233 Robinson v Harman(1848) 1 Exch 850; 154 ER 363 Scott v Ennis-Oakes(2020) 19 BPR 40,871; [2020] NSWCA 239 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd(2009) 236 CLR 272; [2009] HCA 8 Wenham v Ella(1972) 127 CLR 454; [1972] HCA 43 Williamson v John I Thornycroft and Company Ltd[1940] 2 KB 658 Willis v Commonwealth of Australia(1946) 73 CLR 105; [1946] HCA 22 Wm Cory & Son Ltd v Wingate Investments(1981) 17 BLR 104

TEXT CITED

The following text is cited in the judgments:

Fuller LL and WR Perdue Jr, “The reliance interest in contract damages: 1” (1936) 46 Yale Law Journal 52

APPEAL

This was an appeal from a decision of a judge of the Supreme Court ([2021] NSWSC 1329 (Adamson J)) as to the proper award of damages for breach of contract.

DL Williams SC and BD Kaplan, for the appellant. DL Cook SC and GES Ng, for the respondent. Judgment reserved 20 February 2023 MACFARLAN JA. 1 I agree with Brereton JA. BRERETON JA. 2 The respondent Cessnock City Council (the Council) is the registered proprietor of land near Pokolbin on which is located the Cessnock Airport, also known as Hunter Valley Airport (the airport). By an agreement for lease bearing the date 16 January 2008 but made on or about 26 July 2007 (the Agreement), the Council promised to grant to the appellant 123 259 932 Pty Ltd — formerly, Cutty Sark Holdings Pty Ltd (Cutty Sark) — a lease (Proposed Lease) of a part of the airport, on which Cutty Sark intended to construct an aircraft hangar from which it would operate a business conducting joy flights and advanced flight aerobatic training, which was to become Lot 104 in a proposed 25‐lot subdivision, for a term of 30 years from the registration of the plan of subdivision (the Plan). The Council — which was not only the applicant but also the relevant consent authority for approval of the subdivision — promised to take all reasonable action to apply for and register the Plan by 30 September 2011 (Sunset Date), and in the meantime granted Cutty Sark a licence to occupy proposed Lot 104. Cutty Sark proceeded to construct the hangar, at a cost of in excess of $3 million. 3 The Council’s obligation to take all reasonable action to apply for and obtain registration of the Plan required it to take all reasonable action to fulfil the conditions of the development consent, including that the proposed lots be connected to Hunter Water Corporation’s reticulated sewerage system. The Council did not comply with that condition, asserting that it did not have and could not reasonably obtain the $1.3 million required to do so. Consequently, the Plan was not registered by the Sunset Date, or at all, and the Proposed Lease was not granted. 4 Prior to the Sunset Date, Cutty Sark had ceased to operate businesses from the hangar, as they were not successful. After the Sunset Date, by mid-2012, Cutty Sark vacated proposed Lot 104 and the hangar on it. Cutty Sark was deregistered by the Australian Securities and Investments Commission (ASIC) on 7 September 2015. The Council terminated the Agreement and, on 11 May 2016, paid ASIC $1 for the acquisition of the hangar, in reliance on a provision of the Proposed Lease which entitled the Council to acquire the hangar for $1 upon termination for any reason. On 6 December 2016, the Council granted a lease of the hangar to a new tenant for a term of five years. 5 Cutty Sark was reinstated by order of the Supreme Court of South Australia on 5 June 2017. It commenced these proceedings against the Council claiming damages for breach of contract on 29 September 2017. The primary judge held that the Council had breached the Agreement by failing to take all reasonable action to apply for and obtain registration of the Plan by the Sunset Date in accordance with its contractual obligation to do so,1 but that Cutty Sark was entitled only to nominal damages in the sum of $1. Cutty Sark appeals, contending that it should have been awarded substantial reliance damages, representing the amount that it had expended in constructing the hangar.

Background

Council embraces a concept for development of the airport

6 In 1998, the Council called for expressions of interest for the development and management of the airport.2 The request for expressions of interest included a development plan which contemplated the lengthening of the runway to accommodate larger aircraft, and the subdivision of lots within the airport.3 7 On about 17 November 1998, Peter Roberts, of Aviation & Leisure Corporation Pty Ltd (ALC), lodged an expression of interest. His proposals included the erection of hangars with attached residences for aircraft owners — a concept known elsewhere as “hangar homes”, which “was attractive to the Council as Mr Roberts represented it as a way of producing an income stream for the Council which would help pay for the airport” following its eventual development.4 The Council awarded him a tender on 2 June 1999.5 8 In July 2002, the Council resolved to lease parts of the airport to ALC, with a view to its future development,6 and in March 2004 the Council entered into a lease and a management agreement with ALC,7 which provided that if the plan of subdivision was registered by 30 June 2011, the Council would grant ALC a 25‐year lease.8 9 On 12 December 2003, the Council lodged a development application (DA) for (a) the consolidation of the land comprising the airport into proposed Lots 1 and 2, and (b) the subsequent subdivision of Lot 2 into 25 lots, one of whichwould be proposed Lot 104.9 The exhibited plan depicted five subdivided lots (103–107) to the east of the runway, accessible from Main Road; the runway and environs (108); and 19 lots to its west, accessible from De Beyers Road (109–127). 10 On 7 July 2004, the Council adopted a development control plan (DCP) under s 72 of the Environmental Planning and Assessment Act 1979 (NSW) for the airport, the purposes of which included “to permit development that will capitalise on the advantages of the site and its strategic location”; “to encourage moderate growth in the standard of infrastructure available and in the use of the airport”; and to “encourage appropriate ancillary development, related to the airport”.10 The DCP described the Council’s vision for the airport as an “aerodrome facility managed in a manner which attracts new and environmentally responsible economic development opportunities to the Cessnock region”. On 30 September 2004, the Council issued an internal memorandum which described the purpose of the proposed subdivision of the airport as “to enable the long-term development of the aerodrome in accordance with Council’s development vision”. 11 By November 2004, an independent consultant planner, Leanne Saccaro, had prepared a report recommending that the proposed subdivision be approved, subject to conditions. She reported that the proposed subdivision “represents an opportunity for Council to further develop the aerodrome in line with the vision adopted by the Council”, and recommended that the DA be approved “subject to conditions … and that a determination notice be issued accordingly”. 12 The Council granted development consent on 17 November 2004, subject to conditions which included that the proposed lots be “connected to Hunter Water Corporation’s reticulated sewerage system” (Condition 23).11 The consent described the development as “Twenty five (25) Lot Subdivision Cessnock Aerodrome Site (Hangar Sites)”. 13 On 7 November 2005, DP1064825 was registered, consolidating the airport land into Lot 2.12 However, as will appear, the contemplated further subdivision of Lot 2 into 25 lots, including Lot 104, was never registered.

Cutty Sark and the Agreement for Lease

14 Meanwhile, on 21 April 2004, Mr James Gordon Johnston, who in due course would become the principal of Cutty Sark, and his business partner, Mr Phil Unicomb, met with the Council’s then Corporate and Community Services Manager, Mr Peter Gogarty, to discuss a suitable site for a hangar to house aircraft that Mr Johnston and related entities had acquired.13 Mr Johnston’s vision was that the hangar could incorporate an aviation museum, and an entertainment venue.14 In April 2005, a solicitor acting in Mr Johnston’s interests (Mr Dockrill) submitted a DA for the proposed hangar on proposed Lot 104, and the Council granted development consent for it on 28 July 2006.15 15 Between August 2005 and April 2007, Mr Dockrill and the Council’s solicitors negotiated the terms of the contractual arrangements between the Council and Cutty Sark, which was incorporated on 27 December 2006.16 These negotiations culminated in the execution by the Council, on or about 26 July 2007, of the Agreement,17 by which the Council promised, subject to registration of the Plan, to grant Cutty Sark a 30‐year lease of proposed Lot 104. Clause 3.1 of the Agreement provided:

“(a) The Lessor agrees to grant, and the Lessee agrees to accept, the grant of the Lease from and including the Commencing Date.

(b) In addition to the terms and conditions contained in this Deed the terms and conditions of the Lease will apply as if the Lease were in force. If any provisions of this Agreement for Lease conflict with the provisions of the Lease, then the provisions of this Deed will prevail.”

