FORESEEABILITY AND ASSESSMENT OF DAMAGES

Issues of foreseeability and assessment of damages arose in the Privy Council case Alcoa Minerals of Jamaica Inc v Herbert Broderick [2000] UKPC 11; [2000] BLR 729. The facts were that emissions from the Appellant's smelting plant had caused corrosion to the galvanised zinc panels of the roof of the Respondent's house and other injury to his property and to his health. When the damage first occurred the Respondent had repaired it but by 1989 the damage had occurred again and he was not able to pay for the necessary repairs. In the statement of claim (1990) the Respondent claimed $211140, being 1564m2 @ $135/sq ft, in respect of building repair costs. As a result of rapid inflation and a dramatic fall in value of the Jamaican dollar, however, the repair costs had (by 1994) increased to $938400 ($600/sq ft).

There was no issue as to the foreseeability of the increase in repair costs. The Appellant (in effect) argued, however, that it ought not to be taken to have foreseen the Respondent's financial hardship/impecuniosity. In this regard it was asserted that in tort the general rule was that damages had to be assessed at the date of the breach (Miliangos v. George Frank (Textiles) Ltd [1976] AC 443, 468D per Lord Wilberforce) and that impecuniosity was to be ignored in making the assessment (Liesbosch Dredger v. Edison [1933] AC 449). Issues of foreseeability and assessment are, however, always issues of fact/depend on the circumstances of the case. Lord Slynn said that:

"Lord Wright in The Liesbosch thought in the alternative that the owners of the dredger's financial embarrassment was too remote [ie, unforeseeable by the wrongdoer]. In the present case it seems to their Lordships to have been obviously foreseeable that if the house of a person in the position of Mr. Broderick was seriously damaged he would not or might not have the wherewithal to repair it and that his ability to do so would depend on his establishing the liability of, and recovering damages from, the defendant."

 

The issue as to whether Mr Broderick had failed to mitigate his loss is also one of foreseeability. Whether a wrongdoer should be liable/should be taken to have foreseen a claimant's consequential act/failure to act depends on whether the claimant acted reasonably (by what he did or by what he failed to do) in the circumstances in which he was placed as a result of the breach. An issue might arise in the construction context, for example, as to whether a contractor had acted reasonably by steps taken/not taken with regard to the avoidance/mitigation of delay. 2 important factors to be aware of concerning this issue are that:

1. The wrongdoer has the burden of proving that the claimant acted unreasonably: Geest plc v Lansiquot [2002] UKPC 48 and

2. The possibility (although cases are perhaps rare) of a finding that the claimant was in part at fault (in which case apportionment of liability would be appropriate).

On the facts of the Alcoa case Lord Slynn said that:

"Even assuming that he could have raised the loan, by waiting and not borrowing money at a high rate of interest for some six years the plaintiff was not in breach of his duty to mitigate. It seems to their Lordships as it apparently seemed both to the judge and the Court of Appeal that Mr. Broderick behaved reasonably in waiting, if indeed he had any realistic choice to do anything but wait, until money was available from Alcoa."

 

Comment

An important aspect of the Alcoa case is that in their Lordships' view a wrongdoer's conduct in denying liability will in many cases be a crucial factor/circumstance in determining whether a claimant should be regarded as having acted unreasonably in not having repairs carried out at an earlier date (see also Dodd Properties (Kent) Ltd v Canterbury City Council [1979] EWCA Civ 4). Although the issue is one of fact, it might be expected that a claimant will be taken to have acted reasonably at least in cases where, in the words of Lord Slynn, "repairs have to be done at what is a heavy cost in relation to the plaintiff's financial position."

So far as inflation and currency devaluation are concerned it is, in the author's view, questionable whether a wrongdoer could ever (even where financial difficulty is not a factor) discharge the burden of proving that a claimant had acted unreasonably in not mitigating the effects thereof. Amongst the reasons for this are:

1. The difficulty (if not impossibility) in predicting whether fluctuations in prices/devaluation of currency would be greater than interest rates (interest being the alternative to inflation) over an (uncertain) period of time/dispute.

2. To the extent that particular price increases or devaluation in currency could be avoided, they could be avoided by the wrongdoer himself, that is by making a reasonable offer in settlement.

The conclusions which may be drawn are that:

1. Inflation and currency devaluation are matters which are at the risk of the parties to the litigation, that is provided the type of loss was foreseeable by the wrongdoer (a distinct issue from the duty to mitigate issue).

2. Where the claimant is entitled to damages based (wholly or partly) on the cost of repair or the cost of reinstatement the assessment should (where repairs have not been carried out at the date of judgment) reflect the (reasonable) cost of carrying out the work at the date of the assessment/judgment, that is including inflation. Where repairs or reinstatement have been carried out the award should be based on the (reasonable) cost thereof plus the (reasonable) amount of interest incurred. Note, however, that:

3. A claimant who suffers damage to property (and who is entitled to recover on a cost of reinstatement or repair basis) is entitled to decide that he will not have the repairs carried out even if successful in the action. There are, therefore, circumstances in which a claim for losses such as loss of profits, renting alternative premises during repairs and inflation would be inappropriate. In such circumstances issues concerning the duty to mitigate would not arise.

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This article was published in the RICS journal Chartered Surveyor Monthly January 2001
The report of the Alcoa case is available on-line at
http://www.privy-council.org.uk (under Judicial Committee) and at http://www.worldlii.org/ 
Copyright Stewart Dunn except:
Extracts from Privy Council or House of Lords judgments and opinions are reproduced with the permission of the Controller of Her Majesty's Stationery Office on behalf of Parliament
Extracts from cases reported in The Weekly Law Reports and The Law Reports are reproduced with the permission of The Incorporated Council of Law Reporting for England and Wales.
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