Duty to mitigate and intentional breaches of contract
Av jur. kand. JACOB FRANK1
Intentional breaches of contract are not as uncommon as one might imagine. Given the fact that they reflect the non-performing party’s wilful disregard of the aggrieved party’s rights under the contract, in stark conflict with the fundamental principle of pacta sunt servanda, many legal systems as well as international instruments have set forth special rules and principles that puts the aggrieved party in a more favourable position than what otherwise would be the case. It is considered that a normal application of contract terms or optional legislation would lead to objectionable and morally unfair results in cases of intentional wrongdoings. The particular effects of intentional breaches are often related to, and have their greatest significance for, damages claims. 2 In the present article, the author examines the interface between intentional misconduct and the duty to mitigate loss.
Within the field of contractual damages there are several rules and principles that limit the main rule of full compensation.3 This article
1 Law clerk, District Court of Stockholm. The author wishes to thank Anna-Maria Tamminen and David Ackebo, Partners at Hannes Snellman Attorneys Ltd, for valuable input. Needless to say, all mistakes remain with the author. 2 A few examples are that an intentional breach may extend liability to unforeseen losses (art. 3:703 DCFR) and it is commonly accepted that agreements on the exemption and limitation of liability may be declared void in case of intentional misconduct. It is important to observe that the Supreme Court case NJA 2017 s. 113, in which the Supreme Court clarified that gross negligence does not constitute an independent ground on which a limitation liability clause can be set aside, does not deal with intentional breaches of contract (for a brief review of the case, see my article published in Dagens Juridik at http:// www.dagensjuridik.se/2017/03/hd-klargor-grov-vardsloshet-ingen-sjalvstandiggrund-att-asidosatta-en-ansvarsbegransning). Furthermore, intentional breaches are by some instruments considered an important factor when establishing whether a breach is fundamental or not (art. 7.3.1 (2)(c) UNIDROIT Principles and art. 3:502 (2)(b) DCFR). Another recent example of the major impact intentional breaches may have when discussing remedies will be discussed infra in Section 3. 3 The object of damages is, at least as a starting point, to restore the aggrieved party’s financial situation as if the damaging event had never occurred. In general, the most important limitations are the doctrine of causation and the doctrine of adequacy, and, naturally, the limitation of liability by agreement. Contributory negligence and the duty to mitigate loss are two other limitation principles that often apply. There are also a few limitations that are arguably of less practical significance (in the sense that they arise less often), for example the principle of compensatio lucri cum damno which is generally recognized under Swedish law. This principle refers to a situation where economic benefits have followed from a breach and provides that the benefits shall be reduced from the amount of compensation so as to avoid overcompensation.