The loss is categorised as having been caused by the

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Unformatted text preview: hat the plaintiff had any resources which could have been directed at avoiding losses for, say, an investment which was planned for funds wrongfully withheld by the defendant, then the plaintiff may be denied the recovery of opportunity losses. The loss is categorised as having been caused by the plaintiffs failure to mitigate rather than by any action on the part of the defendant. It may be, in such circumstances, that the court will seek to determine whether the injured party could have avoided the losses by purchasing alternative products, borrowing funds to secure the alternative investment, or in some practical reasonable way making provision to alleviate the opportunity cost by using an alternative resource, rather than simply letting the losses accumulate. In Seguna and Seguna v Roads and Traffic Authority of New South Wales42 (1995), the plaintiffs failed to recover a claimed opportunity cost because they failed to show that they had taken any concrete steps to actually make the investment which they claimed made up part of the loss they bore from the defendant's actions which caused a drop in 40 British Westinghouse Electric and Manufacturing Co. v Underground Electric Railway Co. of Londo Ltd. [1912] A.C. 673 at 689 per Viscount Haldane. 41 Bridge 1989, draws attention to the inconsistencies which arise in certain English and Australian cases where plaintiffs who suffered losses from breach of contract were denied damages for a proven loss because the court decided i would have been prudent for them to have recontracted with the defendant on t new terms which would have avoided a portion of the losses claimed. See "Mitigation of Damages in Contract and the Meaning of Avoidable Losses", [1989] 105 L.Q.R. 398. 42 [1995] N S W L E C 147, at p. 8. 210 property value. If the plaintiffs had taken concrete steps to m a k e the planned investment with borrowed funds, but had found themselves unable to do so from the lowered property value, which left them with diminished borrowing capacity, the court may have held the losses recoverable. The recoverable loss in these circumstances would have been the difference between the investment costs incurred as a result of the additional borrowing, and those costs which would have been incurred had the defendant not been guilty of a culpable act or omission. This is not intrinsically antithetical to the economic approach, for innovation, as noted in Chapter Five, is highly prized in the economic worldview and application of a reasonable and innovative approach to loss avoidance will certainly fall within the reasonability test applied by the court. 'Mitigation', consequently, is one major obstacle in claiming the opportunity costs arising from late payment by a defendant. Regardless of whether the withheld funds are debts or damages, if the injured party has the ability to borrow to invest or in some other way evade losses otherwise caused by the defendant, the courts may be singularly unsympathetic to any claims that the funds withheld by the defendant were the effective cause to losses suffered, other than direct losses. Whether a party has acted 'reasonably' in avoiding losses is considered as a matter of fact,43 with the 'duty' to mitigate44 comprising the rule of law. The injured party will not be held to know the future with spectacular foresight or to manage remaining funds with ingenious financial knowledge, but will be held to the standard of the reasonable person 43 Payzu Ltd. v Saunders [1919] 2 K.B. 581 (Court of Appeal). Bridge calls attention to the fact that it m ay be technically improper to even speak of the "duty" to mitigate, for, he says, that a duty is always reflected in a right recognized by the counterparty [1989, at 399]. This m ay be subject to some criticism, as the characterisation of aright,which contains a privilege of demand, versus a rule of law, which will always be available to the defendant, and both of which give the defendant the ability to escape pecuniary penalty, seems an empty distinction. 44 211 in the plaintiffs position. A ccording to Bridge: "[f]he plaintiff m ust take steps consistent with the demands of reasonable and prudent action, ... not a difficult and hazardous course of action, nor to act in such a way as to impair his commercial reputation".45 The standard which the court imposes upon a plaintiff will consider each case on its own factual circumstances. A purchaser of a truck with a defective engine, which was in breach of the seller's warranty, was debarred from claiming damages related to time, effort, and expense past that point where the courts held it prudent for him to purchase another truck or make alternative arrangements.46 Where a purchaser refused late delivery, and instead repudiated a contract, the court held the losses attributable to the failed delivery irrecoverable on the grounds that the market value of the goods (a ship) had increased by the deadline for delivery, and it was reas...
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This note was uploaded on 09/03/2012 for the course LAW 1501 taught by Professor Garva during the Three '12 term at University of Adelaide.

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