Cessnock City Council ABN 60 919 148 928 v 123 259 932 Pty Ltd ACN 123 259 932 [2023] HCATrans 125 (15 September 2023)

Last Updated: 15 September 2023

[2023] HCATrans 125

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S21 of 2023

B e t w e e n -

CESSNOCK CITY COUNCIL ABN 60 919 148 928

Applicant

and

123 259 932 PTY LTD ACN 123 259 932

Respondent

Application for special leave to appeal

KIEFEL CJ
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 15 SEPTEMBER 2023, AT 12.30 PM

Copyright in the High Court of Australia

KIEFEL CJ: In accordance with the protocol for remote hearings, I will announce the appearances of the parties.

MR J.T. GLEESON, SC appears with MR L.G. MORETTI for the applicant. (instructed by Holding Redlich)

MR D.L. WILLIAMS, SC appears with MR B.D. KAPLAN for the respondent. (instructed by Dentons Australia Limited)

KIEFEL CJ: Yes, Mr Gleeson.

MR GLEESON: Thank you, your Honour. This Court decided Amann Aviation some 32 years ago, where six Justices awarded reliance damages across five separate judgments with significant differences between the judgments as to the applicable principles. In discerning a majority judgment, it appears to be Chief Justice Mason and Dawson, plus Justices Brennan and Gaudron who agreed in the orders as made; Justices Deane and Toohey would have awarded reliance damages on different orders. Even just that brief description indicates that there are significant questions about precisely how reliance damages are to be awarded consistent with the Robinson v Harman principle.

Our case raises those questions acutely, because what your Honours will see at page 136 in paragraph 73 is what we would submit is a hard‑edged and erroneous distillation of the relevant principle. It is said to come from the judgments of Chief Justice Mason, Justice Dawson and Justice Deane. It does not, in fact, reflect the nuances and qualifications within those three judgments, and certainly does not reflect what Justice Brennan, or Justices Toohey or Gaudron said in their judgments.

GLEESON J: Mr Gleeson, do you seek to challenge the existence of the so-called recoupment presumption?

MR GLEESON: No, your Honour. What we do seek to say is, it does not apply in the case of every contract, let alone every commercial contract. It only applies after there has been a proper analysis of the allocation of risks under the contract to see whether it is appropriate to apply. That is our first challenge.

GLEESON J: What is the nature of the presumption?

MR GLEESON: It seems to come from two different sources, your Honour. One source – and this is what Justice McHugh criticised – is an assumption about human nature, that people do not enter contracts without an expectation that they will recover their costs plus make a profit. If that it is what it is based on, it must at best be a variable presumption, depending upon the nature of the contract and the circumstances of the case.

The other possible basis for it is Justice Brennan’s basis, which is there is a fairly narrow category of case, like McRae, where it is the breach which has made it impossible for the plaintiff to prove ordinary expectation damages; in which case justice requires a shifting of the onus and the burden of uncertainty to rest with the defendant. They seem to be the two bases that the law has identified to date.

GLEESON J: On what basis will your client be seeking to uphold the presumption?

MR GLEESON: We would seek to uphold it on the basis that if it is the Justice Brennan approach, it is not applicable to our case, for the short reason that the contingency that no recovery of expenditure might have come home, let alone no net profit, was always inherent in this contract from 2007, and was not a peculiar feature of the breach in 2011. So, we would acquit Justice Brennan’s concern. In terms of the first basis I identified, it is simply completely inapplicable to our contract for the short reason that the contract, taken at its very highest, was a promise in due course to grant a 30‑year lease in exchange for 30 years of rent – that makes an assumption that the promise was performed and the DA was granted.

There was nothing in that inherent bargain which concerned whether the respondent would make any profit or recover any expenditure from whatever businesses it chose to conduct on the land. It was permitted to conduct a hangar – that was lawful – but it was not part of the bargain between Council and respondent that the conduct of the business of the hangar would in any way produce any particular recovery of expenditure or any particular net profit. So, in our particular case, we would submit the presumption never arose once one understands that allocation of risk.

