Clark v Macourt

• Jurisdiction: Australia Federal only
• Judge: Hayne J,Crennan,Bell JJ,Gageler J,Keane J
• Judgment Date: 18 December 2013
• Neutral Citation: [2013] HCA 56,2013-1218 HCA A
• Court: High Court
• Docket Number: S95/2013
• Date: 18 December 2013

Anne Clark

Appellant

and

David Macourt

Respondent

[2013] HCA 56

Hayne, Crennan, Bell, Gageler and Keane JJ

S95/2013

HIGH COURT OF AUSTRALIA

Clark v Macourt

Contract — Damages — Vendor of business failed to deliver assets compliant with warranty — Purchaser bought compliant assets from alternative supplier — Purchaser used compliant assets in business and charged fee covering costs of buying them — Whether damages measured by reference to amount purchaser was unable to recoup in using assets in business or by reference to cost of buying compliant assets at date of breach — Whether purchaser mitigated loss by charging fee covering costs of buying compliant assets.

Words and phrases — ‘expectation interest’, ‘same situation … as if the contract had been performed’.

Representation

D F Jackson QC with A R R Vincent and L M Jackson for the appellant (instructed by Norton Rose Fulbright Australia)

C M Harris SC with H Altan for the respondent (instructed by Redmond Hale Simpson)

ORDER

Appeal allowed with costs.

Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 9 November 2012, 13 December 2012 and 24 December 2012 and, in their place, order that:

• (a) the appeal to that Court be dismissed with costs;

• (b) the cross-appeal to that Court be allowed in part with costs; and

• (c) paragraph 3 of the order of the Supreme Court of New South Wales made on 8 November 2011 be set aside and, in its place, order that, subject to paragraph 5 of that order and subject to all costs orders already made in the proceedings, David Macourt pay Anne Clark's costs of the proceedings in that Court on and after 30 May 2009 on an indemnity basis and otherwise on the ordinary basis.

Hayne J. The appellant and respondent were registered medical practitioners who each specialised in providing assisted reproductive technology services. In 2002, the appellant agreed to buy assets of St George Fertility Centre Pty Limited, a company which was controlled by the respondent and which provided medical and assisted reproductive technology services to patients. The company (‘the vendor’) agreed to sell certain assets of the practice, including a stock of frozen donated sperm. The respondent guaranteed the vendor's obligations under the contract.

2 The vendor warranted that the identification of donors of the sperm complied with specified guidelines. There is now no dispute that, of the stock of sperm delivered, 1,996 straws which the appellant would have expected to be able to use were not as warranted and were unusable.

3 The appellant could not buy suitable replacement sperm in Australia but could in the United States of America. The primary judge found that buying 1,996 straws of replacement sperm from the American supplier (‘Xytex’) would have cost about $1 million at the time the contract was breached. The purchase price for the assets (including the stock of frozen donated sperm) was less than $400,000. The appellant accepted that ethically she could not charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount the appellant had outlaid to acquire it.

4 How should the appellant's damages for breach of warranty be fixed?

The proceedings

5 In the Supreme Court of New South Wales, Macready AsJ entered judgment for the appellant against the vendor for breach of warranty, and against the respondent as guarantor of the vendor's obligations, for damages to be assessed. Those orders were not the subject of appeal. On the assessment of damages, the primary judge (Gzell J) assessed 1 the damages for breach of warranty as the amount that the appellant would have had to pay Xytex (at the time the contract was breached) to buy 1,996 straws of sperm. On appeal, the Court of Appeal (Beazley and Barrett JJA and Tobias AJA) held 2 that the appellant should have no damages for the vendor's breach of warranty. The appellant had bought straws of sperm from Xytex to use in treating patients and had charged each patient a fee which covered the costs the appellant had incurred in buying the straws that were used in treating that patient. The Court of Appeal held that the appellant had thus avoided any loss she would otherwise have sustained.

6 By special leave, the appellant appealed to this Court seeking orders reinstating the award of damages made by the primary judge. The appeal should be allowed.

