A decision which has always interested me is that of the House of Lords in British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673. More than 100 years after it was decided, the case continues to generate academic articles and new decisions. 

British Westinghouse also provides an excuse to tell the story of American rail tycoon Charles Tyson Yerkes, of which the case forms part - a story which began in Philadelphia in the 1860s and ended on the moon in the 1950s. While hardly essential to an understanding of the case, Yerkes’ story is interesting in its own right, and so I have said something about him below.

The concept of mitigation

A claimant is entitled, so far as money can do it, to be placed in the position it would have been in if the contract had been performed. The difference between the position the claimant is in, and the position the claimant would have been in if the contract had been performed, is the claimant’s loss.

But once a breach has occurred action (or inaction) on the part of the claimant may have the effect of preventing (or failing to prevent) losses which the claimant would otherwise have suffered. 

The concept of mitigation is often said to comprise three ‘rules’, described in McGregor on Damages 19th Ed. (2014) as follows:

“(1) The first and most important rule is that the claimant must take all reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong and cannot recover damages for any such loss which he could thus have avoided but has failed, through unreasonable action or inaction, to avoid. Put shortly, the claimant cannot recover for avoidable loss.

(2) The second rule is the corollary of the first and is that, where the claimant does take reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong, he can recover for loss incurred in so doing; this is so even though the resulting damage is in the event greater than it would have been had the mitigating steps not been taken. Put shortly, the claimant can recover for loss incurred in reasonable attempts to avoid loss.

(3) The third rule is that, where the claimant does take steps to mitigate the loss to him consequent upon the defendant’s wrong and these steps are successful, the defendant is entitled to the benefit accruing from the claimant’s action and is liable only for the loss as lessened; this is so even though the claimant would not have been debarred under the first rule from recovering the whole loss, which would have accrued in the absence of his successful mitigating steps, by reason of these steps not being ones which were required of him under the first rule. ... Put shortly, the claimant cannot recover for avoided loss.”

A recent article (A Dyson and A Kramer, “There is No ‘Breach Date Rule’” (2014) 130 LQR 259, 263) suggests that the concept of mitigation can be expressed much more simply:

“Mitigation is often said to comprise three rules, but it is better expressed using just one: damages are assessed as if the claimant acted reasonably, if in fact it did not act reasonably.”

The standard of reasonableness is not particularly exacting. In Banco de Portugal v Waterlow [1932] AC 452) Lord MacMillan said that the steps a claimant must take “ought not to be weighed in nice scales at the instance of the party who ... has occasioned the difficulty”. The claimant “will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken”. There is authority that a claimant need not prejudice his commercial reputation, need not act so as to injure innocent parties, need not sacrifice rights or property of his own, and need not take the risk of starting litigation against a third party.

It is convenient to speak of the claimant as having been under a ‘duty’ (or ‘bound’ or ‘required’) to do the reasonable thing and that terminology is used in this article and in many of the judgments to which it refers. But there is no duty in any strong sense of the word. The claimant has no liability to any other party if they fail to do that thing. We mean only that, if they fail to do that thing, their losses fall to be assessed as if they had done that thing.

The doctrine of mitigation might be appear to be an application of the doctrine of causation or remoteness: 

  1. The claimant’s unreasonable behaviour is like a new intervening act, which breaks the chain of causation between the breach and the loss. The law treats the loss as caused by the unreasonable behaviour, and not by the original breach. 
  2. A defendant is only liable for loss which was foreseeable to any reasonable person in the defendant’s position; or the likelihood of which was clear to the defendant in the particular circumstances of the case. A defendant might say it is likely that a claimant will act reasonably to avoid loss, and is entitled to assume that they will do so.

But mitigation, causation and remoteness are not quite the same. There are cases where reasonable actions by claimants have been held to sever the causal link. The Elena D’Amico [1980] 1 Lloyd’s Rep 75 is an example - a chartered vessel became unavailable. The charterers decided not to charter a replacement, and this was held to have been commercially reasonable, even though it led to the loss of a lucrative market. Even if not a failure to mitigate, the loss was not caused by the breach.

McGregor’s third rule (the authority for which is, supposedly, the British Westinghouse case) has been the subject of some criticism. Suppose a claimant does not do what is reasonably required. Suppose that, instead, they either do less, or go beyond what is reasonably required. According to McGregor’s third rule:

  1. if an extra loss results, then the claimant must bear that loss; but
  2. if an extra benefit results, then the claimant must give credit for the benefit, and the defendant’s liability is reduced commensurately.

This seems asymmetric - if the claimant goes beyond what is reasonably required, they take all the risk, and the defendant will enjoy any reward.

This article considers whether British Westinghouse really supports McGregor’s third rule, and looks at how judges have dealt with British Westinghouse in some later cases. 

Charles Tyson Yerkes

Yerkes (which rhymes with “turkeys”) was born in Philadelphia in 1837. He made, and lost, one fortune in Philadelphia in the 1860s, where he rose from clerk in a grain brokerage to become the banker and stockbroker to the city’s treasury, risking public money in huge stock speculations. In 1871 the Great Chicago Fire triggered plummeting stock prices, leaving Yerkes insolvent and owing colossal sums to the City of Philadelphia. Sentenced to 33 months in prison, he publically denounced two local politicians whom he said had collaborated in his unlawful speculations with public money. Concerned at the ramifications for his election campaign, President Ulysses S. Grant granted Yerkes a pardon in exchange for Yerkes withdrawing his allegations against Grant’s supporters.

Yerkes then headed for Chicago. The city whose conflagration had lost Yerkes his first fortune soon made him a second as he mounted takeovers of the various companies which ran Chicago’s rail and tram services, and bribed and blackmailed politicians in an attempt to try and secure a monopoly. Though a monopoly eluded him, he soon controlled nearly all the city’s streetcar lines and buses. During this period he was approached by various astronomers from the University of Chicago. Despite Yerkes having no interest whatever in astronomy, they succeeded in persuading him to donate $300,000 to pay for a new observatory to be named in his honour, probably in the hope that this would improve his terrible public image.

By the late 1890s, however, Yerkes had grown sick of Chicago, and the people of Chicago had apparently grown sick of him too. A narrow majority of a reformed city council refused Yerkes’ bribes, and voted against the extension of his companies’ franchises. Yerkes sold almost all his stock in those businesses, and turned his eye to London.

