PLEADING MITIGATION OF LOSS: WHY THE PRACTICE DIRECTION IS (ALMOST ALWAYS) WRONG AND THE RULES ARE A SHAMBLES

It is well established law that the burden of proving a failure to mitigate loss lies with the defendant.   It is for the defendant to establish that the claimant failed to act reasonably.  Somewhat surprisingly a Practice Direction in the Civil Procedure Rules apparently puts an obligation on the claimant to particularise a failure to mitigate loss.  As the Court of Appeal recently observed this “requirement” is almost universally ignored.   However it remains of relevance in credit hire cases.

THE PRACTICE DIRECTION

Practice Direction 18 sets out matters that must be set out in the Particulars of Claim.

!8.2  The claimant must specifically set out the following matters in his particulars of claim where he wishes to rely on them in support of his claim:

(1) any allegation of fraud,

(2) the fact of any illegality,

(3) details of any misrepresentation,

(4) details of all breaches of trust,

(5) notice or knowledge of a fact,

(6) details of unsoundness of mind or undue influence,

(7) details of wilful default, and

(8) any facts relating to mitigation of loss or damage.”

A STRANGE REQUIREMENT: AND WRONG IN LAW

On the face of it this the requirement to plead facts relating to mitigation of loss is strange. The claimant does not have the burden of proof.  Further the claimant is unlikely to know the issues that will be in dispute until a defence and counter-schedule is filed.  In Zurich Insurance Plc -v- Umerji [2014]  EWCA Civ 357 the Court of Appeal observed, in a note to the judgment, that

 “Para. 8.2 (8) of the Practice Direction reads rather oddly in the light of the well-established principle that the burden of proof on the issue of mitigation is on the defendant (see McGregor on Damages, 18th ed., para. 7-019); and we were told by both counsel that in this field it is not generally observed. I can see that it is hard on a claimant to expect him to anticipate and rebut points made about avoidable loss: it seems obviously preferable that he should plead his primary loss, wait and see what criticisms are made, and then if necessary plead to those criticisms by way of ReplyBut the position is different in the case of a claim for expenditure reasonably incurred in mitigation of the primary loss. In such a case the claimant should plead his case as to reasonableness, including any assertion of impecuniosity: see para. 37 below”

IT IS FOR THE DEFENDANT TO PLEAD AND PROVE A FAILURE TO MITIGATE LOSS

There is a strong argument that this particular Practice Direction is ultra vires if it is viewed as attempting to change substantive law.  There is no doubt at all that the burden is on the Defendant to plead and prove a failure to mitigate loss.

(Here is what I wrote in the Solicitors Journal  in June 2003 on this very issue:

 “Paragraph 8.2 (8) of the Practice Direction to Pt 16 of the CPR imposes an obligation upon a claimant to specifically set out: “any facts relating to mitigation of loss or damage”.When looking at this direction for the first time (Woolf reforms (8) (1999) 143 SJ 234, 12 March). I was critical of this, describing it as “ridiculous in the extreme”. It ran totally contrary to Lord Woolf’s proposals. In his interim report, Lord Woolf considered imposing a specific obligation on the defendant to plead matters such as mitigation of loss. I thought it was an obvious mistake that would soon disappear. However, the Practice Direction remains in place. It is worth reviewing just how wrong it is.The proposal in the Woolf Interim Report is clearly the correct approach since the burden of proof in establishing mitigation of loss is on the defendant. Curiously there is no obligation on the defendant to plead mitigation of loss, although the interim report said a specific obligation would be imposed.”

(You can see the article here) )

WHAT THE JUDGES SAY

There is not,  to my knowledge, a single case where a judge has held that there is an obligation on a claimant to plead how it mitigated loss.  Indeed the Privy Council was quite clear on this point in Geest Plc v Lansiquot [2002] UKPC 48 where the defendant raised a point on mitigation of loss during the course of an assessment of damages hearing.

