A wise senior building barrister once said to me that in analysing a legal problem one should "always start with the money" - that is analyse how the methodology underlying the claim for damages. Too often little thought is given to how damages should be calculated before a proceeding is comenced.
In December 2013 the High Court in Clark v Macourt [2013] HCA 56 gave a decision concerning damages in a breach of contract case that has caused much discussion. A person who provided assisted reproductive technology services to patients purchased the assets and practice of a company providing similar services. The assets included a stock of frozen donated sperm. A guarantor guaranteed the vendor’s obligations under the contract. The vendor warranted that the identification of donors of the sperm complied with specified guidelines; however, of the stock of sperm delivered, 1,996 straws which the purchaser would have expected to be able to use were not as warranted and were unusable.
The vendor could not buy suitable replacement sperm in Australia but could in the USA. The primary judge found that buying 1,996 straws of replacement sperm from the American supplier would have cost about $1 million at the time the contract was breached. The purchase price for the assets (including the stock of frozen donated sperm) was less than $400,000.
The purchaser could not have made any profit from the frozen donated sperm because ethically she could not charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount the purchaser amount had outlaid to acquire it. The question was, how should the purchaser's damages for breach of warranty be fixed? The primary judge gave judgment against the vendor and the guarantor for the costs incurred in purchasing replacement sperm from the USA.
This was overturned by the NSW Court of Appeal which held that the purchaser had avoided any loss she would have suffered by purchasing replacement sperm and had charged each patient a fee which covered the costs of buying the sperm. The High Court held 4:1 that the appeal should be allowed and reinstated the decision of the primary judge with the consequence that the vendor's loss and therefore the damages were $1 million.
The methodology underlying the decision was entirely uncontroversial: the principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same situation, so far as money can do it as it would have been in if the broken promise had been performed. Damages are assessed at the date of the breach. The case emphasises the importance of carefully considering how the claim is pleaded: in this case at the date of the breach the purchaser was in the position where she had to buy a $1 million worth of sperm to replace what she had lost.