In 1900, Yerkes established “The Underground Electric Railways Company of London” (“UERL”). As this was something of a mouthful, the company, and the railways it operated, quickly came to be known simply as “theUnderground”. At the time, there were various companies which were licensed to operate underground rail lines in London, and UERL set about acquiring these. In 1901 UERL succeeding in acquiring the Metropolitan District Railway Company. That company operated the lines which later became the modern London Underground network’s District, Circle, Hammersmith and City and Metropolitan lines. At the time, those lines used steam locomotives. 

Through the sale of what were (for the time) novel financial instruments, UERL obtained finance for a huge project to electrify the lines it had bought, buy new rolling stock and to build the biggest power station on earth in order to supply the electricity required.

Permission was given to build that power station at a site in Chelsea at Lots Road by the Thames River. In 1902 UERL contracted to buy eight steam turbines and turbo alternators for the Lots Road power station from British Westinghouse for £250,000. British Westinghouse was the Manchester-based subsidiary of Pittsburgh’s Westinghouse Electric and Manufacturing Company. Work on construction of the power station began that same year. 

The Lots Road power station opened in 1905, but Yerkes himself died soon afterwards. Having led a highly leveraged life, he died with debts in excess of $21 million. Once these were paid off, his remaining estate proved to be worth considerably less than $1 million. 

The dispute between UERL and British Westinghouse

The turbines and alternators which British Westinghouse had installed at Lots Road proved defective. They consumed more fuel, generated less power and produced more waste than the contract stipulated. UERL persisted in using the turbines for a few years and tried to modify them to achieve better performance.

In 1908, UERL eventually gave up and bought replacement turbines and alternators from C.A. Parsons & Company, a company based in Newcastle upon Tyne. The new Parsons turbines were more powerful than the Westinghouse turbines - they could generate 10% more power, and were expected to last longer. The Parsons turbines were more efficient than the Westinghouse turbines would have been even if they had been as contracted for.

The Parsons company’s founder was, himself, an interesting character. Charles Algernon Parsons was the son of the Third Earl of Rosse. The Earl had, like Yerkes, spent vast sums on astronomy, though in the Earl’s case due to a genuine enthusiasm rather than as a cynical PR move. In particular, in the 1840s, the Earl had paid to construct what was then the world’s biggest telescope, known as the “Leviathan”, in his garden at Birr Castle in Ireland. The Earl’s son was a brilliant engineer and the original inventor of the ‘axial flow’ steam turbine, upon which all modern turbines are based.

In late 1908 the dispute between UERL and British Westinghouse was referred to arbitration before a sole arbitrator, Alfred Lyttelton QC (Lyttelton had, incidentally, been the first person to play for England in both football and cricket, and had served in government until 1905 as Secretary of State for the Colonies).

British Westinghouse sought to claim the unpaid balance of the purchase price. The precise amount claimed by British Westinghouse is unclear. The judgments say:

The respondents at various dates paid to the claimants on account of the price of the said machines the sum of [£]159,431 … and after allowing for certain agreed reductions of the contract price and also for certain sums admitted as due from the claimants to the respondents there still remained a large sum as the unpaid balance of the contract price.

So perhaps the balance of the contract price may have been something like £90,000 (the £250,000 purchase price minus approximately £160,000 already paid).

UERL claimed:

  1. £280,000, to represent the extra coal which would be consumed by the British Westinghouse turbines if UERL had used them for their full 20 year life; alternatively
  2. £42,000 to represent the extra costs which UERL had incurred during the 3 years it had already operated the British Westinghouse turbines; and
  3. £78,186 to represent the cost of the replacement Parsons turbines and alternators.

It is not clear why UERL tried to claim £280,000 for 20 years of extra coal for the life of the Westinghouse turbines. UERL had used the Westinghouse turbines for three years and used £42,000 worth of extra coal. It had then replaced the Westinghouse turbines, and was going to use the Parsons turbines for the remaining next 17 years. UERL had mitigated that loss.

In the later judgments UERL’s £42,000 claim is always referred to as having been for extra coal used in the three years before the Westinghouse turbines were replaced. But it probably also included the cost of disposing of waste in excess of that which the Westinghouse turbines would have produced if they had been as contracted for. It may also have included a claim for the cost of repairing and modifying the machines. It is unclear whether UERL’s claim included any element of downtime.

UERL’s claim for £78,186 does not sound like very much for eight replacement turbines and turbo alternators given that the contract price for the eight original Westinghouse turbines had been £250,000, and that the Parsons turbines had 10% more generating capacity. 

The arbitrator’s award

Lyttelton found that:

“… the purchase of the Parsons machines by [UERL] was a reasonable and prudent course, and that it mitigated or prevented the loss and damage which would have been recoverable from [British Westinghouse] if [UERL] had continued to use [British Westinghouse’s] defective machines in the future.

… the purchase of the Parsons machines was to the pecuniary advantage of [UERL] and that the superiority of Parsons machines in efficiency and economy over those supplied by [British Westinghouse] was so great that, even if [British Westinghouse] had delivered to [UERL] machines in all respects complying with the conditions of the said contract, it would yet have been to the pecuniary advantage of [UERL] at their own cost to have replaced the machines supplied to [UERL] by Parsons machines so soon as the latter could be obtained.”

Lyttelton had determined that it would have been “to the pecuniary advantage of UERL” to buy the Parsons turbines, even if the Westinghouse turbines had complied with the contract. 

In order for it to be to UERL’s advantage to replace Westinghouse turbines which were as contracted for with Parsons turbines, it must have been the case that:

  1. the Parsons turbines would generate at least the same power as the as-contracted-for Westinghouse turbines; and
  2. in order to do so, the Parsons turbines would use so much less coal than the as-contracted-for British Westinghouse turbines (over the ensuing 17 years) as to justify spending the £78,186 purchase price today.

Exactly how much the Parsons turbines were expected to save over 17 years is unclear. Presumably, in order to justify spending £78,186, the Parsons turbines must have been expected to realise a saving which, even when discounted to reflect the fact that it would only be received over a period of 17 years, still exceeded £78,186.

UERL arguably received another benefit as a result of installing Parsons turbines. The Westinghouse turbines had an expected life of 20 years, so if they had been as contracted for, UERL would have needed to replace them in 1925. As a result of its mitigating actions, UERL now had new, Parsons turbines. Even if the Parsons turbines were only expected to last 20 years then UERL would not need to replace them until 1928. Compared to the position it would have been in if the Westinghouse turbines had been as warranted, UERL had an extra three years before it would need to incur the expense of installing new turbines. This benefit is not discussed in the judgments.

