A failure by an innocent party to mitigate its loss following a breach of contract may reduce the amount of damages payable to that party. The law will not require a contract breaker to pay for loss that the innocent party could have avoided by taking reasonable steps.
The ‘reasonable steps’ which are required of an innocent party are not particularly onerous. The innocent party should do what it reasonably can to minimise the loss, while acting within the course of its business. It is not required to sacrifice or risk its property or rights in order to mitigate its loss.
For more information, see below or download Gilbert + Tobin’s Guide to Mitigation of Loss Following a Breach of Contract.
The test for mitigation
Ultimately the test for mitigation is not whether there was a better way of doing things but whether what the innocent party did do was reasonable. An innocent party is not under any obligation to do anything that is not in the ordinary course of business.
What an innocent party is required to do to mitigate its loss will always be a question of fact to be considered in all the circumstances. Examples of what may be required might include:
- entering into a substitute contract for example to buy or sell goods;
- attempting to re-sell or re-let property; or
- giving a builder a reasonable opportunity to rectify any defects (but not where the owner has reasonably lost confidence in the willingness and ability of the builder to do the work).
If the innocent party spends money in taking steps to mitigate that cost can also be recovered as damages in court proceedings.