How far does the duty to mitigate go?
LOMBARD NORTH CENTRAL v AUTOMOBILE WORLD (CA) [2010]
An innocent party is generally under an obligation to take action to mitigate its loss in circumstances where the other contracting party is in breach of contract. This case provides some guidance on the extent of that duty.
facts:
- A entered into a hire purchase agreement with L for a very rare and expensive car, (a Mercedes Benz S600 Pullman, for those interested). However, it failed to keep up the payments and L terminated the contract. It repossessed the car and sold it privately but for much less than the total purchase price under the hire purchase agreement. The sale followed an initial attempt to organise a ‘fax auction’ which had been even less successful in securing adequate offers. L then sought the balance of its loss. A contended that L had failed to adequately mitigate its loss.
- It transpired that the whole process of selling the car from the point it had been repossessed had taken 11 days. No attempt had been made to sell the car through a specialist dealer which was thought to have been the best way to maximise the price obtained and at the time of entering the agreement, L had obtained some written indication that the value of the car was in the region of £194,000.
decision:
- Despite not taking the most obvious course of action, the court said that L had adequately mitigated its loss given that it had to make what was effectively a ‘forced sale’.
point to note:
- The duty to mitigate is clearly not a particularly demanding one. The party in breach places the innocent party in a difficult situation. The burden of proof is therefore on the wrongdoer to demonstrate a failure to mitigate. The innocent party only has to do what is reasonable in the circumstances. However, it is clear that although the burden of proof is with the party who is in breach, it is wise for the mitigating party to adduce compelling evidence that it did take reasonable steps to mitigate.