UERL had not just gone into the market and bought substitute turbines which were as good as British Westinghouse had warranted its turbines would be. UERL had instead gone and bought turbines which were better. 

Lyttelton referred the question of whether UERL could recover the money it had spent on the new Parsons turbines to the court (under a procedure analogous to that in section 45 of the Arbitration Act 1996).

The court held that UERL could recover the cost of the Parsons turbines from British Westinghouse, as being “the necessary cost and expense incurred by [UERL] in mitigating or preventing (as from the respective dates when a Parsons machine was substituted for each of the claimant’s machines) the damages which they would otherwise have been entitled to recover from [British Westinghouse]”.

Lyttelton issued an award. He adopted the court’s answer, dismissed British Westinghouse’s claim for the balance of the purchase price and awarded UERL £15,394.

It is not clear how Lyttelton arrived at that figure. In light of the court’s finding, one might have expected him to award UERL the following, in order to put UERL in the position it would have been in if the contract had been performed:

  1. £42,000 for three years of extra coal which UERL would not have had to buy if the Westinghouse turbines had been as contracted for; plus
  2. £78,186 for the Parsons turbines which UERL had bought to replace the defective Westinghouse turbines; minus
  3. the balance of the contract price which UERL would have had to pay if the Westinghouse turbines had been as contracted for (perhaps around £90,000, but the figure could have been higher or lower).

That would suggest an award of around £30,000. It may be that a lower amount was awarded because the balance of the contract price was higher - it is impossible to tell from the judgments.

British Westinghouse sought to have Lyttelton’s award set aside on the ground that it was wrong in law - arguing that UERL should not have been awarded anything in respect of the cost of the new turbines. This is because UERL should have to give credit for the greater efficiency of the Parsons turbines compared to if the Westinghouse turbines had been as contracted for, and this saving would wipe out UERL’s loss. The award was upheld at first instance, and by the Court of Appeal and the case eventually reached the House of Lords.

The decision of the House of Lords

The House of Lords reversed the decisions below, and remitted the award to the arbitrator, with a direction that the cost of the Parsons machines was not recoverable from British Westinghouse. 

Viscount Haldane said (emphases added):

“The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.”

“… this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.

“The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business.”

“Provided the course taken to protect himself by the plaintiff … was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, … an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.”

It seems that conduct giving rise to a benefit is to be taken into account when it “arises out of the consequences of breach”. 

The passages underlined support the view that, if conduct “arises out of the consequences of breach”, a claimant must give credit for any benefit which results, even if the conduct goes beyond what is reasonably required. Hence McGregor’s third rule.

There is, however, a question, whether that was really the ratio for deciding that UERL had to give credit for the saving it enjoyed. Did the court think that by buying the Parsons turbines, UERL: (i) went beyond what was reasonably required (“over-mitigated”); or (ii) did what was reasonably required? If (i) then British Westinghouse is authority for McGregor’s third rule. If (ii) then the judgment leaves open the question of whether a claimant must account for the benefits of doing more than is reasonably required.

Given that UERL had to give credit for all the savings which would result from using the Parsons turbines relative to as-contracted-for Westinghouse turbines, then there are three possible readings of the judgment:

  1. Rather than buy the Parsons turbines, reasonableness only required UERL to buy turbines which were: (i) cheaper than the Parsons turbines; and (ii) less efficient than the Parsons turbines; but (iii) as efficient or more efficient that the Westinghouse turbines should have been. By instead buying the Parsons turbines, UERL went beyond what was reasonably required. If that was the court’s view, then McGregor’s third rule is correct.
  2. Reasonableness imposed a duty on UERL to buy the Parsons turbines specifically. If UERL had declined the opportunity to buy the Parsons turbines, and had bought any other turbine, UERL would have been acting unreasonably. If that was the court’s view, then British Westinghouse is not direct authority for McGregor’s third rule, since in buying the Parsons turbines, UERL did not go beyond what was reasonably required.
  3. There was a range of actions which it would have been reasonable for UERL to take. It would have been reasonable to buy the Parsons turbines. It would also have been reasonable to buy different, less efficient, but cheaper turbines. UERL reasonably decided to buy the Parsons turbines, and so had to account for the benefits of having done so. If instead, UERL had bought cheaper, but less efficient, turbines then it would instead have had to account for: (i) the cost saving it enjoyed by buying the cheaper turbines; and (ii) any efficiency saving of those turbines relative to as-contracted-for Westinghouse turbines. If that was the court’s view, then British Westinghouse is not direct authority for McGregor’s third rule, because UERL’s actions in purchasing the Parsons turbines did not go beyond what was reasonably required.

It should be said at the outset that there is no evidence that UERL had the option of buying turbines which were cheaper than the Parsons turbines; less efficient than the Parsons turbines; but as or more efficient than the Westinghouse turbines should have been. But it is only if UERL could have bought such turbines that British Westinghouse is a direct authority for McGregor’s third rule.

Is this realistic? In 1902 the contract price for the Westinghouse turbines had been some £250,000. Six years later, the contract price for the much superior Parsons turbines, with 10% more generating capacity, was only around £80,000. That suggests a rapid fall in the price of turbines, but it might also suggest that the technology had moved on, and turbines had generally become more efficient and powerful. We have no idea as to how a reduction in capacity would have affected the price. It may even be that in 1908, a turbine which performed as the Westinghouse turbines should have done would have cost much the same as the Parsons turbine.

In one passage, Viscount Haldane can be read as saying that, by buying the Parsons turbines, UERL did go beyond what was reasonably required by way of mitigation (emphasis added):

The arbitrator appears to me to have found clearly that the effect of the superiority of the Parsons machines and of their efficiency in reducing working expenses was in point of fact such that all loss was extinguished, and that actually the respondents made a profit by the course they took. They were doubtless not bound to purchase machines of a greater kilowatt power than those originally contracted for, but they in fact took the wise course in the circumstances of doing so, with pecuniary advantage to themselves.

At the same time, the reference to the purchase of the Parsons turbines as having been “the wise course” could be read as meaning that it was a reasonable course of action (but not the only reasonable course of action).

Viscount Haldane’s reference to “power” is probably a mistake. The “pecuniary advantage” of Parsons turbines to UERL compared to as contracted for Westinghouse turbines was not due to greater power output but greater efficiency. 

