Duty to mitigate

In one minute

When a contract is broken, the injured party must act sensibly. He should take reasonable steps to keep his loss small. He cannot sit still, let the loss grow, and then bill the wrongdoer for all of it.

The rule comes from the Explanation to section 73. It is a limit on what he can claim. It is not a duty that anyone can sue him for. In exams, the meaning, the three rules and the cases earn the marks. In real life, it decides how much of a large loss a court will actually award.

Exam focus

Frequency: Rarely asked
Usually asked as: Short answer (4 to 6 marks)

Legal provision

Explanation to section 73: in estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
Illustration (b) to section 73: A hires B's ship to go to Bombay and take on board a cargo on 1 January. B's ship does not go. A has opportunities of procuring suitable conveyance on terms as advantageous as those on which he had chartered the ship, and he uses them. A is put to trouble and expense in doing so. A is entitled to compensation from B for that trouble and expense.
Illustrations (a), (c), (d), (g) and (h): the loss is measured by the market price, which shows what the injured party could have obtained elsewhere.

Meaning and definition

Mitigation means taking reasonable steps to reduce the loss caused by a breach. The Privy Council stated the rule in Jamal v. Moolla Dawood, Sons & Co. (1915). It said: "a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach". It added that he cannot claim as damages any sum that is due to his own neglect.

The reason is fairness. The wrongdoer should pay for the loss that his breach caused, and not for the part that the injured party could have avoided. The law does not call the failure a wrong. The injured party is not liable to anyone for it. He only loses the right to recover the avoidable part of the loss.

The timeline shows when the rule works in a claim.

From breach to the claim: where mitigation fitsHow to read this: read the boxes from left to right on a wide screen, or from top to bottom on a phone. Green marks the point where the damages are fixed.

BreachOne party fails to perform. The other party suffers a loss or is about to suffer one.
Reasonable stepsThe injured party takes the steps a sensible person would take to reduce the loss.
Costs and gainsHis reasonable costs of doing so are recoverable. Any gain he makes by doing so is set off against the claim.
Failure to actIf he does nothing sensible, the part of the loss that reasonable steps would have avoided is left out.
Damages fixedThe court awards the loss that remains (section 73, Explanation).

Detailed explanation

Step 1: take reasonable steps

The injured party must take the steps open to him that a sensible person would take. In a sale of goods, that usually means buying elsewhere or selling elsewhere. If he fails, the part of the loss that those steps would have prevented is not recoverable.

Example. A wholesaler fails to supply 500 units of raw material to a manufacturer. The same material is available from another supplier at the same price. If the manufacturer stops production instead of buying elsewhere, he can claim only the small extra cost of switching suppliers, not the whole value of the lost production.

Step 2: no extraordinary steps are required

The test is reasonableness. In British Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways Co. of London (1912), Viscount Haldane said that the injured party is not required to take steps that a reasonable and prudent person would not ordinarily take in the course of his business. He need not risk his money or credit, start difficult litigation or damage his reputation.

The Calcutta High Court has applied this to a dismissed employee, who must look for suitable work but need not accept a job of a much lower status.

Step 3: the burden of proof

The defendant, who is the wrongdoer, must show that the injured party failed to mitigate. The Calcutta High Court held this in Prafulla Ranjan Sarkar v. Hindusthan Building Society Ltd. (1960). The injured party does not have to prove at the start that he took every possible step.

Step 4: reasonable costs are recoverable

The cost of mitigation is itself part of the loss. In illustration (b), A recovers the trouble and expense of finding other transport. The same applies to the reasonable cost of buying substitute goods or of reselling goods. The injured party does not lose these costs even if the attempt does not wholly succeed, as long as his steps were reasonable.

Step 5: gains from mitigation are set off

If mitigation puts the injured party in a better position than performance would have, the gain is set off against the damages. He cannot keep a windfall on top of the damages. In British Westinghouse, turbines supplied for a power station were defective and less efficient than promised. The buyers replaced them with better turbines from another maker. The House of Lords held that the savings from the replacement had to be taken into account in assessing the damages.

Step 6: accepting an offer from the wrongdoer

Reasonable mitigation can include accepting a fair offer from the party who broke the contract. In Payzu Ltd. v. Saunders (1919), a seller who had agreed to supply goods in instalments refused to deliver on credit terms but offered to deliver for cash. The buyer refused and claimed the difference between the market price and the contract price. The Court of Appeal held that he should have accepted the offer. His damages were limited to what he would have lost if he had accepted.

Step 7: the date and the market

The loss is assessed at the date of the breach, and the injured party must act promptly. In Harichand & Co. v. Gosho Kabushiki Kaisha (Bombay High Court, 1924), undue delay in reselling goods in a falling market was held to be an unreasonable failure to mitigate. In Jamal v. Moolla Dawood, the seller could not recover a later fall in the market after the date of breach.

What mitigation requires at a glance

Rule	What it means	Authority
Take reasonable steps	Avoidable loss is not recoverable	Explanation to section 73; Jamal v. Moolla Dawood
Nothing extraordinary	No risky, costly or reputation-damaging step is required	British Westinghouse
Burden of proof	The wrongdoer must show the failure to mitigate	Prafulla Ranjan Sarkar
Costs	Reasonable costs of mitigation are recoverable	Illustration (b) to section 73
Gains	A gain from mitigation is set off against the damages	British Westinghouse
Offer from the wrongdoer	A reasonable offer may have to be accepted	Payzu v. Saunders

Don't confuse: mitigation and remoteness

Both rules cut down the damages. They ask different questions.

