123 259 932 Pty Ltd v Cessnock City Council (No 2)

[2021] NSWSC 1329

Supreme Court

New South Wales

Medium Neutral Citation:

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

Hearing dates:

5-8, 11 October 2021

Decision date:

18 October 2021

Jurisdiction:

Common Law

Before:

Adamson J

Decision:

(1)   Judgment for the plaintiff in the sum of one dollar.

(2)   Subject to any application in writing being made within seven days to my Associate for a different order, order the plaintiff to pay the defendant’s costs of the proceedings.

Catchwords:

CONTRACTS — Claim for damages alleged to have been suffered as a consequence of the defendant’s alleged breach of contract and unconscionable conduct — Plaintiff proposed to develop a site owned by the defendant from which the plaintiff proposed to conduct various business ventures — Agreement for lease between the plaintiff and defendant provided that the plan of subdivision was registered by the Sunset Date, a lease would be granted by the defendant to the plaintiff of one of the newly created lots

CONTRACTS — Construction of clauses — Requirement that the defendant take “all reasonable action” to register the Plan and Instrument by Sunset Date — Breach of contract established as defendant did not commit funds to connect the proposed lots to sewerage — Breach was an effective cause of the non-registration of the Plan and Instrument by the Sunset Date — Consequences of breach — Right to damages — Plaintiff claims damages amounting to wasted expenditure and loss of chance to make a profit on the development — McRae v Commonwealth Disposals Commission and The Commonwealth v Amann Aviation Pty Limited distinguished — Construction and effect of clause 12.3 — The damages claimed by the plaintiff would not fall within either the first or the second limb of Hadley v Baxendale — Plaintiff entitled to nominal damages

CONTRACTS — Alleged unconscionable conduct — Not necessary to decide if any of the allegations relate to conduct in “trade and commerce” — None of the particulars either individually or in combination lead to the inference that the defendant behaved in an unconscionable manner — The Plaintiff took a calculated risk which did not pay off — The Council neither asked for the hangar to be built nor did it have a say in its cost — Council subsequently acquired the hangar for one dollar in accordance with the lease — Unconscionable conduct claim is not made out

Legislation Cited:

Cessnock Local Environment Plan 1989 (NSW)

Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, ss 21, 22, 236, 237

Corporations Act 2001 (Cth), s 601AD

Environmental Planning and Assessment Act 1979 (NSW), ss 4.53, 80, 80A

Hunter Water Act 1991 (NSW), s 50

Land Acquisition (Just Terms Compensation) Act 1991 (NSW)

Local Government Act 1993 (NSW), ss 409, 508A, 621, 624

Uniform Civil Procedure Rules 2005 (NSW), rr 14.14, 42.1

Cases Cited:

Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310

Ansett Transport Industries (Operations) Pty Limited v The Commonwealth (1977) 139 CLR 54; [1977] HCA 71

B P Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 336; [1982] HCA 24

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17

Darlington Futures Limited v Delco Australia Proprietary Limited (1986) 161 CLR 500; [1986] HCA 82

Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1; [1986] HCA 3

Grant v John Grant & Sons Proprietary Ltd (1954) 91 CLR 112; [1954] HCA 23

Hadley v Baxendale (1854) 9 Exch 341; 156 ER 14

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79

New South Wales Rifle Association v Commonwealth [2012] NSWSC 818; (2012) 266 FLR 13

Qantas Airways Limited v Cameron (1996) 66 FCR 246

Robinson v Harman (1848) 1 Exch 850; 154 ER 363

Searle v Commonwealth of Australia (2019) 100 NSWLR 55; [2019] NSWCA 127

The Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54

Wardy v Hardy [2002] NSWCA 215

Watson v Foxman (1995) 49 NSWLR 315

Texts Cited:

NSW Land Registry Services, Registrar General’s Guidelines

Category:

Principal judgment

Parties:

123 259 932 Pty Ltd (Plaintiff)
Cessnock City Council (Defendant)

Representation:

Counsel:
D Williams SC / B Kaplan (Plaintiff)
D Cook SC / G Ng (Defendant)

Solicitors:
Dentons Australia Pty Ltd (Plaintiff)
Holding Redlich (Defendant)

File Number(s):

2017/295180

Judgment

Introduction

1. By statement of claim filed on 29 September 2017, 123 259 932 Pty Ltd (the plaintiff) claims damages against Cessnock City Council (the defendant, or the Council) for loss alleged to have been suffered as a consequence of the defendant’s breach of contract, negligence and unconscionable conduct. The plaintiff’s claim in negligence is no longer pressed. The parties’ dispute arises in the context of the defendant’s proposal to develop Cessnock Airport (the airport), which it owned, by a subdivision which would include aviation and non-aviation uses and which was thought would promote the area as a gateway to the Hunter Valley. The plaintiff proposed to conduct adventure flights from what was to become Lot 104 of the proposed subdivision, as well as to use it as a venue for hire and an aviation museum.

2. On 26 July 2007, a deed entitled Agreement for Lease (the AFL), was executed by the defendant (having previously been executed by the plaintiff). The AFL provided that if the plan of subdivision, which included proposed Lot 104, was registered by the Sunset Date (defined to mean 30 September 2011), the defendant would grant a 30-year lease of Lot 104 to the plaintiff. The plaintiff erected a hangar on proposed Lot 104 and began operating businesses from that site.

3. The plan was not registered, either by 30 September 2011 or at any later time, as the defendant decided that it could not afford to connect all the proposed lots to the sewerage system, which was a condition (condition 23) it had imposed in the development consent. The plaintiff did not terminate the AFL, although it was contractually entitled to do so. The development did not go ahead as planned. The plaintiff stopped paying licence fees and abandoned the site, leaving the hangar in situ. After the Sunset Date, the parties discussed a possible resolution, including the grant of a lease to the plaintiff or that the defendant would purchase the plaintiff’s hangar.

4. In 2015, while the negotiations between the parties were continuing, the defendant learned, by chance, that the plaintiff had had no directors since April 2012. It referred the matter to its solicitors, who, upon doing a further search, learned that the plaintiff had become deregistered. By a notice dated 18 September 2015, the defendant terminated the AFL and, by agreement with the Australian Securities and Investments Commission (ASIC), purchased the plaintiff’s hangar for one dollar (this having been the amount stipulated in the proposed lease attached to the AFL).

5. The plaintiff was reinstated by order of the Supreme Court of South Australia on 5 June 2017. As referred to above, it commenced these proceedings on 29 September 2017, one day short of six years from the Sunset Date.

6. The plaintiff claims damages amounting to its expenditure on constructing the hangar, together with the loss of a chance to make a profit on the development. The defendant denies breach and contends that the AFL excluded any such liability to the plaintiff. It also contends that the plaintiff has failed to establish that it had suffered any loss. The defendant denies that the conduct alleged against it was unconscionable.

The facts

7. In order to determine the issues in the proceedings, it is necessary to set out the facts in more detail than in the above summary.

The genesis of the proposed subdivision

8. Peter Gogarty, the Council’s Corporate and Community Services Manager, was responsible for the sale and development of land owned by the Council. Projects which he oversaw included the sale of a sports ground to Woolworths; the development of a new sporting facility; the construction of a new visitor centre in Cessnock; and the refurbishment of the Cessnock pool. His role at the Council meant that he was the person who was centrally involved in exploring options to develop and manage the airport.

9. In his evidence, Mr Gogarty explained the Council’s practice of lodging a development application to itself. In such circumstances, an “internal firewall” would be erected within the Council in order to separate the Council’s “developer” role, which was played by Mr Gogarty’s area, and its regulatory role as the approving authority under the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act). The Council, as developer, would lodge a development application, which the Council, in its capacity as approving authority, would consider and approve by issuing a development consent which would be subject to conditions. The Council, as developer, would then comply with the conditions. The Council, as approving authority would confirm when the conditions had been complied with. The plan of subdivision could be registered. The Council could then develop the airport.

The defendant’s call for expressions of interest

10. In about 1998, the Council called for expressions of interest for the development and management of the airport (the EOI). The EOI included a development plan which had been prepared in March 1998 and foreshadowed the lengthening of the runway to accommodate larger aircraft as well as subdivision of lots.

11. In response to the EOI, Peter Roberts of Aviation & Leisure Corporation Pty Ltd (ALC) lodged an expression of interest on about 17 November 1998. In its expression of interest, ALC said:

“The viability of the project will depend on adding a mix of non aviation activities to improve cash flows on top of existing activities which should also be expanded.”

12. Eventually, on 2 June 1999, ALC was awarded preferred tender status by the defendant. On 15 March 2000, Mr Roberts attended a Council meeting on behalf of ALC and made a presentation to Councillors. In July 2002, the Council (which then comprised approximately 10 or 11 elected representatives and the Mayor) resolved to lease some parts of the airport to ALC, with a view to the future development of the airport.

13. Mr Roberts’ suggestions for the airport included the erection of hangars with attached residences for the aircraft owners (hangar homes), a concept known in parts of the United States. The idea 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, once the eventual development, of which the registration of the subdivision was the first step, had been completed.

14. In about March 2003, Philip Unicomb, a commercial and instructing pilot, took James Johnston, a property developer with an interest in aircraft, on a joy flight. Mr Unicomb owned two older-style Pitts Special aircraft, which he used in an advanced aerobatic training business he conducted through Action Aerobatics Pty Ltd (Action Aerobatics). Mr Johnston was interested in purchasing a Pitts Special aircraft, which he understood was known as the “Ferrari of the Sky”. They discussed operating an adventure flight business specialising in “unique and ‘warbird’ aircraft.” The initial proposal was that Mr Unicomb would use his aircraft and any aircraft purchased by Mr Johnston and that the business would be conducted out of Maitland Airport.

15. In about November 2003, Mr Johnston purchased a Blue Pitts Special S2C aircraft (the Blue Pitts Special) in Kent, United Kingdom which he subsequently transported to Camden Airport, and flew to Maitland Airport. It was initially registered to Action Aerobatics but was later transferred to Cutty Sark Investments (Hong Kong) Limited (Cutty Sark HK), a foreign company controlled by Mr Johnston.

The defendant’s lodgement of the Development Application

16. On 12 December 2003, the defendant, in its capacity as applicant developer and registered proprietor, lodged a Development Application (DA 8/2003/1676/1) which proposed that the land comprising the airport (Lot 2110 in Deposited Plan (DP) 789531, Lot 111 in DP 1013069 and Lot 3 in DP 546671) be consolidated into Proposed Lot 2 in DP 1064825, which would then be subdivided into 25 lots. One of those proposed lots was to be Lot 104 which was the land the subject of the AFL. The development application and the attached plan of subdivision had been prepared by Mr Gogarty and the defendant’s in-house surveyor, John Evans.

Mr Johnston’s preference for Cessnock Airport

17. From about December 2003, Action Aerobatics offered adventure flights in the Blue Pitts Special, for which Action Aerobatics paid Cutty Sark HK $300 per flying hour. Later, the adventure flight business was conducted by Air Action Pty Limited (Air Action), of which Mr Unicomb and Cutty Sark HK were equal shareholders.

