St Vincent's Hospital (Melbourne) Inc v University of Adelaide

[2002] VSC 297

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST

No. 3027 of 2001

ST VINCENT’S HOSPITAL (MELBOURNE) INCORPORATED	Plaintiff
v
UNIVERSITY OF ADELAIDE	Defendant

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	24 and 25 June 2002
DATE OF JUDGMENT:	31 July 2002
CASE MAY BE CITED AS:	St Vincent’s Hospital (Melb) Inc v University of Adelaide
MEDIUM NEUTRAL CITATION:	[2002] VSC 297	Revised 7 August 2002

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DAMAGES – Whether monies belonged to plaintiff or a third party – Nature of loss

MITIGATION – Avoidance of loss – Whether the allegation constituted allegations of contributory negligence – Whether conduct of plaintiff reasonable.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D.J. O’Callaghan	Middletons
For the Defendant	Mr C. Blanden	Ebsworth & Ebsworth

HER HONOUR:

1. The plaintiff claims damages for breach of contract.  By the commencement of the trial the defendant admitted liability.  Thus, the matter proceeded essentially as an assessment of damages. 

Background Facts

1. The plaintiff, St Vincent’s Hospital, operates a major hospital in inner Melbourne.  Its facilities include an Immunology Research Centre (“IRC”) within the hospital’s Department of Clinical Immunology. 

1. Since the early 1990s the plaintiff has performed long term medical research into xenotransplantation, that is, the transplantation of animal tissue and organs, principally that of pigs, to humans.  The transplantation of organs from pigs to humans gives rise to a particular physiological factor associated with pigs.  The animals possess a substance known as “Gal” on all their organs.  Humans do not have Gal.  Hence, human antibodies prompt rejection of animal organs containing Gal. 

1. As part of its research programme the plaintiff conducted trials involving mice.  It seems this was quite common practice in the overall research acitivities of the IRC.  For the purpose of the xenotransplantation research project the plaintiff required mice with the Gal factor, known as “Gal KO mice”.  The aim was that Gal KO mice would provide a model to enable the plaintiff to research the rejection process when tissue and organs containing Gal are transplanted to a non-Gal recipient.  For this purpose the IRC would, from time to time, transplant organs from mice containing Gal to Gal KO mice, that is mice not containing Gal.  In this way, scientists could observe, monitor and research the rejection process with a view to overcoming the existing difficulties of the rejection by humans of pig organs containing Gal. 

1. For the purposes of its research the IRC developed its own breeding programme of mice.  Through breeding over a number of generations so as to achieve a particular genetic outcome the centre had two types of mice known as “Balb/C mice” (carrying Gal) and “Balb/C Gal KO mice” (not carrying Gal).  The genetic plan to achieve this outcome was complex but it is not necessary for present purposes to venture further into those complexities.  To achieve these two types of mice for its research the plaintiff ordered in late January 1998 four female Balb/C mice from the defendant, the University of Adelaide.  The defendant was in the business of breeding and providing mice for experimental and research purposes.  It transpired that the mice provided by the defendant were not Balb/C mice but Swiss mice which were entirely unsuited to the research purposes of the plaintiff.  Indeed, the supply of the incorrect mice led to the contamination of the breeding stock of the plaintiff.  As a consequence, a significant phase of the research project was scrapped and the plaintiff was forced to start the xenotransplantation project again with appropriate breeding stock.

1. The defendant admitted that in breach of the contract it had supplied the wrong mice to the plaintiff and that the plaintiff was entitled to damages.  However, the defendant alleged that the plaintiff ought have detected the contamination of the breeding stock earlier than it did and in not doing so failed to mitigate its loss.  Hence, the conduct of the research project was important. 

