British Westinghouse Electric and Manufacturing Co Ltd v Und...

Facts

• The case involved a contract between British Westinghouse Electric and Manufacturing Co Ltd and Underground Electric Railways Co of London Ltd for the supply of turbines.
• The turbines supplied were defective, resulting in reduced efficiency.
• Underground Electric Railways Co subsequently replaced the defective turbines with more efficient models.
• The dispute centered on the calculation of damages and whether benefits from replacing the turbines should reduce the recoverable loss.

Issues

1. Whether the innocent party is required to take reasonable steps to mitigate losses following a breach of contract.
2. Whether the benefits obtained from more efficient replacement turbines should be considered in assessing recoverable damages.
3. What constitutes "reasonable" conduct in attempting to mitigate losses.
4. On which party rests the burden of proof regarding a failure to mitigate loss.

Decision

• The House of Lords held that the innocent party must take reasonable steps to minimize the losses resulting from a breach.
• The benefits derived from the new, more efficient turbines were to be considered in calculating damages, thereby reducing the recoverable loss.
• The burden of proving a failure to mitigate rests with the party in breach.
• Reasonableness of mitigation measures is to be assessed according to the specific circumstances of each case.

Legal Principles

• The duty to mitigate requires the injured party to act reasonably to limit its losses; damages are calculated based on the actual loss suffered after such reasonable steps have been taken.
• Failure to mitigate does not eliminate the right to damages but may reduce the amount recoverable.
• The duty to mitigate is subject to limitations; the innocent party need not undertake burdensome, risky, or materially different steps from those originally contemplated.
• The burden of proof for alleging a failure to mitigate lies with the defendant.
• This principle applies across various contract types, including employment, sale of goods, and construction contracts, with the nature of mitigation determined by context.

Conclusion

British Westinghouse v Underground established the core rule that a party suffering from a contractual breach must take reasonable measures to mitigate loss, and that the measure of damages reflects both the claimant’s post-breach actions and the corresponding benefit received, thus ensuring fair and balanced compensation in contract law disputes.