Clark v Macourt [2013] HCATrans 174 (13 August 2013)

Last Updated: 13 August 2013

[2013] HCATrans 174

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S95 of 2013

B e t w e e n -

ANNE CLARK

Appellant

and

DAVID MACOURT

Respondent

HAYNE J
CRENNAN J
BELL J
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 13 AUGUST 2013, AT 10.17 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friends, MR A.R.R. VINCENT and MS L.M. JACKSON, for the appellant. (instructed by Norton Rose Fulbright Australia)

MR C.M. HARRIS, SC: If the Court pleases, I appear with my friend, MR H. ALTAN, for the respondent. (instructed by Redmond Hale Simpson)

HAYNE J: Mr Jackson, there is this question about the notice of contention. When is the most convenient time to deal with it?

MR JACKSON: Your Honour, so far as that issue is concerned, I am perfectly happy for our learned friend to make his application when he comes to respond to the matter and I will deal with anything I wish to say in addition to what we have said in our reply at that point, if I may.

HAYNE J: Yes, is there any reason not to deal with it in that way, Mr Harris?

MR HARRIS: Yes, thank you.

HAYNE J: Very well. Yes, Mr Jackson.

MR JACKSON: Thank you, your Honours. This is a case turning on the assessment of damages for breach of contract. Your Honours should have our outline of propositions. The case turns, essentially, and I will come to the detail of the underlying legal issue, of course, in a few moments but it turns essentially on whether the primary judge had applied the correct measure and whether the Court of Appeal erred in setting that aside.

Your Honours, may I go to the central facts for just a moment? They can be stated relatively briefly. In January 2002, the appellant carried on an assisted reproductive technology practice in Sydney. She did so in her own name and the business name was Fertility First. The services which it provided can be seen – if I can go to volume 1 first – if I go to volume 1 at page 279.

In paragraph 27 you will see the list of services going over to the top of page 280 and then some matters about authorities in paragraph 28. Your Honours will see an abbreviated version of that, and I do not think I need to take your Honours to it at the moment, in the reasons in volume 3, page 1190, paragraphs 12 and 13.

Your Honours, there was another such practice called St George Fertility Centre Pty Ltd. Behind it, if I could put it that way for the moment, was the respondent. In January 2002, St George wanted to cease practice and entered into a deed with the appellant to sell her some of the assets of the practice and the respondent guaranteed performance by St George. The deed, your Honours, is in volume 1 at page 403. May I take your Honours to that?

Your Honours will see the guarantee set out at page 408, clause 13. It is expressed in the various subclauses in the broadest terms. Your Honours, if I could go then to clause 1a on page 404, about line 30, your Honours will see that St George agreed to sell and the appellant agreed to buy the assets for the purchase price, which is set out in clause 2a on the same page.

Your Honours will see that the purchase price was payable as a proportion of the appellant’s gross fees in that year, and in each of the succeeding two years. There was of course an element of uncertainty, I suppose, as to quantum overall and in respect of each of the three years it might have, in the sense, gone either way either in one year or overall, but the appellant was, no doubt, under an implied obligation to use all reasonable efforts to conduct her practice in a way which would give the vendor the benefit of the provision. Your Honours, the amounts actually payable, pursuant to the provision, were substantial amounts in each of the three years arriving at a total of $386, 950.90. You will see that in volume 3, page 1191 at paragraph 16.

Your Honours, could I remain with the deed for a moment. Your Honours will see that clause 1A contemplated that what would be sold was the “Assets” and “Assets” was defined by clause 18 at page 410 and it meant, as your Honours will see, goodwill in respect of the business, the business being defined in the next paragraph:

Records, Embryos (to the extent title in them can at law pass to the Purchaser) and Sperm, but specifically excluding Plant & Equipment and any debts owed to the vendor -

The term “sperm” was itself defined on the next page and meant:

all frozen sperm whether from donors, stored for patients or reserved for patients with the vendor in the Business.

I will come back to that in a moment, your Honours, but your Honours will also see in clause 9.1 on page 406 that it provided that on completion the vendor was to give to the purchaser, your Honours will see title to - “unencumbered title to the Assets, free from any charges”, et cetera, possession, copy of the patient list, patient records, and your Honours will see the remaining matters set out there.

Your Honours, the purchaser had an obligation under clause 10.1(c) and that was within 30 days from the date, to uplift all embryos, sperm, et cetera:

which form part of the assets of the Business and [then] keep and maintain them in accordance with recognized practice and with RTAC guidelines.

What is meant by that phrase your Honours can see at the bottom of page 410. It was the Reproductive Technology Accreditation Committee of the Fertility Society of Australia. Now, your Honours, the semen the subject of the agreement was stored in straws. They are described in the Court of Appeal in volume 3, if I could take your Honours to page 1194.

Your Honours will see the treatment that is applied to it is set out in paragraph 26 on that page and if I could, your Honours, remaining with volume 3 for the moment, take your Honours to what was said by the primary judge on the same subject at page 1121 in paragraph 23, going on, your Honours, to, as the judge said in paragraph 24:

Ultimately it was common ground that . . . [there were] transferred to her 3,513 straws of donor sperm –

Your Honours will see that the definition went a bit beyond donor sperm, but this was the finding. Now, your Honours in proceedings heard before an Associate Justice, Justice Macready, in the Supreme Court of New South Wales, it was held that St George was in breach of various terms of the contract that were referred to in clause 9.1 as to records, et cetera. Your Honours, that is summarised by the primary judge at page 1117, paragraph 4. Justice Macready’s reasons precede those of Justice Gzell but I do not think I need to take your Honours to the detail of them. Now, your Honours, could I come then to what the case involves?

It fell to Justice Gzell to assess damages and the assessment of damages involved two issues or two central issues. The first was for how many straws was the appellant to be compensated. The second was, how were the damages to be assessed in respect of the number of straws so calculated. Your Honours, as to the first of those issues, the number arrived at was reduced from 3,513 to 1,996 in the manner referred to in our written submissions in paragraph 12. I do not think I need to take your Honours to the detail of it, it is set out there. That figure is not one in dispute.

Your Honours, in relation to the value to be placed on the straws which could not be used, the primary judge adopted the following and, with respect, in our submission, entirely orthodox steps. He applied first, as your Honours will see at page 1117 in paragraph 5 the leading principle, the basic rule from Robinson v Harman. That rule, if I might pause to say, your Honours, was approved by five Justices in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 at 286 in paragraph 13. Your Honours, I hesitate – if I might just give your Honours the precise reference to what was said at page 286, part of paragraph 13 and about a third of the way down the page:

The “ruling principle”, confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harmon –

and it is there set out. Your Honours, returning to the primary judge in the present case, he held that the time for assessment was at the time of the breach. Your Honours will see that at page 1119 in volume 3 commencing at paragraph 12 and going through to paragraph 19. What your Honours will see in paragraph 12 is that his Honour set out the opposing contentions. Then if one goes through to paragraph 19, his Honour said:

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 -

and then his Honour adopted the view that the relevant time was the time of breach. Now, your Honours, if one goes then to paragraph – I should have told your Honours, specifically to paragraph 18. If one moves then towards the end of his Honour’s reasons for judgment, at page 1136, your Honours will see in the passage that goes from paragraph 104 to paragraph 108 that he rejected the notion that the damages should be quantified at replacement prices later paid. You will see the contention advanced in paragraph 104. You will see it rejected, your Honours, at paragraph 108 where his Honour said that our side had:

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 . . . where the proper measure of damages is by reference to an hypothetical purchase of the sperm in 2002.

Now, your Honours, his Honour then went on to say in paragraphs 109 to 111 that “The best evidence” of the 2002 value was the cost of the “first purchase” which had been made from Xytex Corporation “on 29 September 2005”.

He recognised at paragraph 111 – I am sorry, before going to paragraph 111 could I just say this, your Honours? Your Honours will see that that payment to Xytex was one payable to an American corporation which billed in American dollars and the Australian dollar does not seem to have been especially strong as at 29 September 2005.

CRENNAN J: Mr Jackson, in the context that his Honour refers to “the best evidence”, was there any evidence in relation to Dr Clark’s arrangements with patients as to costs in respect of the 504 usable straws?

MR JACKSON: Your Honour, I do not think it goes to any detail of what the actual cost was. I will have that checked, your Honour, but that is what I thought the position was. But, your Honours, if I could just go back to paragraph 111, your Honours will see that his Honour accounted for the fact that the cost of replacement in early 2002 was likely to have been less than three and a bit years later by not allowing interest in respect of that three and a half year period, but allowing it only from a later date.

Your Honours, could I, in effect, ask the question which I seek to answer. Was it correct to use the Xytex price as at September 2005 as the starting point? Could I in that regard take your Honours to paragraph 82 of his Honour’s reasons at page 1133. Your Honours will see in the second sentence, it was said:

Ιt was not suggested she could have acquired the sperm more cheaply elsewhere.

