Cessnock in the High Court: Recovering Wasted Expenditure When Expectation Loss Can't Be Proved

What do you recover when the other side walks away from a contract and you cannot prove what performance would have earned you? For parties to terminated construction and development projects, that question is common and awkward: the costs are real and documented, but the lost profits are speculative — sometimes the venture was not profitable at all. Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17 gives the answer, and it is a generous one for the innocent party: claim the expenditure wasted in reliance on the contract, with a "fair wind" behind the assumption that it would have been recouped.

The facts

As part of an initiative to develop Cessnock Airport, the council entered an agreement for lease in July 2007 with a company then called Cutty Sark Holdings. The council promised to take all reasonable action to register a plan of subdivision by a sunset date of 30 September 2011, after which the company would receive a 30-year lease over its lot. In the meantime, the company occupied under a licence — and built an architect-designed hangar, substantially complete by mid-2009, at a cost of $3,697,234.41. From the hangar it ran joy flights, aerobatic training, an aviation museum and corporate venue hire. None of it made money.

The council, deterred by the infrastructure costs attached to the development consent, never pursued the subdivision, and in September 2011 made plain it would not proceed — a repudiation. The company vacated and was later deregistered; under the agreed terms, the hangar went to the council for $1.

At trial, the company recovered nominal damages of $1: the primary judge held the presumption of recoupment only arose where the breach made assessing the counterfactual "impossible", and was in any event rebutted by the venture's bleak prospects. The Court of Appeal reversed, awarding the full construction cost plus interest — over $6.1M. The High Court unanimously dismissed the council's appeal.

The issue

The appeal turned on the juridical basis and strength of what is often loosely called the "reliance damages presumption": where a plaintiff cannot establish expectation loss, can it instead recover expenditure wasted by the breach, and who bears the burden of showing whether that expenditure would or would not have been recouped had the contract been performed?

What the High Court held

All seven judges dismissed the appeal, across four judgments. The joint judgment of Edelman, Steward, Gleeson and Beech-Jones JJ anchored the analysis in orthodoxy: wasted expenditure is not a separate head of damages but a "facilitation of proof" within the ordinary compensatory principle of Robinson v Harman. The legal onus of proving loss stays with the plaintiff (at [61]). But where the defendant's breach has caused or increased the uncertainty about what performance would have produced, the plaintiff's proof is facilitated by assuming that reasonable reliance expenditure would at least have been recouped.

The joint judgment's image at [139] is the one practitioners will quote for years: the plaintiff receives "a fair wind" to establish its loss, and "[t]he strength of the wind will depend upon the extent of the uncertainty resulting from the breach by the defendant... The plaintiff is given a 'fair wind' but not a 'free ride'."

Rebuttal is the contract-breaker's problem: it bears the evidential burden of showing the expenditure would not have been recouped. Here, the council's repudiation — after years of inaction on the subdivision, with the 30-year lease never granted — created "considerable uncertainty" about how the company's aviation business would have fared, and the council could not demonstrate that the hangar investment would never have been recovered across three decades. The trial judge's "loss-making venture" reasoning, drawn from a few unprofitable early years, was not enough.

What this means in practice

Cessnock is a damages case from an airport development, but its centre of gravity is squarely in construction and development, where early, heavy reliance expenditure before the revenue phase is the norm.

1. Reliance damages are now a mainstream pleading, not a fallback curiosity. Where a principal, council or developer repudiates early — before the project's economics could ever be demonstrated — claim the wasted expenditure: design fees, early works, mobilisation, plant, financing costs, management time properly evidenced. The earlier and more disruptive the repudiation, the stronger the fair wind.
2. The burden shift is the strategic point. The claimant proves the expenditure, its reasonableness, and its reliance on the contract; the repudiating party must then positively prove the money would never have come back. That is a hard thing to prove about a counterfactual the repudiator itself destroyed — as the council discovered.
3. Records decide both sides of it. For claimants: capture and segregate project expenditure contemporaneously — cost codes per project, invoices, board papers showing the contractual purpose of the spend. An aggregated overhead ledger invites argument; a clean project cost report does not. For repudiating parties: rebuttal requires evidence about the venture's true prospects, which means the feasibility models, market studies and correspondence created before termination matter enormously.
4. Think about it before you terminate, too. Parties contemplating walking away from an agreement — or "going quiet" on conditions precedent they no longer wish to satisfy — should price the counterparty's reliance expenditure into the decision, not just its provable lost profit. After Cessnock, the unprofitability of the counterparty's venture is no safe harbour.
5. Unprofitable ventures can still recover. The respondent here lost money in every operating year. It still recovered its full build cost with interest, because the question is not "was the business profitable so far" but "can the contract-breaker prove the expenditure would never have been recouped over the full term".

Key takeaways

• Wasted expenditure is recoverable within the ordinary compensatory principle — a facilitation of proof, not a separate head of damages (Cessnock [2024] HCA 17).
• Where breach causes uncertainty about the counterfactual, the claimant gets a "fair wind": reasonable reliance expenditure is assumed recoupable unless the contract-breaker proves otherwise (at [139]).
• The evidential burden of rebuttal sits with the repudiating party — and early repudiation makes it heavy.
• Contemporaneous, project-segregated cost records are what convert this principle into money.

This article is general information only and is not legal advice. For advice on a specific contract or dispute, seek legal counsel or contact Sumit Consulting for commercial and claims advisory support.