Doctrine of Mitigation

In this principle, when there is a breach of a contractual obligation, the non-breaching party who suffered the loss is responsible to try preventing further loss. If the party does not try to stop the losses it is incurring the court is likely not to compensate them for the loss that could have been avoided.[1]  This principle shows that the concept of it is to compensate the non-breaching party and not to punish the breaching party thus making it fair for both the parties.

This principle is important because the non-breaching party shouldn’t be able to create more liabilities knowing that the breaching party would be ordered to pay the amount by the court and that they cannot claim for losses that were incurred through losses that could have easily been avoided. If the breaching party was told to compensate the non-breaching party for losses that could have easily been avoided, then they would be unfairly held liable for damages that were not a direct consequence of their breach.[2]

In the case of British Westinghouse v Electric Railways, Underground Electric Railways purchased turbines from British Westinghouse. The turbines were defective and were not as good as mentioned in the contract, so UER had to replace it with new ones. UER filed a claim against British Westinghouse for breaching their contract by providing them with defective turbines. The UK House of Lords ruled that ERU had a duty to mitigate their loss and that they cannot claim the amount that was paid to purchase the new turbines as they had benefited from purchasing it and demanding compensation for it would be unjust. The court also ordered the benefits deducted from the damages claimed as the new turbines had improved their work efficiency.[3] In Payzu v Saunders (1919), Payzu (plaintiff) agreed to buy good at a set price from Saunders (defendant) for a set price over a period of 9 months with payments one month after the delivery. But Payzu failed to pay which resulted in Saunders stopping the delivery of good but offered to deliver if cash on delivery was provided as per the contract price. Payzu refused this offer and bough a legal claim against Saunders for breaching their contract. The court found against Paysu, stating that he had the money and could have easily mitigated the loss by agreeing to purchase from the defendant. Thus, he was not awarded any damages.[4]

In the UAE, even though it is not officially recognised by legislation in the Civil Transactions Law (Federal Law No. 5 of 1985),[5] the courts do expect both parties to act in good faith and sees what all steps the non-breaching party who suffered loss has taken to prevent it. The UAE courts does recognise other principles like article 106,[6] where a party is expected to act in good faith and not cause harm to the other, article 386,[7] which states that the compensation provided should be equal to the non-performance or breach made by the breaching party. These laws help make sure that the parties involved in a case take all measures they can to reduce or avoid unnecessary loss.

For example, A (Customer) and B (Builder) enters a contract to construct a building. A formally informs B during construction to stop all the work due to financial hardships in accordance with the terms of their contract, but B ignores it and constructs more and later files legal action against A for the losses they suffered due to this. In accordance with the previous articles discussed, the court would likely order compensation to them till the time that they were informed to stop the work as A was only responsible to pay them compensation till the time they were informed about the revocation. When applying the doctrine to this case B should have stopped construction after A had asked them to stop and B had the duty to act fairly and reduce losses. So the court would only give them compensation till the time the termination was effectively communicated.[8]

The doctrine to mitigate the loss helps ensure fairness in every dispute and not unfairly benefit either party. It shows that compensation is for the damages to be offered to the non-breaching party and not to punish the breaching party. In both cases of British Westinghouse v Electric Railways and Payzu v Saunders, the courts looked into how the parties tried to mitigate losses. Although it is not explicitly stated in the UAE law it can be applied through article 106 and 386 of the civil transactions law. In conclusion, the doctrine ensures that the breaching parties liability is only to the actual loss accumulated.