18. In about January 2004, Mr Johnston and Mr Unicomb discussed the possibility of building a hangar to house the aircraft which were used for adventure flights and aerobatic training. They also envisaged that the hangar could incorporate an aviation museum and an entertainment venue for corporate events. They agreed that, as Mr Johnston was providing the capital for the aircraft and the hangar, he would be responsible for locating the site and that Mr Unicomb would be responsible for the aviation side of the business. Mr Johnston considered various airports, including Bankstown and Newcastle, but rejected them as too expensive. He became interested in Cessnock Airport because it was cheaper. He was aware of the defendant’s plans to redevelop it and believed that its proximity to the Hunter Valley would prove advantageous for his business with Mr Unicomb.

19. On 21 April 2004, Mr Johnston and Mr Unicomb met with Mr Gogarty and Alan Pope, an employee of ALC, to discuss a suitable site for the hangar. Mr Pope told them that the defendant wanted to attract entrepreneurs to develop the airport site and mentioned the prospect of hangar homes. Mr Johnston indicated that he was interested in investing substantial funds. Although Mr Gogarty was interested in the proposal, it was too early in the defendant’s consideration of the development for him to give any assurance that it would go ahead.

20. In about August 2004, Mr Johnston purchased a T28D North American Trojan Fighter/Bomber aircraft. He hoped that this aircraft would “raise the profile” of the adventure flying business, which Mr Unicomb thought would be enhanced by the purchase of a “warbird”. As with the Blue Pitts Special, Mr Johnston initially registered the aircraft to Action Aerobatics before transferring it to Cutty Sark HK in about December 2008. This aircraft was also used for adventure flights conducted by Air Action, which hired it from Cutty Sark HK for $750 per flying hour.

The initial agreements between the Council and ALC

21. Ultimately, in March 2004, after a lengthy period of negotiation between ALC and the Council, a lease for the airport and a management agreement were signed, each for a term of three years, expiring in March 2007. It was a term of the lease that, if the subdivision was registered before the Sunset Date, the Council would grant a 25-year lease to ALC upon expiry of the initial lease. The term of the initial lease was extended by agreement because of the time which was expected to be required to register the plan of subdivision.

The planning documents

The Development Control Plan

22. On 7 July 2004, the defendant adopted a Development Control Plan (DCP) for the airport. The DCP referred to the advantages of the airport, which included its location in a largely rural area near the town of Cessnock and its proximity to the Hunter Valley. It identified the purposes of the plan as follows:

“…

●   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;

●   to encourage appropriate ancillary development, related to the airport and to the Wine Interpretive Centre, while protecting sensitive, existing, surrounding development from adverse environmental impact; and

●   to provide design guidelines for certain development.”

23. In about July 2004, Mr Johnston obtained a copy of the DCP.

The development consent

24. On 17 November 2004, the Council, in its capacity as approving authority, considered the development application which the Council, as developer, had submitted, and granted its consent (the development consent). The development consent was subject to conditions imposed pursuant to ss 80(1)(a) and 80A of the EPA Act (as it then was), which included the following:

“23. The proposed lots shall be connected to Hunter Water Corporations [sic, Corporation] reticulated sewerage system.

Reason

To ensure that the creation of the proposed lots is consistent with the provisions of the Cessnock Local Environmental Plan, 1989 [last modified on 29 October 2004].

24. The applicant shall submit to Council evidence that the requirements of Energy Supplier, the Hunter Water Corporation and telecommunication authorities have been met in regard to the provision of services provided by those authorities to the Subdivision. Such evidence shall be submitted to and approved by Council prior to endorsement of the final plan of survey and release of the Subdivision Certificate.

Reason

To ensure that adequate services are provided to each new lot created.”

25. Condition 23 was of prime significance in the proceedings, since this was the condition which was not met, and, thus, the condition which meant that the subdivision could not be registered.

26. The development consent was effective for a period of five years from 18 November 2004 until 18 November 2009. It did not lapse as the defendant performed substantial works to meet the conditions: s 4.53 of the current version of the EPA Act.

The work undertaken by the defendant to fulfil the conditions of the development consent

27. As soon as the development consent was granted, Mr Gogarty engaged consultants to undertake feasibility reports and obtain quotations for the work involved in fulfilling the conditions in the development consent. He also retained engineers to work out how to connect the existing services to the proposed lots in the Plan of subdivision.

28. The defendant retained Allen Vogan from Woromar Pty Ltd (Woromar) to co-ordinate the works required to fulfil the conditions of the development consent. Woromar’s initial budget, which was provided on 20 November 2006, included an estimate of costs for compliance with the development consent of $789,000.

29. The work which Woromar did for the defendant included obtaining quotations associated with the construction of a reticulated sewerage system to service all the existing and proposed airport facilities. The co-operation and approval of the Hunter Water Corporation was required as it was the entity responsible for issuing the compliance certificate required pursuant to s 50 of the Hunter Water Act 1991 (NSW).

30. Woromar reported periodically to the defendant on the progress of compliance with the conditions of the development consent. I accept the evidence of Bronwyn Rumbel, who from 27 June 2011 until 17 July 2017 was the defendant’s Integrated Planning and Strategic Property Manager, that Woromar remained in this role and continued to do work for the defendant until the end of 2012. It is not necessary to summarise the work performed by Woromar from November 2004 until 2012 since it is uncontroverted that the reason the subdivision could not be registered by the Sunset Date in the AFL of 30 September 2011 was that the defendant did not comply with condition 23 because it did not have, or was not prepared to commit, sufficient funds to connect the proposed lots to the sewerage system.

27. On about 7 November 2005, DP 1064825 was registered, which created Lots 1 and 2. What remained outstanding was the registration of the plan of subdivision of Lot 2 in DP 1064825 into 25 lots. So far as is revealed by the evidence, this never occurred.

The AFL

The negotiations which led to the AFL

32. In about October 2004, Mr Johnston retained Bill Dockrill, solicitor, to act on his behalf and on behalf of any related entity which he owned or controlled, in relation to the proposed development. Initially, Mr Dockrill dealt with ALC’s solicitors and subsequently with the defendant’s solicitors. The negotiations between Mr Dockrill and Sparke Helmore, the defendant’s solicitors, regarding the AFL were conducted from about 5 August 2005 until April 2007.

33. Mr Johnston had further discussions with Mr Gogarty about the potential for the site. Before any agreement was entered into with the defendant, Mr Johnston retained Stutchbury Pape Architecture (Stutchbury) to design the hangar. Stutchbury, in turn, engaged Hilltop Planners to prepare a development application for the hangar to be submitted to the Council.

34. In about April 2005, Mr Dockrill submitted the development application for the hangar. The application stated that the site would be in operation 24 hours a day, seven days a week and that the estimated cost of the work would be $560,000. The owner was said to be Cutty Sark HK.

35. At some time in about 2005, Mr Gogarty had a further discussion with Mr Johnston and Mr Unicomb, about ALC’s proposal for the airport. Mr Gogarty was impressed by Mr Johnston’s proposal to have an architect-designed hangar and, in about late 2006, expressed a view that it should be located in a prominent position on the eastern side of the airport. Mr Johnston selected the portion of the airport which would, if the plan of subdivision for the airport was registered, become Lot 104 (the proposed Lot 104).

36. In about 2006, Mr Gogarty and Mr Johnston had further discussions about the proposed airport development. Mr Johnston told Mr Gogarty that he wanted some assurance that “things are happening with the development of the rest of the property” before spending “millions on the hangar.” Mr Gogarty informed him that there were already “some serious runs on the board,” a cricketing term which I take to have been intended to convey that the Council had already done significant work to obtain, and comply with the conditions of, the development consent.

37. In a letter to Mr Dockrill dated 21 July 2006, Sparke Helmore proposed that the agreement would be an agreement for lease rather than a lease “[a]s registration of the plan of subdivision is still a long way off”.

38. The Council granted the development consent in respect of the hangar on 28 July 2006. The development consent described the development as follows:

“New Aircraft Hanger [sic] for Joy Flights and Advanced Flight/Aerobic Training incorporating an Aviation Museum.”

39. In the latter part of 2006, Mr Johnston began constructing a hangar on the proposed Lot 104.

40. At the time the construction of the hangar commenced, Cutty Sark HK had no agreement with the defendant to use the land, although there were negotiations at that time regarding what became the AFL, and the plaintiff had not yet been incorporated. On 8 September 2006, Mr Dockrill wrote to the defendant’s then solicitors, Sparke Helmore, in the following terms:

“LESSOR: CESSNOCK COUNCIL

LESSEE: CUTTY SARK (HONG KONG) LIMITED

PREMISES: AIRCRAFT HANGAR LAND

We refer to your earlier correspondence and in particular to your email dated 5 September 2006.

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.

Our client had considered that a longer term would be required to recoup the capital costs. Also the rent earlier discussed was a lower rent for the land which is bearing in mind that in the initial years it will take some time to establish the financial viability of the business.

Therefore our client would like to propose that the terms of the Lease be as follows:

1.    Term of 35 years.

2.    The rent be $10psm for that part of the land on which the hanger [sic, hangar] is constructed and $2.50psm for the balance of the land leased on which there is no construction. We would agree to the Council’s suggestion of CPI increases annually.

We would also agree that in the event that any further improvements were built on the vacant part of the land the rent for that area would increase to the same rent for the internal part of the hangar.

3.    We appreciate for a lease of this nature that for registration purposes the land would have to be a separate lot in a new DP [Deposited Plan]. Following further discussions with the architect our client has Instructed the architect to prepare some draft plans to reduce the area of the land to be leased.

4.    We suggest a first right of refusal to lease the land at the end of the initial term and purchase the land if the Council decided to sell the land. You will note that we had earlier requested an option to re-lease the premises.

5.    In regard to the bank guarantee we would suggest a bank guarantee of 6 months rent.

6.    The Lessee is [Cutty Sark HK]. It is a registered Hong Kong company and if necessary it will be registered as a foreign company in Australia. Cutty Sark has been trading in Australia in regard to other profitable ventures for approximately 2 years.

We are aware that a further issue of this matter is that the price of steel is to be increased by 22% on Monday afternoon and our client is being squeezed by Brice Engineering to pay a 50% deposit by midday Monday for the steel to be used in the construction of the hangar and any assistance you may be able to provide with regard to a prompt response to this letter would be greatly appreciated by our client.

In view of the fact that you are still finalising negotiations in regard to airport management with [ALC] we have forwarded a copy of this letter to Peter Roberts at Mr Johnston’s request.”

[Emphasis added.]

41. Sparke Helmore responded by email sent on 21 September 2006 as follows:

“The original draft of lease did not contain clause 16.8 as the contents of clause 16.8 were discussed between our respective clients subsequent to the issue of the original draft.

We are instructed your client in negotiations with Council indicated that it did not have any intention to remove the hangar on expiry of the lease. It was on the basis that Council determined amongst other things the amount of rent, the honeymoon period for rent the rent free period and the first right of refusal to lease.

While Council has no objection to the deletion of clause 16.8, please be advised the amount of rent, the rent free period, the honeymoon period for rent and the first right of refusal to lease is to be reconsidered by Council.”

42. The reference in this email to cl 16.8 of the proposed lease was a reference to the term which provided that on expiry, determination or surrender of the lease, the lessor’s improvements would be transferred to the Council “at the cost of $1.00 at which time the [Council] will become the sole and absolute owner of the [plaintiff’s] improvements.”

43. Mr Gogarty emailed Sparke Helmore on 19 October 2006 and said:

“Council is not in the business of subsidising Commercial Enterprises. An undertaking was given by Action Aero/[the plaintiff] via Mr James Johnston to me that it would be cost prohibitive to design and construct the proposed hangar in a demountable fashion. All of the subsequent discussions were based on this premise.”

