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When is a loss not a loss? When it’s a benefit!

The High Court has recently given judgment in a case which contains important guidance on mitigation of loss where a claimant is seeking damages for breach of contract.  In this case, Thai Airways made a claim for damages arising out of its supplier’s failure to deliver seats for a number of aircraft belonging to the airline, after it came to its attention that the supplier had falsified safety test results and other data to make it appear that the seats met regulatory requirements. 

The principal claim which the airline made was for the cost of leasing replacement aircraft in mitigation of its loss.  In giving his judgment the Judge said that the airline was entitled to recover those aircraft costs but he had to consider whether the airline should give credit for benefits which it was going to receive or would receive as a result of taking those reasonable steps to reduce its loss.  The seat manufacturer argued that any profits made by the airline from operating the leased aircraft had to be deducted from the damages award.  It also said that the airline should give credit for any savings, such as lower fuel costs, made by using alternative seats which were more expensive but were lighter than the seats which it had agreed to provide. 

Giving his judgment the Judge said that where, “a claimant as a result of a step reasonably taken to mitigate its loss received money which it would not have received if the defendant had performed the contract, justice requires the sum received to be brought into account in the calculation of damages whether its receipt was an unavoidable consequence of mitigation or not.”    He went on to say, “I conclude that, in assessing damages for breach of contract, credit must be given for any monetary benefit, whether chosen or not, which the claimant has received or will receive as a result of an action reasonably taken to mitigate its loss.  By a “monetary benefit”, I mean a benefit which either takes the form of money or which the claimant could reasonably have expected to realise in terms of money.” 

In his opinion the Judge decided that the manufacturer had to bear the burden of proving that the airline had derived any benefit from the steps taken in mitigation.  That meant it had to prove that the airline had earned profits from the leases and the amount by which those profits exceeded what the airline would have made if the contract had been performed, and also prove the other savings which it alleged. 

This is an important judgment because it gives guidance on the law of mitigation and when a claimant will have to give credit for benefits arising from actions which it has taken to reduce its loss.  Companies would need to consider these principles when deciding what steps to take in response to being let down by a supplier. Speak to James Staton on 01274 377651 for further guidance. 

About the Author

James Staton

Partner

James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…

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