Your Honours will see that is a reflection of a matter which had taken place at an earlier interlocutory hearing which your Honours will see referred to in volume 3 at page 1096. I will give your Honours two references. Page 1096 about line 37, your Honours will see there was a question:

Whether you could buy alternative sperm elsewhere cheaper. We are not asserting that either.

Then his Honour recorded that in a sense by saying:

It’s not an issue that alternative sperm can be obtained at a cost, at a less cost than Xytex. That’s not an issue.

Then he went on to identify what was the issue. Then on the next page, at the bottom of the page, the last line:

Mr Harris, it is limited to that. If we make it clear on what I say that you are not going to say what was left was any use or that they, assuming it is compliant, they could get it cheaper at least limits it to those issues, doesn’t?

HARRIS: It does your Honour.

Your Honours, could I come then to the consequences of the finding by the primary judge. The position in consequence of the reasons for judgment of the primary judge was one where the assessment of damages was not on the basis – I am sorry, may I start again? The assessment of damages carried out by the primary judge was one where the amount awarded was not the amount expended by the appellant in acquiring the Xytex straws. It was the cost as at early 2002 of then acquiring replacement straws, the only reference to Xytex being as to the earliest purchase and the price of it.

Could I just say this, your Honours. The appellant, on acquiring the straws from St George, was entitled to use them in any way she chose at whatever price she might properly do so, or not to use them, they simply formed a part of the stock that she had, and it is a stock for which the failure to provide to her, she has received no compensation at all on the approach taken by the Court of Appeal.

So, your Honours, if I could put it shortly, it is a case where the nature of the agreement was that she was to have provided the number of straws ultimately found by Justice Gzell, they would form part of her stock, she might use them, she might choose to acquire from Xytex or anyone else, she might keep them for years, but, your Honours, for those, because she did subsequently buy stock from Xytex and, let it be assumed, received an amount equivalent to what she had paid, for not having the stock – 1,996 I think the number is – straws that should have been provided, she got nothing.

Now, your Honours, could I come then just to this. I submitted that she was entitled to use them or not use them, and could I refer your Honours in that regard to observations in two cases. The first is to a further passage in Tabcorp 236 CLR 288, and the paragraph commences on the preceding page, it is paragraph 16, but your Honours will see that at the top of page 288 their Honours said:

The answer to these submissions was put thus by Oliver J in Radford v De Froberville –

Your Honours will see that the answer that their Honours adopted was, if I go to the third line of it:

It may be that another person might say that what the plaintiff has stipulated for will not serve his commercial interests so well as some other scheme or course of action. And that may be quite right. But that, surely, must be for the plaintiff to judge. Pacta sunt servanda. If he contracts for the supply of that which he thinks serves his interest – be they commercial, aesthetic or merely eccentric – then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the proviso [there set out].

Your Honours, could I give a particular instance of a case where that intention of that nature was rejected?

MR JACKSON: That was in Diamond Cutting Works Federation Ltd v Triefus & Co Ltd [1956] 1 Lloyd’s Rep 216 at page 227. Your Honours will see in the left column, the defendant was, your Honours will see from earlier, rather heavily represented, said two points have been made by Mr Gardener on the defendant’s behalf in relation to damages

HAYNE J: Yes, I am not sure that we have it, Mr Jackson.

MR JACKSON: I am sorry, your Honour. Your Honour, I will make certain the Court is given a copy of it. I really wanted to - - -

HAYNE J: I think your junior may have copies available for handing up.

MR JACKSON: Yes, thank you. I am sorry, I do not seem to have many copies to that end. I am sorry, your Honours.

HAYNE J: I am sorry, you were taking us to a particular passage in this - - -

MR JACKSON: I was taking you to page 227, left column, it is right at the end, your Honours. It is the first new paragraph in that column. Your Honours will see that it was said the two points have been made, the first and most fundamental one is this: he suggests the plaintiffs, being a non-profitmaking corporation, can recover at most nominal damages in respect of this breach of contract.

He points out that their accounts show that, in fact, owing to the advanced price at which they are compelled to purchase 7,500 carats of diamonds, their actual commission was larger than it would have been if the defendants had fulfilled their contractual obligation and delivered the price of 24 shillings and sixpence per carat. His Honour Justice Barry went on to say that it was not accepted, he was not prepared to accept that view, and your Honours will see that through the remainder of that column to the top the right-hand side of the page.

CRENNAN J: These cases highlight, I suppose, a conceptual difference between invoking a breach of warranty to contend that the price should be diminished and invoking a breach of warranty for a claim for damages.

MR JACKSON: Well, your Honour, the - - -

CRENNAN J: And there is nothing to stop a plaintiff doing both, of course, but the passages to which you have directed our attention tend to make one think of that conceptual distinction.

MR JACKSON: Well, your Honour, if one takes the case, to use the words of Tabcorp, for example, if you take the case where what is purchased is a painting, a painting said to be by X who is a well-known artist and the price of $20,000, and the painting could be used for a number of purposes: one, to hang in the house or a person’s home; one to hang in their office, for example, but it turns out that the painting is a forgery and is worth only $1,000 by a skilled but not particularly well-known forger.

Now, your Honours, the situation would be, in our submission, that one would be entitled to be placed in the situation in either of those events that would have obtained if the contract had been performed, and that goes to the quantum of damages if the case becomes one of damages rather than, in the end, one of specific performance, ultimate specific performance. Your Honours, that is because it would not and it is submitted, with respect, should not matter what is to be done with the painting.

Now, if it be that a third course of action was to be adopted in relation to it, was to present it to a charitable organisation as the prize for a lottery to be conducted in relation to some fundraising matter, then again, your Honour, the person who is the purchaser, is not in a position, we would submit, where they have to engage in some kind of (a) justification or (b) accounting in relation to the conduct in which they have engaged. It is a simple case of breach of contract, we would submit, with the attendant results.

Your Honours, could I come then to the reasoning of the Court of Appeal and the starting - and we would submit, principal - strand in the Court of Appeal’s reasoning was that the deed was not a contract for the sale of the straws but rather a contract for the sale of a business. You will see that at page 1200 in volume 3 commencing at paragraph 42.

Now, your Honours will see that at paragraph 42 his Honour refers to a need he said existed to characterise the contract to see whether it was a sale of goods. Could I just pause to say, your Honours, in relation to that, that the primary judge, if I could just go back to his reasons at page 1117, paragraphs 5 through to 21, did not rely solely on sale of goods principles but rather on the general principle in Robinson v Harman which, as your Honours will see from paragraph 11 from the primary judge’s reasons, the parties have accepted was the basic principle applicable.

Now, your Honours, I have really just interpolated that and may I return to Justice Tobias at page 1200, paragraph 43? Your Honour’s will see that in paragraphs 43 to 48 his Honour referred to various provisions of the deed and then at the end of paragraph 49 you will see that his Honour expressed the view that – and this is the last sentence:

The method of calculation of the purchase price, the definition of “Assets” and the restraint on trade in clause 6 of the Deed all militate against the arrangement being other than a contract for the sale of a business of which the major asset was its goodwill.

HAYNE J: Is the premise for this part of the reasons the premise that the measure of damages for sale of goods is different from the measure of damages generally applicable in contract?

MR JACKSON: Your Honour, that appears to be a concept which underlies the course which his Honour took but – I am sorry, I was just going to add something more if I may to that – it seems to be a premise underlying the approach which he took, but one does not see when one comes to the judge’s view that he is doing anything different from – sorry, he does not appear to be treating the case as other than one of sale of goods.

HAYNE J: Do we find in the reasons any specific articulation of the difference that appears to be the premise for this aspect of the reasoning process?

MR JACKSON: I think the answer is yes, your Honour, only in the sense that a reference to the fact that the purchase price was not divided up in respect of the various items the subject of it. Your Honour, I can put that a number of ways. It also had an element of uncertainty about the ultimate purchase price. I do not think one can go beyond that. I was going to seek to deal with what the judge said on those issues now.

Your Honours, could I just go back for a moment to the last sentence of paragraph 49 of the primary judge’s reasons where he said that it appeared to be a sale of – where the major asset was one of goodwill. Could I just say that does not seem to take into account or deal with what the appellant had said in her oral evidence in volume 1 at page 119 about lines 32 to 36 where she said in an answer:

I would not have accepted Dr Macourt’s request to take over his patients unless I had been clear that there was a large number of sperm available. To me that was the only asset of any value.

That was one thing, your Honours. Also, the concept that it was a sale of a business does not seem to accord too well with the exclusions one finds from the definition of “Assets” at page 410 in volume 1 of the deed. You will see that the assets excluded “Plant & Equipment”, they excluded “debts owed to the vendor”. There was no transfer of any premises or lease or right to occupy any premises. The “Assets” is defined to refer to particular matters. Your Honours, the second point I wanted to make about paragraph 49, if I may, is that your Honours will see at the third line of paragraph 49 that his Honour said:

The straws of sperm to which the warranties as to quality applied, were merely part of the apparatus and materials incidental to the conduct of that practice: in other words, part of its stock in trade.