44. On 20 November 2006, Cutty Sark HK was registered. At that time, Mr Johnston was taking up residence in Hong Kong with his fiancée. As is evident from Mr Dockrill’s letter of 8 September 2006 (written before Cutty Sark HK was registered), Mr Johnston intended Cutty Sark HK to be the entity which contracted with the defendant. However, the defendant refused to contract with a foreign company. The plaintiff was incorporated (as Cutty Sark Holdings Pty Limited) on 27 December 2006, at which time Mr Johnston and Mr Unicomb became directors. Cutty Sark HK was deregistered on 17 June 2014.

45. In around January 2007, Cutty Sark HK purchased a L39c Albatross fighter jet from a vendor in South Africa. In around April 2007, this aircraft was flown to the airport from Wanaka, New Zealand. Air Action hired the aircraft from Cutty Sark HK and used it for adventure flights. Most of the flights were conducted by Mr Unicomb until he departed from the business in March 2009. Up until that time, the flights were conducted from a leased hangar on the western side of the airport as services were not connected to the proposed Lot 104 until March 2009.

The work surrounding the attempted fulfilment of condition 23

46. In January 2007, the defendant contracted with Centurion Civil Construction Pty Ltd (Centurion) for the construction of sewer mains at the airport.

47. On 22 August 2007, Woromar applied to the Hunter Water Corporation for Compliance Certificates pursuant to s 50 of the Hunter Water Act. Woromar informed the Hunter Water Corporation that the defendant had decided to proceed with the construction of the sewer main in three stages: the first stage related to work already completed; the second stage related to proposed Lots 104 (the lot which the plaintiff wanted to lease) and 107 (both of which were on the eastern side of the airport); and the third stage related to work to service the balance of the proposed lots which were on the western side of the airport. At that time, no work had been done on the third stage.

48. By letter dated 19 November 2007, Woromar wrote to the defendant’s then General Manager, Bernard Mortomore, for the attention of Joe Lorriman, and recommended that the defendant accept Centurion’s quotation of $48,828, for the provision of sewerage services to the proposed Lot 104.

49. From about January 2008, Mr Dockrill communicated with Mr Vogan about the connection of services to the proposed Lot 104. In early 2008, Mr Dockrill suggested to Mr Vogan that the defendant connect the eastern side of the airport (where proposed Lot 104 was located) to the utilities before connecting the western side.

50. On 29 January 2008, Woromar wrote to Stutchbury to confirm that Lot 104 would not be created until the whole plan of subdivision had been registered (this appears to be in response to the plaintiff agitating for Lot 104 to be created in advance of the registration of the whole subdivision).

The agreements with ALC and the AFL

51. Following the defendant’s consent to the subdivision, the defendant entered into further agreements with ALC, including an agreement to lease, a proposed future lease and a management agreement. The agreements provided that they would be terminated if the plan of subdivision was not registered by 30 June 2011. The agreement for lease contained a clause, cl 5.2, which required the Council to take all reasonable action to apply for and obtain registration of the Plan. A similar clause was included in the AFL (although it was numbered cl 4.2 and provided for a Sunset Date of 30 September 2011).

52. The plaintiff and the defendant entered into the AFL, the terms of which will be addressed in more detail below. Although the AFL was dated 16 January 2008, as referred to above, the defendant executed it on 26 July 2007 and the plaintiff had executed it previously. The licence fee became payable from 19 October 2007, which was six months after the Handover Date, as defined in the AFL.

53. It is sufficient at this stage to note that the AFL provided for the defendant to register the subdivision by the Sunset Date of 30 September 2011 (that is, three months after that in the agreement between the defendant and ALC). Although there were further discussions between Mr Johnston and Mr Gogarty (including those referred to above) about the proposed agreement, the agreement was in writing and was negotiated between the respective legal advisers for the parties.

54. Mr Gogarty’s views about what the agreement would provide are not reflected in the AFL. For example, Mr Gogarty was convinced that the AFL contained an agreement to allow the plaintiff to purchase the land on which the hangar was being built and refused to accept the proposition that there was no such right. This discrepancy is understandable. Mr Gogarty resigned from the Council shortly after the AFL was executed, having applied unsuccessfully for the position of General Manager. In preparing his evidence, he had no access to Council records, other than what was provided to him by the plaintiff’s legal representatives. He affirmed his affidavit on 26 March 2019, almost 12 years after he last worked for the Council. Although I accept that he, to some extent, encouraged the plaintiff to believe that the defendant wanted to develop the airport, I do not consider that Mr Johnston was particularly influenced by anything Mr Gogarty said, because Mr Johnston had his own plans, arising from his discussions with Mr Unicomb. Mr Johnston’s preparedness to commit the plaintiff to the AFL arose from his own desire to find a relatively cheap location where he could store his aircraft collection and from which he could conduct his businesses. The AFL was arrived at as a result of negotiation and, so far as the plaintiff was concerned, legal advice from Mr Dockrill.

The construction of the hangar

55. The plaintiff claimed that it had spent $3,697,234.41 on the construction of the hangar (including overhead expenditure and miscellaneous invoices, which are also claimed as damages) which comprised:

Construction costs	Amount (incl GST)
Builder (Babic Construction)	$2,404,187.75
Architecture fees	$546,644.62
Trades	$549,905.27
TOTAL construction costs	$3,500,737.64
Overheads	$175,126.68
Miscellaneous costs	$21,370.09
TOTAL	$3,697,234.41

56. These figures are derived from the plaintiff’s “schedule of invoices”. The defendant’s primary submission was that the plaintiff was entitled to no more than nominal damages. In the alternative, it disputed $438,228.26 of this total sum on the basis that the relevant invoices were addressed to an entity other than the plaintiff and no evidence was given as to any arrangement between the entity to which the invoice was addressed and the plaintiff. The plaintiff responded with further evidence and submissions. For the reasons given below, I am not persuaded that it is necessary to resolve this dispute, which was not fully explored in the evidence. It is sufficient to decide the case on the basis that the plaintiff spent at least $3m on the construction of the hangar.

The plaintiff’s business activities

57. From July 2009 to November 2009, the plaintiff conducted an adventure flight business (which no longer involved Mr Unicomb) from the hangar. By November 2009, Mr Johnston appreciated that it was not profitable and stopped the business.

58. From around September 2009 until February 2010, the plaintiff also used the hangar as a “museum” (since the aircraft which Cutty Sark HK owned and had used for adventure flights were stored and displayed there). The admission charge was “an average of $20 per person”. As it was not profitable, it did not continue.

59. Notwithstanding the demise of the adventure flight and museum business, Cutty Sark HK purchased a 1941 Tiger Moth on about 18 April 2010.

60. The plaintiff also hosted various corporate events from the hangar and sub-licenced the hangar from which it earned income as follows:

Date	Event/client/sub-licensee	Amount
August 2009	Brietling Watches	$45,000 for 3 days (plus flights)
20 November 2009	Macquarie Bank	$15,785
December 2009	Hunter Valley Events	$8,000 (approx.)
January 2010	Hunter Valley Events	$12,000 (approx.)
February 2010	Blue Star Helicopters	$20,000 for a month’s licence
March 2010	Blue Star Helicopters	$20,000 for a month’s licence
April-June 2010	Other events arranged by Blue Star Helicopters which were hosted by the plaintiff	Not revealed by the evidence
23 July 2010	Gerard Lighting	$14,600
15 September 2010	Plumbing Plus BKL Pty Ltd	$8,763.64
1 October 2010	Bellelaide Events	$11,500
16 November 2010	Flight Centre Ltd	$4,545.45
25 November 2010	Flight Centre Ltd	$4,090.91
2 May 2011	Podium Event Marketing Pty Ltd	$8,522.73
18 May 2011	Podium Event Marketing Pty Ltd	$2,386.36

61. According to Mr Johnston, the “Venue venture” became “completely unsustainable” in around June 2011, three months prior to the Sunset Date.

62. Thus, each of the three business streams which Mr Johnston had envisaged at the outset (adventure flights, museum and venue) proved to be unprofitable prior to the Sunset Date.

The continuation of the development consent

63. On 8 January 2010, Woromar wrote to the defendant enclosing one of its many status reports on compliance with conditions of the development consent. In the status report, it noted that the termination date of the development consent was 18 November 2009 but that “as a substantial amount of work has been undertaken by [the] Council in compliance with the Development Consent … it is submitted that the Development Consent remains both ‘Current and On Foot’.” On 27 March 2012, the defendant’s Development Services Manager wrote to the defendant’s Integrated Planning and Strategic Property Manager (Ms Rumbel) confirming that the development consent remained valid.

Degree of compliance with condition 23

64. Also in its status report of 8 January 2010, Woromar reported as follows in relation to condition 23:

“In Partial Compliance with this Condition which requires that all Allotments are to be serviced by a Reticulated Sewer System the Design of the Sewer Carrier Main from Wine Country Drive to the Western Area of the Airport has been completed and approved by Hunter Water Corporation.

Part of this Sewer Carrier Main has been constructed from Wine Country Drive to the Sewer Access Chamber in front of the Airport Terminal Building and as advised in Section 1.1 of this Report

This Partial Construction enabled the following Existing Building to be connected to this Sewer Facility viz;

-   The Wine Appreciation & Visitors Centre on Lot 105,

-   Public Amenity Building on Lot 105,

-   Aircraft Hangar & Museum on Lot 104,

-   Airport Terminal Building on Lot 106.

Status … Partial Completion”

[Emphasis in original.]

65. The status report of 8 January 2010, set out the further work to be done to comply with condition 23 as follows:

“The Compliance with this Condition will require the completion of the Construction of the Sewer Carrier Main by Council and in accordance with the Design Plans as previously approved by Hunter Water Corporation.”

66. In a further report dated 1 February 2010, Woromar informed the defendant that it estimated that a further $1,317,764 would be required to be spent by the defendant to comply with the conditions of the development consent.

67. The part of the Council which sought to fulfil condition 23 submitted a discretionary bid to the Council’s Infrastructure Strategy Section for the 2010/2011 budget year for the allocation of $1,317,800 to the “Hunter Valley Airport Development Consent”. I infer from the defendant’s business records that it was expected that the $1,317,800 would eventually be offset (and notionally paid for) by income from the airport development. However, it was plain that the income would not be forthcoming at that level for some considerable time (if at all). The discretionary bids made at that time included the bid for $1,317,800, as well as bids for items such as an additional ranger position, extending the hours of the animal shelter, phase up of the street tree maintenance program and an airport access road. The discretionary bid for $1,317,800 was refused.

66. Thus, unless the defendant could raise $1,317,764 in some other way, it was not in a position to fulfil condition 23.

The defendant’s financial position in the period from 2007-2013

69. From about 2008, the defendant had a policy of upgrading existing roads and developing new roads, and replacing or reconstructing the 174 bridges within its Council area. The evidence of the defendant’s financial position was as follows:

Financial year	Operational position (excluding capital income)	Cost of public works	Unrestricted cash and investments
2008	$53,453,000	$575,000
2009	-$674,000	$62,988,000	$3,930,000
2010	$3,292,000	$78,810,000	$1,634,000
2011	-$6,538,000	$112,315,000	$1,512,000
2012	-$8,142,000	$114,719,000	$1,354,000
2013	-$49,000	$117,242,000	$646,000

70. The significance of these figures will be addressed when considering whether the plaintiff has proved that the defendant breached cl 4.2(a)(2) of the AFL.

