Contracts | Law | Law and Economics
Center for Contract and Economic Organization
Center for Law and Economic Studies
Both the venerable British Westinghouse decision and the current New Flamenco case have been analyzed in terms of mitigation. Properly understood, in neither is mitigation relevant. Although in the former, the House of Lords came to the right result, the replacement of the substandard turbines with new superior ones was not to mitigate damages — the buyer would have installed the new turbines even had the Westinghouse turbines met the contractual specifications. Even if Westinghouse’s failure accelerated the replacement (which it almost certainly did not) it would have been a mistake to compensate the buyer for the cost of the new (Parsons) turbines.
The New Flamenco involved the anticipatory repudiation of a time charter with two years remaining. An identical substitute charter was not “available.” The owner sold the ship before the market meltdown of 2008 for over $23 million and by 2009 its value had fallen to $7 million. The Court of Appeal held that because it avoided this loss, the owner suffered no harm. However, the damages would be the change in the value of the charter at the time of the repudiation. By selling the ship, the owner in effect allowed the new owner to put the ship to its highest and best use. Damages should reflect the fact that the new owner expected to use the ship for at least part of the remaining two years. The subsequent fall in the value of the ship had nothing to do with the damages suffered by the original owner.
Victor P. Goldberg,
From British Westinghouse to The New Flamenco: Misunderstanding Mitigation,
Columbia Law & Economics Working Paper No. 545
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1993