The Research Project

1. The project was conducted under the general supervision of Professor Anthony d’Apice, the Director of the IRC.  He is also a Professor of the Department of Medicine of the University of Melbourne based at the plaintiff.  The manager of the project was Dr Peter Cowan who is a scientist with particular expertise in genetics and immunology.  He manages all research projects at the IRC and is also Associate Professor of the Department of Medicine of the University of Melbourne based at the plaintiff.  The conduct of the research was largely performed by Dr Hilton Gock.  His work included the planning and design of experiments, monitoring of mice after transplantation, analysis of heart transplants, the interpretation of results and other duties.  Dr Gock was a PhD student at the time of his work on the project and his doctorate was conferred ultimately as a result of that work. 

1. There were two research assistants involved.  Lisa Murray‑Segal performed heart and skin transplants on mice and carried out monitoring and analysis.  She also co‑ordinated the genetic testing carried out to trace the source of contamination of the mice stock.  The other research assistant was Evelyn Salvaris.  She had over eight years experience including a time at the Walter and Eliza Hall Institute.  Ms Salvaris was concerned with record keeping, daily monitoring of mice following transplantation and analysis of organs and immune response.  There were other persons involved in the project but Gock, Murray‑Segal and Salvaris were the principal players subject to the supervision of Dr Cowan and the ultimate direction and control of Professor d’Apice. 

1. In late 1998 the IRC performed skin grafts between Balb/C and Balb/C Gal KO mice in order to examine rejection due to Gal.  As a control measure, skin grafts were also performed between Balb/C Gal KO and Balb/C Gal KO mice.  The plaintiff expected that the second set of skin grafts would be genetically identical and that the skin grafts would not be rejected.  To the surprise of the plaintiff they were rejected.  However, the hospital did nothing further at that time. 

1. The testing in late 1998 was performed by the research assistant, Ms Salvaris.  She, in fact, misinterpreted the skin graft rejection.  The skin grafts were performed in late 1998 and examined about 20 days later.  The grafts were not further examined until 120 days after the grafts were first performed.  By that time the skin grafts had healed over.  If the skin grafts had been checked between the 20 and 120 day period the genetic contamination of the mice ought have been revealed.  However, the research assistant Ms Salvaris, it seems through lack of experience, believed the rejected skin graft was due to a technical problem not a genetic problem.  She reported as much to Dr Cowan who was responsible for overall management of the research project.  Ms Salvaris examined the grafts on day 20 and reported to Dr Cowan that they had not been rejected.  She re‑examined the grafts at day 120 and reported that they had been accepted.  Between the 20 and 120 day period the skin of the recipient mouse grows back over the graft and rejection is difficult to detect.  Following the report by Ms Salvaris to Dr Cowan the project continued on in ignorance of the contamination of the mouse stock.  No further testing was done until February 2000 because the plaintiff believed up until then that it was working with the mice it ordered from the defendant although it had in fact received other mice, namely, the Swiss mice.  By February 2000 the IRC observed unexpected results in its heart transplant testing prompting the plaintiff to re‑visit the genetic identity of its mouse stock. 

1. It had transpired that in late 1998 Ms Murray‑Segal, an experienced research assistant was on leave.  Hence, the skin graft tests were monitored by Ms Salvaris instead who lacked the experience to detect the problem of rejection at that time.  By early 2000 when unexpected results were surfacing in the project Ms Murray‑Segal carried out tests and re‑checked the work performed in late 1998 and early 1999 and detected a problem with rejection.  The plaintiff being alerted to a problem arranged for external genetic testing by the South Australian Museum on the mice pool of the plaintiff.  The external testing identified contamination by the Swiss mice. 

1. During the period February to April 2000 the two sets of skin grafts were repeated with the same result, namely, that which was believed to be a skin graft between Balb/C Gal KO and Balb/C Gal KO mice.  Again, the grafts were rejected.  As a result, St Vincent’s considered that the mice believed to be genetically identical actually contained a mixed genetic background.  During June to July 2000 the plaintiff carried out a series of tests and concluded that the mice ordered in early 1998 from the defendant were not Balb/C mice as ordered but were Swiss mice and that the incorrect supply led to the contamination of the breeding programme of the IRC.  As a result of the discovery the plaintiff scrapped its existing breeding project and started again.  The effect was that instead of the project running from May 1998 to May 2000 the plaintiff had to start the project again in May 2000. 

