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

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

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

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

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

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

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

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

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

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

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

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

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

Mr Roberts’ suggestions for the airport included the erection of hangars with attached residences for the aircraft owners (hangar homes), a concept known in parts of the United States. The idea was attractive to the Council as Mr Roberts represented it as a way of producing an income stream for the Council which would help pay for the airport, once the eventual development, of which the registration of the subdivision was the first step, had been completed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

He continued, in answer to subsequent questions:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The only inference which Mr Williams submitted that I ought more comfortably draw by reason of the defendant’s failure to call a particular witness, was that the defendant had access to sufficient funds to fulfil condition 23. I do not accept that the Council had the latitude to commit it to spend such funds as it had because I consider its other priorities to have been more pressing. The demarcation between the Council’s role as developer and as public authority is important in this respect. However, as explained below, I do not consider that the lack of ready funds prevented the defendant from being in breach of cl 4.2(a)(2). Accordingly, the inference which Mr Williams would have me draw is irrelevant to the finding of breach or any other issue in the proceedings.

The relevant terms of the AFL are set out in summary form below.

Clause 2.2 relevantly provided:

Clause 3.1 of the AFL provided:

The expression “Commencing Date” was defined in cl 1.1 to mean “the day after the registration date of the Plan and the Instrument”, which were also defined terms. The word “Lease” was defined to mean “the Lease of the Land forming Annexure A, as completed under clause 3.3”, and the term “Land” was defined as “the land and any improvements on the land specified in Item 1.” Item 1 in turn specified the Land as being “Folio Identifier 2/1064825 part being proposed Lot 104 in DP.” The word “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.” Although annexure “C” was not in evidence, it was common ground that this annexure referred to the wider development of the airport, including the areas to the west and east of the runway.

Other relevant definitions include “Sunset Date”, which was defined to mean 30 September 2011, and “Relevant Authority”, which was defined to mean:

Clause 4 provided:

It was common ground that the defendant had fulfilled its obligation in cl 4.2(a)(1) by obtaining the development consent. There was an issue about the proper construction of cl 4.2(a)(2) and whether the defendant had breached that subclause.

Pursuant to cl 5.1 of the AFL, the defendant granted to the plaintiff, in consideration of payment of the “Licence Fee”, a licence “to enter the Land during the Licence Period for the Permitted Use on the terms of this Licence.” The Licence Fee was specified in Item 5 of Schedule 1 to be:

These annual fees correspond to a weekly licence fee of $557.69 per week for the first year and $726.92 per week for the fourth year. The rent provision in the proposed lease which was annexed to the AFL reflected a continuation of the calculation of rent for the ensuing 30 years of the lease, whereby the rent for any given year would be the figure for the previous year adjusted for CPI.

“Licence Period” was defined in cl 1.1 to mean, in effect, the period from the date on which the defendant first gave the plaintiff 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.”

Clause 5.2 provided as follows:

Clause 5.3 provided:

Clause 12.3 relevantly provided:

The term “Aerodrome” was defined to mean “the Cessnock Aerodrome adjacent to the Land.” The term “Aerodrome Infrastructure Facilities” was defined to mean:

Clause 13 relevantly provided:

“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 a matter of construction, it includes deregistration.

Clause 16.8 of the proposed Lease annexed to the AFL provided:

It was not suggested that cl 17 of the Lease, which deals with the requirements for removal of any improvements erected by the plaintiff, had any present application.

At the conclusion of Mr Williams’ opening and before the plaintiff began adducing evidence, Mr Cook gave a brief opening to indicate the issues in dispute. He relied on cl 2.2 as qualifying the obligation in cl 4.2. Mr Williams informed the Court that the plaintiff objected to the defendant’s reliance on cl 2.2 in the interpretation of the AFL as it had not been pleaded. Accordingly, the first question to be determined is whether, by not having referred to cl 2.2 in its defence, the defendant is precluded from relying on it in support of the construction of cl 4.2 for which it contended.

An agreement must be construed as a whole. This principle does not require a party to plead every term of an agreement. In the past, it was not uncommon for parties to say, when referring to an agreement in a pleading, “and the [party] relies on all the terms of the agreement as if they were fully set out herein”, or words to that effect. Such phrases are no longer in fashion but the principle continues to apply. It would be highly artificial to construe the obligation in cl 4.2 without regard to cl 2.2.

