McRae v Commonwealth Disposals Commission

McRae and others (the plaintiffs) entered into a contract with the Commonwealth Disposals Commission (the defendant) for the purchase of a certain oil tanker, the "Commodore", and its contents. The plaintiffs paid a deposit and incurred expenses in preparing to salvage the tanker. However, it transpired that the "Commodore" did not exist at the time the contract was made, nor had it ever existed. The plaintiffs sued the defendant for breach of contract, seeking damages for the loss of their deposit and expenses incurred. The case was heard in the High Court of Australia.

The central legal issues before the High Court were whether the contract was void for fundamental mistake, and if not, whether the defendant had breached the contract by failing to deliver the "Commodore" and its alleged contents. The plaintiffs argued that the defendant had warranted the existence of the tanker, and that its non-existence constituted a breach of this warranty. The defendant contended that the contract was void *ab initio* due to the mutual mistake of the parties as to the existence of the subject matter, or alternatively, that there was no warranty as to the existence of the tanker.

The High Court, in a joint judgment, held that the contract was not void for fundamental mistake. They reasoned that the defendant had, by the terms of the contract, represented and warranted that the "Commodore" existed and was available for sale. The contract was therefore not one for the sale of a non-existent thing, but rather a contract where the seller had failed to perform its obligation to deliver the subject matter which it had represented to exist. The court found that the defendant had breached its contractual obligations.

The High Court ordered that the plaintiffs were entitled to recover damages for breach of contract, including the return of their deposit and compensation for the expenses they had incurred in reliance on the contract.