123 259 932 Pty Ltd v Cessnock City Council

1. [1]

   MACFARLAN JA: I agree with Brereton JA.

2. [2]

   BRERETON JA: The respondent Cessnock City Council (“the Council”) is the registered proprietor of land near Pokolbin on which is located the Cessnock Airport, also known as Hunter Valley Airport (“the airport”). By an agreement for lease bearing the date 16 January 2008 but made on or about 26 July 2007 (“the Agreement”), the Council promised to grant to the appellant 123 259 932 Pty Limited – formerly, Cutty Sark Holdings Pty Limited (“Cutty Sark”) – a lease (“Proposed Lease”) of a part of the airport, on which Cutty Sark intended to construct an aircraft hangar from which it would operate a business conducting joy flights and advanced flight aerobatic training, which was to become Lot 104 in a proposed 25 lot subdivision, for a term of thirty years from the registration of the plan of subdivision (“the Plan”). The Council – which was not only the applicant but also the relevant consent authority for approval of the subdivision – promised to take all reasonable action to apply for and register the Plan by 30 September 2011 (“Sunset Date”), and in the meantime granted Cutty Sark a licence to occupy proposed Lot 104. Cutty Sark proceeded to construct the hangar, at a cost of in excess of $3 million.

3. [3]

   The Council’s obligation to take all reasonable action to apply for and obtain registration of the Plan required it to take all reasonable action to fulfil the conditions of the development consent, including that the proposed lots be connected to Hunter Water Corporation’s reticulated sewerage system. The Council did not comply with that condition, asserting that it did not have and could not reasonably obtain the $1.3 million required to do so. Consequently, the Plan was not registered by the Sunset Date, or at all, and the Proposed Lease was not granted.

4. [4]

   Prior to the Sunset Date, Cutty Sark had ceased to operate businesses from the hangar, as they were not successful. After the Sunset Date, by mid-2012, Cutty Sark vacated proposed Lot 104 and the hangar on it. Cutty Sark was deregistered by the Australian Securities and Investments Commission (ASIC) on 7 September 2015. The Council terminated the Agreement and, on 11 May 2016, paid ASIC $1 for the acquisition of the hangar, in reliance on a provision of the Proposed Lease which entitled the Council to acquire the hangar for $1 upon termination for any reason. On 6 December 2016, Council granted a lease of the hangar to a new tenant for a term of five years.

5. [5]

   Cutty Sark was reinstated by order of the Supreme Court of South Australia on 5 June 2017. It commenced these proceedings against the Council claiming damages for breach of contract on 29 September 2017. The primary judge held that the Council had breached the Agreement by failing to take all reasonable action to apply for and obtain registration of the Plan by the Sunset Date in accordance with its contractual obligation to do so, [1] but that Cutty Sark was entitled only to nominal damages in the sum of $1. Cutty Sark appeals, contending that it should have been awarded substantial reliance damages, representing the amount that it had expended in constructing the hangar.

Background

1. [6]

   In 1998, the Council called for expressions of interest for the development and management of the airport. [2] The request for expressions of interest included a development plan which contemplated the lengthening of the runway to accommodate larger aircraft, and the subdivision of lots within the airport. [3]

2. [7]

   On about 17 November 1998, Peter Roberts, of Aviation & Leisure Corporation Pty Limited (“ALC”), lodged an expression of interest. His proposals included the erection of hangars with attached residences for aircraft owners – a concept known elsewhere as “hangar homes”, which “was attractive to the Council as Mr Roberts represented it as a way of producing an income stream for the Council which would help pay for the airport” following its eventual development. [4] The Council awarded him a tender on 2 June 1999. [5]

3. [8]

   In July 2002, the Council resolved to lease parts of the airport to ALC, with a view to its future development, [6] and in March 2004 the Council entered into a lease and a management agreement with ALC, [7] which provided that if the plan of subdivision was registered by 30 June 2011, the Council would grant ALC a 25-year lease. [8]

4. [9]

   On 12 December 2003, the Council lodged a development application (“DA”) for (a) the consolidation of the land comprising the airport into proposed lots 1 and 2, and (b) the subsequent subdivision of lot 2 into 25 lots, one of which would be proposed Lot 104. [9] The exhibited plan depicted five subdivided lots (103 to 107) to the east of the runway, accessible from Main Road; the runway and environs (108); and 19 lots to its west, accessible from De Beyers Road (109 to 127).

5. [10]

   On 7 July 2004, the Council adopted a development control plan (“DCP”) under s 72 of the Environmental Planning and Assessment Act 1979 (NSW) for the airport, the purposes of which included “to permit development that will capitalise on the advantages of the site and its strategic location”; “to encourage moderate growth in the standard of infrastructure available and in the use of the airport”; and to “encourage appropriate ancillary development, related to the airport”. [10] The DCP described the Council’s vision for the airport as an “aerodrome facility managed in a manner which attracts new and environmentally responsible economic development opportunities to the Cessnock region”. On 30 September 2004, the Council issued an internal memorandum which described the purpose of the proposed subdivision of the airport as “to enable the long-term development of the aerodrome in accordance with Council’s development vision”.

6. [11]

   By November 2004, an independent consultant planner, Leanne Saccaro, had prepared a report recommending that the proposed subdivision be approved, subject to conditions. She reported that the proposed subdivision “represents an opportunity for Council to further develop the aerodrome in line with the vision adopted by the Council”, and recommended that the DA be approved “subject to conditions … and that a determination notice be issued accordingly”.

7. [12]

   Council granted development consent on 17 November 2004, subject to conditions which included that the proposed lots be “connected to Hunter Water Corporation’s reticulated sewerage system” (Condition 23). [11] The consent described the development as “Twenty five (25) Lot Subdivision Cessnock Aerodrome Site (Hangar Sites)”.

8. [13]

   On 7 November 2005, DP1064825 was registered, consolidating the airport land into lot 2. [12] However, as will appear, the contemplated further subdivision of lot 2 into 25 lots, including Lot 104, was never registered.

9. [14]

   Meanwhile, on 21 April 2004, Mr James Gordon Johnston, who in due course would become the principal of Cutty Sark, and his business partner Mr Phil Unicomb, met with Council’s then Corporate and Community Services Manager Mr Peter Gogarty, to discuss a suitable site for a hangar to house aircraft that Mr Johnston and related entities had acquired. [13] Mr Johnston’s vision was that the hangar could incorporate an aviation museum, and an entertainment venue. [14] In April 2005, a solicitor acting in Mr Johnston’s interests (Mr Dockrill) submitted a DA for the proposed hangar on proposed Lot 104, and the Council granted development consent for it on 28 July 2006. [15]

10. [15]

    Between August 2005 and April 2007, Mr Dockrill and Council’s solicitors negotiated the terms of the contractual arrangements between the Council and Cutty Sark, which was incorporated on 27 December 2006. [16] These negotiations culminated in the execution by the Council, on or about 26 July 2007, of the Agreement, [17] by which the Council promised, subject to registration of the Plan, to grant Cutty Sark a 30-year lease of proposed Lot 104. Clause 3.1 of the Agreement provided:

11. [16]

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

12. [17]

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

13. [18]

    Clause 13 relevantly provided:

14. [19]

    “Winding Up” was defined to include “compromise or scheme of arrangement with creditors, amalgamation, reconstruction, reorganisation, administration, dissolution, liquidation, bankruptcy, merger, consolidation, any analogous procedure (whether formal or informal) and death”; as the primary judge held, that included deregistration. [20]

15. [20]

    Pending the Commencing Date, the Council granted Cutty Sark a licence “to enter the Land during the Licence Period for the Permitted Use on the terms of this Licence”, in consideration of payment of a “Licence Fee”. [21] The “Licence Period” was defined in cl 1.1 to mean, in effect, the period from the date on which the Council first gave Cutty Sark or its employees access to the Land, to the Commencing Date. “Permitted Use” was defined to mean “the use of the Land as an aircraft hangar for joy flights and advance [sic] flight-aerobatic training.” The terms of the licence were the same as those of the Proposed Lease, and the rent under the Proposed Lease reflected the indexed licence fee. Clause 5.2 provided:

16. [21]

    Clause 5.3 provided:

17. [22]

    Clause 12.3 of the Agreement relevantly provided:

18. [23]

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

19. [24]

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

20. [25]

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

21. [26]

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

22. [27]

    Between May 2007 and November 2010, Cutty Sark constructed the hangar on proposed Lot 104. [25] Services were connected in March 2009. [26]

23. [28]

    Cutty Sark operated three businesses from the hangar: an adventure flight business between July and November 2009, an aircraft museum between September 2009 and February 2010, and a corporate venue hire business from August 2009 to June 2011. [27] The primary judge found that each of these businesses “proved to be unprofitable prior to the sunset date”. [28] Mr Johnston gave evidence that they were not sustainable in circumstances where it was difficult to attract business when the airport had not been subdivided and developed. [29] He elaborated in cross-examination, “if I’d been given my tenure I would probably say I think I can make it work. But Council would have had to develop the airport that was also promised”. [30]

24. [29]

    In 2010 and 2011, Mr Johnston attempted to sell the hangar and received an offer of $2,375,000, but the primary judge did not consider that or any other offer to be credible or genuine. [31]

25. [30]

    On 29 June 2011 – one day before the end date of the Agreement between the Council and ALC – Mr Roberts of ALC attended a meeting with Alan Revell (a consultant engaged by ALC) and the Council, including its then General Manager Lea Rosser, at which Ms Rosser said that the Council “won’t be proceeding with the subdivision of the land at the airport”, as it had “no intention of spending about a million dollars fixing the sewerage”. [32]

26. [31]

    On 13 September 2011, Ms Rosser wrote to Cutty Sark’s solicitor Mr Dockrill, noting that the Council had “been unable to achieve the registration of the plan of subdivision within the timeframe anticipated in the agreement for lease”, and offering Cutty Sark “an exclusive licence for a term of twenty-five years with virtually identical terms to the draft lease attached to the agreement for lease or a number of successive leases for terms of five years or less”. [33] This of course was not the thirty-year lease of Lot 104 in a twenty-five lot subdivision for which Cutty Sark had bargained. On 20 December 2011 Mr Dockrill, observing that Cutty Sark had spent “over $2.7 million” on the hangar venue, [34] rejected the Council’s offer. [35] At about the same time, the Council terminated its arrangements with ALC, and resumed management of the airport. [36]

27. [32]

    Neither the Council nor Cutty Sark purported to exercise a right of rescission pursuant to clause 4.4 when, on 30 September 2011, the Sunset Date passed without the Plan being registered; given that the failure was attributable to the Council’s own failure to take all reasonable steps, it may be doubted that the Council would have been entitled to rescind under that provision.

