McRae v Commonwealth Disposals Commission

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Citation: McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 761-7 [31.35] or here

Contents

Background facts

  • McRae [Plaintiff] won a tender to try salvage an oil tanker stranded on a reef from the Defendant [Commonwealth].
  • In fact, there was no oil tanker, the Defendant was relying on gossip.
  • McRae sued to recover his losses.

Legal issues

Judgement

Mistake

  • Uses the constructional approach.
  • In a case where both parties had equal knowledge as to the existence of the subject matter, and it turned out to be false, then it would justify the implication of a condition precedent. In that case, the contract would be void for the failure of the condition precedent, and parties would be restored to their original position.
  • However, in a case where only one party has the knowledge, and the other simply relies on what the first party tells it, than there could be no condition precedent. The first party promises or guarantees the existence of the subject matter and will be in breach if it does not exist.
    • "a party cannot rely on mutual mistake where the mistake consists of a belief which is, on the one hand, entertained by him without any reasonable ground, and, on the other hand, deliberately induced by him in the mind of the other party."[1]
    • "The buyers relied upon, and acted upon, the assertion of the seller that there was a tanker in existence. It is not a case in which the parties can be seen to have proceeded on the basis of a common assumption of fact so as to justify the conclusion that the correctness of the assumption was intended by both parties to be a condition precedent to the creation of contractual obligations. The officers of the Commission made an assumption, but the plaintiffs did not make an assumption in the same sense. They knew nothing except what the Commission had told them."[2]
    • "The only proper construction of the contract is that it included a promise by the Commission that there was a tanker in the position specified. The Commission contracted that there was a tanker there."[3]

Damages

  • The issue here was how to award damages to the Plaintiff.
  • It is impossible to give the usual expectation benefits, because it was impossible to assess the expected benefit from a non-existing stranded oil tanker.
    • This is because the Defendant did not contract to deliver a tanker of any particular size or condition etc.
  • However, the "mere difficulty in estimating damages did not relieve a tribunal of fact from the responsibility of assessing them as best it could[4]."
  • Instead, we measure damages in reliance. This includes all expenditure which the Plaintiff incurred in reliance on the Defendant's promise.
  • The Plaintiff was awarded reliance damages to compensate him for all his expenditure.

References

  1. (1951) 84 CLR 377, 408
  2. (1951) 84 CLR 377, 409
  3. (1951) 84 CLR 377, 409
  4. (1951) 84 CLR 377, 411
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