Duty To Mitigate – Sign Of Weakness Or Pragmatism?

When engaging with clients in relation to a contractual dispute a question that is often posed by lawyers is, what have you done to try and mitigate the loss?

Such a question is sometimes met with resistance from clients citing that “why should I do their work for them”, or “it’s not my fault the other party failed to hold its end of the bargain”. Whilst these are all valid points, consideration must always be given as to what the innocent party can do to avoid incurring a loss because of another’s conduct.

The usual position is that a party that suffers a breach of contract, or a tort is entitled to recover damages against the party that caused it. The damages are to represent the loss in financial terms to put the claimant back into the position they would have been in had the breach or tort not been committed.

Duty of mitigation

This is a bit of a misnomer as strictly speaking there is no formal duty or positive obligation on the innocent party to take reasonable steps to mitigate (or reduce) its loss(es) or to do anything at all.

However, the doctrine of mitigation is a well-established legal principle in contract law, which states that an innocent party cannot recover for any loss which was reasonably avoidable.

The purpose of mitigation is to avoid the claimant from suffering avoidable losses, resulting from the breach or tort. This will, in turn, result in the loss(es) claimed by the claimant being either partly, or completely avoided.

To understand mitigation, it is helpful to consider the respective viewpoints taken by a claimant and defendant when a claim for damages under a contract is being dealt with.

In addition to the above, the Courts need to consider what is reasonable based on the facts of the case before them.

Reasonableness – what is reasonable?

Simply put, at law an innocent party is not entitled to recover a loss that it could have taken reasonable steps to avoid. Therefore, the duty of mitigation should always be considered at the outset of any breach of contract or tort claim.

Whether a party has acted reasonably, is subjective and not easy to identify, however, at its base level, the innocent party must have tried to do something to avoid the loss complained of – if it was able to do so.

If the innocent party was unable to do anything to mitigate i.e., it was outside its control, then it will not be punished for its inaction. Conversely, if there was something the innocent party could have done to reduce its loss, but chose not too then, the position taken by the Court is that it failed to mitigate, and therefore not recover its losses as they were reasonably avoidable.

It is worth noting the bar to reasonableness is low and the Courts do not apply harsh burdens on claimants to mitigate their losses, as they recognise that it was the defendant’s doing that caused the loss in the first place.

Despite this mitigation is encouraged.

Mitigation – an example

The claimant (John) instructs a builder (Bob) to build an extension to his home. The specifications and price are set out in a contract and are signed by both parties.

Following completion of the extension, John pays Bob in full. After a couple of weeks John notices dampness in the extension, and on further investigation discovers that there is a hole in the roof. Due to the hole in the roof rain has got into the extension and caused damage to the floor and walls.

John, who is rightfully upset, raises this with Bob and asks that he pays to repair the damage and the costs to fix the roof. In response to this Bob offers in the first instance to come to the property to put right the hole in the roof. On a side note, Bob refuses to pay to repair the water damage to the extension.

John agrees to Bob’s offer to repair the hole in the roof, as this will stop any more water from getting into the extension. Once the roof has been fixed John then pursues Bob for payment to repair the damage caused to the extension by the rain getting in through the hole in the roof.

Of course, this is a rudimentary example, however, it does demonstrate how mitigation might look in practice.

As a result of accepting Bob’s offer to fix the roof, John has acted reasonably and mitigated his loss by having the roof repaired which avoids the need of incurring the cost of instructing a new builder. The repairs will also stop any further damage being caused to the extension as the repairs to the roof should stop any more water from getting in.

John can then pursue Bob for the remaining damages to reflect the damage caused to the extension, knowing that he has mitigated the total loss and removed the issue which caused the damage in the first place.

Conclusions

It is always important to consider mitigation at the outset of a case, if possible, as it could in the long run save the client from incurring substantial legal costs of running a particular dispute to trial. Particularly when it could feasibly be resolved at a pre-action stage.

The most difficult thing when it comes to mitigation is sometimes the attitude of the client, as they may feel (quite rightly) that they have been wronged by the other party and are entitled to claim damages from them.

Sometimes the client may think that it is a sign of weakness by being willing to agree to mitigate, particularly in similar situations to the example given above. But it should be explained to them that it isn’t – quite the opposite in fact.

Therefore, it is important to remind your client of the wider picture of the dispute and what it is that they want to achieve, which is usually to be put back into the position they would have been in had the contract been performed correctly.