Rule 14.14(2) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) requires a defendant to:

UCPR, r 14.14(3) provides:

It is plain from the statement of claim that the plaintiff was conscious of the defendant’s status as a public authority, as is evident from paragraph 6 of the statement of claim which alleges that the defendant “at all relevant times was, a council constituted by [the LGA] for the area of Cessnock, New South Wales.” I am not persuaded that it could reasonably be suggested that the defendant’s reliance on cl 2.2 in the context of its powers and responsibilities as a public authority was capable of taking the plaintiff by surprise or was otherwise required to be pleaded.

There was an issue about the effect of the defendant’s obligation in cl 4.2(a)(2) to take all reasonable action to fulfil the conditions of the development consent, this being what was required to obtain the registration of the Plan and the Instrument, before 30 September 2011. The defendant submitted that, whatever was required by that subclause, it had no obligation to develop the airport as envisaged in discussions between the parties before the AFL was entered into.

The Sunset Date of 30 September 2011 was the first date on which actual breach by the defendant could occur, there being no suggestion that the plaintiff was relying on anticipatory breach as amounting to a repudiation by the defendant of its obligations under cl 4.2(a)(2) of the AFL, thereby entitling the plaintiff to terminate the AFL. In any event, action for any breach committed prior to 30 September 2011 would have been statute-barred (as a cause of action for damages for breach of contract accrues on breach and therefore time starts to run from the time of breach). Accordingly, it is not necessary to address the progress made by the defendant at particular times prior to the Sunset Date or the allegations in the statement of claim relating to breaches which are said to have occurred prior to 30 September 2011, since there was no actual breach before that date, and therefore no right to damages arising from the defendant’s conduct prior to that date.

I infer from the terms of cl 4.2 that the parties contemplated, when entering into the AFL, that a situation might arise where the defendant had taken reasonable action but that the Plan would nonetheless not be registered. Further the period between the date on which the AFL was executed by the defendant, 26 July 2007, and the Sunset Date of 30 September 2011 was such as to lead to the inference that the parties contemplated that the subdivision was not straightforward because the fulfilment of the conditions of the development consent (which had been obtained almost three years prior to the execution of the AFL) would require significant works to be completed as well as the approval of third parties.

I accept that the circumstances of the present case are quite different from the conventional case of a private developer who has an obligation to obtain registration of a residential strata plan. The defendant’s status as a public authority is significant since, by reason of applicable laws and its structure (including that it is run by elected members who make resolutions by democratic vote and that its means of raising money are constrained), it cannot act as a private developer would. So much must have been obvious to the plaintiff from the outset, as a matter of objective factual matrix. Further, to the extent to which the plaintiff submitted that the defendant could have funded the development through income from hangar homes (which was what was proposed at the outset), such “funding” would only have ever been retrospective: that is, the income from the hangar homes would have been received, if at all, when the subdivision for the whole airport site had been registered, the development completed and hangar homes erected and leased to individuals or companies. Such an income stream was not available to the defendant to pay for the sewerage connection which was required to fulfil condition 23 of the development consent.

It is plain from the evidence that the defendant’s employees tried to make the best case they could, both to the Councillors and when applying for funding and grants. However, they were unable to overcome the circumstance that, when compared with the other demands on the Council’s budget (principally the maintenance of roads and bridges), the development of the airport was not of sufficient priority to obtain the requisite funds. Ms Rumbel explained the difficulties in the following passage in cross-examination:

I consider that cl 2.2 provides an important textual qualification to the obligation in cl 4.2. Its inclusion is designed to make clear that the Council does not, as a matter of objective intention, intend to fetter any of its statutory powers or discretions by entering into the AFL. The real question is what effect cl 2.2 has on cl 4.2 in the present case.

The defendant argued that cl 2.2 was intended to incorporate the Council’s power in s 409(2) of the LGA, which relevantly provides that money held in the Council’s consolidated fund may be applied towards any purpose allowed by the LGA or any other Act, as well as the Council’s power to borrow under s 621 of the LGA, subject to restrictions imposed pursuant to s 624 of the LGA. Thus, the defendant submitted that, if either its means, or internal democratic processes, did not permit it to expend the money required to take action to register the Plan, the action could not be regarded as “reasonable” within cl 4.2 of the AFL and, thus, it was not in breach when it was not prepared to allocate the sum of about $1.3m to connect all the proposed lots in the subdivision to the sewerage system, as required to by condition 23 of the development consent.

