The plaintiffs purchased eight steam turbines from the defendants. They later proved defective, and the plaintiffs sought damages. In the meantime they purchased replacements, more effective than the original specifications. In the result the railway company obtained benefits over and above their contractual entitlement. The arbitrator stated a special case as to whether the plaintiffs were bound to give credit against the claim for the cost of the Parsons machines for the savings due to their superior efficiency over what the defendants had contracted to supply.
Held: They did. Additional benefits obtained as a result of taking reasonable steps to mitigate loss were to be brought into account in the calculation of damages. It was necessary to balance loss against gain when the amount of the damages was being calculated. The House distinguished cases in which the plaintiff had received benefits which ‘did not arise out of the transactions the subject-matter of the contract.’ These were res inter alios acta. But where ‘the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach’ it was necessary to look at any additional benefits which he thereby acquired and to ‘balance loss and gain.’
Viscount Haldane LC said: ‘i) The fundamental basis of damages is compensation for the pecuniary loss to a party naturally flowing from the breach.
ii) This principle is qualified by the duty of a plaintiff to take all reasonable steps to mitigate the loss consequent on the breach.
iii) Where in the course of business a party has taken action arising out of the transaction which has mitigated his loss, the effect in actual diminution of the loss he has suffered may be taken into account even if he had no duty to act.
iv) Where the subsequent arrangement was not between those parties, but between a claimant and a third party, the court should look at what actually happened and balance loss and gain.’
and ‘The quantum of damage is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance in dealing with particular cases . . Subject to these observations I think that there are certain broad principles which are quite well settled. 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 . .’
Having referred to Staniforth v Lyall he continued: ‘I think that this decision illustrates a principle which has been recognized in other cases, that, provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.
Recent illustrations of the way in which this principle has been applied, and the facts have been allowed to speak for themselves, are to be found in the decisions of the Judicial Committee of the Privy Council in Erie County Natural Gas and Fuel Co. v. Carroll [1911] AC 105 and Wertheim v. Chicoutimi Pulp Co. [1911] AC 301. The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business. This distinguishes such cases from a quite different class illustrated by Bradburn v Great Western Ry. Co. (1874) LR 10 Ex 1, where it was held that, in an action for injuries caused by the defendants’ negligence, a sum received by the plaintiff on a policy for insurance against accident could not be taken into account in reduction of damages. The reason of the decision was that it was not the accident, but a contract wholly independent of the relation between the plaintiff and the defendant, which gave the plaintiff his advantage. Again, it has been held that, in an action for delay in discharging a ship of the plaintiffs’ whereby they lost their passengers whom they had contracted to carry, the damages ought not to be reduced by reason of the same persons taking passage on another vessel belonging to the plaintiffs: Jebsen v East and West India Dock Co. (1874) LR 10 CP 300, a case in which what was relied on as mitigation did not arise out of the transactions the subject-matter of the contract . . I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alios acta but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach.’
Viscount Haldane LC, Lords Ashbourne, Macnaghten, and Atkinson
[1912] AC 673, [1911-13] All ER Rep 63, 81 LJKB 1132, [1912] UKHL 617
Bailii
England and Wales
Citing:
Approved – Bradburn v Great Western Rail Co CEC 1874
The plaintiff had received a sum of money from a private insurer to compensate him for lost income as a result of an accident caused by the negligence of the defendant.
Held: He was entitled to full damages as well as the payment from the . .
Cited – Staniforth v Lyall And Others 27-Nov-1830
Defendants chartered a ship to New Zealand, where they were to load her, or by an agent there to give Plaintiff, the owner, notice that they abandoned the adventure; in which case they were to pay him 5001. The ship went to New Zealand, but found . .
Cited – Wertheim v The Chicoutimi Pulp Company PC 18-Mar-1910
(Quebec) The buyer sought damages for late delivery of goods calculated on the difference between the market price at the place of delivery when the goods should have been delivered and the market price there when the goods were in fact delivered. . .
Cited – The Erie County Natural Gas and Fuel Company Limited and Others v Samuel S Carroll and Another PC 14-Dec-1910
(Ontario) The defendant was found to have breached its obligations to supply natural gas to the plaintiff. The plaintiff spent money on works to procure its own supply, and subsequently sold those works at a profit.
Held: Their Lordships . .
Cited – Jebsen v East and West India Dock Co CCP 25-Feb-1875
Delay caused by a charterer in discharging cargo caused the shipowner to lose passengers whom he had contracted to carry but he was able to take the same passengers in another of his vessels.
Held: The shipowners’ damages were not to be . .
Cited by:
Cited – Primavera v Allied Dunbar Assurance Plc CA 4-Oct-2002
The claimant purchased a pension plan relying upon advice from the defendant. Since discovering the error, the plan had in fact prospered. The respondent appealed the judges failure to allow fully for the improvement when assessing damages.
