The recent High Court decision in Clark v Macourt(1) confirms the proper method for formulating damages for breach of contract: how to determine how much is to be paid by the party in breach of its obligations. Following on from the High Court's earlier ruling in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,(2) the decision acts as a reminder that parties should return to basic principles of common law when assessing damages and stick to those principles even when they lead to unexpected results.
The court's discussion of mitigation will be of interest to those involved in contract disputes, as it found that the appellant's efforts to find and finance an alternative source of sperm did not prevent her from recovering damages from the respondent for its unusable supply.
The case involves the sale of an assisted reproductive technology practice from one doctor to another for just over A$380,000. The assets of the business sold included sperm and the contract for sale included warranties that the sperm (and the relevant accompanying records) met all the guidelines to allow it to be used in practice. The respondent admitted that it had not maintained all donor records and that as a result, in breach of the contract, some of the sperm supplied could not be used.
The appellant was eventually able to find only one alternative source of sperm – a US supplier with collection, storage and transport expenses exceeding A$1.2 million. In due course, the appellant passed some of those costs on to clients.
As most of the matters between the parties had been agreed, all that remained to be determined was the method of valuing damages for the breach and calculating how much the appellant should be paid for the respondent's unusable sperm.
At first instance, the court held that the appellant should be paid for the cost of replacing the unusable sperm. In this regard, the purchase price through the only available supplier in the United States was the best evidence of market value.
However, this traditional approach had two unexpected outcomes. First, the value of damages, despite relating to assets that formed only part of the contract, exceeded the consideration for the whole of the practice under the contract. Second, the evidence indicated that the appellant had recovered at least some of the additional expense by passing on some of the costs to clients.
These matters were taken into account on appeal. The Court of Appeal held that the relevant contract was for the sale of a business and that it could not determine what portion of the contract price was for the sperm. As no amount had been paid with specific reference to the sperm, it was determined to be without individual value. Further, it was determined that the appellant had mitigated any loss by subsequent recovery of the expense from clients.
The appellant subsequently sought and was granted leave to appeal to the High Court.
The High Court allowed the appeal and restored the trial court's valuation.
In its decision, it referred to the 'ruling principle' for assessment of damages, as set out in Robinson v Harman,(3) under which the claimant is put in the position in which it would have been had the contract been performed. The court held that the date of assessment was the date of the breach.
Mitigation was discussed, but was not held to be a discounting factor as the appellant sought compensation for the unusable sperm supplied, rather than lost profit for use of the sperm in practice. As the value of the asset not supplied is to be assessed at the date of breach, the subsequent conduct of the appellant (including recovery of the expense as part of the conduct of practice) was not to be taken into account.
Parties seeking to rely on a failure to mitigate in order to avoid or minimise liability in future will need to consider the discussion in this case as to when such an obligation will apply.
For further information on this topic please contact Juniper Watson at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email (email@example.com). The Piper Alderman website can be accessed at www.piperalderman.com.au.