71. The defendant applied to the Independent Pricing and Regulatory Tribunal (IPART) under s 508A of the Local Government Act 1993 (NSW) (the LGA) for a determination that its general income be increased by 9.06% in 2011/2012 for a two-year fixed term. The principal reason for the application was to enable the defendant to “continue funding for the council’s program of works for resealing and rehabilitating priority roads” in its area. In its consideration of the application, IPART described the defendant as “among the most disadvantaged councils in NSW.” It noted the Council’s assessment that it would be required to spend about $50m over the next 10 years to achieve a satisfactory standard over its entire road network and also that there was a backlog of works which would cost in excess of $17m for six unsealed roads, which would take 15 years to address if the budget were not increased.

72. On 3 October 2012, the New South Wales Treasury Corporation (the Corporation) provided a Financial Assessment and Benchmarking Report on the Council as part of the Local Infrastructure Renewal Scheme (LIRS). The primary focus of the report was to determine whether the Council was in a position to borrow and to compare the Council’s financial performance with that of similar councils. The Corporation concluded:

“In our view, the Council does not have the capacity to undertake the combined additional borrowings of $5.0m for the two LIRS projects. This is based on the following analysis:

●   Council has an Unrestricted Current Ratio below 1.00x from 2016 to 2021 at levels between 0.68x to 0.92x therefore Council would need to reduce services in order to cover the scheduled loan repayments or would otherwise become illiquid in this period and be unable to meet all of their short term liabilities

●   Councils forecast capital expenditure is too large for their current revenue base.”

Attempts by Mr Johnston to sell the hangar to third parties

73. By October 2010 at the latest (and probably earlier), Mr Johnston tried to sell the hangar. He placed an advertisement in the Aviation Trader for its sale by tender which indicated that sealed bids would be opened at noon on 15 October 2010. The advertisement also said:

“Also available for purchase, an immaculate fleet of jetfighter, warbird and vintage aircraft by separate negotiation.”

74. Notwithstanding the figures set out above, Mr Johnston was unwilling to accept that the venture was unprofitable, as is evident from the following exchange in cross-examination:

“Q. Do you accept, Mr Johnston, that none of the financials for any of the companies related to this business demonstrate that they traded profitably?

A. I’m not, I, I haven’t got an accountant's mind. I’d leave that to the accountant. But I, I, I haven't looked at them myself, and I'm more of a gut, gut feeling person, and my gut feeling wasn’t good into the future of, of Cessnock Airport.

Q. I put it to you Mr Johnston that by October 2010 your gut feeling was to cut and run from this business because it was a significant financial disaster?

A. Now I, I, I don’t, I don't agree with the word ‘disaster’. If I'd been given my tenure I would probably say I think I can make it work. But council would have had to have developed the airport that was also promised.”

75. Mr Johnston accepted that by October 2010, he was trying to recoup his capital outlay by selling the hangar. He agreed that he had placed another advertisement (the date of which he could not recall or otherwise identify) for the hangar and aircraft which included the following:

“Available for immediate substantially discounted purchase/lease. All reasonable offers considered.”

76. Mr Johnston rejected the proposition that he was ever “desperate”, as is evident from the following exchange in cross-examination:

“Q. Well do you accept that whenever it was that caused this advertisement to be placed you had become fairly desperate to try and sell the hangar?

A. I was never, I don’t think I was every desperate. The circumstances made me a little bit perturbed. But I was never desperate. I, I loved my aircraft. It was my, it was my passion since 1982 …”

77. He continued, in answer to subsequent questions:

“[T]hat’s not in, in my character to be desperate. As I said I loved the aircraft. I would bide my time to find the right person who would have the passion to take over. There was a lot of other circumstances around selling, not just to do a buyer sale … I wanted to get my capital outlay back … So I was wanting to put money back in the bank and, and close the project, yes.”

78. I regard Mr Johnston’s evidence about the offers he received for the hangar as unsatisfactory. I do not accept that he ever received a credible offer for the purchase of the hangar or that he ever discussed any offer with the defendant. Although Mr Johnston attached to his first affidavit an email from “Cameron MacDonald” dated 8 March 2011 which purported to make an offer to purchase the hangar for $2,375,000, with the amount to be paid over a period with vendor finance, the evidence is insufficient to persuade me that the offer was genuine.

79. Mr Johnston maintained in his evidence that he could not borrow against the hangar because “there was no bankable tenure.” Although he contended that he would have been able to borrow money if he had had a 30-year lease, he agreed there was no evidence to suggest that any such funds would have been forthcoming (or how such a loan could be serviced given the unprofitability of the plaintiff’s businesses). He said:

“I’d been to Westpac in Cessnock. I asked and I didn’t have any luck. I gave up basically. That was the point.”

80. Mr Johnston accepted that the Council had never offered the plaintiff an option to purchase the freehold of the proposed Lot 104.

81. On 23 December 2010, Mr Dockrill wrote to the defendant and reiterated the plaintiff’s request for Lot 104 to be created in advance of the registration of the subdivision. He said, in part:

“We note pursuant to Clause 4 of the Lease the Council was to regulate the Plan of Subdivision by 11 September 2011. Council is to take all reasonable action to apply for and obtain the approval for the registration of the plan on or before that date.

Relying on the fact that the Council would be proceeding with the subdivision and as the Agreement for Lease envisaged our client carrying out work of the property. The hangar was designed by a prominent architect Mr Peter Stuchbury [sic, Stutchbury] the winner of many architectural awards in Australia and our client has constructed what is an appropriate building on the conspicuous part of the airport which will be a great attraction and benefit for the airport, Council and the area generally.

…

All the services are available to our client’s property and there would appear to be no reason why Council would not proceed with the registration of a plan subdividing proposed Lot 104 from the balance of the land in the event there la any delay in registering the plan because of other factors such as the provision of services to other parts of the airport.”

82. On 9 February 2011, Mr Dockrill sent a further letter to the defendant in identical terms to the one dated 23 December 2010.

83. From about 2011 until 2012, Mr Johnston decided to sell the aircraft which Cutty Sark HK had purchased. All four aircraft were sold during that period.

The termination of the agreements between the defendant and ALC

84. On 29 June 2011 (the day before the Sunset Date of the agreement between ALC and the defendant), Mr Roberts attended a meeting with Alan Revell (a consultant engaged by ALC), Lea Rosser (the then General Manager of the Council) and other Council representatives. When Mr Revell asked Ms Rosser about the subdivision, she said:

“We won’t be proceeding with the subdivision of the land at the Airport. Council has no intention of spending about a million dollars fixing the sewerage. We don’t have the money and won’t be doing it.”

85. After that meeting, Ms Rosser sent a letter to ALC, confirming what had occurred at the meeting and informing ALC that it had three options: first, to give notice in accordance with cl 5.4 of the agreement for lease and the management agreement; second, to agree to a mutual termination of these agreements; or, third, to work with the defendant to re-negotiate a lease for the operation of the airport. By letter dated 1 December 2011, the defendant terminated its agreements with ALC.

The involvement of Ms Rumbel

86. Ms Rumbel is a Certified Practising Public Accountant, having qualified in 1998. She began her employment with the defendant three days before the Sunset Date in the agreements with ALC. She explained in her evidence that when she started, one of her priorities was to address the consequences of the passage of the Sunset Date in these agreements. She initially reported to Ms Rosser but subsequently reported to Louise Gee, Group Leader Strategy and Sustainability, and then to Gareth Curtis, Director of Planning and Environment. Her role included preparing a strategic plan for, and overseeing the operations of, the airport.

87. In about July 2011, consultations for the development of a new strategic plan for the airport began, it having become clear that the development envisaged when the agreements were made with ALC and the plaintiff would not eventuate because of the cost of compliance with condition 23.

The events leading up to and after 30 September 2011 (the Sunset Date for the AFL)

88. On 13 September 2011, Ms Rosser wrote to Mr Dockrill in the following terms:

“Clause 4.2 of the Agreement for Lease requires Council to take all reasonable action to apply for and obtain approval and registration of a plan of subdivision by 30 September 2011.

Council has been unable to achieve the registration of the plan of subdivision within the timeframe anticipated in the Agreement for Lease despite taking all reasonable action to enable that registration including: obtaining the subdivision approval, construction of landscape buffers and arboreal mounding, provision of concrete access crossings, construction of an intersection dust abatement seal and partial construction of a sewer carrier main.

In order to protect your client’s investment Council can however, offer 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.”

89. Ms Rumbel confirmed in her evidence that she did not intend the licence period offered to the plaintiff to be shorter than the lease which would have been granted had the subdivision been registered before the Sunset Date.

90. The Council’s offer of consecutive 5-year leases requires some explanation. Mr Cook submitted that a series of such leases would be registrable in New South Wales and, accordingly, the Council’s offer of consecutive 5-year leases was tantamount to a registered lease for at least 25-years. He explained that the device of consecutive leases (as distinct from a lease with options to renew) is not regarded as amounting to a subdivision within the meaning of the EPA Act. Mr Cook’s submission (which was not controverted by Mr Williams) accords with the following extract from the Registrar General’s Guidelines:

“Successive five year term leases

Any lease of part of a current parcel of land will constitute a subdivision in terms of the [EPA Act] if the term of the lease (including any option of renewal) exceeds a period of five years. However, multiple leases for the same site, each with a successive term of five years are acceptable and may be lodged together in NSW LRS [Land Registry Services]. The specified term of each lease must be stated as commencing at a date no earlier than the day after the expiry of the previous lease in the series. The leases are limited to a series of five as Section 120A(3) Conveyancing Act 1919 states that a lease is void if it takes effect more than 21 years from the date of the instrument creating it. Further, as each lease in the series expires, it is possible to register new leases continuing the sequence providing each date of commencement is within 21 years of the date of commencement of the earliest current lease.”

[Emphasis in original.]

91. The 21-year limit from the date of the instrument creating the lease, referred to in the above extract, would appear to be the explanation for the Council offering five 5-year leases (amounting to 25 years) rather than six, which would equate to the period contemplated by the AFL. It does not appear that Ms Rumbel was aware of this limitation when she said in her oral evidence that she would have been prepared to offer a total of 30 years, divided into six 5-year leases.

92. Mr Dockrill sent a holding response on 30 September 2011 and ultimately rejected the offer on behalf of the plaintiff on 20 December 2011. In his letter of 20 December 2011, Mr Dockrill said as follows:

“We refer to our letter of 30 September 2011.

As the Council can no doubt appreciate, our client has, relying on the Agreement for Lease dated 16 January 2008 and that it would receive a 30 year lease on registration of the plan of subdivision, spent an enormous amount of money constructing the hangar venue on the property and attempted to carry on business of jet rides and separately hiring the hangar out for event functions held in the Hunter Valley.

The current amount spent on the hangar venue by our client is over $2.7 million.

Firstly, let me say that our client does not wish to become involved in a legal dispute with the Council. However, if he does, we believe the Council would find it difficult to show that it had taken all reasonable action to obtain approval and registration of the plan of subdivision by 30 September 2011.

Quite clearly, our client would not have entered into the Agreement for Lease if there had not been the assurance the subdivision would proceed and allow a 30 year lease to be granted.

As we understand it, the original plan of subdivision involved the subdivision of our client's lot, a separate lot on which the airport runway, terminal and accompanying buildings are situated and then the remaining land on the other side of the runway to the west was to be subject to subdivision into a number of other lots where other businesses are and will be operational.