On this basis, the defendant submitted that the phrase “all reasonable action” in cl 4.2 ought be read, in light of cl 2.2, to require: “the taking of any step that objectively would advance the achievement of a contemplated end, … subject to any decisions made by the Council in the exercise of its statutory powers, including with respect to finance, expenditure and other matters of policy, provided … that such decisions are honestly made, neither arbitrary nor capricious, and not intended simply to defeat the object of the Agreement.”

The defendant submitted that there would be no basis for finding it to have breached cl 4.2 in the following circumstances (which it contended accorded with the facts):

The defendant submitted that the present case was to be distinguished from cases where public authorities were held liable under contracts even where they changed their position (resulting in breach of such contracts) as a result of policy or political factors since in none of the cases cited (which turned on the doctrine of executive necessity) was there a provision such as cl 2.2 in the relevant agreement.

In response, Mr Williams submitted that, in effect, the defendant sought to imply a term into the AFL that the Council need not take action under cl 4.2(a) if it cannot afford to take the action, either because it does not have the funds or because the allocation of funds for the purpose of taking the action does not accord with its then funding priorities. He contended that the prerequisites for implying such a term had not been met. I understood his submission to be a reference to the conditions for implication expressed in B P Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 (Lord Simon, Viscount Dilhorne and Lord Keith) (approved in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 336 at 347 (Mason J); [1982] HCA 24) namely that:

Further, Mr Williams relied on New South Wales Rifle Association v Commonwealth [2012] NSWSC 818; (2012) 266 FLR 13 at [79] and [100]-[101] (White J) in support of his submission that the doctrine of executive necessity did not absolve the defendant from taking all reasonable action since it had entered into the AFL as the owner of the land and was seeking to have a plan of subdivision registered, as any other owner might do. Thus, he argued that, just as any owner of land must have the requisite funds to do what he or she has promised to do, the defendant could not avoid its obligation to fund compliance with the conditions of the development consent by pointing to other demands on its budget.

To read cl 2.2 as qualifying cl 4.2 in the manner suggested by the defendant would deprive cl 4.2 of any real operative effect and reduce it to a rather lame indication that the defendant would do what it could if it could manage it, having regard to its other priorities. In Ansett Transport Industries (Operations) Pty Limited v The Commonwealth (1977) 139 CLR 54 at 74-75; [1977] HCA 71, Mason J identified the competing public interests which arise in the context of contracts with public authorities such as the defendant:

As Bell P said (Bathurst CJ and Basten JA agreeing) in Searle v Commonwealth of Australia (2019) 100 NSWLR 55; [2019] NSWCA 127 at [108]:

His Honour concluded at [145]:

In my view, cl 2.2 does not have the effect for which the defendant contended. This is not to say that the fettering doctrine could not, in different circumstances, affect the obligation under cl 4.2. For example, as Mr Williams accepted, the defendant would be entitled, in accordance with the fettering doctrine, to declare the land comprising proposed Lot 104 as a public road or to sell the land for a public purpose, such as to create a park, without putting itself in breach of the AFL (although it would be subject to the Land Acquisition (Just Terms Compensation) Act 1991 (NSW)). In these instances, the Council would be acting in a different capacity than as the owner of land and, accordingly, the distinction referred to by White J in New South Wales Rifle Association v Commonwealth would apply.

I am not persuaded that the gloss on cl 4.2 for which the defendant contended ought to be read into the text, or is otherwise to be implied. Further, I accept Mr Williams’ submission that none of the requirements for the implication of a term has been met.

It follows from what I have said above that the question whether the defendant breached cl 4.2 is to be determined by reference to its plain words, since the defendant, in obliging itself to take all reasonable action under cl 4.2(a) was undertaking an obligation which could be assumed by any owner of land.

A similar clause was considered by the Court of Appeal in Wardy v Hardy [2002] NSWCA 215. Clause 28.2 of the standard form contract (2000 edition) in Wardy v Hardy provided that the vendor “must do everything reasonable to have the plan registered within 6 months after the contract date”. If the vendor complied with cl 28.2 and the plan was not registered within 6 months, the vendor was entitled to rescind. The Council was prohibited from granting consent to the proposed subdivision unless the conditions attached to a compliance certificate issued by Sydney Water had been fulfilled. Sydney Water refused consent for a private easement arrangement and insisted that each lot be separately connected to the sewer and drainage mains.

The trial judge (Bryson J) found that, although it would have been open to Sydney Water to allow the mains to be connected by private easement, it was a “fair certainty” that Sydney Water would require separate sewer connections. His Honour considered that by leaving the matter to an independent contractor and not allowing enough time, the vendor had failed to comply with cl 28.2 and therefore was not entitled to rescind. The Court of Appeal dismissed the appeal.

