'My contract was terminated prematurely by the agency in breach of contract - they should have given me 4 weeks notice. I found another contract within 2 weeks at a slightly higher rate - and now the agency says my claim against them has to be reduced by the income from the other contract. Why do I have to do this, since the broken contract itself was not exclusive?'
Where one party is in breach of contract, the other is entitled to damages, so as to place the innocent party in the position in which (s)he would have been, had there been no breach. Rightly or wrongly, under English law damages for breach of contract are designed to compensate the innocent for the breach - to make good the actual loss, within certain parameters - rather than to punish the guilty.
That means that even though you may be the innocent party, you cannot award yourself a holiday of four weeks at the agency's expense. Had there been no breach, you would have been working for that four week period - therefore your damages will be assessed on the assumption that you made reasonable efforts to find another contract to work under, so as to try to mitigate your loss.
Thus it is important to be able to prove that, once you knew that the original contract had been terminated, you took the kind of steps that you would normally take to find the kind of work you would normally accept. And you should keep a proper record of the steps you did take - remember that if you can't show that you did this, you may find the Courts saying that the most immediate cause of part of your losses was in fact not the other party's breach at all, but instead your own failure to act promptly in looking for another contract!
Now,
why give credit for income from another contract, since the broken contract was
not exclusive, and therefore (in theory) you could have entered the second
contract anyway? The question is, could
you? As I see it, there's only one of
you, and there is a limit to the number of working hours in your day. Do you say you could have run two fulltime
contracts simultaneously? Whilst there
may be some who could do that, I suspect that this strains the boundaries of
credibility. If you were able to show
that you had a second consultant in your company otherwise sitting around idle
- or an established pattern for yourself of working (say) 80 hours a week
whilst running two fulltime contracts simultaneously - then maybe yes, you
could avoid having to set the income from the second contract against lost
income from the broken one. But otherwise,
I suspect you would have difficulty.
Most of the case
law on the subject comes from people welshing on contracts for selling
widgets. Briefly put (and imagining
yourself as a seller of prime widgets, let down by a disreputable prospective
buyer):
- if your sales of widgets are limited only
by the availability of widgets (unsatisfied buyers at the end of the day) then
your loss is the loss of profit on the sale - but you do still have the widget,
and so by selling it elsewhere, you can avoid or reduce your loss - therefore
you are obliged to attempt to do just that, and thus mitigate your loss
- if on the other hand your sales of widgets
are limited only by the availability of buyers (unsold widgets at the end of
the day) then your loss is the loss of profit on the sale, period. Because whilst you may get another buyer for
that particular widget, you'd have been able to satisfy that other buyer with
another widget anyway - the net result would still be the loss of sale of one
widget - and so you'd still have lost.
Therefore your loss cannot be mitigated.
Here, the essential point is that your supply of available hours amounts to your widgets. If (hypothetically) you could have accepted the second contract and run it simultaneously with the first, then the second category is the one into which you will fit. But is (as seems more likely) you could not have done so, then your supply of available hours is not unlimited, and you will fall into the first category. And in that case, since you can only sell each hour once, it follows that if you sell it to another buyer, you won't have lost. So you have a duty to mitigate, and thus try to avoid or reduce the loss.
So it follows that, having succeeding in finding another contract, you should give credit:
- if the income from the new contract (net of any additional expenses you incur to earn it) is at a lower rate per day than the old, then even for those days when you do work under the new contract, you still have a loss - so for those days, you deduct the net income from the new contract from your loss claim under the old
- if on the other hand the income from the new contract (net of any additional expenses you incur to earn it) is at a higher rate per day than the old, then for those days when you do work under the new contract, there won't be a loss - so for those days, you simply have no remaining loss claim under the old.
So for the second two weeks, you have no remaining loss to claim against the agency. But for the first two weeks, you should be are entitled to recover the full amount of your losses.
8th
December 2000
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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