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?Oh Lord, won?t you buy me a Mercedes Benz?" What does the innocent party have to do to mitigate its loss?

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The Mercedes Benz in Lombard North Central plc v Automobile World (UK) Limited [2010] EWCA Civ 20 was a rare Mercedes Benz S600 Pullman, the kind of car, the Court of Appeal observed, which a country's Head of State might order to an almost bespoke specification.  A question before the Court of Appeal was whether the innocent party, Lombard, had failed in its duty to mitigate its loss by reason of the inadequate manner in which it had resold the car. 

Automobile World's complaint was that Lombard had failed to realise the nature of the car which it had repossessed for sale.  It argued that Lombard had mistaken the car for a Mercedes S600 Limousine which was a stretched version of a standard production model, whose list price was only £77,000.00.  There was evidence that another Mercedes S600 Pullman said once to belong to Chairman Mao had been available on the market in about 2008 for £125,000.00 or near offer. This was a rare car and could have only been properly marketed through specialist dealers allowing sufficient time for the right buyer to emerge.  In this case the car had been offered for sale in the standard way through a "fax auction" and had only been sold for a fraction of its value.  There was some delay in offering the vehicle for sale. Lombard had disclosed no documents concerning the resale process relating to the car itself.

Despite this, the Court of Appeal held that the Judge at first instance was entitled to accept Lombard's evidence that it knew what vehicle it was selling.  The Court also reconfirmed the established principle regarding mitigation:

"Finally, it is well recognised that the duty to mitigate is not a demanding one. Ex hypothesi, it is the party in breach which has placed the other party in a difficult situation.  The burden of proof is therefore on the party in breach to demonstrate a failure to mitigate.  The other party only has to do what is reasonable in the circumstances.  The judge was so far from being satisfied that Automobile World had successfully shouldered the burden of proving that Lombard had failed to meet that burden, that he found that on the contrary that Mr Treadwell [for Lombard] had been "careful to obtain the best price available"". 

The Court of Appeal therefore dismissed that ground of appeal. This case is not new law but is a useful practical example of how the burden is on the party in breach to show that the innocent party has acted unreasonably in mitigating its loss.  As the Court of Appeal said, the duty to mitigate is not a demanding one.

If you would like to discuss a contractual dispute or you would like further information, please contact John Mackle who is a Senior Associate solicitor in the Commercial Dispute Resolution Team on 0113 336 3336.

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