Recently we have advised a member about a loss of profits action. The issue arose from an agreed sale and purchase of a motor vehicle. A deposit was paid but subsequently, the seller unilaterally withdrew from the deal and requested the deposit back. The seller withdrew because they found they could sell the vehicle and gain a higher price elsewhere.
Our client was left in a strange predicament. It has long been established in case law, and from a decision by the High Court, has held that an innocent party may only recover damages for a loss suffered as a result of the breach provided it’s not too remote. The principles that govern remoteness are established in old case law, Hadley v Baxendale [1854] 9 Exch 341 which provides two options of loss recoverable:
- All loss that arises naturally from the breach.
- All loss which may be reasonably considered to be in contemplation of the parties at the time the contract was made as a probable result of the breach.
Consideration must then be given to the three elements of a loss of profit claim.
There are essentially three elements to a loss of profit claim:
- Proving the breach of contract directly caused the lost profits,
- The loss of profits was a foreseeable consequence of the breach of contract, and
- You have attempted to mitigate losses as a result of the breach.
It is often very difficult to claim lost profits after a breach of contract under English law. However, the stark nature of this deal having fallen through does have elements of legal consequences. The agreement between the parties did not have any exclusion for a claim arising from lost profits whether direct or indirect.
A view could be taken that by its very nature, a deposit having been taken and then returned would draw a line in the conclusion of the contract. However, that is not the case. In the matter of Aribisala v St James Homes (Grosvenor Dock) Ltd [2008] 3 ALL ER 762, the court held that the return of a deposit does not prevent a claim for damages for any loss suffered due to the breach, including loss of profits.
When calculating a loss, the method that is legally adopted is the “but for method” namely, “What would you have incurred but for the actions of the other party?” For example, would your business have been better off financially? Would you have made a profit?
It is wise to be able to answer the critical elements of proving the breach of contract directly caused the lost profits, that the loss was a foreseeable consequence of the breach, and you attempted to mitigate that loss. If you cannot establish all of these elements, then you are unlikely to be successful. The issue of a direct loss on your business was also discussed in Deepak Fertilisers and Petrochemicals Corpn v Davy McKee (London) Ltd, but not limited to other established case law.
If you feel that you have a potential case, please feel free to contact our team for assistance.
Brave is an award-winning digital agency offering a comprehensive range of services aimed at helping your business grow. From rebrands and web development to marketing campaigns that get you noticed, we do it all. Since 2000, we’ve helped businesses across the automotive sector reach new heights. Could yours be next?
