St George Fertility Centre Pty Ltd v Clark
[2011] NSWSC 1276
•25 October 2011
Supreme Court
New South Wales
Medium Neutral Citation: St George Fertility Centre Pty Ltd v Clark [2011] NSWSC 1276 Hearing dates: 26, 27, 28 September 2011 Decision date: 25 October 2011 Jurisdiction: Equity Division Before: Gzell J Decision: Damages assessed on hypothetical purchase from only supplier with no credit for betterment on number of straws of those supplied that cross-claimant expected to use.
Catchwords: DAMAGES - General Principles - breach of contract - sale of goods - Robinson v Harman - plaintiff conducting an assisted reproduction technology practice - hypothetical sale and purchase of straws of sperm - sperm supplied valueless - assessment of time of breach - whether subsequent changes in legislation, codes of practice and ethical guidelines should be taken into account - whether credit should be given for betterment Legislation Cited: Sale of Goods Act 1923
Sale of Goods Act 1893 (UK)
Assisted Reproductive Technology Act 2007
Human Tissue Act 1983
Health Legislation Amendment Act 2004
Human Tissue Regulation 2005Cases Cited: Robinson v Harman (1848) 1 Exch 850; (1848) 154 ER 363
Ruxley Electronics and Construction Ltd v Forsyth [1994] 1 WLR 650; [1994] 3 All ER 801
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2008-2009) 236 CLR 272
The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351
Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 WLR 691; [2007] 3 All ER 1
Gagner Pty Ltd (t/as Indochine Cafe) v Canturi Corporation Pty Ltd [2009] NSWCA 413; (2009) 262 ALR 691
Dodd Properties Ltd v Canterbury City Council [1980] 1 All ER 928
Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281
Watts v Rake [1960] HCA 58; (1960) 108 CLR 158
Roberts v Rodier [2006] NSWSC 282; (2006) 12 BPR 98191
Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 1016
Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46
Commercial & Accounting Services (Camden) v Cummins [2011] NSWSC 843Category: Costs Parties: St George Fertility Centre Pty Ltd (Plaintiff/First Cross-Defendant)
Anne Clark (Defendant/Cross-Claimant)
David Charles Ross Macourt (Second Cross-Defendant)Representation: Counsel
C Harris SC/ H Altan (Plaintiff/Cross-Defendants)
A Leopold SC/ A Vincent (Defendant/Cross-Claimant)
Solicitors
Redmond Hale Simpson Solicitors (Plaintiff/Cross-Defendants)
Norton Rose Australia (Defendant/Cross-Claimant)
File Number(s): 2006/255614
Judgment
Introduction
Liability in this matter has been determined. On her further amended statement of cross-claim, Anne Clark obtained summary judgment against the first cross-defendant, St George Fertility Centre Pty Ltd, for breach of various warranties in a deed by which it sold assets to Dr Clark. She also obtained summary judgment against the second cross-defendant, David Charles Ross Macourt, the director of St George Fertility who had given a guarantee and indemnity in the deed. The court is to assess the damages.
Dr Clark conducted an assisted reproductive technology practice known as Fertility First. Dr Macourt, through St George Fertility, also conducted an assisted reproductive technology practice. An assisted reproductive technology practice provides treatments aimed at procuring pregnancy by means other than sexual intercourse.
In early 2002 Dr Clark, St George Fertility and Dr Macourt executed the deed. The assets sold under it included sperm. Only donor sperm remains in issue.
On 9 June 2010, in relation to donor sperm obtained from St George Fertility, Macready AsJ found that St George Fertility had breached warranties in the deed in that it had failed to identify donors of sperm in compliance with the Code of Practice for Assisted Reproductive Technology Units of the Reproductive Technology Accreditation Committee ("RTAC"); it did not give records to Dr Clark for all the sperm that was transferred to her; it did not give details of the sperm donor, consent forms, results of screening tests and/or sufficient information to Dr Clark to allow identification in accordance with RTAC Code of Practice of all sperm that was transferred to her; to the extent that St George Fertility wrote to any of the patients in its business from three years prior to the execution of the deed notifying them that Dr Clark had purchased the assets and recommending Dr Clark to the patient, it failed to provide a list of letters to Dr Clark; and it failed to give Dr Clark a copy of the patient list of St George Fertility.
