• In the case of McRae v Commonwealth Disposals Commission [1951] 84 CLR 377, it was held C would not have gained relief if the contract was void under the doctrine of mistake.
  • This contract case concerned common mistake and frustration.
  • This case considered whether there could be damages when the subject matter of a contract did not exist.
  • This case showed that s 6 of the Sale of Goods Act 1979 does not apply when the goods are not real.

Facts of the Case

  • C and D contracted for a tanker but when C went to Samurai C discovered the place – Jourmand Reef – and the oil tanker both did not exist causing C to face huge losses.
  • C claimed damages for fraudulent misrepresentation while D contended the contract was void and there was no breach.

Issues

  • Did D breach the contract?
  • Was there fraudulent misrepresentation in relation to the tanker?
  • Did D negligently fail to disclose the tanker and place?

Held by High Court of Australia

  • Appeal allowed and cross-appeal dismissed – the contract was valid not void for mistake.

Dixon and Fullagar JJ

Breach of contract

  • D reassured C that the tanker existed and C relied upon this promise. D had the knowledge of all the true facts yet misled C into contracting.
  • “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…. The Commission cannot in this case rely on any mistake as avoiding the contract, because any mistake was induced by the fault of their own servants, who asserted the existence of a tanker recklessly and without any reasonable ground.” [19]

Misrepresentation and damages

  • “They can say: (1) this expense was incurred; (2) it was incurred because you promised us that there was a tanker; (3) the fact that there was no tanker made it certain that this expense would be wasted. The plaintiffs have in this way a starting-point. They make a prima-facie case. The fact that the expense was wasted flowed prima facie from the fact that there was no tanker; and the first fact is damage, and the second fact is breach of contract.” [26]
  • As a seller, D had a duty to disclose all the facts to C prior to the sale otherwise they have made misrepresentations.
  • The judge heavily refers to Couturier v Hastie [1856] UKHL J3 ruling that it was not based on a mistake and the contract was void because at time of contract formation, the contracting parties were not under legally binding obligations to renumerate.

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