28. [33]

    The Council did not thereafter pursue any action to apply for and obtain registration of the Plan. On 18 January 2012, it convened a “leadership group” briefing in relation to Cutty Sark. Notes prepared by Bronwyn Rumbel, the Council’s Integrated Planning and Strategic Property Manager, recorded that “Council has not considered carrying out the subdivision of this lot [104] separately – because there does not appear, at this stage, to be any benefit to Council in subdividing the airport at all”. [37] In a conversation with Ms Rumbel on 13 March 2012, Mr Johnston said that he “would like security of tenure”. [38]

29. [34]

    Cutty Sark ceased occupation of proposed Lot 104 and the hangar on it in mid-2012. On 6 September 2013, it disconnected the power to the hangar, as it could not afford to pay the electricity bills. [39]

30. [35]

    On 15 August 2012, the Council resolved to endorse the nomination of the airport as a major infrastructure project under the Hunter Infrastructure and Investment Funds Grant Programme, and on 22 August 2012, the Council applied to the Hunter Infrastructure and Investment Fund for funding in the sum of $2 million to purchase and refurbish the hangar. [40] A report to the Council meeting of that date stated that the Council had “received around twelve requests for both hangar space and office space from businesses looking to establish or expand at Cessnock Airport and, at present, Council is unable to satisfy this demand”. [41] In January 2014, the Council published its “Cessnock Airport Strategic Plan”, describing its vision of a “well-planned and serviced aerodrome facility managed in a manner that attracts environmentally responsible economic development opportunities to the Cessnock region”. [42] On 14 August 2014, the Council lodged an expression of interest with Restart NSW Resources for Regions, seeking $6.95 million to upgrade the airport “to realise the community’s vision of it being a well-planned and serviced facility that attracts environmentally responsible economic development opportunities to the Cessnock region”. [43]

31. [36]

    As has been noted, Cutty Sark was deregistered by ASIC on 7 September 2015, for non-payment of fees. [44] Its property thereupon vested in ASIC. [45] On 9 September 2015, the Council’s solicitors wrote to ASIC, noting that Cutty Sark had been deregistered and asserting that the Council proposed to secure and insure the premises. [46] ASIC responded on 14 September 2015, noting that all non-trust property of Cutty Sark belonged to ASIC, which generally was the only party legally able to deal with its property, but that it had no objection to the Council “terminating the licence and taking possession of the premises”. [47] On 18 September 2015, Council’s solicitors wrote to ASIC that the Council “regards the Agreement as now having come to an end” for several reasons. [48] ASIC responded on 22 September 2015, stating that it had no intention of taking any action in relation to the matter. [49] On 11 May 2016, Council’s solicitors paid ASIC $1 for the acquisition of the hangar, as contemplated by clause 16.8 of the proposed Lease. [50] On 6 December 2016, Council granted a lease of the hangar to a new tenant, Onyx Aviation Pty Ltd, [51] for a term of five years, entitling Onyx to occupy proposed Lot 104 “for conducting an aviation related business”. [52]

32. [37]

    Cutty Sark was reinstated by order of the Supreme Court of South Australia on 5 June 2017, [53] and commenced these proceedings on 29 September 2017.

33. [38]

    In 2020, the Council produced another “Cessnock Airport Strategic Plan”. The Mayor’s Foreword included:

34. [39]

    The Executive Summary stated:

35. [40]

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

36. [41]

    The Business Plan also stated:

37. [42]

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

The primary judgment and the appeal

1. [43]

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

2. [44]

   Cutty Sark’s case was that:

   1. (1)

      it had incurred expenditure (of $3,697,234.41) in reliance upon the Council’s promise that it would take all reasonable action to apply for and obtain registration of the Plan;

   2. (2)

      that expenditure was wasted because the Council did not perform that promise;

   3. (3)

      in accordance with the aforementioned authorities, it was to be presumed that, had the Council performed its contractual obligations, Cutty Sark would at least have recouped its expenditure on the hangar;

   4. (4)

      the Council had not shown – and could not show – that Cutty Sark would not at least have recouped its expenditure had the promise been performed, so the presumption was not rebutted; and

   5. (5)

      Cutty Sark was therefore entitled to recover the amount of its wasted expenditure.

3. [45]

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

4. [46]

   As an additional basis for refusing to award substantive damages, her Honour held that the damages claimed by Cutty Sark would not fall within either the first or the second limb of Hadley v Baxendale. [59]

5. [47]

   Having reached that conclusion, her Honour did not resolve a dispute as to the quantum of Cutty Sark’s expenditure. Cutty Sark had adduced evidence to support a contention that it had spent $3,697,234.41, which although not challenged in cross-examination of Cutty Sark’s principal Mr Johnston, was disputed in the Council’s closing written submissions at first instance.

6. [48]

   Cutty Sark’s grounds of appeal were, in substance, that the primary judge erred:

   1. (1)

      in failing to find that the principles in McRae and Amann Aviation extended beyond damages claims where it was impossible to prove damages, and encompassed a case where damages for lost profits were difficult to prove or where a plaintiff elected to prove only “reliance” damages;

   2. (2)

      in finding that the presumption that Cutty Sark would at least have recovered its expenditure in relation to the construction of a hangar had the Council complied with clause 4.2 of the Agreement did not arise;

   3. (3)

      in finding that clauses 12.3(d) and 12.3(f)(4)(C) of the Agreement were relevant to the assessment of “reliance” damages in respect of the hangar or that they had the effect that the presumption in Amann Aviation was not engaged;

   4. (4)

      in finding that the costs of constructing the hangar were not recoverable pursuant to either of the two limbs in Hadley v Baxendale;

   5. (5)

      in finding that, even if the presumption in Amann Aviation had arisen, the Council discharged its onus of rebutting it by showing that the cost of the hangar would not have been recouped by Cutty Sark; and

   6. (6)

      in declining to make a finding as to the amount incurred by Cutty Sark in constructing the hangar; the primary judge should have found that Cutty Sark incurred $3,697,234.41 in constructing the hangar.

7. [49]

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

   1. (1)

      Did the presumption referred to in McRae and Amann Aviation arise (Grounds 1, 2 and 3);

   2. (2)

      If so, was it rebutted (Ground 5);

   3. (3)

      Was recovery precluded in any event by the rule in Hadley v Baxendale (Ground 4); and

   4. (4)

      What was the quantum of Cutty Sark’s expenditure (Ground 6).

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

1. [50]

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

2. [51]

   Deane J said: [64]

3. [52]

   The principle that emerges from the judgments of Mason CJ and Dawson J and of Deane J is that a plaintiff who does not prove expectation damages may recover expenditure incurred in reliance on a contractual promise made by the defendant and “wasted” because of non-performance by the defendant (“the presumption”), except to the extent that the defendant shows that the plaintiff would not have recouped its expenditure had the contract been performed (“the rebuttal”). Toohey J and Gaudron J recognised a similar presumption, but one which cast only an evidentiary as distinct from a legal onus on the defendant, holding that where it is not possible to predict a plaintiff’s position if the contract had been fully performed, in the absence of evidence to the contrary the law assumes that the plaintiff would at least have recovered its expenditure, and it was entitled to recover such expenditure as was reasonably incurred in reliance on the defendant’s promise. [65]

4. [53]

   The judgment of Brennan J proceeds on a somewhat different basis, making the reversal of the onus conditional upon it being established that the defendant’s breach denied, prevented or precluded the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits. His Honour said (emphasis added): [66]

5. [54]

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

6. [55]

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

7. [56]

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

8. [57]

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

9. [58]

   The respondent submitted that the reliance damages contemplated by Amann Aviation encompassed only:

   1. (1)

      expenditure incurred by the plaintiff in preparing for or performing obligations under the contract, with a corresponding expectation of receipt of a benefit under the contract which would allow the plaintiff to at least recoup its expenditure. Amann Aviation itself was said to be an exemplification of this, in that the benefit was receipt of payment by the Commonwealth for surveillance services, in order to obtain which Amann spent money fitting out aircraft with surveillance equipment. The respondent called these “Amann damages”; and

   2. (2)

      loss incurred in the expectation that a promise would be fulfilled. In Amann Aviation, the example was given of a client who, relying on his or her solicitors’ performance of their contractual obligation to use reasonable care, enters into a transaction with a third party and thereby incurs a loss, so that the client has been put to additional expense which would not have been incurred had the contractual obligation been performed. The respondent called these “true reliance damages”.

10. [59]

    There is clearly a distinction between the two categories, but it is not the distinction for which the respondent contends. The first category (of which the damages claimed in Amann Aviation and in McRae are both examples), concerns expenditure incurred in reliance upon the defendant’s promise in anticipation of performance of it, whereas the second concerns expenditure incurred after and because of the defendant’s breach of contract on the (incorrect) assumption that the defendant had performed it (eg by the plaintiff entering into a loss-making transaction which it would not have entered into had the solicitor used reasonable care). In the first, there is a change of position by the plaintiff on the faith of the defendant’s promise of future performance; in the second, there is a change of position caused by and after the defendant’s breach. That distinction enables it immediately to be recognised that the second category is of no application here.

11. [60]

    The Council submitted that the first class was confined to the costs of procuring or performing the contract, to be distinguished from money expended on the faith that the contract would be performed. This was to found the submission that in this case the expenditure on the hangar did not engage the doctrine, because Cutty Sark was not contractually obliged to build the hangar, there was no expectation of a benefit under the contract (as the Council was not obliged to confer any benefit on Cutty Sark), and the expenditure on construction costs was not in expectation of obtaining any benefit under the Agreement, but in the mere hope that the airport would be developed, which was never a contractual obligation of the Council.

12. [61]

    However, in Amann Aviation, the relevant expenditure was not incurred pursuant to any contractual obligation, though it was incurred to position the plaintiff to perform and derive benefit from the contract. The type of expenditure that would be recoverable was described variously as “expenditure justifiably incurred for the purpose of discharging contractual obligations”, [72] “expenditure thrown away”, [73] “expenditure reasonably incurred under a contract”, [74] “such expenditure as is reasonably incurred in reliance on the defendant’s promise”, [75] “the amount which a plaintiff has reasonably expended in reliance on the defendant’s promise and which is wasted by reason of the defendant’s breach of his promise” [76] , “expenditure incurred in reliance on the defendant’s promise” [77] , or “expenditure incurred in obtaining the contract and in performance of it on its part”. [78] But while a range of expressions were used to describe the relevant expenditure, the predominant description was no more specific than to the effect of “expenditure reasonably incurred in reliance on the defendant’s promise”. [79] The scope of the expenditure that engaged the presumption was not an issue in Amann Aviation. The more specific descriptors should not be regarded as definitive of that scope, but as instances of the more general proposition that a plaintiff has a “reliance interest” arising from expenditure reasonably incurred in reliance upon the defendant’s performance of its contractual obligations.

