The recent High Court decision of Clark v Macourt (2013) 304 ALR 220 which restates the proper method of formulating damages for breach of contract. That is, how to determine how much is to be paid by the party in breach of their obligations.

Like its decision in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 253 ALR 1, the High Court reminds us to return to basic principles of common law when assessing damages - and to stick to those principles even when they lead to unexpected results.

Its discussion of mitigation will be of interest to those involved in contract disputes, the High Court in this case finding that the appellant’s efforts to find and finance an alternative source of sperm did not prevent her from recovering from the respondent for their unusable supply.

Background

The case involves the sale of an assisted reproductive technology practice from one doctor to another for just over $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 guidelines to allow it to be used in practice. It was admitted by the respondent that they 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 – an American supplier with collection, storage and transport expenses exceeding $1.2m. In due course the appellant passed some of those costs on to clients. 

As most of the matters as between the parties had been agreed, all that remained to be determined was the method of valuing damages for the breach. How much should the appellant be paid for the respondent’s unusable sperm?

At first instance it was held that the appellant should be paid for the cost of replacing the unusable sperm and that the purchase price through the only available supplier in America was the best evidence of market value.

Two things are unexpected about the result of such a traditional approach to this case. The first is that the value of damages, despite being in relation to assets that formed only part of the contract, exceeds the consideration for the whole of the practice under the contract. 

The second is that there was evidence that the appellant recovered at least some of the additional expense by passing on some of the costs to clients. 

On appeal these matters were taken into account. The Court of Appeal held that the relevant contract was for the sale of a business and that it could not determine what part of the 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 goes back to basics: putting a value on the building blocks of life

The High Court allowed the appeal and restored the Trial Court’s valuation. They referred to the “ruling principle” of assessment of damages as set out in Robinson v Harman (1848) 1 Ex 850 – putting the claimant in the position it would have been in if the contract had been performed, and held that the date of assessment is the date of breach.

Mitigation was discussed but 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, 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