Offers to Mitigate

Presented by Dr Wayne Courtney, National University of Singapore, Singapore

After a tort or breach of contract has occurred, the wrongdoer (or, occasionally, the victim) may propose a course of action that will eliminate or ameliorate the harm flowing from the wrong. The avoidable loss rule is routinely applied to assess the victim’s decision to reject, or to decline to make, such an offer. If the victim acted unreasonably, its damages are assessed on the counterfactual basis that it acted reasonably and did accept, or make, the offer.

Controversy has emerged over how this principle applies to a surprisingly simple situation. Suppose that the victim has suffered damage as a result of the breach of contract or tort, and that the damage can be eliminated by the wrongdoer if it is permitted to intervene. The wrongdoer offers to do this at no charge to the victim. Nonetheless, the victim prefers to pay for the services of a third party. Assume also that its choice to do so was unreasonable. What, then, can the victim recover? Two different answers emerge. One is that the victim receives nothing, because it would not have incurred that loss if it had allowed the wrongdoer to act. The other answer is that the victim can recover compensation, limited to what it would have cost the wrongdoer to carry out its offer.

The seminar argued that both answers may be right.

Dr Wayne Courtney is an Associate Professor at the National University of Singapore, a Senior Fellow at the University of Melbourne and was previously an Associate Professor at Sydney Law School. He researches in contract law and has broader interests in commercial law and private law. He is the author of two books (Contractual Indemnities and The Modern Contract of Guarantee (English edition)) and numerous articles. Wayne’s work has been cited by the High Court of Australia, the Supreme Court of the United Kingdom, the Supreme Court of New Zealand and by other courts around the Commonwealth. He is a member of the editorial board of the Journal of Contract Law and section co-editor for the Journal of Banking and Finance Law and Practice.