16 The “Commencing Date” was defined to mean “the day after the registration date of the Plan and the Instrument”. “Plan” was defined to mean “the proposed plan of subdivision of Land a copy of which is annexed to this Deed marked ‘C’ and if the proposed Plan is modified under clause 4.3 means that Plan as modified”, and “Instrument” as a proposed instrument creating easements and/or restrictions under s 88B of the Conveyancing Act 1919 (NSW). The primary judge recorded that, although annexure “C” was not itself in evidence, it was common ground that it referred to the development of the airport, including of the areas to the west and east of the runway.18 “Lease” was defined to mean “the Lease of the Land forming Annexure A, as completed under clause 3.3”, and “Land” was defined as “the land and any improvements on the land described in Item 1.”19 Item 1 specified the Land as being “Folio Identifier 2/1064825 part being proposed Lot 104 in DP”, and the annexed proposed lease provided for a term of 30 years.

17 While the obligation to grant the Lease was subject to registration of the Plan, the Council promised to take all reasonable action to apply for and obtain registration of the Plan by the Sunset Date. If the Plan was not approved and registered by the Sunset Date, then each party had a right of rescission, and in that event, then (subject to clause 13.3) neither could make any claim for damages against the other. Clause 4 provided as follows:

“4.1 Registration of Plan

The Lessor’s obligations to enter into the Lease are subject to and conditional on the registration by the LPI-NSW of the Plan as a plan of subdivision and the Instrument.

4.2 Approval and Registration

(a) The Lessor must take all reasonable action to apply for and obtain:

(1) the approval of the Plan by the Relevant Authority to the Plan and the Instrument;

(2) the registration by the LPI of the Plan and the Instrument;

on or before the Sunset Date. (b) The Lessee:

(1) may not object to any applications made by the Lessor in its capacity as Lessor or as the Relevant Consent Authority in respect of the Plan; and

(2) must provide any consents requested by the Lessor necessary to procure registration of the Plan.

4.3 Modifications

The Lessee acknowledges having inspected the Plan and the Instrument, the Lessee may not make any claim against the Lessor or rescind or terminate this Deed in respect of a modification to the Plan or the Instrument.

4.4 Rescission

If the Plan is not:

(a) approved by the Lessor on terms reasonably acceptable to the Lessor; and

(b) registered by the LPI-NSW, on or before the Sunset Date, then before the registration of the Plan and providing the Lessor has not given the Lessee notice of the date the Plan will be registered, the Lessor or the Lessee may rescind this Deed by giving notice to the other.

4.5 No compensation

Subject to clause 13.3 if the Agreement for Lease is terminated pursuant to clause 4.4 then neither the Lessor nor the Lessee may make any Claim for Damages against the other.”

18 Clause 13 relevantly provided:

“13.1 Lessor’s right to terminate

The Lessor may terminate this Deed by giving the Lessee notice if the Lessee:

(a) repudiates its obligations under this Deed; or

…

(c) is a corporation that:

(1) undergoes a Winding Up;

…

13.3 Consequences of termination

…

(c) Termination of this Deed does not affect:

(1) a party’s rights in respect of a breach of this Deed by another party before then; or

(2) the Lessee’s obligations to make payments under this Deed for periods before then.”

19 “Winding Up” was defined to include “compromise or scheme of arrangement with creditors, amalgamation, reconstruction, reorganisation, administration, dissolution, liquidation, bankruptcy, merger, consolidation, any analogous procedure (whether formal or informal) and death”; as the primary judge held, that included deregistration.20 20 Pending the Commencing Date, the Council granted Cutty Sark a licence “to enter the Land during the Licence Period for the Permitted Use on the terms of this Licence”, in consideration of payment of a “Licence Fee”.21 The “Licence Period” was defined in clause 1.1 to mean, in effect, the period from the date on which the Council first gave Cutty Sark or its employees access to the Land, to the Commencing Date. “Permitted Use” was defined to mean “the use of the Land as an aircraft hangar for joy flights and advance [sic] flight-aerobatic training.” The terms of the licence were the same as those of the Proposed Lease, and the rent under the Proposed Lease reflected the indexed licence fee. Clause 5.2 provided:

“(a) The Licence granted under clause 5.1 is on the same terms and conditions set out in the Lease as if the word ‘lease’ was replaced with the word ‘licence’ where it appears in the Lease and the Lease provisions (with the necessary changesbeing made) were set out in full in this Licence as agreed to between the Lessor and the Lessee.

(b) The terms of this Licence will prevail in the event there is an inconsistency between the Licence provisions and the Lease provisions.”

21 Clause 5.3 provided:

“The Lessor does not intend to create a lease or tenancy of the Land or any other estate or interest in the Land by giving a Licence under clause 5.1.”

22 Clause 12.3 of the Agreement relevantly provided:

“12.3 Release

The Lessee releases the Lessor from, and agrees the Lessor is not liable for, all liability or loss arising from, and costs incurred in connection with:

…

(b) anything the Lessor is permitted or required to do under this Lease;

(c) a Service being unavailable, being interrupted or not working properly;

(d) the Aerodrome or Aerodrome Infrastructure Facilities not being available for use by the Lessee;

(e) loss of the Lessee’s profits; and

(f) any liability for damage to the Land or the Lessee’s property or for any other loss (however that loss was caused or arose), including but not limited to:

(1) financial or economic loss to the Lessee or to any other person;

(2) loss of goodwill in relation to the business being carried on by the Lessee;

(3) indirect or consequential loss;

(4) loss resulting from:

…

(C) any change in the flow of members of the public in or around the Land or Aerodrome for any reason”.

23 “Aerodrome” was defined to mean “the Cessnock Aerodrome adjacent to the Land”, and “Aerodrome Infrastructure Facilities” was defined to mean:

“… all existing and future improvements comprising the Aerodrome and includes without limitation, buildings, runways, movement areas, taxiways, terminals, aprons, roads, dams, visual aids provided by aerodromes such as markings, markers, signals, signs, visual aids provided for lighting and any communication facilities, plant, machinery, fittings, civil works, signalling systems, equipment, nodes, conduits, ducting, and other plant, equipment, buildings or facilities owned or leased by the Lessor.”

24 The Agreement made extensive provision for and in respect of the “Lessee’s Works”, which were defined as “the works to be carried out by the Lessee as set out in Annexure D”, including provision for submission of plans for the consent of the Lessor, and specific reference to the erection of a hangar. Annexure D was not itself in evidence, but there can be no doubt that the parties had in contemplation the expensive and iconic hangar which was ultimately constructed. As has been noted, the Council had already, on 28 July 2006, granted development consent for the hangar. Moreover, communications between the parties expressly referred to Cutty Sark’s intention to spend millions of dollars on the construction of an “iconic” hangar designed by a renowned architect. According to Mr Johnston, in October 2004 he told Mr Gogarty: “I will need a decent tenure as I will be spending between 2 to 3 million on a Peter Stutchbury building”.22 On 8 September 2006, Mr Dockrillwrote to the solicitors then acting for the Council, Sparke Helmore, pressing for a lease term of 35 years:23

“As your client is aware our client is spending considerable capital costs in constructing the hangar at $1.8m and additional costs of aircraft and other set up items of another $2.2m meaning a total outlay of $4m.”

25 On 18 October 2006, Mr Dockrill wrote to Sparke Helmore:24

“It is noted that the Plans for the Hangar have been prepared by an award-winning architect, the design is of a very high standard and the iconic hangar once completed will be a very worthwhile visual and working hangar situated on this very important part of Cessnock Airport.

It can be appreciated that our client could have submitted a Development Application for a more modest building which would cost approximately one half of the cost to build the hangar as approved and which would make the proposed business to be run from the building more economically viable. However our client decided that the hangar as designed and consented to by Council is a much more appealing building for the future of the airport and a worthwhile addition to the tourist landscape for the airport and the adjoining Pokolbin area.”

26 Clause 16.8 of the Proposed Lease annexed to the Agreement provided that on expiry or termination of the Lease, the hangar would be transferred to the Council unencumbered for $1:

“(a) Subject to clause 17, notwithstanding any other provision in this Lease, the Lessee and the Lessor agree that any improvements erected on the Land by the Lessee including but not limited to any building or aircraft hangars will, on the expiry, determination or surrender of this Lease be transferred to the Lessor free of any Security Interests, at the cost of $1.00 at which time the Lessor will become the sole and absolute owner of the Lessee’s improvements.

(b) The Lessee covenants with the Lessor not to make any Claim by way of compensation or otherwise, in relation to any improvements made to or on the Land by the Lessee, which become the absolute property of the Lessor by virtue of this clause.”

