05 Aug Claiming Loss of Profits / Loss of Opportunity Damages in Litigation
One of the traditional heads of damage is “economic loss”. Economic loss can be made up of what is known as “loss of opportunity”. This loss describes the damage suffered by a party as a result of another party’s breach of their obligations at law. These obligations may be established by a contract, legislation or tort. A loss of opportunity is generally more difficult to prove than other heads of damage.
To be awarded damages on account of a loss of opportunity you must prove two things:
- On the balance of probabilities, there existed a loss of opportunity; and
- There was a causal link between the loss of opportunity and the other party’s actions or omissions.
The balance of probabilities standard of proof does not have any affect on the quantum of what the loss should be. As long as it can be shown the chance for that loss existed on the balance of probabilities then the Court will look at other evidence to inform them of the amount. In many cases recent sales data and financial accounts will be a useful base line to estimate the loss of opportunity. Even if 1 and 2 above are established, the quantum (totality) of loss also needs to be established in evidence.
Two cases that really illustrate the notion of a loss of opportunity are Gates v City Mutual Life Assurance Ltd and Sellars v Adelaide Petroleum. In the Gates case, the loss of opportunity was not proven as there was no evidence that the Plaintiff would have entered into an insurance contract that would have benefited them. Sellars case differs from Gates in that there were concurrent contractual negotiations and the decision not to enter into one of those contracts was made due to misleading conduct on the part of the breaching party. The evidence clearly demonstrated that but for the misleading conduct the alternative contract would have been entered into.
In circumstances where a contract exists and that contract is breached then the Court will apply the rule in Commonwealth of Australia v Amann Aviation Pty Ltd where the non-breaching party will be put in the position they would have been had the contract been performed. This can sometimes be difficult to prove in circumstances where the profit to be gained from the contract is not easily calculated.
In Badenach v Calvert the principles enunciated in Sellars case were summarised, “An opportunity will be of
value where there is a substantial, and not a merely speculative, prospect that a benefit will be acquired or a detriment avoided.”. Guidance was also offered on what evidence is needed to demonstrate when a substantial prospect of a benefit being acquired would be established being “what would have been done if the opportunity had been afforded”.
In the case of La Trobe Capital & Mortgage Corp Ltd v Hay Property Consultants Pty Ltd a housing loan was defaulted on and the property was sold at a lesser amount. The lender claimed a loss of opportunity on the basis that those funds used for the loan could have been lent to another borrower and the benefits of that transaction would have reaped accordingly. The full Federal Court agreed, relying on the direct evidence of an employee of the lender demonstrating the substantial prospect of entering into an alternative loan agreement. One thing to note however, is the value of that alternative loan agreement was heavily discounted by the Court due to the risk that the loan contract may not have ever been entered into.
In the case of United Petroleum Franchise Pty Ltd v Gold Fuels Pty Ltd the counter-claimants argued that as a result of alleged contractual breaches, they could have sold their business for $225,000. The judge stated that even though their business may have been worth $225,000 at the time, there was no evidence led that that sale was a substantial and very real prospect of occurring. A valuation therefore of the business was not sufficient evidence for the purposes of being awarded the damages sought.
In summary, it is not good enough to establish an opportunity was a “loss of opportunity” simply because it was an option that existed at the time. There must be evidence that supports the course of action providing that opportunity would have been the likely outcome. The more likely the opportunity would have been pursued, the higher the award for damages as a general rule of thumb.
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