Case: McRae v Commonwealth Disposals Commission [1950] HCA 12 ; (1951) 84 CLR 377
Outcome: applied
The following issues are raised in the proceedings: (i) Whether upon the proper construction of the SBA, Bearsden contracted to sell the assets of the business in which it had no legal or beneficial interest. (ii) If so, whether Cairnsmore is entitled to damages for breach of contract in accordance with the principles stated by Dixon J and Fullagar J in McRae v Commonwealth Disposals Commission [1950] HCA 12 ; (1951) 84 CLR 377 at 409 415. (iii) Whether the move from GPL to Paragem constituted the exercise of a "right of title" by Bearsden under cl 5.4 of the SBA, thereby entitling Cairnsmore to a refund of the first instalment and damages for breach of contract. See McDonald v Dennys Lascelles Limited [1933] HCA 25 ; (1933) 48 CLR 457. (iv) Whether the move from GPL to Paragem was to the disadvantage of Cairnsmore within the meaning of cl 9.1 of the SBA. (v) Whether Cairnsmore is entitled to recover damages either in contract or under the Trade Practices Act 1974 (Cth) for expenditure incurred by it in reliance upon representations made by Bearsden in the SBA that it owned and carried on the business and had the right to sell it. (vi) Whether Cairnsmore and Mr Howland are entitled to recover against Mr Hodge by virtue of ss 6(3) or 75B of the Trade Practices Act . (vii) Whether, if Cairnsmore's contentions are not correct, Bearsden is entitled to recover payment of the second and third instalments of the purchase price as claimed by it in its cross claim. 95 First, it is not what Bearsden contracted to sell under the SBA. Second, it would have been contrary to Part 7.6 of the Corporations Act , in particular s 916B(3). As in McCrae , the only proper construction of the SBA is that it included a promise by Bearsden that the subject matter of the agreement existed: see McRae at 410. It is plain that the subject matter did not exist because Bearsden did not own the business. The subject matter was not simply a business conducted at the premises, it was the business owned by Bearsden. It is true that Bearsden had the power to direct where the income stream that it received through HBN was paid, but it had no enforceable right against GPL because there was no contractual relationship between those parties. 96 In short, the commercial purpose which Bearsden sought to achieve could not have been put in place without an agreement between HBN and Cairnsmore. It would in my view have been necessary in addition for GPL to have been a party. The defect was not cured by Annexure B to the SBA, ie, the Agency Agreement on p 743 of Exhibit A. That document was legally ineffective (even if it was properly executed on behalf of HBN, which I doubt). This is because it entirely ignored the structure in place in the various agreements fully described in counsel's diagram annexed to my reasons for judgment. 97 This case therefore falls within the principles stated by Dixon and Fullagar JJ in McCrae at 409 to 411. Bearsden must pay damages for breach of its promise to give title. 119 In McRae , the plaintiffs recovered damages for the agreed purchase price together with the expenditure wasted in reliance on the promise that there was oil tanker in the locality of the reef. The wasted expenditure fell within the second rule in Hadley v Baxendale (1854) 9 Ex 341: see McRae at 413-415; see also The Commonwealth v Amman Aviation Pty Ltd [1991] HCA 54 ; (1991) 174 CLR 64 at 88-89. 120 There may be some differences from McRae in the present case; in particular, a question arises as to whether it was impossible for Cairnsmore to establish what its profits would have been under the SBA: see Amman at 89. However, I am inclined to the view that the difficulties which arose from the move to Paragem tend in favour of the application of the wasted expenditure principle to the facts of this case.