Cutty Sark builds and operates from the hangar

27 Between May 2007 and November 2010, Cutty Sark constructed the hangar on proposed Lot 104.25 Services were connected in March 2009.26 28 Cutty Sark operated three businesses from the hangar: an adventure flight business between July and November 2009, an aircraft museum between September 2009 and February 2010, and a corporate venue hire business from August 2009 to June 2011.27 The primary judge found that each of these businesses “proved to be unprofitable prior to the Sunset Date”.28 Mr Johnston gave evidence that they were not sustainable in circumstances where it was difficult to attract business when the airport had not been subdivided and developed.29 He elaborated in cross-examination, “if I’d been given my tenure I would probably say I think I can make it work. But Council would have had to develop the airport that was also promised”.30 29 In 2010 and 2011, Mr Johnston attempted to sell the hangar and received an offer of $2,375,000, but the primary judge did not consider that or any other offer to be credible or genuine.31

The Council repudiates

30 On 29 June 2011 — one day before the end date of the Agreement between the Council and ALC — Mr Roberts of ALC attended a meeting with Alan Revell (a consultant engaged by ALC) and the Council, including its then General Manager, Lea Rosser, at which Ms Rosser said that the Council “won’t be proceeding with the subdivision of the land at the airport”, as it had “no intention of spending about a million dollars fixing the sewerage”.32 31 On 13 September 2011, Ms Rosser wrote to Cutty Sark’s solicitor Mr Dockrill, noting that the Council had “been unable to achieve the registration of the plan of subdivision within the timeframe anticipated in the agreement for lease”, and offering Cutty Sark “an exclusive licence for a term of twenty-five years with virtually identical terms to the draft lease attached to the agreement for lease or a number of successive leases for terms of five years or less”.33 This of course was not the 30‐year lease of Lot 104 in a 25‐lot subdivision for which Cutty Sark had bargained. On 20 December 2011, Mr Dockrill, observing that Cutty Sark had spent “over $2.7 million” on the hangar venue,34 rejected the Council’s offer.35 At about the same time, the Council terminated its arrangements with ALC, and resumed management of the airport.36 32 Neither the Council nor Cutty Sark purported to exercise a right of rescission pursuant to clause 4.4 when, on 30 September 2011, the Sunset Date passed without the Plan being registered; given that the failure was attributable to the Council’s own failure to take all reasonable steps, it may be doubted that the Council would have been entitled to rescind under that provision. 33 The Council did not thereafter pursue any action to apply for and obtain registration of the Plan. On 18 January 2012, it convened a “leadership group” briefing in relation to Cutty Sark. Notes prepared by Bronwyn Rumbel, the Council’s Integrated Planning and Strategic Property Manager, recorded that “Council has not considered carrying out the subdivision of this lot [104] separately — because there does not appear, at this stage, to be any benefit to Council in subdividing the airport at all”.37 In a conversation with Ms Rumbel on 13 March 2012, Mr Johnston said that he “would like security of tenure”.38

Cutty Sark ceases occupation

34 Cutty Sark ceased occupation of proposed Lot 104 and the hangar on it in mid-2012. On 6 September 2013, it disconnected the power to the hangar, as it could not afford to pay the electricity bills.39 35 On 15 August 2012, the Council resolved to endorse the nomination of the airport as a major infrastructure project under the Hunter Infrastructure andInvestment Funds Grant Programme, and on 22 August 2012, the Council applied to the Hunter Infrastructure and Investment Fund for funding in the sum of $2 million to purchase and refurbish the hangar.40 A report to the Council meeting of that date stated that the Council had “received around twelve requests for both hangar space and office space from businesses looking to establish or expand at Cessnock Airport and, at present, Council is unable to satisfy this demand”.41 In January 2014, the Council published its “Cessnock Airport Strategic Plan”, describing its vision of a “well-planned and serviced aerodrome facility managed in a manner that attracts environmentally responsible economic development opportunities to the Cessnock region”.42 On 14 August 2014, the Council lodged an expression of interest with Restart NSW Resources for Regions, seeking $6.95 million to upgrade the airport “to realise the community’s vision of it being a well-planned and serviced facility that attracts environmentally responsible economic development opportunities to the Cessnock region”.43

Deregistration and reinstatement

36 As has been noted, Cutty Sark was deregistered by ASIC on 7 September 2015, for non-payment of fees.44 Its property thereupon vested in ASIC.45 On 9 September 2015, the Council’s solicitors wrote to ASIC, noting that Cutty Sark had been deregistered and asserting that the Council proposed to secure and insure the premises.46 ASIC responded on 14 September 2015, noting that all non-trust property of Cutty Sark belonged to ASIC, which generally was the only party legally able to deal with its property, but that it had no objection to the Council “terminating the licence and taking possession of the premises”.47 On 18 September 2015, the Council’s solicitors wrote to ASIC that the Council “regards the Agreement as now having come to an end” for several reasons.48 ASIC responded on 22 September 2015, stating that it had no intention of taking any action in relation to the matter.49 On 11 May 2016, the Council’s solicitors paid ASIC $1 for the acquisition of the hangar, as contemplated by clause 16.8 of the Proposed Lease.50 On 6 December 2016, the Council granted a lease of the hangar to a new tenant, Onyx Aviation Pty Ltd,51 for a term of five years, entitling Onyx to occupy proposed Lot 104 “for conducting an aviation related business”.52 37 Cutty Sark was reinstated by order of the Supreme Court of South Australia on 5 June 2017,53 and commenced these proceedings on 29 September 2017. 38 In 2020, the Council produced another “Cessnock Airport Strategic Plan”. The Mayor’s Foreword included:

“This plan articulates the main priorities, and sets clear objectives to achieve an improved position for the Cessnock Airport to ensure it remains a strong public asset, and reflects well on Cessnock Council[’s] overall vision to be a cohesive and welcoming community living in an attractive and sustainable rural environment with a diversity of business and employment opportunities supported by accessible infrastructure and services which effectively meet community needs.”

39 The Executive Summary stated:

“Cessnock Airport is a vibrant hub and an integral component to the Hunter community.

This Strategic Plan identifies ways in which the Airport can further develop as an aerodrome business hub that works with and contributes to the economic growth of the region.

The success of this Airport lies in the fact it already has a point of difference in the market place due to its central location to the vineyards of the Hunter Valley and the current varied user base, and this should be developed.

The key Principles upon which this Plan is based are;

• Implement a safe, secure and environmentally suitable airport;

• Construct a well-planned airport;

• Develop sound asset management and business practices;

• Ensure strong financial viability and sustainability factors; and,

• Focus on branding and marketing.

There are a number of key objectives that can be immediately implemented, and which are detailed along with specified actions that will result in the development of a dynamic, financially viable asset for the community.

Future development and growth should be investigated as funding opportunities arise, and a review of this plan is recommended every five years to determine whether market forces have changed or business opportunities have arisen that could benefit this Airport facility.”

40 The plan included a precinct master plan providing for additional private hangars, an historical museum area and the extension of the runway in precinct 2, and an area for commercial business opportunities in precinct 3. It also included a business plan, which under the heading “Business Opportunities” stated: “Concepts to be investigated include:

•
Investigating whether gliders could be handled within the current facilities;
•
Development of a Historical aviation museum area; and
•
Development of aligned businesses including maintenance companies, light plane manufacturers, and even caravan park/accommodation operators.

Bathurst Airport currently operates as a larger regional facility however, they also allow gliders to launch from their airport via a grass strip located within the airport precinct. There is ample opportunity for this to also occur at Cessnock Airport.

The inclusion of a historical or museum area into Precinct 2 would help attract new businesses that deal in that section of the market place. There is also the opportunity to cross sell to tourism, through visitations to the museum, and increase utilisation of the airport through joy flights.

The concept of developing land within Precinct 3 to include a caravan park opens the opportunity for increased caravan stays, accommodation for training, and potential for consideration of accommodation hangars. Infrastructure (sewerand water) will need to be upgraded or a suitable alternative environmental option resolved.”

41 The Business Plan also stated:

“This report considers that there is real opportunity within the current market to take the airport forward through both short and medium term actions which are considered the most appropriate and financially prudent approach to grow the Airport business.

The table below highlights the priority for each action, as follows …”

42 The table identified “High Priority” items to be completed by May 2021, “Medium Priority” items to be completed by June 2022, and “Ongoing Annual” items — which bespeaks an assessment that all this could be achieved within a period of less than two years.

