PROVING THINGS 163: PROVING MITIGATION OF LOSS: A CLAIMANT NEED NOT TAKE THE RISK OF STARTING UNCERTAIN LITIGATION AGAINST A THIRD PARTY

The need for a defendant to prove a failure to mitigate is something that has been covered before on this blog. In Natixis SA v Marex Financial & Ors [2019] EWHC 2549 (Comm) Mr Justice Bryan considered the legal principles.  It is clear that a defendant has to show (i) that a claimant has acted unreasonably in not taking a course of action; (ii) that the proposed course of action would have been fruitful.

“A claimant need not take the risk of starting an uncertain litigation against a third party”

THE CASE

The claimant brought an action for damages following the non-receipt of items said to have been delivered (this is a very simple summary of a very complex situation, but will suffice in relation to the issue of mitigation.  There was a substantial claim for damages.  One of the issues that arose at trial was whether the claimant had properly mitigated its loss in that it had not bought an action against other potential defendants.

THE JUDGMENT ON MITIGATION

1. 1. Access World alleges that Marex has unreasonably failed to mitigate its losses by not suing CHH or Mr Wong in circumstances where Marex has the benefit of a settlement agreement with CHH together with a personal guarantee provided by Mr Wong.

   2. In this regard Access World points out that Mr Wong and CHH have never challenged their obligations under these agreements and have never suggested that they do not owe Marex money under these agreements. The evidence is also that Mr Wong is keen not to be sued (Mr van den Born said in oral evidence, “Yes, I believe Mr Wong told us that”). When cross-examined each of Mr Nutt and Mr van den Born accepted that Mr Wong is believed to be asset rich, even if he may be cash poor, and that as well as property interests in China, he may also have property in the USA.

   3. Access World points out that Marex has done nothing to enforce either agreement or pursue either CHH or Mr Wong. Nor is there any evidence that Marex has undertaken any independent investigation to ascertain what assets Mr Wong has in Hong Kong or outside China which Marex may be able to enforce against more easily. When cross-examined, Mr van den Born acknowledged that his “softly, softly” approach had not worked to date.

   4. In this regard the following exchange also took place when he was cross-examined, which is characterised by Access World as an admission of a failure to mitigate on Marex’s part (although ultimately it is a matter for the court to consider, and determine, whether there has been any failure to mitigate) :-

“Q. In the absence of that working, the prudent course of action, the only course of action consistent with your duties to your own company, and consistent with your fiduciary duty to Natixis, would be to pursue him in court to get a judgment and then to seek to enforce it wherever you can find assets, wouldn’t it?

A. Yes, that’s logical, albeit I’m not so sure the Chinese court system and the Western court systems are the same.”

1. 1. It transpired during the course of the present trial that others have taken steps to pursue CHH and Megawealth and both companies have instructed solicitors, leading and junior counsel and have submitted a Defence. It is said that this serves to confirm that Mr Wong remains concerned not to have judgments against him or his companies and that had Marex pursued CHH and Mr Wong in court this would in all likelihood have resulted in payment from CHH and/or Mr Wong. I consider, however, that the defence of such proceedings also shows that such claims are not accepted, and a willingness to incur substantial costs to resist claims.

   2. The general principles in relation to mitigation are well known and well-established. As identified in McGregor on Damages at para 9-079:

“In mitigating his loss the claimant victim of a wrong is only required to act reasonably and the standard of reasonableness is not high in view of the fact that the defendant is an admitted wrongdoer. Lord Macmillan put this point well for contract in Banco de Portugal v Waterlow [[1932] AC 452]; his remarks apply equally to tort. He said [at p. 506]:

“Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.”

1. 1. In the present case Marex takes a preliminary, but fundamental, objection to Access World’s plea that Marex has failed to mitigate, namely that a claimant is not required as a matter of law to take any steps to sue parties who, in addition to the defendant, are liable to the claimant for the same loss. In this regard Marex relies upon what is said in McGregor on Damages para 9-094 and in Haugesund Kommune v Depfra [2010] 2 Lloyd’s Rep 323. Para 9-094 in McGregor provides, amongst other matters, as follows:-

“A claimant need not take steps to recover compensation for his loss from parties who, in addition to the defendant, are liable to him for the same loss

9-094 This is an undoubted principle and it is a principle which, strictly speaking, stands on its own feet independently of mitigation. It is mentioned here largely because it quite often becomes associated with mitigation in the minds of both judges and commentators. On this matter The Liverpool (No.2) is the central case. It was in this case that Harman LJ made the first clear statement of the principle, pointing out that otherwise it would have been unnecessary for the legislature to make provision for contribution and indemnity between joint and several tortfeasors. Indeed The Liverpool (No.2) goes as far as to show that, even if the third party offers payment of the amount for which he is liable, the claimant is not required to accept it in mitigation. In that case the defendants’ ship through negligence came into collision in port with another ship which sank. The claimant harbour board sued the defendants, whose liability was limited, for expense incurred and damage sustained in clearing the port of the wreck. However, the claimants had also taken steps to enforce their statutory right against the owners of the wreck to recover from them any expenses outstanding after raising and selling the wreck, and not only had this amount been established but the money had been tendered, refused by the claimants, and then put on deposit by the owners of the wreck. In such circumstances the Court of Appeal held that the claimants were under no duty to satisfy part of their damages by accepting the money already on deposit. Harman LJ, delivering the court’s judgment, pointed to the analogy that