Suppose the Westinghouse turbines had been as contracted for and UERL replaced them with new turbines which were capable of generating 10% more power but which would require 10% more coal in order to do so. UERL would not enjoy any saving as a result of having replaced the Westinghouse turbines with more powerful turbines. UERL’s saving arose not because the Parsons turbines produced more power, but because they would require less coal in order to produce the power which the Westinghouse turbines would have produced if they had been as contracted for.

Elsewhere in the judgment Viscount Haldane said:

Apart from the breach of contract, the lapse of time had rendered the [Westinghouse] machines obsolete, and men of business would be doing the only thing they could properly do in replacing them with new and up to date machines.

There are two ways this could be read:

  1. UERL’s expenditure on the Parsons turbines did not “arise[e] out of the consequences of the breach” - UERL would as a matter of fact always have replaced the Westinghouse turbines in 1908 anyway, in the ordinary course of UERL’s business, even if the Westinghouse Turbines had been in compliance with the contract. The cost of replacing the turbines was not recoverable because it was a cost which would have been incurred irrespective of any breach.
  2. Due to the breach, UERL had no choice but to replace the defective turbines with new turbines. When UERL bought the Parsons turbines, it did what was reasonably required (and no more). UERL, when it had the option of buying the Parsons turbines, would have been acting unreasonably if it had instead opted to purchase different turbines whose performance was merely equivalent to that of the Westinghouse turbines it originally contracted for.

A good argument can be made that, by buying the Parson’s turbines, UERL did what was reasonably required, and no more. That argument is as follows.

  1. The Westinghouse turbines were defective. 
  2. If UERL replaced them with turbines which were at least as efficient as the Westinghouse turbines should have been, UERL would avoid a £238,000 loss (nearly as much as the cost of the original Westinghouse turbines).
  3. It was evidently possible to buy replace the turbines for much less than £238,000 (because, in the event, that is what UERL did).
  4. It follows that it would have been unreasonable to keep using the Westinghouse turbines, and that UERL was under a duty to buy replacements.
  5. What options did UERL have available? We only know of one such option - that Parsons had offered to supply replacement turbines which would cost a fraction of what the Westinghouse turbines had cost, and which promised to be much more efficient. 
  6. There is no evidence that UERL could have bought some other turbines which were cheaper than the Parsons turbines, less efficient than the Parsons turbines, but as efficient or more efficient that the Westinghouse turbines should have been. 
  7. Since UERL had a duty to buy replacement turbines and since the only offer of replacement turbines we know about was Parsons’ offer, UERL’s duty was to accept Parsons’ offer. In accepting Parsons offer, UERL did not go beyond what was reasonably required, but did exactly what was reasonably required. Purchasing the turbines from Parsons could not be, at one and the same time, both mitigation and over-mitigation.

It can be seen that, on a close reading, British Westinghouse does not really seem to close the door completely on the issue of whether a claimant which takes some action which “arises out of the consequences of breach”, but goes beyond what is reasonably required, must account for the resulting benefit.

The “available market” cases

In 110 years since British Westinghouse, there seem to be relatively few reported cases where a question has arisen whether a claimant must account for a profit as a result of action (or inaction) in mitigation.

The reason is probably because so many disputes involve the sale of goods or services for which there is an available market, and the law analyses those cases in a very particular way.

If a buyer does not receive goods he has contracted for he should (if not prevented from doing so by impecuniosity) immediately go into the market and buy a substitute. His claim is then for the difference between the contract price and the cost of acquiring the goods on the missed delivery date. If he instead chooses to delay, and the market rises, he cannot recover the extra cost. If the market falls, he need not account for the saving. 

The rationale is that the buyer’s decision whether to buy a substitute immediately on breach or else to delay is (per Goff J in The Elena d’Amico):

“… an independent decision, independent of the breach, made by the buyer on his assessment of the market.

The same reasoning applies where a buyer refuses to take delivery of goods for which there is an available market. The seller should sell the goods on the delivery date at the market price and, if he realises a price which is lower than the contract price, claim the difference from the defaulting buyer. If the seller delays, and the market rises, he need not account for his extra profit. If the market falls, he cannot recover his extra loss.

For cases involving the sale of goods, this presumption as to how damages will be calculated is laid down by statute, specifically sections 50 and 51 of the Sale of Goods Act 1979. But the same reasoning which applies to sale of goods seems to apply to any contract where there is an available market for whatever is contracted for. It applied, for example, to a contract for the sale of shares in Jamal v Moolla Dawood, Sons & Co [1916] 1 AC 175. There the claim was for failure by a buyer to accept shares under a contract of sale for delivery on a specified date. Two months later the sellers began to re-sell the shares on a rising market. It was held that the profit thus accruing should not be deducted from the damages for non-acceptance, which were to be ascertained as at the date of the breach. 

The early redelivery of ships by charterers seem to be subject to a similar analysis. Goff LJ again in the Elena D’Amico:

“The normal measure of recovery in cases of premature wrongful repudiation of a time charter is that, if there is at the time of termination of the charterparty an available market for the chartering of ... a ... vessel, the damages will generally be assessed on the basis of the difference between the contract rate for the balance of the charter period and the market rate for ... that period.

If there is an available market, the owner must enter a new charter and claim the difference. If they delay, and the market rises, they get the benefit, if they delay, and the market falls, they bear the loss.

It is worth noting Goff J’s reference to the “normal” measure. The Sale of Goods Act 1979 only provides that, where there is an available market, the measure of damages is “prima facie” the difference between the contract price and the price and the market price on the date when the goods should have been delivered / accepted. It should not be assumed that this measure will always apply.

A case in which this prima facie measure was not applied is R. Pagnan & Fratelli v Corbisa Industrial Agropacuria Limited [1970] 1 WLR 1306. There the parties had contracted for the sale of a quantity of maize. The maize was not delivered by the contractual delivery date. The buyer agreed to accept late delivery if satisfied with the condition of the cargo on arrival. When the cargo arrived, part was in bad condition, and the buyer rejected it. In the meantime, the buyer had obtained (in effect) a freezing injunction to prevent the seller disposing of the cargo, pending resolution of the buyer’s claim to damages. Unable, due to the freezing injunction, to sell the goods at their market price, the seller was instead forced to sell the goods to the original buyer at a price which was much less than the market price and also much less than the contract price. The buyer continued to pursue its claim for damages, claiming the difference between the contract price and the market price on the delivery date. It was held that the purchase of the maize at a depressed price formed part of a continuous dealing and was not an independent or disconnected transaction. To use the British Westinghouse terminology, the purchase “arose out of the consequences of breach” - because but for the breach and the freezing injunction the buyer could never have obtained the maize at the depressed price. The buyer therefore had to account for the saving it had enjoyed, which mitigated any loss it might have suffered.