Legal principles
The leading principle with respect to the assessment of damages for breach of contract at common law is that stated by Parke B in Robinson v Harman (1848) 1 Exch 850 at 855; (1848) 154 ER 363 at 365:
"The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed."
In Ruxley Electronics and Construction Ltd v Forsyth [1994] 1 WLR 650 at 655; [1994] 3 All ER 801 at 806, Staughton LJ pointed out that there are potentially two methods of measuring the loss in a breach of contract case: the difference in value and the cost of restoration.
In relation to the former, his Lordship indicated that it was appropriate where a breach of contract related to a chattel commonly available when a hypothetical purchase and sale of the defective and a replacement chattel could be obtained:
"The difference in value method is available, and will often be appropriate, when the building or chattel which has been damaged, or which does not answer to the contract, is of a kind that is commonly available. In such a case the cheapest way to make good the loss will often be to sell the building or chattel in question and buy another which, as the case may be, is not damaged or does answer the specification in the contract. The difference in value method seeks to reflect the financial consequences of such a notional transaction. Hence the rules as to damages when there is a contract for the sale of a marketable commodity. I say that the transaction is notional because the loser is not obliged to sell his building or chattel and purchase another; I have never heard it suggested that he is. He merely recovers damages measured on the loss that he would have suffered if he had done so."
In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2008-2009) 236 CLR 272 at [13]; 286, the court said that in the case of the supply of defective goods, the prima facie measure of damages is the difference in value between the contract goods and the goods supplied. The court approved Staughton LJ's statement in Ruxley that such a measure of damages seeks only to reflect the financial consequences of a notional transaction whereby the buyer sells the defective goods on the market and purchases the contract goods.
In this case Fertility First purchased sperm from a supplier in the United States of America, Xytex Corporation, and claims that the cost is the best evidence of the value of sperm complying with the warranties in the deed and the best evidence of cost on a hypothetical purchase. It is claimed that this cost represents the damages because a hypothetical sale of the defective sperm would have realised nothing.
Under the Sale of Goods Act 1923, the same result would be achieved because s 54(3) provides that in the case of a breach of warranty of quality the loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.
St George Fertility and Dr Macourt accept that the basic principle is that stated in Robinson . They draw attention, however, to a corollary stated by Mason CJ and Dawson J The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at [28]; 82:
"The corollary of the principle in Robinson v Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed."
There is, however, a difference between the parties as to when the assessment of damages should take place. Dr Clark says that the general rule that damages are assessed at the date of breach should apply, while St George Fertility and Dr Macourt say damages should be assessed at the date of trial or, alternatively, when Fertility First completed a stock take of the sperm acquired from St George Fertility.
In a breach of contract case involving goods, the general rule of common law is that damages are assessed at the time of breach of contract or when the cause of action arises ( Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351, Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 WLR 691; [2007] 3 All ER 1).
The rule finds expression in the Sale of Goods Act , s 54(3). But the rule is not inflexible. In Johnson at 355-356 Mason CJ said:
"There is a general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises. But this rule is not universal; it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered."
His Honour went on, however, to say that the general rule that damages are assessed at the time of breach or when the cause of action arises has been applied more uniformly in contract than in tort and for good reason. But even in contract cases his Honour pointed out that courts depart from the general rule whenever it is necessary to do so in the interests of justice.
In Golden Strait , Lord Brown referred to the breach date rule by reference to the Sale of Goods Act 1893 (UK) and said at 722; [79]:
"But the rule is by no means confined to the sale of goods context and, as Lord Bingham explains, has been applied by analogy to a variety of other situations. Essentially it applies whenever there is an available market for whatever has been lost and its explanation is that the injured party should ordinarily go out into that market to make a substitute contract to mitigate (and generally thereby crystallise) his loss."