“it has never been the law that a creditor having a security against a third party for his debt must give credit for that when proving in the bankruptcy””

1. 1. In this regard in Haugesund, Tomlinson J (as he then was) endorsed the statement in McGregor, identifying that this principle was nothing to do with mitigation, at [20]-[21]:-

“20. Mr Railton submits that the authorities demonstrate a principled approach to the question what credit is to be deducted in assessing what loss is recoverable in situations such as the present. He referred me to a line of authorities including Steamship Enterprises of Panama Inc, Liverpool v Ousel (The Liverpool) (No 2) [1963] P 64, International Factors Ltd v Rodriguez [1979] 1 QB 351, London and South of England Building Society v Stone [1983] 1 WLR 1242, Standard Chartered Bank v Pakistan National Shipping Corporation [2001] CLC 825, and Peters v East Midlands Strategic Health Authority [2009] 3 WLR 737. Authorities such as these are summarised in the textbooks as giving rise to a principle. In Halsbury’s Laws of England, 4th Edition, volume 12(1) at para 826 it is said:

In general, where a claimant has a right of action against two obligors in respect of a particular matter, but brings an action against only one, the defendant cannot generally avoid or reduce his liability on the ground that the claimant, having a potential action against the other obligor, has not suffered the loss claimed. The availability of any such alternative cause of action affords no defence to the particular obligor’s liability to pay damages in full unless the failure to pursue that liability constitutes a failure to take reasonable steps to mitigate the claimant’s loss. Where, however, a claimant who has concurrent claims against two obligors in respect of the same matter recovers the whole or part of his loss from one of those obligors, the amount which the claimant thus recovers is applied in diminution of the damages which are awarded to him against the other obligor. A claimant cannot recover more than the total sum due in respect of his loss, merely by reason of the fact that his claim may lie against more than one person. The rule reflects a general judicial dislike of overcompensation.

The principle is however put differently in McGregor on Damages, 18th Edition, para 7-085: …

[as quoted above]

1. 1. The formulation in McGregor is in my view to be preferred, not least because the Court of Appeal has on two occasions emphasised that the

principle that a claimant is free to choose from whom to recover compensation has nothing to do with mitigation of loss — see The Liverpool (No 2) per Harman LJ at page 83 and Peters per Dyson LJ giving the judgment of the court at page 752, para 41.”

1. 1. Tomlinson J in Haugesund also referred, at [23] to the judgment of Sir David Cairns in International Factors Ltd v Rodriguez [1979] QB 351:-

“23. The Liverpool (No 2) was not referred to in International Factors Ltd v Rodriguez where a director of a company, being sued for conversion of cheques which he had paid into the company’s account, but which should have been paid to the claimant factors, contended that the claimant factors had suffered no loss, because they had a right of action against the debtors, the drawers of the cheques. The debtors had been notified that the debts were assigned to the plaintiff debt factors but they mistakenly sent payment to the company. The argument was therefore that the claimant debt factors could have sued the debtors on the original obligation, making them pay twice over. That argument pursued by a tortfeasor guilty of conversion was perhaps unlikely to succeed. Sir David Cairns put it this way at page 359A to B:

A plaintiff who has two causes of action cannot be met when he makes a claim against one defendant by the answer: “Oh, no; you’ve suffered nothing by my tort because you have a cause of action against somebody else”.

That clearly cannot be right. The principle, although unstated, is the same as that enunciated in The Liverpool (No 2)…” (emphasis added)

1. 1. In the present case Marex has causes of action against Access World, and also against CHH and Mr Wong under the settlement agreement and personal guarantee. If they are all liable in respect of the same loss then I consider the principles identified above apply so that Marex is not obliged to take any steps to sue CHH and Mr Wong. On the facts of the present case I consider that they are liable in respect of the same loss in circumstances where the agreed debt under the settlement agreement (US$32,400,000) has within it the price of the metal which is the very subject matter of Natixis’ damages claim against Marex, in respect of which Access World is liable in damages to Marex.

   2. However, lest that not be the case, Marex also has additional strings to its bow in response to the plea that it has failed to mitigate its loss. The first is to submit that Access World has failed to demonstrate what Marex has failed to recover from its failure to sue CHH and Mr Wong. What evidence there is suggests that CHH is an assetless company, whilst it appears that Mr Wong’s assets are in mainland China (and whilst there is some possibility of enforcement, cost and expense would no doubt be incurred, difficulties may arise and there is no certainty as to what (if any) sum would be recovered). There is also a suggestion (though no actual proof before me) that Mr Wong may have an asset in California. On any view, there is uncertainty as to what sums (if any) would be recoverable from Mr Wong if proceedings were taken against him. I am not convinced that this point is necessarily a free-standing knock-out blow to the plea of failure to mitigate. However, it is linked to, and needs to be considered together with, the third point made by Marex to which I will now turn.

