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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 Flamenco2 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.