Damages. Quantum. Mitigation Last updated 14-May-2015

Quantum of damages

The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.
Robinson v Harman (1848) 1 Exch 850 per Parke B at p.855.

The relevant criteria which defines recoverable amount of damages is the actual suffered loss of the innocent party, i.e. the innocent party shall not be better off with the damages than it would have been off if the contract would have been fulfilled properly.

Thus, apart from few exceptions such as Attorney-General v Blake , essential basis of contractual damages was to compensate for pecuniary loss naturally flowing from the breach.

Accordingly, damages are calculated on the basis of what price, for example in case of broken contract of sale of goods, the injured party can get for the goods on open market if they would have been delivered on contracted date. Any speculative component is of no relevance because the law is against unjust enrichment, as Lord Atkinson explained in Wertheim (Sally) v Chicoutimi Pulp Co. [1911] A.C. 301:

The rule which prescribes as a measure of damages the difference in market prices at the respective times above mentioned is merely designed to apply this principle and, … , it generally secures a complete indemnity to purchaser. But it is intended to secure only an indemnity. The market value is taken because it is presumed to be the true value of the goods to the purchaser. In the case of non-delivery where the purchaser does not get the goods he purchased, it is assumed that these would be worth to him, if he had them, what they would fetch in the open market; and that, if he wanted to get others in their stead, he could obtain them in that market at that price. In such a case, the price at which the purchaser might in anticipation of delivery have resold the goods is properly treated, where no question of loss of profit arises, as an entirely irrelevant matter: Rodocanachi v. Milburn (1886) 18 QBD 67.

The purchaser not having got his goods should receive by way of damages enough to enable him to buy similar goods in the open market. Similarly, when delivery of goods purchased is delayed, the goods are presumed to have been at the time they should have been delivered worth to the purchaser what he could then sell them for, or buy others like them for, in the open market, and when they are in fact delivered they are similarly presumed to be, for the same reason, worth to the purchaser what he could then sell them for in that market, but if in fact the purchaser, when he obtains possession of the goods, sells them at a price greatly in advance of the then market value, that presumption is rebutted and the real value of the goods to him is proved by the very fact of this sale to be more than market value, and the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position. The authorities cited, Wilson v. Lancashire and Yorkshire Ry. Co. (1861) 9 C. B. (N.S.) 632 and Schulze & Co. v Great Eastern Ry. Co. (1887) 19 Q. B. D. 30, bear out this conclusion.

This general rule equally applicable to all kinds of contract, i.e. sale contracts or charterparties, and was recently restated by the House of Lords in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 A.C. 353:

Thus where, as here, there is an available market for the chartering of vessels, the injured party’s loss will be calculated on the assumption that he has, on or within a reasonable time of accepting the repudiation, taken reasonable commercial steps to obtain alternative employment for the vessel for the best consideration reasonably obtainable. This is the ordinary rule whether in fact the injured party acts in that way or, for whatever reason, does not. The actual facts are ordinarily irrelevant. The rationale of the rule is one of simple commercial fairness. The injured party owes no duty to the repudiator, but fairness requires that he should not ordinarily be permitted to rely on his own unreasonable and uncommercial conduct to increase the loss falling on the repudiator.
By Lord Bingham at para 10.

For assessment of the loss suffered by the innocent party it is necessary to evaluate its infringed contractual rights, i.e. to consider what would have been the situation if the contract had not been broken. It is presumed that the value of the contract to the innocent party has to be calculated at the date of the acceptance of the breach.

Although general principle described above is intended to compensate the claimant for loss of the value of his contractual benefits and no more, rather than to put him in the same position as if he had not made the bargain in the first place, the claimant is permitted nevertheless, at his option, to claim damages on the latter basis and to recover his "reliance expenditure".

… wasted expenditure can be recovered when it is wasted by reason of the defendant’s breach of contract. It is true that, if the defendant had never entered into the contract, he would not be liable, and the expenditure would have been incurred by the plaintiff without redress; but, the defendant having made his contract and broken it, it does not lie in his mouth to say he is not liable, when it was because of his breach that the expenditure has been wasted
Per Lord Denning MR in Anglia Television Ltd v Reed [1971] 3 All ER 690 at p.692.

As an alternative to wasted expenditure claim an injured side can elect to pursue a loss of profits claim, but such claim can be discounted according to the perceived likelihood of the profit being obtained or even may be rejected entirely if regarded as too speculative.

The principle that every breach of contract gives rise to a claim for damages is qualified by another one, to take all reasonable steps to mitigate the loss consequent on the breach.