In the present case, the defendant was required to take all reasonable action to apply for and obtain registration of the Plan and the Instrument. In the circumstances of the present case, its obligation under cl 4.2(a) required it to take all reasonable action to fulfil the conditions of the development consent. It was not suggested that condition 23 was unreasonable, nor that it could not be complied with by the expenditure of funds in the order of $1.3m, nor that the amount of $1.3m was exorbitant, nor that it could not have been foreseen as falling within the range of possible expenditure when the AFL was entered into. The only reason advanced on behalf of the defendant for not complying with the condition was that it lacked the funds and could not reasonably obtain them, either from its own resources or by applying for grants or loans.

In these circumstances, I am satisfied that the defendant, by not committing funds to connect the proposed lots to sewerage, was in breach of its obligation under cl 4.2(a)(2) of the AFL.

Mr Cook submitted that it was not necessary for me to address other conditions in the development consent since it was common ground that condition 23 had not been complied with. I understood him to accept that, if I found that the defendant had breached cl 4.2(a)(2), the breach was an effective cause of the non-registration of the Plan and Instrument by the Sunset Date of 30 September 2011. This concession is relevant to the assessment of damages.

The defendant alleged that, if it were found to be in breach of cl 4.2, any claim which the plaintiff might otherwise have in damages against it was wholly excluded by cl 12.3(b) (set out above).

It submitted that cl 12.3 was an exclusion clause and ought, therefore, be construed in accordance with the following principles in Darlington Futures Limited v Delco Australia Proprietary Limited (1986) 161 CLR 500 at 510-511; [1986] HCA 82 (Darlington):

The defendant contended that cl 12.3 as a whole had the effect that the defendant was not liable for any loss arising from, and costs incurred in connection with, such matters as loss of profits, or any other form of loss including financial or economic loss or indirect or consequential loss and that cl 12.3(b), which excluded liability for “anything the Lessor is permitted or required to do under the Lease”, excluded liability for non-compliance with cl 4.2(a).

The plaintiff submitted that cl 12.3 could not be read as having such a wide effect, since if it were, it would entirely defeat the obligations undertaken by the defendant and leave the plaintiff without any remedy, except termination, for any breach by the defendant. Further, it submitted that cl 12.3 ought be read as a release (in accordance with the heading to the clause) and that, accordingly, it ought be construed strictly in accordance with the principles set out in Grant v John Grant & Sons Proprietary Ltd (1954) 91 CLR 112; [1954] HCA 23.

When one has regard to its plain words, cl 12.3 excludes the defendant’s liability in respect of several discrete matters, such as loss of the plaintiff’s profits and the Aerodrome or Aerodrome Infrastructure Facilities not being available for the plaintiff’s use. A sensible construction can be given to cl 12.3 in respect of these matters, in accordance with the principles extracted from Darlington above. However, if cl 12.3(b) (“anything the Lessor is permitted or required to do under the Lease”) is construed broadly, it would appear to cover any, and all, of the obligations to which the defendant has undertaken by entering into the AFL, including the obligation to take reasonable action under cl 4.2. If construed without restriction, cl 12.3(b) would exclude any claim for breach of contract by the defendant and render otiose the other subparagraphs of cl 12.3 since each would be encompassed within the broad words of cl 12.3(b).

In these circumstances, I am not persuaded that cl 12.3(b) ought to be construed so widely since, if it were, it would, in effect, destroy the bargain constituted by the AFL and allow the defendant to breach it with impunity. The only “remedy” which the plaintiff would have in these circumstances would be to terminate the AFL for breach of cl 4.2, a course which may be unattractive to the plaintiff. It is not necessary, for present purposes, to determine the precise parameters of cl 12.3(b). However, I am not persuaded that it operates to exclude the plaintiff’s claim for damages against the defendant for the breach of cl 4.2 which I have found to have been committed.

However, cl 12.3 does have some impact on the plaintiff’s claim for damages because, as referred to below, it excludes the defendant’s liability in damages in circumstances which fall within other paragraphs of the clause referred to below.

In so far as the defendant submitted that the plaintiff was not entitled to damages for pre-termination breach by reason of the defendant’s subsequent lawful termination of the AFL, I reject the submission.