1. Ultimately, the plaintiff and the defendant agreed to retain the expertise of Dr Simon Foote of the Walter and Eliza Hall Institute to test for the source of the contamination.  Dr Foote confirmed the presence of Swiss mice and considered that the risk of contamination by chance was very small.  Eventually, the defendant admitted that the contamination occurred because it supplied incorrect mice to the plaintiff. 

The Evidence for the Plaintiff

1. Evidence was given for the plaintiff by Professor d’Apice, Dr Cowan, Neil Kenneth Greenaway, the plaintiff’s chief financial officer, and Jillian Mary Hambling, an administrative officer of the plaintiff responsible for the administration of grants from the NHMRC. 

1. In his evidence Professor d’Apice described his role as director at the IRC as already referred to in these reasons.  He described the manner in which funds for the project were obtained from the NHMRC.  The monies were derived from the Medical Research Endowment Fund supervised by the NHMRC pursuant to the provisions of the National Health and Medical Research Council Act 1992. The purposes of the medical research endowment fund are to provide assistance to institutions and persons engaged in medical research. Professor d’Apice described how in March 1997 he applied to the NHMRC for a grant of assistance with respect to the research project. Confirmation of the award of the grant was received by him from the NHMRC on about 13 November 1997. The grant was awarded for a period of three years. Professor d’Apice gave evidence that the purpose of the research conducted by the IRC into xenotransplantation was funded in part by the NHMRC award. The balance of the monies applied by the plaintiff to the purposes of the research project was derived from other grants and channels whereby sums were pooled and spent as required by the IRC. Professor d’Apice gave evidence, also, as to the staff employed in the research project and the associated costs. Professor d’Apice was not cross-examined.

1. Dr Cowan described his role as manager of the IRC research projects, including the project the subject of these proceedings.  He described the long term medical research of the IRC into xenotransplantation in general terms and, in particular, the ultimate goal of the centre to achieve the transplant of organs from pigs into humans.  He described in some detail the difficulties arising from rejection by the human body as a result of the Gal factor.  He described, further, in very detailed terms, the use of the Gal factor in mice and the way in which the centre has embarked upon a mouse breeding programme to achieve mice bearing different genetic factors.  He also gave evidence in some detail as to the way in which the plaintiff embarked upon its breeding programme to generate Balb/C Gal KO mice.  Specifically, he gave evidence that as part of the research of the IRC the Blab/C Gal KO mice were bred with each other to produce mice specifically for the xenotransplanation study. 

1. Dr Cowan gave evidence that the plaintiff commenced ordering Balb/C mice for the purposes of its research work from the defendant in about May 1994.  There was no suggestion of any problems or difficulties with the provision of the mice from the defendant to the plaintiff from that time.  Dr Cowan described in the manner reflected in these reasons as to the skin graft tests that were carried out in late 1998 and the failure of the staff of the plaintiff to detect any rejection.  Dr Cowan gave evidence in the course of cross‑examination of these circumstances and acknowledged quite candidly that a more experienced research assistant than Ms Salvaris, such as Ms Murray‑Segal, would have in his opinion discovered or been alerted to a problem of rejection in early 1999.  Nevertheless, Dr Cowan was quite emphatic that the rejection would not have been observed at the 120 day test stage because the skin of the recipient mice would have grown over the skin graft.  Importantly, Dr Cowan emphasised that no further or other testing was carried out by the plaintiff, such as genetic tests, to ensure that the mice provided by the defendant were the mice ordered by the plaintiff because the plaintiff believed it received from the defendant the specific mice ordered. 

1. Dr Cowan gave evidence, also, of the circumstances leading to the discovery of the contamination of the breeding stock including the referral of the problem to the South Australian Museum and the eventual testing carried out by Dr Foote of the Walter and Eliza Hall Institute.  The report of Dr Foote was included in the evidence for the plaintiff although the author of the report was not called. 

