Compensation Part 2 - Summary Remedies PDF

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Compensation Part 2 MITIGATION OF LOSS Mitigation is technically NOT a duty. However, there is an obligation to act reasonably to minimise and avoid further consequential loss. Lord Donaldson – “a plaintiff is under no duty to mitigate... completely free to act as he judges in his own interest. on the other hand… defendant is not liable for all the loss suffered by the plaintiff... the defendant only liable as..." This duty applies equally in tort and in contract.     

Mitigation relieves D from paying the portion of the loss over which the P had full control and which he should have avoided. It also permits the P to recover additional expenses incurred in reasonable attempts to confine the loss: National Foods Milk Ltd v McMahon Milk Pty Ltd Onus is on D to prove that P has not taken reasonable steps to mitigate loss: Wenkart v Pitman P is not required to sacrifice or risk property or rights in order to mitigate the loss: Sacher v Forma The threshold for unreasonableness is high because the court will consider the fact that it was the D’s breach that exposed P to loss and occasioned the need to consider mitigating action: Banco v Waterlow

In contract   

The test for mitigation in contract cases has been traditionally stated to be “what a prudent person ought reasonably to do in order to mitigate his loss arising from the breach of contract: Payzu P might be obliged to minimise the loss flowing from D’s breach by immediately going back into a rising market to seek a replacement for the subject matter of the contract (and in the process expending valuable time and broker’s fee) While it may be difficult for D to succeed with argument that P was acting unreasonably, D may argue that P unreasonably turns down an offer of alternative of mitigation by a third party or even the D and that acceptance would have reduced the loss: Castle Constructions v Fekala

In tort 

P can be expected to seek medical advice and treatment

EFFECT OF TAKING AN AVAILABLE MITIGATING STEP The loss that has been avoided cannot be compensated for ‘even though there was no duty on [the plaintiff] to act’, provided that the steps undertaken by the plaintiff were ones ‘arising out of the transaction’. However, if the benefit obtained by the plaintiff is one not arising ‘out of the transaction’, that benefit is not taken into account by way of reducing the damages recoverable by the plaintiff. Westinghouse v Underground Electric Railways

Facts: Underground Electric Railways (UER) purchased turbines from British Westinghouse Electric Co (BWEC). The turbines were faulty in that they were deficient in power. UER used the defective turbines for a time and then purchased new turbines which were more efficient than the defective ones would have been even if they had not been faulty. UER brought an action for breach of contract. UER claimed the cost of the replacement turbines. They asserted the purchase was reasonable and prudent and, therefore, the cost of purchasing them should be recoverable as a direct consequence of the breach. Additional profits made from purchasing the new turbines was not a matter for consideration when assessing damages. BWEC contended that even if the turbines had not been defective, the more efficient turbines would have been purchased in any event and, therefore, UER had not suffered a material loss because of the defect. Damages awarded are to place the innocent party in the position he would have been had there been no breach. Even if the new turbines were purchased because of the breach, account should be taken of the increased profits made with the installation of the more energy efficient turbines. Held: The House of Lords held that in assessing the damages for the breach any loss sustained by the plaintiffs had to be balanced against any gain to them arising directly out of the steps they had taken to lessen the consequences of the breach. Although the plaintiffs had not been bound to buy the new machines, having done so the consequential gain in profits and saved expenses had to be brought into account. The savings exceeded the cost of the machines and so the plaintiffs recovered nothing under this head. Giving the leading judgment, Viscount Haldane LC, 688-9, ‘the quantum of damage is a question of fact’. He set out the principles for determining the measure of damages.

The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally 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 in respect of any part of the damage which is due to his neglect to take such steps.

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The duty to mitigate is not to ‘take any step which a reasonable and prudent man would not ordinarily take in the course of his business.’ Only reasonable steps Principles: 

He who has proved a breach of a bargain to supply what he contracted for, is to be placed, as far as money can do it, in as good a situation as if the contract was performed.

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P has duty to take all reasonable steps to mitigate the loss consequent on the breach; P cannot claim any part of the damage which is due to his neglect to take such steps

IMPEDIMENTS TO AN AVAILABLE MITIGATING STEP A failure to take reasonable steps to avoid loss will result in damages not being awarded for loss that could have been avoided. If the plaintiff cannot afford to undertake steps that would otherwise be reasonable and therefore avoid loss, he will not be held to have failed to mitigate, especially where the financial difficulty is a consequence of the defendant’s breach of contract If reasonable steps to mitigate are undertaken by a plaintiff have the effect of increasing, rather than avoiding, loss, damages for that additional loss are, nevertheless, recoverable from the defendant.