Then his Honour referred in the next sentence to assumptions about what medical practitioners who perform surgery might require and orthopaedic practitioners might require. That seemed, with respect, a little dated in relation to the way these things may be carried out today, however. Your Honours, could we just say in relation to it, assume that they are part of the stock in trade of – I am sorry, assume that they are part of the apparatus and materials, as his Honour said, why should that result in any different approach?

If one took, for example, the case of a sale of a motor vehicle distributorship in which there was a warranty in the contract for sale, that all spare parts held had certificates from the manufacturer of the particular type of car, that they had been made by it or made by persons under licence to it, and it emerged that some came from other sources - I think “generic” is the term one might use to describe that these days – but, your Honours, if it emerged that some came from some other sources, then however it might be that the purchase price was calculated - lump sum, percentage of profits, percentage of gross receipts, why would not the damages include the cost of replacement of the defective spare parts by manufacturer-certified ones as at the date of transfer with some credit, of course, being given for the value of those which did not comply with the warranty? Your Honours, the third thing I wanted to say about paragraph 49, if I may, was what in appears in about the twelfth line of the paragraph where it is said:

The manner in which the purchase price was to be calculated under the Deed gives the lie to any suggestion that what was involved was a sale of goods –

et cetera, and the reference to the absence of apportionment. Your Honours, could we just say these things, with respect, about that? The question was not, in a sense, how much she had paid but what she had lost, and what she had lost was the supply of the 1,996 straws.

Your Honours, I could pause at that point, the view that the transaction was the sale of a business first, and, secondly, that that mattered, continued in the judge’s discussion - you will see it in paragraphs 64 and 65, pages 1206 and 1207, and, your Honours, you will see at paragraph 66 that his Honour said that:

there was no evidence that she paid anything for the St George sperm under the terms of the Deed.

Now, your Honours, no doubt the exact amount could not be identified, but under the sale she paid the total of $386,950. It seems difficult to think that none of that related to more than 3,000 straws of sperm, and one sees then, if one goes to paragraph 67, that his Honour said that:

Although the transaction involved her taking possession of the St George sperm as part of the sale of its business to her, it was conceded first, that the St George sperm was in all probability obtained from local donors and, secondly, that apart from any expenses incurred by such donors in making the donation, s 32(1) of the Human Tissue Act 1983 prohibited any donor receiving valuable consideration for his donation.

Your Honours, it is difficult, with great respect, to see what that had to do with the case. It is perfectly true that section 32(1) of the Human Tissue Act 1983 did appear to – did your Honours have that? I am sorry, your Honours, could I just say this? If I could just put it very shortly, and I apologise again, your Honours. Section 32(1) provides that:

A person must not enter into . . . a contract or arrangement under which any person agrees, for valuable consideration . . .

(a) to the sale or supply of tissue from any person’s body or from the body of any other person –

and there is a penalty for doing that. Your Honours, one then sees, however, that subsection (2) says that it -

does not apply to or in respect of the sale or supply of tissue if the tissue has been subjected to processing or treatment –

as the case here –

and the sale or supply is made for the purpose of enabling the tissue to be used –

in accordance with the directions of a medical practitioner –

for therapeutic purposes, medical purposes –

It is very difficult to see why it is anything to do with the present case.

HAYNE J: The proposition in paragraph 66 appears to be – and I may be reading too much into it – but it appears to be that the failure to differentiate between elements of a global price for a group of assets entails – I am not sure how – that some of those assets are valueless.

MR JACKSON: Yes, your Honour.

HAYNE J: Now, that seems to be a rather, on its face at least, a difficult proposition.

MR JACKSON: Well, your Honour, it certainly has a – and if I may put it, with respect – a radical air to it, and particularly if one looks at the very common cases of sales of business, if one assumes it is a sale of business. But where you have a number of items, sale of business or not, put together for a global price, and it is said this is the price for the assets, then prima facie it is a price attributable to all of the assets.

Now, it may be that in selling the assets of – if I could go back to a motor vehicle distributorship for one example – that there is a table there that has been used by the man who arranges hire purchase transactions for 30 years and it is rather worn out and really worth nothing or worth a dollar, but there is no basis on which one should assume that nothing is being paid for it.

In particular, when one is talking about a case like the present where there was a large sum of money paid and there was evidence that the straws were a substantial part of it, why would not one assume that some of the money is attributable to it, in the absence of some contention that none could be attributable to it?

HAYNE J: Well, the underpinning assumption is that the price struck in a particular contract struck between particular parties is necessarily composed of the sum of the elements of a Spencer’s Case valuation.

MR JACKSON: Indeed, your Honour. Your Honours, could I go then to the last sentence of paragraph 67 of the Court of Appeal’s reasons, page 1207? It was said:

it was not suggested that Dr Clark would obtain title to that sperm because she acknowledged that a donor could always withdraw his consent to the use of his sperm at any time.

Now, your Honours, it is perfectly true that the appellant agreed in oral evidence that a donor could withdraw consent before the semen was used. Could I take your Honours to where she did that? That is in volume 1, page 117, about line 30.

Your Honours will see – and I think in part this is an answer to a question your Honour Justice Crennan was asking me – if one goes to about line 22 through to about line 35 and also, your Honours, page 192 about lines 5 to 20, and perhaps a little further down to about line 23. In relation to that, could I take your Honours to our submissions in reply for just a moment to paragraph 11 and do two things. First, your Honours, a triviality in a sense, for which I apologise, in the second-last line the word “grant” is incorrect. It should be “withdrawal”.

Your Honours will see that there is a reference to clause 7 of Attachment E to the RTAC Guideline. Your Honours can see that in the materials which are attached to the respondent’s list of authorities – and if one starts from the back, it is the page which at the bottom right-hand corner has the number 26. Your Honours will see there, part of attachment E, “Guidelines for the Storage and Use”, et cetera. Now, if one goes to 6.7 it commences with saying, “Information must be given to people donating or using”, et cetera, “on the following points”. One goes then, your Honours, to 6.7:

that they are free to withdraw or vary the terms of their consent at any time, unless . . . have already been used;

Then the consent to which reference is being made is that referred to in paragraph 4 of the same document, and that is that:

Sperm . . . must not be taken from anyone who is not capable of giving a valid consent or who has not given a valid consent.

Guideline 6.7 says nothing about ownership of property. It simply refers to the consent referred to in guideline 4 and, your Honours, it is that which provides the restriction, et cetera, to which reference was made at the bottom of paragraph 67 of the Court of Appeal’s reasons. Your Honours, could I just say this, that in reciting the submissions made on behalf of the respondent Justice Tobias again referred to the notion of sale of a business. You will see this in paragraphs 77 and 78 of his reasons at page 1210 and 1211 in volume 3. You will note that it was said that it was:

conceded . . . that some part of the total purchase price payable under the Deed . . . related to the acquisition of the . . . sperm.

Your Honours, the underlying problem so far as the case is concerned is that whatever be the price she was paying for the sperm under the agreement with St George she did not get it and she was, prima facie, in our submission, entitled to the costs of its replacement at the time when it should have been delivered, that is, 30 days after the entry into the deed. Your Honours will see, if one goes on to paragraph 112 of the judge’s reasons, where he comes, under the heading, “Application of the principles to the facts” - - -

HAYNE J: Sorry, what page?

MR JACKSON: Sorry, your Honour. Page 1222, your Honour, I am sorry.

HAYNE J: Thank you.

MR JACKSON: If I could endeavour to put in the briefest form the argument adopted by the Court of Appeal, it was because she later purchased the straws from Xytex, and because she obtained from patients an amount which covered the costs of so doing, therefore she suffered no loss. Your Honours, the most clear statement of that approach is, I think, in paragraph 127, at the bottom of page 1226 where it was said, at the second line:

St George’s breach of contract made it necessary for her to acquire sperm from an alternative source. She did so at a cost to her. That cost represented the prima facie loss she suffered as a result of St George’s breach, subject to the effects of such mitigation as she achieved or ought to have achieved. She in fact achieved mitigation to what was, in practical terms, the maximum extent allowed by the legal and ethical constraints under which she operated and which both parties necessarily had in contemplation –

Then, if I could just pause at that point, your Honours, we would say the reality was she had acquired semen from Xytex. She had received, let it be assumed, amounts from patients which covered the costs of acquiring and storing it, but that did not deal at all with the fact that St George had contracted to provide her with, and had not provided, the donor semen referred to in the deed, that is, 1,996 straws. She did not have it. Whether she would have acquired Xytex sperm in addition to it was immaterial. She did not get the stock she had agreed to acquire and, we would say, had paid for.