In so far as the defendant submitted that reliance damages in accordance with the principles in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; [1951] HCA 79 (McRae) and The Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64; [1991] HCA 54 (Amann) were only available where the alleged breach brought the contract to an end (either because it amounted to a repudiation, which was accepted, as in Amann, or because the whole purpose of the contract was defeated by the nature of the breach, as in McRae), for the reasons given below, it is not necessary to decide this question.

As I have found that the defendant breached cl 4.2 of the AFL and that the plaintiff’s claim for damages is not excluded, at least in whole, by cl 12.3, it is necessary to assess damages flowing from the breach.

The plaintiff submitted that the breach was highly significant since it prevented the registration of the Plan and Instrument and therefore stopped the development of the airport. The plaintiff contended that the defendant’s actions had not only deprived it of a leasehold interest in proposed Lot 104 for a term of 30 years but had also made it impossible for it to prove that it would have at least recouped the cost of the hangar, the licence fees and rent from the profit generated by the businesses it conducted on the site. The plaintiff contended that the comparison between the position it would have been in had the contract been performed (which would have resulted in a 30-year lease) and the one it found itself in (a licence without “bankable tenure”) were incomparable and that it could not be assumed that the three income streams would have been unprofitable had it had a leasehold interest. Further, the plaintiff argued that, had the defendant not breached cl 4.2 of the AFL, the whole development of the airport would have gone ahead because the subdivision would have been registered, and it ought be assumed in that event that its businesses would have been sufficiently profitable to recoup its expenditure on the hangar.

On this basis, the plaintiff claimed that it was entitled to reimbursement of what it had spent on the hangar (which it claimed to amount to $3,697,234.41, inclusive of GST, which would need to be deducted, plus interest. It also claimed damages for loss of the opportunity to make a profit as lessee of the proposed Lot 104.

As the plaintiff accepted that it could not prove what, if any, profit it could have made on businesses conducted from the hangar, it relied on McRae and Amann, which are addressed below. The plaintiff contended that, as the defendant’s breach had rendered it impossible for the plaintiff to prove that it would have recouped its expenditure on the hangar throughout the life of the lease which would have been granted on the Sunset Date, it ought be presumed that it would have been able to recoup that expenditure and its damages ought be assessed by reference to its wasted expenditure in reliance on the defendant’s performance of its obligations under the AFL.

The defendant’s primary submission was that the plaintiff had not proved that it had suffered any loss as what the Council had offered, five consecutive leases, was substantially similar to what had been promised, namely a 30-year lease. The defendant submitted that the plaintiff’s refusal of the offer demonstrated that it appreciated that the hangar was a “white elephant”, that the venture had been a disaster and that it would have abandoned the site in any event. Thus, it contended that the defendant’s breach of cl 4.2 had done the plaintiff a favour and that no damages ought be awarded as the plaintiff had suffered no loss as a consequence of the defendant’s breach.

Further, the defendant submitted that Amann was inapplicable to the present case. Mr Cook submitted that Amann was a case where the breach was the wrongful termination of a contract; the injured party had incurred expenses in preparing to perform the contract in reliance on the contract; the wrongful party alleged that the injured party could not prove that the expenses would have been recouped from the performance of the contract; and, by reason of the breach, it was impossible for the injured party to prove such recoupment. Mr Cook submitted that the High Court in Amann held that, in such a case, the court starts with the presumption that the injured party would have recouped those expenses had the contract been performed and the onus is cast on the wrongful party to prove that the expenses would not have been recouped.

In the alternative, Mr Cook submitted that, if the defendant bore the onus of establishing that the plaintiff would not have recouped the cost of construction of the hangar, it had discharged the onus by proving that none of the businesses conducted or proposed to be conducted by the plaintiff was profitable. He argued that there was no material difference between the position of the plaintiff prior to, and after, the Sunset Date because it could not be assumed that, even had the plan of subdivision been registered, there would have been a thriving development which would have supported the businesses the plaintiff endeavoured to conduct from the hangar. Further, he submitted that the defendant had not promised to develop the airport in accordance with the subdivision and that therefore it was not liable for the potential consequences for the viability of the plaintiff’s businesses if the development did not go ahead. Mr Cook also submitted that any claim for damages based on the unavailability of the Aerodrome or Aerodrome Infrastructure Facilities to the plaintiff was excluded by cl 12.3(b).

The defendant submitted that its termination of the AFL on 18 September 2015 had been to the plaintiff’s advantage because, if the subdivision had been registered, the plaintiff would have been bound to take a lease of Lot 104 and pay rent for the next 30 years at the rates specified. The defendant submitted that the AFL and any eventual lease turned out to be onerous contracts as far as the plaintiff was concerned because it had never been able to generate enough income to pay the rent, much less pay for the hangar from which the three businesses operated.