Has Council considered carrying out this subdivision ln stages whereby there are three (3) lots:

●   firstly, our client’s lot;

●   secondly, a separate lot for the airport runway, terminal and accompanying buildings; and

●   thirdly, the land on the other side of the runway, as the residue lot which can be subdivided later.

Alternatively Council could just subdivide our lot and leave the residue on one lot until a later date.

As we understand it, all the services are available to our client’s lot and the airport terminal and therefore from what we understand there is no reason why the suggested first stage subdivision could not take place in a reasonably short period of time. This would give Council time to subdivide the residue lot on the other side of the runway at a later time when the timing is better for Council’s funding of the balance of the services required to service that residue lot.

It is very important that our client obtain the security of tenure as provided in the Agreement for Lease.

We would appreciate an answer in regard to our suggestion regarding the staged subdivision. If it assists, our client is prepared to contribute to the surveying and registration costs if it involved just excising his lot.

We understand the offer made by you in regard to the series of 5 year leases but I'm sure you will acknowledge that it is not as suitable as the original 30 years lease on a separate lot of land registered at the Land Titles Office which is what our client contacted to obtain and which is what our client would like to receive.

Also, we believe it would be reasonable to grant our client an option to renew the Lease for 30 years and allow our client to have a right to purchase the lot, which we understand has been agreed with other occupants of buildings on the aerodrome.

As a result of problems associated with this business venture and the delay in having the plan registered and the final lease signed and registered, the principal of our client, Mr James Johnston, has suffered ill health and one option is to sell the hangar to recoup the money he has spent on the construction, maintenance and running of the hangar.

Our client has also asked us to stress that he entered into this arrangement hoping his building would be able to contribute to the Cessnock business and tourism development. He is committed to endeavouring to find new uses of the building for such purposes but will need Council assistance in relation to the permitted uses of the building. In particular as you are aware some of the tourist and event organisers have held large functions at the hangar venue with up to 500 people in attendance. Council are aware of the functions and the great benefit it provides to the region, and our client would like confirmation of these types of uses being permitted uses so he can plan for the continued use of the hangar.

Our client would like to apologise for the delay in payment of the latest rent as he has been battling in Europe to save some other Investments, and only returned to Australia last Wednesday. To this end we enclose a cheque for $14,408 being the rent up to date.

We look forward to hearing from you.”

93. The payment of $14,408 on 22 December 2011, referred to in the penultimate paragraph was the plaintiff’s last payment of licence fees pursuant to the AFL. The defendant continued to send quarterly invoices, for the payment of licence fees for proposed Lot 104. At no time did it agree to waive or pause its rights under the AFL to the licence fees.

94. It is plain from the terms of the letter that the plaintiff was endeavouring to use the passage of the Sunset Date as leverage to obtain freehold title to Lot 104, as opposed to leasehold, which was the interest for which the AFL provided. Mr Johnston explained the plaintiff’s rejection of the defendant’s offer in the following exchange:

“Q. You knew at the time that if you accepted Ms Rosser’s offer of a 25 year exclusive licence or 5 x 5 or a number of successive 5 year leases for that period. You would have no leverage against council to complain about the sunset date coming and going, correct?

A. No not correct.

Q. That explains why you and Mr Dockrill couldn’t come up with a response for some three months after the offer was made. That’s correct isn’t it?

A. No that’s not correct. Let me explain one more time and see if we get it. This is not bankable tenure. The licence that I’m being offered which is a 25-year licence, is not bankable tenure. You may as well tear the piece of paper up. You cannot, my problem was that I needed to borrow some money. I put in millions and millions of dollars. I needed to borrow money. With this offer I, the banks would not allow any borrowings whatsoever. So just, I want to just get that completely straight. So you can ask as many questions as you want, but that is a hundred per cent fact.”

The defendant’s attempts to resolve the dispute

95. On 18 January 2012, the defendant held a Leadership Group briefing on the dispute with the plaintiff, as a result of which it instructed valuers to perform a valuation of the hangar. In her notes of the meeting, Ms Rumbel recorded:

“-   Council has not considered carrying out the subdivision of this lot separately – because there does not appear, at this stage, to be any benefit to Council in subdividing the airport at all.”

96. Ms Rumbel was asked in cross-examination whether her note represented the consensus of those at the meeting. She was unable to recall the meeting and could not confirm whether it represented a consensus view. I infer from the further attempts made by Ms Rumbel to raise funds by grant or loan for the subdivision that her note did not represent the consensus of the Council. The Council appeared to have considered itself obliged, if not as a matter of legal obligation, as a matter of fairness, to continue to try to meet the conditions of the development consent notwithstanding that the Sunset Date had passed.

97. The defendant continued to try to resolve the dispute with the plaintiff. As Ms Rumbel understood it, the available options included: potentially subdividing proposed Lot 104 separately (which would leave it without access to a public road); offering a series of back-to-back leases; offering an exclusive or non-exclusive licence on the terms of the proposed lease attached to the AFL; or purchasing the hangar at the valuation (which had been obtained by the defendant on 5 March 2012 from Preston Rowe Paterson Valuers) of $950,000. The plaintiff objected to the evidence of valuation going in as evidence of the fact of the value of the hangar. I admitted it on the limited basis that it established that the defendant had received a report which contained that representation of value. As a consequence, there is no admissible evidence of the value of the hangar.

98. Mr Johnston, who continued to act on behalf of the plaintiff, although he was no longer a director, phoned Ms Rumbel on 13 March 2012 and said (as recorded in Ms Rumbel’s contemporaneous file note):

“I have the option of selling the hangar, but I’m not interested. I would like security of tenure. Also, I am going to ask my solicitor to send you a letter asking Council for a honeymoon period on rent, after all I’ve been through.”

99. The following day, 14 March 2012, Mr Dockrill sent a letter to the defendant, asking for a “rent holiday” pending resolution of the dispute. Ms Rumbel did not respond since she was hopeful that the whole of the dispute could be resolved. Nor did she seek the Council’s instructions to forego rent since she expected the Council to refuse to do so and, as I understand her evidence, did not want to jeopardise the chances of resolution by refusing the plaintiff’s request.

100. On 4 April 2012, Ms Rumbel, Ms Gee and Mr Dockrill met to discuss a potential resolution of the matter. Mr Dockrill was aware at that meeting that the reason the sewerage works had not been connected to all the lots in the proposed subdivision was the Council’s lack of funding to complete them. By the end of the meeting, Mr Dockrill announced that the plaintiff wanted either to acquire the freehold of proposed Lot 104 (as, by that time, all the services, including the sewerage service, had been connected to the proposed Lot 104) or have the defendant buy the hangar.

101. Also on 4 April 2012, Mr Dockrill wrote a letter to the General Manager of the defendant, which was marked to Ms Rumbel’s attention, in which he said:

“Following on your advice that the Council had taken over the running of the airport generally from the previous contracted manager, you volunteered there may be a change in Council’s long term plans from those when the Agreement for Lease was originally negotiated with our client.

Another possibility is for your client to purchase the hangar which is being constructed by our client. We have discussed this matter with our client since today’s meeting, and if Council wish to explore such an acquisition our client is prepared to speak to Council in this regard.”

102. When Ms Rumbel consulted the defendant’s Leadership Group (which included Ms Rosser, Mr Curtis and Ms Gee), she learned that the defendant did not want to sell any part of the freehold of the airport since this would potentially hamper development and potentially cause safety issues. Nor did the defendant want to complete a subdivision of Lot 104 by itself since this, in the Council’s assessment, would land-lock Lot 104. While the rejection of the other solutions left only the purchase of the hangar, Ms Rumbel foresaw problems with this proposed resolution since the defendant lacked the funds of about $1m to purchase the hangar and would need to apply for a grant or otherwise obtain the money from external sources.

The defendant’s applications for funds to resolve the dispute by purchasing the hangar

103. On 15 August 2012, the Council passed a motion to endorse the nomination of the airport as a major infrastructure project under the Hunter Infrastructure and Investment Fund grants program, a NSW State government fund for the Hunter Valley region. The defendant’s aim in applying for a grant of $2m, which was submitted on 22 August 2012, was to put itself in a position where it could buy the hangar from the plaintiff, refurbish the hangar, and use the hangar for terminal, office and hangar space for businesses looking to establish and expand at the airport.

104. Ms Rumbel was cross-examined about the statements she made in the grant application, which she described as a “pitch”. Mr Williams pressed her on whether she believed the statements she had included in the application about the benefits of the airport for the region. My impression was that Ms Rumbel appreciated what needed to be said on behalf of the Council to put its case for the grant funds. In this context, she was, when drafting the grant application, an advocate for the Council in obtaining the grant, which she saw was the best way of resolving the dispute which she had inherited when she began at the Council. I do not regard her endeavours as diminishing her credibility in any way. The terms of the application indicate her preparedness to find a pragmatic solution to the resolution of the issue between the parties.

105. On 28 August 2012, the defendant was informed by the local member for the electorate of Cessnock that he did not support the application. The Council was notified that it had been unsuccessful on 16 September 2013.

106. On 21 December 2012, Ms Rumbel sent an email to Mr Dockrill which said:

“Further to our telephone conversation last week, Council is working through its options with regards to the way forward with the agreements relating to your client’s hangar and anticipates a resolution to the matter in the new year.”

107. In April 2013, Ms Rosser resigned as the defendant’s General Manager. As the General Manager was, according to Ms Rumbel, the “key decision-maker” for the Council, the resolution of the dispute needed to await the decision of the new General Manager. An interim General Manager was appointed in May 2013.

108. On 6 September 2013, Mr Johnston decided to disconnect the power to the hangar as he could not pay any electricity bills and the plaintiff had abandoned the hangar approximately a year before.

109. On 21 January 2014, Ms Rumbel attended a meeting with Mr Dockrill, Mr Curtis and Stephen Glen, the new General Manager. The various options were discussed (subdivision to create Lot 104 and the defendant buying the hangar). At the meeting, Mr Dockrill said:

“Mr Johnston, the principal of [the plaintiff] is now living in Spain. [The plaintiff’s] original idea was to have a museum for vintage planes, but [Mr Johnston] has now sold the planes. The hangar has been used for events and can still be used [for] events.”

110. On 14 August 2014, the defendant lodged an expression of interest for the Resources for Regions Round of Funding, seeking $6.95m to upgrade the airport and purchase the hangar from the plaintiff. Although nothing came of this, Ms Rumbel continued her attempts to resolve the dispute.

The plaintiff’s corporate status

111. In about 2014, Mr Unicomb told Mr Johnston that the plaintiff had no directors and had not had a director since Ian Davidson, who had been appointed on 9 April 2010 to replace Mr Unicomb (the plaintiff’s then sole director), resigned on 19 April 2012. Mr Johnston told Mr Dockrill that the plaintiff had no directors and that they “needed to find a director as quickly as possible”. However, no directors were appointed until the plaintiff was reinstated in 2017. After 27 October 2014, Mr Dockrill had no further dealings with Ms Rumbel or any other representative of the defendant.

112. Mr Johnston’s reaction to the plaintiff’s lack of directors is evident from the following exchange in his cross-examination:

“Q. You took no steps when you learnt about that in 2014 to appoint any directors, correct?

A. Yeah, I was looking for a director, and I, I did ask around, it was difficult without me being in Australia at that time.

Q. Certainly, by that time, there was nothing going on with the plaintiff at all, it wasn’t trading, it wasn’t running any business at all?

