When a party (Plaintiff) suffers loss and damage (usually from a breach of contract or tort), the approach of the Courts will be to put the Plaintiff back in the position they occupied before the loss event took place. That doesn’t mean, however, that a Plaintiff can simply sit on their hands and keep incurring loss – there is a duty on the Plaintiff to mitigate that loss. The duty to mitigate refers to the obligation of a Plaintiff who has suffered loss or damage to take reasonable steps to minimise the extent of that loss. This principle means that a Plaintiff cannot simply allow their losses to accumulate and then seek to recover the full amount from the Defendant. Instead, they must act in a way that reasonably limits their damages.
Once the Plaintiff acts to mitigate that loss, the onus of proof will lie upon the party in breach (Defendant) to show that the costs incurred by the Plaintiff in mitigation were unreasonable.
The Reasonableness Standard
The key test in determining whether a party has fulfilled their duty to mitigate is “reasonableness”. Courts will assess what a reasonable person in the Plaintiff’s position would have done in the circumstances.
We’ve recently seen this reasonableness standard applied in the South Australia decision of Susan Kerin & Anor v David Zadow [2023] SAMC 113. The matter concerned excessive credit hire charges for a prolonged duration. The Magistrate commented that the loss incurred by a Plaintiff in an attempt to mitigate loss was recoverable in full, unless the Plaintiff’s actions can be shown to have been unreasonable in the circumstances, and that it is the Defendant that bears the onus of demonstrating that the Plaintiff’s conduct was unreasonable. The Magistrate further commented that a high standard of conduct on the part of the Plaintiff was not required when assessing mitigation of loss, that prudence not perfection was expected, and that reasonableness was to be measured objectively with regards to the Plaintiff’s circumstances.
The High Court of Australia, in Arsalan v Rixon [2021] HCA 40, confirmed that even if the costs incurred by a Plaintiff was greater than the loss that was attempted to be mitigated, those costs will be recoverable other than to the extent that is shown to be unreasonable.
Failure to mitigate does not eliminate the right to claim damages entirely. Instead, it reduces the amount of recoverable damages to the extent that losses could have been avoided. If the Court finds that reasonable steps to mitigate would have reduced the loss, damages will be adjusted accordingly.
The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.
