In Lombard North Central PLC v Automobile World (UK) Ltd, the Court of Appeal has reiterated that the duty to mitigate losses caused by a breach of contract is not a demanding one.
Automobile World (AW) took a rare and expensive car on hire purchase from Lombard (L). The car was a Mercedes Benz S600 Pullman and was the kind of car that a country's head of state might order to an almost bespoke specification. These cars were manufactured by Mercedes Benz for a total of only three years.
The basic cash price of the car under the contract between AW and L was £194,000. AW paid a deposit of £24,000 and agreed to pay 60 instalments of £3,061.23 and a final instalment of £60,000. In fact, AW managed to pay only a few of the initial instalments and then defaulted. Lombard issued a notice of termination and repossessed the car with a view to selling it. It was the sort of car that arguably should have been sold through specialist dealers, allowing sufficient time for the right buyer to come along. As it was, the car was offered for sale in the standard way and sold in a private sale for £59,900 in only 11 days. £50,900 of this was credited to AW's account and Lombard brought proceedings for their outstanding losses amounting to £204, 731.31.
In fact, the car should have been sold for nearer £150,000. AW argued that Lombard’s representative responsible for selling the car (Mr Treadwell) had failed to recognise its rare nature and so had failed to properly market the car and mitigate Lombard’s losses.
The Court of Appeal held that Lombard had properly mitigated its losses. It said:
"It is well recognised that the duty to mitigate is not a demanding one…it is the party in breach which has placed the other party in a difficult situation. The burden of proof is therefore on the party in breach to demonstrate a failure to mitigate. The other party only has to do what is reasonable in the circumstances."
Mr Treadwell had been careful to obtain the best price for the car in circumstances in which Lombard was attempting to recoup its losses by what was, in effect, a forced sale. In light of this, the court was satisfied that Lombard had acted reasonably in the circumstances.
Click here for a copy of the judgment