13. [62]

    In Australian law, the progenitor of this doctrine is the judgment of Dixon and Fullagar JJ, with whom McTiernan J agreed, in McRae (emphasis added): [80]

14. [63]

    Rejecting as fallacious an argument that the alleged damage did not flow from the breach because the expenditure might equally have been wasted had there been a tanker at the specified location, their Honours said (emphasis added): [81]

15. [64]

    Thus, the plaintiffs’ entitlement to recover reliance damages arose from expenditure reasonably incurred in reliance on the defendant’s contractual promise. It did not depend on the expenditure being pursuant to a contractual obligation, or required to perform the contract – and in McRae it was not; it did not matter that the plaintiffs assumed the risk that salvage might not be possible, in which case they would not only have made no profit but incurred a loss; and it fell within the second limb of Hadley v Baxendale, because it was expenditure incurred for a purpose which the defendant ought to have anticipated. The essential components of the claim were identified as: (1) expense was incurred; (2) in reliance on the defendant’s contractual promise (that there was a tanker); (3) the breach of which rendered certain that the expense would be wasted (even though it might have been wasted in any event); (4) thus casting on the defendant the burden of showing that it would have been wasted regardless.

16. [65]

    There is no reason to confine the notion of expenditure incurred “in reliance on the defendant’s contractual promise” to expenditure under or required by the contract. The notion that one would incur expenses only if it were reasonable to suppose that they would at least be recouped applies equally to moneys expended in reliance on a contractual promise as to those expended in performing or preparing to perform the contract. The relevant expenditure in McRae was not incurred in performance of, or in preparing to perform, any contractual obligation: the plaintiff’s only contractual obligation was to pay the purchase price; it was not obliged to salvage the tanker. The expenditure was incurred so that the plaintiff could derive benefit from the contract. There is no relevant difference between the expenditure of the venturers in McRae to position themselves to derive benefit from the contract for sale, and that of a prospective lessee who in anticipation of being granted a lease fits out the premises – which is analogous to what occurred in the present case.

17. [66]

    Fuller and Perdue, in their seminal and influential article, [82] referred to by Mason CJ and Dawson J in Amann Aviation, [83] described the “reliance interest” as follows:

18. [67]

    The authors elaborated:

19. [68]

    In my opinion, the reliance interest is not confined to expenditure required by the contract, or required to enable the plaintiff to perform its contractual obligations, but extends to any reasonable detrimental change of position by the promisee in reliance upon the defendant’s promise. It extends to any expenditure reasonably incurred in reliance on the defendant’s contractual promise. The references in Amann Aviation to expenditure in preparation for or in performance of a contract do not confine the doctrine to such expenditure: while such a description sufficed to capture the relevant expenditure in Amann Aviation, it would not capture that in McRae, where the plaintiff’s only obligation was to pay the purchase price, and the expenditure was incurred to enable the plaintiff to exploit the property it acquired under the contract.

20. [69]

    Although I have referred to expenditure “reasonably incurred”, and qualifications to that effect are to be found in the above references in McRae and in Amann Aviation to expenditure “justifiably” or “reasonably” incurred, [84] this is really an expression of the rule in Hadley v Baxendale. There can be no question as to reasonable reliance: a promisee is entitled to rely on a contractual promise. Indeed, this was the was the essential point on which, in McRae, Dixon and Fullagar JJ differed from the primary judge Webb J, in stating: [85]

21. [70]

    The question whether expenditure is reasonably incurred turns on whether it was the type of expenditure as might naturally be incurred in preparing for, performing or exploiting the benefit of the contract, or is or ought to have been contemplated by the defendant. Thus in McRae, although the defendant had not promised that the ship or cargo was salvageable:

22. [71]

    The value of the reliance interest is the quantum of the net detriment. Insofar as the plaintiff is shown to have derived some benefit from its expenditure, including benefits dehors the contract, it must give credit: thus, in Amann Aviation, credit was given for the residual value of the aircraft which Amann had purchased. [86] But unless the value of the benefit received equals or exceeds the reliant expenditure, the difference is nonetheless wasted. This is what Deane J described as the “wasted net expenditure”. [87] Such expenditure is regarded as “wasted” if the promise in reliance on which it was made is not performed, except to the extent that it is shown that the plaintiff has received some offsetting benefit, whether under or dehors the contract. “Wasted net expenditure” is shorthand for expenditure incurred in reliance upon a contractual promise that is not performed, to the extent it is not offset by a benefit.

23. [72]

    It was a central theme of the respondent’s submissions that the plaintiff had to establish that the expenditure was wasted as a consequence of the defendant’s breach. [88] However, if the expenditure was incurred in reliance on the defendant’s contractual promise, then it is regarded as wasted in the relevant sense if the promise is not performed, except to the extent that an offsetting benefit is shown. It suffices to enliven the presumption that expenditure has been incurred in reliance on a defendant’s contractual promise which the defendant has failed to perform. [89] If, regardless of the defendant’s breach, the expenditure would have been wasted in any event, then the rule casts on the defendant the onus of so demonstrating. If the respondent’s submission is intended to introduce some additional causative requirement, it would subvert the presumption.

24. [73]

    To sum up: a plaintiff who is unable or does not undertake to demonstrate whether or to what extent the performance of a contract would have resulted in a profit may claim its wasted expenditure. In such a case, expenditure incurred by a plaintiff in reliance on a contractual promise made by the defendant and “wasted” because of non-performance by the defendant is recoverable, except to the extent that the defendant shows that the plaintiff would not have recouped its expenditure had the contract been performed. Relevant expenditure is not confined to expenditure under or required by the contract, but extends (subject to the rule in Hadley v Baxendale) to any detrimental change of position by the promisee in reliance upon the defendant’s promise. Such expenditure is regarded as “wasted” if the promise in reliance on which it was made is not performed, except to the extent that it is shown that the plaintiff has received some offsetting benefit, whether under or dehors the contract. The value of the reliance interest is the quantum of the net detriment, after allowing for any offsetting benefit accruing to the plaintiff from the expenditure. It suffices to enliven the presumption that the expenditure has been incurred in reliance on a defendant’s contractual promise which the defendant has failed to perform.

25. [74]

    The reasoning that culminates in the primary judge’s conclusion set out above [90] that the presumption did not arise but that if it did it was rebutted does not distinguish the reasons for holding that the presumption does not arise from those for holding that it was rebutted, and considerations which on any view are relevant only to the latter (such as, that Cutty Sark’s businesses were unprofitable) are interspersed with considerations relevant to the former. However, those potentially relevant to whether the presumption arose were as follows.

26. [75]

    First, her Honour considered that Amann Aviation was confined to cases where the nature of the breach rendered assessment of damages on the usual basis impossible, and added that damages were recoverable only if within the rule in Hadley v Baxendale: [91]

27. [76]

    Secondly, her Honour observed that the claim was not one for misrepresentation. [92] That is so, but that is so in every claim for reliance damages for breach of contract; it says nothing as to whether the conditions that engage the presumption are satisfied (or for that matter whether any presumption is rebutted).

28. [77]

    Thirdly, her Honour emphasised that the Council was not contractually bound to develop the airport: [93]

29. [78]

    Fourthly, her Honour distinguished Amann Aviation and McRae. As to Amann Aviation, this was on the basis that in that case, although the Commonwealth was not contractually bound to renew the contract, the successful tenderer would have a significant competitive advantage in gaining a renewal, and the income to be gained from the contract was, since the Commonwealth was the party responsible for payment, both known in advance and assured: [94]

30. [79]

    As to McRae, the distinction was on the basis that in that case, the non-existence of the subject matter of the contract rendered it impossible for McRae to prove that it would have recouped its expenditure: [95]

31. [80]

    Her Honour then explained: [96]

32. [81]

    Finally, her Honour said that clauses 12.3(d) and (f)(4)(C) of the Agreement excluded any claim for loss arising from the “Aerodrome Infrastructure Facilities” and from “any change in the flow of members of the public in or around the Land or Aerodrome for any reason” respectively, so as to make clear that the risk of the future development occurring or not was to be borne by Cutty Sark and not by the Council: [97]

33. [82]

    Her Honour also referred in this context to the circumstances that all the businesses which Cutty Sark had intended to conduct from proposed Lot 104 had proved to be unprofitable; [98] and that having abandoned the businesses, the only methods to recover even part of the costs of the hangar were to obtain freehold or persuade the Council to pay compensation. [99] However, while arguably relevant to whether the Council rebutted the presumption, those matters say nothing as to whether the presumption arose. Her Honour also said that it was relevant that Cutty Sark had refused an offer of five consecutive five-year leases, [100] because this indicated that Cutty Sark was better off without its obligations under the deed (which included paying licensing fees for the next 30 years for a site from which it had been unable to operate any business profitably). However, that Cutty Sark refused an offer inferior to its contractual entitlements could not inform whether the presumption arose, even if it were relevant to whether it was rebutted - which, for reasons advanced below, it was not. [101]

34. [83]

    Two relevant themes can be seen in the reasoning in support of the proposition that the presumption did not arise. The first is that the presumption arises only where the defendant’s breach renders it impossible for the plaintiff to prove that it would have recouped its expenditure, and this was not such a case. [102] If correct, that is plainly a reason why the presumption would not arise. The basis on which her Honour distinguished McRae was relevant to that issue, because it was that “in McRae, the nature of the breach was such as to render it impossible for McRae to prove that it would have recouped its expenditure and impossible for the Commonwealth Disposals Commission to prove that it would not have”. [103] However, the basis of her Honour’s distinction of Amann Aviation is not relevant to that issue: the matters referred to by her Honour in that context – essentially, that the incumbent contractor would have a commercial advantage in the renewal process – are relevant only to the likelihood of expenditure being recouped (and thus arguably to rebuttal of the presumption), but not to whether the presumption arose. Her Honour referred also to the contractual remuneration being known in advance and assured; but it is not apparent how that is relevant to whether the presumption arose, although it might relate to the prospects of recoupment.

35. [84]

    The second theme is that although development of the airport was the ultimate purpose of the subdivision, the Council had not promised to develop the airport, and the risk of the future development occurring or not was to be borne by Cutty Sark and not by the Council. [104] In so far as that is relevant to remoteness under Hadley v Baxendale, it is addressed under that heading below. [105] Otherwise, in so far as it is a reason why the presumption would not arise, it appears to go to the issue of whether it was reasonable for Cutty Sark to incur expenditure in reliance on the contract – in other words, it involved a view that Cutty Sark did not, or was not entitled to, rely on the Council’s performance of the relevant obligation in incurring its expenditure, because of the manner in which the contract allocated risk, and the limited nature of the Council’s obligations under it.