Lack of choice?

In 1897 William Harbutt, an art teacher, invented ‘plasticine’, the modelling clay beloved of children and stop-motion animators, a version of which is still sold under that name today. In 1962 the company to which he gave his name, Harbutt’s ‘Plasticine’ Limited, retained a contractor to design, supply and install certain equipment in its factory. The equipment proved defective, and caused a fire which destroyed the factory. Harbutt’s claimed the cost of rebuilding the factory. Harbutt’s did not rebuild the factory to the original design (they could not obtain planning permission to do so) so instead used a substantially different design.

The contractor argued that in calculating damages a deduction should be made from the rebuilding cost to reflect the benefit to Harbutt’s of having a new factory in place of the old one. The Court of Appeal rejected that argument. Lord Denning MR said:

“When this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case.”

Widgery LJ said that to require credit to be given for betterment because the factory was “modern in design and materials” would be:

the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them”.

Is this reasoning consistent with BritishWestinghouse? There can be no question that the rebuilding of the factory “arose out of the consequences of the breach” - it was the only thing which Harbutt’s could do in response to the breach. Also, by rebuilding the factory, Harbutt’s had done what was reasonable, and no more (if that matters). So one might have thought that Harbutt’s should have accounted for any benefit they obtained as a result of having a new factory rather than an old one. 

Is it relevant that Harbutt’s had no choice but to improve their factory? Does this serve to distinguish Harbutt’s from British Westinghouse? It would seem illogical if the fact there was was more than one option reasonably open to a claimant to mitigate its loss meant that the benefits of the chosen option must be taken into account, and yet where only one option was available they had to be ignored. Also (as has already been stressed) there is no evidence as to what (if any) choices were open to UERL. It might well be that the only option reasonably open to UERL was to buy a turbine which was more efficient and 10% more powerful, simply because turbine technology had moved on.

Perhaps a better reason for the decision in Harbutt’s was not that any benefit was unlooked for and effectively forced upon Harbutt’s or that Harbutt’s had no choice. Rather, that the supposed benefit (“new for old”) was so nebulous and hard to value. It might simply have been that the contractor failed to discharge the burden of proving that there had been a benefit to Harbutt’s, and the value of that benefit. This was certainly the argument advanced by Harbutt’s counsel. Denning LJ’s judgment seems to accept that if the contractor had proven any benefit to have resulted (“if they added extra accommodation or made extra improvements”) then Harbutt’s would have had to give credit - it was simply that this was “not the case”. Cross LJ seems to have made his decision on the ground that the benefits of “new for old” had not been proved:

I can well understand that if the plaintiffs in rebuilding the factory with a different and more convenient lay-out had spent more money than they would have spent had they rebuilt it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be rebuilt on the old lines. Accordingly, in my judgment, the capital sum awarded by the judge was right.

In The Gazelle (1844) 2 W Rob 279 a ship’s engine rotor was damaged and had to be replaced with a new rotor resulting in the lengthening of the engine’s life. The claimant recovered the full cost of the repairs, with no credit for the incidental benefit:

“… if that party derives incidentally a greater benefit than mere indemnification, it arises only from the impossibility of otherwise effecting such indemnification without exposing him to some loss or burden, which the law will not place upon him.

In Bacon v Cooper (Metals) Ltd [1982] 1 All ER 397 the claim was for irreparable damage to a rotor in a machine for crushing scrap metal. The damaged rotor was 3.25 years old and such rotors normally had a service life of seven years. The defendant argued that, if the claimant recovered the cost of the new rotor, it would be in a better position than if the rotor had never been damaged, since it would have the benefit of an extra 3.75 years of use. The court allowed the claimant the full cost of the new rotor. There was no available market in second hand rotors - the claimant had no choice but to buy a new one.

In Voaden v Champion (The Baltic Surveyor) [2002] EWCA Civ 89 a pontoon was lost as a result of the defendant's negligence. The judge found the pontoon had eight years of life left, that no suitable second-hand pontoon was available as a replacement and that a new pontoon would have a life of 30 years and would cost £60,000. The judge awarded damages of £16,000 calculated as 8/30 of the cost of replacing the pontoon. The Court of Appeal upheld this approach. Rix LJ considered the true principle to be that, where the claimant has received a benefit which is “of real pecuniary advantage”, the benefit must be taken into account. 

How does this case fit with Harbutt’s, the Gazelle and Bacon v Cooper? It is hard to see any distinction. In each case, a claimant owned something, the life of which had partly expired, and which had to be replaced. An exact replacement was unavailable, and so the claimant had to buy new-for-old, gaining the benefit of an increased working life. In Harbutt’s (a Court of Appeal case), The Gazelle and Bacon v Cooper, no credit had to be given for the extended life, but in The Baltic Surveyor, it did.

Hussey v Eels [1990] 2 WLR 234

In Hussey v Eels the Husseys bought a bungalow for £53,000 from the Eels. The Eels had misrepresented that the bungalow had not been subject to subsidence. In fact the bungalow had been subject to subsidence, and the market value of the property was only £36,000, which was £17,000 less than the purchase price. The cost of remedying the subsidence was beyond the Hussey’s means. The Husseys obtained planning permission to demolish the bungalow and erect two new buildings. The Husseys then sold the property for £78,000. The Husseys claimed £17,000 as the difference between the price the Husseys had paid for the property and the then market value. The judge at first instance dismissed the Hussey’s claim, on the ground that the subsequent resale and profit had wiped out the Hussey’s loss. But, on appeal, the Husseys were awarded £17,000. 

In his judgment Mustill LJ discussed Westinghouse. Critically, he said:

The respondents had bought equipment with a greater output than before - presumably at greater cost than if exactly equivalent replacements had been obtained.

In other words, Mustill LJ assumed that UERL could have bought some other turbines which were cheaper than the Parsons turbines, less efficient than the Parsons turbines, but at least as efficient as the Westinghouse turbines should have been. As previously discussed, there is scant evidence that this was the case.

Mustill LJ said:

Once it was found that the purchase had been reasonably made the conclusion in favour of [British Westinghouse] now seems inevitable, given that the act which constituted the mitigation and the act which was said to constitute the over-mitigation were in the event the same. Thus, there was no question of the case being concerned with a chain of disconnected transactions, and so, I cannot follow the judge in treating the present case as directly governed by Westinghouse.

