Clark v Macourt

[2013] HCATrans 112

[2013] HCATrans 112

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S9 of 2013

B e t w e e n -

ANNE CLARK

Applicant

and

DAVID MACOURT

Respondent

Application for special leave to appeal

HAYNE J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 MAY 2013, AT 10.44 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friends, MR A.R.R. VINCENT and MS L.M. JACKSON, for the applicant.  (instructed by Norton Rose Australia)

MR C.M. HARRIS, SC:  If the Court pleases, I appear with my learned friend, MR H. ALTAN, for the respondent.  (instructed by Redmond Hale Simpson)

HAYNE J:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, this is a case where, in our submission, special leave should be granted for two reasons which are related.  They are that the result has worked a significant injustice for the applicant; that is the first one.  The second is that that has been achieved, in our submission, by the Court of Appeal taking a rather unusual view as to the principles applicable where defective goods – I use those terms for brevity – are sold as part of a larger transaction with an undifferentiated price, and in so doing the Court of Appeal has attributed to the applicant a claim for damages which he was not making and then has knocked it down, taking with it the judgment that she obtained.

Your Honours, I need to go to the circumstances a little to make those points and may I proceed to do so?  Your Honours, at the heart of the reasoning of the Court of Appeal is the notion that this was a contract for the sale of a practice or business.  Your Honours will see that at page 71, Justice Tobias, paragraph 49 and at the first half dozen lines, your Honours, and also the last few lines of that paragraph.

The point we would seek to make, your Honours, is that in reality this was a case where the transaction was for the sale of some assets of a business.  That can be seen from the document of sale which is at page 149 in recital B, and at paragraph and clause 1a, and then the definition of “assets” at page 155, about line 23 or 24.  One notes, your Honours, that it excludes, for example, plant and equipment, there is no inclusion of any rights to premises or anything of that kind, and then your Honours will see on page 156 the definition of “sperm”.

Your Honours, could I, whilst at that document, refer to the purchase price agreed upon which your Honours will see at clause 2a at page 149, about line 38 and, your Honours, the opening words of clause 2, “The purchase price for the assets”.  Your Honours, the amount of the purchase price payable was calculated by reference to a percentage of the applicant’s income – she was in the same business, as it were – in each of those three years to 2004.

BELL J:   The deed provided for a restraint, so it was for the purchase of the assets.

MR JACKSON:   Yes, your Honour.  Could I just say this about it?  The agreement was one that, apart from the time of the restraint and apart from the three years in respect of which the purchase price was to be calculated, the contract was one that was, in effect, over at the time of transfer of the goods in question which was to be in January 2002.  That is of some importance, your Honours, because what the Court of Appeal seems to have done is to treat the case as one relating to events that took place in 2005, three and a half years later, when the only purpose of looking at those events was to try to identify what the value of replacement goods was in early 2002.  Your Honours, I need to explain that and I have come to do so immediately.

Your Honours, the manner of calculation of the purchase price meant that there could never be an exact attribution of any part of the purchase price to the sperm but it was accepted – hardly surprisingly in the light of the opening words of clause 2 of the agreement – that some of the purchase price was in respect of that, and you will see that at page 79, paragraph 77.  Your Honours, the situation which then emerged was that the respondent and his company were going out of business.  They sold to the applicant to use in her practice as she chose and to add to her stock the assets, including the sperm.  It then emerged that the assets which were to be transferred to her could not be used by her because they were not in a condition warranted for, and your Honours will see that at page 21, in paragraph 48, the primary judge at the top of the page said that that meant she was:

to be compensated for a failure to deliver 1,996 –

et cetera.  Now, your Honours will see that his Honour sought to do that in, if we may say so with respect, a rather orthodox way by identifying what would have been the cost of replacing those straws as at the time of the breach ‑ that was early 2002 ‑ and he did so by looking at the cost of acquisition of the replacement straws at the time when it became apparent that those supplied under the contract could not be used and then, in effect, seeking to discount that back three and a half years to get to the time when they should have been delivered.

Your Honours, as one can see from page 28, paragraph 82, there was only one seller, Xytex, and it was not suggested that the replacements could be acquired more cheaply, and what the primary judge did, your Honours, was to work on the basis of a hypothetical purchase in 2002.  Your Honours will see that page 32, paragraph 108, the last few lines:

the proper measure of damages is by reference to an hypothetical purchase of the sperm in 2002.

