Recovery of wasted expenditure: Hangar with no lease
Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17
In a judgement delivered on 8 May 2024, the Full Bench of the High Court unanimously affirmed the decision of the Court of Appeal of the Supreme Court of New South Wales and dismissed an appeal by Cessnock City Council concerning the recovery of $6,154,459.40 in damages in the form of ‘reliance losses’ or wasted expenditure arising from breach by Council of an agreement for lease at Cessnock Airport.
Background of the case
Cessnock City Council owns the land on which the Cessnock Airport is located. As part of a development initiative, the Council entered into an agreement for lease with the respondent for a 30-year lease of proposed Lot 104 at the airport, to operate from the day after the registration date of the plan of subdivision. The sunset date for Council to apply and register the plan was 30 September 2011, and Council granted the respondent a licence to occupy the site pending the lease. The respondent, who intended to provide advanced aerobatic training and joy flights, spent almost $3.7 million constructing an aircraft hangar on the site.
Ultimately, Council determined it could not afford the sewerage works required to enable registration of the plan, and informed the respondent before the sunset date that it would not be proceeding with the development.
The respondent’s business suffered headwinds and operations ceased, again before the sunset date.
ASIC deregistered the respondent due to non-payment of fees, triggering default under the licence, termination by Council and the ownership of the hangar passing to Council for the nominal consideration of $1.00.
The respondent sued Council for breach of contract seeking “reliance” damages to recoup the losses suffered in reliance on the Council’s contractual promises.
Primary decision for nominal damages only
The primary judge awarded the respondent nominal damages only, on the basis that the commercial judgement in constructing the hangar had been flawed from the outset and the presumption in favour of the respondent’s recoupment did not apply (and if it did, the Council had discharged the onus of rebutting it). The Supreme Court of NSW found Council was not contractually bound to further develop the airport, so the risk of non-development fell on the respondent who otherwise failed to prove loss.
Court of Appeal determines presumption does not require impossibility
This decision was overturned by the Court of Appeal which found that the presumption was not limited by any ‘impossibility’ requirement, and that there was in fact a significant possibility of the airport’s development during the lease which would have been beneficial for the respondent’s business.
High Court dismissed appeal
The principle governing the recovery of damages for wasted expenditure is summarised by Gageler CJ. – “A plaintiff establishes a prima facie entitlement to recover damages for breach of contract if and to the extent that the plaintiff establishes that expenditure it has incurred in reliance on an expectation of performance of the contract has in fact been wasted upon breach of the contract by the defendant. The prima facie entitlement of the plaintiff prevails unless and except to the extent that the defendant establishes the counterfactual that the expenditure would still have been wasted even if the contract had been performed. Beyond the limitations imposed through the application of standard limiting principles, such as remoteness and mitigation, no further limitation on recovery should be imposed.”[1]
This principle facilitates proof of damage by a presumption that a party claiming loss would have recouped any reasonably incurred expenditure. The strength of this assumption is determined by the degree of uncertainty. Here, the Council’s breach in failing to register the plans made three considerations particularly uncertain for determining loss:
Whether the Council, which was short on cash, would have in fact obtained funding for further the development of the airport.
The extent development would have increased demand for the respondent’s business once subdivision had occurred.
Whether the respondent would have operated their business profitably depending on the nature of the development and demand flowing from it.
The onus of rebutting the presumption fell on the Council, which the High Court determined it had failed to discharge. Notably, Jagot J expressly approved of the Court of Appeal’s statement that proof of loss in the early stages of business conducted in circumstances different to the one contemplated in the agreement does not determine non-recoupment.
This decision is important because it provides clear guidance on a plaintiff’s ability to recover damages for wasted expenditure. It establishes a clear presumption of recoupment in circumstances where a party suffers loss in reliance on an agreement, and uncertainty arising from the other party’s breach makes proof of loss problematic. A party opposing a claim for wasted expenditure will need to carefully consider what evidence it can adduce to displace the presumption.
[1] [2024] HCA 17 at 3
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