Your Honours will be aware that in Chief Justice Mason’s judgment, there is reference to the classic article in Fuller and Perdue about the origins of the reliance interest. That appears, in particular, in Amann, at page 82, at about point 6 – including the citation of Chief Judge Learned Hand’s statement of the article that:

‘We will not in a suit for reimbursement for losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have occupied had the contract been fully performed.’

One of the matters Fuller and Perdue discuss at length – although in the US context – is the difference between essential reliance and incidental, or non‑bargained, reliance. Amann Aviation was a case of essential reliance where the company spent the money equipping itself with the fleet in order to perform the very obligations from which it would earn money from the Commonwealth. Our case is a case of what Fuller and Perdue would describe as incidental or non‑bargained reliance. It was wholly a matter for the respondent whether it chose to conduct a business, how it chose to conduct the business and whether it would ever make a dollar of profit or recoup its expenses out of that business. So, your Honour, our first answer would be that the presumption would never arise on our facts.

GLEESON J: As to your facts, do your facts correspond with the Court of Appeal’s facts? Are we talking about facts or the characterisation of the contract?

MR GLEESON: Both, your Honour, in that as to the characterisation of the contract, the Court of Appeal has failed, we would submit, to appreciate that the contingencies inherent in the contract were such that the presumption should never have arisen. So, that is one answer to your Honour’s question.

As to the facts, we think that the primary judge’s findings of the facts were not touched in the Court of Appeal, and they would be the critical findings – which your Honours see on pages 22 through to about 26 – which would be relied upon in any appeal, which is that, even if one looks at the position immediately prior to the breach, what was proven by the Council was that every business that had been attempted to be conducted on the land was unprofitable and had ceased.

So, immediately prior to the breach, if one asked the question, what was the prospect of the expenditure being recouped, the answer, on the balance of probabilities, would have been very, very low. We will be relying upon that as well, on an appeal, to say what was inherent in the contract on entry had in fact played out in a fashion whereby, admittedly prior to the breach, the most likely outcome was the entirety of this expenditure would be wasted. So, the question then is, what effect did the breach have? The effect of the breach was simply to bring to an end the fairly small, perhaps remote, possibility that the respondent had of turning around an unprofitable business.

Now, that, had the respondent run an expectation damages case, would have led to no damages because opportunity could not have been identified as valuable, on the balance of probabilities, let alone then valued on the possibilities. Where we submit the Court of Appeal’s decision has introduced error is that the result is that every uncertainty inherent in this set of facts has now been laid at the responsibility of the respondent. Your Honours will see that, perhaps on pages 167 to 168, where at paragraph 134, in the second sentence, the Court of Appeal correctly recognised:

There was also most certainly a prospect that had the subdivision proceeded, the commercial development of the airport might not have, and if it did not, it might have been very difficult for –

the respondent:

to generate a sufficient return to recoup its expenditure.

So, we accept that finding. And over the page, at paragraph 135, the Court of Appeal says:

In those circumstances, it is impossible –

for the Council to prove they:

would not have recouped its expenditure –

which is the flipside of saying it was impossible – and we would say always impossible – for the respondent to prove it would have recouped its expenditure.

KIEFEL CJ: Mr Gleeson, to what extent would this appeal turn on the question of whether the presumption of recoupment is rebutted?

MR GLEESON: Your Honours, that would be the second of our key grounds. Your Honours will see that in terms of the judgment of three Justices of this Court in Berry, which is set out by the Court of Appeal at paragraph 54 on page 127. That is the most recent statement of the Court on the principle, by Justices Bell, Keane, and Nettle and, importantly, we see in the first sentence that the judgment places the presumption in the field of a shifting of evidentiary burdens, not legal burdens.

