Let down by your supplier? Careful not to do too little…or too much!

In the matter of Thai Airways International Public Company Ltd v KI Holdings Co Ltd [2015] EWHC 1250 (Comm), the Commercial Court has provided some helpful guidance in relation to the law of mitigation.

In this case, the claimant airline, Thai Airways, had contracted with the defendant manufacturer, Koito, for the supply of economy class seats for some of its aircraft. However, in breach of contract, Koito delivered some of the seats late and others were not delivered at all. Thai Airways, therefore, had to store some of its aircraft until alternative seats could be found and, in order to mitigate its loss, Thai Airways purchased alternative seats and leased some aircraft from a third party. Thai Airways sought to recover the costs of taking those mitigating steps from Koito.

The upshot was that Thai Airways in fact made a profit from their mitigating actions. Therefore, whilst the Court was clear that Thai Airways’ actions were entirely reasonable and should be recompensed, the Court also held that the profits made by Thai Airways must be taken into account when assessing its damages for Koito’s breach of contract.

This Judgment helps clarify the very grey issue of mitigation and highlights the importance of giving very careful consideration to your actions where, for example, you are let down by a supplier. Do nothing and you run the risk of being accused of failing to mitigate. Conversely, do too much and be prepared for a dispute about who should be liable for the additional costs incurred in trying to mitigate and how any additional profits should be accounted for. For further information on breach of contract claims, contact Matthew Howat, Commercial and Dispute Resolution Partner on 020 7884 9700.

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