Proving Loss Of Profit Damages: Guidance From Recent Cases

Key takeaways

When a contract has been breached, one of the most significant financial consequences a business will face is the loss of profits attributable to the contract. However, the calculation of the sum of lost profits can be difficult, with there being important evidentiary requirements which a claimant must satisfy in order to be awarded such damages. 

In this article we provide a practical overview of the principles governing the determination of loss of profit damages, and the evidentiary requirements a court will impose on a claimant seeking to recover such losses.

The evidence required to establish a claim for loss of profits

As a general principle, a party that succeeds in a claim for breach of contract is entitled to be placed in the position that they would otherwise have occupied were the contract performed. Therefore, where a contract sees a business provide goods or services in return for payment, the business will be entitled to claim damages for the profits they would have obtained had the contract been performed. Loss of profits is typically calculated as the difference between the gross receipts a claimant would have received through performance of the contract and the amount the claimant would have expended in completing the contract.

It is frequently said that difficulty in calculating the quantum of damages will be no bar to the award of damages for breach of contract.¹ While this is true, a claimant must still adduce sufficient evidence to allow a court to make an award of damages with relative precision, rather than leaving the court to engage in an exercise of guesswork.² This is particularly so in circumstances where a claimant will ordinarily have the onus of leading evidence to establish the likely amount of profits that would have been received had the contract been performed. 

The recent New South Wales Court of Appeal decision in Atlanta Building Pty Ltd v Abela [2026] NSWCA 126 (‘Abela’) provides a practical illustration of the harsh consequences that can arise if a claimant does not lead sufficient evidence. In Abela, the claimant, Atlanta Building Pty Ltd (Atlanta) was denied damages for loss of profit, where it did not lead any evidence that allowed the Court to determine the level of profit it would have made under the breached contract.

Below, we outline some of the common pitfalls that a business can face in seeking to establish a claim for loss of profits. 

Common pitfalls

Evidence of gross receipts

As previously stated, to successfully establish a claim for loss of profits, a business must be able to provide evidence about what profits it would have obtained had the contract been performed. As a first step, this requires the business to show the gross receipts they would have obtained were the contract performed.  

While ordinarily this will simply be the contract price, difficulties can arise where a claimant seeks to bypass this requirement, and instead lead generalised evidence about profit margins and contract prices in the industry. This was another issue which prevented the claimant in Abela from being successful. Rather than leading specific evidence on its expected profit, Atlanta provided evidence about general profit margins for contractors and suggested that this level of profit would have been obtained for the contract in issue. However, this approach failed, on the basis that this general evidence did not allow a court to determine the profits that Atlanta would have received in completing the specific contract in issue. 

Evidence of costs

A claimant must also show the level of costs which they have incurred in performing the contract, given that gross contractual receipts will be offset against costs in order to determine the net profits arising from the contract. 

Issues can arise when a claimant has simply asserted that the total contract price represented profit, or that no expenses would have been incurred in performing the contract. For example, claimants have been denied damages for loss of profits where they do not lead evidence about their cost of performing the contract but instead contend that the entire contract price would have constituted profit. Similarly, another aspect which prevented the claimant in Abela from receiving damages for loss of profit was their failure to lead evidence of what the actual cost of completing the contracted works would have been.

To avoid this, a claimant should ensure that they can identify the costs which they would have expended in performance of a contract. This can come in the form of: 

• Quotes for work which a claimant intended to subcontract, or materials which a claimant would need to purchase.
• For costs which were likely to vary over the course of a multi-year contract, the opinion of experts can be sought.

Where appropriate, a claimant can also seek to adduce evidence that their overhead costs would not have been reduced had the contract not been performed, such that it is inappropriate for overhead costs to be deducted from the gross receipts payable under the contract.

Practical implications 

When calculating damages, courts are generally willing to show some flexibility in the application of specific rules, in order to achieve an outcome that sees the claimant placed in the position that they would have occupied had the contract been performed. However, the willingness of courts to facilitate commercial outcomes will not displace a party’s obligation to lead sufficient evidence to demonstrate their loss in the first instance. To avoid a situation where a party is prevented from claiming loss of profit damages when an entitlement to such damages would otherwise exist, a party must ensure that they take steps to lead sufficient evidence about both their costs of completing a contract, and their expected profits. 

Footnotes

1 Howe v Teefy (1927) 27 SR (NSW) 301 at 306 (Street CJ); Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 301 (Latham CJ).

2 Troulis v Vamvoukakis [1998] NSWCA 237 at 14 (Gleeson CJ).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.