“A Fair Wind” but not a “Free Ride”: Proving Damages for Wasted Expenditure in the High Court of Australia

By Leon Chung and Amelia Loughland

On 8 May 2024, the High Court delivered judgment in Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17.

The judgment clarifies that a plaintiff is given an evidential ‘benefit of the doubt’ when seeking to recover expenses incurred in anticipation of performance of a contract which is breached by a defendant.

Key Takeaways

It is often very hard for a party to prove the consequential loss they have suffered as a result of breach of contract, especially in circumstances where commercial contracts are expected to operate over long periods of time and external factors (eg, market conditions/government approvals) make it difficult to accurately quantify the profits that would have been recovered.

In that scenario, it may be simpler for a party to focus on recovering the expenses they have wasted in anticipated performance of a contract. The High Court’s judgment should provide comfort to such parties as it has lowered the bar on the potential evidential complexities in bringing a claim for damages based on wasted expenditure, by holding that:

1. The ‘facilitation of proof’ principle is not only available to plaintiffs where the defendant’s breach has otherwise made it ‘impossible’ to prove their loss.
2. Rather, the plaintiff will have an evidential ‘benefit of the doubt’ that its reasonably incurred expenses would have been recouped if the contract had been performed.  
3. A plaintiff is not limited to claiming for expenses which were directly ‘required’ by the contract, so long as they are reasonably incurred in anticipation that the contract would be performed.
4. Although a majority of the Court held that a plaintiff cannot ‘elect’ to make a claim for wasted expenditure as though it were a different contractual remedy, their reasons emphasises that terms like ‘expectation loss’ and ‘reliance loss’ are just methods by which a plaintiff proves their loss, rather than requiring a plaintiff to choose between which losses they have suffered. In this sense, a plaintiff can seek to recover any additional profit they would have obtained from a contract, but in that event the wasted expenditure would be factored in as an expense in the production of those profits, rather than being disregarded.  

Background

In connection with its proposed development of Cessnock Airport, Cessnock City Council (the Council) entered into an agreement with the respondent (‘Cutty Sark’ prior to its deregistration) for a 30-year lease. Cutty Sark spent almost $3.7 million building an aircraft hangar on the land the subject of the proposed lease.

Cutty Sark never obtained a lease because the Council failed to register a plan for subdivision of the relevant land by a certain date, which resulted in its repudiation of the agreement.

Cutty Sark sued the Council for breach of contract and sought to recover its wasted expenditure. The primary judge found that the Council had breached the contract, but awarded Cutty Sark only nominal damages. Cutty Sark successfully appealed to the NSW Court of Appeal, which held that there was a presumption that wasted expenditure incurred in reliance on the performance of a defendant’s contractual promise could be recovered, even where there were was no ‘impossibility of proof’.

Cutty Sark appealed to the High Court, which upheld the Court of Appeal’s judgment.

High Court’s Findings

The High Court was unanimous in upholding the Court of Appeal’s judgment but reasoned differently. Edelman, Steward, Gleeson and Beech-Jones JJ formed the plurality.

A Facilitation Principle

Previous authorities have referred to a ‘presumption’ or ‘evidentiary onus’ which assists a plaintiff seeking to prove that it would have recovered its expenditure if a contract had been performed.

The plurality eschewed this language to adopt a ‘facilitation principle’ and set out its rationale in the following way:

• a plaintiff bears the legal onus to prove its loss arising from a breach of contract;
• in some circumstances, the law will ‘facilitate’ that proof, such as where the defendant’s wrongdoing has resulted in uncertainty and difficulty of proof for the plaintiff in proving its loss;
• where a plaintiff has incurred reasonable expenditure in anticipation that the contract would be performed (rather than only that which is required by the contract), the plaintiff is given an evidential ‘benefit of the doubt’ that such expenditure would have been recouped; and
• the principle is not rigid and the strength with which it applies will depend on the extent of the uncertainty caused by the defendant’s breach. All of the circumstances must be considered. Although the plaintiff is given a “fair wind” in establishing its loss, it is not given a “free ride”.

The Court found the Council’s breach had caused considerable uncertainty for Cutty Sark in seeking to prove it would have recouped its expenditure on the hangar, and that the Council would have had to led substantial evidence on those matters to establish that Cutty Sark’s wasted expenditure would not have been recouped.