2.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.
On appeal from the Supreme Court of New South Wales
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)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
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".
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.
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.
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…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Clark v Macourt [2013] HCA 56
Case
[2013] HCA 56
Decision Date
CaseChat Overview and Summary
The appeal before the High Court of Australia concerned a dispute between Dr Anne Clark and Dr David Macourt (representing a company) regarding the sale of a fertility clinic business. Dr Clark purchased assets, including frozen sperm, from Dr Macourt's company. The company warranted that the donor consents, screening, and identification for the sperm complied with applicable guidelines. However, a significant portion of the delivered sperm was found to be unusable due to breaches of this warranty. Dr Clark subsequently purchased replacement sperm from an alternative supplier and charged her patients a fee to cover most of the acquisition costs.
The central legal issues before the High Court were the appropriate measure of damages for the breach of warranty and whether Dr Clark had adequately mitigated her loss. Specifically, the court had to determine whether damages should be assessed by reference to the amount Dr Clark was unable to recoup by using the non-compliant sperm in her business, or by reference to the cost of acquiring compliant replacement sperm at the date of the breach. The court also considered whether Dr Clark's practice of charging patients a fee for the replacement sperm constituted mitigation of her loss.
The High Court applied the fundamental principle that damages for breach of contract are intended to place the innocent party, as far as money can do so, in the same situation as if the contract had been performed. This principle, traceable to *Robinson v Harman*, means that a plaintiff is not entitled to be placed in a superior position than they would have been had the contract been fulfilled. The court reasoned that Dr Clark's subsequent transactions with her patients, including charging them for the replacement sperm, were irrelevant to determining the value of the sperm that should have been delivered under the contract. The loss was the value of the warranted sperm that was not supplied, and the cost of acquiring replacement sperm to achieve the contractual benefit was the appropriate measure.
The High Court allowed the appeal, setting aside the orders of the Court of Appeal. The court ordered that Dr Macourt pay Dr Clark's costs of the proceedings in the Supreme Court on an indemnity basis for a specified period and otherwise on the ordinary basis. The court agreed with the assessment of damages undertaken by the primary judge, which involved assessing the value of what should have been delivered in accordance with the vendor's contractual promise.
Orders
Orders of the court
1. Appeal allowed with costs.
2. 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.
Background
Background to the litigation
This appeal concerns the measure of damages for breach of a warranty in a contract for the sale of a business. Its unusual facts give rise to unusual difficulties. Facts Dr Clark and Dr Macourt were, in 2002, obstetricians and gynaecologists practising assisted reproductive technology in New South Wales. Dr Clark ran a fertility clinic. Dr Macourt, through a company he had established in 1983 ("the company"), ran another fertility clinic. In the conduct of their respective practices, Dr Clark and Dr Macourt were bound by ethical guidelines on assisted reproductive technology published by the National Health and Medical Research Council in 1996. The guidelines prohibited, as "ethically unacceptable", "[c]ommercial trading in gametes or embryos" and "[p]aying donors of gametes or embryos beyond reasonable expenses". Those ethical prohibitions came later to be overlaid by a criminal prohibition in s 16 of the Human Cloning for Reproduction and Other Prohibited Practices Act 2003 (NSW), inserted in 2007, making it an offence for a person intentionally to receive "valuable consideration" from another person for the supply of a human egg, human sperm or a human embryo and defining "valuable consideration" for this purpose to exclude "the payment of reasonable expenses incurred by the person in connection with the supply". Nothing turns on that later statutory development. By a written contract entered into in 2002, the company agreed to "sell" its "assets" to Dr Clark. The purchase price, payable in three annual instalments, was to be calculated as a percentage of the amount by which Dr Clark's gross fee income for the calendar years 2002, 2003 and 2004 exceeded her gross fee income for the year 2001. Included within the assets which the company was obliged to deliver to Dr Clark within 30 days of entering into the contract, and which Dr Clark was obliged to "keep and maintain … in accordance with recognized practice", was "all frozen sperm". The company warranted that "the consents, screening tests ... and identification … of donors" of that frozen sperm had been conducted in accordance with applicable