Learning Outcomes
After reading this article, you will be able to explain the duty to mitigate in contract law, identify when and how it applies following a breach, and determine its effect on the calculation of damages. You will also be able to distinguish mitigation from related concepts, apply the principle to practical scenarios, and recognise common SQE1 pitfalls.
SQE1 Syllabus
For SQE1, you are required to understand the duty to mitigate as it applies to contractual discharge and remedies. Focus your revision on:
- the principle that a non-breaching party must take reasonable steps to reduce losses after a breach
- how mitigation affects the calculation of damages
- the limits of the duty to mitigate and who bears the burden of proof
- the relationship between mitigation, causation, and remoteness
- the distinction between mitigation and contributory negligence in contract law
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the duty to mitigate, and when does it arise in contract law?
- If a seller breaches a contract for goods, what is the buyer expected to do to mitigate loss?
- Who bears the burden of proving a failure to mitigate, and what must they show?
- How does the duty to mitigate differ from contributory negligence in contract law?
Introduction
The duty to mitigate is a fundamental rule in contract law that limits the damages recoverable by a party following a breach. It requires the non-breaching party to take reasonable steps to reduce their losses, rather than allowing avoidable harm to accumulate and then claiming full compensation. This principle ensures that damages reflect only actual, unavoidable loss and prevents claimants from recovering for losses they could have reasonably prevented.
The Duty to Mitigate: Principle and Scope
When a contract is breached, the innocent party is not entitled to sit back and allow losses to mount. Instead, they must act as a reasonable person would in the circumstances to reduce the impact of the breach. This may involve seeking substitute goods, alternative employment, or otherwise minimising the financial consequences.
Key Term: duty to mitigate
The obligation on a non-breaching party to take reasonable steps to reduce losses resulting from a breach of contract. Losses that could have been avoided by reasonable action are not recoverable as damages.
The duty to mitigate is not absolute. The innocent party is not required to take extraordinary risks, incur unreasonable expense, or sacrifice their own commercial interests. The standard is what a reasonable person would do in similar circumstances.
Key Term: reasonable steps
Actions that a prudent person would take in the circumstances to limit loss after a breach, judged objectively.
How Mitigation Affects Damages
Damages in contract law aim to put the claimant in the position they would have been in had the contract been performed. However, losses that could have been avoided by reasonable mitigation are excluded from recovery.
If the claimant fails to mitigate, the court will reduce the damages awarded by the amount of loss that could have been avoided. The burden of proving a failure to mitigate rests with the party in breach, who must show both that reasonable steps were available and that the claimant failed to take them.
Key Term: burden of proof (mitigation)
The responsibility of the breaching party to demonstrate that the claimant failed to take reasonable steps to mitigate loss.
Relationship to Causation and Remoteness
Mitigation interacts with the principles of causation and remoteness. Only losses caused by the breach and within the reasonable contemplation of the parties are recoverable. If the claimant fails to mitigate, the chain of causation is broken for those avoidable losses.
Mitigation is distinct from contributory negligence. In contract law, contributory negligence is generally not a defence unless the claim involves a breach of a contractual duty of care that overlaps with tort.
Key Term: contributory negligence (contract)
A partial defence reducing damages where the claimant's own negligence contributed to their loss, but only applies in contract where the breach is also a tort.
Practical Application of the Duty to Mitigate
The duty to mitigate applies in a wide range of contractual contexts, including sales of goods, employment contracts, and service agreements. The innocent party must act promptly and reasonably, but is not required to accept inferior substitutes or unreasonable terms.
Worked Example 1.1
A supplier fails to deliver raw materials to a manufacturer as agreed. The manufacturer can buy the same materials from another supplier at a slightly higher price. What is the manufacturer's duty?
Answer: The manufacturer must take reasonable steps to source the materials elsewhere, even at a modestly higher price. Damages will be limited to the difference in cost, not the full loss of production if the manufacturer could have avoided it by buying substitute materials.
Worked Example 1.2
An employee is wrongfully dismissed and chooses not to look for new work for several months. What is the effect on damages?
Answer: The employee is expected to seek comparable employment to mitigate loss. If they fail to do so, damages for lost earnings may be reduced by the amount they could reasonably have earned in alternative employment.
Worked Example 1.3
A buyer refuses to accept delivery of goods. The seller does not attempt to resell the goods and claims the full contract price as damages. Is this permitted?
Answer: No. The seller must take reasonable steps to resell the goods to limit loss. Damages will be reduced by the amount the seller could have obtained from a reasonable resale.
Limits and Exceptions
The duty to mitigate does not require the innocent party to take steps that would expose them to unreasonable risk, significant expense, or reputational harm. They are not required to accept fundamentally different or inferior performance, nor to accept offers from the breaching party if it would be commercially unreasonable.
Key Term: unreasonable risk (mitigation)
A risk that a reasonable person would not accept in the circumstances when attempting to reduce loss after a breach.
Burden of Proof and Strategic Considerations
The party in breach must prove that the claimant failed to mitigate and that reasonable steps were available. Claimants should keep records of actions taken to reduce loss, as this may be scrutinised if mitigation is challenged.
Exam Warning
If a question asks about damages after breach, always consider whether the claimant could have taken reasonable steps to reduce loss. Failing to discuss mitigation may result in an incomplete answer.
Mitigation and Affirmation
If the innocent party affirms the contract after an anticipatory breach, they are not required to mitigate during the period of affirmation, but must act reasonably once the contract is discharged. Courts may refuse to allow affirmation if it would be unreasonable or require the breaching party's cooperation.
Key Point Checklist
This article has covered the following key knowledge points:
- The duty to mitigate requires the non-breaching party to take reasonable steps to reduce losses after a breach.
- Losses that could have been avoided by reasonable mitigation are not recoverable as damages.
- The burden of proving a failure to mitigate lies with the party in breach.
- The duty to mitigate is limited to reasonable steps and does not require extraordinary action or risk.
- Mitigation interacts with causation and remoteness but is distinct from contributory negligence.
- Courts may reduce damages if the claimant fails to mitigate, but will not require acceptance of inferior or risky alternatives.
Key Terms and Concepts
- duty to mitigate
- reasonable steps
- burden of proof (mitigation)
- contributory negligence (contract)
- unreasonable risk (mitigation)
