West Law Report

Failure to mitigate is new intervening cause

Posted in Times Law Report by mrkooenglish on August 12, 2008

From The TimesAugust 12, 2008

Failure to mitigate is new intervening cause
Uzinterimpex JSC v Standard Bank plc in the Court of Appeal
Court of Appeal

Published August 12, 2008

Uzinterimpex JSC v Standard Bank plc

Before Sir Anthony Clarke, Master of the Rolls, Lord Justice Laws and and Lord Justice Moore-Bick

Judgment July 15, 2008

In a claim in conversion for wrongful interference with goods, the claimant’s failure to mitigate the loss was a new intervening cause, breaking the link between the original wrongdoing and and the continuing loss, which released the wrongdoer from liability for subsequent loss after that failure.

The Court of Appeal so held, dismissing the appeal of the claimant seller, Uzinterimpex JSC, against Mr Justice David Steel ([2007] 2 Lloyd’s Rep 187) who gave judgment for Uzinterimpex against the defendant, Standard Bank plc, and awarded damages of US$916,267.36 for conversion only up to the date when the seller failed to mitigate its loss.

Mr Jeffrey Gruder, QC and Ms Philippa Hopkins for Uzinterimpex; Mr Stephen Phillips, QC and Mr Michael Lazarus for the bank.

LORD JUSTICE MOORE-BICK said that the claim arose out of a contract for the sale of cotton by Uzinterimpex, an Uzbek state company, to an English cotton trader, A. Meredith Jones and Co Ltd, of 50,000 metric tonnes of cotton and the arrangements made with the bank to obtain the finance needed to pay for the goods.

From the outset both sides experienced difficulties in performing the contract. Meredith Jones took steps to obtain goods without waiting to receive the documents from Uzinterimpex. The bank was willing to assist Meredith Jones and on some transactions the bank received the value of the goods twice.

Uzinterimpex obtained two arbitrations awards against Meredith Jones in 2000 entitling it to over US$8 million, but Meredith Jones went into insolvent liquidation in February 2001. There was no prospect of significant recovery for Uzinterimpex.

In 2004, Uzinterimpex brought proceedings against the bank seeking to recover the amount it had received under the guarantee in excess of what was properly due and damages for conversion of the cotton covered by documents the bank had failed to release.

The judge held that the bank had converted the goods in question and was liable in damages, but did not accept that Uzinterimpex was entitled to recover the full amount of its claim. Its refusal to agree to the bank’s suggestion of August 9, 2000, that the goods be sold and the proceeds held in a blocked account to await the outcome of the dispute, was unreasonable. He held that it had failed to mitigate its loss and could not recover either the storage charges after that date or the subsequent fall in the value of the cotton.

The judge was entitled to conclude on the evidence that the seller’s objections to cooperation with the bank were not strong enough to justify its refusal to accede to the bank’s suggestion for the disposal of the goods.

The primary argument for Uzinterimpex was that it was under no duty to mitigate its loss because of the nature of the wrongful act on which the claim was based. If that were right it could only be because the nature of the loss was not capable of being reduced by any subsequent actions of the victim or because there was a special rule applicable to the tort of conversion.

Section 11 of the Torts (Interference with Goods) Act 1977 provided that contributory negligence was no defence to proceedings founded on conversion.

The section’s primary purpose was to settle any doubt as to whether a claimant’s failure to take care of his own property provided a partial defence to a claim in conversion against a person who wrongfully appropriated it.

Section 11 could have no bearing on a duty to mitigate. Analysed in terms of causation, a failure to mitigate had to be regarded as a new intervening cause, breaking the link between the wrongful act and the continuing loss, which released the wrongdoer from liability for subsequent loss.

On the other hand, the concept of contributory negligence rested on the assumption that the fault of the original wrongdoer and the fault of the victim both contributed to the loss and were both causally related to it.

The failure to mitigate and contributory negligence were therefore mutually inconsistent concepts as regarding the same loss.

It had long been recognised that if the claimant in conversion recovered all or any part of his property, he had to give credit for the value of what he had recovered. In that case why should a person deprived of his property not be expected to take reasonable steps to recover it, and so reduce the loss he would otherwise suffer?

In relation to consequential loss the position was even clearer: in principle the claimant ought to take all reasonable steps to ensure that his losses from being deprived of his property, whether temporarily or permanently, were kept to a minimum.

The Master of the Rolls and Lord Justice Laws agreed.

Solicitors: Stitt & Co; Jones Day.

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