Now, your Honours, the approach of the Court of Appeal, we would submit, leaves out of account that the breach of contract occurred in early 2002. She was entitled to be placed in the position she would have been in if the contract had been then performed. Justice Gzell’s approach was appropriate to that. The way in which the Court of Appeal suggested the damages should have been calculated commences at paragraph 128 on page 1227, and in paragraph 128 it makes it apparent, your Honours, that his Honour regarded the time of assessment as being the date of trial. That is elaborated upon in paragraphs 129 and 130.

Your Honours will see then in paragraph 131 that it is said it was an incorrect measure of her loss to assess it on the basis of principles applicable to the sale of goods. If one goes to the third and following lines of paragraph 131 on page 1228 at the top of that page, it is said:

nevertheless, Dr Clark conducted her case upon the basis that the only loss for which she sought to be compensated was an amount equivalent to the actual cost of acquisition of a Xytex straw of donor sperm incurred by her as at August 2005 together with transportation costs.

Your Honours will have seen the way in which the primary judge assessed the damages was to use the 2000 – in fact, I think it was September 2005 cost as a measure for getting to what was the 2002 value and, your Honours, you will see that it said she conducted her case on that basis but that is exactly what she did not get. Rather, as I said a moment ago, the 2005 Xytex cost was used as a basis for determining a 2002 cost. Could I refer also, your Honours, to - - -

CRENNAN J: His Honour discounted it so it would have a backdated – the opposite of a present day value.

MR JACKSON: Yes, that is so, your Honour. Could I take your Honours to our submissions in reply for just a moment? I want to refer, first, if I may, to paragraph 5 and, your Honours, that puts in short form a submission I made earlier. In paragraph 7 we - again that is where we endeavoured to put shortly a submission I made about the irrelevance of the price actually paid for the St George sperm. In paragraph 10, we refer to the fact that if one goes to the various provisions of the deed it makes it pretty apparent that the deed does not work on the assumption that you cannot transfer property in the property - if I can put it that way - that is the subject of the agreement.

Your Honours, could I refer also to a matter which is in paragraph 9 of the reply and your Honours will see the nature of the case that was put before the primary judge. You will see, your Honours, if I could go to volume 3 page 921, this is the outline of submissions to the trial judge. I wanted to refer first to paragraph 26 where the contention was advanced. It was to make it clear that one was speaking about the 2002 period – time. Similarly, your Honours, but a little more clearly, page 923 in paragraph 36 and also to the opening address of counsel before the primary judge in volume 1, page 108 about lines 18 to about 24 - - -

BELL J: I am sorry, what page number?

MR JACKSON: I am sorry, page 108, your Honour in volume 1, and it is in this Court’s numbering, about lines 18 through to 23, but more specifically on page 109, about line 32, where it says, “Now, when it comes to quantification of that loss” - this is Mr Leopold appearing for the present appellant, and he speaks in the next paragraph using the actual Xytex price as the notional cost – “the best proxy of the notional cost”, et cetera, and your Honours will see the paragraph commencing:

We say the facts otherwise that Dr Clark only first acquired replacement sperm in August 2005 is of no relevance –

et cetera. Your Honours, those are our submissions.

HAYNE J: Thank you, Mr Jackson. Yes, Mr Harris?

MR HARRIS: Your Honour, can we firstly deal with the notice of contention. I think the notice was filed a day later than was - - -

HAYNE J: Sorry, Mr Harris, I am having some difficulty - you will need to speak up.

MR HARRIS: I am sorry, your Honour. Dealing firstly with the notice of contention, I believe that the notice was filed a day later than is allowed for in the rules and it raises an issue that was before the Court of Appeal - - -

MR JACKSON: We raise no objection as to time, your Honour.

HAYNE J: Yes.

MR HARRIS: It does not raise an issue that was not before the Court of Appeal and the trial judge and in those circumstances, in my respectful submission, there is no prejudice if the respondent is entitled to proceed on it.

HAYNE J: Well, as far as it is necessary to give you leave to file it out of time, you have that leave, Mr Harris.

MR HARRIS: If the Court pleases. Your Honour, can I start by perhaps directing your attention to the actual claim that was made by the claimant in the final version of her cross-claim, indeed, in all versions of her cross-claim which your Honours will find in volume 1, page 63. Your Honours will see that it is enunciated in paragraph 11(3) under the heading “Loss and Damage” as:

the reasonable costs and expenses associated with the procurement of replacement sperm;

Can I then direct your Honours’ attention to her initial affidavit in support of that claim which your Honours will find an extract from at page 369 of volume 1 – sorry, 370, the next page I should say. It is paragraph 432 of her initial affidavit sworn in July 2007 where she sets out the amount of her claim which was the amount that she had expended up until that time purchasing Xytex straws and the amount that she expected to spend in the future doing so.

Can I then take your Honours next to the particulars of causation of damage that she was directed to furnish at volume 1 at page 377. I just take your Honours to that so that your Honours can see in the middle of the page that this is under the heading “Third head of damage – reasonable costs and expenses associated with procurement of replacement of sperm”. On the following page in paragraphs 20 and 21, your Honours will see that she makes it clear that what she is seeking is to recover amounts she has paid and will in the future pay to Xytex to replace the defective sperm and then she confirms that again in paragraph 29 of these particulars which is at page 381.

So that is how she particularised the causation of the loss she was seeking. This was a long document which also contained particulars of the quantification of her damage, and your Honours will find that at page 392 of the appeal book, where under paragraph 76(3) she again, we say, makes it very clear that her cost is to recover amounts she has incurred to date and the amount that she expects that she will spend in the future to replace the balance of the straws. She also described her claim in that way when she made the application for judgment on liability. Your Honours will see in the judgment of Associate Justice Macready in volume 3 at page 1106, where he is just outlining some of the issues in the paragraph numbered 8 on the fourth line. He says:

A substantial part of the claim made by Dr Clark in the cross-claim relates to the costs of the procuring of this replacement sperm.

Then before Acting Justice Windeyer on 8 October there were several statements made to similar effect. Now, the application to Acting Justice Windeyer was made by the appellant because she wished to tender evidence from experts. One of the experts that she wished to tender evidence from was an accounting expert and what she wished to do was to obtain evidence from him as to the present value of her expected future expenditure on replacement of sperm.

HAYNE J: Well, be it so that there was a dispute about admissibility of evidence, what is the immediately relevant point that you seek to make? Do you say there has been some change in argument?

MR HARRIS: Yes.

HAYNE J: What is the precise nature of the change in argument, because I do not yet understand what it is that it is said to be.

MR HARRIS: We say that the case that was pleaded and particularised was a case for the recovery of the costs she had spent and would spend on replacement sperm; in other words, the recovery of actual up to the date of hearing and expected - that is, in the future – costs of acquiring replacement sperm. What the trial judge gave her, however, we say - and I will develop this shortly – was something different. He gave her damages assessed as the loss value that he considered the St George sperm would have had if it had not been defective, so that he gave her something significantly different from what she claimed.

HAYNE J: Let me understand whether I am grasping the point you are making. I would understand the contract to have been one under which the vendor was obliged to supply X number of straws. I would understand the purchaser to say, “The straws you supplied were not as warranted. I need to replace” or “wish to replace”, that is, “I wish to be put in the position I would have been in had you performed your bargain. I want to have X number usable straws”. So far so good, Mr Harris, or not?

MR HARRIS: Yes.

HAYNE J: So where then is the change of argument or the reframing of the argument? I would understand the argument against you this morning to be broadly as I have described it.

MR HARRIS: The case that was originally made against us, as I am endeavouring to show, was a case for the costs that had been incurred previously and would be incurred in the future for replacement sperm and therefore costs or damages to be assessed as at the date of the hearing. What happened was the trial judge instead awarded compensation based on what he considered to have been the difference in value method of assessment. In other words, he gave her what he considered to have been the value of the St George sperm if it had not been defective, if it had been compliant with the relevant RTAC requirements.

GAGELER J: Is the burden of your argument that for procedural reasons the approach of the trial judge was not open?

MR HARRIS: Yes.

GAGELER J: Is that reflected in the reasoning of the Court of Appeal?

MR HARRIS: It is to the extent that they conclude that his approach, which was to apply principles that usually are applied in contracts for the sale of goods, was an incorrect approach to have adopted.

GAGELER J: Not for procedural reasons.

MR HARRIS: They do not do so on that basis, but - - -

GAGELER J: So, how do we get to entertain this aspect of your argument?

MR HARRIS: Your Honour, what I am seeking to do is just to outline the way in which the case has developed and to deal with firstly the submissions that we have made in paragraph 34, starting at paragraph 34 of our submissions, which is that, effectively on the case that was pleaded and particularised against us, the Court of Appeal has come to the right decision, and that Justice Gzell was in error in having approached the case in a way that was not pleaded by the appellant.