He did that, your Honours, by taking the 29 September 2005 price, and then plus freight and less discounts, but by not allowing any interest for the three and a half years, from early 2002 to September 2005.  You will see that in paragraphs 109 to 111 on page 32.  Your Honours, the amount was large in the end, but the Australian dollar was a bit under 70 cents at the time.  Now, your Honours, that estimation by the primary judge was, it is submitted, entirely consonant with the dictum of Baron Alderson in Hadley v Baxendale – you will see that set out at page 57, paragraph 6 on the page.  Your Honours, I will not read it out.

HAYNE J:   I wonder, Mr Jackson, whether we may not be assisted by hearing at this point from Mr Harris.

MR HARRIS:   Your Honour, we say that the contract was not a contract for the sale of goods and we would support what the Court of Appeal said.  Firstly, Mr Justice Tobias’ conclusion to that effect which your Honours were taken to a moment ago at page 71 in paragraph 49.  There is in addition to that an abbreviated but similar finding from Justice Barrett on page 58 in paragraph 8 of the judgment, and they set out there a number of characteristics of the contract which identifies reasons why the contract could not be classified as a contract for the sale of goods.

HAYNE J:   Now, be it so, what follows?  There was a contract for the purchase and sale of assets.  The assets, or some of the assets, were not as warranted.  Where does one go from there?

MR HARRIS:   Exactly, your Honour.  It was never pleaded, can I say firstly, as a case that involved a contract for the sale of goods, but it does not matter whether it was or was not.  It does not matter whether your Honours classified the contract as a contract of the sale of goods or not because the claim that was made against us was a claim for the replacement cost of the sperm.  There was a certain amount of sperm that were discarded and the claim that was made against us was for the cost of replacing that sperm and there was evidence put forward as to what that cost was.  So, this point about whether or not the contract was or was not a contract for the sale of goods and whether the principles that apply to those contracts should or should not have been applied is, in our respectful submission, not to the point because the claim that was made against us was merely a claim for the reasonable costs and expenses of procuring replacement sperm.

HAYNE J:   The devil in this case lies in the word “replacement”, does it not?

MR HARRIS:   We would say not, your Honour, because that was further limited by the applicant to the cost of acquiring and transporting replacement sperm to ‑ ‑ ‑

HAYNE J:   Yes, because the replacements were not available in Australia.

MR HARRIS:   Yes.

HAYNE J:   The fact that the practice acquired a number of straws, used them in procedures and charged patients the outgoings incurred in acquiring those particular straws may, perhaps, be a distraction, may it not?

MR HARRIS:   Your Honour, with respect, no, because the claim was always limited to a claim for the cost of replacing the sperm and there was evidence about what that cost, and there was additionally evidence that that had been charged to patients – that cost had been charged to patients as a specific and individual part of the treatment cost to patients and, therefore, that loss was, effectively, fully mitigated.

HAYNE J:   Now, can I just tease that out with you a moment to see whether I understand the point properly?  I may well not.  Day one after completion of the contract, the purchaser was entitled to receive specified assets including x numbers of straws.  Is that right?

MR HARRIS:   Yes.

HAYNE J:   In the course of her practice – and x number of straws of a particular kind which would have permitted her to use them?

MR HARRIS:   I do not think there was a specific number identified, but it was whatever ‑ ‑ ‑

HAYNE J:   No, whatever they were.

MR HARRIS:   Yes.

HAYNE J:   At the end of her treatment of however many patients she treated in the intervening period she had used in that treatment straws specially purchased for the purposes of treating those patients.  Is that right?

MR HARRIS:   Yes.

HAYNE J:   If the straws initially transferred had been as warranted, she would at the end of treatment of all of those patients still have had possession, in the deep freeze, of however many hundreds of straws were transferred.  Is that right?

MR HARRIS:   Yes.

HAYNE J:   She did not.

MR HARRIS:   Yes.

HAYNE J:   She did not because they were not as warranted.

MR HARRIS:   Yes.

HAYNE J:   The only evidence available of the worth of these items was – there is one supplier, a supplier in the US, at x dollars a straw.  Where does that then take the argument?

MR HARRIS:   Well, it gives her, prima facie, a loss, being the cost of replacing the straws, or she could have claimed other losses, but that is the way she restricted her claim.  The evidence showed that she charged each of the patients for the cost of replacement and, in that sense, she fully mitigated that loss.  As I say, she could have potentially claimed other losses and she could even have done so as alternatives.  If she had been charging a fee for the provision of sperm acquired from St George and, indeed, in round figures I think she acquired about – or it was agreed – she had acquired about three and a half thousand straws and then over a period of about three and a half years she had used about 500 of those straws and then discovered there were problems and discarded the balance.

