High Court affirms right to reliance damages in landmark breach of contract case

A party sought damages for the investments they termed ‘wasted expenditure’ due to the breach

High Court affirms right to reliance damages in landmark breach of contract case

The High Court has dismissed the appeal by Cessnock City Council in a landmark breach of contract lawsuit, establishing a precedent concerning reliance damages.

The controversy in Cessnock City Council v 123 259 932 Pty Ltd originated from a 2007 agreement in which the council agreed to grant Cutty Sark a 30-year lease to develop part of a proposed airport in Cessnock.

The High Court ruled that the council's failure to register the plan of subdivision by the agreed deadline constituted a breach of contract, which permitted Cutty Sark to continue its substantial investments in building a hangar and acquiring aircraft without interference from the council. Ultimately, the court affirmed that an innocent party can recover damages for breach of contract when they incur expenses based on the expectation of the contract being fulfilled, which is not proven otherwise by the breaching party.

Legal proceedings began when Dentons, on behalf of Cutty Sark, sought damages for the investments they termed "wasted expenditure" due to the breach. Initially, the Supreme Court awarded only nominal damages, which was challenged in the NSW Court of Appeal. The appellate court sided with Cutty Sark, emphasizing that the burden of proof was on the council to demonstrate that Cutty Sark's expenditures were unjustified.

The case escalated to the High Court after the council granted a special leave to appeal. However, the High Court's unanimous decision echoed the Court of Appeal, concluding that the council's repudiation entitled Cutty Sark to damages for the expenditures made in anticipation of fulfilling the contract. The High Court held that the Council failed to prove that the expenditures would have been unnecessary had they honoured the agreement.

Ourania Konstantinidis, a partner at Dentons, expressed satisfaction with the High Court’s affirmation, which resolved a lengthy dispute and clarified the precedent on reliance damages in contractual breaches across Australia. "Not only has the verdict concluded a prolonged period of contention for our client, the High Court's unanimous decision has clarified the precedent regarding the presumption of recoupment in reliance damages for contracts in Australia," Konstantinidis stated.

Eric Grima, a solicitor involved in the case, remarked on the significance of representing 123 259 932 Pty Ltd. "It is a proud moment for Dentons to represent 123 259 932 Pty Ltd in the highest legal platform in Australia in an overwhelming unanimous decision. It is rewarding to see the outcome that we achieved for our client, along with providing clarification of an important legal precedent on contracts that has widespread implications on commercial law in Australia,” Grima noted.

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