Now, that immediately is at odds with what the Court of Appeal has held, which is a shifting of a legal onus, and perhaps next we would observe that this statement of a principle draws heavily on Justice Brennan’s judgment in Amann, which we embrace. And then, most importantly, at about the middle of the paragraph, if your Honours pick it up, it is perhaps where it says:

As Brennan J explained, because the Commonwealth had repudiated the contract and thereby deprived Amann of the ability to establish that the contract would have returned sufficient to recoup Amann’s contractual expenses, it was to be presumed that Amann would not have incurred its expenditure in reliance on the contract without a reasonable expectation –

And then I will pass over a few words:

and thus, it was just that the Commonwealth should bear the ultimate onus of proving at least a prospect that Amann’s returns under the contract would not have been sufficient to recoup that expenditure.

So, emphasising those last words, it is a shifting of an evidentiary burden, and it is satisfied by proving a prospect, a substantial prospect, that the innocent party’s returns under the contract would not have been sufficient to recoup that expenditure.

GLEESON J: Is this argument really raising a question of principle, or is it just raising an error in the application of the principle?

MR GLEESON: Your Honour, it is a question of principle in two senses. One, is it a legal onus that shifts or an evidential onus? And secondly, when the onus shifts, what is it you have to prove? According to the Berry formulation of the principle, what you have to prove is a substantial prospect that the returns under the contract would not have been sufficient to recoup that expenditure. We did that. The Council satisfied that burden.

What we did not satisfy was the impossible burden that Justice Brereton had identified at page 168 that I took you to, that they would not have recouped the expenditure. And so that is a fundamental difference in principle as to what exactly you need to disprove. So, for those reasons, your Honours, we would submit that there are fundamental questions of principle raised by the application both in terms of resolving the tensions inherent in Amann Aviation and in correcting a principle which has now been laid down and will bind all New South Wales courts and persuasively influence every court across Australia.

If this is where reliance damages stand, we would submit they have departed from the fundamental Robinson v Harman expectation damages approach that the Court founded the damages on in Amann. It is also a perfect vehicle to decide it, because all the facts are agreed and the principle can be directly confronted. As your Honours will have observed, this judgment builds upon an earlier Court of Appeal decision in a case called Meetfresh, and so it has fairly clearly established the law for New South Wales, and probably the whole of Australia unless this Court intervenes.

GLEESON J: I am not sure that the principle is directly confronted if there is really no challenge to the initial presumption.

MR GLEESON: Your Honour, we are saying that the initial presumption does not apply to every category of contracts. The Court of Appeal has stated the opposite proposition, that it applies to every category of contracts. There is a possible qualification in Justice Mason’s judgment in Amann at page 88 at point 2, that it would not be appropriate to apply it to a pure:

aleatory contract where, almost by definition –

it is:

inherent in the entry into such a contract –

that there is a:

contingency that not even the slightest expenditure will be recovered, let alone the securing of any net profit.

GLEESON J: I am just not sure that I understand why it would be applied in any case.

MR GLEESON: Your Honour, that was just part of Justice McHugh’s difficulty here. Basic principle says the plaintiff must prove its damages. Basic principle says we are dealing with expectation damages, not tort damages. Basic principle says a plaintiff can run a loss of opportunity case where it must prove on the balance of probabilities it lost an opportunity of some value and then it can be assessed on the possibilities and the probabilities.

Reliance damages can never subvert any of those basic principles. If the presumption were merely an evidentiary inference available on the facts of a particular case, if that is all it was, it would not interfere with any of those basic principles, and that is the level upon which we submit, if it has any work to do, it is on that modest level. What has happened here is that statements in Amann have been taken even further than they were intended and has produced this hard‑edged presumption which is creating the massive problem.

In short, in the present case it was impossible from the outset of this contract to know whether, over a 30‑year lease the tenant would even still be paying its rent, let alone recovering the $3 million, let alone making a profit. That was just the inherent nature of this contract. For that sort of contract, we would submit the law would give no recognition to this presumption, and that is the issue which is suitable for this Court to decide.

May it please the Court.

KIEFEL CJ: Yes, thank you, Mr Gleeson. Yes, Mr Williams.

MR WILLIAMS: One of the principal reasons why special leave to appeal should be refused is that the applicant’s argument holds the application to the particular facts of established principles concerning the award of reliance damages discussed in both Amann Aviation and in McRae. So much is apparent when one looks at the applicant’s submissions in paragraphs 16 and 17, where the applicant describes the nub of its complaint by reference to three factual features of its case, and in paragraph 17, how, given those factual features operate, the damages award against it is operated “oppressively”.