HAYNE J: Just before you go on to develop that point, and staying for a moment with paragraph 34 of your submissions, in what sense do the transactions in which the appellant engaged after taking possession of the business constitute the acquisition of replacement sperm?

MR HARRIS: I am not sure if I understand the question that your Honour is putting to me. The warranty is provided that the sperm would be compliant with the relevant requirements of the Reproduction Accreditation Committee. It was not, they were discarded, and she then decided to source sperm from Xytex in the United States and to use that when patients required sperm instead of the sperm that she had up until that time been using which she had acquired from St George.

HAYNE J: In what sense do those subsequent transactions constitute the acquisition of replacement sperm as distinct from additional sperm?

MR HARRIS: Well, your Honour, she described them as replacement sperm herself in her cross-claim.

HAYNE J: No doubt.

MR HARRIS: We have treated them in that way. It might be said that they were additional sperm, perhaps they would have been additional sperm. There has never been any suggestion that if the St George sperm had not been defective she would have acquired sperm from Xytex in any event. Her case has been that she only did that because the St George sperm was not compliant and she had to discard it. So there was a direct – I am not sure if I am answer the question your Honour is putting to me, but her case has been, “I got Xytex sperm because the St George sperm was defective, that was the only reason that I got it”.

Indeed, can I say to your Honours that at the trial one of the defences was that there was a significant element of betterment in the Xytex sperm which was not accepted by the trial judge, but that demonstrates that the appellant was stating that she was replacing one with the other. I was proposing to take your Honours to statements made by the appellant to Acting Justice Windeyer in October 2010 when seeking leave to tender expert accounting evidence as to her expenditure.

BELL J: This was before the filing of the reply to the amended cross-claim was it not?

MR HARRIS: Yes.

BELL J: Now, the reply in paragraph 13, appeal book 102 to 103, makes clear that one basis of claim made by the appellant is that she is seeking to be compensated for:

the benefit of her bargain under the Deed by giving her, as far as money is capable of doing so, something equivalent to the value of the worthless Sperm –

MR HARRIS: Yes.

BELL J: So, that seemed to make clear at the point that was filed that that was at least one basis on which she was putting the approach to the assessment of damages, and Mr Leopold’s submissions made very clear that that was the basis. So, it is not a question of his Honour having decided the case on a basis that was not consistent with the way the trail had been conducted.

MR HARRIS: Your Honour, can I say that in the application to Justice Windeyer it was said that her claim was for the cost of replacement sperm. It was said on more than on occasion, and then she subsequently, having obtained leave, provided expert evidence which identified the amount she had paid up until the date of the hearing for sperm, and what the present value of the future expenditure of sperm would be.

Now, it is true that, as your Honour points out, she says in the reply at page 103, and I perhaps need to just take your Honours back to the first line. There is a reference there to paragraphs 29 to 29C of the defence. She had been directed previously to serve a reply that she would file to the defence. The defence asserted that she had recovered from patients the amount that she was expending.

It is said that she had recovered the amount, or more than the amount, that she had paid to Xytex for sperm and therefore she had suffered no loss. Paragraph 14 on page 103 is her answer to that, where she does not make an alternative claim, she asserts that the respondent does not understand her claim and that her claim is for compensation for:

the value of the worthless Sperm delivered to her –

Now, in our respectful submission, this was effectively a reference to an alternative claim. It was a reference to the loss of the value that the St George sperm would have had if it were not defective.

HAYNE J: No, surely it is as described at appeal book 378, paragraph 21:

What is meant by “replacement donor sperm” is such donor sperm as will put Clark back in the position she would have been in –

et cetera. I must say to you, Mr Harris, I have difficulty in presently grasping the distinction you are drawing. So, if that means you have to put it again so that I can understand it, you should know that I am having difficulty understanding it.

MR HARRIS: Yes. Well, your Honour, perhaps I do not think that I can put the matter any differently than I have. I have directed your Honour’s attention to the pleading and the particulars and the evidence, and also the way in which the case was described by the appellant to Associate Justice McCredie and Justice Windeyer

GAGELER J: But to what end, Mr Harris? What is the submission all these references to the procedure is going to - - -

MR HARRIS: The submission is that the trial judge did something different. The Court of Appeal went back and effectively looked at the claim that was made in the pleadings and the particulars, and they assessed, or their decision was based on that claim rather than on the claim as it had been dealt with by Justice Gzell and the Court of - - -

CRENNAN J: But their decision does not address the fact that the breach occurred in 2002 in respect of a price struck for assets, which included the sperm.

MR HARRIS: In their judgment at – at least in Justice Tobias’ judgment on page 1227 in paragraph 128, he sets out what he considers to have been the true measure of her loss, which incidentally, is consistent with what we say she claimed in the cross-claim and particularised, and then he goes on to develop that, and at paragraph 131 he says that:

it would have been open to Dr Clark to seek damages . . . [but] She submitted, and the primary judge accepted, that her damages should be assessed upon the basis of principles applicable to a contract for the sale of goods.

In other words, amongst other things, on the basis that damages should be assessed as at the date of the breach, rather than - - -

KEANE J: Now, his Honour does not say that it was not open as a matter of procedural fairness for the trial judge to proceed to assess the damages that way. Justice Tobias just simply says he was wrong.

MR HARRIS: Yes.

KEANE J: Not that it was not open.

MR HARRIS: No, and perhaps, your Honours, I need to take your Honours, firstly, to a case that we have referred to; British Westinghouse v Underground Railway [1912] AC, and in particular at page 688. Now, what had happened in this case was that a vendor had supplied turbines which had turned out to be defective and the purchaser had acquired replacements which were far more efficient and which provided a significant financial advantage to it and the issue was whether or not in its claim for damages, because the original turbines were defective, some credit had to be given for the advantage that had been obtained in the replacement sperm. Their Honours there start in the last paragraph on page 688 to say that:

there are expressions as to the principles governing the measure of general damages which at first sight seem difficult to harmonize. The apparent discrepancies are, however, mainly due to the varying nature of the particular questions submitted for decision. The quantum of damage is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance in dealing with particular cases.

They go on to say that indeed the necessity to mould the principles or to apply them specifically to the individual cases “is apt to give rise to an appearance of ambiguity”. So they are there emphasising the need to look carefully at the facts of each case rather than to apply the principles from one necessarily to another. Justice Oliver in Radford v De Froberville (1977) 1 WLR, to which your Honours were taken this morning, makes similar helpful statements commencing at page 1269.

HAYNE J: But the repeated judicial injunction to be careful in assessing damages does not take us very far, does it, Mr Harris? What is the particular care that we need to be exercising here?

MR HARRIS: Your Honours need to take into consideration these facts which we say are important and make it inappropriate to apply principles usually applied to the contracts for the sale of goods to this case. Now, if I can perhaps outline these facts to your Honours. The first is that when one looks at the contract itself, there are a number of relevant features of it which we have extracted in our submissions at paragraph 30.

Firstly, as your Honours have seen, donors could always withdraw their consent and so we say that effectively meant that the respondent did not have and the appellant did not receive title to the sperm. Can I while I think of it just direct your Honours’ attention to two aspects of the contract which are relevant? At volume 1, page 404, paragraph 1a says that there will be a transfer or a purchase from the vendor of the assets. Paragraph 1b says:

To the extent title in them can pass to the Purchaser, the Assets must be transferred to the Purchaser free from any mortgage –

et cetera. Paragraph 9.1(a)(i) on page 406 says that on completion the vendor will give to the purchaser:

to the extent title in them can at law pass to the Purchaser, unencumbered title to the Assets –

So that there was qualification or recognition in the contract that title was not absolute.

HAYNE J: Well, be it so, let it be assumed for the purposes of a debate that all that passed was possession of the particular items together with a licence to use which might be revocable at the will of the donor, yes? What follows?

MR HARRIS: That is one of the features which makes it inappropriate to be applying the principles that normally apply to contracts for the sale of goods to this case.

HAYNE J: Again, let it be assumed that we resolutely shut the Sale of Goods Act, what consequence follows from that?

MR HARRIS: That one does not assess the loss as at the date of breach, one assesses the loss as at the date of the hearing and that in identifying the loss one does not do so by reference to the market value of replacement stock and - - -

GAGELER J: Why not?

MR HARRIS: Because as a result of a number of the relevant facts, it is inappropriate to do that in this case. The other elements of the contract itself which make it inappropriate are the fact that, again, as we say in paragraph 30, there was no part of the money that was – no part of the purchase price was apportioned to donor sperm. There was no way that it would ever be possible to identify what had been paid for donor sperm.

KEANE J: Is your case somehow that because it is not possible to say this amount of money was paid and wasted, the purchaser was not entitled to damages for loss of bargain?

