MITIGATION OF LOSS

Even though the defence of passing has been rejected in English law as a general defence to restitutionary claims, it is still necessary to consider whether a similar but sufficiently

• 21 See McInnes, ‘Passing On in the Law of Restitution’, 199 and Virgo, ‘Restitution of Overpaid VAT’, 588-9.
• 22 [1983] ECR 3595, 3629. See also Ministre du Budget, des Comptes Publics et de la Fonction Publique v Accor SA Case C-310/09, [2012] STC 438, [74].
• 23 RB Grantham and CEF Rickett, ‘A Normative Account of Defences to Restitutionary Liability’ (2008) CLJ 92, 118. ²⁴ See p 116, above.
• 25 Case C-398/09 Lady and Kid v Skatteministeriet [2012] STC 854, [20] and [25].
• 26 See p 298, above.

distinct defence should be recognized, namely the defence of mitigation of loss. If this defence were recognized it would mean that the claimant who has transferred a benefit to the defendant would be required to minimize his or her loss and, to the extent that this loss has been minimized, the defendant’s obligation to make restitution should be reduced.

This defence was considered by the Court of Appeal in Kleinwort Benson Ltd v Birmingham CC,^[1] where it was specifically rejected. In fact, the claimant’s conduct in that case involved mitigation of loss rather than passing on the actual loss which the claimant had suffered, since the claimant had entered into a hedging transaction with a third party simply to minimize the risk of loss suffered by the claimant. The conclusion of the court that there was no duty on the claimant to mitigate his or her loss,^[2] and that there was no defence of mitigation of loss,^[3] is consistent with the rejection of the passing- on defence in the same case. But if the correspondence principle is recognized as part of the unjust enrichment principle, so that the defendant’s gain must correspond with the claimant’s loss,^[4] should it follow that the claimant is under a duty to mitigate his or her loss? The preferable view is that this would be a step too far, since ultimately the unjust enrichment principle is concerned with the unjust enrichment of the defendant and depriving the defendant of a gain rather than with compensating the claimant for a loss suffered. Where the claimant has mitigated his or her loss it is appropriate for that to be taken into account, but the claimant should not be under any obligation to do so.

The only possible qualification to this rejection of the defence of mitigation of loss may arise where the restitutionary claim is founded on the commission of a wrong by the defendant, such as a tort. Where the claimant seeks a compensatory remedy from the defendant who has committed a tort, the claimant must mitigate his or her loss, and so it might be argued that the claimant is required to mitigate his or her loss even where he or she seeks a restitutionary remedy.^[5] But this is a flawed argument. The claimant is only required to mitigate his or her loss where a compensatory remedy is sought since such a remedy is assessed only by reference to the claimant’s loss. Where the claimant seeks a restitutionary remedy, albeit that the claim is founded on the commission of a tort, the remedy is only assessed by reference to the defendant’s gain obtained from committing the tort. The fact that the claimant has or might have mitigated his or her loss is irrelevant. Where, however, the claimant is the victim of a wrong and he or she did mitigate his or her loss, it is unclear whether this should be taken into account in assessing the restitutionary remedy. If Edelman’s^[6] distinction between restitutionary damages and disgorgement damages for wrongs is taken into account, a case can be made for recognizing such factual mitigation. Where the remedy is concerned with restoring to the claimant what he or she lost as a result of the wrong, the award of restitution is founded on the principle of corrective justice, like the unjust enrichment principle, and, to the extent that the defendant’s gain is not reflected by the claimant’s loss because of actual mitigation of that loss, the defendant’s liability should be reduced accordingly. Where, however, a disgorgement remedy is awarded there is no scope for mitigation of loss to operate, because the function of such a remedy is focused entirely on depriving the defendant of a gain rather than restoring to the claimant what he or she has lost.

Where the restitutionary claim is founded on the vindication of property rights there is no scope for mitigation of loss to be considered, because such a claim is founded solely on depriving the defendant of actual property or the value of property and is not concerned with the nature of the loss suffered by the claimant. It is for this reason that where the property has increased in value the claimant can recover more than he or she actually lost.^[7]

• [1] [1997] QB 380. 2 Ibid, 393 (Evans LJ). 3 Ibid, 394 (Saville LJ) and 399 (Morritt LJ).
• [2] 30 See p 116, above.
• [3] 31 A duty to mitigate loss in such circumstances was contemplated by Evans LJ in Kleinwort Benson Ltd v
• [4] Birmingham CC [1997] QB 380, 393.
• [5] 32 J Edelman, Gain-Based Damages:Contract, Tort, Equity and Intellectual Property (Oxford: Hart Pub
• [6] lishing, 2002). See p 419, above.
• [7] See p 559, above.