KIEFEL CJ: Mr Williams, you are necessarily saying that Amann Aviation contains no unqualified or unclear statements, or that the approaches are not in some ways nuanced and somewhat different.

MR WILLIAMS: They are nuanced and somewhat different, and those nuances and differences are accurately outlined by Justice Brereton in the judgment of the Court of Appeal. His Honour went through each of those judgments, identified the nuances and differences between them, and distilled the principle that was common to them – distilled it in a way that is similar to the way in which it was distilled by three judges of this Court in Berry. In Berry, at the top of page 170, in paragraph 30, their Honours Justices Bell, Keane and Nettle identified – this is at the top of page 170, starts at the bottom of 169:

One relevant modern application of that principle is reflected in this Court’s decision in Amann Aviation –

Now, just pausing there, that is the application of the principle in Armory v Delamirie, and then over the page the High Court held that:

where, upon acceptance of the Commonwealth’s repudiation of a contract, Amann claimed damages for loss of a contract, Amann was entitled to recover “reliance damages” assessed on the basis of a rebuttable presumption that the net benefits to which Amann would have been entitled under the contract (if the contract had not been rescinded) would have been sufficient to cover the expenditure which Amann incurred pursuant to the contract.

Now, your Honour, that is a similar distillation of principle as that contained in Justice Brereton’s judgment. What really lies behind all of this is a policy decision, reflected in all of the judgments, about which party should bear an onus of proof in circumstances where the defaulting party has made it difficult or impossible to examine with any reliability what would have happened had the contract been properly performed. That is a policy decision that has been adopted in this country as well as in the United Kingdom and the United States and Canada.

It is a policy decision that has, as part of its basis, the principle outlined in Amory v Delamirie, but also an appeal to the justice of the position that in circumstances where it is difficult to work out what would have happened, for example, what was going to happen in a 30‑year lease, where the whole object of the lease was to provide for a lot in a 25‑lot subdivision that was intended to be part of a development of the airport. How does one go about looking at what would have happened in that 30‑year period?

The policy the law adopts is to say, well, in circumstances where the breach of the defaulting party has made it impossible, or extremely difficult, to identify with any precision what the outcome would have been, it is just that the onus of demonstrating that the amounts recovered, pursuant to or during the 30‑year lease would not have been sufficient to cover the wasted expenditure, lies upon the defaulting party. What really is happening in this case that, under the guise of seeking to differentiate different types of cases that are said to involve uncertainty or contingencies, the applicant is seeking to create a category of cases that is very, very broad into which this principle does not apply.

If one goes to the discussion about aleatory contracts that is contained in page 88 of Amann Aviation, what the Court was astute to do was to differentiate between contracts – this is at the bottom of page 87 and over to 88 – differentiate between cases of a contract which would not have been profitable and in the case where the outcome, if the contract had fully performed, cannot be demonstrated – whether at all with any certainty – it is that latter type of contract at which McRae and Anglia Television are said to be examples, and of which this case is an example. Those types of cases are to be distinguished from purely aleatory contracts where the presumption would not be appropriate to apply.

What is embedded within the special leave applications – special leave questions, particularly questions 1 and 3 – is a characterisation of these contracts as if they were in the nature of aleatory‑type contracts. This contract was not; it was a contract for an agreement. So, it is an agreement for lease, which should ultimately have ended up in an interest in land with the features of economic benefit that were capable of being produced from that asset.

GLEESON J: Is it fair to understand the applicant’s case as primarily disagreeing with the Court of Appeal’s characterisation of the risks and benefits of the contract?

MR WILLIAMS: No. It is not. What this is really about is that, under the guise of seeking to characterise the contracts, as we see particularly in questions 1 and 3 of the special leave questions, as contracts that involve all sorts of contingencies, and the like. It is then said that, because there is – one would not know if you are going to make profit or not under the contract, there is all sorts of uncertainty, therefore, the presumption should not arise. If that was truly the principle, then the presumption of which the High Court was talking in Amann Aviation would have a very limited operation, because not many contracts guarantee that you are going to make a profit.

