In Thai Airways International Public Company v KI Holdings Limited  EWHC 1250 (Comm) the High Court has addressed how benefits received in mitigating loss affect calculation of damages for breach of contract.
The claimant airline contracted with the defendant, a manufacturer of airplane seats, for the supply of economy class seats. Certain shipments of seats were to be delivered in accordance with a timetable agreed between the claimant and a third party for delivery of new aircraft.
In breach of contract, some shipments of seats were delivered late by the defendant and others were not delivered at all. As a result, new aircraft were delivered to the claimant without any economy class seats installed. The claimant put these aircraft into storage until seats could be procured from alternative suppliers. In order to meet its capacity needs, the claimant leased three aircraft from another airline.
The claimant sought damages for the cost of leasing the three aircraft, which were claimed as costs incurred in mitigation of losses which the claimant would otherwise have sustained as a result of the defendant’s breach of contract. The defendant admitted liability shortly before trial. However, the parties remained in dispute over the correct measure of damages.
The defendant argued that the claimant gained certain benefits from its mitigating actions, which should be taken into account when calculating damages. The alleged benefits were principally profits generated by operating the leased aircraft and fuel savings occasioned by the fact that the claimant installed alternative seats in its own aircraft which were lighter than the defendant’s seats.
The claimant argued that any profits generated as a result of its mitigating actions need not be taken into account as a matter of law and alternatively, that the defendant had failed to establish that the alleged benefits it received exceeded the costs of the leases.