Don't let your claim become an unmitigated disaster: Mitigation of loss

by | Sep 4, 2017 | Blog Posts

Claimants have a responsibility to mitigate their loss if they wish to pursue a claim for damages. Unfortunately, very few people actually know what this means and what steps they have to take to mitigate.  Over a series of two articles I will outline the general scope of the mitigation principle and also address a few specific circumstances where the law has taken an approach different to the general rule.

What is the mitigation rule?

It is commonly assumed that there is a duty or rule that the claimant has to mitigate their loss in a claim for damages in tort or contract. This is not actually the case.  Rather, courts have recognised that they have a discretion to limit the recoverable damages (or sometimes the recoverable costs) of a claimant party if they have not acted reasonably in the period following their loss.

Banco de Portugal v Waterlow

The leading judgment on the issue of mitigation is still that of Lord Macmillan in the case of Banco de Portugal v Waterlow [1932] AC 452.  This case concerned an international banking fraud involving a firm of printers in London (Waterlow & Sons (“Waterlow”)) and the National Bank of Portugal (“the Bank”).
To summarise, Waterlow held an exclusive agreement with the Bank of Portugal to produce Portuguese bank notes to be distributed in the UK.   In 1925, Waterlow were tricked by a gang of international criminals into printing 580,000 bank notes. The criminals subsequently put the notes into circulation.  Once the general public became aware of the existence of the unauthorised currency it caused a run on the Bank. The Bank, in turn, unsurprisingly lost a significant amount of money.
The Bank pursued an action against Waterlow to recover the loss that they had suffered.  Waterlow were found at first instance to have breached their duty of care and contractual duty to the Bank by printing (however innocently) the bank notes for the criminals. However, Waterlow criticised how the Bank handled the affair.   The Bank had voluntarily withdrawn the notes (including the legitimate notes) of the denomination printed by Waterlow. This led to a significant loss for the Bank.  Waterlow argued that the Bank should instead have taken more discreet measure to eliminate the unauthorised notes, which would inevitably have led to a lower level of loss.

House of Lords

The matter reached the House of Lords and the issue of mitigation was directly addressed by Lord McMillan. Lord Macmillan expressed very little sympathy for the criticism that Waterlow directed at the Bank.  While acknowledging that it would be expected that a claimant take reasonable steps to limit its loss, Lord Macmillan stated that their behaviour should not be weighed “in nice scales at the insistence of the party whose breach of contract had occasioned that difficulty”.   Instead, the claimant should only be expected to take reasonable steps to mitigate his loss.   The claimant should not be expected to take any and all steps available to him.  The claimant does not have to overcome a high bar; particularly where the defendant is an admitted wrongdoer.
In the context of the Banco De Portugal case, Lord Macmillan found that the Bank had acted reasonably in voluntarily withdrawing all of the bank notes of that denomination.

How does mitigation work in practice?

In practical terms, a claimant should take steps to mitigate their loss at an early stage; realistically as soon as they realise they have suffered the loss.  It will be then for the defendant to decide whether or not they wish to raise mitigation in their defence.  If they do, the burden falls upon the defendant to show that the claimant has failed to mitigate their loss.
If the court agrees that the claimant has failed to take reasonable steps to mitigate their loss, then it may either reduce the amount that the claimant can recover in damages. Alternatively, the court may reduce the level of costs that a successful claimant is able to recover.
The rules in respect of mitigation are not hard and fast, and are subject to significant discretion by judges.   There are situations where the general rule does not apply; where parties may either be released entirely from the duty to mitigate, or may be required to mitigate to a higher standard.  I will address those specific examples in my next article.
Our professional negligence and litigation solicitors will advise you on mitigation of loss as part of their advice to you. Contact our specialist teams for a FREE initial consultation on 0800 988 7756.

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