Mr Cook submitted, further, that the cost of constructing the hangar did not fall within either of the limbs of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 (extracted below) and was therefore not recoverable.

Generally, the injured party is entitled to damages equivalent to the amount of money required to put it in the position it would have been in had the breach not been committed: Robinson v Harman (1848) 1 Exch 850; 154 ER 363. The damages recoverable are limited to those 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”: Hadley v Baxendale (Parke B). These two alternatives have come to be referred to as the first and second limbs of Hadley v Baxendale.

Damages in contract are to be distinguished from damages in tort. The measure of the latter is the amount of money required to put the plaintiff in the position in which it would have been had the tort not been committed: Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 13 (Mason, Wilson and Dawson JJ); [1986] HCA 3.

In order to address the parties’ submissions, it is necessary to consider McRae and Amann in some detail.

In McRae, the respondent purported to sell to the appellant a wrecked tanker, which the respondent promised was to be found on the ocean floor within specified co-ordinates. As there was, in fact, no tanker within the specified co-ordinates, the respondent was, unsurprisingly, held to have breached the contract. The respondent argued that the appellant was entitled to no more than nominal damages because it could not prove that the value of the tanker would have exceeded the costs of salvage and retrieval. Dixon and Fullagar JJ reasoned, at 413, that the appellant, by spending money to engage in the salvage was taking “the very course which [the respondent] would naturally expect them to take” in light of the respondent’s promise that there was a tanker there. On this basis, their Honours reasoned, at 413-414, that the amount of the wasted expenditure was recoverable within the second limb of Hadley v Baxendale because the respondent caused the appellant to incur the expenses by promising that there was a tanker when there was none. Their Honours held that the breach of contract itself made it impossible to assess damages on the basis of any profit the appellant would have made had there been a tanker.

In Amann, the Commonwealth was found to have unlawfully terminated the coastal surveillance contract which had been awarded to the respondent, thereby entitling the respondent to damages for breach. The respondent could not establish that it would have recouped the considerable cost of refitting aircraft to comply with the Commonwealth’s specifications during the term of the contract, which was three years. The High Court found that, in the particular circumstances of that case, the Commonwealth was liable in damages to reimburse the costs incurred by the respondent in preparing itself to perform the contract, since it ought be presumed that the contract would have been renewed for a sufficient period to allow the respondent to recoup its expenditure.

Thus, Amann concerned a case where the contract had been terminated; the breach was the wrongful termination; the injured party had incurred expenses in preparing to perform the contract; and the wrongful party submitted that the injured party could not show that the contract would have been profitable. The High Court held that, in such a case, the assumption should be made that the injured party would, in the performance of the contract, recoup its expenses and, in the absence of another way of assessing damages, the damages ought be awarded on the basis of the wasted expenditure.

The effect of the decision was to prevent the wrongful party from taking advantage of its own breach where the nature of the breach would render it impossible for the injured party to prove its loss. Mason CJ and Deane J said at 90:

Their Honours addressed the second limb of Hadley v Baxendale in this context at 92, as follows:

If read without sufficient regard to its facts, Amann could be read as standing for the 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. However, the effect of Amann is not to turn the wrongful party into the insurer of the injured party. Rather, Amann is another example of that category of case to which McRae belongs, where the nature of the breach renders assessment of damages on the usual basis (a comparison between the injured party’s position following breach and its position following performance without breach) impossible. In such cases, the court will not permit the wrongful party to take advantage of its own wrong. However, the loss suffered by the injured party as a result of the breach will only be recoverable if it falls within one or other of the two limbs in Hadley v Baxendale. In both McRae and Amann, the claim for damages assessed by reference to wasted expenditure was found to fall within the second limb of Hadley v Baxendale.

The difference between damages for breach of contract and damages in tort (or for misrepresentation) is material in the present case in that Mr Johnston alleged that had he known that the plaintiff would ultimately not be provided with a 30-year lease in respect of Lot 104, he would not have caused the plaintiff to spend money on the construction of the hangar. Such an allegation, if made out, would be relevant to the assessment of damages in an action for misrepresentation or for misleading or deceptive conduct (the relevant measure of which is the same as for tort). However, no such claim has been brought.

