Where a party asserts that a breach of contract or the commission of a tort has caused him to lose profit he would otherwise have made, the first question to ask is whether or not on the particular facts that type of loss is recoverable as a matter of law. It might be too remote (see in contract Hadley v. Baxendale (1854) 9 Ex 341 and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 at 540 and in tort Lord Hoffman in SAAMCO v. Montague Ltd [1997] A.C. 191). Even if it not too remote, another measure of loss might be more appropriate.

Thus where a claimant alleges that the defendant’s breach of contract or negligence has put him completely out of business, instead of awarding him the loss of future profits of that business the court will probably award him the loss of its capital value. Flaux J. gave the reason for that in MMP GmbH (Formerly Antal International Network GmbH) v. Antal International Network Ltd [2011] EWHC 1120 (Comm) at para.83:

“If the effect of the breach of contract had been to put the company out of business then since, by definition, there are no future profits (or losses) against which to compare the profits (or losses) which the company would have made had the breach not occurred, then it is not possible for the Court to assess damages on the basis of loss of profits in the normal way. It seems to me that it is only in such situations that the Court will fall back on what [counsel]...described as a “proxy for... loss of profits” of seeking to value the company as at the date of the breach, both because it is that value of which the claimant has been deprived by the breach and because it is only by such valuation that the Court can arrive at a “proxy” for the loss of profits. However where it is possible to assess the loss of profits in the normal way, that should be the measure of damages.”

If loss of profit is the appropriate measure, how is it to be determined? Where the claim is for loss of ongoing profits of a business, there might well be many imponderables as to what would have happened to the business in the future. In Vasiliou v. Hajigeorgiou [2010] EWCA Civ. 1475 Patten L.J., having stated the general rule that the claimant must prove on the balance of probabilities that the defendant’s breach caused the loss, acknowledged that in some cases, where the claimant’s ability to have made a profit depends on the actions of unrelated third parties, there might be room for arguing that the court should approach the issue of causation by taking into account “the chances of those events having occurred” (note that he was speaking of causation, not the assessment of quantum).

Indeed later in his judgment he made the point explicit:

“The loss of a chance doctrine is primarily directed to issues of causation and needs to be distinguished from the evaluation of factors which go only to quantum.”

It was Toulson L.J. in Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ who at [23] had given guidance as to how the court should deal with the problem of assessment:

“Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account…”.

In Double G Communications Ltd v. News Group International Ltd [2011] EWHC 961 Eady J. adopted those words and said:

“The exercise I have to perform is by no means an easy one, since it is important as a matter of principle not to depart from the task of estimating probable loss and cross over into the realm of pure guesswork.”

Obviously, in most cases the parties will adduce expert evidence, that of a valuer or an accountant. Just for amusement if nothing else, read Double G however. It provides an example of both a poor marketing idea and of poor expert evidence. In Eady J’s view, “Neither expert witness inspired great confidence”. He “was left in effect, to evaluate two competing stabs in the dark”. One of the experts had resorted to an internet search for his data. Of him the judge remarked:

“I am...confronted with an expert who is unable to produce direct evidence himself but, instead, has resort to total strangers via Google – who do not consider themselves qualified to answer his queries.”

A lesson for those doing legal research!