Mitigation

How BC law treats it

Mitigation is a limit on damages, not a separate cause of action. After a breach, the injured party cannot recover losses it could have avoided by acting reasonably, and it can recover the reasonable costs of trying to mitigate, even if the effort fails. The Supreme Court of Canada in Southcott Estates Inc v Toronto Catholic District School Board, 2012 SCC 51 confirmed that the burden is on the defendant to prove both that the claimant failed to take reasonable steps and that those steps would have reduced the loss. The standard is reasonableness, not perfection. The rule applies across commercial settings. A buyer whose supplier fails to deliver must generally buy replacement goods at a reasonable price. A dismissed employee claiming wrongful dismissal damages must make reasonable efforts to find comparable work. A commercial landlord who terminates a lease after the tenant's repudiation may claim prospective losses for the rest of the term (Highway Properties Ltd v Kelly, Douglas & Co, [1971] SCR 562), but must account for reasonable efforts to re-let. Mitigation must be distinguished from risk management in the general business sense. In law, it concerns only what a claimant does, or fails to do, after the wrong has occurred. Contracts can also adjust the position, for example through liquidated damages clauses, which fix the recoverable amount in advance.

What it means for your business

A business that suffers a breach must act to contain its loss and keep records of what it did, such as quotes for replacement goods, efforts to re-let premises or new customers pursued. Failing to do so can reduce a damages award, sometimes heavily. On the defence side, showing that the claimant sat on its hands is often one of the most effective ways to reduce exposure. Example: A Prince George manufacturer's supplier wrongfully cancels a resin contract. The manufacturer documents quotes from three other suppliers and buys from the cheapest one, then claims only the price difference and extra freight, which the court awards.

Risks and common mistakes

Waiting for the lawsuit to resolve before taking any steps to reduce the loss. Failing to keep records showing what was done to mitigate. Turning down a reasonable replacement deal because it is not identical to the lost contract. Assuming the claimant must prove it mitigated, when the defendant bears that burden. Overlooking that reasonable costs of mitigation are themselves recoverable.