The duty to mitigate loss

A breach of contract does not give the innocent party carte blanche to recover damages for any loss that may have stemmed from the breach. The amount of damage or loss that can be recovered is subject to a number of considerations, one of which being the actions taken by a complainant to mitigate any loss they may suffer. Therefore, where a contract has been breached it is important that the innocent party considered any mitigating actions they could take to reduce any future loss. A failure to do so may have the potential to alter the amount they are able to recover.

However, what happens when the mitigating actions taken by the innocent party result in a financial benefit to that party? In this circumstance the damages recoverable will be reduced by the amount of the financial benefit. This issue considered in a recent UK case: Thai Airways International plc v KI Holdings Co ltd [2015] EWHC 1250 (Comm).

In Thai Airways, the defendant had failed to fulfil an order of airline seats and Thai Airways had to order more expensive but lighter seats from a different supplier. Thai also had to lease several aircrafts to compensate for the aircraft that were seat-less and therefore unusable. These additional aircraft were leased for a term of three years.

These mitigating actions resulted in a financial benefit to Thai Airways in that:

  1. the new seats resulted in lighter aircraft and subsequent fuel saving; and
  2. the new seats were able to be installed within two years rather than three initially estimated and so Thai had the use of additional planes for the third year.

The UK High Court clarified that a claimant is expected to take reasonable steps to mitigate its loss. However, where such actions result in a benefit to the claimant any damages recoverable will be offset to the extent of the benefit, whether this benefit was intentional or not.

The courts will also give credit for any benefits not yet realised (for example future fuel savings) provided these benefits can be quantified with reasonable clarity.

This case is interesting in that it considers a consequence of the duty to mitigate that is not commonly considered. If you have suffered loss it is important to consider what steps you can reasonably take to mitigate any further losses. There are further important principles around the requirement to mitigate loss, so if you happen to suffer loss, get in touch.

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