Disputes often arise in relation to defects. For example, an employer may contend that a particular work item is defective, while a contractor may argue that the item is not defective. Usually, the employer will request that the defective work is remediated by the contractor. If the contractor fails or refuses to remediate the work item, the employer will engage others to carry out the remediation and seek to recover the costs from the contractor. Similarly, an employer who terminates the contractor’s employment will engage another contractor to complete the project and seek to recoup the additional costs from the contractor. In those circumstances it is always advisable for a contractor to consider whether the employer has mitigated its loss.

A recent judgment from the Supreme Court in England and Wales neatly summaries the concept of mitigation. In Sharp Corp Ltd v Viterra BV [2024] UKSC 14, Lord Hamblen put the matter thus:

’83. Two fundamental principles of the law of damages are the compensatory principle and the principle of mitigation of damage.

84. The compensatory principle aims to put the injured party in the same position as if the breach of duty had not occurred. In relation to contractual damages this means that the injured party is “so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”…

85. The principle of mitigation requires the injured party to take all reasonable steps to avoid the consequences of a wrong. This means that (i) there is no recovery for loss which should reasonably have been avoided; (ii) there is recovery for loss incurred in taking reasonable mitigating steps, even if that increases the loss and (iii) if the loss is successfully reduced by the taking of reasonable mitigating steps then the party in breach is entitled to the benefit of that – there is no recovery for avoided loss … In McGregor on Damages 21st ed (2021), paras 9.002-9.007 these are described as the “three rules” of mitigation … there is one underlying rule: “damages are assessed as if the claimant acted reasonably, if in fact it did not act reasonably”…

86. In many cases the compensatory principle and the principle of mitigation work together and it is reasonable steps taken in mitigation which fix the measure of compensatory damages. So, for example, in the sale of goods the mitigatory step of obtaining a reasonable substitute sale (where the injured party is the seller) or purchase (where the injured party is the buyer) will generally be the basis of the compensatory damages recoverable.’

Therefore, where a contractor is faced with a claim from an employer seeking to recoup costs for works undertaken by a replacement contractor, it is advisable for the contractor to consider whether the employer has acted reasonably. For example:

• Did the employer obtain competitive quotations for the work undertaken by the replacement contractor and if so, was the number of quotations reasonable in the circumstances?

• Did the employer hinder the protection of the work and leave it exposed thereby exacerbating the defect work?

• Did the employer delay in taking action or overreact and take action too quickly by instructing a replacement contractor to proceed?

• Could the employer have reasonably used another workable solution?

In an adjudication setting, if possible, it is advisable for a contractor to raise such matters if faced with a claim from an employer. In defending several adjudications for contractors and sub-contractors, we have raised these types of arguments. Generally, adjudicators find these arguments appealing, which results in a reduction of the employer’s claimed amount.