Law of Contract: Mitigation
General Notes
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.
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