MR HARRIS: Your Honour, what we say is that because of, amongst many things, it was not possible to identify the amount that she had paid for sperm, it is not appropriate to be providing compensation to her which is assessed by reference to the cost of replacement sperm. That is one of many facts which are relevant and which, we say, need to be taken into consideration when determining what or how the principles should be applied in this case. One of the reasons why - - -

CRENNAN J: Do you offer some alternative if you accept, for the purposes of argument, that a purchase price was struck on the basis that the assets would include sperm and sperm was not compliant. You keep saying, well, market value is not the appropriate way to go about it. Accepting that that is the scenario, what is the appropriate measure? You have pointed us to dicta which say that it is a difficult exercise and so on. What is your case about that aspect?

MR HARRIS: I have to tell your Honours something else about the sperm and the ability to deal with or sell sperm. As we have set out in our submissions commencing at - - -

CRENNAN J: “Sell” is not the right word, is it?

MR HARRIS: Supply.

CRENNAN J: It is the ability to deal with it, and that dealing with it may involve a cost to the patient. Is that not how it works?

MR HARRIS: It is effectively a supply to the patient. A patient goes to see the doctor for some IVF treatment. She is not in a position to supply sperm. There is donor sperm available and it can be supplied to her by the practitioner, but the effect of the ethical guidelines produced by the National Health and Medical Research Council, and also as a result of provisions of the Reproduction Accreditation Committee’s Code of Practice – we refer to this in detail in our submissions commencing at paragraph 6 – it was unethical to supply sperm at a profit. Indeed, Dr Clark indicated that she would not do so and that she had never done so at page 117 of volume 1 of the appeal book.

KEANE J: Mr Harris, to say that she is supplying or selling is like saying that someone who paints a picture is supplying paint. What Dr Clark is doing is providing a service and this is one of the – this is part of the service – but what she is doing with patients is providing a service, she is not supplying sperm. I mean, these ethical considerations are about people trading in a commodity.

MR HARRIS: She conceded in a passage on page 117 that she would not make a profit – she had not ever made a profit from buying or selling sperm and that she considered it was unethical to do so. Indeed, that is - - -

CRENNAN J: There is nothing unethical, is there, about making sperm one of the assets which is the subject of the purchase price in relation to the sale of business?

MR HARRIS: No, so long as one does not either charge an amount for it which exceeds whatever its acquisition, storage and treatment costs might have been, and one does not pay any more for it than whatever its acquisition, storage and treatment costs might be. That was the effect of the ethical requirements under which she was acting and that was a requirement of accreditation to operate an assisted reproduction technology practice. So she was in a position where once she had obtained possession of the St George sperm it was unethical for her to be able to supply it to a patient for more than she had paid for it and, indeed, she would lose her accreditation if she did that.

From 2007, in fact, it would have been illegal under section 16 of the Human Cloning and Other Prohibited Practices Act, which we have given a copy of to your Honours in the supplementary list of authorities that we filed yesterday, if your Honours have that; this came into effect, this Act, although it is a 2003 Act it did not come into effect until 4 July 2007 so four years before the hearing, section 16(2):

A person commits an offence if the person intentionally receives, or offers to receive, valuable consideration from another person for the supply of a human egg –

and valuable consideration is defined and it does not include reasonable expenses so one can charge reasonable expenses. So one has a situation where, once she received the St George sperm, she was ethically prohibited from supplying it for any more than it had cost her, and, indeed, after 2007 it was illegal for her to do that, and she did not give any evidence that she had charged any patients for the supply of the 500-odd straws of St George sperm that she did supply between 2002 and 2005, and the Court of Appeal found that in those circumstances where she could not identify what she had actually paid for the sperm she could not ethically have made any charge for the sperm.

KEANE J: Did the Court of Appeal accept that what she was doing was supplying sperm rather than providing a medical service?

MR HARRIS: Well, in its conclusion that the contract was a contract for the sale of business the Court of Appeal was essentially concluding that she was a providing a service, but it was a service that included, on occasions, the supply of sperm in treatments. That was the effect of the findings that they made.

KEANE J: Well, can you just show us where that finding is?

MR HARRIS: If your Honours go to page 1213 of the third volume of the appeal book in paragraph 85, in the second sentence his Honour said:

The fact was that Dr Clark could not have supplied to her patients hypothetically compliant St George sperm for valuable consideration . . . As I have already observed, she was at pains to emphasise that she could in no way profit from this supply of sperm as such.

I was going to just refer your Honours to some other evidence that she gave at the bottom of page 119 of volume 1. The question was put to her:

What I put to you Dr Clark was that you did not expect to become the owner of the donor sperm, did you?

A. When donor sperm is acquired it is something, it is an asset for the practice to be used.

But she then volunteers:

The important thing is that there is no profit made on that asset.

Then, again, at page 177 she is being asked a question about the instructions she gave which resulted in the draft reply, that is, the draft reply that responded to the defence that asserted she charged patients an amount which was “equal to or more than what it costs you to obtain Xytex sperm”, and her answer is:

A. I can remember principally being outraged that he would suggest that I would exceed any cost, because that’s implying or stating in the document that I am actually creating a criminal offence. So the principal thing that I remember, and objected to at the time, was all of the comments about exceeding the cost. That is illegal –

So she was certainly conscious of both the ethical and subsequently legal aspects of the supply of sperm and understood that it could not be supplied at a profit or could not be supplied for an amount more than the acquisition, storage and treatment costs, which meant that for her in the unusual goods that one was acquiring under this contract, she could not identify an amount for which she had acquired those goods and therefore would not be able ethically to make a charge for the supply of those goods.

GAGELER J: Can I try to capture the argument as I think you may be saying it is reflected in the Court of Appeal’s judgment? You start with the governing principle that the purchaser is entitled to be put in the situation that the purchaser would have been in if the contract had been performed. You then say, well, this was a contract for the sale of a very particular kind of business. You then say that it was a business that because of legal and ethical constraints could only have been carried on by the purchaser in a way that limited the value of the sperm to the purchaser and you would say, as I understand it, that it is those legal and ethical constraints recognised by the Court of Appeal that effectively limited the value of the sperm to the purchaser to make it worthless, because the purchaser could only ever recover the cost of the sperm, whatever it might happen to be. Is that what you were saying?

MR HARRIS: Yes.

GAGELER J: Is that what the Court of Appeal was saying?

MR HARRIS: Yes, and to put her back, for example, into the position she would have been in if the St George sperm had not been defective would be effectively to have given her sperm which she could not supply to patients for anything more than she had outlaid for it and in circumstances where, under the unusual terms of this contract, one could not identify any amount that she had outlaid for it.

She could not ethically make any charge for the St George sperm and, indeed, although for two and a half years or more than two and a half years she had – for more than three years she had supplied St George sperm to patients, over 500 straws, she did not give any evidence of ever having charged any of the patients for that. So that if one were to apply the usual sale of goods principles and put her back into the position she would have been in if the contract had not been breached, then that would be to give her something which in fact was of no value to her in any event.

CRENNAN J: The problem is she was charged for it.

MR HARRIS: Therefore her loss would be whatever she could establish that she was charged for it or, alternatively, there were other ways that perhaps she could have identified a loss. She could have said, “Well, I am not going to have that sperm available to do treatments and therefore I am going to lose the fee that I would have earned from those treatments”, but when one goes from a position where she would have, if the contract had not been breached, had sperm that was in fact of no inherent value to her for which she could not charge any more than its acquisition, storage and treatment costs on the one hand, and then where she replaces that with Xytex sperm, which again is effectively revenue neutral to her because she charges her patients whatever that has cost her to acquire, treat and store - - -

HAYNE J: Is not this argument an argument that she is to be put in the position she would have been in if the warranty had not been broken, that is, are you not applying a tortious measure rather than a contractual measure to put her in the position she would have been in had the contract been performed according to its tenor?

MR HARRIS: With respect, we are not, your Honour. We are saying if the contract had been performed in accordance with its tenor she would have had 1,996 straws of sperm that she would have been entitled to supply for whatever they had cost her.

HAYNE J: Let it be assumed that performance of the contract according to its tenor would have put her in a position where, had she chosen so to do, she could have carried on her practice without charging separately for the use of any straw of semen. Be it so, why is she not entitled to be put into the position that she would have been in had the contract been performed by the supply, not by the vendor but by an alternative source of that which she contracted for?

MR HARRIS: Your Honour, if after she had acquired that replacement sperm, she made no charge to patients for it, then her loss would seem fairly clearly to be whatever the cost to her was of replacing it but that is not what happened. She did charge for the supply of Xytex sperm and, in that sense, she fully mitigated that loss.

HAYNE J: At the end of that process, she bought a practice with X number of straws. She is still not in a position where she has a practice with X number of straws. She has acquired extras which she has used in the course of her practice.