36. [85]

    The first basis for not applying Amann Aviation to hold that the presumption was engaged (leaving for the moment to one side the question whether any such presumption was rebutted) that emerges from her Honour’s judgment is that the case was not one in which the Council’s breach of contract was such as to render it impossible for Cutty Sark to prove that it would have recouped its expenditure. As has been noted, her Honour said that Amann Aviation and McRae were cases “where the nature of the breach renders assessment of damages on the usual basis … impossible”. [106]

37. [86]

    Notwithstanding the primary judge’s characterisation of Cutty Sark’s claim in the manner summarised above, [107] Cutty Sark’s case did not involve the proposition that it was “impossible for it to prove that it would have recouped” its expenditure, or that the Council’s breach had rendered it so; the contention was simply that the Council had not discharged its onus of proving that Cutty Sark would not have recouped its expenditure. Thus arises the question whether it is a precondition to the application of the presumption referred to in Amann Aviation that it be impossible for the plaintiff to prove that it would have recouped its expenditure.

38. [87]

    Although there are passages in the judgments in Amann Aviation where terminology such as “not possible” is used, in my opinion they do not support the proposition that the presumption can be invoked only where it is impossible to work out lost profits or expectation damages. The context is important. Thus when Mason CJ and Dawson J said: [108]

39. [88]

    Deane J referred to “a case where a plaintiff has incurred expenditure either in procuring the contract or in its performance but it is impossible or difficult (emphasis added) to establish the value of any benefits which the plaintiff would have derived from performance by the defendant”. [111] That does not support the proposition that it must be “impossible” to prove an expectation loss before the presumption arises, let alone that the impossibility be attributable to the defendant’s breach.

40. [89]

    Similarly, Toohey J characterised reliance damages as (emphasis added) “a means of compensating the plaintiff where there has been no loss of profits or, more likely, where the plaintiff cannot prove loss of profits with any certainty” and said that damages were most appropriately assessed by reference to expenditure incurred where profits are difficult or impossible to quantify or where the outcome of the contract is not predictable. [112] Gaudron J quoted the observation of Lord Denning MR in Anglia Television Ltd v Reed that “if [a plaintiff] has not suffered any loss of profits — or if he cannot prove what his profits would have been — he can claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of the breach”, [113] and said: [114]

41. [90]

    What emerges from the passages discussed in the preceding paragraphs is that reliance damages may be recovered where a plaintiff does not prove an expectation of a profit. None of those expositions of the circumstances in which reliance damages may be claimed, properly understood, requires that it is a precondition to their recoverability that it first be established that it has been rendered “impossible” to prove an expectation loss.

42. [91]

    On the other hand, in Brennan J’s approach, it was the defendant’s breach having the effect of denying, preventing, or precluding the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits that cast the onus on the defendant to prove that the plaintiff would not have recouped its expenditure. [115] And the dissenting judgment of McHugh J also supports the proposition that reliance damages are recoverable only if the plaintiff first proves that the defendant’s breach has made it impossible to prove the outcome of the contract. [116]

43. [92]

    However, the above analysis demonstrates that the predominant view in Amann Aviation is that the recoverability of reliance damages does not depend upon it being proved that the defendant’s breach has rendered it impossible for the plaintiff to prove expectation damages. Moreover, in Meetfresh, Macfarlan JA (with whom Bell P and Meagher JA agreed) explicitly rejected the submission that damages for wasted expenditure were recoverable only where it was impossible to quantify expectation damages: [117]

44. [93]

    Meetfresh thus stands as clear authority of this Court that reliance damages may be recovered not only where it is impossible to quantify expectation damages, but also where the plaintiff does not undertake to prove, or the evidence does not establish, any loss of profits. For the reasons stated above, that position is a correct understanding of the dominant reasoning in Amann Aviation. Moreover, it would be quite illogical that a presumption casting the onus on the defendant to prove that the plaintiff would not have recouped its expenditure would arise only where the plaintiff first established that it could not possibly prove the opposite.

45. [94]

    While the practical effect of this may be that a plaintiff who chooses not to undertake to prove an expectation loss can, by claiming “reliance loss”, cast a burden on the defendant, this does not involve any “surprising and unorthodox proposition that there is no obligation on an injured party to prove loss since the wrongful party will, in any event, be liable for wasted expenditure”; nor does it make the wrongful party the insurer of the injured party. First, the plaintiff will always have to prove that it incurred the expenditure, in reliance on the defendant performing its relevant contractual obligation. That is, of itself, prima facie proof of loss. Secondly, as Mason CJ and Dawson J explained in Amann Aviation, such an approach is in complete conformity with the principle that an award of damages for breach of contract should place a plaintiff in the same (but no better) position as if the contract had been performed, because it permits the defendant to show that the injured party would not have recovered all or any of its wasted expenditure, in which case the plaintiff is not entitled to compensation for wasted expenditure to the extent to which it would not have been recouped: [118]

46. [95]

    After referring to Canadian cases to similar effect, their Honours concluded (emphasis added): [119]

47. [96]

    Accordingly, the effect of Amann Aviation and McRae is that where a plaintiff does not prove “expectation damages” but claims “reliance damages” for wasted expenditure, it will upon proof of its expenditure incurred in reliance on the defendant’s promise to perform the relevant contractual obligation have the benefit of a rebuttable presumption that it would at least have recovered that expenditure had the promise been performed. It is not a precondition to that presumption arising that the plaintiff first establish that it is “impossible” to prove expectation damages, let alone that it be impossible to prove that it would not have recouped its expenditure. These cases do not constitute a category of case which depends on the nature of the breach rendering assessment of damages on the usual basis “impossible”; they apply whenever the plaintiff does not claim or the evidence does not establish any loss of profits.

48. [97]

    Although the respondent’s submissions seek to pass it off as a “false issue”, [120] the requirement for “impossibility” of proof of expectation damages was the chief basis for her Honour’s conclusion as a matter of principle that the Amann presumption did not arise. [121] Ground 1 succeeds.

49. [98]

    The second theme that emerges from the primary judge’s reasoning in this respect is that the Council should not be liable for the construction costs of the hangar because it was not contractually bound to develop the airport. That reasoning was also supported by the proposition that clauses 12.3(d) and (f)(4)(C) of the Agreement excluded any claim for loss arising from the “Aerodrome Infrastructure Facilities” not being available, and from “any change in the flow of members of the public in or around the Land or Aerodrome for any reason” respectively, so as to make clear that the risk of the future development occurring or not was to be borne by Cutty Sark and not by the Council. As explained above, insofar as this is relevant to whether the presumption arose, it would be because Cutty Sark did not, or could not reasonably, have relied on the contract in incurring construction costs when there was no promise to develop the airport. It may also be relevant to remoteness under Hadley v Baxendale, which is considered later.

50. [99]

    Clause 12.3 of the Agreement has been set out above; [122] relevantly, it had the effect that Cutty Sark released the Council from, and agreed that the Council was not liable for, all liability or loss arising from the Aerodrome or Aerodrome Infrastructure Facilities not being available for use by Cutty Sark, and for any loss resulting from any change in the flow of members of the public in or around the Land or Aerodrome for any reason.

51. [100]

    Plainly, clause 12.3 has no direct application: Cutty Sark is not claiming in respect of loss arising from the “aerodrome infrastructure facilities not being available” for its use, nor in respect of loss from “any change in the flow of members of the public in or around the land or aerodrome for any reason”. Rather, it is claiming to recover loss being money which it expended in reliance on the Council’s contractual promise to take all reasonable action to procure registration of the Plan. The primary judge’s reasoning in this respect [123] was to the effect that although the claim might not have been caught by clause 12.3, it was not reasonable for Cutty Sark to incur the expenditure it did in reliance on Council performing that obligation, as the commercial risk associated with the construction of the hangar was to be borne not by the Council but by Cutty Sark – in the light of the provisions of that clause, the fact that Council was not contractually obliged to develop the airport, and the presence in the Proposed Lease annexed to the Agreement of clause 16.8, which provided for the hangar to be transferred to the Council unencumbered for $1 upon termination of the Lease for any reason.

52. [101]

    However, reference to “commercial risk” generically, and even to the “risk of the future development occurring (or not)”, obscures that the Agreement clearly delineates risks which Cutty Sark accepted, from other risks which it did not accept. Because the Council did not promise to develop the airport, Cutty Sark assumed the commercial risk of any loss from the future (non) development of the airport. Cutty Sark also accepted the risk that the Aerodrome Infrastructure Facilities might not be available for its use, and that the flow of the public might be disrupted, and that the hangar as a fixture would revert to the lessor on expiry of the lease – that is, after a term of 30 years in which Cutty Sark would have an opportunity to recoup its expenditure. However, it accepted those risks and outcomes in circumstances where the Council had promised to take all reasonable action to procure registration of the Plan, where the Council was also the relevant consent authority, and where Cutty Sark would have 30 years in which to turn its investment to profit. The one risk that Cutty Sark did not accept was that the Council would not take all reasonable action to procure registration of the Plan. In respect of development of the airport, the risk it assumed was that the development might not proceed, and it might not recover its expenditure on the hangar, notwithstanding that the Council took all reasonable steps to procure registration of the plan. However, it did not accept the risk that development would be rendered impossible because the Council did not take all reasonable steps to procure registration of the Plan, which was a necessary precondition to it.

53. [102]

    Although it is undoubtedly correct that the Council was not contractually obliged to implement the commercial development of the airport, the Council is not being sued for breach of any such promise. The claim for reliance damages does not proceed on the basis that it was so bound, and involves no hypothesis that the Council must have developed the airport. Rather, the claim depends on expenditure incurred in reliance on the Council performing the obligation which it indisputably had, of taking all reasonable action to procure registration of the Plan. The fact that the Council did not promise to develop the airport does not mean that Cutty Sark did not incur expenditure on construction of the hangar in reliance on the Council’s promise to take all reasonable steps to procure registration of the Plan.

54. [103]

    It cannot be said that Cutty Sark was not entitled to rely on the Council performing its contractual obligations. The fact that the Council did not promise to develop the airport is beside the point. The one risk that matters is that which eventuated – that the Council repudiated its obligations to take all reasonable action to procure registration of the Plan – and that risk was one which Cutty Sark did not accept. The reliance damages claim does not ask the Council to bear the risk either of future development occurring or not occurring, or of any events that might affect the extent to which members of the public might visit the airport. The risk which it is being asked to bear is that resulting from its own failure to take all reasonable action to procure registration of the Plan, in breach of its contractual obligation to do so. Insofar as the primary judge held that the presumption did not arise because the contractual allocation of risk meant that Cutty Sark did not or could not reasonably rely on the Council’s promise to take all reasonable steps to procure registration of the Plan, Ground 3 succeeds.

55. [104]

    The respondent submitted that expectation loss was not recoverable except upon termination by the innocent party, because until then the other party could remedy any breach. Reference was made to Scott v Ennis-Oakes, [124] in which it was held that a right to claim loss of bargain damages arises upon termination of the contract by the innocent party, and that until the contract is terminated by the innocent party, it remains on foot and no right to loss of bargain damages arises. [125]

56. [105]

    First, this submission was founded on the misconception that this was a claim in the supposed second category of reliance damages, in which case considerations applicable to expectation damages were said to apply. It has been explained above that this claim was not in that category. [126] In any event, Scott v Ennis-Oakes was concerned with “loss of bargain” damages: that is, a claim for damages for the difference between what the innocent party had to pay or was entitled to receive under the contract, and the greater amount it would have to pay for an equivalent property, or the lesser amount it would realise if the subject property were resold. There are many circumstances in which expectation damages are recoverable without termination by the innocent party: for example, damages for breach of a warranty as to quality in a sale of goods. The claim in the present case is not one for loss of bargain damages. Scott v Ennis-Oakes is irrelevant.

