Available Market for Mitigating Loss can be Inferred

An interesting point on the proof of an available market for goods repossessed on early termination of a Lease arose in the decision of the Court of Appeal in Bulkhaul Limited v Rhodia Organique Fine Limited [2008] EWCA Civ 1452.

The Lessor was a large multinational tank transport leasing company with about 12,000 tanks used for transporting chemicals. In March 1999 the Lessee agreed to lease 18 bespoke tanks for the transport of hydrofluoric acid for a period of 10 years at a rent of £18.50 per tank per day. In October 2004 the Lessee purported to terminate the Lease Agreement and the Lessor sued for damages claiming future rentals up to the end of the 10 year Lease period.

The Judge awarded damages of £161,158 after deducting £324,000 from the claim on the basis that the Lessor had failed to mitigate its loss by selling the tanks, for which he estimated a market value of £20,000 each less costs of sale of £2,000 each.

The Lessor appealed on the grounds that there was no satisfactory evidence to support the Judge’s conclusions that there was an available market for the tanks or as to the price the tanks would fetch on that market.

It was common ground between the parties that the burden of proving that the Lessor had failed to mitigate its loss lay upon the Lessee. The Lessor had chosen to call no evidence and attacked the Judge’s decision for relying on evidence of offers which had been made by a third party in 2004 to buy the tanks for £21,000 each, and offers to sell which had subsequently been made by the Lessor to another prospective purchaser introduced by the Lessee in 2007 at £27,000 each.

The Court of Appeal rejected the Lessor’s arguments, holding that the Judge was entitled to infer a market value for the tanks on the basis of the third party’s offers to buy albeit in 2004, and the Lessor’s subsequent offers to sell. In addition, the Judge had accepted the Lessee’s evidence as to the existence of a market notwithstanding that no specific buyer willing and able to purchase had been identified after 2004:-

“There was no precise evidence of a specific offer at a specific price but there was evidence from which the Judge could estimate the price.”

The Court also gave short shrift to the Lessor’s complaint that the figure of £2,000 per tank for the costs of sale was simply plucked from the air:-

“So it was but why was that? If [the Lessor] had wanted to contend that the costs would be greater than that, it could have called evidence to that effect…In the absence of any evidence of the costs of sale, the Judge might well have said that there were none; then [the Lessor] might have had something to complain about. Instead the Judge did his best to be fair to [the Lessor] by making some allowance for the costs of sale.”

This case is a good illustration of the general principle that on early termination of a Lease or Hire Purchase Agreement the Lessor is under a duty to mitigate its loss by taking reasonable steps to obtain a fair market value for the recovered assets. The Court was not impressed by the fact that here the Lessor had sat back and done nothing proactive to find a buyer for the repossessed tanks, notwithstanding that its business was hire and not sale of the tanks, pointing out that it had many contacts in the industry who may have been interested had it made any real efforts to sell. In practice the Lessor had simply relied on the Lessee to direct potential buyers but nothing had come of any of these enquiries.

This case also illustrates the danger of a Lessor failing to lead any evidence as to the market conditions or the likely resale value of repossessed assets which had not been sold by the time of trial.