Duty to mitigate

Mitigation can come up when a buyer claims losses after closing, or when a seller disputes the size of a claim. The duty to mitigate asks what the claimant did to keep the loss from growing. A claim for an undisclosed liability, for example, can be tested against the steps the buyer could reasonably have taken once it knew of the problem. Check what the indemnity in a purchase agreement says, if anything, about mitigation.

How Canadian courts apply it

In Southcott Estates Inc. v. Toronto Catholic District School Board, the Supreme Court of Canada described mitigation as a doctrine based on fairness. Where a defendant alleges that the plaintiff failed to mitigate, the defendant bears the burden of proving both that the plaintiff failed to make reasonable efforts to mitigate and that mitigation was possible. As a general rule, a plaintiff cannot recover losses it could have avoided by taking reasonable steps. The Court also noted that a plaintiff who takes reasonable steps to mitigate may recover the costs and expenses of those steps, provided they are reasonable and were truly incurred in mitigation. These are common-law rules.

Quebec

Quebec’s Civil Code provides in article 1479 that a person bound to make reparation for an injury is not liable for any aggravation of the injury that the victim could have avoided. Éducaloi, a Quebec legal-information service, tells readers pursuing a broken contract that they have an obligation to limit their damages.

What to ask

• What could the claimant reasonably have done to reduce the loss, and when did it know?
• Does the agreement require notice of a claim within a set time?
• Which province’s law governs the agreement?