There are all sorts of contingencies that usually arise in contracts that mean that if things go well, a profit may be made, and if things go poorly, it may not. What the applicant is seeking to do is to characterise the contract in the present case as something akin to an aleatory contract and, thereafter, adopt the language of Chief Justices Mason and Dawson in circumstances where it is not appropriate to do so.

The second error in the way in which the argument is erected is that it is said Justice Brennan remarks at 105, that the inference is one “of varying strength according to the circumstances” mean that there is different range of contracts to which this should apply. But, properly understood, those remarks at 105 say nothing of the sort. Your Honours will see at the bottom of 104, at about point 9:

A plaintiff who seeks to recover reliance damages must ordinarily prove –

So, this is what must ordinarily be proved:

that the net value of the benefits to which he would have been entitled if the contract had been performed ($B - $y) would have exceeded the wasted expenditure incurred in reliance on the defendant’s promise ($x) and, to the extent he fails to do so, his claim will fail.

Then there is reference to the:

inference that a party would not incur expenditure in reliance on the other party’s promise without a reasonable expectation that, on performance of the contract, the expenditure would be recouped. That is an inference of varying strength according to the circumstances.

Importantly ‑ ‑ ‑

GLEESON J: You do not disagree with that, do you?

MR WILLIAMS: No, it is what follows in the immediately following paragraph that is important:

However –

in other words, not what ordinarily must be proven:

However, when a contract is rescinded for breach and that breach, by preventing the performance of the contract, has made it impossible for the plaintiff to prove that the net value of his contractual benefits ($B - $y) exceeds the wasted expenditure incurred . . . it is just to shift to the defendant the ultimate onus –

that is a legal onus:

of proving that, had the contract been performed, the net value of the plaintiff’s benefits would not have covered the expenditure he had incurred before recission.

So, what his Honour is doing is contrasting the ordinary case and one like Amann and McRae, and our case, where the breach has prevented the performance of the contract and made it impossible for the plaintiff to prove the net value of the contractual benefits. So, both of the two main planks of the argument that are at the heart of the special leave application are based upon a faulty premise about how this contract should be characterised.

It is even said at parts of my friend’s written submissions that this is something analogous to a contract for a prize in a boatrace – and that is the Chaplin v Hicks territory – an aleatory contract, the type of aleatory contract that is referred to by the Chief Justice, then Justice Dawson, in the passage that I took your Honours to – one to be contrasted with the ordinary commercial contract in which, yes, profits may be made, they may not be made, but the rationale for placing the onus upon the defaulting defendant is that it is that party that has made impossible for the applicant to prove the various contingencies that otherwise would be the foundation of its damages claim.

When one strips this all back, this is a case about the facts. This is about the application to those established principles of the particular facts in this case, as is shown by paragraphs 16 and 17. What the applicant struggles to do is actually identify error. Where is the paragraph in the judgment where the error has occurred? They said that, well, not every nuance is articulated. Well, that is in part because the nuances for which my friend contends are not soundly based, it is also because it was not a case that was run in either of the courts below.

To criticise a careful judgment of this nature because not every paragraph was expressly referred to in circumstances where it formed no part of the argument with what is below is an unpromising start for a special leave application. That is what is happening here. New counsel have taken over this case and have come up with a new way of looking at this that was not the subject of any debate before the courts below and therefore the arguments that are being articulated are not the subject of any detailed consideration. That does not make those arguments good ones. We submit they are not good ones, for the reasons that I have outlined to your Honours.

Can I just add a little about Berry, upon which considerable reliance is placed. Berry, of course, was a case involving a damages claim under the Trade Practices Act. The purpose of the reference in paragraph 29 to that case was because it was said to be – that is, Amann Aviation was said to be a modern application of the Armory v Delamirie principle. That goes back to the submission I made at the outset. This is about policy choices that are made in circumstances where a defaulting defendant has made it difficult for the plaintiff – difficult or impossible for the plaintiff to prove the loss that he or she or it should be compensated for.

