McRae v Commonwealth Disposals Commission (1951) 84 CLR 377

The Commonwealth Disposals Commission advertised a tanker said to be located on a reef, and the buyers contracted for the salvage opportunity. They organised and funded an expedition to find it. No tanker was found at the stated location, and expenditure on the venture was wasted. The Commission sought to avoid contractual liability by relying on mistake about the subject matter. The buyers argued that its existence had been promised and claimed damages. The High Court of Australia considered the contractual allocation of that risk and how loss could be established when the advertised opportunity did not exist.

Had the Commission assumed contractual responsibility for the tanker's existence, preventing reliance on common mistake and permitting recovery of expenditure wasted on the promised salvage opportunity?

The High Court of Australia held that the Commission had promised that a tanker existed at the specified location. It could not avoid responsibility by describing the absence of that tanker as a common mistake outside the contract. The risk had been allocated through the undertaking itself. The buyers could establish a prima facie damages claim by showing expenditure incurred in reliance on the promised subject matter and rendered wasted by its non-existence. That did not guarantee recovery of every claimed expense or an imagined profitable salvage venture. The case is persuasive comparative authority in English contract study, not a binding English decision or a direct interpretation of the Sale of Goods Act 1979.

Before applying common mistake, construe the contract to identify whether a party promised the disputed state of affairs and assumed its risk. McRae treated the promised existence of the tanker as contractual responsibility, supporting damages for expenditure wasted because the promised subject matter did not exist.

McRae is commonly contrasted with Couturier v Hastie and English common-mistake authorities. It shows why risk allocation logically precedes asking whether both sides were mistaken. Its damages analysis is also useful where expected profit cannot sensibly be proved because the venture's supposed subject matter never existed. The Australian jurisdiction should be stated expressly. Avoid suggesting a general seller's duty to disclose every fact or attributing its holding to English legislation enacted decades later.