If she had been charging patients for the provision of St George sperm then her damages could have been claimed as the amount of money that she would have charged for the sperm that was discarded, in any event, but she did not make that claim, she claimed only for the cost of the replacement sperm.  The evidence clearly showed that she had, fortunately for my client, recovered that cost from her patients.  In the absence of and, indeed, the Court of Appeal says, in the absence of any alternative claim and in the absence of any – that is, in the absence of any alternative pleaded claim and in the absence of any evidence supporting any alternative loss, there was no basis upon which any other damages could be awarded to her.

HAYNE J:   Yes.

MR HARRIS:   Does your Honour wish to hear further from me?

HAYNE J:   Yes, you should make whatever submissions against the grant of leave you think appropriate, Mr Harris.

MR HARRIS:   Well, your Honour, that is the essential point concerning the first of the two issues which is that the Court of Appeal erred in finding that this was not a contract for the sale of goods.  I should just again, perhaps at the risk of repeating what I said, say that it was never pleaded as a contract for the sale of goods.  Certainly, there were submissions made to that effect by Dr Clark at the hearing and that is the way that the trial judge decided to determine the matter, and the Court of Appeal then, effectively, corrected the position by determining the appeal based on the way in which she had pleaded her case.

BELL J:   When one looks at the applicant’s further materials at page 7, between lines 27 and 38, it seems there that the case that was being put was – as it is now put and not confined to the pleading in the way that you assert, Mr Harris, so that on the table before Justice Gzell was the contention that we are claiming the loss of value, the best proxy being the replacement costs as the cases say, and so forth.

MR HARRIS:   Yes.

BELL J:   That was squarely raised.

HAYNE J:   And was squarely raised in the pleadings – see page 16, paragraph 14.

MR HARRIS:   Your Honour, that is a passage out of an amended reply which was produced about a month before the hearing and, apparently, attempted to change the way in which the claim had been made because, your Honours will have seen from paragraph 11, subparagraph (3), page 2 of the additional materials, your Honours will see that the loss and damage claimed is “the reasonable costs and expenses associated with the procurement of replacement sperm”.  We accept that at the trial the ground shifted so that instead of replacement cost there seemed to be a claim being made for the difference in value – that is, the difference in value between what Dr Clark had bargained for and what she actually received.  Your Honours will see in the passage on page 7 of the submissions that counsel for Dr Clark was saying there, on the third line:

We do not claim loss of profits.  We claim the loss of value –

the best proxy being the replacement cost, as the cases say.  Now, the first point is, again, that was never pleaded, but the second point is that because of the unusual nature of donated sperm, replacement cost is not a good proxy for the value of the sperm that was sold under the contract if that sperm had been compliant.

BELL J:   Was it necessary to have some evidence respecting the value of the sperm the subject of the deed and, if so ‑ ‑ ‑

MR HARRIS:   Was it necessary?  Can I answer your Honour in this way?  It was – and Dr Clark admitted – unethical and, indeed, from some time in 2007, illegal to supply sperm for a price which exceeded its cost of acquisition, together with whatever other holding charges that might apply to it.  In other words, you could not supply to patients sperm for more than it cost you to acquire that sperm.  That meant that the value to Dr Clark of St George sperm, if it had been compliant, is actually impossible to state because you do not know how much she paid for the sperm component of what she acquired.

If one were to assume that the whole of the purchase price had been for sperm, then because she got about three and a half thousand straws and she paid about $360,000, she was effectively paying, at most, about $100 or $110 per straw.  So that if she had been able to charge patients for that and if she had been doing so – and there was no evidence from her that she had – but if she had been, the maximum amount that she would have been able to charge would have been something in the region of $100 to $110, or something of that nature.

When she first began to acquire Xytex sperm, she was charging her patients ‑ I think it was $800 – but it was many times more than the St George sperm cost her.  In those circumstances, because she could not have supplied St George sperm for any amount in excess of what she had paid for it, the cost to her of replacing the defective St George sperm with Xytex sperm from America at about $800 a straw is not an effective proxy.  It does not tell you what the value of the St George sperm would have been if it had been compliant.

HAYNE J:   Was it submitted at trial that the amount which Dr Clark could recover in respect of the defective straws – or the straws not as warranted – was capped by the amount that she could lawfully, or ethically, charge her patients in respect of that straw?

