9th June 2015
A recent case clarifies the key principles of the duty to mitigate loss and highlights that claimants should weigh their options carefully when considering their reaction to another party’s breach of contract. Walker Morris’ Head of Commercial Dispute Resolution, Gwendoline Davies, explains.
Strictly speaking, when a party is faced with another’s breach of contract and suffers loss as a result, the law of England and Wales does not impose a proactive obligation on the former to minimise that loss per se. If that party does not take reasonable steps to minimise loss, however, any claim brought for damages may be reduced as a result. In common parlance, this principle of the law of damages is known as the duty to mitigate.
The recent case of Thai Airways International plc v KI Holdings Co Ltd  serves as a useful reminder of the key principles of mitigation (which are summarised below) and clarifies an important point of law.
In breach of contract, the defendant failed to supply economy class seats to the claimant airline on time (and in some cases, at all). That meant that Thai Airways had to store some of its aircraft until alternative seats could be found. In order to mitigate its losses, Thai Airways purchased and leased some alternative seats when these became available on the market. The alternative seats were lighter and more expensive.
Thai Airways sought to recover its costs incurred in mitigating its losses as part of its overall claim. KI, the defendant, argued that account should be given in the damages calculation for any profit that Thai Airways had gained from operating aircraft with alternative seats and also for any fuel savings that would be occasioned over the life of the seats by virtue of their lesser weight. Thai Airways countered that it should not have to account for any benefits received because obtaining the more expensive seats was the only option to it to minimise its losses and any such benefits were incidental and had not been chosen by the claimant.
Legatt J, in the Commercial Court, held that Thai Airways was liable to account as KI had argued, but that the burden of proof was on KI to prove that Thai Airways had derived or would derive the alleged benefit(s).
When let down by a supplier or faced with any breach of contract, a business should always weigh its options before taking any action either to mitigate loss or to initiate legal proceedings. This is particularly the case where alternative means of mitigating may exist. That is not to say that potential claimants have any time to delay, however, because if reasonable opportunities to mitigate are not taken, every minute can mean cost. As well as bearing in mind the above key principles, businesses may need to take expert industry, forensic accountancy and legal advice, to enable them to make informed mitigation decisions.
Walker Morris’ experienced Commercial Dispute Resolution team is available to help 24/7. Please contact Gwendoline Davies for further information or assistance.
  EWHC 1250 (Comm)
 USA v Laird Line  AC 286
 Wroth v Tyler  Ch 30; Jewelowski v Propp  KB 510
 James Finlay & Co Ltd v NV Kwik Hoo Tong Handel Maatschappij  1 KB 400; Elliott Steam Tug Co Ltd v Shipping Controller  1 KB 127