The Court of Appeal has provided welcome clarity regarding a claimant’s duty to mitigate its loss. Stuart Pemble summarises the good news
Key points
- Judges should answer the question of mitigation of loss based on the specific facts of the case
- If a claimant has reduced or extinguished its loss, it cannot be compensated for damage it has not actually suffered
Of all the legal issues that cross your average legal hack’s desk, few are as tricky as those relating to the law of damages. In many ways, it is quite remarkable that so simple a principle in theory – the law is trying to compensate the innocent party for the loss it has suffered – can be so blinking complicated in practice. But Legal Notes cannot avoid the truth: the law regarding damages is difficult. Really difficult.
Which is one of the reasons why the Court of Appeal’s recent unanimous decision in Bacciottini and another v Gotelee & Goldsmith (a firm) [2016] EWCA Civ 170; [2016] PLSCS 94, and the crystal clear leading judgment of Davis LJ in particular, should be celebrated by one and all. While the court’s finding as to the correct damages payable to the claimants as a result of the admitted negligence of their solicitors in a residential conveyancing context was important enough for the parties concerned, the analysis of the principles regarding an innocent party’s (so-called) duty to mitigate its loss is of far wider application.
The dispute
The claimants bought a site (called the Granary) near Snape Hall in Suffolk in 2007 for £600,000. The site had three different buildings; one of which was a former granary. The claimants intended to live in (and renovate) the granary at the same time as developing the other two buildings. The defendant solicitors failed to notice that there was a restriction dating back to 1974 (when the site’s planning use changed from agricultural to residential) which meant that the Granary could only be used for residential purposes if the claimants also owned Snape Hall itself. However, the hall had been sold as a separate residence a number of years previously.
The defendants admitted breach of contract and negligence. The issue was the correct measure of damages payable to the claimants. They sought the difference in value between the site without the planning restriction and the site subject to it. The claimants’ valuation expert estimated that this could be as much as £300,000, although a number of other figures were referred to during the litigation.
The defendant’s case is best summarised from its own pleaded defence: “The planning restriction could be (and was in fact) lifted at very little cost and did not have a material effect on the valuation of the property, which was in the region of £600,000.”
As the defence mentions, in 2009, the claimants had successfully applied to the district council to remove the restriction. This meant that the Granary could be lived in as an independent residential dwelling. The cost of the application was £250. The defendant argued that this fee was the only loss suffered by the claimants.
The duty to mitigate
The case was initially heard by HHJ Simon Barker QC. He agreed with the defendant. He felt that the application by the claimants to lift the restriction was “a simple, obvious and cheap step to take” and that to allow them any more than the £250 application fee by way of damages would “overcompensate” the claimants.
Central to the judge’s decision was the duty for an innocent party to mitigate its loss. Strictly speaking, the name is a misnomer – a claimant is under no formal legal duty to do anything. It certainly cannot be compelled to take any steps to reduce the damages which it has suffered. Rather, the duty is a restriction on the innocent party’s ability to recover damages, which will be calculated as if reasonable steps had been taken to minimise the loss. The principle applies irrespective of whether the damages are for a breach of contract or arise out of a tortious duty of care.
The question as to what mitigation is reasonable in any given situation is one of fact and not of law; the answer depends on the facts of the individual case. And while the concept of mitigation might be relatively simple to explain in theory, it is definitely one of those areas where the law is simpler to summarise than to apply in practice. Dealing with mitigation in his judgment, and having first stressed that reported cases in this field are “legion”, Davis LJ referred to 12 appellate decisions, one High Court judgment and an academic paper.
Confirmation on appeal
Davis LJ agreed with Judge Barker QC. The correct measure of damages was £250. This was “an illustration of the ordinary principles of mitigation”. The claimants were obliged to mitigate their loss and their damages should properly be assessed on that basis. The judge also made the point that, in any event, they had mitigated their loss. One of the legion of reported cases – British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 – had long-since established the principle that if a claimant avoids or mitigates its loss, it cannot (in fact) recover the mitigated loss, even if the steps taken were over and above those required to comply with the duty.
There are two important points to take from the judgment. The first is that judges should (as here) look to answer the question of mitigation based on the specific facts before them. The second is a welcome reminder of the principle in British Westinghouse – if, as a matter of fact, the innocent party has mitigated or extinguished its loss, the law will not look to compensate it for damage it has not suffered.
Stuart Pemble is a partner at Mills & Reeve LLP
