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Friday, 29 May 2015

Thai Airways International Public Company Ltd v KI Holdings Co Ltd

[2015] EWHC 1250 (Comm)

Legatt J, in assessing damages for breach of contract, had to consider whether credit must be given for any monetary benefit received by a claimant as a result of taking reasonable steps to mitigate its loss.

Thai claimed damages for breach of three contracts made with a Japanese seat manufacturer, KI Holdings (or “Koito”), for the delivery of economy class seats for some of its aircraft. Some of the seats were delivered late and other seats were not delivered at all. As a result, Thai had to take delivery of the aircraft from a third party without economy class seats installed. Thai was also prevented from using five new aircraft for around 18 months until alternative seats could be sourced from another supplier. Thai leased three aircraft from a third party in order to fill the gap in its fleet. It also had to source seats from alternative suppliers.

Thai claimed the costs it had incurred in mitigating its loss. Koito’s defence was that even where costs were incurred by Thai as a result of Koito's breaches of contract, Thai also gained certain benefits from the mitigating actions taken which must be brought into account in calculating damages. Koito argued that Thai should account for any savings made by using the alternative seats which were more expensive, but lighter, than the seats which Koito was to provide.

Thai submitted that it was entitled to recover these costs without having to account for any benefits received from the third party because entering into the relevant leases was the only reasonable step which it could take to mitigate its loss. Any benefits were incidental and had not been chosen by Thai.

Legatt J held that it had been reasonable for Thai to mitigate its loss by leasing the relevant aircraft, but that any monetary benefit received had to be taken into account when assessing damages. Thai had to account for any fuel saving that would arise from the use of lighter seats over their economic life. However, the judge also held that the onus was on Koito to prove that Thai had received any benefit and the amount.

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