JUDr. Kristína Tomečková, attorney at law, GARAJ & Partners
Many entrepreneurs have experienced breaches of obligations by their business partners. Often, it involves failure to deliver goods, transfer property ownership, or complete a project. Sometimes this breach doesn't significantly impact further business, but there are cases where it leads to the frustration of a business plan. It is therefore appropriate to hold the business partner liable and assert a claim for damages. As part of the compensation for damages, it is possible to request reimbursement of actual damages, i.e., all expenses incurred in connection with the breach of duty, as well as lost profits that the entrepreneur reasonably expected but did not achieve due to the breach of obligation.
The Challenge of Proving Lost Profits
Recovering lost profits through litigation is often challenging. The aggrieved party must bear the burden of proof, meaning they must substantiate all facts with evidence relevant to the claim. To succeed in the dispute, it must be proven that the business partner breached their duty (e.g., failed to deliver goods or delivered defective goods), that damage—lost profit—occurred, and that there is a causal relationship between the breach and the damage.
Proving Breach of Duty and Damages
Proving the breach of duty is usually the easiest. However, complications such as obtaining an expert opinion cannot be ruled out, for example, if it is disputed whether the delivered goods had defects preventing their use. Proving damages in the form of lost profits is more challenging, mainly because it is based on transactions or business plans that were not realized (e.g., failure to manufacture cars due to non-delivery of components).
Despite their non-realization, it is necessary to demonstrate to the court that under normal circumstances, these transactions would have been almost certainly concluded and, given the existing circumstances, would have brought profit of a certain amount. These must be transactions that the entrepreneur could have realized not only hypothetically, but concretely, actually, and practically.
It is not sufficient to make a general assertion that there is sufficiently high demand for cars on the market, so if they were planned to be produced with proper delivery of components, they would certainly be sold and profit achieved. It would be necessary to prove, for example, the existence of specific contracts with real prospective buyers who withdrew due to non-delivery of cars on time, or at least the existence of interest in purchase expressed by specific persons.
Garaj & partners
Understanding 'Usual Profit'
Even when claiming usual profit, which is typically achieved in a given business sector, it is not possible to avoid proving a specific and realistically feasible business opportunity. Usual profit does not mean that it is sufficient to prove a hypothetical possibility of concluding deals. Usual profit is significant in that its use facilitates the calculation of the amount of lost profit in cases where the actual lost profit cannot be determined.
For example, when a business plan is frustrated, it is not possible to determine exactly what profit would have been achieved if the plan had been realized, but it is possible to determine what profit is usually achieved by entities operating in the same area. Proving the quantum of lost profit is usually subject to expert evidence or professional assessment.
The causal relationship can often be inferred from the same evidence used to prove the breach of duty and the occurrence of damage. This means that if the breach of duty and the occurrence of damage are sufficiently proven, the court should be able to assess the existence of a causal link from the presented evidence.
Conclusion
Despite the fact that recovering lost profits is challenging and requires proving many facts, it is not impossible. With thorough and professionally conducted case preparation, success can be achieved.
Garaj & Partners
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