1. Dr Cowan gave evidence, also, of the matters included in and arising from the Foote report but as events transpired the defendant admitted liability and it was largely unnecessary to visit the report of Dr Foote. 

1. Dr Cowan gave evidence as to the staff employed by the plaintiff on the research project and the costs incurred by the plaintiff as a result.  He also gave evidence as to the costs incurred by the plaintiff in relation to the mouse breeding programme and a category of costs described as “reagent” costs being the screening of mice at each generation and the engaging or measuring of the immune response to organs transplanted to those mice.  Reagent costs were said to include the performance of the skin and heart transplants on mice and the maintenance of associated equipment for that purpose and, further, the costs associated with the examination of transplanted organs at specific times or after rejection in the nature of histology costs.  Dr Cowan also described costs incurred by the plaintiff in relation to genetic testing incurred by the plaintiff in the process of investigating the contamination of the mice. 

1. In the course of cross‑examination Dr Cowan was challenged as to whether or not the plaintiff in fact needed to commence the research project again in 2000, that is, whether the entirety of the research project was wasted between May 1998 and May 2000.  Dr Cowan rejected the suggestion.  He said that there was no salvage from the research project up until that time.  He said, also, that it was necessary for the plaintiff to embark upon a fresh breeding programme in order to ensure the purity of the subject stock. 

1. The general observation can be made that Dr Cowan was cross-examined in relation to the confined area of the tests carried out by the IRC in late 1998 and early 2000 and the possibility of carrying out testing at other times.  Save for these topics the cross‑examination of Dr Cowan did not truly step beyond those parameters. 

1. Mr Greenaway corroborated the evidence of Dr Cowan as to the costs of the project.  He was not cross-examined. 

1. Ms Hambling gave evidence on behalf of the plaintiff as to the arrangements with the NHMRC and the payment of the grant.  She described the standard procedure for applying for NHMRC grants including that a chief investigator is usually responsible for the grant application.  Ms Hambling confirmed that the total payment of the grant to the plaintiff from the NHMRC for the purposes of the research project was $161,273.52.  She confirmed that those funds were spent by the plaintiff on the research project.  Ms Hambling was not cross-examined. 

1. None of the persons directly concerned with the research project were called by the plaintiff, namely, Dr Gock, Ms Murray-Segal and Ms Salvaris.  The non‑calling of these witnesses was not the subject of any comment by the defendant.

The Defendant’s Evidence

1. Only one witness was called for the defendant, Dr Grant Morahan of the Walter and Eliza Hall Institute, a scientist with extensive experience in immunology, immunogenetics and genetics.  Dr Morahan was retained by the defendant for the purpose of considering the research project conducted by the plaintiff and the contamination of the breeding stock. 

1. Dr Morahan gave general evidence of his knowledge as to the requirements of the NHMRC with respect to funding generally and the specific research project.  His evidence largely reflected that provided by Professor d’Apice and Ms Hambling on the subject.  Dr Morahan gave evidence as to whether the entirety of the research project was wasted or rendered nugatory as a result of the contamination.  At one point there had been a suggestion that the value of the doctorate awarded to Dr Gock had been affected.  Further, there had at one point been an issue as to the standing of the plaintiffs with the NHMRC for the purposes of future funding given the difficulties that had arisen in the subject research project.  Ultimately at trial neither of these issues were ventilated. 

1. The issue upon which Dr Morahan focussed at trial was whether the plaintiff ought have taken precautions to identify or prevent genetic contamination.  He said that steps should have been taken to ensure that the mice were in fact Balb/C mice because such mice were essential to the research project of the plaintiff.  Dr Morahan said that if such genetic testing had been conducted by the plaintiff it would have been possible to identify and prevent ongoing genetic contamination in the breeding stock of the plaintiff.  He gave evidence, also, that it would have been prudent although not strictly necessary to perform genetic testing much earlier in time than the plaintiff in fact did.  He expressed the opinion that it would have been essential to test the breeding stock by way of inbreeding at the tenth backcross generation so that the progeny of that generation could have been typed.  Dr Morahan said that these mice should have been tested to verify that the Balb/C genes were present.  Dr Morahan described the ways in which the genetic testing could have been achieved such as by way of DNA typing.  The way in which the genetic testing could have been done was not an issue developed at trial.  Dr Morahan gave consideration as to whether it was unreasonable for the plaintiff not to have taken precautions to test the breeding stock earlier in time than he did.  He espoused the view that in light of the fact that the plaintiff knew the importance of genetic matching it was very imprudent not to have comprehensively tested the Gal KO mice earlier than February 2000.  Dr Morahan was cross-examined especially with respect to his opinion that the plaintiff ought to have embarked upon genetic testing of the breeding stock earlier than it did. 