Mustill LJ concluded:

Did the negligence which caused the damage also cause the profit - if profit there was? I do not think so. It is true that in one sense there was a causal link between the inducement of the purchase by misrepresentation and the sale 2 years later, for the sale represented a choice of one of the options with which the plaintiffs had been presented by the defendants’ wrongful act. But only in that sense. To my mind the reality of the situation is that the plaintiffs bought the house to live in, and did live in it for a substantial period. It was only after two years that the possibility of selling the land and moving elsewhere was explored, and six months later still that this possibility came to fruition. It seems to me that when the plaintiffs unlocked the development value of their land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception.

So it seems that the benefit in Hussey v Eels did not need to be accounted for because the action which led to it (the decision to apply for planning permission, and sell the land) was not mandated by the breach, but made independently - it did not “arise out of the consequences of breach”. 

Dimond v Lovell [2002] 1 AC 384

In Dimond v Lovell, Mrs Dimond’s car was damaged in an accident which was Mr Lovell’s fault. For the period while her car was being repaired, she hired a replacement car through a credit hire company.

Credit hire companies specialise in supplying replacement cars to drivers whose cars are being repaired following accidents. When a motorist seeks a replacement car for the period while his own car is off the road, the company checks whether the motorist seems to have an unanswerable claim against the other driver. Having satisfied itself on this score, the company provides the car sought, without requiring any up-front payment, and then seeks to recover its charges from the negligent driver (or, rather, the negligent driver’s insurer). The hirer is relieved of the necessity of laying out the money up front to pay for the car, relieved of the trouble and anxiety of pursuing a claim, relieved of the risk of having to bear the irrecoverable costs of successful litigation, and relieved of the risk of having to bear the expense of unsuccessful litigation. Depending upon the terms of agreement, the hirer may also be relieved of the possibility of having to pay for the car at all. For these services, which go beyond simple car hire, credit hire companies charge an additional fee, such that the total cost exceeds that which would have been incurred if the motorist had used a traditional hire company.

At first instance Mrs Dimond recovered the fee the credit hire agency had charged. On appeal, the House of Lords held that the particular credit hire agreement which was the subject of that case was unenforceable because it did not comply with the requirements of the Consumer Credit Act 1974. Mrs Dimond had no liability under that agreement, and so could not recover in respect of it from Mr Lovell. 

Lord Hoffmann went on to say, however, that there was another reason why Mrs Dimond should not have been allowed to recover the whole of the credit hirer’s fee:

If Mrs. Dimond had borrowed the hire money, paid someone else to conduct the claim on her behalf and insured herself against the risk of losing and any irrecoverable costs, her expenses would not have been recoverable. But the effect of the award of damages is that Mrs. Dimond has obtained compensation for them indirectly because they were offered as part of a package by 1st Automotive. There is in my opinion something wrong with this conclusion.

I think that what has gone wrong is that the Court of Appeal did not consider the rule that requires additional benefits obtained as a result of taking reasonable steps to mitigate loss to be brought into account in the calculation of damages.

How does one calculate the additional benefits that Mrs. Dimond received by choosing the 1st Automotive package to mitigate the loss caused by the accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. 1st Automotive have to bear the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer's fault and so on. A charge for all of this is built into the hire.

How does one estimate the value of these additional benefits that Mrs. Dimond obtains? It seems to me that prima facie their value is represented by the difference between what she was willing to pay 1st Automotive and what she would have been willing to pay an ordinary car hire company for the use of a car. As the judge said, 1st Automotive charged more because they offered more. The difference represents the value of the additional services which they provided. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the British Westinghouse case [1912] A.C. 673 and this seems to me to lead to the conclusion that in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided.

Lagden v O’Connor [2004] 1 AC 1067

In Lagden v O’Connor, the facts were very similar to Dimond v Lovell. Mr Lagden’s car was damaged in an accident which was Mr O’Connor’s fault. For the period while his car was being repaired, he hired a replacement car through a credit hire company. The difference was that Mrs Dimond chose to hire a car from a credit hire company because it was more convenient, but could have hired a car from a conventional hire company instead. Mr Lagden could not afford to hire a car from a conventional hire company and, if he wanted a replacement car, had no choice but to hire it from a credit hirer.

The House of Lords decided by a majority of 3 to 2 that Mr Lagden could recover the full amount charged by the credit hire company (Lords Nicholls, Slynn and Hope in the majority). 

Only Lord Hope addressed British Westinghouse. He said:

In that case the turbines which were purchased in place of the defective turbines were more efficient than the defective turbines supplied by British Westinghouse, even if those turbines had been in accordance with the specification in their contract with the railway company. In the result the railway company obtained benefits over and above their contractual entitlement. That was their choice, and it was a reasonable and prudent choice to make in the circumstances. But it was held that it was nevertheless necessary to balance loss against gain when the amount of the damages was being calculated.

So far so good. But what if the injured party has no choice? What if the only way that is open to him to minimise his loss is by expending money which results in an incidental and additional benefit which he did not seek but the value of which can nevertheless be identified? Does the law require gain to be balanced against loss in these circumstances? If it does, he will be unable to recover all the money that he had to spend in mitigation. So he will be at risk of being worse off than he was before the accident. That would be contrary to the elementary rule that the purpose of an award of damages is to place the injured party in the same position as he was before the accident as nearly as possible.

It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so. It is not enough that an element of betterment can be identified. It has to be shown that the claimant had a choice, and that he would have been able to mitigate his loss at less cost. ... [I]f the evidence shows that the claimant had a choice, and that the route to mitigation which he chose was more costly than an alternative that was open to him, then a case will have been made out for a deduction. But if it shows that the claimant had no other choice available to him, the betterment must be seen as incidental to the step which he was entitled to take in the mitigation of his loss and there will be no ground for it to be deducted.

Mr Lagden unlike Mrs Dimond, had no choice. In order to mitigate the loss he would otherwise suffer (the inconvenience of being deprived of the use of his car) he had to hire a replacement and it was impossible for him to hire a car other than through a credit hire company, and thereby obtaining the incidental benefits of hiring through such a company.

Lord Hope, then, presumably thought that in British Westinghouse, UERL had a choice. It had a duty to replace the defective turbines, but not with the Parsons turbines. UERL could properly have bought less efficient turbines, but chose instead to purchase the Parsons turbines, which could be assumed to have been more expensive. 

