AN airport is seeking millions in compensation after winning a landmark legal battle with a budget airline.

Yesterday, the Appeal Court ruled that bmibaby had breached its contract with Durham Tees Valley Airport when it axed its services from the airport in 2006.

The decision reversed a High Court ruling last year, which found that the terms of the contract were so vague and uncertain that they were unenforceable.

Three judges sitting at London’s Civil Appeal Court yesterday found bmibaby in “repudiatory breach” of the contract.

The court indicated that the damages should reflect the amount of money the airport would have received had the airline fulfilled the remaining eight years of the contract.

The airport has previously said it lost more than £11.5m in passenger fees, duty free profits and car parking receipts when bmibaby pulled out.

Lord Justice Toulson said: “The cardinal principle of any assessment of damages for breach of contract is that the innocent party is entitled to be put in the same position as he would have been in if the defendant had not broken the contract.”

The case will now go back to the High Court for an assessment of the damages.

The airline, which last night vowed to appeal and would therefore not comment, also faces legal costs likely to exceed £1m.

Peel Airports Group, which owns the airport, said the ruling set a precedent within the industry and vindicated the three-and-a-half-years of legal action against the airline.

Neil Pakey, Peel deputy chief executive, said this was the first time a UK airport had taken an airline to court over its failure to operate services from the site.

He said: “If an airline enters into such a contract, it can’t now simply leave on a whim.

“As we have now established, such contracts are enforceable by the courts.”

The court heard the deal with bmibaby was backed up by funding guarantees, both from the airport and local authorities who were keen to support bmibaby’s project to “promote the region”.

The airline was even granted its wish to see the name of the airport – originally called Teesside International Airport – changed to include a city for marketing reasons.

However, bmibaby made heavy losses on its operations at the airport and predicted that it would lose £3.2m in 2006 and £2.5m in 2007.

Mark Brealey QC, for Peel, said bmibaby pulled out after the newly-appointed managing director, Crawford Rix, “formed the view that the company had spread itself too thin and should focus on fewer bases”.