We have often said that to a greater or lesser extent, claims are a part of large construction projects, and with that a reasonable approach to solving them is also in everyone’s interests. As such, where a party suffers a loss due to another party’s actions or a breach of contract, the injured party has an obligation to take reasonable action to minimise that loss. This is often referred to as a ‘duty to mitigate’.

Whilst not strictly a duty, in that a failure to mitigate is generally not actionable in itself, it is nonetheless an obligation on an injured party. In Sotiros Shipping Inc v Sameiet Solholt (The Solholt) Sir John Donaldson MR in the Court of Appeal stated that:

“A plaintiff was under no duty to mitigate his loss, despite the habitual use by lawyers of the phrase ‘duty to mitigate’. He was completely free to act as he judged to be in his best interest. On the other hand, a defendant was only liable for such part of the plaintiff’s loss as was properly to be regarded as caused by the defendant’s breach of duty.”

This confirmed that a plaintiff cannot recover damages which they could have reasonably avoided. Specifically, in construction claims where a contractor claims damages as a result of an employer’s breach or failure, claims by the employer that the contractor failed to mitigate are often used to avoid the contractor’s claims. However, this duty to mitigate is not open ended.

What the SCL Protocol states

The SCL Protocol is based on common law positions, particularly the position in the UK. It is, however, still often considered to be a guide and good practice around the world.

“15. Mitigation of delay and mitigation of loss… The Contractor has a general duty to mitigate the effect on its works of Employer’s Risk Events. Subject to express contract wording or agreement to the contrary, the duty to mitigate does not extend to requiring the Contractor to add extra resources or to work outside its planned working hours. The Contractor’s duty to mitigate its loss has two aspects: first, the Contractor must take reasonable steps to minimise its loss; and secondly, the Contractor must not take unreasonable steps to increase its loss.”

Fundamentally, the duty to mitigate is limited to the contractor only being entitled to recover its damages where it is not able to reasonably avoid them. This was noted in British Westinghouse Electric and Manufacturing Company, Limited v Underground Electric Railways Company of London, Limited, Viscount Haldane L.C:

“… 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, and debars him from claiming any part of the damage which is due to his neglect to take such steps.”

In effect, an aggrieved party cannot stand by and watch the damages pile up against the offending party.

In the Canadian case, Redpath Industries Ltd. v. Cisco, the Canadian Federal Court of Appeal stated:

“It is well established that a party who suffers damages as a result of a breach of contract has a duty to mitigate those damages, that is to say that the wrongdoer cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the injured party.”

This balancing act between damages incurred by the contractor and its actions was expressed in the same case as:

“The Court must make sure that the victim is compensated for his loss; but it must at the same time make sure that the wrongdoer is not abused.”

Burden of proof and the duty to mitigate

This duty to mitigate is further tempered by the burden of proof in that it is the employer’s burden to demonstrate that the contractor has failed in its obligation to mitigate.

In Garnac Grain Co v Faure & Fairclough; the claimant said that the defendant could have purchased lard from another supplier, thereby mitigating its loss, but it failed to do so. However, his Honour Lord Pearson of the House of Lords found that the claimant did not provide any evidence that the defendant could have purchased the lard at a cheaper rate and it was their burden to prove this.

For a claim that the failure to mitigate resulted in a larger loss to the employer, the employer has to demonstrate that the failure to mitigate broke the causation link to the loss. If it is merely concurrent then this link is not broken.

Where a Contractor has made reasonable attempts to mitigate the loss, the contractor may recover its costs in doing so. Furthermore, these costs may be recovered even if the mitigation is unsuccessful and may even exacerbate the losses. Similarly, where an employer takes steps to reduce its loss due to its own actions, it cannot claim to recover any losses avoided by its actions.

How far does a Contractor need to go to mitigate its loss?

As noted above in the SCL protocol, this duty to mitigate does “not extend to requiring the Contractor to add extra resources or to work outside its planned working hours”. A contractor is not expected to do anything which is not part of their ordinary course of business.

In Dunkirk Colliery Company v Lever the Court of Appeal stated:

“What the plaintiffs are entitled to is the full amount of the damage which they have really sustained by a breach of the contract; the person who has broken the contract not being exposed to additional cost by reason of the plaintiff not doing what they ought to have done as reasonable men, and the plaintiff not being under any obligation to do anything otherwise than in the ordinary course of business.”

The measure is not exacting as identified by Lord Macmillan in the House of Lords in Banco de Portugal v Waterlow and Sons Limited, where he stated:

“Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

In more recent times, Thai Airways International Public Company Ltd v KI Holdings Co Ltd, looked at the three distinct rules for mitigation:

“first expounded by Harvey McGregor in his treatise on damages, the concept of mitigation is often said to comprise three distinct rules. As stated in the current edition of McGregor on Damages (19 th Edn, 2014) at paras 9-004 to 9-006, the three rules are these:

“first expounded by Harvey McGregor in his treatise on damages, the concept of mitigation is often said to comprise three distinct rules. As stated in the current edition of McGregor on Damages (19 th Edn, 2014) at paras 9-004 to 9-006, the three rules are these:

“(1) The first and most important rule is that the claimant must take all reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid. Put shortly, the claimant cannot recover for avoidable loss.

(2) The second rule is the corollary of the first and is that, where the claimant does take reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong, he can recover for loss incurred in so doing; this is so even though the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the claimant can recover for loss incurred in reasonable attempts to avoid loss.

(3) The third rule is that, where the claimant does take steps to mitigate the loss to him consequent upon the defendant’s wrong and these steps are successful, the defendant is entitled to the benefit accruing from the claimant’s action and is liable only for the loss as lessened; this is so even though the claimant would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being ones which were required of him under the first rule. … Put shortly, the claimant cannot recover for avoided loss.”

The actual mitigation strategy is up to the contractor, as noted by Potter LJ in Wilding v British Telecommunications Plc:

“If there is more than one reasonable response open to the wronged party, the wrongdoer has no right to determine his choice. It is where, and only where, the wrongdoer can show affirmatively that the other party has acted unreasonably in relation to his duty to mitigate that the defence will succeed.”

Where a loss has been reduced by the actions of a third party and not by the actions of the contractor, the employer may still be able to claim the full loss against the contractor. In the event that the contractor made a profit from its mitigation, this can also be deducted from its overall damages claim.

The duty to mitigate can also be modified by the contract. Mitigation requirements and obligations are occasionally also included within the contract terms. This can increase the obligations of the Contractor. For instance, the contract may impose on the contractor an obligation to not only take reasonable steps to mitigate, but also expand this for the contractor to take all steps.

Similarly, it may impose on a contractor a requirement for approval of mitigation strategies, to mitigate all delays, regardless of the cost and the Contractor to bare all the costs of mitigation.

Not sure where you stand on your construction project? Our team can work with you from the very beginning to guide you and anticipate any potential claims before they get out of hand.