MR HARRIS: If, as we say in paragraphs 52 and 53 of our submissions, the argument of the appellant is accepted it has two – we say, two unusual effects, which demonstrate that it is inappropriate to apply the usual sale of good type principles to this contract. If – and this firstly in paragraph 52 picking up the point that your Honour Justice Hayne raised with me, if she were entitled now to recover Xytex costs from the respondent, then that would be an entitlement which would be irrespective of whether or not she recovered any money from patients so that we would be liable to pay the same amount of damages to her whether she had supplied Xytex sperm to patients for free or whether, as we know she did, she charged and will charge about $1.4 million to them.

In our respectful submission, we say that that result indicates that assessment of loss in this way is not appropriate. Secondly, we say that in paragraph 53 that to require now the respondent to pay to her the cost she has incurred in acquiring Xytex sperm or even to require the respondent to pay to her the notional cost in 2002 of acquiring replacement sperm in the future is effectively to provide her with that cost twice because she recovers it from the patients before she supplies the sperm to her.

Can I, perhaps, refer your Honours to a case which was referred to, certainly in argument before the Court of Appeal, and can I hand up - your Honours I only have five - this is a decision, your Honours, of the Privy Council, advice of the Privy Council in Wertheim v Chicoutimi Pulp Company. It is a case that was referred to – was quite recent when British Westinghouse was decided and was referred to in that case. What happened here was a purchaser had contracted to purchase timber from a vendor. The timber was to be delivered in November of 1900, I think. Because it was coming from Canada and the St Lawrence River froze over it was unable to get the timber out and it was not delivered until the following June.

The purchaser took action seeking damages for breach of contract because in November, when the timber was due to be delivered to him, he could have sold it for 40 shillings a ton, and by the time that it was delivered in June the price that he could get for it was only 27 shillings per ton. However, he had in fact sold it himself for 65 shillings per ton. At page 307 their Honours refer, in the middle of the page:

And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should . . . be placed in the same position as he would have been in if the contract had been performed –

They refer to cases, they say –

It is a just principle. The rule which prescribes as a measure of damages the difference in market prices at the respective times above mentioned –

that is, the times when delivery was due and the times when delivery was made –

is merely designed to apply this principle and, as stated in one of the American cases cited, it generally secures a complete indemnity to the purchaser. But it is intended to secure only an indemnity. The market value is taken because it is presumed to be the true value of the goods to the purchaser. In the case of non-delivery, where the purchaser does not get the goods he purchased, it is assumed that these would be worth to him, if he had them, what they would fetch in the open market; and that, if he wanted to get others in their stead, he could obtain them in the market at that price.

Now, what they are saying is fairly orthodox, probably. If you have lost the value of something that you contracted for, the best way to identify what you have lost if there is a market is to go into the market and buy a replacement, and you will obtain the equivalent amount or you will identify the amount that you have lost by establishing the cost of its replacement. But over on the next page at 308 about 10 lines down, they say:

but if in fact the purchaser, when he obtains possession of the goods, sells them at a price greatly in advance of the then market value, that presumption is rebutted and the real value of the goods to him is proved by the very fact of this sale to be more than market value, and the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position.

Now, we say that to apply the principles that the appellant contends for in this case is effectively to put her in that position, because she went from – or she had goods which were in fact worth very little, if anything, to her because they could not be supplied for more than an amount that she had paid for them, which she would not because of the way the contract was written be able to establish that amount. She went from that position to a position where, once she had obtained the replacements, she could supply them for very significantly more.

In fact, the initial cost of Xytex sperm was $511, so she went from a position where she could charge very little for St George sperm – and indeed there is no evidence she ever charged anything for it and the Court of Appeal concluded that, in fact, she did not – to a position where she could charge $511 for the sperm she bought as a replacement. In the same way that in this case of Wertheim it was necessary to look closely at the facts and to refrain from applying the usual sale of goods-type application of the principles, we say that needs to be done in this case.

HAYNE J: At trial, your side did not seek to make a case that a practice of this kind, sold at that time without available straws of semen, would have commanded the same price as the price the present appellant paid for it?

MR HARRIS: No, we do not, your Honour.

HAYNE J: That is, there was no case made that it was relevant or appropriate to look to the capital value of the business?

MR HARRIS: No, but your Honour it is - - -

HAYNE J: The only case made against you was that the contract, had it been performed, would have supplied straws different from those that were supplied and that replacement straws were available but at a cost.

MR HARRIS: Yes.

CRENNAN J: No cross-examination on the cost to the patient of the use of the 504 usable straws?

MR HARRIS: The only cross-examination on that topic is the passage that I referred your Honour to which is page 117, where – perhaps I did not really refer your Honours to that. At line 11 of the transcript:

. . . could I just take you back to the time when you purchase the practice of St George?

Next question:

. . . did you consider in January 2002 that it was unethical to make a profit from buying or selling sperm?

A. Yes.

17. And I take it that you would say to his Honour that you were not making a profit . . .
1. No.
   
17. And I take it you would say to his Honour you have never made a profit . . .
1. Yes.
   

Now, your Honours - - -

CRENNAN J: But no question about cost to patients.

MR HARRIS: No, and no evidence from her that she had ever charged any costs to patients, and in circumstances where it is not possible to identify what the cost of the sperm might have been. Can I just add that of course the contract expressed in this way is perhaps – well, the contract expressed in this way was the result of negotiations between the parties. That was the way they chose to express their contract.

They knew each of them, because they were fertility practitioners, knew that there was a limitation on what could be charged when sperm was supplied and, in our respectful submission, the analogy that Justice Tobias made in that passage that your Honours were referred to this morning about a surgeon with bandages is a reasonable analogy in the circumstances. The sperm were being acquired to be supplied if they were needed.

They were completely revenue neutral, that Dr Clark could never make a profit from them. If they were – if somebody had said at the time, what if these sperm cannot be used, the answer would surely have been “if replacement can be found I will be entitled to charge whatever they cost me and therefore I will be able to replace the sperm without any loss” and that is in fact what we say happened.

HAYNE J: And just so that there is no doubt it, Mr Harris, what do you say to the proposition that your argument amounts to putting the purchaser in the position she would have been in if the warranty had not been broken, as distinct from the position she would have been in had the promise been performed?

MR HARRIS: Your Honour, if the promise had not been broken, then she would have had straws she could have used. Because it was broken – or she did not have to but she did go out and replace those straws and she had to outlay some money to do that. Now stopping there, if that was all that happened, then she may have a strong claim to recover the replacement cost, but in circumstances where she had recovered that from the patients, she had effectively suffered no loss.

HAYNE J: The comparison that underpins the question is a comparison with the discussion in Chief Justice Gibbs’ reasons in Gould v Vaggelas 157 CLR, particularly at 222 and following about damages for deceit, but we need not trouble examining that in any detail. I think we have your submission in answer to the proposition I put to you.

MR HARRIS: Yes. Your Honours, the case - although we say that in a case of this nature it is necessary, even more perhaps than might normally be the situation, to concentrate on the facts as those cases that I have referred your Honours to say, and therefore one must be wary about applying the way in which principles have been applied in one case to another. I have referred your Honours to the case of Wertheim, which we say is helpful guidance which shows that, in fact, even in a case that involves the contract for the sale of goods one does not always apply the principles that usually apply without considering carefully the facts of the case.

British Westinghouse is a case which, we say, has an analogy with the present case. That was a case in which the goods were purchased, turbines were purchased. They were defective, they had to be replaced. They were replaced by superior turbines and some credit had to be provided for the advantage that the purchaser thereby obtained. In this case, as I have said, the St George sperm were of very modest, if any, value and they were replaced by straws which had a much more significant value, in effect because they could be provided at a much greater cost.

KEANE J: Did your side lead evidence of that disparity in value?

MR HARRIS: Well, the appellant had tendered into evidence all of the invoices and various costs that she had incurred in acquiring Xytex sperm and Mr Justice Gzell – well, in fact, the Court of Appeal identified the initial cost – yes, paragraph 72 on page 1209. The Court of Appeal, in setting out what the trial judge had done, refers in the last few lines there to the fact that the initial purchases of Xytex sperm in September 2005 cost about $511 per straw and his Honour had extrapolated forward from that.

Now, that is August 2005, after which time – or rather in circumstances where the appellant has subsequently become liable to pay about $380,000 for everything that she purchased or acquired in that contract, including three and a half thousand straws of sperm, even if one were to say that the whole of the purchase price related to the sperm, that purchase price would not have been more than about $100 per straw and therefore even on that basis the amount charged for Xytex or able to be charged for Xytex straws was very significantly greater than the maximum amount that could possibly have been charged for St George sperm. Would your Honours, I am sorry, just excuse me while I – yes, I think, your Honours, that I have probably covered all the points I wished to make.

HAYNE J: Thank you very much, Mr Harris. Yes, Mr Jackson.

MR JACKSON: Your Honours, may I refer first to one matter? It is that there was evidence in relation to donors withdrawing consent, that no donor had withdrawn consent since 1992. You will see that in volume 1 at page 192. I think it is a passage I took the Court to earlier but did not emphasise this part of it. You will see about line 22, “In your experience how often”, et cetera, and the answer was “Never”. That is the first point I wanted to make.

