How can I recover money for lost profits?

What is lost profit under the law

The Civil Code defines the term lost profit as a pecuniary loss that consists in the fact that the injured party did not obtain by the unlawful conduct of another what he would have obtained otherwise. In other words, it is the income that you would very likely have had if not for the intervention of another person.

Put simply, actual damages are what you lost (e.g. a destroyed phone), whereas lost profits are what you could not have earned (e.g. a contract you did not get because of a broken phone).

This distinction is crucial because it is the lost profit that is more difficult to prove than actual damages. You must prove that you would have actually earned the earnings if the interference had not occurred.

When there is lost profit

Lost profits can occur in a wide variety of situations, ranging from normal day-to-day issues to complex business relationships. The essence of all these cases is that someone’s wrongful act or omission causes the victim to lose earnings that they would otherwise have been highly likely to gain. Typically, this occurs as a result of breach of contract, property damage, personal injury, or government intervention.

One of the most common situations in which lost profits arise is in business. Imagine a businessman who has a lucrative contract, but his supplier destroys his production equipment due to his own misconduct. Production stops, deadlines are missed, and the customer cancels the contract. The entrepreneur loses the profit he would have made on the contract – and that is the amount of lost profit. Similarly, a situation may arise where a restaurant’s operations are disrupted due to a faulty electricity supply or a water main break. In such a case, the injured party is entitled to claim compensation for the loss of earnings that he would otherwise have made during the closure of the establishment.

Another typical case is a traffic accident. If someone damages a vehicle that you use for your profession (for example, a taxi, delivery car or company car) and you are unable to use it for a period of time, you are liable for lost earnings for the period you were unable to run your business or carry out your work. Such loss is often proved by proving average earnings from previous periods and forms part of a claim for compensation, which is made either directly to the person at fault or to their insurer.

Lost earnings can also apply to employees who lose earnings as a result of an injury or personal injury caused by another person. Typically, this is where an employee is unable to work after an accident and their income is reduced, even though they would normally be working and earning more. In such cases, the amount of loss of earnings is based on the difference between what the injured person actually received (for example, sick pay) and what they would otherwise have earned.

Another area where lost profits often occur is in the case of breach of contract. If a business partner withdraws from a contract without good reason, delays delivery or otherwise disrupts a performance that was intended to be profitable, the other party may be entitled to compensation for lost profits. Such disputes tend to be complex because it is necessary to prove that a profit would have actually been made, i.e. that it was a realistic expectation of earnings and not just a hypothetical possibility.

Lost profits can arise even in situations where the state causes the damage. For example, if there is a delay in court proceedings, maladministration or an unlawful decision that prevents you from running your business or disposing of your property, you can claim compensation not only for actual damage but also for lost profits. Such cases can be difficult to prove, but the Law on State Liability for Damages explicitly grants the right to compensation in these situations as well.

In all of the above cases, it is not enough to simply claim that you could have made a profit. In order for a claim to be recognised, it must be shown that it was a real, specifically anticipated profit that would actually have been made in the normal course of events. This is primarily done through accounting records, contracts, invoices, purchase orders, email communications, or expert reports, which can help prove that the damage had a direct economic impact. Only then can compensation for lost profits be successfully claimed.

How to prove lost profits

Proving lost profits is often the most complex part of the whole procedure. The court or the insurance company requires specific evidence to prove that you actually had income.

The most important thing to prove is usually:

• Accounting documents (e.g., invoices from previous periods, sales, profits).
• Contracts and orders that have not been executed.
• Email or written communication with the client or business partner.
• Expert opinion (e.g. from an accountant or business expert).
• Statistics and historical results that demonstrate a stable level of income.

The causal relationship – i.e. the link between the conduct of the pest and the loss of profit – is also essential. It’s not enough that you simply had less money, you must show that it was a direct result of the claim.

How to claim compensation for lost profits

If you suspect that you have suffered a loss of profit, it is important to be deliberate and systematic. Messy or incomplete steps can make your claim difficult or even impossible. The key is to correctly identify who is liable, quantify the damages accurately and choose the appropriate way to pursue compensation.

The first step is to identify the person who caused the damage. In legal terminology, this is known as the ‘plaintiff’. This can be a natural person, a legal person, an insurance company or even the state if the damage is caused, for example, by an incorrect official procedure. Determining the responsible party is crucial, as it is the one you will be claiming against. Sometimes the situation can be more complicated, for example if the damage caused in a business relationship is transferred between several entities or if the person who caused the damage has liability insurance that will cover the damage instead of him.

The next step is to quantify the amount of lost profits. This tends to be the most difficult part, as you need to convincingly prove how much you could have actually earned had the pest not intervened. In practice, you can use accounting documents, statements from previous periods, contracts, invoices or purchase orders to prove the normal course of your earnings. In some cases, expert evidence is also used to estimate the amount of lost profits in a professional manner. This process is often assisted by a lawyer or accountant who will ensure that the calculation is credible and defensible in court.

Once you have the damager and the amount of lost profits clearly established, it is a good idea to send a demand for damages. A so-called pre-action notice is a formal letter in which the injured party states the grounds on which he or she is seeking compensation, the amount of the compensation and the period of time within which he or she expects to be compensated. This notice is of great importance, as it can not only lead to voluntary payment of damages, but is also a mandatory step before bringing an action. Moreover, it shows that the injured party has acted proactively and given the other party the opportunity to resolve the situation amicably. We will be happy to help you prepare one.

In many cases, an out-of-court settlement can be reached. This is especially true where the other side is an insurance company, a larger company or a responsible business that wants to avoid litigation. Out-of-court settlements save time, costs and nerves and are often beneficial to both parties. It is important to always have the agreement in writing, ideally after consulting a lawyer, so that it is legally enforceable and does not contain vague wording.

However, if no agreement is reached, the last resort is to take legal action. The claim must specify exactly how the damage was caused, the amount of the damage and why it should be paid by the defendant. The court will then assess whether all the conditions for liability for damages have been met, i.e. existence of damage, unlawful conduct, causation and fault. If the evidence is sufficient, the court will award the victim a claim for lost profits.

The whole process can be administratively and legally demanding, so it is wise to have an expert by your side. We are solicitors specialising in compensation and can help you not only with preparing evidence and calculating lost profits, but also with formulating challenges, negotiating with the other side and potentially representing you in court. In fact, proper procedure and quality legal representation often make the difference in whether the injured party actually recovers their lost profits.

Summary

Lost profits represent a pecuniary loss where the injured party has not received the income that he or she would normally have been highly likely to receive due to the wrongful conduct of another person. Unlike actual damages, which are a direct loss of property, it is money that the victim did not earn – for example, because of a missed contract, a car accident, a work injury, a breach of contract, or even government misconduct. A claim for compensation for loss of earnings arises where it can be shown that there is a direct link between the conduct of the victim and the loss of earnings. The injured party must prove that there was a realistic expectation of profit, not just a hypothetical possibility – invoices, contracts, orders, accounting statements, email communications or expert reports are all useful for this purpose. The procedure for making a claim is to first identify the claimant, quantify the exact amount of lost profits and send a pre-action notice demanding compensation. Many disputes can be resolved by out-of-court settlement, otherwise a lawsuit can be filed in which the court assesses whether all the conditions for liability for damages have been met. The whole process can be complex and evidence-intensive, so it is advisable to contact a lawyer specialising in compensation to help with calculations, preparation of documents and representation in negotiations with the counterparty or the insurance company. If you have lost earnings due to the fault of another, do not hesitate to pursue your rights – compensation for lost earnings is rightfully yours.