- What determines the amount of lost profits
- What you need to prove for the recovery of lost profits
- When lost profits are not recoverable
- Read also
Speaking about losses, we usually mean those losses that were in reality. But there is also such a thing as lost profits. These are the lost incomes that one party of the contract expected to receive, but did not receive - due to violations of the terms of the contract by the other party.
The topic is not the most popular among lawyers, because There are few court practice on this issue in Belarus, and often the courts refuse to compensate for lost profits. In addition, not all entrepreneurs are aware of such losses. Alexander Zhuk, director of the law firm SPRAVA Consulting, told about how to determine the amount of lost profits and in what cases it cannot be recovered.
What determines the amount of lost profits
- Real damage is associated with a decrease in property and cash, and loss of profits - in order that they could increase, but not increase.Alexander Zhuk
Director of Law Firm " RIGHT Consulting "
That party to the contract that suffered losses may claim their full compensation ( Art. 364 GK ). These losses include lost profits ( Section 2, Art. 14 GK ), which can be recovered by suing the economic court at the location of the defendant.
Therefore, we can recommend the approaches enshrined in Temporary technique determining the amount of damage (damages) caused by violation of business contracts. By the way, this document was approved in the times of the Soviet Union: December 21, 1990 by the State Commission of the USSR Council of Ministers on Economic Reform ( attachment to the letter USSR State Arbitration No. C-12 / NA-225).
Example: The defendant under the contract was to provide the plaintiff with a loan. The plaintiff was planning on spending this money on a certain territory with an optical fiber cable and earning income in the form of payment by consumers of services for using the Internet. The loan was not fully provided, and the court indicated that the calculated non-received profit does not take into account the expenses of the provider and should be calculated as an estimated income in the form of a fee for using the Internet minus the reasonable costs of laying fiber optic lines.Photo from svarka-optiki-dmk.ru
Unfortunately, the courts often do not evaluate the method of calculating lost profits and refuse to recover lost income due to:
- Lack of sufficient and reliable evidence confirming losses
- No causation
- Failure to take the necessary measures and preparations for profit
Therefore, when determining the amount of lost profit, data should be taken into account, which undoubtedly confirms the real possibility of receiving money or property.
I will give one more example, already from the Russian judicial practice, by which it is clearly seen why the court can refuse to recover the lost profit (the principles and approaches to the calculation of the lost profit are almost the same).
The founder of the media (the defendant) granted the editor-in-chief (claimant) the right to issue a newspaper for a monthly fee of 40% of all revenues for paid services (which the editor-in-chief renders when issuing a newspaper). The defendant did not pay the plaintiff for the rights granted for several months - accordingly, he did not receive the income that he could count on.
In addition to the additional agreement to the contract on the right to receive the above payment, the chief editor did not provide other necessary evidence, for example:
- The fact that if he received money from the founder (the usual conditions of civilian traffic), he would have a profit during the disputed period exactly in the amount indicated by him
- The fact that measures were taken to obtain this profit
Therefore, the court refused to recover the lost profits.Photos from novostivmire.com
In this case, you need to pay attention to such an important point. In Russian judicial practice, it is noted that the calculation of lost profits presented by the plaintiff is approximate and probabilistic in nature. However, this circumstance in itself cannot serve as a basis for refusing a claim.
What you need to prove for the recovery of lost profits
1. Availability of contractual obligations. Example from practice: The defendant, objecting to the stated claims, referred to the invalidity of the concluded contract - due to the lack of the person who signed the contract on the part of the defendant, the authority to sign it. The court granted the plaintiff’s claims, since actual contractual relations arose between the parties as a result of payment in full of the goods delivered under the contract.
2. The fact of violation of the obligation by the defendant (late delivery, payment).
3. Proper fulfillment of obligations under the contract by the plaintiff himself (availability of TTP, acts of acceptance of works (services), acts of reconciliation, etc.).
4. The real possibility of obtaining benefits . The courts indicate that the violation committed by the debtor must be the only obstacle that prevented the creditor from receiving lost profits. In this case, the lender must be made other necessary preparations for obtaining lost profits.
5. The amount of lost profits. Example from practice: The plaintiff pointed to a simple tower crane through the fault of the defendant and causing him losses in the form of lost income. Calculation of losses the plaintiff made according to the business plan, based on the cost of the volume of work performed for one day, multiplying by the number of days of inactivity.
The court concluded that the amount of damages was unproven. The conclusion of the court is based on the fact that the plaintiff did not submit to confirm the amount of the income not received:
- Estimated construction work with the period of work
- Act on the actual work performed for the specified period
- The planned amount that the plaintiff would receive if properly performed work
Please note that the use of business plan data is not a very good way to justify the size of lost profits. From the calculation of the lost profit presented by the plaintiff, it follows that the business plan information used by him is economically calculated, but presumptive: it is not known how much the enterprise would work in the planned time, how much it could produce and sell products and receive the planned funds.Photo from prok-plus.ru.jp
6. The existence of a causal link between the violation of the obligation by the defendant and the loss of the plaintiff’s benefit.
7. Measures and preparations made for this purpose , undertaken by the claimant for receiving the lost profit. The courts verify in detail the presence of the lender:
- Conditions and equipment ensuring its commercial activities
- The possibility of obtaining raw materials
- Availability of labor resources
- Availability of contracts with customers and consumers, etc.
8. The adoption by the claimant of reasonable measures to prevent the occurrence of the consequences of breach of contract by the respondent or to reduce their size. For example, to protect a bona fide contractor, it is advisable to fix in the contract a condition stating that if the contract is terminated at the initiative of the customer, he reimburses the contractor for losses caused by the termination of the contract (lost profit) in the amount of% of the cost of work that the customer refused.
9. The existence of grounds for recovery of lost profits. The court needs evidence of the absence of grounds for exempting the defendant from compensation for lost profits.
When lost profits are not recoverable
Such situations arise when:
- Under an energy supply contract, the breach of the obligation is obliged to compensate only real damage ( Art. 518 GK )
- Under the contract for the implementation of research, development and technological works, the loss of profits is reimbursed only when the contract provides for it ( Section 2, Art. 731 GK )
- The harm caused to the organization by its employee ( Art. 400 TC )
- It simply does not arise.