MR HARRIS:   Indeed.  She had admitted in her evidence that she did not and would not have charged for sperm any more than the cost of its acquisition to her with any associated holding costs that might be involved.

HAYNE J:   Did the trial judge deal directly with this argument?  I am not conscious of his Honour having done so.  What you say comes to me as a surprise.

MR HARRIS:   Only very briefly and really only – I do not think that he does deal with it exactly or directly, but he does make a comment in paragraph 21 of his judgment which is at page 16, to the effect that the answer to the propositions that have been put by Dr Macourt were that Dr Clark had effectively paid twice for the sperm.  I am reminded that certainly in the submissions that we made to his Honour, both before the trial started and after the evidence had concluded, made this point but his Honour has not really addressed it directly in the judgment.

Can I just take your Honours back to the additional materials because on page 11 there is an extract from the submissions by Dr Clark at the appeal which actually sets out what we say is the fundamental problem, or misconception, of her case, where it said:

The best indication of the sum Dr Clark would notionally have to pay to put her back in the position she would have been at the beginning of 2002 if St George had fulfilled its warranties . . . is the amount which has actually been charged . . . by Xytex ‑

Now, that is fundamentally misconceived because under the law from 2007 and under her ethical constraints which she said she observed, she could never charge the amounts to St George patients, or for St George sperm, that she had had to pay to Xytex to replace that sperm.  So, even if the case had been one where instead of merely a claim for replacement cost there had been a claim for the difference in value between what she bargained for and what she actually received, even if that had her claim, the cost that she had incurred to acquire replacement sperm from Xytex would not be relevant to determine what the St George sperm would have been worth to her if it had been compliant.

HAYNE J:   Does that not entail this consequence?  Let it be assumed that the St George sperm, as they have been described, had no or minimal value.  Dr Clark could have conducted – I pull a figure out of the air – 2000 procedures charging her patients nothing or minimal amounts for the sperm concerned.  Is that right?

MR HARRIS:   Well, that is possible.

HAYNE J:   Yes, because the sperm were not as warranted.  If she were, in the future, to treat the 2000 patients she would have had to acquire, would she not, at the Xytex price, the Xytex straws, and charge them that amount.  Is that right?

MR HARRIS:   Well, she would not have had to have charged them any amount.  Indeed, this is one factor which ‑ ‑ ‑

HAYNE J:   She is buying replacements.  She would have had to charge the replacement costs.

MR HARRIS:   Well, this is one factor which, we say, demonstrates again the reasons why the trial judge was wrong and the Court of Appeal were right.  If one imagines a situation where she has to discard the St George sperm, she has to find replacement sperm.  She buys it but she makes no charge to her patients for that.  Well, then, fairly clearly, her losses would be the cost that she has paid to Xytex to buy that sperm.  If she is, in fact, charging each patient the cost that she has paid to acquire the sperm that she then uses in her treatment of that patient, that must be taken into consideration and her damages cannot be the same, irrespective of whether or not she has made no charge or, in fact, made a change in full for that sperm.  Your Honours, I have not really dealt with the second issue, which is the duty to mitigate issue.

HAYNE J:   There is no doubt a duty to mitigate.  Perhaps if you would state, without developing them, the proposition or propositions you wish to make.  Time has gone but if you would simply state the proposition you wish to make.

MR HARRIS:   I think what is said against us is that we did not discharge an onus we had to prove that she mitigated her loss.  It is said that we did not do that because we had to prove not only that she mitigated the loss in the sense of she had obtained from patients the money that she had paid to acquire the replacement sperm, but it is said we also had to prove that she had suffered no other loss or that she had mitigated any other loss she might have suffered, even if she never claimed that loss from us.  In other words, I think what is being said is that to successfully establish the defence if she had mitigated the loss here, constituted by the cost of replacement sperm, we also had to prove that she had suffered no loss caused by her inability to sell compliant St George sperm.

HAYNE J:   I think we have the point that you wish to advance.  Yes?

MR HARRIS:   I am sorry.  There have been no submissions made by my friend in relation to this and I am unclear as to how far I need to go with this.  There is no authority for that proposition and it would, if it were correct, produce anomalous results because it would mean that even if she had recovered all of the money that she had paid to acquire the Xytex sperm, if we could not prove that she would not have been able to sell St George sperm – or that we would not be able to make out a defence that she had mitigated her loss.  In other words, we would have established that the loss that she claimed was wholly mitigated she would have had an alternative but unclaimed loss, being what she might have got for St George sperm.

HAYNE J:   Well, Mr Harris your time has long since expired.  Is there any further proposition, as distinct from argument, you wished to advance?