The primary judgment and the appeal

43 At the trial, Cutty Sark did not claim “loss of bargain” damages, but, invoking the judgments of the High Court in McRae v Commonwealth Disposals Commission 54 and in Commonwealth of Australia v Amann Aviation Pty Ltd,55 and the judgment of this court in Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd,56 claimed “reliance damages”, on the basis that it had incurred wasted expenditure in reliance upon the Council performing its obligation to take “all reasonable action” to apply for and obtain registration of the Plan. The primary judge, who accepted that the Council was in breach of its obligation to take all reasonable action to procure registration of the Plan, characterised Cutty Sark’s claim for damages as being propounded on “a single basis”, namely “that it was entitled to recoup the whole of its expenditure on constructing the hangar (costs of construction, overhead expenses and miscellaneous expenses) because the defendant’s breach had rendered it impossible for it to prove that it would have recouped that expenditure during the 30‐year lease and, therefore, in accordance with Amann, it was entitled to a presumption that it would have done so”.57 44 Cutty Sark’s case was that:

(1)
it had incurred expenditure (of $3,697,234.41) in reliance upon the Council’s promise that it would take all reasonable action to apply for and obtain registration of the Plan;
(2)
that expenditure was wasted because the Council did not perform that promise;
(3)
in accordance with the aforementioned authorities, it was to be presumed that, had the Council performed its contractual obligations, Cutty Sark would at least have recouped its expenditure on the hangar;
(4)
the Council had not shown — and could not show — that Cutty Sark would not at least have recouped its expenditure had the promise been performed, so the presumption was not rebutted; and
(5)
Cutty Sark was therefore entitled to recover the amount of its wasted expenditure.

45 Her Honour rejected that argument, holding that the case was not one in which the presumption arose, and that if it did, it had been rebutted:58

“[221] For the reasons given above, I do not consider the present to be a case where the presumption arises that the plaintiff would have recouped its expenditure if the AFL [Agreement for Lease] had not been breached by the defendant. However, even if such a presumption had arisen, I consider that the defendant has discharged the onus of rebutting it by showing that the cost of the hangar would not have been recouped. Indeed, the businesses conducted by the plaintiff were, so far as the evidence revealed, insufficient to meet the (relatively modest) licence fees for the period from which they became payable on 19 October 2007 (6 months from the Handover Date) until the date on which the defendant validly terminated the AFL (18 September 2015).”

46 As an additional basis for refusing to award substantive damages, her Honour held that the damages claimed by Cutty Sark would not fall within either the first or the second limb of Hadley v Baxendale.59 47 Having reached that conclusion, her Honour did not resolve a dispute as to the quantum of Cutty Sark’s expenditure. Cutty Sark had adduced evidence to support a contention that it had spent $3,697,234.41, which although not challenged in cross-examination of Cutty Sark’s principal Mr Johnston, was disputed in the Council’s closing written submissions at first instance. 48 Cutty Sark’s grounds of appeal were, in substance, that the primary judge erred:

(1)
in failing to find that the principles in McRae and Amann Aviation extended beyond damages claims where it was impossible to prove damages, and encompassed a case where damages for lost profits were difficult to prove or where a plaintiff elected to prove only “reliance” damages;
(2)
in finding that the presumption that Cutty Sark would at least have recovered its expenditure in relation to the construction of a hangar had the Council complied with clause 4.2 of the Agreement did not arise;
(3)
in finding that clause 12.3(d) and (f)(4)(C) of the Agreement were relevant to the assessment of “reliance” damages in respect of the hangar or that they had the effect that the presumption in Amann Aviation was not engaged;
(4)
in finding that the costs of constructing the hangar were not recoverable pursuant to either of the two limbs in Hadley v Baxendale;
(5)
in finding that, even if the presumption in Amann Aviation had arisen, the Council discharged its onus of rebutting it by showing that the cost of the hangar would not have been recouped by Cutty Sark; and
(6)
in declining to make a finding as to the amount incurred by Cutty Sark in constructing the hangar; the primary judge should have found that Cutty Sark incurred $3,697,234.41 in constructing the hangar.

49 The issues in the appeal may conveniently be stated and arranged as follows:

(1)
Did the presumption referred to in McRae and Amann Aviation arise (Grounds 1, 2 and 3);
(2)
If so, was it rebutted (Ground 5);
(3)
Was recovery precluded in any event by the rule in Hadley v Baxendale (Ground 4); and
(4)
What was the quantum of Cutty Sark’s expenditure (Ground 6).

Did the presumption arise? (Grounds 1, 2 and 3)

The McRae/Amann Aviation presumption

50 Damages for breach of contract are awarded to place the injured party in the position in which it would have been had the contract been performed, so far as money can do so.60 Typically, this involves compensating the plaintiff for the contractual benefits which it would have received had the contractual promise been performed; these are referred to as “loss of bargain” or “expectation” damages. However, a plaintiff who is unable to demonstrate whether or to what extent the performance of a contract would have resulted in a profit may seek, instead of lost profits under the contract, to recoup its wasted expenditure.61 In such a case, “the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed”, but “[i]t will still be open to a defendant, however, to argue that, notwithstanding the fact that it is impossible to assess what profits, if any, the plaintiff would have made had the contract been fully performed, the expenditure claimed by a plaintiff would nevertheless not have been recovered even if” the defendant had performed its obligations.62 The presumption — and that the defendant bears the onus of rebutting it — was explained in Amann Aviation by Mason CJ and Dawson J as follows:63

“… McRae illustrates the proposition that a plaintiff has a prima facie case for recovery of wasted expenditure once it is established that the expense was incurred in reliance on the promise of the party in breach, there being a failure of performance by that party. By reason of its facts, the reasoning in McRae does not depend upon the presumption that an innocent party would not have entered into the contract unless it would at least have recovered its reliance expenditure under the contract had it been performed. But the reasoning is not inconsistent with the application, in appropriate cases, of that presumption which, in our view, has much to commend it. Indeed, it is just and fair that the repudiating party should bear the onus of showing that the party not in breach would have made a loss on the contract.” (Emphasis added)

51 Deane J said:64

“In a case where a plaintiff has incurred expenditure either in procuring the contract or in its performance but it is impossible or difficult to establish the value of any benefits which the plaintiff would have derived from performance by the defendant, considerations of justice dictate that the plaintiff may rely on a presumption that the value of those benefits would have been at least equal to the total detriment which has been or would have been sustained by the plaintiff indoing whatever was reasonably necessary to procure and perform the contract (39). In my view, the rational basis of that presumption is that that total detriment represents what would reasonably have been in the contemplation of the parties themselves as the cost to the plaintiff of full performance by the defendant and constitutes some evidence, in proceedings between them, of the value of the total benefits which would have been derived by the plaintiff from such performance. It follows from it that, at least in a case where proof of value is impossible or difficult, it is presumed in the plaintiff’s favour that the future net benefits (i.e. excess of future benefit over future detriment) which would have been derived from performance of the contract would have been of a value sufficient to recoup the past net expenditure reasonably incurred in procuring or performing it. Where that presumption is operative, it enables the recovery by a plaintiff of what are commonly referred to as ‘reliance damages’, that is to say, damages equivalent to the wasted expenditure which has been reasonably incurred in reliance upon the assumption that the contractual promises of the defendant would be honoured. The presumption will be rebutted if it be self-evident or established that the plaintiff would have derived no financial or other benefit from performance of the contract or that any financial or other benefit which would have been derived from future performance would not have been sufficient in value to counterbalance the past expenditure. The presumption will not, however, be displaced merely by the circumstance that the benefits which the plaintiff would have obtained from performance by the defendant included the chance of some more remote benefit and it is a matter of speculation whether that ultimate benefit would have in fact been obtained or by the circumstance that the perceived ‘benefit’ which the plaintiff sought and for which he incurred the past expenditure is something which is of value only to the plaintiff or which, for some other reason, is not capable of being objectively valued in monetary terms (40). If it be established that the plaintiff would not, in any event, have derived the ‘benefit’ which she sought from performance by the defendant or that any ‘benefit’ which would have been derived is capable of being valued in monetary terms and would, when so valued, have been inadequate to recoup the expenditure, the plaintiff’s recovery will be limited to the extent (if at all) to which it has not been established that that expenditure would not have been recouped (41). Even in a case where it is established that the plaintiff would have incurred a loss if the contract had been fully performed, reliance damages can be recovered in respect of wasted expenditure to the extent (if at all) that the past net expenditure exceeds that ultimate loss since, to that extent, the expenditure would have been recouped if there had been no breach (42).