The problem is that there seems to have been no evidence in the British Westinghouse case to show that UERL had such a choice, or as to what (if any) alternatives to the Parsons turbines were available which it would have been reasonable for UERL to purchase. 

Fulton Shipping Inc of Panama v Globalia Business Travel SAU (The "New Flamenco") [2014] EWHC 1547 (Comm), [2014] 2 Lloyd's Rep 230

In repudiatory breach of a time charter, charterers re-delivered the vessel two years early. The owners accepted the repudiation and, in circumstances where there was no suitable alternative employment, sold the vessel for US$23,765,000. The owners claimed as damages the net loss of profits which they would allegedly have made during the remaining period of the charter. The charterers argued that the owners were bound to give credit for the difference between the amount for which the vessel was sold and the value of the vessel at the end of the charter period in November 2009 – by which time the market had collapsed and the vessel could only have been sold for US$7 million. The arbitrator found that the sale of the vessel was caused by the charterers’ breach and was in reasonable mitigation of damage, and that the benefit which accrued to the owners from selling the vessel in October 2007 rather than at the end of the charter period in November 2009 should be brought into account in the assessment of damages.

Popplewell J allowed the owners’ appeal. He said:

The causation question is not concluded by the tribunal’s finding that the sale was in reasonable mitigation of loss. The loss in question which was mitigated was the owners’ net loss of income from the charterparty. The sale of the vessel mitigated this loss because it reduced the continuing costs of operating or laying up the vessel. To the extent that the benefits flowing from the sale comprised such cost savings, there is no difficulty in treating the causal nexus between breach and benefit as established through the mitigating step of selling the vessel. But insofar as the sale gave rise to a capital benefit, it was not caused by the breach, but by the independent decision of the owners to realise the capital value of their asset. Although that was a benefit which flowed from the mitigating step of selling the vessel, it does not satisfy the principle that benefits are only to be taken into account to the extent that they are caused by the breach.

Popplewell J distinguished between the owners’ right to earn income from the vessel (with the associated liability to pay the operating costs) during the charter and the right to do so after that time. In principle the owners could have sold one right without the other. In selling the vessel when they did, the owners sold all their rights in the vessel. The owners thereby relieved themselves of the costs which they would have incurred in operating or laying up the vessel during the rest of the charter period. Insofar as it relieved them of those costs, the sale was a step reasonably taken in mitigation of loss, the benefits of which had to be brought into account. However, in so far as the sale comprised all the owners’ residual rights in the vessel, the benefit which they obtained from the sale could not properly be regarded as the result of an action reasonably taken in mitigation of loss. Rather, it represented the result of an independent decision based on the owners’ commercial judgment, the risk and benefit of which were for their own account.

How does this sit with British Westinghouse? It will be recalled that there are three possible readings of British Westinghouse: (i) UERL went beyond what was reasonable when it bought the Parsons turbines; (ii) UERL was under a duty to buy the Parsons turbines; (iii) it was reasonable for UERL to have bought the Parsons turbines, but it would also have been reasonable to buy other, cheaper but less efficient turbines.

Assume that the position in British Westinghouse was (iii): it was reasonable for UERL to have bought the Parsons turbines, but it would also have been reasonable to buy other, cheaper but less efficient turbines. Buying the Parsons turbines was therefore in reasonable mitigation of loss - just like selling the ship was in the New Flamenco. Just like in the New Flamenco, the benefits which resulted can be divided into benefits which were caused by the breach, and benefits which were caused by an independent decision of the claimant:

  1. The consequence of the breach was that UERL had to buy replacement turbines.
  2. UERL had a choice whether to buy Parsons turbines or cheaper, but less efficient turbines.
  3. Either course of action would wipe out the loss which UERL would otherwise suffer as a result of the underperformance of the Westinghouse turbines.
  4. UERL had to buy turbines, but the decision whether to buy Parsons turbines or some other turbines was not dictated by the breach - it was a commercial decision for UERL.
  5. UERL chose to spend the extra money and buy the Parsons turbines.
  6. Insofar as UERL, by spending the extra money, obtained an extra efficiency saving, that was the result of UERL’s independent decision - not the breach.
  7. UERL should not, therefore, have been able to recover the extra cost of the Parsons turbines relative to the cheaper turbines, but neither should UERL have had to give credit for the benefit it obtained by spending that extra money.

Thai Airways v KI Holdings [2015] EWHC 1250

Thai Airways is the most recent case to have considered the effect of British Westinghouse. Thai Airways (“Thai”) is the national airline of Thailand. Koito Industries (“Koito”) was a Japanese manufacturer of aircraft seats. 

Thai entered a series of contracts with Koito for the supply of new economy class seats. 

  1. Koito was to supply new seats for B777 aircraft being refurbished. Koito supplied an incomplete shipset for one of the B777s, with 99 seats missing. Thai had the incomplete shipset installed but the aircraft remained grounded awaiting delivery of the new seats. Thai ultimately took the decision to re-install old seats to enable the aircraft to fly. The inferior quality of the old seats meant that Thai was unable to sell those seats to passengers, and so operated the aircraft with a reduced seat capacity for around 18 months until the remaining seats were delivered and installed.
  2. Koito was to supply seats for new A330 aircraft being built for Thai by Airbus. Koito failed to supply any seats for five of the aircraft, so Thai had to take delivery of those aircraft with no seats. Those aircraft were flown to Bordeaux and placed in storage until seats could be installed. Thai bought new seats from another supplier, but, on average, the new aircraft still went into operation 1.5 years late.
  3. Koito was to supply seats for six new A380 aircraft being built for Thai by airbus. Koito failed to supply any seats. Thai purchased replacement seats, at greater cost, from another supplier. Koito’s failure to supply the seats did not delay delivery of the aircraft.

The grounding of the B777 and the delayed commissioning of the A330s meant Thai had fewer aircraft than it had expected. In response Thai brought some old aircraft back into operation, but also hired three B777 aircraft from Jet Airways for three years under what were known as the “Jet Leases”. 

The five delayed A330 aircraft were all brought into service and the missing seats for the B777 were installed during the first two years of the Jet Leases. During the third year of the leases, therefore, Thai was no longer suffering any lack of capacity as a result of Koito’s breaches of contract but instead had additional capacity from the aircraft leased from Jet. The leased aircraft made a positive contribution to Thai’s profits after deduction of their rental and running costs.