In Gagner Pty Ltd (t/as Indochine Cafe) v Canturi Corporation Pty Ltd [2009] NSWCA 413; (2009) 262 ALR 691 at [54]; 703 Campbell JA, having referred to the above authority and to Dodd Properties Ltd v Canterbury City Council [1980] 1 All ER 928 and Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 said this:
"It follows that, even though a cause of action for breach of contract has accrued at the time the breach occurs, it cannot now be said that there is an accrued right at that time to receive any particular sum of damages. That is because it must await the trial to decide what is the most appropriate way, in light of the events than known, to give effect to the compensatory principle of damages."
In this case I see no reason to depart from the principle that in breach of contract cases involving goods available in a market, damages should be assessed as at the date of breach.
This is not a case of estimating damages into the future. It is simplified by the fact that an identifiable number of straws of sperm did not comply with warranties in the deed and a market existed in which replacement sperm could be purchased.
In support of their contention that damages should be assessed at the date of trial, St George Fertility and Dr Macourt put the argument that because Fertility First recovered the cost to it of the acquisition and storage of sperm purchased from Xytex by charging those costs to patients, Fertility First recovered its costs and Dr Clark had suffered no loss.
The simple answer to that proposition is that Dr Clark paid twice for the use of sperm and recovery of the cost of acquisition and storage of the sperm purchased from Xytex still left her out of pocket for the amount paid under the deed.
In support of their contention that damages should be assessed after the stock take had been completed, St George Fertility and Dr Macourt argued that it revealed a lesser amount of non-compliant sperm than the amount claimed by Dr Clark. Later in these reasons I reject that submission.
Number of straws of sperm
Sperm for use in an assisted reproductive technology practice is stored in straws. They are thin vials about a hand length long and about 3mm to 5 mm wide. Each ejaculate gives rise to the order of 5 to 10 straws.
Ultimately it was common ground that St George Fertility transferred 3,513 straws of donor sperm to Dr Clark. She said she used 504 straws leaving a balance of 3,009 straws all of which were unusable. Dr Macourt alleged that Dr Clark used at least 504 straws and that only 1,334 straws had to be discarded.
Dr Clark employed Ian Pike as chief operating officer of Fertility First. He completed a stock take of the donor sperm obtained from St George Fertility. He wrote to Dr Clark on 29 March 2004 seeking permission to discard an unspecified large number of straws of the semen collected from donors and stored by St George Fertility because its records were deficient and there was no donor linking code or even donor name initials and the only way of trying to identify the person who donated the semen was via a match with their physical characteristics. Dr Clark authorised the destruction.
Kylie Anne Cousins was employed by Dr Clark from January 2004. She was asked to carry out a stock take of St George Fertility's donor sperm. On 29 November 2005 Ms Cousins reported that 3,513 straws of donor sperm had been received, 409 had been used in patient cycles, 1,334 had to be discarded as the sample could not be linked to the actual donor as there were no donor codes or even donor name initials documented and the remaining 1,770 straws might possibly end up being discarded due to the fact that the donors had reached their maximum number of families.
Ms Cousins went on to say that as at December 2005 no St George Fertility donor sperm was being used for a number of possible reasons: there were no straws of a donor left, the donor had reached the maximum family rule, or contact with the donor had been lost.
Dr Clark explained that because of the paucity of records obtained from St George Fertility, it was not safe to use the remaining sperm. They had no idea how many pregnancies each donor had achieved. They did not know whether a donor was approaching the maximum family limit. It was not that the donors had reached that limit. It was that they had no idea from the information they obtained from St George Fertility whether they had.
It was submitted that I should infer that the 1,334 straws were those Dr Pike had sought permission to destroy. It was further submitted that I should infer that the remaining 1,770 straws were usable subject to the maximum family rule.
While the 1,334 straws might well have been those Dr Pike sought permission to destroy, I am not prepared to infer that 1,770 straws were usable subject to the maximum family rule.
What the pleadings put in issue was the utilisation of St George Fertility sperm and not the number of straws that were usable. And while Dr Clark's evidence with respect to the number of straws obtained from St George Fertility was fraught, there was no evidence that more than 504 straws were used.