Lack of money: Burns v MAN Automotive Pty Ltd (1986) 161 CLR 653 Facts: The plaintiff was a haulier and the defendant was a supplier of prime movers. The defendant arranged the sale of a prime mover to a hire purchase company which in turn hired the prime mover to the plaintiff. At the time of the transaction Man warranted that the engine of the prime mover had been reconditioned, when in fact it had not. Furthermore, it knew that the plaintiff was not well off and that he intended to use the prime mover for interstate haulage. The prime mover kept breaking down, but although the plaintiff was unable to afford a reconditioned engine, he was able to use the truck to carry goods in his home state of Queensland between June 1978 (when he discovered the defect) and the end of 1979 when the truck was repossessed by the finance company for lack of payments. The plaintiff claimed that he had to keep on incurring losses because he could not afford either to fix the truck or replace it. Held: While the plaintiff was entitled to the loss of profits from the date he entered into the hiring agreement up to the date he discovered the defect (June 1978), he was not entitled to loss of profits from that date on. While the majority of the High Court found that this loss was too remote, Gibbs CJ said that the plaintiff should have mitigated his damages by terminating the agreement when he discovered the defect in the vehicle

Dodd Properties (Kent) Ltd. v Canterbury City Council [1980] 1 WLR 433 Facts: In 1970, the defendants were building a multi-storey car park near to the complainant’s building. The pile driver they had used had resulted in bad structural damage to the complainant’s building. An action for negligence and nuisance was brought by the complainants in response to the defendant’s construction of the multi-storey car park. Although the D had eventually admitted liability for negligence, as the dispute had lasted a long time, the costs of repairs had increased. There was now a dispute over quantum and damages due to the complainant. The issue surrounded when the damages for repairs should be assessed. The complainants argued it should be at the date of the hearing, while the D argued the damage should have been assessed in 1970 at the time of the construction. Held: The Court of Appeal held that the cost of the repairs should be assessed at the date of the action in 1978. It was reasonable to defer the cost of repairs if it was going to increase their annual losses. The purpose of damages is meant to be compensatory; it should put the injured party back into the same position they would be in if the damage had not occurred. The damage and cost of repairs should be assessed at the earliest reasonable

date, which does not always mean the data damage occurred. All circumstances must be considered prior to awarding damages Principles: P’s inability to pay for repairs meant that the court assessed damages at the date the repairs were actually carried out, not the date they could have been made had P had the money

Embarrassment or probable loss of business reputation: James Finlay and Company v N V Kwik Hoo Ton Handel Maatshcappij Facts: D breached their bill of lading for a sale of goods. The Ds lied on their bill of lading, wrongly stating the date it was shipped and sailed. The P relied on that date and entered into subsequent bills of lading. When P discovered the ship did not leave on time, the P sued ship owner for damages and included in his claim, money sustained when he terminated the subsequent bill of ladings. D argued that it was pointless because technically the D was not in breach. The bill of lading in fact is incontrovertible evidence that the ship has left. the P could have kept the contracts and just relied on the fact that in that bill of lading it was incontrovertible evidence that the ship has sailed. Held: D could not compel the P to enforce the subsequent contracts by claiming money which he knew he was not entitled to. If P did so, people will realise it was not true and he would lose his reputation. Therefore, the court said cannot force someone to do things that will reduce their reputation just because you think they should have done it to mitigate their damages. P could have avoided some loss by not terminating follow-on contracts on a technicality. P would have been claiming money to which it knew it was not entitled in reality – and if it did so, it would ruin its credit in the business world. D has to pay for the loss of profits on the later contracts.

Payzu Ltd v Saunders Facts: Contract between parties to buy silk from the D. P could pay by cheque and there was a discount on the silk. However, there was a misunderstanding and the P missed a payment. In response the D demanded the P pay cash for the rest of the orders and rescinded their discount. P refused. Held: The innocent P buyers had been found to have failed to mitigate their damages because they had not accepted an offer from the D sellers (who were in breach of contract) to supply goods on cash terms, the contract having originally provided for sales on credit. the P submitted that as a matter of law they had not been bound to consider any offer made by the D because of their prior conduct. Whether a P or applicant has taken reasonable steps to mitigate his loss is a question of fact and not of law. He may not have to risk starting uncertain litigation himself but might have to consider an offer made by the wrongdoer himself. The fear of damage to reputation has to be genuine

WHERE MITIGATING STEPS LEAD TO AN INCREASE IN DAMAGES The court will assess whether the mitigating steps were reasonable and necessary in the light of the consequences, if not taken. Banco de Portugal v Waterlow and Sons [1932] AC 452 Facts: The plaintiff bank had engaged the defendant printers to print bank notes. The defendant delivered a large number of notes to a criminal who later put them into circulation. The P found out and they withdrew the issue of particular notes and exchanged all of them. D seeks to argue they are not liable for the loss caused by exchanging Held: D had to pay damages which sent them into liquidation. If the P is placed in a difficult situation by reason of the breach of a duty owed to him, as long as the P acted reasonably in the adoption of remedial measures, the P IS NOT disentitled to recover the cost of such measures merely because the breaching party can suggest another measure that would be less burdensome to him

