In a recent judgment, Thai Airways International Public Company Ltd (Thai) v KI Holdings Co Ltd (Koito)  EWHC 1250, the High Court examined in detail the circumstances in which a claimant is obliged to give credit for benefits resulting from a mitigating act. Applying caselaw, the judge concluded that 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”.
Thai contracted with an aircraft seat manufacturer, Koito, for the delivery of seats for a number of aircraft. Koito was unable to deliver all of the seats. As a result, Thai was unable to use certain of its aircraft until replacement seats could be sourced. In the intervening period Thai leased alternative aircraft from a third party, to replace the grounded aircraft.
Thai sought to recover the cost of the leases rather than its lost profits going beyond that cost. Thai argued that, as a matter of law, it did not have to give credit for the profits that it made on the leases. Koito argued that Thai had to prove that it had suffered a loss of profits and, on the evidence, had failed to do so. The judge rejected Koito’s argument that Thai had to prove anything more than its costs of mitigation, but agreed that any benefit made by Thai from the leases should be set off against the cost of the leases. However, since Koito could not prove any benefit, Thai was entitled to recover the full cost of the leases.
Thai also sourced alternative seats to replace the delayed Koito seats. The only seats available to Thai at that time were two more expensive but lighter models. Koito argued that Thai would receive a benefit from the lighter seats in the form of future fuel savings and that it should receive a credit for that benefit. Thai’s position was that it had no choice but to order the lighter seats since no other alternative was available, and in any event the benefit that may accrue to Thai would do so in the future and could not be accurately assessed.
The judge concluded that the test for when credit must be given for the benefit of a mitigating step is where that benefit is pecuniary, since money is entirely fungible. In so doing, the judge rejected the proposition that it would be unjust to require a party to give credit for a benefit which he had no choice but to receive. The judge also concluded that a party may need to give credit for a benefit which he has not yet realised and risks never doing so, provided that the benefit can be calculated with sufficient certainty. The parties had enough information to conservatively estimate the fuel saving that would arise from the use of one of the replacement models, such that it was appropriate in the judge’s view for Thai to give credit to Koito for the saving in respect of that model only.
Impact – this is an important judgment from a mitigation perspective. Companies should carefully consider these principles when considering what steps to take in response to a breach of contract.