Loss of profits

The basic principles of contract →Go uptown Quick reminder: in the law of contract “losses” and “damages are” different, though related things. Losses are pecuniary misfortunes that you might suffer as a result of a breach of contract. They can be divided into: “Direct” losses, that are the natural and foreseeable consequence of breach of contract. “Indirect” or “consequential” losses, which are a more speculative nature. Note that “loss of profit” and “loss of opportunity” are not judicially recognised categories of loss: they can be either direct — for example, foregone interest on a defaulted payment — or indirect — the winnings you would have got from putting that defaulted payment on a rank outsider who came good in the 2:35 at Kempton — but if in doubt (i.e., not a natural consequence of the breach) assume they will be indirect Damages are the amounts a court orders a naughty counterparty to pay to an innocent to compensate for its loss of bargain (in a contract) or atone for its wrongdoing (in a tort or breach of trust). They may, or may not, be the same amount as the actual losses suffered: “General” damages compensate for direct losses. “Special” damages relate to indirect losses. They are rare in contracts, even when not specifically excluded which, in finance contracts, they usually will be. “Punitive” or “exemplary” damages do not compenstate for loss at all, but rather punish a wrongdoer for outrageous behaviour. These are not available under English contract law but may be awarded — extremely rarely — in tort or for breach of trust. There is also an “Account for profit”: an order to hand over profits made through the misuse of someone else’s physical or intellectual property. This remedy is not available for a simple breach of contract. Grievances and remedies, charted Grievance Remedy Contract Tort Fiduciary Direct loss General damages Yes Yes Yes Indirect/consequential loss Special damages Usually No Usually No Usually No Egregious wrongdoing Exemplary/punitive damages No Yes Possibly Profiting at owner’s expense Account for profit No Yes Yes Formation: capacity and authority · representation · misrepresentation · offer · acceptance · consideration · intention to create legal relations · agreement to agree · privity of contract oral vs written contract · principal · agent Interpretation and change: governing law · mistake · implied term · amendment · assignment · novation Performance: force majeure · promise · waiver · warranty · covenant · sovereign immunity · illegality · severability · good faith · commercially reasonable manner · commercial imperative · indemnity · guarantee Breach: breach · repudiation · causation · remoteness of damage · direct loss · consequential loss · foreseeability · damages · contractual negligence · process agent Remedies: damages · adequacy of damages ·equitable remedies · injunction · specific performance · limited recourse · rescission · estoppel · concurrent liability Not contracts: Restitution — quasi-contract — quasi-agency Index: Click ᐅ to expand: Contract Tort Restitution Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Not the same thing as consequential loss, though in many cases it is a type of consequential loss. It is possible for a loss of profits or loss of opportunity to be a direct loss, although the great case of Hadley v Baxendale illustrates that is by no means the ordinary run of things.

But there are obvious cases of losses of profit that are direct losses: Such as, the profit I would make in making and selling you a widget you had agreed to purchase from me, had you not reneged on your obligation to buy it. Which means there are schoolboy errors ahoy:

Not the same as an account for profits

The remedy of special damages for loss of profits — when available, which will be hardly ever — compensates an innocent party to a contract for opportunities and profits she would have been able to take had the guilty party not breached the contract. This is different from the remedy of “accounting for profits”, which is a common law remedy for misuse of someone else’s property where the guilty party must disgorge to the owner any profits it has actually made in breach of his contractual or fiduciary duty.

Tricks for young players

If you exclude liability for “consequential loss including loss of profits” that will not immunise you from liability for losses of profits that were direct losses. In Polypearl Limited v E.ON Energy Solutions Limited [2014] EWHC 3045 Polypearl entered a contract with E.ON under which E.On had to buy 153,000m³ of cavity wall adhesive. Don’t laugh — this is someone’s livelihood. E.ON failed to purchase it, and as a result Polypearl suffered a loss of profit on the actual sale of those contracts of over two million quid (essentially its revenue less costs of production). Polypearl also claimed a loss of opportunity to share in carbon savings it would have made had the contract been performed.

E.On claimed exclusion for liability for “any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profit, loss of business, depletion of goodwill and like loss) howsoever caused (including as a result of negligence)”

The Judge found this a good example of a loss of profit that was a direct loss, and that this liability was not therefore excluded by that exclusion. Sensible outcome reached.

See also

• Account for profits
• Hadley v Baxendale
• Remoteness of damage
• Breach of contract