(39) See, e.g., McRae (1951), 84 C.L.R., at p. 414; Holt v. United Security Life Ins. & Trust Co. (1909), 72 Atlantic Reporter 301, at pp. 305–306; L. Albert & Son v. Armstrong Rubber Co. (1949), 178 F.2d 182, at pp. 188–189.

(40) See, e.g., McRae (1951), 84 C.L.R., at p. 414; Fink v. Fink (1946), 74 C.L.R., at pp. 134–135, 143.

(41) See, e.g., Bowlay Logging Ltd. v. Domtar Ltd. (1978), 87 D.L.R. (3d) 325, at pp. 332–335; affd (1982) 135 D.L.R. (3d) 179.

(42) See, e.g., Sunshine Vacation Villas Ltd. v. The Bay (1984), 13 D.L.R. (4th) 93, at pp. 102–103.”

52 The principle that emerges from the judgments of Mason CJ and Dawson J and of Deane J is that a plaintiff who does not prove expectation damages may recover expenditure incurred in reliance on a contractual promise made by the defendant and “wasted” because of non-performance by the defendant (the presumption), except to the extent that the defendant shows that the plaintiff would not have recouped its expenditure had the contract been performed (the rebuttal). Toohey J and Gaudron J recognised a similar presumption, but onewhich cast only an evidentiary as distinct from a legal onus on the defendant, holding that where it is not possible to predict a plaintiff’s position if the contract had been fully performed, in the absence of evidence to the contrary the law assumes that the plaintiff would at least have recovered its expenditure, and it was entitled to recover such expenditure as was reasonably incurred in reliance on the defendant’s promise.65 53 The judgment of Brennan J proceeds on a somewhat different basis, making the reversal of the onus conditional upon it being established that the defendant’s breach denied, prevented or precluded the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits. His Honour said:66

“The sufficient and necessary justification for shifting the onus to the party in breach in the assessment of damages for wasted expenditure incurred in reliance on the defendant’s promise before rescission for breach is that the breach of the contract itself makes it impossible to undertake an assessment on the ordinary basis. …

A plaintiff’s inability to quantify his lost benefits is no justification by itself for casting on the defendant an onus to prove that the plaintiff would not have recouped reliance damages had the contract been performed. What justifies the reversal of the onus is the defendant’s repudiation or breach which denies, prevents or precludes the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits. Thus, in McRae’s Case, where the breach assigned was that there was no oil tanker on Jourmaund Reef where the contract of sale warranted a tanker to be, the salvager purchasers who had wasted expenditure in reliance on the defendant’s promise recovered reliance damages. …

The point of distinction between the method of assessment of expectation damages and the method of assessment of reliance damages is the reversal in the case of reliance damages of the onus of proof of the net value of the plaintiff’s contractual benefits. There can be no duplication of reliance damages and expectation damages. The compensable losses in reliance damages do not include possible lost profits but both cover expenditure reasonably incurred in preparing to perform and in performing the contract within the limits prescribed by Robinson v. Harman. The measure of damages prescribed by Robinson v. Harman governs each method of assessment.

Where justification for reversing the onus exists, reliance damages may be recovered; absent that justification, the plaintiff must recover expectation damages, if any, by proof of the value of benefits and the cost of performance; that is, by proof that $B – $y is greater than $x. These are alternative methods of assessing damages, but the plaintiff does not have an election as to the method. The plaintiff who seeks recovery of reliance damages must show that justification for reversing the onus of proof exists. Otherwise, he must endeavour to prove his damages on the ordinary basis.” (Emphasis added)

54 No such precondition is to be found in the judgment of Mason CJ and Dawson J, nor in that of Deane J. Although the obiter remarks of Bell, Keane and Nettle JJ in Berry v CCL Secure Pty Ltd 67 apparently embrace the approach of Brennan J, that was for the purpose of illustrating the moregeneral proposition that a wrongdoer’s conduct may sometimes shift the burden, rather than of rejecting the approach of Mason CJ and Dawson J:68

“[29] While a claimant bears the legal burden of establishing the amount of its loss or damage, the nature and circumstances of the wrongdoer’s conduct may support an inference or presumption that shifts the evidentiary burden. That accords with the principle encapsulated in Armory v Delamirie that, where a wrongdoer has destroyed or failed to produce evidence which the innocent party requires to show how much he or she has lost, it is just that the wrongdoer should suffer the resulting uncertainty. Hence, in that case, since the defendant by his wrongful conversion of the plaintiff’s stones, and failure to produce them at trial, had made it impossible for the plaintiff to prove the quality of them, the stones were presumed to be of the highest quality and value. One relevant modern application of that principle is reflected in this Court’s decision in Amann Aviation, in which it was held that where, upon acceptance of the Commonwealth’s repudiation of a contract, Amann claimed damages for loss of the contract, Amann was entitled to recover ‘reliance damages’ assessed on the basis of a rebuttable presumption that the net benefits to which Amann would have been entitled under the contract (if the contract had not been rescinded) would have been sufficient to cover the expenditure which Amann incurred pursuant to the contract. As Brennan J explained, because the Commonwealth had repudiated the contract and thereby deprived Amann of the ability to establish that the contract would have returned sufficient to recoup Amann’s contractual expenses, it was to be presumed that Amann would not have incurred its expenditure in reliance on the contract without a reasonable expectation that its performance of the contract would have returned it sufficient to recoup its expenses, and thus it was just that the Commonwealth should bear the ultimate onus of proving at least a prospect that Amann’s returns under the contract would not have been sufficient to recoup that expenditure. By contrast, as Brennan J observed, if a claimant seeks ‘expectation damages’ for the loss of a chance that, had an agreement run to term, it may have been renewed or extended, the onus is on the claimant to establish those facts, although, even then, since the existence and degree of such an hypothetical possibility is, by reason of the wrongful termination of the contract, incapable of proof on the balance of probabilities, it is considered just that the wrongdoer should suffer the resulting uncertainty to the extent that proof to the level of a real (more than negligible) possibility is regarded as enough. The worth of the chance is then valued by a process of informed estimation.” (Footnotes omitted)

55 However, the judgment of this court in Meetfresh adopts the approach of Mason CJ and Dawson J. Macfarlan JA (with whom Bell P, as his Honour the Chief Justice then was, and Meagher JA agreed) said, in respect of a claim for damages for wasted expenditure or reliance damages:69

“[29] The decision in Amann Aviation established that, in respect of such a claim, ‘the law assumes that a plaintiff would at least have recovered his or her expenditure had the contract been fully performed’, with the consequence that the onus of proof rests on the party breaching the contract to establish ‘that the reliance expenditure would have been wasted even if the contract had been performed’ (at 86–90 per Mason CJ and Dawson J).”

56 Thus, the dominant rationale for the presumption is that it may be presumed that a party would not enter into a contract unless it would at least have recovered its reliance expenditure had the contract been performed.70 Thisrationale underlies the explanation, provided by Mason CJ and Dawson J in Amann Aviation, that reliance damages are not a discrete and alternative measure to expectation damages involving an election, but a manifestation of the central principle enunciated in Robinson v Harman:71

“A further example of the application of Robinson v. Harman which will result in a plaintiff being entitled to claim damages for wasted expenditure is in a contract for services such as that between a solicitor and a client. Where a solicitor has breached his or her contractual duty of care, the measure of damages to which a client will be entitled will be such an amount as would put the client in the position he or she would have been in had the contract of retainer been performed without negligence. In cases where, had non-negligent advice been given, the client would not have entered into a subsequent transaction, for example a purchase of real property, then, in conformity with Robinson v. Harman, the client will be entitled to recover as damages expenditure wasted on account of the negligent advice, less anything subsequently recovered and given reasonable acts of mitigation (37). The amount of wasted expenditure will be the appropriate measure of damages in such a situation because, it having been established that the client would not have entered into the subsequent contract if proper advice had been given, it is not sensible to speak of loss of profits. Hayes v. Dodd is a useful illustration of the statement that the expressions ‘expectation damages’, ‘damages for loss of profits’, ‘reliance damages’ and ‘damages for wasted expenditure’ are simply manifestations of the central principle enunciated in Robinson v. Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim.

(37) Hayes v. Dodd, [1990] 2 All E.R. 815, at p. 820, per Staughton L.J.”

