Mitigation (Contract)

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Mitigation is a principle requiring a plaintiff to attempt to limit his own losses resulting from the breach of another party. Mitigation is a limitation on damages since it limits the ability of the plaintiff to recover for losses that it could have avoided. The principle of mitigation operates as follows:

  1. A Plaintiff must take all reasonable steps to mitigate his losses.[1] Losses which the plaintiff could have mitigated and didn't will not be recoverable.
    • The onus to prove that mitigation has not taken place rests with the defendant.
  2. A Plaintiff may recover for any additional loss incurred as a result of his reasonable attempts to mitigate.[2]
  3. A Plaintiff cannot recover for loss that has been successfully mitigated.

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 681-688 [27.120-27.150].

Introduction

[3] The principle of mitigation requires the plaintiff to attempt to limit the damages which are caused to him after a breach. It has three main elements:

  1. Avoidable loss cannot be recovered - The plaintiff must take all reasonable steps to mitigate the loss he suffered after the breach.
    • Example: a defendant (tenant) reneges on his one year lease and leaves after 4 months. The plaintiff (landlord) will be required to attempt to mitigate his damages by attempting to find a new tenant.
  2. The plaintiff can recover for further losses caused by reasonable attempt to mitigate - where the plaintiff does take reasonable steps, and those end up even more damage, the defendant will nonetheless be liable for those further losses which were not directly his fault.
    • Example: If the plaintiff suffers additional loss placing adverts after the breach, the defendant will be liable for those costs.
  3. Avoided loss cannot be recovered - where the plaintiff succesfully mitigated some his damage, the defendant will not be liable for that damage, ie, he will be liable for the difference.
    • Example: the plaintiff found a new tenant who pays $50 a week less than the defendant did. The defendant will now be liable only for those $50 a week.

The onus is on the defendant to prove that no reasonable steps to mitigate losses were taken.

Reasonable steps

[4] The case of Burns v MAN Automotive (Aust) dealt with the first aspect of mitigation - reasonable steps to mitigate a loss. More specifically, the court considered what happens if a plaintiff's poor financial condition prevents him from taking reasonable steps:

  • "[A] plaintiff's duty to mitigate his damage does not require him to do what is unreasonable and it would seem unjust to prevent a plaintiff from recovering in full damages caused by a breach of contract simply because he lacked the means to avert the consequences of the breach."[5]
  • However, it should be noted that the plaintiff in this case failed to recover for other grounds (it was unreasonable for him to keep operating at a loss).

Attempts at mitigation which increase loss

[6] The second aspect of the mitigation principle is that a plaintiff can recover for further loss incurred to him during his reasonable attempts to mitigate a loss, even if these attempts completely failed and ended up costing him more than just the normal loss would. This was discussed in Simonius Vischer & Co v Holt & Thompson:

  • Plaintiff had excessive contracts due to the Defendant's breach. Plaintiff attempted to mitigate by holding on to excessive contracts, based on market predictions. Market predictions turned out false and Plaintiff lost even more money.
  • Plaintiff's conduct deemed reasonable attempt to mitigate, and therefore Defendant is liable.[7]

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Burns v MAN Automotive (Aust) (1986) 161 CLR 653, 658
  2. Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322, 355
  3. Casebook, p. 680 [27.120] quoting Harvey McGregor, McGregor on Damages (14th ed, 1980), para 209
  4. Casebook, p. 680 [27.125]
  5. (1986) 161 CLR 653, 658
  6. Casebook, p. 686 [27.145]
  7. [1979] 2 NSWLR 322, 356
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