57. [106]

    Secondly, as the respondent accepted, [127] termination of the contract is not a necessary precondition to the award of reliance damages. McRae is an illustration of a case in which termination does not appear to have been considered relevant. So, for that matter, is the solicitor example given in Amann Aviation: there would be no requirement for the plaintiff to terminate the retainer before suing for damages resulting from the entry into the disadvantageous transaction. One reason for this is that expenditure can be incurred in reliance upon one contractual promise which is not performed, even though the contract remains on foot and is otherwise performed.

58. [107]

    It was also submitted that, following the Council’s breach, Cutty Sark did not terminate the Agreement, which therefore remained on foot; that Cutty Sark then defaulted (by becoming deregistered); the Council terminated, and the loss of bargain was due to Cutty Sark’s default; if, before termination of the Agreement by the Council, Cutty Sark was not entitled to recover its expenditure, then there is no reason why the termination by the Council in reliance on Cutty Sark’s default should affect that position.

59. [108]

    The primary judge held that the Council had validly terminated the Agreement. [128] Although it may be doubted whether, having repudiated its essential and fundamental obligation under the Agreement, the Council was entitled to terminate for breach by Cutty Sark, this holding was not challenged on appeal. If Cutty Sark had sued before that termination, the position would have been that the Council had repudiated, and Cutty Sark had vacated the premises. In circumstances where the Sunset Date had passed, and the Council had no intention of seeking registration of the Plan, there would have been no difficulty in assessing damages on the basis that Council’s breach had foreclosed any possibility of Cutty Sark deriving the benefit of the promise. By refusing to take reasonable action to procure registration of the Plan and stating that it did not intend to do so, the Council plainly engaged in repudiatory conduct; and there was a continuing repudiatory breach so long as the Council failed to take the reasonable steps required to procure registration. In vacating the premises, Cutty Sark had accepted the repudiation and thereby terminated the Agreement. That is a different concept from rescission without breach, under clause 4.4. But if that be incorrect, and the absence of a formal acceptance of the repudiation meant that the contract remained on foot with the theoretical possibility that the Council might yet, albeit belatedly, remedy its breach by taking steps to procure registration of the Plan, it put it beyond its capacity to do so when it terminated in 2015, whereupon Cutty Sark’s claim for reliance damages crystallised, if it had not already done so. These questions do not appear to have been explored at the trial, presumably because Cutty Sark’s right to claim damages for Council’s breach was in any event preserved. Clause 13.3 of the Agreement had the effect that Cutty Sark’s rights in respect of a breach by the Council before termination were not affected by termination. Cutty Sark’s right to claim to recover its expenditure incurred in reliance on the Council’s promise to take all reasonable steps to procure registration of the Plan, which the Council had repudiated, was thus preserved. It is not to the point to argue, as the respondent does, that Cutty Sark lost the bargain because of its own breach resulting in the Council’s termination, because it is not suing for loss of bargain damages; it is suing for damages for the Council’s breach of its obligation to take all reasonable action to procure registration of the Plan.

60. [109]

    There was evidence that Cutty Sark built the hangar in reliance on Council’s promise to take all reasonable action to register the plan of subdivision. [129] The primary judge referred to Mr Johnston’s evidence that had he known that Cutty Sark would ultimately not be provided with a 30-year lease in respect of Lot 104, he would not have caused the company to spend money on the construction of the hangar. [130] While her Honour pointed out that such an allegation would be relevant to a claim for damages for misrepresentation, it is also relevant to a claim to have expended money in reliance on the promise that the Council would grant a lease. Indeed, one might think it self-evident that absent a promise by the landowner who was also the consent authority to take all reasonable action to procure the subdivision, a mere temporary licensee would not have incurred such expenditure to erect such improvements. The reasonableness of its doing so is accentuated by the fact that in respect of the DA the Council was the consent authority as well as the applicant, which provided a high degree of confidence that if Council performed its obligations the Plan would be registered. In my view, it is plain enough that the expenditure was incurred in reliance on the Council’s contractual promises, including in particular the promise to take all reasonable action to procure registration of the Plan. Even if it embarked on the exercise before the contract was made, it is unrealistic to suppose that Cutty Sark would have proceeded to complete construction of the hangar without the comfort that the Council’s relevant promise provided. That promise was the Council’s key obligation under the Agreement. It was the essential promise for which Cutty Sark bargained. It is beside the point that the Council did not promise to develop the airport, so long as Cutty Sark relied on its promise to take all reasonable action to procure registration of the Plan.

61. [110]

    The respondent submitted that expenditure was incurred before the contract was made and thus could not have been incurred in reliance on a promise contained in it.

62. [111]

    Mr Johnston engaged architects to design the hangar in January 2005 (before Cutty Sark was incorporated); and the development application for the construction of the hangar was lodged in April 2005. Mr Johnston’s evidence was that he signed the Agreement in or around April 2007; [131] indeed, it seems that Cutty Sark had executed it by 23 March 2007. [132] He executed the construction contract in or around May 2007, [133] and construction of the hangar commenced in that month. The Council executed the Agreement on 26 July 2007, though it did not date and return an executed copy until 16 January 2008. [134] Construction of the hangar continued until about November 2010, when an occupation certificate was issued. [135]

63. [112]

    The damages claim was confined to costs of construction, and did not include the earlier costs of the design and DA. Even if some construction expenditure was incurred before the Agreement was executed, most of the construction work occurred after the contract was made in July 2007. It is entirely uncommercial and unrealistic to suppose that Cutty Sark would have continued to incur those construction costs if it knew that there was no prospect of its obtaining a lease of a lot in a subdivision on which the hangar was erected. The continued incurring of expenditure after the contract was made is sufficient to establish reliance upon the Council’s promise to take all reasonable action to procure registration of the Plan.

64. [113]

    Once that is established, the claim for wasted expenditure extends to that reasonably incurred in the expectation that there would be a contract. The expenditure recoverable as reliance damages includes expenditure incurred prior to contract, if when the contract was made it was reasonably in the contemplation of the parties as likely to be wasted if the contract were broken. In Anglia Television v Reed, [136] the defendant was a well-known actor who had contracted with the plaintiffs to play the leading man’s part in a television play which they were producing. A few days after making the contract, the defendant repudiated it. The plaintiffs were unable to find a substitute, accepted his repudiation, and abandoned the production. The plaintiffs claimed as damages their total wasted expenditure of £2,750. In response to the defendant’s contention that they could only recover their expenditure incurred after the contract was concluded (£854), the Court of Appeal held that, having elected to claim their wasted expenditure instead of their loss of profits, the plaintiffs were not limited to the expenditure incurred after the contract, but could claim the expenditure incurred before the contract provided it was reasonably in the contemplation of the parties as likely to be wasted if the contract were broken, and so in the circumstances were entitled to recover the £2,750. Lord Denning MR, with whom Phillimore LJ and Megaw LJ agreed, said: [137]

65. [114]

    In Amann Aviation, Gaudron J said: [138]

66. [115]

    Here, when the contract was made, it was manifest that Cutty Sark was preparing and proceeding to construct the hangar. Even if some of the costs of doing so were incurred before the contract was made, so that the Council would not have been liable for them if no contract was made, they were reasonably incurred in the expectation that there would be such a contract, given that Mr Johnston had in April already executed the document drafted and submitted to him by the Council. It was also manifest that, if the Council did not perform its contractual obligation, that expenditure would be thrown away. The presumption that Cutty Sark would have derived contractual benefits no less than its expenditure takes into account its precontractual as well as its post-contractual expenditure.

67. [116]

    Council repudiated its obligation to take all reasonable action to procure registration of the Plan. Its breach was not merely failing to have the subdivision registered by 30 September 2011 – a mere failure to procure registration, without fault, was not a breach; the breach was in not even trying to do so, and it was not as if it merely deferred doing so: it expressly declared it had no intention of proceeding.

68. [117]

    As has already been noted, at the heart of the respondent’s case was the proposition that Cutty Sark’s relevant expenditure was not wasted as a consequence of the defendant’s breach. [139] This submission involved two limbs:

    1. (1)

       It was submitted that Cutty Sark’s adventure flight business had failed by November 2009, and that by October 2010 Cutty Sark was trying to sell the entire hangar and its aircraft; by June 2011, the last vestige of the business, the venue hire, had also been abandoned, before the Sunset Date. In the context that the Council’s only breach was in failing to have the Plan registered by 30 September 2011, it was submitted that, if one were to ask whether or not on the Sunset Date, Cutty Sark had wasted $3 million building a hangar, it was immediately apparent that whether or not the subdivision plan was lodged on 30 September 2011 made no difference: Cutty Sark had already incurred the expenditure, and attempted to run various business from it, all of which had failed. In substance, this was a submission that the Council’s breach was not causative, because the expenditure would have been wasted in any event, because Cutty Sark’s business model was flawed;

    2. (2)

       It was submitted that the relevant expenditure was incurred to operate particular types of business from the hangar, and notwithstanding the breach it remained possible for Cutty Sark to do. Since Cutty Sark did not rescind consequent upon the breach, it continued thereafter to enjoy a licence in relation to the proposed lot on the same terms and conditions, and to occupy the proposed lot and to use the hangar and enjoy the fruits of its expenses, until the Agreement was terminated by reason of its own breach. There was no substantive difference between the lease for which Cutty Sark bargained, and the licence which it received in lieu in respect of the same land. The sums expended in constructing the hangar were not wasted in the relevant sense in circumstances where Cutty Sark continued to enjoy rights under the Agreement (being rights that substantially reflected those in the lease). In substance, this was a submission that Cutty Sark received benefits that substantially corresponded to its contractual rights.

69. [118]

    First, as a whole the submission proceeds on the incorrect assumption that it was for Cutty Sark to establish some causative element beyond that the contractual promise, in reliance upon which the expenditure was incurred, was not performed.

