Claiming lost profits as damages for breach of contract is often easier said than done. The decision of the Supreme Court of Victoria in KSG Investments Pty Ltd v Open Markets Group Ltd [2021] VSC 145 emphasises the importance of proving the causal connection between the breach and the loss claimed. In the context of claims for lost profits, this usually requires proof of possible conduct in competing hypothetical scenarios, which can be very difficult to prove. This case relates to a shareholders' agreement but should be considered when bringing claims for lost profits generally.

KSG alleged that Open Market Group Ltd breached a shareholders' agreement when it issued securities without giving KSG a right of refusal. The quantum of loss of profits claimed by KSG was assessed as the difference between cost of acquiring the shares and subsequently selling them at a higher price, plus interest. The Company conceded that it had breached the shareholders' agreement, but contended that KSG had not proved to the required standard that the breach had caused the loss claimed.

Where a contract provides a commercial opportunity, a breach of that contract enables the innocent party to bring an action for loss of the advantage of that opportunity. The breach gives rise to at least nominal damages for loss of a promised opportunity, and an entitlement to further damages is established by reference to the causal connection between the loss and the non-fulfilled promise to provide that opportunity.

Applied to KSG's claim, the shareholders agreement did not include a promise that KSG would make a profit after acquiring shares. Had the SHA been performed, the benefit conferred upon KSG would have been receipt of offers to purchase more shares. Therefore, KSG was required to prove on the balance of probabilities that KSG had lost an opportunity to profit. This required proof that:

  • upon receiving an offer of shares, KSG could and would have acquired them; and
  • the existence of some opportunity of some value to sell its actual and hypothetical shares.

After a detailed assessment of KSG's main witness under cross-examination, it was held that KSG had failed to discharge the burden of proving these matters to the requisite standard. Accordingly, its claim for lost profits was unsuccessful.