MR HARRIS:   No, your Honour.

HAYNE J:   Thank you.  Mr Jackson, this question of ethical and, later, legal limits on recovery from patients, is there anything you would wish to say on that subject?

MR JACKSON:   Well, just this, your Honour.  One can see this issue is one adverted to in some of the material in the additional materials we gave the Court.  May I take your Honours to that, commencing at page 4?  This was a letter sent by direction of the Court, setting out the nature of the case.  Your Honours will see at page 4, in the paragraph commencing 4.2, there is a reference in paragraph 4.4 to the issue that I think your Honour is adverting to.  One then sees, your Honours, what we would, in effect, say in paragraphs 4.5 through to 4.8, that one is talking about simply a situation where, under the agreement, in her practice she was to be provided with the number of straws which she was to have, which she could use, not use, as she chose.  They formed part of her stock‑in‑trade, in effect.

Now, your Honour, what she might charge for those, having acquired them, was really a matter for her, subject to any constraints there might be.  If the contract had been complied with, then she would have had them, but instead of that she did not have them and so the damages are those that would be appropriate to them being incurred by acquiring replacement straws.  Could I refer also, your Honours, to page 13 of that book?  Our learned friends referred to page 34, paragraph 26 ‑ these are submissions at the trial, written submissions.  Your Honours will see in paragraph 36, when it comes to the actual contention that was made, it was said in the third line on that page:

she must be awarded a sum sufficient for her notionally to have acquired, at the beginning of 2002, 3009 straws of donor sperm . . . Her actual transactions with Xytex are the best available indication of the costs necessary –

that is, costs as at 2003.  Your Honours, that could not have been put, if we may say so with respect, more clearly than appears in the actual transcript of the opening by Mr Leopold of Senior Counsel at page 7.  Your Honours, about line 31 it said:

we don’t claim loss of profits.  We just claim loss of value, the best proxy being the replacement cost, as the cases say.

Your Honours will see in that paragraph, third last line:

it’s in some sense a distraction to focus on what she has done with Xytex, except we are able to call in aid those prices to form the price of the notional replacement ‑

Then one sees on the next page, page 8, line 11:

Dr Clark’s entitled to the value of 3,009 straws . . . at the beginning of 2002 –

effectively, January 2002, and it is on the basis, your Honours, that a price – as the judge found – the best proxy was 2005 and go back three and a half years, and do that effectively by giving no interest in respect to that period, so reverse discounting, if I could put it that way.

BELL J:   Can I just enquire?  In 2002, the regulatory scheme of which Mr Harris speaks, was that in existence?

MR JACKSON:   Was the scheme binding legally, your Honour?

BELL J:   In existence at that time.  It was not clear to me.  I think there was reference ‑ ‑ ‑

MR JACKSON:   No, 2007 I think it came in, your Honour, legally.  The association which is referred to in the agreement was a body that had its own standards, of course.

BELL J:   I see, and this is Dr Clark’s evidence about her understanding of her ethical obligations?

MR JACKSON:   Yes.

BELL J:   Yes, I understand.

HAYNE J:   Thank you, Mr Jackson.

There will be a grant of leave in this matter.  What estimate would counsel give of time?

MR JACKSON:   Your Honour, my estimate would be that the case will take a day because I suspect, in the light of the arguments, one will need to go into a little detail of what took place.

HAYNE J:   Yes.

MR JACKSON:   Your Honours, could I mention that there is one minor error in the draft notice of appeal, and it is just this, your Honours, that the way in which the Court of Appeal gave its reasons, the actual orders were made on a couple of different occasions, cumulatively, and that there should be addition of the date – 9 November 2012 – as being one of the dates in relation to which leave to appeal would be granted.

HAYNE J:   I cannot imagine that would present a difficulty for either side, would it, Mr Jackson?

MR JACKSON:   I would not think so, your Honour.

HAYNE J:   I would not have thought so, Mr Harris.  Otherwise, Mr Jackson, it would seem to me there was nothing arising out of the notice of appeal that required further attention, was there?

MR JACKSON:   I do not think so, your Honour.

HAYNE J:   Well, there will be a grant of leave.  Mr Harris, do you agree it is a day case?

MR HARRIS:   Yes, your Honour.

HAYNE J:   We will treat it as a day case and, again, counsel may have been in Court already to hear the need to comply with the timetable.  Again, it seems probable that the matter may be fixed for the August sittings.

AT 11.21 AM THE MATTER WAS CONCLUDED