57 Reliance damages are thus compensation for loss of contractual benefits, allowed on the basis that expenditure less benefits received may be regarded as equivalent to the minimum net contractual benefits that the innocent party would have received had the contractual promise been performed, subject to the defendant proving that the expenditure would not have been recouped. In other words, net wasted expenditure serves as a proxy for the minimum contractual benefits that the innocent party would have derived, except to the extent that the defendant shows that it would not have been recouped. 58 The respondent submitted that the reliance damages contemplated by Amann Aviation encompassed only:

(1)
expenditure incurred by the plaintiff in preparing for or performing obligations under the contract, with a corresponding expectation of receipt of a benefit under the contract which would allow the plaintiff to at least recoup its expenditure. Amann Aviation itself was said to be an exemplification of this, in that the benefit was receipt of payment by the Commonwealth for surveillance services, in order to obtain which Amann spent money fitting out aircraft with surveillance equipment. The respondent called these “Amann damages”; and
(2)
loss incurred in the expectation that a promise would be fulfilled. In Amann Aviation, the example was given of a client who, relying on his or her solicitors’ performance of their contractual obligation to use reasonable care, enters into a transaction with a third party and thereby incurs a loss, so that the client has been put to additional expense which would not have been incurred had the contractualobligation been performed. The respondent called these “true reliance damages”.

59 There is clearly a distinction between the two categories, but it is not the distinction for which the respondent contends. The first category (of which the damages claimed in Amann Aviation and in McRae are both examples) concerns expenditure incurred in reliance upon the defendant’s promise in anticipation of performance of it, whereas the second concerns expenditure incurred after and because of the defendant’s breach of contract on the (incorrect) assumption that the defendant had performed it (for example, by the plaintiff entering into a loss-making transaction which it would not have entered into had the solicitor used reasonable care). In the first, there is a change of position by the plaintiff on the faith of the defendant’s promise of future performance; in the second, there is a change of position caused by and after the defendant’s breach. That distinction enables it immediately to be recognised that the second category is of no application here. 60 The Council submitted that the first class was confined to the costs of procuring or performing the contract, to be distinguished from money expended on the faith that the contract would be performed. This was to found the submission that in this case the expenditure on the hangar did not engage the doctrine, because Cutty Sark was not contractually obliged to build the hangar, there was no expectation of a benefit under the contract (as the Council was not obliged to confer any benefit on Cutty Sark), and the expenditure on construction costs was not in expectation of obtaining any benefit under the Agreement, but in the mere hope that the airport would be developed, which was never a contractual obligation of the Council. 61 However, in Amann Aviation, the relevant expenditure was not incurred pursuant to any contractual obligation, though it was incurred to position the plaintiff to perform and derive benefit from the contract. The type of expenditure that would be recoverable was described variously as “expenditure justifiably incurred for the purpose of discharging contractual obligations”,72 “expenditure thrown away”,73 “expenditure reasonably incurred under a contract”,74 “such expenditure as is reasonably incurred in reliance on the defendant’s promise”,75 “the amount which a plaintiff has reasonably expended in reliance on the defendant’s promise and which is wasted by reason of the defendant’s breach of his promise”,76 “expenditure incurred in reliance on the defendant’s promise”,77 or “expenditure incurred in obtaining the contract and in performance of it on its part”.78 But while a range of expressions were used to describe the relevant expenditure, the predominant description was no more specific than to the effect of expenditure “reasonably incurred in reliance on the defendant’s promise”.79 The scope of the expenditure that engaged the presumption was not an issue in Amann Aviation. The more specificdescriptors should not be regarded as definitive of that scope, but as instances of the more general proposition that a plaintiff has a “reliance interest” arising from expenditure reasonably incurred in reliance upon the defendant’s performance of its contractual obligations. 62 In Australian law, the progenitor of this doctrine is the judgment of Dixon and Fullagar JJ, with whom McTiernan J agreed, in McRae:80

“There is, however, more in this case than that, and the truth is that to regard this case as a simple case of breach of contract by non-delivery of goods would be to take an unreal and misleading view of it. The practical substance of the case lies in these three factors — (1) the Commission promised that there was a tanker at or near to the specified place; (2) in reliance on that promise the plaintiffs expended considerable sums of money; (3) there was in fact no tanker at or anywhere near to the specified place. In the waste of their considerable expenditure seems to lie the real and understandable grievance of the plaintiffs, and the ultimate question in the case (apart from any question of quantum) is whether the plaintiffs can recover the amount of this wasted expenditure or any part of it as damages for breach of the Commission’s contract that there was a tanker in existence. In the opinion of Webb J. it would have been reasonable, and within the proper contemplation of the Commission, that the plaintiffs should take steps, but should do no more than take steps, to see whether there was a tanker in the locality given, and, if so, whether any and what things should be done to turn her to account. And his Honour estimated the reasonable cost of taking such steps at the sum of £500. This view, however, seems to assume that the plaintiffs would be, or ought to be, in doubt as to whether they really had succeeded in buying a tanker. But they were clearly entitled to assume that there was a tanker in the locality given. The Commission had not, of course, contracted that she or her cargo was capable of being salved, but it does not follow that the plaintiffs’ conduct in making preparations for salvage operations was unreasonable, or that the Commission ought not to have contemplated that the course in fact adopted would be adopted in reliance on their promise. It would be wrong, we think, to say that the course which the plaintiffs took was unreasonable, and it seems to us to be the very course which the Commission would naturally expect them to take. There was evidence that salvage operations at the locality given would not have presented formidable difficulties in fair weather. The plaintiffs were, of course, taking a risk, but it might very naturally seem to them, as business men, that the probability of successful salvage was such as to make the substantial expense of a preliminary inspection unwarranted. It was a matter of business, of weighing one consideration with another, a matter of which business men are likely to be the best judges. So far as the purpose of the expenditure is concerned, the case seems to fall within what is known as the second rule in Hadley v. Baxendale (1). A fairly close analogy may be found in a case in which there is a contract for the sale of sheep, and the buyer sends a drover to take delivery. There are no sheep at the point of delivery. Sheep have not risen in price, and the buyer has suffered no loss through non-delivery as such. But he will be entitled to recover the expense which he has incurred in sending the drover to take delivery: cf. Pollock v. Mackenzie (2), and see also Foaminol Laboratories Ltd. v. British [A]rtid Plastics Ltd. (3).

158 Moreover, examination of the annexure listing the disputed invoices reveals that many were issued by the architects who supervised construction of the hangar, or trades who worked on it, sometimes to Mr Johnston personally and sometimes to other related entities. No suggestion has been made that they were not referable to the construction of the hangar, and it is clear enough from their contents that they were. No suggestion has been made that they were not incurred. Some appear to be subcontractor costs addressed to head contractors. No suggestion was made that they were not passed onto andultimately incurred by Cutty Sark. If costs referable to the construction of the hangar were invoiced to associated entities of Cutty Sark, it is readily to be inferred that, if Cutty Sark did not itself then pay them, it became liable to reimburse the associated entity which advanced the funds for its benefit. 159 In those circumstances, and in the light of Mr Johnson’s broadbrush but unchallenged evidence on the question and the conduct of the trial, the proper finding is that Cutty Sark incurred expenditure of $3,697,234.41 on construction of the hangar. Ground 6 succeeds.

