Law of Contract and Torts

Compensation for profit lost

According to the provisions of the Law of Contract and Torts, in addition to the right to compensation for ordinary damages, the injured party has the right to compensation in the form of profit lost.

Common damage represents a decrease in an existing property. At the same time, the profit lost is damage reflected in the impossibility of increasing the property or prospective property due to the actions or actions of the damager.

According to the provisions of Article 189, paragraph 3 of the Law of Contract and Torts, when assessing the amount of profit lost, the profit that could reasonably be expected according to the regular course of things or according to particular circumstances and whose realization was prevented by the harmed person’s act or omission, is taken into account.

The profit lost can appear in monetary and in-kind forms.

According to the understanding of court practice, lost benefit represents unrealized property value, regardless of whether it would appear in monetary or in-kind form and irrespective of the basis on which it would be realized. Profit lost can arise due to damage to things in the form of loss of natural and civil fruits that escaped the injured party.

Conditions for damages in the form of profit lost

To be entitled to compensation for profit lost, the following conditions must be met:

  1. that the damage in the form of profit lost is actual,
  2. that it could be expected due to the regular course of events or particular circumstances,
  3. that the profit lost is not contrary to compulsory regulations, and
  4. that the elements can be determined based on the amount of profit lost.

Truthfulness. The damage must be actual, sure, that is, it must have certainly, reliably, undoubtedly occurred.

In case of doubt as to whether the damage exists, it is up to the injured party to prove, by applying the rules on the burden of proof, that the lost benefit has certainly, reliably, and undoubtedly occurred. For the victim to be liable for the damage caused according to the rules on civil liability of any kind, it is necessary that the damage was caused illegally.

The regular course of things in the specific case, considering the activity of the plaintiff, implies that it is the damage that the plaintiff suffers by being unable to perform his activity and realize the benefit that he would regularly achieve in his activity, the realization of which was prevented by the action or omission of the harming party.

The profit lost is only the gain that, given the objective circumstances, can be reasonably expected based on the data presented in the business of the injured party in the previous period.

This means that actual indicators must be determined in the performance of the creditor’s activity, who must prove the indicators concerning the fulfilment of the conditions for performing a particular economic activity and obtaining benefits whose realization was prevented by the harmed person’s act or omission. In doing so, legal regulations on the manner and conditions of performing the activity in question for a specific purpose must be considered.

The profit which, according to the subjective evaluations and wishes of the creditor, was supposed to occur is not considered when measuring this compensation.

The provisions of the Law of Contract and Torts do not precisely determine what is meant by an extraordinary circumstance in which a profit is made. The limits of profit lost in case of particular circumstances are only sometimes explicitly defined, and for this reason, they are determined by judicial practice in most cases.

Intent to acquire. The condition of benefit slippage is the intention to acquire. This intention is reflected in the fact that, in the case of a business obligation, the parties included this intention of gaining profit in their issue of business. In the case of a non-business duty, the user decides to benefit from the thing. Therefore, a unilateral decision is sufficient.

Eligibility of profit. The condition for someone to be entitled to profit lost is that the profit is allowed. In order to collect profit lost, the business entity-creditor must have a registered activity and perform the activity following positive regulations, that is, the activity is not contrary to public order and morality.

Determining the amount of the profit lost

The amount of compensation for profit lost as a type of damage shall be determined based on the amount of profit lost. The amount of profit lost that would have been realized according to the regular course of things is determined in the money based on the monetary value of the gain that the injured person would have reasonably achieved according to his usual way of life and work if there had been no harmful action of the victim or his omission. This amount is determined according to the prices at the time of the court decision. It is equal to the amount of the defined lost profit expressed in money, except when the law orders otherwise.

The amount of compensation for lost profit is, in principle, equal to the amount (amount) of lost profit as a type of damage, regardless of whether it is lost profit expressed in money or kind, and realized according to the regular course of things or according to particular circumstances.

Profit lost most often appears in the form of monetary damages.

While also taking into account the circumstances after the occurrence of damage, the court shall determine damages in the amount necessary to restore the material state of the person sustaining damage into the state it would have been without the damaging act or omission in the sense of the provisions of Article 190 of the Law of Contract and Torts.

Reducing Indemnity

The court may, while taking into account the material situation of the person sustaining loss, order the person liable to pay an indemnity which is lower than the amount of damages if it was not caused either wilfully or by gross negligence and if the responsible person is in the poor material situation so that payment of full indemnity would bring him into poverty.

If the tortfeasor has caused damage while doing something to the benefit of the person sustaining loss, the court may order a lower indemnity while considering the degree of care the tortfeasor was otherwise applying in his affairs.

In addition, the profit of the injured party must be determined as the difference in the value of the goods in a certain period minus the sum of the costs of creating things and placing things for the same period.

The moment of determining the amount of damages

The provision of Article 189, point 2) of the Law of Contract and Torts regulates the issue of time (moment) according to which the amount of monetary compensation for damages is determined, or in other words, the amount (sum) of the obligation to compensate for damages in money. The amount of damages shall be determined according to prices at the time of the rendering court’s decision unless something else is ordered by law.

Affectionate price

According to the provisions of Article 189, items 1), 2) and 3) of the Law of Contract and Torts, the responsible person is obliged to compensate the injured party based on objective criteria and standards.

Point 4 of Article 189 of the Law of Contract and Torts stipulates that the amount of compensation for damages shall be determined according to subjective criteria: according to the value the object had for the person sustaining damage and special affection for the item (this is the so-called affective price) in cases where the object is lost or damaged by a criminal offence committed willfully.

In the case of damage caused by a criminal offence committed with intent, other facts should represent additional corrective criteria based on which, in certain justified cases, a higher or lower amount of compensation will be determined.

Legal default interest

Compensation for material damages in money awarded according to the prices of actual damage and lost profits or according to the affective value of things at the time of the court decision also includes legal (default) interest from the first-instance judgment to the payment of compensation and litigation costs. A single total amount is always awarded when awarding monetary damages for lost profits.

Read more:
Circumstances essential for the assessment of non-pecuniary damages »
Unenforceability of the claims for damages »
Indemnity for Damage to Property »

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