Summary
Case summary re: 123 259 932 Pty Ltd (123) v Cessnock City Council (Council) (No 2) [2021] NSWSC 1329 (Cessnock case).
The decision of the Cessnock case demonstrates that public authorities, such as Councils should take reasonable action to ensure compliance with lease agreements and other related contracts. The case also highlights the importance of having knowledge of the assets held by another party, as expectation damages will not be awarded if there are no assets.
The Facts
In Cessnock Case, 123 sought damages against the Council for the breach of contract and unconscionable conduct.
Council was the landowner and developer. Council proposed to subdivide Cessnock Airport to include aviation and non-aviation uses. On 26 July 2007 an Agreement for Lease (AFL) was executed by the parties for one of the subdivided lots. To successfully lodge a development application on itself, the Council split its role as developer and its role as the regulator. As the developer Council lodged the DA, and using its planning authority it could then consider and approve the development. 123 proposed to occupy the suite to run adventure flights, a venue for hire and an aviation museum. The AFL provided that if the plan of subdivision was registered by 30 September 2011 Council would grant a 30 year lease to 123. 123 commenced occupation of the land and subsequently erected a 3.5 million dollar hangar on the site.
The Issue in Dispute
Condition 23 of the AFL stated that the land would be serviced by a sewer system. Council claimed they could not afford to connect all of the lots to the sewerage system and so the plan was not registered by 30 September 2011 or at any later time.
123 claimed that the development did not go as planned and stopped paying lease fees and abandoned the site, leaving the hangar. The parties attempted to resolve the issues in dispute from about September 2011 to 2015. In 2012 123 was deregistered. This resulted in the Council terminating the AFL by a notice dated 18 September 2015 and purchasing the hangar for one dollar pursuant to the AFL. After 123 was reinstated (under a changed name) by order of the Supreme Court of South Australia, proceedings were commenced by 123 claiming damages for the expenditure on the hangar, together with the loss of chance to make profit. The Council denied any breach.
123 brought to the Court’s attention clause 4.2 of the AFL which required the Council to take all reasonable action to apply for and obtain approval for registration of the plan of subdivision. In defence, the Council referred to clause 2.2 of the AFL, which stated that nothing in the AFL could restrict or affect the lessor’s discretion as to the use of the lessors statutory powers as a public authority. Based on clause 2.2 and clause 4.2, the Court had to determine if expenditure was conducted through the Council’s role as a developer or regulator.
Held
The Court determined that if clause 4.2 was applied in light of clause 2.2, clause 4.2 would have no real effect. The Court considered Ansett Transport Industries (Operations Pty Limited v The Commonwealth (1977) 139 CLR 54 and the competing public interest that would arise in the context of contracts with public authorities. Adamson J determined that public confidence in government dealings and contracts would be greatly disturbed if they were not binding on the government or public authorities. It was held that clause 2.2 did not affect clause 4.2 as proposed by the Council.
Council was found to have breached the contract because of their failure to comply with condition 23, failure to carry out the works necessary to install the sewer system and failure to do all things necessary to register the subdivision.
While Council was found to have breached the contract, it was only awarded to pay damages in the sum of $1.00 due to the unprofitable nature of the business.