Furthermore, the evidence was that the 1,770 straws were destroyed as the records obtained from St George Fertility did not allow a matching of sperm to a donor and it was not known whether a donor's sperm was approaching the maximum family rule.
I find that the unused straws before partial destruction on Dr Pike's request totalled 3,009 and that all of them were unusable due to St George Fertility's breaches of warranty as found by Macready AsJ.
Maximum family rule
Amendments to the RTAC Code of Practice revised in February 2005 were ratified on 30 June 2005 with a period of grace of 12 months for suggested compliance. The amendments included the introduction of par 9.14 in the following terms:
"Number of children generated
Unless regulated by specific state legislation or by the specific wishes of a donor, the ART unit must have a documented policy that limits the number of children generated by any one donor.
The limit must be no more than ten families. This upper limit may vary depending on state legislation, demographics or ART unit policy.
The limit must be based on an appropriate risk assessment of the potential for accidental consanguinity within the community of patients receiving treatment at the unit (including ethnic minority groups)."
An ART unit is a clinic or centre offering assisted reproductive technology.
The RTAC Code of Practice was not obligatory, par 9.14 did not come into effect until 1 July 2006 and its limit of 10 could be increased by the policy of an ART unit. Nevertheless, Fertility First had observed a 10 family limit at least from early 2002.
It was submitted that Ms Cousins' report that 1,770 straws might possibly end up being discarded, indicated an expectation on Dr Clark's part that a large percentage of the straws obtained from St George Fertility would need to be discarded as offending the maximum family rule.
It could not be said, however, that the 1,770 straws offended the maximum family rule. The paucity of records provided by St George Fertility resulted in an inability to determine whether the maximum family rule had been or was about to be offended. Hence it was unsafe to use the straws and they were destroyed.
It is not to be assumed that the hypothetical replacement sperm suffered because it was approaching the maximum family limit. The best evidence of the hypothetical sperm was the sperm in fact acquired from Xytex. It did not suffer this problem.
Before entering the deed, Fertility First acquired sperm in addition to that from donors by purchase from suppliers. Shortly after opening Fertility First, Dr Clark purchased sperm on a fairly regular basis from Westmead Fertility Centre. Between February 1998 and April 2000 she purchased sperm irregularly from the Queensland Fertility Group. Around November 2000, Dr Clark purchased 150 vials of donor sperm from Cryos, a Danish sperm bank and part of Cryos International. There was thus a market from which sperm could be purchased.
Following a change by the February 2005 revision of the RTAC Code of Practice it became a requirement under par 6 of the Ethical Guidelines on the use of assisted reproductive technology in clinical practice and research of the National Health and Medical Research Council (NHMRC), to which I will return, that sperm donors had to consent to being identified by any children conceived by the use of their donor sperm.
This new requirement meant that Fertility First could no longer use sperm from Cryos or the Queensland Fertility Group and its only supplier became Xytex.
If St George Fertility had complied with the warranties in the deed and Fertility First was able to match sperm to donors and to pregnancies achieved, and it maintained its policy of a 10 family limit, it may be inferred that donor sperm approaching the maximum family number would have been used first.
Straws beyond the 10 family limit could have been used for second and subsequent pregnancies within the same family but only a handful of straws were used in this way each year. Some straws could also have been swapped inter-state for compliant sperm.
Dr Clark said, however, that she did not expect to be able to use all the sperm acquired from St George Fertility, assuming it was warranty compliant, because of the 10 family rule. She said she expected to be able to use at least 2,500 straws.
It was submitted that Dr Clark's expectation was irrelevant because the hypothetical exercise of purchase and sale focuses on the objective value, and thus the notional replacement cost, of the 3,009 unusable straws.
But it seems to me that from the 3,513 straws delivered to Dr Clark must be subtracted straws that Dr Clark expected she would not be able to use because of the 10 family rule. She is to be compensated for the breach of contract of St George Fertility and Dr Macourt and not for loss occasioned by other causes.
