Litigation article from Dorset Solicitors

Let down by your Supplier? Take care how you limit your losses

| Published on July 15, 2015

When a party suffers loss or injury because obligations owed to it have been breached, the party is required to take reasonable steps to limit the loss which it has suffered.  This duty is known as the party’s duty to mitigate its loss.

Do nothing and you risk a claim for damages being reduced for failure to mitigate.  Do too much and you might face an argument that you have either overspent or that you should be held to account for additional profit earned as a result of your actions.

In Thai Airways International Public Company Ltd v KI Holdings Co Ltd [2015] the Court has offered useful guidance on the law of mitigation.

Thai contracted with Koito for the supply of economy class seats for a number of its aircraft. Koito failed to deliver so Thai had to store some of its aircraft until alternative seats could be sourced.  In the meantime, Thai leased substitute aircraft and purchased seats from a different supplier.  The only seats available were lighter and more expensive.

Thai sought to recover the costs of taking these mitigating steps from Koito including the $107,000,000 cost of entering into aircraft leases for 2 years.

Koito countered that Thai was only entitled to loss of profit which had not been claimed by Thai.  Koito also argued that Thai should account for the fuel savings which would arise from using the lighter seats which Thai had purchased.

The Judge rejected Koito’s argument that Thai had to prove anything more than its costs of mitigation but agreed with Koito that any benefits made by Thai from leasing the aircraft should be set off against the cost of the leases. He also agreed that savings from the lighter seats should be credited to Koito.

In reaching his conclusions, he decided that a party should be held to account for any financial benefit obtained from taking mitigating steps, even when it has no choice but to receive the benefit.  Crucially, he also determined that the burden was on Koito to prove what benefits Thai had derived from the leases and from the lighter seats.

On the evidence put to him, the Judge ultimately concluded that Koito had failed to show that Thai had earned additional profits which should be deducted from the cost of the leases and he awarded Thai the costs of the leases in full.  He did allow credit to Koito for fuel savings over the life of the seats for some aircraft.  For others, Koito failed to provide sufficient evidence for the Judge to determine that a credit should be granted.

The Judgment shows the importance of considering carefully how to respond, and what costs to incur, when being let down by a supplier.  If in doubt, promptly seek legal advice to know your options.

For legal advice contact a member of our litigation team in either our Dorchester Office on 01305 251007 or Poole Office on 01202 725400.

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