In July 2023, the public entity Transport for NSW was ordered to pay damages to two businesses affected by the $3 billion project, which involved traffic being shut off from much of George St in the city centre.
Justice Richard Cavanagh found the construction time was initially reasonable, but there was a point at which delays in the near-five-year process became so excessive that businesses along the route suffered nuisance and should be compensated.
The judge had yet to assess the amount owed to other businesses represented by the class action when Transport for NSW sought to overturn his findings.
On Wednesday, three judges in the NSW Court of Appeal unanimously dismissed the class action.
The court ruled that Justice Cavanagh erred by finding businesses suffered nuisance because the government relied on an amended initial development plan as a "reasonable estimate" for how long the project would take.
The actual project timeframe was much longer than this plan set out.
"The (initial plan) could not on its face be regarded as anything like a reasonable estimate of construction time," the appeal judges said.
"It made no allowance for inclement weather.
"It made no allowance for the discovery of unknown utilities and their treatment. It made no allowance for various other contingencies."
One cause of the project's delays was the discovery of around 250 previously unknown utilities such as electrical cables and sewage pipes located underneath the street.
Claims by the class action plaintiffs that a series of investigative trenches could have been dug to uncover these pipes and wires ahead of time to reduce delay were rejected by the court as "implausible".
Even if the government could order the roads be completely dug up to see what lay beneath, this could not be done without blocking the streets for an extended period, the judges found.
"It would be absurd to dig up the entire road and footpath in order to discover all the utilities, then to resurface it, only to proceed later to undertake the construction works, in the hope that the construction would conform to the timeframes in the amended (plan)," they said.
Banton Group managing partner Amanda Banton, from the law firm behind the class action, called the result disappointing for businesses that suffered for many years due to the prolonged construction project.
"The decision involves various unsettled and developing areas of law and we will be reviewing the decision carefully to consider a potential appeal," she said.
Sophie Hunt, chief executive of first plaintiff Hunt Leather, also expressed her disappointment.
"Personally, it has been a terrific struggle, mentally and financially, and has taken a terrible toll on all of us," she said.
The light rail from Sydney's Circular Quay through the city centre to the eastern suburbs was initially forecast to cost $1.6 billion, but that figure blew out to $3.1 billion by the time it was fully operational in 2020.
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