70. [119]

    Secondly, the first limb is redolent of the argument that was rejected in McRae as “fallacious”, albeit “far from being negligible”. [140] The key benefit for which Cutty Sark bargained was for Council to take all reasonable steps to procure registration of a plan of subdivision which would result in it having a lease for 30 years of one lot in the context of a 25-lot subdivision, with the prospect of surrounding commercial development. Expenditure was incurred, in reliance on that promise. As has been explained, it understates the quality of the Council’s breach to characterise it as “only … in failing to have the Plan registered by 30 September 2011”. Here, as in McRae, the Council’s breach of its promise rendered certain that Cutty Sarks’ expenditure would be wasted, in the relevant sense – namely that Cutty Sark would not receive the benefits for which it bargained and in the expectation of which it incurred expenditure. It might be said that the present case is different, in that Cutty Sark’s businesses had ceased to trade before the Council’s breach had been committed. However, Cutty Sark had not at that stage abandoned the site, and it remained open to it to resume business at least until it did so, which was only after the Council had repudiated. Moreover, the fact that Cutty Sark’s businesses were unsuccessful and it abandoned the site, in circumstances different from those which would have obtained had the contract been performed (namely, a 30-year lease of a subdivided lot in a 25-lot subdivision, with the prospect of surrounding commercial development), does not negate the conclusion that its expenditure was incurred in reliance on a promise which was not performed, so that it did not receive the contractual benefits to which it was entitled, and was thus wasted in the relevant sense (except to the extent there was some offsetting benefit). Save insofar as the Council can establish that Cutty Sark would not have recouped its expenditure regardless, it is beside the point that the contractual benefits might not have proved profitable for Cutty Sark.

71. [120]

    Thirdly, as to the second limb, again, the promise in reliance upon which Cutty Sark incurred its expenditure was that the Council would take all reasonable steps to procure registration of a plan of subdivision which would result in it having a lease for 30 years of one lot in the context of a 25-lot subdivision, with the prospect of surrounding commercial development. It did not incur the expenditure on the faith of having a mere licence over an isolated site not separately titled with no other lots created in the vicinity for potential commercial development. The offsetting “benefit” of the licence that Cutty Sark obtained was not even substantially comparable to what it bargained for under the contract. A lease confers rights and an interest in land, which a licence does not. More significantly, Cutty Sark bargained for a 30-year lease of a subdivided lot in a 25-lot subdivision, which would have provided an environment for surrounding commercial development. Thus Cutty Sark should have had a thirty-year lease of a lot in a subdivision from which to conduct its business and recoup its expenditure, not an opportunity to do so from an isolated hangar in an unsubdivided airport. True, any offsetting benefits must be brought to account, but it was not shown that the offsetting benefit of a licence of the unsubdivided proposed lot in those circumstances had any value, and on that issue the Council bore the onus: as Brennan J said in Amann Aviation: [141]

72. [121]

    Cutty Sark having incurred expenditure in reliance on the Council’s promise to take all reasonable steps to procure registration of the Plan, and the Council having repudiated that obligation so as to render it impossible for Cutty Sark to receive the contractual benefits for which it had bargained, Cutty Sark’s expenditure was wasted in the relevant sense. That sufficed to engage the presumption.

73. [122]

    Moreover, even if Brennan J’s view that the presumption arises only if the defendant’s breach “denies, prevents or precludes the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits” be preferred, that requirement was satisfied here. In Amann Aviation, Brennan J found that although the contract did not include a right of renewal, performance would have resulted in Amann acquiring a substantial commercial advantage in tendering for the next contract, [142] and repudiation by the Commonwealth caused Amann to lose that advantage, the valuation of which was “a speculative exercise” such that it “cannot be quantified with any degree of accuracy”, [143] such that the Commonwealth’s repudiation of the contract thus “preclude[d] the occurrence of the events which would have permitted in due time a true assessment of the value of the commercial advantage lost by reason of the repudiation”, [144] thereby casting on the Commonwealth the onus of showing that had the contract been performed, the plaintiff would not have recouped its wasted expenditure. [145] Because the Commonwealth had “not shown that the advantage was valueless or was of insufficient value when added to the contractual remuneration to provide sufficient net benefits to cover the expenditure incurred by Amann prior to rescission”, [146] that onus was not discharged.

74. [123]

    Like Amann Aviation, the present is a case in which the Council’s non-performance of clause 4.2 “precluded the occurrence of the events which would have permitted in due time a true assessment of the value of the commercial advantage lost by reason of repudiation”. Because the Council did not try to procure registration of the Plan, it cannot be known what would have happened had it done so (although there must be a high degree of probability, given that it was also the consent authority, that the Plan would have been registered, and the 30-year lease granted). And it cannot be known whether, if the Plan had been registered, the commercial development would have proceeded, and what impact that would have had on the profitability of Cutty Sark’s businesses. Still less can it be known whether commercial development might have ensued at some later time during the currency of the 30-year lease, and what opportunities that would have presented for Cutty Sark to recoup its expenditure. The Council’s breach rendered impossible a true assessment of the probable outcome of performance of the contract and whether it would have enabled Cutty Sark at least to recoup its expenditure.

75. [124]

    On either view of Amann Aviation, therefore, the presumption arose. It was not shown that the licence of the unsubdivided proposed lot had any offsetting value to be brought to account. The Council bore the burden of proving, if it could, that Cutty Sark’s expenditure would not have been recouped had the Council performed its promise. Ground 2 therefore succeeds.

Was the presumption rebutted? (Ground 5)

1. [125]

   The next question is whether, as the primary judge found, the Council discharged the onus of showing that the expenditure incurred by Cutty Sark in constructing the hangar would not have been recouped in whole or in part, if the Council had complied with clause 4.2 of the Agreement and taken all reasonable action to procure registration of the Plan. The primary judge’s reasoning on this issue proceeded as follows:

   1. (1)

      the Council did not contractually promise to develop the airport along the lines of the subdivision, although such development was the ultimate purpose of the subdivision; [147]

   2. (2)

      whether or not the airport was in fact developed depended on external factors outside the control of the parties, such as demand for particular lots and demand for hangar homes, and the evidence indicated that there was little such demand; [148]

   3. (3)

      each of the three businesses which Cutty Sark intended to conduct and did in fact conduct from proposed Lot 104 proved to be unprofitable; [149]

   4. (4)

      the possibility that Cutty Sark might have been in a better position to operate profitably had the development proceeded was no more than speculative, and it was not part of the bargain that the Council would do any more than take all reasonable action to register the Plan, the Council’s promise not extending to developing the airport; [150]

   5. (5)

      that Cutty Sark had abandoned the businesses prior to the Sunset Date, and the site altogether not long afterwards, told against the assumption that it would have but for the breach remained on Lot 104 for the period of the lease to recoup the cost of the hangar, and supported the Council’s submission that the hangar was a white elephant; [151]

   6. (6)

      that Cutty Sark refused the Council’s offer of five consecutive five-year leases made on 13 September 2011 provides some indication that it did not intend to stay on proposed Lot 104 and conduct its businesses in the long term and is consistent with the Council’s hypothesis that Cutty Sark was better off without the obligations under the Agreement, which would have committed it to pay license fees for the next 30 years. [152]

2. [126]

   One theme in that reasoning is that the Council’s promise did not extend to developing the airport. As has already been explained, the contractual benefits to which Cutty Sark was entitled under the Agreement were, in substance, a 30-year lease of Lot 104 in a 25-lot subdivision of part of the airport. However, the fact that there was no promise to develop the airport does not mean that the potentiality of its development is irrelevant when considering whether the Council had shown that Cutty Sark would not recoup its expenditure. That is because, in considering whether a plaintiff has been shown to be unable to recoup its expenditure, a court is not confined to the contractual entitlements of the plaintiff; it is permissible to have regard also to potential benefits that might have accrued to the plaintiff, although they are not contractual entitlements, if they may reasonably be supposed to have been in the contemplation of the parties. [153] In Amann Aviation, Mason CJ and Dawson J accepted that the Commonwealth did not promise to renew its contract with the plaintiff and was not liable in damages for non-fulfilment of that promise, [154] but held that the loss of the prospect of securing a renewal of the contract was within the contemplation of the parties (for the purposes of the second limb of the rule in Hadley v Baxendale) as a probable result of the breach, so that Amann was entitled to compensation which took into account the value of the loss of that prospect: [155]

3. [127]

   To similar effect, Deane J said that the presumption “will not … be displaced merely by the circumstance that the benefits which the plaintiff would have obtained from performance by the defendant included the chance of some more remote benefit and it is a matter of speculation whether that ultimate benefit would have in fact been obtained or by the circumstance that the perceived ‘benefit’ which the plaintiff sought and for which she incurred the past expenditure is something … which … is not capable of being objectively valued in monetary terms”. [156] His Honour said: [157]

4. [128]

   His Honour added that the difficulty of assessing the value of the chance of a further contract made it impossible for the Commonwealth to rebut the presumption. [158]

5. [129]

   Thus, even though the defendant did not promise and was not bound to renew the contract, “the value of the prospect of a renewal of the contract was a matter to be taken into account in determining whether Amann would or would not have recouped its expenditure”, and the onus was on the Commonwealth to demonstrate that “the value to Amann of the prospect of renewal of the contract when combined with [its] expenses that would have been recovered by way of gross receipts was less than the total expenses to be incurred by Amann in the performance of its contractual obligations”. [159] Although the plaintiff would not have recouped its expenditure in the initial term of the contract, and although it had no right to a further term, its prospects of obtaining a renewed term were sufficient that it could not be said that it was established that it would not ultimately recoup its expenditure.

6. [130]

   Here, commercial development of the airport was admittedly the ultimate purpose of the promised subdivision. To adapt the words of Mason CJ and Dawson J extracted above, it was a “a distinct commercial benefit”, inevitably contemplated by the parties as enuring to the advantage of Cutty Sark from performance of the contract, and one which would not accrue to Cutty Sark independently of performance of the contract or incidentally; the corollary is that the parties necessarily contemplated the loss of that prospect as the probable result of the Council repudiating its obligation to take all reasonable action to procure registration of the Plan. That the Council did not promise to develop the airport is no more significant than was the fact that in Amann the Commonwealth did not promise to renew Amann’s contract.

7. [131]

   A second theme is that Cutty Sark’s endeavours to operate a business from proposed Lot 104 prior to the Sunset Date were unsuccessful; the businesses had failed; Cutty Sark had departed the site; thus it would never have recouped its expenditure even if the Plan had been registered and the Lease granted. However, although Cutty Sark had discontinued its then businesses before the Sunset Date, at a time when it did not know whether or not the subdivision would proceed, it had not then abandoned the premises; it took that step only later, after the Council had made clear that it had no intention of spending the money required to obtain registration of the Plan. At least until that point, had the Plan been registered, Cutty Sark would have had thirty years in which to resume operations from the hangar – whether the same or different businesses – in a potentially more conducive commercial environment. Proof of losses in the early stages of a business or enterprise that was to run for many years does not establish that, over the term of the Lease, Cutty Sark would not have earnt sufficient revenue to recoup its costs, particularly when there was a prospect that over that term the commercial environment would become more favourable with development of the airport. [160] The discontinuation of its businesses prior to the Sunset Date does not significantly illuminate the prospects of resuming operations and recouping expenditure over the ensuing period of 30 years in the different circumstances that would or might have prevailed had the Plan been registered and the Proposed Lease granted, particularly given that with a subdivision there was a prospect of surrounding commercial development and a more conducive commercial environment – the prospect of which still appears to be firmly in the Council’s mind today, when there would remain 20 years of the 30-year lease yet to run.