A. No, no it was just, it was just the owner of the hangar venue.”

113. At no time did Mr Johnston, or any other person who purported to act on the plaintiff’s behalf in its dealings with the defendant, inform the defendant that it had had no directors since April 2012.

114. In around April 2015, Ms Rumbel prepared a recommendation that the Council obtain a loan or pursue grant funding to purchase the hangar (this being the only one of the plaintiff’s solutions for resolving the dispute which would be countenanced by the Council). On 8 April 2015, she briefed Councillors on the dispute to provide them with the necessary background in advance of the Council meeting. In the course of the briefing, one of the Councillors asked her to check on the plaintiff’s corporate status. Following the briefing, the defendant conducted a corporate search which revealed that the plaintiff had had no directors since 19 April 2012.

The revelation that the plaintiff had not had directors since April 2012 and its effect on the defendant

115. Ms Rumbel became very concerned by this revelation since she had been dealing with Mr Johnston since she began her employment with the defendant on the basis that he was a director of the plaintiff, and had been communicating with Mr Dockrill on the basis that he was instructed by Mr Johnston on behalf of the plaintiff. She explained in her evidence that she and others associated with the defendant were very concerned to do things “by the book”. Accordingly, the defendant became very circumspect about any further communications which purported to emanate from the plaintiff.

116. Thus, when Ms Rumbel received a call on 20 May 2015 from someone who identified himself as Michael Unicomb (whose relationship to Mr Unicomb is not revealed by the evidence), who purported to be Mr Johnston’s accountant, and to be authorised to speak to the defendant about the hangar, she did not regard him as being authorised to speak on behalf of the plaintiff, since Mr Johnston himself was not authorised. Kim Appleby, the manager of governance and business services at the Council, obtained a Dynamic Company and Securities Report, which purported to contain “public record information retrieved from [ASIC], [the] Australian Financial Security Authority and the Australian Taxation Office.” This report indicated that the company had not filed documents with ASIC since 5 November 2012; Cutty Sark HK was the plaintiff’s sole shareholder; and that no registered financial interests were reported on the Personal Property and Securities Register.

117. A company search of Cutty Sark HK, which Ms Appleby performed at Ms Rumbel’s request on 29 May 2015, indicated that it was deregistered on 17 June 2014. As at 30 June 2015, the plaintiff owed the defendant outstanding licence fees of approximately $151,357.52 for the period from October 2011 to 30 June 2015. This figure had increased to about $162,000 by the end of September 2015. As referred to above, no payment was made after 22 December 2011.

118. Michael Unicomb continued to try to communicate with Ms Rumbel in the latter part of 2015, which coincided with a period during which she was on leave. On Ms Rumbel’s return, she did not respond because of her concern that he had no authority to speak on behalf of the plaintiff. On 1 September 2015, Mr Johnston sent an email to Ms Rumbel, urging her to meet with Michael Unicomb “to try one more time for an amicable financial settlement”. He also said:

“It really has been too long now with my hands tied because of no bankable tenure & our contracted sunset clause, as you know this has forced me to abandon my project at your Airport & now keep my head above water in the Spanish property market that I know well.”

119. On 7 September 2015, ASIC deregistered the plaintiff for non-payment of fees. On deregistration, the plaintiff’s property (which included the hangar and any rights under the AFL) vested in ASIC: s 601AD(2) of the Corporations Act 2001 (Cth). Mr Johnston learned about the deregistration from Michael Unicomb. No application for reinstatement was made until 2017 (see below).

120. On 8 September 2015, Chris Eddy, the Airport Manager employed by the defendant, told Ms Rumbel that he had inspected the hangar, which was empty. The fuses had been removed and the electricity supply had been disconnected.

121. On 9 September 2015, Ms Rumbel responded to Mr Johnston’s email by informing him that the defendant had referred the matter to “external solicitors” who would respond to his email “in due course.” Mr Johnston sent a further email on 10 September 2015, which purported to be sent on behalf of the plaintiff, in which he informed Ms Rumbel that the statement of claim was being prepared.

122. On 9 September 2015, Holding Redlich, the defendant’s solicitors, wrote to ASIC regarding the plaintiff’s deregistration (which they had discovered when conducting a search) and the AFL. They informed ASIC that the defendant proposed to secure the property. On about 10 September 2015, Ms Rumbel arranged for the locks to be changed on the hangar and a sign to be posted indicating that any enquires were to be made to the defendant.

123. On 14 September 2015, ASIC responded to Holding Redlich and informed them that it had no objection to the AFL being terminated.

The defendant’s termination of the AFL

124. On 18 September 2015, Holding Redlich wrote to ASIC in the following terms:

“In your letter, you note that ASIC has no objection to the Agreement now being terminated. CCC [the Council] now regards the Agreement as now having come to an end. This is for several reasons including the following:

1. CCC regards itself as being presently entitled to rescind the Agreement on the basis that a plan of subdivision under the Agreement was not approved on terms reasonably acceptable to CCC. To the extent it can do so, CCC gives notice of thot rescission;

2. Alternatively, (in the case that CCC is not presently entitled to rescind), [the plaintiff] has been deregistered, which is a dissolution that constitutes a ‘Winding Up’ under the Agreement. CCC can now end the Agreement without having to give notice, which it does;

3. By [the plaintiff] having been de registered, it has abandoned the premises the subject of the Agreement (Premises);

4. Alternatively and in any case, [the plaintiff] appears to have abandoned the Premises prior to its deregistration;

5. Alternatively, by [the plaintiff] having been de registered, the Agreement has become frustrated;

6. Alternatively, by [the plaintiff] having been deregistered, it has become wholly and finally disabled from performing the Agreement; and

7. Alternatively, [the plaintiff] has repudiated the Agreement by not having paid the fees owed under the Agreement for several years ...

Our client is not aware of any property belonging to CCC remaining on the Premises.

In respect-of improvements made to the Premises, the Agreement provides that any improvements erected at the Premises by [the plaintiff] are to remain on the Premises following the expiration, termination or determination of the Agreement.”

125. On 22 September 2015, ASIC emailed Holding Redlich and confirmed that it did not intend to take any action regarding the matter.

126. In October 2015, a person by the name of Greg Huxley, who purported to act on behalf of Mr Johnston, contacted Holding Redlich about the hangar. Holding Redlich responded by enquiring as to Mr Huxley’s authority to act on behalf of the plaintiff as well as the basis upon which Mr Johnston was entitled to authorise Mr Huxley to communicate in respect of the plaintiff. As no satisfactory response was forthcoming, Holding Redlich wrote to Mr Huxley on 19 November 2015 informing him of the matters revealed by the corporate searches (that Mr Johnston had ceased to be a director and shareholder of the plaintiff in May 2007 and that the plaintiff had been deregistered).

The defendant’s acquisition of the hangar

127. In its communications with ASIC, the defendant referred to cl 16.8 of the proposed lease which was attached to the AFL, which provided that all the improvements on the proposed Lot 4 would become the property of the defendant upon payment of one dollar. ASIC, who was at that time the only entity then authorised to act on behalf of the plaintiff, accepted the defendant’s payment of one dollar for the hangar on 11 May 2016. The agreement together with the payment of one dollar was sufficient to effect a consensual transfer of the hangar from the plaintiff to the defendant.

128. On 6 December 2016, the defendant entered into a lease agreement for the hangar with a new tenant, Onyx Aviation Pty Ltd.

129. Mr Johnston was informed of the new lease of the hangar by a friend in February 2017. He believed that this would give him leverage to obtain a financial settlement from the defendant because he considered that he would be able to sue the defendant for repudiating the AFL.

The plaintiff’s reinstatement

130. On 4 May 2017, an application was made to the Supreme Court of South Australia to reinstate the plaintiff, which was granted on 5 June 2017. George Philippou was appointed director and secretary of the plaintiff.

The plaintiff’s submission based on Jones v Dunkel

131. Mr Williams submitted that I could more comfortably draw inferences against the defendant because the only witnesses it had called had not worked for the Council at the relevant time and that the Council had not called witnesses who could depose to the factual matters in issue from their own knowledge and experience rather than solely with recourse to the Council’s records. In this respect he relied on Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8. He submitted that I could make findings of fact on the basis that witnesses not called by the defendant would not have assisted its case.

132. The defendant called two witnesses: Teressa Chadwick, the Council’s Governance and Support Coordinator, who has worked for the Council since 16 October 2017 and Ms Rumbel. Ms Chadwick described the searches which she had instructed her team to undertake to identify and collate relevant documents, which were exhibited to her affidavit. Another witness, who might have been called by the defendant, Mr Gogarty, was called by the plaintiff. The defendant adduced uncontroverted evidence that Mr Vogan died in November 2017.

133. The defendant also served affidavits from Mr Mortomore, Robert Maginnity, Bob Pynsent and Susanne Brinkworth, who worked for the defendant during relevant periods. However, after the plaintiff closed its case, Mr Cook did not read the affidavits. Instead, he tendered documents exhibited to those affidavits, a forensic decision which shortened the length of the hearing and enabled it to be completed within the five-day estimate. It would have been open to the plaintiff to tender paragraphs of those affidavits, if it had chosen to do so.

208. In these circumstances, I am not satisfied that the cost of the hangar would be recoverable under either of the two limbs in Hadley v Baxendale. For these reasons, as referred to above, the dispute as to the total amount spent to construct the hangar does not need to be resolved. I note that there is no claim for restitution and no admissible evidence as to the value of the hangar.

209. On the basis of the reasons I have given above regarding the unprofitability of the businesses which the plaintiff conducted from proposed Lot 104, I am not persuaded that the loss of opportunity to make a profit from the businesses conducted on proposed Lot 4 had any value. Further, the plaintiff’s financial statements do not bear out its claim that the venue hire business was, at any time, profitable.

210. Accordingly, the plaintiff has failed to make out its claim for substantial damages for breach of contract and is entitled to no more than nominal damages of one dollar.

Claim for alleged unconscionable conduct

228. The plaintiff alleges in its statement of claim that the defendant’s conduct “at all relevant times”, both prior to and after the Sunset Date, was unconscionable. The particulars to the allegation in the statement of claim are as follows:

“I. The Agreement was such that the Council was required to procure a benefit for the plaintiff, that is, the approval and registration of the Plan and Instrument and the entry into the Lease for a term of 30 years.

II. The Council knew, or ought reasonably to have known, that the plaintiff had expended considerable sums of money in constructing a hangar on the Land with a view to, and in the hope of, entering to the Lease.

Ill. It was entirely within the Council’s control, being both the applicant and the Relevant Authority, to approve and register the Plan and Instrument, yet failed to do so.

IV. The Council did not take all reasonable action to approve and register the Plan and Instrument prior to the Sunset Date, or at all.

V. The Council, instead, repudiated the Agreement by taking possession of the Land and changing the locks, and is now the beneficiary of the fruits of the plaintiff’s labour.

VI. Further particulars will be provided in due course.”

229. I note that the pleading and the particulars with respect to this aspect of the plaintiff’s claim allege that the defendant “repudiated” the AFL when it purported to terminate it in September 2015 and changed the locks on the hangar. This is not relied on by the plaintiff as a breach of contract entitling it to damages (the plaintiff’s claims for damages being based on alleged pre-Sunset Date breaches and the breach of cl 4.2(a)(2) on the Sunset Date). In so far as it is necessary to decide the question, I am satisfied that the defendant was entitled to terminate the AFL on 18 September 2015 and that the termination, being lawful, does not constitute a repudiation of the AFL. That the plaintiff was reinstated does not cure the effects of its deregistration or the breach of cl 13.1, which it constituted. Section 601AH(5) of the Corporations Act does not have this effect since it creates only a “limited form of retrospectivity”: CGU Workers Compensation (NSW) Ltd v Rockwell Interiors Pty Ltd [2006] NSWSC 690; (2006) 201 FLR 296 at [17] (Barrett J).