HAYNE J: That is since 2002.

MR JACKSON: Yes, your Honour, since 2002, January, which was the date of the deed.

HAYNE J: Yes.

MR JACKSON: It does not have an actual date but on the cover page it has got January 2002. Your Honours, in relation to the contention as to the nature of the case of the appellant at trial, in our submission it was really very clear. Could I take your Honours for just a moment to our submissions in reply in paragraphs 8 and 9? Now, the contention in the – could I call it the defence for brevity? The contention in the respondent’s defence to the cross-claim was one that, in our submission, misreads clause 11(3) or paragraph 11(3) of the statement of claim, but the nature of the case that was being propounded was apparent, in our submission, from the reply, and our reply is at page 102, volume 1, paragraph 13 at the bottom of the page. Your Honours will see that what was said, if one goes to the bottom of the page:

the damages claimed in the Cross-Claim, which are in the nature of compensation which, so far as possible gives her the benefit of her bargain under the Deed by giving her, so far as money is capable of doing so, something equivalent to the value of the worthless Sperm delivered to her, as opposed to damages to compensate her specifically for her outlay to Xytex (the amount actually paid and payable to Xytex being no more than evidence of an appropriate measure of damages) –

Now, your Honours, that is, with respect, put extremely clearly, and so too were the submissions made at the trial and at the opening address of the trial, and your Honours, we have already taken your Honours to those. They are referred to in paragraph 9 of our submissions in reply.

KEANE J: Mr Jackson, if the Court of Appeal had adopted the approach of valuing the loss at the date of trial would not the assessment have been about $1 million?

MR JACKSON: Your Honour, indeed, indeed.

KEANE J: Whereas the Court of Appeal valued it at zero?

MR JACKSON: Yes, your Honour, that is the vice in the answer of the Court of Appeal. Let it assumed, your Honours, that are two possible dates, one being the date of the breach, one being the date of trial. As your Honour has put to me, if one is going to do it at the date of trial it is difficult to see that it would have been less, but to arrive at the conclusion that because you have bought some sperm, because you have been repaid what you outlaid for it says nothing about the fact that you got nothing for the sperm that you had contracted to buy, your Honours.

KEANE J: When your client provided services to patients, did your client charge separately for the sperm supplied?

MR JACKSON: Your Honour, I will have to give your Honour an answer - - -

KEANE J: Or what the evidence shows?

MR JACKSON: Yes, your Honour, but the evidence, I think, was that there was a – your Honour will appreciate a series of events takes place with some of these things. I think there may be an overall charge sometimes divided up into parts. I will see if I can give your Honour a reference to - - -

KEANE J: But there is never a case, I take it and you will tell me if I am wrong, where a patient is simply sold a straw and told to make her own way home?

MR JACKSON: No, certainly not, your Honour. The other – and I am not suggesting this is your Honour’s intention – but the rather brutalistic nature of the concept of that kind is one that does not really sit well with the nature of the procedures being carried out. Your Honours, if one is looking at someone in the position of the appellant, the inability to have children or to have more children can very often be a source of great distress to people and, in some cases, the appellant might choose to charge nothing for the procedure or choose to charge a reduced fee, depending on circumstances. But what we would submit is that she was entitled to be put back in the situation where she would have had 1,996 straws which she could choose to use as in any way she did and, in our submission, if she did not have them, the right way of assessing damages was to do what the primary judge did in the present case.

Your Honours, could I say something about some of the other matters raised by our learned friends? Now, your Honours, we have set out, in our written submissions, what we say about the notice of contention, and your Honours will see that the - I am referring to paragraph 13 of our reply and following, I would ask your Honours to refer to the matters there set out - but may I just say, your Honours, I draw attention to one matter in particular and it is that referred to in paragraph 16(d) on page 4 of the submissions in reply.

Your Honours, there has been a lot of talk about what the guidelines say, but it is helpful, actually, to go to them to actually see what they say, and your Honours will find that set out in the material behind the respondent’s list of authorities, and there is a page numbered in the top right-hand corner 15 with a heading “11 Prohibited/unacceptable practices”. Now, your Honours, it said:

The following practices are ethically unacceptable and should be prohibited –

One goes then to the second and third last, 11.9 and 11.10. Now, your Honours will see the point we make in our submissions in reply in paragraph 16(d) is that 11.9 appears directed to the concept of commercial trading.

We would submit that it hardly seems directed to the supply of donor sperm in medical treatments and one would think that if the drafters had had that in mind the provision should have said so – would have said so. Commercial trading, your Honour, is precisely, we would submit, what it means that there is an objection to there being commercial trading in these items of human tissue. The second part, 11.10, deals only with the dealings between a donor and the person for whom it is provided. It does not seem to have much to do with the present case, really.

BELL J: I suppose one thing that might be said about it is this, that if one cannot pay a donor of semen any sum beyond the reasonable expense of its provision that might affect whether or not one can speak meaningfully of a market for semen in the sense of it being a marketable commodity. One looks to the assessment of damages in a case such as this, prima facie, on the basis of difference in value, but that it tends to be qualified by reference to things that answer the description of being a marketable commodity.

MR JACKSON: I should say, your Honour, that the primary judge held that there was a market in relation to the substances – or semen, really – and, your Honour, in relation to that, that is a finding which does not really appear to have been affected by the decision of the Court of Appeal.

But could I just say this more substantively in relation to it. You will see that 11.10 refers to “Paying donors . . . beyond reasonable expenses.” Now, that means that is a dealing between the donor and the person to whom it is provided. Now, in relation to that, your Honour, one also sees that if you are dealing with a situation where a person has acquired those for the purpose of a practice and is then selling the practice, including, to use the way the Court of Appeal put it, selling the practice, on any view, the expenses would exceed those paid to the donor because there has got to be the treatment, the freezing and so on, I took your Honours to the relevant passage. So even on that view there is a reasonable expense.

If one is looking at it from the point of view of a doctor who has acquired the semen, say, from Xytex, well now, the cost of acquisition so far as that doctor is concerned, is the cost of Xytex plus, of course, the add-ons. So it is not really talking about something for which there is not a market. It may be that the number of dollars payable in respect of any item is something that is qualified by some forms of restriction, but, having had that qualification, you then get to a situation where there is a market in which there are amounts that have to be paid.

Your Honours, after all, one is not really talking of a situation where she is buying things to, in effect, sell. What she has bought is substances from a practice to be used in her practice to be used as she chooses, and, if one likes to adopt the words of the Court of Appeal, as part of the stock-in-trade. But the cupboard containing the stock-in-trade, or cupboards, or the freezers containing the stock-in-trade, is rather bare if one takes out of account the 1,996 compliance straws which should have been but were not supplied.

Your Honours, those are our submissions. I think there was something I had to give your Honours a reference to. I think, in answer to one of your Honour’s questions, could we do so in the next two days?

HAYNE J: Yes, is it a matter which Mr Harris should have an opportunity to answer?

MR JACKSON: Of course, your Honour, yes.

HAYNE J: Perhaps a further two days after that.

KEANE J: Mr Jackson, is the Cloning Act that your opponent referred to relevant in any way?

MR JACKSON: Could I take your Honours to it? You will see, your Honours, it is the Human Cloning for Reproduction and Other Prohibited Practices Act 2003. The first thing I would say about it, your Honours, and your Honour is right to direct my attention to it, is that it did not come into force until after the contract was entered into. That is the first thing. The second thing about it is that in the form in which it was first in being it was, I think, section 18 which was the relevant section.

The 2007 amendments made it section 16 but I do not think there is any significant difference between the two provisions. In each case, of course, neither was in force at the time the contract was entered into. If one goes to section 16 in its current form, what you will see is that there is a definition in subsection (3) of “reasonable expenses”. “Reasonable expenses” is used in the definition of “valuable consideration” in relation to the supply of human sperm:

does not include the payment of reasonable expenses incurred by the person in connection with the supply.

Now, your Honours, that takes one back then to section 16(1) which says that:

A person commits an offence if the person intentionally gives or offers valuable consideration to another person for the supply of . . . human sperm –

and subsection (2) deals with the other party to the transaction. What your Honours will see however, is that what is taken out of the concept of “valuable consideration” is the payment of reasonable expenses incurred by the person in connection with the supply. Now, if you have the case of, let us say, a direct sale by St George to us, well then the valuable consideration would not include the reasonable expenses of St George in relation to that which would be acquisition, keeping, storing, treating, supply and so on. Your Honours, I do not think I can take it beyond that. Subject to that, those are our submissions.

HAYNE J: Thank you, Mr Jackson.

The Court will adjourn to 9.45 am tomorrow for the pronouncement of orders.

AT 12.34 PM THE MATTER WAS ADJOURNED