guidelines. Dr Macourt guaranteed the obligations of the company under the contract. The company in fact delivered some 3,500 straws of frozen sperm to Dr Clark. Dr Clark would have expected ultimately to have been able to use 2,500 of those straws, over several years, in the normal course of her practice. Dr Clark was in fact able to use only 504. The remaining straws were ultimately found to be unusable as a result of the company having breached its warranty concerning the consents, screening tests and identification of donors. When Dr Clark realised in 2005 that she was unable to use the remaining straws, she began to acquire replacement sperm as and when required for the treatment of her patients from a supplier in the United States. She charged her patients for the use of that replacement sperm an amount covering most (but not all) of the cost and expense to her of its acquisition. Mindful of her ethical and legal obligations, she always wanted to ensure that there was a "buffer" between what she paid for the sperm and what the patient paid to her.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
HAYNE J
CRENNAN AND BELL JJ
GAGELER J
KEANE J
Showing that the appellant had charged, or could charge, third parties (her patients) the amount she had paid to acquire replacement sperm from Xytex was irrelevant to deciding what was the value of what the vendor should have, but had not, supplied. If the contract had been performed according to its terms, the appellant would have had a stock of sperm having the warranted qualities which she could use as she chose. She could have stored it, given it away or used it in her practice. In particular, she could have used it in her practice and charged her patients nothing for its supply. But because the vendor breached the contract, the appellant could put herself in the position she should have been in (if the contract had been performed) only by buying replacement sperm from Xytex. Whatever transactions she then chose to make with her patients are irrelevant to determining the value of what should have been, but was not, provided under the contract.Conclusion and orders For these reasons, and for the reasons given by Keane J (with which I agree generally), the appeal should be allowed. Consequential orders should be made in the terms sought by the appellant. The factual background and the procedural history are set out in the reasons for judgment of Keane J. We agree that the appeal should be allowed and consequential orders should be made, for the reasons given by Keane J. We make additional comments in relation to the circumstance that the primary judge made an award of damages of $1,246,025.01 in respect of the vendor's breach of warranty, in the supply of frozen donor sperm ("the St George sperm"), when the total purchase price for assets of the vendor's fertility clinic business, including that sperm, was $386,950.91. The issue on the appeal is the measure of damages recoverable by the appellant, as purchaser of assets of a business, when the vendor promised to deliver stock complying with a warranty, but did not do so. We agree that the assessment of damages undertaken by the primary judge required assessment of the value of what should have been delivered in accordance with the vendor's contractual promise to the appellant[15].[15]Reasons for judgment of Keane J at [111]; see also reasons for judgment of Hayne J at [13]. The applicable principle, confirmed in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd[16] and traceable to Robinson v Harman[17], is that damages for breach of contract are to put the promisee, so far as money can do it, in the same situation as if the contract had been performed as promised. Different, even cumulative, heads of damage may be pleaded by a plaintiff, depending on the type of contract involved and the kinds of breach and damage occasioned, provided there is no double recovery.[16](2009) 236 CLR 272 at 286 [13]; [2009] HCA 8.[17](1848) 1 Exch 850 at 855 [154 ER 363 at 365]. In The Commonwealth v Amann Aviation Pty Ltd[18], Mason CJ and Dawson J said:"'expectation damages', 'damages for loss of profits', 'reliance damages' and 'damages for wasted expenditure' are simply manifestations of the central principle enunciated in Robinson v Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim." Their Honours went on to observe that the corollary of the principle in Robinson v Harman is that a plaintiff is not entitled, by an award of damages for breach of contract, to be placed in a superior position to that in which he or she would have been had the contract been performed[19]. The plaintiff's loss must be genuine[20] and the expenses incurred in putting himself or herself in the position in which he or she would have been, had the contract been performed, must be reasonable[21]. The onus of proof in respect of a claim for contract damages is on the plaintiff[22].[18](1991) 174 CLR 64 at 82; [1991] HCA 54.[19](1991) 174 CLR 64 at 82.[20]Radford v De Froberville [1977] 1 WLR 1262 at 1270; [1978] 1 All ER 33 at 42.[21]Erie County Natural Gas and Fuel Co v Carroll [1911] AC 105 at 118; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 288-290 [17]‑[19].[22]The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J.
Ratio Decidendi
Legal Principle Established
Established by:
HAYNE J,
CRENNAN AND BELL JJ,
GAGELER J,
KEANE J