The best estimate of that deduction is one that leads to Dr Clark's estimate of 2,500 viable straws complying with the warranties in the deed, albeit as a minimum. That means that Dr Clark, having used 504 straws, is to be compensated for a failure to deliver 1,996 warranty compliant straws.
Introduction of mandatory identification
At the time the deed was negotiated, Dr Clark said that sperm donated by donors who had agreed to be identified was of more interest to her because it was becoming increasingly apparent to her that the government would shortly be changing the law in relation to the identification of donors. Because of this she had made a decision that, if possible, Fertility First should only use donors who were prepared to be identified.
The change occurred with the publication in September 2004 by the NHMRC of its ethical guidelines. Paragraph 6.1 contained the following:
" 6.1 Uphold the right to knowledge of genetic parents and siblings
Persons conceived using ART procedures are entitled to know their genetic parents. Clinics must not use donated gametes in reproductive procedures unless the donor has consented to the release of identifying information about himself or herself to the persons conceived using his or her gametes. Clinics must not mix gametes in a way that confuses the genetic parentage of the persons who are born.
....
6.1.4 Clinics should not use gametes or embryos collected before the introduction of these guidelines without the consent of the gamete donor (or gamete providers for donated embryos) to the release of identifying information for any future treatments (with the exception of the circumstances given in paragraph 6.1.5).
6.1.5 The only situations in which a reproductive procedure involving donor gametes may be considered without the consent of the donor to the release of identifying information are:
- where the recipient has a child who was born before the introduction of these guidelines using the same gamete donor; or
- where embryos created using donated gametes have been stored before the introduction of these guidelines but the donor cannot be contacted.
...."
It was submitted that the possibility that donor identification would become mandatory and that many of the St George Fertility straws would then not be able to be used because the donors had not consented, should be taken into consideration.
It was for St George Fertility and Dr Macourt to establish that an expectation of ethical change that did not occur until September 2004 was the cause of some of the loss sustained by Dr Clark. As was said by Dixon CJ in Watts v Rake [1960] HCA 58; (1960) 108 CLR 158 at 160:
"If the disabilities of the plaintiff can be disentangled and one or more traced to causes in which the injuries he sustained through the accident play no part, it is the defendant who should be required to do the disentangling and to exclude the operation of the accident as a contributory cause. If it be the case that at some future date the plaintiff would in any event have reached his present pitiable state, the defendant should be called upon to prove that satisfactorily and moreover to show the period at the close of which it would have occurred."
Many donors of the St George Fertility sperm had consented to their identity being revealed to offspring and many donors subsequently did so. Had St George Fertility delivered warranty compliant straws, Dr Clark would have identified donors who had consented and donors who had not and could have sought consents from those who had not. It was the failure to provide proper records that prevented Dr Clark from using sperm from donors who had consented.
Dr Clark gave unchallenged evidence that if St George Fertility had delivered warranty compliant sperm, she would have promoted Fertility First more widely to seek to attract a large number of patients.
St George Fertility and Dr Macourt have failed to establish that there should be any deduction from the damages otherwise due to Dr Clark by reason of any expectation on her part when she executed the deed that NHMRC would introduce the limitation in paragraph 6.1 in September 2004 or that she would not be in a position to comply with the new requirement.
Additional counselling and consents
The 2005 revision of the RTAC Code of Practice introduced a provision that sperm donors should be counselled twice and their partners be counselled by a person who was a member of the Australian and New Zealand Infertility Counsellors Association (ANZICA) or who was eligible for membership. There was also a new paragraph that the wife or long-term partner of any donor should consent in writing to the use of that donor's sperm.
It was submitted that these requirements should be taken into account as reducing the number of usable straws that Dr Clark acquired from St George Fertility.
As already indicated, these changes did not take effect until 1 July 2006, over four years after the acquisition of the straws by Dr Clark by which stage a considerable number of the straws would have been used.
The new measures were also not requirements. They were contained in Attachment B to the Code of Practice, which stated that the attachments to the Code had been developed as guides.
Furthermore, the requirements disappeared with the introduction of the 2008 RTAC Code of Conduct and were, accordingly, in operation as guides for just two years.
