Cessnock City Council still fighting $6M bungled lease court battle

The council is taking the matter to the High Court of Australia, where it is highly unlikely to succeed, with most applications - 90 per cent, failing at the first hurdle.

On Tuesday, in the Supreme Court of Appeal, the council was granted a stay application to avoid paying a company known as Cutty Sark $6.154 million for breach of contract.

The council has refused to reveal how much it has spent on legal fees to fight the matter so far, or how much it will owe in costs to Cutty Sark if it loses again.

Because the matter remains before the court, it was "not appropriate" to provide details, a council spokesperson said.

It has engaged Holding Redlich solicitors, as well as two Sydney-based barristers, Doran Cook SC at Nine Wentworth Chambers in Millers Point, North Sydney, and Gerald Ng, to act on its behalf previously.

In granting the stay application, Justice Jeremy Kirk said he had to consider the likelihood of the applicant (council) succeeding in the High Court where it would need to establish there were exceptional circumstances, in order to obtain special leave to appeal.

Based on the materials before him, Justice Kirk said he did not think the council's chances were high.

There was "some force" in Cutty Sark's argument, which involved the application of "established principle to particular facts". The decision of the Court of Appeal, involving a panel of three judges, was unanimously against the council, he said.

However, there was a "real risk" that if a stay was not granted, the $6.154 million would be removed from the country, and be difficult to recover if the High Court granted the appeal, and upheld it. And the council's special leave application sought to raise some issues of legal principle which "the High Court could choose to revisit", Justice Kirk said. "Overall, I regard it is a plausible case for obtaining special leave; I would not characterise the prospects as insubstantial."

Before litigation began, Cutty Sark had been deregistered, but was then reinstated, with the sole shareholder and principal of the company, James Johnston, living in Spain, with no realty in Australia.

Cutty Sark had offered to agree to a stay of 75 per cent of the money, along with a stay of the costs orders, with the remaining 25 per cent (about $1.54 million) paid to it. But it gave no assurances as to the "recoverability" of the 25 per cent.

Justice Kirk agreed to grant the stay, directing the council to pay the $6.154 million either to the court, or into a joint controlled account, where it will stay until the council's application for special leave to appeal to the High Court, and any appeal that flowed from it, was determined.

James Johnston and his then business partner, Phil Unicomb, met with the council in 2004 to discuss a suitable site for a hangar to incorporate an aviation museum, and an entertainment venue. That plan was contingent upon the council registering a subdivision of the site and granting a 30-year lease for proposed Lot 104.

By 2010, the council's consultants said it would cost $1.3 million to complete the subdivision decided not to go ahead.

By that time Mr Johnston had spent nearly $3.7 million designing and building a hangar, as planned, and purchased planes, to operate an adventure flight business which he did in 2009. By November of that year he decided it was not profitable, and tried to use the hangar as a museum, which also failed. He abandoned the site in 2012.

Mr Johnston has sought compensation for the cost of the hanger ever since, claiming the council breached its contract by failing to complete the subdivision.

The council won in the first instance, but lost at appeal and was ordered to pay $3.7 million with interest, producing a final figure of $6.154 million, plus legal costs.

It is expected to take months for the High Court to consider and determine the council's application to appeal.

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