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The New Flamenco appraised: a new framework for avoided loss and mitigation
Adrian WL Lee *
The avoided loss rule in contractual mitigation has given rise to numerous cases that seemingly contradict one another. The Supreme Court’s decision in The New Flamenco has not resolved all the issues. The principal aim of this paper is to provide a coherent and justifiable account of avoided loss. It will be argued that, in post-breach mitigation cases, the “speculation exception” dictates that the claimant’s intentional deviation from the “non-breach position” shall be at his own risk and expense. In the pre-breach cases, whether or not the claimant’s action affects the quantum of damages depends on whether that action is within the contractual parties’ contemplation. Building on this account of avoided loss, a revised account of the three rules of mitigation is proposed.
Ten years ago, Professor McLauchlan remarked that the law on avoided loss “is in a dreadful muddle” 1 —many decisions were seemingly irreconcilable, and all leading texts had to dismiss numerous cases as wrongly decided in order to produce a coherent account of the law. Against this backdrop, the Supreme Court’s decision in The New Flamenco
2 came as a disappointment to many. The judgment was short and it raised as many questions as it answered.
The principal aim of this paper is to provide a coherent and justifiable account of avoided loss. The focus will be on loss avoided by the claimant in the context of a breach of contract, although tort cases will be drawn upon to explain the principles.
* I wish to thank The Hon. William Gummow AC, Keith Chan and an anonymous referee for their comments on earlier drafts. The usual caveat applies.
The following abbreviations are used:
Burrows, Remedies : A Burrows, Remedies for Torts and Breach of Contract , 4th edn (OUP, 2019);
Dyson, “Mitigation”: A Dyson, “Mitigation in the law of damages” (DPhil thesis, University of Oxford, 2016);
Kramer, Contract Damages : A Kramer, The Law of Contract Damages (Hart, 2014);
McGregor, “Mitigation”: H McGregor, “The Role of Mitigation in the Assessment of Damages”, ch.14 of D Saidov and R Cunnington (eds), Contract Damages: Domestic and International Perspectives (Hart, 2008); McGregor on Damages : J Edelman (ed), McGregor on Damages , 20th edn (Sweet & Maxwell, 2018);
McLauchlan, “Expectation Damages”: D McLauchlan, “Expectation Damages: Avoided Loss, Offsetting Gains and Subsequent Events”, ch.15 of Saidov & Cunnington (eds), Contract Damages: Domestic and International Perspectives (Hart, 2008).
1. McLauchlan, “Expectation Damages”, 384.
2. Fulton Shipping v Globalia Business (The New Flamenco)  UKSC 43;  2 Lloyd’s Rep 177 ;  1 WLR 2581.
The New Flamenco appraised
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