McRae v Commonwealth Disposals Commission [1951]

McRae v Commonwealth Disposals Commission [1951] HCA 79 is a significant Australian contract law case that has relevance to English contract law. The case involves the issue of common mistake about the possibility of performing an agreement.

The Commonwealth Disposals Commission (CDC) sold a shipwreck of a tanker on the Jourmand Reef to the McRae brothers, supposedly containing oil. However, when the McRae brothers went to Samarai, they found no tanker, and it was revealed that there was no such place as the Jourmand Reef. The CDC officer had made a reckless and irresponsible mistake, relying on mere gossip. The McRae brothers had incurred considerable expenses in preparing for a salvage operation. The McRae brothers initiated legal action against the Commission, claiming damages for breach of contract, fraudulent misrepresentation, and negligent failure to disclose.

The High Court of Australia held that McRae succeeded in damages for breach of contract. The Court rejected the argument that the contract was void because the subject matter (the tanker) did not exist. The court distinguished the case from Courturier v Hastie [1856], emphasising that in this case, CDC had actually promised the existence of the tanker and assumed the risk that it did not exist.

The ruling clarified the legal principle that when parties have equal knowledge about the existence of the subject matter and it turns out to be false, it justifies the implication of a condition precedent, rendering the contract void for the failure of the condition precedent. However, in cases where only one party has knowledge of the subject matter, and the other relies on the first party's representation, there is no condition precedent. In such cases, if the first party promises or guarantees the existence of the subject matter, a breach occurs if it does not exist.

Regarding the measure of damages, the court rejected CDC's argument that McRae's expenditure was not wasted. The court held that McRae could claim damages by demonstrating that the expenses were incurred based on CDC's promise of the existence of the tanker, and the fact that there was no tanker made it certain that the expenses would be wasted.

In summary, McRae v Commonwealth Disposals Commission established important principles related to common mistake and the measure of damages in cases where one party promises the existence of the subject matter. The case is relevant not only in Australian contract law but also has implications for English contract law.
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