8. [132]

   A third theme in the reasoning is that Cutty Sark rejected offers which if accepted might have given it the ability to conduct business from the hangar, with rights not significantly different from the rights which it would have had under the Proposed Lease. Cutty Sark’s declining of those offers and that opportunity is said to indicate that had the Proposed Lease been granted it would not likely have resumed operations. With respect, this reasoning impermissibly draws inferences from Cutty Sark’s declining proposals from the Council that were inferior to its contractual entitlements. Cutty Sark as the innocent party was entitled to insist on its contractual rights, or damages for breach, rather than accepting some inferior proposal advanced by the Council. The rejection of an offer of a 25-year licence, or 5 consecutive leases of 5 years, of isolated premises which did not comprise a subdivided titled lot in a 25-lot subdivision, provides no reasonable basis for an inference that Cutty Sark would not have resumed operations and ultimately recouped its expenditure, had it been granted a 30-year lease of Lot 104 in a 25-lot subdivision, which was the likely result if the Council had performed its contractual obligation. The offers were plainly inferior to Cutty Sark’s contractual entitlement, not only in that they were not of a 30-year lease, but also that they did not involve registration of the Plan. Even if Cutty Sark’s rejection of these offers – after the Sunset Date – “provides some indication that it did not intend to stay on the proposed Lot 104 and conduct its businesses in the long-term”, [161] that was in circumstances where Council had repudiated its obligations, as a result of which any prospect of a more conducive commercial environment was precluded, and was offering an inferior solution, which Cutty Sark was entitled to reject; it provides no basis for inferring that Cutty Sark would have had the same intention had Council not repudiated its contractual obligations. As to her Honour’s observation that it was “consistent with the defendant’s hypothesis that the plaintiff was better off without the obligations under the Agreement, which would have committed it to pay licence fees for the next 30 years on a site, the surrounds of which might not have been developed during that period, and from which it had been unable to operate any business profitably”, that would be so only if Cutty Sark’s departure be treated as an acceptance by it of Council’s repudiation, thus bringing to an end its obligations under the Agreement to pay the licence fee – a position it was entitled to adopt in the light of Council’s repudiation having precluded the prospect of commercial development. It says nothing as to whether, had Council performed its obligations, Cutty Sark could have recouped its expenditure over the ensuing thirty years, during which the surrounds might have been developed and it might have been able to operate a business profitably.

9. [133]

   Similarly, the fact that Cutty Sark sought to extricate itself by one means or another from the predicament created by the Council’s repudiation of its obligations, without waiting to see whether the Council would belatedly do what it had promised to do but then expressly stated that it would not do, provides no basis for concluding that had Council performed its obligations, Cutty Sark would not over the ensuing 30 years have recovered its expenditure. It does not follow, from the circumstance that, after the Council had repudiated its obligations, [162] Cutty Sark sought to obtain freehold title to Lot 104 in order to recover its costs, that it could not have recovered them had it been given a lease of a lot in a 25-lot subdivision, with 30 years in which to do so.

10. [134]

    It is true that there was a prospect that the subdivision would not have proceeded without any breach on the part of the Council, though the prospects of that appear remote, given that Council was also the consent authority. There was also most certainly a prospect that had the subdivision proceeded, the commercial development of the airport might not have, and if it did not, it might have been very difficult for Cutty Sark to generate a sufficient return to recoup its expenditure. On the other hand, had the Plan been registered, there was at least a prospect that commercial development would follow, if not immediately then later. It was submitted that if the Council did not have the money to complete the sewerage connection (which was the obstacle to registration of the Plan), it was most unlikely that it would have implemented the development. However, the primary judge’s findings that the Council’s breach of clause 4.2 was by its failure to commit “funds to connect the proposed lots to sewerage”, [163] that while as at 2010 it was expected that the cost of doing that work “would eventually be offset (and notionally paid for) by income from the airport development”, that “it was plain that the income would not be forthcoming at that level for some considerable time (if at all)”, [164] and that “when compared with the other demands on the Council’s budget (including maintenance of roads and bridges) the development of the airport was not of sufficient priority to obtain the requisite funds”, [165] address only the short term, and not the prospects of development over the 30-year term of the Proposed Lease that ought to have been granted. A 30-year lease from 1 October 2011 would not have expired until 30 September 2041; the evidence revealed a significant possibility of expansion and development of the airport, with Council documents over the decade from 2011 to 2020 consistently referring to the increased demand for hangarage and the Council’s ambitions for development of the airport; and had the Plan been registered, there would still remain today another 19 years until 2041 for that to occur.

11. [135]

    In those circumstances, it is impossible to be satisfied that by 2041, Cutty Sark would not have recouped its expenditure. No doubt whether it would have done so is speculative, but that is because non-performance by the Council of its obligations under clause 4.2 has rendered it impossible to tell. The fact that such a prospect is speculative, in circumstances where the Council bears the onus of showing that Cutty Sark would not have recovered its expenditure, does not assist the Council. As the presumption is not displaced merely by the circumstance that the benefits which the plaintiff would have obtained from performance by the defendant included the chance of some remote benefit and it is a matter of speculation whether it would have in fact arisen, the speculative nature of the benefit to Cutty Sark renders it impossible for the Commonwealth to rebut the Amann presumption. [166]

12. [136]

    The Council submitted that Cutty Sark could not recover damages that had regard to the prospect of redevelopment of the airport unless it were established that such a prospect would have existed at the date of the breach, namely 30 September 2011. It was said that as damages are normally measured by reference to the circumstances at the date of breach of contract, [167] if the primary judge could not be satisfied that there would have been as at 30 September 2011 some prospect of the airport being developed if clause 4.2 were complied with, then there could be no loss either of that prospect or of the prospect of Cutty Sark deriving profits after development of the airport; and that only if the prospect existed as at 30 September 2011 could Cutty Sark cast any onus on the Council to prove that it would not have recouped its expenditure had the Council fully performed its contractual obligations. [168]

13. [137]

    This submission is misconceived. First, as explained above, net wasted expenditure serves as a proxy for the minimum contractual benefits that the innocent party would have derived, unless the defendant shows that it would not have been recouped; in considering whether the defendant has discharged that onus, regard is had not just to what the defendant has promised, but to other matters reasonably supposed to have been in the contemplation of the parties, when they made the contract, as probable results of a breach. In this case, one such matter was the prospect that there would be commercial development of the airport. The evaluation of that prospect is not a binary decision. In this respect there is no such distinction as the Council suggested, between a speculative prospect, and its speculative value. The value of a prospect (or a “chance”) is inherently intertwined with its likelihood – or the extent to which it is “speculative”. That there is no such dichotomy is also indicated by the observation of Deane J in Amann Aviation that “the presumption will not … be displaced merely by the circumstance that the benefits which the plaintiff would have obtained from performance by the defendant included the chance of some more remote benefit and it is a matter of speculation whether that ultimate benefit would have in fact been obtained”, [169] with any speculation as to the value of the chance of the benefit being a difficulty to be confronted by the wrongdoer and not the innocent party. [170] Thus even if redevelopment of the airport was not likely in the short term, it was necessary to consider whether there was a prospect of redevelopment sometime during the 30 year term of the lease that would facilitate recoupment. The fact that the Council had decided against proceeding in 2011, and that development might not have been an immediate prospect as at 30 September 2011, does not mean that there was not then some prospect of redevelopment during the 30-year term, or that it was so remote that it could be concluded that Cutty Sark would not, over that period, ultimately recoup its expenditure.

14. [138]

    Secondly, the “rule” that damages are assessed as at the date of breach is in any event nowadays but a guide, yielding “if, in the particular circumstances, some other date is necessary to provide adequate compensation”. [171] More relevantly, even where it applies, a court is not precluded from having regard to subsequent events in evaluating the position as at the relevant date. [172] In this case, the evidence of the Council’s ongoing support for redevelopment of the airport between 2012 and 2020 shows that, as at 30 September 2011, there was very much a prospect of it occurring sometime before 2041.

15. [139]

    Thirdly, it is not correct that it is only if Cutty Sark established that such a prospect would have existed as at 30 September 2011 that it could cast any onus upon the Council to prove that it would not have recouped the expenses that it incurred in reliance on the Agreement. As has been explained, once Cutty Sark established it incurred expenditure on the faith of the promise that was not performed, the onus shifted to the Council to show that it would not have recouped its expenditure.

16. [140]

    In circumstances where what would have transpired had the Council performed its obligations was speculative but there was a high degree of likelihood (given that the Council was also the consent authority) that the Plan would be registered, and at least a prospect of further development of the airport producing a more conducive commercial environment for Cutty Sark’s business operations, if not immediately then sometime over the ensuing thirty years of the lease to which Cutty Sark was entitled, the Council could not and did not show that Cutty Sark would not, over a 30-year lease, have recouped its expenditure. Ground 5 succeeds.

Was recovery precluded by the rule in Hadley v Baxendale? (Ground 4)

1. [141]

   An additional basis for her Honour’s rejection of the claim for substantial damages was the rule in Hadley v Baxendale, which limits damages recoverable for breach of contract to losses which may “fairly and reasonably be considered either arising naturally … from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it”. [173]

2. [142]

   The primary judge held that the reliance damages claimed by Cutty Sark were not recoverable under either limb: [174]

3. [143]

   The reasoning disclosed by the above passage is to the effect that:

   1. (1)

      it was within the reasonable contemplation of the parties that no lease would be granted and the Agreement would be terminated without breach on or after the Sunset Date;

   2. (2)

      the hangar was thus erected at Cutty Sark’s risk, and in particular at the risk that it would be transferred to the Council for nominal consideration at any time between the making of the Agreement and the expiry of the Lease; and

   3. (3)

      Cutty Sark could have had no reasonable expectation when it chose to incur expenditure on the hangar that it would be permitted to amortise the cost over a period of 30 years from registration of the Plan, since that event was uncertain, both as to timing and eventuality.

4. [144]

   However, the relevant question was not whether Cutty Sark could reasonably have expected when it chose to incur expenditure on the hangar that it would be permitted to amortise the cost over a period of 30 years, or whether the hangar was erected at Cutty Sark’s risk, but whether when the contract was made the parties ought to have recognised that expenditure had been and/or would be incurred in respect of the hangar in reliance on the Council’s promise to take all reasonable action to procure registration of the Plan, which would be wasted if the Council did not do so. In McRae, Dixon and Fullagar JJ said: [175]

5. [145]

   Hallett J considered the question of remoteness in a claim in respect of wasted expenditure in Foaminol Laboratories Ltd. v. British Ortid Plastics Ltd (emphasis added): [176]

6. [146]

   From that passage, and from McRae, it is plain that the proper application of Hadley v Baxendale as a control on remoteness of damage in a claim for wasted expenditure is whether, when the contract was made, it was within the reasonable contemplation of the parties that the relevant expenditure would be incurred and, if the contract were breached in the relevant manner, wasted.

