knowledge | 16 June 2017 |
Don’t Gamble on your Duty to Mitigate Losses
The Court of Appeal has issued significant guidance on a plaintiff’s duty to mitigate his losses. A plaintiff who refuses a reasonable offer which would have the effect of avoiding unnecessary losses proceeds at considerable risk. This is especially so where the offer does not require him to forego rights claimed arising from the breach. Such a plaintiff may be refused damages he might otherwise be awarded.
Hyland v Dundalk Racing (1999) Ltd1 concerned a protracted dispute between bookmakers and the owners of Dundalk racecourse. The dispute concerned the closure and redevelopment of the racecourse as an all-weather track. The central issues related to the “seniority rights” of bookmakers on the opening of the redeveloped racecourse. Seniority rights, which are recognised in the Pitch Rules, a long-established collective agreement between Irish racecourses and on-course bookmakers, are transferable rights vested in established bookmakers to have priority in the allocation of particular pitches in the betting ring on racing days, so that bookmakers with greater seniority have the pick of the most attractive and most profitable pitches.
Dundalk racecourse closed for redevelopment in 2001 and ownership was transferred to a new company. Before it was due to reopen in 2007, Dundalk sought a capital contribution from interested on-course bookmakers of €8,000 each for the allocation of pitches at what it considered to be a new racecourse. Several bookmakers disputed that this was a new racecourse but rather a continuation of the existing racecourse and argued that the Pitch Rules applied; that the Pitch Rules did not permit a demand for a capital contribution and that there could not be any fresh allocation of pitches, because the established seniority rights determined priority for pitches. The dispute proved intractable and ultimately Dundalk insisted on payment of the capital contribution and allocated new pitches. Several bookmakers refused and issued proceedings, and held protests outside the racecourse. It was also alleged that a collective boycott was organised by some bookmakers of both the racecourse and of those bookmakers who took up the new pitches at Dundalk.
The High Court held2 that the Pitch Rules constituted a contract enforceable by individual bookmakers against individual racecourse owners and that the racecourse which reopened in 2007 was in substance the same racecourse as in 2001, at least in the sense contemplated by the Pitch Rules. Therefore Dundalk, in allocating pitches in 2007, was bound by the Pitch Rules and by established seniority was not entitled to require bookmakers to pay the capital contribution. It also held that there was a collective boycott by certain bookmakers, which was prohibited by competition law. Later judgments awarded damages for loss of profits to some of the 30 bookmakers who sued.3
The Court of Appeal upheld the High Court’s findings that (1) the Pitch Rules created a contract enforceable by individual bookmakers against individual racecourse owners;4 (2) the Pitch Rules applied to the allocation of pitches in Dundalk in 2007 as it was essentially the same racecourse; (3) the terms of the Pitch Rules did not offend competition law. However, it held that, even if there was evidence at trial of activities of identified bookmakers who were not parties to the proceedings, which supported the finding of an unlawful collective boycott, the plaintiffs were entitled to have the declarations to that effect vacated, as there was no subsisting finding that the plaintiffs themselves participated in a boycott.
Significantly, however, the Court of Appeal also vacated the awards of damages. It did so because the bookmakers could have avoided the loss of profits they claimed. The principle applied is that a plaintiff cannot recover loss that could have been avoided had he acted reasonably.5 The plaintiff has a duty to take “all reasonable steps”6 to minimise his loss. What is reasonable in any case is a question of fact,7 though the standard by which the plaintiff is judged is not unduly harsh; the court should be pragmatic8 because it is the defendant, as wrongdoer, who put the plaintiff in that difficult position. So, for example, if the plaintiff has two reasonable ways of mitigating loss, the plaintiff is not unreasonable if it later transpires that the loss would have been less had he chosen the other option. However, the obligation to mitigate loss may require the plaintiff to enter into a contract (even under protest) with the party who the plaintiff says was in breach of the earlier contract.
In this regard, the Court of Appeal noted that at a meeting on 8 August 2007 (18 days before racing was due to resume), Dundalk offered terms set out in a “Heads of Agreement” document, which included provisions: (i) that Dundalk would allocate 30 pitches using the old seniority list; (ii) that any bookmaker offered such a pitch would pay a fee of €8,000 by August 2008 in default of which his pitch would be declared vacant; (iii) that the Association of Irish Racecourses would confirm that the arrangement would be without prejudice to any future negotiations at any other racecourse and (iv) that the AIR, bookmakers and Horse Racing Ireland would agree to meet for meaningful negotiations about new Pitch Rules to address new racecourses.
The High Court had held that the bookmakers’ initial failure to accept this offer was not unreasonable, having regard to several factors, including that the issue of payment of a levy had wider importance for the bookmakers: if Dundalk could lawfully demand a capital payment, this might set a precedent that other racecourses might follow. The Court of Appeal held that the trial judge ought to have disregarded the bookmakers’ concern that any payment to Dundalk might have adverse consequences in any later dispute with other racecourse owners. That wider consideration was extraneous to the bookmakers’ obligation to mitigate the damage they alleged would result from the breach by Dundalk of the contracts with Dundalk. Where the Pitch Rules established an enforceable contract between an individual bookmaker and Dundalk, the court should not consider the possible effect that accepting Dundalk’s offer might have on the contractual relationship between the bookmaker concerned or other bookmakers and other racecourse owners.
The Court of Appeal held that it must have been obvious to the bookmakers that if they did not agree to the terms available on 8 August 2007, the pitches Dundalk had agreed to allocate to them on the basis of the old seniority list would be offered to other bookmakers and they would never again be able to again trade at Dundalk other than from a pitch inferior to what was then on offer. Also, there was no evidence that any of the bookmakers were unable to pay the modest sum (€8,000) required to mitigate all potential losses. Instead of paying the €8,000 and commencing proceedings to have the contractual situation clarified, the bookmakers opened themselves, and Dundalk, to substantial claims of financial loss which could have been avoided. In reaching its conclusions on mitigation, the court was “mindful of the public policy considerations core to the concept of mitigation... that the offer made by Dundalk …did not require the bookmakers to give up any of their rights or abandon any of their principles”.
This judgment provides an excellent example of how a defendant who is, or fears he may be, in breach of contract, can “lay off” some risk of the financial consequences of the breach by offering the offended party a solution which extinguishes or significantly reduces the risk of financial losses flowing from the breach, by means of an offer which is not conditional on the offended party forgiving the breach.
-  IECA 172 (1 June 2017)
-  IEHC 60
- Hyland v Dundalk Racing (1999) Ltd (No 2)  IEHC 57; O'Hare v Dundalk Racing (1999) Ltd  IEHC 198
- Waterford Harbour Commissioners v British Rail  1 ILRM 296
- Rosbeg Partners Ltd v LK Shields (a firm)  IECA 161
- Payzu v Saunders  2 KB 581
- Banco de Portugal v Waterlow and Sons Ltd  AC 452
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.