Actor Toni Collette and her musician husband David Galafassi have had a partial win in their legal battle with another Sydney couple over a multimillion dollar Paddington terrace home.

Collette and Galafassi will now need to cough up just over $600,000, as opposed to the nearly $815,000 initially ordered by the Supreme Court last year.

They will also have to pay most of the Kelly’s legal costs and forfeit their $317,500 deposit, taking the total bill to more than $920,000.

Collette and Galafassi agreed to buy the eastern suburbs home of Industrie clothing founders Nick and Susan Kelly for $6.35 million in 2011.

But on December 30 that year, the day they were to complete the transaction, the couple backed out, saying they didn’t have the money.

The Kellys’ home eventually sold in 2012 for $5.5 million and they sued Collette and Galafassi for the loss, as well as interest and land tax.

In the Supreme Court hearing last year, Collette and Galafassi denied a number of the Kellys’ claims and said they had failed to use “reasonable efforts” to obtain the best price possible for the Paddington terrace.

But Acting Justice William Windeyer rejected this and awarded the Kellys damages of just under $815,000.

This sparked Colette and Galafassi to appeal the decision.

In a judgment handed down on Friday, the Court of Appeal upheld the challenge in part and reduced the couple’s damages bill by more than $200,000.

The court found the Kellys should not have been entitled to a “special condition interest” as the sale of the home was never completed.

They ordered Collette and her husband pay $602,500.82.

If the parties can’t agree on costs or the judgment, they have been ordered to serve any further papers within 14 days.