The Supreme Court in Sharp Corp Ltd v Viterra BV [2024] UKSC 14; [2024] 1 Lloyd’s Rep 568 has laid down important guidance in relation to the “market substitute” rule. The “market substitute” rule holds that, where a party breaches a contract and there exists a market in which its counterparty can obtain substitute contractual performance, damages will prima facie be assessed by the difference between: (1) the contract price; and (2) the cost of obtaining a substitute from that market at the time of non-performance. In the sale of goods context, it is codified in ss. 50(3) and 51(3) of the Sale of Goods Act 1979 (the “SGA”).
Addressing a provision in a GAFTA form contract replicating the operation of s. 50(3) SGA, Lord Hamblen confirmed that: (1) the market substitute rule involved an application of the mitigation doctrine, which tracked what a reasonable person in the claimant’s position would have done; and (2) when applying it, one could not invariably assume that the claimant obtained a substitute on the same terms (price aside) as the original contract. If a reasonable seller would have mitigated its loss by selling to someone else on different terms, the seller’s loss was to be assessed on that basis.
In a recent publication in the Lloyd’s Maritime and Commercial Law Quarterly, Serena Lee discusses the Supreme Court’s reasoning in Sharp and its practical and doctrinal implications.
Read the article here.
Read the judgment.