Conclusion

160 My conclusions may be summarised as follows. 161 A plaintiff who is unable or does not undertake to demonstrate whether or to what extent the performance of a contract would have resulted in a profit may claim to recoup its wasted expenditure. In such a case, expenditure incurred by a plaintiff in reliance on a contractual promise made by the defendant and “wasted” because of non-performance by the defendant is recoverable, except to the extent that the defendant shows that the plaintiff would not have recouped its expenditure had the contract been performed. Relevant expenditure is not confined to expenditure under or required by the contract, but extends (subject to the rule in Hadley v Baxendale) to any detrimental change of position by the promisee in reliance upon the defendant’s promise. Such expenditure is regarded as “wasted” if the promise in reliance on which it was made is not performed, except to the extent that it is shown that the plaintiff has received some offsetting benefit, whether under or dehors the contract. The value of the reliance interest is the quantum of the net detriment, after allowing for any offsetting benefit accruing to the plaintiff from the expenditure. It suffices to enliven the presumption that expenditure has been incurred in reliance on a defendant’s contractual promise which the defendant has failed to perform. 162 Amann Aviation and McRae do not constitute a category of case which depends on the nature of the breach rendering assessment of damages on the usual basis “impossible”; they apply when the plaintiff does not claim or the evidence does not establish any loss of profits. It is not a precondition to that presumption arising that the plaintiff first establish that it is “impossible” to prove expectation damages. Ground 1 succeeds. 163 The facts that the Council did not promise to develop the airport, and that the contract allocated significant risks to Cutty Sark, are beside the point. The one risk that matters is that which eventuated — that the Council repudiated its obligations to take all reasonable action to procure registration of the Plan — and that risk was one which Cutty Sark did not accept. Cutty Sark was entitled to rely on the Council performing its contractual obligations. Insofar as the primary judge held that the presumption did not arise because the contractual allocation of risk meant that Cutty Sark did not or could not reasonably rely on the Council’s promise to take all reasonable steps to procure registration of the plan, Ground 3 succeeds. 164 Termination of the contract by the innocent party is not invariably a precondition to recovery of reliance damages. In any event, clause 13.3 of the Agreement had the effect that Cutty Sark’s rights in respect of a breach by the Council before termination were not affected by termination, and Cutty Sark’s right to claim to recover its expenditure incurred in reliance on the Council’spromise to take all reasonable steps to procure registration of the Plan, which the Council had repudiated, was thus preserved. 165 Cutty Sark incurred substantial expenditure in constructing the hangar on proposed Lot 104 in reliance upon the Council’s promise to take all reasonable action to procure registration of the Plan. Even if some of the construction expenditure was incurred before the Agreement was made, it is recoverable as it was plain when the contract was made that it would be wasted if the promise was not performed. 166 The presumption arose. Cutty Sark, although it did not prove (nor endeavour to prove) that it had incurred any expectation loss, did prove that it had incurred expenditure in reliance on the Council’s performance of its obligation to take all reasonable steps to procure registration of the Plan. The Council’s repudiation of that obligation rendered certain that Cutty Sark would not receive the benefits for which it had contracted, and that its expenditure would be wasted in the relevant sense. That sufficed to engage the presumption, so as to cast on the Council the onus of showing the value of any offsetting benefit received by Cutty Sark, and/or that its expenditure would not have been recouped had the contract been performed. Moreover, even if the presumption arises only if the defendant’s breach “denies, prevents or precludes the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits”, that requirement was satisfied here: the Council’s breach rendered impossible a true assessment of the probable outcome of performance of the contract and whether it would have enabled Cutty Sark at least to recoup its expenditure. Ground 2 succeeds. 167 The presumption was not rebutted. In circumstances where what would have transpired had the Council performed its obligations was speculative, but there was a high degree of likelihood (given that the Council was also the consent authority) that the Plan would be registered, and there was at least a prospect of further development of the airport producing a more conducive commercial environment for Cutty Sark’s business operations, if not immediately then sometime over the ensuing 30 years of the lease to which Cutty Sark would have been entitled, the Council could not and did not show that Cutty Sark would not over a 30‐year lease have recouped its expenditure. The primary judge erred in concluding otherwise. Ground 5 succeeds. 168 It was plainly in the contemplation of the parties when the Agreement was made that Cutty Sark would incur substantial expenditure in erecting the hangar; and it was, or ought to have been, plain to both parties, had they turned their minds to the question when the contract was made, that non-performance by the Council of its relevant obligation would result in Cutty Sark wasting the expenditure it had incurred and was going to incur in constructing the hangar. The loss incurred in the nature of wasted expenditure is therefore reasonably to be supposed to have been in the contemplation of both parties when the contract was made, within the second limb of Hadley v Baxendale, and the primary judge erred in holding otherwise. Ground 4 succeeds. 169 In the light of Mr Johnson’s broadbrush but unchallenged evidence on the question, and the conduct of the trial, the proper finding is that Cutty Sark incurred expenditure of $3,697,234.41 on construction of the hangar. Ground 6 succeeds. 170 The appeal should be allowed. The judgment below should be set aside and in lieu thereof there should be judgment for Cutty Sark for $3,697,234.41 andinterest. The Council must pay Cutty Sark’s costs of the proceedings at first instance and on appeal. The parties should be directed to bring in short minutes, including calculation of interest, to give effect to this judgment. MITCHELMORE JA. 171 I agree with Brereton JA.

Appeal allowed

Solicitors for the appellant: Dentons Australia Limited. Solicitors for the respondent: Holding Redlich. TP O’CONNOR SOLICITOR 1

123 259 932 Pty Ltd v Cessnock City Council (No 2) [2021] NSWSC 1329 (primary judgment) at [179].

2

Primary judgment at [10].

3

Primary judgment at [10].

4

Primary judgment at [13].

5

Primary judgment at [11]–[12].

6

Primary judgment at [12].

7

Primary judgment at [21].

8

Primary judgment at [21].

9

Primary judgment at [16].

10

Primary judgment at [22].

11

Primary judgment at [24].

12

Primary judgment at [31].

13

Primary judgment at [19].

14

Primary judgment at [18].

15

Primary judgment at [38].

16

Primary judgment at [32]–[45].

17

Primary judgment at [52]. It had already been executed by Mr Johnston on behalf of Cutty Sark. However, it was ultimately dated 16 January 2008, when the Council returned the executed Agreement to Cutty Sark.

18

Primary judgment at [138].

19

The definitions are contained in clause 1.1 of the Agreement for Lease.

20

Primary judgment at [150].

21

Clause 5.1 of the Agreement.

22

Affidavit, James Gordon Johnston, 6 March 2019 at par 23.

23

Letter from Dockrill to Sparke Helmore of 8 September 2006; primary judgment at [40].

24

Letter from Dockrill to Sparke Helmore of 18 October 2006.

25

Primary judgment at [39]; Affidavit, James Gordon Johnston, 6 March 2019 at par 68.

26

Primary judgment at [45].

27

Primary judgment at [57]–[60].

28

Primary judgment at [62].

29

Affidavit, James Gordon Johnston, 6 March 2019 at pars 172, 188.

30

Transcript, 5 October 2021, p 74(34)–(36). Although her Honour regarded that prognostication with scepticism, as will appear Cutty Sark did not bear the onus on that issue.

31

Primary judgment at [78].

32

Primary judgment at [84].

33

Primary judgment at [88].

34

Primary judgment at [92].

35

Primary judgment at [92].

36

Primary judgment at [85].

37

Primary judgment at [95].

38

Primary judgment at [98].

39

Primary judgment at [108].

40

Primary judgment at [103].

41

Affidavit, Bronwyn Ann Rumbel, 7 November 2019, Exhibit BAR‐1, p 262.

42

Affidavit, Bronwyn Ann Rumbel, 7 November 2019, Exhibit BAR‐1, p 311.

43

Affidavit, Bronwyn Ann Rumbel, 7 November 2019, Exhibit BAR‐1, p 298.

44

Primary judgment at [119].

45

Corporations Act 2001 (Cth), s 601AD(2).

46

Primary judgment at [122]; Affidavit, James Gordon Johnstone, 6 March 2019 at par 122.

47

Primary judgment at [123]; Affidavit, Bronwyn Ann Rumbel, 7 November 2019 at par 70.

48

Primary judgment at [124]; Letter, Holding Redlich to ASIC, 18 September 2015.

49

Primary judgment at [125].

50

Primary judgment at [127].

51

Primary judgment at [128].

52

Affidavit, Bronwyn Ann Rumbel, 7 November 2019, Exhibit BAR‐1, pp 542–559.

53

Primary judgment at [130].

54

(1951) 84 CLR 377; [1951] HCA 79.

55

(1991) 174 CLR 64; [1991] HCA 54.

56

[2020] NSWCA 234.

57

Primary judgment at [210].

58

Primary judgment at [221].

59

(1854) 9 Exch 341; 156 ER 145.

60

Robinson v Harman (1848) 1 Exch 850; 154 ER 363 (Parke B); Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13] (French CJ, Gummow, Heydon, Crennan and Kiefel JJ).

61

Amann Aviation at 81.

62

Amann Aviation at 86.

63

Amann Aviation at 89.

64

Amann Aviation at 126–127.

65

Amann Aviation at 142–143 (Toohey J), 155–157 (Gaudron J).

66

Amann Aviation at 106–108.

67

(2020) 271 CLR 151; [2020] HCA 27.

68

Berry at [29]. That this was entirely obiter is apparent from [30], where their Honours stated that it was unnecessary to invoke either of the presumptions considered in Amann Aviation.