   3. It is well established that, as a matter of law, a claimant is not required to embark on complicated, difficult and uncertain litigation against a third party. As is stated in McGregor at 9-090:-

“A claimant need not take the risk of starting an uncertain litigation against a third party Thus in Pilkington v Wood [1953[ Ch , the claimant bought freehold land from a seller who purported to convey the property as beneficial owner, the defendant acting as the claimant’s solicitor in the transaction. When the claimant later tried to sell the property he found the title was defective, since the seller was a trustee of the property and had committed a breach of trust in buying it himself. In the claimant’s action against the defendant solicitor for negligence, the latter contended that before suing him the claimant ought to have mitigated his damage by suing the seller on an implied covenant of title. This contention was rejected by Harman J because, even conceding that the defendant had offered an adequate indemnity against costs in an action against the seller and that the seller was solvent and therefore worth suing, it was not clear that the claimant had a good prima facie right of action against the seller. The judge stated that he was of the opinion that

“the so-called duty to mitigate does not go so far as to oblige the injured party, even under an indemnity, to embark on a complicated and difficult piece of litigation against a third party.””

1. 1. This principle has been applied in many reported cases. However there have been cases where conduct is found to have been required of a claimant as part of the need to mitigate, particularly in claims by mortgage lenders against their professional advisers when borrower and security have proved inadequate, and there has been a failure to enforce the borrower’s security. A case in point, relied upon by Access World, is Western Trust & Savings Ltd v Travers & Co [1997] P.N.L.R. 295.

   2. In that case (a claim by mortgage lenders against their solicitors for a negligent report on title to the mortgaged property), the lenders’ failure first to bring an action for possession of the property was held to be a failure to mitigate as this was the normal, and not difficult, method of enforcing the security. As a result the damages were reduced to a nominal amount. Access World submits that the present case is analogous as there is effectively a guarantee from Mr Wong.

   3. In the Court of Appeal in Western Trust, the appellant lenders relied upon Pilkington v Wood to support their submission that there had been no failure to mitigate. Phillips LJ (as he then was) distinguished Pilkington v Wood, stating (at p. 303):-

“The facts of that case were, in my judgment, very different from the facts in the present case. In the present case the litigation in question was no more than a possession action which is an ordinary feature of enforcing security, with which the plaintiffs in this case will be well familiar and which would have been a necessary step whether or not there were defects in the security. Such litigation is in no way analogous to the action that was proposed in Pilkington.” (emphasis added)

1. Unlike the undertaking of a possession action, which is, as noted, an ordinary feature of enforcing security and which would have been necessary in any event, what is being contemplated here is litigation against a third party in Hong Kong under Hong Kong law under a guarantee given by a Hong Kong passport owner with assets in mainland China. The opportunities for technical defences to be taken in relation to guarantees under English law are well known (albeit they are often found to be unmeritorious when adjudicated upon, after considerable costs have been incurred). I do not consider that it can be assumed that Mr Wong would not take points (good or bad) against a claim under the guarantee, and costs would be incurred in any litigation in order to adjudicate upon the claim. I note in this regard that CHH is defending the proceedings involving other parties in this Court, no doubt at some considerable expense to all the parties involved.

2. However, even assuming that Mr Wong either did not take such points, or it was possible to obtain the equivalent of summary judgment in Hong Kong, I consider that that would just be the start, as enforcement proceedings would, I have no doubt, be complex, costly and with no certainty as to what sums (if any) would be successfully recovered. In this regard, and though Access World made mention of a reciprocal enforcement arrangement with China in opening, I do not have before me any, or any sufficient, evidence that would justify a conclusion that enforcement would be simple or successful, in whole or in part. I consider that Marex is right, in the circumstances pertaining, to characterise the prospect of actual recovery (which is what any proceedings are ultimately aimed at) as uncertain and speculative, and any proceedings would undoubtably involve the expenditure of significant costs. In such circumstances I do not consider that Marex is under any obligation to commence proceedings against Mr Wong or CHH (which would appear to have no assets in any event) and I am satisfied that the principle in Pilkington v Wood applies and there has been no failure to mitigate on Marex’s part. I would only add that a mere threat to commence proceedings without an intention to carry that through would be a toothless threat, and actual proceedings (by others against CHH in this Court) do not appear to have resulted in Mr Wong or his companies paying sums claimed.

3. Access World could, of course, itself commence proceedings against CHH (or potentially Mr Wong) whether in fraud (if it could plead and prove the same) or indeed for a contribution or indemnity, if it considered it reasonable and appropriate to do so.

4. In the above circumstances, and for the reasons I have given, there has been no failure to mitigate by Marex, and I so find.