This assessment proceeded without any pleading and without any evidence beyond the plaintiff’s affidavit and oral evidence. This is not unusual. Many such assessments proceed in a relatively informal manner. The object is to ascertain the plaintiff’s medical history since the accident and to assess the plaintiff’s continuing symptoms and long-term prospects, with a view to putting a money value on the plaintiff’s pain and suffering,  loss  of amenity and financial  loss . Had there been pleadings, however, it would have been the clear duty of the company to plead in its defence that the plaintiff had failed to mitigate her damage and to give appropriate particulars sufficient to alert the plaintiff to the nature of the company’s case, enable the plaintiff to direct her evidence to the real areas of dispute and avoid surprise (see Bullen & Leake & Jacob’s Precedents of Pleadings, 14th ed (2001), vol 2, page 1103, paragraph 71-13; Rules of the Supreme Court, Order 18 rule 12(1)(c), Order 18 rule 8(1)(b); The Supreme Court Practice 1999 (published September 1998), vol 1, paragraphs 18/7/4, 18/7/11, 18/8/2, 18/12/2, 18/12/13). In this instance, no complaint was made by the plaintiff’s leading counsel when counsel for the company advanced this argument, perhaps because he had been warned in advance, and no point was taken in the Court of Appeal or before the Board on the procedure adopted. It should however be clearly understood that if a defendant intends to contend that a plaintiff has failed to act reasonably to mitigate his or her damage, notice of such contention should be clearly given to the plaintiff long enough before the hearing to enable the plaintiff to prepare to meet it. If there are no pleadings, notice should be given by letter.”

HOW IS THIS ALLOWED TO GO ON?

It is truly remarkable that, with all the amendments made to the Civil Procedure Rules, this anomaly has not been corrected.  The Woolf Report clearly envisaged that the duty to plead a failure to mitigate loss would lie with the Defendant.  At present a Practice Direction exists which everyone ignores (now with the Court of Appeal’s tacit blessing). If if were enforced it would make pleading Particulars of Claim highly technical and virtually unworkable. Further it does not reflect the law. It does reflect badly on the Rules Committee that it has not been corrected.

The obligation in the Defence is (in relation to a Counter-Schedule).

12.2  Where the claim is for personal injuries and the claimant has included a schedule of past and future expenses and losses, the defendant should include in or attach to his defence a counter-schedule stating:

(1) which of those items he –

(a) agrees,

(b) disputes, or

(c) neither agrees nor disputes but has no knowledge of, and

(2) where any items are disputed, supplying alternative figures where appropriate.

It may be that the argument to provide “alternative figures” is an obligation to set out the losses that the Defendant states should have been incurred if the claimant had mitigated his loss.  However this obligation is often not complied with.

THE ONE EXCEPTION: WHERE THE EXPENDITURE IS INCURRED IN MITIGATION OF THE PRIMARY LOSS FOR INSTANCE CREDIT HIRE AND THE NEED TO PROVE THAT EXPENDITURE WAS REASONABLY INCURRED

However in Zurich the Court of Appeal stated that the position is different in relation to the need to hire a replacement car. This was made clear by Underhill L.J.

 “As I have already said, impecuniosity is the same concept in either case, depending on essentially the same evidence, and it makes no sense to treat it differently according to the particular head of claim in relation to which it is relied on. I am not sure that the burden of proof is in fact of central importance in this particular case, in view of the fact that an order was made for the Claimant to (in effect) state his case. But I should make it clear that, quite apart from that order, I would regard the burden as being on a claimant to plead and prove his case on this point. The correct analysis would appear to be as follows. A claim for the cost of hire of a replacement vehicle is, strictly, a claim for expenditure incurred in mitigation of the primary loss, namely the loss of use of the damaged vehicle: see the speech of Lord Hope inLagden v O’Connor at para. 27 (p. 1077H). The burden is thus on the claimant to prove (and therefore plead) that such expenditure was reasonably incurred: see the authorities reviewed by Sir Mark Potter P inBeechwood Birmingham Ltd v Hoyer Group UK Ltd [2011] QB 357, at paras. 25-28 (pp. 367-8). There is no doubt a grey area about how much needs to be pleaded and proved to establish reasonableness before the evidential burden shifts to the defendant to show that the expenditure was unreasonable. But in this kind of case it is clearly right that a claimant who needs to rely on his impecuniousness in order to justify the amount of his claim should plead and prove it”

COMMENT

The Zurich case was a battle in what has been a very long war between car hire companies and insurers.  The upshot of it is that a claimant who hires a car must plead and prove that the hire of the car was reasonable and the costs reasonably incurred.  However this is specific to this situation – where there loss is incurred is expenditure incurred in mitigation of the primary loss. It does not change the general law that the burden rests with the defendant to prove (and plead) a failure to mitigate.  On this aspect of the law the Civil Procedure Rules have been a shambles since their implementation.