One of the complaints Dr Clark made was that the records provided to her did not include records as to counselling of spouses and partners. It would be strange if that very delict should give rise to a diminution in her damages. St George Fertility and Dr Macourt cannot take advantage of their own wrong.
In any event the donors were mainly single rendering the counselling measures largely irrelevant. So too with the consents. Since the donors were mainly single consents were required but infrequently and consents might have been obtained from those donors who were married or in a long-term relationship had the records provided by St George Fertility and Dr Macourt complied with the warranties.
Furthermore, it was the policy of St George Fertility from as early as 1992 to counsel spouses and long-term partners of donors by ANZICA recognised counsellors.
The policy document provided that all donors had to consent to undergo an initial interview with Dr Macourt to review physical and mental history followed by attendance at a counselling session designed to obtain "consent of spouse/partner (if applicable)" amongst other things.
St George Fertility and Dr Macourt have failed to establish a basis for reduction of the damages to which Dr Clark is entitled by reason of the counselling changes in the 2005 RTAC Code of Practice. The evidence supports the conclusion that St George Fertility, as a matter of policy, complied with the requirements as to counselling introduced on 1 July 2006 in the conduct of its practice from at least as early as 2002. And consents were rarely required as most donors were single and the few that might have become necessary could have been sought if the St George Fertility records had complied with the warranties in the deed.
Besides, a guide to practice introduced four years after the event is irrelevant to the hypothetical purchase and sale of sperm in 2002.
Five women limit
The Assisted Reproductive Technology Act 2007, s 27(1) reduced the ten family rule to a five women rule. It was in the following terms:
"An ART provider must not provide ART treatment using a donated gamete if the treatment is likely to result in offspring of the donor being born, whether or not as a result of ART treatment, to more than five women (or such lesser number as may be specified in the donor's consent), including the donor and any current or former spouse of the donor."
The new rule commenced on 1 January 2010. A hypothetical purchase of replacement straws in 2002 should not be made on the assumption that future legislation might limit the number of women producing offspring from the same donor's sperm. That event is far too remote to be taken into account.
Ten year limit
The Assisted Reproductive Technology Act , s 25 placed a ten-year limit on the storage of sperm. Section 25(3) was in the following terms:
"An ART provider must not store a gamete or an embryo for any longer than the shortest of the following periods:
(a) the period (if any) of proposed storage of which the ART provider has given written notice to the gamete provider (whether before or after the gamete was obtained),
(b) the period authorised by the gamete provider's consent or, if there is more than one gamete provider, the shorter of the periods authorised by the gamete providers' consents,
(c) in the case of a donated gamete or an embryo created using a donated gamete, the period of 10 years from the date the gamete was obtained from the donor plus any additional period that may be authorised by the Director-General under section 26."
A ten-year limit on the use of sperm was introduced by s 26(1) as follows:
"An ART provider must not provide ART treatment using a donated gamete if the gamete was obtained from the donor more than 10 years before the provision of the ART treatment unless the Director-General has given written authorisation for the provision of the ART treatment."
Dr Clark did not know of any circumstance in which the Director-General had given permission for the use of sperm stored for more than ten years other than where a woman with a child from a sperm donor wished to have another child using that donor's sperm. Dr Clark agreed that except in that case none of the St George Fertility sperm would be usable after the end of 2011 and in the period from 2005 to 2011 only 100 straws had been used for this purpose.
It was submitted that the possibility that future regulatory changes would render St George Fertility's sperm unusable should be taken into account.
For the reasons expressed above with respect to the five women rule, I reject that proposition. A hypothetical transaction taking place in 2002 should not be predicated on the basis that, with effect from 1 January 2010, restrictions would be placed on the use of sperm obtained from St George Fertility.
By 1 January 2010, Dr Clark may well have used all the St George Fertility sperm. At least she would have used a large part of it. And she would have used the oldest sperm first.
It would be wrong to suppose that in relation to a hypothetical sale and purchase in 2002 there should be any expectation in the market place or by any of the hypothetical participants that from 1 January 2010 restrictions on the use and storage of sperm might render some of the straws the subject of the purchase unusable. The introduction of the legislation is too remote.