Because the plaintiff’s claim is for damages for breach of contract, the relevant counterfactual is not one in which the plaintiff had never entered into the AFL and had never expended funds on the construction of the hangar. Rather, the comparison is between the plaintiff’s position as a result of the defendant’s breach of cl 4.2 and the position in which it would have been had no such breach occurred. Further, although, as I have found, for the reasons given above, that the claim for damages is not wholly excluded by cl 12.3(b), any liability which the defendant may otherwise have for the “Aerodrome or Aerodrome Infrastructure Facilities not being available for use by [the plaintiff]” is excluded by cl 12.3(d) and any loss suffered by the plaintiff resulting from “any change in the flow of members of the public in or around the Land or Aerodrome for any reason” is excluded by cl 12.3(f)(4)(C).

Ultimately, the plaintiff puts its claim for so-called “reliance damages” on a single basis: 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.

It is important, at the outset, to identify the relevant breach, which was to fail to take reasonable action to register the Plan and the Instrument by the Sunset Date. This breach occurred on 30 September 2011. The consequences of the breach were twofold: first, the plaintiff was not entitled to a 30-year lease; and, second, because the plan of subdivision was not registered, proposed Lot 104 and the other lots in the subdivision were not registered. It is important to note that the defendant did not promise to develop the airport along the lines of the subdivision, although such development was the ultimate purpose of the subdivision. 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. The evidence, such as it was, showed that there was little demand at that location. As far as the evidence reveals, there was little interest beyond the plaintiff’s, in the further development of the airport. Although one of the aircraft acquired by Cutty Sark HK had been purchased from someone who housed aircraft on the western side of the runway at the airport, the evidence did not reveal the details of this arrangement.

Each of the three businesses which the plaintiff intended to conduct, and did in fact conduct, from the proposed Lot 104, proved to be unprofitable. Once Mr Unicomb departed, the adventure flight business (which was conducted through a business separate from the plaintiff) dwindled and petered out. The venue hire business had some initial success but, as the table set out above indicates, there was no repeat business: none of the clients who hired the venue for events returned the following year or on later occasions. Blue Star Helicopters entered into a sub-licence but defaulted after a couple of months because it could not pay the sub-licence fee of $20,000. The museum business exhibited Cutty Sark HK’s aircraft which were housed in the hangar, and generated little income.

The possibility that the plaintiff might have been in a better position to make money from these businesses had the development (of which the subdivision was the first stage) proceeded as originally envisaged (with the lots fully occupied by profitable businesses) is no more than speculative. Further, as referred to above, it was not part of the plaintiff’s bargain with the defendant that it would do any more than take all reasonable action to register the Plan and Instrument. The defendant’s promise did not extend to developing the airport.

It is significant that the plaintiff had abandoned each of the three businesses on the proposed Lot 104 prior to the Sunset Date and abandoned the site altogether not long afterwards. This goes strongly against the assumption that it would have, but for the breach, remained on Lot 104 (post-registration) and remained there for the period of the lease, recouping the cost of the hangar. It lends force to the defendant’s submission that the hangar was a white elephant and that the plaintiff’s commercial judgment in constructing it in that location had been flawed from the outset. The plaintiff lost interest in conducting any business on the proposed Lot 104, having learned that none of the three businesses could be conducted profitably. This is why the plaintiff wanted to obtain a freehold interest so that it could sell the land with the hangar in position or persuade the Council to pay him for the hangar. These two methods were the only ones which had any real prospect of recouping even part of the cost of the hangar, which could not be recouped by continuing to run the businesses.

The present case is, in this (and other) respects, to be distinguished from Amann. Although the initial coastal surveillance contract in Amann was for a limited term (which was found to be insufficient to recoup the expenditure incurred by Amann in refitting aircraft to perform the contract), it could reasonably, at the time of entry into the contract, be assumed that the Commonwealth would continue to require coastal surveillance services in the future and that it would, as it had in the past, select a contractor through a tendering process. As aircraft needed to be refitted to the specification required by the Commonwealth, the sitting contractor had a significant competitive advantage over other tenderers since it had, on that hypothesis, already incurred the cost of modifying aircraft to comply with the specification. Further, the income to be gained from the contract was, since the Commonwealth was the party responsible for payment, both known in advance and assured.

McRae, too, is to be distinguished from the present case. Because there was no wreck, and the Commonwealth Disposals Commission was held to have promised that there would be a wreck, there was nothing to flesh out the counterfactual to show what the wreck would have been worth had it existed. Thus, 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.

