British Westinghouse v Underground Electric Railways Co of London (1912) AC 673
Between 1904 - 1906 British Westinghouse supplied 8 steam turbines to the defendant railway company. They transpired to be defective in design and used excessive quantities of steam. The railway company did not reject them but reserved its claim to damages for breach of contract. In 1907 the railway company replaced them with more efficient turbines made by company called Parsons. The railway company claimed damages for the excessive fuel used while they were operating the British Westinghouse turbines and the whole cost of replacing them with the Parsons turbines.
The arbitrator found that the railway company had acted reasonably and prudently in acquiring the Parsons turbines to mitigate their continuing loss in using excessive fuel but he also found that the Parsons turbines were so efficient that it would have been to the advantage of the railway company to replace the British Westinghouse turbines when they did, even if the latter had been in accordance with the contract specification.
The House of Lords held that the additional benefits gained by the railway company from acquiring the Parsons turbines, over and above what would have been their contractual entitlement as against British Westinghouse, had to be brought into account in calculating the damages.
Viscount Haldane L.C. distinguished, at p. 691, cases in which the plaintiff had received benefits which "did not arise out of the transactions the subject-matter of the contract." These were res inter alios acta. But where - "the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach" it was necessary to look at any additional benefits which he thereby acquired and to "balance loss and gain."
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