Betterment
It was submitted that the sperm Dr Clark obtained from Xytex was superior to the sperm that would have been supplied by St George Fertility if it had been warranty compliant. The information available on Xytec's donors was far more extensive. It included photographs of donors and recordings of donors speaking. Patients could browse Xytex's website and see details of the various donors and they could purchase even more information and additional photographs if they wished.
In addition Dr Clark had negotiated an exclusive arrangement with Xytex under which it would not supply donor sperm to any other party in New South Wales.
It was submitted that there was a significant element of betterment in the use of Xytex sperm in replacement of St George Fertility sperm.
The onus of proving the presence of betterment and its quantum lies with St George Fertility and Dr Macourt ( Roberts v Rodier [2006] NSWSC 282; (2006) 12 BPR 98191 at [143]; (4), 23,477). There, Campbell J pointed out that if the only practical way in which a plaintiff can be compensated for damage to an item is by providing the plaintiff with the price of acquiring an item that is better than the item that was damaged, it could sometimes be appropriate to allow the plaintiff the full value of that better item.
Amongst the authorities cited by his Honour was Harbutt's Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 in which a building destroyed by fire was replaced by a new one. Lord Denning MR said at 468:
" The destruction of a building is different from the destruction of a chattel. If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But this is not this case."
Harbutt was overruled by the House of Lords in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, but on a different point.
Here the market comprised but one seller, Xytex. Dr Clark had no choice. It was not suggested that she could have acquired the sperm more cheaply elsewhere. It was not suggested that the price paid was inflated by the agreement for exclusive supply to Fertility First. And St George Fertility and Dr Clark failed to establish the quantum of any benefit.
Dr Clark does not have to give credit for any betterment.
Non-compliance of Xytex sperm
Section 20D of the Human Tissue Act 1983 was introduced by the Health Legislation Amendment Act 2004 with effect from 1 August 2004.
It was submitted that there was a failure by Xytex to comply with this provision with respect to the straws of sperm actually provided by it.
Section 20C(c) of the Human Tissue Act provided that the Division applied to semen obtained or received from a donor for the purpose of using some or all of the semen for the artificial insemination of a woman. Section 20D(2)(b) was in the following terms:
"A person must not
....
(b) obtain, receive or use a donor's semen for a purpose referred to in section 20C(c),
unless the donor has signed a certificate and had the signature witnessed by a person (or a person belonging to a class of persons) (the prescribed witness ) prescribed by the regulations."
The Human Tissue Regulation 2005, reg 4 prescribed the certificate as Form 1 of Schedule 1. Regulation 5 prescribed medical practitioners or nurses employed where the semen is to be obtained or received, amongst others, as prescribed witnesses.
It was submitted that the Xytex sperm did not comply with all of the regulatory requirements and was not a relevant comparison for assessing loss.
Assuming that the Act and Regulation applied extra-territorially to the United States, the issue is not whether sperm actually supplied by Xytex failed to comply with the regulatory requirements. The issue is whether a hypothetical sale of straws of sperm by Xytex in 2002 should be challenged on the basis of a failure to comply with requirements not then in force.
In my view they cannot. The hypothetical purchase should only be considered in light of the legislation as it stood when the deed was executed in early 2002.
But even if later legislative change was relevant, there is no reason why it should be assumed that donor semen delivered pursuant to a hypothetical sale could not comply with the Human Tissue Act and the Human Tissue Regulation . The form signed by Xytex donors was substantially similar to Form 1 and there was no reason why a medical practitioner or nurse could not have witnessed donor signatures.
It was submitted that from at least February 2005 the RTAC Code of Practice required counselling of donors and donor spouses to be carried out by counsellors who were members of, or eligible to be members of, ANZICA. There was no counselling of Xytex's donors by ANZICA members until about July 2011.
As has already been indicated, the RTAC Code of Practice revised in February 2005 was not ratified until 30 June 2005 and then provided a period of grace of twelve months.