Principles

7 At no stage of this litigation has either party submitted that the assessment of the damages due for the vendor's breach of contractual warranty called for the modification of any principle, let alone the application of some new principle. There was, therefore, no dispute in this Court, or in the courts below, that a plaintiff who sues for breach of contract is to be awarded as damages ‘that sum of money which will put the party who has been injured … in the same position as he [or she] would have been in if he [or she] had not sustained the wrong for which he [or she] is now getting his [or her] compensation or reparation’ 3. Nor was there, or could there have been, any dispute that when a contract has been breached, the position in which the plaintiff is to be put, by an award of damages, is the position in which the plaintiff would have been if the contract had been performed4.

8 The only dispute between the parties was about how these principles were to be applied in this case. Any difficulty encountered in applying these principles stems ultimately from the failure, when speaking of ‘compensation’ for ‘loss’, to identify what ‘loss’ is being compensated. Identification of the relevant loss does not depend (as much of the respondent's argument assumed) on whether the contract can be classified as a contract for the sale of goods.

9 Three different forms of ‘loss’ might be identified. First, there might be a loss constituted by the amount by which the promisee is worse off because the promisor did not perform the contract. That amount would include the value of whatever the promisee outlaid in reliance on the promise being fulfilled. Second, the loss might be assessed by looking not at the promisee's position but at what the defaulting promisor gained by making the promise but not performing it. Third, there is the loss of the value of what the promisee would have received if the promise had been performed.

10 Subject to some limitations, none of which was said to be engaged in this case, damages for breach of contract must be measured 5 by reference to the third

kind of loss: the loss of the value of what the promisee would have received if the promise had been performed.

11 As Professor Fuller and Mr Perdue wrote 6, many years ago:

‘This seems on the face of things a queer kind of “compensation”. … In actuality the loss which the plaintiff suffers (deprivation of the expectancy) is not a datum of nature but the reflection of a normative order. It appears as a “loss” only by reference to an unstated ought. Consequently, when the law gauges damages by the value of the promised performance it is not merely measuring a quantum, but is seeking an end, however vaguely conceived this end may be.’

As those authors demonstrated 7, the protection which the law thus gives to the expectation that a contract will be performed can be seen as resting on, first, ‘the need for curing and preventing the harms occasioned by reliance’ upon the expectation of performance, and second, ‘on the need for facilitating reliance on business agreements’. The loss which is compensated reflects a normative order in which contracts must be performed.

Valuing what should have been received

12 Under the contract which the appellant made, she should have received 1,996 more straws of sperm having the warranted qualities than she did receive. The relevant question in the litigation was: what was the value of what the appellant did not receive? The answer she proffered in this Court was that it was the amount it would have cost (at the date of the breach of warranty) to acquire 1,996 straws of sperm from Xytex. That answer should be accepted.

13 The answer depends upon determining the content of the unperformed promise. The answer does not depend upon whether the contract can be described as one for the sale of goods or for the sale of a business. How much the appellant paid for the benefit of the promise is not relevant. It does not matter whether the value of what she did not receive was more than the price she had agreed to pay under the contract or (if it could have been determined) the price she had agreed to pay for the stock of sperm. The extent to which the appellant could have turned the performance of the promise to profit would be relevant only if the appellant had claimed for loss of profit. She did not. She

sought, and was rightly allowed by the primary judge, the value of what should have been, but was not, delivered under the contract.

Mitigation?

14 As already noted, however, the Court of Appeal concluded 8 that the appellant had mitigated her loss by buying replacement sperm from Xytex. In respect of ‘the loss of each straw of replacement sperm actually sourced from Xytex’ before the date of assessment of damages, Tobias AJA concluded 9 that the chief component of the appellant's ‘loss’ would be ‘the sum (if any) representing that part of the overall cost of acquisition of that straw not recouped from a patient’. And in respect of ‘the residue of the “lost” 1996 straws over and above those in fact replaced by Xytex sperm up to the date of trial’, Tobias AJA concluded 10 that ‘the appropriate course would have been to assume that [the appellant] would continue to source straws of donor sperm from Xytex at a cost consistent with that which had prevailed since August 2005, and that she would continue to recoup from...