mitigation of loss

A claimant who has had a legal right infringed is entitled to recover damages. The amount (ie quantum) of damages awarded by Courts is restricted by two main principles, namely that the loss is not too remote and claimant must mitigate its loss. The law operates so as to not entitle recovery of damages which could have reasonably been mitigated by the claimant. The principles apply equally in breach of contract cases and tort cases (such as conspiracy or tort of conversion).

Mitigation of loss is concerned with the claimant's responsibility to avoid avoidable losses by taking all reasonable steps to do so. Claimants are not permitted to stand aside and let damage accrue with the view that it will simply be recovered from the defendant in due course. The claimant is not required to take unreasonable steps or incur unreasonable sums in doing so. Steps which are reasonable will depend upon the circumstances of the case, including the nature and type of (1) contract, (2) the breach, (3) the factual matrix such as the circumstances of the claimant.

The message was made clear in the speech of Viscount Haldane LC in British Westinghouse Co v Underground Ry 1912 AC 673:

The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but the first principle is qualified by a second, which imposes on a claimant a duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.

Steps in Mitigation of Loss

Whether or not the claimant has mitigated its loss is a question of fact. A claimant's entitlement to recover damages and the role of mitigation may be summarised as follows:

1. Damage suffered as a result of the wrongful conduct where reasonable steps could have been taken to avoid the loss is not recoverable.
   If the reasonable steps exacerbated the damage caused, the claimant may be entitled to recover the additional damage following the attempt to mitigate.
2. Loss avoided by taking reasonable steps cannot be recovered.
   The claimant is entitled to recover it actual loss, after it has taken steps to mitigate. The defendant is entitled to receive the benefit of mitigation on the part of the claimant. Court will not allow the claimant to recover loss which it does not mitigate.
   It will be for the Court to decide whether the step would have been in any event, or whether it was taken in mitigation. The latter are not likely to affect the sum of damages payable by the defendant.
3. Expenditure incurred in taking reasonable steps to avoid loss may be recovered.

Where the claimant fails to mitigate loss, the process of assessment of damages which the claimant is entitled to recover on one view becomes a notional assessment of the claimant's loss. The Court effectively runs a profit and loss account discounting the damages award where the claimant fails to mitigate or does not take all reasonable steps to mitigate the loss.

Consequences of failing to mitigate

Where the claimant properly takes steps to mitigate, the actual profit and loss account would match the notional profit and loss account. Put another way, the claimant is entitled to its actual loss after mitigation, whether or not the claimant actually takes steps to mitigate loss. Accordingly, a claimant does not have a "duty" to mitigate loss; the law will not allow recovery of loss which has not been mitigated where it would have been reasonable to do so.

The requirement to mitigate loss requires the claimant to take any step which a reasonable a prudent person would ordinarily take in the course of his business to mitigate the loss. The law does not allow recovery of loss caused by neglecting to take such steps. The claimant is not entitled to charge the defendant by way of damages with any greater sum than that reasonably needed to expend for the purpose of making good the loss; the claimant would presumably do so to act in its best interests in any event. The claimant is entitled to be as extravagant as it pleases but not at the expense of the defendant: Darbishire v Warran (1963).

Steps which would endanger the claimant's reputation, risk its own money, to sue another person to enforce a contract, or to sacrifice property or rights in mitigation are more than likely not reasonable steps which a Court would expect a claimant to take.

Time for Mitigation of Damage

The relevant time to mitigate is when the claimant becomes aware of the breach, or ought to have known that the breach had taken place, rather than where (and if) a breach is foreshadowed. After the breach, a reasonable time is allowed to the claimant to decide what, if anything should be done to mitigate loss. The duty may require him to keep the goods safe and cease to use them and seek substitute goods, or effect minor repairs to remedy the defects, if that is reasonable and possible in the circumstances of the case. Delay is likely to be permissible where negotiations ensue and while there is a reasonable prospect to that the defendant will repair them. Where there is an anticipatory breach of contract, the duty to mitigate arises when the acceptance of the breach is communicated to the defendant.

The onus of proof rests with the defendant to show that the claimant has failed to mitigate its loss, or show that some part of the loss could have been avoided, by showing that the claimant has acted or has not acted or failed to act reasonably by taking certain steps and that by doing so the claimant would have avoided part of the loss suffered.

Examples

Steps which are likely to be expected to be taken include:

1. a buyer obtaining equivalent goods which are reasonably available on the market to obtain goods which there has been non-performance or defective performance, particularly in a rising market for the goods;
2. a seller is required to make reasonable attempts to sell goods which have been wrongfully rejected by the buyer;
3. in employment contracts, the employee is required to seek employment elsewhere, having regard of the salary and allowing a reasonable time to gain alternative employment. The effect of mitigation means that damages will not usually be awarded for an extended period of time of unemployment where the skill set is readily in demand in the industry in question;
4. in contracts for services, a supplier who has been had its contract to supply services repudiated such that there is no requirement to perform the services is required to offer its services elsewhere; damages may be mitigated by the loss of a chance;
5. where the claimant has delayed obtaining goods in a rising market, the difference between the contract price and the market price is recoverable, on the assumption that the buyer obtained the goods within a reasonable time;
6. reasonable steps to remedy loss suffered by defective work. This not to say that the claimant is required to remedy all works, but not go beyond that which is reasonable to minimise loss.
7. where a greater profit is obtained by procuring substitute goods, the defendant is entitled to the benefit of that greater profit to pay less damages.
8. claimants may well not be under a duty to mitigate by not shipping goods when the defendant has communicated that they will not accept them, where it can do so without the assistance or cooperation of the defendant.