Mitigation

But the duty to mitigate, though invariably described as a duty, is not an obligation which gives rise to a cause of action.
Sotiros Shipping Inc. v Sameiet Solholt, [1983] 1 Lloyd’s Rep. 605 per Sir John Donaldson, M.R. at p. 608.

 

The basic principle stated in British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Company of London Ltd., [1912] A.C. 673, is that compensation for pecuniary loss naturally flowing from the breach. This principle is however qualified by another one, to take all reasonable steps to mitigate the loss consequent on the breach. Moreover, the injured party is debarred from claiming any part of the damage which is due to his neglect to take mitigating steps, but it does not impose him an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.

English law does not oblige the injured party to mitigate, in sense that there is no legal liability if he fails to mitigate, such failure may only reduce the amount that the injured party can recover. In other words even in case of no mitigating action at all he is entitled to recover, but he will be able to recover for avoidable loss only. In some instances the innocent side can recover full amount even if he did nothing in way of mitigating, i.e. undertakes no action at all, if such not-acting is reasonable, see for example in The Griparion [1994] 1 Lloyd’s Rep. 533 it was held that the owners who’s vessel was wrongly redelivered to them before expiration of 3-years demise charter, were acting reasonably in not repairing it, although there was no market for rechartering this vessel in her unrepaired state. It was not disputed that the cost of repair was some $1,000,000, and even if the vessel had been repaired, she could not have obtained more than $4000/$5000 per day, whereas the operational costs of trading the vessel were of the order of $4500 per day. The learned judge agreed with the owners that a reasonable owner would have done exactly what they did: lay up the vessel in an unrepaired state, seek to sell her as she was, if they could, and otherwise await an improvement in the market, which did not come.

Whatever method the injured party chooses for the purpose to be restored to substantially the same position as he was before the breach, either the most expensive or the most economical, he commits no wrong, but if he fails to get advantage from the most economical way he cannot make good his failure for the wrongdoer’s account. When, on the other hand, he succeeded, the party in fault is entitled to the benefit accruing from these actions and is liable only for the loss as lessened.

The plaintiff is not under any actual obligation to adopt the cheaper method: if he wishes to adopt the more expensive method, he is at liberty to do so and by doing so he commits no wrong against the defendant or anyone else. The true meaning is that the plaintiff is not entitled to charge the defendant by way of damages with any greater sum than that which he reasonably needs to expend for the purpose of making good the loss. In short, he is fully entitled to be as extravagant as he pleases, but not at the expense of the defendant.
By Lord Justice Pearson in Darbishire v Warran [1963] 1 W.L.R. 1067 at p. 1075.

Thus the damages awarded should represent no more than the value of the contractual benefits of which the claimant has been deprived.


Case-law

Ashby v White (1704) 2 Ld. Raym. 938

Hadley v Baxendale (1854) 8 Ex 341

Robinson v Harman (1848) 1 Exch 850

Wilson v. Lancashire and Yorkshire Ry. Co. (1861) 9 C. B. (N.S.) 632

Rodocanachi v. Milburn. (1886) 18 QBD 67

Schulze & Co. v Great Eastern Ry. Co. (1887) 19 Q. B. D. 30

Wertheim (Sally) v Chicoutimi Pulp Co. [1911] A.C. 301

British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railways Co. of London Ltd. [1912] A.C. 673

Attorney-General v Blake [2001] 1 A.C. 268

Golden Strait Corpn v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 A.C. 353

Glory Wealth Shipping Pte Ltd. v Korea Line Corporation [2011] EWHC 1819 (Comm)

C&P Haulage v Middleton [1983] 1 WLR 1461

Anglia Television Ltd v Reed [1971] 3 All ER 690

Sotiros Shipping Inc. v Sameiet Solholt, [1983] 1 Lloyd’s Rep. 605

British Westinghouse Electric and Manufacturing Co. Ltd. v Underground Electric Railways Company of London Ltd., [1912] A.C. 673

Darbishire v Warran [1963] 1 W.L.R. 1067

Koch Marine Inc v D’Amica Societa Di Navigazione ARL (The Elena D’Amico) [1980] 1 Lloyd’s Rep 75

Empresa Cubana Importada de Alimentos "Alimport" v Iasmos Shipping Co. S.A. , (The "Good Friend")[1984] 2 Lloyd’s Rep. 586

The Griparion [1994] 1 Lloyd’s Rep. 533

Glory Wealth Shipping Pte Ltd. v Korea Line Corporation [2011] EWHC 1819 (Comm)


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