The Claim for Damages

1. The plaintiff claimed loss and damage consisting of labour costs of $274,384.17, mouse costs of $58,570.15, reagent costs of $31,425.71 and genetic testing costs of $3,149.00.  Hence, the total loss and damage claimed by the plaintiff was $367,529.03. 

1. Eventually, the defendant did not dispute the amounts of the damage claimed by the plaintiff.  However, its position was that there should be a reduction of the quantum of damages claimed. 

1. It was the defendant’s case that the loss and damage suffered by the plaintiff was less than that claimed.  The submission was based on two premises.  First, that a component of $107,000 claimed by the plaintiff was in fact allocated to it for the project by the National Health and Medical Research Council (“the NHMRC”) and thus to that extent the loss in fact suffered by the plaintiff was not its money.  Secondly, the defendant asserted that the plaintiff failed to take certain steps in the nature of mitigation whereby after the reduction of the plaintiff’s claim as previously described by $107,048 there ought be a further reduction of 50 per cent leaving a balance of approximately $130,250.00. 

The NHMRC Factor

1. There was no evidence or even a suggestion that the NHMRC required re-payment of the grant or any part thereof.  It was submitted for the defendant that under the terms and conditions of the grant the subject monies attached to a person designated as the chief investigator, in this case, Professor d’Apice.  In essence, it was said that the loss was not that of the plaintiff but the NHMRC. 

1. The submission was misconceived.  There was no evidence before me to establish that the grant monies did not belong to the plaintiff.  The allegation was not particularised by the defendant.  The subject was not put to the witness’s called for the plaintiff.  Indeed, Professor d’Apice was not cross-examined by the defendant.  I find that there was no evidence to support the assertion by the defendant that the sum of $107,048 should be deducted from the claim of the plaintiff because the grant was not its money.  Furthermore, insofar as the NHMRC terms and conditions of the grant form part of the evidence, it was to no higher effect than that the NHMRC paid a grant in the sum of $107,048 for a designated purpose.  The submission of the defendant is rejected. 

Mitigation of Loss and Damage

1. The second submission for the defendant is that it would have been prudent for the plaintiff to test the progeny of the mice supplied by the defendant to ensure that the plaintiff had received the mice it ordered.  The defendant relied upon its expert Dr Morahan.  It was said for the defendant that the obligation on the plaintiff was heightened by the fact that the genetic purity of the mice supplied was essential to the project. 

1. The principles with respect to mitigation are well established.  A plaintiff must act with the interests of the defendant in mind as well as the interests of itself: see Smailes v Hans Dessen[1]; Darbishire v Warran[2].  Nonetheless a plaintiff “ … is not bound to nurse the interests of the contract breaker”: Harlow and Jones v Panex (International)[3].  A plaintiff is only required to act reasonably and the standard of reasonableness is not high because the defendant is an admitted wrong doer.  As observed by Lord Macmillan in Banco de Portugal v Waterlow[4]:

“Where the suffer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty.  It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency.  The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”[5]

[1](1905) LT 492, 493

[2](1963) 1 WLR 1067, CA

[3](1967) 2 Ll Rep 509, 530

[4](1932) AC 452 at 506

[5]See also McGregor, H., McGregor on Damages, 16^th ed, para 322-323.