In the present case, unlike in Amann, there was no guaranteed income; the defendant was not responsible for paying the plaintiff anything; the defendant’s obligation, once the Plan and Instrument were registered, was, in substance, to allow the plaintiff quiet enjoyment of Lot 104 for the term of the lease, so that the plaintiff could make whatever money it could from the businesses it had identified which were permitted uses of Lot 104 under the lease. The difference the development, if and when it occurred, might have made, was unknown. Whether the development proceeded depended on external factors, such as whether there was a demand for the lots.

Unlike in McRae, there was a real site (proposed Lot 104) from which the very businesses which the plaintiff proposed to conduct after the Plan and Instrument were registered could be conducted pursuant to the licence. The businesses proved to be unprofitable and were abandoned.

It is also of some relevance that the plaintiff refused Ms Rosser’s offer of five consecutive five-year leases (which would have been registrable and would therefore have constituted “bankable tenure”). The offer was made on 13 September 2011 before the Sunset Date. The plaintiff’s refusal on 20 December 2011 provides some indication that it did not intend to stay on the proposed Lot 104 and conduct its businesses in the long-term. It is consistent with the defendant’s hypothesis that the plaintiff was better off without the obligations under the AFL, 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.

Further, cl 12.3(d) specifically excluded any claim for loss arising from the “Aerodrome Infrastructure Facilities” (which, as referred to above, was defined as including future developments of the site) not being available for use by the plaintiff and cl 12.3(f)(4)(C) specifically excluded any liability 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”. These sub-clauses made it clear that the risk of the future development occurring (or not) was to be borne by the plaintiff and not the defendant. The plaintiff, in effect, took proposed Lot 104 in its then current state in the hope that the area around it might make proposed Lot 104 more conducive to profit (if it remained in possession) and more valuable, in the event of assignment, to third parties if it wished to relinquish possession. The surrounding circumstances and the terms of the AFL (including cl 16.8 of the proposed lease, which, as indicated by the pre-contractual negotiations, was relevant to the amount of the licence fee) show that the commercial risk was the plaintiff’s and not the defendant’s.

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

For completeness, it is necessary to address whether the damages claimed by the plaintiff would fall within either the first or the second limb of Hadley v Baxendale. Mr Williams submitted that they fell within both limbs since the loss of such costs arose naturally from the breach and 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 a breach. Mr Williams submitted that the actual amount spent on the construction of the hangar was not to the point. He relied on the statement in Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365 (McHugh JA) that the parties need not contemplate the degree or extent of the loss or damage suffered for the purposes of the second limb of Hadley v Baxendale. Thus, he submitted that it was immaterial that the figure stipulated in the development application for the hangar was $560,000 and the actual figure (claimed as damages) was approximately six times that amount.

The terms of the AFL were such that it was within the reasonable contemplation of the parties that no lease would be granted and the AFL would be terminated, without breach, on or after the Sunset Date because the Plan and Instrument had not been able to be registered. Thus, the hangar was erected at the plaintiff’s risk. Because the plaintiff chose to erect a non-demountable hangar (having undertaken to the defendant that it would be “cost-prohibitive” to do so as noted by Mr Gogarty in his pre-contractual communication to Mr Dockrill extracted above), the defendant made express provision, in cl 16.8 of the lease, for the hangar to become its property on payment of one dollar when the agreement was terminated by either party or by effluxion of time. This was a clear indication that the parties intended that the plaintiff bear the risk of the hangar being transferred to the defendant for nominal consideration at any time between the entry into the AFL and the expiry of the 30-year lease. The plaintiff could have had no reasonable expectation when it chose to expend, on its case, in the order of $3.5m on the hangar, that it would be permitted to amortise the cost over a period of 30 years from the day after the date of registration of the Plan and Instrument, since that event was uncertain, both as to timing and eventuality, and as both parties had a right to terminate if the deadline was not met (except if a party was in breach).

It is understandable that Mr Johnston consistently agitated for an option to purchase the proposed Lot 104. As a matter of commercial reality, had the plaintiff owned (or had an option to purchase) the freehold of the land on which the hangar had been constructed, it would have been entitled to retain it, either because it was a fixture or because it was located on land which it owned. Thus, the plaintiff would have had an asset which could be sold and which was, at least, potentially valuable (since, on that hypothesis, the lease would have come to an end because the freehold and leasehold interests would have merged with the plaintiff’s acquisition of the freehold title). However, this did not occur and the defendant steadfastly refused to grant any such interest to the plaintiff, which was stuck with the terms of the AFL, including cl 16.8 of the proposed lease.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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