ANTICIPATORY BREACH Rule: When one party repudiates the contract, the other party has two options: 1) Accept repudiation and sue for damages for breach - whether or not time for performance has come 2) Disregard repudiation and the contract remains in full effect. 3) White & Carter (Councils) Ltd v McGregor [1962] AC 413 Facts: White & Carter, the appellants, were advertising contractors that agreed with a representative of a garage proprietor to advertise for his garage for the period of three years. The respondent, the garage owner purported to cancel the contract on the same day as it was made on the basis that the sales manager had no authority to make it. P refused to accept the repudiation and continued alone with the contract, then sued for the amount for the entire period of advertising. Held: Where a party is in renunciatory breach of contract, the other party is not bound to accept the breach and sue for damages but may perform its own obligations under the contract and claim what is due under the contract. A party is not bound to enforce its contractual rights in a reasonable way. In most cases the innocent party cannot complete contract without the other party's cooperation. Even where possible, argued that it is contrary to public interest to allow it. The appellants should not be deprived of their right to claim the contract price merely because the benefit to them, as against claiming damages and reletting their advertising space, might be small in comparison with the loss to the respondent. Judgment Lord Reid: Where a person makes it clear to the other party that they are not going to perform the

contract before the date for performance arrives. At that point the innocent party has a choice whether to terminate the contract or affirm the contract. If it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself. If a party has no interest to enforce a stipulation, he cannot in general enforce it. Dissent: The offended party is to put his remedy at the date of breach. When an anticipatory repudiation is not treated as cause of action, the contract remains alive. When an anticipatory repudiation is not treated as a cause of action, the contract remains alive. It does until the contract would become operative, when the repudiation if still maintained, then becomes a cause of action and all pleas and defences then existing are available to the respective parties. The party complaining of the breach has a duty to minimise the damage he has suffered which is a further reason for saying that after the date of breach, he cannot continue to carry on his part of an executory contract.

PERSONAL INJURIES Glavonjic v Foster [1979] VR 539 Facts: An automobile accident caused the plaintiff to suffer a brain injury. Plaintiff refused to undergo recommended brain surgery which he was told would probably alleviate the condition. P gave circumstances in which he refused operation:  Wife had previous surgeries that wasn't successful  Failure of previous operation  Brain surgery had serious risks  Plaintiff had anxiety condition and depression  Plaintiff's poor education  Limited English  Advice received from doctors not unanimous  Sought to rely on fact that he asked for guarantee of success in writing but was refused (Judge said this was unreasonable) Held: In mitigation, the onus of proof is on the defendant to show that:

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1. The proposed steps could have actually have mitigated the harm (in this case, the defendant successfully showed how the surgery probably would have mitigated the harm). 2. The proposed steps were reasonable, or that the refusal to take them is unreasonable. When examining whether a refusal to mitigate was unreasonable (or, whether the step to mitigate was reasonable), a court considers what a reasonable person in all the circumstances of the plaintiff would have done. 1.

This means taking into account his history etc.

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In this case, it was not unreasonable for the plaintiff to refuse when one considers his particular circumstances. Since his refusal was valid, the plaintiff did not fail to mitigate and he can recover for the additional harm

INFLATION General rule: you don’t add an amount to damages with regards to any potential rise of rate. E.g. the cost of medical and nursing care often rises more quickly Rough and ready method used by courts: Apply an appropriate discount table in order to aim for a ultimate outcome of both capital sum and the income therefore being exhausted at the precise date of the victim's death, after having provided sufficient moneys to cover expenses and compensate for the loss of income. Current method: No more judicial disagreement and speculation on the rate. Authority: Todorovic v Waller (1981) 150 CLR 402 - It is 3 per cent mandatory throughout Australia. **But it is 5% in Tasmania: Civil Liability Act 2002 (Tas) s 28A** CIVIL LIABILITY ACT (TAS) 2002 - SECT 28A 28A. Discount rate applicable to certain damages If an award of damages is to include any component assessed as a lump sum for future loss, the present value of that future loss is to be qualified by adopting – (a) a discount rate of 5 per cent; or (b) if another discount rate is prescribed, that other discount rate

Todorovic v Waller (1981) 150 CLR 402 Issue: Impact of inflation upon the loss of earning capacity and upon medical and other future expenses arising from the accidents. Held: Discount rate of 3 per cent should be applied and no further allowance should be made for notional tax. Gibbs CJ and Wilson J:  Regarding inherent system of compensation:  Regarding inflation unpredictability: It is no more than conjecture and the rate at which it will increase cannot even be conjectured.  Evidence directed to these questions would be purely speculative and would prolong and complicate trials for no advantage.  Even if rate can be safely predicted, it is not relevant.  Only relevance is that it will be likely to increase the earnings that might have been made had plaintiff not been injured, and the cost of goods and services that his injuries have made necessary for his future care,  Wages and costs rise but not necessarily at the same rate - giving more cause for speculation

If inflation is to be considered, the only practicable alternative is by taking into account in fixing the discount rate.  In absence of evidence, that can only be done by intuitive recognition that chosen discount rate bears a just relation to impact of inflation.  Impossible to take judicial notice of extent to which interest rates include inflationary element - court is forced to make a judicial guess as to different between prevailing interest rates and rate of inflation. Concur at a discount rate of 3 per cent

Inflation in damage to property cases Courts usually adjust the date at which they are going to adjust damages - The more recent, the more likely it is you are going to get actual amount for property damage. This means the compensation is up to date as to when the award is made. By statute, courts can award pre-judgment on damages - from what happened till the point when damage is made.  More flexible approach to choosing date at which to assess damages in order to achieve ...