Head of practice
Attorney. Specialist in commercial and labor law. Over 16 years of experience in legal support of businesses - debt recovery, contract enforcement, recovery of damages, commercial property and lease disputes.
Compensation for lost profits in commercial law
What is meant by lost profit in commercial law?
Lost profit is the amount of potential profit that a business entity could actually receive under normal conditions if its right had not been violated. Such profit is an integral part of the general concept of losses. In particular, according to Part 1 of Article 225 of the Commercial Code of Ukraine, lost profit is included in the losses that are subject to compensation by a person who committed a violation in the course of carrying out economic activities. This type of loss is subject to compensation if it is proven that:
- a violation by a counterparty or another person actually occurred;
- the injured party could have received a certain profit in the absence of such a violation;
- the lost profit is justified and is documented by the injured party accordingly.
The claim for the recovery of lost profits must be based on accurate calculations. Perhaps the most difficult issue in modern legal practice of commercial law is determining the amount of lost profits. As a general rule, it is recommended to be guided by the following criteria: ordinary circumstances (analysis of typical conditions of business activity); reasonable expenses (taking into account the expenses necessary to obtain the expected income); compensatory approach (justification of compensation based on real and proven financial losses).
Finally, the calculation of lost profits must be confirmed by documents, in particular by accounting data. More detailed information on the features of the concept and definition of lost profits in commercial law can be found by contacting one of our specialized lawyers for advice.
When can you compensate for lost profits in commercial law?
The grounds for compensation may be, firstly, a breach of a commercial contract, secondly, damage to the property of a business entity, thirdly, other offenses. To recover funds from the offender, it is necessary to prove the fact of the violation, the connection between the violation and the losses, and the amount that will be subject to compensation.
The court may grant a claim for compensation for lost profits in full or in part if any of the following circumstances are present:
- first, the presence of unlawful conduct (breach of contractual obligations by the counterparty, unlawful actions or inaction of state or local government bodies, actions of third parties that led to economic losses for the business entity);
- second, the causal link between the action and the economic loss;
- third, the reality of the lost profits, which must be based on previous financial indicators, a contract that could have been performed, but did not bring income due to the violation;
- fourth, the fault of the violator. As a general rule, the amount of damages is compensated in full unless the guilty party proves that it is not responsible for its tasks.
The procedure for compensation for lost profits in commercial law: main stages
Compensation for lost profits occurs according to a certain algorithm, which involves proving the legitimacy of the claims and documenting the amount of losses. The main stages of this process are as follows:
- determining the fact of violation of the law. First, it is necessary to establish that there was a violation of the commercial rights of a particular entity;
- recording the losses incurred and their justification. The business entity must collect evidence confirming the existence of lost profits. Such evidence may include, in addition to the above, also income statements, conclusions of economic experts;
- taking measures for pre-trial settlement of the commercial dispute. It is worth sending a claim to the violator with a demand before directly applying to the court, trying to negotiate compensation for losses;
- filing a claim with the commercial court. If amicable settlement is not possible, the plaintiff must file a statement of claim, indicating the justification for the violation, the calculation of damages and their documentary confirmation.
To be sure of the correctness of all procedures and to save your efforts and resources, we recommend that you seek legal support from the Law Firm “Prikhodko and Partners”.
Thus, unearned profit in commercial law is a component of the losses suffered by a business entity due to the amount of potential profit. To recover such profit from the violator, it is necessary to prove the fact of the violation, the causal relationship between the violation and the loss of income, as well as a reasonable calculation of losses. Compensation is carried out through pre-trial settlement or court proceedings and requires careful preparation of the evidence base and legal argumentation.
Lawyers of “Prikhodko and Partners” will provide comprehensive legal support at all stages of the process of compensation for lost profits in business law, will help to collect the necessary evidence, prepare a reasonable calculation. To find out the cost of legal support, fill out the form below.
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