When one looks at this judgment, your Honours will see in footnote 51 the very passages that are picked up by Justice Brereton and relied upon as forming the basis his Honour’s decision. When we get to the paragraphs that discuss Justice Brennan’s remarks in Amann Aviation, your Honours will see at footnote 52 that they are based upon Amann Aviation at 105 to 106 and 113. If one goes to those passages, 105 to 106, your Honours will see these features: first of all, at 105 – I have taken your Honour to this passage already but just to highlight that his Honour is talking about the ultimate onus at point 4 of the page. That is on page 105, his Honour identifies how the shifting of that ultimate onus involves:

proving that, had the contract been performed, the net value of the plaintiff's benefits would not have covered the expenditure he had incurred before rescission.

So, this is about how that onus works, and my friend does not get any nuance from that judgment about those matters, certainly not the one that he seeks to rely upon. And his Honour Justice Brereton understood Justice Brennan’s judgment and found and identified the differences between that judgment and other judgments at 120. And his Honour identified that, on the facts of the present case, whether one applied any nuance that emerges from Justice Brennan’s judgment or any of the other
judgments, that, first of all, the presumption was applicable and secondly, that it was not rebutted.

His Honour deals with that at 120 to 124, identifying that, even on Justice Brennan’s view, the result in the case would be the same. But there is no difference between the judgments that leads to a conclusion favourable to the applicant in this case. The judgment the subject of the special leave application is not attended with sufficient doubt making it an appropriate vehicle for special leave. If one adds to that that it is essentially, once one properly understands these special leave questions, that it is essentially a factual matter, it is not appropriate that this case obtains special leave.

May it please the Court.

KIEFEL CJ: Yes, thank you, Mr Willams. Anything in reply, Mr Gleeson?

MR GLEESON: Thank you, your Honours. If your Honours could go to the proposed grounds of appeal, please, which are on page 186, we would submit that sufficient has passed between the parties in writing and orally this morning to indicate that the first ground of appeal, which is whether the presumption arose, raises substantial questions of law about which there is considerable doubt arising from the differing judgments in Amann.

In particular, of the five different judgments that I mentioned, the appeal would grapple with what Justice Toohey said at page 142 of Amman and what Justice Gaudron said at page 156, both of which address the question which your Honour Justice Gleeson raised with me, which is, why is it that the presumption is recognised at all and in what sort of case, given that very, very many commercial contracts are entered either for loss or for gain? Nothing that has been said this morning in response to the application has foreclosed the need to resolve these differences between the judgments in Amman.

Your Honours, as to where the legal error is, I identified paragraph 73 in the Court of Appeal in‑chief. That is as good a place as any to identify the legal error, we submit. As to the issues of characterisation of the contract, on a full appeal we would be commending Justice Adamson’s characterisation, which is found at page 69, paragraph 217, and page 70, paragraph 220. Once that characterisation is understood, we would submit it becomes tolerably obvious that a 30‑year lease in respect of which none of these matters are in any way warranted or guaranteed, does not justify shifting the onus to the contract‑breaker as has occurred in this case.

May it please the Court.

KIEFEL CJ: Yes, thank you. The Court will adjourn to consider the course that it will take.

AT 1.13 PM SHORT ADJOURNMENT

UPON RESUMING AT 1.15 PM:

KIEFEL CJ: There will be grant of special leave in this matter. Do I take it that the appeal would be concluded within a day, Mr Gleeson?

MR GLEESON: Yes, your Honour.

KIEFEL CJ: Do you agree with that, Mr Williams?

MR WILLIAMS: I think it could be, yes.

KIEFEL CJ: That does not sound very certain. I think it should be ‑ ‑ ‑

MR WILLIAMS: It should be.

KIEFEL CJ: Should be. One day. Yes, thank you very much. The Court will now adjourn until 1.30 pm.

AT 1.15 PM THE MATTER WAS CONCLUDED