69

Meetfresh at [29].

70

Amann Aviation at 89, 96 (Mason CJ and Dawson J); 126–127 (Deane J); Meetfresh at [29].

71

Amann Aviation at 81–82.

72

Amann Aviation at 81 (Mason CJ and Dawson J).

73

Amann Aviation at 84 (Mason CJ and Dawson J), referring to Anglia Television Ltd v Reed [1972] 1 QB 60 (Lord Denning MR).

74

Amann Aviation at 85 (Mason CJ and Dawson J).

75

Amann Aviation at 86 (Mason CJ and Dawson J).

76

Amann Aviation at 104 (Brennan J).

77

Amann Aviation at 106 (Brennan J).

78

Amann Aviation at 131 (Deane J); see also at 126 where his Honour refers to expenditure “either in procuring the contract or in its performance”.

79

Amann Aviation at 86, 88 (Mason CJ and Dawson J); 104, 105, 106, 107 (Brennan J); 127, 129 (Deane J); 139, 140 (Toohey J); 154, 158 (Gaudron J); 161, 166–167 (McHugh J).

80

McRae at 412–413 (Dixon and Fullagar JJ).

81

McRae at 414–415 (Dixon and Fullagar JJ).

82

“The reliance interest in contract damages: 1” (1936) 46 Yale Law Journal 52 at 54.

83

“The reliance interest in contract damages: 1” (1936) 46 Yale Law Journal 52 at 56.

84

Above at [61].

85

McRae at 412–413 (Dixon and Fullagar JJ).

86

Amann Aviation at 79 (Mason CJ and Dawson J).

87

Amann Aviation at 127–128.

88

Respondent’s written submissions at pars 6, 14, 21.

89

Amann Aviation at 89 (Mason CJ and Dawson J).

90

Primary judgment at [221]; above at [45].

91

Primary judgment at [207].

92

Primary judgment at [208]–[209].

93

Primary judgment at [211].

94

Primary judgment at [215].

95

Primary judgment at [216].

96

Primary judgment at [217]–[218].

97

Primary judgment at [220].

98

Primary judgment at [212].

99

Primary judgment at [214].

100

Primary judgment at [219].

101

See below at [132]–[133].

102

Primary judgment at [207], [215]–[218]; see above at [75], [78]–[80].

103

Primary judgment at [216].

104

Primary judgment at [211], [220]; see above at [77], [81].

105

See below at [143]–[149].

106

Primary judgment at [207], above at [75].

107

Primary judgment at [210]; see above at [43].

108

Amann Aviation at 81.

109

Amann Aviation at 85; see above at [56].

110

Amann Aviation at 85.

111

Amann Aviation at 126.

112

Amann Aviation at 137, 142–143.

113

Anglia Television at 64.

114

Amann Aviation at 154.

115

Amann Aviation at 106–107.

116

Amann Aviation at 166–167 (McHugh J).

117

Meetfresh at [30]–[31].

118

Amann Aviation at 82–83 (Mason CJ and Dawson J).

119

Amann Aviation at 84 (Mason CJ and Dawson J).

120

Council’s written submissions at pars 21, 29–32.

121

Primary judgment at [207].

122

Above at [22].

123

Primary judgment at [220], [223].

124

(2020) 19 BPR 40,871; [2020] NSWCA 239.

125

Scott at [37]–[44] (Bathurst CJ; Bell P and Gleeson JA agreeing).

126

Above at [59].

127

Respondent’s written submissions at par 13.

128

Primary judgment at [221].

129

Affidavit, James Gordon Johnston, 6 March 2019 at par 26; Affidavit, Bronwyn Ann Rumbel, 7 November 2019, Exhibit BAR‐1, p 186; Transcript, 6 October 2021, p 114(16)–(19).

130

Primary judgment at [208].

131

Affidavit, James Gordon Johnston, 6 March 2019 at par 72.

132

Letter from Mr Dockrill to Sparke Helmore, 23 March 2007.

133

Affidavit, James Gordon Johnston, 6 March 2019 at par 62.

134

Primary judgment at [52]; Affidavit, James Gordon Johnston, 6 March 2019 at par 73.

135

Affidavit, James Gordon Johnston, 6 March 2019 at pars 66–68.

136

[1972] 1 QB 60.

137

Anglia Television at 64.

138

Amann Aviation at 155–156.

139

Respondent’s written submissions at par 21.

140

McRae at 414–415; above at [63].

141

Amann Aviation at 107.

142

Amann Aviation at 111–112.

143

Amann Aviation at 112.

144

Amann Aviation at 113.

145

Amann Aviation at 113.

146

Amann Aviation at 115.

147

Primary judgment at [211].

148

Primary judgment at [211].

149

Primary judgment at [212].

150

Primary judgment at [213].

151

Primary judgment at [214].

152

Primary judgment at [219].

153

Amann Aviation at 90–92 (Mason CJ and Dawson J).

154

Amann Aviation at 91.

155

Amann Aviation at 92.

156

Amann Aviation at 127.

157

Amann Aviation at 130–131.

158

Amann Aviation at 131.

159

Amann Aviation at 94.

160

Cf Meetfresh at [35].

161

Primary judgment at [219].

162

That this occurred only after the Sunset Date, and not before the Council had repudiated, appears from the primary judgment at [92], [94], [100]–[102].

163

Primary judgment at [179].

164

Primary judgment at [67].

165

Primary judgment at [162].

166

Cf Amann Aviation at 127, 130–131 (Deane J).

167

Citing Wenham v Ella (1972) 127 CLR 454 at 473; [1972] HCA 43.

168

Respondent’s written submissions at par 47.

169

Amann Aviation at 127.

170

Amann Aviation at 130–131.

171

Johnson v Perez (1988) 166 CLR 351 at 367 (Wilson, Toohey and Gaudron JJ); [1988] HCA 64; see also Wm Cory & Son Ltd v Wingate Investments (1981) 17 BLR 104 at 118 (Walton J), 121–123 (Ormrod LJ); quoted in Renown Corporation Pty Ltd v SEMF Pty Ltd (2022) 110 NSWLR 246; [2022] NSWCA 233 at [17]–[18] (Brereton JA).

172

Williamson v John I Thornycroft and Company Ltd [1940] 2 KB 658 at 659 (Scott LJ, with whom Clauson LJ agreed), 660–661 (Du Parcq LJ); Willis v Commonwealth of Australia (1946) 73 CLR 105 at 109 (Latham CJ), 116 (Dixon J); [1946] HCA 22; McIntosh v Williams [1979] 2 NSWLR 543 at 550–551 (Moffitt P and Samuels JA); Johnson v Perez at 368–369 (Wilson, Toohey and Gaudron JJ); Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 at 405–406 (Brennan J); [1989] HCA 11.

173

Hadley v Baxendale at Exch 354; ER 151.

174

Primary judgment at [222]–[225].

175

McRae at 413.

176

[1941] 2 All ER 393 at 397.

177

Amann Aviation at 91–92 (Mason CJ and Dawson J).

178

Primary judgment at [237].

179

Primary judgment at [56].

180

Affidavit, James Gordon Johnston, 20 September 2021 at pars 8 (definition of “project”), 12 (“I, on behalf of the company”), 13 (costs claimed by Babic during the project), 16 (Stutchbury’s costs during the project), 19 (costs claimed by trades), 26 (overhead costs directly relating to the project), 31 (miscellaneous costs), and 15, 18, 29 and 33 (Mr Johnston’s practice as the authorised representative of Cutty Sark to authorise payments).

181

Transcript, 5 October 2021, p 58(44).

182

Transcript, 5 October 2021, pp 58(46)–59(03).

183

Transcript, 5 October 2021, p 59(26)–(33).

184

Defendant’s closing submissions of 7 October 2021 at pars 178–179.

Citations

123 259 932 Pty Ltd v Cessnock City Council [2023] NSWCA 21

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19

Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17

123 259 932 Pty Ltd v Cessnock City Council (Costs) [2023] NSWCA 99

123 259 932 Pty Ltd v Cessnock City Council (No 2) [2023] NSWCA 89

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Statutory Material Cited

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Cessnock City Council ABN 60 919 148 928 v 123 259 932 Pty Ltd ACN 123 259 932 [2023] HCATrans 125

123 259 932 Pty Ltd v Cessnock City Council (No 2) [2021] NSWSC 1329

Berry v CCL Secure Pty Ltd [2020] HCA 27

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[2023] NSWCA 21

20/02/2023