1. Whether a plaintiff has acted reasonably is a question of fact: see Payzu v Saunders[6]; also, The Solholt[7].  However, whether there is a need to mitigate at the outset is a question of law.[8]  Further, the onus of proving failure to mitigate loss lies with the defendant: see Metal Fabrications (Vic) Pty Ltd v Kelcey[9]. 

   [6](1919) 2 KB 581, 588, 589

   [7](1983) 1 Ll Rep 605, CA

   [8]See, McGregor on Damages, op. sit., para 301ff.

   [9](1986) VR 507

1. At the outset I observe  that the assertion of the defendant that the plaintiff in this case failed to mitigate its loss was a disguised attempt to allege contributory negligence.  Of course it is not open to a defendant where a breach of contract is alleged to assert contributory negligence against the plaintiff: Astley v Austrust Limited[10].  Here, it was asserted that the plaintiff ought, if acting prudently, have conducted tests at a time other than it did whereby the genetic contamination would have been discovered and the loss of the plaintiff reduced by at least 50 per cent.  In my view such assertion is fatuous.  It is tantamount to saying a component of the plaintiff’s loss was its own fault because it did not identify earlier in time the admitted wrongdoing of the defendant.  Mitigation of damage is concerned with avoiding the consequences of a wrong.  The academic writing and the authorities do not appear to equate mitigation of damage with discovery of wrongdoing.[11]  It may be that even if such was the case then the law in Australia with respect to mitigation has shifted since the High Court considered contributory negligence in a contractual context in Astley.  However, that is not a matter for me to consider. 

   [10](1999) 197 CLR 1

   [11]McGregor on Damages, op. sit., paras 282-283; Seddon, MC and Ellinghaus, MP Chesire and Fifoot’s Law of Contract, (7^th Aust. ed.), para 23.31-32; Greig, DW and Davis, JL, The Law of Contract, p.1388.

1. In any event, I turn to consider the question of mitigation in this case.  I am satisfied that the plaintiff acted reasonably when it continued to conduct the project on the assumption that it had been provided with the mice it ordered.  The defendant was in the business of providing mice for research purposes.  The plaintiff had ordered specific mice from the defendant on previous occasions without problems.  There was no warning by the defendant of potential contamination.  I do not accept the evidence of Dr Morahan as to the testing he asserted the plaintiff ought have carried out as a matter of prudence.  Dr Cowan said, and I accept, the plaintiff up until February 2000 believed the defendant provided mice as ordered.  Insofar as the defendant criticised the plaintiff’s inadequate testing in late 1998 by Ms Salvaris I do not consider the plaintiff acted unreasonably.  The fact that another research assistant may have discovered the rejection leading to discovery of contamination is not to the point.  The fact remains that Ms Salvaris, a research assistant of eight year’s experience (including a term at the Walter and Eliza Hall Institute) did not discover the problem.  I accept the evidence of Dr Cowan that discovery of the rejection would not have been easy to detect and that by the 120 day period the skin of the recipient mouse would have grown over the graft.  Furthermore, I observe that even when rejection was identified by an apparently highly experienced and skilled research assistant in February 2000, namely Ms Murray‑Segal, it was some time before the plaintiff was able to be satisfied as to the cause of contamination being when the advice of the South Australian Museum was provided. 

1. Just as a person who orders and buys a car marked and described as a Holden is entitled to assume the vehicle is a Holden without dismantling the engine to be satisfied it is in fact a Holden rather than a Ford, so too was the plaintiff here entitled to assume that when it ordered and bought mice described as Balb/C mice it received such mice without genetically testing those mice and the generations of breeding stock from those mice.  In my view the plaintiff acted reasonably in all the circumstances.  It was not obliged to nurse the interests of the defendant by checking whether the latter had supplied that which in fact had been ordered.  It follows that the defendant has failed to satisfy the onus that lies upon it.  The allegation that the plaintiff failed to mitigate its loss is not made out. 

