British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912]

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912]

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 is a significant English contract law case that delves into the duty of parties to mitigate losses following a breach of contract.

The defendants, British Westinghouse Electric and Manufacturing Co Ltd, supplied turbines to the plaintiffs, Underground Electric Railways Co of London Ltd. However, these turbines were deficient in power, constituting a breach of the contract. Despite the breach, the plaintiffs accepted and used the turbines but expressly reserved their right to claim damages. Subsequently, the plaintiffs replaced the deficient turbines with others that were significantly more efficient than the ones supplied by the defendants, even if those had met the contract specifications. The plaintiffs sought to recover the cost of the substitute turbines as damages.

The House of Lords, in rendering judgment, established a crucial principle in assessing damages for a breach of contract. It held that any loss suffered by the plaintiffs had to be weighed against any gains directly resulting from their efforts to mitigate the consequences of the breach. While the plaintiffs were not obligated to purchase the new turbines, the consequential gains in profits and saved expenses resulting from this decision needed to be taken into account. In this case, the savings exceeded the cost of the substitute turbines, leading to the conclusion that the plaintiffs recovered nothing under this particular head of damages.

Viscount Haldane LC, delivering the leading judgment, emphasised that the determination of the quantum of damages is a question of fact. He outlined two fundamental principles to guide the assessment of damages. The first principle aimed to place the innocent party, who had proven a breach of contract, in as good a financial position as if the contract had been performed. However, this principle was qualified by a second one, which imposed a duty on the plaintiff to take all reasonable steps to mitigate the loss resulting from the breach. Neglecting to take such reasonable steps would preclude the plaintiff from claiming damages for that portion of the loss.

Importantly, Viscount Haldane clarified that the duty to mitigate does not compel a party to take steps beyond what a reasonable and prudent person would ordinarily take in the course of their business. The emphasis lies on actions that are reasonable in the given circumstances.
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