230. The plaintiff sought to augment its particulars to the claim for unconscionability by letter dated 15 September 2021 by including the following:

“35.(VI) Further particulars will be provided in due course. By not registering the Plan, the Council did not act in good faith. For example:

a.    The Council knew that the plaintiff had spent considerable sums of money constructing the hangar in the hope that it would secure a 30-year Lease.

b.    The Council failed to comply with the Conditions of Development Consent in circumstances where it had imposed those conditions on itself.

c.    The Council failed to comply with the Conditions of the Development Consent despite having insubstantial [scil, substantial] sums of cash and investments that were unrestricted in the 2007/2008, 2008/2009, 2009/2010 and 2010/2011 financial years.

d.    In June 2011, Council told the manager of the aerodrome (Peter Roberts of ALC) that the Council would not be proceeding with the subdivision because it had ‘no intention of spending about a million dollars fixing the sewerage’, yet it did not inform the plaintiff of its intention.

e.    In January 2012, the Council held a meeting to discuss its dispute with the plaintiff. Rumbel's notes of that meeting provide that ‘Council has not considered carrying out the subdivision of this lot separately - because there does not appear, at this stage, to be any benefit to Council in subdividing the airport at all’. This was never disclosed to the plaintiff.

f.    On 15 August 2012, the Council passed a motion to endorse the nomination of the Airport as a major infrastructure project under the Hunter Infrastructure and Investment Fund grants program. It appears that the Council had other plans for the Airport at this time (including refurbishing the hangar). Yet it never disclosed this to the plaintiff.

g.    On 22 August 2012, the Council applied to the Hunter Infrastructure and Investment Fund for funding in the sum of $2,000,000 to purchase and refurbish the hangar. That application was refused in September 2013.

h.    Yet throughout 2012 and 2013, despite appearing to have other plans for the Airport, the Council essentially strung the plaintiff along by representing that it was working on the matter and that it hoped to find a solution to the plaintiff's predicament shortly and holding pointless meetings.

i.    These meetings continued throughout 2014, at a time when the Council once again appeared to have other plans for the Airport, having lodged in August 2014 an expression of interest for the Resources for Regions Round of Funding on behalf of the Council.”

231. The defendant opposed the addition of the particulars and contended that their addition, in substance, changed the case which the defendant had to meet. While the timing of the provision of the further particulars and their extent lends force to the defendant’s submission, I am persuaded by the evidence that was adduced in the proceedings that the defendant was able to deal adequately with the additional particulars and that there would be no particular prejudice to the defendant by allowing the plaintiff to rely on the further particulars. For this reason, I propose to address the plaintiff’s claim with respect to alleged unconscionability on the basis of all of the particulars provided.

232. Section 21(1) of the Australian Consumer Law relevantly provides that a person must not, in trade or commerce, in connection with the supply or possible supply of services to a person, engage in conduct that is, in all the circumstances, unconscionable. It was common ground that the AFL contemplated the supply by the defendant of a “service” to the plaintiff, the service comprising rights in relation to, or an interest in, real property. It was also common ground that cl 12.3 did not exclude a claim arising under s 236 (for damages) or s 237 (for an order) of the Australian Consumer Law: see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 561 (Lockhart J, Burchett and Foster JJ agreeing).

233. The defendant took issue with the plaintiff’s contention that the conduct occurred in “trade or commerce”. It contended that the particulars indicated that the plaintiff relied on the defendant’s role as a public authority and not as a developer by taking issue with the way in which the defendant exercised its powers in relation to subdivision; the way in which it managed its budget; and the way in which it applied for grant funding for infrastructure. It submitted that these activities did not fall within trade or commerce, as that expression was explained in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602-603 (Mason CJ, Deane, Dawson and Gaudron JJ); [1990] HCA 17.

234. Because of the view to which I have come as to the substance of the unconscionability claim, it is not necessary to decide which, if any, of the allegations relate to conduct in trade or commerce and which relate to conduct of a governmental kind. Accordingly, I propose to assume, without deciding, that the defendant’s conduct which is said by the plaintiff to be unconscionable occurred in trade or commerce and proceed to determine whether the allegation of unconscionability has been made out by reference to the particulars.

235. In order to establish statutory unconscionability, the plaintiff must prove some moral fault or moral responsibility or that the defendant’s conduct amounts to serious misconduct which is plainly unfair and unreasonable: Qantas Airways Limited v Cameron (1996) 66 FCR 246 at 262 (Davies J) and 283-284 (Lindgren J, Lehane J agreeing). The matters to be taken into account in assessing whether conduct is unconscionable are set out in s 22 of the Australian Consumer Law. An assessment of whether conduct is, in all the circumstances, to be characterised as unconscionable involves an evaluative judgment which requires close consideration of the facts and circumstances: Australian Competition and Consumer Commission v Medibank Private Limited (2018) 267 FCR 544; [2018] FCAFC 235 at [234]-[236].

236. Although, ultimately, a holistic view needs to be taken of the particularised conduct, I propose to begin by addressing the particulars in order.

237. As to particular I, the AFL required the defendant to take all reasonable action to get the Plan of subdivision and Instrument registered. As to particular II, the defendant was aware that the plaintiff was constructing a hangar at substantial expense on proposed Lot 104. By the terms of the AFL, it made express provision for the allocation of risk for the construction of the hangar.

238. Particulars III and IV conflate the two distinct roles played by the defendant. First, the Council was the approving authority and had stipulated the conditions in the development consent. Absent an application for an amendment of those conditions (and there was none), the Council could not have certified, contrary to the fact, that condition 23 had been complied with. Second, the Council, in its role as developer, was obliged, under cl 4.2(a)(2), to take all reasonable action to have the subdivision registered. As a matter of practical reality, the only way in which it could achieve such registration was to comply with the conditions which it, in its other role, had stipulated. It would have been wrong, inconsistent with the demarcation of its different roles, and presumably unlawful, for the Council to waive a condition such as condition 23, with which it did not have the funds to comply. While the Council’s failure to comply with condition 23 put the Council in breach of cl 4.2(a)(2), it was not unconscionable.

239. As to particular V, I am satisfied for the reasons given above that the defendant was within its legal rights to terminate the AFL and change the locks on the hangar. The plaintiff had long since abandoned proposed Lot 104, had not paid licence fees since 22 December 2011 and had become deregistered. Insofar as particular V implies that the defendant terminated the AFL in order to become “the beneficiary of the fruits of the plaintiff’s labour”, I reject the implication. The defendant, through Ms Rumbel, was clearly troubled by its discovery of the plaintiff’s long-term lack of directors and its eventual deregistration and was anxious to regularise the situation. When the plaintiff became deregistered, the only entity with which the defendant could deal was ASIC. The transfer of the hangar to the defendant for the price of one dollar arose from the terms of the AFL and attached lease, to which the plaintiff agreed and, as Mr Gogarty’s communication to Sparke Helmore on 19 October 2006 noted, was taken into account pre-contract in the negotiations for the amount of the licence fee.

240. Particular VI alleges that, by not registering the Plan (and Instrument), the defendant did not act in good faith. The sub-paragraphs to this particular are said to be “examples” of the alleged lack of good faith. Subparagraphs (a) and (b) have been sufficiently addressed above.

241. In substance, particular VI(c) alleges that the defendant chose not to spend funds to connect the sewerage to fulfil condition 23. The evidence as to the defendant’s financial position is set out above. It demonstrated that the Council was in a difficult financial position and was barely able to fulfil its functions of maintaining roads, footpaths and bridges. To a large extent, it depended on grants from public entities for particular projects since it had limited capacity to service any substantial loan. While I am not satisfied that it was impossible for the defendant to have paid the $1.3m to connect the sewerage, it could only have done so if it had neglected its other fiscal responsibilities to the citizens of its area, which included the maintenance of roads, footpaths and bridges.

242. It was not open to an individual, such as Ms Rumbel, to make such a decision, since it was for the Council, through either the General Manager or the Councillors, to decide on such an allocation from the Council’s own budget. Ms Rumbel did her best to source the funds from grants or loans by making such applications as she thought would best advance the Council’s chances of a grant or loan but was unsuccessful. Her efforts to obtain funds came to an end only when she discovered that the plaintiff had, for a period of years, had no directors. She referred the matter to the defendant’s external solicitors, Holding Redlich, because of her concern about the ramifications for the Council of dealing with unauthorised persons (such as Michael Unicomb and Mr Huxley) who purported to represent the plaintiff.

243. In particular VI(d), the plaintiff alleges that the defendant’s conduct in not telling it that it did not have the money to connect the proposed lots to the sewerage in June 2011 was unconscionable. However, it is clear from the terms of Ms Rosser’s letter of 13 September 2011, that the defendant told the plaintiff that it would not be able to have the Plan and Instrument registered by the Sunset Date. Mr Dockrill’s substantive response dated 20 December 2011 indicates that he was aware that the issue had been the Council’s difficulty in funding the balance of the services. So much can be inferred from his reference to the possibility that the Council could approve a subdivision which would create proposed Lot 104 and leave the “residue lot” on the western side of the runway until “a later time when the timing is better for Council’s funding of the balance of the services required to service that residue lot.” In these circumstances, I am not satisfied that the plaintiff was unaware, at any material time, of the defendant’s position.

244. Particulars VI(e)-(i) can be addressed together. Through the evidence of Ms Rumbel, both in chief and in cross-examination, she demonstrated her preparedness, on behalf of the Council, to arrive at a negotiated resolution of the dispute between the plaintiff and the defendant without recourse to litigation. She listened to what Mr Dockrill said the plaintiff wanted (which included a request that the Council pay him for the hangar), undertook steps to ascertain what the hangar was worth (and obtained a valuation of $950,000) and investigated whether the Council would be prepared to pay for it (which it was apparently not).

245. Before the Sunset Date, the Council, through Ms Rosser, offered the plaintiff consecutive leases which, in total, would have added up to 25 years, and which would have been registrable. Although there was a difference between what was promised, if the Plan and Instrument had been registered by 30 September 2011 (a 30-year lease), and what was eventually offered (a series of five 5-year consecutive leases adding up to 25 years), the latter would, for the reasons given above, still have been registrable. I reject the plaintiff’s submission that the offer was “hollow” or that it was “nothing more than a transparent attempt by the Council to create a paper trail to give the impression that it was taking its contractual obligations seriously.” That the plaintiff refused the offer indicates that its real grievance is that the airport was not developed in accordance with the original “vision”. But this is not what the defendant had promised the plaintiff that it would do. As referred to above, the plaintiff makes no claim for alleged misrepresentation.