Cited – Lagden v O’Connor HL 4-Dec-2003
The parties had been involved in a road traffic accident. The defendant drove into the claimant’s parked car. The claimant was unable to afford to hire a car pending repairs being completed, and arranged to hire a car on credit. He now sought . .
Cited – Dimond v Lovell HL 12-May-2000
A claimant sought as part of her damages for the cost of hiring a care whilst her own was off the road after an accident caused by the defendant. She agreed with a hire company to hire a car, but payment was delayed until the claim was settled.
Cited – Parry v Cleaver CA 9-May-1967
The plaintiff policeman was hit by a car whilst he was on traffic duty. When he claimed damages in negligence the defendant sought to have deducted from his award an amount received by way of additional pension payments received which had been . .
Cited – Parry v Cleaver HL 5-Feb-1969
PI Damages not Reduced for Own Pension
The plaintiff policeman was disabled by the negligence of the defendant and received a disablement pension. Part had been contributed by himself and part by his employer.
Held: The plaintiff’s appeal succeeded. Damages for personal injury were . .
Cited – Omak Maritime Ltd v Mamola Challenger Shipping Co Ltd ComC 4-Aug-2010
Lost Expenses as Damages for Contract Breach
The court was asked as to the basis in law of the principle allowing a contracting party to claim, as damages for breach, expenditure which has been wasted as a result of a breach. The charterer had been in breach of the contract but the owner had . .
Cited – Sotiros Shipping Inc v Sameiet; The Solholt CA 1983
The seller had failed to deliver the vessel he had sold by the delivery date. The buyer cancelled and requested return of his deposit, also claiming damages because the vessel was worth $500,000 more on the delivery date than she had been when the . .
Cited – Borealis Ab v Geogas Trading Sa ComC 9-Nov-2010
The parties had contracted for sale and purchase of butane for processing. It was said to have been contaminated. The parties now disputed the effect on damages for breach including on causation, remoteness, mitigation and quantum.
Held: The . .
Cited – Ruxley Electronics and Construction Ltd v Forsyth HL 29-Jun-1995
Damages on Construction not as Agreed
The appellant had contracted to build a swimming pool for the respondent, but, after agreeing to alter the specification to construct it to a certain depth, in fact built it to the original lesser depth, Damages had been awarded to the house owner . .
Cited – Gardner v Marsh and Parsons (a Firm), Dyson CA 2-Dec-1996
Damages awarded against a surveyor for a negligent survey which had missed certain defects, were not to be reduced for repairs later carried out by the landlord at his own expense. The trial judge decided to award damages reflecting the difference . .
Cited – Bacciottini and Another v Gotelee and Goldsmith (A Firm) CA 18-Mar-2016
A property subject to a planning condition was purchased by the appellant under the advice of the respondent, who failed to notify him of the existence of a planning condition. The judge had awarded the claimant pounds 250 being the cost of the . .
Cited – Fulton Shipping Inc of Panama v Globalia Business Travel SAU (Formerly Travelplan SAU) of Spain ComC 21-May-2014
The former owners of the ‘New Flameno’ appealed from an arbitration award. A charter of the vessel had been repudiated with two years left to run. The owners chose to sell. They made a substantial profit over the price they would have received after . .
Cited – Fulton Shipping Inc of Panama v Globalia Business Travel Sau CA 21-Dec-2015
The charter of the ship ‘New Flameno’ was repudiated two years early. The owners sold it, making rather more profit than they would have if sold after the end of the term. The court was now asked how the profit should affect the loss claim on the . .
Cited – Globalia Business Travel Sau of Spain v Fulton Shipping Inc of Panama SC 28-Jun-2017
The court was asked how to assess damages arising out of the repudiation of a charterparty by charterers of a cruise ship, the ‘New Flameno’. The charter ending two years early, the owners chose to sell, and in the result got a much better price . .
Cited – Lowick Rose Llp v Swynson Ltd and Another SC 11-Apr-2017
Losses arose from the misvaluation of a company before its purchase. The respondent had funded the purchase, relying upon a valuation by the predecessor of the appellant firm of accountants. Further advances had been made when the true situation was . .
Cited – SS (Sri Lanka), Regina (on The Application of) v The Secretary of State for The Home Department CA 15-Jun-2018
The court was asked whether, in cases heard by the First-tier Tribunal (Immigration and Asylum Chamber) where the credibility of the appellant is in issue, there is a rule that a delay of more than three months between the hearing of oral evidence . .
Cited – Morris-Garner and Another v One Step (Support) Ltd SC 18-Apr-2018
The Court was asked in what circumstances can damages for breach of contract be assessed by reference to the sum that the claimant could hypothetically have received in return for releasing the defendant from the obligation which he failed to . .
Lists of cited by and citing cases may be incomplete.
Damages, Contract
Updated: 28 November 2021; Ref: scu.181348