Observations and Conclusions Upon Damages

1. Additional observations are warranted with respect to the entitlement of the plaintiff to the damages claimed.  The plaintiff here is entitled to recover from the defendant damages for a breach of contract for that which was promised by the defendant, namely, the supply of Balb/C mice.  Whilst the defendant may assert that part of the research embarked upon by the plaintiff could have been salvaged or was in fact salvaged and that the plaintiff ought have discovered the contamination of the mice earlier in time thereby reducing the quantum of damages to which the plaintiff was entitled, such assertion misconceives the position at law.  As observed by Dixon and Fullagar JJ in Mcrae and Anor v Commonwealth Disposals Commission and Ors (1950-1951) 84 CLR 377 at 414:

“The fact is that the impossibility of assessing damages on the basis of a comparison between what was promised and what was delivered arises not because what was promised was valueless but because it is impossible to value a non-existent thing.  It is the breach of contract itself which makes it impossible even to undertake an assessment on that basis.  It is not impossible, however, to undertake an assessment on another basis, and, insofar as the Commission’s breach of contract itself reduces the possibility of an accurate assessment, it is not for the Commission to complain. 

For these reasons we are of opinion that the plaintiffs were entitled to recover damages in this case for breach of contract, and that their damages are to be measured by reference to expenditure incurred and wasted in reliance on the Commission’s promise that a tanker existed at the place specified.”

1. It is relevant, also, to recall the observations in Sheehan v Stockman and Anor (1922) 22 NSWSR where it was observed (at 423):

“Another very important observation to be made in connection with such a point as that now under discussion is that a person who takes upon himself to make a warranty to another, and who thereby must be taken to contemplate the consequences that might reasonably follow from a breach of that warranty, cannot be held excused because something else has occurred to contribute towards the mischief which his breach of the contract in the first instance was responsible for bringing about.  I think that is made very plain in the case of Mowbray v Merryweather (reported in the first instance in [1895] 1 QB 857). At p.859, Charles J said: ‘The breach of the warranty upon which the plaintiffs relied, and, as far as the defendant is concerned, had a right to rely, remains and is the efficient cause of the subsequent mischief. As regards the workman, had they been guilty of negligence in not themselves testing the efficiency of the chain, O do not see how their failure in their duty towards him, exonerates the defendant from his failure to perform his contract with them. His breach of contract created the state of things which has brought about that accident, and for that accident he must, in my opinion, be held responsible, even if the plaintiff’s negligence is the direct immediate cause of it.”

1. Similar observations were made by the House of Lords in Banco de Portugal v Waterlow and Sons Limited (1932) AC 452, 506 (per Lord Macmillan). More recently the subject was revisited by the High Court in the Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. In that case the observations of Deane J (at 126-127) are of particular assistance in the present context":

“In a case where a plaintiff has incurred expenditure either in procuring the contract or in its performance but it is impossible or difficult to establish the value of any benefits which the plaintiff would have derived from performance by the defendant, considerations of justice dictate that the plaintiff may rely on a presumption that the value of those benefits would have been at least equal to the total detriment which has been or would have been sustained by the plaintiff in doing whatever was reasonably necessary to procure and perform the contract.  In my view, the rational basis of that presumption is that that total detriment represents what would reasonably have been in the contemplation of the parties themselves as the cost to the plaintiff of full performance by the defendant and constitutes some evidence, in proceedings between them, of the value of the total benefits which would have been derived by the plaintiff from such performance.  It follows from it that, at least in a case where proof of value is impossible or difficult, it is presumed in the plaintiff’s favour that the future net benefits (i.e. excess of future benefit over future detriment) which would have been derived from performance of the contract would have been of a value sufficient to recoup the past net expenditure reasonably incurred in procuring or performing it.  Where that presumption is operative, it enables the recovery by a plaintiff of what are commonly referred to as ‘reliance damages’, that is to say, damages equivalent to the wasted expenditure which has been reasonably incurred in reliance upon the assumption that the contractual promises of the defendant would be honoured.”

1. As observed already the defendant did not dispute the quantum of damages.  I conclude that the defendant, having admitted the breach of its contract, the plaintiff is entitled to damages in the full amount sought.  The plaintiff will be awarded damages in the sum of $367,529.03.

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