246. Because the plaintiff had chosen not to terminate the AFL on 30 September 2011 and remained in occupation of the hangar, Ms Rumbel continued to try to obtain funds to comply with condition 23 with a view to registering the subdivision, but without success. As referred to above, it was only in the course of a briefing of Councillors regarding a recommendation that the Council pursue loan or grant funding that one of the Councillors asked her to check the plaintiff’s corporate status. Although there was, at least by January 2012, a view amongst some at the Council, that the airport would not provide a benefit to the Council, this did not stop Ms Rumbel from persisting with her efforts to obtain funds to connect the sewerage to the proposed lots in order to get the Plan and Instrument registered. I reject the plaintiff’s submission that the Council “essentially strung [the plaintiff] along”. While the wheels of the Council might have moved too slowly for the plaintiff, I am satisfied that, while Ms Rumbel was at the Council, she continued in her efforts to resolve the situation. She, and the Council, acted in good faith in trying to remedy the breach and the dispute between the parties and come to a satisfactory resolution.

247. For the reasons given above, I am persuaded that the Council did what it could (having regard to its lack of available funds) to remedy its breach of cl 4.2(a)(2) and comply with the AFL, which was still on foot until September 2015, having not been terminated until 18 September 2015.

248. As for particular VI(j), the plaintiff’s complaint is, in substance, that the Council should have created a bespoke subdivision for proposed Lot 104 (which was connected to the sewerage services in March 2009) in circumstances where it was unable to meet the conditions of the development consent for the Plan and the Instrument and that it gave the plaintiff “no cogent reason” for not doing this. As referred to in the narrative above, the defendant’s Leadership Group did not want to create a subdivision of proposed Lot 104 by itself because it did not regard it as being in the Council’s interests, or the interests of the future development of the airport to do so. This was a view which the Council, acting in the public interest, was entitled to take. The plaintiff was not entitled to a running commentary on the Council’s deliberations on its proposals. It was communicated to Mr Dockrill that the Council would not countenance a separate subdivision but that the Council was pursuing other options (applying for funds to buy the hangar or to comply with condition 23 so that the Plan and Instrument could be registered). I do not regard the Council’s conduct as unconscionable.

249. I am not persuaded that any of the particulars of unconscionability either individually or in combination lead to an inference that the defendant behaved in an unconscionable manner. The plaintiff, through Mr Johnston and Mr Dockrill, was well able to look after itself in the negotiations for the AFL. It took a calculated risk which, in the events that happened, did not pay off. While it may, in hindsight, have been an error of judgment for the Council to commit itself to the AFL, with the obligation contained in cl 4.2(a)(2), in circumstances where its financial capacity was relatively straightened, I do not regard the Council as having been guilty of the alleged unconscionable conduct. The initial project budget which Woromar had provided estimated the costs of compliance with the development consent to be $789,000. As it happened, they turned out to be considerably higher and, in all the circumstances, became beyond the means of the Council.

231. The Council neither asked for the hangar to be built, nor had a say in its cost or ostentation. Although it subsequently acquired it for peppercorn consideration, it did so in accordance with cl 16.8 of the lease, which gave effect to the Council’s refusal to be liable for removing the hangar when the AFL or lease came to an end, and its unwillingness to be responsible for a structure which it did not own on land which did.

232. For these reasons, the plaintiff’s claim for relief in respect of unconscionable conduct has not been made out.

Credibility of witnesses

252. This case substantially turned on the transaction documents and contemporaneous communications between the parties, most of which were in writing. In these circumstances, the determination of what occurred depends, in large measure, on consistency between human recollection and contemporaneous documents: Watson v Foxman (1995) 49 NSWLR 315 at 319 (McClelland CJ in Eq). Thus, findings of credibility are of lesser importance than in cases where there are no, or few, documents. However, the parties made submissions on credibility, which require findings to be made.

Mr Johnston

253. Mr Johnston gave his evidence in a forthright, confident way. However, on several occasions, it was established, in cross-examination, that his recollection was not borne out by the documents. For example, he maintained (as reflected in the plaintiff’s reply filed on 13 November 2018) that in September 2011, the defendant, through Ms Rumbel, had agreed to a rent-holiday to the effect that no rent, or licence fee, would have to be paid after the Sunset Date (30 September 2011) until the plan was registered. The evidence showed not only that the defendant did not agree to any such proposal but also that the plaintiff’s own conduct, including Mr Johnston’s conduct, was inconsistent with any such agreement. For example, Mr Johnston phoned Ms Rumbel on 13 March 2012 and asked for a “honeymoon period on rent, after all I’ve been through.” Such a call would have been unnecessary had there already been an agreement from September 2011. Further, Mr Johnston’s own affidavit evidence was to the effect that he instructed Mr Dockrill to ask for a rent holiday on 14 March 2012, which indicates that he appreciated at the time that the defendant had made no commitment to grant the plaintiff a rent holiday earlier. While it is possible that Mr Johnston actually believed that the Council had granted the plaintiff a rent holiday (that is, that he was not being deliberately dishonest), any such belief was optimistic, delusional and not grounded on any firm factual basis. I found him to be an unreliable witness.

254. Mr Johnston appeared to be able to convince himself of the truth of that which would suit his commercial interests at any given time. He purported to continue to act for the plaintiff at a time when he was no longer a director and allowed the plaintiff to continue without directors for a period of years and to become deregistered, resuscitating it only when he believed that its claim against the defendant might be of some value after having learned, by chance, that the defendant had leased the hangar to a third party. He was vague about dates and figures and preferred to “spin” his answers to present himself and the venture in the best light. His refusal to concede that he was “desperate” to sell the hangar (although that was what was implied in the wording of one of the advertisements) or that the venture had been a failure reflected his strong tendency to concentrate only on the upside.

255. Mr Johnston presented as a risk-taker who consistently tried to position himself for advantage. He bought aircraft without having any firm plan as to where he would house them, what he would do with them and whether they could be used profitably. He put in a development application for the construction of the hangar on the proposed Lot 104 well before the AFL was executed at a time when its terms had not been negotiated, and commenced construction before the AFL had been signed. Having represented on the development application that the approximate cost of construction would be $560,000, he proceeded to arrange for the construction of an “iconic” architect-designed hangar at a total cost in excess of $3m.

256. It can be seen from the total figure that recouping the cost of the hangar (which exceeded the figure specified in the development application by a factor of six) from any income earned from the hangar over the life of the lease would be a much more difficult task than earning income in excess of the rent. This profligacy and ostentation were consistent with Mr Johnston’s dismissal of Mr Cook’s cross-examination of him regarding accounting figures when he said that he left the numbers to his accountant.

257. Mr Johnston did not concern himself with detail or with documents. His affidavit contains several references to his having not kept business records. He was unable to say exactly when either of the advertisements for the sale of the hangar was placed, except by inference in respect of the one which specified a date for opening of bids. Despite the absence of recourse to such documents, he was prepared to make definite statements, which were proved to be incorrect. His evidence was impressionistic, self-motivated and reconstructed.

258. Throughout his cross-examination, Mr Johnston consistently referred to his desire for “bankable tenure”, by which I understood him to mean a lengthy leasehold, or freehold interest, against which he could borrow, or which he could sell. I formed the impression that Mr Johnston was, at heart, a speculator, who would see what angle he could obtain to sell an asset or an opportunity and move on to other things. I regard his apparent negligence with respect to the appointment of directors and deregistration of companies with which he was associated as consistent with this.

Mr Gogarty

259. I consider that Mr Gogarty was attempting to tell the truth as he remembered it, without the aid of records which may have assisted him with details and times. He admitted in cross-examination that he had a personal interest in the proceedings, which he explained in the following exchange:

“Q. Would it be fair to say that you are a fairly passionate advocate for Mr Johnston's cause in this case?

A. I think Mr Cook, and I hope this doesn't sound strange, but I'm a passionate advocate for my own cause, and my own cause is integrity and ethics. I feel as though Mr Johnston advanced with a project and spent a great deal of money and that I was part of, on behalf of Cessnock Council, enticing him to do that. So yes I'm passionate. I don't know Mr Johnston well. But I do know that this is a blot on my integrity.

Q. And you want to vindicate that blot by testifying before her Honour today?

A. Correct.”

260. Mr Gogarty also said that he considered that “Mr Johnston has been done an injustice.”

261. It is my impression that Mr Gogarty, unwittingly, overstated the assurances he gave to Mr Johnston because he felt that the defendant ought to have proceeded with the registration of the Plan and the Instrument and the development and that his resignation caused the defendant not to proceed with these matters. I found him to be an honest witness, telling the truth as he saw it, through the prism of his declared interest and without the benefit of his records or other records of the defendant. His evidence is of little significance because of the confines of the pleaded case and the fact that he left the defendant’s employ shortly after the AFL was executed. The plaintiff does not allege misrepresentation or estoppel. Rather, it alleges breach of contract and other causes of action which arise from the defendant’s conduct following the entry into the AFL.

Ms Rumbel

262. Mr Williams mounted a significant attack on Ms Rumbel’s credit. He submitted that, through her, the defendant had taken advantage of the plaintiff’s lack of directors and eventual deregistration by communicating with ASIC without alerting Mr Johnston, Mr Dockrill or anyone who purported to represent Mr Johnston or the plaintiff of its discovery or its communications with ASIC. Mr Williams sought to impugn her credit for the purposes of undermining her evidence about the defendant’s financial position and the lengths to which the defendant had gone to obtain the funds to fulfil condition 23.

263. I found Ms Rumbel to be an honest, reliable and straightforward witness. Because she commenced her employment with the defendant on 27 June 2011, she had no involvement in the making of the agreements between the defendant and ALC or the AFL. The defendant’s decision not to commit discretionary funds to connecting the sewerage had been made long before the commencement of her employment. She was not defensive about the defendant’s position and had no reason to be. She no longer works for the Council, having ended her employment there on 17 July 2017. In that sense, she was relevantly disinterested.

264. I accept Ms Rumbel’s explanation that she was very concerned about the discovery of the plaintiff’s lack of directors and anxious not to compromise the defendant’s position by communicating with persons who were, by necessary inference, unauthorised by the plaintiff. I regard her approach, as revealed by the following exchange, as a proper one:

“Q. By April 2015, you had become aware that [the plaintiff] had had no directors since April 2012?

A. That is correct.

Q. In none of the communications you had with Mr Johnston or people acting or purporting to act on his behalf, or on behalf of [the plaintiff], did you mention that to them did you?

A. No, I did not.

Q. You deliberately kept it to yourself, didn't you?

A. Well, I would’ve assumed that they would’ve known because they were the ones that had to stop being a director. It was something - almost the reverse that they kept it to themselves.

Q. You perceived that there could be an advantage to council from the fact that there had been no directors of [the plaintiff] since 2012, didn’t you?

A. I believed I needed to get advice about what council needs to do in that situation because what I assumed we were dealing with wasn’t what I thought we were dealing with, what, what transpired that we were actually dealing with. So, I needed to, to find out what we did from that situation.”

265. I am not persuaded that Ms Rumbel’s approach was other than appropriate. I do not regard her credit as having been impugned by it. I accept her evidence as far as it went and note that she was careful throughout not to say more than the matters of which she was aware or had been made aware through her examination of documents which had been created before she began her employment with the Council.

Costs

266. The parties asked that I reserve the question of costs. In the event that they accept that costs ought follow the event in accordance with the general rule in UCPR, r 42.1, I have made an order, which will apply unless a written application is made to my Associate by either party within seven days for a different order.

Orders

267. For the reasons given above, I make the following orders:

1. Judgment for the plaintiff in the sum of one dollar.

2. Subject to any application in writing being made within seven days to my Associate for a different order, order the plaintiff to pay the defendant’s costs of the proceedings.

**********

Decision last updated: 18 October 2021