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‘Landmark’ High Court ruling clarifies reliance damages matters
A recent decision by the High Court carries profound significance for future contract law cases and the assessment of damages, argues Dentons.
Grace Robbie
Last week, the High Court of Australia handed down its judgment in the case of Cessnock City Council v 123 259 932 Pty Ltd, cementing its position as the “leading authority” on reliance damages stemming from contract breaches.
The case was spearheaded by construction litigation partner Ourania Konstantinidis, special counsel Aimee McIntyre, and solicitor Eric Grima.
Konstantinidis said: “We are extremely delighted with the successful outcome of this case for our client, 123 259 932 Pty Ltd.
“Not only has the verdict concluded a prolonged period of contention for our client, the High Court’s unanimous decision has clarified the precedent regarding the presumption of recoupment in reliance damages for contracts in Australia.”
This dispute arose in 2007 when Cessnock City Council and 123 259 932 entered into an agreement for a lease. The agreement granted 123 259 932 a “30-year lease to develop and manage a section of a proposed airport in Cessnock”.
According to the terms, Cessnock City Council was obligated to “register the plan of subdivision by the specified sunset date” under the agreement. However, they failed to do so, thereby breaching their contractual obligations.
Despite this breach, Cessnock City Council took no action to halt 123 259 932 from “continuing to invest substantial sums of money on the construction of a hangar and the purchase of the aircraft”.
The global firm commenced proceedings in the Supreme Court seeking damages for “wasted expenditure”. While the Supreme Court awarded only nominal damages, Dentons appealed the decision to the NSW Court of Appeal, which ruled in favour of Cutty Sark.”
While the Supreme Court awarded only nominal damages, Dentons appealed the decision to the NSW Court of Appeal. The Court of Appeal ruled in favour of Cutty Sark.”
The council then sought and was granted special leave to appeal to the High Court, but its appeal was ultimately dismissed unanimously by the bench.
Grima, a solicitor for Dentons working on this case, expressed the joy the firm is experiencing after this momentous victory.
“It is a proud moment for Dentons to represent 123 259 932 Pty Ltd in the highest legal platform in Australia in an overwhelming unanimous decision,” Grima said.
“It is rewarding to see the outcome that we were able to achieve for our client, along with providing clarification of an important legal precedent on contracts that has widespread implications on commercial law in Australia.”
Konstantinidis added that the High Court ruling in favour of 123 259 932 Pty Ltd “sets an important precedent in circumstances where a contractual breach creates uncertainty regarding the position the aggrieved party would have been in had it not been but for the contractual breach”.
“In circumstances where an aggrieved party has incurred expenditure in reliance on the performance of the contract and the uncertainty makes it difficult for the plaintiff to prove its loss, the court will facilitate the presumption that the aggrieved party would have recovered its initial expenditure,” she said.
In light of the precedent established by the case, Konstantinidis elaborated on how both dispute and transactional lawyers can leverage the decision when advising their clients, given its broad applicability across contract law and damages.
“For dispute lawyers, it is important to consider the High Court’s flexible approach to the facilitation principle in order to properly advise clients on whether wasted expenditure may be recoverable in similar circumstances.
“A key aspect will be assessing the degree of uncertainty resulting from the defendant’s breach to determine (a) whether the facilitation principle can be relied a priori by the plaintiff and (b) the strength of the evidence required by the defendant to rebut the facilitation principle,” Konstantinidis said.
“For transactional lawyers, clients should be advised on the risk of incurring significant initial expenditure in reliance of another party performing their contractual duties. This may lead to the drafting adequate contractual provisions to potentially mitigate the amount of expenditure that is recoverable, and the apportionment of contractual risk amongst parties.”