7. [147]

   In Amann Aviation, the rule in Hadley v Baxendale played a rather different role: its second limb was relied on to show that a defendant’s liability could extend beyond damages for not doing that which he or she was contractually bound to do. Thus, Mason CJ and Dawson J said that:

8. [148]

   In that way, it enabled the prospect of renewal to be taken into account in considering whether the plaintiff would not have recouped its expenditure. Similarly, in this case it permits the prospect of commercial development to be taken into account in considering that same question. But that is a different question from whether damages in respect of wasted expenditure on the hangar are too remote to be recoverable under the rule.

9. [149]

   In this case, it was plainly in the contemplation of the parties when the Agreement was made that Cutty Sark would incur substantial expenditure in erecting the hangar. The Agreement was made in circumstances where the characteristics of the hangar featured in the parties’ negotiations; the Council had granted development consent for the hangar; the Agreement made provision in respect of “the Lessee’s works”, which could only have been the hangar; preliminary works on its construction had commenced, and (as the primary judge found), “the [Council] was aware that [Cutty Sark] was constructing a hangar at substantial expense on proposed Lot 104”. [178] And had they turned their mind to it, it would have been obvious that that expenditure would be wasted if the Council did not take all reasonable action to register the plan. While undoubtedly Cutty Sark assumed an element of risk, it did not assume the risk that the Council would not take all reasonable action to procure registration of the plan. The matters relied on by the primary judge – that the parties contemplated that no lease might be granted without breach, that the hangar would eventually be transferred to the Council for nominal consideration, and that whether and when the Plan would be registered was uncertain – are not at all inconsistent with the parties also recognising that if the Council did not take all reasonable steps to procure registration of the Plan, Cutty Sark’s expenditure would be wasted. In this case it was, or ought to have been, plain to both parties, had they turned their minds to the question when the contract was made, that non-performance by the Council of its relevant obligation would result in Cutty Sark wasting the expenditure it had incurred and was going to incur in constructing the hangar. The loss incurred is therefore reasonably to be supposed to have been in the contemplation of both parties when the contract was made, within the second limb of Hadley v Baxendale. Ground 4 succeeds.

Quantum (Ground 6)

1. [150]

   Cutty Sark claimed that it had expended $3,697,234.41 on the construction of the hangar (including overheads and miscellaneous expenses), as follows:

2. [151]

   The Council disputed $438,228.26 of that total, on the basis that the relevant invoices were addressed to an entity other than Cutty Sark, and no evidence was given of any arrangement between that entity and Cutty Sark. Her Honour did not resolve that dispute, observing that it “was not fully explored in the evidence”. [179]

3. [152]

   The relevant evidence was in short compass. In his affidavit of 20 September 2021, Mr Johnston exhibited an “Updated Expenditure Schedule” of Cutty Sark’s expenses in relation to the construction of the hangar, and explained that it included amounts paid to the builder (Babic), amounts paid to the architect (Stutchbury), amounts paid to trades, overhead costs directly relating to the project, and miscellaneous costs. The effect of this evidence was that the expenses listed in the “Updated Expenditure Schedule” were expenditure by Cutty Sark in relation to the construction of the hangar on proposed Lot 104. [180]

4. [153]

   In his evidence in chief, Mr Johnston was shown a copy of the “Updated Expenditure Schedule”, from which some deletions had been made, which showed the grand total of $3,697,234.41, of which he said “that’s exactly right”. [181] He was then asked: [182]

5. [154]

   The document was tendered, and admitted without objection, although counsel for the Council said: [183]

6. [155]

   The cross-examination of Mr Johnston did not touch upon this topic. However, in the Council’s closing written submissions, it disputed $438,228.26 of the total claimed, submitting: [184]

7. [156]

   The annexure identified invoices totalling $438,228.26.

8. [157]

   Mr Johnston’s evidence set out above was not the subject of challenge. The respondent submitted that the matter was not one which had to be put in cross-examination. I am prepared to accept that the Council was not precluded from relying on the fact that various invoices were addressed to persons or entities other than Cutty Sark, but the absence of any challenge to Mr Johnson in this respect makes it easier to accept his evidence, generalised assertion as it was, to the effect that the schedule represented expenditure incurred by Cutty Sark in constructing the hangar.

9. [158]

   Moreover, examination of the annexure listing the disputed invoices reveals that many were issued by the architects who supervised construction of the hangar, or trades who worked on it, sometimes to Mr Johnston personally and sometimes to other related entities. No suggestion has been made that they were not referrable to the construction of the hangar, and it is clear enough from their contents that they were. No suggestion has been made that they were not incurred. Some appear to be subcontractor costs addressed to head contractors. No suggestion was made that they were not passed onto and ultimately incurred by Cutty Sark. If costs referrable to the construction of the hangar were invoiced to associated entities of Cutty Sark, it is readily to be inferred that, if Cutty Sark did not itself then pay them, it became liable to reimburse the associated entity which advanced the funds for its benefit.

10. [159]

    In those circumstances, and in the light of Mr Johnson’s broad-brush but unchallenged evidence on the question and the conduct of the trial, the proper finding is that Cutty Sark incurred expenditure of $3,697,234.41 on construction of the hangar. Ground 6 succeeds.

Conclusion

1. [160]

   My conclusions may be summarised as follows:

2. [161]

   A plaintiff who is unable or does not undertake to demonstrate whether or to what extent the performance of a contract would have resulted in a profit may claim to recoup its wasted expenditure. In such a case, expenditure incurred by a plaintiff in reliance on a contractual promise made by the defendant and “wasted” because of non-performance by the defendant is recoverable, except to the extent that the defendant shows that the plaintiff would not have recouped its expenditure had the contract been performed. Relevant expenditure is not confined to expenditure under or required by the contract, but extends (subject to the rule in Hadley v Baxendale) to any detrimental change of position by the promisee in reliance upon the defendant’s promise. Such expenditure is regarded as “wasted” if the promise in reliance on which it was made is not performed, except to the extent that it is shown that the plaintiff has received some offsetting benefit, whether under or dehors the contract. The value of the reliance interest is the quantum of the net detriment, after allowing for any offsetting benefit accruing to the plaintiff from the expenditure. It suffices to enliven the presumption that expenditure has been incurred in reliance on a defendant’s contractual promise which the defendant has failed to perform.

3. [162]

   Amann Aviation and McRae do not constitute a category of case which depends on the nature of the breach rendering assessment of damages on the usual basis “impossible”; they apply when the plaintiff does not claim or the evidence does not establish any loss of profits. It is not a precondition to that presumption arising that the plaintiff first establish that it is “impossible” to prove expectation damages. Ground 1 succeeds.

4. [163]

   The facts that the Council did not promise to develop the airport, and that the contract allocated significant risks to Cutty Sark, are beside the point. The one risk that matters is that which eventuated – that Council repudiated its obligations to take all reasonable action to procure registration of the Plan – and that risk was one which Cutty Sark did not accept. Cutty Sark was entitled to rely on the Council performing its contractual obligations. Insofar as the primary judge held that the presumption did not arise because the contractual allocation of risk meant that Cutty Sark did not or could not reasonably rely on the Council’s promise to take all reasonable steps to procure registration of the plan, Ground 3 succeeds.

5. [164]

   Termination of the contract by the innocent party is not invariably a precondition to recovery of reliance damages. In any event, clause 13.3 of the Agreement had the effect that Cutty Sark’s rights in respect of a breach by the Council before termination were not affected by termination, and Cutty Sark’s right to claim to recover its expenditure incurred in reliance on the Council’s promise to take all reasonable steps to procure registration of the Plan, which the Council had repudiated, was thus preserved.

6. [165]

   Cutty Sark incurred substantial expenditure in constructing the hangar on proposed Lot 104 in reliance upon the Council’s promise to take all reasonable action to procure registration of the Plan. Even if some of the construction expenditure was incurred before the Agreement was made, it is recoverable as it was plain when the contract was made that it would be wasted if the promise was not performed.

7. [166]

   The presumption arose. Cutty Sark, although it did not prove (nor endeavour to prove) that it had incurred any expectation loss, did prove that it had incurred expenditure in reliance on the Council’s performance of its obligation to take all reasonable steps to procure registration of the Plan. Council’s repudiation of that obligation rendered certain that Cutty Sark would not receive the benefits for which it had contracted, and that its expenditure would be wasted in the relevant sense. That sufficed to engage the presumption, so as to cast on the Council the onus of showing the value of any offsetting benefit received by Cutty Sark, and/or that its expenditure would not have been recouped had the contract been performed. Moreover, even if the presumption arises only if the defendant’s breach “denies, prevents or precludes the existence of circumstances which would have determined the value of the plaintiff’s contractual benefits”, that requirement was satisfied here: the Council’s breach rendered impossible a true assessment of the probable outcome of performance of the contract and whether it would have enabled Cutty Sark at least to recoup its expenditure. Ground 2 succeeds.

8. [167]

   The presumption was not rebutted. In circumstances where what would have transpired had the Council performed its obligations was speculative, but there was a high degree of likelihood (given that the Council was also the consent authority) that the Plan would be registered, and there was at least a prospect of further development of the airport producing a more conducive commercial environment for Cutty Sark’s business operations, if not immediately then sometime over the ensuing thirty years of the lease to which Cutty Sark would have been entitled, the Council could not and did not show that Cutty Sark would not over a 30-year lease have recouped its expenditure. The primary judge erred in concluding otherwise. Ground 5 succeeds.

9. [168]

   It was plainly in the contemplation of the parties when the Agreement was made that Cutty Sark would incur substantial expenditure in erecting the hangar; and it was, or ought to have been, plain to both parties, had they turned their minds to the question when the contract was made, that non-performance by the Council of its relevant obligation would result in Cutty Sark wasting the expenditure it had incurred and was going to incur in constructing the hangar. The loss incurred in the nature of wasted expenditure is therefore reasonably to be supposed to have been in the contemplation of both parties when the contract was made, within the second limb of Hadley v Baxendale, and the primary judge erred in holding otherwise. Ground 4 succeeds.

10. [169]

    In the light of Mr Johnson’s broad-brush but unchallenged evidence on the question, and the conduct of the trial, the proper finding is that Cutty Sark incurred expenditure of $3,697,234.41 on construction of the hangar. Ground 6 succeeds.

11. [170]

    The appeal should be allowed. The judgment below should be set aside and in lieu thereof there should be judgment for Cutty Sark for $3,697,234.41 and interest. The Council must pay Cutty Sark’s costs of the proceedings at first instance and on appeal. The parties should be directed to bring in short minutes, including calculation of interest, to give effect to this judgment.

12. [171]

    MITCHELMORE JA: I agree with Brereton JA.