Mitigation, Avoided Loss, and Time of Assessment
| Author | Jamie Cassels |
| Profession | Professor of Law University of Victoria |
| Pages | 338-375 |
CHAPTER
12
MITIGATION,
AVOIDED
LOSS,
AND
TIME
OF
ASSESSMENT
A.
MITIGATION
OF
DAMAGES
1)
Introduction
Mitigation
of
damages
is the
principle that
a
plaintiff
may not
recover
losses that could have been avoided
by
taking reasonable steps
after
the
wrong.
The
principle applies
in
both tort
and
contract.
The
Supreme
Court
of
Canada
has
quoted with approval
the
following statement
from
the
House
of
Lords:
The
fundamental basis
is
thus compensation
for
pecuniary loss natu-
rally flowing
from
the
breach;
but
this
first
principle
is
qualified
by a
second, which imposes
on a
plaintiff
the
duty
of
taking
all
reasonable
steps
to
mitigate
the
loss
consequent
on the
breach,
and
debars
him
from
claiming
any
part
of the
damage which
is due to his
neglect
to
take
such
steps.1
Another
way of
expressing
the
rule
is
that
a
plaintiff
cannot recover
"avoidable
losses."2
1
British
Westinghouse
Electric
&>
Manufacturing
Co.
Ltd.
v.
Underground
Electric
Rlys
Co.
of
London Ltd.,
(H.L.)
at
689,
quoted
with
approval
in
Asamera
Oil
Corp.
v. Sea Oil &
General Corp.
(1978),
[Asamera].
2 Red
Deer College
v.
Michaels,
[Red
Deer
College].
338
Mitigation,
Avoided Loss,
and
Time
of
Assessment
339
There
are
sound reasons underlying
the
obligation
to
mitigate. Most
generally, mitigation
is
about fairness. Damages
are not
generally
intended
to be
punitive. Following
a
tort
or
breach
of
contract,
the
plaintiff
may not
hold
the
defendant hostage
to
every loss that might
occur.
Where
the
plaintiff
is
reasonably able
to
avoid
a
loss,
or to
take
steps
to
minimize
it, it
would
be
antisocial
and
punitive
for the
plaintiff
to
sit
back
and do
nothing,
thus
incurring
an
"unconscionable
accumu-
lation"3
of
damages.
The
rule
of
mitigation
has the
effect
of
minimizing
the
total costs
of the
tort
or
breach
of
contract, thereby avoiding unduly
burdening
or
surprising
the
defendant with
an
unexpected extent
of
lia-
bility.
It
should
be
borne
in
mind that
not all
breaches
of
contract
are
mala
fides
or
even intentional. There
is no
general policy that contract
breach should
be
punished. Similarly, most torts involve
the
unin-
tended consequences
of
legitimate activities.
The
rule
of
mitigation
reflects
a
recognition that "accidents happen"
and
that
no
useful
pur-
pose
is
served
by
allowing
the
damages
to
increase
in
their
aftermath.
The
basic insight that
it is
socially desirable
to
minimize
the
total
costs
of a
civil wrong
has
been formalized
by
legal economists.
The
rule
of
mitigation
is
said
to be
efficient
in
that
it
provides
an
incentive
to
minimize
the
joint costs
of an
activity. More specifically,
in
breach
of
contract cases, mitigation
permits
"efficient
breach." According
to
this
notion, where
the
cost
to the
promisor
of
performing
a
contract
is
sub-
stantially more expensive than
the
loss
to the
other party
from
non-
performance,
the
contract should
not be
performed.
It is
uneconomic,
and
oppressive,
to
force
completion
of
such contracts when
any
losses
to
the
innocent
party
can be
compensated
by
damages.
The
theory also
applies when
the
promisor
is
able,
by
breaching,
to
earn additional
profits
on an
alternate transaction. Where
the
innocent party's loss
can
be
fully
compensated
by an
award
of
damages paid
out of the
addi-
tional
profits,
and
there
is
still
a net
gain
to be
earned
on the
alternate
transaction,
it is
efficient
(joint value
is
maximized)
to
permit
the
breaching party
to
pursue
the
alternative
transaction.4
The
rule
of
miti-
gation,
requiring
the
innocent
party
to
take
steps
to
keep
the
costs
of
breach
low,
further
promotes this result.
The
rule
of
mitigation also ensures
a
fair
allocation
of
risks
between
the
parties.
Often
the
plaintiff
is in the
best
(or
only) position
to
deal with
the
consequences
of a
breach
of
contract
or
tort.
In
such
circumstances,
it
would
be
wrong
to
saddle
defendants with
post-
3
Ibid.
4
R.A. Posner,
Economic
Analysis
of
Law,
4th ed.
(Boston: Little, Brown, 1992)
at
119.
340
REMEDIES:
THE LAW OF
DAMAGES
breach risks over which they have
no
control.
For
example, where
a
buyer
of
goods breaches
a
contract
of
sale,
the
vendor
has an
obligation
to
resell
the
goods.
If the
vendor does
not do so and the
goods spoil,
or
the
market price
falls,
that additional
loss
is
caused
as
much
by the
vendor's inaction
as by the
buyer's breach. Additionally, while
the
ven-
dor
in
such
a
case
may
choose
to
hold
onto
the
goods rather than
to
resell them
(in the
hope that
the
market price will increase),
the
risk
of
such speculation should generally
fall
on the
plaintiffs shoulders
rather than
the
defendant's
(if the
price does
in
fact
increase,
the
plain-
tiff
will
be
permitted
to
retain
the
profit).
2)
General Principles: Reasonableness
The
objective
of the
rule
of
mitigation
is to
give
the
plaintiff
an
incen-
tive
to
take
steps
to
minimize
the
total
costs
of the
tort
or
breach
of
contract,
and to
avoid unduly burdening
the
defendant with avoidable
losses.
The
plaintiff
is
debarred
from
recovering
losses
that could rea-
sonably
be
avoided. What
is
reasonable
is a
question
of
fact,
not
law,
and the
burden
of
proof
is
upon
the
defendant
to
demonstrate that
the
plaintiff
could reasonably have avoided
a
loss
or was
unreasonable
in
her
conduct.5
In
assessing reasonableness,
the
context
is
important.
In
the
commercial context,
plaintiffs
must
do
what
an
ordinary business
person would
do in the
circumstances. They must take actions that
are
consistent with their usual practices
and may not let
their feelings
of
hostility
or
anger
get in the
way. However,
the
plaintiff
is not
obliged
to
make extraordinary
efforts
or to
take
serious
business
risks
or
gambles
to
reduce
a
loss.
The
plaintiff
need only
do
what
is
prudent under
the
circumstances. Given that
the
plaintiff
is
often
facing
difficult
circum-
stances
following
an
unexpected breach,
the
actions taken will
not be
judged against
too
high
a
standard.
Nor
will
courts permit
the
actions
taken
by the
plaintiff
to be
easily second-guessed
by the
defendant with
the
benefit
of
perfect
hindsight.
One
court explained:
Where
the
sufferer
from
a
breach
of
contract finds himself
in
conse-
quence
of
that breach placed
in a
position
of
embarrassment,
the
measures which
he may be
driven
to
adopt
in
order
to
extricate him-
self
ought
not to be
weighed
in
nice scales
at the
instance
of the
party
whose breach
of
contract
has
occasioned
the
difficulty.
. . . The law is
satisfied
if the
party placed
in a
difficult
situation
by
reason
of the
breach
of a
duty owed
to him has
acted reasonably
in the
adoption
of
5 Red
Deer
College,
above note
2.
To continue reading
Request your trial