Point	Mitigation	Remoteness
Question asked	Could the injured party have reduced the loss by reasonable steps?	Was the loss of a kind that the law counts as too remote?
Whose conduct matters	The injured party's conduct after the breach	What the parties knew when they made the contract
Source	Explanation to section 73	First and second paragraphs of section 73
Effect	The avoidable part of the loss is not recoverable	The remote part of the loss is not recoverable

Inside the idea. A tenant is evicted in breach of his lease. He could have found a similar house at the same rent within a week but waited six months in a hotel. The hotel bills after the first week are avoidable and are not recoverable.

Just outside it. A carrier delays a machine, and the mill owner loses an export order that the carrier never knew about. The loss is not avoidable by the owner. It is excluded as remote, not for failure to mitigate.

Common mistakes

Calling mitigation a duty for which the wrongdoer can sue. It only limits what the injured party recovers.
Demanding extraordinary effort. The law asks for reasonable steps only.
Forgetting that the reasonable cost of mitigation is recoverable.
Forgetting to set off a gain made while mitigating.
Mixing up mitigation with remoteness.

Apply it

Problem

Krishna Traders agrees to supply 500 bags of cement to Ravi, a contractor in Guntur, at Rs 400 a bag for delivery on 1 June. Krishna Traders refuses to deliver. Cement of the same quality is available in the local market at Rs 420 a bag. Ravi does nothing for six weeks. By then the price is Rs 460 a bag, and his work has stopped. He sues for the price difference and for six weeks of idle labour. What can he recover?

Issue. How far is Ravi's loss reduced because he did not mitigate?

Rule. The means that existed of remedying the inconvenience must be taken into account (Explanation to section 73). The loss is assessed at the date of breach, and the injured party cannot claim a sum that is due to his own neglect (Jamal v. Moolla Dawood).

Application. Ravi could have bought cement on 1 June at Rs 420. His loss at the date of breach is Rs 20 a bag, or Rs 10,000 for 500 bags. The rise to Rs 460 and the six weeks of idle labour came from his delay when cement was available. He could have avoided them by buying promptly.

Conclusion. Ravi can recover Rs 10,000, the price difference at the date of breach, together with the reasonable cost of buying elsewhere. He cannot recover the later price rise or the idle labour, because reasonable steps would have avoided them.

Leading case laws

Jamal v. Moolla Dawood, Sons & Co. (1915)
Facts. A seller of 23,500 shares sued buyers who failed to take them on 30 December 1911, after the shares had fallen in value. The Privy Council decided the appeal in 1915. AIR 1915 PC 48.

Principle. A plaintiff must take all reasonable steps to mitigate the loss. He cannot claim a sum due to his own neglect, and the loss is measured at the date of breach.

Why it matters. It is the leading Indian authority on the duty to mitigate.
British Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways Co. of London (1912)
Facts. Turbines supplied for a power station were defective and less efficient than promised. The buyers replaced them with better turbines from another maker. [1912] AC 673.

Principle. The injured party must take all reasonable steps to reduce the loss, but need not take steps a reasonable and prudent person would not ordinarily take. A gain from reasonable mitigation is set off.

Why it matters. It states the three rules of mitigation.
Payzu Ltd. v. Saunders (1919)
Facts. A seller who had agreed to supply goods in instalments refused to deliver on credit terms but offered to deliver for cash. The buyer refused and claimed the difference between the market price and the contract price. [1919] 2 KB 581.

Principle. The buyer should have mitigated his loss by accepting the offer. His damages were limited to what he would have suffered by accepting it.

Why it matters. It shows that mitigation may include accepting an offer from the wrongdoer.
Harichand & Co. v. Gosho Kabushiki Kaisha, Ltd. (1924)
Facts. The Bombay High Court considered goods that were resold late, in a falling market, after a breach.

Principle. Undue delay in reselling in a falling market is an unreasonable failure to mitigate.

Why it matters. It applies the rule to a sale of goods in India.
Prafulla Ranjan Sarkar v. Hindusthan Building Society Ltd. (1960)
Facts. The Calcutta High Court considered the damages due to an employee whose employment was ended in breach of contract. AIR 1960 Cal 214.

Principle. The burden of showing a failure to mitigate is on the defendant. The employee must look for suitable work but need not take a post of much lower status.

Why it matters. It places the burden of proof and explains the limit of reasonableness.

How to write this answer in the exam

5-mark answer

State the Explanation to section 73: the means of remedying the inconvenience must be taken into account.
Explain: the injured party must take reasonable steps to reduce his loss.
Say that avoidable loss is not recoverable, and that reasonable costs are.
Name Jamal v. Moolla Dawood or British Westinghouse.

10-mark answer

The Explanation to section 73 and illustration (b).
The meaning of mitigation and why the law has the rule.
The three rules: reasonable steps, nothing extraordinary, gains set off.
Burden of proof, and accepting an offer from the wrongdoer (Payzu).
Mitigation compared with remoteness.
Jamal v. Moolla Dawood and a short problem.

Key points to remember

The injured party must take reasonable steps to reduce his loss (Explanation to section 73).
Avoidable loss cannot be recovered.
He need not take extraordinary or risky steps.
The reasonable cost of mitigation is recoverable.
A gain made by mitigation is set off against the damages.
The wrongdoer must show that the injured party failed to mitigate. Failure to mitigate only reduces the damages.

Quick self-test

1. Where is the duty to mitigate found in the Act?

In the Explanation to section 73.

2. Can the wrongdoer sue the injured party for failing to mitigate?

No. Failure to mitigate only reduces the damages by the avoidable part of the loss.

3. What happens to a gain made while mitigating?

It is set off against the damages (British Westinghouse).