Test for Mitigation of Loss by Lessor

In the recent High Court case of Praetura Asset Finance Ltd v S Line Rentals [2023] EWHC 889 (Comm) the court considered the nature and extent of a Lessor’s common law obligation to mitigate its loss when claiming in relation to a repossessed asset.

The case involved a sale and Hire Purchase Back of a vehicle for £110,500 which was then converted into a hearse for the Lessee’s business, but a number of problems were encountered and eventually the vehicle was repossessed in a condition which involved serious defects largely due to an unsatisfactory conversion process.

The Lessor decided the best course was to sell the vehicle, which a single joint expert valued at £25,000 to £28,000. The Lessor sold it for £30,000.

The Lessor sought £91,330 from the Lessee and an indemnifier either in the form of a contractual debt or in damages for losses suffered.

The court examined the Indemnity document carefully and held that it was a true indemnity giving rise to a contractual debt, therefore the claim was not subject to the rules for mitigation of damages, but then went on to decide in the alternative what the position was in relation to the mitigation argument:

“In those circumstances, it is well established that there is a duty on a claimant in this sort of case to act reasonably to mitigate their loss. It is important to recognise the requirement is only to act reasonably and that the standard of reasonableness is not a high one, the defendant being the admitted wrongdoer”.

The judge then quoted from the leading textbook on damages:

“At the same time in assessing reasonableness, while it has been said that the claimant is ‘Not bound to nurse the interests of the defendant’, it is also and long been said that the claimant must act with the defendants, as well as their own interests in line”.

After reviewing the factual position the judge concluded in favour of the Lessor:

“What are the obligations on a party in this situation? Praetura were incurring storage charges. It had the option of going down an uncertain and potentially expensive route to obtain a certificate of conformity to sell at a higher price, or to accept an offer which accorded with the valuation of the single joint expert. The obligations on such a party are not high, and it seems to me that in taking the steps it did, the claimant acted reasonably”.

Comment

There are relatively few authorities on the nature and extent of a Lessor’s duty to mitigate loss in relation to repossessed assets, and this case provides a welcome example of a sensible approach by the court.

It confirms that a Lessor’s common law obligation to mitigate loss does not impose an unreasonably high burden upon it, and provided that expert evidence supports the price achieved by the Lessor it will be rare that a court will interfere.

The case is also a welcome example of the use of a single joint expert, which has become very common in recent years. Previously it would be common practice for each side to obtain its own expert’s report even in relation to modest financial disputes, and inevitably the parties would end up with divergent views which then had to be litigated at trial with a substantial costs risk and a disincentive to settlement.

Nowadays in accordance with the courts’ proactive role in managing cases and in particular the cost implications for all parties, this is the sort of case in which a court would be unlikely to entertain anything other than a single joint expert.