Even assuming that the Code of Practice applied to the conduct of an assisted reproductive technology practice in the United States, a requirement introduced three years after a hypothetical purchase of replacement sperm from Xytex cannot influence the purchase price.
Damages
There are three components to the damages sought by Dr Clark. A sum to compensate her for the non-usability of all but 504 straws from the 3,513 straws delivered to her. That is for 3,009 unusable straws.
As discussed earlier in these reasons, I am of the view that the appropriate measure is unusability of 1,996 straws being 2,500 straws that ought to have been usable less the 504 straws that were used.
The second head of damage claimed is the amount necessary to compensate Dr Clark for employing Ms Martin whose employment was said to be almost exclusively devoted to reconciling the records of St George Fertility.
It was a term of the deed that St George Fertility transfer its telephone numbers to Fertility First. The third head of damage was the cost of maintaining the St George telephone numbers, which, it was said, would not have been necessary if there had been no breach of the deed.
I am not prepared to award any damages for Ms Martin's employment. She said she was not involved almost solely on reconciling the records of St George Fertility. She said she merely transcribed information from the donor lifestyle declarations and it took her only half an hour.
Nor am I prepared to award the damages claimed with respect to the telephone lines. The evidence revealed that they had been used by Fertility First to make outgoing calls.
It could not be said, in those circumstances, that the maintenance of the telephone numbers was caused solely by a breach of the deed.
Dr Clark claimed $7,680 under this head but conceded that the amount should be reduced having regard to the outgoing phone calls made from the telephone lines.
St George Fertility and Dr Macourt submitted that if the telephone lines had not been used by Dr Clark the cost would have been $42 per month or a total of $3,024 for the six year period claimed by Dr Clark. In my view that is the appropriate amount of compensation together with interest.
Dr Clark did not commence acquiring Xytex sperm until 2005. Between then and 2011 she acquired 1,546 straws of sperm. She says the proper method of calculation of damages is to take the actual replacement costs of the 1,546 straws together with interest and, for the remainder of the straws to be acquired, on her submission 1,463, but in light of my finding 450, they should be priced at the latest price incurred by Dr Clark without interest.
Reference was made to Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 1016 at [17] where Einstein J observed that where defendants seek to rely upon their own wrongdoing the court assesses damages and loss of opportunity in a robust manner, relying on the presumption against wrongdoers.
In Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, in circumstances where the wrongdoers' failure to keep and produce accounts of their actual expenditure made it difficult to assess the compensation due to the plaintiff, the court at 59 said that it should assess compensation in a robust manner relying on the presumption against wrongdoers.
To similar effect was my judgment in Commercial & Accounting Services (Camden) v Cummins [2011] NSWSC 843. At [44] I held that the principle applied where the defendant had failed to produce a list of the persons to whom he had sent letters of solicitation using the plaintiff's confidential customer lists.
In my view, Dr Clark has fallen into the error that she attributes to St George Fertility and Dr Macourt by her submission that damages should be assessed with respect to the actual purchases of Xytex's straws of sperm where the proper measure of damages is by reference to an hypothetical purchase of the sperm in 2002.
The best evidence is that of the first purchase by Dr Clark on 29 September 2005 of 30 straws at US$350 giving a figure of US$10,500. With freight and discounts of US$150 the total is US$10,650.
The invoice from Xytex was for US$10,670 which was discharged with AU$15,363.26 giving a result for US$10,650 of AU$15,334.46. When that is extrapolated to 1,996 straws the result is AU$1,020,2520.70.
In robust fashion I would account for the fact that the cost of replacement in early 2002 is likely to have been less than this figure by allowing interest on AU$1,020, 252.70 from 29 September 2005. To this figure should be added AU$3,024 plus interest for the telephone lines.
What is to be offset against that amount is the AU$219,950.91 plus interest that is owed by Dr Clark to St George Fertility under the deed.
I will hear the parties on the appropriate terms of orders and I will hear the parties on costs. I direct the parties to bring in short minutes of order reflecting these reasons.
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Decision last updated: 28 October 2011
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