Leggatt J discussed British Westinghouse at some length. He evidently thought that, in British Westinghouse, it was reasonable for UERL to buy the Parsons turbines, but it would also have been reasonable to buy cheaper but less efficient turbines instead:

There is thus no need to invoke McGregor’s “avoided loss” rule in order to explain the decision. Nor is there any asymmetry in the principle of mitigation. The British Westinghouse case simply demonstrates that, provided the claimant’s response to the breach is one which a reasonable person could be expected to adopt, the measure of damages is the loss which the claimant has actually suffered taking account of both costs and benefits resulting from the defendant’s breach of contract.

In other words, British Westinghouse is not authority for McGregor’s third rule (though that would not mean McGregor’s third rule is wrong).

Koito argued that the Jet Leases were a step which Thai took in mitigation, so that Koito should have the benefit of the profit which was generated by the leased aircraft during the third year.

Thai claimed the cost of leasing the aircraft for the first two years as costs it had incurred in mitigation. But Thai argued that, when it leased the aircraft, it could have done so for a period of either two or three years. It chose to lease the aircraft for three years rather than two, not to mitigate its loss, but as an independent business transaction, quite unrelated to Koito’s breach.

In respect of the Jet Leases, Leggatt J referred to the evidence as showing that:

While the main reason for leasing the three B777-300ER aircraft from Jet was to mitigate the consequences of Koito’s breaches of contract, that reason would not have justified leasing the aircraft for three years rather than two. The choice of a three rather than a two year lease term (with an option to extend for a further two years) was driven by other commercial considerations. I accordingly find that the decision to lease the aircraft for a third year was not a step which was taken nor which it would have been reasonable for Thai to take in mitigation of loss, and is therefore not attributable to Koito’s breaches of contract.

Here, Leggatt seems to distinguish British Westinghouse on grounds related both to causation (“not a step which was taken … in mitigation of loss”) and reasonableness (“not … a step … which it would have been reasonable for Thai to take in mitigation of loss”). So:

  1. In British Westinghouse, the decision to buy new turbines arose “out of the consequences of breach”. Thai decided to hire the aircraft for two years to mitigate the consequences of Koito’s breach, and for a third year for its own commercial purposes.
  2. In British Westinghouse (at least according to Legatt J) it would have been reasonable for UERL to buy either Parsons turbines or cheaper turbines. Whereas it was reasonable for Thai to hire planes for 2 years, but unreasonable to hire planes for longer.

If that is correct, and Leggatt J did decide the case on both these grounds, then Thai Airways would seem to be authority that a claimant who fails to act reasonably (or goes beyond what is reasonable) and thereby obtains a benefit which he would not have obtained if he had acted reasonably, need not give credit for that benefit. In other words, Thai Airways seems to be authority that McGregor’s third rule is wrong.

A further issue in the case was that replacement seats purchased by Thai were lighter than the Koito seats would have been, and that Thai would enjoy a saving in terms of the cost of fuel, for which Thai should give credit.

Leggatt J considered the question whether credit must be given for an ‘unchosen’ benefit, which a party had no choice but to accept. His conclusion, was that:

As I see it, what distinguishes the British Westinghouse case from the Harbutt’s Plasticine case and Lagden v O' Connor is not that [UERL] had a relevant choice but that the benefit which they obtained was pecuniary. Where a claimant as a result of a step reasonably taken to mitigate its loss receives money which it would not have received if the defendant had performed the contract, justice requires the sum received to be brought into account in the calculation of damages whether its receipt was an unavoidable consequence of mitigation or not. That is because money is entirely fungible. Thus, there is generally no material difference between incurring a cost which results in the receipt of money back and simply incurring a lower cost.

… in assessing damages for breach of contract, credit must be given for any monetary benefit, whether chosen or not, which the claimant has received or will receive as a result of an action reasonably taken to mitigate its loss. By a “monetary benefit”, I mean a benefit which either takes the form of money or which the claimant could reasonably be expected to realise in terms of money.

This does not explain the decisions in The Gazelle or Bacon v Cooper. The future savings which the claimants in those cases could expect to enjoy were monetary, just as were the anticipated savings in British Westinghouse and The Baltic Surveyor. It may simply be that The Gazelle and Bacon v Copper are wrongly decided.

Conclusions

A claimant which takes reasonable action in an attempt to mitigate loss must give credit for any benefits of that action, whether desired or not, but only insofar as the same takes the form of money or money’s worth. In any given case, a range of reasonable actions may be available.

It remains unclear whether a claimant which fails to take reasonable action or, in an attempt to mitigate loss, takes action which goes beyond what was reasonable, and thereby enjoys a benefit in excess of that which they would have enjoyed had they only acted reasonably, must give credit for the additional benefit. It is, at least, arguable that the claimant in such a case need not do so.

Finishing the story

I will finish by saying something about the characters and companies in the British Westinghouse case, and what became of them.

Alfred Lyttelton QC, who acted as the arbitrator in the British Westinghouse case died in 1913 after being struck in the stomach by a cricket ball.

UERL continued to expand after Yerkes’ death, merging with or acquiring London’s rail and bus operators. The company Yerkes founded was ultimately bought by the British government in the early 1930s, and the lines it operated remain part of the London Underground network.

British Westinghouse was the subject of various consolidations, and its successor was ultimately acquired by Westinghouse’s great rival, General Electric, in 1967.

The Lots Road power station was remodelled in 1932 and (24 years after they were installed) the Parsons turbines and alternators were replaced. In 1969 it was converted to burn oil rather than coal, then in 1977 converted again, to a gas fired power station. Lots Road power station was eventually closed in 2001. The site is presently being redeveloped as a complex of shops, restaurants and apartments called “Chelsea Waterfront”.

Following a series of mergers C.A. Parsons & Company’s successor was acquired by Rolls Royce in 1989, which was itself bought by Siemens in 1997. It still has some facilities in Newcastle, but its manufacturing operation is now based in Budapest. An example of a Parsons turbine can be seen in the Science Museum in London (it’s in the “Making of the Modern World” gallery). Parsons’ father’s “Leviathan” telescope is still in working order, more than 170 years after it was built, and can be seen in the garden at Birr Garden, Parsonstown in Ireland.

One object which the Leviathan telescope could be used to observe is an otherwise unremarkable crater on the moon called “Yerkes”. It was given that name in 1959 by the International Astronomical Union, in recognition of Charles Yerkes’ (purely financial) contribution to astronomy.