Australian fertility clinic ordered to pay damages in contract for unusable sperm

The High Court of Australia has awarded damages under contract law to a doctor who purchased assets of a fertility clinic, including a stock of cryopreserved sperm, after almost two thirds of straws provided were unusable.

The judgment outlines that Dr Anne Clark agreed to buy assets of St George Fertility Centre in 2002, which included straws of frozen sperm. It was guaranteed under the contract that certain guidelines had been complied with. However, of the 3,500 straws of sperm delivered, 1,996 were not as warranted under the contract and were unusable. It was agreed that the company had breached its warranty in respect to consents, screening tests and the identification of donors. When the usable stock ran out, Dr Clark subsequently obtained alternative sperm from Xytex in the USA at a cost and sought to recover this from the original seller.

The matter in dispute was to the amount to be paid in compensation to Dr Clark under principles of contract law. The value of what Dr Clark did not receive needed to be determined by the court. Counsel for Dr Clark argued that she was entitled to what she paid out to obtain alternative sperm representing her loss of a bargain under the contract, but counsel for Dr David Macourt, the respondent, countered that Dr Clark did not in the end suffer any loss having recouped most of the additional costs from her patients.

Although the trial judge decided in favour of Dr Clark, the Court of Appeal in New South Wales agreed with the respondent. It ruled that Dr Clark had managed to mitigate most of her loss by passing on the cost she paid from Xytex on to her patients. Although she did not seek to make a profit from using donated sperm, she had always maintained a buffer between the real costs and the costs passed on to a patient. In the end, she was in no worse a position than if the contract had been properly performed.

However, the majority of the High Court of Australia allowed Dr Clark's appeal and held that she was entitled the cost at the date of breach to acquire 1,996 straws of sperm from Xytex to replace the unusable straws. This would put her in the position she would have been in had the contract been properly performed, explained Justice Kenneth Hayne AC. The fact Dr Clark had passed on the costs to her patients did not increase or diminish the loss of her bargain for the delivery of sperm from St George.

Dissenting, Justice Stephen Gageler said he favoured the Court of Appeal's approach. He said that the 'peculiar nature of the asset (frozen sperm)' meant that the value of delivering the sperm in compliance with the contract could not be equated with the value to a buyer of goods that could be re-sold in a market at the time of delivery. The value to Dr Clark was, he said, was receiving a stock of sperm that could be used in the treatment of her patients. Her loss was that what was spent on alternative sperm that could not be recouped from her patients.

The High Court said that the defendant had pointed to the 'remarkable prospect' of having to pay Dr Clark over AU$1m in compensation for failing to deliver one asset of a business which was sold to Dr Clark for a total of almost AU$387,000. He did not, however, 'seek to attach legal significant' to the disparity between the figures, Justice Gageler said. The court also heard how Dr Clark had made unsuccessful attempts to recruit local sperm donors in 2005 and that a shortage of donors came at a time of the introduction of requirements for donor identification.